Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating to Records of Orders and Executions, 70002-70006 [E5-6380]
Download as PDF
<![CDATA[
70002
Federal Register / Vol. 70, No. 222 / Friday, November 18, 2005 / Notices
members through whom such orders are
placed.
Amex represents that the proposed
options licensing fees would allow the
Exchange to recoup its costs in
connection with the index license fees
for the trading of PXN and PPA options.
The fees would be collected on every
Market Participant order executed on
the Exchange. The Exchange believes
that requiring the payment of a percontract licensing fee in connection
with PXN and PPA options by those
Market Participants that benefit from the
index license agreements is justified and
consistent with the rules of the
Exchange.
The Exchange notes that, in recent
years, it has revised a number of its fees
to better align Amex fees with the actual
cost of delivering services and reduce
Amex’s subsidization of such services.7
The Exchange represents that the
implementation of this proposal is
consistent with the reduction and/or
elimination of these subsidies. Amex
believes that these fees will help to
allocate to those Market Participants
engaging in transactions in PXN and
PPA options a fair share of the related
costs of offering such options for
trading.
The Exchange asserts that the
proposal provides for an equitable
allocation of fees as required by section
6(b)(4) of the Act.8 In connection with
the adoption of options licensing fees
for PXN and PPA options, the Exchange
notes that charging the options licensing
fees, where applicable, to all Market
Participant orders, except for customer
orders, is reasonable given the
competitive pressures in the industry.
Accordingly, the Exchange seeks,
through this proposal, to better align its
transaction charges with the cost of
providing trading products.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act 9 in general, and
furthers the objectives of section 6(b)(4)
of the Act 10 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees, and other charges
7 See, e.g., Securities Exchange Act Release No.
45360 (January 29, 2002), 67 FR 5626 (February 6,
2002); Securities Exchange Act Release No. 44286
(May 9, 2001), 66 FR 27187 (May 16, 2001).
8 Section 6(b)(4) of the Act states that the rules of
a national securities exchange must ‘‘provide for the
equitable allocation of reasonable dues, fees, and
other charges among its members and issuers and
other persons using its facilities.’’ 15 U.S.C.
78f(b)(4).
9 15 U.S.C. 78f(b).
10 15 U.S.C. 78f(b)(4).
VerDate Aug<31>2005
15:21 Nov 17, 2005
Jkt 208001
among its members and other persons
using its facilities.
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 on the
Proposed Rule Change Received From
Members, Participants or Others
No written comments were solicited
or received with respect to the proposed
rule change.
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 11 and Rule
19b–4(f)(2) 12 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.
IV. Solicitation of Comments
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
Room. Copies of the filing also will be
available for inspection and copying at
the principal office of Amex. 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–Amex–2005–108 and
should be submitted on or before
December 9, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.13
Jonathan G. Katz,
Secretary.
[FR Doc. E5–6381 Filed 11–17–05; 8:45 am]
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:
BILLING CODE 8010–01–P
Electronic Comments
Self-Regulatory Organizations;
Chicago Stock Exchange, Inc.; Notice
of Filing of Proposed Rule Change and
Amendment Nos. 1 and 2 Thereto
Relating to Records of Orders and
Executions
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–Amex–2005–108 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–9303.
All submissions should refer to File
Number SR–Amex–2005–108. This file
number should be included on the
subject line if e-mail is used. To help the
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52766; File No. SR–CHX–
2004–38]
November 10, 2005.
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 November
3, 2004, 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 July
13 17
11 15
U.S.C. 78s(b)(3)(A)(ii).
12 17 CFR 19b–4(f)(2).
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\18NON1.SGM
18NON1
Federal Register / Vol. 70, No. 222 / Friday, November 18, 2005 / Notices
3, 2005, the Exchange filed Amendment
No. 1 to the proposal 3 and on
September 8, 2005, the Exchange filed
Amendment No. 2 to the proposal.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The CHX proposes to amend its rules
to require its on-floor participants to
electronically record specific details
about orders originating on or off the
floor of the Exchange for execution on
the Exchange, as well as orders issued
from the floor of the Exchange to any
other market or trading venue.
The text of the proposed rule change
is below. Proposed new language is in
italics; proposed deletions are in
[brackets].
*
*
*
*
*
ARTICLE XX
Regular Trading Sessions
*
*
*
*
*
Records of Orders and Executions
RULE 24. (a) Every Floor Participant
shall preserve for at least three years (or
any longer period of time required by
Exchange Act Rule 17a–4) a record,
meeting the criteria set out in paragraph
(b) below, of:
(1) every order originat[ed]ing [by him
or it] on the Floor [and] that is given to
3 In Amendment No. 1, which replaced and
superseded the original filing in its entirety, the
Exchange amended the proposed rule text to add
requirements that participants confirm whether an
order was an agency or professional order; whether
an order was short or short exempt; the market to
which the order was transmitted; the identification
of any party cancelling or modifying the order; the
date and time of any order expiration; and the
contra party to the execution (if applicable). The
Exchange also added Interpretation and Policy .09
to confirm that the requirements of the proposed
rule would not replace any record retention
obligations to which the Exchange’s participants
may be subject under the Act and the rules
thereunder. Finally, the Exchange replaced
references to the Exchange’s ‘‘members’’ with
references to its ‘‘participants,’’ reflecting changes
in terminology associated with the Exchange’s
February 2005 demutualization. See Securities
Exchange Act Release No. 51149 (February 8, 2005),
70 FR 7531 (February 14, 2005) (approval order for
the Exchange’s proposed rule changes in
connection with its demutualization).
4 In Amendment No. 2, which replaced and
superseded the filing as amended by Amendment
No. 1 in its entirety, the Exchange made minor
changes to the proposed rule text, including (1)
confirming that a participant must record any
modifications to the date and time of any order
expiration and (2) consistently capitalizing the
word ‘‘Rule.’’ In addition, the Exchange conformed
the footnotes in the purpose section to reflect
changes made to the rule language in Amendment
No. 1. The substantive changes in Amendment No.
