Document ID: SEC-2006-1516-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Stock Exchange, Inc.
Posted Date: 2006-11-27T05:00Z

[Federal Register: November 27, 2006 (Volume 71, Number 227)]
[Notices]               
[Page 68660-68662]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27no06-136]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54791; File No. SR-CHX-2006-31]

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 Thereto Relating to Participant Fees and Credits

 November 20, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 23, 2006, 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, II, 
and III below, which Items have been prepared by the CHX. On November 
15, 2006, the CHX filed Amendment No. 1 to the proposed rule change.\3\ 
The CHX has designated this proposal as one establishing or changing

[[Page 68661]]

a member due, fee, or other charge imposed by the CHX pursuant to 
Section 19(b)(3)(A)(ii) of the Act,\4\ and Rule 19b-4(f)(2) 
thereunder,\5\ which renders the proposal effective upon filing with 
the Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The purpose of Amendment No. 1 is to provide further clarity 
as to the proposed NTM Fee Schedule changes, by providing additional 
commentary with respect to: (i) The provisions of the NTM Fee 
Schedule that are impacted; (ii) the amounts of the fees established 
by such provisions; (iii) the basis for certain changes or 
references to these provisions; and (iv) the correction of certain 
rule change marking.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CHX proposes several changes to its Schedule of Participant 
Fees and Credits (the ``NTM Fee Schedule''), relating to the new 
trading model being implemented by the CHX this fall. The text of this 
proposed rule change is available on the Exchange's Web site at http://www.chx.com/rules/proposed_rules.htm
 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 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. 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
    Throughout 2006, the Exchange has been working on the design and 
development of a new trading model centered around a core matching 
system that will provide for fully automated electronic matching of 
orders, as well as corresponding rules and regulatory initiatives. On 
September 29, 2006, the Exchange's proposed rules relating to the new 
trading model were approved by the Commission.\6\
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    \6\ See Securities Exchange Act Release No. 54550 (September 29, 
2006); 71 FR 59563 (October 10, 2006) (SR-CHX-2006-05) (referred to 
as the ``NTM Approval Order'').
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    On September 29, 2006, the Exchange filed with the Commission its 
NTM Fee Schedule, contemplating the Exchange's transition to its new 
trading model, commencing the week of October 23, 2006.\7\ Subsequent 
industry developments, and further refinement of certain NTM Fee 
Schedule provisions, have necessitated several changes to the NTM Fee 
Schedule. These changes are summarized below:
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    \7\ See Securities Exchange Act Release No. 54657 (October 26, 
2006); 71 FR 64590 (November 2, 2006) (SR-CHX-2006-29). The NTM Fee 
Schedule provides for all fees and charges that are billed by the 
Exchange to its participants; it does not contain any fees or 
charges that are applicable to non-participants.
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    Trading Permit Fees: There is no change to the text of Section A of 
the NTM Fee Schedule. The text of Section A merely incorporates the 
Trading Permit cancellation fee that was in place prior to submission 
of the NTM Fee Schedule.\8\ This cancellation fee is unchanged and 
remains in effect for Trading Permits that were issued before October 
1, 2006. This provision was inadvertently omitted from the NTM Fee 
Schedule when it was submitted in SR-CHX-2006-29.\9\
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    \8\ This fee, which is applicable to trading permits in effect 
before October 1, 2006, is $2,000, or, if less, $500/month for the 
remainder of the one-year term.
    \9\ The provision was not shown in Exhibit 5 to SR-CHX-2006-29, 
but was not deleted in such submission (or any other submission) and 
remains applicable. See Securities Exchange Act Release No. 54657 
(October 26, 2006); 71 FR 64590 (November 2, 2006) (SR-CHX-2006-29).
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    Registration Fees: This change is intended to clarify application 
of the Off-Exchange trader fee. The $500 annual fee is assessed for a 
trader who is engaged in proprietary securities trading for an Off-
Exchange Participant Firm for which the CHX is the Designated Examining 
Authority, if such Participant Firm is solely involved in proprietary 
securities trading. The clarifying change relates to the Participant 
Firm; the Participant Firm must be solely involved in proprietary 
securities trading for the fee to be assessed. Other Participant Firms 
would not be assessed an Off-Exchange trader fee.
    Transaction and Order Processing Fees: This change to Section E.1 
of the NTM Fee Schedule is intended to clarify that the liquidity 
taking fee of $0.0028/share for a Matching System single order 
execution does not apply to a CHX institutional broker in connection 
with a transaction that is subject to the agency fees set forth in 
Section E.3 of the NTM Fee Schedule. Because the institutional broker's 
customer is assessed the agency fee under Section E.3, the 
institutional broker would not also be subject to a take fee for the 
same transaction. This change does not modify applicable provisions 
regarding credits for providing liquidity to the Matching System.
    Matching System Routing Fees/Transaction and Order Processing Fees 
Associated With Securities Not Yet Traded in the Matching System: These 
changes to Section E.6 and Section E.8 (formerly E.7) of the NTM Fee 
Schedule relate to the fees that the CHX may assess against its 
participants on account of outbound NMS Linkage Plan orders. Section 
E.6 applies to orders that are Matching System eligible and therefore 
are routed from the Matching System to other market centers. Section 
E.8 applies to orders that have not yet migrated to the Matching System 
and therefore are routed from the Exchange's pre-NTM facilities.
    This provision was necessitated in order to implement the CHX's 
participation in the exchange-to-exchange billing arrangement 
associated with the NMS Linkage Plan, which took effect on October 1, 
2006.\10\ When an outbound NMS Linkage Plan order is executed on 
another NMS Linkage participant market, such market will directly 
invoice the CHX for a transaction fee, in an amount that may not exceed 
the transaction fee that it would charge its own member for such an 
execution. The CHX is then responsible for payment of such invoice. 
Sections E.6 and E.8 of the NTM Fee Schedule provision permit the CHX 
to collect a corresponding fee from the CHX participant who generated 
the outbound NMS Linkage Plan order. The CHX believes that it is 
appropriate to establish outbound NMS Linkage fee rates that reasonably 
correspond to the respective transaction fee rates being charged by the 
executing markets. Accordingly, it is submitting changes to Sections 
E.6 and E.8 of the NTM Fee Schedule, to reflect recent developments 
regarding applicable transaction fees assessed by other market centers 
on account of NMS Linkage Plan executions.
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    \10\ See Securities Exchange Act Release No. 54548 (September 
29, 2006), 71 FR 59159 (October 6, 2006) (SR-CHX-2006-28) (approving 
NMS Linkage Plan exchange-to-exchange billing procedures); 
Securities Exchange Act Release No. 54551 (September 29, 2006), 71 
FR 59148 (October 6, 2006) (approving NMS Linkage Plan).
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    As an example, in the NTM Fee Schedule, the CHX originally 
established an outbound fee, for non-ETF orders routed to the Nasdaq 
Stock Market, that was significantly higher than Nasdaq's applicable 
transaction fee rate for October, 2006.\11\ This proposed rule change 
seeks to modify this rate for the balance of the month of October; the 
rate would then revert to the originally-

