Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto by the Chicago Stock Exchange, Inc. Relating to Participant Fees and Credits, 16540-16541 [E5-1409]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 61 (Thursday, March 31, 2005)]
[Notices]
[Pages 16540-16541]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-1409]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51430; File No. SR-CHX-2005-03]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto by 
the Chicago Stock Exchange, Inc. Relating to Participant Fees and 
Credits

March 24, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4\2\ thereunder, notice is hereby given that 
on March 1, 2005, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III, below, which Items have been prepared by the CHX. On March 18, 
2005, the Exchange filed Amendment No. 1 to the proposal to clarify 
three issues in the original filing.\3\ The proposed rule change has 
been filed by the CHX as establishing or changing a due, fee, or other 
charge, pursuant to Section 19(b)(3)(A)(ii) of the Act,\4\ and Rule 
19b-4(f)(2) \5\ thereunder, which renders the proposal effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Form 19b-4, dated March 18, 2005 (``Amendment No. 1''), 
which replaced the original filing in its entirety. The Exchange 
filed Amendment No. 1 to: (a) Remove the inadvertent underlining of 
the term ``Tape B'' in the proposed rule text; (b) clarify the 
language in footnote 8 by using the term ``NBBO'' instead of using 
both the terms ``NBBO'' and ``ITS BBO'' when confirming how CHXpress 
orders will be handled when they would improperly lock or cross the 
best bid or offer in the market; and (c) clarify that the Exchange 
proposes to classify as ``Designated CHX Securities'' all securities 
in which the CHXpress functionality is enabled.
    For purposes of calculating the 60-day abrogation period, the 
Commission considers the period to have commenced on March 18, 2005, 
the date the Exchange filed Amendment No. 1.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CHX proposes to amend its Participant Fee Schedule to exempt, 
from the fixed fees paid by specialist firms, securities in which 
CHXpress\TM\ orders are processed by the Exchange. Below is the text of 
the proposed rule change. Proposed new language is in italics.
* * * * *
Participant Fees and Credits
* * * * *
    E. Specialist Fixed Fees
    Except in the case of Tape B Exemption Eligible Securities (as 
defined above in Section D), and Designated CHXpress Securities (as 
defined below), which shall be exempt from assessment of fixed fees, 
specialists will be assigned a fixed fee per assigned stock on a 
monthly basis, to be calculated as follows:
* * * * *
    ``Designated CHXpress Securities'' are those issues which have been 
designated by the Exchange on a monthly basis as fixed-fee exempt.
* * * * *

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 change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The 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
    The Exchange stated that it is rolling out a new, automated 
functionality for the handling of particular orders, called 
CHXpress.\TM\ According to the Exchange, the CHXpress functionality is 
designed to provide additional opportunities for the Exchange's 
participants to seek and receive liquidity through automated executions 
of orders at the Exchange.\6\ With a few exceptions, CHXpress orders 
will be executed immediately and automatically against same or better-
priced orders in the specialist's book, or against the specialist's 
quote (when that functionality is available).\7\ If a CHXpress order 
cannot be immediately executed, it will be placed in the specialist's 
book for instantaneous display or later execution.\8\ A CHX specialist 
may not cancel or place a CHXpress order on hold or otherwise prevent 
the order-sending firm from canceling the order.
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    \6\ See Securities Exchange Act Release No. 50481 (Sept. 30, 
2004); 69 FR 60197 (Oct. 7, 2004) (SR-CHX-2004-12).
    \7\ CHXpress orders will not be executed if those executions 
would improperly trade-through another ITS market or if trading in 
the issue had been halted. CHXpress orders that would improperly 
trade through an ITS market or that are received during a trading 
halt will be cancelled. If trading in an issue has been halted, 
CHXpress orders in the book will be cancelled.
    \8\ A CHXpress order will be instantaneously and automatically 
displayed when it constitutes the best bid or offer in the CHX book. 
See Article XX, Rule 37(b)11(D). CHXpress orders, like all other 
orders at the Exchange, will not be eligible for automated display 
if that display would improperly lock or cross the NBBO. A CHXpress 
order that would improperly lock or cross the NBBO will be 
cancelled. CHXpress orders cannot be excluded from the CHX's quote.
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    The Exchange stated that this new functionality currently is 
available in select issues, and the Exchange plans to extend the use of 
this functionality to additional issues in upcoming weeks. The Exchange 
also stated that the implementation of the CHXpress functionality has 
been somewhat slower than it anticipated because of the need for the 
Exchange to focus on other trading system improvements. According to 
the Exchange, two CHXpress-related projects--to automate the execution 
of inbound ITS commitments and to provide for the automatic execution 
of a specialist's quote--are among the projects that have not yet been 
completed.\9\
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    \9\ The Exchange stated that it is also working to enhance its 
systems' ability to process the many order messages that will be 
sent when the CHXpress functionality is rolled out to all 
securities. The Exchange stated that it has seen that the firms 
currently using this functionality typically will send an order and, 
if the order is not immediately executed, will send an immediate 
cancellation message. In general terms, these messages greatly 
increase the number of slots (one slot for each message) that must 
be available within the Exchange's systems.
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    The Exchange believes that the CHXpress functionality has provided 
the speed and certainty sought by some of the Exchange's participants 
and plans to extend the functionality to new securities over the next 
several weeks. According to the Exchange, CHX specialist firms, on the 
other hand, have

