| I. 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 is to ensure that
the trading activity on the floor of the Exchange complies
with all applicable rules. The professionals within the Market
Regulation are dedicated to fulfilling the Exchange's responsibilities
as a regulatory body.
The Market Regulation Department is composed of four separate
departments, 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 the
floor 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 assignment of securities to various specialists
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, 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: five (5) public directors, one (1) on-floor participant
director and one (1) off-floor participant director. 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 Committee 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 Committee regularly reviews its activities and
findings with the CHX Board of Directors.
III. Surveillance
The Surveillance Department of the Market Regulation Department
ensures that the Exchange is meeting its oversight responsibilities
by conducting daily and other routine surveillance of trading
activity on the floor of the Exchange. Surveillance personnel
make use of Exchange surveillance systems in performing their
reviews. Investigators in the Surveillance Department conduct
ongoing surveillance of floor participant compliance with
the following provisions:
- Trading Ahead (Exchange Priority Rules, Article XXX, Rules
2 and 3)
- Limit Order Display (SEC Exchange Act Rule 11Ac1-4)
- Short Sale Tick Test (SEC Exchange Act Rule 10a-1)
- Short Sale Marking Requirements (SEC Regulation SHO,
17 C.F.R. §242.200)
- Best Execution (Article XX, Rule 37(a)(2))
- Single Price Openings (Article XX, Rule 37(a)(4))
- Limit Order Price Protection Rules (Article XX, Rule
37(a)(3))
- Intermarket Trading System ("ITS") Rules, including
ITS firm quote, trade-through and locked and crossed markets
rules
Surveillance staff also routinely oversee participant activities
by
monitoring the interaction of CHX specialists, floor brokers
and market makers in the trading crowd and examining order
tickets and other transactional records. The Surveillance
Department also reviews trading activity on the Exchange for
potential violations of insider trading prohibitions. Indications
of potential violations may be referred to the Enforcement
Department for ultimate disposition.
IV. Enforcement
The Enforcement Department is the Exchange’s advocate
in all disciplinary matters. Through the effective disciplinary
of its participants, the Exchange seeks to protect investors
by deterring future violations. Enforcement inquiries generally
arise from referrals from either the Surveillance Department
or the Compliance and Examinations Department, or may be initiated
by Enforcement personnel themselves. Under Exchange Rules,
Enforcement staff have the authority to compel the production
of documents from participants and participant organizations.
Additionally, the Exchange can interview participants or take
their sworn statements. Before it seeks to impose a disciplinary
sanction, the Enforcement staff will normally seek the input
of participants to ensure that any relevant facts or legal
arguments have not been overlooked (known as the "Wells"
process).
The Enforcement department has the ability to seek a variety
of sanctions in disciplinary actions on behalf of the Exchange.
Under Article XII, Rule 9, violations of certain provisions
of the Exchange’s Rules can be handled according to
the Minor Rule Violation Plan ("MRVP"). MRVP actions
are generally reserved for circumstances involving violative
conduct of an isolated nature or where there is minimal or
no investor harm. Pursuant to this Plan, violations of specified
rules can be punished by fines not
exceeding $2,500 per violation. In appropriate circumstances,
Enforcement staff may recommend that a particular matter be
disposed through the MRVP process. Such matters are reviewed
by the Exchange’s MRVP Panel, which issues the fine
to the responsible participant party. Under Article XII, Rule
2, the Exchange also has the authority to issue Summary Fines
up to
$500 per violation for violations of any Exchange rule. If
a participant elects to contest the imposition of either a
MRVP or Summary Fines, the participant can request that a
formal hearing of relevant evidence be held.
For more significant violations or a widespread pattern or
practice of misconduct, the Enforcement staff can prosecute
a formal disciplinary proceeding under Article XII, Rule 1.
Such actions may be settled with the agreement of the parties
or may proceeding to an evidentiary hearing. Upon conclusion
of the hearing, the presiding officer will issue a draft Order
finding violations and imposing sanctions or dismissing the
charges against the respondent(s). Available sanctions include
censures, monetary fines in any appropriate amount, suspensions
or expulsions from membership, disgorgement of unlawfully-obtained
profits, the imposition of various limitations on conduct
and a variety of remedial undertakings, such as improvements
to a participant’s internal compliance processes and
systems.
Draft orders of the hearing officer must be reviewed and approved
by the Exchange's CEO. Final orders can be appealed by the
respondent to a Judiciary Committee of the Board of Directors
and, on a discretionary basis, by the Executive Committee
and the Board of Directors. Once the Exchange's
action is final, an order can be appealed to the U.S. Securities
and Exchange Commission for further review. Copies of recent
disciplinary orders are available on this site.
V. Compliance
and Examinations
The Compliance and Examinations Department conducts routine
and for-cause examination of CHX participant firms. Pursuant
to agreements with other Exchanges and Associations, the Exchange
is primarily responsible for examining participants for which
it is the designated examining authority or DEA. Most of these
firms are principally engaged in trading activities on the
floor of the Exchange, such as CHX specialist, floor broker
or market making firms. The examination program typically
focuses on the following areas:
- The financial reporting and soundness of participant
firms
- The operational structure and processes of such firms
- The overall system of supervision of the participant’s
principal lines of business, especially the policies and
procedures relating to trading-related issues
The Compliance and Examinations staff is also responsible
for receiving and reviewing financial disclosure documents
from participant firms. Approval from the staff is also required
for the trading permit applications of new participant reorganizations
and removal of regulatory capital of designated participants.
The Compliance and Examinations staff also routinely performs
certain trading-related reviews relating to market maker activity.
The staff also may conduct a variety of ad hoc reviews relating
to any relevant Exchange or SEC rule. Potential violations
uncovered during any of these examinations or reviews may
be referred to the Enforcement Department for disciplinary
consideration.
VI. Listings
and Assignments
VII. Participant
Services
VIII. Arbitration Program
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
VIII, Rules 23 - 24. 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:
- completed Uniform Submission Agreement
- Statement of Claim, which must specify the relevant facts
and the remedies sought
- non-refundable deposit in the appropriate amount
Uniform Submission Agreements
IX. Investor Complaints
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:
U.S. Securities and Exchange Commission (www.sec.gov)
North American Securities Administrators Association (www.nasaa.org)
Securities Investor Protection Corporation (www.sipc.org)
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.
XI. CHX
Rulebook
XII. Rule Filings
XIII. Comment
Letters
XIV. Information
Memoranda
2006
2005
2004
2003
2002
2001
XV. Disciplinary
Orders
XVI. Weekly
Bulletins
2006
2005
2004
|
