Federal Register / Vol. 82, No. 205 / Wednesday, October 25, 2017 / Notices 49433 

19 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. 80041 

(February 14, 2017), 82 FR 11252 (‘‘Notice’’). 

4See Securities Exchange Act Release No. 80364, 

82 FR 17065 (April 7, 2017). 

5See letters from: Ryan Hitch, Head of Equities 

Trading, XR Securities LLC, dated February 24, 

2017 (‘‘XR Securities Letter’’); Douglas A. Cifu, 

Chief Executive Officer, Virtu Financial LLC, dated 

February 27, 2017 (‘‘Virtu Letter’’); Joanna Mallers, 

Secretary, FIA Principal Traders Group, dated 

March 13, 2017 (‘‘FIA PTG Letter’’); Adam Nunes, 

Head of Business Development, Hudson River 

Trading LLC, dated March 13, 2017 (‘‘Hudson River 

Trading Letter’’); R.T. Leuchtkafer, dated March 14, 

2017 (‘‘Leuchtkafer Letter’’); Stephen John Berger, 

Managing Director, Government & Regulatory 

Policy, Citadel Securities, dated March 14, 2017 

(‘‘Citadel Letter’’); Tyler Gellasch, Executive 

Director, Healthy Markets Association, March 17, 

2017 (‘‘Healthy Markets Letter’’); Elizabeth K. King, 

General Counsel and Corporate Secretary, New 

York Stock Exchange, dated March 20, 2017 

(‘‘NYSE Letter’’); James G. Ongena, Executive Vice 

President and General Counsel, CHX, dated March 

24, 2017 (‘‘CHX Letter’’); Steve Crutchfield, Head of 

Market Structure, CTC Trading Group, LLC, dated 

April 4, 2017 (‘‘CTC Trading Letter’’); and Theodore 

R. Lazo, Managing Director and Associate General 

Counsel, Securities Industry and Financial Markets 

Association, dated May 17, 2017 (‘‘SIFMA Letter’’). 

All comments on the proposed rule change are 

available at https://www.sec.gov/comments/sr-chx2017-04/chx201704.htm. 

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

7See Securities Exchange Act Release No. 80740, 

82 FR 24412 (May 26, 2017) (‘‘OIP’’). In the OIP, 

the Commission specifically requested comment on 

thirteen questions. See id. at 24416. 

8See letters from: R.T. Leuchtkafer, dated June 

15, 2017 (‘‘Leuchtkafer Letter 2’’); Stephen Berger, 

Managing Director, Government and Regulatory 

Policy, Citadel Securities, dated June 16, 2017 

(‘‘Citadel Letter 2’’); Joanna Mallers, Secretary, FIA 

Principal Traders Group, dated June 16, 2017 (‘‘FIA 

PTG Letter 2’’); James G. Ongena, Executive Vice 

President, General Counsel, CHX, dated June 30, 

2017 (‘‘CHX Letter 2’’); R.T. Leuchtkafer, dated July 

7, 2017 (‘‘Leuchtkafer Letter 3’’); R.T. Leuchtkafer, 

dated July 10, 2017 (‘‘Leuchtkafer Letter 4’’); and 

R.T. Leuchtkafer, dated October 7, 2017 

(‘‘Leuchtkafer Letter 5’’). 

9 15 U.S.C. 78s(b)(2). 

10See Securities Exchange Act Release No. 81415, 

82 FR 40051 (August 23, 2017). 

11The variable delay does not include the 350- 

microsecond intentional access delay. The variable 

delay will depend on factors including, but not 

limited to, messaging volume and system 

processing. See Amendment No. 1, infra note 12, at 

28. 

12 In Amendment No. 1, the Exchange also 

supplemented its rationale for the proposed rule 

change, provided additional discussion related to 

the market quality enhancements that it believes 

would be realized from the proposal, corrected 

certain errors in the examples set forth in the 

proposal, and corrected a misstatement by the 

Exchange in one of its comment letters. 

Amendment No. 1 is available at https://

www.sec.gov/comments/sr-chx-2017-04/chx201704- 

2583844-161106.pdf. 

13 In Amendment No. 2, the Exchange: (1) 

Amended the proposal so that the LEAD would 

apply only during the regular trading session; (2) 

revised the definition of ‘‘Qualified Executions’’ to 

measure executions during the regular trading 

session only; (3) modified its description of its 

review for compliance with the minimum 

performance standards to provide that the Exchange 

would review LEAD MM quoting and trading 

activity on a monthly basis, and that trading days 

on which a LEAD MM was prohibited by CHX rules 

from submitting orders from its trading account 

would be excluded from such review; (4) modified 

its description of the data that will be published on 

its Web site; (5) modified its description of the PEV 

data that will be collected; and (6) clarified its 

description of one of the order origin categories into 

which the variable processing delay statistics will 

be divided and amended and added delay ranges 

for which data will be collected. Amendment No. 

2 is available at https://www.sec.gov/comments/srchx-2017-04/chx201704-2643435-161294.pdf. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–23119 Filed 10–24–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81913; File No. SR–CHX– 

2017–04] 

Self-Regulatory Organizations; 

Chicago Stock Exchange, Inc.; Notice 

of Filing of Amendments No. 1 and No. 

2 and Order Granting Accelerated 

Approval of a Proposed Rule Change, 

as Modified by Amendments No. 1 and 

No. 2, To Adopt the CHX Liquidity 

Enhancing Access Delay on a Pilot 

Basis 

October 19, 2017. 

I. Introduction 

On February 10, 2017, 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 CHX Liquidity 

Enhancing Access Delay (‘‘LEAD’’), 

which would require all new incoming 

orders, cancel, and cancel/replace 

messages to be subject to a 350- 

microsecond intentional access delay 

except for: (1) Orders that would 

provide liquidity submitted by a LEAD 

Market Maker (‘‘LEAD MM’’ or 

‘‘LMM’’), a new class of CHX market 

maker with heightened quoting and 

trading obligations (referred to 

collectively as the ‘‘minimum 

performance standards’’); and (2) cancel 

messages originating from a LEAD MM’s 

trading account. The proposed rule 

change was published for comment in 

the Federal Register on February 21, 

2017.3 On April 3, 2017, 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 the proposed rule 

change should be disapproved.4 The 

Commission received eleven comment 

letters on the proposed rule change, 

including a response from the 

Exchange.5 On May 22, 2017, the 

Commission instituted proceedings 

under Section 19(b)(2)(B) of the 

Exchange Act 6 to determine whether to 

approve or disapprove the proposed 

rule change.7 Thereafter, the 

Commission received seven more 

comment letters, including a response 

from the Exchange.8 On August 17, 

2017, pursuant to Section 19(b)(2) of the 

Exchange Act,9 the Commission 

designated a longer period for 

Commission action on proceedings to 

determine whether to disapprove the 

proposed rule change.10

On September 19, 2017, the Exchange 

filed Amendment No. 1 to the proposed 

rule change. In Amendment No. 1, the 

Exchange proposed to implement the 

proposed rule change as a 24-month 

pilot program, during which time the 

Exchange would collect and publicly 

disclose (following the sixth month of 

the pilot program) the following data: 

