Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change To Amend Minor Rule Violation Plan, 25727-25730 [2011-10928]
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Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Notices
Commission will hold a roundtable
discussion on money market funds and
systemic risk on Tuesday, May 10, 2011,
in the Multipurpose Room, L–006,
beginning at 2 p.m. The roundtable will
be webcast on the Commission’s Web
site at https://www.sec.gov and will be
archived for later viewing.
The agenda for the roundtable will
include a panel discussion on money
market funds and systemic risk and will
provide a forum for various stakeholders
in money market funds to exchange
views on the potential effectiveness of
certain options in mitigating systemic
risks associated with money market
funds. These will include, but are not
limited to, options raised in the
President’s Working Group report on
possible money market fund reforms
that was issued in October 2010 (https://
www.treasury.gov/press-center/pressreleases/Documents/10.21%20PWG
%20Report%20Final.pdf).
This Sunshine Act notice is being
issued because a majority of the
Commission may attend the roundtable.
For further information, please
contact the Office of the Secretary at
(202) 551–5400.
May 2, 2011.
Elizabeth M. Murphy,
Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64370; File No. SR–CHX–
2011–07]
Self-Regulatory Organizations;
Chicago Stock Exchange, Inc.; Notice
of Filing of Proposed Rule Change To
Amend Minor Rule Violation Plan
jlentini on DSKJ8SOYB1PROD with NOTICES
April 29, 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 April 20,
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. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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17:22 May 04, 2011
The CHX proposes to amend its rules
that pertain to the Exchange’s minor
rule violation plan. The text of this
proposed rule change is available on the
Exchange’s Web site at (https://
www.chx.com) and in the Commission’s
Public Reference Room, and at https://
www.sec.gov.
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
[FR Doc. 2011–11061 Filed 5–3–11; 11:15 am]
1 15
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
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The Exchange’s Minor Rule Violation
Plan (‘‘Plan’’) provides an effective and
efficient method for the Exchange to
encourage its members to fully comply
with applicable rules. Under the Plan,
the Exchange may impose a monetary
fine, instead of instituting a formal
disciplinary proceeding, for a rule
violation that the Exchange has found to
be minor in nature, but which the
Exchange believes should still be the
subject of a meaningful sanction.3
Currently, fines imposed under the Plan
can be up to $2,500 per violation. Each
individual violation is identified to the
Minor Rule Violation Panel (‘‘Panel’’),
which is composed of individuals
associated with an Exchange Participant
firm. The Panel decides whether to
assess fines under the Plan and
determines the amount of the fine.
3 Fines under the Minor Rule Violation Plan
provide an appropriate sanction in many situations.
For example, where member conduct is not
intentional or of such magnitude that it can be
considered reckless, a fine under the Minor Rule
Violation Plan might be an appropriate response to
a first, second or third violation by an Exchange
member. The Exchange is mindful, however, that
more egregious violations should not be handled
through the summary proceedings authorized by
the Minor Rule Violation Plan. The mere fact that
the Exchange is authorized to impose a sanction
pursuant to the Plan does not preclude it from
instituting other disciplinary proceedings. Article
12, Rule 8(f).
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25727
Proposed New Rules for the Minor Rule
Violation Plan
The Exchange is seeking to revise its
list of rules eligible for disposition
under the Plan as well as its
Recommended Fine Schedule (‘‘Fine
Schedule’’) to include a number of new
rules that are currently not eligible for
disposition under the Plan. As a general
matter, the new rules fall into one of
two categories: Reporting and
recordkeeping provisions or tradingrelated rules.
The new reporting and recordkeeping
provisions include the following:
Failure to notify the Exchange of a
request to withdraw capital contribution
(Article 3, Rule 6(b)); failure to request
Exchange approval of the transfer of
equity securities of a participant firm
(Article 3, Rule 11), reporting of loans
(Article 3, Rule 12), failure to provide
the Exchange with information (Article
6, Rules 7); impede or delay an
Exchange examination, inquiry or
investigation (Article 6, Rule 9);
designation of email addresses (Article
3, Rule 13); registration and approval of
personnel (Article 6, Rule 2(a)); written
supervisory procedures (Article 6, Rule
5(b)); failure to report short positions
(Article 7, Rule 9); furnishing of records
(Article 11, Rule 1), maintenance of
books and records (Article 11, Rule 2)
participant communications (Article 11,
Rule 4); market maker registration and
appointment (Article 16, Rule 1), market
maker reporting of position information
(Article 16, Rule 10) and institutional
broker registration and appointment
(Article 17, Rule 1).
The new trading violations which the
Exchange proposes to add to the Plan
include the reporting of transactions
(Article 9, Rule 13); institutional broker
obligations for entry of orders into an
automated system (Article 17, Rule
3(a)); and institutional broker
responsibilities for handling orders
within an integrated system (Article 17,
Rule 3(b)).
In general, the majority of these rules
are similar in nature to the rules already
eligible for disposition under the Plan
inasmuch as they relate to
recordkeeping or reporting obligations
of participants to the Exchange or the
manner in which trading activity occurs
on the Exchange.4 A number of these
additions also relate to registration,
recordkeeping or trading responsibilities
of Exchange-registered market makers or
institutional brokers. Articles 16 and 17
of the Exchange’s rules set forth a
4 A number of these rules had been included in
previous iterations of the Plan.
