Document ID: SEC-2008-1305-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2008-09-25T04:00Z

[Federal Register: September 25, 2008 (Volume 73, Number 187)]
[Notices]               
[Page 55575-55577]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25se08-93]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58568; File No. SR-CHX-2008-12)

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change Consolidating Into a Single Rule Certain Requirements for 
Securities Traded on the Exchange Pursuant to Unlisted Trading 
Privileges

September 17, 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 September 15, 2008, the 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 substantially prepared by the Exchange. 
This order provides notice of the proposed rule change and approves the 
proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CHX proposes to amend its rules to add and consolidate into a 
single rule certain requirements for products traded on the Exchange 
pursuant to unlisted trading privileges (``UTP'') that have been 
established in various new products proposals previously approved by 
the Commission. The text of the proposed rule change is available on 
the Exchange's Web site (http://www.chx.com) 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 on the proposal. The text of these 
statements may be examined at the places specified in Item III 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 proposes to amend its rules to add and consolidate 
into a single rule certain requirements for products traded on the 
Exchange pursuant to UTP that have been established in various new 
products proposals previously approved by the Commission. The Exchange 
proposes to add CHX Article 22, Rule 6 to set forth rules regarding the 
extension of UTP to a security that is listed on another national 
securities exchange. Any such security will be subject to all Exchange 
trading rules applicable to NMS Stocks, unless otherwise noted. The 
Exchange will file with the Commission a Form 19b-4(e) with respect to 
any such security that is a ``new derivative securities product'' as 
defined in Rule 19b-4(e) under the Act.\3\ In addition, any new 
derivative securities product traded on the Exchange pursuant to 
proposed CHX Article 22, Rule 6 will be subject to the following 
criteria.
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    \3\ 17 CFR 240.19b-4(e).
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    Proposed CHX Article 22, Rule 6(a)(i) provides that the Exchange 
will distribute an information circular prior to the commencement of 
trading in such new derivative securities product which generally will 
include the same information as the information circular provided by 
the listing exchange, including: (1) The special risks of trading the 
new derivative securities product; (2) the Exchange's rules that will 
apply to the new derivative securities product, including the

[[Page 55576]]

