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Notice

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

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Start Preamble January 25, 2008.

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 6, 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 CHX. On January 22, 2008, the Exchange filed 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.

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

The CHX proposes to amend its rules to make administrative changes that are designed to allow third-party routers to provide better service to their customers. The text of this proposed rule change is available at the CHX, on the Exchange's Web site at http://www.chx.com/​rules/​proposed_​rules.htm, and in the Commission's Public Reference Room.

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 on the proposed rule change. 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 Change

1. Purpose

Under the Exchange's rules, 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 (an “improper trade-through”).[3] Similarly, the Exchange's Matching System will not display an order if its display would improperly lock or cross other markets.[4] In these situations, the Exchange either cancels the order back to the participant that submitted it or routes the order to the destination of the participant's choice, all at the direction of the participant.[5]

Under this proposal, the Exchange seeks to make three administrative changes to its routing rules to permit these third-party routers to provide better service to their customers. The Start Printed Page 6233first proposed change would allow a participant and a routing destination to request that the CHX flip any executions into the participant's account and report that second leg of the away-market transaction to clearing.[6] This service would give the order-sending participant the option of consolidating its clearing reports in specific locations.

The second proposed change would allow the CHX (and a routing destination) to determine whether additional agreements with CHX participants are needed to implement the routing functionality for all orders, except a cross with satisfy or an outbound ISO.[7] While the CHX believes that most routing destinations will require that order-senders sign additional agreements for any services that the destinations might provide, the CHX wants to provide flexibility for destinations to make choices appropriate to their business models.

Finally, the third proposed change would allow a participant to ask its chosen destination to use the participant's own give-up (rather than the routing destination's give-up) when routing orders to other markets as part of a cross with satisfy or an outbound ISO.[8] We believe that some participants—that already have good give-ups in other markets—might prefer that the routing service use those give-ups rather than its own.

The Exchange believes that these proposed changes do not substantially change the existing routing process, but instead simply provide additional flexibility to the third-party routing services that participants might desire to use.[9]

2. Statutory Basis

The CHX believes 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).[10] The proposed rule change is consistent with Section 6(b)(5) of the Act [11] 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 allowing the Exchange to provide additional flexibility to its participants and the destinations to which the Exchange should route their orders.

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

The Exchange does not believe that the proposed rule changes will impose any 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 either solicited or received.

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 such 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

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-2007-18. 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 a.m. and 3 p.m. Copies of the 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-2007-18 and should be submitted on or before February 22, 2008.

Start Signature

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[12]

Florence E. Harmon,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  See Article 20, Rule 5.

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4.  See Article 20, Rule 6.

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5.  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—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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6.  For example, if the Exchange routes a participant's buy order to the participant's chosen destination (Router ABC) and Router ABC gets an execution of that order in another market against market maker XYZ, the first leg of the transaction (ABC buying from XYZ) will be reported to clearing by the other market. The Router ABC would send an execution report back to the Exchange (for routing to the original order-sending participant). Under this proposal, if the participant and Router ABC had requested, the Exchange would take the execution report and create a clearing-only record, flipping the execution from Router ABC's account to the account of the order-sending participant (ABC selling to the order-sending participant).

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7.  The routing of an outbound ISO or a cross with satisfy will be provided pursuant to the agreements described in section (c)(1) of Interpretation .03 to Rule 5, to the extent that the agreements are applicable to a specific routing decision. See Article 20, Rule 5, Proposed Interpretation and Policy .03(c)(1).

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8.  See Article 20, Rule 5, Proposed Interpretation and Policy .03(c).

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9.  Because these proposals do not make substantive changes to the Exchange's routing structure, the Exchange believes that its routing of orders to a participant's chosen destination would continue to be a facility of the Exchange, but the destinations chosen by each participant would not constitute Exchange facilities.

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[FR Doc. E8-1787 Filed 1-31-08; 8:45 am]

BILLING CODE 8011-01-P