(1) Quote quality statistics, designed to 

provide comparative data regarding the 

effect of LEAD on market quality, for 

each security per trading day and for 

each period of exceptional volatility 

(‘‘PEV’’) range (‘‘PEV Range’’), for the 

six months immediately preceding the 

implementation of the pilot program 

and for the duration of the pilot 

program; (2) matched trade difference 

statistics, designed to compare the 

reliability of CHX quotes with and 

without the LEAD, for each security 

assigned to a LEAD MM (‘‘LEAD MM 

Security’’) per trading day and per PEV 

Range, for the duration of the pilot 

program; (3) volume statistics, designed 

to measure the impact of LEAD on 

execution volume in LEAD MM 

Securities for the duration of the pilot 

program; (4) variable processing delay 

statistics, designed to provide 

comparative data regarding the variable 

delay 11 between the initial receipt of an 

order and the time that the order is 

eligible to be matched by CHX’s 

matching system for the duration of the 

pilot program; and (5) effective spread 

statistics, designed to measure the 

impact of the LEAD on CHX and 

national market system (‘‘NMS’’) 

effective spreads for the duration of the 

pilot program.12 On October 18, 2017, 

the Exchange filed Amendment No. 2 to 

the proposed rule change.13 This order 

approves the proposed rule change, as 


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49434 Federal Register / Vol. 82, No. 205 / Wednesday, October 25, 2017 / Notices 

14For more details regarding the proposal, please 

refer to the Notice, Amendment No. 1, and 

Amendment No. 2, supra notes 3, 12, and 13 

respectively. 

15New incoming orders are orders received by 

the matching system for the first time. The LEAD 

would not apply to other situations where existing 

orders or portions thereof are treated as incoming 

orders, such as: (1) Resting orders that are price slid 

into a new price point pursuant to the CHX only 

price sliding or limit up-limit down price sliding 

processes; and (2) unexecuted remainders of routed 

orders released into the matching system. See 

Notice, supra note 3, 82 FR at 11252, n.3. 

16The matching system is an automated order 

execution system. 

17See Amendment No. 2, supra note 13, at 11. 

18See Amendment No. 1, supra note 12, at 8. 

19See CHX Letter 2, supra note 8, at 10. 

Originally, CHX framed the LEAD as a 

countermeasure to ‘‘latency arbitrage,’’ defined by 

the Exchange as the practice of exploiting 

disparities in the price of a security or related 

securities that are being traded in different markets 

by taking advantage of the time it takes to access 

and respond to public information. See Notice, 

supra note 3, 82 FR at 11252–53. CHX attributes 

latency arbitrage to a degradation of the quality of 

its market it observed between January and July 

2016. See id. at 11253. 

20See CHX Article 16, Rule 4(d). 

21Proposed CHX Article 16, Rule 4(f)(2) provides 

that the Exchange will determine: (1) The ‘‘Daily 

NBB Quoting Percentage’’ by determining the 

percentage of time the LEAD MM has at least one 

round lot of displayed interest in an Exchange bid 

at the NBB during the open trading state of each 

trading day for a calendar month; (2) the ‘‘Daily 

NBO Quoting Percentage’’ by determining the 

percentage of time the LEAD MM has at least one 

round lot of displayed interest in an Exchange offer 

at the NBO during the open trading state of each 

trading day for a calendar month; (3) the ‘‘Average 

Daily NBBO Quoting Percentage’’ for each trading 

day by summing the ‘‘Daily NBB Quoting 

Percentage’’ and the ‘‘Daily NBO Quoting 

Percentage’’ then dividing such sum by two; and (4) 

the ‘‘Monthly Average NBBO Quoting Percentage’’ 

for each security by summing the security’s 

‘‘Average Daily NBBO Quoting Percentages’’ for 

each trading day in a calendar month then dividing 

the resulting sum by the total number of trading 

days in such calendar month. 

22Prior to commencing LEAD market making 

activities in a security, a LEAD MM must, among 

other things, establish at least one separately 

designated LEAD MM trading account through 

which all and only LEAD market making activities 

in LEAD MM Securities must originate. See 

proposed CHX Article 16, Rule 4(f)(3)(B)(i). 

23See proposed CHX Article 16, Rule 4(f)(3)(A). 

24See id. 

25See proposed CHX Article 16, Rule 4(f)(3)(C). 

26See proposed CHX Article 16, Rule 4(f)(3)(D). 

The trading days that a LEAD MM is prohibited by 

CHX rules from submitting orders will be excluded 

from such review. See Amendment No. 2, supra 

note 13, at 12. 

27See proposed CHX Article 16, Rule 4(f)(3)(D). 

28To adopt the LEAD on a permanent basis, the 

Exchange would have to file another proposed rule 

change, and the Commission would have to 

approve it. 

modified by Amendments No. 1 and No. 

2, on an accelerated basis. 

II. Summary of the Proposal 

The Exchange proposes to adopt, on 

a pilot basis, the LEAD,14 which would 

subject all new incoming orders,15

cancel, and cancel/replace messages to 

a 350-microsecond intentional access 

delay, except for: (1) Orders that would 

provide liquidity submitted by a LEAD 

MM; and (2) cancel messages originating 

from a LEAD MM’s trading account. 

New incoming orders, cancel, and 

cancel/replace messages would be 

subject to a 350 microsecond delay after 

initial receipt by the Exchange (‘‘Fixed 

LEAD Period’’), and would only be 

processed after the Exchange’s matching 

system 16 has evaluated and processed, 

if applicable, all messages received by 

the Exchange during the Fixed LEAD 

Period. A delayed message would retain 

its original sequence number and would 

be delayed only once. The LEAD would 

be applied to all securities traded on the 

Exchange during the regular trading 

session.17

The Exchange states that the LEAD is 

designed to address a lack of resting 

liquidity in NMS securities on CHX by 

providing LEAD MMs with a risk 

management tool that would incentivize 

LEAD MMs to display larger orders at 

aggressive prices.18 To the extent the 

LEAD would incentivize LEAD MMs to 

improve the price and size of the 

prevailing National Best Bid and Offer 

(‘‘NBBO’’), the Exchange asserts that 

LEAD could reduce transaction costs for 

retail investors, as wholesale brokerdealers price the majority of the retail 

orders they handle using the prevailing 

NBBO, and for institutional investors, as 

the execution costs for their orders 

would be reduced if the average NBBO 

spreads are narrowed.19

A LEAD MM would be required to 

meet the proposed minimum 

performance standards in return for 

undelayed access to submit liquidity 

providing orders and to cancel its 

resting orders. The proposed minimum 

performance standards require, in 

addition to the obligations for market 

makers required by the Exchange’s 

current rules,20 that: (1) A LEAD MM 

disseminate throughout the Exchange’s 

regular trading session (except during 

auctions) a continuous two-sided quote, 

with bids and offers being closer to the 

National Best Bid (‘‘NBB’’) and National 

Best Offer (‘‘NBO’’), respectively, than 

the quotes that market makers are 

required to post under CHX’s existing 

rules; (2) a LEAD MM maintain an 

average monthly NBBO quoting 

percentage 21 in each of its LEAD MM 

Securities of at least 10% over the 

course of a calendar month; (3) a LEAD 

MM must execute at least 2% of the 

transactions during the regular trading 

session, resulting from single-sided 

orders (excluding auction executions), 

in each of its LEAD MM Securities on 

an equally-weighted daily average over 

the course of a calendar month; and (4) 

