[Federal Register Volume 70, Number 5 (Friday, January 7, 2005)]
[Notices]
[Pages 1483-1485]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-22]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50952; File No. SR-CHX-2004-42]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange, 
Incorporated Relating to Short Sales of Securities

December 30, 2004.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 21, 2004, the Chicago Stock Exchange, Incorporated 
(``CHX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (the ``Commission'' or the ``SEC'') the proposed rule change 
as described in items I and II below, which Items have been prepared by 
the CHX. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CHX proposes to amend its rules to eliminate and modify 
provisions relating to short sales of securities, where those 
provisions are inconsistent with, or different from, the requirements 
of Regulation SHO.\3\ The text of the proposed rule change is available 
for viewing at the places specified in item IV below.
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    \3\ See Release No. 34-50103, File No. S7-23-03, 69 FR 48008 
(August 6, 2004) (the ``Adopting Release''), and accompanying 
orders: Release No. 34-50104 (July 28, 2004), 69 FR 48032 (August 6, 
2004) and Release No. 34-50747 (November 29, 2004), 69 FR 70480 
(December 6, 2004).

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[[Page 1484]]

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the CHX included statements 
concerning the purpose of and basis for the proposed rule changes and 
discussed any comments it received regarding the proposal. The text of 
these statements may be examined at the places specified in item IV 
below. The CHX has prepared summaries, set forth in sections A, B and C 
below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

1. Purpose
    The Commission has adopted new Regulation SHO, which provides new 
comprehensive regulation of short sales.\4\ Among other things, this 
new series of rules provides new definitions, sets out uniform locate 
and delivery requirements for broker-dealers and establishes a 
procedure to allow the Commission to suspend temporarily the operation 
of the current ``tick'' test or short sale price test for specified 
securities.\5\
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    \4\ See the Adopting Release.
    \5\ See Rule 200 (definitions); Rule 203 (uniform locate and 
delivery requirements) and Rule 202T (allowing the suspension of 
short sale rules in specified securities) set forth in the Adopting 
Release.
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    Because of the new comprehensive regulation provided by Regulation 
SHO, the Exchange believes that it is important to delete, from its 
rules, provisions that regulate the short selling of securities.\6\ 
Specifically, the Exchange seeks to delete, from its rules: (1) 
Sections (b) and (c) of Article IX, Rule 17 (relating to locate and 
delivery requirements and the ``bona fide'' market making exemption 
from the short sale rule); and (2) Rules 11 and 12 of Article XXI 
(relating to long sales and mandatory stock borrowing). By deleting 
these rules, the Exchange seeks to ensure that its regulation of short 
sales is not inconsistent with, or different from, the provisions of 
Regulation SHO. Indeed, these rule changes would leave one primary 
provision relating to short sales in the Exchange's own rules--a 
provision that requires members to effect short sales in accordance 
with the SEC's short sale rules.\7\
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    \6\ The Exchange has not sought to amend the substantive 
requirements of a provision relating to short sales of odd-lots, 
except to add an interpretation confirming that the rule does not 
apply when the SEC has suspended the application of the rule as 
permitted by Regulation SHO. In the coming months, the Exchange 
plans to study the scope of this rule and to determine what changes, 
if any, should be made to its requirements.
    \7\ The Exchange seeks to amend the current rule text of this 
provision to specifically refer to Regulation SHO. See Article IX, 
Rule 17(a).
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2. Statutory Basis
    The CHX believes the proposal is consistent with the requirements 
of the Act and the rules and regulations thereunder that are applicable 
to a national securities exchange, and, in particular, with the 
requirements of section 6(b) of the Act.\8\ In particular, the proposed 
changes are consistent with section 6(b)(5) of the Act, because they 
would promote just and equitable principles of trade, remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system, and, in general, protect investors and 
the public interest by providing for a uniform set of rules to regulate 
the short selling of securities.
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    \8\ 15 U.S.C. 78(f)(b).
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B. Self-Regulatory Organization's Statement of Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
impose any inappropriate burden on competition with respect to the 
purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments Regarding the 
Proposed Rule Changes Received From Members, Participants or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Changes and Timing for 
Commission Action

    The foregoing proposed rule change has been filed with the CHX 
pursuant to section 19(b)(3)(A) of the Act \9\ and subparagraph (f)(6) 
of Rule 19b-4 thereunder.\10\ The CHX requests that the Commission 
waive both the 5-day notice and the 30-day pre-operative requirements 
contained in Rule 19b-4(f)(6)(iii).\11\ The CHX has designated the 
proposed rule change as one that: (i) Does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) does not become 
operative for 30 days from the date it was filed, or such shorter time 
as the Commission may designate. The CHX believes good cause exists to 
grant such waivers because of the importance of short sale regulation 
to the protection of investors. The CHX will implement the foregoing 
proposed rule change immediately.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ Under subparagraph (f)(6)(iii) of Rule 19b-4, the proposal 
may not become operative for 30 days after the date of its filing, 
or such shorter time as the Commission may designate if consistent 
with the protection of investors and the public interest, and the 
self-regulatory organization must file notice of its intent to file 
the proposed rule change at least five business days beforehand. See 
17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 5-day notice and the 30-
day pre-operative delay is consistent with the protection of investors 
and the public interest. The Commission believes that accelerating the 
operative date does not raise any new regulatory issues, significantly 
affect the protection of investors or the public interest or impose any 
significant burden on competition. For these reasons, the Commission 
designates the proposed rule change as effective and operative 
immediately.
    At any time within 60 days of the filing of a rule change pursuant 
to section 19(b)(3)(A) of the Act, the Commission may summarily 
abrogate the rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal is 
consistent with the Act. Comments may be submitted by any of the 
following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File No. SR-CHX-2004-42 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File No. SR-CHX-2004-42. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent

[[Page 1485]]

amendments, all written statements with respect to the proposed rule 
change that are filed with the Commission, and all written 
communications relating to the proposed rule changes between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for inspection and copying in the Commission's Public 
Reference Room, 450 Fifth Street, NW., Washington, DC 20549. Copies of 
such filing will also be available for inspection and copying at the 
principal office of the CHX. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File No. SR-CHX-2004-42 and should be submitted on or before January 
28, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E5-22 Filed 1-6-05; 8:45 am]
BILLING CODE 8010-01-P