1 were included in Amendment No. 2.
VerDate Aug<31>2005
15:21 Nov 17, 2005
Jkt 208001
(or received from) another Participant
for execution and any execution of that
order, and
(2) [of] every order [commitment or
obligation to trade] issued from the
Floor to any other market or trading
venue and any execution of that order
[through ITS or any other application of
the System or pursuant to Rule 39 or
Rule 40,]; and
(3) [of] every order originating off the
Floor, transmitted by any person,
whether or not that person is [other
than] a Participant, to such Participant
on the Floor and any execution of that
order[, which record shall include the
name and the amount of the security,
the terms of the order and the time
when such order was so given or
transmitted]; provided, however, that
the Exchange may, upon application,
grant exemption from the provisions of
this Rule.
(b) Subject to the exceptions set out in
Interpretations .02, .04, .05 and .07
below, each Floor Participant must
record, in such electronic system(s) as
the Exchange shall designate, the
following details about each order and
execution identified in (a)(1) through (3)
above:
(1) Symbol;
(2) Clearing Participant;
(3) Order identifier that uniquely
identifies the order;
(4) Identification of Participant
recording the order details;
(5) Number of shares or quantity of
security;
(6) Side of market;
(7) Designation of order type (e.g.,
market, limit, stop, stop limit);
(8) Whether the order is agency or
professional;
(9) Whether the order is being
handled pursuant to Exchange Act
Section 11(a)(1)(G) and any applicable
rules thereunder;
(10) Whether the order is short or
short exempt;
(11) Whether the order is a bona fide
arbitrage order;
(12) Any limit price and/or stop price;
(13) Date and time of order receipt or
transmission (as applicable);
(14) The market, off-floor firm or onfloor Participant to which the order was
transmitted or from which the order was
received (if applicable);
(15) Time in force;
(16) Designation as held or not held;
(17) Any special conditions or
instructions (including any customer
do-not-display or display instructions
and any all-or-none conditions);
(18) Any modifications to the details
set out in (1)–(17) above or (20) below,
for all or part of the order, or any
cancellation of all or part of the order;
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
70003
(19) Date and time of receipt or
transmission of any modifications to the
order or any cancellation of the order;
(20) Date and time of any order
expiration;
(21) Identification of the party
cancelling or modifying the order;
(22) Transaction price (if applicable);
(23) Number of shares executed (if
applicable);
(24) Date and time of execution (if
applicable);
(25) Contra party to the execution (if
applicable);
(26) Settlement instructions (if
applicable);
(27) System-generated time(s) of
recording required information; and
(28) Such other information as the
Exchange may from time to time
require.
[Whenever a cancellation is entered
with respect to such an order or
commitment or obligation to trade, or a
report of the execution of such an order
or commitment or obligation to trade is
received, there shall be preserved for at
least three years, in addition to the
record required by the foregoing
paragraph, a record of the cancellation
of the order or commitment or
obligation to trade or of the receipt of
such report, which shall include the
time of entry of such cancellation or of
the receipt of such report.]
(c) Floor Participants must record the
information required by (b) above
immediately after such information is
received or becomes available.
[c](d) Before any such order is
executed, including the case where an
order is to be executed by the issuance
from the Floor of a commitment or
obligation to trade through ITS or any
other application of the System or
pursuant to Rule 39 or Rule 40, there
shall be placed upon the order slip or
other record the name or designation of
the account for which such order is to
be executed. No change to the name or
designation of the [in such ] account for
which an order is to be executed [name
or designation] shall be made unless the
change has been authorized by the
Participant or by a partner or officer of
the Participant Firm, who shall, prior to
giving his approval of such change, be
personally informed of the essential
facts relative thereto and shall indicate
his approval of such change in writing
on the order.
[Exceptions
Under exceptional circumstances the
Exchange may upon written request
waive the requirements contained in
(1)(a) above.]
* * * Interpretations and Policies:
.01 Every order covered by [(1)]
paragraph (a) above, which is to be
E:\FR\FM\18NON1.SGM
18NON1
70004
Federal Register / Vol. 70, No. 222 / Friday, November 18, 2005 / Notices
executed pursuant to Section 11(a)(1)(G)
of the Act and Rule 11a1–1(T)
thereunder, shall bear an identifying
notation that will enable the executing
Participant to disclose to other
Participants that the order is subject to
those provisions.
.02 For purposes of this Rule, an
order shall be any written, oral or
electronic instruction to effect a
transaction. A decision by a cospecialist, market maker or floor broker
to buy or sell securities for his or her
own account on the Floor of the
Exchange shall not constitute an order
for which a record must be made under
this Rule.
.03 Each required record of the time
of an event shall be expressed in terms
of hours, minutes and seconds.
.04 This Rule shall not apply to
orders sent or received through the
Exchange’s MAX system or through any
other electronic systems that the
Exchange expressly recognizes as
providing the required information in a
format acceptable to the Exchange. The
Exchange will not recognize a nonExchange system as providing
information in an acceptable format
unless that system has synchronized its
business clocks for recording data with
reference to a time source designated by
the Exchange and maintains that
synchronization in conformity with
procedures prescribed by the Exchange.
.05 Any orders which the Exchange
has expressly recognized as
incompatible for entry in an Exchange
system relied on by a Floor Participant
to record the details of the order in
compliance with this Rule shall be
exempt from the order entry
requirements of paragraph (b) above;
provided, however, that Floor
Participants shall retain a written record
of those orders which includes as much
of the information set out in paragraph
(b) as is possible, but no less than the
name and the amount of the security,
the terms of the order, the time when
such order was so given or transmitted,
the date and time of any modifications
or cancellations of the order, the date
and time of execution and the execution
price.
