[Federal Register Volume 82, Number 116 (Monday, June 19, 2017)]
[Notices]
[Pages 27904-27907]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-12588]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80916; File No. SR-CHX-2017-11]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing of a Proposed Rule Change To Adopt Article 23, Rule 
13, Consolidated Audit Trail--Fee Dispute Resolution

June 13, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''),\1\ notice is hereby given that on June 
5, 2017, the Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'' 
or ``SEC'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CHX proposes to amend the Rules of the Exchange (``CHX Rules'') to 
adopt Article 23, Rule 13 (Consolidated Audit Trail--Fee Dispute 
Resolution) to establish the procedures for resolving potential 
disputes related to CAT Fees charged to Industry Members.\2\ The text 
of this proposed rule change is available on the Exchange's Web site at 
http://www.chx.com/regulatory-operations/rule-filings/, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.
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    \2\ Unless otherwise specified, capitalized terms used in this 
rule filing are defined as set forth herein, or in the Consolidated 
Audit Trail Funding Fees Rule, the CAT Compliance Rule Series or in 
the CAT NMS Plan.
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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 self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B and C below, of the most 
significant parts of such statements.

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

1. Purpose
    The Exchange, Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., 
Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options 
Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board Options 
Exchange, Incorporated, Financial Industry Regulatory Authority, Inc. 
(``FINRA''), Investors' Exchange LLC, Miami International Securities 
Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq GEMX, LLC, 
Nasdaq ISE, LLC, Nasdaq MRX, LLC,\3\ NASDAQ PHLX LLC, The NASDAQ Stock 
Market LLC, New York Stock Exchange LLC, NYSE MKT LLC, NYSE Arca, Inc. 
and NYSE National, Inc.\4\ (collectively, the ``Plan Participants'' 
\5\) filed with the Commission, pursuant to Section 11A of the Exchange 
Act \6\ and Rule 608 of Regulation NMS thereunder,\7\ the National 
Market System Plan Governing the Consolidated Audit Trail (the ``CAT 
NMS Plan'' or ``Plan'').\8\ The Plan Participants filed the Plan to 
comply with Rule 613 of Regulation NMS under the Exchange Act. The Plan 
was published for comment in the Federal Register on May 17, 2016,\9\ 
and approved by the Commission, as modified, on November 15, 2016.\10\ 
The Plan is designed to create, implement and maintain a consolidated 
audit trail (``CAT'') that would capture customer and order event 
information for orders in NMS Securities and OTC Equity Securities, 
across all markets, from the time of order inception through routing, 
cancellation, modification, or execution in a single consolidated data 
source. The Plan accomplishes this by creating CAT NMS, LLC (the 
``Company''), of which each Plan Participant is a member, to operate 
the CAT.\11\ Under the CAT NMS Plan, the Operating Committee of the 
Company (``Operating Committee'') has discretion to establish funding 
for the Company to operate the CAT, including establishing fees that 
the Plan Participants will pay, and establishing fees for Industry 
Members that will be implemented by the Plan

[[Page 27905]]