at least 80% of the LEAD MM’s 

executions during the regular trading 

session, resulting from single-sided 

orders (excluding auction executions), 

in each of its LEAD MM Securities 

result from its resting orders that 

originated from its corresponding LEAD 

MM trading account over the course of 

a calendar month.22

CHX also proposes to establish a 

procedure to designate LEAD MMs in a 

security. Only a market maker could 

apply to be a LEAD MM in one or more 

securities, and market makers must 

receive written approval from the 

Exchange to be assigned securities as a 

LEAD MM.23 LEAD MMs would be 

selected by the Exchange based on 

factors including, but not limited to, 

experience with making markets in 

securities, adequacy of capital, 

willingness to promote the Exchange as 

a marketplace, issuer preference, 

operational capacity, support personnel, 

and history of adherence to Exchange 

rules and securities laws.24 Current 

Article 16, Rules 2(c)–(e) govern market 

maker withdrawal from assigned 

securities, and would apply to LEAD 

MMs and LEAD MM Securities. The 

Exchange could approve, at its 

discretion, more than one LEAD MM to 

be assigned to any LEAD MM Security 

and limit the number of LEAD MMs 

assigned to any security.25

Pursuant to proposed CHX Article 16, 

Rule 4(f)(3)(D), the Exchange would 

review each LEAD MM’s quoting and 

trading activity on a monthly basis to 

determine whether the LEAD MM has 

met the minimum performance 

standards for each of its LEAD MM 

Securities.26 A LEAD MM’s failure to 

meet the minimum performance 

standards during any given month 

would result in the Exchange: (1) 

Suspending or terminating a LEAD 

MM’s registration as a market maker; or 

(2) suspending or terminating 

assignment to a LEAD MM Security.27

These proposed provisions would not 

limit any other power of the Exchange 

to discipline a LEAD MM pursuant to 

other CHX rules. 

CHX Article 20, Rule 8(h) and 

proposed CHX Article 16, Rule 4(f) 

(collectively, the ‘‘LEAD Rules’’) would 

be introduced as a pilot program that 

would end 24 months following the 

implementation of the LEAD.28 In 

connection with the pilot program, the 

Exchange would collect the following 

data (collectively, the ‘‘Pilot Data’’): (1) 

Quote quality statistics for each security 


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29A PEV means a one second interval during 

which a percentage change in the NBBO midpoint 

for the security equaled or exceeded two standard 

deviations (‘‘s’’) from the mean. Each trading day, 

the Exchange would calculate a reference mean and 

standard deviation from consecutive one second 

time intervals during the regular trading session. 

Each daily reference mean and standard deviation 

would be applied to measure PEV on the following 

trading day. Each PEV would be categorized into 

one of five PEV Ranges, which are as follows: 2 = 

PEV greater than or equal to 2s and less than 3s; 

3 = PEV greater than or equal to 3s and less than 

4s; 4 = PEV greater than or equal to 4s and less 

than 5s; and 5 = PEV greater than or equal to 5s. 

See Amendment No. 2, supra note 13, at 8. 

30 Generally, ‘‘Qualified Orders’’ are new singlesided orders received by the Exchange during the 

regular trading session that were delayed. 

per trading day and per PEV Range,29

for the six months immediately 

preceding the pilot program date of 

implementation, and for the duration of 

the pilot program; (2) matched trade 

difference statistics, which are designed 

to provide comparative data regarding 

how Qualified Orders 30 received by 

CHX would have been handled if LEAD 

had not been in effect, for each LEAD 

MM Security per trading day and per 

PEV Range, for the duration of the pilot 

program; (3) volume statistics for each 

LEAD MM Security per trading day for 

the duration of the pilot program; (4) 

comparative data regarding the variable 

delay between the initial receipt of an 

order and the time at which the order 

is eligible to be matched by CHX’s 

matching system for each LEAD MM 

Security per trading day for the duration 

of the pilot program; and (5) statistics 

designed to measure the impact of 

LEAD on CHX and NMS effective 

spreads, for each LEAD MM Security 

per trading day and per PEV Range, for 

the duration of the pilot program. The 

Pilot Data is described in more detail 

below: 

1. Daily Quote Quality Statistics 

The daily quote quality statistics are 

designed to show several aspects of 

CHX and overall market quote quality 

both pre- and post-implementation of 

the pilot program. First, the statistics 

will show the width and the displayed 

size for both the NBBO and CHX’s BBO 

during different periods of market 

volatility. Second, the statistics will 

display the contribution to the NBBO 

and CHX’s BBO by the LEAD MM for 

those different periods of volatility. 

Finally, the statistics will show the 

contribution of CHX’s BBO to the 

overall NBBO. Quote quality statistics 

are designed to provide comparative 

data regarding the effect of LEAD on 

market quality, and would include at a 

minimum the following data fields (as 

applicable): 

Field No. Field name Description 

1 ....................... Symbol.

1A ..................... Primary Matching Location .............................. C = Chicago (CH2). 

N = New Jersey (NY4). 

2 ....................... TradeDate.

2A ..................... PEVRange ........................................................ Blank = All regular session data, 

2 = PEV data greater than or equal to 2s and less than 3s, 

3 = PEV data greater than or equal to 3s and less than 4s, 

4 = PEV data greater than or equal to 4s and less than 5s, 

5 = PEV data greater than or equal to 5s. 

3 ....................... NLMMs ............................................................. The number of LMMs assigned to this Symbol on this Trade Date. 

4A ..................... TimeRegSessScheduled .................................. The total scheduled time of the regular trading session for this Symbol for 

this TradeDate. 

4B ..................... TimeRegSessActual ......................................... The total actual time of the regular trading session for this Symbol for this 

TradeDate. Time during regulatory trading halts is not included in this total. 

5 ....................... TimeCHXBidPresent ........................................ The total time during the regular trading session that CHX has a protected 

bid. 