.06 With respect to a bona fide
arbitrage order, a Floor Participant may
execute such order before entering the
order into an electronic system as
required by paragraph (b) above, but
such Floor Participant must enter such
order into such electronic system no
later than 60 seconds after the execution
of such order. With respect to an order
to offset a transaction made in error, a
Floor Participant may, upon discovering
such error within the same trading
session, effect an offsetting transaction
VerDate Aug<31>2005
15:21 Nov 17, 2005
Jkt 208001
without first entering such order into an
electronic system, but such Floor
Participant must enter such order into
such electronic system no later than 60
seconds after the execution of such
order.
.07 A Floor Participant who receives
orders to buy and sell the same security
and executes those orders in full
immediately upon receipt shall record
only the information set out in (b)(1),
(2), (4), (9), (10) and (22) through (28)
above.
.08 Failure to comply with the
provisions of this Rule may be
considered conduct inconsistent with
just and equitable principles of trade, in
violation of Article VIII, Rule 7.
.09 The provisions of this Rule do
not replace any record retention
obligations to which the Exchange’s
Participants may be subject under the
Exchange Act and the rules thereunder.
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 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
The Exchange’s on-floor participants
execute trades on the Exchange and on
other markets.5 Currently, the
Exchange’s electronic systems capture
information about most of the orders
executed on the Exchange and about
many of the orders executed in other
markets. This information is used by the
Exchange to conduct surveillance of its
floor participants’ trading activities. In
some instances, however, the Exchange
does not have complete information
about the orders received and executed
by its participants or does not have that
information in electronic form. To
bolster its ability to conduct automated
surveillance of its participants’ trading
activities, the Exchange is proposing to
require its floor participants to provide
5 On February 9, 2005, the Exchange’s proposal to
demutualize took effect. Under the Exchange’s new
rules, the Exchange’s members are referred to as
‘‘participants.’’
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
particular data about all orders
originating on or off the floor of the
Exchange for execution on the
Exchange, as well as all orders issued
from the floor of the Exchange to any
other market or trading venue.6 For
purposes of this submission, these
orders will be called ‘‘covered orders.’’
Specifically, through this submission,
the Exchange is proposing to require
floor participants to record, in electronic
systems designated by the Exchange, the
following details about each covered
order: (1) The symbol of the security; (2)
the clearing participant; (3) an order
identifier that uniquely identifies the
order;7 (4) the identity of the participant
recording the order details; (5) the
number of shares or quantity of the
security; (6) the side of the market (i.e.,
whether the order is a buy or sell order);
(7) a designation of the order type (e.g.,
market, limit, stop, stop limit); (8)
whether the order is agency or
professional;8 (9) whether the order is
being handled pursuant to Section
11(a)(1)(G) of the Act and any applicable
rules thereunder; (10) whether the order
is short or short exempt; (11) whether
the order is a bona fide arbitrage order;
(12) any limit price and/or stop price;
(13) the date and time of order receipt
or transmission (as applicable); (14) the
market, off-floor firm, or on-floor
participant to which the order was
transmitted or from which the order was
received (if applicable); (15) the order’s
time in force; (16) any designation as
held or not held; (17) any special
conditions or instructions (e.g., any
customer display or do-not-display
6 The proposed rule, for example, would require
a floor broker who receives an order from another
participant (whether the participant is on-floor or
off-floor) to record detailed information relating to
the order, any changes to the order, and its
execution. Similarly, if a floor broker receives an
order and then transmits it to another market, he
would be required to record information not only
about the order, but about its transmission to
another market and any execution that it received
in that market. The proposed rule change is
designed to provide a complete record of the
handling of orders received by the Exchange’s floor
participants and, together with a recently-adopted
rule, will provide a complete record of any orders
sent by the Exchange’s floor participants to other
trading venues. See Securities Exchange Act
Release No. 52534 (September 29, 2005), 70 FR
58500 (October 6, 2005) (SR–CHX–2004–25) (rule
change relating to a prohibition on using a layoff
service unless the service provides required
information to the Exchange).
7 This order identifier does not change when
modifications are made to the order, or when it is
cancelled, allowing any changes to be tracked back
to the original order.
8 The Exchange’s rules define a ‘‘professional’’
order as one that is for the account of a brokerdealer, the account of an associated person of a
broker-dealer, or any account in which a brokerdealer or an associated person of a broker-dealer has
any direct or indirect interest. See CHX Article
XXX, Rule 2, Interpretation and Policy .04.
E:\FR\FM\18NON1.SGM
18NON1
Federal Register / Vol. 70, No. 222 / Friday, November 18, 2005 / Notices
instructions or any all-or-none
conditions); (18) any modifications that
are made to the details set out in (1)
through (17) or (20) below, for all or part
of the order, or any cancellation of all
or part of the order; (19) the date and
time of receipt or transmission of any
modifications to, or cancellation of, the
order; (20) the date and time of any
order expiration; (21) the identity of the
party cancelling or modifying the order;
(22) the transaction price, if applicable;
(23) the number of shares executed, if
applicable; (24) the date and time of
execution, if applicable; (25) the contra
party to the execution (if applicable);
(26) the settlement instructions
associated with the order, if applicable;
(27) system-generated time(s) of
recording required information; and (28)
any other information that may be
required by the Exchange from time to
time.9 Floor participants would be
required to record this information
immediately after that information is
received or becomes available.10
Proposed Interpretations and Policies
.01 to .09 to the proposed rule change
contain additional information about
the information that participants must
record and preserve. Among other
things, these interpretations confirm
that each required record of the time of
an event must be expressed in terms of
hours, minutes, and seconds. These
interpretations also provide a definition
of the term ‘‘order’’ and identify
particular items of information that
must be provided by participants who
receive orders to buy and sell a security
and immediately execute those orders.11
9 See
CHX Article XX, Proposed Rule 24(b).
