77796 Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Notices 

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3 In Amendment No. 1, the CHX revised several 

references in the proposal to reflect its members’

November 2004 vote to approve the proposed 

demutualization.

4 15 U.S.C. 78f.

5 In order to accomplish the demutualization, the 

CHX, which currently is a Delaware non-stock 

corporation, will establish two new Delaware stock 

for-profit corporations: CHX Holdings, a direct and 

wholly-owned subsidiary of the CHX; and CHX 

Merger Sub, Inc. (‘‘CHX Merger Sub’’), a direct and 

wholly-owned subsidiary of CHX Holdings. 

Pursuant to an agreement and plan of merger, CHX 

Merger Sub will merge with and into the CHX, with 

the CHX surviving the merger as a Delaware forprofit stock corporation that is a direct and whollyowned subsidiary of CHX Holdings.

6 15 U.S.C. 78f. Following the demutualization, 

earnings of the CHX not retained in its business will 

be distributed to its parent, CHX Holdings, and 

CHX Holdings will be authorized to pay dividends 

to the stockholders of CHX Holdings as and when 

they are declared by the Board of Directors of CHX 

Holdings.

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–50892; File No. SR–CHX–

2004–26] 

Self-Regulatory Organizations; Notice 

of Filing of Proposed Rule Change and 

Amendment No. 1 by the Chicago 

Stock Exchange, Inc. Relating to the 

Demutualization of the Chicago Stock 

Exchange, Inc. 

December 20, 2004. 

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 November 

24, 2004, 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 prepared by the CHX. On 

December 15, 2004, the CHX filed 

Amendment No. 1 to the proposal.3 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 a series of changes 

to the CHX’s corporate structure to 

allow for the demutualization of the 

CHX. To effect the demutualization, the 

CHX proposes to create a new Delaware 

for-profit stock holding company, CHX 

Holdings, Inc. (‘‘CHX Holdings’’) that 

will become the parent company and 

sole shareholder of the CHX. The CHX 

will become a Delaware for-profit stock 

corporation that will continue to engage 

in the business of operating a national 

securities exchange registered under 

Section 6 of the Act.4

The proposed rule change for 

implementing the demutualization, 

including: (1) The CHX’s revised rules; 

(2) the CHX’s revised Certificate of 

Incorporation; (3) the CHX’s revised 

Bylaws; (4) the Certificate of 

Incorporation for CHX Holdings; and (5) 

the Bylaws of CHX Holdings, are 

collectively referred to herein as the 

‘‘proposed rule change’’ and are 

available for viewing on the 

Commission’s Web site, http://

www.sec.gov, and at the CHX and 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 

CHX included statements concerning 

the purpose of, and basis for, the 

proposed rule change 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 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 

Through this submission, the 

Exchange proposes a series of changes 

to the Exchange’s corporate structure 

that will allow for the demutualization 

of the Exchange. 

a. Description of the Demutualization 

Transaction 

The CHX proposes to demutualize by 

creating a new Delaware for-profit stock 

holding company, CHX Holdings, which 

will become the parent company of the 

CHX.5 The CHX itself will become a 

Delaware for-profit stock corporation 

and will continue to engage in the 

business of operating a national 

securities exchange registered under 

Section 6 of the Act.6

On the effective date of the 

demutualization (‘‘Effective Date’’), each 

person or entity that owns a 

membership in the CHX will receive 

1,000 shares of common stock of CHX 

Holdings for each membership that the 

person or entity owns, representing all 

of the issued and outstanding shares of 

CHX Holdings. Following the 

demutualization, persons and firms who 

have been qualified for membership 

under Articles 1, 2, or 3 of the 

Exchange’s current rules and, as a 

result, have access to the Exchange’s 

trading floor and other facilities 

(‘‘qualified trading members’’) will 

separately receive CHX trading permits 

entitling them to maintain the same 

trading access to the CHX that they 

currently enjoy. 

Shares of CHX Holdings common 

stock and CHX trading permits will not 

be tied together. As a result, following 

the demutualization, former CHX 

members will be able to sell the shares 

of CHX Holdings common stock they 

receive in the demutualization, subject 

to the applicable restrictions described 

below, while still retaining any CHX 

trading permits that they were issued. 

Other persons who satisfy regulatory 

requirements will also be able to obtain 

CHX trading permits without regard to 

whether they are stockholders of CHX 

Holdings. Persons who hold CHX 

trading permits in the demutualized 

Exchange will be called ‘‘participants’’

or ‘‘participant firms.’’

b. Reasons for the Proposed 

Demutualization

There are several benefits that the 

Exchange believes may result from the 

demutualization of the Exchange. 

Perhaps the most important of these 

benefits is that the creation of CHX 

Holdings as a for-profit stock 

corporation may present opportunities 

to enter into strategic alliances 

involving the issuance of stock to its 

partners in such transactions. The 

Exchange believes that demutualization 

may increase the likelihood that these 

kinds of opportunities may be presented 

to the CHX, which could be beneficial 

to the stockholders of CHX Holdings. 

The Exchange believes that another 

potential benefit to demutualizing is 

that converting the CHX from a not-forprofit corporation to a for-profit 

subsidiary of a for-profit holding 

company is likely to focus the business 

of the CHX more sharply on its 

profitability, which in turn should 

enhance the value of the Exchange to its 

owners. Additionally, by reorganizing 

the CHX into a holding company 

structure, there should be greater 

flexibility for the new holding company 

to acquire or expand into other 

businesses, as well as to dispose of 

certain business units if that should 

appear to be in the best interest of the 

enterprise and the stockholders of CHX 

Holdings. 

The Exchange remains committed to 

its role as a national securities exchange 

and does not believe that a change to a 

for-profit institution will undermine its 

responsibilities for regulating its 

marketplace. Indeed, as further 

described below, the Exchange has 

Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Notices 77797

7Also outlined below are those provisions of the 

proposed CHX Holdings Certificate of Incorporation 

and Bylaws that are directly related to the 

Exchange’s self-regulatory function.

