[Federal Register Volume 62, Number 29 (Wednesday, February 12, 1997)]
[Notices]
[Pages 6592-6594]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3427]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38237; File No. SR-CHX-97-01]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange,
Incorporated Relating to Specialist Fees
February 4, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), \1\ notice is hereby given that on January 17, 1997, 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 self-regulatory organization. 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).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange, pursuant to Rule 19b-4 of the Act, submits a proposed
rule change amending the CHX's Schedule of Fees relating to specialists
effective February 1, 1997. The text of the proposed rule change is as
follows [new text is italicized; deleted text is bracketed]:
Membership Dues and Fees * * *
(b) Registration Fee:
Firm or Corporation--No change in text.
Office (other than principal)--No change in text.
Officers or Partners--No change in text.m
Salesmen--No change in text.
[Specialist--Fees will be determined based upon the monthly round lot
activity of an issue on the MSE, and shall be paid monthly, according
to the following:
The 300 most active issues shall be charged at a rate of $400 per
year.
All other issues shall be charged at a rate of $100 per year.]
Specialist Assignment--There shall also be an assignment fee of $500
per issue upon the approval by the Committee on Specialist Assignment
and Evaluation of an application of a member or member organization to
act as specialist in a
[[Page 6593]]
security. However, this fee shall be applicable in competitive
assignments only.
Subordinated Loans--No change in text.
Transfer--No change in text.
(4) Specialist Fees:
[25 cents per trade plus 1\1/2\ cents per $1,000 of valuation
payable on round lot sales (or major fraction thereof) as principal
whenever the Specialist makes such sale as principal on the Exchange.]
Specialists will be assessed a fixed fee per assigned stock on a
monthly basis, to be calculated as follows:
Fixed Fee Per Stock=$345,000 x Percent of Fixed Costs Per Tier
x CTA Trade Volume Per Stock/CTA Trade Volume Per Tier.
82% of the Fixed Fee Per Stock shall be designated as a
``Registration Fee,'' and 18% of such Fee shall be designated as a
``Clearing Support Fee.''
``Percent of Fixed Costs Per Tier'' is taken from the following
table:
------------------------------------------------------------------------
Percent
of fixed
Tier Description of tier costs
per tier
------------------------------------------------------------------------
1.......................... 1-25 Most Active Stocks.......... 11
2.......................... 26-100........................... 11
3.......................... 101-250.......................... 12
4.......................... 251-500.......................... 13
5.......................... 501-1000......................... 19
6.......................... 1001-2700+....................... 34
------------------------------------------------------------------------
Classification of a particular stock for a particular Tier is based
on the total number of trades reported to the Consolidated Tape
Association in such stock for a specific month.
``CTA Trade Volume Per Stock'' means the total number of trades
reported to the Consolidated Tape Association in a specific stock for a
specific month.
``CTA Trade Volume Per Tier'' means the total number of trades
reported to the Consolidated Tape Association in all stocks classified
in a particular Tier for a specific month.
A specialist's Fixed Fee Per Stock will be waived until February 1,
1999, for any stock unassigned to any specialist as of December 1, 1996
and assigned to such specialist without competition by May 1, 1997.
(o) Clearing Support Fees *
(1) Account Fees, No change in text.
(2) CUSIP Fees:
Specialist OTC CUSIP--$50 per OTC CUSIP per--
------------------------------------------------------------------------
Fee Month
------------------------------------------------------------------------
Market Maker CUSIP Fee.................... No change in text.
Odd Lot Dealer CUSIP Fee.................. No change in text.
Floor Broker as Principal................. No change in text.
------------------------------------------------------------------------
* (minimum clearing support fee is $600 per month). Discounts
The above Specialist OTC CUSIP Fee will be subject to the following
discounts:
If between 20 and 200 trades occur in a particular CUSIP in a given
month, the Specialist OTC CUSIP Fee for that CUSIP shall be $40 for
that month.
If less than 20 trades occur in a particular CUSIP in a given
month, the Specialist OTC CUSIP Fee for that CUSIP shall be $20 for
that month.
(s) Specialist Credits
Total monthly fees owed by a specialist to the Exchange (excluding
rebills) will be reduced (but to no less than zero) by the application
of the following transaction credits:
------------------------------------------------------------------------
Transaction
CHX monthly CTA trade volume percentage by stock credit (in
percent)
------------------------------------------------------------------------
<7%........................................................ 18="" 7%-12%.....................................................="" 36="">12%....................................................... 54
------------------------------------------------------------------------
``Transaction Credit'' 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.
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 self-regulatory organization
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 self-regulatory organization
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 purpose of the proposed rule change is to amend the CHX's
pricing schedule relating to specialist fees on listed securities.
