[Federal Register Volume 81, Number 79 (Monday, April 25, 2016)]
[Notices]
[Pages 24151-24153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09455]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77652; File No. SR-CHX-2016-05]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt the CHX SNAP Incentive Program

April 19, 2016.
    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 April 6, 2016, 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, II, 
and III 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CHX proposes amend its Schedule of Fees and Assessments (the ``Fee 
Schedule'') to adopt the CHX SNAP Incentive Program. The text of this 
proposed rule change is available on the Exchange's Web site at 
(www.chx.com) and in the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to adopt the CHX Sub-second Non-displayed 
Auction Process (``SNAP'') Incentive Program (``SAIP''). On October 6, 
2015, the Securities and Exchange Commission (``SEC'') approved the 
Exchange's proposed rule change to adopt SNAP, an intra-day on-demand 
auction service, which would be initiated on the Exchange in a security 
upon receipt of a valid Start SNAP order submitted by a Participant.\3\ 
In order to incentivize Participants to utilize the SNAP functionality, 
the Exchange will not be assessing any fees for executions that occur 
during the stage four Order Matching Period of a SNAP Cycle (``SNAP 
executions''),\4\ pursuant to Section E.9 of the Fee Schedule.\5\
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    \3\ The SNAP functionality is not yet operative and will become 
operative with two weeks' notice by the Exchange to its 
Participants. See Securities Exchange Act Release No. 76087 (October 
6, 2015), 80 FR 61540 (October 13, 2015); see also Securities 
Exchange Act Release No. 75346 (July 1, 2015), 80 FR 39172 (July 8, 
2015) (SR-CHX-2015-03); see also CHX Article 1, Rule 2(h)(1) 
defining ``Start SNAP''; see also generally CHX Article 18, Rule 1.
    \4\ See id.; see also CHX Article 18, Rule 1(b)(4).
    \5\ See Securities Exchange Act Release No. 76249 (October 23, 
2015), 80 FR 66603 (October 29, 2015) (SR-CHX-2015-06).
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    The Exchange now proposes to adopt the SAIP to further incentivize 
Participants to initiate SNAP Cycles. Proposed Section Q begins by 
providing that the SAIP shall begin on the operative date of the SNAP 
functionality, shall be divided into two consecutive parts and shall 
conclude at the end of Part 2, as described below.\6\ It continues by 
providing that for each SNAP Cycle initiated by a Start SNAP order, the 
Exchange shall attribute to the Participant that submitted the 
initiating Start SNAP order an SAIP rebate based on the total number of 
shares executed (``eligible executed shares'') -1- within the Matching 
System during the stage four Order Matching Period and -2- away during 
the stage three Pricing and Satisfaction Period, if such away 
executions are confirmed during the same stage three Pricing and 
Satisfaction Period, pursuant to the following table:
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    \6\ See supra note 3.

 
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                                                                                                   Cap per SNAP
                                                                      Rate                             Cycle
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Part 1........................................  $0.0050 per eligible executed share.............         $250.00
Part 2........................................  $0.0025 per eligible executed share.............          125.00
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    Proposed Section Q further provides that Part 1 will end upon 
attribution of the SAIP rebate (or rebates, if two or more SNAP Cycles 
with eligible executed shares were initiated in different securities at 
precisely the same time) that results in either -1- $50,000 of total 
rebates attributed or -2- over $50,000 total rebates attributed if the 
total rebates attributed immediately prior to the attribution of the 
relevant SAIP rebate(s) was less than $50,000. Moreover, Part 2 will 
end upon attribution of the SAIP rebate (or rebates, if two or more 
SNAP Cycles

[[Page 24152]]

