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The Chicago Stock Exchange (CHX) is a stock exchange in Chicago, Illinois, U.S.. The exchange is a national securities exchange and self-regulated organization, which operates under the oversight of the U.S. Securities and Exchange Commission (SEC). The Chicago Stock Exchange is the third most active stock exchange in the United States by volume, and the largest outside New York City. The Chicago Stock Exchange is currently located at 440 South LaSalle Street (One Financial Place).
Contents
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1 History 2 Operation and trading 3 CHX Holding, Inc. 4 Trading on the CHX 5 Matching System 6 CHXConnect 7 Governance 8 Nominating & Governance Committee 9 References 10 External links
[edit] History
The Chicago Stock Exchange was founded in a formal meeting on March 21, 1882. At this time, Charles Henrotin was elected the chairman and president. In April that year, a lease was
taken out at 115 Dearborn Street for the location of the exchange and during that month 749 memberships were sold.
Old Chicago Stock Exchange Building, ca. 1894 In July 1914, the Exchange closed as a result of World War I, and remained closed until December 11. In October 1915, the basis of quoting and trading in stocks changed from percent to par value to dollars. On April 26, 1920, the Chicago Stock Exchange Stock Clearing Corporation was established. On October 29, 1929, the stock market crashed, resulting in a very difficult time period for the Chicago Stock Exchange, and the stock market in general. In May 1933, the Securities Act of 1933 was enacted. This act provided full disclosure to investors to prohibit fraud in connection with the sales of securities. The following year, the Securities Exchange Act of 1934 was enacted, which regulated securities trading and established the Securities & Exchange Commission (SEC). In 1949, the CHX merged with the exchanges of St. Louis, Cleveland and Minneapolis/St. Paul to form the Midwest Stock Exchange. On September 29, 1952, the trading hours were changed to 10 a.m. 3:30 p.m., and there was no Saturday trading. In 1959, the New Orleans Stock Exchange became part of the Midwest Stock Exchange, and in the early 1960s the Midwest Stock Exchange Service Corporation was established to provide centralized accounting for member firms. On May 11, 1973, the Midwest Securities Trust Company (MSTC) was established to provide a central depository for securities certificates and to electronically record transfers of stock ownership. In October of the next year, trading hours at the stock exchange were extended to 4pm, and in the following year, a fixed commission system was abolished. In April 1978, the Chicago Stock Exchange launched an Intermarket Trading System (ITS), a system that allows order to be sent from one exchange to another to ensure that customers receive the best execution available. In the 1980s, the Chicago Stock Exchange made several technological advancements to improve trading. In 1982, the CHX launched the MAX system, which allowed them to be one of the first stock exchanges to provide fully automated order execution. In 1987, the CHX implemented programs to trade Nasdaq securities.
The Chicago Stock Exchange/LaSalle Train Station as viewed from the Sears Tower in July 2008. In the 1990s, the Exchange had a rebirth, and in 1993 changed its name back to the Chicago Stock Exchange[1] (after being the Midwest Stock Exchange), reflecting its roots and identity within the Chicago financial community. In June 1995, securities settlement dates were shortened from five to three business days following trade date and one year later, the CHX extended its trading hours. The Exchange is now open thirty minutes after the primary market closes. In 1997 the Chicago Stock Exchange began trading exchange-traded funds (ETFs). At the beginning of the new millennium, several major changes occurred. In April 2001, decimal pricing of all stocks was fully implemented. In 2005, the SEC approved a change of the ownership structure of the CHX from a not-for-profit, member-owned company to a forprofit, stockholder-owned corporation. In that same year, the CHX implemented the Electronic Book trading platform; the predecessor technology of the New Trading Models Matching System. In 2006 the Exchange announced regulatory and shareholder approval of an investment in CHX by Bank of America Corporation, Bear Stearns, E*TRADE FINANCIAL Corporation, and Goldman, Sachs & Co. Just last year on February 1, the CHX announced that it has completed the migration to the New Trading Model platform.
On February 9, 2005, CHX's demutualization plan took effect and CHX (formerly a not-forprofit, non-stock corporation owned by its members) became a wholly owned subsidiary of a holding company, CHX Holdings, Inc. CHX Holdings was formed as a for-profit, stock corporation owned by its shareholders, the former member-owners of CHX. The demutualization plan was approved by CHX's Board of Governors on August 5, 2004, by its members on November 11, 2004 and by the SEC on February 8, 2005. Under the new demutualized structure, CHX continues to operate as a national securities exchange, registered with the SEC.
