[Federal Register Volume 80, Number 197 (Tuesday, October 13, 2015)]
[Notices]
[Pages 61540-61545]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-25886]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76087; File No. SR-CHX-2015-03]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Order Granting Accelerated Approval of a Proposed Rule Change, as 
Modified by Amendment No. 1 Thereto, To Adopt and Implement CHX SNAP 
\SM\, an Intra-day and On-Demand Auction Service

October 6, 2015.

I. Introduction

    On June 23, 2015, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to implement CHX SNAP \SM\, an intra-day and on-
demand auction service initiated at the request of market participants 
seeking to trade securities in bulk. The proposed rule change was 
published for comment in the Federal Register on July 8, 2015.\3\ On 
August 6, 2015, pursuant to section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ On August 24, 2015, the Exchange filed Amendment No. 1 to 
the proposed rule change.\6\ Amendment No. 1 was published for comment 
in the Federal Register on September 9, 2015.\7\ The Commission did not 
receive any comment letters regarding the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 75346 (July 1, 
2015), 80 FR 39172.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 75630, 80 FR 48375 
(August 12, 2015). The Commission designated October 6, 2015, as the 
date by which it should approve, disapprove, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.
    \6\ Amendment No. 1 is publicly available on the Commission's 
Web site at: https://www.sec.gov/comments/sr-chx-2015-;03/chx201503-
1.pdf.
    \7\ See Securities Exchange Act Release No. 75816 (September 2, 
2015), 80 FR 54331 (``Notice'').
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    This order approves the proposed rule change, as modified by 
Amendment No. 1, on an accelerated basis.

II. Summary of the Proposal, as Modified by Amendment No. 1

    The Exchange proposes to adopt and implement a new auction, titled 
the Sub-second Non-displayed Auction Process (``SNAP''), that is 
designed to facilitate the bulk trading \8\ of a security within the 
Exchange's matching system (the ``Matching System''). As proposed, SNAP 
is a fully-hidden, on-demand auction for a security \9\ that may be 
initiated only by the Exchange's Participants and may occur only during 
the Exchange's regular trading session.\10\ Members may initiate 
multiple SNAPs for a security throughout the course of the regular 
trading session.
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    \8\ As explained further below, under the proposal, an order 
must meet a minimum size requirement to be eligible to initiate a 
SNAP. See infra, note 39 and accompanying text.
    \9\ Under the proposal, the SNAP functionality will be available 
for all securities traded within the Matching System. The Exchange 
represents that it will announce any future changes to the 
securities eligible for the SNAP functionality via an Information 
Memorandum and that any such change would be effective no sooner 
than the trading day after it issues the Information Memorandum. See 
Notice, supra note 7, 80 FR at 54332, n.15.
    \10\ The Exchange's regular trading session begins at 8:30 a.m. 
Central Standard Time and concludes at 3:00 p.m. Central Standard 
Time on the days that the Exchange is open for the transaction of 
business. See CHX Article 20, Rules 1(b) and (c).
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    During the stages of a SNAP (the ``SNAP Cycle''), the Exchange 
temporarily suspends automated trading on the Exchange for the security 
subject to the SNAP. At the conclusion of the SNAP Cycle, the Exchange 
transitions back to automated trading on the Exchange for the subject 
security.\11\ The SNAP Cycle has the following five stages, which are 
set forth in proposed CHX Article 18, Rule 1: \12\ (1) Initiating the 
SNAP; (2) SNAP Order Acceptance Period; (3) Pricing and Satisfaction 
Period; (4) Order Matching Period; and (5) Transition to Open Trading 
State.\13\

[[Page 61541]]

