[Federal Register Volume 78, Number 243 (Wednesday, December 18, 2013)]
[Notices]
[Pages 76675-76677]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-30041]



[[Page 76675]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71057; File No. SR-CHX-2013-21]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Permit the Reporting of Odd Lot Transactions for Inclusion on the 
Consolidated Tape and Clarify the Operation of the Market Order Type

December 12, 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 December 9, 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 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 amend Article 20, Rule 8(g) (Operation of the 
Matching System) to permit the reporting of odd lot transactions for 
inclusion on the consolidated tape\,\, in light of the approval of an 
amendment to the Consolidated Tape Association Plan (``CTA Plan'') by 
the Securities and Exchange Commission (the ``Commission'') pursuant to 
Rule 608 of Regulation NMS under the Act. The Exchange also proposes to 
amend Article 1, Rule 2(a)(3) (Order Types, Modifiers, and Related 
Terms) to amend the definition of ``market'' orders in light of the 
anticipated market-wide reporting of odd lot transactions.
    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 [sic] 
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
    On September 9, 2013, the Exchanges and the Financial Industry 
Regulatory Authority (``FINRA'') (collectively, the ``Participants'') 
filed with the Commission an amendment to the CTA Plan proposing to 
permit the reporting of odd lot transactions to the consolidated tape, 
which was published for notice on September 17, 2013.\4\ After 
receiving no comment letters in response to the Notice, the Commission 
approved the proposed amendment on October 31, 2013.\5\
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    \4\ See Securities Exchange Act Release No. 70428 (September 17, 
2013), 78 FR 58362 (September 23, 2013) (SR-CTA-2013-05) (``Notice 
of Filing of the Eighteenth Substantive Amendment to the Second 
Restatement of the CTA Plan'').
    \5\ See Securities Exchange Act Release No. 70794 (October 31, 
2013), 78 FR 66789 (November 6, 2013) (SR-CTA-2013-05) (``Order 
Approving the Eighteenth Substantive Amendment to the Second 
Restatement of the CTA Plan'').
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    In sum, the Commission approved the proposed removal of odd lot 
transactions from the list of transactions, under Section VI(d) of the 
CTA Plan, that are not to be reported for inclusion on the consolidated 
tape. Specifically, the Commission stated that ``odd lot transactions 
account for a not insignificant percentage of the trading volume'' and 
inclusion of ``odd lot transactions on the consolidated tape of CTA 
last sale prices would add post-trade transparency to the 
marketplace.'' \6\ Consequently, odd lot transactions that are reported 
for inclusion on the consolidated tape will be included in calculations 
of daily consolidated volume and will be subject to the same 
calculations as round lot transactions are currently subject [sic] 
(i.e., ``qualified transaction report'' calculations) for the purposes 
of allocating trade revenue among the Participants under the CTA 
Plan.\7\
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    \6\ Id.
    \7\ Due to the lack of economic significance of many individual 
odd lot orders, odd lot bids and offers will not be included in the 
best bid and offer calculations that the Participants make available 
under the Consolidate Quote Plan. For the same reason, odd lot 
transactions will not be included in calculations of last sale 
price, will not be included in high and low price calculations, will 
not be subject to Limit Up-Limit Down rules, and will not trigger 
short sale restrictions or trading halts. See supra note 5.
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    This amendment to the CTA Plan will be operative December 9, 2013.
Proposed Article 20, Rule 8(g)
    The Exchange proposes to amend Article 20, Rule 8(g) to provide 
that the Exchange shall report each transaction that occurs within the 
Matching System to the appropriate consolidated reporting system.\8\ 
Specifically, the Exchange proposes to remove reference to ``round 
lot'' transactions since the CTA Plan now permits the reporting odd lot 
transactions. Moreover, the Exchange proposes to delete redundant 
language concerning the reporting of executions of resting odd lot 
orders that have been aggregated into round lots for display 
purposes.\9\ Pursuant to the CTA Plan amendment, all executions will be 
reported to the tape, notwithstanding the size of the execution or the 
size of the resting order that was executed.
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    \8\ The Exchange notes that with the removal of odd lot 
transactions from Section VI(d) of the CTA Plan, the Exchange does 
not execute any transactions that would not be permitted to be 
reported for inclusion on the consolidated tape.
    \9\ 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.
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Proposed Article 1, Rule 2(a)(3)
    The Exchange's Matching System is designed to begin accepting 
market orders in a security once the primary market prints the first 
transaction in the security that is at least a round lot. Thus, current 
Article 1, Rule 2(a)(3) provides that the Exchange shall not accept 
market orders in a security 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. In light of the anticipated inclusion of odd 
lot transactions on the consolidated tape and operation of the Matching 
System, the Exchange proposes to amend Article 1, Rule 2(a)(3) to 
clarify that for the purposes of determining when to accept market 
orders, the primary market will be considered to have opened for 
trading in a security when the first trade in that security that is at 
least a round lot, occurs in that market on or after 8:30 a.m. Central