Participants (``CAT Fees'').\12\ The Plan Participants are required to 
file with the SEC under Section 19(b) of the Exchange Act any such CAT 
Fees applicable to Industry Members that the Operating Committee 
approves.\13\ Accordingly, the Exchange has filed a proposed rule 
change with the SEC to adopt the Consolidated Audit Trail Funding Fees, 
which will require Industry Members that are Exchange members to pay 
the CAT Fees determined by the Operating Committee.\14\ The Exchange 
submits this rule filing to adopt Rule 13 (Consolidated Audit Trail--
Fee Dispute Resolution) to establish the procedures for resolving 
potential disputes related to CAT Fees charged to Industry Members. 
Proposed Rule 13 is described below.
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    \3\ ISE Gemini, LLC, ISE Mercury, LLC and International 
Securities Exchange, LLC have been renamed Nasdaq GEMX, LLC, Nasdaq 
MRX, LLC, and Nasdaq ISE, LLC, respectively. See Securities Exchange 
Act Rel. No. 80248 (Mar. 15, 2017), 82 FR 14547 (Mar. 21, 2017); 
Securities Exchange Act Rel. No. 80326 (Mar. 29, 2017), 82 FR 16460 
(Apr. 4, 2017); and Securities Exchange Act Rel. No. 80325 (Mar. 29, 
2017), 82 FR 16445 (Apr. 4, 2017).
    \4\ National Stock Exchange, Inc. has been renamed NYSE 
National, Inc. See Securities Exchange Act Rel. No. 79902 (Jan. 30, 
2017), 82 FR 9258 (Feb. 3, 2017).
    \5\ A ``Participant'' is a ``member'' of the Exchange for 
purposes of the Act. See CHX Article 1, Rule 1(s). For the avoidance 
of confusion, the term ``Plan Participant'' will be used when 
referring to Participants of the Plan.
    \6\ 15 U.S.C. 78k-1.
    \7\ 17 CFR 242.608.
    \8\ See Letter from the Plan Participants to Brent J. Fields, 
Secretary, Commission, dated September 30, 2014; and Letter from 
Plan Participants to Brent J. Fields, Secretary, Commission, dated 
February 27, 2015. On December 24, 2015, the Plan Participants 
submitted an amendment to the CAT NMS Plan. See Letter from Plan 
Participants to Brent J. Fields, Secretary, Commission, dated 
December 23, 2015.
    \9\ Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81 
FR 30614 (May 17, 2016).
    \10\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81 
FR 84696 (Nov. 23, 2016) (``Approval Order'').
    \11\ The Plan also serves as the limited liability company 
agreement for the Company.
    \12\ Section 11.1(b) of the CAT NMS Plan.
    \13\ Id.
    \14\ Securities Exchange Act Rel. No. 80691 (May 16, 2017), 82 
FR 23344 (May 22, 2017) (SR-CHX-2017-08).
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(1) Definitions
    Paragraph (a) of Proposed Rule 13 sets forth the definitions for 
Proposed Rule 13. Paragraph (a)(1) of Proposed Rule 13 states that, for 
purposes of Rule 13, the terms ``CAT NMS Plan'', ``Industry Member'', 
``Operating Committee'', and ``Plan Participant'' are defined as set 
forth in the Rule 1 (Consolidated Audit Trail--Definitions), and the 
term ``CAT Fee'' is defined as set forth in the Consolidated Audit 
Trail Funding Fees. In addition, the Exchange proposes to add paragraph 
(a)(2) to Proposed Rule 13. New paragraph (a)(2) would define the term 
``Subcommittee'' to mean a subcommittee designated by the Operating 
Committee pursuant to the CAT NMS Plan. This definition is the same 
substantive definition as set forth in Section 1.1 of the CAT NMS Plan.
(2) Fee Dispute Resolution
    Section 11.5 of the CAT NMS Plan requires Plan Participants to 
adopt rules requiring that disputes with respect to fees charged to 
Industry Members pursuant to the CAT NMS Plan be determined by the 
Operating Committee or Subcommittee. Section 11.5 of the CAT NMS Plan 
also states that decisions by the Operating Committee or Subcommittee 
on such matters shall be binding on Industry Members, without prejudice 
to the right of any Industry Member to seek redress from the SEC 
pursuant to SEC Rule 608 or in any other appropriate forum. The 
Exchange proposes to adopt paragraph (b) of Proposed Rule 13. Paragraph 
(b) of Proposed Rule 13 states that disputes initiated by an Industry 
Member with respect to CAT Fees charged to such Industry Member 
pursuant to the Consolidated Audit Trail Funding Fees, including 
disputes related to the designated tier and the fee calculated pursuant 
to such tier, shall be resolved by the Operating Committee, or a 
Subcommittee designated by the Operating Committee, of the CAT NMS 
Plan, pursuant to the Fee Dispute Resolution Procedures adopted 
pursuant to the CAT NMS Plan and set forth in paragraph (c) of Proposed 
