[Federal Register Volume 78, Number 94 (Wednesday, May 15, 2013)]
[Notices]
[Pages 28671-28678]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-11453]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69538; File No. SR-CHX-2013-10]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
to Consolidate All CHX Order Types, Modifiers, and Related Terms Under 
One Rule and to Clarify the Basic Requirements of All Orders Sent to 
the Matching System

May 8, 2013.
    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 May 6, 2013, 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 self-regulatory 
organization. The CHX has filed this

[[Page 28672]]

proposal pursuant to Rule 19b-4(f)(6) under the Act,\3\ which renders 
the proposal effective upon filing with the Commission. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CHX proposes to amend CHX rules, namely Article 1, Rule 2; Article 
17, Rule 1; Article 20, Rule 1; Article 20, Rule 2A; Article 20, Rule 
4; Article 20, Rule 5; Article 20, Rule 6; and Article 20, Rule 8 to 
consolidate all CHX order types, modifiers, and related terms 
(collectively referred to as ``defined order terms'') under one rule 
and to clarify the basic requirements of all orders sent to the CHX 
Matching System (the ``Matching System''). The text of this proposed 
rule change is available on the Exchange's Web site at (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 on the proposed rule change. 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
    The Exchange proposes to amend certain CHX rules to consolidate all 
defined order terms under one rule and to clarify the basic 
requirements of all orders sent to the Matching System.
Proposed Consolidation of Defined Order Terms Amended Article 1, Rule 2 
and Article 20, Rule 4(b)
    The Exchange proposes to consolidate the defined order terms found 
under current Article 1, Rule 2 and Article 20, Rule 4(b) under 
proposed Article 1, Rule 2, entitled ``Order Types, Modifiers, and 
Related Terms'' (the ``consolidated list''). In doing, so, the Exchange 
proposes to eliminate subparagraphs (1)-(25) under current Article 20, 
Rule 4(b), as they will either be incorporated into the consolidated 
list or deleted, as discussed in detail below.
    Moreover, the Exchange proposes to delete the following defined 
order terms from the CHX rules, as they are either redundant of other 
defined order terms or have never been implemented: ``IOC Market'' \4\; 
``ISO Cross'' \5\; ``Non-Regular Way Cross'' \6\; ``Outbound ISO'' \7\; 
and ``Post Only ISO.'' \8\ A discussion of each deletion is detailed 
below.
---------------------------------------------------------------------------

    \4\ Current Article 1, Rule 2(n) and Article 20, Rule 4(b)(13) 
states as follows:
    ``IOC market'': a market order that is to be executed only 
during the Regular Trading Session, either in whole or in part, at 
or better than the Exchange's BBO (including any reserve size or 
other undisplayed orders at or better than that price), with any 
unexecuted balance of the order to be immediately cancelled. IOC 
market orders shall not be accepted until (i) the primary market in 
a security has opened trading in that security or (ii) two senior 
officers of the Exchange have determined that it is appropriate for 
the Exchange to accept IOC market orders. For purposes of this rule, 
another exchange will be considered to have opened for trading in a 
security when the first trade in that security occurs in that market 
on or after 8:30 a.m.
    \5\ Current Article 1, Rule 2(o) and Article 20, Rule 4(b)(14) 
states as follows:
    ``ISO cross'': any type of cross order marked as required by SEC 
Rule 600(b)(30) that is to be executed without taking any of the 
actions described in Rule 5 to prevent an improper trade-through. 
These orders shall be executed because the Participant routing the 
order to the Matching System has already satisfied the quotations of 
other markets as required by Rule 600(b)(30). (This provision shall 
become effective on the Trading Phase Date of Rule 611 of Reg NMS.)
    \6\ Current Article 1, Rule 2(u) and Article 20, Rule 4(b)(17) 
states as follows:
    ``Non-regular way cross'': an order to buy and sell the same 
security that is not for regular way settlement. A non-regular way 
cross order may execute at any price, without regard to the NBBO or 
any other orders in the Matching System, and may represent interest 
of one or more Participants of the Exchange. Any non-regular way 
cross that is for cash settlement must be received by the Matching 
System by 2:00 p.m. or such other time that may be established by 
the Exchange and communicated to Participants from time to time. A 
non-regular way cross order may only be executed in an increment 
permitted by Article 20, Rule 4(a)(7)(b).
    \7\ Current Article 1, Rule 2(z) and Article 20, Rule 4(b)(19)) 
states as follows:
    ``Outbound ISO'': an order marked as required by SEC Rule 
600(b)(30)(i) that is to be executed at or better than its limit 
price as soon as the order is received by the Matching System, with 
any unexecuted balance of the order to be immediately cancelled, 
coupled with one or more ISO orders designed to execute against any 
protected bids or offers at other market centers as required by Rule 
600(b)(30)(ii). Orders marked outbound ISO shall be executed against 
any eligible orders in the Matching System (including any reserve 
size or other undisplayed orders). Other than the routing of ISOs to 
other market centers, no action shall be taken to prevent an 
improper trade-through.
    \8\ Current Article 20, Rule 4(b)(23) states as follows:
    ``Post Only ISO'': a type of ISO order that will be immediately 
cancelled without execution if it is marketable against a contra-
side order in the Matching System when entered. If a Post Only ISO 
is not immediately cancelled as described in the previous sentence, 
it will be posted on the Exchange at the entered limit price. By 
entering a Post Only ISO, a Participant represents that such 
Participant has simultaneously routed one or more additional limit 
orders marked ``ISO,'' as necessary, to away markets to execute 
against the full displayed size of any protected quotation for the 
security with a price that is superior or equal to the limit price 
of the Post Only ISO entered in the Matching System. Consequently, a 
Post Only ISO order will be displayed by the Exchange regardless of 
whether it will lock or cross another market center's quote.
---------------------------------------------------------------------------