suitability rule; (3) information about the dissemination of value of 
the underlying assets or indexes; and (4) the risk of trading during 
irregular trading hours due to the lack of calculation or dissemination 
of the Intraday Indicative Value or a similar value.
    Proposed CHX Article 22, Rule 6(a)(ii) reminds Participants that 
they are subject to the prospectus delivery requirements under the 
Securities Act of 1933, as amended (``Securities Act''), unless the new 
derivative securities product is the subject of an order by the 
Commission exempting the product from certain prospectus delivery 
requirements under Section 24(d) of the Investment Company Act of 1940 
(``1940 Act'') and the product is not otherwise subject to prospectus 
delivery requirements under the Securities Act. The Exchange will 
inform its Participants regarding the application of the provisions of 
this subparagraph to a particular series of exchange-traded funds 
governed by the 1940 Act by means of an information circular.
    Proposed CHX Article 22, Rule 6(a)(iii) addresses trading halts in 
the new derivative securities products traded on the Exchange pursuant 
to UTP. Proposed CHX Article 22, Rule 6(a)(iii) provides that the 
Exchange, upon notification by the listing market of a halt due to a 
temporary interruption in the calculation or wide dissemination of the 
Intraday Indicative Value (or a similar value) or the value of the 
underlying index or instrument, will immediately halt trading in that 
product on the Exchange. If the Intraday Indicative Value (or a similar 
value) or the value of the underlying index or instrument continues not 
to be calculated or widely available as of trading on the Exchange on 
the next business day, the Exchange shall not commence trading of the 
product that day. If an interruption in the calculation or wide 
dissemination of the Intraday Indicative Value (or a similar value) or 
the value of the underlying index or instrument continues, the Exchange 
may resume trading in the product only if calculation and wide 
dissemination of the Intraday Indicative Value (or a similar value) or 
the value of the underlying index or instrument resumes or trading in 
such series resumes in the listing market.
    Additionally, proposed CHX Article 22, Rule 6(a)(iii) provides that 
for a new derivative securities product where a net asset value (and, 
in the case of managed fund shares or actively managed exchange-traded 
funds, a ``disclosed portfolio'') is disseminated, the Exchange will 
immediately halt trading such security upon notification by the listing 
market that the net asset value and, if applicable, such disclosed 
portfolio is not being disseminated to all market participants at the 
same time. The Exchange will resume trading in the new derivative 
securities product only when the net asset value and, if applicable, 
such disclosed portfolio is disseminated to all market participants at 
the same time or trading in the new derivative securities product 
resumes on the listing market.
    CHX represents that the Exchange's surveillance procedures for new 
derivative securities products traded on the Exchange pursuant to UTP 
will be similar to the procedures used for equity securities traded on 
the Exchange and will incorporate and rely upon existing Exchange 
surveillance systems. The Exchange will closely monitor activity in new 
derivative securities products traded on the Exchange pursuant to UTP 
and deter any potential improper trading activity. Proposed CHX Article 
22, Rule 6(b) also provides that the Exchange will enter into a 
comprehensive surveillance sharing agreement (``CSSA'') with a market 
trading components of the index or portfolio on which the new 
derivative securities product is based to the same extent as the 
listing exchange's rules require the listing market to enter into a 
CSSA with such market.
    Finally, proposed CHX Article 22, Rule 6(c) provides for 
restrictions for Participants registered as Market Makers (``Restricted 
Market Maker'') in an new derivative securities product that derives 
its value from one or more currencies, commodities, or derivatives 
based on one or more currencies or commodities, or is based on a basket 
or index comprised of currencies or commodities (collectively, 
``Reference Assets''). Specifically, proposed CHX Article 22, Rule 
6(c)(i) provides a Restricted Market Maker in an new derivative 
securities product is prohibited from acting or registering as a market 
maker in any Reference Asset of that new derivative securities product 
or any derivative instrument based on a Reference Asset of that new 
derivative securities product (collectively, with Reference Assets, 
``Related Instruments''). Proposed CHX Article 22, Rule 6(c)(ii) 
provides a Restricted Market Maker shall, in a manner prescribed by 
CHX, file with CHX and keep current a list identifying any accounts 
(``Related Instrument Trading Accounts'') for which Related Instruments 
are traded: (a) In which the Restricted Market Maker holds an interest; 
(b) over which it has investment discretion; or (c) in which it shares 
in the profits and/or losses. In addition, a Restricted Market Maker 
may not have an interest in, exercise investment discretion over, or 
share in the profits and/or losses of a Related Instrument Trading 
Account which has not been reported to CHX as required by this Rule. 
Proposed CHX Article 22, Rule 6(c)(iii) provides that in addition to 
the existing obligations under CHX rules regarding the production of 
books and records, a Restricted Market Maker shall, upon request by 
CHX, make available to CHX any books, records, or other information 
pertaining to any Related Instrument Trading Account or to the account 
of any registered or non-registered employee affiliated with the 
Restricted Market Maker for which Related Instruments are traded. 
Finally, proposed CHX Article 22, Rule 6(c)(iv) provides that a 
Restricted Market Maker shall not use any material nonpublic 
information in connection with trading a Related Instrument.
2. Statutory Basis
    The CHX believes 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).\4\ The proposed rule change is consistent 
with Section 6(b)(5) of the Act 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 allowing the 
CHX to add and consolidate into a single rule certain requirements for 
products traded on the Exchange pursuant to UTP.
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    \4\ 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.

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. 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:

[[Page 55577]]

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-2008-12 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CHX-2008-12. 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 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-2008-12 and should be 
submitted on or before October 16, 2008.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\5\ 
In particular, the Commission finds that the proposal is consistent 
with Section 6(b)(5) of the Act in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in 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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    \5\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    This proposal would consolidate into a single rule various 
provisions related to UTP that have been established in other new 
products proposals previously approved by the Commission. Proposed CHX 
Rule 6 is closely modeled after similar rules of other national 
securities exchanges \6\ and does not raise any novel issues. The 
Commission finds good cause for approving the proposed rule change 
prior to the 30th day after the date of publication of the notice of 
filing thereof in the Federal Register. Accelerated approval of this 
proposal will expedite the trading of additional products by the 
Exchange, subject to consistent and reasonable standards. Therefore, 
the Commission finds good cause, consistent with Section 19(b)(2) of 
the Act, to approve the proposed rule change on an accelerated basis.
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    \6\ See Securities Exchange Act Release Nos. 57806 (May 9, 
2008), 73 FR 28541 (May 16, 2008) (SR-Phlx-2008-34) (approving 
amendment to Phlx Rule 136 and adoption of Phlx Rule 803(o)) and 
57448 (March 6, 2008), 73 FR 13597 (March 13, 2008) (SR-NSX-2008-05) 
(approving NSX Rule 15.9).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (SR-CHX-2008-12) is hereby 
approved on an accelerated basis.
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    \7\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E8-22463 Filed 9-24-08; 8:45 am]

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