10 See CHX Article XX, Proposed Rule 24(c).
11 Proposed Interpretation and Policy .02 defines
an order as ‘‘any written, oral or electronic
instruction to effect a transaction.’’ This
interpretation also notes that a decision by a cospecialist, market maker or floor broker to buy or
sell securities for his or her own account on the
floor of the Exchange would not constitute an order
for purposes of the rule’s data recording
requirements. This exception for principal trading
on the Exchange’s floor is designed to recognize
that all necessary information about a floor
participant’s own trading is already captured by the
Exchange’s trade reporting systems.
Proposed Interpretation and Policy .07 confirms
that a floor participant who receives orders to buy
and sell the same security and who executes those
orders in full immediately upon receipt, would be
required to record information only about the
security’s symbol, the clearing organization, the
identity of the participant firm recording the order
details, whether the order is short or short exempt,
whether the order is being handled pursuant to
Section 11(a)(1)(G) of the Act, the transaction price,
the number of shares executed, the date and time
of execution, settlement instructions, the contra
side to the execution, a system-generated time of
recording the required information and any other
information required from the Exchange from time
to time. This requirement is designed to recognize
that the Exchange currently believes that it may not
be necessary for the Exchange’s participants to
VerDate Aug<31>2005
15:21 Nov 17, 2005
Jkt 208001
The remaining interpretations note that
participants will not be required to
record information with respect to
orders sent or received through the
Exchange’s MAX system or through
any other electronic systems that the
Exchange recognizes as providing the
required information in an acceptable
format and set out two limited
exceptions to the data-recording
requirements.12
The Exchange believes that these
proposed requirements appropriately
permit the Exchange to collect the
electronic information needed to
conduct automated surveillance of its
participants’ trading activities.13 The
Exchange has worked to tailor the rules
so that they require participants to
record and retain information needed to
conduct appropriate surveillance,
without imposing unnecessary datacollection requirements.14 Moreover,
record detailed order information about orders that
are immediately executed; at the same time,
however, the Exchange has retained the ability
(through paragraph (b)(28)) to require participants
to provide additional information about those
orders, including information that is set out in other
provisions of paragraph (b).
12 See Proposed Interpretations and Policies .04
(regarding orders sent and received through certain
systems), .05 (regarding orders that the Exchange
expressly recognizes as incompatible for entry into
an Exchange system) and .06 (regarding bona fide
arbitrage orders and orders to offset a transaction
made in error). As set forth below in note 13, the
Exchange believes that these exceptions are
appropriately tailored to ensure that the Exchange’s
participants are not required to enter unnecessary
information about orders, while still providing
information necessary for the Exchange’s
surveillance efforts.
13 Moreover, this proposal is consistent with
recommendations made by the independent
consultant retained by the Exchange under its
recent settlement agreement with the Commission.
See Securities Exchange Act Release No. 48566
(September 30, 2003), Administrative Proceeding
File No. 3–11282.
14 For example, Proposed Interpretation and
Policy .04 recognizes that participants are not
required to record information that is already
captured by the Exchange’s systems or by other
systems that the Exchange expressly recognizes as
providing the required data in an acceptable format.
(The Exchange’s MAX system already captures all
of the information required by this rule). Other
exceptions to the recording requirements—such as
the exceptions for bona fide arbitrage orders and for
orders offsetting transactions made in error—are
designed to recognize participants’ need to
immediately execute certain types of orders, while
still requiring prompt input of required order
information to permit the Exchange to conduct
appropriate surveillance. Finally, Proposed
Interpretation and Policy .05—a general provision
that would allow the Exchange to identify specific
types of orders that might be exempt from the datarecording requirements when they are incompatible
for entry into Exchange systems—is designed to
cover those rare situations where, due to
unexpected consequences of unrelated systems
changes or a software failure, participants cannot
enter data about a particular type of order into the
Exchange’s systems for a limited period of time.
This exception is not intended to allow participants
to avoid the recording requirements of the rule;
PO 00000
Frm 00081
Fmt 4703
Sfmt 4703
70005
the Exchange is working to complete
changes to its existing Brokerplex
system, so that that system can be used
by CHX floor brokers and market makers
to record all required order details.15 As
a result, the Exchange’s on-floor
participants will not be required to
develop their own data-recording
systems in response to this rule.16
2. Statutory Basis
The CHX believes the proposal is
consistent with the requirements of the
Act and the rules and regulations
thereunder that are applicable to a
national securities exchange, and, in
particular, with the requirements of
Section 6(b).17 In particular, the CHX
believes that the proposed rule change
is consistent with Section 6(b)(5) of the
Act in that it is designed to promote just
and equitable principles of trade, to
remove impediments and to perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest by permitting the
Exchange to require its participants to
provide the Exchange with data
necessary to conduct appropriate
surveillance of its participants’ trading
activities.
B. Self-Regulatory Organization’s
Statement of Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Written comments were neither
solicited nor received by the Exchange.
indeed, it requires participants to record as much
information about these orders as possible. The
Exchange anticipates that both it and its
participants would work quickly to correct any
software or systems problems that prevented some
or all of the required information from being
transmitted to, or received by, the Exchange.
15 The CHX has represented that these changes
would not delay the implementation of the
proposed rule change once approved by the
Commission. Telephone conversation between
Ellen J. Neely, President and General Counsel, CHX,
and Richard Holley III, Special Counsel, Division of
Market Regulation, Commission, on September 16,
2005. The Exchange’s Brokerplex system currently
can be used by CHX floor brokers to manage their
orders, route orders to the Exchange’s co-specialists
for execution and report executed trades.
16 The Exchange’s staff will present to the
Exchange’s Board of Directors a separate rule that
confirms the record-keeping obligations of its offfloor participants.
