Federal Register / Vol. 76, No. 154 / Wednesday, August 10, 2011 / Notices 49517 

12 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 17 CFR 240.19b–4(f)(6). 

4See Securities Exchange Act Release Nos. 63028 

(October 1, 2010), 75 FR 62443 (October 8, 2010) 

(SR–NASDAQ–2010–099) (approval order), 61802 

(March 30, 2010), 75 FR 17193 (April 5, 2010) (SR– 

Phlx-2010–05) (approval order); 61198 (December 

17, 2009), 74 FR 68880 (December 29, 2009) (SR– 

CBOE–2009–078) (approval order); and 59287 

(January 23, 2009), 74 FR 5694 (January 30, 2009) 

(SR–ISE–2006–26) (approval order). A filing by 

NYSE Amex LLC (‘‘NYSE Amex’’) proposing a 

similar Professional designation was based on the 

Phlx, ISE, and CBOE proposals. See Securities 

Exchange Act Release No. 61818 (March 31, 2010), 

75 FR 17457 (April 6, 2010) (SR–NYSEAmex–2010– 

18) (approval order). The cited filings discuss, 

among other things, the need for a Professional 

designation to be applied by members of the 

respective exchanges because the systems of such 

exchanges differentiate for execution or processing 

purposes based on order origin. BOX does not 

similarly differentiate among orders based on their 

origin. 

5See Chapter I, Section 1(a)(42) of the BOX Rules. 

Many BOX Participants are also members of other 

options exchanges such as, for example, ISE, CBOE, 

or Phlx. Order Flow Provider (‘‘OFP’’) is defined in 

Chapter I, Section 1(a)(48) as those Options 

Participants representing as agent Customer Orders 

on BOX and those non-Market Maker Participants 

conducting proprietary trading. Market Maker is 

defined in Chapter I, Section 1(a)(31) of the BOX 

Rules as an Options Participant registered with the 

Continued 

Electronic Comments 

Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2011–100 on the 

subject line. 

Paper Comments 

Send paper comments in triplicate to 

Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2011–100. This 

file number should be included on the 

subject line if e-mail 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 website viewing and 

printing in the Commission’s Public 

Reference Room on official business 

days between the hours of 10 a.m. and 

3 p.m. Copies of the filing also will be 

available for inspection and copying at 

the principal office of Nasdaq. 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–NASDAQ–2011–100 and 

should be submitted on or before 

August 31, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–20274 Filed 8–9–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–65036; File No. SR–BX– 

2011–049] 

Self-Regulatory Organizations; 

NASDAQ OMX BX, Inc.; Notice of Filing 

and Immediate Effectiveness of 

Proposed Rule Change To Adopt a 

Definition of ‘‘Professional’’ and 

Require That Professional Orders Be 

Appropriately Marked by BOX Options 

Participants 

August 4, 2011. 

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 July 26, 

2011, NASDAQ OMX BX (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 

Exchange has designated the proposed 

rule change as constituting a noncontroversial rule change under Rule 

19b–4(f)(6) under the Act,3 which 

renders the proposal effective upon 

filing with the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

proposes to amend [sic] Chapter I, 

Section 1 (Definitions) of the Trading 

Rules of the Boston Options Exchange 

Group, LLC (‘‘BOX’’) to adopt a 

definition of ‘‘Professional’’ on BOX and 

require that all Professional orders be 

appropriately marked by BOX Options 

Participants. The text of the proposed 

rule change is available on the 

Exchange’s Web site at http:// 

nasdaqomxbx.cchwallstreet.com, on the 

Commission’s Web site at http:// 

www.sec.gov, and at 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 

Exchange 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 these 

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 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 purpose of this proposal is to 

amend Chapter I, Section 1 (Definitions) 

to adopt a definition of ‘‘Professional’’ 

on BOX and require that all Professional 

orders be appropriately marked. 

This filing is similar to the recent 

filings of the NASDAQ Stock Market 

LLC (for the NASDAQ Options Market 

(‘‘NOM’’), PHLX NASDAQ OMX, Inc. 

