Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and Rule 19b-4 thereunder, notice is hereby given that on September 3, 2002, the Chicago Stock Exchange, Incorporated (“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 Exchange. On September 30, 2002, the CHX amended the proposal. The Exchange has designated this proposal as one establishing or changing a due, fee, or other charge imposed by the CHX under section 19(b)(3)(A)(ii) of the Act, 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.
17 CFR 240.19b-4.
See September 27, 2002 letter from Ellen J. Neely, Senior Vice President and General Counsel, CHX, to Nancy J. Sanow, Division of Market Regulation, Commission (“Amendment No. 1”) Amendment No. 1 completely replaces and supersedes the original filing. For purposes of calculating the 60-day abrogation period, the Commission considers the period to have commenced on September 30, 2002, the date the CHX filed Amendment No. 1.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to amend its membership dues and fees schedule (“Schedule”) for the period from September through December 2002, to (1) reduce the Tape A and Tape B specialist credits; (2) reduce the floor broker earned credits; and (3) increase the OTC specialist fixed fees. The text of the proposed rule change is below. Proposed new language is in italics; proposed deletions are in brackets.
Membership Dues and Fees
E. Specialist Fixed Fees
Except in the case of Exemption Eligible Securities (as defined above in Section D), which shall be exempt from assessment of fixed fees, specialists will be assigned a fixed fee per assigned stock on a monthly basis, to be calculated as follows:
| Fixed Fee Per Dual Trading System Security | = | No change to text |
| Fixed Fee For Specialist [Member] Firms Trading Nasdaq/NMS Securities | = | The lowest monthly fixed fee charged each member firm for period from January through June 2002, less the market data rebate earned by the firm in June, 2002. (Effective July 2002) |
| For each month from September 2002 through December 2002, each specialist firm shall be charged a Fixed Fee Charge equal to that specialist firm's pro rata share of an additional $10,000 monthly fee. A specialist firm's pro rata share shall be based on the firm's percentage participation in the total market data rebates paid to specialist firms trading Nasdaq/NMS Securities in June 2002. |
M. Credits
1. Specialist Credits
Total monthly fees owed by a specialist to the Exchange will be reduced (and specialists will be paid each month for any unused credits by the application of the following credits):
a. Effective July 1, 2002 for transactions in Tape A Securities:
| CHX monthly CTA trade volume by stock (percent) | Transaction credit (percent) |
|---|---|
| < 7 | 18 |
| 7-12 | 45 |
| >12 | 70 |
“Tape A Securities” are securities reported on Tape A of the Consolidated Tape Association.
“Transaction Credit” when used in connection with Tape A Securities means the applicable percentage of monthly CHX tape revenue from the Consolidated Tape Association generated by a particular stock. To the extent that CHX tape revenue is subject to a year end adjustment, specialist credits may be adjusted accordingly.
For each month from September 2002 through December 2002, the Transaction Credit calculated above for each specialist firm shall be decreased by an amount equal to that specialist firm's “Credit Reduction Charge,” which shall be calculated as follows:
(Total CHX Monthly Tape A Transaction Credits ÷ Total CHX Monthly Tape A & B Transaction Credits) × $40,000 = Tape A Pro Rata Share
(Specialist's Monthly Tape A Transaction Credits ÷ Total CHX Monthly Tape A Transaction Credits) × Tape A Pro Rata Share = Specialist's Credit Reduction Charge
b. Effective July 1, 2002 for transactions in Tape B Securities:
| CHX monthly CTA trade volume by stock (percent) | Transaction credit (percent) |
|---|---|
| ≤5.75% | 18 |
| >5.75% | 50% |
“Transaction Credit” when used in connection with Tape B Securities means the applicable percentage of monthly CHX tape revenue from the Consolidated Tape Association generated by a particular stock. To the extent that CHX tape revenue is subject to a year end adjustment, specialist credits may be adjusted accordingly.
“Tape B Securities” are securities reported on Tape B of the Consolidated Tape Association.
For each month from September 2002 through December 2002, the Transaction Credit calculated above for each specialist firm shall be decreased by an amount equal to that specialist firm's “Credit Reduction Charge,” which shall be calculated as follows:
(Total CHX Monthly Tape B Transaction Credits ÷ Total CHX Monthly Tape A & B Transaction Credits) × $40,000 = Tape B Pro Rata Share (Specialist's Monthly Tape B Transaction Credits ÷ Total CHX Monthly Tape B Transaction Credits) × Tape B Pro Rata Share = Specialist's Credit Reduction Charge
2. Floor Broker Credits
a. Earned Credits.
Effective January 1, 2001, total monthly fees owed by a floor broker to the Exchange will be reduced by the application of the following Earned Credit (and floor brokers will be paid each month for any unused credits):
For each month from September 2002 through December 2002, the Earned Credit calculated above for each floor broker shall be decreased by an amount equal to that floor broker's “Credit Reduction Charge,” which shall be calculated as follows:
(Floor Broker's Monthly Earned Credit ÷ Total CHX Monthly Earned Credits) × $50,000 = Floor Broker's Credit Reduction Charge
3. Credits for Qualified Market Makers Registered in Cabinet Securities
No change to text.
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 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
The CHX proposes to amend the Schedule by (1) reducing the Tape A and Tape B credits provided to Exchange specialists; (2) reducing the earned credits available to Exchange floor brokers; and (3) increasing the fixed fees charged to specialists who trade OTC securities. These changes apply for the period from September through December 2002.
The Exchange, like other business entities, sets financial goals for its operations, and attempts, throughout the year, to make decisions that permit it to meet or exceed those goals. To help meet the Exchange's goals for 2002, the Exchange has decided to temporarily reduce certain credit programs and to increase certain fees.
In doing so, the CHX has designed the proposed changes to the credit and fee arrangements to have an equal effect on the Exchange's specialist firms, as a group, and its floor broker firms, as a group. Within each of these two groups, the fee changes are designed to impact specific firms based on the level of their current participation in the credit and/or fee programs. The Exchange believes that its member firms are in agreement with this proposal.
For example, for each of the months from September to December 2002, the Exchange's specialists that trade securities reported on Tape A of the Consolidated Tape Association, will be assessed a credit reduction charge that is based on their share of the total Tape A transaction credit for those months.
The changes in the credit section of the Schedule (Section M) decrease the credits from the levels that were set in July 2002 as a result of discussions with Commission staff. Among other things, the Tape B transaction credits outlined in the Schedule continue to be 50% or less.
See Securities Exchange Act Release No. 46231 (July 19, 2002), 67 FR 48687 (July 25, 2002)(SR-CHX-2002-22).
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with Section 6(b)(4) of the Act in that it provides for the equitable allocation of reasonable dues, fees and other charges among its members.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will impose any inappropriate 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 solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
The proposed rule change has become effective pursuant to section 19(b)(3)(A)(ii) of the Act and subparagraph (f)(2) of Rule 19b-4 thereunder, because it involves a due, fee, or other charge. 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.
17 CFR 240.19b-4(f)(2).
See footnote 3, supra.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to file number SR-CHX-2002-28, and should be submitted by October 30, 2002.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-25670 Filed 10-8-02; 8:45 am]
BILLING CODE 8010-01-P