[Federal Register: June 2, 2004 (Volume 69, Number 106)]
[Notices]
[Page 31146-31147]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02jn04-93]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49774; File No. SR-CHX-2003-24]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change and Amendment Nos. 1 and 2 Thereto by the Chicago Stock
Exchange, Inc. Relating to the Definition of Primary Market
May 26, 2004.
I. Introduction
On August 14, 2003, the Chicago Stock Exchange, Inc. (``CHX'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
permit the Exchange's Rules Subcommittee to designate the primary
market in each listed issue for purposes of determining limit order
execution guarantees to be offered on the CHX. On January 29, 2004, the
CHX amended the proposed rule change.\3\ The proposed rule change, as
amended, was published for comment in the Federal Register on March 24,
2003.\4\ The Commission received no comment letters with respect to the
proposal.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from Kathleen Boege, Associate General Counsel,
CHX, to Nancy Sanow, Assistant Director, Division of Market
Regulation (``Division''), Commission, dated January 28, 2004
(``Amendment No. 1''). Amendment No. 1 replaced and superseded the
CHX's original 19b-4 filing in its entirety.
\4\ See Securities Exchange Act Release No. 49437 (March 17,
2003), 69 FR 13924.
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On May 12, 2004, the CHX again amended the proposed rule change.\5\
This order approves the proposed rule change, as amended by Amendment
Nos 1 and 2. Because there was a mistake in the language of the
proposed rule change as previously published, the Commission is
publishing the language in this order.
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\5\ See Letter from Kathleen Boege, Associate General Counsel,
CHX, to Nancy Sanow, Assistant Director, Division, Commission, dated
May 11, 2004 (``Amendment No. 2''). Amendment No. 2 replaces and
supersedes the CHX's original 19b-4 filing and Amendment No. 1 in
their entirety. Amendment No. 2 only makes a technical correction to
the proposed rule text; therefore, it is not subject to notice and
comment.
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The text of the proposed rule change, as amended, is below.
Proposed new language is italicized; proposed deletions are in
[brackets].
* * * * *
CHICAGO STOCK EXCHANGE RULES
Article XX--Guaranteed Execution System and Midwest Automated Execution
System
* * * * *
Rule 37
(a) Guaranteed Executions
* * * * *
(1)-(2) No change to text.
(3) Execution of Agency Limit Orders. Subject to Interpretation and
Policy .10 (``Exempted Trade-throughs''), all agency limit orders in
Dual Trading System issues will be filled under the following
circumstances:
(a) Exhaustion of primary market bid or offer. When the bid or
offering at the limit price has been exhausted in the primary market
(as designated by the Rules Subcommittee pursuant to Interpretation and
Policy .07 [defined in the CTA Plan]), agency limit orders will be
executed in whole or in part, based on the rules of priority and
precedence, on a share for share basis with trades executed at the
limit price in the primary market.
* * * * *
Interpretations and Policies
* * * * *
.07 [[Reserved for future use]] Unless otherwise authorized by the
Exchange's Board of Governors, in designating the ``primary market''
for purposes of Rule 37(a)(3) of this Article XX, the Rules
Subcommittee shall designate the initial listing market for a security
as the primary market, unless that security is traded by either the New
York Stock Exchange (``NYSE'') or the American Stock Exchange
(``Amex''), in which case the primary market shall be the NYSE (for the
securities it trades) or
[[Page 31147]]
the Amex (for the securities it trades). If a security is traded on
both the NYSE and the Amex, whichever exchange is the initial listing
market shall be designated as the primary market. If the initial
listing market is a market other than the NYSE or the AMEX, but the
subject security is traded by both the NYSE and the AMEX, the primary
market shall be the market with the largest trading volume in the
subject security, calculated on a twelve-month rolling basis.
* * * * *
II. Description of the Proposal and Amendment Nos. 1 and 2 Thereto
The CHX submitted a proposed rule change and Amendment Nos. 1 and 2
thereto to amend CHX Article XX, Rule 37(a)(3)(a), which governs
execution of resting limit orders based on certain conditions in the
primary market and to add proposed Interpretation and Policy .07.
Specifically, the proposed rule change would permit the Exchange's
Rules Subcommittee to designate the primary market in each listed issue
for purposes of determining limit order execution guarantees to be
offered on the CHX instead of using the current CTA Plan definition of
a primary market.
Under the proposed change, as amended, the Exchange's Rules
Subcommittee would be given the authority to define the primary market
for listed securities, for purposes of determining the limit order
execution guarantees offered on the Exchange. As an initial matter, the
Rules Subcommittee intends to designate the initial listing market for
a security as the primary market, unless that security is traded by
either the New York Stock Exchange, Inc. (``NYSE'') or the American
Stock Exchange LLC (``Amex''); if the security is traded by one of
those markets, then the primary market would be the NYSE (for the
securities it trades) and the Amex (for the securities it trades). If a
security is traded on both the NYSE and the Amex, whichever of the two
is the initial listing market would be designated as the primary
market.\6\ If the initial listing market is a market other than the
NYSE or the Amex, but the subject security is traded by both the NYSE
and the Amex, the primary market shall be the market with the largest
trading volume in the subject security, calculated on a twelve-month
rolling basis.
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\6\ If the Rules Subcommittee identifies a different designation
for all listed securities traded on the Exchange, the Exchange will
notify its order-sending firms of those Exchange-wide changes and
file those changes with the Commission as an interpretation of an
existing rule pursuant to section 19(b)(3)(A) of the Act and Rule
19b-4(f)(1). If, however, the Rules Subcommittee responds to the
fragmentation in the market by identifying different designated
markets for different securities, the Exchange will file, pursuant
to Rule 19-4(f)(1), a new interpretation confirming that the Rules
Subcommittee has identified different designated markets in
different securities for purposes of this voluntary functionality,
but will not list all of those different designations.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as amended, is consistent with section 6(b)(5) of the Act, \7\
in that it is designed to promote just and equitable principles of
trade, to remove impediments to 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. The Commission believes that
allowing the CHX's Rules Subcommittee to define the primary market for
listed securities instead of using the current CTA Plan definition of
primary market for purposes of determining limit order execution
guarantees on the CHX should help to limit the continual redesignation
of what the primary market is for a particular security. The Commission
further believes that the proposed rule change, as amended, should help
to alleviate any confusion for CHX order-sending firms and their
customers as to what constitutes the primary market in a particular
security. Finally, the Commission believes that the proposed rule
change, as amended, should assist the CHX's Rules Subcommittee in
consistently designating a market that is a significant source of
liquidity, to the benefit of customers whose orders are routed to the
CHX.
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\7\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
For the foregoing reasons, the Commission finds that the proposed
rule change, as amended, is consistent with the Act and the rules and
regulation thereunder applicable to a national securities exchange,
and, in particular, section 6(b)(5) of the Act.\8\
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\8\ 15 U.S.C. 78f(b)(5).
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It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\9\ that the proposed rule change (SR-CHX-2003-24) and Amendment
Nos. 1 and 2 are approved.
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\9\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-12428 Filed 6-1-04; 8:45 am]
BILLING CODE 8010-01-M