17 15 U.S.C. 78f(b).
E:\FR\FM\18NON1.SGM
18NON1
70006
Federal Register / Vol. 70, No. 222 / Friday, November 18, 2005 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change, as amended, or
(B) Institute proceedings to determine
whether the proposed rule change, as
amended, should be disapproved.
the principal office of the CHX. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File No.
SR–CHX–2004–38 and should be
submitted on or before December 9,
2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.18
Jonathan G. Katz,
Secretary.
[FR Doc. E5–6380 Filed 11–17–05; 8:45 am]
BILLING CODE 8010–01–P
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 rulecomments@sec.gov. Please include File
Number SR–CHX–2004–38 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File No.
SR–CHX–2004–38. 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
Room. Copies of such filing will also be
available for inspection and copying at
VerDate Aug<31>2005
15:21 Nov 17, 2005
Jkt 208001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52756; File No. SR–NASD–
2005–119]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing and
Order Granting Accelerated Approval
of Proposed Rule Change and
Amendment No. 1 Thereto Relating to
the Listing and Trading of Strategic
Total Return Securities SM Linked to
the CBOE Nasdaq-100 BuyWrite Index
November 9, 2005.
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
September 30, 2005, the National
Association of Securities Dealers, Inc.
(‘‘NASD’’), through its subsidiary, The
Nasdaq Stock Market, Inc. (‘‘Nasdaq’’),
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by Nasdaq. On
October 14, 2005, Nasdaq filed
Amendment No. 1 to the proposed rule
change.3 The Commission is publishing
this notice to solicit comments on the
proposed rule change from interested
persons and is approving the proposal
on an accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
Nasdaq proposes to list and trade
Strategic Total Return Securities SM
(‘‘STRS’’ or ‘‘Notes’’), the return on
18 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Amendment No. 1 replaced the original filing in
its entirety.
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
which is based upon the CBOE Nasdaq100 BuyWrite Index (‘‘BXN Index’’ or
‘‘Index’’) and issued by Morgan Stanley.
The text of the proposed rule change is
available on the NASD’s Web site
(https://www.nasd.com), at the principal
offices of the Nasdaq, and at 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,
Nasdaq 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 III below. Nasdaq 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
Nasdaq proposes to list and trade the
Notes. The Notes provide for a return
based upon the BXN Index.
Description of Notes
The Notes are non-convertible debt
issued by Morgan Stanley that are due
on October 30, 2011 and have a
principal amount and issue price of $10.
The Notes will trade as a single,
exchange-listed security. However, the
principal amount is initially reduce by
underwriting commissions of 1.20%, so
that the Notes, in fact, are initially
valued at $9.88, which is known as the
initial net entitlement value (‘‘Initial
NEV’’). Additional fees of 2% each year
reduce the Net Entitlement Value
(‘‘NEV’’). Because the initial NEV is
1.20% less than the issue price of the
securities and because the 2% per
annum adjustment amount reduces the
NEV over the term of the securities, the
BXN Index must increase for the
investor to receive an amount upon sale,
exchange, redemption or at maturity
equal to the issue price for each
security. Thus, unlike ordinary debt, the
Notes have no guaranteed return of
principal and do not pay interest.4
The payout on the Notes upon
exchange, upon redemption, or at
4 Telephone conference between Jonathan Cayne,
Associate General Counsel, Nasdaq, and Ronesha
Butler, Special Attorney, Division of Market
Regulation (‘‘Division’’), Commission, on November
8, 2005 (relating to additional descriptive material
about the Notes provided in prospectus
supplement).
E:\FR\FM\18NON1.SGM
18NON1
]]>Agencies
[Federal Register Volume 70, Number 222 (Friday, November 18, 2005)]
[Notices]
[Pages 70002-70006]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-6380]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52766; File No. SR-CHX-2004-38]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 2
Thereto Relating to Records of Orders and Executions
November 10, 2005.
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 November 3, 2004, 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 July
[[Page 70003]]
3, 2005, the Exchange filed Amendment No. 1 to the proposal \3\ and on
September 8, 2005, the Exchange filed Amendment No. 2 to the
proposal.\4\ The Commission is publishing this notice to solicit
comments on the proposed rule change, as amended, from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, which replaced and superseded the
original filing in its entirety, the Exchange amended the proposed
rule text to add requirements that participants confirm whether an
order was an agency or professional order; whether an order was
short or short exempt; the market to which the order was
transmitted; the identification of any party cancelling or modifying
the order; the date and time of any order expiration; and the contra
party to the execution (if applicable). The Exchange also added
Interpretation and Policy .09 to confirm that the requirements of
the proposed rule would not replace any record retention obligations
to which the Exchange's participants may be subject under the Act
and the rules thereunder. Finally, the Exchange replaced references
to the Exchange's ``members'' with references to its
``participants,'' reflecting changes in terminology associated with
the Exchange's February 2005 demutualization. See Securities
Exchange Act Release No. 51149 (February 8, 2005), 70 FR 7531
(February 14, 2005) (approval order for the Exchange's proposed rule
changes in connection with its demutualization).
\4\ In Amendment No. 2, which replaced and superseded the filing
as amended by Amendment No. 1 in its entirety, the Exchange made
minor changes to the proposed rule text, including (1) confirming
that a participant must record any modifications to the date and
time of any order expiration and (2) consistently capitalizing the
word ``Rule.'' In addition, the Exchange conformed the footnotes in
the purpose section to reflect changes made to the rule language in
Amendment No. 1. The substantive changes in Amendment No. 1 were
included in Amendment No. 2.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CHX proposes to amend its rules to require its on-floor
participants to electronically record specific details about orders
originating on or off the floor of the Exchange for execution on the
Exchange, as well as orders issued from the floor of the Exchange to
any other market or trading venue.