8The Exchange, however, is proposing certain 

revisions to the CHX rules which will delete 

obsolete rule provisions. These changes are 

summarized below under ‘‘Summary of Rule 

Change Not Related to Demutualization.’’

9See proposed Article Fourth of the CHX 

Holdings Certificate of Incorporation. CHX 

Holdings will have an additional 300,000 shares of 

authorized, but not issued, common stock and 

25,000 shares of authorized, but not issued, 

preferred stock.

10See proposed Article Sixth, Section (b) of the 

CHX Holdings Certificate of Incorporation and 

proposed Article II, Section 2 of the CHX Holdings 

Bylaws.

11See proposed Article Sixth, Section (g) of the 

CHX Holdings Certificate of Incorporation. 12A CHX Holdings director may serve for any 

number of terms, consecutive or otherwise, but no 

person will be eligible for election or re-election as 

a director if such person has reached the age of 71. 13See proposed Article II, Section 4 of the CHX 

Holdings Bylaws. 14See proposed Article II, Section 5 of the CHX 

Holdings Bylaws. 15See proposed Article II, Section 3 of the CHX 

Holdings Bylaws.

16See proposed Article IV, Section 11 of the CHX 

Holdings Bylaws.

17See proposed Article Sixth, Section (h) of the 

CHX Holdings Certificate of Incorporation and 

proposed Article II, Section 6 of the CHX Holdings 

Bylaws. The Chairman and Vice Chairman of CHX 

Holdings will be required to provide the names of 

nominees to fill vacancies to the CHX Holdings 

Board, in writing, no later than five business days 

before the date on which the CHX Holdings Board 

will be asked to vote to fill the vacancies.

18See proposed Article VI, Section 4 of the CHX 

Holdings Bylaws.

19See proposed Article V, Section 1 of the CHX 

Holdings Bylaws.

20See proposed Article II, Section 3 of the CHX 

Holdings Bylaws.

21See proposed Article V of the CHX Holdings 

Bylaws.

22See proposed Article Fourth of the CHX 

Certificate of Incorporation.

proposed specific provisions in the 

Bylaws of both CHX Holdings and the 

CHX that reinforce the ability of the 

Exchange to perform its self-regulatory 

functions. 

c. Summary of Proposed Rule Change 

The proposed rule change is outlined 

below.7 In general, the proposed rule 

change consists of: organizational 

changes to the CHX Certificate of 

Incorporation and Bylaws, reflecting the 

change in corporate form; governance 

changes that will reduce the size of the 

CHX Board and modify certain 

provisions governing CHX committees; 

and membership rule changes that are 

necessary to implement the new CHX 

trading permit structure, which will 

replace the existing structure of owning 

and leasing Exchange memberships as a 

basis for trading rights. The proposed 

rule change also includes the CHX 

Holdings Certificate of Incorporation 

and Bylaws. CHX Holdings will, on the 

Effective Date of the demutualization 

transaction, become the Exchange’s 

parent company. The Exchange is not 

proposing any significant change to its 

existing operational and trading 

structure in connection with the 

demutualization.8

(1) Governance Structure of the 

Demutualized CHX.

(a) CHX Holdings. As noted above, 

following the demutualization, CHX 

Holdings will be a for-profit stock 

corporation. All of the issued and 

outstanding stock of CHX Holdings 

(450,000 shares of common stock) 

initially will be owned by the persons 

or entities that owned memberships in 

the Exchange.9

(i) Board of Directors. The Board of 

Directors of CHX Holdings (‘‘CHX 

Holdings Board’’) will consist of 

between 10 and 16 persons, as 

determined by the CHX Holdings Board 

from time to time.10 Initially, the CHX 

Holdings Board will have 14 directors, 

who will be selected by the Chairman, 

Vice Chairman, and Chief Executive 

Officer of the CHX from among the 

persons currently serving on the 

Exchange’s Board of Governors.11 The 

directors of CHX Holdings will be 

divided into three classes, which will be 

as nearly equal in number as the total 

number of directors then constituting 

the entire CHX Holdings Board. The 

directors of CHX Holdings will serve 

staggered three-year terms, with the 

term of office of one class expiring each 

year.12

The Chairman of the CHX Holdings 

Board will be elected by the CHX 

Holdings Board from among the 

directors on the CHX Holdings Board.13

He may serve as the Chief Executive 

Officer of CHX Holdings but may have 

no other office in CHX Holdings. The 

Vice Chairman of the CHX Holdings 

Board will be nominated by the 

Chairman of the CHX Holdings Board 

and elected by the CHX Holdings 

Board.14 He may hold no other office 

with CHX Holdings. Neither the 

Chairman nor the Vice Chairman of 

CHX Holdings will be subject to any 

limit on the number of terms that he 

may serve. Each year, the Nominating 

and Governance Committee of CHX 

Holdings will nominate directors for the 

class of directors standing for election at 

the CHX Holdings annual meeting of 

stockholders that year.15 Each CHX 

Holdings stockholder will be entitled to 

one vote for each share of stock owned 

by that stockholder.16 At each annual 

meeting of the stockholders of CHX 

Holdings at which a quorum is present, 

the individuals receiving a plurality of 

the votes cast will be elected directors 

of CHX Holdings.

In most cases, vacancies on the CHX 

Holdings Board will be filled by persons 

nominated by the Chairman and Vice 

Chairman of CHX Holdings and elected 

by the CHX Holdings Board.17 If the 

vacancy has resulted from removal from 

office for cause pursuant to stockholder 

vote, however, that vacancy may be 

filled by a vote of the stockholders of 

CHX Holdings at the same meeting at 

which that director is removed. Any 

director chosen to fill a vacancy or 

newly-created seat may serve only until 

the next annual meeting of CHX 

Holdings stockholders, at which time a 

director will be elected by the 

stockholders to serve out the remaining 

portion of the term of the class to which 

the director belongs.

