Document ID: SEC-2007-1499-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Stock Exchange, Inc.
Posted Date: 2007-11-01T04:00Z

[Federal Register: November 1, 2007 (Volume 72, Number 211)]
[Notices]               
[Page 61921-61923]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01no07-90]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56704; File No. SR-CHX-2007-20]

 
Self-Regulatory Organizations; The Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Permitting Certain Transactions To Have Post-Trade Anonymity

October 25, 2007.
    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 October 16, 2007, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared substantially by the Exchange. 
The Exchange filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which 
renders it 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 allow participants to 
request post-trade anonymity with respect to certain transactions 
executed on the Exchange. The text of the proposed rule change is 
available at http://www.chx.com, at the Exchange, and the Commission's 

Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, 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. 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
    Currently, when a trade occurs on the Exchange, a report is sent to 
the parties to the trade, or to the participant that submitted the 
trade on behalf of its customer, confirming details about the 
transaction, such as the number of shares executed, the price of the 
execution, and the identities of the parties to the trade. Similar 
information about the trade is sent to the National Securities Clearing 
Corporation (``NSCC'') for clearing purposes.
    Through this proposal, CHX's participants would be allowed to 
request that their identities be kept confidential on trade and 
clearing reports associated with single-sided executions, except when 
necessary for regulatory and other identified purposes.\5\ CHX would 
reveal the identity of a participant or the participant's clearing 
firm: (1) For regulatory purposes or to comply with an order of a court 
or arbitrator; (2) if the NSCC ceases to act for a participant or a 
participant's clearing firm and NSCC determines not to guarantee the 
settlement of a participant's trades; or (3) if both parties to the 
trade consent.\6\
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    \5\ See Proposed Article 21, Rule 5(a) and (b). The CHX's trade 
reporting functionality would be designed to keep confidential the 
identity of any party to a trade that requests anonymity, but to 
reveal the identities of other parties to the trade. The clearing 
functionality, on the other hand, would initially be designed such 
that, if any party to a transaction requests anonymity, the entire 
transaction would be considered anonymous. If later changes in the 
clearing technology permit a more refined outcome, CHX represents 
that it likely would seek to modify this functionality to mirror the 
trade reporting design described above.
    \6\ While the Exchange would keep contra party information 
confidential for an anonymous trade that was being reviewed through 
the initial stages of the Exchange's clearly erroneous or systems 
disruption trade review process, the Exchange would reveal that 
information upon any request for an appeal from the Exchange's 
decision on those matters and would make that information available 
to any participant that seeks to arbitrate a dispute relating to an 
otherwise anonymous trade. The Exchange believes that it is 
appropriate to reveal contra party information in these and other 
similar circumstances pursuant to the proposed ``regulatory 
purposes'' exception to the anonymity rule. See Proposed Article 21, 
Rule 5(b).
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    The Exchange proposes that these anonymity rules apply to all 
trades executed on the Exchange except the execution of cross 
orders.\7\ The Exchange believes that it would be difficult to provide 
anonymity protection to cross orders and still provide the participant 
submitting the order with a sufficiently detailed trade or clearing 
report to permit it to effectively service its customers' needs.
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    \7\ See Proposed Article 21, Rule 5(e).
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    Under the proposed rule, the Exchange would reveal to a 
participant, no later than the end of the day on the date an anonymous 
trade was executed, when that participant has submitted an order that 
has executed against an order submitted by that same participant.\8\ In 
addition, because CHX's participants would not be able to retain 
information about the contra parties to anonymous transactions, CHX 
would keep that information in its original electronic form for the 
time periods required by