Under the proposal, if a halt or pause is in effect for a subject 
security that requires the Exchange to suspend trading in that security 
(``material halt or pause'') at the time a SNAP Cycle would otherwise 
be initiated, the SNAP Cycle would not be initiated; the proposed rule 
text also sets forth required actions should a material halt or pause 
be declared for the subject security during a SNAP Cycle.\14\
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    \11\ The Exchange represents that the SNAP Cycle on CHX is 
designed to occur simultaneously with automated trading in the 
subject security elsewhere in the national market system. See 
Notice, supra note 7, 80 FR at 54332.
    \12\ In the filing, the Exchange provides examples demonstrating 
the procedures and functionalities of each stage of the SNAP Cycle. 
See Notice, supra note 7, 80 FR at 54342-46.
    \13\ The Exchange proposes to define ``Open Trading State'' 
under proposed CHX Article 1, Rule 1(qq) as the period of time 
during the regular trading session when orders are eligible for 
automatic execution. See Notice, supra note 7, 80 FR at 54332.
    \14\ See Notice, supra note 7, 80 FR at 54341-42.
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    The Exchange also proposes amendments to the following CHX Rules in 
order to facilitate the SNAP Cycle:
    (1) Article 1, Rule 1 (Definitions); \15\
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    \15\ The Exchange proposes to: (1) Amend the definition of 
``Routable Order'' under current paragraph (oo), see infra, note 66; 
and (2) add new definitions for ``Open Trading State,'' see supra 
note 13, ``SNAP Price,'' see infra, note 61 and accompanying text, 
and ``SNAP Eligible Order,'' see infra, note 46.
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    (2) Article 2, Rule 2 (Order Types, Modifiers, and Related Terms; 
\16\
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    \16\ The Exchange proposes to: (1) Amend the current definition 
of ``cross order'' under current paragraph (a)(2), see Notice, supra 
note 7, 80 FR at 54337; and (2) add new limit order modifiers 
related SNAP, see infra notes 24-26 and accompanying text.
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    (3) Article 4, Rule 1 (CHX Book Feed); \17\
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    \17\ The Exchange proposes to amend current paragraph (a) to add 
a cross reference to new Article 18, Rule 1(b) to clarify that the 
operation of the CHX Book Feed is subject to the rules governing the 
SNAP Cycle. See Notice, supra note 7, 80 FR at 54336.
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    (4) Article 16, Rule 8 (CHX Market Maker Responsibilities); \18\
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    \18\ The Exchange proposes to amend paragraph (a) to (1) replace 
the term ``member'' with the term ``Participant'' and (2) state that 
the quoting obligations of CHX Market Makers do not apply for a 
security while that security is subject to a SNAP Cycle. See Notice, 
supra note 7, 80 FR at 54346.
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    (5) Article 19, Rule 3 (Order Routing Events); \19\
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    \19\ The Exchange proposes to add text to current paragraph (a) 
setting forth two new routing events for orders participating in a 
SNAP Cycle. See infra, note 66.
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    (6) Article 20, Rules 1 (Trading Sessions) and 2A (Limit Up-Limit 
Down (``LULD'') Plan and Trading Pauses in Individual Securities Due to 
Extraordinary Market Volatility); \20\
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    \20\ The Exchange proposes to amend paragraph .02 of Article 20, 
Rule 1 and Article 20, Rule 2A(c)(3) to add cross references to 
proposed Article 18 so that those rules would provide that the 
actions described thereunder with respect to trading a halts are 
subject to the provisions of proposed Article 18, Rule 1(c), which 
addresses trading halts or pauses during a SNAP Cycle. See Notice, 
supra note 7, 80 FR at 54342. The Exchange also proposes to specify 
that the provisions of paragraph .02 of Article 20, Rule 1 apply 
only to a trading halt or pause that ``requires the Exchange to 
suspend trading in the issue, other than a LULD Trading Pause.'' See 
id.
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    (7) Article 20, Rule 8(b) (Ranking and Display of Orders); \21\
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    \21\ The Exchange proposes to amend paragraph (b) to set forth 
how orders are queued and ranked for execution during Open Trading 
State and during a SNAP Cycle. See infra notes 50, 52, and 69.
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    (8) Article 20, Rule 8(d)(4) (Rule 201 of Regulation SHO); \22\ and
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    \22\ The Exchange proposes to amend paragraph (d)(4) to address 
how the Exchange handles orders marked Sell Short in a covered 
security subject to the short sale price test restriction during 
both Open Trading State and during a SNAP Cycle for that security. 
Specifically, the Exchange proposes to (1) create new subparagraph 
(A) to govern trading in Open Trading State, which would contain the 
rule text under current paragraph (d)(4) and (2) create new subgraph 
(B) to govern trading during a SNAP Cycle, which would state, among 
other things, that SNAP Eligible Orders marked Sell Short shall not 
be permitted to execute at prices at or below the National Best Bid 
ascertained from the market snapshot taken pursuant during the SNAP 
Cycle to determine the SNAP Price pursuant to proposed Article 18, 
Rule 1(b)(2)(E). See Notice, supra note 7, 80 FR at 54338-39.
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    (9) Article 20 Rule 8(e) (Execution of Certain Orders and Order 
Types).\23\
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    \23\ The Exchange proposes to: (1) Specify that, during a SNAP 
Cycle, participating SNAP Eligible Orders shall be executed within 
the Matching System at the SNAP Price, pursuant to proposed Article 
18, Rule 1(b)(4)(A), see infra, notes 71 and 72 and accompanying 
text; and (2) re-title the rule's header, see Notice, supra note 7, 
80 FR at 54340.
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    In particular, the Exchange proposes to add the following new limit 
order modifiers related to SNAP:
    (1) Start SNAP; \24\
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    \24\ See Notice, supra note 7, 80 FR at 54333-34.
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    (2) Cancel on SNAP; \25\ and
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    \25\ See Notice, supra note 7, 80 FR at 54334.
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    (3) SNAP Auction Only (SNAP AOO), which is subcategorized as SNAP 
AOO--Day, SNAP AOO--One and Done, or SNAP AOO--Pegged.\26\
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    \26\ See Notice, supra note 7, 80 FR at 54334-35.
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    A limit order marked Start SNAP will either: (1) Initiate a SNAP 
Cycle in a specified security if it meets certain requirements; \27\ or 
(2) if it is received by the Matching System during the stage two Order 
Acceptance Period and it meets the requirements for a SNAP AOO--One and 
Done Order, be treated as a SNAP AOO--One and Done Order.\28\ A limit 
order marked Start SNAP that does not meet either of those sets of 
requirements will be cancelled.\29\ A limit order marked Cancel on SNAP 
will be cancelled upon initiation of a SNAP Cycle or cancelled upon 
receipt if received during a SNAP Cycle.\30\
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    \27\ See infra, notes 38-42 and accompanying text.
    \28\ See Notice, supra note 7, 80 FR at 54334.
    \29\ See Notice, supra note 7, 80 FR at 54333.
    \30\ See Notice, supra note 7, 80 FR at 54334.
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    SNAP AOOs will be accepted only from the beginning of the CHX early 
session 31  to five minutes prior the end of the regular 
trading session and only be executable during a SNAP Cycle (i.e., SNAP 
AOOs orders would not be active during Open Trading State).\32\ Upon 
receipt by the Exchange, all valid SNAP AOOs will either be queued in 
the SNAP AOO Queue \33\ or immediately ranked on the SNAP CHX book.\34\ 
Furthermore, all SNAP AOOs must meet the following minimum size 
requirement: (1) At least 250 shares and have a minimum aggregate 
notional value of $25,000 based on its corresponding SNAP AOO Reference 
Price \35\ or (b) at least 2,000 shares with no minimum aggregate 
notional value requirement; provided, however, that a certain issue is 
subject to a special minimum size requirement.\36\
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    \31\ The Exchange's early trading session begins at 6:00 a.m. 
Central Standard Time and concludes at 8:30 a.m. Central Standard 
Time on the days that the Exchange is open for the transaction of 
business. See CHX Article 20, Rules 1(b) and (c).
    \32\ See Notice, supra note 7, 80 FR at 54334.
    \33\ See infra, note 48 and accompanying text.
    \34\ See infra, note 52 and 53 and accompanying text.
    \35\ The SNAP AOO Reference Price for the security would be the 
last sale in the subject security that was not permitted to trade-
through the National Best Bid and Offer (``NBBO'') at the time the 
last sale was executed. If a SNAP AOO Reference Price cannot be 
determined, the SNAP AOO shall be cancelled. See Notice, supra note 
7, 80 FR at 54334.
    \36\ A SNAP AOO for Berkshire Hathaway, Inc. must be for at 
least 10 shares.
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Stage 1: Initiating the SNAP

