[Federal Register: September 11, 2003 (Volume 68, Number 176)]
[Notices]
[Page 53625]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11se03-97]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48447; File No. SR-CHX-2003-15]
Self-Regulatory Organizations; The Chicago Stock Exchange,
Incorporated; Order Granting Approval to Proposed Rule Change to Amend
the CHX Membership Dues and Fees Schedule to Increase the Specialist
Tape Credits for Certain Trades in Tape A and Tape B Securities
September 4, 2003.
I. Introduction
On June 2, 2003, The Chicago Stock Exchange, Incorporated (``CHX''
or ``Exchange'') 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 increase the specialist tape credits for
certain trades in Tape A and Tape B securities. The proposed rule
change was published for comment in the Federal Register on June 30,
2003.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 48076 (June 23,
2003), 68 FR 38732.
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The Commission received one comment on the proposal.\4\ On August
11, 2003, the CHX responded to the comment letter.\5\ This order grants
approval to the proposed rule change.
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\4\ See July 22, 2003 letter from Darla C. Stuckey, Corporate
Secretary, New York Stock Exchange, Inc. (``NYSE''), to Jonathan G.
Katz, Secretary, Commission (``NYSE Letter'').
\5\ See August 11, 2003 letter from Ellen J. Neely, Senior Vice
President and General Counsel, CHX, to John S. Polise, Senior
Special Counsel, and Joseph P. Morra, Special Counsel, Division of
Market Regulation, Commission (``CHX Letter'').
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II. Summary of Comments
The NYSE expressed its opposition to ``all market data rebates and
other forms of payment for order flow'' as being inconsistent with the
Act and the protection of investors.\6\ The NYSE stated that the CHX
``currently rebates nothing for trades in Nasdaq securities, rebates as
much as 50 percent of market data revenues for trades in Tape B
securities, and rebates more than 50 percent of market data revenues
for certain trades in Tape A securities.'' The proposed rule change,
according to the NYSE, ``would exacerbate this disparity, permitting
CHX to provide greater economic incentives to specialist firms to
purchase Tape A order flow than to purchase Nasdaq and Tape B order
flow.'' \7\ Because the CHX offers ``no rationale for different rebate
levels based on the market on which a security is listed'' the NYSE
asks the Commission to institute disapproval proceedings with respect
to the proposed rule change.\8\
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\6\ NYSE Letter at 2.
\7\ Id.
\8\ Id.
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In its response to the NYSE Letter, the CHX states that its rules
with regard to market data revenue sharing programs are consistent with
Commission staff guidance.\9\ Additionally, the CHX explains that its
Tape A credit program ``provides only the possibility of a 70% tape
credit'' and that the rates delineated in the CHX's fee schedule ``are
marginal rates and thus apply only to those transactions that exceed
identified thresholds.'' \10\ Furthermore, the CHX states its market
share in Tape A issues has declined, and that it shared ``less than 20%
of its overall Tape A market data revenues with Exchange specialists''
in June 2003.\11\
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\9\ CHX Letter at 2.
\10\ Id.
\11\ Id.
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III. Discussion and Commission Findings
As set forth in its July 2, 2002 Order of Summary Abrogation
(``Abrogation Order''),\12\ the Commission will continue to examine the
issues surrounding market data fees, the distribution of market data
rebates, and the impact of market data revenue sharing programs on both
the accuracy of market data and on the regulatory functions of self-
regulatory organizations. In the interim, the Commission believes it is
reasonable to allow the CHX to modify the tape credits available to CHX
specialists for trades in Tape A and Tape B securities as described in
the instant proposed rule change.
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\12\ Securities Exchange Act Release No. 46159 (July 2, 2002),
67 FR 45775 (July 10, 2002) (File Nos. SR-NASD-2002-61, SR-NASD-
2002-68, SR-CSE-2002-06, and SR-PCX-2002-37) (Order of Summary
Abrogation).
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Thus, the Commission finds that the proposed rule change is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange
\13\ and, in particular, the requirements of section 6 of the Act \14\
and the rules and regulations thereunder. The Commission finds
specifically that the proposed rule change is consistent with section
6(b)(5) of the Act,\15\ in that it is designed to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating securities transactions, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\13\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\14\ 15 U.S.C. 78f.
\15\ 15 U.S.C. 78f(b)(5)
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The decision to allow the CHX to increase the tape credits for
trades in Tape A and Tape B securities, however, is narrowly drawn, and
should not be construed as resolving the issues raised in the
Abrogation Order, and does not suggest what, if any, future actions the
Commission may take with regard to market data revenue sharing
programs.
IV. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the Act
\16\, that the proposed rule change (SR-CHX-2003-15) be, and it hereby
is, approved.
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\16\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-23154 Filed 9-10-03; 8:45 am]
BILLING CODE 8010-01-P