[Federal Register Volume 79, Number 4 (Tuesday, January 7, 2014)]
[Notices]
[Pages 869-873]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-31601]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71210; File No. SR-CHX-2013-24]


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

December 31, 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 23, 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. CHX has filed this proposal pursuant to Exchange Act Rule 
19b-4(f)(6) \3\ which is effective upon filing with the Commission 
[sic]. 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 Section P of its Schedule of Fees and 
Assessments (the ``Fee Schedule'') to include Market Data Revenue from 
trade reports within the purview of 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 [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
    The Exchange proposes to amend Section P of its Fee Schedule to 
include Market Data Revenue (``MDR'') from trade reports (``Trade 
Reports MDR'') within the purview of the MDR Rebates Program. 
Specifically, the amended MDR Rebates Program calls for 50% of MDR that 
exceeds fixed thresholds in any one of six quote or trade reports pools 
(``Excess MDR'') to be shared with Participants in proportion to their 
respective Eligible Quote or Trade Activity in that pool from the 
previous calendar quarter. If the sum of a Participant's rebates from 
all pools in a given quarter satisfies the de minimis requirement of 
current Section P(3), the Participant will receive a payment equal to 
that amount. Aside from the proposed sharing of Trade Reports MDR, the 
Exchange does not propose to substantively amend the current MDR 
Rebates Program in any other way.
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'') [sic], 
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 [sic] 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 allocating 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

[[Page 870]]

(i.e., quoting and trading activity in Tape A, B and C securities).
Current MDR Rebates Program
    On September 27, 2013, the Exchange adopted Section P of the Fee 
Schedule to implement an MDR Rebates Program to share MDR from quotes 
(``Quotes MDR'') only, which became operative on October 1, 2013.\4\ 
Specifically, current Section P(1) provides that assuming that the 
requirements of Section P 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. 
Furthermore, Section P(2) provides that MDR will be calculated 
separately for eligible 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 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\ See Securities Exchange Act Release No. 70546 (September 27, 
2013), 78 FR 61413 (October 3, 2013) (SR-CHX-2013-18) (``Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change to Adopt 
a Market Data Revenue Rebates Program'').

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                            Source                                  Tape A           Tape B           Tape C
----------------------------------------------------------------------------------------------------------------
Quotes.......................................................          $3,000         $204,000          $12,000
----------------------------------------------------------------------------------------------------------------

In addition, 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.

    The Exchange utilizes a set of calculations to attribute Quotes MDR 
to Participants that are similar to calculations currently utilized by 
the SIPs in attributing Quotes MDR to SIP Participants. In sum, if 
Excess MDR exists in a given quotes pool, the Exchange assigns quote 
credits to each Participant according to their [sic] eligible quote 
activity in that pool, which takes 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 is the product of the percentage of the total quote 
credits assigned to the Participant in a given pool and 50% of 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.
    As for calculating the pool of funds from which MDR Rebates will be 
paid, unlike the SIPs, the Exchange derives MDR Rebate allocation from 
a fixed value that is 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.\5\
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    \5\ 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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    Moreover, the Excess MDR 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 50% of the Excess MDR would be eligible for sharing pursuant to the 
MDR Rebates Program.
Amended MDR Rebates Program
    The Exchange now proposes to expand the current MDR Rebates Program 
to share Trade Reports MDR. Aside from this, the Exchange does not 
propose to substantively amend the current MDR Rebates Program in any 
other way.
    Specifically, proposed Section P(1) provides that assuming that the 
requirements of this Section are met, a Participant will receive a 
quarterly MDR Rebate in proportion to the Participant's quoting of 
displayed orders in Tapes A, B and C securities (``Eligible Quote 
Activity'') \6\ and trades resulting from single-sided resting orders 
submitted by the Participant in Tapes A, B and C securities (``Eligible 
Trade Activity'') from the previous calendar quarter. Initially, the 
Exchange proposes to replace the term ``attributable'' with ``in 
proportion'' in order to be consistent with the use of the phrase ``in 
proportion'' in current Section P(2). Also, trades resulting from cross 
orders \7\ and single-sided orders submitted by the Participant that 
executed against resting order(s) on the CHX Book are not ``Eligible 
Trade Activity.'' The purpose of excluding these types of orders from 
the definition of ``Eligible Trade Activity'' is to specifically 
encourage Participants to post marketable limit orders on the CHX Book 
and, thereby, increase liquidity on the Exchange.
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    \6\ The Exchange proposes to capitalize the current ``eligible 
quote activity'' and proposed ``Eligible Trade Activity,'' as they 
are defined terms.
    \7\ CHX Article 1, Rule 2(a)(2) defines a ``cross'' order, in 
pertinent part, as ``an order to buy and sell the same security at a 
specific price better than the best bid and offer displayed in the 
Matching System and which would not constitute a trade-through under 
Reg NMS (including all applicable exceptions and exemptions).''
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    Furthermore, proposed Section P(2) provides that MDR will be 
calculated separately for quotes and trade reports in Tape A, B and C 
securities, for a total of six pools. Notably, the Exchange proposes to 
replace the term ``eligible quote activity'' with the more general 
``quotes and trade reports'' to clarify that the MDR thresholds in each 
of the six pools are calculated not based on Eligible Quote or Trading 
Activity, but rather, on all Quotes and Trade Reports MDR received by 
the Exchange. Moreover, proposed Section P(2) also provides that 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 or Trade Activity in that pool.
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    \8\ Like the current Quotes MDR thresholds, the proposed Trade 
Reports MDR thresholds were selected based on historical data of the 
Exchange's trading activity and MDR that has been paid to the 
Exchange in previous quarters.

