Document ID: SEC-2007-1493-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Stock Exchange, Inc.
Posted Date: 2007-10-31T04:00Z

[Federal Register: October 31, 2007 (Volume 72, Number 210)]
[Notices]               
[Page 61696-61697]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31oc07-138]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56703; File No. SR-CHX-2007-22]

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change to Amend Rules Relating to the 
Execution of Odd Lot Market Orders

October 25, 2007.
    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 October 2, 2007, 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 substantially prepared by CHX. 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.
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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 provide that market odd 
lot orders would be executed like round lot orders in the Exchange's 
Matching System (i.e., executed as if they were subject to Regulation 
NMS Rule 611 \3\). Below is the text of the proposed rule change. 
Proposed new language is in italics; proposed deletions are in 
[brackets].\4\
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    \3\ 17 CFR 242.611.
    \4\ The Exchange has consented to the removal of an extra 
quotation mark from the current text of Article 20, Rule 5(a) of the 
CHX Rules. See E-mail from Ellen Neely, President and General 
Counsel, CHX to David Michehl, Special Counsel, Division of Market 
Regulation, Commission on October 23, 2007.
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Article 20
Operation of Chx Matching System
* * * * *
    Prevention of Trade-throughs
    Rule 5.a. An inbound order for at least a round lot is not eligible 
for execution on the Exchange if its execution would cause an improper 
trade-through of another ITS market or, when Reg NMS is implemented for 
a security, if its execution would be improper under Rule 611 (but not 
including the exception set out in Rule 611(b)(8)) (together an 
``improper trade-through''['']). As described in Interpretation and 
Policy .03, if the execution of all or part of an inbound order for at 
least a round lot on the Exchange would cause an improper trade-
through, that order (or the portion of that order that would cause a 
trade-through) shall be routed to another appropriate market or, if 
designated as ``do not route,'' automatically cancelled; provided, 
however, that if an undisplayed order is resting in the Matching System 
and the execution of an inbound round lot order (that is not an IOC or 
FOK order) against the undisplayed resting order would cause an 
improper trade-through, the resting order shall be cancelled to the 
extent necessary to allow the inbound order to be executed or quoted.
    b. Inbound odd lot limit orders and odd lot crosses shall be 
eligible for execution on the Exchange even if the execution would 
trade through another market's bid or offer. Inbound odd lot market 
orders shall be executed, for purposes of this Rule, as if they were 
round lot orders and subject to the requirements of paragraph (a) 
above.
* * * * *

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 Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed

[[Page 61697]]

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 Exchange 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
    Under the Exchange's existing rules, odd lot orders execute in the 
Matching System without regard to the protected quotations of other 
markets.\5\ The Exchange states that this is because such orders are 
not subject to the Regulation NMS Order Protection Rule and can trade 
through better prices in other markets.\6\ Through this filing, the 
Exchange proposes to amend its rules to provide that market odd lot 
orders would execute like round lot orders (i.e., they would execute as 
if they were subject to the Regulation NMS Order Protection Rule), 
while odd lot limit orders and odd lot crosses would continue to 
execute through better prices on other markets.\7\
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    \5\ See CHX Rules, Article 20, Rule 5(b).
    \6\ The Exchange states that its handling of the execution of 
odd lot orders is consistent with the requirements of Regulation 
NMS. See Division of Market Regulation: Responses to Frequently 
Asked Questions Concerning Rule 611 and Rule 610 of Regulation NMS, 
FAQ 7.03 (confirming that Rule 611 does not apply to odd lot 
orders).
    \7\ The Exchange believes that a participant that submits an odd 
lot cross seeks to have that order executed at a particular price, 
without regard to prices in other markets. Similarly, if a 
participant submits an odd lot limit order, that participant likely 
only seeks the protection of the order's limit price and does not 
anticipate that the order would be protected against better prices 
in other markets.
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    The Exchange believes that this proposal will provide appropriate 
protections to odd lot market orders, while allowing participants to 
choose to have odd lot limit orders and odd lot crosses executed at 
other prices.\8\
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    \8\ Odd lot market orders that would trade through the protected 
quotations of other markets would be rejected from the Exchange's 
Matching System and either routed to another appropriate market or, 
if designated as ``do not route,'' automatically cancelled. See CHX 
Rules, Article 20, Rule 5(a).
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2. Statutory Basis
    The Exchange 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). The proposed rule change is 
consistent with Section 6(b)(5) of the Act \9\ because it would promote 
just and equitable principles of trade, remove impediments to, and 
protect the mechanism of, a free and open market and a national market 
system, and, in general, protect investors and the public interest by 
allowing market odd lot orders to be executed like round lot orders in 
the Exchange's Matching System.
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    \9\ 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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change; or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2007-22 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-2007-22. 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 available publicly. All 
submissions should refer to File Number SR-CHX-2007-22 and should be 
submitted on or before November 21, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E7-21384 Filed 10-30-07; 8:45 am]

BILLING CODE 8011-01-P