[Federal Register Volume 78, Number 112 (Tuesday, June 11, 2013)]
[Notices]
[Pages 35082-35083]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-13772]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69701; File No. SR-CHX-2013-11]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Order Cancellation Fee

June 5, 2012.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on May 31, 2013, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    CHX proposes to amend its Schedule of Participant Fees and 
Assessments (the ``Fee Schedule'') to amend the Order Cancellation Fee. 
The Exchange proposes to implement the fee change on June 3, 2013. The 
text of this proposed rule change is available on the Exchange's Web 
site at http://www.chx.com/rules/proposed_rules.htm, at the principal 
office of the Exchange, and at 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 self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B and C below, of the most 
significant parts 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 Section E.8 of the Fee Schedule to 
change the value of the Near order multiplier (``Nmult'') 
from two (2) to four (4) for all security-types and to replace an 
obsolete citation. Under SR-CHX-2012-15, the Exchange adopted the 
current formula-based Order Cancellation Fee, which assesses a daily 
cancellation fee per Account Symbol,\4\ if the order cancellation ratio 
exceeds a designated threshold.\5\ In addition, the Exchange adopted 
security-type specific parameter values, such as the Nmult, 
in order to permit the Exchange to make adjustments to ensure equitable 
application of the Order Cancellation Fee.\6\ To this end, the Exchange 
noted in footnote 10 of SR-CHX-2012-15 that ``changes to any of the 
proposed parameter values, including Order Cancellation Fee, 
Cancellation Ratio, Threshold Away Amount, Minimum Duration and 
Nmult, will be made through proposed fee filings pursuant to 
Rule 19b-4.'' \7\
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    \4\ A CHX ``Account Symbol'' is similar to the Market 
Participant Identifiers (``MPID'') issued by the Financial Industry 
Regulatory Authority.
    \5\ See Securities Exchange Act Release No. 68219 (November 13, 
2012), 77 FR 69673 (November 20, 2012) (SR-CHX-2012-15); see also 
Section E.8 of the Fee Schedule.
    \6\ Id.
    \7\ Id.
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    The Nmult, was adopted because the Exchange recognized 
that, inter alia, Wide orders (i.e. orders that are less marketable), 
as well as Near orders (i.e. orders that are more marketable), can be 
utilized to promote display liquidity. Thus, the purpose of the 
Nmult is to allow the Exchange to multiply the mitigating 
affect of Near orders on Wide orders and by extension, the overall 
order cancellation ratio. Practically speaking, a higher 
Nmult, will result in a lower order cancellation ratio and 
thereby allow more Wide orders to be placed before an order 
cancellation fee is assessed.
    Based on an analysis of nearly seven months of data, the Exchange 
has determined that the Nmult of two (2) is overly 
restrictive. For instance, the Exchange observed that a Participant was 
submitting and cancelling a significant number of Wide orders as part 
of a trading strategy designed to follow rapid changes to the National 
Best Bid and Offer (``NBBO''). When these cancellations were viewed 
within the totality of the trading strategy, the Exchange discovered 
that the Wide order cancellations were necessary to provide valuable 
display liquidity to the Exchange. After analyzing the trading activity 
of this Participant and other Participants, the Exchange determined 
that by increasing the Nmult value to four (4) for all 
security-types, the application of the Order Cancellation Fee will be 
adequately relaxed to better promote display liquidity. Consequently, 
the Exchange has decided to forego some Order Cancellation Fees that 
would be lost by increasing the Nmult in favor of promoting 
display liquidity.
    Moreover, the Exchange proposes to replace an obsolete citation to 
the ``Do Not Display'' order display modifier with the correct citation 
to Article 1, Rule 2(c)(2).
    The Exchange proposes to make these amendments to Section E.8 
effective June 3, 2013. The formula by which the cancellation fee is 
derived shall continue to be calculated and made available to 
Participants daily, but billed after the end of the month.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \8\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act \9\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and other persons using any facility or 
system which the Exchange operates or controls. The Exchange believes 
that the amendment to the Nmult described herein should help 
to recoup some of the costs of administering and processing large

[[Page 35083]]

numbers of cancelled orders while fairly allocating costs among 
Participants according to system use. In addition, these changes to the 
Fee Schedule would equitably allocate reasonable fees among 
Participants in a non-discriminatory manner by properly imposing fees 
on those Participants which enter and subsequently cancel orders above 
a fixed threshold while not imposing fees on Participants that do not 
exceed this threshold.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
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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. The proposed change to 
increase the Nmult value from two (2) to four (4) for all 
security-types contributes to the protection of investors and the 
public interest by promoting display liquidity on the Exchange. Since 
the Exchange does not propose to otherwise substantively modify the 
Order Cancellation Fee, the proposed change 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 solicited or received with respect to the 
proposed rule change.

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

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A)(ii) of the Act \10\ and subparagraph(f)(2) of Rule 
19b-4 thereunder \11\ because it establishes or changes a due, fee or 
other charge imposed by the Exchange.
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 17 CFR 240.19b-4(f)(2).
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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 investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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 email to [email protected]. Please include 
File Number SR-CHX-2013-11 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-2013-11. 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 20549-1090, on official business days 
between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing 
also will be available for inspection and copying at the principal 
offices of CHX. 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-
2013-11, and should be submitted on or before July 2, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-13772 Filed 6-10-13; 8:45 am]
BILLING CODE 8011-01-P