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Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Notices
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number of specific obligations as to
these two categories of participants.
As it applies to market makers, this
filing proposes to include market maker
registration requirements under Article
16, Rule 1 and reporting of position
information under Article 16, Rule 10 to
the Plan.
As it applies to institutional brokers,
this filing proposes to add to the Plan
certain aspects of an institutional
broker’s obligation in the handling of
orders in the Exchange’s Brokerplex
system. This includes Article 17, Rule
3(a) which requires an institutional
broker to enter all orders it receives for
execution on the Exchange into the
Exchange’s Brokerplex system and
Article 17, Rule 3(b) which requires an
institutional broker to use an electronic
system, acceptable to the Exchange, for
the handling of orders that integrates the
institutional broker’s on-Exchange
trading activities with its trading
activities in other market centers.
These rules under Article 17, Rule 3
which the Exchange proposes to add to
the Plan involve an institutional
broker’s obligation in order handling
only to the extent that it pertains to
internal handling and entry of such
orders. It is not uncommon for an
institutional broker to manually handle
a customer order (i.e., a phone order,
instant message, etc.) on the Exchange.
As such, the requirements of Article 17,
Rule 3 ensure that both manual and
electronic orders are being properly
handled, entered and recorded in the
Exchange’s automated system, i.e., the
Exchange’s Brokerplex system. For
example, under Article 17, Rule 3(a), an
institutional broker must enter all orders
it receives for execution on the
Exchange into an automated system as
required by the provisions of Article 11.
Specifically, this requirement pertains
to the institutional broker’s
responsibility to record such orders in
the Exchange’s Brokerplex system (or
any other Exchange approved
automated system), which is an
electronic means for order maintenance
and recordation.
The Exchange also proposes to add to
the Plan its rules requiring Participants
to provide information to the staff of the
Exchange upon request.5 Additionally,
5 CHX Article 6, Rule 7; Article 11, Rule 1. Other
markets have included similar rules in their Minor
Rule Plans, including NYSE Archipelago (‘‘NYSE
Arca’’). See NYSE Arca Rule 10.12(h)(1) relating to
a firm’s failure to submit trade data in a timely
manner (NYSE Arca Rule 10.2(e)) and NYSE Arca
Rule 10.12(h)(3) relating to a failure to furnish in
a timely manner books, records or other requested
information or testimony in connection with an
examination of financial responsibility and/or
operational conditions (NYSE Arca Rule 4.11(c));
Philadelphia Stock Exchange (‘‘PHLX’’) Rule 970
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the Exchange proposes to add its rule
requiring Participants to not impede or
delay an Exchange examination, inquiry
or investigation by failing to provide
information or cooperation.6 Finally, the
Exchange proposes to add the failure of
any Participant to establish, maintain
and/or enforce written procedures to
supervise the types of business in which
it engages and to supervise the activities
of registered and associated persons.7
The Exchange believes that these
measures will enhance the ability of the
staff to sanction Participants for
violations of these trading rules, or for
the failure to provide requested
information or to adequately have
supervisory procedures in place which
are properly maintained and enforced.
Elimination of Obsolete Rule
References and Clarifying Changes to
Others
The Exchange also seeks to revise its
list of Rules eligible for MRVP
disposition as well as its Recommended
Fine Schedule (‘‘Fine Schedule’’) to
eliminate a number of obsolete rule
references and to make certain nonsubstantive, clarifying changes to other
rule references.
The list of Rules eligible for MRVP
disposition contained in Rule 8(h) of
Article 12 and the Fine Schedule
contain certain rules which are either no
longer rules of the Exchange or
appropriate for disposition under the
Plan. For example, the violations cited
in the current version of Rule 8(h)(ii)(1)
and (2) relate to use of the Intermarket
Trading System (‘‘ITS’’), which was
retired in 2007.8 The other violation
which includes any violations of a floor procedure
advice including violations of Floor Procedure
Advice F–8 which relates to a firm’s failure to
comply with an Exchange inquiry; and National
Stock Exchange (‘‘NSX’’) Rule 8.15 which includes
violations of NSX Rules 4.1 and 4.2 relating to the
submission of responses to Exchange requests for
trading data, as well as financial or regulatory
records and information.
6 CHX Article 6, Rule 9. NYSE Arca has a similar
rule in their Minor Rule Plan. See NYSE Arca Rule
10.12(h)(6) relating to delaying, impeding or failing
to cooperate in an investigation (NYSE Arca Rule
10.2(d)).
7 CHX Article 6, Rule 5(b). NYSE Arca has a
similar rule in their Minor Rule Plan. See NYSE
Arca Equity Rule 10.12(h)(8)(c) which relates to
establishing, maintaining, and enforcing written
procedures to supervise the business in which it
engages and the activities of its associated persons
that are reasonably designed to achieve compliance
with applicable federal securities laws and
regulations and with the NYSE Arca Equity Rules
(NYSE Arca Rule 6.18(c)).