5L ..................... TimeCHXBidPresentLMM ................................ The total time during the regular trading session that CHX has a protected 

bid and one or more LMMs are included in the CHX protected bid price. 

6 ....................... TimeCHXBidMissing ........................................ The total time during the regular trading session that CHX does not have a 

protected bid. 

7 ....................... TimeCHXBidOnNBB ........................................ The total time during the regular trading session that CHX has a protected 

bid equal to the NBB price. 

7L ..................... TimeCHXBidOnNBBLMM ................................ The total time during the regular trading session that CHX has a protected 

bid equal to the NBB price and one or more LMMs are included in the 

NBB price. 

8 ....................... TimeCHXBidNamed ......................................... The total time during the regular trading session that CHX has a protected 

bid equal to the NBB price and CHX is shown as the NBB. 

8L ..................... TimeCHXBidNamed ......................................... The total time during the regular trading session that CHX has a protected 

bid equal to the NBB price and CHX is shown as the NBB and one or 

more LMMs are included in the NBB price. 

9 ....................... TimeCHXBidAlone ........................................... The total time during the regular trading session that CHX has a protected 

bid that is the only bid at the NBB price. 

9L ..................... TimeCHXBidAloneLMM ................................... The total time during the regular trading session that CHX has a protected 

bid that is the only protected bid at the NBB price and one or more LMMs 

are included in the NBB price. 

10 ..................... TimeCHXAskPresent ....................................... The total time during the regular trading session that CHX has a protected 

offer. 

10L ................... TimeCHXAskPresentLMM ............................... The total time during the regular trading session that CHX has a protected 

offer and one or more LMMs are included in the CHX protected offer. 

11 ..................... TimeCHXAskMissing ........................................ The total time during the regular trading session that CHX does not have a 

protected offer. 

12 ..................... TimeCHXAskOnNBO ....................................... The total time during the regular trading session that CHX has a protected 

offer equal to the NBO price. 

12L ................... TimeCHXAskOnNBOLMM ............................... The total time during the regular trading session that CHX has a protected 

offer equal to the NBO price and one or more LMMs are included in the 

NBO price. 


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Field No. Field name Description 

13 ..................... TimeCHXAskNamed ........................................ The total time during the regular trading session that CHX has a protected 

offer equal to the NBO price and CHX is shown as the NBO. 

13L ................... TimeCHXAskNamedLMM ................................ The total time during the regular trading session that CHX has a protected 

offer equal to the NBO price and CHX is shown as the NBO and one or 

more LMMs are included in the NBO price. 

14 ..................... TimeCHXAskAlone ........................................... The total time during the regular trading session that CHX has a protected 

offer that is the only protected offer at the NBO price. 

14L ................... TimeCHXAskAloneLMM ................................... The total time during the regular trading session that CHX has a protected 

offer that is the only protected offer at the NBO price and one or more 

LMMs are included in the NBO price. 

15 ..................... TimeCHXNoQuote ........................................... The total time during the regular trading session that CHX has neither a protected bid nor a protected offer. 

16 ..................... TimeCHXTwoSided .......................................... The total time during the regular trading session that CHX has both a protected bid and a protected offer. 

17 ..................... TimeNBBOUncrossed ...................................... The total time during the regular trading session that the NBBO is not 

crossed. 

18 ..................... Time-weightedCHXBid Differential ................... The time-weighted average difference between the CHX protected bid price 

and the NBB price when a CHX protected bid is present during the regular 

trading session. 

19 ..................... Time-weightedCHXBid SizeOnNBB ................. The time-weighted average CHX protected bid size when the CHX protected 

bid price equals the NBB price during the regular trading session. 

19L ................... Time-weightedCHXBid SizeOnNBBLMM ......... The time-weighted average LMM percentage of the CHX protected bid size 

when the CHX protected bid price equals the NBB price during the regular 

trading session. 

20 ..................... Time-weightedCHXBid SizeWhenNamed ........ The time-weighted average CHX protected bid size when the CHX protected 

bid price equals the NBB price during the regular trading session. 

20L ................... Time-weightedCHXBid SizeWhenNamed ........ The time-weighted average LMM percentage of CHX protected bid size when 

the CHX protected bid price equals the NBB price during the regular trading session. 

21 ..................... Time-weightedCHXBid SizeWhenAlone .......... The time-weighted average LMM percentage of CHX protected bid size when 

the CHX protected bid is the only protected bid at the NBB price during the 

regular trading session. 

21L ................... Time-weightedCHXBid SizeWhenAloneLMM .. The time-weighted average CHX protected bid size when the CHX protected 

bid is the only protected bid at the NBB price during the regular trading 

session. 

22 ..................... Time-weightedCHXPctOfBid 

SizeWhenOnNBB.

The time-weighted average percentage of all protected quotations at the 

NBB price when the CHX protected bid price equals the NBB price. 

23 ..................... Time-weightedCHXAsk Differential .................. The time-weighted average difference between the CHX protected offer price 

and the NBO price when a CHX protected offer is present during the regular trading session. 

24 ..................... Time-weightedCHXAsk SizeOnNBO ............... The time-weighted average CHX protected offer size when the CHX protected offer price equals the NBO price during the regular trading session. 

24L ................... Time-weightedCHXAsk SizeOnNBOLMM ....... The time-weighted average LMM percentage of CHX protected offer size 

when the CHX protected offer price equals the NBO price during the regular trading session. 

25 ..................... Time-weightedCHXAsk SizeWhenNamed ....... The time-weighted average CHX protected offer size when the CHX protected offer price equals the NBO price during the regular trading session. 

25L ................... Time-weightedCHXAsk SizeWhenNamedLMM The time-weighted average LMM percentage of CHX protected offer size

when the CHX protected offer price equals the NBO price during the regular trading session. 

26 ..................... Time-weightedCHXAsk SizeWhenAlone ......... The time-weighted average CHX protected offer size when the CHX protected offer is the only protected offer at the NBO price during the regular 

trading session. 

26L ................... Time-weightedCHXAsk SizeWhenAloneLMM The time-weighted average LMM percentage of CHX protected offer size 

when the CHX protected offer is the only protected offer at the NBO price 

during the regular trading session. 

27 ..................... Time-weightedCHXPctOfAsk 

SizeWhenOnNBO.

The time-weighted average percentage of all protected quotation size at the 

NBO price when CHX protected offer price equals the NBO price. 

28 ..................... Time-weightedCHX BBOSpread ...................... The time-weighted average difference between the CHX protected bid price 

and the CHX protected offer price when CHX is displaying a two-sided 

protected quotation. 

29 ..................... Time-WeightedNBBOSpread ........................... The time-weighted average difference between the NBB price and the NBO 

price when a two-sided NBBO exists. 

