[Federal Register Volume 76, Number 142 (Monday, July 25, 2011)]
[Notices]
[Pages 44386-44387]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-18684]



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SECURITIES AND EXCHANGE COMMISSION



[Release No. 34-64915; File No. SR-CHX-2011-13]




Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 

Notice of Filing and Immediate Effectiveness of Proposed Rule Change 

Regarding the Obligations of Exchange-Registered Institutional Brokers



 July 19, 2011.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 

that, on July 12, 2011, the Chicago Stock Exchange, Inc. (``CHX'' or 

the ``Exchange'') filed with the Securities and Exchange Commission 

(``Commission'') the proposed rule change as described in Items I and 

II below, which Items have been prepared by the CHX. CHX has filed this 

proposal pursuant to Exchange Act Rule 19b-4(f)(6) \3\ which is 

effective upon filing with the Commission. The Commission is publishing 

this notice to solicit comments on the proposed rule change from 

interested persons.

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    \1\ 15 U.S.C.78s(b)(1).

    \2\ 17 CFR 240.19b-4.

    \3\ 17 CFR 240.19b-4(f)(6).

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

of the Proposed Rule Change



    CHX proposes to add Interpretation and Policy .04 to Article 17, 

Rule 3 (Institutional Broker Responsibilities) to include an explicit 

reference to the obligation of Exchange-registered to seek execution of 

orders which they handle in a prompt and timely manner. The text of 

this proposed rule change is available on the Exchange's Web site at 

(http://www.chx.com) and in the Commission's Public Reference Room.



II. Self-Regulatory Organization's Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule Change



    In its filing with the Commission, the CHX included statements 

concerning the purpose of and basis for the proposed rule changes and 

discussed any comments it received regarding the proposal. The text of 

these statements may be examined at the places specified in Item IV 

below. The CHX has prepared summaries, set forth in sections A, B, and 

C below, of the most significant aspects of such statements.



A. Self-Regulatory Organization's Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule Change



1. Purpose

    Through this proposal, the Exchange seeks to add Interpretations 

and Policies .04 to Article 17, Rule 3 (Responsibilities of 

Institutional Brokers) to make explicit the obligation of Institutional 

Brokers registered with the Exchange to handle orders in a prompt and 

timely manner. The obligation to handle orders in a prompt and timely 

manner is part of the existing responsibility of a broker dealer to 

seek best execution when handling or executing an order on behalf of a 

customer.\4\ The Exchange's Market Regulation Department conducts 

routine automated surveillance for compliance by Institutional Brokers 

with the requirement to handle and execute orders in a timely manner. 

The explicit



[[Page 44387]]



reference in the Interpretations and Policies to our rules to the 

requirement of Institutional Brokers to handle orders in a prompt and 

timely manner would reinforce this duty to the Institutional Brokers 

operating on the Exchange, and clarify the nature and scope of this 

obligation.

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    \4\ See, e.g., NASD Rule 2320. (Best Execution and 

Interpositioning), ``In any transaction for or with a customer or a 

customer of another broker-dealer, a member and persons associated 

with a member shall use reasonable diligence to ascertain the best 

market for the subject security and buy or sell in such market so 

that the resultant price to the customer is as favorable as possible 

under prevailing market conditions.''

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    The requirement to handle orders in a prompt and timely manner 

would be subject to the existing provisions of that rule relating to 

``not held'' orders. Not held orders involve price and time discretion 

and an Institutional Broker is permitted to delay the execution of a 

not held order if it believes that such action is in the best interests 

of the customer. Thus, the requirement to handle orders in a prompt and 

timely manner, while still applicable to not held orders, must allow 

for the legitimate application of price and time discretion by the 

Institutional Broker.\5\

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    \5\ If an Institutional Broker neglected to take any action on a 

not held order for an improper purpose, e.g., inattention to or 

forgetting about the order, however, it could still be charged for 

failure to comply with these provisions.

