28474 Federal Register / Vol. 83, No. 118 / Tuesday, June 19, 2018 / Notices 

14 15 U.S.C. 78s(b)(3)(A). 

15 17 CFR 240.19b–4(f). 

16 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

Members to increase their participation 

in BYX Equities. Therefore, eliminating 

the tier will have a negligible effect on 

order flow and market behavior. The 

Exchange believes the proposed change 

is not unfairly discriminatory because it 

will apply equally to all Members. 

The Exchange next notes that volumebased discounts such as those currently 

maintained on the Exchange have been 

widely adopted by exchanges and are 

equitable and non-discriminatory 

because they are open to all Members on 

an equal basis and provide additional 

benefits or discounts that are reasonably 

related to the value of an exchange’s 

market quality associated with higher 

levels of market activity, such as higher 

levels of liquidity provision and/or 

growth patterns, and introduction of 

higher volumes of orders into the price 

and volume discovery processes. While 

the proposed modification to Add/ 

Remove Volume Tiers 2, 3, 8 and 9 

makes such tiers slightly more difficult 

to attain, it is intended to incentivize 

Members to send additional volume to 

the Exchange in an effort to qualify or 

continue to qualify for the reduced fees 

and enhanced rebates, as applicable, 

made available by the tiers. As such, the 

Exchange also believes that the 

proposed changes are reasonable. The 

Exchange notes that increased volume 

on the Exchange provides greater 

trading opportunities for all market 

participants. 

(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. The 

Exchange does not believe that any of 

the proposed change to the Exchange’s 

tiered pricing structure burden 

competition, but instead, that they 

enhance competition as they are 

intended to increase the 

competitiveness of BYX by modifying 

pricing incentives in order to attract 

order flow and incentivize participants 

to increase their participation on the 

Exchange. The Exchange notes that it 

operates in a highly competitive market 

in which market participants can 

readily direct order flow to competing 

venues if they deem fee structures to be 

unreasonable or excessive. The 

Exchange does not believe the proposed 

amendments would burden intramarket 

competition as they would be available 

to all Members uniformly. 

(C) Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has not solicited, and 

does not intend to solicit, comments on 

this proposed rule change. The 

Exchange has not received any 

unsolicited written comments from 

Members or other interested parties. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act 14 and paragraph (f) of Rule 

19b–4 thereunder.15 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 email to rule-comments@

sec.gov. Please include File Number SR– 

CboeBYX–2018–007 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–CboeBYX–2018–007. 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 website (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, 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. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–CboeBYX–2018–007 and 

should be submitted on or before July 

10, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–13085 Filed 6–18–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83421; File No. SR– 

NASDAQ–2018–044] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Amend The 

Nasdaq Options Market LLC (‘‘NOM’’) 

Rules at Supplementary Material to 

Chapter III, Section 7, Entitled 

‘‘Position Limits,’’ and Section 9, 

Entitled ‘‘Exercise Limits’’ 

June 13, 2018. 

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 June 11, 

2018, The Nasdaq Stock Market LLC 

(‘‘Nasdaq’’ or ‘‘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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Federal Register / Vol. 83, No. 118 / Tuesday, June 19, 2018 / Notices 28475 

3See Chapter III, Section 9 for applicable exercise 

limits. 

4See Securities Exchange Act Release No. 69180 

(March 19, 2013), 78 FR 17962 (March 25, 2013) 

(SR–NASDAQ–2013–046); 72142 (May 9, 2014), 79 

FR 27961 (May 15, 2014) (SR–NASDAQ–2014–052); 

75413 (July 9, 2015), 80 FR 41519 (July 15, 2015) 

(SR–NASDAQ–2015–072); 78123 (June 22, 2016), 

81 FR 42030 (June 28, 2016) (SR–NASDAQ–2016– 

084); and 81090 (July 7, 2017), 82 FR 32394 (July 

13, 2017) (SR–NASDAQ–2017–063). 5 Id. 

6See Securities Exchange Act Release No. 69180 

(March 19, 2013), 78 FR 17962 (March 25, 2013) 

(SR–NASDAQ–2013–046). 7See Securities Exchange Act Release No. 51041 

(January 14, 2005), 70 FR 3408 (January 24, 2005) 

(SR–CBOE–2005–06). NOM’s position limit in SPY 

in 2005 was based on The Chicago Board Options 

Exchange, Inc.’s current rule. 