    In addition, the Exchange proposes to adopt new definitions for 
``Always Quote'' and ``Short Exempt,'' which are not currently defined 
in the CHX rules, but are currently available in the Matching System. A 
discussion of Always Quote and Short Exempt are detailed below.
    With respect to the current defined order terms that are being 
incorporated into the consolidated list, the Exchange proposes to amend 
each defined term to the extent necessary to clarify how the defined 
order terms interact with each other within the context of the Matching 
System. In doing so, the Exchange also proposes to make corresponding 
grammatical amendments and technical amendments to improve logical 
flow. It is important to note that the Exchange does not propose to 
substantively modify the operation of any of the current defined order 
terms or the operation of the Matching System.
    Thus, the Exchange proposes to classify each of the amended and 
proposed defined order terms into seven distinct categories, as 
proposed paragraphs (a)-(g):
    (a) General Order Types;
    (b) Order Execution Modifiers;
    (c) Order Display Modifiers;
    (d) Order Duration Modifiers;
    (e) Order Settlement Terms;
    (f) Order Size Attributes; and
    (g) Special Order Handling.
General Order Types
    Proposed Article 1, Rule 2(a) provides that limit, cross, and 
market orders are called ``General Order Types'' and that each shall be 
accepted by the Matching System, subject to the requirements of 
proposed Article 20, Rule 4.\9\ This is consistent with proposed 
Article 20, Rule 4(a)(1), which provides that any order entered into 
the Matching System must be a limit, cross, or market order.\10\
---------------------------------------------------------------------------

    \9\ The Exchange proposes to amend Article 20, Rule 4 to clarify 
the basic requirements of all orders sent to the Matching System. A 
detailed discussion of these amendments may be found below.
    \10\ Id.
---------------------------------------------------------------------------

    Proposed paragraph (a)(1) is substantively identical to current 
Article 1, Rule 2(p), which defines a ``limit''

[[Page 28673]]

order. In addition, the Exchange proposes to adopt additional language 
that states that all limit orders, except for limit orders marked 
``Price-Penetrating ISO,'' \11\ shall be deemed to have been received 
``Day,'' \12\ if an order duration modifier is not specified. That is, 
if an order sender does not attribute an order duration modifier to a 
limit order, the Matching System will treat the limit order as Day, by 
default.
---------------------------------------------------------------------------

    \11\ As discussed below, proposed Article 1, Rule 2(b)(1)(E) 
provides, inter alia, that a limit order marked ``Price-Penetrating 
ISO'' is deemed to have been received IOC.
    \12\ Proposed Article 1, Rule 2(d)(1) defines ``Day'' as ``an 
order that is in effect only for the day on which it is submitted to 
the Exchange,'' which is substantively identical to current Article 
20, Rule 2(i).
---------------------------------------------------------------------------

    Proposed paragraph (a)(2) is substantively identical to current 
Article 1, Rule 2(e), which defines a ``cross'' order. In addition, the 
Exchange proposes to adopt additional language that states that all 
cross orders shall be deemed to have been received Immediate Or Cancel 
(``IOC''),\13\ which cannot be overridden by an order sender. This is 
because cross orders do not rest on the CHX book since the contra-
parties to the transaction are identified.
---------------------------------------------------------------------------

    \13\ Proposed Article 1, Rule 2(d)(4) defines ``IOC'' as, inter 
alia, an order modifier that requires an order to be executed, 
either in whole or in part and for limit orders, at or better than 
its limit price, as soon as the order is received by the Matching 
System, with any unexecuted balance of the order to be immediately 
cancelled. Orders marked IOC shall be executed against any orders in 
the Matching System at or better than the Exchange's BBO (including 
any Reserve Size or undisplayed orders at or better than that 
price). This definition is substantively identical to current 
Article 1, Rule 2(m).
---------------------------------------------------------------------------

    Proposed paragraph (a)(3) is substantively identical to both 
current Article 1, Rule 2(n), which defines ``IOC market'' \14\ and 
current Article 1, Rule 2(q), which defines ``market'' \15\ orders. 
That is, the proposed definition consolidates these definitions and 
adopts additional language that states that all market orders not 
marked IOC will be rejected. This is because all CHX market orders must 
be IOC and may not rest on the CHX book. In light of the proposed 
definition of ``market'' orders, the Exchange submits that maintaining 
a separate definition for ``IOC market'' is redundant and unnecessary 
and proposes to delete it from the CHX rules.
---------------------------------------------------------------------------

    \14\ Supra note 4.
    \15\ Current CHX Article 1, Rule 2(q) defines ``market'' as an 
order to buy or sell a specific amount of a security at the best 
price available once the order is presented in the market.
---------------------------------------------------------------------------