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2. Statutory Basis

    The Exchange believes that the proposed rule change is consistent 

with Section 6(b) of the Act in general,\6\ and furthers the objectives 

of Section 6(b)(5) in particular,\7\ in that it is designed to promote 

just and equitable principles of trade, to foster cooperation and 

coordination with persons engaged in facilitating transaction in 

securities, to remove impediments and perfect the mechanisms of a free 

and open market, and, in general, to protect investors and the public 

interest by reinforcing the duties of best execution and the 

requirement to handle orders in a prompt and timely manner to the 

Institutional Brokers operating on the Exchange, and clarify the nature 

and scope of this obligation. In addition, the Exchange believes that 

the proposed rule change is consistent with Section 6(b) of the Act \8\ 

in general, and furthers the objectives of Section 6(b)(1) of the Act 

\9\ in particular, in that it allows the Exchange to be organized and 

have the capacity to be able to carry out the purposes of the Act and 

to comply, and (subject to any rule or order of the Commission pursuant 

to section 17(d) or 19(g)(2) of the Act) to enforce compliance by its 

members and persons associated with such members, with the provisions 

of the Act, the rules and regulations thereunder, and the rules of the 

exchange. As noted above, the Exchange believes that by adding an 

Interpretation and Policy to make explicit the obligation to handle 

orders in a prompt and timely manner, this proposal advances the 

purposes of the Exchange Act by providing added clarity about the 

nature and extent of the duties owed by Exchange Participants, and 

contributes to the ability of the CHX to effectively enforce compliance 

with those requirements.

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    \6\ 15 U.S.C. 78f(b).

    \7\ 15 U.S.C. 78f(b)(5).

    \8\ 15 U.S.C. 78f.

    \9\ 15 U.S.C. 78f(b)(1).

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



    The Exchange does not believe that the proposed rule change will 

impose any burden on competition that is not necessary or appropriate 

in furtherance of the purposes of the Act.



C. Self-Regulatory Organization's Statement on Comments Regarding the 

Proposed Rule Change Received From Members, Participants, or Others



    No written comments were either solicited or received.



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

Commission Action



    Because the foregoing proposed rule change does not: (i) 

Significantly affect the protection of investors or the public 

interest; (ii) impose any significant burden on competition; and (iii) 

become operative for 30 days after the date of the filing, or such 

shorter time as the Commission may designate, it has become effective 

pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 

thereunder.\11\

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    \10\ 15 U.S.C. 78s(b)(3)(A).

    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 

requires a self-regulatory organization to give the Commission 

written notice of its intent to file the proposed rule change at 

least five business days prior to the date of filing of the proposed 

rule change, or such shorter time as designated by the Commission. 

The Exchange has satisfied this requirement.

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    At any time within 60 days of the filing of the proposed rule 

change, the Commission summarily may temporarily suspend such rule 

change if it appears to the Commission that such action is necessary or 

appropriate in the public interest, for the protection of investors, or 

otherwise in furtherance of the purposes of the Act.



IV. Solicitation of Comments



    Interested persons are invited to submit written data, views, and 

arguments concerning the foregoing, including whether the proposed rule 

change is consistent with the Act. Comments may be submitted by any of 

the following methods:



Electronic Comments



     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or

     Send an e-mail to [email protected]. Please include 

File Number SR-CHX-2011-13 on the subject line.



Paper Comments



     Send paper comments in triplicate to Elizabeth M. Murphy, 

Secretary, Securities and Exchange Commission, 100 F Street, NE., 

Washington, DC 20549-1090.



All submissions should refer to File Number SR-CHX-2011-13. 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 website viewing and 

printing in the Commission's Public Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official business days between the hours of 10 

a.m. and 3 p.m. Copies of such filing also will be available for 

inspection and copying at the principal office of the Exchange. All 

comments received will be posted without change; the Commission does 

not edit personal identifying information from submissions. You should 

submit only information that you wish to make available publicly. All 

submissions should refer to File Number SR-CHX-2011-13 and should be 

submitted on or before August 15, 2011.



    For the Commission, by the Division of Trading and Markets, 

pursuant to delegated authority.\12\

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

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Elizabeth M. Murphy,

Secretary.

[FR Doc. 2011-18684 Filed 7-22-11; 8:45 am]

BILLING CODE 8011-01-P