Document ID: SEC-2008-0650-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2008-05-06T04:00Z

[Federal Register: May 6, 2008 (Volume 73, Number 88)]
[Notices]               
[Page 25068-25070]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06my08-122]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57734; File No. SR-CHX-2008-05]

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
to Change the Composition of its Regulatory Oversight Committee

April 29, 2008.
    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 April 21, 2008, 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 substantially prepared by the Exchange. 
The Exchange has designated this proposal as non-controversial under 
Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder.\4\ 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)(iii).
    \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 change the composition 
of the Regulatory Oversight Committee (``ROC'' or ``Committee'') so 
that this group consists of at least five Public Directors and to allow 
the Exchange's Vice Chairman to appoint, and the Public Directors on 
the Exchange's Board of Directors to approve, up to two Participant 
Directors to serve as non-voting advisors to the Committee. The text of 
this proposed rule change is available at the CHX, on the Exchange's 
Web site at http://www.chx.com/rules/proposed_rules.html, and in 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 change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of

[[Page 25069]]

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
    Under its existing rules, the Exchange's ROC consists of seven 
persons--five Public Directors and two Participant Directors.\5\ One of 
the Participant Directors must be associated with a firm that is 
primarily engaged in business on the Exchange's trading floor.\6\ The 
other Participant Director must be associated with a participant firm 
that is not primarily engaged in business on the Exchange's trading 
floor.\7\
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    \5\ See CHX Rules, Article 2, Rule 4. Under the Exchange's 
bylaws, a Public Director is a director who (i) Is not a 
participant, or an officer, managing member, partner or employee of 
a participant firm; (ii) is not an employee of the CHX or any of its 
affiliates; (iii) is not a broker or dealer that is registered under 
the Act, or an officer or employee of a broker or dealer that is 
registered under the Act; or (iv) does not have any other material 
business relationship with (a) CHX, CHX Holdings or any of their 
affiliates or (b) any broker or dealer that is registered under the 
Act. A Participant Director is a participant or an officer, managing 
member or partner of a participant firm. See CHX Bylaws, Article II, 
Section 2(b). The Commission recently approved a proposed rule 
change by CHX to amend the definition of Public Director in its 
bylaws to refer to brokers or dealers registered under the Act. See 
Securities Exchange Act Release No. 57699 (April 23, 2008), 73 FR 
23287 (April 29, 2008) (SR-2008-CHX-02).
    \6\ This director is called an ``On-Floor Participant Director'' 
in the current rule. See CHX Rules, Article 2, Rule 4.
    \7\ This director is called ``Off-Floor Participant Director'' 
in the current rule. See CHX Rules, Article 2, Rule 4.
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    Through this proposal, the Exchange would modify the composition of 
the ROC so that it would consist of at least five Public Directors. The 
Exchange would also amend its rules to allow the Exchange's Vice 
Chairman to appoint, and the Public Directors on the Exchange's Board 
of Directors to approve, up to two Participant Directors to serve as 
non-voting advisors to the Committee.
    These proposed changes serve several purposes. First, the changes 
would eliminate references to the Exchange's trading floor when 
describing the Participant Directors who can serve on the ROC. In the 
Exchange's new trading model, the Exchange no longer operates a 
physical trading floor, so these distinctions are no longer 
particularly useful in distinguishing between Participant Directors.\8\
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    \8\ The Exchange fully transitioned to its new trading model on 
January 26, 2007.
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    As an additional matter, the changes would modify the role that 
Participant Directors play on the ROC--instead of being voting members 
of the ROC, the Participant Directors would serve as non-voting 
advisors. This status would allow the Participant Directors to share 
insights that might prove helpful to the ROC in its oversight of the 
Exchange's regulatory programs, but would not allow the Participant 
Directors to vote on issues that may arise.\9\
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    \9\ The Exchange believes that a non-voting, advisory role for 
Participant Directors is more consistent with the Commission's 
proposed self-regulatory organization (``SRO'') governance rules, 
which, if approved, would require that each SRO's ROC be composed 
entirely of independent (or public) directors, but that would not, 
at least on its face, prohibit an SRO from appointing an advisory 
group of members to work with the ROC. See Securities Exchange Act 
Release No. 50699 (November 18, 2004), 69 FR 71126 (December 8, 
2004) (S7-39-04). Although these proposals have not been approved as 
final rules, the Exchange believes that they provide strong 
guidelines for SROs to consider as they review their internal 
governance structures.
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    Finally, the changes would provide some flexibility in the number 
of persons who must serve on the ROC to better allow the Exchange to 
respond to changes over time. By allowing the ROC to be composed of 
``at least'' five Public Directors, the Exchange's Vice Chairman would 
be able to appoint, and the Public Directors on the Exchange's Board 
would be able to approve, some or even all of its Public Directors to 
the ROC, as the Board believes is appropriate. Similarly, by allowing 
the Exchange's Vice Chairman to appoint, and the Public Directors on 
the Exchange's Board to approve, ``up to'' two Participant Directors to 
serve as advisors to the ROC, the Exchange's Board would be able to 
determine how many non-voting advisors are appropriate at a particular 
time. This flexibility would also allow the Board to be sensitive, 
within reasonable bounds, to the availability of its Board members to 
serve on committees--the proposal would allow the Exchange's Vice 
Chairman to appoint, and the Public Directors on the Exchange's Board 
to approve, five, six or seven Public Directors to the ROC, for 
example, depending upon each director's ability to dedicate time to the 
ROC's activities.
    The ROC's composition is not described solely in the Exchange's 
rules; it is also set out in the 2003 settlement agreement that the 
Exchange entered into with the Commission.\10\ The Exchange asked the 
Commission to amend the Order to incorporate this new composition for 
the ROC; this rule filing is designed to effectuate the changes to the 
Order approved by the Commission.\11\
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    \10\ See Securities Exchange Act Release No. 48566 (September 
30, 2003) (Administrative Proceeding File No. 3-11282) (``Order'').
    \11\ See Securities Exchange Act Release No. 57605 (April 2, 
2008) (Administrative Proceeding File No. 3-11282).
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 2. Statutory Basis
    The CHX believes 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).\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 make reasonable modifications to 
the required composition of its ROC.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes 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

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) 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, the proposed rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \14\ and 
Rule 19b-4(f)(6) thereunder.\15\
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    \14\ U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b-4(f)(6)(iii) 
under the Act, the Exchange is required to give 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. 
The Exchange has satisfied the five-day pre-filing requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the

[[Page 25070]]

Act \16\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \17\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The CHX has 
requested that the Commission waive the 30-day operative delay. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will allow the Exchange to implement the changes to the ROC 
without delay.\18\
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the impact of the proposed rule 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 the proposed 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 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-2008-05 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-2008-05. 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 Room, on official business 
days between the hours of 10 a.m. and 3 p.m. Copies of the filing also 
will be available for inspection and copying at the principal office of 
the 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-
2008-05 and should be submitted on or before May 27, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-9866 Filed 5-5-08; 8:45 am]

BILLING CODE 8010-01-P