with eligible executed shares were initiated in different securities at 
precisely the same time) that results in either -1- $100,000 of total 
rebates attributed or -2- over $100,000 total rebates attributed if the 
total rebates attributed immediately prior to the attribution of the 
relevant SAIP rebate(s) was less than $100,000.
    The Exchange notes that the initiating Participant may receive a 
SAIP rebate even if its Start SNAP order did not receive any 
executions. This may result if the SNAP Price \7\ is calculated to be 
at a price point more aggressive than the limit price of the Start SNAP 
order. The Exchange submits that this possibility is acceptable in 
light of the purpose of the SAIP, which is to incentivize Participants 
to initiate successful SNAP Cycles, regardless of which Participants 
receive executions. The Exchange further notes that in the event two or 
more SNAP Cycles in different securities with eligible executed shares 
are initiated at precisely the same time \8\ and the conclusion of such 
SNAP Cycles would result in the end of Part 1 or Part 2 of the SAIP, 
all Participants would be attributed the appropriate SAIP rebate based 
on the same rate and cap, as illustrated in the below examples.
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    \7\ See supra note 3; see also CHX Article 1, Rule 1(rr).
    \8\ Only one SNAP Cycle may occur at a time in a given security. 
See supra note 3; see also CHX Article 1, Rule 2(h)(1)(A)(iii) and 
Article 18, Rule 1(a).
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    The following examples illustrate how the SAIP rebates would be 
attributed pursuant to proposed Section Q:
    Example 1. Assume that the total SAIP rebates attributed to all 
Participants pursuant to proposed Section Q is $49,900. Assume then 
that a SNAP Cycle is initiated by Participant A in security XYZ, which 
results in 70,000 eligible executed shares during the SNAP Cycle.
    Under this Example 1, the SAIP rebate attributed to Participant A 
would be $250.00, even though the product of $0.0050 per eligible 
executed share and 70,000 eligible executed shares is $350.00, because 
SAIP rebates are capped at $250.00 during Part 1. Moreover, since the 
SAIP rebate attributed to Participant A would result in at least 
$50,000 total SAIP rebates attributed (i.e., $50,150), the next SAIP 
rebate attributed would be calculated pursuant to Part 2 of the SAIP.
    Example 2. Assume that the total SAIP rebates attributed to all 
Participants pursuant to proposed Section Q is $99,900. Assume then 
that a SNAP Cycle is initiated by Participant B in security XYZ, which 
results in 40,000 eligible executed shares during the SNAP Cycle.
    Under this Example 2, the SAIP rebate attributed to Participant B 
would be $100.00 because the SAIP is in Part 2 and the product of 
$0.0025 per eligible share and 40,000 eligible executed shares is 
$100.00. Moreover, since the SAIP rebate attributed to Participant B 
would result in at least $100,000 total SAIP rebates attributed (i.e., 
$100,000 total SAIP rebates attributed), the SAIP would be terminated.
    Example 3. Assume the same as Example 2 and that a SNAP Cycle is 
initiated by Participant C in security ABC that results in the same 
number of eligible executed shares as in Example 2. Assume also that 
the SNAP Cycle initiated by Participant C was initiated at precisely 
the same time as the SNAP Cycle initiated by Participant B.
    Under this Example 3, both Participant B and C would receive a SAIP 
rebate of $100.00 because the Exchange was not able to ascertain 
precisely which SNAP Cycle was initiated first. The SAIP would then be 
terminated.
Notice of Conclusion of Part 1 and Part 2 of the SAIP
    After the conclusion of each trading day, the Exchange will 
calculate the aggregate number of eligible executed shares from all 
previous trading days. Based on this figure, the Exchange will notify 
Participants via Information Memorandum prior to the next trading day 
that Part 1 or Part 2 of the SAIP had concluded on the previous trading 
day, as applicable. After the conclusion of the SAIP, the Exchange will 
file a proposed rule change to either extend or eliminate the SAIP.
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 reasonable dues, fees and 
other charges among members and other persons using its facilities. 
Specifically, the SAIP is equitable because it is available to all 
Participants. Moreover, the amount of the credit is reasonable in light 
of the rebate caps of $250.00 and $125.00 for Parts 1 and 2 of the 
SAIP, respectively, which are small amounts relative to the anticipated 
large aggregate values of eligible executed shares. The Exchange also 
believes that permitting a Start SNAP order sender to receive a SAIP 
rebate for eligible executed shares, even where the Start SNAP order 
itself did not receive any executions, is reasonable because the 
purpose of the SAIP is to incentivize Participants to initiate SNAP 
Cycles, which is achieved upon acceptance of a valid Start SNAP order.
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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 Exchange operates in a 
highly competitive market in which market participants can readily 
direct order flow to competing venues if they deem fee levels set by 
the Exchange to be excessive. The Exchange believes that the proposed 
SAIP will encourage Participants to initiate SNAP Cycles, which is an 
innovative trading functionality that addresses a market need.\11\ 
Thus, the proposed rule change is a competitive proposal that is 
intended to enhance liquidity and increase order executions on the 
Exchange, which will, in turn, benefit the Exchange and all 
Participants. Moreover, the Exchange notes that the SAIP is similar to 
liquidity provide or remove credits for executions resulting from 
single-sided orders that are offered by virtually every national 
securities exchange.\12\
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    \11\ See supra note 3; see also Mary Jo White, Chair, Securities 
and Exchange Commission, Speech at Sandler O'Neil & Partners L.P. 
Global Exchange and Brokerage Conference (June 5, 2014).
    \12\ See e.g., Section E.1 of the CHX Fee Schedule; see also 
e.g., NYSE Arca Equities Schedule of Fees and Charges for Exchange 
Services Tier 1 credits for provide liquidity orders in Tapes A and 
C securities; see also e.g., Bats BYX Exchange Fee Schedule 
``Standard Rates.''
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A)(ii) of the Act \13\ and subparagraph(f)(2) of Rule 
19b-4 thereunder \14\ because it establishes or changes a due, fee or 
other charge imposed by the Exchange.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 17 CFR 240.19b-4(f)(2).

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[[Page 24153]]

    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-2016-05 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CHX-2016-05. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CHX-2016-05, and should be 
submitted on or before May 16, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Robert W. Errett,
Deputy Secretary.
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    \15\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-09455 Filed 4-22-16; 8:45 am]
 BILLING CODE 8011-01-P