    The first stage of a SNAP Cycle is titled Initiating the SNAP.\37\ 
To initiate a SNAP Cycle, a Participant must submit to the Matching 
System a limit order marked Start SNAP. Pursuant to proposed CHX 
Article 1, Rule 2(h)(1), a limit order marked Start SNAP must meet the 
following requirements to initiate a SNAP Cycle: \38\
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    \37\ See Notice, supra note 7, 80 FR at 54336.
    \38\ See Notice, supra note 7, 80 FR at 54333.
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    (1) Size: The Start SNAP order must be (a) at least 2,500 shares 
and have a minimum aggregate notional value of $250,000 or (b) at least 
20,000 shares with no minimum aggregate notional value requirement.\39\
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    \39\ A limit order for Berkshire Hathaway, Inc. marked Start 
SNAP must be for at least 100 shares.
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    (2) Price: The limit price of the Start SNAP order must be priced 
at or through the National Best Offer (``NBO'') for buy orders or 
National Best Bid (``NBB'') for sell orders at the time the order was 
received by the Matching System.\40\
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    \40\ If the NBBO is crossed or a two-sided NBBO does not exist 
at the time the limit order marked Start SNAP is received by the 
Matching System, the limit order marked Start SNAP would not 
initiate a SNAP Cycle. See id. Furthermore, a limit order marked 
Start SNAP and Sell Short, as defined under CHX Article 1, Rule 
2(b)(3)(E), for a covered security subject to short sale price test 
restriction, shall not initiate a SNAP Cycle and shall be cancelled. 
See Notice, supra note 7, 80 FR at 54339.

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[[Page 61542]]

    (3) Timing: The Start SNAP order must have been received during the 
regular trading session.\41\
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    \41\ Furthermore, a limit order marked Start SNAP would not 
initiate a SNAP cycle if it is received: (1) Within five minutes of 
the first two-sided quote in the subject security having been 
received by the Exchange from the primary market disseminated after 
either the beginning of the regular trading session or a trading 
halt or pause that required the Exchange to suspend trading in the 
subject security; (2) within five minutes of the end of the regular 
trading session; (3) during a SNAP Cycle or (4) within one minute 
after the completion of the previous SNAP Cycle. See Notice, supra 
note 7, 80 FR at 54333.
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    (4) Routing Availability: A limit order marked Start SNAP will not 
initiate a SNAP Cycle if the CHX Routing Services \42\ are not 
available at the time the order is received by the Matching System.
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    \42\ See generally CHX Article 19.
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    Upon acceptance of a valid limit order market Start SNAP, the 
Matching System would begin the SNAP Cycle in the subject security by 
taking the following actions: (1) Immediately suspending automatic 
execution of orders in the subject security; (2) removing the 
Exchange's Protected Quotation(s) in the subject security, if any; (3) 
notifying the market that a SNAP Cycle in the subject security has 
begun; (4) disseminating messages through the CHX Book Feed indicating 
that precedent orders on the CHX book in the subject security are no 
longer automatically executable; and (5) suspending dissemination of 
any other order information concerning the subject security through the 
CHX Book Feed.

