Document ID: SEC-2010-0602-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2010-04-22T04:00Z

[Federal Register: April 22, 2010 (Volume 75, Number 77)]
[Notices]               
[Page 21061-21063]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22ap10-122]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61903; File No. SR-CHX-2010-07]

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change To Amend Certain Incorrect or 
Inaccurate Cross-References

April 14, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on April 7, 2010, the Chicago Stock Exchange, Inc. (``CHX'' or the 
``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. CHX has filed 
this proposal pursuant to Exchange Act Rule 19b-4(f)(6) \3\ which is 
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\ 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

    CHX proposes to amend to correct a number of incorrect or obsolete 
cross-references. The text of this proposed rule change is available on 
the Exchange's Web site at http://www.chx.com, on the Commission's Web 
site at http://www.sec.gov, and at 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, the CHX included statements 
concerning the purpose of and basis for the proposed rule changes 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 Changes

1. Purpose
    The Exchange proposes to amend its rules to alter or delete 
references to incorrect rule citations or concepts which are no longer 
applicable to the manner in which the Exchange now transacts business. 
For the most part, these changes arise out of the transformation of the 
Exchange in 2006 and 2007 from a traditional floor-based auction 
marketplace to an electronic exchange.\4\ In connection with this 
change, the Exchange made substantial revisions to its rules in which 
all of its rules were renumbered and many of them were altered or 
eliminated. This filing would correct cross-references to rule 
citations which were altered or eliminated during that process. As 
noted above, the Exchange also fundamentally altered its trading 
facilities from a floor-based exchange to a fully automated limit-order 
matching system. This filing would alter or eliminate references within 
CHX rules to obsolete roles or functions, such as the ``floor,'' 
``floor brokers,'' and ``specialists.'' This filing would also correct 
certain other errors or omissions of a grammatical nature.
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    \4\ See SR-CHX-2006-05 (Sept. 26, 2006) (approving rule changes 
in connection with adoption of Exchange's New Trading Model).
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    In Article 1, Rule 1 (Definitions), the Exchange proposes to delete 
obsolete references to the CHX Floor, floor brokers, co-specialists and 
market makers and replace them with references to Exchange-registered 
Market Maker Traders (``MMTs'') and Institutional Broker 
Representatives (``IBRs''). As defined in Articles 16 and 17, 
respectively, MMTs and IBRs are designations for individuals with 
specific rights and obligations when acting through the Exchange's 
facilities. IBRs replaced the now-defunct floor broker role and MMTs 
replaced the old market maker role, which had been defined under the 
now-repealed Article XXXIV.
    In Article 2, Rule 5 (Committee on Exchange Procedure), the CHX 
proposes to replace an obsolete cross-reference to former Article VIII, 
Rule 23 with its replacement, Article 14, Rule 1. This cross-reference 
is to Exchange's provisions for the arbitration of controversies 
arising out of Exchange business which were renumbered, but not changed 
in substance. We also propose to delete a cross-reference to 
determinations by a subcommittee of the Committee on Exchange Procedure 
in certain disciplinary actions under former Article XII, Rule 3, since 
that grant of authority to the Committee on Exchange Procedure no 
longer exists under our rules.\5\ In Article 3, Rule 1 
(Qualifications), we are adding a missing subparagraph number under 
section (c) and removing the reference to Article XVI, which was 
repealed as unnecessary in 2006 as part of the New Trading Model rule 
changes. Former Article XVI required Participants which engaged in the 
sale of insurance products as an ancillary activity to file certain 
reports with the Exchange and

[[Page 21062]]