8 These rules include the failure to issue ITS preopening notification or properly issue a pre-opening
response (former Article 19, Rule 1) and the failure
to comply with trade-through, locked markets and
block trade rules (former Article 19, Rule 2). The
Exchange also proposes to delete an exclusionary
reference to ITS commitments in the firm quote rule
citation. Article 12, Rule 8(h)(ii)(11).
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noted in the Plan and Fine Schedule
which is no longer a rule of the
Exchange relates to officers, directors
and principal stockholders (Article 4,
Rules 3 and 4). The Exchange believes
that the rule addressing dealings in
stocks on put, call, straddle or option
(Article 9, Rule 22) should be deleted
from the Plan and Fine Schedule, since
no violations of that rule have been
addressed via the Plan for many years.9
The Exchange also believes that the
reference to improper use of the ‘‘SOLD’’
designator should be deleted from the
Plan and Fine Schedule, as the
Exchange’s systems no longer facilitate
the use of that designator by
Participants on our trading facilities.
Additionally, a number of the rules
referenced in the Fine Schedule relate to
trading by Exchange specialists, which
were eliminated when the Exchange
adopted its New Trading Model.10
These rules include the written reports
of transactions (former Article XXX,
Rule 5), record of orders (former Article
XXX, Rule 11), submission of the CoSpecialists survey (former Article VIII,
Rule 11), primary market protection
(former Article XX, Rule 7,
interpretation and policy .06), ‘‘stopped’’
orders (former Article XX, Rules 28 and
37(a)(6)), trading ahead (former Article
XXX, Rule 2), competitive basis rule
(former Article XXX, Rule 3), BEST rule
(former Article XX, Rule 37(a)(2), (3))
and approval for manual execution
mode (former Article XX, Rule 37,
interpretations and policies .04). Other
obsolete rule references in the Fine
Schedule include the now-deleted
Market Maker requirements of former
Article XXXIV.11 Additionally, several
rules cited in the Fine Schedule pertain
to the now-defunct ITS system.12 Other
rules have previously been deleted from
the Plan due to changes in Exchange
rules associated with the adoption of the
New Trading Model, but remained as a
9 Any violations of this provision could be
addressed through other disciplinary mechanisms,
such as a formal disciplinary proceeding under
Article 12, Rule 1 or the Summary Procedure under
Article 12, Rule 2.
10 See Securities Exchange Act Release No. 54550
(September 29, 2006), 71 FR 59563 (October 10,
2006) (approving CHX’s proposed new trading
model).
11 These rules include the failure to comply with
the 50% requirement (former Article XXXIV, Rule
3), and failure to comply with the public outcry rule
(former Article XXXIV, Rule 10).
12 These rules include the failure to issue ITS preopening notification or properly issue a pre-opening
response (former Article XX, Rule 39) and the
failure to comply with trade-through, locked
markets and block trade rules (former Article XX,
Rule 40) as well as the above-noted reference to ITS
commitments in connection with the firm quote
rule.
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Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Notices
legacy in the Fine Schedule.13 The
citations for the remaining rules have
changed since the Fine Schedule was
last updated. The proposed rule
amendment would conform the rules
noted in the Fine Schedule to those
rules which are part of the Plan as set
forth in Article 12, Rule 8.
Finally, the Exchange proposes to
make certain non-substantive, clarifying
changes to some of the current rules
referenced in the Plan. For example, the
filing proposes to clarify that the short
sale rule (Article 9, Rule 23) applies to
all sell orders and not just those of a
proprietary nature.14 In addition, the
filing proposes to make changes to
address proper rule cites and/or
description of rules. For example the
filing proposes to clarify that an
Institutional broker’s best execution
obligations under Article 17, Rule 3
specifically fall under paragraph (d) of
such rule and is titled Obligations in
Handling Orders (as opposed to failure
to meet best execution obligations).
jlentini on DSKJ8SOYB1PROD with NOTICES
Increased Fines
The Exchange is also proposing to
increase the maximum fine pursuant to
the Plan from $2,500 to $5,000 and to
increase the fines in the Fine Schedule
in order to better deter violative activity
and more closely adhere to the fine
schedules of other self-regulatory
organizations. For most reporting and
recordkeeping rule violations and
certain trading rule violations, the
recommended fines were increased from
$100/$500/$1,000 for 1st, 2nd and 3rd
tier fines, respectively, to $250/$750/
$1,500. The Exchange proposes
recommended fines of $500/$1,000/
$2,500 for other, more serious trading
rule violations (i.e., ones which involve
the potential for customer harm), as well
as violations of the obligation to
establish, maintain and enforce written
supervisory procedures, and to provide
information to the Exchange in
connection with regulatory inquiries or
other matters. We seek recommended
fines of $1,000/$2,500/$5,000 for the
most serious violations contained
within the Plan (Trading Ahead).
Finally, we are expanding the rolling
time period in which violations would
result in escalation to the next highest
tier from 12 to 24 months, which is
consistent with the minor rule plans of
other exchanges.
13 See, e.g., Limit order display rule provisions
(former Article XX, Rule 7, Interpretation and
Policies .05).
14 Currently, the Plan only addresses a
Participant’s duty to comply with the short sale rule
when selling short for their own account (e.g.,
proprietarily). See Article 12, Rule 8(h)(ii)(5).