Rule 13. Decisions on such matters shall be binding on Industry 
Members, without prejudice to the rights of any such Industry Member to 
seek redress from the SEC or in any other appropriate forum.
    The Operating Committee has adopted ``Fee Dispute Resolution 
Procedures'' governing the manner in which disputes regarding CAT Fees 
charged pursuant to the Consolidated Audit Trail Funding Fees will be 
addressed. These Fee Dispute Resolution Procedures, as they relate to 
Industry Members, are set forth in paragraph (c) of Proposed Rule 13. 
Specifically, the Fee Dispute Resolution Procedures provide the 
procedure for Industry Members that dispute CAT Fees charged to such 
Industry Member pursuant to one or more of the Plan Participants' 
Consolidated Audit Trail Funding Fees Rules, including disputes related 
to the designated tier and the fee calculated pursuant to such tier, to 
apply for an opportunity to be heard and to have the CAT Fees charged 
to such Industry Member reviewed. The Procedures are modeled after the 
adverse action procedures adopted by various exchanges,\15\ and will be 
posted on the Web site for the CAT NMS Plan Web site.\16\
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    \15\ See, e.g., Chapter X of BATS BZX Exchange, Inc. (Adverse 
Action); and Chapter X of NYSE National, Inc. (Adverse Action).
    \16\ The CAT NMS Plan Web site is www.catnmsplan.com.
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    Under these Procedures, an Industry Member that disputes CAT Fees 
charged to such Industry Member and that desires to have an opportunity 
to be heard with respect to such disputed CAT Fees must file a written 
application with the Company within 15 business days after being 
notified of such disputed CAT Fees. The application must identify the 
disputed CAT Fees, state the specific reasons why the applicant takes 
exception to such CAT Fees, and set forth the relief sought. In 
addition, if the applicant intends to submit any additional documents, 
statements, arguments or other material in support of the application, 
the same should be so stated and identified.
    The Company will refer applications for hearing and review promptly 
to the Subcommittee designated by the Operating Committee pursuant to 
Section 4.12 of the CAT NMS Plan with responsibility for conducting the 
reviews of CAT Fee disputes pursuant to these Procedures. This 
Subcommittee will be referred to as the Fee Review Subcommittee. The 
members of the Fee Review Subcommittee will be subject to the 
provisions of Section 4.3(d) of the CAT NMS Plan regarding recusal and 
Conflicts of Interest. The Fee Review Subcommittee will keep a record 
of the proceedings.
    The Fee Review Subcommittee will hold hearings promptly. The Fee 
Review Subcommittee will set a hearing date. The parties to the hearing 
shall furnish the Fee Review Subcommittee with all materials relevant 
to the proceedings at least 72 hours prior to the date of the hearing. 
Each party will have the right to inspect and copy the other party's 
materials prior to the hearing.
    The parties to the hearing will consist of the applicant and a 
representative of the Company who shall present the reasons for the 
action taken by the Company that allegedly aggrieved the applicant. The 
applicant is entitled to be accompanied, represented and advised by 
counsel at all stages of the proceedings.
    The Fee Review Subcommittee will determine all questions concerning 
the admissibility of evidence and will otherwise regulate the conduct 
of the hearing. Each of the parties will be permitted to make an 
opening statement, present witnesses and documentary evidence, cross 
examine opposing witnesses and present closing arguments orally or in 
writing as determined by the Fee Review Subcommittee. The Fee Review 
Subcommittee also will have the right to question all parties and 
witnesses to the proceeding. The Fee Review Subcommittee must keep a 
record of the hearing. The formal rules of evidence will not apply.
    The Fee Review Subcommittee must set forth its decision in writing 
and send the written decision to the parties to the proceeding. Such 
decisions will contain the reasons supporting the conclusions of the 
Fee Review Subcommittee.
    The decision of the Fee Review Subcommittee will be subject to 
review by the Operating Committee either on its own motion within 20 
business days after issuance of the decision or upon written request 
submitted by the applicant within 15 business days after

