[Federal Register Volume 70, Number 143 (Wednesday, July 27, 2005)]
[Notices]
[Pages 43475-43476]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3980]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52062; File No. SR-CHX-2004-03]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Order Approving Proposed Rule Change Relating to Standards for Manual 
Execution of Market and Marketable Limit Orders

July 19, 2005.
    On February 11, 2004, the Chicago Stock Exchange, Incorporated 
(``CHX''), filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Article XX, Rule 37 to eliminate a 
specific requirement that a specialist execute eligible orders at the 
price and size associated with the national best bid or offer 
(``NBBO'') and

[[Page 43476]]

replace it with a requirement that specialists use reasonable diligence 
to ascertain the best available price for the security so that the 
resultant execution price is as favorable to the order sender as 
possible under prevailing market conditions. The new rule sets out 
factors that will be considered by the CHX in determining whether the 
specialist used reasonable diligence. On December 14, 2004, the CHX 
filed Amendment No. 1 to its original submission. The proposed rule 
change, as amended, was published for comment in the Federal Register 
on December 22, 2004.\3\ The Commission received no comment letters 
with respect to the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 50865 (December 16, 
2004), 69 FR 76804.
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    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\4\ In particular, the Commission believes that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\5\ 
which requires, among other things, that an exchange's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest. Specialists who execute 
market and marketable limit orders must, among other things, satisfy 
their duty of best execution by executing customer trades at the most 
favorable terms reasonably available under the circumstances. As 
amended, Article XX, Rule 37 will require specialists to use reasonable 
diligence to find the best available price for the security so that the 
resultant execution price is as favorable to the order sender as 
possible under prevailing market conditions. Furthermore, although CHX 
specialists no longer would be explicitly required to execute eligible 
orders at the NBBO, if the amended standard results in specialists 
effecting orders at a prices worse than the NBBO, this information 
would be reflected in the statistics that the CHX must produce pursuant 
to Rule 11Ac1-5.\6\ Broker-dealers that route orders to the CHX would 
have to consider this information in connection with their duty to 
obtain best execution on behalf of their customers.
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    \4\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \5\ 15 U.S.C. 78f(b)(5).
    \6\ 17 CFR 240.11Ac1-5.
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    In addition, the Commission notes that the Exchange has committed 
to continue surveillance over order executions to ensure that 
specialists are using reasonable diligence to find the best available 
price for their customers. The Commission expects that such 
surveillance will be proactive and that meaningful disciplinary action 
will be taken against specialists found to have violated the rule.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, Section 6(b)(5) of the Act.\7\
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    \7\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-CHX-2004-03) be, and hereby 
is, approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-3980 Filed 7-26-05; 8:45 am]
BILLING CODE 8010-01-P