Document ID: SEC-2008-0412-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2008-03-17T04:00Z

[Federal Register: March 17, 2008 (Volume 73, Number 52)]
[Notices]               
[Page 14287-14288]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17mr08-108]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57458; File No. SR-CHX-2007-24]

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing of Amendment No. 2 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 
2 Thereto, Relating to the Handling of Clearly Erroneous Transactions

March 10, 2008.

I. Introduction

    On October 4, 2007, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Exchange Rules 10 and 11 of Article 20 
regarding the handling of ``clearly erroneous'' and other transactions 
and to make corresponding changes to Article 2, Rule 5. On January 7, 
2008, the Exchange submitted Amendment No. 1 to the proposed rule 
change. The proposed rule change, as amended by Amendment No. 1, was 
published for comment in the Federal Register on January 18, 2008.\3\ 
The Commission received no comment letters on the proposal, as amended 
by Amendment No. 1. On February 29, 2008, the Exchange submitted 
Amendment No. 2 to the proposed rule change. This order provides notice 
of Amendment No. 2 and approves the proposed rule change, as modified 
by Amendments No. 1 and 2, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 57137 (January 14, 
2008), 73 FR 3497.
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II. Discussion

    Currently, CHX Article 20, Rules 10 and 11 allow the Exchange to 
cancel a trade, or modify the terms of a trade, when its terms are 
determined to be ``clearly erroneous'' or when other circumstances 
(including a CHX systems problem) require that that action be taken for 
the maintenance of a fair and orderly market or the protection of 
investors and the public interest.\4\ As a result of the experience 
gained through the operation of these rules, the Exchange now proposes 
several changes to the rules' provisions.
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    \4\ See CHX Rules, Article 20, Rule 10 (``Handling of Clearly 
Erroneous Transactions'') and Rule 11 (``Systems Disruptions and 
Malfunctions'').
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    First, the Exchange seeks to amend Article 20, Rule 10 by 
extending, from 15 to 30 minutes, the time for filing an initial 
written request for review of a potentially ``clearly erroneous'' 
trade. As part of this change, the Exchange would eliminate the 
requirement that a participant notify the Exchange by telephone of its 
intent to seek review but would retain the requirement that the request 
must be in writing.
    Second, the Exchange would establish in Article 20, Rule 10 
specific thresholds for determining whether a transaction is eligible 
for review under this rule. Under this proposal, a trade would be found 
to be eligible for review if: (i) For a trade where the price per share 
is less than $1.00, the execution price is 20% or more away from the 
midpoint of the national best bid and offer (``NBBO''); or (ii) for a 
trade where the price per share is equal to or greater than $1.00, the 
execution price is 10% or more away from the midpoint of the NBBO.
    Third, the Exchange proposes to amend Article 20, Rule 10 to 
eliminate one of the two levels of appeal that can be taken from an 
initial Exchange determination that the terms of a trade should be 
modified or that the trade should be cancelled. Under the current 
Article 20, Rule 10, the Exchange's initial decision may be appealed to 
a subcommittee of the Committee on Exchange Procedure and the 
subcommittee's decision may be appealed, in turn, to the full Committee 
on Exchange Procedure.\5\ The Exchange proposes to eliminate the appeal 
to the full Committee. Thus, the decision of this subcommittee will be 
the final Exchange action on the matter. The Exchange also proposes to 
permit an appeal of an eligibility review under Article 20, Rule 
10(b).\6\
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    \5\ A subcommittee of the Committee on Exchange Procedure is 
composed of members of the full Committee on Exchange Procedure. The 
Exchange also proposed to made corresponding changes to Article 2, 
Rule 5, relating to appellate rights arising from subcommittee 
decisions, to confirm that the decision of the subcommittee is final 
and that the Exchange's initial decision is not stayed pending any 
appeal to the subcommittee. The Exchange also proposed changes to 
Article 2, Rule 5, to ensure that this rule language is consistent 
with the changes proposed in Article 20, Rule 10 and made other 
minor adjustments to the rule text.
    \6\ See Amendment No. 2.
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    Finally, the proposed change would amend Article 20, Rule 11 to 
give the Exchange the discretion, in situations where it is acting on 
its own initiative to respond to systems disruptions or extraordinary 
market conditions or other circumstances, to determine that the number 
of affected transactions is such that immediate finality is necessary 
to maintain a fair and orderly market and to protect investors and the 
public interest. The Exchange noted that this determination is intended 
to provide certainty to participants whose transactions were affected 
by decisions in these unusual situations.\7\
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    \7\ The Exchange noted that other markets have included a 
similar provision in their rules. See Nasdaq Rule 11890(c)(1); NYSE 
Arca Rule 7.10(c)(2).
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III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 2, including whether Amendment No. 2 
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-2007-24 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-2007-24. 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

[[Page 14288]]

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 such 
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-2007-24 and should be submitted on or before April 
7, 2008.

IV. Discussion and Findings

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange \8\ and, in 
particular, the requirements of Section 6(b) of the Act \9\ and the 
rules and regulations thereunder. Specifically, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\10\ in 
that the proposal is designed to 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.
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    \8\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Commission considers that in most circumstances trades that are 
executed between parties should be honored. On rare occasions, the 
price of the executed trade indicates a ``clearly erroneous'' 
transaction may exist, suggesting that it is unrealistic to expect that 
the parties to the trade had come to a meeting of the minds regarding 
the terms of the transaction. In the Commission's view, the 
determination of whether a transaction is clearly erroneous and the 
process for reviewing such a determination should be based on specific 
and objective criteria and subject to specific and objective 
procedures.
    The Commission believes that the thirty-minute time frame and the 
thresholds for determining whether a transaction is eligible for review 
are clear and objective. The Commission further believes that the 
simplification of the notification process, the streamlining of the 
appeals process, and the granting of discretion to the Exchange to 
better deal with situations involving systems disruption or 
extraordinary market conditions are appropriate and consistent with the 
Act.
    Pursuant to Section 19(b)(2) of the Act,\11\ the Commission finds 
good cause to approve the proposal, as amended, prior to the thirtieth 
day after the amended proposal is published for comment in the Federal 
Register. Amendment No. 2 merely clarifies that an eligibility 
determination by the Exchange under Article 20, Rule 10 may be appealed 
to a subcommittee of the Committee on Exchange Procedure. Accelerating 
approval of the amended proposal would give parties affected by such a 
determination the right to have the decision reviewed. Accordingly, the 
Commission finds good cause to accelerate approval of the amended 
proposal prior to the thirtieth day after publication in the Federal 
Register.
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    \11\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-CHX-2007-24), as modified by 
Amendments No. 1 and 2, is hereby approved on an accelerated basis.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-5238 Filed 3-14-08; 8:45 am]

BILLING CODE 8011-01-P