[Federal Register Volume 71, Number 195 (Tuesday, October 10, 2006)]
[Notices]
[Pages 59563-59573]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-16626]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54550; File No. SR-CHX-2006-05]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Order Approving a Proposed Rule Change and Amendment No. 1 Thereto and 
Notice of Filing and Order Granting Accelerated Approval to Amendment 
No. 2 Thereto to Implement a New Trading Model

 September 29, 2006.

I. Introduction

    On February 2, 2006, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') 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 its rules to implement a new trading 
model that provides the opportunity for fully automated executions to 
occur within a central matching system (the ``Matching System''). On 
August 10, 2006, the Exchange filed Amendment No. 1 to the proposed 
rule change. The proposed rule change, as amended by Amendment No. 1, 
was published for comment in the Federal Register on August 18, 
2006.\3\ The Commission received one comment letter on the proposal.\4\
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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. 54301 (August 10, 
2006), 71 FR 47836 (``Trading Rules Notice'').
    \4\ See Letter from Michael A. Barth, Senior Vice President, 
Exchanges and Market Centers, Order Execution Services Holdings, 
Inc. (``OES''), to Nancy M. Morris, Secretary, Commission, dated 
August 25, 2006 (``OES Letter'').
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    On September 29, 2006, the Exchange filed Amendment No. 2 to the 
proposed rule change.\5\ This order approves the proposed rule change, 
as amended by Amendment No. 1. Simultaneously, the Commission is 
providing notice of filing of, and granting accelerated approval to, 
Amendment No. 2 to the proposed rule change.
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    \5\ See Form 19b-4 dated September 29, 2006 (``Amendment No. 
2''). The text of Amendment No. 2 is available on CHX's Web site 
(http://www.chx.com), at the principal office of CHX, and at the 
Commission's Public Reference Room. See infra Section II.E for a 
discussion of Amendment No. 2.
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II. Description

    The Exchange proposes to amend its rules in order to implement a 
new trading model that would allow Exchange participants to interact in 
a

[[Page 59564]]

fully-automated Matching System. In addition, the proposed rules would 
enable qualifying participant firms to register as ``institutional 
brokers,'' that, among other things, would be permitted to execute 
transactions outside of the Matching System under specified 
conditions.\6\ Many of the features of the new trading model are 
designed to comply with Regulation NMS \7\ as of the ``Trading Phase 
Date'' for the implementation of that regulation--February 5, 2007.\8\ 
The Exchange is also proposing a number of other changes to its rules 
in an effort to update them generally, as well as to reflect the 
elimination of the trading floor and the new automated trading system 
that will be central to the Exchange's new trading model.
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    \6\ See infra Section II.C. for a more detailed discussion.
    \7\ 17 CFR 242.600 et seq.
    \8\ See infra note 27.
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A. The Matching System

    The Matching System would be the core facility of the Exchange's 
new trading model. The Exchange would no longer operate a physical 
trading floor, but rather would operate an automated Matching System 
where Exchange participants could submit orders from any location for 
possible immediate execution.
1. Eligible Orders and Order Types
    The Matching System generally would accept orders that are day 
orders, limit orders, and orders for regular way settlement.\9\ Orders 
could be submitted as round lots, odd lots, or mixed lots, except that 
orders in securities that only trade in specific share size increments 
would be required to be submitted only in those share sizes.\10\ The 
Exchange believes that its quotations would qualify as ``automated 
quotations'' under Rule 600(b)(3) of Regulation NMS.\11\
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    \9\ See proposed CHX Article 20, Rule 4(a)(1)-(3). The proposed 
rules provide for certain exceptions to these basic order 
eligibility requirements. For example, the Matching System would 
also accept immediate-or-cancel (``IOC'') market orders, and would 
permit a ``non-regular way cross order'' to be submitted for 
execution and non-regular way settlement. See proposed CHX Article 
20, Rules 4(a)(7) and 4(b)(13) and (16).
    \10\ See proposed CHX Article 20, Rule 4(a)(4).
    \11\ See 17 CFR 242.600(b)(3). The Exchange's proposed rules 
provide that each order submitted to the Matching System must be a 
firm order and cannot be identified as a ``manual'' quotation. See 
proposed CHX Article 20, Rule 3(a). See also infra note 54 and 
accompanying text.
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    Some of the order types accepted by the Matching System that the 
Exchange describes as more routine would include immediate or cancel 
(``IOC'') limit and market orders,\12\ fill or kill (``FOK'') 
orders,\13\ sell short and short exempt orders,\14\ reserve size 
orders,\15\ time in force orders \16\ and cancel on halt orders.\17\ 
The Matching System also would accept several different types of cross 
transactions, including a cross,\18\ a cross with size,\19\ a cross 
with satisfy,\20\ a cross with yield,\21\ a midpoint cross,\22\ an ISO 
cross,\23\ an opening cross,\24\ and a non-regular way cross.\25\
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    \12\ IOC orders would be executed against any orders at or 
better than the Exchange's Best Bid or Offer (``BBO''), including 
any reserve size or other undisplayed orders at or better than that 
price. See proposed CHX Article 20, Rules 4(b)(12) (IOC orders) and 
4(b)(13) (IOC market orders).
    \13\ See proposed CHX Article 20, Rule 4(b)(11).
    \14\ See proposed CHX Article 20, Rule 4(b)(21) (sell short 
orders) and Rule 4(b)(22) (short exempt orders).
    \15\ See proposed CHX Article 20, Rule 4(b)(20).
    \16\ See proposed CHX Article 20, Rule 4(b)(23).
    \17\ See proposed CHX Article 20, Rule 4(b)(3).
    \18\ See proposed CHX Article 20, Rule 4(b)(4). A cross 
transaction would be an order to buy and sell the same security at a 
specific price that is better than the Exchange's displayed BBO and, 
for securities listed on any exchange other than Nasdaq (and for 
Nasdaq-listed securities, when Regulation NMS is implemented in 
those issues), equal to or better than the National Best Bid and 
Offer (``NBBO''). A cross may represent interest of one or more 
Exchange participants, trading for a proprietary account. See infra 
note 43 for a description of cross order executions.
    \19\ See proposed CHX Article 20, Rule 4(b)(6). A cross with 
size would be required to be for at least 5,000 shares and for a 
value of $100,000 that is at a price equal to or better than the 
Exchange's displayed BBO and, for securities listed on the New York 
Stock Exchange (``NYSE''), the American Stock Exchange (``Amex''), 
or any other exchange except the NASDAQ Stock Market (``Nasdaq'') 
(and for Nasdaq-listed securities, when Regulation NMS is 
implemented in those issues), equal or better to the NBBO, where the 
size of the cross transaction is one round lot larger than the 
aggregate size of all interest displayed on the Exchange at that 
price. At such time as the Exchange disseminates a feed of all 
displayable orders in the Matching System, however, a cross with 
size order would be required to be larger only than the largest 
order in the Matching System at the relevant price. See Amendment 
No. 2. A cross with size transaction may represent interest of one 
or more participants of the Exchange. See also infra note 43.
    \20\ See proposed CHX Article 20, Rule 4(b)(5). A cross with 
satisfy is designed to provide a participant with a mechanism for 
clearing out displayed orders in the Matching System that would 
otherwise have time priority (or displayed bids or offers in other 
market centers that would otherwise have price priority) and then 
effecting a cross transaction at that price. A cross with satisfy 
could represent interest of one or more participants of the Exchange 
but, to the extent that it represents interest of the participant 
sending the order to the Matching System, the participant (i) would 
not be eligible to satisfy existing bids or offers in the Matching 
System at a price that is better than the cross price (when the 
participant's customer is on the same side of the order as the 
participant), and (ii) could only satisfy bids or offers in other 
markets at a price that is better than the cross price if the cross 
is for at least 10,000 shares or has a value of at least $200,000 (a 
``block size order'') or is for the account of an institutional 
customer (defined elsewhere in the proposed rules) and the 
participant's customer has specifically agreed to that outcome. See 
also infra note 44.
    \21\ See proposed CHX Article 20, Rule 4(b)(7). A cross with 
yield would automatically yield interest on the buy, sell, or either 
side of the order to any order already displayed in the Matching 
System at the same or better price. See also infra note 45.
    \22\ See proposed CHX Article 20, Rule 4(b)(15). A midpoint 
cross would execute at the midpoint between the NBBO. However, if 
the NBBO is locked at the time a midpoint cross is received, the 
midpoint cross would execute at the locked NBBO. If the NBBO is 
crossed at the time a midpoint cross is received, the midpoint cross 
would be automatically cancelled.
    \23\ See proposed CHX Article 20, Rule 4(b)(14), added by 
Amendment No. 2. An ISO cross would be defined as any type of cross 
order marked as required by Regulation NMS to be executed without 
taking any of the actions required by the Exchange's relevant rules 
to prevent a trade-through.
    \24\ See proposed CHX Article 20, Rule 4(b)(17). Opening cross 
orders would execute immediately after the primary market opens in a 
security, at the opening price. For securities listed on NYSE, Amex 
and any exchange other than Nasdaq, the opening price would be the 
primary market opening price. For Nasdaq-listed securities (except 
in the case of an initial IPO), the opening price would be the 
midpoint of the first unlocked, uncrossed market that occurs on or 
after 8:30 a.m. For Nasdaq-listed securities on the date of an IPO, 
the opening price would be the Nasdaq opening price. See also 
proposed CHX Article 20, Rule 8(c)(2).
    \25\ See proposed CHX Article 20, Rule 4(b)(16). A non-regular 
way cross would be designated for non-regular way settlement. These 
orders would be automatically executed without regard to either the 
NBBO or any orders for regular way settlement that might be in the 
Matching System.
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    The Matching System also would accept several order types that are 
related to Regulation NMS,\26\ and that would become effective on the 
Trading Phase Date of Regulation NMS.\27\ For example, the Matching 
System would accept benchmark orders that meet the requirements of Rule 
611(b)(7) of Regulation NMS.\28\ The Matching System would also accept 
different types of intermarket sweep orders

