SEC Division of Trading and Markets no-action letter: Chicago Stock Exchange, Inc.

July 1, 2005

VIA FACSIMILE AND U.S. MAIL

Ellen J. Neely President & General Counsel The Chicago Stock Exchange, Incorporated One Financial Place 440 S. LaSalle Street Chicago, IL 60605-1070

Re: Display of Rounded Prices in Public Quotes

Dear Ms. Neely:

In your letter dated June 27, 2005, on behalf of the Chicago Stock Exchange, Incorporated (“CHX” or “Exchange”), you requested that the Commission extend an exemption from Rules 11Ac1-1, 11Ac1-2, and 11Ac1-4 under the Securities Exchange Act of 1934 initially granted by the Commission in 2001. 1 This exemption would permit CHX, its members, and the vendors that disseminate CHX quote information to display their quotes for Nasdaq National Market securities in rounded, penny increments without a rounding identifier while trading in subpenny increments. The Commission reinstated and extended the exemption on July 15, 2004. 2 You have requested that the Commission extend the exemption until the effective date of Rule 612 of Regulation NMS. 3

Based on the representations in your letter, the Commission finds that the requested exemption is consistent with the public interest, the protection of investors, and the removal of impediments to, and perfection of the mechanism of, a national market system. The Commission hereby grants an extension of the exemption until August 29, 2005, the effective date for Rule 612 of Regulation NMS. 4 This exemption is expressly contingent upon CHX’s continuing compliance with the conditions stated in the Initial Exemption Letter. In light of the implementation of Rule 612, the Commission does not intend to grant additional extensions of this exemption.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority,

Annette L. Nazareth Director

1

See Letter from Annette L. Nazareth, Director, Division of Market Regulation, Securities and Exchange Commission, to Paul O’Kelly, Chief Operating Officer, CHX, dated April 6, 2001 (“Initial Exemption Letter”).

2

See Letter from David S. Shillman, Associate Director, Division, Commission, to Ellen J. Neely, Senior Vice President and General Counsel, CHX, dated July 15, 2004 (“July 2004 Letter”); see

also Letter from Annette L. Nazareth, Director, Division, Commission, to Paul O’Kelly, Chief Operating Officer, CHX, dated July 5, 2001 (extending the relief through November 5, 2001); Letter from Annette L. Nazareth, Director, Division, Commission, to Paul O’Kelly, Chief Operating Officer, CHX, dated November 2, 2001 (extending relief through January 14, 2002); Letter from Robert L.D. Colby, Deputy Director, Division, Commission, to Paul O’Kelly, Chief Operating Officer, CHX, dated April 11, 2002 (extending relief through September 30, 2002); Letter from Robert L.D. Colby, Deputy Director, Division, Commission, to Paul O’Kelly, Chief Operating Officer, CHX, dated September 30, 2002 (extending relief through January 31, 2003); Letter from Robert L.D. Colby, Deputy Director, Division, Commission, to Paul O’Kelly, Chief Operating Officer, CHX, dated January 31, 2003 (extending relief through May 31, 2003); Letter from Robert L.D. Colby, Deputy Director, Division, Commission, to Paul O’Kelly, Chief Operating Officer, CHX, dated May 30, 2003 (extending relief through December 1, 2003); Letter from Robert L.D. Colby, Deputy Director, Division, Commission, to Ellen J. Neely, Senior Vice President and General Counsel, CHX, dated December 1, 2003 (extending relief through June 30, 2004).

3

See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005).

4

In the July 2004 Letter, the Commission stated that the Commission may modify, withdraw, or extend the exemption, depending upon the action taken by the Commission on proposed Regulation NMS. On June 29, 2005, Regulation NMS was published in the Federal Register . Rule 612 of Regulation NMS as adopted will, among other things, prohibit market participants from displaying, ranking, or accepting quotations in NMS stocks that are priced in an increment of less than $0.01 per share, unless the price of the quotation is less than $1.00. If the price of the quotation is less than $1.00, the minimum increment is $0.0001. See id.

Incoming Letter:

July 1, 2005

The Incoming Letter is in Acrobat format.

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The inistock
ChicagoExchange
Ellen J. Ncely
Prcsidcnt & Gcncrnl Caunsrl
June 27,2005
BY FACSIMILE TRANSMISSION
(202) 772-9273
Ms. Annette L. Nazareth
Director
Division of Market Regulation
US. Securities and Exchange Cominission
100 F Street, N.E.
Washington, D.C. 20549
Dear Ms. Nazareth:
Through a letter dated April 6, 2001, the Chicago Stock Exchange, Inc. ("CHX" or "Exchange") requested that the Securities and Exchange Commission grant an exeniption From Rules 1 1Ac 1 - 1, 1 1Ac 1-2 and 1 1 Ac 1-4 to permit CHX members to display their quotes for NasdaqM securities in penny increments while trading in subpenny increments, This request was premised on similar no-action relief granted in 1997 to the Nasdaq Stock Markct Inc., which allowed Nasdaq nlarket makers to publicly disseminate bids and offers roundcd to the narrowest applicable quotation increment used by Nasdaq systems, even though those market makers might actually be quoting and trading in increments smaller than thc ones that were publicly reported. The Comnlission granted the Exchange's request for exemptive relief on a tern orary basis; that relief has P been renewed over time, most recently through June 30,2005. Although the Exchange's trading volume in Nasdaq/NM securities has decreased sincc 2001, certain of the Exchange's order-sending fim~s still occasionally send orders to the Exchange expressed in subpennjes. Because the Exchange believes that it would be at a competitive disadvantage to other markets if it were unable to accept thesc orders -aild because the Exchange believes that its request is consistent with the public interest, See Letters from Annette L. Nazareth dnted April 6, 2001 (extending the relief rhrough July 9,2001), July
5. 2001 (cxtonding the relief through Novcmbcr 5, 2001) and November 2, 2001 (extending the relief
through January 14, 2002); letters from Robert L.D. Colby dated April 11, 2002 (extending the relief through September 30.2002), Scptcrnbet 30,2002 (extending the relicfthrough January 3 1,2003), January
31. 2003 (extending the relief through May 31, 2003), May 30, 2003 (extending thc relief through
Dccember 1, 2003); and December 1, 2003 (exrer~ding the relief through Juoc 30, 2004); and letter from David S. Shillman dated July 15.2004 (extending the relief through June 30,2005). Chicago Stock Exchange, Incorporated One Financial Place 440 S LaSalle Street Chicaeo, Illinois 60605-1070 312-663-2222www.chx.com I

Ms. Annette L. Nazareth
June 27,2005 the protection of investors and the removal of impediments to and perfection of thc mechanism of a national market system - the Exchange respectfully requests that the Con~mission extend the current exernptive relief until the effective date of Rule 612 under the Exchange Act. The Exchange understands that any decision by the Commission to approve exemptioris to the subpenny requirements set out in Rule 612 could impact the relief it is seeking. Speciilcally, if the Commission grants exeinptive relief to allow national securities exchanges, national securities associations, altenlative trading systems, vendors, brokers and dealers to display, rank or accept bids, offers or orders in specific securities, such as exchange-traded funds, in subpenny increments, the exemptive relief that thc Exchange has received would be superseded and the Exchange, like others, would be required to display bids, offers and ordcrs in those securities in subpenny increments. If you have any questions conce~ning this letter, pIease contact mc at (312) 663- 2496. Sincerely, Ellen J. Neely V cc: Mr. Michael J. Gaw (by fidcsimile, 202/772-9273)