[Federal Register Volume 76, Number 129 (Wednesday, July 6, 2011)]
[Notices]
[Pages 39451-39453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-16854]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64771; File No. SR-CHX-2011-14]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule 
Concerning the CHX Connect Service

June 29, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on June 24, 2011, the Chicago Stock Exchange, Inc. (``CHX'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the CHX. CHX has filed this 
proposal pursuant to Exchange Act Rule 19b-4(f)(6) \3\ which is 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CHX proposes to add Article 4, Rule 2 (CHX Connect) to include an 
explicit description of the Exchange's CHX Connect order routing 
service. The text of this proposed rule change is available on the 
Exchange's Web site at (http://www.chx.com) and in the Commission's 
Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the CHX included statements 
concerning the purpose of and basis for the proposed rule changes and 
discussed any comments it received regarding the proposal. The text of 
these statements may be examined at the places specified in Item IV 
below. The CHX has prepared summaries, set forth in sections A, B, and 
C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    New Article 4, Rule 2 describes the operation of the CHX Connect 
routing network. CHX Connect is an electronic communications service 
owned and operated by the Exchange which allows Participants to 
transmit orders and related transaction information directly to any 
destination designated by the order sending Participant (such as an 
over-the-counter market maker or order-routing vendor) connected to the 
service without being submitted to the Exchange's trading facilities. 
The CHX Connect communications service was described in a rule filing 
made with the Commission in 2006, but which did not update the 
Exchange's rules.\4\ In order to remove any potential ambiguity about 
the nature of the Exchange's technology and communications offerings, 
we are now proposing to add language to our rules describing CHX 
Connect. The CHX Connect service has not changed in any material 
respect since the 2006 filing. Use of the CHX Connect service by any 
Exchange Participant is entirely optional and is not required to direct 
orders to our Matching System for execution or display.
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    \4\ Exchange Act Release No. 54846 (Nov. 30, 2006), 71 FR 71003 
(Dec. 7, 2006).
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    The Exchange believes that certain order senders may have an 
interest in the CHX Connect service in order to efficiently route 
orders which cannot be accepted into the Matching System directly. For 
example, an order sender may have received a market order to buy a NMS 
security normally traded in the CHX Matching System.\5\ Since the 
Matching System does not accept market orders, the order sender cannot 
route that order to our trading facilities. An order sender can use the 
CHX

[[Page 39452]]

Connect service to transmit that order to a destination which is also 
connected to the service and which accepts and executes market orders, 
such as an over-the-counter market maker. CHX Connect can be used to 
transmit order information to other destinations in any security 
approved by the Exchange for use within the system, including, but not 
limited to, securities approved for trading within the Matching System. 
The Exchange plays no role in determining where the order is sent.
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    \5\ Similar examples would be All or None orders or orders in 
securities not traded by the Exchange.
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    Participants may also elect to use CHX Connect to transmit orders 
in an electronic format to the Exchange's Matching System, to 
Institutional Brokers registered with the Exchange pursuant to Article 
17 of our rules, and to other destinations which are connected to the 
CHX's network. The Matching System will only accept orders in 
securities listed on the Exchange or eligible for Unlisted Trading 
Privileges. The Exchange believes that certain Participants may be 
interested in using CHX Connect to send orders to our facilities as an 
alternative to private order routing systems or vendors, which perform 
the same function. Participants may designate where an order is to be 
directed on a security-by-security or order-by-order basis. 
Instructions received on an order-by-order basis shall supersede 
previously-received instructions on a security-by-security basis. Use 
of the CHX Connect service is subject to the approval of the Exchange. 
The Exchange evaluates all potential users on an equal and non-
discriminatory basis. The criteria by which potential users of the 
service are evaluated relate solely to preserving the security and 
integrity of the Exchange's systems, and to ensuring the proper 
formatting of messages sent via CHX Connect in generally accepted 
industry protocols, such as Financial Information eXchange (FIX) 
Protocol. The fees and charges for a subscription to the CHX Connect 
Service are set forth in the Exchange's published Schedule of Fees and 
Assessments, and apply equally to all users of the system.\6\
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    \6\ The Exchange charges only those Participants which receive 
(and not those which solely transmit) orders through the CHX Connect 
service. The current fee for receiving orders via CHX Connect is 
$5,000 per month. See, CHX Schedule of Fees and Assessments, Section 
M.
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    This service is a facility of the Exchange. As a result, the 
Exchange would submit fee changes, and any applicable changes to its 
rules, to the Commission as required by Exchange Act Rule 19b-4 in 
connection with the CHX Connect service.
    The Exchange would provide these routing services in compliance 
with its rules and with the provisions of the Exchange Act and the 
rules thereunder, including, but not limited to, the requirements of 
Sections 6(b)(4) and (5) of the Act that the rules of a national 
securities exchange provide for the equitable allocation of reasonable 
dues, fees and other charges among its members and issuers and other 
persons using its facilities, and not be designed to permit unfair 
discrimination between customers, issuers, brokers or dealers.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act in general, and furthers the objectives of 
Section 6(b)(1) of the Act in particular, in that it allows the 
Exchange to be organized and have the capacity to be able to carry out 
the purposes of the Act and to comply, and (subject to any rule or 
order of the Commission pursuant to section 17(d) or 19(g)(2) of the 
Act) to enforce compliance by its members and persons associated with 
such members, with the provisions of the Act, the rules and regulations 
thereunder, and the rules of the exchange. As discussed herein, CHX 
Connect is a communications service offered by the Exchange to its 
Participants to either send orders to the Matching System or to another 
destination of its choosing. The CHX Connect communications service was 
described in a rule filing made with the Commission in 2006, but which 
did not update the Exchange's rules.\7\ In order to remove any 
potential ambiguity about the nature of the Exchange's technology and 
communications offerings, we are now proposing to add language to our 
rules describing CHX Connect. The CHX Connect service has not changed 
in any material respect since the 2006 filing. By adding a description 
of the nature of the CHX Connect service to the Exchange's rules, this 
proposal advances the purposes of the Exchange Act by providing added 
clarity about the nature and extent of certain services offered by the 
Exchange to its Participants, and thereby contributing to the ability 
of our members in complying with the requirements related to those 
services.
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    \7\ Exchange Act Release No. 54846 (Nov. 30, 2006), 71 FR 71003 
(Dec. 7, 2006).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. As noted above, the Exchange 
believes that its CHX Connect service will compete with the existing 
order routing networks operated by broker-dealers or other service 
providers. By providing Participants a means of effectively directing 
orders which cannot be accepted into the Matching System to a 
destination which can handle such orders, the Exchange is attempting to 
provide ready solutions to potential order senders, with the ultimate 
goal of maximizing order flow to the Exchange's trading facilities.
    The CHX Connect service is entirely optional and Participants are 
not required to utilize it to send order to the Exchange or elsewhere. 
The Exchange notes that the routing and connectivity services of CHX 
Connect appear to be very similar manner to those offered by the Secure 
Financial Transaction Infrastructure[reg] (``SFTI'') system, which is 
provided by NYSE Technologies, an affiliated company of the New York 
Stock Exchange, Inc. By competing with SFTI and other service providers 
of secure connectivity among market participants, CHX Connect would 
offer additional options for participants looking for systems to 
deliver their orders.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6) 
thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of

[[Page 39453]]

investors, or otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-CHX-2011-14 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CHX-2011-14. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CHX-2011-14 and should be 
submitted on or before July 27, 2011.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-16854 Filed 7-5-11; 8:45 am]
BILLING CODE 8011-01-P