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Elimination of Minor Rule Violation
Panel
The Exchange proposes to eliminate
the role of the Panel in issuing sanctions
pursuant to the Plan and authorize
certain members of the Exchange’s
Market Regulation staff to issue MRVP
sanctions. Specifically, MRVP sanctions
would be imposed either by the
Exchange’s Chief Enforcement Counsel
or Chief Regulatory Officer. The
Exchange notes that allowing members
of its staff to issue MRVP fines is
consistent with the practice at other
exchanges regarding MRV plans and is
also similar to the method by which
formal disciplinary actions are
instituted by the CHX under Article 12,
Rule 1.15 The Exchange believes that the
proposed change will help to expedite
the process of issuing MRVP sanctions
and will eliminate an inherent source of
potential conflicts (or appearance
thereof) whenever Participants
determine disciplinary sanctions.
Censure
The Exchange proposes to add a
censure authority to the Plan to provide
additional flexibility in imposing
sanctions in particular cases. Censures
could be used in initial findings of a
violation where the Exchange wants to
put the Respondent on notice that
certain conduct violates CHX rules or in
other circumstances in which a
monetary fine is not appropriate or
necessary.
Pleadings
The Exchange seeks to clarify the
pleading requirements of a Respondent
who seeks to challenge a sanction by
instituting a formal disciplinary
proceeding. The proposed changes
require a Respondent which is
challenging a MRVP sanction to file an
answer which meets the standards for
an answer under Article 12, Rule 5(b).
The proposal would authorize the
Secretary of the Exchange (the person to
whom such responses are directed) to
deny the answer for a failure to meet
these standards. The denial of the
answer by the Secretary without leave to
amend and refile shall be considered the
final action of the Exchange, and the
MRVP fine shall become due and
15 See,
e.g., Chicago Board Options Exchange
(‘‘CBOE’’) Rule 17.50(a), Imposition of Fines for
Minor Rule Violations (provides for fines to be
issued by ‘‘the Exchange’’); BATS Exchange
(‘‘BATS’’) Rule 8.15(a), Imposition of Fines for
Minor Violation(s) of Rules (provides for fines to be
issued by ‘‘the Exchange’’); International Stock
Exchange (‘‘ISE’’) Rule 1614(a), Imposition of Fines
for Minor Rule Violations (provides for fines to be
issued by ‘‘the Exchange’’). Formal disciplinary
actions under Article 12, Rule 1 are authorized by
the Exchange’s Chief Regulatory Officer.
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25729
payable and/or a censure will be
imposed. The Exchange has also added
language incorporating the requirement
of Exchange Act Rule 19d–1 relating to
the reporting of Exchange disciplinary
actions to the Commission.16
2. Statutory Basis
Approval of the rule changes
proposed in this submission 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). The proposed rule change
is consistent with Section 6(b)(5) of the
Act because it would promote just and
equitable principles of trade, remove
impediments to, and perfect the
mechanism of a free and open market
and a national market system, and, in
general, protect investors and the public
interest. The proposed rule change is
also consistent with Sections 6(b)(6) and
6(b)(7) of the Act because it would
promote the Exchange’s ability to
appropriately discipline its Participants
and provide procedures of fair practice
when addressing violations of Exchange
rules that are deemed by the Exchange
to be minor in nature. Generally, the
Exchange believes that the proposed
rule change will strengthen its ability to
carry out its oversight responsibilities as
a self-regulatory organization and
reinforce its surveillance and
enforcement functions. In addition, the
proposed rule change will promote
consistency in minor rule violations and
respective SRO reporting obligations as
set forth pursuant to Regulation
240.19d–1(c)(2) of the Act.
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.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission my designate up to
16 Our proposed language is based upon language
in the Minor Rule Violation plan for the CBOE.
(CBOE Rule 17.50(a)).
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Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Notices
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 or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
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 is consistent with the Exchange
Act. Comments may be submitted by
any of the following methods:
jlentini on DSKJ8SOYB1PROD with NOTICES
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–2011–07 on the
subject line.
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–CHX–
2011–07 and should be submitted on or
before May 26, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–10928 Filed 5–4–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64371; File No. SR–
NASDAQ–2011–056]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Proposed Rule Change to
Adopt Additional Listing Requirements
for Reverse Mergers
April 29, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
Paper Comments
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
• Send paper comments in triplicate
notice is hereby given that on April 18,
to Elizabeth M. Murphy, Secretary,
2011, The NASDAQ Stock Market LLC
Securities and Exchange Commission,
(‘‘Nasdaq’’) filed with the Securities and
100 F Street, NE., Washington, DC
Exchange Commission (‘‘Commission’’)
20549–1090.
the proposed rule change as described
in Items I and II below, which Items
All submissions should refer to File
have been substantially prepared by
Number SR–CHX–2011–07. This file
Nasdaq. The Commission is publishing
number should be included on the
subject line if e-mail is used. To help the this notice to solicit comments on the
proposed rule change from interested
Commission process and review your
persons.