Stage 2: The SNAP Order Acceptance Period

    Upon initiation of the SNAP Cycle, the SNAP Order Acceptance Period 
begins.\43\ The SNAP Order Acceptance Period will last between 475 to 
525 milliseconds, with the CHX Matching System randomizing the actual 
length. The Exchange states that randomizing the exact length of the 
SNAP Order Acceptance Period is designed to minimize speed advantages 
by precluding market participants from pinpointing exactly when the 
SNAP Order Acceptance Period ends.\44\
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    \43\ See Notice, supra note 7, 80 FR at 54336-38.
    \44\ See Notice, supra note 7, 80 FR at 54336.
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    During the SNAP Order Acceptance Period, the CHX Matching System 
will establish the SNAP CHX book \45\ by ranking SNAP Eligible 
Orders.\46\ Prior to being ranked on the SNAP CHX book, the following 
order modifiers will be deactivated for the subject security only: (1) 
CHX Only; (2) Post Only; (3) Do Not Route; (4) Match Trade Prevention; 
(5) Always Quote; and (6) Reserve Size.\47\
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    \45\ The Exchange represents that it operates only one book for 
each security and therefore, automated execution of orders in a 
subject security will never occur simultaneously with a SNAP Cycle 
in the same security. See Notice, supra note 7, 80 FR at 54332. 
Because of what the Exchange characterizes as the fundamental 
differences between automated execution of orders and auctions, the 
Exchange distinguishes between the CHX book during the Open Trading 
State and the CHX book during a SNAP Cycle (``SNAP CHX book''). See 
id.
    \46\ Under proposed CHX Article 1, Rule 1(ss), a ``SNAP Eligible 
Order'' is a limit order not marked by, or handled as, any one of 
the following modifiers: (1) Cancel On SNAP; (2) Fill Or Kill; (3) 
Immediate Or Cancel or (4) Start SNAP, except where the limit order 
marked Start SNAP is handled as SNAP AOO--One And Done, pursuant to 
proposed Article 1, Rule 2(h)(1)(C). See Notice, supra note 7, 80 FR 
at 54333.
    \47\ See Notice, supra note 7, 80 FR at 54337. The Exchange 
states that deactivating each of these modifiers is necessary so 
that SNAP Eligible Orders subject to a SNAP Cycle are handled in a 
manner that do not violate the terms of the specified order 
modifiers, as the SNAP Cycle requires all participating orders to be 
routable, undisplayed in whole and executable, without restriction. 
See id.
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    First, pursuant to proposed CHX Article 18, Rule 1(b)(2)(A), the 
CHX Matching System will rank or cancel ``precedent orders,'' which 
are: (1) SNAP Eligible Orders in the subject security resting on the 
CHX Book and SNAP AOO Queue \48\ prior to the initiation of the SNAP 
Cycle; (2) the limit order marked Start SNAP that initiated the SNAP 
Cycle; and (3) Non-SNAP Eligible Orders in the subject security resting 
on the CHX book prior to the initiation of the SNAP Cycle. Precedent 
SNAP Eligible Orders, precedent SNAP AOOs not marked SNAP AOO--
Pegged,\49\ and the precedent limit order marked Start SNAP that 
initiated the SNAP Cycle would be ranked on the SNAP CHX book, pursuant 
to proposed CHX Article 20, Rule 8(b)(3).\50\ Precedent SNAP AOO--
Pegged orders would remain on the SNAP AOO Queue and be ranked on the 
SNAP CHX book during the Pricing and Satisfaction Period later in the 
SNAP Cycle,\51\ and precedent Non-SNAP Eligible Orders would be 
cancelled.
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    \48\ Under proposed CHX Article 20, Rule 8(b)(2)(A), valid SNAP 
AOOs in the subject security that are received during the Open 
Trading State in the security will not be ranked on the CHX Book 
upon receipt; they will be queued in the SNAP AOO Queue in the order 
in which they were originally received. See Notice, supra note 7, 80 
FR at 54335.
    \49\ Under proposed CHX Article 1, Rule 2(h)(3)(C), a SNAP AOO--
Pegged Order is a limit order modifier available only for orders 
marked SNAP AOO--Day or SNAP AOO--One And Done, which requires that 
the order be priced at the less aggressive of an optional limit 
price or mandatory offset price from the NBBO ascertained from the 
market snapshot taken pursuant at the conclusion of the Order 
Acceptance Period. An order sender that submits a limit order marked 
SNAP AOO--Pegged must specify one of the following pricing options: 
(1) Midpoint--priced at the midpoint of the NBBO or the locking 
price if the NBBO is locked; if the NBBO is crossed, this order will 
not participate in the instant SNAP Cycle, even if there is an 
optional limit price indicated; (2) Market--a buy (sell) order 
priced at the NBO (NBB), or at a specified offset below or above the 
NBO (NBB); or (3) Primary--a buy (sell) order priced at the NBB 
(NBO), or at a specified offset below or above the NBB (NBO). See 
Notice, supra note 7, 80 FR at 54335.
    \50\ Proposed CHX Article 20, Rule 8(b)(3) ranks precedent 
orders with the same prices in the following priority: (1) Precedent 
fully-displayable orders and displayed portions of Reserve Size SNAP 
Eligible Orders; (2) precedent undisplayed portion of Reserve Size 
SNAP Eligible orders; (3) precedent SNAP Eligible orders marked Do 
Not Display; (4) limit order marked Start SNAP that started the SNAP 
Cycle; and (5) precedent SNAP AOOs. See Notice, supra note 7, 80 FR 
at 54335.
    \51\ See infra, note 59.
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    Second, the CHX Matching System would rank incoming SNAP Eligible 
Orders received during the SNAP Order Acceptance Period on the CHX SNAP 
Book. Incoming SNAP Eligible Orders would be immediately ranked on the 
SNAP CHX book pursuant to proposed Article 20, Rule 8(b)(3)(E),\52\ 
provided, however, that SNAP AOOs marked SNAP AOO--Pegged shall be 
placed in the SNAP AOO Queue upon receipt and would only be ranked on 
the SNAP CHX book during the Pricing and Satisfaction Period later in 
the SNAP Cycle.\53\ Incoming non-SNAP Eligible Orders received during 
the SNAP Cycle, would be cancelled upon receipt, except that cross 
orders shall be queued.\54\
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    \52\ Proposed CHX Article 20, Rule 8(b)(3)(E) states that SNAP 
Eligible Orders received during the SNAP Order Acceptance Period and 
SNAP AOOs would be ranked based on their sequence numbers and after 
precedent fully-displayable orders and displayed portions of Reserve 
Size SNAP Eligible Orders, precedent undisplayed portion of Reserve 
Size SNAP Eligible orders, precedent SNAP Eligible orders marked Do 
Not Display, and limit order marked Start SNAP that initiated the 
SNAP Cycle, respectively. See Notice, supra note 7, 80 FR at 54335.
    \53\ See proposed CHX Article 18, Rule 1(b)(3)(A).
    \54\ Under the Exchange's current rules, cross orders are always 
handled Immediate Or Cancel, pursuant. See CHX Article 1, Rule 
2(a)(2). To facilitate SNAP, the Exchange proposes to amend the 
definition of cross orders to provide that cross orders received 
during a SNAP Cycle shall be queued for later processing and not 
immediately cancelled. The Exchange represents that this special 
handling of cross orders is necessary because, for example, the 
Exchange receives a significant number of cross orders marked 
Qualified Contingent Trade (``QCT''), the execution of which is 
required, among other things, to be contingent upon the execution of 
all other components at or near the same time. See Notice, supra 
note 7, 80 FR at 54337. Thus, the Exchange states that it is 
preferable to momentarily delay processing of QCTs to give such 
orders the opportunity to clear the CHX book, whereas the Exchange 
believes that an immediate cancellation could result in the QCT 
being out-of hedge with the other component trades. See id. The 
Exchange also argues that, in light of the manual nature of QCT 
order packaging process, the approximate one second delay in 
processing a QCT on the FIFO Queue is immaterial with respect to the 
execution ``at or near the same time'' requirement for QCTs. See id.