[[Page 59565]]

(``ISOs''), such as BBO ISOs,\29\ outbound ISOs \30\ and price-
penetrating ISOs.\31\
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    \26\ 17 CFR 242.600 et seq.
    \27\ See Securities Exchange Act Release No. 53829 (May 18, 
2006), 71 FR 30038 (May 24, 2006) (setting new compliance dates for 
Rules 610 and 611 of Regulation NMS).
    \28\ See 17 CFR 242.611(b)(7); see also CHX proposed Article 20, 
Rule 4(b)(2). A benchmark order, as defined in the proposed rules, 
would be an order submitted by an institutional broker, and could be 
executed at any price, without regard to the protected NBBO. A 
benchmark order could represent interest of one or more Exchange 
participants.
    \29\ See proposed CHX Article 20, Rule 4(b)(1). BBO ISOs would 
execute against orders at the Exchange's BBO, without regard to 
whether the execution would trade through another market's protected 
quotation. If a BBO ISO is marked as ``immediate or cancel,'' any 
remaining balance in the order would be automatically cancelled. If 
a BBO ISO is not marked as ``immediate or cancel,'' any remaining 
balance in the order would be displayed in the Matching System, 
without regard to whether that display would lock or cross another 
market center. See proposed CHX Article 20, Rule 6(c)(3).
    \30\ An outbound ISO would allow an Exchange participant to ask 
the Exchange to execute an order on the Exchange while 
simultaneously routing ISOs to those other markets to execute 
against their protected quotations. Outbound ISOs would be executed 
against any eligible orders in the Matching System (including any 
reserve size or other undisplayed orders). Other than the routing of 
ISOs to other market centers, no action would be taken to prevent an 
improper trade-through. See proposed CHX Article 20, Rule 4(b)(18).
    \31\ See proposed CHX Article 20, Rule 4(b)(19). A price-
penetrating ISO would operate much like a basic ISO, except that it 
would allow a participant to execute through displayed and 
undisplayed interest, at multiple price points, on the Exchange.
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    In general, the Matching System would accept only orders that 
comply with the sub-penny restrictions set forth in Rule 612 of 
Regulation NMS.\32\ However, contingent upon the Commission granting 
the necessary exemptive relief from Rule 612, the proposed rules would 
permit any type of cross order to be submitted to the Matching System 
in a sub-penny increment as small as $0.000001, provided that no type 
of cross, except midpoint crosses, non-regular-way crosses and cross 
with size orders, would be permitted to execute at a price less than 
$.01 better than any currently displayed same-sided interest available 
on the Matching System (or $.0001 better when the order is priced under 
$1.00).\33\
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    \32\ 17 CFR 242.612.
    \33\ See proposed CHX Article 20, Rule 4(a)(7)(b). See also 
Amendment No. 2.
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    Finally, the Matching System would accept ``do-not-display'' and 
``do-not-route orders.'' A do-not-display order would be an order, for 
at least 1,000 shares when entered, that would not be displayed in 
whole or in part, but that would remain eligible for execution within 
the Matching System.\34\ A do-not-route order would be executed or 
displayed within the Matching System and could not be routed to another 
market center.\35\
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    \34\ See proposed CHX Article 20, Rule 4(b)(9).
    \35\ See proposed CHX Article 20, Rule 4(b)(10). A do-not-route 
order would be immediately cancelled if its execution would 
improperly trade through the ITS BBO or another market's protected 
quotations. Any types of cross, IOC, or FOK orders would be deemed 
to have been received with a ``do not route'' condition because 
these orders either are immediately executed in the Matching System 
or cancelled.
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2. Ranking and Display of Orders
    All orders received by the Matching System would be ranked by 
price, time of receipt, and, for round-lot orders, any display 
instructions received with the order.\36\ Specifically, orders received 
by the Matching System would be ranked as follows: (i) Limit orders 
that are eligible to be displayed, including the displayed portion of 
reserve size orders, and all odd-lot and mixed-lot orders would be 
ranked together, at each price point, in time priority; (ii) at each 
price point, the undisplayed portions of reserve size orders would be 
ranked together in time priority and would be ranked after any 
displayed orders (and any odd-lot and mixed-lot orders) at that price; 
and (iii) orders that are received with a do-not-display instruction 
would be ranked together, at each price point, in time priority and 
would be ranked after any other orders at that price.\37\
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    \36\ See proposed CHX Article 20, Rule 8(b). Orders sent to an 
institutional broker for handling would not have any priority within 
the Matching System unless and until they are received by the 
Matching System. Id.
    \37\ Id., proposed Rule 8(b)(1)-(3). The refreshed displayed 
portion of a reserve-size order would receive a new ranking based on 
the time it was refreshed, with any remaining undisplayed portion 
retaining the ranking at which it was originally received. Id., 
proposed Rule 8(b)(4). A change to an order's size or price, or its 
displayed portion, could impact its ranking within the Matching 
System. A change to the display instructions associated with an 
order would need to be submitted as a new order and would be ranked 
based on the time the new order was received. Id., proposed Rule 
8(b)(5). See also Amendment No. 2.
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    All orders that are eligible for display would be immediately and 
publicly displayed through the processes set out in the appropriate 
transaction reporting plan for each security when they constitute the 
best round-lot bid or offer in the Matching System for that security. 
For display purposes, the Matching System would aggregate all shares, 
including odd-lot orders and the odd-lot portions of mixed-lot orders, 
at a single price point, and then round that total share amount down to 
the nearest round-lot amount.\38\
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    \38\ Id., proposed Rule 8(b)(6). For execution purposes, 
however, all orders would retain their rankings as described above.
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3. Automatic Execution
    Incoming orders generally would be matched against orders in the 
Matching System, in the order of their ranking, at the price of each 
resting order, for the full amount of shares available at that price or 
for the size of the incoming order, if smaller.\39\ If an order could 
not be immediately matched or matched in full when received, and it is 
not designated as an order type that should be immediately 
cancelled,\40\ it or its residual portion would be placed in the 
Matching System and ranked.\41\
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    \39\ See proposed CHX Article 20, Rule 8(d)(1). This general 
rule would be subject to certain exceptions specifically set forth 
in proposed CHX Article 20, Rule 8(e), and subject to the provisions 
relating to the prevention of trade-throughs in proposed CHX Article 
20, Rule 5.
    \40\ See proposed CHX Article 20, Rules 4(b)(11) through (13). 
Orders that would be immediately cancelled, if not executed, include 
FOK orders and IOC limit and market orders.
    \41\ See proposed CHX Article 20, Rule 8(d)(2); see also supra 
note 37 and accompanying text.
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    The proposed rules describe certain order types that would be 
subject to specific executions within the Matching System.\42\ Such 
order types include cross and cross with size orders,\43\ cross with 
satisfy orders,\44\ cross with yield orders,\45\ sell short orders,\46\ 
do-not-

[[Page 59566]]

