UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 48566 / September 30, 2003
ADMINISTRATIVE PROCEEDING
File No. 3-11282
_________________________________________________________________
In the Matter of
The CHICAGO STOCK EXCHANGE,
Respondent.
_________________________________________________________________
ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO
SECTIONS 19(h) AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING
FINDINGS, AND IMPOSING A CENSURE, A CEASE-AND-DESIST ORDER AND OTHER
RELIEF
I.
The Securities and Exchange Commission ("Commission") deems it
appropriate that public administrative proceedings be, and hereby are,
instituted pursuant to Sections 19(h) and 21C of the Securities
Exchange Act of 1934 ("Exchange Act") against the Chicago Stock
Exchange (CHX).
II.
In anticipation of the institution of these proceedings, CHX has
submitted an Offer of Settlement ("Offer") that the Commission has
determined to accept. Solely for the purpose of these proceedings and
any other proceeding brought by or on behalf of the Commission or in
which the Commission is a party, and prior to a hearing pursuant to
the Commission's Rules of Practice,
17 C.F.R.Sec. 201.100 CHX, without admitting or denying the findings
contained herein, except that CHX admits to the jurisdiction of the
Commission over it and over the subject matter of these proceedings,
consents to the issuance of this Order Instituting Public
Administrative Proceedings Pursuant to Sections 19(h) and 21C of the
Securities Exchange Act of 1934, Making Findings, and imposing a
SNIPPETS:
SECURITIES AND EXCHANGE COMMISSION
SECTIONS 19AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934,
The Securities and Exchange Commission deems it appropriate that public administrative
In anticipation of the institution of these proceedings, CHX has submitted an Offer of
It was founded in 1892 and was formerly known as the Midwest Stock Exchange.
CHX is the fourth largest stock exchange in the United States in terms of the dollar value of
This matter involves CHX's failure adequately to enforce several of its important rules
Specifically, from approximately 1998 to approximately parts of 2001, as CHX's Nasdaq trading
CHX failed to implement adequate systems and procedures to detect and prevent violations of
In addition, when CHX was able to detect such violations, it often failed to take adequate
CHX failed to detect violations because CHX staff that reviewed market data for possible
In addition, CHX staff failed adequately to take into account recidivism, i.e., past
The Firm Quote Rule Until early 2001, CHX's surveillance for intermarket firm quote rule
Investigators spent up to 3 hours investigating each OTC backing away complaint and were
For instance, in the 1996 21report regarding the NASD, the Commission stated that the NASD
CHX's failure to conduct surveillance for intra-day trading ahead violations had been
CHX's ineffective manual procedures for reviewing exception reports to detect OTC trading
Many LODR violations were not detected due to CHX's reliance on a time-intensive,
Firm Quote Rule Because the firm quote rule is not among the rules under the jurisdiction of
CHX's policies did not require the Market Regulation Department to review firms' supervisory
Following an inspection of CHX's surveillance and enforcement programs, the Commission's
Within thirty days of the entry of this Order, CHX shall create a Regulatory Oversight
The function of the Regulatory Oversight Committee is to assist the Board in monitoring the
Prior to each of these quarterly discussions, CHX shall provide the Regulatory Oversight
cutorial discretion.
Within thirty days of the entry of this Order, CHX shall engage an outside consultant, not
ich include the firm quote rule, prohibitions against trading ahead and the limit order display
The review shall also include an examination of any internal audit reports describing the
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