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[[Page 61543]]

    During the SNAP Cycle, the following incoming messages would be 
queued in the proposed First In/First Out (``FIFO'') Queue for later 
processing: (1) Cancel and cancel/replace messages for resting or 
queued orders; (2) cancel messages from away markets for routed orders 
received after the SNAP Order Acceptance Period; (3) SNAP Eligible 
Orders received after the SNAP Order Acceptance Period; and (4) cross 
orders. The Exchange asserts that the FIFO Queue is necessary because 
the immediate processing of most messages would be suspended during the 
SNAP Cycle.\55\ The Exchange further argues that the momentary delay of 
processing of the messages in the FIFO Queue is reasonable because the 
delay would be no longer than the approximate one second that it would 
take for the SNAP Cycle to be completed and market liquidity in the 
subject security would be enhanced by preserving such orders and 
reducing unnecessary order cancellations.\56\
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    \55\ See Notice, supra note 7, 80 FR at 54337.
    \56\ See id.
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    Upon the conclusion of the Order Acceptance Period, the Matching 
System will take a snapshot of the Protected Quotation(s) of external 
market(s) in the subject security and determine whether or not the CHX 
Routing Services are available. If the snapshot of the Protected 
Quotation(s) of external market(s) in the subject security shows that a 
two-sided NBBO exists and the CHX Routing Services are available, the 
SNAP Cycle will continue to stage three, the Pricing and Satisfaction 
Period; if the market snapshot shows that a two-sided NBBO does not 
exist or the CHX Routing Services are unavailable, the SNAP Cycle will 
abort without any executions, and the Matching System will take another 
snapshot of the Protected Quotation(s) of external market(s) in the 
subject security and immediately transition to stage five, Transition 
to the Open Trading State.