maintain certain records relating to that activity. We note that other 
self-regulatory organizations do not have specific rules relating to 
the sale of insurance products by their members.\6\ In Rule 8 
(Limitation on Interests in Other Organizations) of Article 3, we are 
replacing cross-reference to former Article II (Participants) with that 
of current Article 3 (Participants and Participant Firms), its 
successor. In Article 3, Rule 11 (Transfer of Equity Securities of a 
Participant Firm), we are removing Interpretation and Policy .04, which 
refers to the now-deleted provisions of former Article VIII, Rule 20.
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    \5\ Former Article XII, Rule 3 authorized the Committee on 
Exchange Procedure (or appropriately designated subcommittee 
thereof) to issue summary fines of up to $2,500 against Participants 
for violations of Exchange's former decorum rules, such as fighting 
or profanity on Exchange premises, smoking on the Trading Floor and 
dress code violations. The power of the Committee on Exchange 
Procedure to issue fines was eliminated in 2006 as part of our 
transition to the new trading model and elimination of the Trading 
Floor (See SR-CHX-2006-05). Certain decorum-type rules have been 
retained in Article 8, Rule 16; however, charges based on violations 
of those provisions are authorized by the Exchange's Chief 
Regulatory Officer as part of the standard disciplinary process.
    \6\ See, e.g., Rules of NYSE Archipelago, Inc., National Stock 
Exchange, Inc., BATS Exchange, Inc. We continue to believe that a 
prospective Participant should not be disqualified merely by the 
fact that it engages in insurance-related activities (such as the 
sale of variable annuities) to a limited extent and all other 
requirements are satisfied.
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    In Article 6, Rule 2 (Registration and Approval of Participant 
Personnel), we are replacing the reference to the definition of 
Principal Stockholders in former Article III, Rule 4, with the current 
reference in Article 1, Rule 1(s). We are adding a missing reference in 
Interpretation and Policy .01 of Article 6, Rule 3 (Training and 
Examination of Registrants) to subsection (d) and updating a cross-
reference to the former Article XI (Financial Responsibility and 
Reporting Requirements) to the current rule provisions dealing with 
that topic, which is Article 7. In Article 6, Rule 11 (Continuing 
Education for Registered Persons), we are deleting the rule text which 
was effective prior to September 30, 2005 as no longer being relevant 
and leaving only the language which is currently in force. In 
Interpretation and Policy .01 to this rule, we are removing the 
reference to persons transacting business on the Floor of the Exchange, 
given that we no longer maintain a physical floor as part of our 
trading facilities.
    In Article 7, Rule 3A (Joint Back Office Participants) we are 
substituting a cross-references [sic] to Article 7 in place of former 
Article XI and to current Article 10 (Margins) in place of former 
Article X (Margins). We propose to update cross references to old 
Article XI to current Article 7 in Article 7, Rule 4 (Financial and 
Operational Reports), in a table in Article 7, Rule 6 (Fidelity Bonds) 
and in Article 10, Rule 3(c)(6) (Initial Margin Rule).
    In Article 12 (Disciplinary Matters and Trial Proceedings), we 
propose to update the cross references to former Article XII 
(Discipline and Trial Proceedings) to current Article 12, which deals 
with the same subject matter, in Rules 2 (Summary Procedure) and 8 
(Minor Rule Violations). In Article 12, Rule 2(a), an incorrect cross-
reference to Article 12, Rule 5 concerning a respondent's Answer to 
disciplinary charges will be replaced by the correct cross-reference to 
Article 12, Rule 4(b). We are also adding a missing reference to Rule 
9, which will be reserved for future use.
    In Article 17, Rule 3 (Responsibilities of Institutional Brokers), 
Interpretations and Policies .03, we are removing an obsolete reference 
to former Rule 11 of Article 20. Rule 11, which addressed cancellation 
or modification of transactions due to systems malfunctions or 
disruptions, was deleted in October 2009 as part of an industry-wide 
initiative to standardize the rules relating to clearly erroneous 
transactions.\7\
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    \7\ SR-CHX-2009-11 (October 2, 2009). Much of the content of 
former Rule 11 is now addressed in current Rule 10 under Article 20.
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    In Article 20, Rule 8 (Operation of the Matching System), we are 
correcting certain erroneous cross references to existing order types 
defined in Rule 4 (Eligible Orders). Rule 8.e.1. describes the manner 
in which Cross and Cross with Size orders shall be executed and 
contains an erroneous cross-reference to the description of each of 
those order types in Rule 4(b)(3) and (b)(5), respectively. The 
proposal corrects those cross-references to Rule 4(b)(4) and (b)(6). We 
also propose to delete Interpretation and Policy .03 to Rule 8, which 
contained a reference to former Rule 10a-1(e)(5) under the Act.\8\ 
Current Interpretation and Policy .04 will be renumbered as .03.
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    \8\ Former Exchange Act Rule 10a-1(e)(5), sometimes known as the 
``equalizing exemption,'' provided an exception to the former 
``uptick restrictions'' of Exchange Act Rule 10a-1 for registered 
specialists or market makers which executed transactions at prices 
at or above the last reported sale. This exemption no longer exists 
under current Regulation SHO, which governs short selling in 
securities.
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    In Article 22, Rule 1 (General Provisions Regarding Listing), we 
propose to change outdated references to Article XXVIII (the former 
Article dealing with Listings) to the current Article 22, which is 
simply the renumbered version of the former Article. We also propose to 
correct numbering errors in subsection (g) to Rule 1 and update the 
cross reference in that subsection from old Article XXII, Rule 37 to 
current Article 21, Rule 2.\9\ In Article 22, Rule 19 (Corporate 
Governance), we again propose to change an outdated cross reference to 
Article XXVIII to the current Article 22. The cross reference in 
Interpretation and Policy .06 of Rule 19 would be updated from old 
Article XXXIII, Rule 3, dealing with certain proxy requirements, to 
current Article 8, Rule 14(c), which addresses the same subject matter. 
In Article 22, Rule 23 (Public Disclosure Requirements for Tier I and 
Tier II Issues), Interpretation and Policy .01, we propose to delete 
the section headed ``Relationship Between Company Officials and 
Exchange Specialists,'' since the Exchange no longer has specialists. 
These provisions note certain limitations on the sharing of non-public 
information between company officials and the specialist making a 
market in the company's securities. Since specialists no longer exist 
under our current market structure, this section appears to be 
superfluous. In Article 22, Rule 24 (Investment Company Units) and Rule 
25 (Portfolio Depository Receipts), we propose to update references to 
the Nasdaq Small Cap Market to its current name, Nasdaq Capital Market. 
Finally, in Article 22, Rule 25 (Portfolio Depository Receipts), we are 
adding subsection (d) and reserving it for further use.
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    \9\ Those provisions address the requirement that Participants 
utilize the facilities of a national securities depository for the 
book entry settlement of all transactions in depository eligible 
securities settled in the United States.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act in general,\10\ and furthers the 
objectives of Section 6(b)(5) in particular,\11\ in that it is designed 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transaction in securities, to remove impediments and perfect the 
mechanisms of a free and open market, and, in general, to protect 
investors and the public interest. The elimination of obsolete cross 
references and correction of other errors in our rules will serve to 
eliminate a potential source of confusion for Exchange Participants.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement of Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

[[Page 21063]]

C. Self-Regulatory Organization's Statement on Comments Regarding the 
Proposed Rule Changes Received From Members, Participants or Others

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) \13\ thereunder in 
that it effects a change that: (i) Does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) by its terms, 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.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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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 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 rule-comments@sec.gov. Please include 
File No. SR-CHX-2010-07 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-CHX-2010-07. 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 Web site viewing and 
printing 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 No. SR-CHX-2010-07 and should be 
submitted on or before May 13, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-9270 Filed 4-21-10; 8:45 am]
BILLING CODE 8011-01-P