(‘‘Phlx’’), the International Securities 

Exchange, Inc. (‘‘ISE’’), and Chicago 

Board Options Exchange, Incorporated, 

(‘‘CBOE’’), which dealt with establishing 

a new definition of ‘‘Professional’’ as a 

person or entity that places a certain 

high volume of orders in listed options 

per day on average during a calendar 

month in his or her own beneficial 

account.4

Background 

A BOX Options Participant 

(‘‘Participant’’) is a firm or organization 

that is registered with the Exchange 

pursuant to Chapter II of the BOX 

Trading Rules for purposes of 

participating in options trading on BOX 

as an ‘‘Order Flow Provider’’ or ‘‘Market 

Maker.’’ 5


emcdonald on DSK2BSOYB1PROD with NOTICES
49518 Federal Register / Vol. 76, No. 154 / Wednesday, August 10, 2011 / Notices 

Exchange for the purpose of making markets in 

options contracts traded on the Exchange and that 

is vested with the rights and responsibilities 

specified in Chapter VI of the BOX Rules. 

6Public Customer is defined in Chapter I, Section 

1(a)(52) as a person that is not a broker or dealer 

in securities. 

7Trading Host is defined in Chapter I, Section 

1(a)(67) of the BOX Rules as the automated system 

used by BOX for the trading of options contracts. 

8See Chapter V, Section 16(a)(iv) that discusses 

BOX’s price/time execution priority and states, in 

relevant part, that all options orders at the best 

price are executed based on the time the order was 

entered. 

9 In contrast to BOX, hybrid options exchanges 

such as, for example, Phlx and CBOE blend auction 

and electronic market structures that differentiate 

certain order priority and execution functions based 

upon, among other things, the origin of the order 

(e.g. whether the order was a customer, market 

maker, broker or dealer, firm, or other type of 

order); these exchanges also charge different fees 

based on order origin. BOX does, like other 

exchanges, charge differing fees based on order 

origin (i.e. BOX trading fees for customers are 

different than for market makers and broker-dealer 

proprietary accounts). The Exchange is not 

proposing any changes in respect of the BOX fee 

structure and at this time, will continue to charge 

Professionals under the category of Customer. 

10See Chapter V, Section 16 regarding execution 

and price/time priority and Section 18 regarding the 

Price Improvement Period. 

11Chapter XII, Section 5(b)(ii), ‘‘The Eligible 

Order that is routed away shall remain outside BOX 

for a period of time and may be executed in whole 

or in part subject to the applicable trading rules of 

the relevant Away Exchange. While an Eligible 

Order remains outside BOX, it shall have no time 

priority, relative to other orders received from 

Options Participants at the same price which may 

be executed against orders in the BOX Book. 

Requests from Options Participants to cancel their 

Eligible Orders while the order is routed away to 

an Away Exchange and remains outside BOX shall 

be processed, subject to the applicable trading rules 

of the relevant Away Exchange.’’ 

12Once routed away from BOX, an order becomes 

subject to the rules and procedures of the 

destination market including, but not limited to, 

order cancellation. See Chapter XII, Section 5(b)(ii). 

13The Exchange believes that the risk of 

regulatory arbitrage is heightened where not all 

exchanges have Professional designation rules; and 

there is a lack of uniformity regarding exchanges 

marking orders as Professional when routing such 

orders away. 

14Each remaining sub-section of Chapter I, 

Section 1(a) is re-numbered by adding one to the 

current number (e.g. 52 becomes 53, and 53 

becomes 54). 

15BOX intends to require Participants to identify 

Professional orders submitted electronically by 

identifying them in the account type field, and will 

notify Participants via an Information Circular 

regarding this requirement. 

16Participants will be required to conduct a 

quarterly review and make any appropriate changes 

to the way in which they are representing orders 

within five business days after the end of each 

calendar quarter. While Participants will only be 

required to review their accounts on a quarterly 

basis, if during a quarter the Exchange identifies a 

customer for which orders are being represented as 

other than Professional orders but that has averaged 

more than 390 orders per day during a month, the 

Exchange will notify the Participant and the 

Participant will be required to change the manner 

in which it is representing the customer’s orders 

within five business days. The Exchange will issue 

a Regulatory Circular to Participants providing 

more detailed information regarding the quarterly 

review process. This is similar to the process of 

other options exchanges that have adopted a 

Professional designation. See, e.g., Securities 

Exchange Act Release Nos. 63028 (October 1, 2010) 

75 FR 62443 (October 8, 2010) (SR–NASDAQ– 

2010–099) (approval order) and 61802 (March 30, 

2010), 75 FR 17193 (April 5, 2010) (SR–Phlx–2010– 

05) (approval order). 

17See supra note 3 [sic]. 

