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Notice

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Chicago Stock Exchange, Incorporated to Reduce or Eliminate Certain Transaction Credit Programs for Specialists

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Start Preamble July 19, 2002.

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 July 8, 2002, the Chicago Stock Exchange, Incorporated (“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 prepared by the Exchange. The Exchange has designated this proposal as one establishing or changing a due, fee, or other charge imposed by the CHX under section 19(b)(3)(A)(ii) of the Act,[3] which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit Start Printed Page 48688comments on the proposed rule change from interested persons.

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

The CHX proposes to amend its membership dues and fees schedule (“Schedule”), effective July 1, 2002, to reduce or eliminate certain transaction credit programs for specialists. The text of the proposed rule change is available at the CHX and at the Commission.

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 CHX proposes to amend the Schedule by (1) eliminating the transaction credits paid to specialists with respect to trading in Nasdaq/NM securities; and (2) reducing the highest level of transaction credits and modifying the remaining credits paid to specialists with respect to trading in issues listed on the American Stock Exchange (“Tape B” securities).

The Exchange has proposed this change in direct response to the Commission's abrogation of certain proposed rule changes involving transaction credit rebate programs of other market centers.[4] The CHX's specialist transaction credit program was put in place in February 1997 [5] to provide specialists with credits based upon their market share in the issues that they traded.[6] The Exchange does not believe that its program has resulted in widespread abuses such as those noted by the Commission in its recent press release.[7] Nevertheless, the Exchange believes that the Commission's concerns about the potential impact of these programs on the national markets should be explored further. The Exchange, accordingly, has proposed the elimination and reduction of the credit programs described above, at the request of the Commission, to ensure that market participants are on similar footing with respect to these programs during the ongoing review of this issue. As further information is revealed about the actual impact of these types of programs on the national market system, the Exchange anticipates that it will examine the efficacy of its remaining credit programs as well.

The changes to the Schedule are effective as of July 1, 2002.

2. Statutory Basis

The Exchange believes the proposed rule change is consistent with section 6(b)(4) of the Act [8] in that it provides for the equitable allocation of reasonable dues, fees and other charges among its members.

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

The Exchange does not believe that the proposed rule change will impose any inappropriate burden on competition.

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.

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

The proposed rule change has become effective pursuant to section 19(b)(3)(A)(ii) of the Act [9] and subparagraph (f)(2) of Rule 19b-4 thereunder,[10] because it involves a due, fee, or other charge. 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.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 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 Exchange. All submissions should refer to file number SR-CHX-2002-22, and should be submitted by August 15, 2002.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[11]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  15 U.S.C. 78s(b)(3)(A)(ii).

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4.  See Securities Exchange Act Release No. 46159 (July 2, 2002), 67 FR 45775 (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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5.  See Securities Exchange Act Release Nos. 38237 (February 4, 1987, 62 FR 5492 (February 12, 1997) (instituting the specialist credit); and 41947 (September 29, 1999), 64 FR 54703 (October 7, 1999) (instituting a transaction credit for floor brokers).

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6.  The program originally provided credits as follows: a specialist whose monthly market share was less than 7% received a credit equal to 18% of the market data revenue in that stock received by the Exchange; a specialist whose monthly market share was 7 to 12% received a 36% credit; and a specialist whose market share was greater than 12% received a 54% credit. These credit rates were marginal rates; in other words, a specialist whose market share was 9% received an 18% credit on the trades that made up its 7% market share and a 36% credit on all subsequent trading activity. The credit program was modified in March 2000 to slightly increase the credits available to specialists trading listed securities and to establish a credit program for specialists trading Nasdaq/NM securities. See Securities Exchange Act Release No. 42561 (March 22, 2000), 65 FR 16443 (March 28, 2000) (SR-CHX-2000-06).

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7.  In its press release, the Commission noted that it is concerned “that the availability of large market data revenue rebates in certain markets may be creating incentives for traders to engage in transactions with no economic purpose other than to receive market data fees.” The Commission also stated its concern that “the structure and size of market data revenue rebates may be distorting the reporting of trades and that these rebate programs may reduce the regulatory resources of the markets and reallocate the funding of regulation among participants.”

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9.  15 U.S.C. 78s(b)(3)(A)(ii).

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[FR Doc. 02-18841 Filed 7-24-02; 8:45 am]

BILLING CODE 8010-01-P