
[Federal Register: March 14, 2008 (Volume 73, Number 51)]
[Notices]               
[Page 13940-13941]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14mr08-106]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57454; File No. SR-CHX-2007-18]

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Order Approving Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, To Make Administrative Changes to its Routing Rules

 March 7, 2008

I. Introduction

    On July 6, 2007, 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 make administrative changes to its routing 
rules. On January 22, 2008, the Exchange filed Amendment No. 1 to the 
proposed rule change. The proposed rule change, as modified by 
Amendment No. 1, was published for comment in the Federal Register on 
February 1, 2008.\3\ The Commission received no comments on the 
proposal. This order approves the proposed rule change, as amended.
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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. 57203 (January 25, 
2008), 73 FR 6232.
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II. Description of the Proposal

    The Exchange's rules provide that the Exchange's Matching System 
will not execute an order if its execution would be improper under Rule 
611 of Regulation NMS under the Act (``improper trade-through'').\4\ In 
the case of an execution that would cause an improper trade-through, 
the Exchange's rules provide that, if a participant submitted a cross 
with satisfy or an outbound ISO, the Matching System will execute the 
order and simultaneously route orders necessary to satisfy the bids or 
offers of other markets.\5\ For all other orders, the

[[Page 13941]]

Exchange will either cancel the order back to the participant that 
submitted it or will route the order to the destination of the 
participant's choice, all at the direction of the participant.\6\
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    \4\ See CHX Article 20, Rule 5; and Rule 611 of Regulation NMS, 
17 CFR 242.611.
    \5\ The Exchange's systems determine when, how, and where these 
orders should be routed. See CHX Article 20, Rule 5, Interpretation 
and Policy .03(a).
    \6\ The participant is responsible for ensuring that it has a 
relationship with its chosen destination to permit the requested 
access. The Exchange is not involved in the execution of the order 
and states that any execution of the order is the responsibility of 
the destination to which the order was sent. The Exchange, however, 
reports any execution or cancellation of the order by the other 
destination to the participant that submitted the order and notifies 
the other venue of any cancellations or changes to the order 
submitted by the order-sending participant. See Article 20, Rule 5, 
Interpretation and Policy .03(b).
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    The Exchange's current routing rules also provide that the Exchange 
will provide routing services pursuant to the terms of three separate 
agreements, to the extent that they are applicable to a specific 
routing decision: (1) An agreement between the Exchange and each 
participant on whose behalf orders will be routed; (2) an agreement 
between each participant and a specified third-party broker-dealer that 
will use its routing connectivity to other markets and serve as a 
``give-up'' in those markets; and (3) an agreement between the Exchange 
and the specified third-party broker-dealer pursuant to which the 
third-party broker-dealer agrees to provide routing connectivity to 
other markets and serve as a ``give-up'' for the Exchange's 
participants in other markets.\7\
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    \7\ See Article 20, Rule 5, Proposed Interpretation and Policy 
.03(c)(1).
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    The Exchange proposes to make three changes to its routing rules. 
First, the Exchange proposes to provide that, if requested by a 
participant and its routing destination, the Exchange will flip any 
executions into the participant's account and report that second leg of 
the away-market transaction to clearing. The Exchange states that this 
service would provide the order-sending participant the option of 
consolidating its clearing reports in specific locations.
    Second, the Exchange proposes to amend the requirement relating to 
the agreements that are necessary for the Exchange to provide routing 
services. For cross with satisfy and outbound ISOs, the Exchange will 
continue to provide routing services pursuant to the terms of three 
separate agreements to the extent that they are applicable to a 
specific routing decision.\8\ For other orders, the Exchange proposes 
to allow the CHX and/or a third-party broker-dealer providing 
connectivity to other markets to determine which agreements are needed 
to implement the routing functionality. The Exchange states that it 
believes that most routing destinations will require that order-senders 
sign additional agreements for any services that the destinations might 
provide, but the Exchange would like to provide flexibility for 
destinations to make choices appropriate to their business models.
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    \8\ See Article 20, Rule 5, Proposed Interpretation and Policy 
.03(c).
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    Third, the Exchange proposes to provide that, with respect to a 
cross with satisfy or an outbound ISO, the agreement between a 
participant and the third-party broker-dealer routing its order by 
access agreement with the Exchange need not provide that the third-
party broker-dealer will serve as a give-up if this is not necessary--
i.e., where the participant has a good give-up in the market to which 
the order is routed and prefers that its own give-up be used.\9\
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    \9\ See Article 20, Rule 5, Proposed Interpretation and Policy 
.03(c).
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III. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, 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,\10\ which requires, among other things, that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices, 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.\11\
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    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 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 changes to the Exchange's 
routing rules should provide the Exchange, its participants, and third-
party routers with more flexibility in establishing routing 
arrangements. Accordingly, the Commission finds that the proposed rule 
change, as amended, is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-CHX-2007-18), as modified by 
Amendment No. 1, be, and hereby is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-5096 Filed 3-13-08; 8:45 am]

BILLING CODE 8011-01-P
