[Federal Register: October 30, 2003 (Volume 68, Number 210)]
[Notices]
[Page 61843-61844]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30oc03-110]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48680; File No. SR-CHX-2003-30]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Interpretation by the Chicago Stock
Exchange, Incorporated Relating to Execution of Limit Orders for OTC
Securities
October 22, 2003.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on October 6, 2003, the Chicago Stock Exchange, Incorporated
(``CHX'' or ``Exchange'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule interpretation as
described in Items I, II and III below, which Items have been prepared
by the Exchange. 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 Exchange is submitting an interpretation of existing CHX
Article XX, Rule 37(a)(3), which provides for execution of resting CHX
customer limit orders for Nasdaq/NM (``OTC'') securities, when the
quotation of a Designated Market (as defined below) locks or crosses
the limit price.
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
interpretation 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 is proposing an interpretation of existing CHX Article
XX, Rule 37(a)(3), which provides for execution of resting CHX customer
limit orders for OTC securities, when the quotation of a Designated
Market locks or crosses the limit price.
In June of 2003, the Commission noticed a proposal submitted for
immediate effectiveness, which amended CHX Article XX, Rule 37(a)(3),
to add a provision that would permit a CHX specialist to enable a
functionality that would automatically execute designated limit orders
for OTC securities when the quotation of a Designated Market locked or
crossed the limit price.\3\ The rule change defined ``Designated
Market'' as ``the market center designated by the CHX specialist, and
approved by the Exchange.''
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\3\ See Securities Exchange Act Release No. 48014 (June 11,
2003), 68 FR 35923 (June 17, 2003) (File No. SR-CHX-2003-05).
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The rule change was intended by the Exchange to provide OTC
specialists with a long-standing functionality available to limit
orders for listed securities; such limit orders generally are entitled
to a fill at the limit price if a price penetration (i.e., trade-
through) or certain other conditions occur in the primary market.
Because there is no primary market for OTC securities, however, the CHX
proposed a rule change that would permit designation of particular OTC
market center(s) as the basis for the CHX specialist's limit order
protection.
As set forth in submission SR-CHX-2003-05, initially, all CHX
specialists designated the NASDAQ Stock Market as the ``Designated
Market'' for purposes of amended CHX Article XX, Rule 37(a)(3). After
initial implementation of the OTC limit order protection functionality,
the Exchange's OTC specialist community has elected to designate
additional OTC markets as Designated Markets. Specifically, the
Exchange's OTC specialists wish to expand their designation to include
all current UTP Plan Participants \4\ and the Alternative Display
Facility operated by the National Association of Securities Dealers.
These OTC markets would be considered Designated Markets, along with
the NASDAQ Stock Market. The Exchange believes that identification of
additional OTC markets as ``Designated Markets'' is appropriate,
because it will result in the automatic execution of more limit orders
on the CHX, to the benefit of the investing public.
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\4\ The ``Joint Self-Regulatory Organization Plan Governing the
Collection, Consolidation and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed Securities Traded on
Exchanges on an Unlisted Trading Privilege Basis'' (the ``UTP
Plan'') defines its Participants to include the American Stock
Exchange, Boston Stock Exchange, Chicago Stock Exchange, Cincinnati
Stock Exchange, National Association of Securities Dealers, Pacific
Exchange and Philadelphia Stock Exchange. Not all of these
Participants currently trade OTC securities or disseminate
quotations for OTC securities. To the extent that they commence
trading OTC securities in the future, the CHX plans to include such
market centers as Designated Markets.
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In the Notice of Filing and Immediate Effectiveness for SR-CHX-
2003-05,\5\ the CHX represented that if all CHX specialists made a
different or additional designation for all securities traded on the
Exchange, the Exchange would file those changes with the Commission.
The Exchange submitted this rule interpretation in accordance with that
representation.\6\
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\5\ See note 3, supra.
\6\ Telephone conversation between Kate Boege, Associate General
Counsel, CHX, and Katherine A. England, Assistant Director, Division
of Market Regulation, Commission, on October 21, 2003.
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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).\7\ The CHX believes the proposal is
consistent with Section 6(b)(5) of the Act \8\ in that it is designed
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
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\7\ 15 U.S.C. 78(f)(b).
\8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement of Burden on Competition
The Exchange does not believe that the proposed rule interpretation
will impose any inappropriate 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.
[[Page 61844]]
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) of the Act \9\ and Rule 19b-4(f)(1) thereunder \10\
because it constitutes a stated policy, practice or interpretation with
respect to the meaning, administration, or enforcement of an existing
rule. At any time within 60 days of the filing of the proposed rule
interpretation, the Commission may summarily abrogate such rule
interpretation if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act.
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(f)(1).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposal 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. Copies of
the submission, all subsequent amendments, all written statements with
respect to the proposed rule interpretation that are filed with the
Commission, and all written communications relating to the proposed
rule interpretation 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 submissions should refer to File No.
SR-CHX-2003-30 and should be submitted by November 20, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-27344 Filed 10-29-03; 8:45 am]
BILLING CODE 8010-01-P