18For example, unlike the Phlx proposal, (which 

among other things, discusses that Professional 

order on Phlx will be treated in the same manner 

as off-floor brokers in terms of certain priority 

rules), BOX’s proposed rule change does not 

address or impact any priority relationship for 

Professional orders as opposed to other BOX orders. 

19As proposed, the Professional order 

designation, may be used for customer orders only. 

While BOX does not intend to differentiate among 

Professional and other orders for priority purposes, 

Options traded by Participants (which 

may include trades on behalf of Public 

Customers) 6 on BOX, a wholly 

electronic exchange, are electronically 

executable and routable. The BOX 

Trading Host 7 and the BOX Trading 

Rules provide for the ranking, display, 

and execution of all orders in price/time 

priority without regard to the status of 

the person or entity entering an order.8

The Exchange notes that BOX has, 

similar to NOM and in contrast to 

certain other options markets, a ‘‘flat’’ 

system that does not differentiate for 

execution or processing purposes among 

orders on the basis of who or what 

entity enters an order on BOX.9 BOX 

notes that no change to execution 

priority, on the BOX Book or within the 

BOX Price Improvement Period, is being 

proposed as part of this rule change.10

BOX routes orders to other options 

exchanges (‘‘Away Exchanges’’) under 

certain circumstances through nonaffiliated third-party broker-dealers and 

BOX’s general routing procedures are 

set forth in Chapter XII, Section 5 (Order 

Routing to Away Exchanges). These 

procedures state in subsection (b)(ii) 

that, among other things, once routed 

away from BOX, an order becomes 

subject to the rules and procedures of 

the destination market.11

Many other options exchanges, 

namely the CBOE, ISE, NYSE AMEX, 

NOM and Phlx, already have rules that 

are similar to the Professional 

designation rule proposed by the 

Exchange (a ‘‘Professional’’ is a person 

or entity that places 390 or more orders 

in listed options per day on average 

during a calendar month in his or her 

own beneficial account). These above 

noted exchanges make differentiations 

based on whether an order is marked 

Professional or otherwise. Some BOX 

Options Participants, including its 

routing broker-dealers are, as noted, also 

members of other options exchanges 

that have a Professional designation. As 

members of these exchanges, such 

Options Participants are subject to their 

Professional designation rules. And, as 

mentioned previously, exchange rules 

indicate that orders routed by these 

broker-dealers become subject to the 

rules and procedures of the Away 

Exchanges.12

The Exchange believes that disparate 

rules with respect to Professional order 

designation, and lack of uniform 

application of such rules, do not 

promote the best regulation and may, in 

fact, encourage regulatory arbitrage.13

The Exchange believes that it is 

therefore prudent and necessary to have 

a Professional designation rule as is 

commonplace in the industry, 

particularly where BOX’s routing 

broker-dealers (like other BOX Options 

Participants) are members of several 

exchanges that have rules requiring 

Professional order designations. 

The Proposal 

The Exchange proposes new Chapter 

I, Section 1(a)(52) to state that the term 

‘‘Professional’’ means any person or 

entity that (i) is not a broker or dealer 

in securities, and (ii) places more than 

390 orders in listed options per day on 

average during a calendar month for its 

own beneficial account(s).14 Moreover, 

in order to properly represent orders 

entered on BOX according to the new 

definition, a Participant will be required 

to appropriately mark all Professional 

orders.15 To comply with this 

requirement, Participants will be 

required to review their Public 

Customers’ activity on at least a 

quarterly basis to determine whether 

orders that are not for the account of a 

broker-dealer should be represented as 

Professional orders.16

The Professional definition proposed 

is similar to the Professional designation 

that has been adopted by NOM, Phlx, 

ISE, CBOE, and NYSE Amex.17 Upon 

publication of the notice regarding this 

proposal, BOX will issue an Information 

Circular to Participants providing them 

at least ten business days notice of the 

procedures for the implementation of 

the proposal. As noted, the Professional 

definition will not impact BOX’s price/ 

time order entry (priority) system.18

Instead, this proposal will ensure that 

BOX Participants mark their 

Professional orders properly, that is, 

similarly in terms of Professional order 

identification regardless of whether the 

order is placed on BOX or another of the 

options exchanges with a Professional 

designation. Moreover, with the 

proposed Professional designation in 

place, BOX will be able to accept orders 

that are marked Professional.19


emcdonald on DSK2BSOYB1PROD with NOTICES
Federal Register / Vol. 76, No. 154 / Wednesday, August 10, 2011 / Notices 49519 

it may, in the future, feel that it is appropriate to 

differentiate its routing or other fees in respect of 

Professional orders as opposed to other orders; and 

if so, the Exchange intends to file an appropriate 

fee-related rule filing(s). This filing does not 

address the current BOX fee structure. 20See Chapter XII of the BOX Rules. 21 390 orders is equal to the total number of 

orders that a person would place in a day if that 

person entered one order every minute from market 

open to market close. Many of the largest retailoriented electronic brokers offer lower commission 

rates to customers they define as ‘‘active traders.’’ 