comments more efficiently, please use
only one method. The Commission will
I. Self-Regulatory Organization’s
post all comments on the Commission’s
Statement of the Terms of the Substance
Internet website (https://www.sec.gov/
of the Proposed Rule Change
rules/sro.shtml). Copies of the
Nasdaq proposes to adopt additional
submission, all subsequent
listing requirements for a company that
amendments, all written statements
has become public through a reverse
with respect to the proposed rule
merger. Nasdaq will implement the
change that are filed with the
proposed rule for applications received
Commission, and all written
after approval.
communications relating to the
The text of the proposed rule change
proposed rule change between the
Commission and any person, other than is below. Proposed new language is in
italics; proposed deletions are in
those that may be withheld from the
brackets.3
public in accordance with the
provisions of 5 U.S.C. 552, will be
5110. Change of Control, Bankruptcy
available for website viewing and
and Liquidation, and Reverse Mergers
printing in the Commission’s Public
(a)–(b) No change
Reference Room, 100 F Street, NE.,
(c) Reverse Mergers between a Private
Washington, DC 20549, on official
Operating Company and a Public
business days between the hours of 10
Shell Company
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
17 17 CFR 200.30–3(a)(12).
copying at the principal office of the
1 15 U.S.C. 78s(b)(1).
Exchange. All comments received will
2 17 CFR 240.19b–4.
be posted without change; the
3 Changes are marked to the rule text that appears
Commission does not edit personal
in the electronic manual of Nasdaq found at https://
nasdaqomx.cchwallstreet.com.
identifying information from
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17:22 May 04, 2011
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A Company that is formed by a
combination between a private
operating company and a public shell
company shall be eligible to submit an
application for initial listing only after
the combined entity has: (i) Traded for
at least six months in the over-thecounter market, on another national
securities exchange, or on a listed
foreign market, following the filing with
the Commission or Other Regulatory
Authority of audited financial
statements for the combined entity; and
(ii) maintained a Bid Price of $4 per
share or higher on at least 30 of the 60
trading days immediately preceding the
filing of the initial listing application.
In addition, such a company may
only be approved for listing if, following
the business combination, it has timely
filed: (i) In the case of a domestic issuer,
at least two required periodic financial
reports with the Commission or Other
Regulatory Authority; or (ii) in the case
of a Foreign Private Issuer, one or more
reports including financial statements
for a period not less than six months.
This Rule 5110(c) shall not apply if
the Company lists in connection with a
firm commitment, underwritten public
offering.
*
*
*
*
*
5210. Prerequisites for Applying to List
on The Nasdaq Stock Market
(a)–(h) No change
(i) Reverse Mergers between a Private
Operating Company and a Public
Shell Company
A security issued by a Company
formed by a combination between a
private operating company and a public
shell company shall be eligible for
initial listing only if the conditions set
forth in Rule 5110(c) are satisfied.
*
*
*
*
*
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 IV below. Nasdaq has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
E:\FR\FM\05MYN1.SGM
05MYN1
Agencies
[Federal Register Volume 76, Number 87 (Thursday, May 5, 2011)]
[Notices]
[Pages 25727-25730]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-10928]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64370; File No. SR-CHX-2011-07]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change To Amend Minor Rule Violation
Plan
April 29, 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 April 20, 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. 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.
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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 rules that pertain to the Exchange's
minor rule violation plan. The text of this proposed rule change is
available on the Exchange's Web site at (https://www.chx.com) and in the
Commission's Public Reference Room, and at https://www.sec.gov.
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
The Exchange's Minor Rule Violation Plan (``Plan'') provides an
effective and efficient method for the Exchange to encourage its
members to fully comply with applicable rules. Under the Plan, the
Exchange may impose a monetary fine, instead of instituting a formal
disciplinary proceeding, for a rule violation that the Exchange has
found to be minor in nature, but which the Exchange believes should
still be the subject of a meaningful sanction.\3\ Currently, fines
imposed under the Plan can be up to $2,500 per violation. Each
individual violation is identified to the Minor Rule Violation Panel
(``Panel''), which is composed of individuals associated with an
Exchange Participant firm. The Panel decides whether to assess fines
under the Plan and determines the amount of the fine.
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\3\ Fines under the Minor Rule Violation Plan provide an
appropriate sanction in many situations. For example, where member
conduct is not intentional or of such magnitude that it can be
considered reckless, a fine under the Minor Rule Violation Plan
might be an appropriate response to a first, second or third
violation by an Exchange member. The Exchange is mindful, however,
that more egregious violations should not be handled through the
summary proceedings authorized by the Minor Rule Violation Plan. The
mere fact that the Exchange is authorized to impose a sanction
pursuant to the Plan does not preclude it from instituting other
disciplinary proceedings. Article 12, Rule 8(f).
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Proposed New Rules for the Minor Rule Violation Plan
The Exchange is seeking to revise its list of rules eligible for
disposition under the Plan as well as its Recommended Fine Schedule
(``Fine Schedule'') to include a number of new rules that are currently
not eligible for disposition under the Plan. As a general matter, the
new rules fall into one of two categories: Reporting and recordkeeping
provisions or trading-related rules.
