Document ID: SEC-2006-1579-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Stock Exchange, Inc.
Posted Date: 2006-12-07T05:00Z

[Federal Register: December 7, 2006 (Volume 71, Number 235)]
[Notices]               
[Page 71004-71006]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07de06-101]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54833; File No. SR-CHX-2006-33]

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change Amending Rules To Require 
Listed Companies To Make Securities Eligible for the Direct 
Registration System

 November 29, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 71005]]

(``Act''),\1\ notice is hereby given that on October 30, 2006, the 
Chicago Stock Exchange, Inc. (``CHX'') 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 CHX. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested parties.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CHX proposes to amend its listing standards to require certain 
issuers to make their securities eligible for a Direct Registration 
System (``DRS'') operated by a securities depository registered as a 
clearing agency under Section 17A of the Act.

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 on the proposed rule change. 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 these 
statements.\2\
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    \2\ The Commission has modified portions of the text of the 
summaries prepared by the CHX.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

(1) Purpose
    The Direct Registration System (``DRS'') allows an investor to 
establish, either through an issuer's transfer agent or through the 
investor's broker-dealer, a book-entry position in a security and to 
electronically transfer that position between the transfer agent and 
the investor's broker-dealer through a facility currently administered 
by The Depository Trust Company (``DTC'').\3\ DRS, therefore, enables 
an investor to have securities registered in her name without having a 
securities certificate issued to her and to electronically transfer her 
securities to her broker-dealer in order to effect a securities 
transaction without the risk and delays associated with the use of 
securities certificates.
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    \3\ Currently, the only registered clearing agency operating a 
DRS is DTC. For a description of DRS and the DRS facilities 
administered by DTC, see Securities Exchange Act Release Nos. 37931 
(November 7, 1996), 61 FR 58600 (November 15, 1996), [File No. SR-
DTC-96-15] (order granting approval to establish DRS) and 41862 
(September 10, 1999), 64 FR 51162 (September 21, 1999), [File No. 
SR-DTC-99-16] (order approving implementation of the Profile 
Modification System).
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    Investor holding securities in DRS retain the rights associated 
with securities certificates (such as voting) without the 
responsibility of holding and safeguarding those certificates. In 
addition, corporate actions (such as reverse stock splits and mergers) 
can be handled electronically with no securities certificates to be 
returned to or received from the transfer agent.
    To reduce the number of transactions in securities for which 
settlement is effected by the physical delivery of securities 
certificates to and reduce the risks, costs, and delays associated with 
the physical processing of securities certificates, the CHX seeks to 
amend its listing standards by adding paragraph (h) to Rule 1 \4\ that 
would require certain issuers to make their securities eligible for 
DRS.\5\ As proposed, the new rule would require that any security 
initially listing on CHX on or after January 1, 2007, must be eligible 
for a DRS that is operated by a securities depository.\6\ This 
requirement, however, would not extend to (i) securities of companies 
which already have securities listed on CHX, (ii) securities of 
companies which immediately prior to such listing had securities listed 
on another national securities exchange, (iii) derivative products, or 
(iv) securities (other than stocks) which are book-entry only. Under 
the proposed rule, on and after January 1, 2008, all securities listed 
on CHX must be eligible for a DRS that is operated by a securities 
depository.\7\
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    \4\ The exact text of the CHX proposed rule change is set forth 
in its filing, which can be found at http://www.chx.com/rules/proposed_rules.htm
.

    \5\ The Commission has approved rule changes filed by the New 
York Stock Exchange LLC, NASDAQ Stock Market LLC, the American Stock 
Exchange LLC, and the NYSE Arca, Inc. that would require certain 
listed companies securities become DRS eligible. Securities Exchange 
Act Release Nos. 54289 (August 8, 2006), 71 FR 47278 (August 16, 
2006) [File No. SR-NYSE-2006-29]; 54288 (August 8, 2006), 71 FR 
47276 (August 16, 2006) [File No. SR-NASDAQ-2006-008]; 54290 (August 
8, 2006), 71 FR 47262 (August 16, 2006) [File No. SR-Amex-2006-40]; 
54410 (September 7, 2006), 71 FR 54316 (September 14, 2006) [File 
No. SR-NYSE Arca-2006-31].
    \6\ Under the proposed rule, a ``securities depository'' would 
mean a securities depository registered as a clearing agency under 
Section 17A(b)(2) of the Act.
    \7\ Securities (other than stock) that are book-entry-only and 
derivative products would continue to be excluded from the DRS 
requirement.
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    CHX understands that issuers and transfer agents may incur initial 
costs when making an issue DRS-eligible. As an initial matter, the 
issuer must have a transfer agent that is a DRS Limited Participant.\8\ 
Transfer agents will need to meet certain DTC criteria, such as 
insurance and connectivity requirements in order to become DRS Limited 
Participants and an issuer's corporate documents, such as its bylaws or 
corporate charters, may need to be amended to permit the issuance of 
book-entry shares. CHX believes that the proposed deadlines as set 
forth above would allow issuers and transfer agents an appropriate 
amount of time to meet applicable requirements.
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    \8\ DTC's rules require that a transfer agent (including an 
issuer acting as its own transfer agent) acting for a company 
issuing securities in DRS must be a DRS Limited Participant. 
Securities Exchange Act Release No. 37931 (November 7, 1996), 61 FR 
58600 (November 15, 1996), [File No. SR-DTC-96-15].
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(2) Statutory Basis
    CHX believes the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange. In particular, the 
proposed rule change is consistent with Section 6(b)(5) of the Act 
because it would promote just and equitable principles of trade, foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, remove impediments to perfect 
the mechanism of a free and open market and a national market system, 
and, in general, protect investors and the public interest by 
confirming that certain CHX's issuers would be required to make their 
securities eligible for a DRS operated by a securities depository.\9\
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    \9\ 15 U.S.C. 78f(b)(5).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    CHX 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.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    CHX has neither solicited nor received written comments on the 
proposed rule change.

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

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period:

[[Page 71006]]

(i) as the Commission may designate up to ninety 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 such 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 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-2006-33 in 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-2006-33. 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 Section, 100 F Street, 
NE., Washington, DC 20549. Copies of such filings also will be 
available for inspection and copying at the principal office of CHX and 
on CHX's Web site, http://www.chx.com. 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-2006-33 and should be submitted on or before 
December 28, 2006.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\10\
Nancy M. Morris,
Secretary.
[FR Doc. E6-20731 Filed 12-6-06; 8:45 am]

BILLING CODE 8011-01-P