Document ID: SEC-2006-0146-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Stock Exchange, Inc.
Posted Date: 2006-02-07T05:00Z

[Federal Register: February 7, 2006 (Volume 71, Number 25)]
[Notices]               
[Page 6298-6300]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07fe06-65]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53194; File No. SR-CHX-2006-01]

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Regarding Bidding and Offering in Sub-penny Increments

January 30, 2006.
    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 January 17, 2006, 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 and 
II below, which Items have been prepared by the CHX. The CHX has filed 
this proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 
19b-4(f)(6) thereunder,\4\ which renders the proposal effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules to confirm that, beginning 
with the compliance date for Rule 612 of Regulation NMS,\5\ Exchange 
participants (a) may bid or offer in sub-penny increments in the 
trading of Nasdaq/NM securities where those bids or offers are less 
than $1.00, and (b) may bid or offer in sub-penny increments in the 
trading of other securities where an exemption from the provisions of 
Rule 612 is granted by the Commission and where the Exchange's Board of 
Directors agrees to allow that sub-penny quoting. The text of this 
proposed rule change is available on the Exchange's Web site (http://www.chx.com/rules/proposed_rules.htm
), at the principal

[[Page 6299]]

office of the Exchange, and in the Commission's Public Reference Room.
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    \5\ 17 CFR 242.612.
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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 existing trading rules, the Exchange's 
participants generally may not bid or offer in increments below 
$0.01.\6\ Through this filing, the Exchange seeks to amend its rules to 
confirm that, beginning with the compliance date for Rule 612,\7\ 
Exchange participants (a) may bid or offer in sub-penny increments in 
the trading of Nasdaq/NM securities where those bids or offers are less 
than $1.00, and (b) may bid or offer in sub-penny increments in the 
trading of other securities where an exemption from the provisions of 
Rule 612 is granted by the Commission and where the Exchange's Board of 
Directors agrees to allow that sub-penny quoting.\8\
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    \6\ The Exchange does not currently have a rule that sets a 
minimum increment at which trades can occur. Its rule relating to 
minimum variations specifically refers to variations at which bids 
or offers may be made on the Exchange. See CHX Article XX, Rule 22.
    \7\ The compliance date for Rule 612 is January 31, 2006. See 
Securities Exchange Act Release No. 52196 (Aug. 2, 2005), 70 FR 
45529 (Aug. 8, 2005).
    \8\ The Exchange has filed a separate proposal to permit its 
participants to execute trades in sub-penny increments. See 
Securities Exchange Act Release No. 52953 (Dec. 14, 2005) 70 FR 
76088 (Dec. 22, 2005) (noticing SR-CHX-2005-36).
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    As noted above, the proposed rule change first would confirm that 
an Exchange participant may submit bids or offers, for Nasdaq/NM 
securities, in sub-penny increments of at least $0.0001 where the bids 
or offers are less than $1.00. Sub-penny quoting at prices less than 
$1.00 is permitted, but not required, by the provisions of Rule 612, 
and the Exchange believes that it would be appropriate to allow its 
participants to engage in this practice in the trading of Nasdaq/NM 
securities.\9\
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    \9\ The Exchange currently permits its participants to send sub-
penny-priced orders, in Nasdaq/NM securities, to the Exchange. These 
orders are rounded to a penny increment for quoting purposes 
pursuant to exemptive relief from the Commission that will expire on 
the compliance date of Rule 612. See Securities Exchange Act Release 
No. 51808 (June 9, 2005), 70 FR 37496, 37556-57 n. 547 (June 29, 
2005) (``Regulation NMS Adopting Release'').
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    Additionally, the proposed rule change would permit an Exchange 
participant to bid or offer in sub-penny increments in the trading of 
any securities where an exemption from the provisions of Rule 612 is 
granted by the Commission and where the Exchange's Board of Directors 
agrees to allow that sub-penny quoting. The Exchange, however, 
currently does not intend to more generally permit its participants to 
bid or offer in sub-penny increments in the trading of listed 
securities.
    The Exchange's MAX system will reject any orders in minimum 
variations that cannot be displayed as bids or offers on the Exchange 
pursuant to CHX Rule 22.\10\
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    \10\ The MAX system, however, will accept inbound ITS 
commitments that are priced in variations smaller than the minimum 
variation set out in CHX Rule 22, and its specialists may execute 
those commitments, so long as the minimum variation is permitted by 
Rule 612 and so long as the specialist adheres to all other Exchange 
rules in executing the commitment. A specialist, among other things, 
should be cognizant when executing an inbound sub-penny-priced ITS 
commitment of its obligations under CHX Article XXX, Rule 2, 
Interpretation and Policy .06 with regard to ``stepping ahead'' of 
orders resting on the specialist's book. However, as of January 30, 
2006, the CHX understands that no ITS participant intends to 
display, rank, or send commitments via ITS priced in sub-pennies. 
Telephone conversation between Ellen Neely, President and General 
Counsel, CHX, and Michael Gaw, Assistant Director, and Sara Gillis, 
Attorney, Division of Market Regulation, Commission, dated January 
30, 2006.
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    This proposed rule change would apply only in the Exchange's 
current trading model. The Exchange will re-address issues associated 
with sub-penny trading as part of the soon-to-be-filed package 
associated with its new trading model.
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).\11\ The Exchange believes that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\12\ 
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 permitting Exchange participants to bid and 
offer in sub-penny increments in the trading of specific groups of 
securities.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change 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

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative for 30 days after the date of the filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest, the proposed rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \13\ and 
Rule 19b-4(f)(6) thereunder.\14\ The Exchange has asked the Commission 
to waive the 30-day operative delay and allow the proposed rule change 
to become operative on January 31, 2006, the compliance date for Rule 
612. The Commission hereby grants that request.\15\ The Commission 
believes that waiving the operative delay is consistent with the 
protection of investors and the public interest. The Commission 
previously has considered whether, for NMS stocks, quoting below $1.00 
in sub-penny increments should be permitted. The Commission determined 
that it should and codified that view in Rule 612(b) of Regulation 
NMS.\16\ The CHX's proposal to permit its participants to make bids or 
offers--

[[Page 6300]]

in NMS stocks that are listed on Nasdaq--priced below $1.00 in 
increments as small as $0.0001 is consistent with Rule 612(b) and 
raises no new regulatory issues.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). As required by Rule 19b-
4(f)(6)(iii) under the Act, the Exchange also provided with the 
Commission with written notice of its intent to file the proposed 
rule change, along with a brief description and text of the proposed 
rule change, at least five business days prior to the date of the 
proposed rule change.
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \16\ See Regulation NMS Adopting Release, 70 FR at 37555.
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    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 proposed rule 
change 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 rule-comments@sec.gov. Please include 

File Number SR-CHX-2006-01 on the subject line.

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-2006-01. 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. 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 Number SR-CHX-2006-01 and should be submitted on or before 
February 28, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-1616 Filed 2-6-06; 8:45 am]

BILLING CODE 8010-01-P