[Federal Register Volume 70, Number 66 (Thursday, April 7, 2005)]
[Notices]
[Pages 17743-17745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1584]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51465; File No. SR-CHX-2005-04]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1 and 2 Thereto by the Chicago Stock 
Exchange, Inc. To Clarify That Specialists May Not Charge Commissions 
With Respect to the Execution of CHXpress Orders

April 1, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 1, 2005, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the Exchange. On March 
21, 2005, the Exchange filed Amendment No. 1 to

[[Page 17744]]

the proposed rule change.\3\ On March 30, 2005, the Exchange filed 
Amendment No. 2 to the proposed rule change.\4\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Form 19b-4, dated March 20, 2005 (``Amendment No. 1''), 
which replaced the original filing in its entirety.
    \4\ See Form 19b-4, dated March 30, 2005 (``Amendment No. 2''), 
which corrected an inadvertent reference to filing pursuant to 
Section 19(b)(3)(A) instead of Section 19(b)(2).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules to clarify that a 
specialist is not permitted to charge a commission on the execution of 
CHXpressTM orders. The text of the proposed rule change is 
included below. Italics indicate new text; brackets indicate deletions.

ARTICLE XX

Regular Trading Sessions

* * * * *

Guaranteed Execution System and Midwest Automated Execution System

    Rule 37. (a) No change to text.
    (b) No change to text.
    (1)-(10) No change to text.
    (11) CHXpress Orders. This section applies to the execution and 
display of orders through CHXpress, an automated functionality offered 
by the Exchange. All other rules of the Exchange are applicable, unless 
expressly superseded by this section.
* * * * *
    (H) A CHX specialist may not charge a commission for execution of a 
CHXpress order.
* * * * *

ARTICLE XXX

Specialists

* * * * *

Precedence to Orders in Book

    RULE 2. The specialist, co-specialist and relief specialist shall 
at all times give precedence to orders in the book for purchase or sale 
of securities over the orders which originate with him or it as a 
dealer, provided, his or its orders and those of his or its customer 
are market orders, or limited orders at the same price. Notwithstanding 
the foregoing, whenever a specialist, co-specialist or relief 
specialist elects to accept a professional order for the book which is 
not required to be accepted by such specialist, co-specialist or relief 
specialist pursuant to the rules and polices of the Exchange, such 
specialist, co-specialist or relief specialist is not required to 
relinquish precedence to such order over the orders which originate 
with him or it as dealer, provided (a) his or its orders and those of 
his or its customer are limited orders at the same price and (b) the 
specialist, co-specialist or relief specialist is displaying his or its 
order, including its size, through the quotation system. [No 
specialist, co-specialist or relief specialist may charge a Participant 
a commission in any transaction in which he or it is a principal.]

* * * Interpretations and Policies

    .005 No specialist, co-specialist or relief specialist may charge a 
Participant a commission in any transaction in which such specialist, 
co-specialist or relief specialist is a principal, or for execution of 
any CHXpress order.
* * * * *

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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange 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 Change

1. Purpose
    The Exchange is rolling out a new, automated functionality for the 
handling of CHXpress orders. According to the Exchange, the CHXpress 
functionality is designed to provide additional opportunities for the 
Exchange's participants to seek and receive liquidity through automated 
executions of orders at the Exchange.\5\ With a few exceptions, 
CHXpress orders will be executed immediately and automatically against 
same or better-priced orders in the specialist's book, or against the 
specialist's quote (when CHXpress is available).\6\ If a CHXpress order 
cannot be immediately executed, it will be placed in the specialist's 
book for display or later execution.\7\ A CHX specialist may not cancel 
or place a CHXpress order on hold or otherwise prevent the order-
sending firm from canceling the order. In addition, CHX specialists do 
not provide CHXpress orders with the execution guarantees that might 
otherwise be available to agency limit orders.\8\ Specifically, these 
orders are not eligible for automated price improvement, or execution 
based on quotes in the national market system or prints in the primary 
market for a security. CHX specialists also would not be required to 
seek liquidity for CHXpress orders in other markets.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 50481 (Sept. 30, 
2004); 69 FR 60197 (Oct. 7, 2004) (SR-CHX-2004-12).
    \6\ If the execution of a CHXpress order would cause an improper 
trade-through of another ITS market, the CHXpress order would be 
automatically cancelled. If trading in an issue has been halted, all 
CHXpress orders in that issue would be automatically cancelled. See 
CHX Article XX, Rule 37(b)(11)(C).
    \7\ A CHXpress order will be instantaneously and automatically 
displayed when it constitutes the best bid or offer in the CHX book. 
See CHX Article XX, Rule 37(b)(11)(D). CHXpress orders, like all 
other orders at the Exchange, will not be eligible for automated 
display if that display would improperly lock or cross another ITS 
market. A CHXpress order that would improperly lock or cross the 
NBBO will be cancelled. Because CHXpress orders will be 
automatically displayed, there is no mechanism to allow them to be 
excluded from the CHX's quote.
    \8\ See CHX Article XX, Rule 37(b)(11)(E)-(F).
---------------------------------------------------------------------------

    Through this filing, the Exchange seeks to clarify that a CHX 
specialist would not be permitted to charge a commission in connection 
with the execution of a CHXpress order. The Exchange believes that this 
clarification is appropriate for several reasons. First, as noted 
above, the handling of these orders within the Exchange's systems is 
entirely automatic--orders can execute automatically and be displayed 
automatically. Moreover, CHX specialists would not provide CHXpress 
orders with the execution guarantees that might otherwise be available 
to agency limit orders. Specifically, these orders would not be 
eligible for automated price improvement, or execution based on quotes 
in the national market system or prints in the primary market for a 
security. A CHX specialist also would not act as agent for the orders 
in other markets.
2. Statutory Basis
    The Exchange 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.\9\ The Exchange 
believes the proposal is consistent with Section 6(b)(5) of the 
Act,\10\ in that the

[[Page 17745]]

proposal is designed to promote just and equitable principles of trade, 
to remove impediments, and to perfect the mechanism of, a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate burden on competition.

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 Number SR-CHX-2005-04 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 Number SR-CHX-2005-04. 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 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 change 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. Copies of the 
filing also will be available for inspection and copying at the 
principal office of the Exchange. 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 Number SR-CHX-2005-04 and should be submitted on or before April 
28, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary. 7
[FR Doc. E5-1584 Filed 4-6-05; 8:45 am]
BILLING CODE 8010-01-P