The new reporting and recordkeeping provisions include the
following: Failure to notify the Exchange of a request to withdraw
capital contribution (Article 3, Rule 6(b)); failure to request
Exchange approval of the transfer of equity securities of a participant
firm (Article 3, Rule 11), reporting of loans (Article 3, Rule 12),
failure to provide the Exchange with information (Article 6, Rules 7);
impede or delay an Exchange examination, inquiry or investigation
(Article 6, Rule 9); designation of email addresses (Article 3, Rule
13); registration and approval of personnel (Article 6, Rule 2(a));
written supervisory procedures (Article 6, Rule 5(b)); failure to
report short positions (Article 7, Rule 9); furnishing of records
(Article 11, Rule 1), maintenance of books and records (Article 11,
Rule 2) participant communications (Article 11, Rule 4); market maker
registration and appointment (Article 16, Rule 1), market maker
reporting of position information (Article 16, Rule 10) and
institutional broker registration and appointment (Article 17, Rule 1).
The new trading violations which the Exchange proposes to add to
the Plan include the reporting of transactions (Article 9, Rule 13);
institutional broker obligations for entry of orders into an automated
system (Article 17, Rule 3(a)); and institutional broker
responsibilities for handling orders within an integrated system
(Article 17, Rule 3(b)).
In general, the majority of these rules are similar in nature to
the rules already eligible for disposition under the Plan inasmuch as
they relate to recordkeeping or reporting obligations of participants
to the Exchange or the manner in which trading activity occurs on the
Exchange.\4\ A number of these additions also relate to registration,
recordkeeping or trading responsibilities of Exchange-registered market
makers or institutional brokers. Articles 16 and 17 of the Exchange's
rules set forth a
[[Page 25728]]
number of specific obligations as to these two categories of
participants.
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\4\ A number of these rules had been included in previous
iterations of the Plan.
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As it applies to market makers, this filing proposes to include
market maker registration requirements under Article 16, Rule 1 and
reporting of position information under Article 16, Rule 10 to the
Plan.
As it applies to institutional brokers, this filing proposes to add
to the Plan certain aspects of an institutional broker's obligation in
the handling of orders in the Exchange's Brokerplex system. This
includes Article 17, Rule 3(a) which requires an institutional broker
to enter all orders it receives for execution on the Exchange into the
Exchange's Brokerplex system and Article 17, Rule 3(b) which requires
an institutional broker to use an electronic system, acceptable to the
Exchange, for the handling of orders that integrates the institutional
broker's on-Exchange trading activities with its trading activities in
other market centers.
These rules under Article 17, Rule 3 which the Exchange proposes to
add to the Plan involve an institutional broker's obligation in order
handling only to the extent that it pertains to internal handling and
entry of such orders. It is not uncommon for an institutional broker to
manually handle a customer order (i.e., a phone order, instant message,
etc.) on the Exchange. As such, the requirements of Article 17, Rule 3
ensure that both manual and electronic orders are being properly
handled, entered and recorded in the Exchange's automated system, i.e.,
the Exchange's Brokerplex system. For example, under Article 17, Rule
3(a), an institutional broker must enter all orders it receives for
execution on the Exchange into an automated system as required by the
provisions of Article 11. Specifically, this requirement pertains to
the institutional broker's responsibility to record such orders in the
Exchange's Brokerplex system (or any other Exchange approved automated
system), which is an electronic means for order maintenance and
recordation.
The Exchange also proposes to add to the Plan its rules requiring
Participants to provide information to the staff of the Exchange upon
request.\5\ Additionally, the Exchange proposes to add its rule
requiring Participants to not impede or delay an Exchange examination,
inquiry or investigation by failing to provide information or
cooperation.\6\ Finally, the Exchange proposes to add the failure of
any Participant to establish, maintain and/or enforce written
procedures to supervise the types of business in which it engages and
to supervise the activities of registered and associated persons.\7\
The Exchange believes that these measures will enhance the ability of
the staff to sanction Participants for violations of these trading
rules, or for the failure to provide requested information or to
adequately have supervisory procedures in place which are properly
maintained and enforced.
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\5\ CHX Article 6, Rule 7; Article 11, Rule 1. Other markets
have included similar rules in their Minor Rule Plans, including
NYSE Archipelago (``NYSE Arca''). See NYSE Arca Rule 10.12(h)(1)
relating to a firm's failure to submit trade data in a timely manner
(NYSE Arca Rule 10.2(e)) and NYSE Arca Rule 10.12(h)(3) relating to
a failure to furnish in a timely manner books, records or other
requested information or testimony in connection with an examination
of financial responsibility and/or operational conditions (NYSE Arca
Rule 4.11(c)); Philadelphia Stock Exchange (``PHLX'') Rule 970 which
includes any violations of a floor procedure advice including
violations of Floor Procedure Advice F-8 which relates to a firm's
failure to comply with an Exchange inquiry; and National Stock
Exchange (``NSX'') Rule 8.15 which includes violations of NSX Rules
4.1 and 4.2 relating to the submission of responses to Exchange
requests for trading data, as well as financial or regulatory
records and information.
\6\ CHX Article 6, Rule 9. NYSE Arca has a similar rule in their
Minor Rule Plan. See NYSE Arca Rule 10.12(h)(6) relating to
delaying, impeding or failing to cooperate in an investigation (NYSE
Arca Rule 10.2(d)).