The text of the proposed rule change is below. Proposed new
language is in italics; proposed deletions are in [brackets].
* * * * *
ARTICLE XX
Regular Trading Sessions
* * * * *
Records of Orders and Executions
RULE 24. (a) Every Floor Participant shall preserve for at least
three years (or any longer period of time required by Exchange Act Rule
17a-4) a record, meeting the criteria set out in paragraph (b) below,
of:
(1) every order originat[ed]ing [by him or it] on the Floor [and]
that is given to (or received from) another Participant for execution
and any execution of that order, and
(2) [of] every order [commitment or obligation to trade] issued
from the Floor to any other market or trading venue and any execution
of that order [through ITS or any other application of the System or
pursuant to Rule 39 or Rule 40,]; and
(3) [of] every order originating off the Floor, transmitted by any
person, whether or not that person is [other than] a Participant, to
such Participant on the Floor and any execution of that order[, which
record shall include the name and the amount of the security, the terms
of the order and the time when such order was so given or transmitted];
provided, however, that the Exchange may, upon application, grant
exemption from the provisions of this Rule.
(b) Subject to the exceptions set out in Interpretations .02, .04,
.05 and .07 below, each Floor Participant must record, in such
electronic system(s) as the Exchange shall designate, the following
details about each order and execution identified in (a)(1) through (3)
above:
(1) Symbol;
(2) Clearing Participant;
(3) Order identifier that uniquely identifies the order;
(4) Identification of Participant recording the order details;
(5) Number of shares or quantity of security;
(6) Side of market;
(7) Designation of order type (e.g., market, limit, stop, stop
limit);
(8) Whether the order is agency or professional;
(9) Whether the order is being handled pursuant to Exchange Act
Section 11(a)(1)(G) and any applicable rules thereunder;
(10) Whether the order is short or short exempt;
(11) Whether the order is a bona fide arbitrage order;
(12) Any limit price and/or stop price;
(13) Date and time of order receipt or transmission (as
applicable);
(14) The market, off-floor firm or on-floor Participant to which
the order was transmitted or from which the order was received (if
applicable);
(15) Time in force;
(16) Designation as held or not held;
(17) Any special conditions or instructions (including any customer
do-not-display or display instructions and any all-or-none conditions);
(18) Any modifications to the details set out in (1)-(17) above or
(20) below, for all or part of the order, or any cancellation of all or
part of the order;
(19) Date and time of receipt or transmission of any modifications
to the order or any cancellation of the order;
(20) Date and time of any order expiration;
(21) Identification of the party cancelling or modifying the order;
(22) Transaction price (if applicable);
(23) Number of shares executed (if applicable);
(24) Date and time of execution (if applicable);
(25) Contra party to the execution (if applicable);
(26) Settlement instructions (if applicable);
(27) System-generated time(s) of recording required information;
and
(28) Such other information as the Exchange may from time to time
require.
[Whenever a cancellation is entered with respect to such an order
or commitment or obligation to trade, or a report of the execution of
such an order or commitment or obligation to trade is received, there
shall be preserved for at least three years, in addition to the record
required by the foregoing paragraph, a record of the cancellation of
the order or commitment or obligation to trade or of the receipt of
such report, which shall include the time of entry of such cancellation
or of the receipt of such report.]
(c) Floor Participants must record the information required by (b)
above immediately after such information is received or becomes
available.
[c](d) Before any such order is executed, including the case where
an order is to be executed by the issuance from the Floor of a
commitment or obligation to trade through ITS or any other application
of the System or pursuant to Rule 39 or Rule 40, there shall be placed
upon the order slip or other record the name or designation of the
account for which such order is to be executed. No change to the name
or designation of the [in such ] account for which an order is to be
executed [name or designation] shall be made unless the change has been
authorized by the Participant or by a partner or officer of the
Participant Firm, who shall, prior to giving his approval of such
change, be personally informed of the essential facts relative thereto
and shall indicate his approval of such change in writing on the order.
[Exceptions
Under exceptional circumstances the Exchange may upon written
request waive the requirements contained in (1)(a) above.]
* * * Interpretations and Policies:
.01 Every order covered by [(1)] paragraph (a) above, which is to
be
[[Page 70004]]
executed pursuant to Section 11(a)(1)(G) of the Act and Rule 11a1-1(T)
thereunder, shall bear an identifying notation that will enable the
executing Participant to disclose to other Participants that the order
is subject to those provisions.
.02 For purposes of this Rule, an order shall be any written, oral
or electronic instruction to effect a transaction. A decision by a co-
specialist, market maker or floor broker to buy or sell securities for
his or her own account on the Floor of the Exchange shall not
constitute an order for which a record must be made under this Rule.
.03 Each required record of the time of an event shall be expressed
in terms of hours, minutes and seconds.
.04 This Rule shall not apply to orders sent or received through
the Exchange's MAX system or through any other electronic systems that
the Exchange expressly recognizes as providing the required information
in a format acceptable to the Exchange. The Exchange will not recognize
a non-Exchange system as providing information in an acceptable format
unless that system has synchronized its business clocks for recording
data with reference to a time source designated by the Exchange and
maintains that synchronization in conformity with procedures prescribed
by the Exchange.
.05 Any orders which the Exchange has expressly recognized as
incompatible for entry in an Exchange system relied on by a Floor
Participant to record the details of the order in compliance with this
Rule shall be exempt from the order entry requirements of paragraph (b)
above; provided, however, that Floor Participants shall retain a
written record of those orders which includes as much of the
information set out in paragraph (b) as is possible, but no less than
the name and the amount of the security, the terms of the order, the
time when such order was so given or transmitted, the date and time of
any modifications or cancellations of the order, the date and time of
execution and the execution price.