(ii) Officers of CHX Holdings. The 

day-to-day business affairs of CHX 

Holdings will be managed by the Chief 

Executive Officer of CHX Holdings, who 

will be appointed by the CHX Holdings 

Board.18 The Chief Executive Officer of 

CHX Holdings may appoint such other 

officers as he believes are necessary. 

These officers will have the 

responsibilities and authority set out in 

the CHX Holdings Bylaws or given to 

them by the Chief Executive Officer of 

CHX Holdings. As an initial matter, the 

Chief Executive Officer of the CHX will 

act as the Chief Executive Officer of 

CHX Holdings and will appoint, as 

officers of CHX Holdings, such officers 

of the CHX as he believes are necessary 

to carry out the business of CHX 

Holdings.

(iii) CHX Holdings Committees. The 

CHX Holdings Board will have several 

standing committees.19 The CHX 

Holdings Nominating and Governance 

Committee, which will consist of six 

directors, will be appointed by the CHX 

Holdings Board.20 The Executive, Audit, 

and Compensation Committees of CHX 

Holdings will be appointed by the 

Chairman and Vice Chairman of the 

CHX Holdings Board, subject to the 

approval of the CHX Holdings Board.21

Other committees will be appointed by 

the Vice Chairman of CHX Holdings, 

subject to the CHX Holdings Board’s 

approval. Each committee will have the 

authority and responsibilities as may be 

determined, from time to time, by the 

CHX Holdings Board.

(b) The CHX. As noted above, 

following demutualization, the CHX 

will be a for-profit stock corporation. All 

of its stock will be held by CHX 

Holdings.22

(i) Board of Directors. The CHX Board 

of Directors (‘‘CHX Board’’) will consist 

of between 10 and 16 persons, as 

77798 Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Notices 

23See proposed Article Fifth of the CHX 

Certificate of Incorporation and proposed Article II, 

Section 2 of the CHX Bylaws. The CHX’s current 

Board of Governors consists of 24 governors.

24Under the proposed CHX Bylaws, a CHX 

director may serve for any number of terms, 

consecutive or otherwise, but no person will be 

eligible for election or re-election as a director if 

such person has reached the age of 71. These 

provisions are somewhat different from the 

Exchange’s current Bylaws, which contain 

restrictions on the number of terms that CHX 

governors may serve and do not place any age 

restriction on member governors. The Exchange 

believes that it is appropriate to remove term 

restrictions to ensure that persons who would be 

interested in serving on the CHX Board are not 

required to leave at the end of a particular number 

of years, particularly as the number of member 

firms on the Exchange (and the number of persons 

who would be eligible to serve on the CHX Board) 

have decreased over the past several years.

25See proposed Article Fifth, Section (c) of the 

CHX Certificate of Incorporation and proposed 

Article II, Section 2(b) of the CHX Bylaws. A 

‘‘public director’’ is a director who (i) is not a 

participant or an officer, managing member, partner 

or employee of an entity that is a participant, (ii) 

is not an employee of the CHX, CHX Holdings or 

any of their affiliates, (iii) is not a broker or dealer 

or an officer or employee of a broker or dealer, or 

(iv) does not have any other material business 

relationship with the CHX, CHX Holdings, or any 

of their affiliates or any broker or dealer. A 

‘‘participant director’’ is a director who is a CHX 

participant or an officer, managing member or 

partner of an entity that is a CHX participant. The 

proposed definition of public director will replace 

the somewhat confusing definitions of non-industry 

governor and public governor that are set out in the 

Exchange’s current governing documents.

26This composition is consistent with the 

composition of the Exchange’s current Board of 

Governors, which consists of 12 non-industry 

governors (all of whom currently qualify as public 

governors), ten member governors (of which four 

must be on-floor governors and four must be offfloor governors) the Vice Chairman (an on-floor 

member firm representative) and the Chief 

Executive Officer.

27See proposed Article II, Section 4 of the CHX 

Bylaws. Under the Exchange’s current Bylaws, the 

CHX Chairman could also be an off-floor member 

governor. The Exchange believes that it is 

consistent with principles of good governance to 

ensure that the Chairman of the Exchange is not one 

of the members regulated by the Exchange.

28See proposed Article II, Section 5 of the CHX 

Bylaws. Currently, the Exchange’s Vice Chairman is 

directly elected by the Exchange’s members.

29See proposed Article II, Section 3 of the CHX 

Bylaws.

30CHX Holdings will sign an agreement with the 

CHX confirming its obligation to vote for the 

candidates nominated through the process set out 

in the proposed CHX Bylaws.

31See proposed Article II, Section 3 of the CHX 

Bylaws.

32Under the Exchange’s current Bylaws, its 

members have a similar ability to add candidates 

to a ballot through the submission of petitions 

signed by ten CHX members.

33As noted below, no participant or participant 

firm is allowed to hold more trading permits than 

are necessary to the conduct of business on the 

Exchange. All trading permits must be held by an 

active participant or must be held by an active 

participant firm, where the participant firm has 

assigned an active participant as its nominee. See

proposed CHX Rules, Article II, Rule 2(e).

34See proposed Article Fifth, Section (g) of the 

CHX Certificate of Incorporation and proposed 

Article II, Section 6 of the CHX Bylaws. The 

Chairman and Vice Chairman of the CHX will be 

required to provide the names of nominees to fill 

vacancies to the CHX Board, in writing, no later 

than five business days before the date on which 

the CHX Board will be asked to vote to fill the 

vacancies. The Exchange believes that having both 

its Chairman (a public director or the Chief 

Executive Officer) and its Vice Chairman (a 

participant director) nominate persons to fill 

vacancies on the CHX Board provides a wellbalanced approach to this important responsibility.

determined by the CHX Board from time 

to time.23 Initially, the CHX Board will 

have 14 directors, who will be selected 

by the Chairman, Vice Chairman, and 

Chief Executive Officer of the CHX from 

among the persons currently serving on 

the Exchange’s Board of Governors. The 

directors will be divided into three 

classes, which will be as nearly equal in 

number as the total number of directors 

then constituting the entire CHX Board 

permits. The CHX’s directors will serve 

staggered three-year terms, with the 

term of office of one class expiring each 

year.24

The CHX Board will be composed of 

the Exchange’s Chief Executive Officer, 

persons who qualify as ‘‘participant 

directors’’ and persons who qualify as 

‘‘public directors.’’25 One-half of the 

members of the CHX Board must be 

public directors. The remaining 

directors (other than the Chief Executive 

Officer) must be participant directors.26

The CHX Board’s initial directors will 

include the Chief Executive Officer, 

seven public directors and six 

participant directors of the CHX.