8See Securities Exchange Act Release No. 64928 

(July 20, 2011), 76 FR 44633 (July 26, 2011) (SR– 

CBOE–2011–065). NOM’s position limit in SPY in 

2005 was based on The Chicago Board Options 

Exchange, Inc.’s current rule. 

9See note 5 above. 

10See Securities Exchange Act Release No. 82770 

(February 23, 2018), 83 FR 8907 (March 1, 2018) 

(SR–CBOE–2017–057). NOM’s current rule is based 

on Cboe Exchange, Inc.’s rule. 

11From the beginning of the year, through May 

15, 2018, the ADV for SPY was 108.32 million 

shares while the ADV for QQQ was 46.64 million 

shares (calculated using data from Yahoo Finance 

as of May 15, 2018). 

12 15 U.S.C. 78f(b). 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend The 

Nasdaq Options Market LLC (‘‘NOM’’) 

Rules at Supplementary Material to 

Chapter III, Section 7, entitled ‘‘Position 

Limits,’’ and Section 9, entitled 

‘‘Exercise Limits,’’ to amend position 

limits for options on the SPDR® S&P 

500® exchange-traded fund (‘‘SPY ETF’’ 

or ‘‘SPY’’), which list and trade under 

the symbol ‘‘SPY.’’ 

The text of the proposed rule change 

is available on the Exchange’s website at 

http://nasdaq.cchwallstreet.com, at the 

principal office of the Exchange, 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 

NOM Rules at Supplementary 

Material to Chapter III, Section 7, 

entitled ‘‘Position Limits’’ and Section 

9, entitled ‘‘Exercise Limits’’ indicate 

the manner in which positions for 

aggregate positions in option contracts 

are treated on the Exchange. SPY is 

among the certain select underlying 

securities listed in each such Rule. 

Indicates [sic] the manner in which 

positions for aggregate positions in 

option contracts are treated on the 

Exchange.3 SPY is among the certain 

select underlying securities listed in 

each such Rule. Currently, these Rules 

provide that there are no position limits 

and there are no exercise limits on 

options overlying SPY pursuant to a 

pilot program, which is scheduled to 

expire on July 12, 2018 (‘‘SPY Pilot 

Program’’).4

The Exchange proposes to amend 

Chapter III, Section 7 to allow the SPY 

Pilot Program to terminate on July 12, 

2018, the current expiration date of the 

SPY Pilot Program. In lieu of extending 

the SPY Pilot Program for another year, 

the Exchange proposes to allow the SPY 

Pilot Program to terminate and to 

establish position and exercise limits of 

1,800,000 contracts, for options on SPY, 

with such change becoming operative 

on July 12, 2018, so that there is no 

lapse in time between termination of the 

SPY Pilot Program and the 

establishment of the new limits. 

Furthermore, as a result of the 

termination of the SPY Pilot Program, 

the Exchange does not believe it is 

necessary to submit a SPY Pilot Program 

Report at the end of the SPY Pilot 

Program. Based on the prior SPY Pilot 

Program Reports provided to the 

Commission,5 the Exchange believes it 

is appropriate to terminate the SPY Pilot 

Program and that permanent position 

and exercise limits should be 

established for SPY. 

Position limits are designed to 

address potential manipulative schemes 

and adverse market impact surrounding 

the use of options, such as disrupting 

the market in the security underlying 

the options. The potential manipulative 

schemes and adverse market impact are 

balanced against the potential of setting 

the limits so low as to discourage 

participation in the options market. The 

level of those position limits must be 

balanced between curtailing potential 

manipulation and the cost of preventing 

potential hedging activity that could be 

used for legitimate economic purposes. 

