

[Federal Register: August 23, 2006 (Volume 71, Number 163)]
[Notices]               
[Page 49498-49500]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23au06-119]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54326; File No. SR-CHX-2006-24]

 
 Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change, 
and Amendment Nos. 1 and 2 Thereto, Regarding Two-Sided Quote Providers

August 16, 2006.
    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 June 27, 2006, the Chicago Stock Exchange, Inc. (``CHX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. On July 21, 
2006, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ On August 10, 2006, the Exchange filed Amendment No. 2 to 
the proposed rule change.\4\ The CHX filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section 19(b)(3)(A) of 
the Act \5\ and Rule 19b-4(f)(6) thereunder,\6\ which renders it 
effective upon filing with the Commission. 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\ In Amendment No. 1 the CHX removed language from its Fee 
Schedule to reflect that the proposal was effective upon filing, not 
an earlier date.
    \4\ In Amendment No. 2 the CHX made two non-substantive 
corrections to the numbering used in the proposed rule text.
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6).
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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 rules and Schedule of 
Participant Fees and Credits (''Fee Schedule'') to establish a new role 
and a new fee credit for participants on the Exchange that qualify as 
``Two-Sided Quote Providers.'' The text of the proposed rule change is 
set forth below. Proposed new language is italicized.

ARTICLE IX

Trading Rules
* * * * *

Two-Sided Quote Providers

    RULE 19. a. A Participant may seek to register with the Exchange as 
a Two-Sided Quote Provider. A ``Two-Sided Quote Provider'' is required 
to use its own automated systems to maintain, throughout the Exchange's 
primary and post-primary trading sessions, a continuous two-sided quote 
(i.e., a bid and an offer) in all securities that are not traded by an 
Exchange specialist, but are traded in an automated Exchange system.
    b. The Exchange will provide a credit, as described in the Fee 
Schedule, to the first three Participants that demonstrate their 
ability and willingness to serve in this role.
    c. If a Two-Sided Quote Provider does not provide a continuous two-
sided quote as required above, the Exchange shall not pay the Two-Sided 
Quote Provider for the day in which the quotes were not maintained and 
shall end the Participant's role as a Two-Sided Quote Provider as of 
the end of the month in

[[Page 49499]]

which the failure to provide continuous two-sided quotes occurred.
* * * * *
PARTICIPANT FEES AND CREDITS
* * * * *
M. Credits
    1.-3. No change to text.
    4. Through October 31, 2006, total monthly fees owed by a Two-Sided 
Quote Provider will be reduced (and these participants will be paid 
each month for any unused credits) by a credit of $3,000 per 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 CHX included statements 
concerning the purpose of, and basis for, the proposed rule change 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 Changes