The Chairman of the CHX Board will 

be elected by the CHX Board and will 

be either the Chief Executive Officer of 

the CHX or one of the public directors 

on the CHX Board.27 The Vice Chairman 

of the CHX Board will be elected by the 

participant directors from among the 

participant directors on the CHX 

Board.28 Neither the Chairman nor the 

Vice Chairman of the CHX may hold 

another office in the Exchange, nor will 

he be subject to any limit on the number 

of terms that he may serve.

Each year, the Nominating and 

Governance Committee of the CHX will 

nominate directors for the class of 

directors standing for election at the 

annual meeting of the CHX stockholders 

that year.29 CHX Holdings, as sole 

stockholder of the CHX, will have the 

sole right and the obligation to vote for 

the directors of the CHX nominated by 

the CHX Nominating and Governance 

Committee.30

Because, in the demutualized CHX, 

the Exchange’s participants are not 

stockholders of the CHX, they cannot 

directly elect members of the CHX 

Board. As described below, the 

Exchange has set up a procedure that 

allows participants to be involved in the 

selection of candidates to fill participant 

director slots on the CHX Board. This 

procedure is designed to resemble the 

process currently used to nominate 

persons to the CHX’s Board of 

Governors.31 Under the new procedures, 

the CHX Nominating and Governance 

Committee will hold two open meetings 

with CHX participants for the purpose 

of receiving recommendations of 

candidates for election to the positions 

of participant directors. The CHX 

Nominating and Governance 

Committee’s initial candidates for 

nomination will be announced to CHX 

participants, who will then have the 

opportunity to identify additional 

candidates for nomination to those 

positions by submitting a petition 

signed by at least ten participants.32 If 

no petitions are submitted within the 

time frame prescribed by the CHX 

Bylaws, the CHX Nominating and 

Governance Committee will nominate 

the candidates it initially identified. If 

one or more valid petitions are 

submitted, the participants will be 

allowed to vote on the entire group of 

potential candidates. Each participant 

will have one vote, per trading permit, 

with respect to each participant director 

position that is to be filled, and the 

persons with the highest number of 

votes will be nominated by the CHX 

Nominating and Governance 

Committee.33 As noted above, CHX 

Holdings, as sole stockholder of the 

CHX, will have the sole right and the 

obligation to vote for the directors 

nominated by the CHX Nominating and 

Governance Committee. The Exchange 

believes that this process provides a fair 

opportunity for the participants in the 

Exchange—its ‘‘members’’ under the Act 

—to participate in the selection of the 

Exchange’s directors.

In most cases, vacancies on the CHX 

Board will be filled by persons 

nominated by the Chairman and Vice 

Chairman of the CHX and elected by the 

CHX Board.34 As with CHX Holdings, if 

the vacancy has resulted from removal 

from office for cause pursuant to 

stockholder vote, however, that vacancy 

may be filled by a vote of the CHX 

stockholders at the same meeting at 

which that director is removed. Any 

director chosen to fill a vacancy or 

newly-created seat may serve only until 

the next annual meeting of the CHX 

stockholders, at which time a director 

identified by the CHX Nominating and 

Governance Committee will be elected 

by the CHX stockholders to serve out 

Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Notices 77799

35See proposed Article V of the CHX Bylaws.

36Although these provisions are not measurably 

different from the Exchange’s current Bylaws, the 

proposed changes to Article V of the CHX Bylaws 

do contain two new provisions relating to officer 

compensation and term of office. Consistent with 

the existing CHX Rules, proposed Article V, Section 

2 of the CHX Bylaws confirms that the CHX Chief 

Executive Officer’s compensation is determined by 

the CHX Compensation Committee and that salaries 

of other officers are fixed by the Chief Executive 

Officer of the CHX, in consultation with the 

Compensation Committee of the CHX. Proposed 

Article V, Section 3 of the CHX Bylaws confirms 

that officers hold office until a successor is 

appointed or until the officer’s death, resignation, 

or removal. Other changes in proposed Article V of 

the CHX Bylaws move references to the Exchange’s 

Chairman and Vice Chairman to proposed Article 

II (Directors) to confirm that these persons are not 

officers of the Exchange and set out the general 

authority of Exchange officers.

37 Information about the composition and 

responsibilities of the Exchange’s committees is 

contained in proposed Article IV of the Exchange’s 

rules.

38Under the Exchange’s current rules, the 

Exchange’s Nominating Committee consists of three 

member representatives (including one on-floor 

representative and one off-floor representative) and 

three non-industry persons. The member 

representatives currently are elected by the 

Exchange’s members; the non-industry 

representatives are appointed by the Exchange’s 

Board of Governors. The Exchange believes that it 

is appropriate to adopt a more streamlined 

approach to the selection of its Nominating and 

Governance Committee when it demutualizes and 

thus has chosen the process set out in the amended 

CHX Bylaws.

39 In making this proposal, the Exchange seeks to 

combine the work of its current Nominating 

Committee with the work performed by its current 

(and separate) Organization and Governance 

Committee. The Exchange believes that it will be 

more efficient to have a single committee address 

these issues.

