[Federal Register Volume 80, Number 215 (Friday, November 6, 2015)]
[Notices]
[Pages 68888-68890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28267]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76326; File No. SR-CHX-2015-08]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify Its Smart Versus Direct Routing Protocol

November 2, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on October 26, 2015, the Chicago Stock Exchange, Inc. (``CHX'' or 
``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 Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CHX proposes to modify its smart versus direct order routing 
protocol. CHX has designated this proposed rule change as non-
controversial pursuant to Section 19(b)(3)(A) \3\ of the Act and Rule 
19b-4(f)(6) \4\ thereunder and has provided the Commission with the 
notice required by Rule 19b-4(f)(6)(iii).\5\ 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.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the CHX included statements 
concerning the purpose of and basis for the proposed rule changes and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The CHX has prepared summaries, set forth in sections A, 
B and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to modify its smart versus direct order 
routing protocol, which was recently clarified and modified under SR-
CHX-2015-02.\6\ Specifically, the Exchange proposes to (1) eliminate 
the Exchange's special routing handling for Protected Quotations \7\ 
displayed on the Alternative Display Facility (``ADF'') operated by the 
Financial Industry Regulatory Authority (``FINRA'') \8\ (``ADF special 
handling'') \9\ and (2) to always direct a non-affiliate third-party 
routing broker (``third-party routing broker'') to route orders to 
specific routing destinations, when required by CHX Rules,\10\ 
including situations where orders would be routed pursuant to a routing 
table maintained by the Exchange, as described in detail below. The 
Exchange does not propose to substantively modify the smart versus 
direct order routing protocol or the CHX Routing Services in any other 
way.
---------------------------------------------------------------------------

    \6\ See Exchange Act Release No. 74487 (March 12, 2015), 80 FR 
14193 (March 18, 2015) (SR-CHX-2015-02).
    \7\ See 17 CFR 242.600(a)(58).
    \8\ See FINRA Rule 6210.
    \9\ See supra note 6.
    \10\ See CHX Article 19, Rule 3(a).
---------------------------------------------------------------------------

    Currently, upon the triggering of a Routing Event,\11\ the Exchange 
will route away Routable Orders,\12\ or portions thereof, through 
CHXBD, LLC, which is an affiliated routing broker that operates as a 
facility of the Exchange, which would then forward orders to a third-
party routing broker for routing to the ultimate routing 
destination.\13\ All orders routed to the third-party routing broker 
will include instructions for the third-party routing broker to either 
direct route the order to a specific destination or to smart route the 
order utilizing the third-party routing broker's routing technology, 
pursuant to a routing table provided and maintained by the Exchange. 
The decision to smart or direct route orders is made by the Exchange 
pursuant to the following smart versus direct order routing protocol: 
\14\
---------------------------------------------------------------------------

    \11\ Id.
    \12\ See CHX Article 1, Rule 1(oo).
    \13\ See Exchange Act Release No. 73150 (September 19, 2014), 79 
FR 57603 (September 25, 2014) (SR-CHX-2014-15).
    \14\ See supra notes 6 and 13.
---------------------------------------------------------------------------

     Smart route. Subject to ADF special handling, if the 
portion of a Routable Order that is to be routed away at a certain 
price point is smaller than the aggregate size of two or more contra-
side Protected Quotations that could be satisfied at that price point, 
the Exchange will rely on a third-party routing broker to utilize its 
smart routing technology to route away the corresponding orders 
pursuant to a routing table provided by the Exchange. When orders are 
smart routed, the relevant snapshot of Protected Quotations of external 
markets for Regulation NMS purposes will be taken by the third-party 
routing broker and the third-party routing broker would route orders 
marked Immediate Or Cancel \15\ and Intermarket Sweep Order \16\ 
(``IOC/ISO'').
---------------------------------------------------------------------------

    \15\ See CHX Article 1, Rule 2(d)(4).
    \16\ See CHX Article 1, Rule 2(b)(3)(B).
---------------------------------------------------------------------------

     Direct route. Subject to ADF special handling, if the 
portion of a Routable Order that is to be routed away at a certain 
price point is smaller than the size of one contra-side Protected 
Quotation that could be satisfied or is the same size as the aggregate 
size of one or more contra-side Protected Quotations that could be 
satisfied at that price point, the Exchange will direct the third-party 
routing broker to route corresponding orders to specific routing 
destinations. Thus, the relevant snapshot of the Protected Quotations 
of