Stage 3: The Pricing and Satisfaction Period

    Using the market snapshot taken at the conclusion of the Order 
Acceptance Period, the Matching System will initiate the Pricing and 
Satisfaction Period.\57\ First, the Matching System will price all SNAP 
AOOs marked SNAPP AOO--Pegged \58\ that remain on the SNAP AOO Queue, 
and then rank those orders on the SNAP CHX book pursuant to proposed 
CHX Article 20, Rule 8(b)(3)(E).\59\ The SNAP CHX book is complete once 
these remaining orders from the SNAP AOO Queue are processed.\60\
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    \57\ See Notice, supra note 7, 80 FR at 54338-40.
    \58\ See supra note 49.
    \59\ See supra note 52.
    \60\ See Notice, supra note 7, 80 FR at 54338.
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    After SNAP AOOs marked SNAP AOO--Pegged are priced, the Matching 
System will determine the SNAP Price. Under proposed Article 1, Rule 
1(rr), the SNAP Price is the single price at which the greatest number 
of shares may be executed during a SNAP Cycle without trading-through 
any more aggressively priced orders on either side of the market, in 
compliance with all CHX Rules and relevant securities laws and 
regulations, including Regulation NMS and Rule 201 of Regulation SHO, 
and any applicable exemptive relief therefrom.\61\ Where two or more 
price points are identified when the Matching System is determining the 
SNAP Price, the SNAP Price will be the price closest to the last 
reported sale in the security from the same trading day that was not 
permitted to trade-through the NBBO at the time the last sale was 
executed (``eligible same day last sale''); where two or more price 
points are equally close to the eligible same day last sale price, the 
SNAP Price will be the eligible same day last sale price.\62\ If an 
eligible same day last sale cannot be ascertained, the SNAP Price will 
be the price closest to the NBBO midpoint.\63\ Where two or more price 
points are equally close to the NBBO midpoint, the SNAP Price will be 
the NBBO midpoint.\64\
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    \61\ See Notice, supra note 7, 80 FR at 54332-33.
    \62\ See Notice, supra note 7, 80 FR at 54333.
    \63\ See id.
    \64\ See id.
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    If the SNAP Price cannot be determined, the Matching System will 
take a snapshot of the Protected Quotation(s) of external market(s) in 
the subject security and the SNAP Cycle will transition to stage five, 
Transition to the Open Trading State.\65\ If the SNAP Price can be 
determined and one or more orders must be routed away, pursuant to 
proposed CHX Article 19, Rule 3(a)(4) and/or (5),\66\ the Satisfaction 
Period of stage three will begin. If no order routing is necessary, the 
SNAP Cycle will continue to stage four, the Order Matching Period.
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    \65\ In the filing, the Exchange provides examples of when the 
Matching System would be unable to determine a SNAP Price. See 
Notice, supra note 7, 80 FR at 54338.
    \66\ Proposed CHX Article 19, Rule 3(a)(4) provides that a 
Routable Order, as defined under CHX Article 1, Rule 1(oo), or a 
portion thereof, shall be routed pursuant to the CHX Routing 
Services in compliance with CHX rules and all federal securities 
laws, rules and regulations, including Regulation NMS and Regulation 
SHO, to the extent necessary to permit orders to be executed within 
the Matching System at the SNAP Price in compliance with Regulation 
NMS. See Notice, supra note 7, 80 FR at 54340. Orders routed away 
pursuant to paragraph (a)(4) shall be priced (1) at the SNAP Price 
or, (2) if the SNAP Price is priced at an increment smaller than the 
relevant minimum price increment, at the minimum price increment 
less aggressive than the SNAP Price. See id. Proposed CHX Article 
19, Rule 3(a)(5) provides that a Routable Order, as defined under 
CHX Article 1, Rule 1(oo), or a portion thereof, shall be routed 
pursuant to the CHX Routing Services in compliance with CHX rules 
and all federal securities laws, rules and regulations to the extent 
necessary to execute SNAP Eligible Orders at the SNAP Price against 
Protected Quotations of external markets priced at the SNAP Price 
that could not be matched within the Matching System, during a SNAP 
Cycle. See id. The Exchange also proposes to amend the definition of 
Routable Order under CHX Article 1, Rule 1(oo) to specify that 
during a SNAP Cycle, participating SNAP Eligible Orders are always 
Routable Orders. See Notice, supra note 7, 80 FR at 54340 n.73.
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    During the Satisfaction Period, the Exchange's routing systems will 
route away the necessary SNAP Eligible Orders, or portions thereof, 
based on the execution priority rules set forth in proposed CHX Article 
18, Rule 1(b)(4)(A).\67\ The Matching System will then delay proceeding 
to stage four, the Order Matching Period, for 200 milliseconds or until 
all confirmations for routed orders have been received from away 
market(s), whichever occurs first. According to the Exchange, the 
purpose of this delay is to give away markets sufficient time to 
respond to the SNAP routed orders so that any unexecuted SNAP routed 
orders would be included in the SNAP execution in the Matching System 
in that SNAP Cycle.\68\ The unexecuted remainders of

[[Page 61544]]