40The role and composition of these committees 

are similar, but not identical, to the structure under 

the current CHX rules. For example, under the 

revised CHX rules, a majority (not just 50%) of the 

members of the CHX’s Audit and Compensation 

Committees would be public directors. In addition, 

the description of the CHX Audit Committee’s role 

would be updated to confirm that the committee 

(not the CHX Board) has the direct responsibility to 

retain and oversee the work of the independent 

public accountant that audits the Exchange’s 

financial statements. Other changes include a 

decision to streamline the requirements for CHX 

Executive Committee members by removing the 

requirement in the Exchange’s current Bylaws that 

committee members be chosen (a) with a view to 

providing representation to the various 

geographical areas in which there are member 

organizations that support the Exchange; and (b) 

with a view to having persons on the committee 

who are interested in and knowledgeable about the 

Exchange’s business operations and the securities 

industry as a whole. These requirements appear to 

have been included in the Exchange’s Bylaws at a 

time when securities industry participants had 

businesses that were more local in scope and when 

persons might not have had a particular interest in 

serving as public directors on the CHX’s Board of 

Governors. Today, the businesses of many of the 

Exchange’s members are national in scope and the 

Exchange anticipates that all of its public directors 

will be interested in learning more about the 

Exchange’s operations and the workings of the 

securities industry as a whole.

41The CHX represents that the composition, 

responsibilities, and appointment mechanism 

associated with this committee are consistent with 

the requirements relating to this committee that are 

set out in the CHX’s September 30, 2003, settlement 

order with the Commission. See In the Matter of the 

Chicago Stock Exchange, Securities Exchange Act 

Release No. 48566 (September 30, 2003) (Admin. 

Proc. File No. 3–11282) (Order Instituting Public 

Administrative Proceedings Pursuant to Sections 

19(h) and 21C of the Securities Exchange Act of 

1934, Making Findings, and Imposing a Censure, a 

Cease-and-Desist Order and Other Relief) (‘‘CHX 

Settlement Order’’).

42The CHX Participant Advisory Committee will 

be composed entirely of participants of the 

Exchange. It will, among other things, recommend 

rules for adoption by the CHX Board and advise the 

CHX management regarding enhancements to the 

Exchange’s trading facilities and other matters that 

affect participants. This committee is designed to 

provide participants with a formal opportunity to 

share their concerns and ideas with the CHX 

management.

43 15 U.S.C. 78f(b). Section 6(b) of the Act 

requires, among other things, that the Exchange’s 

rules must be designed to protect investors and the 

public interest. It also requires that the Exchange be 

organized so that it can carry out the purposes of 

the Act and to enforce compliance by its 

participants with the Act, the rules and regulations 

under that Act, and the rules of the Exchange.

44See proposed Article X, Section 1 of the CHX 

Bylaws.

45See proposed Article X, Section 2 of the CHX 

Bylaws. These requirements are designed to ensure 

that representatives of CHX Holdings or of other 

corporations affiliated with the Exchange do not 

improperly involve themselves in specific 

disciplinary or other regulatory matters being 

handled by the Exchange. These requirements and 

the requirements relating to the confidentiality of 

records are not, however, designed to prevent the 

Exchange from sharing with CHX Holdings the type 

of information about the Exchange’s business that 

would ordinarily be shared with a parent 

corporation, including information relating to the 

Exchange’s compliance with the CHX Settlement 

Order and all applicable laws; any reports from the 

Commission or from others evaluating the 

Exchange’s self-regulatory programs; and 

information about the trading activities and 

business strategies of the Exchange’s participants.

46See proposed Article X, Section 3 of the CHX 

Bylaws.

47See proposed Article X, Section 4 of the CHX 

Bylaws.

48See proposed Article X, Section 5 of the CHX 

Bylaws. Regulatory penalties that are intended to 

Continued

the remaining portion of the term of the 

class to which the director belongs.

(ii) Officers of the CHX. The day-today business affairs of the CHX will 

continue to be managed by its Chief 

Executive Officer, who is appointed by 

the CHX Board.35 The Chief Executive 

Officer of the CHX will continue to have 

the authority to appoint such other 

officers as he believes are necessary. 

These officers will have the 

responsibilities and authority set out in 

the CHX Bylaws or given to them by the 

Chief Executive Officer of the CHX.36

(iii) CHX Committees. The CHX Board 

will have several standing committees, 

which are, for the most part, the same 

as the committees currently in place for 

the CHX.37

(A) The CHX Nominating and 

Governance Committee, which will 

consist of three participant directors and 

three public directors, will be appointed 

by the CHX Board.38 This committee 

will be responsible for nominating 

candidates for the position of director 

and periodically reviewing the 

organization and governance structure 

of the Exchange.39

(B) The CHX’s Executive, Audit, 

Finance, and Compensation Committees 

will be appointed by the Chairman and 

Vice Chairman of the CHX Board, 

subject to the approval of the CHX 

Board.40

(C) The CHX’s Regulatory Oversight 

Committee will be appointed by the 

Vice Chairman of the CHX Board, 

subject to the approval of the public 

directors on the CHX Board.41

(D) The CHX’s Judiciary Committee 

will continue to be appointed by the 

Chief Executive Officer of the CHX; and 

(E) Other committees, including the 

newly-formed Participant Advisory 

Committee of the CHX, will be 

appointed by the Vice Chairman of the 

CHX, subject to the CHX Board’s 

approval.42 Each committee will have 

the authority and responsibilities as 

may be determined, from time to time, 

by the CHX Board.

(2) Provisions Relating to, or Arising 

from, the Self-Regulatory Functions of 

the CHX. The proposed Bylaws of both 

CHX Holdings and the CHX contain 

specific provisions relating to the selfregulatory function of the CHX. 

(a) CHX. For the CHX, these 

provisions address the following issues: 

(i) Management of the CHX. The CHX 

Board must consider applicable 

requirements under Section 6(b) of the 

Act 43 in connection with the 

management of the Exchange.44

(ii) Confidentiality. Meetings of the 

CHX Board and of its committees that 

pertain to the self-regulatory function of 

the Exchange or to the structure of the 

market which the Exchange regulates 

must be closed to persons who are not 

members of the CHX Board or CHX 

officers, staff, counsel, or other 

specifically identified persons.45 The 

CHX books and records that relate to the 

Exchange’s self-regulatory function 

must be kept confidential and must not 

be used for non-regulatory purposes.46

(iii) Maintenance of books and 

records. All of the books and records of 

the CHX must be maintained at a 

location within the United States.47

(iv) Regulatory fees and penalties. 

