Document ID: SEC-2009-1798-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2009-12-23T05:00Z

[Federal Register: December 23, 2009 (Volume 74, Number 245)]
[Notices]               
[Page 68298-68300]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23de09-101]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61173; File No. SR-CHX-2009-16]

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change Modifying the Definition of 
Cross and Cross With Size Order Types

December 16, 2009.
    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 December 15, 2009, Chicago Stock Exchange, Inc. (``Exchange'' or 
``CHX'') 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 by the Exchange. CHX has 
designated the proposed rule change as constituting a rule change under 
Rule 19b-4(f)(6) under the Act,\3\ which renders the proposal 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 its rules to change the definition of Cross 
and Cross With Size order types. The text of this proposed rule change 
is available on the Exchange's Web site at (http://www.chx.com) 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 changes and 
discussed

[[Page 68299]]

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 Change

1. Purpose
    The Exchange is proposing to amend its definitions of the ``cross'' 
and ``cross with size'' order types to eliminate a latent ambiguity 
about the processing of such orders in the Exchange's Matching 
System.\4\ A cross order is an order to buy and sell the same security 
at a specific price which is better than the best bid and offer 
displayed in the Matching System. A cross with size order type is a 
cross order which also has a limited exception to the priority rules of 
the exchange. Generally, where there are multiple orders to be executed 
at the same price, the first order received by the Matching System is 
the first to be executed.\5\ Certain large cross orders submitted to 
the Matching System may be executed notwithstanding the fact that a bid 
or offer at the same price as the proposed cross transaction and with 
time priority may reside in our trading facility.\6\
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    \4\ The Matching System is our core trading facility.
    \5\ See Article 20, Rule 8(b)(1), (d)(1).
    \6\ Such cross orders must be for at least 5,000 shares and 
$100,000 in total value to qualify for ``cross with size'' 
treatment. Article 1, Rule 2(g); Article 20, Rule 4(b)(6).
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    The current definitions of the cross and cross with size order 
types also require that the price of the proposed trade be ``equal to 
or better than the NBBO [National Best Bid or Offer].'' \7\ We propose 
to delete this reference for both order types and substitute the 
requirement that the price of the cross transaction ``which would not 
constitute a trade-through under Reg NMS (including all applicable 
exceptions and exemptions).'' This proposed formulation better comports 
with the history of the cross and cross with size provisions and 
removes any possible confusion over the proper application of our 
rules.
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    \7\ ``NBBO'' is defined as ``the size and price associated with 
the best protected bid and best protected offer that are calculated 
and disseminated in an NMS security during regular trading hours.'' 
Article 1, Rule 1(o).
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    The cross and cross with size order provisions have existed in our 
rules in number of different forms.\8\ The current cross and cross with 
size order types were defined as part of our transition to the New 
Trading Model (``NTM'') in 2006 and 2007.\9\ As originally written, the 
NBBO limitation as to cross and cross with size orders only applied to 
transactions in securities listed on the NYSE, Amex or any other 
exchange except Nasdaq. The NBBO limitation applied to Nasdaq-listed 
securities only upon the implementation of Reg NMS. The apparent 
purpose of this formulation was to ensure that the then-existing trade-
though provisions of the Intermarket Trading System (``ITS'') applied 
to the cross transactions.\10\
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    \8\ See former Article XX, Rule 23 (cross orders) and 
Interpretation and Policy .02 thereto (cross with size).
    \9\ The New Trading Model was designed to be a fully electronic 
exchange in order to qualify as an automated trading center under 
Reg NMS and thereby, inter alia, qualify for trade through 
protection.
    \10\ See SR-CHX-2006-05 (Sept. 26, 2006) (approving the NTM-
related rule changes), at notes 27-30 and accompanying text. The ITS 
trade-through provisions applied only to securities listed on a 
national securities exchange and not to stocks listed on the Nasdaq 
Stock Market. Once Reg NMS Rule 611 became effective (supplanting 
the ITS rules), the trade through restriction applied equally to 
exchange-listed and Nasdaq securities.
