

[Federal Register: January 18, 2008 (Volume 73, Number 13)]
[Notices]               
[Page 3497-3499]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18ja08-92]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57137; File No. SR-CHX-2007-24]

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing of a Proposed Rule Change as Modified by Amendment No. 
1 Thereto Relating to the Handling of Clearly Erroneous Transactions

 January 14, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 3498]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 4, 2007, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by the 
Exchange. On January 7, 2008, the CHX submitted Amendment No. 1 to the 
proposed rule change. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules regarding the handling of 
``clearly erroneous'' and other transactions. The text of the proposed 
rule change is available at the Exchange, the Commission's Public 
Reference Room, and http://www.chx.com.


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 states that its rules currently allow the Exchange to 
cancel a trade, or modify the terms of a trade, when the terms of the 
trade are determined to be ``clearly erroneous'' or when other 
circumstances (including a CHX systems problem) require that that 
action be taken for the maintenance of a fair and orderly market or the 
protection of investors and the public interest.\3\ The Exchange notes 
that other exchanges have similar rules.\4\
---------------------------------------------------------------------------

    \3\ See CHX Rules, Article 20, Rule 10 (``Handling Clearly 
Erroneous Transactions'' and Rule 11 (``Systems Disruptions and 
Malfunctions'').
    \4\ See, e.g., Nasdaq Rule 11890 (``Clearly Erroneous 
Transactions''); NYSE Arca Equities Rule 7.10 (``Clearly Erroneous 
Transactions'').
---------------------------------------------------------------------------

    The Exchange states that as it has gained experience in the 
operation of these rules, it has identified, and is now proposing, 
several changes to the rules' provisions.
    First, the Exchange seeks to extend, from 15 to 30 minutes, the 
time for filing an initial written request for review of a potentially 
``clearly erroneous'' trade. As part of this change, the Exchange would 
also eliminate the arguably duplicative requirement that a participant 
also notify the Exchange by telephone of its intent to seek review. 
Together, the Exchange believes that these changes would streamline the 
process for filing a review request under these rules.\5\
---------------------------------------------------------------------------

    \5\ The Exchange notes that extending the time for filing a 
complaint to 30 minutes is consistent with the rules of at least one 
other exchange. See Nasdaq Rule 11890(a)(2)(A)(ii) (giving members 
30 minutes to submit written complaints for transactions that are 
executed before 9:30 a.m. (Eastern Time) and at or after 10 a.m. 
(Eastern Time)).
---------------------------------------------------------------------------

    Additionally, the Exchange would establish specific thresholds for 
determining whether or not the terms of a transaction are eligible for 
review under the clearly erroneous rules. Under these thresholds, a 
trade would be found to be eligible for review if: (a) For a trade 
where the price per share is less than $1.00, the execution price is 
20% or more away from the midpoint of the national best bid and offer 
(``NBBO''); or (b) for a trade where the price per share is equal to or 
greater than $1.00, the execution price is 10% or more away from the 
midpoint of the NBBO. The Exchange believes that these easily applied 
standards set reasonable thresholds for determining whether or not a 
transaction should be eligible for review.\6\
---------------------------------------------------------------------------

    \6\ These eligibility requirements would only apply to trades 
for regular-way settlement during regular trading hours. See 
Proposed CHX Article 20, Rule 10(b). Among other things, the 
application of these standards would give participants certainty 
about whether or not a particular transaction would be eligible for 
review under the clearly erroneous rules and would allow the 
Exchange to focus its resources on addressing situations where more 
significant harm has potentially occurred.
---------------------------------------------------------------------------

    Another proposed change to the CHX's rules would eliminate one of 
the two levels of appeal that can be taken from an initial Exchange 
determination that the terms of a trade should be modified or that the 
trade should be cancelled.\7\ Under the existing rule, the Exchange's 
initial decision may be appealed to a subcommittee of the Committee on 
Exchange Procedure and the subcommittee's decision may be appealed, in 
turn, to the full Committee on Exchange Procedure.\8\ Through this 
filing, the Exchange proposes to eliminate the appeal to the full 
Committee. The Exchange believes that its proposal brings the 
Exchange's procedures in line with those in other markets.\9\
---------------------------------------------------------------------------

    \7\ See Proposed Article 20, Rule 10(d). The Exchange also would 
make corresponding changes to Article 2, Rule 5, relating to 
appellate rights arising from subcommittee decisions, to confirm 
that the decision of the subcommittee is final and that the 
Exchange's initial decision is not stayed pending any appeal to the 
subcommittee.
    \8\ A subcommittee of the Committee on Exchange Procedure is 
composed of members of the full Committee on Exchange Procedure.
    \9\ See Nasdaq Rule 11890(c) (providing for an appeal to the 
Market Operations Review Committee); NYSE Arca Rule 7.10(c)(2) 
(providing for an appeal to the Clearly Erroneous Execution Panel).
---------------------------------------------------------------------------

    The Exchange amended its original filing to, among other things, 
include changes to Article 2, Rule 5, to ensure that this rule language 
is consistent with the changes proposed in Article 20; describe the 
composition of a subcommittee of the Committee on Exchange Procedure; 
and make other more minor adjustments to the rule text. Additional 
descriptions were added to the narrative, as appropriate, to address 
changes that were made to the rule text.
    Finally, the Exchange would be given the discretion, in situations 
where it is acting on its own initiative to respond to systems 
disruptions or extraordinary market conditions or other circumstances, 
to determine that the number of affected transactions is such that 
immediate finality is necessary to maintain a fair and orderly market 
and to protect investors and the public interest. This determination 
would provide certainty to participants whose transactions were 
affected by decisions in these unusual situations.\10\
---------------------------------------------------------------------------

    \10\ The Exchange notes that other markets have included a 
similar provision in their rules. See Nasdaq Rule 11890(c)(1); NYSE 
Arca Rule 7.10(c)(2).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\11\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\12\ in particular, in that it is designed 
to 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, to protect investors and the public 
interest enhancing, in certain circumstances, a participant's 
opportunity to make an initial request for review of a transaction he 
believes to be ``clearly erroneous'' and allowing the Exchange to more 
efficiently respond to requests that are made.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).

---------------------------------------------------------------------------

[[Page 3499]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received by the Exchange with 
respect to the proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve the proposed rule change or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change 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 Number SR-CHX-2007-24 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 Number SR-CHX-2007-24. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
am and 3 pm. Copies of such filing also will be available for 
inspection and copying at the principal office of the Exchange. 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 Number SR-CHX-2007-24 and should be 
submitted on or before February 8, 2008.
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-831 Filed 1-17-08; 8:45 am]

BILLING CODE 8011-01-P
