Document ID: SEC-2010-1471-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2010-09-27T04:00Z

[Federal Register: September 27, 2010 (Volume 75, Number 186)]
[Notices]               
[Page 59315-59316]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27se10-146]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62949; File No. SR-CHX-2010-22]

 
Self-Regulatory Organizations; The Chicago Stock Exchange, Inc.; 
Notice of Filing of a Proposed Rule Change To Enhance Quotation 
Requirements for Market Makers

September 20, 2010.
    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 17, 2010, The Chicago Stock Exchange, Inc. (``CHX'' or the 
``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 prepared by the Exchange. 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 CHX proposes to amend its rules to enhance quotation 
requirements for market makers. 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 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
Market Maker Quote Obligations
    The Exchange proposes to adopt rules to enhance minimum quotation 
requirements for market makers. Under the proposal, the Exchange will 
require market makers for each stock in which they are registered to 
continuously maintain a two-sided quotation within a designated 
percentage of the National Best Bid and National Best Offer as 
appropriate. These enhanced market maker quotation requirements are 
intended to eliminate trade executions against market maker placeholder 
quotations traditionally priced far away from the inside market, 
commonly known as ``stub quotes.'' They are also intended to augment 
and work in relation to the single stock pause standards already in 
place on a pilot basis for stocks in the S&P 500, Russell 1000 and 
certain Specified Exchange Traded Products.\3\
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    \3\ See Exchange Act Release No. 62252 (June 10, 2010), 75 FR 
34186 (June 16, 2010); Exchange Act Release No. 62883 (September 10, 
2010), 75 FR 56608 (September 16, 2010).
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    Under the proposal, the Exchange will require registered market 
makers to enter and maintain quotes priced at no more than a certain 
percentage away from the national inside bid and offer. Permissible 
quotes are determined by the individual character of the security, the 
time of day in which the quote is entered, and other factors which are 
summarized below:
    For issues subject to an individual stock trading trigger pause, a 
permissible quote is determined by first looking at the applicable 
stock trading pause trigger percentage of the security and then 
reducing that number by 2%. Since currently the stock pause trigger 
percentage across all exchanges is 10%, a market maker's quote in such 
a security may not be more than 8% away from the national best bid or 
best offer as appropriate. Once a compliant quote is entered, it may 
rest without adjustment until such time as it moves to within \1/2 \of 
1% of the applicable trigger pause percentage (i.e., currently 9.5%) 
whereupon the market maker must immediately move its quote back to at 
least the permissible default level of 8% away from the national best 
bid or best offer. During times in which a trigger pause percentage is 
not applicable (e.g. before 9:45 a.m. and after 3:35 p.m.), a market 
maker must maintain a quote no further than 20% away from the inside 
(i.e., it may rest without adjustment until it reaches 21.5%). In the 
absence of national best or best offer, the above calculations will 
remain the same, but will use the national last sale instead of the 
absent bid or offer.
    For securities not subject to any individual stock pause trigger, 
the proposal will a [sic] assume a hypothetical 32% trigger pause, 
apply a 2% reduction, and require market makers in those issues to 
maintain quotes no more than 30% away from the national best and 
national best offer. Like securities subject to stock trading pauses, 
once a compliant quote is entered, it may rest without adjustment until 
such time as it moves to within \1/2\; of 1% of its applicable trigger 
pause percentage (31.5%) whereupon the market maker must immediately 
move its quote back to at least the permissible default level of 30%. 
These requirements shall apply to Regulation NMS securities during 
normal market hours.
    Nothing in the above precludes a market maker from voluntarily 
quoting at price levels that are closer to the national best bid and 
best offer than required under the proposal.
2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Securities Exchange Act of 1934 (the ``Act''),\4\ which requires 
the rules of an exchange to promote just and equitable principles of 
trade, 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. The proposed rule change also is 
designed to support the principles of Section 11A(a)(1) \5\ of the Act 
in that it seeks to assure fair competition among brokers and dealers 
and among exchange markets. The

[[Page 59316]]

Exchange believes that the proposed rule meets these requirements in 
that it promotes transparency and uniformity across markets concerning 
minimum market maker quotation requirements.
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    \4\ 15 U.S.C. 78f(b)(5).
    \5\ 15 U.S.C. 78k-1(a)(1).
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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 solicited or received.

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

    Within 45 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 or disapprove 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-2010-22 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CHX-2010-22. 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 publicly available. All 
submissions should refer to File Number SR-CHX-2010-22 and should be 
submitted on or before October 18, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-24053 Filed 9-24-10; 8:45 am]
BILLING CODE 8010-01-P