Publicly available information from the Web sites 

of Charles Schwab, Fidelity, TD Ameritrade and 

OptionsXpress all define ‘‘active trader’’ as 

someone who executes only a few options trades 

per month. The highest required trading activity to 

qualify as an active trader among these four firms 

was 35 trades per quarter. 22The similarity of BOX’s proposed Professional 

definition to that of other options exchanges is 

important from the regulatory perspective, that is, 

from a desire to promote a national market system 

that minimizes regulatory arbitrage. 

23 15 U.S.C. 78f(b). 24 15 U.S.C. 78f(b)(5). 

25 15 U.S.C. 78s(b)(3)(A). 

26 17 CFR 240.19b–4(f)(6). 

27As required under Rule 19b–4(f)(6)(iii), the 

Exchange 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 designation of Professional or 

Professional order would not result in 

any different treatment of such orders 

for purposes of the BOX Trading Rules 

concerning order protection or routing 

to away exchanges. That is, all non 

broker or dealer orders, including those 

that meet the definition of Professional 

orders, would continue to be treated as 

Public Customers for purposes of the 

BOX Rules regarding order protection 

and routing to away exchanges.20

BOX believes that identifying 

Professional accounts based upon the 

average number of orders entered in 

qualified accounts is an appropriately 

objective approach that will reasonably 

distinguish such persons and entities 

from retail investors or market 

participants. BOX proposes the 

threshold of 390 orders per day on 

average over a calendar month, because 

it believes that this number far exceeds 

the number of orders that are entered by 

retail investors in a single day.21

Moreover, the 390 orders per day 

threshold proposed by BOX directly 

corresponds to the daily order volume 

recognized by NOM, ISE, and other 

options exchanges that have, as 

previously discussed, established 

Professional order designations.22 In 

addition, basing the standard on the 

number of orders that are entered in 

listed options for a qualified account(s) 

assures that Professional account 

holders cannot inappropriately avoid 

the purpose of the rule by spreading 

their trading over multiple exchanges, 

and using an average number over a 

calendar month will prevent gaming of 

the 390 order threshold. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 23 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 24

in particular, in that it is designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to foster 

cooperation and coordination with 

persons engaged in facilitating 

transactions in securities, and to remove 

impediments to and perfect the 

mechanisms of a free and open market 

and a national market system, by 

defining Professional and indicating 

that all Professional orders shall be 

appropriately marked by Participants. 

Further, the Exchange believes that 

disparate rules regarding Professional 

order designation, and a lack of uniform 

application of such rules, do not 

promote the best regulation and may, in 

fact, encourage regulatory arbitrage. The 

Exchange believes that it is therefore 

prudent and necessary to have a 

Professional designation rule as is 

commonplace in the industry, 

particularly where BOX’s routing 

broker-dealers (like other BOX Options 

Participants) are members of several 

exchanges that have rules requiring 

Professional order designations. The 

designation of Professional or 

Professional order would not result in 

any different treatment of such orders 

for purposes of the BOX Trading Rules 

concerning order protection or routing 

to away exchanges. That is, all non 

broker or dealer orders, including those 

that meet the definition of Professional 

orders, would continue to be treated as 

Public Customers for purposes of the 

BOX Rules regarding order protection 

and routing to away exchange. As such, 

the Exchange believes the proposed rule 

change is consistent with the Act. 

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 not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

(a) This proposed rule change is filed 

pursuant to paragraph (A) of section 

19(b)(3) of the Exchange Act 25 and Rule 

19b–4(f)(6) thereunder.26

(b) This proposed rule change does 

not significantly affect the protection of 

investors or the public interest, does not 

impose any significant burden on 

competition, and, by its terms, does not 

become operative for 30 days after the 

date of the filing, or such shorter time 

as the Commission may designate if 

consistent with the protection of 

investors and the public interest.27 The 

Exchange believes that uniform rules in 

respect of Professional order designation 

promotes the best regulation. The 

Exchange believes that it is therefore 

prudent and necessary to have a 

Professional designation rule as is 

commonplace in the industry, 

particularly where BOX’s routing 

broker-dealers (like other BOX Options 

Participants) are members of several 

exchanges that have rules requiring 

Professional order designations. 