[[Page 76676]]

Standard Time. Given that substantial resources would have to be 
dedicated to make any changes to the operation of any order type, the 
Exchange proposes to clarify the current operation of the market order 
type, as opposed to modifying its operation to also consider an odd lot 
trade to be an opening transaction on the primary market.\10\
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    \10\ As of December 9, 2013, the Exchange has no NMS securities 
primarily listed on the Exchange.
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2. Statutory Basis
    The proposed rule change to permit the reporting of odd lot 
transactions for inclusion on the consolidated tape is consistent with 
Rule 608(c) of Regulation NMS,\11\ which requires the Exchange, as a 
sponsor and participant to an effective national market system plan, 
namely the CTA Plan, to comply with the terms of the Plan, as submitted 
to the Commission on September 9, 2013 \12\ and approved by the 
Commission on October 31, 2013,\13\ pursuant to Rule 608(b)(2) of 
Regulation NMS.\14\
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    \11\ 17 CFR 242.608(c).
    \12\ See supra note 4.
    \13\ See supra note 5.
    \14\ 17 CFR 242.608(b)(2).
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    Moreover, the proposed rule changes are [sic] consistent with 
Section 6(b) of the Act \15\ in general, and furthers the objectives of 
Section 6(b)(5) \16\ in particular, in that it is designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transaction in 
securities, to remove impediments and perfect the mechanisms of a free 
and open market, and, in general, to protect investors and the public 
interest. Specifically, the Exchange believes that the proposed rule 
change to permit the reporting of odd lot transactions for inclusion on 
the consolidated tape supports the objectives of the Act by providing 
harmonization between CHX Rules and rules of all other organization 
subject to the requirements of the Plan, so as to promote uniformity 
across markets concerning the permissibility of reporting odd lot 
transactions for inclusion on the consolidated tape. Such uniformity 
would also result in less burdensome and more efficient regulatory 
compliance. Moreover, the proposed amendment to amend the definition of 
``market'' orders also supports the objectives of the Act by clarifying 
the operation of the Matching System and, specifically, the conditions 
required for the Exchange to begin accepting market orders in a 
security. In addition, the Exchange submits that the proposed rules are 
consistent with the protection of investors and the public interest in 
that the proposed rules will promote investor confidence by providing 
greater post-trade transparency to the market.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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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. Specifically, the Exchange 
believes that since all plan Participants will be permitted to report 
odd lot transactions for inclusion on the consolidated tape, the 
Participants will be able to make similar amendments to their rules, 
pursuant to Rule 19b-4 under the Act.\17\
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    \17\ 17 CFR 240.19b-4.
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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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \18\ and Rule 19b-4(f)(6) thereunder.\19\ 
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 for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) 
thereunder.\20\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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.
    \20\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(ii),\22\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 17 CFR 240.19b-4(f)(6)(ii).
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative as of December 9, 2013, 
which is the current operative date of the CTA Plan amendment proposed 
by the Participants. According to the Exchange, encouraging competitors 
to provide higher quality and better value is the essence of a well-
functioning competitive marketplace. The Exchange stated that it 
provides these services in a highly competitive market in which market 
participants may avail themselves of a wide variety of options offered 
by self-regulatory organizations, alternative trading systems and other 
broker-dealers. As such, the Exchange's proposed reporting of odd lot 
transactions for inclusion on the consolidated tape and amendment to 
the definition of ``market'' orders does not burden competition and is 
consistent with the public interest because such amendments can be 
adopted by the other Participants pursuant to the CTA Plan amendment 
and it would promote order flow to the Exchange only if it offers 
market participants an incentive to utilize the Exchange's services 
over its competitors. The Commission is waiving the 30-day operative 
delay so that CHX's rules are consistent with the terms of the CTA Plan 
such that odd lot trades can be reported effective December 9, 2013, 
which is consistent with the public interest. Therefore, the Commission 
designates the proposal as operative upon filing.\23\
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    \23\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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) \24\ 
of the Act to determine whether the proposed rule should be approved or 
disapproved.
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    \24\ 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 proposal is 
consistent with the Act. Comments may

[[Page 76677]]

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-2013-21 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-2013-21. 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-2013-21 and should be 
submitted on or before January 8, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30041 Filed 12-17-13; 8:45 am]
BILLING CODE 8011-01-P