[Federal Register: March 1, 2004 (Volume 69, Number 40)]
[Notices]
[Page 9658-9660]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01mr04-109]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49297; File No. SR-CHX-2003-39]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto by
the Chicago Stock Exchange, Inc. Relating to Membership Dues and Fees
February 23, 2004.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice hereby is given that
on December 31, 2003, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II and III below, which Items have been prepared by the
Exchange. On February 19, 2004, the Exchange filed Amendment No. 1 to
the proposed rule change.\3\ The Commission is publishing this notice
to solicit comments on the proposed rule change, as amended, from
interested persons.
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\1\15 U.S.C. 78s(b)(1).
\2\17 CFR 240.19b-4.
\3\See facsimile from Ellen J. Neely, Senior Vice President &
General Counsel, CHX, to A. Michael Pierson, Attorney, and Marisol
Rubecindo, Law Clerk, Division of Market Regulation (``Division''),
Commission, dated February 19, 2004 (``Amendment No. 1''). Amendment
No. 1 replaced the proposed rule change in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its membership dues and fees
schedule (the ``Fee Schedule''), effective January 1, 2004, to clarify
the applicability of certain Fee Schedule provisions relating to
transaction fees, and establish a schedule of maximum monthly
transaction fees for certain agency orders executed through a CHX floor
broker.
Below is the text of the proposed rule change. Proposed new
language is italicized; proposed deletions are in [brackets].
* * * * *
Membership Dues and Fees
F. Transaction and Order Processing Fees
1-3. No change to text.
4. Transaction Fees.
a. Market orders sent via MAX, except agency orders executed
through floor brokers--No charge.
b. All orders sent via MAX in Tape B eligible issues or in the
stocks comprising the Standard & Poor's 500 Stock Price Index, except
agency orders executed through floor brokers--No charge.
c. No change to text
d. [Through June 30, 2001, all orders that are executed during the
E-Session] Reserved for future use--[No charge.]
e. In Nasdaq/NM securities, agency executions executed through a
floor broker and market maker execution--$.0025 per share (up to a
maximum of $100 per side), subject to the fee reduction described in
(i), below[.] and the fee cap described in (j) below.
f. In Dual Trading System issues, agency executions executed
through a
[[Page 9659]]
floor Broker and market maker Executions--$.0035 per share (up to a
maximum of $100 per side), subject to the fee reduction described in
(i), below[. (Effective January 1, 2001)] and the fee cap described in
(j) below.
g. All other MAX orders, except agency orders executed through
floor brokers.
* * * * *
h. The monthly maximum for transaction fees for orders sent via
MAX, except agency orders executed through floor brokers, is $10,000
or, if less, $.40 per 100 average monthly gross round lot shares.
i. No change to text
j. The transaction fees set forth in Sections F.4(e) and (f) shall
be subject to the following monthly maximums:
(i) If the order-sending firm has routed an average of 7,000-9,999
executed round lot orders per day in a given month to the Exchange via
the MAX system, a maximum of $40,000 for that month;
(ii) If the order-sending firm has routed an average of 10,000-
12,499 executed round lot orders per day in a given month to the
Exchange via the MAX system, a maximum of $35,000 for that month;
(iii) If the order-sending firm has routed an average of 12,500-
15,000 executed round lot orders per day in a given month to the
Exchange via the MAX system, a maximum of $30,000 for that month;
(iv) If the order-sending firm has routed an average of more than
15,000 executed round lot orders per day in a given month to the
Exchange via the MAX system, a maximum of $25,000 for that month.
k. An order-sending firm will not be eligible for any of the
transaction fee caps or reductions set forth in Section F.4 if the
number of orders cancelled during the subject month by the member firm
exceeds 50% of the member firm's total CHX executions for the month.
* * * * *
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 Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange 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 proposes to amend Section F (``Transactions and Order
Processing Fees'') of the Fee Schedule, effective January 1, 2004, by
clarifying the applicability of certain Fee Schedule provisions
relating to transaction fees, and establishing a schedule of maximum
monthly transaction fees for certain agency orders executed through a
CHX floor broker.
Order-sending firms, which are members of the Exchange,\4\
generally route agency orders to the CHX via the Exchange's Midwest
Automated Execution system, commonly referred to as the MAX''
system.\5\ The Exchange currently does not assess its order-sending
firms a transaction fee for most orders sent through MAX and executed
by specialists.\6\ If an agency order is routed by MAX to a CHX floor
broker for execution, however, such order is assessed a transaction fee
in accordance with Section F.4(e) and (f). The Exchange is proposing
changes to Sections F.4(a), (b), (g) and (h) of the Fee Schedule to
clarify the applicability of a transaction fee to MAX agency orders
executed through a CHX floor broker.\7\ Thus, the proposed rule change
does not impose any new transaction fees.
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\4\ Telephone conversation between Kathleen M. Boege, Vice
President and Associate General Counsel, CHX, and Lisa N. Jones,
Special Counsel, Division, Commission (February 17, 2004).
\5\ At the order-sending firm's request, however, an agency
order routed through the MAX system may be sent directly to a CHX
floor broker for handling.