    Since every order received by the Matching System is a limit, 
cross, or market order, the Exchange submits that limit, cross, and 
market orders are the only general order types offered by the Exchange. 
This is because limit, cross, and market orders are the only defined 
order terms that primarily relate to the price of the order. As 
discussed in detail below, virtually all of the other defined order 
terms listed under proposed Article 1, Rule 2 modify how an order is to 
be treated prior to order execution being completed (e.g. order 
execution, duration, and display modifiers) or set the terms of how an 
executed order is to be settled (e.g. order settlement terms).
Order Execution Modifiers
    Proposed Article 1, Rule 2(b) provides that one or more order 
execution modifiers may be applied to a general order type, subject to 
the requirements of proposed Article 20, Rule 4, so long as the 
modifier is compatible with the general order type and other applicable 
order modifiers/terms. Thereunder, proposed paragraph (b)(1) lists 
order execution modifiers that may be attributed to limit orders only, 
proposed paragraph (b)(2) lists order execution modifiers that may be 
attributed to cross orders only, and proposed paragraph (b)(3) lists 
order execution modifiers that may be attributed to multiple general 
order types.
    With respect to the definition of each defined order term listed 
under proposed Rule 2(b), the Exchange proposes a global amendment to 
the definition of each order execution modifier so that each defines 
itself as an ``order modifier'' and not merely as an ``order,'' as well 
as any corresponding grammatical amendments. The purpose of this 
amendment is to clarify that an order execution modifier is not a 
distinct general order type.
    Proposed paragraph (b)(1) lists the order execution modifiers that 
may be attributed to limit orders only, as proposed subparagraphs (A)-
(E):
    (A) BBO ISO;
    (B) Cancel On Halt;
    (C) CHX Only;
    (D) Post Only; and
    (E) Price-Penetrating ISO.
    Proposed paragraph (b)(1)(A) is substantively identical to current 
Article 1, Rule 2(a), which defines ``BBO ISO,'' and adopts additional 
language that states that a limit order marked BBO ISO shall be deemed 
to have been received ``Do Not Route,'' \16\ which cannot be overridden 
by the order sender. In addition, the Exchange proposes to omit the 
word ``order'' and replace it with the more accurate ``limit order 
modifier.''
---------------------------------------------------------------------------

    \16\ Proposed Article 1, Rule 2(b)(3)(A) defines ``Do Not 
Route'' as a limit or market order modifier that requires an order 
to only be executed or displayed within the Exchange's Matching 
System and not be routed to another market.
---------------------------------------------------------------------------

    Proposed paragraph (b)(1)(B) is substantively identical to current 
Article 1, Rule 2(c), which defines ``Cancel On Halt.'' Aside from the 
amendment to the definition to refer to itself as a ``limit order 
modifier,'' the Exchange does not propose to make any other amendments.
    Proposed paragraph (b)(1)(C) is substantively identical to current 
Article 1, Rule 2(y), which defines ``CHX Only,'' and adopts additional 
language that states that a limit order marked CHX Only shall be deemed 
to have been received Do Not Route, which cannot be overridden by the 
order sender. In addition, the Exchange proposes to omit the word 
``order'' and replace it with the more accurate ``limit order 
modifier.''
    Proposed paragraph (b)(1)(D) is substantively identical to current 
Article 20, Rule 4(b)(18), which defines ``Post Only,'' and adopts 
additional language that states that a limit order marked Post Only 
shall be deemed to have been received Do Not Route, which cannot be 
overridden by the order sender. In addition, pursuant to the global 
amendment discussed above, the Exchange proposes to omit the word 
``order'' and replace it with the more accurate ``limit order 
modifier.''
    In light of this amended definition of Post Only, the Exchange 
proposes to delete ``Post Only ISO'' \17\ from the CHX rules, because a 
Post Only ISO is simply a limit order marked Post Only and BBO ISO and 
not a distinct order modifier. As such, the Exchange submits that 
maintaining a separate defined order term for ``Post Only ISO'' is 
redundant and unnecessary.
---------------------------------------------------------------------------

    \17\ Supra note 8.
---------------------------------------------------------------------------

    Proposed paragraph (b)(1)(E) is substantively identical to current 
Article 1, Rule 2(aa), which defines ``Price-Penetrating ISO,'' and 
adopts additional language that states that a limit order marked Price-
Penetrating ISO shall be deemed to have been received IOC, which cannot 
be overridden by the order sender. In addition, the Exchange proposes 
to omit the word ``order'' and replace it with the more accurate 
``limit order modifier.''
    Proposed paragraph (b)(2) lists the order execution modifiers that 
may be attributed to cross orders only, as proposed subparagraphs (A)-
(E):
    (A) Benchmark;
    (B) Cross With Satisfy;
    (C) Cross With Yield;
    (D) Midpoint Cross;
    (E) Qualified Contingent Trade.
    Proposed paragraph (b)(2)(A) is substantively identical to current 
Article 1, Rule 2(b), which defines

[[Page 28674]]

``Benchmark.'' Aside from the amendment to the definition to refer to 
itself as a ``cross order modifier,'' the Exchange does not propose to 
make any other amendments.
    Proposed paragraph (b)(2)(B) is substantively identical to current 
Article 1, Rule 2(f), which defines ``Cross With Satisfy.'' \18\ Aside 
from the amendment to the definition to refer to itself as a ``cross 
order modifier,'' the Exchange does not propose to make any other 
amendments.
---------------------------------------------------------------------------

