Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”), and Rule 19b-4 thereunder, notice is hereby given that on April 11, 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 CHX amended the proposed rule change on December 22, 2003, and again on December 23, 2003. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons.
17 CFR 240.19b-4.
See December 17, 2003 letter from Ellen J. Neely, Senior Vice President (“SVP”) and General Counsel (“GC”), CHX, to Joseph P. Morra, Special Counsel, Division of Market Regulation (“Division”), Commission, and attachments (“Amendment No. 1”). Amendment No. 1 completely replaced and superseded the original filing.
See December 22, 2003 letter from Ellen J. Neely, SVP and GC, CHX, to Joseph P. Morra, Special Counsel, Division, Commission, and attachments (“Amendment No. 2”). Amendment No. 2 completely replaced and superseded Amendment No. 1.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The CHX proposes to add to its Minor Rule Violation Plan (“Plan”) certain violations of Rule 11Ac1-1 under the Act (“Firm Quote Rule”), as well as violations of CHX Article XX, Rule 37(a) (“BEST Rule”) and CHX Article XX, Rule 37, Interpretation and Policy .04 (“Ability to Switch MAX to Manual Execution” procedures). The text of the proposed rule change is available at the Commission and at the CHX.
17 CFR 240.11Ac1-1.
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 its proposal and discussed any comments it received regarding the proposal. 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 Plan provides a method for the Exchange to prosecute minor violations of rules contained in the Plan and to deter violations of those rules. Under the Plan, the Exchange may impose a monetary fine, instead of instituting a formal disciplinary proceeding, for a rule violation that the Exchange has found is minor in nature, but which the Exchange believes warrants a sanction more serious than a warning letter. Fines under the Plan can be up to $2,500 per violation.
Fines under the Plan can provide an appropriate situations.
For example, where member conduct is not intentional or of such magnitude that it can be considered reckless, a fine under the Plan might be an appropriate response to a first, second or third violation by an Exchange member. The Exchange is mindful, however, that more egregious violations should not be handled through the summary proceedings authorized by the Plan.
The Exchange proposes to add to the Plan:
- Violations of the Firm Quote Rule that are not related to commitments sent through the Intermarket Trading System (“ITS”);
- Violations of the Exchange's BEST Rule; and
- Violations of the Ability to Switch MAX to Manual Execution procedures.
The CHX believes that the addition of these rule violations to the Plan would enhance the enforcement efforts of the Exchange's Market Regulation Department (“Department”) by providing it with a broader range of enforcement options. Specifically, for these violations, the Department would be able to seek, in summary fashion, a disciplinary sanction that is more severe than a warning letter, but not as severe as the penalties that could result from the often time-consuming process of a formal disciplinary hearing.
The Commission notes that certain of the rules that the CHX proposes to add to the Plan relate to market making obligations, and further notes that the Commission has indicated previously that “only the most technical and non-substantive violations” of a market maker's obligations should be handled pursuant to a minor rule plan. Securities Exchange Act Release No. 27878, 55 FR 13345 (April 10, 1990)(SR-NYSE-89-44).
Under the Exchange's proposal, eligible violations of the Firm Quote Rule would face recommended fines of $500 for the first violation, $1,000 for the second violation, and $2,500 for the third and subsequent violations. Violations of the Exchange's BEST Rule and the Ability to Switch MAX to Manual Execution procedures would face recommended fines of $100 for the first violation, $500 for the second violation, and $1,000 for the third and subsequent violations.
2. Statutory Basis
The Exchange believes that the proposed rule change 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). In particular, the CHX believes the proposed rule change is consistent with section 6(b)(5) of the Act in that it is designed to promote just and equitable principles of trade, to remove impediments to, and to perfect the mechanism of, a free and open market and a national market system and, in general, to protect investors and the public interest.
15 U.S.C. 78(f)(b).
15 U.S.C. 78(f)(b)(5).
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 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 CHX 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 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. Comments may also be submitted electronically at the following e-mail address: rule-comments@sec.gov. All comment letters should refer to File No. SR-CHX-2002-09. This file number should be included on the subject line if e-mail is used. To help us process and review comments more efficiently, comments should be sent in hardcopy or by e-mail but not by both methods. 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 at the Commission's Public Reference Room. Copies of such filings will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SR-CHX-2002-09 and should be submitted by January 27, 2004.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-221 Filed 1-5-04; 8:45 am]
BILLING CODE 8010-01-P