The SPY Pilot Program was 

established in 2013 in order to eliminate 

position and exercise limits for 

physically-settled SPY options.6 In 

2005, the position limits for SPY 

options were increased from 75,000 

contracts to 300,000 contracts on the 

same side of the market.7 In July 2011, 

the position limit for these options was 

again increased from 300,000 contracts 

to 900,000 contracts on the same side of 

the market.8 Then, in 2013, the position 

limits for SPY options were eliminated 

as part of the SPY Pilot Program.9

The underlying SPY tracks the 

performance of the S&P 500 Index and 

the Exchange notes that the SPY and 

SPY options have deep, liquid markets 

that reduce concerns regarding 

manipulation and disruption in the 

underlying markets. In support of this 

proposed rule change, the Exchange has 

collected the following trading statistics 

for SPY and SPY Options: (1) The 

average daily volume (‘‘ADV’’) to date 

(as of May 15, 2018) for SPY is 108.32 

million shares; (2) the ADV to date in 

2018 for SPY options is 3.9 million 

contracts per day; (3) the total shares 

outstanding for SPY are 965.43 million; 

and (4) the fund market cap for SPY is 

261.65 billion. The Exchange represents 

further that there is tremendous 

liquidity in the securities that make up 

the S&P 500 Index. 

Accordingly, the Exchange proposes 

to amend Chapter III, Section 7 [sic] to 

set forth that the position and exercise 

limits for options on SPY would be 

1,800,000 contracts on the same side of 

the market. These position and exercise 

limits equal the current position and 

exercise limits for options on QQQ, 

which the Commission previously 

approved to be increased from 900,000 

contracts on the same side of the 

market, to 1,800,000 contracts on the 

same side of the market.10 The Exchange 

also notes that SPY is more iquid [sic] 

than QQQ.11 The Exchange believes that 

establishing position and exercise limits 

for the SPY options in the amount of 

1,800,000 contracts on the same side of 

the market subject to this proposal 

would allow for the maintenance of the 

liquid and competitive market 

environment for these options, which 

will benefit customers interested in 

these products. Under the proposal, the 

reporting requirement for the options 

would be unchanged. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,12 in general, and furthers the 


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13 15 U.S.C. 78f(b)(5). 

14See note 9. 

15See note 11 above. 

16 Id. 

17See note 12 above. 

18See note 11 above. 

19See note 9 above. 

20 15 U.S.C. 78(f)(b)(8). 

21 15 U.S.C. 78s(b)(3)(A)(iii). 

22 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6) requires a self-regulatory organization to give 

the Commission written notice of its intent to file 

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 satisfied this 

requirement. 

objectives of Section 6(b)(5) of the Act,13

in particular, in that it is 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. The 

Exchange believes that establishing 

permanent position and exercise limits 

for SPY options subject to this proposal 

will encourage Market Makers to 

continue to provide sufficient liquidity 

in SPY options on the Exchange, which 

will enhance the process of price 

discovery conducted on the Exchange. 

The proposal will also benefit 

institutional investors as well as retail 

traders, and public customers, by 

continuing to provide them with an 

effective trading and hedging vehicle. In 

addition, the Exchange believes that the 

structure of the SPY options subject to 

this proposal and the considerable 

liquidity of the market for those options 

diminishes the opportunity to 

manipulate this product and disrupt the 

underlying market that a lower position 

limit may protect against. 

Increased position limits for select 

actively traded options, such as that 

proposed herein (increased as compared 

to the 900,000 limit in place prior to the 

SPY Pilot Program),14 is not novel and 

has been previously approved by the 

Commission. For example, the 

Commission has previously approved a 

rule change permitting the Exchange to 

double the position and exercise limits 

for FXI, EEM, IWM, EFA, EWZ, TLT, 

QQQ, and EWJ.15 Furthermore, as 

previously mentioned, the Commission 

specifically approved a proposal by the 

Exchange to increase the position and 

exercise limits for options on QQQ from 

900,000 contracts on the same side of 

the market to 1,800,000 contracts on the 

same side of the market; similar to the 

current proposal for options on SPY.16

The Exchange also notes that SPY is 

more liquid than QQQ.17

Lastly, the Commission expressed the 

belief that implementing higher position 

and exercise limits may bring additional 

depth and liquidity without increasing 

concerns regarding intermarket 

manipulation or disruption of the 

options or the underlying securities.18

The Exchange’s existing surveillance 

and reporting safeguards are designed to 

deter and detect possible manipulative 

behavior which might arise from 

increasing position and exercise limits 

(increased as compared to the 900,000 

limit in place prior to the SPY Pilot 

Program).19

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 believes the entire proposal is 