.06 With respect to a bona fide arbitrage order, a Floor
Participant may execute such order before entering the order into an
electronic system as required by paragraph (b) above, but such Floor
Participant must enter such order into such electronic system no later
than 60 seconds after the execution of such order. With respect to an
order to offset a transaction made in error, a Floor Participant may,
upon discovering such error within the same trading session, effect an
offsetting transaction without first entering such order into an
electronic system, but such Floor Participant must enter such order
into such electronic system no later than 60 seconds after the
execution of such order.
.07 A Floor Participant who receives orders to buy and sell the
same security and executes those orders in full immediately upon
receipt shall record only the information set out in (b)(1), (2), (4),
(9), (10) and (22) through (28) above.
.08 Failure to comply with the provisions of this Rule may be
considered conduct inconsistent with just and equitable principles of
trade, in violation of Article VIII, Rule 7.
.09 The provisions of this Rule do not replace any record retention
obligations to which the Exchange's Participants may be subject under
the Exchange Act and the rules thereunder.
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 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
The Exchange's on-floor participants execute trades on the Exchange
and on other markets.\5\ Currently, the Exchange's electronic systems
capture information about most of the orders executed on the Exchange
and about many of the orders executed in other markets. This
information is used by the Exchange to conduct surveillance of its
floor participants' trading activities. In some instances, however, the
Exchange does not have complete information about the orders received
and executed by its participants or does not have that information in
electronic form. To bolster its ability to conduct automated
surveillance of its participants' trading activities, the Exchange is
proposing to require its floor participants to provide particular data
about all orders originating on or off the floor of the Exchange for
execution on the Exchange, as well as all orders issued from the floor
of the Exchange to any other market or trading venue.\6\ For purposes
of this submission, these orders will be called ``covered orders.''
---------------------------------------------------------------------------
\5\ On February 9, 2005, the Exchange's proposal to demutualize
took effect. Under the Exchange's new rules, the Exchange's members
are referred to as ``participants.''
\6\ The proposed rule, for example, would require a floor broker
who receives an order from another participant (whether the
participant is on-floor or off-floor) to record detailed information
relating to the order, any changes to the order, and its execution.
Similarly, if a floor broker receives an order and then transmits it
to another market, he would be required to record information not
only about the order, but about its transmission to another market
and any execution that it received in that market. The proposed rule
change is designed to provide a complete record of the handling of
orders received by the Exchange's floor participants and, together
with a recently-adopted rule, will provide a complete record of any
orders sent by the Exchange's floor participants to other trading
venues. See Securities Exchange Act Release No. 52534 (September 29,
2005), 70 FR 58500 (October 6, 2005) (SR-CHX-2004-25) (rule change
relating to a prohibition on using a layoff service unless the
service provides required information to the Exchange).
---------------------------------------------------------------------------
Specifically, through this submission, the Exchange is proposing to
require floor participants to record, in electronic systems designated
by the Exchange, the following details about each covered order: (1)
The symbol of the security; (2) the clearing participant; (3) an order
identifier that uniquely identifies the order;\7\ (4) the identity of
the participant recording the order details; (5) the number of shares
or quantity of the security; (6) the side of the market (i.e., whether
the order is a buy or sell order); (7) a designation of the order type
(e.g., market, limit, stop, stop limit); (8) whether the order is
agency or professional;\8\ (9) whether the order is being handled
pursuant to Section 11(a)(1)(G) of the Act and any applicable rules
thereunder; (10) whether the order is short or short exempt; (11)
whether the order is a bona fide arbitrage order; (12) any limit price
and/or stop price; (13) the date and time of order receipt or
transmission (as applicable); (14) the market, off-floor firm, or on-
floor participant to which the order was transmitted or from which the
order was received (if applicable); (15) the order's time in force;
(16) any designation as held or not held; (17) any special conditions
or instructions (e.g., any customer display or do-not-display
[[Page 70005]]
instructions or any all-or-none conditions); (18) any modifications
that are made to the details set out in (1) through (17) or (20) below,
for all or part of the order, or any cancellation of all or part of the
order; (19) the date and time of receipt or transmission of any
modifications to, or cancellation of, the order; (20) the date and time
of any order expiration; (21) the identity of the party cancelling or
modifying the order; (22) the transaction price, if applicable; (23)
the number of shares executed, if applicable; (24) the date and time of
execution, if applicable; (25) the contra party to the execution (if
applicable); (26) the settlement instructions associated with the
order, if applicable; (27) system-generated time(s) of recording
required information; and (28) any other information that may be
required by the Exchange from time to time.\9\ Floor participants would
be required to record this information immediately after that
information is received or becomes available.\10\
---------------------------------------------------------------------------
\7\ This order identifier does not change when modifications are
made to the order, or when it is cancelled, allowing any changes to
be tracked back to the original order.
\8\ The Exchange's rules define a ``professional'' order as one
that is for the account of a broker-dealer, the account of an
associated person of a broker-dealer, or any account in which a
broker-dealer or an associated person of a broker-dealer has any
direct or indirect interest. See CHX Article XXX, Rule 2,
Interpretation and Policy .04.
\9\ See CHX Article XX, Proposed Rule 24(b).
\10\ See CHX Article XX, Proposed Rule 24(c).
---------------------------------------------------------------------------
Proposed Interpretations and Policies .01 to .09 to the proposed
rule change contain additional information about the information that
participants must record and preserve. Among other things, these
interpretations confirm that each required record of the time of an
event must be expressed in terms of hours, minutes, and seconds. These
interpretations also provide a definition of the term ``order'' and
identify particular items of information that must be provided by
participants who receive orders to buy and sell a security and
immediately execute those orders.\11\ The remaining interpretations
note that participants will not be required to record information with
respect to orders sent or received through the Exchange's MAX[reg]
system or through any other electronic systems that the Exchange
recognizes as providing the required information in an acceptable
format and set out two limited exceptions to the data-recording
requirements.\12\
---------------------------------------------------------------------------
\11\ Proposed Interpretation and Policy .02 defines an order as
``any written, oral or electronic instruction to effect a
transaction.'' This interpretation also notes that a decision by a
co-specialist, market maker or floor broker to buy or sell
securities for his or her own account on the floor of the Exchange
would not constitute an order for purposes of the rule's data
recording requirements. This exception for principal trading on the
Exchange's floor is designed to recognize that all necessary
information about a floor participant's own trading is already
captured by the Exchange's trade reporting systems.