[[Page 27906]]

issuance of the decision. The applicant's petition must be in writing 
and must specify the findings and conclusions to which the applicant 
objects, together with the reasons for such objections. Any objection 
to a decision not specified in writing will be considered to have been 
abandoned and may be disregarded. Parties may petition to submit a 
written argument to the Operating Committee and may request an 
opportunity to make an oral argument before the Operating Committee. 
The Operating Committee will have sole discretion to grant or deny 
either request.
    The Operating Committee will conduct the review. The review will be 
made upon the record and will be made after such further proceedings, 
if any, as the Operating Committee may order. Based upon such record, 
the Operating Committee may affirm, reverse or modify, in whole or in 
part, the decision of the Fee Review Subcommittee. The decision of the 
Operating Committee will be in writing, will be sent to the parties to 
the proceeding and will be final.
    The Procedures state that a final decision regarding the disputed 
CAT Fees by the Operating Committee, or the Fee Review Subcommittee (if 
there is no review by the Operating Committee), must be provided within 
90 days of the date on which the Industry Member filed a written 
application regarding disputed CAT Fees with the Company. The Operating 
Committee may extend the 90-day time limit at its discretion.
    In addition, the Procedures state that any notices or other 
documents may be served upon the applicant either personally or by 
leaving the same at its, his or her place of business or by deposit in 
the United States post office, postage prepaid, by registered or 
certified mail, addressed to the applicant at its, his or her last 
known business or residence address. The Procedures also state that any 
time limits imposed under the Procedures for the submission of answers, 
petitions or other materials may be extended by permission of the 
Operating Committee. All papers and documents relating to review by the 
Fee Review Subcommittee or the Operating Committee must be submitted to 
the Fee Review Subcommittee or Operating Committee, as applicable.
    The Procedures also note that decisions on such CAT Fee disputes 
made pursuant to these Procedures will be binding on Industry Members, 
without prejudice to the rights of any such Industry Member to seek 
redress from the SEC or in any other appropriate forum.
    Finally, an Industry Member that files a written application with 
the Company regarding disputed CAT Fees in accordance with these 
Procedures is not required to pay such disputed CAT Fees until the 
dispute is resolved in accordance with these Procedures, including any 
review by the SEC or in any other appropriate forum. For these 
purposes, the disputed CAT Fees means the amount of the invoiced CAT 
Fees that the Industry Member has asserted pursuant to these Procedures 
that such Industry Member does not owe to the Company. The Industry 
Member must pay any invoiced CAT Fees that are not disputed CAT Fees 
when due as set forth in the original invoice.
    Once the dispute regarding CAT Fees is resolved pursuant to these 
Procedures, if it is determined that the Industry Member owes any of 
the disputed CAT Fees, then the Industry Member must pay such disputed 
CAT Fees that are owed as well as interest on such disputed CAT Fees 
from the original due date (that is, 30 days after receipt of the 
original invoice of such CAT Fees) until such disputed CAT Fees are 
paid at a per annum rate equal to the lesser of (i) the Prime Rate plus 
300 basis points, or (ii) the maximum rate permitted by applicable law.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b)(5) of the Act,\17\ which require, 
among other things, that the Exchange rules must be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and, in general, to protect investors 
and the public interest, and not designed to permit unfair 
discrimination between customers, issuers, brokers and dealer, and 
Section 6(b)(4) of the Act,\18\ which requires that Exchange rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among members and issuers and other persons using its 
facilities.
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    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that this proposal is consistent with the Act 
because it implements, interprets or clarifies Section 11.5 of the 
Plan, and is designed to assist the Exchange and its Industry Members 
in meeting regulatory obligations pursuant to the Plan. In approving 
the Plan, the SEC noted that the Plan ``is necessary and appropriate in 
the public interest, for the protection of investors and the 
maintenance of fair and orderly markets, to remove impediments to, and 
perfect the mechanism of a national market system, or is otherwise in 
furtherance of the purposes of the Act.'' \19\ To the extent that this 
proposal implements, interprets or clarifies the Plan and applies 
specific requirements to Industry Members, the Exchange believes that 
this proposal furthers the objectives of the Plan, as identified by the 
SEC, and is therefore consistent with the Act.
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    \19\ Approval Order at 84697.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Section 6(b)(8) of the Act \20\ require [sic] that Exchange rules 
not impose any burden on competition that is not necessary or 
appropriate. The Exchange does not believe that the proposed rule 
change will result in any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. The Exchange 
notes that the proposed rule change implements Section 11.5 of the CAT 
NMS Plan approved by the Commission, and is designed to assist the 
Exchange in meeting its regulatory obligations pursuant to the Plan. 
Similarly, all national securities exchanges and FINRA are proposing 
this proposed rule to implement the requirements of the CAT NMS Plan. 
Therefore, this is not a competitive rule filing and, therefore, it 
does not raise competition issues between and among the exchanges and 
FINRA.
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    \20\ 15 U.S.C. 78f(b)(8)
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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 solicited or received with respect to the 
proposed rule change.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the 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-2017-11 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-2017-11. 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-2017-11, and should be 
submitted on or before July 10, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Eduardo A. Aleman,
Assistant Secretary.
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    \21\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-12588 Filed 6-16-17; 8:45 am]
 BILLING CODE 8011-01-P