\6\ See CHX Schedule of Membership Dues and Fees at Section
F.4(a)-(c). Sections (b) and (c) of Section F.4 were added to
clarify that orders in Tape B eligible issues, in the stock of the
Standard & Poor's 500 Stock Price Index, and in Nasdaq/NMS
securities are not assessed a transaction fee when sent through MAX
and executed by a specialist. Telephone conversation between Ellen
J. Neely, CHX, A. Michael Pierson, and Marisol Rubecindo, Division,
Commission (February 23, 2004).
\7\ To summarize the interplay between the provisions of Section
F.4, as a general rule, the Exchange notes that most orders sent via
MAX and executed by the MAX system are not subject to a transaction
fee. See Sections F.4(a), (b), (c), and (g). Telephone conversation
between Ellen J. Neely, CHX, A. Michael Pierson, and Marisol
Rubecindo, Division, Commission (February 23, 2004). Orders that are
sent via MAX and require the assistance of a CHX floor broker,
however, are assessed a transaction fee, to compensate for the costs
associated with the floor broker's services. See Sections F.4(e),
(f) and proposed amendments to Section F.4(a), (b) and (g). Section
F.4 also establishes monthly maximum aggregate transaction fees.
According to the Exchange, Section F.4(h) has always been
interpreted as a cap on MAX order transaction fees other than the
fees for MAX-delivered, floor broker-assisted orders. Section F.4(i)
provides for fee reductions applicable to floor broker-assisted
orders, but is based on total shares traded, thus rendering the fee
reductions largely unavailable to order-sending firms that route
smaller orders to floor brokers via MAX. The proposed amendment
would add Section F.4(j) to establish new transaction fee maximums
for MAX-delivered, floor broker-assisted orders, based on the number
of MAX orders routed to the CHX by the order-sending firm. This
change will permit order-sending firms that route a large number of
small orders to qualify for a transaction fee cap. The CHX believes
that the clarifying provisions of the amendment are necessary to
avoid disputes as to the applicability of existing provisions
imposing transaction fees and providing for caps. The Exchange notes
that no order-sending firm would qualify for both the fee cap in
F.4(j) and the fee reduction in F.4(i) because, if an order-sending
firm had sufficient numbers of MAX-delivered orders to qualify for
the fee cap in (j), the proposed cap would prevent it from
generating monthly charges sufficient to qualify for the fee
reduction in (i).
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To preserve the CHX's competitive position with respect to MAX
agency orders executed through a CHX floor broker, the Fee Schedule is
also being amended to incorporate a monthly maximum transaction fee
schedule for order-sending firms that meet certain monthly volume
thresholds. The CHX believes that the proposed transaction fee schedule
represents a reasonable balance between the need to maintain a
competitive pricing structure and the need to assess a reasonable
transaction fee when the assistance of a floor broker is required.\8\
In addition, the CHX believes that the transaction fee maximums
represent a reasonable allocation of transaction fees, chiefly because
the maximums apply to benefit the order-sending firms that route
significant levels of order flow to the CHX, which generates increased
revenues for the CHX. The CHX also believes that the maximums are fair
to all members because they are available to any order-sending firm
that chooses to meet the volume thresholds.
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\8\ The Exchange is also proposing Section F.4(k) to the Fee
Schedule to provide that the monthly transaction fee caps are not
available to an order-sending firm that cancels a number of orders
that exceeds 50% of the firm's CHX executions during the month. The
CHX believes that this limitation is an appropriate means of
deterring abusive cancellation practices because repetitive
cancellations are extremely disruptive to floor members and to the
CHX's automated systems.
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2. Statutory Basis
The Exchange believes that the proposed rule change, as amended, is
consistent with the provisions of Section 6(b) of the Act,\9\ in
general, and 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 among its members.
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\9\ 15 U.S.C. 78(f)(b).
\10\ 15 U.S.C. 78f(b)(4).
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[[Page 9660]]
B. Self-Regulatory Organization's Statement of Burden on Competition
The Exchange does not believe that the proposed rule change, as
amended, will impose any burden on competition.
C. Self-Regulatory Organization's Statement on Comments Regarding the
Proposed Rule Change Received from Members, Participants or Others
No written comments were either solicited or received with respect
to the proposed rule change, as amended.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change, as amended, has become
effective pursuant to Section 19(b)(3)(A)(ii) \11\ of the Act, 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 such rule change, the Commission may summarily
abrogate such proposed 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.\13\
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\11\ 15 U.S.C. 78s(b)(3)(A)(ii).
\12\ 15 CFR 240.19b-4(f)(2).
\13\ See 15 U.S.C. 78s(b)(3)(C). For purposes of calculating the
60-day abrogation period, the Commission considers the period to
commence on February 19, 2004, the date the CHX filed Amendment No.
1.
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III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposal, as
amended, is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street NW., Washington, DC 20549-0609.
Comments may also be submitted electronically at the following e-mail
address: rule-comments@sec.gov. All comment letters should refer to
File No. SR-CHX-2003-39. The 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, comments should be sent in
hardcopy or by e-mail but not by both methods. 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, as
amended, 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
Exchange. All submissions should refer to the File No. SR-CHX-2003-39
and should be submitted by March 22, 2004.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR.200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-4508 Filed 2-27-04; 8:45 am]
BILLING CODE 8010-01-P