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    While the Exchange believes that most transactions can and should 
be executed at or within the NBBO, we note that the Commission has 
authorized a number of exemptions to the trade-through provisions of 
Reg NMS. For example, trade through exemptions are provided within Rule 
611 of Reg NMS for, inter alia, non-regular way settlements, certain 
single-priced opening, reopening and closing transactions, when the 
NBBO is crossed, for Intermarket Sweep Orders (``ISOs''), and where the 
better-priced market was satisfied.\11\ Moreover, the Commission has 
issued exemptive orders to the trade-through prohibition for certain 
transactions in non-convertible preferred securities,\12\ qualified 
contingent trades,\13\ certain error correction transactions \14\ and 
certain print protection transactions.\15\ To the extent that a 
Participant can submit a cross or cross with size order which is also 
exempt from Reg NMS trade-through prohibition, the Exchange believes 
that such orders should be eligible for execution notwithstanding the 
fact that they are priced outside the NBBO, assuming all other 
requirements are satisfied. In evaluating whether any applicable 
exemption applied to a cross or cross with size order, the CHX would 
require Participants to indicate in its order submission the nature of 
the exemption relied upon.
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    \11\ Reg NMS Rule 611(b).
    \12\ Order Exempting Non-Convertible Preferred Securities from 
Rule 611(a) of Regulation NMS under the Securities Exchange Act of 
1934 (Rel. No. 34-57621, April 4, 2008).
    \13\ Order Granting an Exemption for Qualified Contingent Trades 
from Rule 611(a) of Regulation NMS under the Securities Exchange Act 
of 1934 (Rel. No. 34-54389, Aug. 31, 2006), modified, (Rel. No. 34-
57620, April 4, 2008).
    \14\ Order Exempting Certain Error Correction Transactions from 
Rule 611 of Regulation NMS under the Securities Exchange Act of 1934 
(Rel. No. 34-55884, June 8, 2007).
    \15\ Order Exempting Certain Print Protection Transactions from 
Rule 611 of Regulation NMS under the Securities Exchange Act of 1934 
(Rel. No. 34-55883, June 8, 2007).
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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,\16\ and furthers the 
objectives of Section 6(b)(5) in particular,\17\ 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. In this case, the proposed change in 
the definition of the cross and cross with size order types will remove 
any potential confusion among Participants over the proper handling and 
treatment of such orders. The changes should also provide Participants 
with additional options in seeking trade executions on our trading 
facilities by allowing them to more fully utilize existing exemptions 
to the Reg NMS trade through restrictions.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 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 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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time

[[Page 68300]]

as the Commission may designate, it has become effective pursuant to 
Section 19(b)(3)(A) of the Act \18\ and Rule 19b-4(f)(6) 
thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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 this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \20\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6) \21\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange requests 
that the Commission waive the 30-day operative delay so that it may 
immediately provide participants the benefits of the clarified order 
types. The Commission believes that waiving the 30-day operative delay 
\22\ is consistent with the protection of investors and the public 
interest because it will allow the Exchange to immediately modify the 
rules relating to the cross and cross-with-size order types to account 
for the exceptions and exemptions with respect to Rule 611 of 
Regulation NMS.\23\ For this reason, the Commission designates that the 
proposed rule change become operative upon filing.
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    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposal's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \23\ Rule 611 of Regulation NMS includes various exceptions. See 
17 CFR 242.611(b). In addition, the Commission has issued exemptive 
orders relating to Rule 611 of Regulation NMS. See supra notes 12-
15.
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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 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-2009-16 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 Number SR-CHX-2009-16. 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, 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 publicly available. All 
submissions should refer to File Number SR-CHX-2009-16 and should be 
submitted on or before January 13, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-30425 Filed 12-22-09; 8:45 am]

BILLING CODE 8011-01-P