[Federal Register Volume 70, Number 109 (Wednesday, June 8, 2005)]
[Notices]
[Pages 33567-33569]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2936]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51776; File No. SR-CHX-2005-11]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Rule Change Relating to 
Transactions in Certain Odd-Lot Orders

June 2, 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 May 6, 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 and 
II below, which Items have been prepared by the CHX. The Exchange has 
filed the proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal effective 
upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to clarify that odd lot orders executed by 
CHX specialists shall be executed in accordance with CHX Article XX, 
Rule 37(a)(2), which governs execution of round lot orders by CHX 
specialists. The CHX has designated this proposal as non-controversial 
and has requested that the Commission waive the 30-day pre-operative 
waiting period contained in Rule 19b-4(f)(6)(iii) under the Act.\5\ The 
text of the proposed rule change is below. Proposed new language is 
italicized.
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    \5\ 17 CFR 240.19b-4(f)(6)(iii).
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* * * * *

Article XXXI

Odd Lots and Odd-Lot Dealers, Dual System
* * * * *

Rule 9.

* * * * *
Interpretations and Policies
    .01 No change to text.
    .02 Notwithstanding paragraph (b) of this Rule, if a CHX specialist 
is the registered odd-lot dealer for an issue, orders in such issue 
shall be executed in accordance with Article XX, Rule 37(a)(2).
* * * * *

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

    In its filing with the Commission, CHX 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.

[[Page 33568]]

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

1. Purpose
    Odd-lot orders (i.e., orders of less than 100 shares) are traded on 
the CHX by registered odd-lot dealers, and are governed by Article XXXI 
of the CHX Rules. According to the CHX, in many cases, the registered 
odd-lot dealer for an issue is the specialist who has been assigned the 
issue by the CHX Committee on Specialist Assignment and Evaluation. In 
other cases, the registered odd-lot dealer is a member firm that 
operates as an odd-lot execution service.
    CHX Article XXXI, Rule 9 governs the execution prices that are due 
odd-lot orders. The CHX states that this rule obligates an odd-lot 
dealer to execute an odd-lot order at the ``adjusted BBO,'' which is 
predicated on the national best bid or offer but excludes certain 
quotations, including 100-share quotations of other market centers. 
According to the CHX, in cases where a CHX specialist is the registered 
odd-lot dealer, however, the Exchange's systems execute odd-lot orders 
at the national best bid or offer (which most often is superior to the 
adjusted BBO), so that the execution price of the odd-lot orders will 
be consistent with the execution price of round-lot orders. The 
Exchange believes that this consistency is appropriate and benefits 
investors.
    To codify the Exchange's interpretation, and to preclude any 
inconsistency between a specialist's pricing of odd-lot orders and 
round lot orders, the proposed rule change would add an Interpretation 
and Policy providing that, for issues where a CHX specialist is the 
registered odd-lot dealer, the provisions of CHX Article XX, Rule 
37(a)(2), i.e., the Exchange's ``Best Rule,'' would govern the 
execution price due an odd-lot order. The Exchange believes that this 
interpretation would help avoid customer confusion.
    The proposed rule change would also permit CHX specialists to elect 
to act as agent for odd-lot orders, in accordance with CHX Article XX, 
Rule 37(a)(2), to obtain the best available price in the national 
marketplace.\6\ According to the Exchange, many CHX specialists utilize 
remote pricing facilities, which take into account current market 
information, to help them price such orders.
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    \6\ The Exchange states that CHX systems do not currently permit 
CHX specialists to act as agent for odd-lot orders--the systems 
simply execute such orders automatically against the CHX specialist 
as principal, priced at the NBBO. The CHX believes that modification 
of its systems to permit agency execution of odd-lot orders is amply 
warranted because it is consistent with the execution rules 
applicable to round-lot orders.
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2. Statutory Basis
    The CHX believes that the proposed rule change is consistent with 
the provisions of Section 6(b) of the Act,\7\ in general, and with 
Section 6(b)(5) of the Act,\8\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CHX does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    Written comments were neither solicited nor received.

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

    The foregoing proposed rule change is subject to Section 
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(6) thereunder \10\ 
because the proposal: (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 
prior to 30 days after the date of filing or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest; provided that the CHX has given the Commission 
notice of its intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule change, 
or such shorter time as designated by the Commission.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6).
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    CHX satisfied the five-day pre-filing requirement. In addition, CHX 
has requested that the Commission waive the 30-day operative delay. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because such waiver will ensure consistency in specialist pricing of 
odd-lot orders and round lot orders. For these reasons, the Commission 
designates the proposal to be effective and operative upon filing with 
the Commission.\11\ At any time within 60 days of the filing of such 
proposed rule change, the Commission may summarily abrogate such 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.\12\
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    \11\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \12\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change 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-2005-11 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-CHX-2005-11. 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

[[Page 33569]]

Room. Copies of the filing also will 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 Number SR-CHX-2005-11 and should be submitted on 
or before June 29, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2936 Filed 6-7-05; 8:45 am]
BILLING CODE 8010-01-P