Document ID: SEC-2009-1038-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Order Granting Approval of Proposed Rule Change Relating to the Rejection of Undisplayed Odd-Lot Orders From the Exchange's Matching System
Posted Date: 2009-07-27T04:00Z

[Federal Register: July 27, 2009 (Volume 74, Number 142)]
[Notices]               
[Page 37076-37077]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jy09-90]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60353; File No. SR-CHX-2009-02]

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Order Granting Approval of Proposed Rule Change Relating to the 
Rejection of Undisplayed Odd-Lot Orders From the Exchange's Matching 
System

July 21, 2009.
    On June 2, 2009, the Chicago Stock Exchange, Inc. (``CHX'' or the 
``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: (1) Allow Exchange customers to specify 
whether odd-lot orders and unexecuted odd-lot remainders, that are not 
able to be immediately displayed, should remain in, or be rejected 
from, the Exchange's Matching System, and (2) add a generic routing 
rule to clarify how any orders that are rejected from the Exchange's 
Matching System, and routed away according to Participant instructions, 
will be handled. The proposed rule change was published for comment in 
the Federal Register on June 17, 2009.\3\ The Commission received no 
comments on the proposed rule change. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 60083 (June 10, 
2009), 74 FR 28739.
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    The Exchange proposes to amend CHX Article 20, Rule 8 to allow 
Exchange Participants to specify whether odd-lot orders and unexecuted 
odd-lot remainders, that are not able to be immediately displayed, 
should remain in, or be rejected from, the Exchange's Matching System. 
This preference could be set by the Participant on both a default and 
order by order basis. Orders remaining in the Matching System will 
continue to be ranked at the price and time at which they were 
originally received. Orders that are rejected from the Matching System 
shall either be sent back to the order sender or be routed to another 
destination according to each Participant's instructions \4\ or, if 
designated ``do not route,'' automatically cancelled. The Exchange also 
proposes that Participants that elect to have orders routed to another 
destination pursuant to this rule, or pursuant to Article 20, Rule 5 
(``Prevention of Trade-throughs''), agree to be bound by such 
transactions.
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    \4\ The Exchange notes that orders rejected in accordance with 
this rule will be routed in the same manner as those rejected under 
the NMS trade-through validation rule (Exchange Article 20, Rule 5, 
Interpretations and Policies .03), which has already been approved 
by the Commission.
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    In addition, the Exchange proposes to add a generic routing rule to 
clarify how any orders that are rejected from the Exchange's Matching 
System, and routed away according to Participant instructions, will be 
handled. The use of routing services is optional and is available only 
to exchange Participants. In such cases, the Participant will be 
responsible for ensuring that it has a relationship with its chosen 
destinations to permit the requested access. The Exchange shall not 
have responsibility for the handling of the order by the other 
destination, but will report any execution or cancellation of the order 
by the other destination to the Participant that submitted the order, 
will notify the other venue of any cancellations or changes to the 
order submitted by the order-sending Participant and, if requested by 
the Participant and its chosen destination, will flip any executions 
into the Participants account, as necessary, and

[[Page 37077]]

report that second leg of the away-market transaction to clearing.\5\
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    \5\ For example, if the Exchange routes a participant's buy 
order to the participant's chosen destination (Router ABC) and 
Router ABC gets an execution of that order in another market against 
market maker XYZ, the first leg of the transaction (ABC buying from 
XYZ) will be reported to clearing by the other market. The Router 
ABC would send an execution report back to the Exchange (for routing 
to the original order-sending participant). Under this proposal, if 
the participant and Router ABC had requested, the Exchange would 
take the execution report and create a clearing-only record, 
flipping the execution from Router ABC's account to the account of 
the order-sending participant (ABC selling to the order-sending 
participant).
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    The Exchange will provide its Routing Services pursuant to the 
proposed rule and three separate agreements, to the extent that they 
are applicable to a specific routing decision and deemed necessary by 
the Exchange and/or a third-party broker-dealer providing connectivity 
to other markets. The Exchange will provide such Routing Services in 
compliance with its rules and with the provisions of the Act and the 
rules thereunder, including, but not limited to, the requirements of 
Sections 6(b)(4) \6\ and (5) \7\ of the Act that the rules of a 
national securities exchange provide for the equitable allocation of 
dues, fees and other charges among its members and issues and other 
persons using its facilities, and not be designed to permit unfair 
discrimination between customers, issuers, brokers or dealers.
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    \6\ 15 U.S.C. 78f(b)(4)
    \7\ 15 U.S.C. 78f(b)(5)
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    The Commission finds that 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.\8\ In 
particular, the Commission believes that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\9\ in that it is designed 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest.
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    \8\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed rule change may increase 
the efficiency of Exchange Participants in seeking to execute their 
customers' orders that are ineligible for execution or display in the 
Exchange's Matching System. In particular, odd-lot orders that are not 
immediately displayed in the Matching System or orders that otherwise 
would be cancelled back to a participant may be sent directly to a 
destination chosen by the participant for handling. The Commission 
notes that the Exchange's proposed generic routing rule will operate in 
the same manner as its current routing rule for orders rejected by the 
Exchange's Matching System under its NMS trade-through validation 
rule,\10\ which was previously approved by the Commission.\11\
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    \10\ See CHX Rules Article 20, Rule 5, Interpretations and 
Policies .03.
    \11\ See Securities Exchange Act Release No. 54963 (December 19, 
2006), 71 FR 77834 (December 17, 2006) (SR-CHX-2006-30).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-CHX-2009-02) be, and it 
hereby is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-17766 Filed 7-24-09; 8:45 am]

BILLING CODE 8010-01-P