02-23530. Self-Regulatory Organizations; Order Granting Accelerated Approval of Proposed Rule Change and Amendment Nos. 1 and 2 by the Chicago Stock Exchange, Incorporated, Relating to CHX Article XX, Rule 37 Governing Automatic Execution of Market ...

September 9, 2002.

On December 26, 2001, the Chicago Stock Exchange, Incorporated (“CHX” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”), 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 amend CHX Article XX, Rule 37, which governs, among other things, automatic execution of market and marketable limit orders, to provide CHX order-sending firms with greater flexibility relating to automatic execution of orders by CHX specialists. Specifically, the proposed rule change would (a) in the case of Dual Trading System issues, commonly referred to as listed issues, permit immediate execution (or execution in 15 seconds or less) of orders if there is no expression of market interest by a person physically present at the specialist's post; and (b) refine existing CHX algorithms relating to automatic execution of partial orders and price improvement of such orders. On June 19, 2002, the CHX amended the proposal.^[3] The CHX again amended the proposed rule change on July 26, 2002.^[4] Notice of the proposed rule change, as amended by Amendment Nos. 1 and 2, was published for comment in the Federal Register on August 15, 2002.^[5] The Commission received no comments on the proposal.

The Commission has reviewed carefully the proposed rule change, as amended, and finds that it is consistent with the Act and the rules and regulations promulgated thereunder applicable to a national securities exchange and, in particular, with the requirements of Section 6(b).^[6] Specifically, the Commission finds that approval of the proposed rule change is consistent with Section 6(b)(5) ^[7] in that it is designed to promote just and equitable principles of trade, to remove impediments and to perfect the mechanism of a free and open market and a national market system, and in general, to protect investors and the public interest. For these reasons, the Commission finds that the proposed rule change is consistent with the provisions of the Act, in general, and with Section 6(b)(5) ^[8] in particular.

The Commission finds good cause for approving the proposed rule change, as amended, prior to the thirtieth day after the date of publication of notice of filing thereof in the Federal Register. In the notice, the Commission indicated that it would consider granting accelerated approval of the proposal after a 15-day comment period. The Commission received no comments on the proposal during the 15-day comment period. Additionally, the Commission believes that the proposed rule change should satisfy the concerns of order-sending firms that require immediate executions, while preserving the fundamental protections of an auction market environment. The Commission also believes that the proposed rule change as it relates to the refinement of automatic execution sequences and price improvement algorithms should provide benefits to investors, and therefore, the Commission believes accelerated approval is appropriate.

It is therefore ordered, pursuant to section 19(b)(2) of the Act,^[9] that the proposed rule change (SR-CHX-2001-32), as amended, be and hereby is approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[10]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See June 18, 2002 letter from Kathleen M. Boege, Associate General Counsel, CHX, to Nancy J. Sanow, Assistant Director, Division of Market Regulation (“Division”), SEC, and attachments (“Amendment No. 1”). Amendment No. 1 completely replaced and superseded the original filing.

4.  See July 25, 2002 letter from Kathleen M. Boege, Associate General Counsel, CHX, to Nancy J. Sanow, Assistant Director, Division, SEC, and attachments (“Amendment No. 2”). Amendment No. 2 completely replaced and superseded Amendment No. 1.

5.  Securities Exchange Act Release No. 46321 (August 7, 2002), 67 FR 53369.

6.  15 U.S.C. 78f(b). In approving this proposal, the Commission has considered the proposed rule's impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f).

7.  15 U.S.C. 78f(b)(5).

8.  15 U.S.C. 78f(b)(5).

9.  15 U.S.C. 78s(b)(2).

10.  17 CFR 200.30-3(a)(12).