2. Matched Trade Difference Statistics 

The matched trade difference 

statistics are designed to show how 

many shares were executed with the 

LEAD MM proposal implemented and 

also, hypothetically, how many shares 

would have been executed had the 

LEAD MM proposal not been 

implemented, which would be 

accomplished by assuming non-LEAD 

MM orders were executed immediately. 

In addition, these metrics are aggregated 

by specific PEV Range so that one can 

analyze how these executions vary 

during different periods of volatility. 

Each Qualified Order would be 

categorized into one of the following 

four groups: (1) Group 1: Orders with at 

least a partial execution upon initial 

processing by CHX’s matching system 


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Federal Register / Vol. 82, No. 205 / Wednesday, October 25, 2017 / Notices 49437 

31See proposed CHX Article 20, Rule 8(h)(5)(A). 32NSE and NSEW exclude executions that 

resulted or would have resulted after initial 

processing by the matching system, such as when 

the orders are executed after being ranked on the 

CHX book. See Amendment No. 1, supra note 12, 

at 27. 

that would have had the same number 

of shares executed with or without 

LEAD; (2) Group 2: Orders with at least 

a partial execution upon initial 

processing by the matching system that 

had fewer executed shares with LEAD 

than it would have had without LEAD; 

(3) Group 3: Orders with at least a 

partial execution upon initial processing 

by the matching system that had more 

executed shares with LEAD than it 

would have had without LEAD; and (4) 

Group 4: Orders with no executed 

shares upon initial processing by the 

matching system with LEAD.31

Match trade difference statistics 

would include, at a minimum, the 

following data fields, as applicable: 

Field No. Field name Description 

1 ....................... Symbol.

1A ..................... Primary Matching Location .............................. C = Chicago (CH2). 

N = New Jersey (NY4). 

2 ....................... TradeDate.

2A ..................... PEVRange ........................................................ Blank = All regular session data. 

2 = PEV data greater than or equal to 2s and less than 3s. 

3 = PEV data greater than or equal to 3s and less than 4s. 

4= PEV data greater than or equal to 4s and less than 5s. 

5 = PEV data greater than or equal to 5s. 

3 ....................... InboundTradingAccount ................................... The Trading Account of the inbound order. 

3A ..................... NLMMs ............................................................. The number of LMMs assigned to this Symbol on this Trade Date. 

4 ....................... CapacityCode ................................................... This field would include the following codes: 

Code Meaning 

A Agency. 

L LEAD Market Maker. 

M Market Maker (not LEAD). 

P Principal. 

R Riskless Principal. 

4A ..................... ExchangeCode ................................................. Code Meaning 

N Not from an exchange. 

Y From an exchange. 

5 ....................... ISOCode ........................................................... Code Meaning 

N Not an ISO order. 

Y An ISO order. 

6 ....................... TimeInForceCode ............................................. Code Meaning 

0 DAY or equivalent. 

3 IOC. 

4 FOK. 

9 Other (includes auction). 

7 ....................... GROUP1_NO ................................................... The number of orders (‘‘NO’’) in Group 1. 

8 ....................... GROUP1_NTS ................................................. The total number of shares on all orders (‘‘NTS’’) in Group 1. 

9 32 .................... GROUP1_NSE = GROUP1_NSEW ................. The total number of shares immediately executed upon initial processing by 

the Matching System on all orders (‘‘NSE’’) in Group 1, which would always be equal to the total number of shares that would have been immediately executed upon initial processing by the Matching System had LEAD 

not been in effect (‘‘NSEW’’). 

10 ..................... GROUP2_NO ................................................... NO in Group 2. 

11 ..................... GROUP2_NTS ................................................. NTS in Group 2. 

12 ..................... GROUP2_NSE ................................................. NSE in Group 2. 

13 ..................... GROUP2_NSEW .............................................. NSEW on all orders in Group 2. 

14 ..................... GROUP3_NO ................................................... NO in Group 3. 

15 ..................... GROUP3_NTS ................................................. NTS in Group 3. 

16 ..................... GROUP3_NSE ................................................. NSE in Group 3. 

17 ..................... GROUP3_NSEW .............................................. NSEW on all orders in Group 3. 

18 ..................... GROUP4_NO ................................................... NO in Group 4. 

19 ..................... GROUP4_NTS ................................................. NTS in Group 4. 

GROUP4_NSE ................................................. This value would always be zero and not included. 

20 ..................... GROUP4_NSEW .............................................. NSEW on all orders in Group 4. 

21 ..................... LMMProvideOrderExecutedAheadOfDelayed

NonLMMProvideOrder.

Frequency at which an LMM provider order ranked on the CHX book executes ahead of a precedent non-LMM order (with the same side and price 

as the LMM order) that would have been immediately ranked on the CHX 

book if it had originated from a LEAD MM Trading Account, but was delayed. 

3. Volume Statistics 

The volume statistics are designed to 

show how the adoption of the LEAD by 

market makers changes over time as 

well as how much volume these new 

market makers execute over time. 

Generally, this data will concisely 

indicate CHX’s ability to attract new 

market makers to the LEAD MM 

program. For each LEAD MM Security, 

the Exchange would collect the 

following: (1) Daily number of LEAD 

MMs assigned; (2) total single-sided 

volume on CHX; (3) total market wide 


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49438 Federal Register / Vol. 82, No. 205 / Wednesday, October 25, 2017 / Notices 

33 In calculating total market wide volume, the 

Exchange will exclude volume attributed to certain 

non-standard trades. See Amendment No. 1, supra 

note 12, at 27. 

34See Amendment No. 2, supra note 13, at 10. 

35 Generally, ‘‘Eligible Trades’’ are executions 

attributed to single-sided orders received during the 

regular trading session when a two-sided and 

uncrossed NBBO disseminated by the relevant 

Securities Information Processor (‘‘SIP NBBO’’) was 

present. See proposed CHX Article 20, Rule 8(h)(8). 

36See proposed CHX Article 20, Rule 8(h)(3)(B). 

37See id. 

38See proposed CHX Article 20, Rule 8(h)(3)(C). 

39See id. 

40See proposed CHX Article 20, Rule 8(h)(3)(A). 

single-sided volume; 33 (4) total singlesided volume on CHX attributed to 

LEAD MMs as providers; and (5) the 

primary matching location for the 

security. 