display orders,\47\ and inbound ITS commitment or linkage plan 
orders.\48\ The proposed rules also describe the handling of orders in 
locked and crossed markets.\49\
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    \42\ See proposed CHX Article 20, Rule 8(e).
    \43\ See proposed CHX Article 20, Rule 8(e)(1). Cross and cross 
with size orders would be automatically executed if they meet the 
requirements for such order types, and would be immediately and 
automatically cancelled if they do not meet these requirements.
    \44\ See proposed CHX Article 20, Rule 8(e)(4). In executing 
cross with satisfy orders, the Matching System first would determine 
whether the order contains a share size that is sufficient to 
satisfy orders in the Matching System or bids or offers in other 
markets, as applicable. If this requirement is not met, the cross 
with satisfy would be automatically cancelled. If the order meets 
this requirement, the Matching System then would satisfy existing 
orders in the Matching System or send orders or commitments to other 
market centers to satisfy bids or offers, as necessary to prevent a 
trade-through and, before updating the Exchange's quotes, would 
execute the cross at a price that is better than the best bid or 
offer to be displayed in the Matching System and, for securities 
listed on NYSE, Amex or any other exchange other than Nasdaq (and 
for Nasdaq-listed securities, when Regulation NMS is implemented in 
those issues), equal to or better than the NBBO. In doing so, the 
Matching System would determine whether the participant that sent 
the order to the Matching System is attempting to satisfy bids or 
offers in the Matching System at a price that is better than the 
cross price and, if so, would not allow those executions to occur, 
but would instead allocate the better prices to the customer, not to 
the participant sending the order to the Matching System. See also 
supra note 20.
    \45\ See proposed CHX Article 20, Rule 8(e)(2). A cross with 
yield order would be automatically executed by matching the 
participant as principal against the customer order if the customer 
order that is part of a cross with yield order is at a price better 
than the currently displayed best bid or offer in the Matching 
System; provided, however, that if there is any order already 
displayed in the Matching System at the same price as (or better 
than) the participant's interest, that order or those orders would 
be matched against the customer order in place of the participant's 
interest as necessary to exhaust the customer order interest. If the 
customer order that is part of a cross with yield order is not 
eligible for an immediate execution because it is not priced better 
than the currently displayed bid or offer in the Matching System, 
the cross with yield order would be immediately and automatically 
cancelled. See also supra note 21.
    \46\ See proposed CHX Article 20, Rule 8(e)(5). Sell short 
orders (including odd lot orders) would be displayed and executed 
only when permissible under the provisions of Rule 10a-1 (``Short 
Sale Rule'') under the Act and Regulation SHO. When a sell short 
order cannot be executed or displayed at its limit price under the 
provisions of the Short Sale Rule and Regulation SHO, the order 
would be automatically re-priced (without violating its limit price) 
to the next available price at which it can be executed or 
displayed. If the Matching System cannot determine an appropriate 
price at which to execute or display the order, the order would be 
automatically cancelled. See Amendment No. 2.
    \47\ See proposed CHX Article 20, Rule 8(e)(6). A do-not-display 
order would be immediately and automatically cancelled if, at any 
point, the order would prevent the execution of an inbound order 
because the do-not-display order has crossed the NBBO.
    \48\ See proposed CHX Article 20, Rule 8(e)(7).
    \49\ See proposed CHX Article 20, Rule 6 and proposed CHX 
Article 20, Rule 5, Interpretation and Policy .01(e).
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4. Preventing Trade-Throughs
    An inbound order for at least one round lot would not be eligible 
for execution on the Exchange if its execution would cause an improper 
trade-through, both prior to and following the Trading Phase Date of 
Rule 611 of Regulation NMS.\50\ The proposed rules provide that the 
Exchange will follow a series of trade-through policies and procedures 
in determining whether a trade on the Exchange would create an improper 
trade-through.\51\ These procedures include clock synchronization 
practices, as well as plans for applying the exceptions to Rule 611 of 
Regulation NMS. For example, the Exchange's rules contemplate using the 
self-help exception in Rule 611(b)(1) of Regulation NMS.\52\ Further, 
the Exchange would automatically place an appropriate modifier on 
trades executed pursuant to an exemption from, or exception to, Rule 
611 of Regulation NMS in accordance with specifications approved by the 
operating committee of the relevant national market system plan for an 
NMS stock. If a trade is executed pursuant to both the intermarket 
sweep order exception of Rule 611(b)(5) or (6) of Regulation NMS and 
the self-help exception of Rule 611(b)(1) of Regulation NMS, the trade 
would be identified as executed pursuant to the intermarket sweep order 
exception.\53\ The proposed rules also set forth the procedures that 
the Exchange would use to confirm that its own bids and offers qualify 
as automated quotations and, if they do not qualify as automated 
quotations, how the Exchange will identify such quotations as 
manual.\54\
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    \50\ See proposed CHX Article 20, Rule 5. An inbound order for 
at least one round lot would not be eligible for execution on the 
Exchange if its execution would cause an improper trade-through of 
another ITS market or if, when Regulation NMS is implemented for a 
security, the execution of all or a part of the order would be 
improper under Rule 611 of Regulation NMS. Inbound odd lot orders 
and odd lot crosses would be eligible for execution on the Exchange, 
even if they would trade through other markets' bids and offers.
    \51\ See proposed CHX Article 20, Rule 5, Interpretation and 
Policy .01.
    \52\ See 17 CFR 242.611(b)(1); see also proposed CHX Article 20, 
Rule 5, Interpretation and Policy .01(d).
    \53\ See proposed CHX Article 20, Rule 5, Interpretation and 
Policy .01(h). See also Amendment No. 2.
    \54\ See proposed CHX Article 20, Rule 5, Interpretation and 
Policy .02. Specifically, the Exchange would send test IOC orders to 
the Matching System to make this determination. See also supra, note 
11 and accompanying text.
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5. Order Routing
    The proposed rules also contain provisions governing the routing of 
orders to other markets when execution in the Matching System would 
cause an improper trade-through.\55\ If a participant has submitted a 
cross with satisfy or an outbound ISO order and its execution would 
cause an improper trade-through, the Matching System would execute the 
order and simultaneously route orders or commitments necessary to 
satisfy the bids or offers of other markets (``routing services''). 
Otherwise, any inbound order for at least a round lot is not eligible 
for execution on the Exchange if its execution would cause an improper 
trade-through.\56\
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    \55\ See proposed CHX Article 20, Rule 5, Interpretation and 
Policy .03.
    \56\ See proposed CHX Article 20, Rule 5(a).
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    The Exchange proposes to provide these routing services pursuant to 
the terms of three separate agreements, to the extent that they are 
applicable to a specific routing decision: (i) An agreement between the 
Exchange and each participant on whose behalf orders will be routed; 
(ii) an agreement between each participant and a specified third-party 
broker-dealer that will use its routing connectivity to other markets 
and serve as a ``give-up'' in those markets; and (iii) an agreement 
between the Exchange and the specified third-party broker-dealer 
pursuant to which the third-party broker-dealer would agree to provide 
routing connectivity to other markets and serve as a ``give-up'' for 
the Exchange's participants in other markets. In providing the routing 
services, the Exchange would use its own systems to determine when, 
how, and where orders (or commitments) are routed away to other 
markets.\57\ In addition, the Exchange will establish and maintain 
procedures and internal controls reasonably designed to adequately 
restrict the flow of confidential and proprietary information between 
the Exchange (including its facilities) and the third-party broker-
dealer, and, to the extent the third-party broker-dealer reasonably 
receives confidential and proprietary information, that adequately 
restrict the use of such information by the third party broker-dealer 
to legitimate business purposes necessary to provide routing 
connectivity and to serve as a ``give-up.'' \58\
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    \57\ Id.
    \58\ See Amendment No. 2, supra note 5.
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6. Locking and Crossing Quotations
    With certain exceptions, Exchange participants would be required to 
reasonably avoid displaying, and refrain from engaging in a pattern or 
practice of displaying, any quotations that lock or cross a protected 
quotation.\59\ An order would not be eligible for display on the 
Exchange if its display would improperly lock or cross the ITS best bid 
or offer or, as of the Trading Phase Date of Regulation NMS for a 
security, if its display would constitute a locking or crossing 
quotation.\60\ These otherwise locking or crossing orders would either 
be automatically routed to another appropriate market or, if designated 
as ``do not route,'' automatically cancelled.
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    \59\ See proposed CHX Article 20, Rule 6. The exceptions are 
provided when: (i) The locking or crossing quotation was displayed 
at a time when the other trading center was experiencing a failure, 
material delay, or malfunction of its systems or equipment; (ii) the 
locking or crossing quotation was displayed at a time when a 
protected bid was higher than a protected offer in the NMS stock; or 
(iii) the Exchange participant displaying the locking or crossing 
quotation simultaneously routed an intermarket sweep order to 
execute against the full displayed size of any locked or crossed 
protected quotation.
    \60\ See proposed CHX Article 20, Rule 6.
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B. Market Makers

    The proposed rules in Article 16 set forth the responsibilities of 
a participant that registers as a market maker on the Exchange.\61\ In 
particular, a market maker would be required to engage in a course of 
dealings for its own account to assist in the maintenance, to the 
extent reasonably practicable, of fair and

[[Page 59567]]

orderly markets on the Exchange. A market maker's responsibilities 
would specifically include: (1) Using automated systems to maintain a 
continuous two-sided quote, for at least a round-lot, in each of the 
securities in which it is registered; \62\ (2) maintaining adequate 
minimum capital; and (3) meeting specific quotation or trade 
requirements, with respect to its dealings on the Exchange, over the 
course of each calendar month.\63\ In addition, a market maker that is 
registered as a market maker solely on the Exchange and engages in 
other business activities (or that is affiliated with a broker or 
dealer that engages in other business activities) would be required to 
establish information barriers that prevent the market maker from using 
material, non-public information or information about customer order 
flow handled by the firm in its trading activities.\64\
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    \61\ An Exchange-registered market maker would be permitted to 
trade only on a proprietary basis and would not be permitted to 
handle any agency orders on the Exchange. To the extent that a 
participant firm wants to act as an Exchange-registered market maker 
and also handle orders from customers outside the facilities of the 
Exchange, it would be required to create and strictly enforce 
information barrier procedures as described infra at note 64 and 
accompanying text. Since Exchange-registered market makers are not 
permitted to handle agency orders, the Matching Engine will reject 
any cross order instructions entered by a market maker in its market 
maker trading account. See proposed CHX Article 16, Rule 1, 
Interpretation and Policy .02. See also Amendment No. 2.
    \62\ A market maker's continuous two-sided quotes would be 
required to be at prices which are reasonably related to the 
prevailing market price of the security. See CHX Article 16, Rule 8, 
Interpretation and Policy .01.
    \63\ See proposed CHX Article 16, Rule 8(a)-(c).
    \64\ See proposed CHX Article 16, Rule 9.
---------------------------------------------------------------------------

