[Federal Register Volume 78, Number 192 (Thursday, October 3, 2013)]
[Notices]
[Pages 61413-61416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24164]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70546; File No. SR-CHX-2013-18]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt a Market Data Revenue Rebates Program

September 27, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on September 26, 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 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 the 
Substance of the Proposed Rule Change

    CHX proposes to amend its Schedule of Fees and Assessments (the 
``Fee Schedule'') by adopting Section P to implement the Market Data 
Revenue Rebates program. 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.

[[Page 61414]]

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 its Fee Schedule to adopt Section P 
to implement the Market Data Revenue (``MDR'') Rebate program. In sum, 
the proposed MDR Rebate program calls for 50% of MDR that exceeds fixed 
thresholds in any one of three pools (``Excess MDR'') to be shared with 
Participants in proportion to their respective eligible quoting 
activity in Tapes A, B and C securities. The proposed MDR Rebate 
program is designed to improve display liquidity and promote order flow 
to the Exchange by offering an incentive for market participants to 
quote on the Exchange.
Background
    The Securities Information Processors (``SIPs''), which include the 
Securities Information [sic] Automation Corporation (``SIAC'') and the 
Unlisted Trading Privilege Plan Quotation Data Feed (``UQDF''), collect 
fees from subscribers for trade and quote tape data received from 
trading centers and reporting facilities, such as the CHX (collectively 
``SIP Participants''). After deducting the cost of operating each tape, 
the profits are allocated among the SIP Participants on a quarterly 
basis, according to a complex set of calculations that consider 
estimates of anticipated MDR, adjustments to comport to actual MDR from 
previous quarters and a non-linear aggregation of total trading and 
quoting activity in Tapes A, B and C securities in attributing MDR to 
each SIP Participant. Based on these calculations, the SIPs provide MDR 
payments to each SIP Participant during the first month of each quarter 
for trade and quote data from the previous calendar quarter, which are 
subject to adjustment through subsequent quarterly payments. These 
payments can be divided into six pools (i.e., trade and quote activity 
in Tape A, B and C securities).
Proposed MDR Rebate Program
    As the Exchange does not currently share MDR with Participants, the 
Exchange now proposes to implement an MDR Rebate program to share MDR 
attributed to quote activity only by adopting proposed Section P of the 
Fee Schedule.\4\ Specifically, proposed Section P(1) provides that 
assuming that the requirements of this proposed Section are met, a 
Participant will receive a quarterly MDR Rebate attributable to the 
Participant's quoting of displayed orders in Tapes A, B and C 
securities, collectively referred to as ``eligible quote activity,'' 
from the previous calendar quarter.\5\ Furthermore, proposed Section 
P(2) provides that MDR will be calculated separately for quote activity 
in Tape A, B and C securities, for a total of three pools. 
Specifically, if the MDR received by the Exchange in any given pool 
exceeds the following proposed thresholds in any given calendar 
quarter, 50% of such Excess MDR will be paid to Participants in 
proportion to their respective eligible quote activity in that pool.
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    \4\ The Exchange does not propose to share MDR attributed to 
trading activity at this time.
    \5\ Undisplayed orders are not eligible quote activity.

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                           Source                                        Tape A                         Tape B                         Tape C
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Quotes.....................................................                        $3,000                       $204,000                        $12,000
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In addition, proposed Section P(3) provides a de minimis requirement 
that states that a Participant will not receive an MDR Rebate in any 
calendar quarter in which the total MDR Rebate attributed to a 
Participant is less than $500.
    In attributing eligible quote activity to Participants, the 
Exchange proposes to utilize a set of calculations similar to those 
used by the SIPs in allocating MDR to SIP Participants. In sum, if 
Excess MDR exists in any given pool, the Exchange will allocate quote 
credits to each Participant for eligible quote activity in that pool, 
which will take into account the actual dollar amount of the quote and 
how long the quote was at the National Best Bid or Offer (``NBBO''). In 
turn, the actual dollar amount of the rebate for a Participant will be 
the product of the percentage of the total quote credits attributed to 
the Participant in a given pool and the Excess MDR in the same pool. If 
a Participant is eligible for MDR Rebates from multiple pools, the 
Participant will be eligible to receive an MDR rebate equal to the sum 
of all the rebates. However, if the sum of the rebates is less than 
$500, the Participant will not receive a payment and the rebate will be 
kept by the Exchange. The purpose of the de minimis requirement is to 
encourage significant quote activity and for the Exchange to avoid 
having to pay Participants for de minimis Excess MDR.\6\
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    \6\ For example, it would be unduly burdensome to the Exchange 
to calculate and pay MDR Rebates to Participants if the total Excess 
MDR of all the pools was $4000 and ten Participants were each 
attributed $400 in rebates.
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    As for calculating the pool of funds from which MDR Rebates will be 
paid, unlike the SIPs, the Exchange will derive MDR Rebate allocation 
from a fixed value that will not be subject to adjustment (i.e., the 
amount of MDR actually received by the Exchange on a quarterly basis). 
This avoids the problem of having to adjust MDR rebates that have 
already been paid to Participants to comport to adjustments to MDR made 
by the SIPs.\7\
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    \7\ For example, if MDR paid to the Exchange was less than 
anticipated in Q3 2014 due to an adjustment to the MDR paid to the 
Exchange in Q2 2014 (i.e., actual MDR in Q2 fell short of 
estimates), the Exchange will not recoup the difference from the 
Participants that had been paid the Q2 MDR Rebate. Instead, the MDR 
Rebate for Q3 will be calculated based on the actual MDR paid to the 
Exchange in Q3.
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    In addition, the Exchange proposes to adopt three of the six MDR 
pools utilized by the SIPs, by excluding the three pools for trading 
activity, for the purposes of attributing the proposed MDR Rebates to 
Participants (i.e., quote activity in each Tape A, B and C security). 
The proposed thresholds were selected based on historical data of the 
Exchange's quote activity and MDR that has been paid to the Exchange in 
previous quarters. The dollar values represent the amount of MDR that 
must be paid to the Exchange by the SIPs before the Excess MDR would be 
eligible for distribution.
    The following Examples 1 and 2 illustrate how Excess MDR will be 
calculated and distributed.
    Example 1. The following table represents the proposed MDR pool 
thresholds:

[[Page 61415]]



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                           Source                                        Tape A                         Tape B                         Tape C
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Quotes.....................................................                        $3,000                       $204,000                        $12,000
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    Assume that the Q1 2014 MDR paid to the Exchange is apportioned as 
follows:

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                           Source                                        Tape A                         Tape B                         Tape C
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Quotes.....................................................                        $2,900                       $244,000                        $12,000
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    Under this Example, the Tape B pool has Excess MDR in the amount of 
$40,000. However, the Tapes A and C pools have no Excess MDR because 
the actual MDR received in the Tape A pool was $100 short of its $3,000 
threshold and the Tape C pool was equal to its $12,000 threshold. Thus, 
Participants may be paid MDR Rebates for attributed eligible quoting 
activity from 50% of the Excess MDR in the Tape B pool, which is 
$20,000.
    Example 2. Assume the same as Example 1 and there are five 
Participants (i.e., Participants A, B, C, D and E) that had eligible 
quote activity in Tape B securities in the previous calendar quarter. 
After calculating the Tape B quote credits for each Participant, the 
attributed MDR for each Participant would be as follows:

------------------------------------------------------------------------
                                           Tape B Quote
               Participant                    Credits     Attributed MDR
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A.......................................          24,000            $480
B.......................................          75,000           1,500
C.......................................         201,000           4,020
D.......................................         300,000           6,000
E.......................................         400,000           8,000
                                         -------------------------------
    TOTAL...............................       1,000,000          20,000
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    In sum, each Participant would be attributed MDR according to their 
[sic] respective percentage of the Tape B quote credits allocated. For 
instance, Participant A was allocated 2.4% (i.e., 24,000 credits) of 
the total 1,000,000 Tape B quote credits attributed to all five 
Participants. As such, Participant A would be attributed 2.4% of the 
Excess MDR, which is $480 (i.e., 2.4% x $20,000 = $480). However, since 
the attributed MDR is less than $500 and there are no other MDR pools 
with Excess MDR, the de minimis exception would result in Participant A 
not receiving an MDR payment. In contrast, since the other Participants 
were attributed MDR in amounts greater than $500, these Participants 
would be paid MDR according to the above amounts.
    As a final matter, the Exchange proposes to amend the initial 
subtitle to the Fee Schedule to accurately reflect that the Fee 
Schedule includes ``Fees, Assessments, Credits and Rebates,'' as 
opposed to merely ``Fees and Assessments.''
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 MDR Rebates among members and 
other persons using any facility or system which the Exchange operates 
or controls. The Exchange believes that the proposed MDR Rebate program 
will promote display liquidity and order flow to the Exchange. In 
addition, these changes to the Fee Schedule would equitably allocate 
MDR Rebates among Participants by paying MDR Rebates according to the 
total quoting activity in Tape A, B and C securities attributable to a 
Participant in any given calendar quarter.
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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 
provide MDR Rebates contributes to the protection of investors and the 
public interest by promoting display liquidity on, and order flow to, 
the Exchange. Consequently, the proposed MDR rebates will promote 
competition that is necessary and appropriate in furtherance of the 
purpose of the Act.

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 from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\13\ 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 so that the proposal 
may become operative immediately upon filing.
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Exchange proposes to implement the program in time for the final 
calendar quarter for 2013. Waiver would allow the Exchange to adhere to 
this proposed timetable. Also, prompt implementation of the program may 
encourage competition among exchanges that have market data revenue 
sharing programs. For these reasons, and because the proposed rule 
change presents no novel issues, the Commission hereby waives the 30-
day operative delay and designates the proposal operative upon 
filing.\14\
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    \14\ 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).

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[[Page 61416]]

    At any time within 60 days of the filing of such 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 under 
Section 19(b)(2)(B) \15\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \15\ 15 U.S.C. 78s(b)(2)(B).
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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-2013-18 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-2013-18. 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 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 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-2013-18, and should be submitted on or before 
October 24, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24164 Filed 10-2-13; 8:45 am]
BILLING CODE 8011-01-P