orders routed away and returned to the Matching System prior to the 
expiration of the Satisfaction Period during which the orders were 
routed away will maintain their respective original execution priority 
within the SNAP CHX book. Any unexecuted remainders returned to the 
Matching System after the expiration of the Satisfaction Period during 
which the orders were routed away will be handled pursuant to CHX 
Article 20, Rule 8(b)(7).\69\
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    \67\ See infra, notes 70-72 and accompanying text for an 
explanation of the execution priority rules set forth in proposed 
CHX Article 18, Rule 1(b)(4)(A).
    \68\ See Notice, supra note 7, 80 FR at 54339. In connection 
with this up-to-200 millisecond delay, the Exchange also requested 
exemptive relief from the ``current'' national best bid requirement 
explicitly required by Rule 201 of Regulation SHO, see 17 CFR 
242.201, to determine whether a short sale order in a covered 
security under Regulation SHO (i.e., any NMS Stock as defined in 17 
CFR 242.600(b)(47)) can be executed in a SNAP Cycle. See Letter from 
Albert J. Kim, VP and Associate General Counsel, CHX, to Josephine 
J. Tao, Assistant Director, Division of Trading and Markets, 
Commission, dated October 6, 2015. The Exchange explained that the 
200 millisecond delay may result in SNAP Eligible Orders executing 
at or below the current national best bid while Rule 201 is in 
effect, see id., which would violate Rule 201(b), see 17 CFR 201(b) 
(requiring, among other things, that a trading center establish, 
maintain, and enforce written policies and procedures reasonably 
designed to prevent the execution or display of a short sale order 
of a covered security at a price that is less than or equal to the 
current national best bid if the price of that covered security 
decreases by 10% or more from the covered security's closing price 
as determined by the listing market for the covered security as of 
the end of regular trading hours on the prior day). The Commission 
granted the Exchange an exemption from Rule 201 to permit the 
Exchange to use a reference price other than the current national 
best bid under Rule 201 in determining permissible execution prices 
in SNAP Cycles where there is a SNAP execution delay between the 
stage 2 market snapshot and SNAP executions, subject to certain 
conditions. See Letter from Josephine J. Tao, Assistant Director, 
Division of Trading and Markets, Commission, to Albert J. Kim, VP 
and Associate General Counsel, CHX, dated October 6, 2015.
    \69\ Pursuant to proposed CHX Article 20, Rule 8(b)(7), an 
unexecuted remainder of a routed order returned to the Matching 
System in one or more parts will be added to the existing balance of 
the related Routable Order already posted to the CHX book, the SNAP 
CHX book, or the SNAP AOO Queue, as applicable. See Notice, supra 
note 7, 80 FR at 54339-40. If no balance exists at the time a part 
of an unexecuted remainder of a routed order is returned to the 
Matching System, the order will be treated as a new incoming order, 
subject to Satisfaction Period provisions set forth in proposed CHX 
Article 18, Rule 1(b)(3)(C). See id. As noted above, the unexecuted 
remainders of orders routed away and then returned to the Matching 
System prior to the expiration of the Satisfaction Period during 
which the orders were routed away will maintain their respective 
original execution priority within the SNAP CHX book and will not be 
treated as new incoming orders. See Notice, supra note 7, 80 FR at 
54340.
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Stage 4: The Order Matching Period

    Upon conclusion of the stage three Pricing and Satisfaction Period, 
orders remaining on the SNAP CHX book if any, will be matched at the 
SNAP Price in accordance with the execution priority provisions set 
forth in proposed CHX Article 18, Rule 1(b)(4), and after those orders 
are matched, the Matching System will take another snapshot of the 
Protected Quotation(s) of external market(s) in the subject 
security.\70\ Under proposed paragraph (b)(4), SNAP Eligible Orders 
with a Working Price \71\ at or more aggressive than the SNAP Price 
will be executed in Working Price priority and if more than one such 
order shares the same Working Price, then as described under Article 
20, Rule 8(b)(3), for that price point.\72\ Accordingly, orders will be 
executed according to their rank at the SNAP Price, except that orders 
with a more aggressive Working Price will be executed first.\73\ The 
Exchange will utilize the market snapshot taken during the Order 
Matching Period for regulatory compliance purposes in transitioning the 
Open Trading State during stage five.\74\
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    \70\ See Notice, supra note 7, 80 FR at 54340-41.
    \71\ Under CHX Article 1, Rule 1(pp), Working Price is defined 
as the most aggressive price at which a resting limit order, as 
defined under CHX Article 1, Rule 2(a)(1), can execute within the 
Matching System, in compliance with CHX Rules and relevant 
securities laws and regulations, including Rule 611 of Regulation 
NMS and Rule 201 of Regulation SHO.
    \72\ See supra notes 50 and 52.
    \73\ See Notice, supra note 7, 80 FR at 54340.
    \74\ See Notice, supra note 7, 80 FR at 54341-42.
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Stage 5: The Transition to Open Trading State

    During stage five, the Transition to Open Trading State, the 
Matching System will use the relevant market snapshot to transition 
trading in the subject security to the Open Trading State.\75\ 
Specifically, orders resting on the SNAP CHX book will be either: (1) 
Transitioned onto the CHX book and ranked pursuant to the Exchange's 
ranking rules for orders during the Open Trading State; \76\ (2) routed 
away; (3) placed in the SNAP AOO Queue, if the order is a SNAP AOO that 
may participate in a subsequent SNAP Cycle; or (4) otherwise cancelled. 
Additionally, order modifiers attached to the SNAP Eligible Orders 
being transitioned to the CHX book that were deactivated during the 
SNAP Cycle will be reactivated prior to transition to the CHX book.
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    \75\ See id.
    \76\ See proposed CHX Article 20, Rule 8(b)(1).
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    Once these processes have finished, all messages queued on the FIFO 
Queue during the SNAP Cycle will be processed as incoming messages in 
the order in which they were received. As the final step of the SNAP 
Cycle, the Exchange will: (1) notify the market that the SNAP Cycle has 
concluded; (2) publish Protected Quotation(s) in the subject security, 
if any; and (3) begin the dissemination of relevant order information 
concerning orders resting on the CHX book.

