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Market RegulationI. Market Regulation Overview As a registered national stock exchange, the Chicago Stock Exchange, Inc. ("Exchange") is responsible for reasonably enforcing compliance by its participants with the rules of the Exchange and applicable provisions of the Securities Exchange Act of 1934 ("Exchange Act"). A fundamental goal of the Exchange is the fair and effective discharge of these responsibilities. The Exchange believes that adherence to the regulations governing our industry and maintenance of and the highest ethical standards in the securities industry serves to protect public investors, enhances confidence in the securities markets and contributes to full and fair competition among market centers. Within the organizational structure of the Exchange, responsibility for performing the oversight function has been delegated to the Market Regulation Department. A principal focus of the Market Regulation Department is to ensure that the trading activity on the facilities of the Exchange complies with all applicable rules. The professionals within the Market Regulation Department are dedicated to fulfilling the Exchange's responsibilities as a regulatory body. The Market Regulation Department is composed of four separate units, each with a specialized purpose and function. The Surveillance Department reviews various exception reports on a daily basis to identify potential violations of various regulatory provisions applicable to Exchange participants, in particular those participants conducting business on or through the trading facilities of the Exchange. The Enforcement Department conducts in-depth inquiries and prosecutes disciplinary matters on behalf of the Exchange. This department also administers the Exchange’s arbitration program. The Compliance and Examinations Department conducts annual routine and for-cause examinations of Exchange participants, as well as reviewing certain filings made by Exchange participants. The Listings and Participant Services Department administers the Exchange's listing program, manages the addition or deletion of issues to the Exchange’s Matching System and reviews new applications for trading permits. II. Market Regulation Department Governance The Market Regulation Department is headed by the Exchange’s Chief Regulatory Officer (“CRO”), who in turn reports to the Chief Executive Officer. The operations of the Department are overseen by the Regulatory Oversight Committee ("ROC"), which is a committee of the CHX Board of Directors composed of seven (7) members. The Chairman of the ROC is a public director. The ROC is responsible for reviewing the design and implementation of the Exchange's programs to promote and enforce compliance with the Rules of the Exchange and the federal securities laws and rules thereunder. The ROC meets on at least a quarterly basis to review the overall effectiveness of the Exchange's oversight function. At such meetings, the ROC reviews reports prepared by the Market Regulation Department regarding their activities, any reports received from regulatory entities or third parties with respect to Exchange's self-regulatory responsibilities (and any responses by the Exchange thereto), and considers any other matters bearing on the effectiveness and efficiency of the Exchange's surveillance, financial compliance, listings, participant services and enforcement programs. Where appropriate and necessary, the ROC may make recommendations to the Board of Directors with respect to staffing and other resources for operation, budget, staffing, rules relating to the Market Regulation Department, or any other matter bearing on the effectiveness and efficiency of the Exchange's surveillance, financial compliance, listings, participant services and enforcement programs. The ROC regularly reviews its activities and findings with the CHX Board of Directors. The Listing Department assures the prompt addition and deletion of issues to the Exchange’s Matching System; processes applications for companies desirous to list on the CHX as well as applications to list additional shares for those companies currently listed; maintains a historical database of listed and UTP issues traded on the CHX. The Participant Services Department reviews and approves applications of prospective participants on the Exchange, establishes trading give-ups for approved participants; distributes weekly notices of approved participants who have been assigned trading permits, registers support staff and maintains a database of historical information on trading permits, participants, registration of issues for Market Maker participants, and voting designees. Participants must be United States or foreign broker-dealers registered under the Securities Exchange Act of 1934. To become a participant, a broker-dealer must submit an application to the Participant Services Department. Assuming that all criteria are satisfied, the Participant Services Department will issue a Trading Permit. A CHX trading permit provides access to the Exchange and its trading systems, as well as to other marketplaces through the Intermarket Trading System and other intermarket connections. A trading permit does not confer any ownership rights on the holder. Previously, the Exchange had been constituted as a membership organization in which a "seat" on the Exchange conferred both a fractional ownership interest as well as the privilege to trade on the floor. On February 9, 2005, the demutualization plan of the Chicago Stock Exchange ("CHX" or the "Exchange") received approval from the Securities and Exchange Commission. All CHX memberships were extinguished as part of the demutualization transaction. Types Of Participants: There are three basic types of CHX participants. Each such user must obtain a Trading Permit. Institutional Brokers. Acting on the facilities of the Exchange, Institutional brokers buy and sell orders on behalf of their institutional customers. Order-Sending Firms. These firms may (1) receive orders from their customers and route them to the Exchange for execution or (2) send orders on a proprietary basis to the Exchange. Market Makers. CHX-registered market makers provide added depth and liquidity by entering proprietary orders in the issues they trade, making it easier for other investors to buy and sell stocks General Information About