Once the matching engine receives an order, the orders price is compared with resting limit orders in the book. If a match can be consummated at a price within the NBBO then the orders will be executed. If the execution would occur at a price outside the NBBO then no execution will occur and the inbound order will be rejected. If no match is available, then an inbound order will be placed in the book and immediately quoted. If the orders price would lock or cross the NBBO then the order will be rejected. Orders resting in the book will be matched in price - time priority and according to the ranking. The Matching System matches orders on a share for share basis and inbound odd lot orders can match at prices outside the NBBO.
[edit] CHXConnect
As part of the Exchanges new trading model, CHX operates a neutral communications service, the CHXConnect, that allows its participants to route orders to any connected destination. This service allows participants to route orders to market makers or other brokerdealers connected to CHXConnect, which provide order handling and execution services in the over-the-counter market; and to other destinations (including order-routing vendors) that are connected. Participants also use CHXConnect to route orders to the Exchanges Matching System and to its institutional brokers.
[edit] Governance
The Chicago Stock Exchange is dedicated to maintaining corporate governance standards that ensure that the interests of public investors and the Exchanges members are represented in vital areas of the Exchanges operations. This careful balancing of interests is an integral part of the Exchanges structure. The Exchange has an executive board [link below] that is in charge of all the Exchanges procedures. The Exchanges operations are also overseen by a 12-person Board of Directors [link below] which consists of six public directors, five participant directors, and the chief executive officer. A public director is a director who (i) is not a participant, or an officer, managing member, partner or employee of a participant firm; (ii) is not an employee of the CHX or any of its affiliates; (iii) is not a broker or dealer, or an officer or employee of a broker or dealer; and (iv) does not have any other material business relationship with (a) CHX, CHX Holdings or any of their affiliates or (b) any broker or dealer. Whereas a participant director is an individual participant or an officer, managing member or partner of a participant firm.12 directors are divided into three equal classes; each class serves a threeyear term and there is one STP participant director in each class.
candidates. The persons receiving the highest number of votes will be elected as STP participant directors on the Board. Public directors and other participant directors are nominated by the nominating committee, but are not subject to the petition process described above. The exchanges board members receive relatively modest compensation for their service. The exchanges nominating committee is equally balanced between public and participant representatives. Four people serve on the committee two public directors and two participant directors. Each of the participant directors must be an STP participant director and one of these participant directors must not be a representative of a firm that holds Series A Preferred Stock in CHX Holdings, the exchanges parent company. The committee is appointed each year by the exchanges board of directors. The nominating committee nominates candidates to positions on the board of directors and addresses issues associated with the governance of the exchange. The nominating committee typically begins its work early in the year. Under the exchanges bylaws, the committee must hold at least two open meetings to allow exchange participants to recommend potential candidates for STP participant director positions. The committee also consults with both the exchanges chairman and CEO about the needs of the exchange and typically solicits recommendations from other board members. Once the nominating committee has held its open meetings, it deliberates in closed sessions. The slate must be approved by a majority vote. Each year, the nominating committee initially identifies candidates for the open STP participant director positions on the board; the exchanges participants can add names to that list by petition. If names are added to the slate, the exchanges participants vote on the candidates. The persons receiving the highest number of votes will be elected as STP participant directors on the board. Public directors and other participant directors are nominated by the nominating committee, but are not subject to the petition process described above. Current Board of Directors Feb 2008 Name Current position Michael H. Kerr Chairman David L. Grove Vice Chairman William R. Atwood Illinois State Board of Investment Matthew D. Frymier Banc of America Strategic Capital Matthew Lavicka Goldman, Sachs & Co. Corinne Wood Former Lieutenant Governor, State of Illinois David A. Herron CHX Chief Executive Officer Kruno Huitzingh InVerity, LLC Michael H. Kerr Kirkland & Ellis Russell J. Saletta RJS Investments Ltd. David L. Grove E*Trade Capital Markets LLC David M. Kelly Retired President & CEO, National Securities Clearing Corporation Brett W. Redfearn Bear Stearns & Co., Inc. Ben A. Witt The Oak Tree Group, LLC