Currently, specialists pay usage-based transaction fees which are
variable, based on ``Trade Volume'' (the number of executed trades) and
``Dollar volume'' (the value of executed trades) when acting as
principal on the sell side. Specialists also pay certain semi-variable
fees (issue registration fees and clearing support fees) which are
tiered based upon Trade Volume.\2\ In operating trading floor
facilities and providing services to specialists, the Exchange incurs
primarily fixed expenses in any given year that is largely independent
of Trade Volume. The Exchange's current fee schedule, therefore, causes
those specialists that have higher trading volumes to pay a
disproportionate portion of the fixed expenses of the Exchange. The
revised specialist fee schedule provides a more equitable allocation of
the recoupment of the Exchange's fixed expenses by imposing a fixed fee
primarily based upon the Consolidated Market Trade Volume in each
stock. Further, the revised fee schedule both recognizes the existence
of externally-generated revenue as an offset to Exchange fixed expenses
and the role of the specialists in obtaining this revenue, by providing
a transaction credit to specialists as further described below.
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\2\ Under the proposal, specialists in listed securities no
longer will pay CUSIP clearing support fees. Telephone conversation
between J. Craig Long, Attorney, Foley & Lardner, and George A.
Villasana, Attorney, Market Regulation, SEC, on Feb. 4, 1997.
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The determination of the fixed fee per stock will be calculated
monthly and will be based on the Consolidated Market Trade Volume of
each stock. All stocks in which transactions are reported to the
consolidated tape will be categorized in one of six tiers monthly,
based upon the Consolidated Tape Association (``CTA'') Trade Volume (in
descending order). These six tiers are described as follows:
------------------------------------------------------------------------
Tier Nos. Tier description
------------------------------------------------------------------------
1......................................... 1-25 Highest Trade Volume
Stocks.
2......................................... 26-100.
3......................................... 101-250.
4......................................... 251-500.
5......................................... 501-1000.
6......................................... 1001-2700+.
------------------------------------------------------------------------
A substantial portion ($345,000 per month) of the Exchange's fixed
costs relating to the provision of service to specialists will be
recovered through this fixed fee. The Exchange will assign a percentage
of this $345,000 to each tier and a specialist's monthly fixed fee per
stock will then be calculated as follows:
Fixed Fee Per Stock=Total CHX Fixed Fee ($345,000) x Percent of
Fixed Costs
[[Page 6594]]
Per Tier x (CTA Trade Volume Per Stock/CTA Trade Volume Per Tier).
For example, if Stock ABC had 3,000 consolidated market trades and
was the 420th most active stock (Tier 4, as described above) in the
month, and there were a total of 300,000 Consolidated Market trades in
the tier, the specialist's fixed fee would equal:
------------------------------------------------------------------------
Stock ABC
Total CHX Tier 4 Stock ABC Tier 4 fixed
fixed fee fixed cost CTA CTA monthly
percent volume volume fee
------------------------------------------------------------------------
$345,000.. x 13% x
(3000 / 300,000) = $448.50
------------------------------------------------------------------------
The Exchange will waive the specialist fixed monthly fee described
above for a period of two years beginning February 1, 1997 for any
stock unassigned to any specialist as of December 1, 1996, that is
assigned to a specialist without competition by May 1, 1997.
Specialists' total monthly fees owed to the Exchange will be
reduced by the application of certain transaction credits. The
transaction credits will be based upon a percentage of the externally-
generated CTA tape revenue obtained in each stock.\3\ This percentage
will increase as the level of this externally-generated revenue, that
offsets Exchange fixed costs, also increases. These credits, however,
may not exceed a specialist's total monthly billing invoice (excluding
directly rebilled services).
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\3\ The applicable transaction credit percentage is applied on a
marginal basis to the CHX monthly CTA trade volume percentage by
stock. For example, if the CHX monthly CTA trade volume percentage
for a particular stock is 15%, the applicable transaction credit
rates are 18% for the first 7% of the trade volume, 36% for the next
5% of the trade volume, and 54% for the remaining 3% of the trade
volume. Conversation among Lou Klobuchar, Jr., Executive Vice
President, CHX, George T. Simon, Foley & Lardner, and Howard L.
Kramer, Associate Director, Market Regulation, SEC, Michael
Walinskas, Senior Special Counsel, Market Regulation, SEC, and
George A. Villasana, Attorney, Market Regulation, SEC, on February
3, 1997.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the Act
\4\ in general and furthers the objectives of Section 6(b)(4) \5\ in
particular in that it provides for the equitable allocation of
reasonable dues, fees, and other charges among the Exchange's members
and other persons using its facilities.
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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not 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
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change constitutes or changes a due, fee, or
other charge imposed by the Exchange and, therefore, has become
effective pursuant to Section 19(b)(3)(A) of the Act \6\ and
subparagraph (e) of Rule 19b-4 thereunder.\7\
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\6\ 15 U.S.C. 78s(b)(3)(A).
\7\ 17 CFR 240.19b-4.
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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.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
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 at the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal office of The Chicago Stock
Exchange. All submissions should refer to File No. SR-CHX-97-01 and
should be submitted by March 5, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-3427 Filed 2-11-97; 8:45 am]
BILLING CODE 8010-01-M