4. Variable Processing Delay Statistics 

The variable processing delay 

statistics are designed to indicate how 

variable delays are distributed between 

orders from LEAD MMs and other 

market participants. All exchanges 

experience delays to some degree during 

periods of high order volume. These 

statistics will highlight discrepancies in 

delays experienced by orders from 

LEAD MMs and other market 

participants. These statistics would be 

divided into three order origin 

categories: (1) Orders from CHX 

participants that are not LEAD MMs; (2) 

liquidity taking orders from LEAD MMs; 

and (3) undelayed liquidity providing 

orders from LEAD MMs. For each order 

origin category, the Exchange would 

collect the following: (1) The number of 

orders with a variable delay less than 50 

microseconds, and the average delay 

time; (2) the number of orders with a 

variable delay equal to or greater than 

50 microseconds but less than 150 

microseconds, and the average delay 

time; (3) the number of orders with a 

variable delay equal to or greater than 

150 microseconds but less than 250 

microseconds, and the average delay 

time; (4) the number of orders with a 

variable delay equal to or greater than 

250 microseconds but less than 350 

microseconds, and the average delay 

time; and (5) the number of orders with 

a variable delay equal to or greater than 

350 microseconds, and the average 

delay time.34

5. Effective Spread Statistics 

The effective spread statistics are 

designed to track both the CHX and 

overall market effective spreads per 

security for different PEV Ranges prior 

to and after the implementation of the 

pilot program. This data should 

highlight changes in market quality that 

occur during the pilot program. The 

effective spread statistics would 

include, at least, the following data 

fields, as applicable: 

Field No. Field name Description 

1 ....................... Symbol.

1A ..................... Primary Matching Location ................................ C = Chicago (CH2). 

N = New Jersey (NY4). 

2 ....................... Date.

2A ..................... PEVRange .......................................................... Blank = All regular session data. 

2 = PEV data greater than or equal to 2s and less than 3s. 

3 = PEV data greater than or equal to 3s and less than 4s. 

4 = PEV data greater than or equal to 4s and less than 5s. 

5 = PEV data greater than or equal to 5s. 

3 ....................... NLMMs ............................................................... Number of LMMs assigned to symbol. 

4 ....................... TradeSizeBracket ............................................... 1 = 1–499. 

2 = 500–1999. 

3 = 2000–4999. 

4 = 5000–9999. 

5 = 10,000 or more. 

5 ....................... CHXNTrades ...................................................... For Eligible Trades 35 reported by CHX in TradeSizeBracket, the number of 

Eligible Trades reported. 

6 ....................... CHXNShares ...................................................... For Eligible Trades reported by CHX in TradeSizeBracket, number of 

shares attributed to Eligible Trades reported. 

7 ....................... SW_CHX_EffectiveSpread ................................. For Eligible Trades reported by CHX in TradeSizeBracket: Share-Weighted 

(2 * |Trade Price—SIP NBBO Midpoint|). 

8 ....................... SW_CHX_EffectiveSpreadIndex ........................ For qualified trades reported by CHX in TradeSizeBracket: CHX Effective 

Spread divided by the SIP NBBO at Participant Trade Report Time. 

9 ....................... NMSNTrades ...................................................... For Eligible Trades reported by SIP, the number of trades reported. 

10 ..................... NMSNShares ..................................................... For Eligible Trades reported by SIP in TradeSizeBracket, the number of 

shares reported. 

11 ..................... SW_NMS_EffectiveSpread ................................. For Eligible Trades reported by SIP in TradeSizeBracket: Share-Weighted 

(2 * |Trade Price—SIP NBBO Midpoint|). 

12 ..................... SW_NMS_EffectiveSpreadIndex ........................ For Eligible Trades reported by SIP in TradeSizeBracket: NMS Effective 

Spread divided by the SIP NBBO at Participant Trade Report Time. 

6. Timeline To Produce Pilot Data 

By no later than the end of the second 

month of the pilot program, the 

Exchange would provide the 

Commission with the Pilot Data for the 

first month of the pilot program.36 By 

the end of each month thereafter, the 

Exchange would provide the 

Commission with the Pilot Data from 

the previous month.37 By no later than 

the end of the sixth month of the pilot 

program, the Exchange would publish 

on its Web site an anonymized version 

of the Pilot Data and, by the end of each 

month thereafter, the Exchange would 

publish on its Web site an anonymized 

version of the Pilot Data, for each prior 

month of the pilot program.38 On the 

first day of the pilot program, the 

Exchange would publish on the CHX 

Web site each LEAD MM Security and 

the number of LEAD MMs assigned to 

each security, which would be updated 

daily during the duration of the pilot 

program.39 By no later than the end of 

the eighteenth month of the pilot 

program, the Exchange would provide 

the Commission with an analysis of the 

Pilot Data, which would be made 

publicly available.40


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Federal Register / Vol. 82, No. 205 / Wednesday, October 25, 2017 / Notices 49439 

41 In approving the proposed rule change, as 

modified by Amendments No. 1 and No. 2, the 

Commission has considered its impact on 

efficiency, competition, and capital formation. 15 

U.S.C. 78c(f). See infra Section III.A. 42 15 U.S.C. 78f(b)(5). 43 15 U.S.C. 78f(b)(8). 44 15 U.S.C. 78k–1(a)(1)(C). 45See supra notes 5 and 8. 

46See Virtu Letter, supra note 5; and CTC Trading 

Group Letter, supra note 5. 

47See XR Securities Letter, supra note 5; FIA PTG 

Letter, supra note 5; Hudson River Trading Letter, 

supra note 5; Leuchtkafer Letter, supra note 5; 

Citadel Letter, supra note 5; Healthy Markets Letter, 

supra note 5; NYSE Letter, supra note 5; and 

SIFMA Letter, supra note 5. 

48 15 U.S.C. 78f(b)(5). 

49See FIA PTG Letter, supra note 5, at 3; XR 

Securities Letter, supra note 5, at 1; SIFMA Letter, 

supra note 5, at 2; Leuchtkafer Letter, supra note 

5, at 4 (asserting that the LEAD would only benefit 

market participants who become LEAD MMs and 

subscribe to the Chicago Mercantile Exchange’s 

(‘‘CME’’) data feeds); Hudson River Trading Letter, 

supra note 5, at 2; and Citadel Letter, supra note 

5, at 3. 

50See FIA PTG Letter, supra note 5, at 2–3; 

Leuchtkafer Letter, supra note 5, at 4–5; Citadel 

Letter, supra note 5, at 3–4; Hudson River Trading 

Letter, supra note 5, at 5–6. See also XR Securities 

Letter, supra note 5, at 2 (stating that the LEAD 

would give LEAD MMs an ‘‘unfair advantage’’); 

Healthy Markets Letter, supra note 5, at 4 (stating 

that the proposal would ‘‘venture into unchartered 

discriminatory waters, and offers little explanation 

or justification’’); and SIFMA Letter, supra note 5, 

at 5 (asserting that any intentional delay should be 

universally applied to all market participants in a 

non-discriminatory manner). 

51See Citadel Letter, supra note 5, at 5–6; 

Leuchtkafer Letter, supra note 5, at 4. 

52See Hudson River Trading Letter, supra note 5, 

at 2. 

53See FIA PTG Letter, supra note 5, at 3. 