    \18\ Cross With Satisfy and Cross With Yield are not currently 
enabled. The Exchange anticipates filing a proposed rule filing 
pursuant to Rule 19b-4 under the Act to modify Cross With Satisfy 
and Cross With Yield prior to enabling the modifiers.
---------------------------------------------------------------------------

    Proposed paragraph (b)(2)(C) is substantively identical to current 
Article 1, Rule 2(h), which defines ``Cross With Yield.'' \19\ Aside 
from the amendment to the definition to refer to itself as a ``cross 
order modifier,'' the Exchange does not propose to make any other 
amendments.
---------------------------------------------------------------------------

    \19\ Id.
---------------------------------------------------------------------------

    Proposed paragraph (b)(2)(D) is substantively identical to current 
Article 1, Rule 2(r), which defines ``Midpoint Cross.'' Aside from the 
amendment to the definition to refer to itself as a ``cross order 
modifier,'' the Exchange does not propose to make any other amendments.
    Proposed paragraph (b)(2)(E) is substantively identical to current 
Article 1, Rule 2(bb), which defines ``Qualified Contingent Trade.'' 
Aside from the amendment to the definition to refer to itself as a 
``cross order modifier,'' the Exchange does not propose to make any 
other amendments.
    Proposed paragraph (b)(3) lists the order execution modifiers that 
may be attributed to multiple general order types, as proposed 
subparagraphs (A)-(E):
    (A) Do Not Route;
    (B) ISO;
    (C) Not Held;
    (D) Sell Short; and
    (E) Short Exempt.
    Proposed paragraph (b)(3)(A) is substantively identical to current 
Article 1, Rule 2(k), which defines ``Do Not Route,'' except that the 
proposed definition omits reference to IOC and Fill Or Kill (``FOK'') 
orders having to be marked Do Not Route. As discussed below, the 
Exchange proposes to include such language in the definition of IOC and 
FOK, individually. Aside from the amendment to the definition to refer 
to itself as a ``limit or cross order modifier,'' the Exchange does not 
propose to make any other amendments.
    Proposed paragraph (b)(3)(B) is substantively identical to current 
Article 20, Rule 4(b)(15), which defines ``Intermarket Sweep'' or 
``ISO,'' and adopts additional language that states that orders marked 
ISO shall be executed because the Participant routing the order to the 
Matching System has already satisfied the quotations of other markets 
as required by Rule 600(b)(30) and that a limit order marked ISO that 
is not marked BBO ISO shall be deemed to have been received Price-
Penetrating ISO, which cannot be overridden by the order sender. The 
main distinction between BBO ISO and Price-Penetrating ISO is that the 
unexecuted portion of a BBO ISO may post to the CHX book, so long as it 
is not marked IOC, whereas the unexecuted portion of a Price-
Penetrating ISO will always be immediately cancelled. That is, this 
additional language clarifies that the Matching System treats all limit 
orders marked ISO as Price-Penetrating ISO, and by extension IOC, 
unless specifically marked otherwise. In addition, the Exchange 
proposes to omit the word ``order'' and replace it with the more 
accurate ``limit or cross order modifier.''
    In light of this amended definition of ISO, the Exchange proposes 
to delete ISO Cross \20\ from the CHX rules, because an ISO Cross is 
simply a cross order marked ISO and not a distinct order modifier. As 
such, the Exchange submits that maintaining a separate defined order 
term for ``ISO Cross'' is redundant and unnecessary.
---------------------------------------------------------------------------

    \20\ Supra note 5.
---------------------------------------------------------------------------

    Moreover, the Exchange proposes to delete Outbound ISO \21\ from 
the CHX rules. The Exchange included Outbound ISO in its rules as part 
of its migration to a new trading model in 2006.\22\ However, the 
Exchange never adopted Outbound ISO, due to the fact that the Exchange 
never implemented its routing functionality.\23\
---------------------------------------------------------------------------

    \21\ Supra note 7.
    \22\ See Exchange Act Release No. 54550 (September 29, 2006), 71 
FR 59563 (October 10, 2006) (SR-CHX-2006-05).
    \23\ The Exchange anticipates filing a proposed rule change 
pursuant to Rule 19b-4 under the Act in connection with its 
initiative to implement an order routing functionality. If the 
Exchange elects to offer a routing order type, the Exchange will 
submit a related rule filing(s) pursuant to Rule 19b-4 under the 
Act.
---------------------------------------------------------------------------