Any revenues received by the CHX from 

regulatory fees or penalties must be 

applied to fund the legal and regulatory 

operations of the Exchange and must 

not be used to pay dividends.48

77800 Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Notices 

benefit customers, by, for example, providing 

restitution, must be provided to those customers 

and will not be used by the Exchange for any 

purpose.

49See proposed Article Fourth of the CHX 

Certificate of Incorporation.

50CHX Holdings stockholders also are prohibited 

from selling, transferring, or otherwise disposing of 

their shares except in 1000-share increments, and 

no stockholder will be permitted to transfer shares 

in CHX Holdings until all amounts due and owing 

from that stockholder to the CHX have been paid. 

See proposed Article IX, Sections 2 and 3(b) of the 

CHX Holdings Bylaws.

51See proposed Article III, Section 1 of the CHX 

Holdings Bylaws.

52See proposed Article III, Section 2 of the CHX 

Holdings Bylaws.

53See proposed Article III, Section 3 of the CHX 

Holdings Bylaws.

54See proposed Article III, Sections 4 and 5 of the 

CHX Holdings Bylaws.

55The Exchange will circulate written materials 

to all qualified trading members, in advance of the 

Effective Date, notifying these persons that they can 

decide not to receive a trading permit and setting 

out the procedures by which that opt-out decision 

can be made. See Amendment No. 1, supra note 3.

56See proposed CHX Rules, Article II, Rule 2, 

‘‘Rights and Privileges of Participants.’’

57See proposed CHX Rules, Article I, Rule 1(l) 

(definition of ‘‘participant’’).

58See proposed CHX Rules, Articles II and III. 

Other than the new rules relating to trading permits, 

the changes to the rules in these articles replace 

references to a ‘‘member,’’ ‘‘member organization’’

and ‘‘member firm’’ with the words ‘‘participant’’

and ‘‘participant firm,’’ delete references to sales of 

memberships, and consolidate the current separate 

articles that relate to member firms and member 

corporations into a single article regarding 

participant firms. These changes are not designed 

to alter the substantive rights and obligations of the 

CHX members.

(v) Restrictions on ownership. 

Although there are no percentage-based 

restrictions on the ownership of the 

CHX, the proposed CHX Certificate of 

Incorporation confirms that CHX 

Holdings is the sole stockholder of the 

CHX.49 Changes to the CHX Certificate 

of Incorporation cannot take effect until 

they are approved by the Commission.

(b) CHX Holdings. Provisions in the 

CHX Holdings Certificate of 

Incorporation and Bylaws address 

similar, but slightly different, issues and 

contain specific limitations on 

shareholder voting and ownership 

rights, including: 

(i) Restrictions on voting rights. As 

described in proposed Article Fifth of 

the CHX Holdings Certificate of 

Incorporation, holders of the common 

stock or preferred stock of CHX 

Holdings, either alone or together with 

any of their affiliates or associates or 

any other person, directly or indirectly, 

may not (a) vote or give a proxy or 

consent with respect to shares 

representing more than 20% of the 

voting power of the then-issued and 

outstanding capital stock of CHX 

Holdings or (b) enter into any 

agreement, plan, or arrangement that 

would result in the shares of capital 

stock of CHX Holdings, subject to that 

agreement, plan, or arrangement, not 

being voted on a matter or any proxy 

being withheld, where the effect of that 

agreement, plan, or arrangement would 

be to enable any person or group to 

obtain more than 20% of the 

outstanding voting power.

(ii) Restrictions on ownership rights. 

In addition to the restrictions on voting 

discussed above, shares of common 

stock of CHX Holdings will be subject 

to the following restrictions: (a) no 

person, alone or together with its 

affiliates and associates or any person(s) 

acting in concert with it, may own of 

record or beneficially, directly or 

indirectly, more than 40% of the 

outstanding shares of any class of 

capital stock of CHX Holdings; and (b) 

no person, alone or together with its 

affiliates and associates or any person(s) 

acting in concert with it, who holds a 

trading permit of the CHX, may own of 

record or beneficially, directly or 

indirectly, more than 20% of any class 

of capital stock of CHX Holdings. These 

restrictions may be waived by the CHX 

Holdings Board in accordance with the 

terms of the Certificate of Incorporation 

of CHX Holdings and an appropriate 

amendment to the Bylaws of CHX 

Holdings, which must be approved by 

the Commission.50

(iii) Management of CHX Holdings. So 

long as CHX Holdings controls the 

Exchange, the CHX Holdings Board and 

its officers, employees and agents must 

give due regard to the preservation of 

the independence of the Exchange’s 

self-regulatory function and to its 

obligations to investors and the public 

interest and must not take actions that 

would interfere with the self-regulatory 

activities of the Exchange.51

(iv) Confidentiality. The CHX 

Holdings books and records that relate 

to the Exchange’s self-regulatory 

function must be kept confidential and 

must not be used for non-regulatory 

purposes.52

(v) Cooperation with the Commission/

consent to jurisdiction. To the extent 

that they are related to the activities of 

the CHX, the books, records, officers, 

directors, and employees of CHX 

Holdings will be deemed to be the 

books, records, officers, directors, and 

employees of the Exchange for purposes 

of the Commission oversight.53

Additionally, CHX Holdings officers, 

directors, employees, and agents are 

deemed to agree to cooperate with the 

Commission in its oversight activities 

relating to the Exchange and are deemed 

to submit to the jurisdiction of the 

Commission with respect to proceedings 

that might arise out of, or relate to, the 

activities of the Exchange.54

(3) Trading Permits. 

