04-2807. Self-Regulatory Organizations; Order Approving Proposed Rule Change and Amendment No. 1 Thereto by the Chicago Stock Exchange, Incorporated Relating to Automatic Quotations

February 4, 2004.

On June 16, 2003, the Chicago Stock Exchange, Incorporated (“CHX” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),^[1] and Rule 19b-4 thereunder,^[2] a proposed rule change that would delete an interpretation of CHX Article XX, Rule 7 that prohibits specialists from disseminating automatically-generated quotations that are more than $.10 away from the Intermarket Trading System best bid or offer. On November 26, 2003, CHX filed Amendment No. 1 to the proposed rule change.^[3] The Federal Register published the proposed rule change, as amended, for comment on December 31, 2003.^[4] The Commission received no comments on the proposal.

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 believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,^[6] which requires, among other things, that an exchange's rules be designed 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 CHX has represented that, following the securities industry's transition to decimal pricing, the consolidated quotations in the national securities markets flicker significantly throughout the trading day. Consequently, the quotations generated by CHX's auto-quote functionality flicker significantly during the trading day, resulting in significant, costly quotation traffic. Given that the Consolidated Quotation Association is now charging participants based on their capacity requirements, CHX wants to eliminate any unnecessary use of capacity. The Commission notes that, since automatic executions are required to be executed at the national best bid or offer in effect at the time the order is received or better, the proposed change should not have any negative effect on execution prices.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,^[7] that the proposed rule change, as amended, (SR-CHX-2003-17) be, and it hereby is, approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[8]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See letter from Kathleen M. Boege, Associate General Counsel, CHX, to Nancy J. Sanow, Assistant Director, Division of Market Regulation, Commission, dated November 25, 2003 (“Amendment No. 1”). In Amendment No. 1, the Exchange expanded its discussion regarding the consequences of the proposed rule change, and also clarified that the proposed rule change was filed pursuant to Section 19(b)(2) of the Act. 15 U.S.C. 78s(b)(2).

4.  See Securities Exchange Act Release No. 48982 (December 23, 2003), 68 FR 75674.

5.  In approving this proposed rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

6.  15 U.S.C. 78f(b)(5).

7.  15 U.S.C. 78s(b)(2).

8.  17 CFR 200.30-3(a)(12).