    Proposed paragraph (b)(3)(C) is substantively identical to current 
Article 1, Rule 2(w), which defines ``Not Held,'' and adopts additional 
language that clarifies that the Not Held instruction may only apply to 
orders sent by a customer to an Exchange Participant and that any order 
received by the Matching System marked Not Held shall be rejected. The 
Exchange notes that this clarification represents the current operation 
of the Not Held modifier.
    Proposed paragraph (b)(3)(D) is substantively identical to current 
Article 1, Rule 2(ff), which defines ``Sell Short.'' Aside from the 
amendment to the definition to refer to itself as an ``order 
modifier,'' the Exchange does not propose to make other amendments.
    Proposed paragraph (b)(3)(E) defines ``Short Exempt'' similarly to 
proposed paragraph (b)(3)(D) as an order modifier that marks any 
security ``short exempt'' under Rule 200(g) of Regulation SHO. Since 
the Exchange already requires order senders to mark sell orders to 
comport with Rule 200(g) of Regulation, the Exchange proposes to adopt 
``Short Exempt'' as a defined order term.
Order Display Modifiers
    Proposed Article 1, Rule 2(c) provides that one or more display 
modifiers may be applied to a limit order, subject to the requirements 
of Article 20, Rule 4, so long as the modifier is compatible with the 
general order type and other applicable order modifiers/terms. Since 
market and cross orders are never posted as they are always IOC, order 
display modifiers are not applicable to those general order types. If 
an order display modifier is not selected, the order is considered to 
be fully-displayable.
    Similar to the amendments to the defined order terms under proposed 
paragraph (b), the Exchange proposes a global amendment to the 
definition of each order display modifier so that each defines itself 
as an ``order modifier'' and not merely as an ``order,'' as well as any 
accompanying grammatical amendments.
    Proposed paragraph (c)(1) defines ``Always Quote'' as a limit order 
modifier which will cause the CHX Matching System to cancel the 
unexecuted balance of an otherwise displayable order, where the 
unexecuted balance is an odd lot and priced at the CHX best bid or best 
offer (``CHX BBO'') \24\ and the order cannot be displayed as part of 
an aggregated quote because there are no other orders on the CHX book 
with which such an order can be aggregated, pursuant to Article 20, 
Rule 8(d)(3).\25\ That is, if an odd lot

[[Page 28675]]

remainder of an order meets the above definition, but the order is not 
marked Always Quote, the order will remain on the CHX book, as a 
displayable order that is undisplayed. It is important to note that 
although the Exchange does not currently define ``Always Quote,'' the 
``Participant's instruction'' specifically referred to in Article 20, 
Rule 8(d)(3) implies the functionality of the Always Quote modifier 
under current CHX rules.
---------------------------------------------------------------------------

    \24\ The CHX BBO may be displayed or undisplayed. For example, a 
fully-displayable odd lot order that is not displayed may be at the 
CHX BBO.
    \25\ Current Article 20, Rule 8(d)(3) states as follows:
    Odd-lot orders and unexecuted odd-lot remainders that are unable 
to be immediately displayed according to Rule 8(b)(6) above (because 
they are at a price that is better than the current CHX quote) shall 
either remain in, or be rejected from, the Exchange's Matching 
System according to each Participant's instructions. Orders 
remaining in the Matching System will continue to be ranked at the 
price and time at which they were originally received. Orders that 
are rejected from the Matching System shall be routed away according 
to Rule 8(h) below or, if designated ``do not route,'' automatically 
cancelled.
---------------------------------------------------------------------------

    Proposed paragraph (c)(2) is substantively identical to current 
Article 1, Rule 2(j), which defines ``Do Not Display.'' Aside from the 
amendment to the definition to refer to itself as a ``limit order 
modifier,'' the Exchange does not propose to make any other amendments.
    Proposed paragraph (c)(3) is substantively identical to current 
Article 1, Rule 2(dd), which defines ``Reserve Size.'' Aside from the 
amendment to the definition to refer to itself as a ``limit order 
modifier,'' the Exchange does not propose to make any other amendments.
Order Duration Modifier
    Proposed Article 1, Rule 2(d) provides that an order duration 
modifier may be applied to a general order type, subject to the 
requirements of proposed Article 20, Rule 4, so long as the modifier is 
compatible with the general order type and other applicable order 
modifiers/terms. However, since market and cross orders are always IOC, 
such orders may not be attributed any other order duration modifier, 
whereas limit orders may be marked with any order duration modifier to 
the extent compatible.
    Similar to the amendments to the defined order terms under proposed 
paragraph (b) and (c), the Exchange proposes a global amendment to the 
definition of each order duration modifier so that each defines itself 
as an ``order modifier'' and not merely as an ``order,'' as well as any 
accompanying grammatical amendments.
    Proposed paragraph (d)(1) is substantively identical to current 
Article 1, Rule 2(i), which defines ``Day.'' Aside from the amendment 
to the definition to refer to itself as a ``limit order modifier,'' the 
Exchange does not propose to make any other amendments.
    Proposed paragraph (d)(2) is substantively identical to current 
Article 1, Rule 2(l), which defines ``Fill Or Kill'' or ``FOK,'' and 
adopts additional language that states an order marked FOK shall be 
deemed to have been received Do Not Route, which cannot be overridden 
by an order sender. In addition, the Exchange proposes to omit the word 
``order'' and replace it with the more accurate ``limit order 
modifier.''
    Proposed paragraph (d)(3) is substantively identical to current 
Article 1, Rule 2(ii), which defines ``Time In Force.'' Currently, the 
CHX rules use the term ``Time In Force'' to refer to order duration 
modifiers generally \26\ and the specific modifier currently defined 
under current Article 1, Rule 2(ii) and Article 20, Rule 4(b)(24). 
Thus, for the sake of clarity, the Exchange proposes to rename the 
specific order modifier ``Good `Til Date'' or ``GTD.'' In addition to 
the name change, the Exchange proposes to omit the word ``order'' and 
replace it with the more accurate ``limit order modifier.''
---------------------------------------------------------------------------

    \26\ See Article 11, Rule 3(b)(14); see also paragraph .01(13) 
of the Interpretations and Policies of Article 11, Rule 4.
---------------------------------------------------------------------------