[[Page 68662]]

filed rate effective November 1, 2006. Specifically, from October 23 
through October 31, 2006, the outbound fee for NMS Linkage orders 
routed to Nasdaq (in issues other than exchange-traded funds) would 
decrease from $.0030/share to $.0007/share. On November 1, 2006, the 
effective date of Nasdaq's fee increase, the CHX outbound NMS Linkage 
routing fee for such issues would return to $.0030/share. This change 
is not applicable to orders for exchange-traded funds.
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    \11\ The CHX anticipated that Nasdaq's transaction fee rate was 
increasing, but the increase ultimately was filed with an effective 
date of November 1, 2006 instead of October 1.
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    Trade Processing Fees: New Section E.7 of the NTM Fee Schedule is 
not a new provision; this provision, which provides for a Trade 
Processing Fee of $.0015/share, up to $100 per side of the trade, is 
merely relocated from former Section H.2. New Section H.2. establishes 
a Clearing Support Activity Fee, which will be assessed by the CHX 
beginning January 1, 2007. This fee of $.02 per ticket, capped at 
$8,000 per month, will apply to firms that average, within a month, at 
least 2,500 tickets per day. In establishing this fee, the CHX is 
attempting to defray some of the expenses associated with clearing 
support services that it provides to certain participant firms. Prior 
to submission of the NTM Fee Schedule, these expenses were largely 
offset by a portion of the Specialist Fixed Fee, which was eliminated 
in the NTM Fee Schedule. Although this fee is a new fee, the actual 
aggregate amount assessed by the CHX will decrease, due to elimination 
of the Specialist Fixed Fee. Accordingly, the CHX believes that it is 
appropriate to institute the new Clearing Support Activity Fee.
2. Statutory Basis
    The CHX believes that the proposed rule change is consistent with 
Section 6(b)(4) of the Act \12\ in that it provides for the equitable 
allocation of reasonable dues, fees and other charges among its 
members.\13\
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    \12\ 15 U.S.C. 78f(b)(4).
    \13\ Email from Kathleen Boege, Vice President and Associate 
General Counsel, CHX, to Joseph Morra, Special Counsel, Division of 
Market Regulation (``Division''), Commission, and Sara Gillis, 
Attorney, Division, Commission, dated November 16, 2006.
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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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change establishes or changes a 
member due, fee or other charge imposed by the Exchange, it has become 
effective pursuant to Section 19(B)(3)(A) of the Act \14\ and 
subparagraph (f)(2) of Rule 19b-4 thereunder.\15\ At any time within 60 
days of the filing of such 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.\16\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(2).
    \16\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers the period 
to commence on November 15, 2006, the date on which the CHX filed 
Amendment No. 1. See 15 U.S.C. 78s(b)(3)(C).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 No. SR-CHX-2006-31 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-CHX-2006-31. 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. Copies of such 
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-2006-31 and should be submitted on or before 
December 18, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-19981 Filed 11-24-06; 8:45 am]

BILLING CODE 8011-01-P