54See Hudson River Trading Letter, supra note 5, 

at 1–2; XR Securities Letter, supra note 5, at 3; 

Citadel Letter, supra note 5, at 3; Leuchtkafer Letter 

2, supra note 5, at 8. 

55See Hudson River Trading Letter, supra note 5, 

at 1–2. 

56See XR Securities Letter, supra note 5, at 3. 

57See Virtu Letter, supra note 5, at 2; and CTC 

Trading Letter, supra note 5, at 3. 

58See Virtu Letter, supra note 5, at 2. 

59See CTC Trading Letter, supra note 5, at 5. 

60See Virtu Letter, supra note 5, at 2; and CTC 

Trading Letter, supra note 5, at 4. 

61See Virtu Letter, supra note 5, at 2. 

62See id. 

63See CTC Trading Letter, supra note 5, at 4. 

III. Discussion and Commission 

Findings 

The Commission has carefully 

reviewed the proposal and finds that 

approval of the proposed rule change, as 

modified by Amendments No. 1 and No. 

2, is consistent with the requirements of 

the Exchange Act and the rules and 

regulations thereunder applicable to a 

national securities exchange.41 In 

particular, as discussed below, the 

Commission finds that the proposal is 

consistent with: (1) Section 6(b)(5) of 

the Exchange Act,42 which requires that 

the rules of a national securities 

exchange, among other things, be 

designed to prevent fraudulent and 

manipulative acts and practices, 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; and 

not be designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers; (2) Section 

6(b)(8) of the Exchange Act,43 which 

requires that the rules of a national 

securities exchange not impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act; and (3) 

Section 11A of the Exchange Act, which 

articulates Congress’ finding that, 

among other things, it is in the public 

interest and appropriate for the 

protection of investors and the 

maintenance of fair and orderly markets 

to assure: Economically efficient 

execution of securities transactions; fair 

competition among brokers and dealers, 

among exchange markets, and between 

exchange markets; the availability to 

brokers, dealers, and investors of 

information with respect to quotations 

for and transactions in securities; the 

practicability of brokers executing 

investors’ orders in the best market; and 

an opportunity, consistent with the 

economically efficient execution of 

securities transactions and the 

practicability of brokers executing 

investors’ orders in the best market, for 

investors’ orders to be executed without 

the participation of a dealer.44

The Commission received sixteen 

comment letters from ten commenters 

on the proposal and two response letters 

from the Exchange.45 Two commenters 

express support for the proposal,46 and 

eight commenters express opposition to, 

or concern regarding, the proposal.47

A. Section 6 of the Exchange Act 

Section 6(b)(5) of the Exchange Act 

requires that the rules of a national 

securities exchange must be, among 

other things, not designed to permit 

unfair discrimination between 

customers, issuers, brokers, or dealers.48

Certain commenters argue that the 

proposed rule change would provide an 

unfair advantage to LEAD MMs over 

other CHX participants.49 In particular, 

commenters argue that by not subjecting 

LEAD MMs’ liquidity providing orders 

and related cancels to the LEAD, the 

proposal would unfairly discriminate in 

favor of the LEAD MMs.50 Two 

commenters state that the LEAD would 

unfairly discriminate against market 

participants that are primarily liquidity 

takers, such as retail investors or 

institutions.51 A commenter argues that 

the discriminatory nature of the LEAD 

would harm market participants when 

they seek to access liquidity provided 

by a LEAD MM as the LEAD MM may 

alter its price while incoming orders are 

being delayed.52 Another commenter 

expresses concern that the LEAD would 

frustrate strategies that involve taking 

prices across multiple venues by giving 

extra time to LEAD MMs to pull their 

quotes in the middle of a multi-venue 

order.53

In addition, certain commenters 

express concern regarding the 

discriminatory effects of the LEAD on 

non-LEAD MM liquidity providers.54

For example, one commenter asserts 

that the LEAD would benefit LEAD 

MMs by making it easier to quote better 

prices in larger size but would in turn 

make it more difficult for non-LEAD 

MM liquidity providers to quote better 

prices at larger size.55 Similarly, another 

commenter argues that the LEAD will 

prevent non-LEAD MM liquidity 

providers, who the commenter 

characterize as being not being 

informationally advantaged by the 

speed bump, from providing the best 

possible market they otherwise could.56

Two commenters believe that the 

proposal will incentivize LEAD MMs to 

enhance displayed liquidity by entering 

larger orders at better prices.57 Another 

commenter states that it believes that 

this will benefit institutional 

investors.58 One commenter states that 

it believes that the proposal would 

benefit the public interest and protect 

investors by encouraging superior 

displayed liquidity from qualified 

market makers.59 In addition, these 

commenters believe that the proposed 

minimum performance standards are 

appropriate given the benefits that 

LEAD MMs would be afforded.60 One of 

those commenters states its belief that 

market maker incentives should be 

consistent with the risk inherent with 

truly affirmative quoting and trading 

obligations, and asserts that the 

minimum performance standards meet 

such standard.61 That commenter 

believes that the proposal would 

appropriately link heightened quoting 

and trading requirements with the 

ability to adequately manage the 

heightened risks of such requirements.62

Another commenter agrees with CHX 

that the minimum performance 

standards are substantial and 

proportionate to the advantages that 

LEAD MMs will receive.63 The 

commenter states that historically, other 

national securities exchanges have 

balanced market maker benefits with 


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64See id. 

65See id. at 3. 

66See Leuchtkafer Letter, supra note 5, at 4–5; 

NYSE Letter, supra note 5, at 4–5 (stating that the 

benefit is ‘‘disproportionate’’ to the proposed 

standards); Citadel Letter, supra note 5, at 2 

(asserting that the minimum performance standards 

appear to be ‘‘largely immaterial in substance’’ and 

the benefits of the LEAD would be ‘‘entirely 

disproportionate’’ to these obligations). Two 

commenters suggest that CHX should provide data 

regarding the materiality of the minimum 

performance standards, how they will improve 

market quality, and whether CHX market makers 

already satisfy these criteria. See Citadel Letter, 

supra note 5, at 3; and Healthy Markets Letter, 

supra note 5, at 4. Two other commenters express 

concern that the proposal would be unfairly 

discriminatory because only firms selected by CHX 

as LEAD MMs would be given the speed advantage. 

See XR Securities Letter, supra note 5, at 1; and FIA 

PTG Letter, supra note 5, at 2. In addition, one 

commenter raises concern that LEAD MMs would 

be named based on subjective criteria. See Citadel 

Letter, supra note 5, at 4. 

67See Leuchtkafer Letter, supra note 5, at 5. 

68See, e.g., CHX Letter, supra note 5, at 10–11. 

69See Notice, supra note 3, 82 FR at 11269. 

70See CHX Letter, supra note 5, at 6. 

71See Amendment No. 1, supra note 12, at 8. 

72See id. 