\7\ CHX Article 6, Rule 5(b). NYSE Arca has a similar rule in
their Minor Rule Plan. See NYSE Arca Equity Rule 10.12(h)(8)(c)
which relates to establishing, maintaining, and enforcing written
procedures to supervise the business in which it engages and the
activities of its associated persons that are reasonably designed to
achieve compliance with applicable federal securities laws and
regulations and with the NYSE Arca Equity Rules (NYSE Arca Rule
6.18(c)).
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Elimination of Obsolete Rule References and Clarifying Changes to
Others
The Exchange also seeks to revise its list of Rules eligible for
MRVP disposition as well as its Recommended Fine Schedule (``Fine
Schedule'') to eliminate a number of obsolete rule references and to
make certain non-substantive, clarifying changes to other rule
references.
The list of Rules eligible for MRVP disposition contained in Rule
8(h) of Article 12 and the Fine Schedule contain certain rules which
are either no longer rules of the Exchange or appropriate for
disposition under the Plan. For example, the violations cited in the
current version of Rule 8(h)(ii)(1) and (2) relate to use of the
Intermarket Trading System (``ITS''), which was retired in 2007.\8\ The
other violation noted in the Plan and Fine Schedule which is no longer
a rule of the Exchange relates to officers, directors and principal
stockholders (Article 4, Rules 3 and 4). The Exchange believes that the
rule addressing dealings in stocks on put, call, straddle or option
(Article 9, Rule 22) should be deleted from the Plan and Fine Schedule,
since no violations of that rule have been addressed via the Plan for
many years.\9\ The Exchange also believes that the reference to
improper use of the ``SOLD'' designator should be deleted from the Plan
and Fine Schedule, as the Exchange's systems no longer facilitate the
use of that designator by Participants on our trading facilities.
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\8\ These rules include the failure to issue ITS pre-opening
notification or properly issue a pre-opening response (former
Article 19, Rule 1) and the failure to comply with trade-through,
locked markets and block trade rules (former Article 19, Rule 2).
The Exchange also proposes to delete an exclusionary reference to
ITS commitments in the firm quote rule citation. Article 12, Rule
8(h)(ii)(11).
\9\ Any violations of this provision could be addressed through
other disciplinary mechanisms, such as a formal disciplinary
proceeding under Article 12, Rule 1 or the Summary Procedure under
Article 12, Rule 2.
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Additionally, a number of the rules referenced in the Fine Schedule
relate to trading by Exchange specialists, which were eliminated when
the Exchange adopted its New Trading Model.\10\ These rules include the
written reports of transactions (former Article XXX, Rule 5), record of
orders (former Article XXX, Rule 11), submission of the Co-Specialists
survey (former Article VIII, Rule 11), primary market protection
(former Article XX, Rule 7, interpretation and policy .06), ``stopped''
orders (former Article XX, Rules 28 and 37(a)(6)), trading ahead
(former Article XXX, Rule 2), competitive basis rule (former Article
XXX, Rule 3), BEST rule (former Article XX, Rule 37(a)(2), (3)) and
approval for manual execution mode (former Article XX, Rule 37,
interpretations and policies .04). Other obsolete rule references in
the Fine Schedule include the now-deleted Market Maker requirements of
former Article XXXIV.\11\ Additionally, several rules cited in the Fine
Schedule pertain to the now-defunct ITS system.\12\ Other rules have
previously been deleted from the Plan due to changes in Exchange rules
associated with the adoption of the New Trading Model, but remained as
a
[[Page 25729]]
legacy in the Fine Schedule.\13\ The citations for the remaining rules
have changed since the Fine Schedule was last updated. The proposed
rule amendment would conform the rules noted in the Fine Schedule to
those rules which are part of the Plan as set forth in Article 12, Rule
8.
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\10\ See Securities Exchange Act Release No. 54550 (September
29, 2006), 71 FR 59563 (October 10, 2006) (approving CHX's proposed
new trading model).
\11\ These rules include the failure to comply with the 50%
requirement (former Article XXXIV, Rule 3), and failure to comply
with the public outcry rule (former Article XXXIV, Rule 10).
\12\ These rules include the failure to issue ITS pre-opening
notification or properly issue a pre-opening response (former
Article XX, Rule 39) and the failure to comply with trade-through,
locked markets and block trade rules (former Article XX, Rule 40) as
well as the above-noted reference to ITS commitments in connection
with the firm quote rule.
\13\ See, e.g., Limit order display rule provisions (former
Article XX, Rule 7, Interpretation and Policies .05).
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Finally, the Exchange proposes to make certain non-substantive,
clarifying changes to some of the current rules referenced in the Plan.
For example, the filing proposes to clarify that the short sale rule
(Article 9, Rule 23) applies to all sell orders and not just those of a
proprietary nature.\14\ In addition, the filing proposes to make
changes to address proper rule cites and/or description of rules. For
example the filing proposes to clarify that an Institutional broker's
best execution obligations under Article 17, Rule 3 specifically fall
under paragraph (d) of such rule and is titled Obligations in Handling
Orders (as opposed to failure to meet best execution obligations).