Proposed Interpretation and Policy .07 confirms that a floor
participant who receives orders to buy and sell the same security
and who executes those orders in full immediately upon receipt,
would be required to record information only about the security's
symbol, the clearing organization, the identity of the participant
firm recording the order details, whether the order is short or
short exempt, whether the order is being handled pursuant to Section
11(a)(1)(G) of the Act, the transaction price, the number of shares
executed, the date and time of execution, settlement instructions,
the contra side to the execution, a system-generated time of
recording the required information and any other information
required from the Exchange from time to time. This requirement is
designed to recognize that the Exchange currently believes that it
may not be necessary for the Exchange's participants to record
detailed order information about orders that are immediately
executed; at the same time, however, the Exchange has retained the
ability (through paragraph (b)(28)) to require participants to
provide additional information about those orders, including
information that is set out in other provisions of paragraph (b).
\12\ See Proposed Interpretations and Policies .04 (regarding
orders sent and received through certain systems), .05 (regarding
orders that the Exchange expressly recognizes as incompatible for
entry into an Exchange system) and .06 (regarding bona fide
arbitrage orders and orders to offset a transaction made in error).
As set forth below in note 13, the Exchange believes that these
exceptions are appropriately tailored to ensure that the Exchange's
participants are not required to enter unnecessary information about
orders, while still providing information necessary for the
Exchange's surveillance efforts.
---------------------------------------------------------------------------
The Exchange believes that these proposed requirements
appropriately permit the Exchange to collect the electronic information
needed to conduct automated surveillance of its participants' trading
activities.\13\ The Exchange has worked to tailor the rules so that
they require participants to record and retain information needed to
conduct appropriate surveillance, without imposing unnecessary data-
collection requirements.\14\ Moreover, the Exchange is working to
complete changes to its existing Brokerplex[reg] system, so that that
system can be used by CHX floor brokers and market makers to record all
required order details.\15\ As a result, the Exchange's on-floor
participants will not be required to develop their own data-recording
systems in response to this rule.\16\
---------------------------------------------------------------------------
\13\ Moreover, this proposal is consistent with recommendations
made by the independent consultant retained by the Exchange under
its recent settlement agreement with the Commission. See Securities
Exchange Act Release No. 48566 (September 30, 2003), Administrative
Proceeding File No. 3-11282.
\14\ For example, Proposed Interpretation and Policy .04
recognizes that participants are not required to record information
that is already captured by the Exchange's systems or by other
systems that the Exchange expressly recognizes as providing the
required data in an acceptable format. (The Exchange's MAX system
already captures all of the information required by this rule).
Other exceptions to the recording requirements--such as the
exceptions for bona fide arbitrage orders and for orders offsetting
transactions made in error--are designed to recognize participants'
need to immediately execute certain types of orders, while still
requiring prompt input of required order information to permit the
Exchange to conduct appropriate surveillance. Finally, Proposed
Interpretation and Policy .05--a general provision that would allow
the Exchange to identify specific types of orders that might be
exempt from the data-recording requirements when they are
incompatible for entry into Exchange systems--is designed to cover
those rare situations where, due to unexpected consequences of
unrelated systems changes or a software failure, participants cannot
enter data about a particular type of order into the Exchange's
systems for a limited period of time. This exception is not intended
to allow participants to avoid the recording requirements of the
rule; indeed, it requires participants to record as much information
about these orders as possible. The Exchange anticipates that both
it and its participants would work quickly to correct any software
or systems problems that prevented some or all of the required
information from being transmitted to, or received by, the Exchange.
\15\ The CHX has represented that these changes would not delay
the implementation of the proposed rule change once approved by the
Commission. Telephone conversation between Ellen J. Neely, President
and General Counsel, CHX, and Richard Holley III, Special Counsel,
Division of Market Regulation, Commission, on September 16, 2005.
The Exchange's Brokerplex system currently can be used by CHX floor
brokers to manage their orders, route orders to the Exchange's co-
specialists for execution and report executed trades.
\16\ The Exchange's staff will present to the Exchange's Board
of Directors a separate rule that confirms the record-keeping
obligations of its off-floor participants.
---------------------------------------------------------------------------
2. Statutory Basis
The CHX believes the proposal is consistent with the requirements
of the Act and the rules and regulations thereunder that are applicable
to a national securities exchange, and, in particular, with the
requirements of Section 6(b).\17\ In particular, the CHX believes that
the proposed rule change is consistent with Section 6(b)(5) of the Act
in that it is designed to promote just and equitable principles of
trade, to remove impediments and to perfect the mechanism of a free and
open market and a national market system, and, in general, to protect
investors and the public interest by permitting the Exchange to require
its participants to provide the Exchange with data necessary to conduct
appropriate surveillance of its participants' trading activities.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement of Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received by the
Exchange.
[[Page 70006]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, as amended, or
(B) Institute proceedings to determine whether the proposed rule
change, as amended, should be disapproved.
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-2004-38 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File No. SR-CHX-2004-38. 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 Room. Copies of such
filing will also be available for inspection and copying at the
principal office of the CHX. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File No. SR-CHX-2004-38 and should be submitted on or before December
9, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jonathan G. Katz,
Secretary.
[FR Doc. E5-6380 Filed 11-17-05; 8:45 am]
BILLING CODE 8010-01-P