    Proposed paragraph (d)(4) is substantively identical to current 
Article 1, Rule 2(m), which defines ``Immediate Or Cancel'' or ``IOC,'' 
and adopts additional language that states that an order marked IOC 
shall be deemed to have been received Do Not Route, which cannot be 
overridden by the order sender. In addition, the Exchange proposes to 
omit the word ``order'' and replace it with the more accurate ``order 
modifier.''
Order Settlement Terms
    Proposed paragraph (e) provides that one order settlement term 
shall be applied to a general order type, subject to the requirements 
of Article 20, Rule 4, so long as the term is compatible with the 
general order type and other applicable order modifiers.
    Proposed paragraph (e)(1) is substantively identical to current 
Article 1, Rule 2(cc), which defines ``Regular Way Settlement,'' and 
adopts additional language that states that, by default, all contracts 
are subject to Regular Way Settlement. This is consistent with current 
Article 20, Rule 4(a)(3) that requires all orders to be for Regular Way 
Settlement and Article 20, Rule 4(a)(7)(a), which permits only non-
regular way cross orders to be marked for non-regular way settlement.
    Proposed paragraph (e)(2), which defines ``Non-Regular Way 
Settlement'' is a consolidation of few current defined order terms each 
of which are a subtype of Non-Regular Way Settlement. The proposed 
paragraph is substantively identical to current Article 1, Rule 2(v), 
which defines ``Non-Regular Way Settlement.'' Moreover, the proposed 
paragraph clarifies that only cross orders are eligible for Non-Regular 
Way Settlement, which is consistent with current Article 20, Rule 
4(a)(7)(a), and that cross orders marked for Non-Regular Way Settlement 
may execute at any price, without regard to the NBBO or any other 
orders in the Matching System, which is substantively identical to 
similar language in current Article 1, Rule 2(u), which defines ``non-
regular way cross.''
    Thereunder, proposed paragraph (e)(2)(A) is substantively identical 
to current Article 1, Rule 2(d), which defines ``Cash Settlement,'' 
with additional language that incorporates current Article 1, Rule 
2(u), which defines ``Non-Regular Way Cross.'' Specifically, the 
additional language provides that any cross order that is for Cash 
Settlement must be received by the Matching System by 2:00 p.m.\27\ or 
such other time that may be established by the Exchange and 
communicated to Participants from time to time. Given the fact that the 
proposed definitions of ``cross,'' ``Non-Regular Way Settlement,'' and 
``Cash Settlement'' fully incorporate the current definition of ``non-
regular way cross,'' \28\ the Exchange proposes to omit ``non-regular 
way cross'' from the CHX rules. Similar to IOC market, Post Only ISO, 
and ISO Cross, a ``non-regular way cross'' is not a distinct order 
type, as it is simply a cross order marked for Non-Regular Way 
Settlement. As such, the Exchange submits that maintaining a separate 
defined order term for ``non-regular way cross'' is redundant and 
unnecessary.
---------------------------------------------------------------------------

    \27\ All times referred to in the CHX rules are in Central 
Standard Time, unless explicitly stated otherwise.
    \28\ Supra note 6.
---------------------------------------------------------------------------

    Proposed paragraph (e)(2)(B) is substantively identical to current 
Article 1, Rule 2(t), which defines ``Next Day,'' whereas proposed 
paragraph (e)(2)(C) is substantively identical to current Article 1, 
Rule 2(gg), which defines ``Seller's Option.''
Order Size Attributes
    Proposed paragraph (f) lists defined order terms related to order 
size. Specifically, proposed paragraph (f)(1) is substantively 
identical to current Article 1, Rule 2(j), which defines ``Mixed Lot;'' 
proposed paragraph (f)(2) is substantively identical to current Article 
1, Rule 2(x), which defines ``Odd Lot;'' and proposed paragraph (f)(3) 
is substantively identical to current Article 1, Rule 2(ee), which 
defines ``Round Lot.''
    It is important to note that these order size attributes are not 
modifiers or terms

[[Page 28676]]