Following the Exchange’s 

demutualization, persons and firms who 

have been qualified for membership 

under Articles 1, 2, or 3 of the 

Exchange’s current rules and, as a 

result, have access to the Exchange’s 

trading floor and other facilities will 

separately receive trading permits 

entitling them to maintain the same 

trading access to the CHX that they 

currently enjoy. These persons will 

separately and automatically be issued 

one or more trading permits, unless they 

affirmatively ‘‘opt out’’ of the 

opportunity to obtain a trading permit.55

Each trading permit will constitute a 

revocable license that will allow the 

holder of the permit to access the CHX 

trading facilities in the same manner as 

previously authorized for the CHX’s 

qualified trading members.56 As 

summarized below, and with the 

exceptions noted below, although there 

will be some changes in terminology 

and certain administrative procedures 

following demutualization, the right of 

a qualified trading member to access the 

CHX, and execute transactions through 

the CHX, will not be substantially 

changed as a result of the 

demutualization transaction. Persons 

holding trading permits of the CHX will 

be ‘‘members’’ of the CHX for purposes 

of the Act and will be characterized as 

‘‘participants’’ in the CHX subject to the 

CHX’s regulatory jurisdiction, but they 

will not have any ownership interest in 

the Exchange or in CHX Holdings by 

virtue of their trading permits.57

Following demutualization, persons 

other than qualified trading members 

who seek issuance of a trading permit 

will be required to complete appropriate 

application materials and registration 

forms, satisfy regulatory requirements 

and pay processing charges and 

application fees. This process will be 

substantially similar to the current 

membership application process.58 An 

individual participant may obtain only 

one trading permit. A participant that is 

not an individual (i.e., a participant 

firm) may obtain multiple trading 

permits and may assign a nominee to 

each trading permit. A trading permit 

will be required for each person 

transacting business. As an example, a 

CHX specialist firm with 50 cospecialists will be required to obtain 50 

trading permits and to register each cospecialist as a nominee. Importantly, 

however, no participant or participant 

firm will be allowed to hold more 

Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Notices 77801

59See proposed CHX Rules, Article II, Rule 2(e).

60See proposed CHX Rules, Article II, Rules 3(d), 

‘‘Term of Trading Permit,’’ and 7, ‘‘Termination of 

Trading Permit by Participant.’’

61See proposed CHX Rules, Article II, Rule 6, 

‘‘Transfers of Trading Permits.’’

62See generally, CHX Rules, Articles VII, 

‘‘Suspension—Reinstatement,’’ and XII, ‘‘Discipline 

and Trial Proceedings.’’

63See CHX Rules, Article IA.

64This fee is identical to the fee currently charged 

by the Exchange for membership dues.

65See proposed Schedule of Membership Dues 

and Fees.

66See proposed Article IV of the CHX Holdings 

Bylaws and proposed Article III of the CHX Bylaws.

67See proposed CHX Certificate of Incorporation, 

Article Third (corporate purpose) and proposed 

CHX Bylaws Article II, Section 15 (board 

compensation), Article IX (contracts, loans, checks 

and deposits), and Article VI (indemnification and 

advancing of expenses).

68See Amendment No. 1, supra note 3.

69See Amendment No. 1, supra note 3.

trading permits than are necessary to the 

conduct of business on the Exchange. 

All trading permits must be held by an 

active participant or must be held by an 

active participant firm, where the 

participant firm has assigned an active 

participant as its nominee.59

Once issued, a trading permit of the 

CHX will be effective for one year 

following its issuance date and will 

automatically renew for an additional 

one-year term on each anniversary of 

the issuance date, unless the holder 

notifies the Exchange (by giving not less 

than 60 days’ notice) that the holder 

wishes to waive its right to this 

automatic renewal. If the participant 

waives the right to renew the permit, it 

will expire at the end of the thencurrent term.60 A trading permit may 

not be sold, leased or otherwise 

transferred.61 As an exception to the 

non-transferability of trading permits, a 

trading permit may be transferred to the 

name of a nominee within the same 

participant firm with the approval of the 

CHX. In addition to the holder’s right to 

relinquish a trading permit, the CHX 

may suspend or revoke a trading permit 

for the same reasons that currently 

entitle the CHX to suspend or revoke a 

membership and/or sell a seat.62

Currently, the Exchange’s rules permit 

a person (referred to as an ‘‘approved 

lessor’’) to purchase a membership 

solely for the purpose of providing a 

financing mechanism for another person 

that seeks access to the Exchange.63

Following demutualization, the 

Exchange’s rules will be amended to 

delete Article IA of the CHX rules. 

Accordingly, following 

demutualization, no person may operate 

as an approved lessor or otherwise lease 

trading access to the Exchange.

There will be nominal processing 

charges and application fees relating to 

the issuance of trading permits. In 

addition, all participants and 

participant firms will be subject to an 

initial annual trading permit fee of 

$6,000 per year, payable monthly, for 

each trading permit.64 These new fees 

are set out in the proposed amendments 

to the Schedule of Member Dues and 

Fees.65

(4) Other Provisions in the Certificate 

of Incorporation and Bylaws

(a) Stockholder Ownership. The 

proposed Bylaws for CHX Holdings and 

the CHX contain a variety of provisions 

relating to issues associated with 

stockholder ownership, including 

provisions relating to the timing and 

conduct of meetings, record dates, 

quorum requirements, proxies, and 

other matters.66 These provisions are 

designed to reflect current corporate 

practices and are identical for CHX 

Holdings and the CHX.

(b) Updated provisions of the CHX 

Charter and Bylaws. The Exchange is 

proposing a few changes to its Bylaws 

and Certificate of Incorporation to 

modernize the Exchange’s governing 

documents. Among other things, the 

Exchange is proposing: to include a 

streamlined description of its corporate 

purpose; to confirm that the CHX Board 

has the authority to set the CHX Board’s 

compensation; to set out specific 

provisions relating to the authority of 

Exchange officers to enter into contracts, 

sign checks, and handle the funds of the 

Exchange; and to specifically provide 

that the Exchange will advance 

expenses, in appropriate circumstances, 

to directors, officers, and committee 

members of the CHX who are named as 

defendants in certain actions relating to 

Exchange business.67 Identical 

provisions are proposed for the 

Certificate of Incorporation and Bylaws 

of CHX Holdings. The Exchange 

believes that these provisions are 

consistent with current corporate 

practices relating to these issues.