consistent with Section (6)(b)(8) of the 

Act 20 in that it does not impose any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. On the 

contrary, the Exchange believes the 

proposal promotes competition because 

it will enable the option exchanges to 

attract additional order flow from the 

over-the-counter market, who in turn 

compete for those orders. The Exchange 

believes that the proposed rule change 

will result in continued opportunities to 

achieve the investment and trading 

objectives of market participants seeking 

efficient trading and hedging vehicles, 

to the benefit of investors, market 

participants, and the marketplace in 

general. The Exchange believes this 

proposed rule change is necessary to 

permit fair competition among the 

options exchanges and to establish 

uniform position limits for additional 

multiply listed option classes. 

Furthermore, the Exchange believes that 

the other options exchanges will file 

similar proposals with the Commission. 

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 

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)(iii) of the Act 21 and 

subparagraph (f)(6) of Rule 19b–4 

thereunder.22

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: (i) Necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) 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 rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2018–044 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–NASDAQ –2018–044. 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 website (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, 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 


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23 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 82870 

(March 14, 2018), 83 FR 12214 (‘‘Notice’’). 

4 15 U.S.C. 78s(b)(2). 

5See Securities Exchange Act Release No. 83143, 

83 FR 20123 (May 7, 2018). The Commission 

designated June 18, 2018, as the date by which the 

Commission shall approve or disapprove, or 

institute proceedings to determine whether to 

disapprove, the proposed rule change. 

6 15 U.S.C. 78s(b)(2)(B). 

7See CHX Article 1, Rule 1(oo). 

8The Matching System is part of the Exchange’s 

‘‘Trading Facilities,’’ as defined under CHX Article 

1, Rule 1(z). 

9See CHX Article 19, Rule 3(a)(1)–(5). 

10See CHX Article 1, Rule 1(oo) defining 

‘‘Routable Order.’’ 

11See CHX Article 1, Rule 2(a)(3) defining 

‘‘market order.’’ 

12See CHX Article 1, Rule 2(a)(2) defining ‘‘cross 

order.’’ 

13See CHX Article 1, Rule 1(nn) defining 

‘‘Trading Center.’’ 

14QCT Crosses are cross orders that are 

component orders to Qualified Contingent Trades 

that are submitted by an Institutional Broker. See 

CHX Article 1, Rule 2(b)(2)(E) defining ‘‘Qualified 

Contingent Trade.’’ See also CHX Article 1, Rule 

2(a)(2) defining ‘‘cross order.’’ 

15See Securities Exchange Act Release No. 57620 

(April 4, 2008), 73 FR 19271 (April 4, 2008). 

16See CHX Article 1, Rule 2(a)(2) 

17See CHX Article 1, Rule 2(a)(2). See also CHX 

Article 20, Rule 8(e)(1). 

18See CHX Article 1, Rule 2(g)(1). 

19The Exchange states that it has proposed to 

limit use of Route QCT Cross to IBs to be consistent 

with the fact that only IBs are currently permitted 

to submit QCT Crosses to the Matching System. See 

CHX Article 1, Rule 2(b)(2)(E). 

20See CHX Article 1, Rule 1(oo). 

21See CHX Article 1, Rule 2(a)(2). 

22The Exchange states that IBs will be permitted 

to identify only one designated executing broker to 

which all Route QCT Cross orders submitted by the 

IB will be routed, subject to additional 

requirements, as described below. 

23See e.g., CHX Article 19, Rule 2(a). 

24See Notice, supra note 3 at 12215. 

25See id. The Exchange states that like Route 

QCT Cross, the ‘‘Directed Order’’ routing option 

offered by the Nasdaq Stock Market (‘‘Nasdaq’’) 

permits an order sender to route an order to another 

market center while bypassing the Nasdaq’s order 

book, which may result in the routed order 

executing at a price through Nasdaq’s top of book. 

See id. 

26The Exchange states that like Route QCT Cross, 

the ‘‘DRT’’ routing option offered by the Cboe BYX 

and Cboe BZX exchanges permits an order to be 

routed to one or more away alternative trading 

systems. See id. 

