[Federal Register Volume 70, Number 130 (Friday, July 8, 2005)]
[Notices]
[Pages 39539-39540]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3598]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51944; File No. SR-CHX-2005-19


Self Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
to Extend the Pilot Rule Interpretation Relating to Trading of Nasdaq 
National Market Securities in Subpenny Increments

June 30, 2005.
    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 June 27, 2005, the Chicago Stock Exchange, Incorporated 
(``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 this 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\ 5 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 CHX has proposed to extend, until the effective date of new 
Rule 612 of Regulation NMS,\5\ a pilot rule interpretation (Article 
XXX, Rule 2, Interpretation and Policy .06 ``Trading in Nasdaq/NM 
Securities in Subpenny Increments'') which requires a CHX specialist 
(including a market maker who holds customer limit orders) to better 
the price of a customer limit order in his book which is priced at the 
national best bid or offer (``NBBO'') by at least one penny if the 
specialist determines to trade with an incoming market or marketable 
limit order. The pilot, which was approved in conjunction with 
exemptive relief granted by the Commission to allow for trading in 
Nasdaq National Market securities in subpenny increments, expires on 
June 30, 2005. The Exchange proposes that the pilot remain in effect 
until the effective date of Rule 612.
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    \5\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (``Reg. NMS Release''). Rule 612 
will become effective on August 29, 2005.
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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 III 
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
    On April 6, 2001, the Commission approved, on a pilot basis through 
July 9, 2001, a pilot rule interpretation (Article XXX, Rule 2, 
Interpretation and Policy .06 ``Trading in Nasdaq/NM Securities in 
Subpenny Increments'') \6\ that requires a CHX specialist (including a 
market maker who holds customer limit orders) to better the price of a 
customer limit order in his book which is priced at the NBBO by at 
least one penny if the specialist determines to trade with an incoming 
market or marketable limit order. The pilot, which was approved in 
conjunction with exemptive relief granted by the Commission to allow 
for trading in Nasdaq National Market securities in subpenny 
increments, has been extended many times and now is set to expire on 
June 30, 2005.\7\ The Exchange is not proposing any substantive (or 
typographical) change to the pilot; rather, the Exchange proposes that 
the pilot be immediately reinstated and remain in effect through the 
effective date of Rule 612 of Regulation NMS.\8\
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    \6\ See Securities Exchange Act Release No. 44164 (April 6, 
2001), 66 FR 19263 (April 13, 2001) (SR-CHX-2001-07).
    \7\ See Securities Exchange Act Release Nos. 44535 (July 10, 
2001), 66 FR 37251 (July 17, 2001) (extending pilot through November 
5, 2001); 45062 (November 15, 2001), 66 FR 58768 (November 23, 2001) 
(extending pilot through January 14, 2002); 45386 (February 1, 
2002), 67 FR 6062 (February 8, 2002) (extending the pilot through 
April 15, 2002); 45755 (April 15, 2002), 67 FR 19607 (April 22, 
2002) (extending the pilot through September 30, 2002); 46587 
(October 2, 2002), 67 FR 63180 (October 10, 2002) (extending the 
pilot through January 31, 2003); 47372 (February 14, 2003), 68 FR 
8955 (February 26, 2003) (extending the pilot through May 31, 2003); 
47951 (May 30, 2003), 68 FR 34448 (June 9, 2003) (extending the 
pilot through December 1, 2003); 48871 (December 3, 2003), 68 FR 
69097 (December 11, 2003) (extending pilot through June 30, 2004); 
49994 (July 9, 2004), 69 FR 42486 (July 15, 2004) (extending pilot 
through June 30, 2005).
    \8\ See supra note 5.
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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).\9\ The CHX believes the proposal is 
consistent with Section 6(b)(5) of the Act \10\ in that it 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.\11\
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ With the Exchange's permission, the Commission deleted 
irrelevant language from the notice relating to the Exchange's 
continuing education programs. Telephone conference between Ellen 
Neely, President & General Counsel, Exchange, and Raymond Lombardo, 
Special Counsel, Division of Market Regulation, Commission, on June 
29, 2005.
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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 burden on competition.

[[Page 39540]]

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 Exchange asserts the foregoing rule change has become effective 
pursuant to Section 19(b)(3)(A) \12\ of the Act and Rule 19b-4(f)(6) 
\13\ thereunder because the rule change does not:
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, if 
consistent with the protection of investors and the public 
interest.\14\ The Exchange has requested that the Commission waive the 
30-day operative delay and designate the proposed rule change effective 
immediately so that the pilot can continue uninterrupted.
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    \14\ In addition, Rule 19b-4(f)(6)(iii) states that the Exchange 
must provide the Commission with written notice of its intent to 
file the proposed rule change at least five days prior to the date 
of filing of the proposed rule change. The Commission has determined 
to waive the requirement in this case.
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    The Commission hereby grants the request.\15\ The Commission 
believes that such waiver is consistent with the protection of 
investors and the public interest because it will allow the protection 
of customer limit orders provided by the pilot to continue without 
interruption and designates the proposed rule change to be operative 
upon filing with the Commission.
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    \15\ For purposes only of accelerating the operative date of the 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the 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.

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-2005-19 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 20549-9303.

    All submissions should refer to File No. SR-CHX-2005-19. 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 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. 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-2005-19 and should 
be submitted on or before July 29, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3598 Filed 7-7-05; 8:45 am]
BILLING CODE 8010-01-P