in the same sense as the defined order terms listed under proposed 
paragraphs (a)-(e). Rather, they are defined order terms that describe 
the size of an order received by the Matching System, which are most 
notably useful in the context of order aggregation for order display 
purposes, pursuant to current Article 20, Rule 8.
Special Order Handling
    Proposed paragraph (g) provides that an order may be subject to 
special handling under certain circumstances. Thereunder, proposed 
paragraph (g)(1) is substantively identical to current Article 1, Rule 
2(g), which defines ``Cross With Size,'' with organizational amendments 
to improve logical flow and deletions to update the language to comport 
with the current operation of the Matching System.
    Specifically, the proposed paragraph (g)(1) provides that a cross 
order (except a Cross With Yield, any cross order subject to Non-
Regular Way Settlement or a cross order marked ISO) to buy and sell at 
least 5,000 shares of the same security with a total value of at least 
$100,000 will execute, notwithstanding resting orders in the CHX book 
at the same price, where (A) the order is at a price equal to or better 
than the best bid or offer displayed in the Matching System and would 
not constitute a trade-through under Regulation NMS (including all 
applicable exceptions and exemptions); and (B) the size of the order 
must be larger than the largest order displayed in the Matching System 
at that price. Moreover, the Matching System will execute any cross 
order or modified cross order (except a Cross With Yield, any cross 
order subject to Non-Regular Way Settlement or a cross order marked 
ISO) as a Cross With Size if the order meets the requirements for a 
Cross With Size. A Cross With Size may represent interest of one or 
more Participants of the Exchange. A Cross With Size order may only be 
executed in an increment permitted by Article 20, Rule 4(a)(7)(b).
    Aside from various amendments to replace the term ``Non-Regular Way 
Cross,'' with the more accurate ``cross order subject to Non-Regular 
Way Settlement,'' the Exchange proposes to delete from the proposed 
paragraph (g)(1)(B) language that requires the cross order to be of a 
size that is one round lot larger than the aggregate size of all 
interest displayed at that price. Since the Exchange now provides a 
constant book feed, the distinction between order size prior to and 
after dissemination of a feed of all displayable orders is moot. Thus, 
the Exchange submits that the remaining language requiring, inter alia, 
the size of the Cross With Size order to be larger than the largest 
order displayed in the Matching System at that price, is sufficient to 
ensure orders handled as Cross With Size meet the requisite size 
requirement.
Proposed Basic Requirements of Orders Sent to the Matching System 
Amended Article 20, Rule 4(a)
    The Exchange proposes to amend Article 20, Rule 4(a) to clearly 
enunciate the basic requirements of orders sent to the Matching System. 
The following amendments clarify what is already required or implied by 
current CHX rules and does not substantively modify the operation of 
the Matching System.
    The Exchange proposes to amend Article 20, Rule 4(a)(1) to provide 
that an order sent to the Matching System must be a limit, cross, or 
market order and that these eligible general order types are listed and 
defined under proposed Article 1, Rule 2(a). This requirement may be 
currently found via three separate provisions read together. 
Specifically, current Article 20, Rule 4(a)(1) provides that all orders 
must be limit orders; current Article 20, Rule 4(a)(7)(b) provides that 
cross orders may be submitted; and current Article 20, Rule 4(a)(7)(c) 
provides that IOC market orders may be submitted. Given this lack of 
clarity in the current rules, the Exchange submits that the amendment 
to Rule 4(a)(1) is appropriate.
    The Exchange also proposes to amend Article 20, Rule 4(a)(2) to 
provide that all orders must be attributed an order duration modifier 
and that these order duration modifiers are listed under proposed 
Article 1, Rule 2(d). This amendment is necessary because current Rule 
4(a)(2) states that all order must be Day orders, which is partially 
accurate and incomplete. That is, the current language is accurate to 
the extent that orders resting on the CHX book will not be carried over 
to the following trading day and that all limit orders are defaulted to 
Day, pursuant to proposed Article 1, Rule 2(a)(1). However, the current 
rule does not make clear that an order may be attributed a more a 
restrictive order duration modifier, such as IOC or FOK. Given this 
lack of clarity in the current rules, the Exchange submits that the 
amendment to Rule 4(a)(2) is also appropriate.
    The Exchange proposes to make various amendments throughout the 
rest of Article 20, Rule 4 to update citations and references to 
certain amended/omitted defined order terms. Notably, the Exchange 
proposes to amend Article 20, Rule 4(a)(3) to insert a citation to 
proposed Article 1, Rule 2(e)(1), discussed in detail below, which 
defines ``Regular Way Settlement.'' The Exchange also proposes to amend 
Article 20, Rule 4(a)(7)(a) to replace the term ``non-regular way 
cross'' with ``cross.'' As discussed in detail above, the term ``non-
regular way cross'' is redundant and, as such, the Exchange proposes to 
omit that term from the consolidated list. Similarly, the Exchange 
proposes to amend Rule 4(a)(7)(b) to remove the term ``non-regular way 
cross'' and replace it with the more accurate phrase, ``cross order 
designated for Non-Regular Way Settlement.'' Moreover, the Exchange 
propose to amend Rule 4(a)(7)(c) to remove the term ``IOC market'' and 
to clarify that market orders must be marked IOC. As discussed above, 
the term ``IOC market'' is redundant and, as such, the Exchange 
proposes to omit that term from the consolidated list.
    Given the consolidated list, the Exchange proposes to delete all of 
the defined order terms listed under current Article 1, Rule 4(b) as 
current subparagraphs (1)-(25). In addition, the Exchange proposes to 
amend current Rule 4(b) to provide that as designated by the Exchange, 
the general order types, modifiers, and related terms listed under 
proposed Article 1, Rule 2 may be eligible for entry to and acceptance 
by the Matching System, at the discretion of the Exchange. Proposed 
Rule 4(b) further provides that announcements regarding order 
eligibility under this paragraph shall be made by the Exchange via 
Regulatory Circular and will be provided in a manner to give reasonable 
advance notice to its market participants.
Various Other Updates
    Given the numerous changes to citations and deletions and/or 
consolidation of some current defined order terms, the Exchange 
proposes the following amendments throughout the CHX rules.
    The Exchange proposes to amend paragraph .02 of the Interpretations 
and Policies of Article 17, Rule 1 to update the citation for 
``Benchmark'' orders to proposed Article 1, Rule 2(b)(2)(A).
    The Exchange proposes to amend paragraph .03 of the Interpretations 
and Policies of Article 20, Rule 1 to replace ``non-regular way cross'' 
with ``cross orders marked for Non-Regular Way Settlement,'' given the 
proposed deletion of ``non-regular way cross'' from the CHX rules, 
discussed in detail above.
    The Exchange proposes to amend Article 20, Rule 2A(a)(4)(A) to 
update the citations for ``limit,'' ``market,'' and ``cross'' orders to 
Article 1 Rule 2(a)(1),