Additionally, the Exchange notes that 

the proposed rule change does not 

impact any priority relationship for 

Professional orders as opposed to other 

BOX orders, nor does it impact the 

treatment of Professional orders under 

the BOX Rules regarding order 

protection or routing to away exchanges. 

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. 

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 e-mail to rulecomments@sec.gov. Please include File 

Number SR–BX–2011–049 on the 

subject line. 


emcdonald on DSK2BSOYB1PROD with NOTICES
49520 Federal Register / Vol. 76, No. 154 / Wednesday, August 10, 2011 / Notices 

28 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3The Exchange replaced its traditional auction 

marketplace with its New Trading Model beginning 

in 2006. See Securities Exchange Act Rel. No. 34– 

54550 (Sept. 29, 2006), 71 FR 59563 (Oct. 10, 2006) 

(SR–CHX–2006–05). 4 Id., Section II.C. Institutional Brokers. 5See email from James Ongena, Vice President, 

Associate General Counsel, CHX, to Christopher 

Chow, Special Counsel, Commission, dated 

August 3, 2011. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–BX–2011–049. This file 

number should be included on the 

subject line if e-mail 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 

a.m. and 3 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–BX– 

2011–049 and should be submitted on 

or before August 31, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.28

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–20272 Filed 8–9–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–65035; File No. SR–CHX– 

2011–20] 

Self-Regulatory Organizations; 

Chicago Stock Exchange, Inc.; Notice 

of Filing of Proposed Rule Change To 

Impose Certain Requirements on 

Exchange-Registered Institutional 

Broker Firms That Operate a Separate 

Non-Institutional Broker Unit Within 

the Firm 

August 4, 2011. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on July 26, 

2011, Chicago Stock Exchange, Inc. 

(‘‘Exchange’’ or ‘‘CHX’’) filed with the 

Securities and Exchange Commission 

(the ‘‘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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to add a rule 

to impose certain requirements on 

Exchange-registered Institutional Broker 

firms which operate a separate, nonInstitutional Broker unit within the 

firm. The text of this proposed rule 

change is available on the Exchange’s 

Web site at (http://www.chx.com), at the 

Exchange’s Office of the Secretary 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 change and discussed any 

comments it received regarding the 

proposal. 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 is proposing to add 

Rule 5 to Article 17 to permit Exchangeregistered Institutional Broker 

(‘‘Institutional Broker’’) firms to 

establish and operate a separate, nonInstitutional Broker unit within the 

firm. The Exchange proposes to add 

information barrier requirements for 

Institutional Brokers that wish to 

operate a separate unit within the larger 

firm to conduct business otherwise than 

as an Institutional Broker. By this 

proposal, the Exchange believes that it 

will enable existing and new 

Institutional Broker firms to engage in 

trading activities through the nonInstitutional Broker unit in a manner 

which better delineates the activity 

occurring on and off the Exchange. 

CHX-registered Institutional Brokers 

are an elective sub-category of Exchange 

Participants requiring registration with 

the Exchange and are subject to the 

obligations of Article 17 of the CHX 

rules, in addition to the other provisions 

of Exchange rules. Institutional Broker 

firms typically provide order handling 

and execution services for other brokerdealers or institutional clients, and are 

the successors to the floor brokers under 

the Exchange’s previous floor-based, 

auction trading model.3 The 

Commission’s order approving the 

Exchange’s New Trading Model noted, 

‘‘Institutional brokers would be deemed 

to be participants operating on the 

Exchange, although they would not 

effect transactions from a physical 

trading floor (since the Exchange will no 

longer have a physical trading floor) and 

could trade from any location. A 

customer order would be deemed to be 

on the Exchange when received by an 

institutional broker, but would not have 

priority in the Matching System until it 

is entered into the system.’’ 4 Although 

an Institutional Broker is deemed to be 

operating on the Exchange, the CHX is 

proposing to allow a separate unit 

within the larger Institutional Broker 

firm to execute orders otherwise than on 

the Exchange.5

New Rule 5 proposes to establish new 

conditions for an Institutional Broker 


emcdonald on DSK2BSOYB1PROD with NOTICES