(5) Summary of Rule Change Not 

Related to Demutualization. In 

connection with its comprehensive 

review of its rules as part of this 

demutualization, the Exchange is 

proposing to delete the following rule 

provisions that relate to events that have 

already occurred or to programs that the 

Exchange no longer offers: Article IB, 

‘‘E-Session Trading Privileges’’; Article 

XI, Rules 11, ‘‘Mandatory Year 2000 

Testing,’’ and 12, ‘‘Mandatory Decimal 

Pricing Testing;’’ and Article XIII, Rule 

4, ‘‘Advertisements, Market Sales 

Literature Relating to Options and 

Communications to Customers.’’

(6) Administrative Issues

(a) Membership market. CHX 

members will be able to buy and sell 

CHX memberships until the close of the 

seat market on the 11th business day 

prior to the expected Effective Date of 

the demutualization transaction.68 All 

existing bids and offers in the seat 

market will be immediately cancelled at 

the close of the seat market on that day 

because the required posting procedures 

associated with any transactions 

consummated after that date could not 

be completed before the Effective Date 

of the transaction. This hiatus in the 

membership market will permit the 

Exchange to identify with certainty the 

persons and firms who hold 

membership interests and are entitled to 

receive shares on the Effective Date of 

the transaction.

(b) Approval of demutualization 

transaction. Under the Exchange’s rules, 

an approved lessor who is not a 

qualified trading member of the 

Exchange is not entitled to vote his 

membership interest. If such a 

membership interest is leased to an 

Exchange member, the lessee may vote 

the membership interest, but, if the 

membership interest has not been 

leased, there is no vote associated with 

that membership interest.

The CHX’s Board of Governors 

determined that it is appropriate to 

provide these approved lessors holding 

unleased membership interests with an 

opportunity to vote on the 

demutualization transaction. As a result, 

the CHX’s Board of Governors 

conditioned the demutualization 

transaction on approval by the 

affirmative vote of both (1) a majority of 

the membership interests entitled to 

vote on the election of governors of the 

Exchange, and (2) a majority of all of the 

outstanding memberships of the 

Exchange. The first vote count was 

conducted in a manner consistent with 

prior votes of Exchange members and 

included votes cast with respect to 

memberships owned by (a) qualified 

trading members of the Exchange 

(whether or not those memberships are 

leased to other CHX members) and (b) 

approved lessors who were not qualified 

trading members of the Exchange where 

the memberships are leased to CHX 

members. The second vote count 

included all of the votes cast in the first 

count, as well as votes cast by approved 

lessors who were not qualified trading 

members of the Exchange where the 

memberships were not leased to CHX 

members. On November 11, 2004, the 

persons voting in these two vote counts 

approved the proposal to demutualize 

the CHX.69

77802 Federal Register / Vol. 69, No. 248 / Tuesday, December 28, 2004 / Notices 

70 15 U.S.C. 78f(b).

71 15 U.S.C. 78f(b)(5).

72See Securities Exchange Act Release No. 50699 

(November 18, 2004), 69 FR 71126 (December 8, 

2004) (File No. S7–39–04).

73 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

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) of the Act.70 The CHX 

believes the proposal is consistent with 

Section 6(b)(5) of the Act 71 in that it 

would create a governance and 

regulatory structure of the Exchange that 

is designed to promote just and 

equitable principles of trade, to remove 

impediments, 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. The Exchange represents 

that it remains committed to its role as 

a national securities exchange and does 

not believe that the proposed change to 

a for-profit institution will undermine 

its responsibilities for regulating its 

marketplace. Indeed, as described 

above, the Exchange believes that it has 

proposed specific provisions in the 

Bylaws of both CHX Holdings and the 

demutualized CHX that reinforce the 

ability of the Exchange to perform its 

self-regulatory functions.

Moreover, according to the CHX, the 

Exchange is not proposing any 

significant changes to its existing 

operational and trading structure in 

connection with the demutualization. 

Instead, the CHX represents that the 

proposed rule change primarily consists 

of: organizational changes to the CHX 

Certificate of Incorporation and Bylaws 

reflecting the change in corporate form; 

governance changes that will reduce the 

size of the CHX Board and modify 

certain provisions governing the CHX 

committees; and membership rule 

changes that are necessary to implement 

the new CHX trading permit structure, 

which will replace the existing structure 

of owning and leasing Exchange 

memberships as a basis for trading 

rights. The proposed rule change also 

includes the CHX Holdings Certificate 

of Incorporation and Bylaws. Although 

the proposed governance structure does 

not reflect all of the proposals put 

forward by the Commission in its latest 

release on self-regulatory governance,72

the Exchange believes that it is 

consistent with governance changes 

approved by the Commission for other 

demutualized exchanges and does not 

serve to erode the principles articulated 

in the Commission’s recent governance 

release.

B. Self-Regulatory Organization’s 

Statement of 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 Regarding 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 other 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 self-regulatory 

organization 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. 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 rulecomments@sec.gov. Please include File 

Number SR–CHX 2004–26 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

450 Fifth Street, NW., Washington, DC 

20549–0609. 

All submissions should refer to File 

No. SR–CHX–2004–26. 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 changes 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, 450 Fifth Street, NW., 

Washington, DC 20549. Copies of such 

filing will also be available for 

inspection and copying at the principal 

office of the CHX. 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 No. SR–CHX–2004–

26 and should be submitted on or before 

January 18, 2005.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.73

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 04–28275 Filed 12–27–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–50887; File No. SR–DTC–

2004–11] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change To Expand 

the Depository Trust Company’s 

SMART/Track Service To Include 

Corporate Action Liability Notification 

December 20, 2004. 

Pursuant to section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 notice is hereby given that on 

November 15, 2004, the Depository 

Trust Company (‘‘DTC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change described in items I, II, and III 

below, which items have been prepared 

primarily by DTC. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested parties.