[[Page 28677]]

Rule 2(a)(3), and Rule 2(a)(2), respectively. The Exchange proposes to 
amend paragraph (b)(1) to update citations to ``Reserve Size'' and ``Do 
Not Display'' to Article 1, Rule 2(c)(3) and Article 1, Rule 2(c)(2), 
respectively. The Exchange proposes to amend paragraph (b)(2) to update 
the citation for ``CHX Only'' to Article 1, Rule 2(b)(1)(C).
    The Exchange proposes to delete the substance of paragraph .01(e) 
of the Interpretations and Policies of Article 20, Rule 5 and replace 
it with a ``Reserved'' marker. As discussed above, the Exchange 
proposes to delete the order execution modifier ``Outbound ISO'' from 
the CHX rules because the modifier has never been adopted since it was 
included in the CHX rules in 2006. For the same reason, the Exchange 
proposes to amend paragraph .03(a) of the Interpretations and Policies 
of Article 20, Rule 5 to omit reference to ``Outbound ISO.'' \29\
---------------------------------------------------------------------------

    \29\ The Exchange anticipates filing a proposed rule change 
pursuant to Rule 19b-4 under the Act in connection with its 
initiative to implement an order routing functionality. In 
submitting such a filing, the Exchange will propose a new order 
modifier(s) to replace ``Outbound ISO'' and will propose a new 
corresponding paragraph .01(e) and .03(a).
---------------------------------------------------------------------------

    The Exchange proposes to amend paragraph .01(h) of the 
Interpretations and Policies of Article 20, Rule 5 to update the 
citation for the definition of ``Qualified Contingent Trades'' to 
proposed Article 1, Rule 2(b)(2)(E).
    The Exchange proposes to amend Article 20, Rule 6(d) to update the 
citation for ``CHX Only'' to Article 1, Rule 2(b)(1)(C).
    The Exchange proposes to amend Article 20, Rule 8(e)(1) to update 
the citations for ``cross'' and ``Cross With Satisfy'' to Article 1, 
Rule 2(a)(2) and Rule 2(g)(1), respectively. The Exchange also proposes 
to amend Rule 8(e)(3) to update the citation for ``Non-Regular Way 
Settlement'' to Article 1, Rule 2(e)(2).
    The Exchange proposes to amend paragraph .02 of Article 20, Rule 8 
to update the citation for ``Cross With Satisfy'' to Article 1, Rule 
2(b)(2)(B).
2. Statutory Basis
    The Exchange believes that its proposal to consolidate all defined 
order terms and to clarify the basic requirements of all orders sent to 
the Matching System is consistent with the requirements of the Act and 
the rules and regulations thereunder that are applicable to a national 
securities exchange, and, in particular, with the requirements of 
Section 6(b) of the Act.\30\ In particular, the proposal is consistent 
with Section 6(b)(5) of the Act,\31\ because it would promote just and 
equitable principles of trade, remove impediments to, and perfect the 
mechanism of, a free and open market and a national market system. The 
Exchange believes that the consolidated list of defined order terms and 
the clarification of the basic requirement of order sent to the 
Matching System promote just and equitable principles of trade by 
enhancing transparency concerning the structure of order types utilized 
by the Exchange. For the same reasons, the Exchange believes that the 
proposed amendments will contribute to the protection of investors and 
the public interest by making the CHX rules easier to understand.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78f(b).
    \31\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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. The proposed changes to 
consolidate all defined order terms under one rule and to clarify the 
basic requirements of all orders sent to the Matching System contribute 
to the protection of investors and the public interest by making the 
CHX rules easier to understand. Since the Exchange does not propose to 
substantively modify the operation of the Matching System, the proposed 
changes will not impose any burden on competition.

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 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \32\ and Rule 19b-
4(f)(6) thereunder.\33\
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78s(b)(3)(A).
    \33\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \34\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\35\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay and allow the 
proposed rule change to be immediately operative, noting that doing so 
would allow the Exchange to immediately offer Participants a more 
organized CHX rulebook and clarity with respect to the basic 
requirements of orders sent to the Matching System. The Exchange 
further notes that the proposed clarification to the basic requirements 
of an order sent to the Matching System and the consolidation of all 
general order types, modifiers, and related terms offered by the 
Exchange under one list will make the operation of the Matching System 
more transparent to Participants and will, in turn, encourage market 
participants to utilize the Exchange's services over its competitors. 
The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
\36\ because it will allow the Exchange to immediately provide 
increased transparency regarding the operation of the Matching System. 
The Commission believes that this increased transparency will benefit 
CHX market participants and therefore waives the 30-day operative delay 
and designates the proposal operative upon filing.
---------------------------------------------------------------------------

    \34\ 17 CFR 240.19b-4(f)(6).
    \35\ 17 CFR 240.19b-4(f)(6)(iii).
    \36\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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 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:

[[Page 28678]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CHX-2013-10 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-2013-10. This file 
number should be included on the subject line if email 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 
10:00 a.m. and 3:00 p.m. Copies of the 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-2013-10 and 
should be submitted on or before June 5, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11453 Filed 5-14-13; 8:45 am]
BILLING CODE 8011-01-P