

[Federal Register: December 27, 2006 (Volume 71, Number 248)]
[Notices]               
[Page 77834-77835]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27de06-111]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54963; File No. SR-CHX-2006-30]

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Order Approving Proposed Rule Change To Permit Routing From the 
Matching System to a Destination Selected by a Participant

December 19, 2006.

I. Introduction

    On October 19, 2006, the Chicago Stock Exchange, Inc. (``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 permit CHX participants to identify a 
destination to which an order should be routed when its execution would 
improperly trade through other markets or its display would improperly 
lock or cross other markets. The proposed rule change was published for 
comment in

[[Page 77835]]

the Federal Register on October 30, 2006.\3\ The Commission received no 
comments regarding the proposal.
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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. 54642 (October 23, 
2006), 71 FR 63372.
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II. Description of the Proposal

    The proposal would allow the Exchange to follow a participant's 
instructions to route an order to a destination of the participant's 
choice instead of cancelling the order back to the participant when an 
execution could not take place in the Matching System because the 
execution would improperly trade through another market \4\ or the 
display of an order would improperly lock or cross another market.\5\ 
The Exchange proposes to provide these routing services pursuant to a 
separate agreement between the Exchange and each participant on whose 
behalf orders would be routed. The participant would be responsible for 
ensuring that it has a relationship with its chosen destination to 
permit the requested access. The Exchange would not be involved in the 
execution of the order nor would the Exchange take responsibility for 
handling of the order by the destination selected by the 
participant.\6\ The Exchange, however, would report any execution or 
cancellation of the order by the destination to the participant that 
submitted the order and would notify the destination of any 
cancellations or changes to the order submitted by the order-sending 
participant. The Exchange's routing service would be a facility of the 
Exchange subject to the Exchange's rules and fees. The destinations 
chosen by each participant would not constitute Exchange facilities.
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    \4\ The Exchange's rules currently provide that the Exchange's 
Matching System will not execute an order if its execution would 
cause an improper trade-through of another ITS market or, when 
Regulation NMS is implemented, if its execution would be improper 
under Rule 611 of Regulation NMS (together, an ``improper trade-
through''). See CHX Article 20, Rule 5; see also 17 CFR 242.611.
    \5\ The Exchange's rules currently provide that the Matching 
System will not display an order if its display would improperly 
lock or cross other markets. See CHX Article 20, Rule 6.
    \6\ See CHX Article 20, Rule 5, proposed Interpretation and 
Policy .03(b).
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III. Discussion

    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, and in 
particular, with Section 6(b)(5) of the Act,\7\ which requires, among 
other things, that the rules of a national securities exchange be 
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.\8\
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    \7\ 15 U.S.C. 78f(b)(5).
    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition and 
capital formation. See 15 U.S.C. 78c(f).
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    The Commission believes that the proposed rule change may increase 
the efficiency of CHX participants in seeking to execute their 
customers' orders that are ineligible for execution or display in the 
CHX Matching System. In particular, orders that otherwise would be 
cancelled back to a participant may be sent directly to a destination 
chosen by the participant for handling. The Commission notes that fees 
and charges for the Exchange's routing service must be consistent with 
the Act,\9\ and the Exchange must provide its routing service in 
compliance with, among other things, the provisions of the Act 
requiring the rules of a national securities exchange not to permit 
unfair discrimination between customers, issuers, brokers, or 
dealers.\10\
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    \9\ See 15 U.S.C. 78f(b)(4).
    \10\ See 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-CHX-2006-30) is approved.
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    \11\ 15 U.S.C. 78S(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E6-22082 Filed 12-26-06; 8:45 am]

BILLING CODE 8011-01-P