Trading Permits Each trading permit constitutes a revocable license that will allow the holder of the permit (referred to as a "participant" or "participant firm") to access the CHX's trading facilities, as well as other marketplaces through the Intermarket Trading Systems and other intermarket connections. Broker-dealers holding CHX trading permits will be "members" of CHX for purposes of the Securities Exchange Act of 1934 and will be characterized as "participants" in CHX subject to CHX's regulatory jurisdiction, but they will not have any ownership interest in the Exchange or in CHX Holdings by virtue of their trading permits. Trading permits are governed by Articles I, II and III of the CHX Rules and the trading permit process is administered by the CHX Department of Participant Services. Summarized generally below are some key provisions relating to trading permits. Applying For Trading Permits Broker-dealer firms who seek to obtain a trading permit will be required to complete appropriate application materials and registration forms, satisfy regulatory requirements and pay processing charges and application fees. This process will be substantially similar to the pre-demutualization membership application process. Please refer to Application documents for more information. Additional Information About Trading Permits One trading permit will be required for each firm that sends orders to the Exchange for execution. Once issued, a trading permit will be effective for one year following its issuance date and will automatically renew for an additional one-year term on each anniversary of the issuance date. A trading permit may not be sold, leased or otherwise transferred. No person may operate as an approved lessor or otherwise lease trading access to the Exchange. Fees and charges The following fees apply to the issuance of trading permits:
In addition, all participants and participant firms will be subject to an annual trading permit fee of $7,000 per year, payable in equal monthly installments, for each trading permit. The Chicago Stock Exchange's arbitration program provides a timely and cost-efficient forum for the resolution of controversies among CHX Participants as well as between customers, non-participants and participants and their associated persons. Disputes arising out of the general course of business conducted by the parties may be brought to arbitration. Cases involving employment discrimination or sexual harassment may be resolved through CHX arbitration only after the claim has been previously filed in another forum and the parties have subsequently agreed to arbitration. Rules governing arbitration are found in Article 14, Rules 1-2. The Schedule of Fees are referenced online in our Rule section. Based upon the parties involved in an arbitration case, claims are heard and decided by the CHX Committee on Exchange Procedure or by a Panel of impartial arbitrators. The resolution of all Exchange arbitration claims is binding and final. To initiate a CHX arbitration proceeding, the following documentation is required:
Uniform Submission Agreements Recent CHX Arbitration decisions are available online. To file a complaint relating to a CHX participant or regarding a transaction executed on the Exchange, send an email to marketreg@chx.com. Please keep in mind that the Exchange’s ability to take action is limited to CHX participants and participant organizations, and their associated persons. You may wish to direct complaints against non-participants or non-participant organizations to the U.S. Securities and Exchange Commission, the appropriate state or local securities administrative organization or another self-regulatory organization. Additional information may be found at the following organization's websites:
X. Interpretive Guidance From time to time, Exchange participants request guidance from the Market Regulation Department as to the meaning of certain CHX rules and/or the applicability of those rules to a given set of facts. Participants should refer to the guidelines noted herein seeking such guidance. See also, Market Regulation Department Information Memorandum 05-10 (May 23, 2005). At the outset, it is important to note that the Market Regulation Department does not have the authority to issue a formal exemption from any of the Exchange’s rules. Proposed changes to the Exchange’s rules should be initially raised with the Participant Advisory Committee or staff liaison. The Market Regulation Department may provide clarification as to the meaning of an existing rule or explain how a rule may apply to a factual scenario. While the staff of the Market Regulation Department provides oral guidance in response to oral requests, such guidance is of extremely limited precedential value given the undocumented nature of the interaction. To the extent that a participant intends to rely upon the staff’s guidance going forwards, we encourage that he or she makes a written request for a staff interpretation. Such requests must state the identity of the party making the request (or on behalf of whom the request is being made), a complete and accurate description of the facts involved, the potential applicability of CHX rules and a clear and concise request for an interpretation based upon those representations. While the Market Regulation Department will endeavor to answer all such requests, Participants should keep in mind that not all requests for guidance can be answered on a substantive basis. Situations in which the Exchange may not be able to provide interpretive guidance include those that involve complicated fact patterns that are subject to change, relate to an ongoing inquiry, investigation or examination by the Exchange or another regulatory body, or where the information provided by the requestor is inadequate. Participants should keep in mind that the views expressed in any interpretive guidance are those of the Market Regulation Department staff, and are in no way endorsed by the Exchange's Board of Directors. Interpretive guidance is subject to change upon the issuance of general written notice, such as through a subsequent Information Memorandum or, of course, rule promulgation or amendment. Written requests for interpretive guidance should be directed to the attention of the Chief Regulatory Officer at the Exchange's address. |
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