[[Page 16541]]

noted that they will be best able to handle issues associated with the 
automatic execution of CHXpress orders when inbound ITS commitments are 
automatically executed and when they can display (and have 
automatically executed) their manual proprietary quotes--issues that 
will be addressed with upcoming systems work.\10\ In the interim, the 
Exchange is proposing to exempt, from the specialist fixed fees, all 
securities in which CHXpress orders are processed by the Exchange.\11\ 
The Exchange intends to identify these securities, on a monthly basis, 
at the beginning of each month, based on business factors including the 
interest demonstrated by order-sending firms in trading a particular 
security. The Exchange stated that the CHXpress functionality would be 
enabled for these Designated CHXpress Securities throughout the month.
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    \10\ According to the Exchange, it is currently possible for a 
specialist to receive an ITS commitment seeking execution at a 
displayed quote, and to be in the process of manually executing that 
commitment, when a CHXpress order seeking execution against the same 
interest automatically executes at that price. In these situations, 
a specialist is obligated to fill the earlier-received ITS 
commitment, even though the displayed bid or offer has already been 
satisfied. The Exchange believes that the automatic execution of 
inbound ITS commitments would resolve this double liability by 
taking down (or decrementing, when appropriate) the bid or offer 
immediately upon the automatic execution of the ITS commitment. Any 
later-received CHXpress order would then be executed, if possible, 
against the CHX's updated quote.
    The Exchange also stated that, when a CHX specialist displays a 
manual, proprietary bid or offer, the Exchange's systems are not 
currently able to allow incoming orders, including CHXpress order, 
to automatically execute against that quote. As a result, in 
securities where the CHXpress functionality is enabled (and where 
automated executions are required against displayed quotes), a CHX 
specialist does not display manual bids and offers.
    \11\ The Exchange stated that the proposed elimination of the 
fixed fee is designed to compensate specialists for the potential 
double liability associated with the handling of ITS commitments 
when CHXpress orders are automatically executing against displayed 
bids and offers and for their inability to manually post bids and 
offers in CHXpress-eligible securities.
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2. Statutory Basis
    The CHX believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\12\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act,\13\ in particular, in 
that it provides for the equitable allocation of reasonable dues, fees 
and other charges among its members.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
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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 inappropriate burden on competition.

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

    The foregoing proposed rule change has become effective pursuant to 
Section 19(b)(3)(A)(ii) of the Act,\14\ and Rule 19b-4(f)(2)\15\ 
thereunder, because it establishes or changes a due, fee, or other 
charge imposed by the Exchange. At any time within 60 days of the 
filing of the proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-CHX-2005-03 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-CHX-2005-03. 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 (https://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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
CHX. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-CHX-
2005-03 and should be submitted on or before April 21, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-1409 Filed 3-30-05; 8:45 am]
BILLING CODE 8010-01-P