[[Page 61922]]

the Commission's broker-dealer record-keeping rules.\9\
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    \8\ See Proposed Article 21, Rule 5(c).
    \9\ See Proposed Article 21, Rule 5(d). The Exchange intends to 
separately seek no-action relief, on behalf of its participants, 
relating to participants' record-keeping obligations in connection 
with the anonymous trades. In addition, the Exchange would seek 
exemptive relief, on behalf of its participants, from certain 
requirements of Rule 10b-10(a) under the Act. The Exchange will not 
begin using the post-trade anonymity features until necessary 
exemptive and no-action relief have been granted.
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    The trade reports that NSCC receives from CHX for anonymous trades 
would contain the identities of the parties to the trade to enable NSCC 
to conduct its risk management functions, but would contain an 
indicator noting that the trade was anonymous. NSCC reports issued to 
CHX participants with respect to these anonymous trades would 
substitute ``ANON'' for the acronym of the contra party. This handling 
of the data is designed to allow NSCC to conduct its risk management 
functions and to settle anonymous trades. If NSCC ceases to act for a 
member which is the unidentified contra side of any trades received 
from CHX, the Exchange would have the responsibility to identify to its 
participants the trades which are with the affected participant.
    The Exchange believes that post-trade anonymity would benefit 
investors because preserving anonymity through settlement limits the 
potential impact that a participant's identity may have on the trading 
strategies used, and assumptions made, by other market participants. 
Other exchanges have implemented similar rule provisions.\10\
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    \10\ See e.g., NYSE Arca Equities Rule 7.41 and International 
Securities Exchange Rule 2117.
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    The Exchange plans to implement this proposal in two stages--first 
offering anonymous trade reports and, when all changes have been made 
to CHX and NSCC systems, allowing that anonymity to continue through 
the clearing and settlement process. The Exchange anticipates that the 
anonymous trade reports would be available on or before November 15, 
2007, and that the anonymous clearing reports would be available in 
late 2007 or during the first quarter of 2008.\11\
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    \11\ See note 9, supra (noting that the Exchange will seek no-
action and exemptive relief before implementing its proposed 
anonymous trade functionality).
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2. Statutory Basis
    CHX stated its belief that 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.\12\ The proposed rule 
change is consistent with Section 6(b)(5) of the Act \13\ 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 the Exchange to provide to its 
participants the same option as they would have on other exchanges \14\ 
to request that their identities be kept confidential on trade and 
clearing reports.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ See e.g., NYSE Arca Equities Rule 7.41 and International 
Securities Exchange Rule 2117.
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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 solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \15\ and Rule 19b-4(f)(6) \16\ thereunder 
because the proposal does not: (i) Significantly affect the protection 
of investors or the public interest; (ii) impose any significant burden 
on competition; and (iii) by its terms, become operative for 30 days 
from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest.\17\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ In addition, Rule 19b-4(f)(6)(iii) requires that a self-
regulatory organization submit to the Commission 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 filing of the proposed rule 
change, or such shorter time as designated by the Commission. See 17 
CFR 240.19b-4(f)(6)(iii). The Commission notes that CHX has 
satisfied the five-day pre-filing requirement.
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    Normally, a proposed rule change filed under Rule 19(b)-4(f)(6) may 
not become operative prior to 30 days after the date of filing.\18\ 
However, Rule 19b-4(f)(6)(iii) under the Act \19\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay 
period. The Commission believes that waiver of the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. The Commission notes that it has previously considered 
substantially similar rule changes providing post-trade anonymity,\20\ 
and CHX's proposed rule change does not raise any new regulatory 
issues. Accordingly, the Commission designates the proposed rule change 
to be effective and operative immediately upon filing with the 
Commission.\21\
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ See Securities Exchange Act Release Nos. 49786 (May 28, 
2004), 69 FR 32087 (June 8, 2004) (SR-PCX-2004-40) and 54528 
(September 28, 2006), 71 FR 58650 (October 4, 2006) (SR-ISE-2006-
48).
    \21\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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.\22\
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    \22\ 15 U.S.C. 78s(b)(3)(C).
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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-2007-20 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-2007-20. 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/

[[Page 61923]]

rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of 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-2007-20 and should be 
submitted on or before November 23, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E7-21484 Filed 10-31-07; 8:45 am]

BILLING CODE 8011-01-P