27See CHX Article 1, Rule 1(s). 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2018–044 and 

should be submitted on or before July 

10, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.23

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–13080 Filed 6–18–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83425; File No. SR–CHX– 

2018–001] 

Self-Regulatory Organizations; 

Chicago Stock Exchange, Inc.; Order 

Instituting Proceedings To Determine 

Whether To Approve or Disapprove a 

Proposed Rule Change To Adopt the 

Route QCT Cross Routing Option 

June 13, 2018. 

I. Introduction 

On March 6, 2018, 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 (‘‘Exchange 

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

proposed rule change to adopt the Route 

QCT Cross routing option. The proposed 

rule change was published for comment 

in the Federal Register on March 20, 

2018.3 On May 1, 2018, pursuant to 

Section 19(b)(2) of the Exchange 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

The Commission received no comment 

letters on the proposed rule change. 

This order institutes proceedings under 

Section 19(b)(2)(B) of the Exchange Act 6

to determine whether to approve or 

disapprove the proposed rule change. 

II. Description of the Proposed Rule 

Change 

Currently, under the Exchange’s rules, 

Routable Orders 7 submitted to the CHX 

matching system (‘‘Matching System’’) 8

for execution are routed away from the 

Matching System automatically if a 

Routing Event 9 is triggered. The 

Exchange’s current rules provide that all 

Routable Orders 10 are limit orders. 

Market 11 and cross orders 12 are never 

routable. The Exchange does not 

currently permit orders to be directly 

routed to an away Trading Center 13

without first being submitted to the 

Matching System. 

Because Qualifed Contingent Trade 

(‘‘QCT’’) Crosses 14 are exempt from the 

trade-through prohibition of Rule 611 of 

Regulation NMS,15 the Matching System 

permits QCT Crosses to trade-through 

protected quotes of away markets. 

Under the Exchange’s current rules, 

QCT Crosses are handled IOC16 and can 

never rest on the CHX book. Moreover, 

a QCT Cross submitted to the Matching 

System will be cancelled back to the 

order sender as ‘‘blocked’’ if a precedent 

limit order priced at or better than the 

QCT Cross is resting on the CHX book,17

except that a QCT Cross priced at the 

top of the CHX book (i.e., the bestranked order on the CHX book pursuant 

to Article 20, Rule 8(b)) that qualifies for 

Cross With Size 18 handling will be 

permitted to execute. 

The Exchange has proposed to adopt 

the Route QCT Cross routing option, 

which will permit only Institutional 

Brokers (‘‘IBs’’) 19 to directly route a 

QCT Cross to a non-affiliated third-party 

broker-dealer designated by the IB 

(‘‘designated executing broker’’) for 

execution. Route QCT Cross orders will 

be handled like current Routable 

Orders,20 except that the Route QCT 

Cross order will never be submitted to 

the Matching System for execution. 

Specifically, upon receipt of a Route 

QCT Cross order, the Exchange will 

cause the order to be routed IOC21 from 

the Exchange, through CHXBD, LLC 

(‘‘CHXBD’’), the Exchange’s affiliated 

routing broker, to the designated 

executing broker identified by the IB.22

The Exchange states that the 

relationship between a designated 

executing broker and CHXBD will be 

governed by applicable CHX Rules 23

and customary interbroker agreements, 

such as fully-disclosed clearing and 

customer agreements. The Exchange 

represents that at all times, the use of 

Route QCT Cross will be optional.24 The 

Exchange also states that Route QCT 

Cross is similar to the routing options 

available on the Nasdaq Stock Market 25

and Cboe BYX and Cboe BZX 

exchanges.26

Specifically, the Exchange has 

proposed to adopt proposed Article 19, 

Rule 4 (Routing Options) to provide that 

routing options may be combined with 

all available order types, modifiers and 

related terms, except for order types, 

modifiers, and related terms that are 

inconsistent with the terms of a routing 

option, and that the Exchange may 

activate or deactivate any routing option 

at its discretion and, if practicable, after 

notice to Participants.27 Article 19, Rule 

4(a)(1) provides that Route QCT Cross is 


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