C. Institutional Brokers

    Participant firms for which the Exchange is the designated 
examining authority could register with the Exchange as institutional 
brokers.\65\ Institutional brokers would be deemed to be participants 
operating on the Exchange, although they would not effect transactions 
from a physical trading floor (since the Exchange will no longer have a 
physical trading floor) and could trade from any location. A customer 
order would be deemed to be on the Exchange when received by an 
institutional broker, but would not have priority in the Matching 
System until it is entered into the system.
---------------------------------------------------------------------------

    \65\ See proposed CHX Article 17, Rule 1. Each individual that 
would be authorized to effect trades on behalf of the firm would be 
required to separately register as an institutional broker 
representative. See proposed CHX Article 17, Rule 1, Interpretation 
and Policy .02.
---------------------------------------------------------------------------

    Institutional brokers would be required to: (1) Enter all orders 
received for execution on the Exchange into an automated system to 
provide an electronic record of their order handling practices; (2) 
handle orders with an electronic system acceptable to the Exchange that 
integrates their on-exchange activities with the Matching System and 
their trading activities in other market centers; and (3) maintain 
separate accounts for handling agency transactions, principal 
transactions, and transactions involving errors.\66\ Institutional 
brokers would also be required to maintain required records of their 
trading activities.\67\ An institutional broker would be required to 
use due diligence to execute a market order at the best price 
available; to use due diligence to execute a limit order at or better 
than the limit price, if available; and to use brokerage judgment in 
the execution of a not held order.\68\
---------------------------------------------------------------------------

    \66\ See proposed CHX Article 17, Rule 3(a) through Rule 3(c). 
The Commission recently approved, and the Exchange has implemented, 
a proposed rule change regarding requirements for entering orders 
into an electronic system to permit the Exchange to more readily 
surveil broker order handling activities. See CHX Article 11, Rule 
3; Securities Exchange Act Release No. 53772 (May 8, 2006), 71 FR 
27758 (May 12, 2006).
    \67\ See proposed CHX Article 17, Rule 3(f).
    \68\ See proposed CHX Article 17, Rule 3(d).
---------------------------------------------------------------------------

    Institutional brokers would be required to use reasonable efforts 
to report all transactions that are not effected through the Exchange's 
Matching System to the Exchange within 10 seconds of the trade.\69\ If 
an institutional broker executes an order outside of the Matching 
System, it would be required to use the Exchange's Brokerplex system to 
determine whether a trade would constitute a trade-through and create 
an electronic record that such validation had taken place.\70\ In 
general terms, the Brokerplex system would allow an institutional 
broker to input the symbol for a security and pull up a window that 
includes a snapshot of the Matching System BBO and the NBBO. The 
institutional broker then could report a trade that is consistent with 
the orders in the Matching System and the NBBO. An institutional broker 
that initiates the use of this functionality to report a proprietary 
trade against a customer order would be required to complete the 
transaction report (without cancelling out of the functionality), 
unless the institutional broker had mistakenly input the symbol for the 
wrong security. The transaction also could be cancelled pursuant to CHX 
rules relating to cancellations of transactions, clearly erroneous 
transactions and systems disruptions and malfunctions.\71\
---------------------------------------------------------------------------

    \69\ See proposed CHX Article 17, Rule 3(e).
    \70\ See CHX Article 17, Rule 3, Interpretation and Policy .03.
    \71\ See id.
---------------------------------------------------------------------------

    Unless a customer specifically requests otherwise, an institutional 
broker would be required to clear the Matching System before sending an 
order to another market for execution.\72\ The proposed rules provide 
exceptions to this requirement for: (1) Outbound ITS commitments or 
ISOs that are being sent to another market to satisfy its displayed bid 
or offer;\73\ and (2) customer orders that are being sent to another 
market that could not be executed in the Matching System.\74\
---------------------------------------------------------------------------

    \72\ See proposed CHX Article 20, Rule 7. Any customer 
directives for special handling of orders would have to be 
documented and reported to the Exchange.
    \73\ See proposed CHX Article 20, Rule 7(c).
    \74\ See proposed CHX Article 20, Rule 7(d).
---------------------------------------------------------------------------

D. Other Rule Changes

    Proposed Article 9, Rule 17, based on an existing Exchange rule 
prohibiting participants from trading ahead of customer orders, would 
include a provision confirming that a participant would be deemed to be 
holding an unexecuted customer order when that order has been sent to 
the Matching System, but remains unexecuted.\75\
---------------------------------------------------------------------------

    \75\ See proposed CHX Article 9, Rule 17, Interpretation and 
Policy .05. The proposed rule would also confirm that a participant 
would not be in violation of the ``trading ahead'' rule if it 
satisfied bids and offers in other markets in accordance with the 
requirements for a ``cross with satisfy order.'' See proposed CHX 
Article 9, Rule 17, Interpretation and Policy .06; see also supra 
note 20 (discussing cross with satisfy orders).
---------------------------------------------------------------------------

    The Exchange proposes to adopt a sponsored access rule, which would 
allow Exchange participants to provide non-participant broker-dealers 
with access to the Exchange.\76\ Under the proposed rule, this type of 
sponsored access could be provided so long as the participant 
sponsoring access, the non-participant broker-dealer, and the Exchange 
entered into appropriate agreements confirming basic information about 
the parties' roles and responsibilities.\77\
---------------------------------------------------------------------------

    \76\ See proposed CHX Article 5, Rule 3.
    \77\ See id.
---------------------------------------------------------------------------

    In addition to the changes described above, the Exchange has also 
proposed revisions to virtually every other chapter of its rules. These 
changes are generally designed to remove references to the physical 
trading floor, delete obsolete provisions and account for the new 
automated trading model, as well as to better streamline and organize 
the rules. For example, the CHX proposes to delete rules relating to 
specialists and access to the trading floor and adopt rules that 
contemplate remote access to the Exchange's automated trading systems. 
In addition, changes are being proposed to rules relating to: hours of 
trading, trading halts, cancelling transactions, business conduct, 
disciplinary matters and trial proceedings, arbitration, Exchange 
emergency suspension authority; committees; trading permits; limitation 
of liability; voting designees; registration; fingerprinting; reporting 
transactions; riskless principal

[[Page 59568]]

transactions; use of a customer's give-up; books and records; firm 
supervision; ITS; clearance and settlement; and listing on the 
Exchange.

E. Amendment No. 2

    On September 29, 2006, the Exchange filed Amendment No. 2 to the 
proposed rule change, which made certain revisions to the original 
proposal, as amended by Amendment No. 1. In Amendment No. 2, the 
Exchange described its proposed phase-in plan for the new trading 
model.\78\ In Amendment No. 2, the Exchange also provided additional 
discussion and clarification on certain aspects of the proposal.
---------------------------------------------------------------------------

    \78\ The Exchange stated that it plans to phase in the new 
trading model as follows: (i) Beginning the week of October 2, 2006, 
the Exchange will begin to transition Nasdaq-listed securities to 
the Matching System; (ii) during the week of October 16, 2006, the 
Exchange will begin to transition all other securities that are not 
currently traded by specialists to the Matching System; and (iii) by 
early November 2006, the Exchange will begin to transition 
securities currently traded by the Exchange's specialists to the 
Matching System. The Exchange stated that, in the near future, it 
will provide notice to participants of the exact dates for 
transition of specific securities.
---------------------------------------------------------------------------

    The Exchange also added a discussion of how the Exchange believes 
that the rules of the proposed new trading model will be consistent 
with Section 11(a) of the Act.\79\ The Exchange stated that it believes 
that the proposed Matching System meets the requirements of Rule 11a2-
2(T) under the Act,\80\ known as the ``effect versus execute'' rule, 
which provides an exemption from the prohibition of Section 11(a). 
Further, the Exchange stated that it believes that the proposal does 
not raise any of the policy concerns that Congress sought to address in 
Section 11(a) of the Act including, specifically, the time and place 
advantages that members on exchange floors might have over non-members 
off the floor and the general public.
---------------------------------------------------------------------------

    \79\ 15 U.S.C. 78k(a).
    \80\ 17 CFR 240.11a2-2(T).
---------------------------------------------------------------------------

    In Amendment No. 2, the Exchange also made certain changes to the 
rule text reflecting modifications in how the Matching System will 
operate. Specifically, the Exchange modified the proposed rules to: (1) 
Amend the definition of a ``cross with size'' order; \81\ (2) confirm 
that the Matching System will evaluate most cross orders to see if they 
meet the ``cross with size'' definition and, if so, will execute them 
as crosses with size; \82\ (3) provide that, when the Matching System 
lacks sufficient information to determine the appropriate price at 
which a sell short order could be displayed or executed, the Matching 
System will automatically cancel the order; \83\ (4) confirm that cross 
orders can be submitted as ISOs; \84\ (5) remove references to 
functionality that is not being built; \85\ and (6) confirm that a 
participant cannot change a ``display'' instruction for an order, but 
must submit a new order with a new display instruction.\86\ In 
addition, the Exchange revised the proposed rules to confirm the 
circumstances when the Matching System would display quotes that would 
lock or cross the protected quotes of other markets \87\ and to clarify 
that the Matching System will trade in increments supported by the ITS 
or Regulation NMS linkage plan.\88\ The Exchange also clarified how a 
trade should be identified when it is executed pursuant to both the 
intermarket sweep order exception of Rule 611(b)(5) or (6) of 
Regulation NMS and the self-help exception of Rule 611(b)(1) of 
Regulation NMS.\89\
---------------------------------------------------------------------------