1. Purpose
    The purpose of the proposed rule change is to allow participant 
firms to register as ``Two-Sided Quote Providers'' and to provide a 
credit of $3,000 per month for firms that fulfill that role.\7\ The 
credit would be available through October 31, 2006.
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    \7\ The Exchange originally filed this proposal simply as an 
addition to its Fee Schedule. See SR-CHX-2006-15. The Exchange 
withdrew that filing concurrently with the submission of the 
original version of this proposal, which would establish a new rule 
and a change to the Exchange's Fee Schedule.
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    Under the proposed rule, a Two-Sided Quote Provider would be an 
Exchange participant that uses its own automated systems to maintain, 
throughout the Exchange's primary and post-primary trading sessions, a 
continuous two-sided quote (i.e., a bid and an offer) in all securities 
that are not traded by an Exchange specialist, but are traded in an 
automated Exchange system.\8\ If the Two-Sided Quote Provider does not 
provide a continuous two-sided quote as required above, the Exchange 
would not pay the Two-Sided Quote Provider for the day in which the 
quotes were not maintained and would end the participant's role as a 
Two-Sided Quote Provider as of the end of the month in which the 
failure occurred.\9\ A Two-Sided Quote Provider would continue to be 
subject to all the CHX rules that apply to its trading on the Exchange, 
including, but not limited to the firm quote rule, the electronic 
book's clearly erroneous rule, the rules prohibiting trading ahead of 
customer orders and the Intermarket Trading System (``ITS'') rules.\10\
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    \8\ The Exchange plans to provide the $3,000 credit, on a first-
come, first-served basis, to the first three participants that 
demonstrate their ability and willingness to serve in this role. The 
Exchange does not believe that these firms would need to register as 
market makers in the Exchange's electronic book (where many 
securities that are not traded by a specialist are traded) or on the 
Exchange (where some listed securities have not yet been 
transitioned to trading in the electronic book), because the 
Exchange does not seek to impose any requirement that these firms 
maintain fair and orderly markets.
    \9\ The Exchange also would consider a failure to provide these 
quotes as a violation of the Exchange's rules. The Exchange could 
exercise its discretion in determining whether or not to pursue a 
further fine or penalty from a participant for a violation of this 
rule based on applicable facts and circumstances.
    \10\ Registration as a Two-Sided Quote Provider does not allow a 
participant to avoid the application of any CHX trading rule that 
would otherwise apply to its activities as a CHX floor broker, 
market maker, specialist or order-sending firm.
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    According to the Exchange, its proposal is designed to provide an 
appropriate incentive to up to three participant firms to ensure that a 
two-sided quote is continuously displayed on the Exchange in securities 
that are traded on the Exchange.\11\
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    \11\ Under the current Intermarket Trading System Plan (``ITS 
Plan ''), a member in any market that is an ITS Plan participant may 
use the ITS System to trade a particular security only if the market 
maintains continuous two-sided quotations in that security. See ITS 
Plan, Section 6(a)(i). This proposed credit would help ensure, among 
other things, that a continuous two-sided quote is displayed on the 
Exchange in all securities that qualify for trading under the ITS 
Plan.
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2. Statutory Basis
    The Exchange believes that 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) of the Act.\12\ In particular, 
the Exchange believes that the proposal is consistent with Section 
6(b)(5) of the Act,\13\ 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 by permitting the Exchange to 
allow its participants to register as Two-Sided Quote Providers to help 
ensure, among other things, that a continuous two-sided quote is 
displayed on the Exchange in all securities that qualify for trading 
under the ITS Plan.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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 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 Regarding the 
Proposed Rule Changes Received From Members, Participants or Others

    The CHX has neither solicited nor received written comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Changes and Timing for 
Commission Action

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30-days after the 
date on which it was filed, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) 
thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    As required under Rule 19b-4(f)(6)(iii), the CHX provided the 
Commission with written notice of its intention to file the proposed 
rule change at least 5 business days prior to filing the proposal with 
the Commission. A proposed rule change filed under Rule 19b-4(f)(6) 
\16\ normally does not become operative prior to 30-days after the date 
of filing. However, Rule 19b-4(f)(6)(iii) permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The CHX has asked the 
Commission to waive the 30-day operative delay.
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    \16\ Id.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, 
because it may ensure that a continuous two-sided quote is displayed on 
the

[[Page 49500]]

Exchange in securities that are traded on the Exchange.\17\ 
Furthermore, the Commission notes that the proposed rule change, as 
amended, is similar to Pacific Exchange Rule 7.58, Compliance with Two-
Sided Quote Requirement in ITS Plan, which provides that the 
Archipelago Securities, LLC is responsible for entering two-sided 
orders in all stocks eligible for trading on the NYSE Arca Marketplace 
for purposes of fulfilling the two-sided quote requirement found in 
Section 6(a)(i)(B) of the ITS Plan. Accordingly, the Commission 
designates the proposed rule change, as amended, as effective and 
operative immediately upon filing with the Commission.
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    \17\ For the purposes only of waiving the 30-day operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60-days of the filing of the proposed rule 
change, the Commission may summarily abrogate such 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.\18\
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    \18\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change, as 
amended, under Section 19(b)(3)(C) of the Act, the Commission 
considers the period to commence on August 10, 2006, the date on 
which the CHX submitted Amendment No. 2. See 15 U.S.C. 78s(b)(3)(C).
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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, as 
amended, is consistent with the Act. Comments may be submitted by any 
of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File No. SR-CHX-2006-24 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File No. SR-CHX-2006-24. 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 Web site (http://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 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 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 No. SR-CHX-2006-24 and should be submitted on or before September 
13, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-13943 Filed 8-22-06; 8:45 am]

BILLING CODE 8010-01-P
