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The Chicago Stock Exchange (CHX) is a stock exchange in Chicago, Illinois, USA. 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).

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.

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.

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 of 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 not 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 for-profit, stockholder-owned corporation. In that same year, the CHX implemented the Electronic Book trading platform; the predecessor technology of the New Trading Model’s 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.

 Operation and trading
The CHX operates as a direct and wholly owned subsidiary of CHX Holdings, Inc., a Delaware corporation. Previously, the Exchange had been constituted as a membership organization which a “seat” on the Exchange conferred both a fractional ownership interest as well as the privilege to trade on the floor. The CHX operates a fully electronic Matching System and provides routing to CHX Institutional Brokers and off-Exchange market makers. The CHX Matching System has been designed to provide broker/dealers with cost efficient executions.

CHX Holding, Inc.
On February 9, 2005, CHX's demutualization plan took effect and CHX (formerly a not-for-profit, 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.

Trading on the CHX
Publicly traded companies do not need to be listed on the CHX to be traded here. SEC rules allow the CHX to trade stocks listed on other exchanges. Stocks eligible for trading in the CHX Matching System will include NYSE, AMEX and NASDAQ-listed securities.

The CHX Matching System and CHXConnect are execution and routing services operated by the Chicago Stock Exchange. The Matching System provides fully automated cost efficient executions for a wide array of securities and is designed for the messaging rates of today’s trading environment. CHXConnect provides routing services to order-sending participants to off-Exchange Market Makers or other destinations.

There are two trading sessions each day. The first or regular trading session begins at 8:30 AM and ends at 3 PM (Central Time) except for specified exchange-traded funds, which trade until 3:15 PM. The second session, or late trading session, commences immediately after the close of the regular session and will end at 4 PM. Only cross orders with the exception of mid-point cross orders are eligible for the late trading session.[2]

 Matching System
The Chicago Stock Exchange’s (CHX) Matching System trading platform has been designed and constructed to provide fully electronic cost efficient executions. CHX’s new trading platform will offer US broker/dealers access to a fair, open and neutral market place with diverse order flow from retail brokers, CHX Institutional Brokers, NASD market makers and CHX market makers.

The new platform is scalable, reliable and designed for the messaging rates of today’s equity trading environment. The new CHX Matching System performance characteristics should exceed the requirements for classification as an automated market under Regulation NMS.

Order-sending participants may route to the CHX Matching System by using the FIX and CMS protocols via existing order-sending participant or vendor connections.

Upon receipt of an order, the CHX Order Management System (OMS) will validate and route orders to the appropriate matching engine instance. Several matching instances will each handle processing for a set of issue symbols, which can be reallocated among matching engines to re-grade processing loads.

Once the matching engine receives an order, the order’s 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 order’s 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.

 CHXConnect
As part of the Exchange’s 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 broker-dealers 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 Exchange’s Matching System and to its institutional brokers.

[ Governance
The Chicago Stock Exchange is dedicated to maintaining corporate governance standards that ensure that the interests of public investors and the Exchange’s members are represented in vital areas of the Exchange’s operations. This careful balancing of interests is an integral part of the Exchange’s structure.

The Exchange has an executive board [link below] that is in charge of all the Exchange’s procedures. The Exchange’s 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 three-year term and there is one STP participant director in each class.

Nominating & Governance Committee
The directors are elected by the Exchange’s sole shareholder, CHX Holdings, Inc. Each year, the exchange’s nominating committee initially identifies candidates for the open STP participant director positions on the board; the exchange’s participants can add names to that list by petition. If names are added to the slate, the exchange’s 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. The exchange’s board members receive relatively modest compensation for their service.

The exchange’s 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 exchange’s parent company. The committee is appointed each year by the exchange’s 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 exchange’s 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 exchange’s 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 exchange’s participants can add names to that list by petition. If names are added to the slate, the exchange’s 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.