    \81\ See proposed CHX Article 20, Rule 4(b)(6) (requiring a 
cross with size to size out all of the displayed interest at a 
price, but providing that, once the CHX is disseminating a book 
feed, a cross with size would only be required to size out the 
largest displayed order).
    \82\ See proposed CHX Article 20, Rule 4(b)(6).
    \83\ See proposed CHX Article 20, Rule 8(e)(5).
    \84\ See proposed CHX Article 20, Rule 4(b)(14).
    \85\ See proposed CHX Article 20, Rule 4(a)(7)(b) (removing a 
reference to an order that executes at the midpoint of the NBBO, 
because this functionality is not being built at this time).
    \86\ See proposed CHX Article 20, Rule 8(b)(5).
    \87\ See proposed CHX Article 20, Rule 6(d).
    \88\ See proposed CHX Article 20, Rule 4(a)(7)(d); see also 
proposed CHX Article 20, Rule 4(a)(7)(e).
    \89\ See proposed CHX Article 20, Rule 5, Interpretation and 
Policy .01(h).
---------------------------------------------------------------------------

    In Amendment No. 2, the Exchange also made certain changes intended 
to clarify the meaning of the proposed rules. These changes include a 
change in the definition of NBBO to confirm that, as of the Trading 
Phase Date of Regulation NMS, this term relates only to protected bids 
and offers; \90\ the addition of language that confirms that non-
regular way crosses can execute within a penny of other orders in the 
Matching System; \91\ and a change that notes that, in the last 
``refresh'' of a reserve size order, the number of shares may be less 
than the original number of displayed shares because that is all that 
is left.\92\ Other similar changes clarify the execution of benchmark 
orders; \93\ confirm the handling of BBO ISO orders; \94\ and state, 
with regard to relevant provisions, that they take effect on the 
Trading Phase Date of Rule 611 of Regulation NMS.\95\
---------------------------------------------------------------------------

    \90\ See proposed CHX Article 1, Rule 1(o).
    \91\ See proposed CHX Article 20, Rule 4(a)(7)(b) (recognizing, 
as already expressed in the definition of this type of order, that 
non-regular way cross orders execute without regard to orders in the 
Matching System, because all orders in the Matching System are for 
regular-way settlement).
    \92\ See proposed CHX Article 20, Rule 4(b)(20).
    \93\ See proposed CHX Article 20, Rule 4(b)(2) (confirming that 
benchmark orders must be executed in increments permitted by Article 
20, Rule 4(a)(7)(b)). The Exchange also elaborated on its reasoning 
in proposing that benchmark orders only be permitted to be submitted 
to the Matching System by institutional brokers, and noted that 
other participants seeking to execute benchmark orders on the 
Exchange could do so through an institutional broker.
    \94\ See proposed CHX Article 20, Rule 4(b)(1) (confirming that 
BBO ISO orders will be displayed in the circumstances set out in the 
rule because the participant routing the order to the Matching 
System has already satisfied the quotations of other markets as 
required by Article 20, Rule 6(c)(3)).
    \95\ See, e.g., proposed CHX Article 20, Rules 4(b)(1), (2), 
(14), (18) and (19); see also proposed CHX Article 1, Rule 1(y) 
(defining the ``Trading Phase Date'' as February 5, 2007).
---------------------------------------------------------------------------

    In Amendment No. 2, the Exchange also made changes to Article 16 
governing market makers. The Exchange revised the rules to prohibit an 
individual from registering both as a market maker trader and an 
institutional broker representative.\96\ The Exchange also modified the 
rules to provide that market makers may only trade on a proprietary 
basis on the Exchange, and if a market maker handles agency orders off 
of the Exchange, it must create and enforce information barrier 
procedures pursuant to CHX Article 16, Rule 9.\97\
---------------------------------------------------------------------------

    \96\ See proposed CHX Article 16, Rule 1, Interpretation and 
Policy .01.
    \97\ See proposed CHX Article 16, Rule 1, Interpretation and 
Policy .02.
---------------------------------------------------------------------------

    Pursuant to an exemption recently issued by the Commission,\98\ the 
Exchange proposed further provisions in Amendment No. 2 to permit 
``qualified contingent trades'' to be executed on the Exchange.\99\ The 
Exchange asserts that these trades would meet the requirements of the 
Commission's order exempting from Rule 611(a) any trade-throughs caused 
by the execution of an order involving one or more NMS stocks that are 
components of a ``qualified contingent trade,'' as defined in the 
Commission's exemptive order.\100\
---------------------------------------------------------------------------

    \98\ See Securities Exchange Act Release No. 54389 (August 31, 
2006), 71 FR 52829 (September 7, 2006) (``Qualified Contingent Trade 
Exemptive Order'').
    \99\ See proposed CHX Article 1, Rule 2(bb) and proposed CHX 
Article 20, Rule 5, Interpretation and Policy .01(i).
    \100\ See Qualified Contingent Trade Exemptive Order, supra note 
98.
---------------------------------------------------------------------------

    The Exchange also added provisions requiring it to establish and 
maintain information barriers to restrict the flow of information 
between the Exchange (including its facilities) and the third-party 
broker-dealer providing connectivity to other trading centers, and, to 
the extent such third-party broker-dealer receives such information, 
that adequately restrict the use of such

[[Page 59569]]

information by the third party broker-dealer to legitimate business 
purposes necessary to provide routing connectivity and to serve as a 
``give-up.'' Further, in Amendment No. 2, the Exchange revised its rule 
text to reflect recent changes made to Exchange rules by other proposed 
rule changes that have been recently approved by the Commission.\101\
---------------------------------------------------------------------------

    \101\ In particular, the Exchange revised the proposed rule text 
to reflect changes to the Exchange's disciplinary rules made in SR-
CHX-2005-06, see Securities Exchange Act Release No. 54437 
(September 13, 2006), 71 FR 55037 (September 20, 2006); and to 
reflect changes to the Exchange's rules made in SR-CHX-2006-23, 
confirming that each participant firm only needs one trading permit 
to conduct business on the Exchange, see Securities Exchange Act 
Release No. 54494 (September 25, 2006).
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    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 \102\ and, in particular, the requirements of 
Section 6 of the Act \103\ and the rules and regulations thereunder. 
The Commission finds that the proposed rule change, as amended, is 
consistent with Section 6(b)(5) of the Act,\104\ which requires that 
the rules of an exchange be designed, among other things, to prevent 
fraudulent and manipulative acts and practices, 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.
---------------------------------------------------------------------------

    \102\ The Commission has considered the proposed rule's impact 
on efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \103\ 15 U.S.C. 78f.
    \104\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

A. The Matching System

    The Matching System would allow participants to route orders to it 
from any location for possible immediate execution through any 
communications line approved by the Exchange.\105\ The adoption of the 
Exchange's proposed rules, which feature the Matching System as the 
core facility of the Exchange, will fundamentally change the Exchange's 
current market structure from a substantially floor-based auction 
market to an all-electronic one. The Commission believes that by 
allowing electronic access to Exchange liquidity, the proposed new 
model should help perfect the mechanism of a free and open market by 
providing investors with a more efficient mechanism to have their 
orders executed on the Exchange.
---------------------------------------------------------------------------

    \105\ See proposed CHX Article 20, Rule 8(a)(1).
---------------------------------------------------------------------------

    The Commission also believes that the Exchange's new trading model 
should facilitate securities transactions by providing investors with 
faster and more efficient access to the trading interest reflected in 
the Exchange's published quotation, as well as interest away from the 
Exchange BBO. Finally, the Commission believes that the Exchange's 
proposal should enhance the opportunity for a customer's order to be 
executed without dealer participation, consistent with the goals of 
Section 11A of the Act.\106\
---------------------------------------------------------------------------

    \106\ See Section 11A(a)(1)(C) of the Act, 15 U.S.C. 78k-
1(a)(1)(C).
---------------------------------------------------------------------------

1. Eligible Orders and Order Types
    Under the proposed rule change, participants would be permitted to 
submit orders to the Matching System that are day orders, limit orders, 
and orders for regular way settlement (as well as certain other 
excepted types of orders such as IOC market orders and non-regular way 
crosses) and generally would be permitted to submit orders as round 
lots, odd lots, or mixed lots.\107\ The proposed rules require that 
orders submitted to the Matching System must meet the requirements of 
Rule 612 of Regulation NMS, unless an exemption therefrom applies.\108\ 
As such, except for cross orders under certain circumstances as 
discussed below,\109\ orders priced at or above $1.00 could not be 
submitted to the Matching System in increments less than $0.01, and 
orders priced less than $1.00 could not be submitted to the Matching 
System in increments less than $.0001.\110\ The Commission believes 
that these order eligibility requirements are consistent with the Act.
---------------------------------------------------------------------------