[[Page 871]]



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                            Source                                  Tape A           Tape B           Tape C
----------------------------------------------------------------------------------------------------------------
Quotes.......................................................          $3,000         $204,000          $12,000
Trade Reports \8\............................................          27,000           36,000           18,000
----------------------------------------------------------------------------------------------------------------

    The Exchange notes that the SIPs do not distinguish between trades 
from single-sided orders and trades from cross orders in attributing 
Trade Reports MDR to a SIP Participant. As such, the Exchange proposes 
to similarly consider all Trade Reports MDR received from the SIPs in 
determining whether or not Excess MDR exists in a given trade reports 
pool. However, given that the Exchange's proposed definition of 
``Eligible Trade Activity,'' Excess MDR in a given trade reports pool 
will be allocated to Participants based solely on trades resulting from 
single-sided resting orders submitted by the Participant. [sic] That 
is, a Participant's trading activity based on cross orders or single-
sided orders that take liquidity from the CHX Book will not count as 
Eligible Trade Activity.
    The Exchange does not propose to amend current Section P(3), which 
provides an aggregate $500.00 de minimis threshold that must be met 
before an MDR Rebate is payable to a Participant.
    The Exchange proposes to utilize a set of calculations to attribute 
Trade Reports MDR to Participants that are similar to calculations 
currently utilized by the SIPs in attributing Trade Reports MDR to SIP 
Participants. If Excess MDR exists in any given trade reports pool, the 
Exchange proposes to assign trade credits to each Participant according 
to their [sic] Eligible Trade Activity per trade reports pool. 
Specifically, the trade credit values will be derived from a set of 
calculations that will consider, inter alia, a Participant's percentage 
of (A) the total dollar amount of trades in a given security and (B) 
the total number of qualified trade reports in the same security. In 
turn, similar to how Quotes MDR is currently attributed to 
Participants, the actual dollar amount of Trade Reports MDR attributed 
to a Participant in a given pool will be the product of the percentage 
of the total trade credits assigned to the Participant in that pool and 
50% of the Excess MDR in that pool. If a Participant is eligible for 
MDR Rebates from multiple quotes and trade reports pools, the 
Participant will be eligible to receive a payment that is equal to the 
sum of all the rebates for a given calendar quarter. 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.
    Similar to the current Quote MDR Rebates, the Exchange does not 
propose to adjust the Trade Reports MDR Rebates paid to Participants in 
subsequent quarters to comport to adjustments made by the SIPs to 
previous MDR payments made to the Exchange. This avoids the problem of 
having to adjust Trade Reports MDR Rebates that have already been paid.
    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:

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                             Source                                   Tape A          Tape B          Tape C
----------------------------------------------------------------------------------------------------------------
Quotes..........................................................          $3,000        $204,000         $12,000
Trade Reports (single-sided orders only)........................          27,000          36,000          18,000
----------------------------------------------------------------------------------------------------------------

    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
----------------------------------------------------------------------------------------------------------------
Quotes..........................................................          $2,900        $244,000         $12,000
Trade Reports (single-sided orders only)........................          20,000          50,000          18,000
----------------------------------------------------------------------------------------------------------------

    With respect to quotes, the Tape B quotes pool has Excess MDR in 
the amount of $40,000. However, the Tapes A and C quotes pools have no 
Excess MDR because the actual MDR received by the Exchange 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 in proportion to their quote credits from 50% of the Excess MDR 
in the Tape B pool, which is $20,000.
    With respect to trade reports, the Tape B trade reports pool has 
Excess MDR in the amount of $14,000. However, the Tapes A and C trade 
reports pools have no Excess MDR because the actual MDR received by the 
Exchange in the Tape A pool was $7,000 short of its $27,000 threshold 
and the Tape C pool was equal to its $18,000 threshold. Thus, 
Participants may be paid MDR Rebates in proportion to their trade 
credits from 50% of the Excess MDR in the Tape B trade reports pool, 
which is $7,000.
    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 and Trading Activity in Tape B securities in the previous 
calendar quarter. After calculating the Tape B quote credits and Tape B 
trade credits for each Participant, the attributed MDR for each 
Participant would be as follows:

[[Page 872]]



                         Table 1--Quotes Credits
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                                           Tape B Quotes
               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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                         Table 2--Trade Credits
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                                           Tape B Trade
               Participant                    Credits     Attributed MDR
------------------------------------------------------------------------
A.......................................             500           $3.50
B.......................................          77,500          542.50
C.......................................         210,000        1,470
E.......................................         407,000        2,849
                                         -------------------------------
Total...................................       1,000,000        7,000
------------------------------------------------------------------------

    Each Participant is attributed MDR according to their [sic] 
respective percentage of the total Tape B quote or trade credits 
assigned. For instance, Participant A was allocated 2.4% (i.e., 24,000 
credits) of the total 1,000,000 Tape B quotes credits attributed to all 
five Participants. As such, Participant A would be attributed 2.4% of 
the Excess MDR in the Tape B quotes pool, which is $480 (i.e., 2.4% x 
$20,000 = $480). Participant A was also allocated .05% (i.e., 500 
credits) of the total 1,000,000 Tape B trade credits attributed to all 
five Participants. As such, Participant A would also be attributed 
0.05% of the Excess MDR in the Tape B trade reports pool, which is 
$3.50. In total, Participant A would be attributed a total of $483.50 
for the quarter. However, since the total MDR attributed to Participant 
A 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 for that quarter. In contrast, since the other Participants 
were attributed MDR in amounts greater than $500, these Participants 
would be paid an MDR Rebate in an amount that is the sum of their 
attributed MDR in each of the two Tape B pools.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \9\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act \10\ 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 amended MDR Rebates 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 in proportion to 
their Eligible Quote and Trade Activity in Tape A, B and C securities 
in any given calendar quarter.
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    \9\ 15 U.S.C. 78f.
    \10\ 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 amend 
the MDR Rebates Program contributes to the protection of investors and 
the public interest by promoting display liquidity on, and order flow 
to, the Exchange. Consequently, the MDR rebates, as amended, 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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) \12\ 
thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest. The Exchange proposes to implement the program in time for 
the initial calendar quarter for 2014. Waiver would allow the Exchange 
to adhere to this proposed timetable. Also, prompt implementation of 
the changes to 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 designates the proposal operative upon filing.\13\
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    \13\ 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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    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

[[Page 873]]

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-2013-24 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-2013-24. 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 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-2013-24, 
and should be submitted on or before January 28, 2014.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-31601 Filed 1-6-14; 8:45 am]
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