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\14\ Currently, the Plan only addresses a Participant's duty to
comply with the short sale rule when selling short for their own
account (e.g., proprietarily). See Article 12, Rule 8(h)(ii)(5).
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Increased Fines
The Exchange is also proposing to increase the maximum fine
pursuant to the Plan from $2,500 to $5,000 and to increase the fines in
the Fine Schedule in order to better deter violative activity and more
closely adhere to the fine schedules of other self-regulatory
organizations. For most reporting and recordkeeping rule violations and
certain trading rule violations, the recommended fines were increased
from $100/$500/$1,000 for 1st, 2nd and 3rd tier fines, respectively, to
$250/$750/$1,500. The Exchange proposes recommended fines of $500/
$1,000/$2,500 for other, more serious trading rule violations (i.e.,
ones which involve the potential for customer harm), as well as
violations of the obligation to establish, maintain and enforce written
supervisory procedures, and to provide information to the Exchange in
connection with regulatory inquiries or other matters. We seek
recommended fines of $1,000/$2,500/$5,000 for the most serious
violations contained within the Plan (Trading Ahead). Finally, we are
expanding the rolling time period in which violations would result in
escalation to the next highest tier from 12 to 24 months, which is
consistent with the minor rule plans of other exchanges.
Elimination of Minor Rule Violation Panel
The Exchange proposes to eliminate the role of the Panel in issuing
sanctions pursuant to the Plan and authorize certain members of the
Exchange's Market Regulation staff to issue MRVP sanctions.
Specifically, MRVP sanctions would be imposed either by the Exchange's
Chief Enforcement Counsel or Chief Regulatory Officer. The Exchange
notes that allowing members of its staff to issue MRVP fines is
consistent with the practice at other exchanges regarding MRV plans and
is also similar to the method by which formal disciplinary actions are
instituted by the CHX under Article 12, Rule 1.\15\ The Exchange
believes that the proposed change will help to expedite the process of
issuing MRVP sanctions and will eliminate an inherent source of
potential conflicts (or appearance thereof) whenever Participants
determine disciplinary sanctions.
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\15\ See, e.g., Chicago Board Options Exchange (``CBOE'') Rule
17.50(a), Imposition of Fines for Minor Rule Violations (provides
for fines to be issued by ``the Exchange''); BATS Exchange
(``BATS'') Rule 8.15(a), Imposition of Fines for Minor Violation(s)
of Rules (provides for fines to be issued by ``the Exchange'');
International Stock Exchange (``ISE'') Rule 1614(a), Imposition of
Fines for Minor Rule Violations (provides for fines to be issued by
``the Exchange''). Formal disciplinary actions under Article 12,
Rule 1 are authorized by the Exchange's Chief Regulatory Officer.
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Censure
The Exchange proposes to add a censure authority to the Plan to
provide additional flexibility in imposing sanctions in particular
cases. Censures could be used in initial findings of a violation where
the Exchange wants to put the Respondent on notice that certain conduct
violates CHX rules or in other circumstances in which a monetary fine
is not appropriate or necessary.
Pleadings
The Exchange seeks to clarify the pleading requirements of a
Respondent who seeks to challenge a sanction by instituting a formal
disciplinary proceeding. The proposed changes require a Respondent
which is challenging a MRVP sanction to file an answer which meets the
standards for an answer under Article 12, Rule 5(b). The proposal would
authorize the Secretary of the Exchange (the person to whom such
responses are directed) to deny the answer for a failure to meet these
standards. The denial of the answer by the Secretary without leave to
amend and refile shall be considered the final action of the Exchange,
and the MRVP fine shall become due and payable and/or a censure will be
imposed. The Exchange has also added language incorporating the
requirement of Exchange Act Rule 19d-1 relating to the reporting of
Exchange disciplinary actions to the Commission.\16\
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\16\ Our proposed language is based upon language in the Minor
Rule Violation plan for the CBOE. (CBOE Rule 17.50(a)).
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2. Statutory Basis
Approval of the rule changes proposed in this submission 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).
The proposed rule change is consistent with Section 6(b)(5) of the Act
because it would promote just and equitable principles of trade, remove
impediments to, and perfect the mechanism of a free and open market and
a national market system, and, in general, protect investors and the
public interest. The proposed rule change is also consistent with
Sections 6(b)(6) and 6(b)(7) of the Act because it would promote the
Exchange's ability to appropriately discipline its Participants and
provide procedures of fair practice when addressing violations of
Exchange rules that are deemed by the Exchange to be minor in nature.
Generally, the Exchange believes that the proposed rule change will
strengthen its ability to carry out its oversight responsibilities as a
self-regulatory organization and reinforce its surveillance and
enforcement functions. In addition, the proposed rule change will
promote consistency in minor rule violations and respective SRO
reporting obligations as set forth pursuant to Regulation 240.19d-
1(c)(2) of the Act.
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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission my
designate up to
[[Page 25730]]
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 or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change 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 is consistent with the Exchange 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-2011-07 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-2011-07. 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 website (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 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 the 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-2011-07 and should be submitted on
or before May 26, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-10928 Filed 5-4-11; 8:45 am]
BILLING CODE 8011-01-P