    \107\ See supra notes 9-10 and accompanying text.
    \108\ 17 CFR 242.612.
    \109\ See infra note 124 and accompanying text.
    \110\ See proposed CHX Article 20, Rule 4(a)(5).
---------------------------------------------------------------------------

    The Exchange proposes to permit the Matching System to accept a 
wide variety of order types. These order types include: immediate or 
cancel limit and market orders, fill or kill orders, sell short and 
short exempt orders, reserve size orders, time in force orders, cancel 
on halt orders, do-not-display orders, do-not-route orders, various 
types of cross orders, and various types of ISOs.\111\ Many of these 
order types exist in the Exchange's current rules set, while others 
have been proposed exclusively for use in the new trading model or for 
use as of the Trading Phase Date of Regulation NMS. The Commission 
believes that these order types should provide Exchange participants 
greater flexibility in reaching their trading and investment 
objectives. The Commission notes that a number of the proposed order 
types will have different definitions prior to and following the 
Trading Phase Date of Regulation NMS, which should enable users to make 
use of the trading strategies of such order types immediately, as well 
as after the Trading Phase Date.
---------------------------------------------------------------------------

    \111\ See supra Section II.A.1.
---------------------------------------------------------------------------

    As noted, the Exchange has proposed a number of cross order types 
for use in the Matching System. The Commission notes that the cross 
order is already permitted in the Exchange's electronic book.\112\ A 
cross order would be immediately executed in the Matching System if it 
is priced better than the Matching System's displayed BBO and, for 
securities listed on any exchange other than Nasdaq (and for Nasdaq-
listed securities, as of the Trading Phase Date of Regulation NMS), 
equal to or better than the NBBO.\113\ Similarly, a form of the cross 
with size order is already permitted in the Exchange's electronic 
book.\114\ Under the proposed rules, a cross with size will be required 
to be larger than the aggregate size of all displayable orders 
displayed on the Matching System at the cross price, consist of at 
least 5,000 shares, and have a value of $100,000. The Commission notes 
that it has previously approved a similar rule at another 
exchange.\115\
---------------------------------------------------------------------------

    \112\ See current CHX Article XXA, Rule 2.
    \113\ See proposed CHX Article 20, Rule 4(b)(4) and supra note 
18.
    \114\ See current CHX Article XXA, Rule 2.
    \115\ See Rules of the National Stock Exchange, Inc., Rule 
11.12.
---------------------------------------------------------------------------

    The Exchange is also proposing several completely new cross order 
types that would be accepted by the Matching System, such as cross with 
satisfy \116\ and cross with yield orders.\117\ The Commission believes 
that these cross orders may provide an efficient means to allow 
participants to effect cross transactions in the Matching System, 
consistent with the Exchange's other priority and trade-through rules, 
in circumstances where a cross order would otherwise be unable to be 
executed and would be cancelled. A cross with satisfy order would 
contain an instruction to execute orders already displayed in the 
Matching System at their limit prices (up to a specified number of 
shares) to the extent necessary to allow the cross transaction to occur 
or to route outbound orders or commitments to other market centers to 
the extent necessary to prevent an

[[Page 59570]]

improper trade-through.\118\ Once the satisfying execution has 
occurred, the cross order would be executed at a price that is better 
than the Matching System's displayed BBO and, for securities listed on 
any exchange other than Nasdaq (and for Nasdaq-listed securities, as of 
the Trading Phase Date of Regulation NMS), equal to or better than the 
NBBO.
---------------------------------------------------------------------------

    \116\ See supra note 20.
    \117\ See supra note 21.
    \118\ See proposed CHX Article 20, Rule 4(b)(5).
---------------------------------------------------------------------------

    The cross with yield order is similar to the cross with satisfy, 
and would contain an instruction to yield interest on the buy, sell, or 
either side of the order (as specified in the order) to any order 
already displayed in the Matching System at the same or better price, 
to the extent necessary to allow the cross transaction to occur.\119\ 
The cross order would then be executed at a price that is better than 
the best bid or offer to be displayed in the Matching System, and, for 
securities listed on any exchange other than Nasdaq (and for Nasdaq-
listed securities, as of the Trading Phase Date of Regulation NMS), 
equal to or better than the NBBO.
---------------------------------------------------------------------------

    \119\ See proposed CHX Article 20, Rule 4(b)(7).
---------------------------------------------------------------------------

    The Matching System would also accept mid-point cross orders, which 
would be executed at the midpoint of the NBBO.\120\ The Commission 
notes that this order type has been previously approved for other 
exchanges.\121\ The Exchange also proposes to permit a non-regular way 
cross order, which would be for non-regular way settlement and would 
execute without regard to the NBBO or any other orders in the Matching 
System.\122\ The Commission notes that the Exchange has represented 
that participants can currently execute orders for non-regular way 
settlement in the Exchange's electronic book and on the floor of the 
Exchange,\123\ but this cross order type would be the only means to 
effectuate this type of transaction within the Matching System.
---------------------------------------------------------------------------

    \120\ See supra note 22.
    \121\ See, e.g., NYSE Arca Equities Rule 7.31(y).
    \122\ See supra note 25.
    \123\ See current CHX Article XX, Rule 9; CHX Article XXA, Rule 
2(c)(5).
---------------------------------------------------------------------------

    Contingent upon the Exchange receiving exemptive relief from the 
Commission, the Exchange proposes to allow all cross orders to be 
submitted to the Matching System in sub-penny increments as small as 
$.000001, regardless of their price.\124\ Although participants would 
be permitted to submit crosses in sub-penny increments, the Exchange 
proposes that cross orders (except for a midpoint cross, non-regular-
way cross or cross with size) would be required to be priced at least 
$.01 better than any order on the same side of the Matching System (or, 
for orders priced less than $1.00, at least $.0001 better than any 
order on the same side of the Matching System).
---------------------------------------------------------------------------

    \124\ See proposed CHX Article 20, Rule 4(a)(7)(b) (stating that 
the provision ``shall take effect upon the granting of exemptive 
relief by the Commission'').
---------------------------------------------------------------------------

    The Commission believes that the proposed rules relating to cross 
transactions are consistent with the Act and offer participants 
flexibility in executions which meet the specified requirements of each 
type of cross. In addition, the Commission notes that proposed CHX 
Article 9, Rule 17, which restricts trading ahead of customer orders, 
would apply to the cross order types, except as noted in Interpretation 
and Policy .06 of that rule with respect to cross with satisfy 
orders.\125\
---------------------------------------------------------------------------

    \125\ See proposed CHX Article 9, Rule 17.
---------------------------------------------------------------------------

    The Exchange also proposes to permit the Matching System to accept 
several order types modeled on the exceptions in Rule 611(b) of 
Regulation NMS. The Matching System would accept various ISOs, which 
would allow the Exchange to immediately execute such orders without 
regard to other markets' protected quotations, as contemplated by 
Regulation NMS.\126\ The Commission believes that these proposed order 
types are consistent with the Act, and notes that these provisions will 
not become effective until the Trading Phase Date of Regulation NMS.
---------------------------------------------------------------------------

    \126\ See supra notes 29-31.
---------------------------------------------------------------------------

    The Matching System would also accept do-not-display \127\ and do-
not-route orders.\128\ The do-not-display order could be partially or 
wholly undisplayed. Such an order would remain eligible for execution 
in the Matching System, but would be ranked behind displayed orders and 
behind the undisplayed portions of reserve size orders. This order type 
gives a participant the ability to keep trading interest unseen, but at 
the same time allows the order to remain eligible for execution while 
being ranked behind any displayed interest in the Matching System. As 
its name implies, a do-not-route order is an order that could not be 
routed to another market. A do-not-route order would be immediately 
cancelled if its execution would improperly trade through the ITS BBO 
or another market's protected quotations.\129\ The Commission believes 
that these proposed order types may offer participants greater 
flexibility in the handling of their orders and are consistent with the 
Act.
---------------------------------------------------------------------------

    \127\ See supra note 34 and accompanying text.
    \128\ See supra note 35 and accompanying text.
    \129\ See proposed CHX Article 20, Rule 5(a).
---------------------------------------------------------------------------

2. Ranking and Display of Orders
    Under the proposed rule change, all orders received by the Matching 
System would be ranked by price, time of receipt, and any display 
instructions.\130\ No distinction would be made with regard to agency 
orders and professional or proprietary orders for priority 
purposes.\131\ Orders would be displayed to the public when they 
constitute the best round-lot bid or offer in the Matching System for a 
security.
---------------------------------------------------------------------------

    \130\ See supra notes 36-37 and accompanying text.
    \131\ The Commission has approved similar priority rules for the 
CHX's electronic book. See Securities Exchange Act Release No. 52094 
(July 21, 2005), 70 FR 43913 (July 29, 2005).
---------------------------------------------------------------------------