[[Page 68889]]

external markets for Regulation NMS purposes will be taken by the 
Exchange and the Exchange would route IOC/ISOs to the third-party 
routing broker along with instructions to route the orders to a 
specific destination.
     ADF Special Handling. If one of the contra-side Protected 
Quotations described above is displayed on the ADF, the Exchange will 
route the entire remaining balance of the Routable Order to a third-
party routing broker for smart routing.
    The Exchange now proposes to always direct a third-party routing 
broker to route orders to specific routing destinations, regardless of 
whether an order would be smart or direct routed. Specifically, if the 
Exchange's routing systems determine that a Routable Order should be 
smart routed, the Exchange's routing systems will create the necessary 
corresponding orders (as opposed to handing such responsibilities to 
the third-party routing broker), pursuant to a routing table maintained 
by the Exchange, and direct the third-party routing broker to route the 
corresponding orders to specific routing destinations. Thus, the result 
is that the Exchange will always direct a third-party routing broker to 
route IOC/ISOs to specific destinations. Also, the Exchange proposes to 
eliminate ADF special handling and treat Protected Quotations displayed 
on the ADF like any other Protected Quotations displayed in the 
national market system. Thus, the smart versus direct order routing 
protocol would be simplified as follows:
     Smart route. If the portion of a Routable Order that is to 
be routed away at a certain price point is smaller than the aggregate 
size of two or more contra-side Protected Quotations that could be 
satisfied at that price point, the Exchange will utilize its smart 
routing technology and direct the third-party routing broker to route 
IOC/ISO(s) to specific routing destinations.
     Direct route. If the portion of a Routable Order that is 
to be routed away is smaller than the size of one contra-side Protected 
Quotation that could be satisfied or is the same size as the aggregate 
size of one or more contra-side Protected Quotations that could be 
satisfied at that price point, the Exchange will direct the third-party 
routing broker to route IOC/ISO(s) to specific routing destinations.
     In either scenario, the relevant snapshot of Protected 
Quotations of external markets will be taken by the Exchange.
Operative Date
    The Exchange proposes to make the proposed rule change operative as 
follows:
     The proposal for the Exchange to always direct a third-
party routing broker to route orders to specific destinations shall be 
operative October 29, 2015, prior to the Exchange's Regulation SCI 
compliance date of November 3, 2015.\17\
---------------------------------------------------------------------------

    \17\ See Exchange Act Release No. 73639 (December 5, 2014), 79 
FR 72251 (December 5, 2014).
---------------------------------------------------------------------------

     The proposed elimination of ADF special handling shall be 
operative pursuant to two weeks' notice by the Exchange to its 
Participants via Information Memorandum on a date to coincide with the 
operative date of CHX Sub-second Non-displayed Auction Process 
(``SNAP''),\18\ which will not occur during the thirty (30) day pre-
operative waiting period contained in Exchange Act Rule 19b-
4(f)(6)(iii).\19\
---------------------------------------------------------------------------

    \18\ The proposed rule change to adopt SNAP was recently 
approved, but is not yet operative. See Securities Exchange Act 
Release No. 76087 (October 6, 2015), 80 FR 61540 (October 13, 2015).
    \19\ Id.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act in general \20\ and furthers the objectives of Section 
6(b)(5) in particular,\21\ in that it is designed to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions 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 proposal removes 
impediments and perfects the mechanisms of a free and open market by 
streamlining the CHX Routing Services through simplifying the smart 
versus direct routing protocol, which also protects investors and the 
public interest.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement of Burden on Competition

    The Exchange does not believe that the proposal will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, the Exchange 
believes that the proposal will enhance competition by streamlining the 
CHX Routing Services. Thus, the proposal is a competitive proposal that 
is intended to draw additional order flow to the Exchange, which will, 
in turn, benefit the Exchange and all Participants.

C. Self-Regulatory Organization's Statement on Comments Regarding the 
Proposed Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-
4(f)(6) thereunder.\23\
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), CHX provided the Commission with written notice of its 
intent to file the proposed rule change, along with a brief 
description and the 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 requested that the Commission waive the 
requirement that the rule change not become operative for 30 days after 
the date of the filing as set forth in Rule 19b-4(f)(6)(iii),\24\ so 
that the proposal may become immediately operative upon filing. The 
Exchange has stated that it desires to operate under the proposal to 
begin always directing a third-party routing broker to route orders to 
specific destinations on October 29, 2015, allowing the proposal to be 
fully implemented prior to the Exchange's Regulation SCI compliance 
date of November 3, 2015.\25\ Waiver of the operative waiting period 
and implementation prior to the SCI compliance date would permit the 
Exchange to exclude the third-party routing broker from its Regulation 
SCI compliance responsibilities. In addition, the Exchange believes 
that an operative date ahead of the Exchange's actual Regulation SCI 
compliance date is necessary to better ensure that the proposed 
modification is operating properly before the Exchange's Regulation SCI 
compliance date. For those reasons, the Commission finds that waiver of 
the 30-day pre-operative waiting period is consistent with the 
protection of investors and the public. The Commission hereby waives 
the 30-

[[Page 68890]]

day operative delay and designates the proposal effective upon 
filing.\26\
---------------------------------------------------------------------------

    \24\ 17 CFR 240.19b-4(f)(6)(iii).
    \25\ See supra note 17.
    \26\ For purposes 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).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CHX-2015-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CHX-2015-08. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549-1090. Copies of the filing will also be available 
for inspection and copying at the Exchange's principal office. 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-2015-08 and should be 
submitted on or before November 27, 2015.
---------------------------------------------------------------------------

    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-28267 Filed 11-5-15; 8:45 am]
BILLING CODE 8011-01-P