III. Discussion and Commission Findings

    After careful review and consideration, the Commission finds that 
the proposed rule change, as modified by Amendment No. 1, is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange.\77\ 
In particular, the Commission finds that the proposed rule change is 
consistent with section 6(b)(5) of the Act,\78\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade; to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system; and, in general, to protect investors and the 
public interest, and that the rules of a national securities exchange 
not be designed to permit unfair discrimination between customers, 
issuers, brokers or dealers.
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    \77\ In approving this proposed rule change, as amended, the 
Commission notes that it has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \78\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal is reasonably designed to 
facilitate the auction trading of securities on CHX in a fair and 
orderly manner, and could improve market quality for market 
participants seeking to execute bulk trading interests and for other 
market participants submitting orders in response to that interest. The 
Commission believes that the SNAP may promote liquidity while 
minimizing potential information leakage that could disadvantage market 
participants whose orders are participating in the SNAP Cycle. At the 
initiation of the SNAP Cycle, the Exchange will broadcast to the market 
that an aggressively priced trading interest \79\ in a particular 
security of a substantial size \80\ is guaranteed to exist at CHX 
without disclosing details of the order. That signal will allow market 
participants to respond to what must be a large Start SNAP order priced 
at or better than the NBBO at the time the Start SNAP order was 
received by the Matching System.\81\ The SNAP CHX book will be fully 
hidden, and market data dissemination would be suspended during a SNAP 
Cycle (except for the SNAP execution reports to the relevant SIP and 
order senders). The Commission notes that the Exchange has represented 
that orders will be executed in the SNAP at the SNAP Price in a manner 
consistent with all CHX Rules and relevant securities laws and 
regulations, including Regulation NMS and Rule 201 of Regulation SHO, 
and any applicable exemptive relief therefrom.\82\
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    \79\ The limit price of the Start SNAP order must be priced at 
or through the NBO for buy orders or NBB for sell orders at the time 
the order was received by the Matching System. See supra note 40 and 
accompanying text.
    \80\ Generally, a Start SNAP order must be (a) at least 2,500 
shares and have a minimum aggregate notional value of $250,000 or 
(b) at least 20,000 shares with no minimum aggregate notional value 
requirement. See supra note 39 and accompanying text.
    \81\ See supra notes 79 and 80 and accompanying text.
    \82\ See supra note 61- 66 and accompanying text. The Commission 
notes that the Exchange has obtained exemptive relief from certain 
requirements of the short sale price test restriction of Rule 201 of 
Regulation SHO in connection with certain SNAP processes. See supra 
note 68.

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[[Page 61545]]

    The Exchange has included functionalities in SNAP that the Exchange 
states are designed to deemphasize speed as a key for trading success. 
A SNAP Cycle will never be scheduled ahead of time, and the length of 
the SNAP Order Acceptance Period would be randomized.\83\ The SNAP also 
deemphasizes speed advantages because Participants may submit SNAP AOOs 
to rest on the SNAP AOO Queue prior to a SNAP Cycle, and those AOOs 
would maintain priority over SNAP Eligible Orders submitted during the 
SNAP Cycle.\84\ The Commission believes that the proposal, which is 
intended to deemphasize speed advantages during the SNAP Cycle, is 
reasonably designed to help promote just and equitable principles of 
trade and remove impediments and perfect the mechanisms of a free and 
open market. The Commission believes that the SNAP may encourage 
competition among trading venues, which may inure to the benefit of 
investors.
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    \83\ See Notice, supra note 7, 80 FR at 54347.
    \84\ See id.
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    For the above reasons, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act.

IV. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the 30th day after the 
date of publication of notice of Amendment No. 1 in the Federal 
Register.\85\ In Amendment No. 1, the Exchange proposes to amend the 
minimum size requirements for the following: (1) Limit orders marked 
Start SNAP for securities that do not have a special minimum size 
requirement; and (2) SNAP AOOs for securities that do not have a 
special minimum size requirement. With respect to Start SNAP orders, 
the Exchange proposes to replace the previously proposed tier-based 
minimum size requirements with a requirement that a Start SNAP order be 
for at least: (1) 2,500 shares and have a minimum aggregate notional 
value of $250,000; or (2) 20,000 shares with no minimum aggregate 
notional value requirement. With respect to SNAP AOOs, the Exchange 
also proposes to replace the previously proposed tier-based minimum 
size requirements with a requirement that a SNAP AOO be for at least: 
(1) 250 shares and have a minimum aggregate notional value of $25,000 
based on its corresponding SNAP AOO Reference Price; or (2) at least 
2,000 shares with no minimum aggregate notional value requirement.
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    \85\ As mentioned above, Amendment No. 1 was published for 
comment in the Federal Register on September 9, 2015. Accordingly, 
the 30th day after publication of the Notice is October 9, 2015.
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    The Exchange states that it received feedback from certain 
Participants indicating that the original tier-based minimum size 
requirements were counter-intuitive and would unnecessarily complicate 
the programming of those Participants' respective systems to 
automatically initiate and participate in SNAP Cycles, and that the 
proposed simplification of the minimum size requirements is designed to 
address those concerns.\86\ The Commission finds that Amendment No. 1 
is consistent with the protection of investors and the public interest, 
and notes that the Commission solicited comments regarding Amendment 
No. 1 and no comments have been received.\87\
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    \86\ See Amendment No. 1 at pgs. 3-4.
    \87\ See Notice, supra note 7.
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    Accordingly, the Commission finds good cause, pursuant to section 
19(b)(2) of the Act,\88\ to approve the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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    \88\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered that, pursuant to section 19(b)(2) of the 
Act,\89\ the proposed rule change, as modified by Amendment No. 1, (SR-
CHX-2015-03) be, and hereby is, approved on an accelerated basis.
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    \89\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\90\
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    \90\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-25886 Filed 10-9-15; 8:45 am]
 BILLING CODE 8011-01-P