    Generally, incoming orders would be matched against orders in the 
Matching System, in the order of their ranking, at the price of each 
resting order, for the full amount of shares available at that price or 
for the size of the incoming order, if smaller.\132\ However, orders 
would be subject to the proposed provisions prohibiting improper trade-
throughs,\133\ and certain order types would be subject to specific 
executions within the Matching System.\134\ Unless the terms of the 
order direct otherwise, any order that could not be immediately 
executed or executed in full would be ranked in the Matching System in 
accordance with the Exchange's order priority rules.\135\ In addition, 
the proposed rules provide that, unless a customer specifically 
requests otherwise, institutional brokers would be required to clear 
the Matching System before routing an order to another market, subject 
to certain exceptions.\136\
---------------------------------------------------------------------------

    \132\ See proposed CHX Article 20, Rule 8(d)(1).
    \133\ See proposed CHX Article 20, Rule 5; see also supra notes 
50-54 and accompanying text.
    \134\ See supra notes 43-49.
    \135\ See supra notes 40-41 and accompanying text.
    \136\ See supra notes 72-74 and accompanying text.
---------------------------------------------------------------------------

    The Commission believes that the proposed rules relating to 
ranking, display and execution of orders are consistent with the 
Act.\137\ In particular, the Commission believes that the priority 
rules and automatic execution functionality should result in a more 
efficient market and promote competition in the national market system. 
Further, the Commission believes that requiring institutional brokers 
to clear the Matching System

[[Page 59571]]

before routing an order to another market is consistent with previous 
Exchange rules requiring members to ``clear the post'' prior to routing 
orders to other markets, which also were intended to promote 
interaction of orders on the Exchange.
---------------------------------------------------------------------------

    \137\ The Exchange has represented that the Matching System 
meets the requirements set forth in Rule 11a2-2(T) and therefore 
complies with Section 11(a) of the Act. See text accompanying notes 
79-80. The Commission notes that the Exchange has the obligation to 
enforce the provisions of the Act, including Section 11(a) 
thereunder.
---------------------------------------------------------------------------

B. Routing

    The Exchange proposes to provide outbound routing services to 
participants for orders submitted to the Exchange that cannot be 
executed in whole or in part on the Exchange because of the trade-
through provisions of Regulation NMS. The Exchange will use its own 
systems to determine when, how and where orders are routed away to 
other markets. To provide the necessary connectivity to transmit such 
orders to, and obtain executions on, other markets, the Exchange 
proposes to use the services of a third-party broker-dealer. The 
services would be provided pursuant to three separate agreements among 
the Exchange, the participant on whose behalf orders would be routed, 
and the third-party broker-dealer. The Exchange has represented that 
its routing services would be provided in accordance with its rules, 
the Act, and the rules thereunder. In particular, the Exchange routing 
arrangements would: (1) Provide for the equitable allocation of 
reasonable, dues, fees, and other charges among its participants and 
other persons using its facilities relating to the routing services; 
and (2) prohibit unfair discrimination among customers, issuers, 
brokers or dealers in connection with the routing services.
    The Commission received one comment letter regarding the proposed 
rule change relating to routing services.\138\ In its comment letter, 
OES asserted that the third-party broker-dealer described above would 
operate as a system of communication of the Exchange and therefore 
should be deemed a facility of the Exchange under Section 3(a)(2) of 
the Act. In Amendment No. 2, CHX responded to the OES Letter and stated 
its view that the third-party broker-dealer would not be a facility of 
the Exchange.
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    \138\ OES Letter, supra note 4.
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    The Commission does not believe that the third-party broker-dealer 
providing connectivity to other markets as described above should 
necessarily be deemed to be a facility of the Exchange. Unlike the 
broker-dealer addressed in the Commission's Order approving the Pacific 
Exchange's rules establishing the Archipelago Exchange,\139\ the third-
party broker-dealer will not be owned by CHX or an affiliate of CHX. In 
this case, CHX will use its own systems to determine when, how, and 
where orders are routed away to other markets. Moreover, all of the 
terms and conditions for CHX members to obtain outbound routing 
services will be subject to CHX rules, which must be filed for approval 
with the Commission. The CHX rules must, among other things, provide 
for the equitable allocation of reasonable fees or other charges for 
outbound routing services and must not permit unfair discrimination 
among CHX members for access to the outbound routing services. CHX is 
contracting with an unaffiliated third-party broker-dealer solely to 
provide the necessary connectivity to obtain the execution of outbound 
orders on other markets. Given this limited role, the third-party 
broker-dealer should not be deemed a facility of CHX under Section 
3(a)(2) of the Act. Accordingly, the Commission finds that CHX's 
proposed routing arrangements are consistent with the Act.
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    \139\ See Securities Exchange Act Release No. 44983 (October 25, 
2001) 66 FR 55225 (November 1, 2001).
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C. Market Makers

    Exchange market makers would be required to engage in a course of 
dealings to assist in the maintenance, to the extent reasonably 
practicable, of fair and orderly markets.\140\ Specifically, market 
makers would have an obligation to maintain continuous two-sided quotes 
for the securities in which it is registered, at prices reasonably 
related to the prevailing market; to maintain adequate capital; and to 
meet certain monthly quotation requirements.\141\ The proposed rules 
also impose other obligations on market makers, including a requirement 
to establish information barriers when engaging in other business 
activities.\142\ These rules governing CHX market makers are similar to 
other exchanges' rules previously approved by the Commission.\143\ 
Accordingly, the Commission believes that the proposed rules are 
consistent with the Act.
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    \140\ See proposed CHX Article 16, Rule 8.
    \141\ See id.
    \142\ See supra note 64 and accompanying text.
    \143\ See, e.g., Nasdaq Rule 4613 and NYSE Arca Equities Rules 
7.23-7.26.
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D. Institutional Brokers

    Under the Exchange's proposed rules, institutional brokers would be 
considered to be ``on the Exchange,'' and as such, customer orders 
received by an institutional broker would be deemed to be on the 
Exchange and immediately subject to the Exchange's rules.\144\ For 
example, the proposed rules require that institutional brokers use an 
electronic system, acceptable to the Exchange, integrating an 
institutional broker's trading activities in the Matching System, 
outside of the Matching System, and in other market centers.\145\ 
Additionally, because institutional brokers could execute orders 
outside of the Matching System but still on the Exchange, the Exchange 
has proposed rules to govern this activity.\146\ First, such 
transactions would be required be reported to the Exchange within 10 
seconds after the trade occurs. Further, the Exchange represents that 
it has built a functionality to allow an institutional broker to pull 
up a ``validation window'' to ensure that a trade being done outside of 
the Matching System does not violate trade-through provisions. In 
addition, to help ensure that trades outside of the Matching System are 
not inconsistent with an institutional broker's fiduciary duties, once 
an institutional broker pulls up a validation screen, it would be 
required to complete the transaction and could not cancel out of the 
functionality, subject to certain limited exceptions.\147\
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    \144\ See supra note 137.
    \145\ See proposed CHX Article 17, Rule 3(b).
    \146\ See supra notes 68-71 and accompanying text.
    \147\ See proposed CHX Article 17, Rule 3, Interpretation and 
Policy .03. The institutional broker would only be permitted to 
cancel out of the functionality if the broker mistakenly input the 
wrong symbol for the security, or the transaction may be cancelled 
pursuant to CHX Article 20, Rules 9, 10, or 11.
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    The Commission believes that the proposed rules governing 
institutional brokers should allow the Exchange to monitor 
appropriately the activities of institutional brokers and to help 
ensure that they are complying both with the rules of the Exchange and 
their fiduciary duties. The Commission also believes that the proposed 
rules will require the Exchange to carefully oversee the activities of 
institutional brokers, and to detect any potential abuses. Accordingly, 
the Commission believes that the proposed rules governing institutional 
brokers are consistent with the Act.

E. Regulation NMS

    The Commission believes that the proposed rule change is consistent 
with the requirements of Regulation NMS.\148\ In proposed Article 20, 
Rule 6, CHX proposes to adopt a rule with regard to locked and crossed 
markets, as required by Rule 610(d) of Regulation NMS.\149\ The 
Exchange's proposed rules include marking certain orders meeting the 
requirements of Rule 600(b)(30) of

[[Page 59572]]

Regulation NMS \150\ as intermarket sweep orders and accepting orders 
marked as intermarket sweep orders, which would allow orders so 
designated to be automatically matched and executed without reference 
to protected quotations at other trading centers. The Commission also 
believes that CHX's proposed immediate-or-cancel functionality \151\ is 
consistent with Rule 600(b)(3) of Regulation NMS. The Exchange has 
designed its proposed rules relating to orders types and eligibility 
\152\ and order execution \153\ to comply with the requirements of 
Regulation NMS. As noted above, these proposed rules provide that the 
Matching System will accept only orders (except for cross orders, as 
discussed above) that meet the increment requirements of Rule 612 of 
Regulation NMS (unless and to the extent exempted from Rule 612 by 
Commission order).\154\
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    \148\ See 17 CFR 242.600 et seq.
    \149\ 17 CFR 242.610(d).
    \150\ 17 CFR 242.600(b)(30).
    \151\ See proposed CHX Article 1, Rule 2(m).
    \152\ See discussion supra Section II.A.1.
    \153\ See discussion supra Section II.A.3.
    \154\ 17 CFR 242.612.
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    In addition, as mentioned above in Section II.A, the Matching 
System is designed to qualify as an automated trading center under Rule 
600(b)(3) of Regulation NMS.\155\ To ensure that its systems 
immediately and automatically process orders, the Exchange has included 
in its rules a requirement that it use automated systems to send test 
IOC orders to the Matching System to determine whether it accepts the 
order automatically.\156\ Similarly, the Exchange will also use 
automated monitoring systems to review, in real time, the Matching 
System's handling of test IOC orders to determine whether, and within 
what time frame: (1) IOC orders are executed against the displayed 
quote, up to its full size; (2) any unexecuted portion of the IOC order 
is cancelled; (3) a confirmation of the action taken is generated and 
transmitted from the Matching System to the monitoring system (to serve 
as a proxy for a transmission to the order-sending firm); and (4) the 
Matching System transmits a new bid or offer (as appropriate) to the 
monitoring system (to serve as a proxy for a transmission to the 
appropriate securities information processor).\157\ The Exchange's 
rules provide that it would automatically and immediately append a 
``manual'' identifier to the bids and offers it makes publicly 
available when it has reason to believe that it is not capable of 
displaying automated quotations.
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    \155\ 17 CFR 242.600(b)(3).
    \156\ See proposed CHX Article 20, Rule 5, Interpretation and 
Policy .02.
    \157\ See proposed Article 20, Rule 5, Interpretation and Policy 
.02.
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    The Exchange has proposed a rule that renders an inbound round-lot 
order ineligible for execution on the Exchange if such order would 
cause an improper trade-through under Rule 611 of Regulation NMS.\158\ 
The Commission also notes that the proposed rules provide procedures 
that the Exchange will follow to determine whether a trade would create 
an improper trade-through and how the Exchange will apply various 
exceptions to Rule 611 of Regulation NMS, including the self-help 
exception.\159\
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    \158\ See proposed Article 20, Rule 5(a).
    \159\ See supra notes 51-53 and accompanying text.
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F. Other Rule Changes

    In addition to the rules described in detail above, the proposed 
rule change would adopt or amend a number of other Exchange rules that 
address, among other things, hours of trading, trading halts, 
cancelling transactions, trading permits, sponsored access, limitations 
of liability, trade execution, Exchange registration, business conduct, 
fingerprinting, reporting transactions, riskless principal 
transactions, disciplinary matters and trial proceedings, arbitration, 
books and records, clearance and settlement, and listing on the 
exchange. The Commission believes that these rules are appropriate and 
consistent with the Act, and many are similar to rules previously 
approved by the Commission at other exchanges.\160\
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    \160\ In particular, the Commission believes that the proposed 
changes to the firm's supervision rules are appropriate and 
consistent with the Act. See proposed CHX Article 6, Rule 5. The 
Commission believes that these rules should help to ensure that 
participant firms are adequately supervising their registered and 
associated persons. The Commission also notes that these obligations 
are similar to those required by other SROs. See, e.g., NASD Rule 
3010 and Philadelphia Stock Exchange Rule 748.
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    The Commission believes that the Exchange's proposed interpretation 
to its trading ahead rule in CHX Article 9, Rule 17, confirming that a 
participant would be deemed to be holding an unexecuted customer order 
when that order has been sent to the Matching System but remains 
unexecuted,\161\ is consistent with the Act. The Commission believes 
that this rule appropriately confirms that a participant will remain 
the agent for any customer orders that it submits to the Matching 
System, and as such, will owe fiduciary duties to such customer orders 
until they are executed.
---------------------------------------------------------------------------

    \161\ See proposed CHX Article 9, Rule 17, Interpretation and 
Policy .05.
---------------------------------------------------------------------------

    The Commission also believes that the proposed interpretation 
confirming that a participant would not be in violation of CHX Article 
9, Rule 17 if it satisfied bids and offers in other markets in 
accordance with the requirements for a ``cross with satisfy order'' is 
consistent with the Act.\162\ The Commission notes that the conditions 
of the cross with size order provide that a participant could only 
satisfy bids or offers in other markets at a price that is better than 
the cross price if the cross is for at least 10,000 shares or has a 
value of at least $200,000 (a ``block size order'') or is for the 
account of an institutional customer and the participant's customer has 
specifically agreed to that outcome.\163\
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    \162\ See proposed CHX Article 9, Rule 17, Interpretation and 
Policy .06.
    \163\ See supra note 20 (discussing cross with satisfy orders).
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IV. Accelerated Approval of Amendment No. 2

    Under Section 19(b)(2) of the Act,\164\ the Commission may not 
approve any proposed rule change prior to the thirtieth day after the 
date of publication of notice thereof, unless the Commission finds good 
cause for so doing. As set forth below, the Commission finds good cause 
to approve Amendment No. 2 to the proposed rule change prior to the 
thirtieth day after Amendment No. 2 is published for comment in the 
Federal Register pursuant to Section 19(b)(2) of the Act.\165\
---------------------------------------------------------------------------

    \164\ 15 U.S.C. 78s(b)(2).
    \165\ Id.
---------------------------------------------------------------------------

    The modification made by Amendment No. 2 to require a cross with 
size to be larger than the aggregate size of all orders in the Matching 
System at the same price, rather than larger only than the largest 
individual order,\166\ merely retains--for the time being--a condition 
for cross with size orders that exists in the Exchange's current 
rules.\167\ The new provision to execute various types of cross orders 
as crosses with size if they qualify as such\168\ simply builds in a 
directive into cross orders generally that enables them to receive a 
better execution if they meet the relevant requirements.
---------------------------------------------------------------------------

    \166\ See supra note 81.
    \167\ See current CHX Article XXA, Rule 2(c)(4).
    \168\ See supra note 82.
---------------------------------------------------------------------------

    The revision made by Amendment No. 2 regarding cancellation of 
certain sell short orders improves the proposal by accounting for 
situations in which an appropriate price cannot be determined for an 
order of this type.\169\ The addition of the ``ISO Cross'' order type 
makes explicit that a cross order, like other orders, may be appended 
with ISO

[[Page 59573]]

instructions.\170\ The revision regarding new display instructions 
\171\ changes only the method by which such an instruction would need 
to be submitted, but alters no principle of priority included in the 
original proposal.
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    \169\ See supra note 83.
    \170\ See supra note 84.
    \171\ See supra note 86.
---------------------------------------------------------------------------

    Amendment No. 2 also improves the proposal by confirming the 
circumstances in which the Matching System would display quotes that 
would lock or cross the protected quotes of other markets,\172\ and 
appropriately spells out that the Matching System will trade in 
increments supported by the ITS or Regulation NMS linkage plan, as may 
be applicable.\173\ Another provision adds clarity to how orders should 
be identified, according to the proposed rules, when a trade is 
executed pursuant to both the intermarket sweep order exception of Rule 
611(b)(5) or (6) of Regulation NMS and the self-help exception of Rule 
611(b)(1) of Regulation NMS.\174\ Other clarifying changes similarly 
enhance the proposal.\175\
---------------------------------------------------------------------------

    \172\ See supra note 87.
    \173\ See supra, note 88.
    \174\ See supra note 89.
    \175\ See supra notes 90-95 and accompanying text.
---------------------------------------------------------------------------

    Amendment No. 2 also incorporates a number of added restrictions 
and requirements for market makers that set forth in more detail the 
parameters by which market making may take place on the Exchange and 
should aid in the prevention of abuses.\176\ In addition, Amendment No. 
2 sets forth provisions requiring the Exchange to maintain internal 
controls designed to restrict the flow of confidential and proprietary 
information between the Exchange and the third-party broker-dealer 
providing connectivity to other markets. The provision added by 
Amendment No. 2 to permit ``qualified contingent trades'' to be 
executed on the Exchange \177\ merely assures that market participants 
would be able to benefit from the Commission's order exempting from 
Rule 611(a) any trade-throughs caused by such trades. The revisions to 
the text to reflect and conform to recent changes made as the result of 
other, recently approved CHX proposals,\178\ as well as the technical 
changes and corrections included in Amendment No. 2, raise no 
substantive issues. Finally, a number of the changes mirror rules that 
already have been approved for other exchanges.
---------------------------------------------------------------------------

    \176\ See supra notes 96-97 and accompanying text.
    \177\ See supra notes 97-99 and accompanying text.
    \178\ See supra note 101.
---------------------------------------------------------------------------

    For the above reasons, the Commission believes that the revisions 
to the proposed rule change made by Amendment No. 2 pose no significant 
regulatory concerns, and should not delay implementation of the 
proposal. The Commission also believes that accelerated approval is 
reasonable because it should help to ensure that the appropriate rules 
are in place at the Exchange at the time that the CHX's final technical 
specifications with respect to Regulation NMS must be published.

V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 2, including whether Amendment No. 2 
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-2006-05 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CHX-2006-05. 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 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-
2006-05 and should be submitted on or before October 31, 2006.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\179\ that the proposed rule change (File No. SR-CHX-2006-05), as 
amended by Amendment No. 1, be, and hereby is, approved, and that 
Amendment No. 2 to the proposed rule change be, and hereby is, approved 
on an accelerated basis.
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    \179\ 15 U.S.C. 78s(b)(2).
    \180\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\180\
Nancy M. Morris,
Secretary.
[FR Doc. E6-16626 Filed 10-6-06; 8:45 am]
BILLING CODE 8011-01-P