73See CHX Letter 2, supra note 8, at 9–10. 

74See Amendment No. 1, supra note 12, at 8. 

75See CHX Letter, supra note 5, at 6. 

76See CHX Letter 2, supra note 8, at 6–7. 

77See id. 

78See supra note 66. 

79See CHX Letter 2, supra note 8, at 7–9. 

80See id. 81See id. at 9. 82The factors the Exchange may consider in 

selecting a LEAD MM include, but are not limited 

to, experience with making markets in securities, 

adequacy of capital, willingness to promote the 

Exchange as a marketplace, issuer preference, 

operational capacity, support personnel, and 

history of adherence to Exchange rules and 

securities laws. See proposed CHX Article 16, Rule 

4(f)(3)(A). 

83See CHX Letter, supra note 5, at 11–12. 84See id. 

85See id. at 11. 

86See CHX Letter 2, supra note 8, at 13–14. 

87Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496, 37526 (June 29, 2005) 

(‘‘Regulation NMS Adopting Release’’). 

88See id. 

responsibilities, and asserts that 

requiring market makers to comply with 

substantial quoting requirements and 

benefits that are proportionate to their 

obligations, which it believes the LEAD 

would provide for, is consistent with 

the Exchange Act.64 In addition, that 

commenter states its views that the 

LEAD would reduce unfair 

discrimination by providing an 

appropriate trade-off between the 

benefits and responsibilities of LEAD 

MMs.65 Other commenters express 

concern that the minimum performance 

standards may not be adequate to justify 

the benefits that LEAD MMs would 

receive under the proposal.66 In 

addition, one commenter suggests that 

LEAD MMs should have specific 

responsibilities around the open, close, 

and in volatile markets.67

The Exchange argues that the 

proposed rule change is not designed to 

permit unfair discrimination. While the 

Exchange acknowledges that the LEAD 

is discriminatory by design,68 the 

Exchange asserts that the proposed 

discrimination is fair because the 

advantage afforded to LEAD MMs is 

conditioned upon LEAD MMs satisfying 

the proposed minimum performance 

standards,69 which, according to the 

Exchange, are substantial and 

proportionate to the benefits that the 

LEAD would confer on LEAD MMs.70

The Exchange notes that it has little to 

no resting liquidity in the vast majority 

of NMS securities traded at CHX, which 

has resulted in immaterial trading 

volume in all but a handful of 

securities.71 The Exchange states that 

the LEAD Rules would address this lack 

of resting liquidity in NMS securities on 

CHX by providing LEAD MMs with a 

risk management tool that would 

incentivize them to display larger orders 

at aggressive prices.72 To the extent the 

LEAD would incentivize LEAD MMs to 

improve the price and size of the 

prevailing NBBO, the Exchange argues 

that LEAD could reduce transaction 

costs for retail investors, as wholesale 

broker-dealers price the majority of the 

retail orders they handle off the 

prevailing NBBO, and for institutional 

investors, as the execution costs for 

their orders would be reduced if the 

average NBBO spreads are narrowed.73

The Exchange, therefore, contends that 

the LEAD would result in meaningful 

enhancements to market quality in 

securities that are actively traded at 

CHX and new aggressive markets in 

securities that are currently not actively 

traded at CHX.74

Further, the Exchange states that the 

minimum performance standards are 

appropriate given the requirements 

imposed upon and benefits incurred by 

market makers on other exchanges.75

Specifically, the Exchange compares the 

proposed obligations of its LEAD MMs 

to those of the New York Stock 

Exchange, LLC (‘‘NYSE’’) Designated 

Market Makers (‘‘DMMs’’), which 

receive execution parity rights in return 

for minimum performance standards 

that CHX states are similar to CHX’s 

proposed minimum performance 

standards.76 The Exchange asserts that, 

while DMM parity merely encourages 

DMMs to join the NBBO, the LEAD 

would incentivize LEAD MMs to 

improve the price and size of the NBBO 

by: Minimizing the risk that LEAD 

MMs’ quotes would be ‘‘picked off’’ by 

latency arbitrageurs; and providing, 

through CHX’s existing market data 

revenue rebates program, rebates for 

quotes that remain on the CHX book for 

at least one second.77

In response to the comments 

requesting data showing that the 

minimum performance standards are 

appropriate,78 the Exchange presents 

data 79 that it believes demonstrates that 

the minimum performance standards 

would be substantial relative to 

historical CHX data. The Exchange 

states that the data shows that the 

majority of CHX participants would not 

have passed the proposed minimum 

performance standards in January 2016 

or February 2017 for the securities that 

trade on CHX,80 and that the most active 

SPDR S&P 500 trust exchange-traded 

fund (‘‘SPY’’) liquidity providers in 

January 2016 would not have met the 

standards as of February 2017.81 In 

addition, CHX believes that the LEAD 

MM selection criteria, which would 

allow CHX to consider various factors in 

assessing the ability of an applicant to 

meaningfully contribute to market 

quality as a LEAD MM,82 are designed 

to forecast how well an applicant would 

perform as a LEAD MM.83 CHX notes 

that the criteria are virtually identical to 

the criteria under Bats BZX’s rules for 

its lead market maker program.84

With regard to a commenter’s concern 

that the LEAD would frustrate strategies 

that involve taking prices across 

multiple venues, the Exchange asserts 

that a market participant who currently 

utilizes sophisticated order routing logic 

to successfully execute multi-venue 

orders could modify its logic to account 

for the 350-microsecond intentional 

delay at CHX and thereby eliminate any 

incremental information leakage.85 In 

addition, the Exchange believes that 350 

microseconds is long enough to 

minimize the effectiveness of latency 

arbitrage strategies, yet short enough as 

to not provide liquidity providers with 

an unfair advantage, and asserts that the 

350 microsecond delay is appropriate 

both for New York and Chicago data 

centers.86

For the reasons discussed below, the 

Commission believes that the proposal 

to implement the LEAD and the 

minimum performance standards is not 

designed to permit unfair 

discrimination under Section 6(b)(5) of 

the Exchange Act. Liquidity providers 

that display limit orders are the primary 

source of public price discovery.87 The 

Commission emphasizes the importance 

of displayed limit orders as they 

typically set quoted spreads, supply 

liquidity, and in general establish the 

public ‘‘market’’ for a stock.88 To 

establish the public market for a stock, 


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89See id. at 37526–37527. 

90See id. at 37526. 

91See, e.g., NYSE Rule 104 (Dealings and 

Responsibilities of DMMs). 

92Presently, liquidity providers on CHX are not 

obligated to quote or transact at levels consistent 

with the minimum performance standards as each 

LEAD MM would be under the proposal. 

93Compare proposed CHX Article 16, Rule 4(f)(2) 

with Bats BZX Rule 11.8(e)(2); NYSE Arca Rule 

7.22–E; CBOE Rule 8.83. 

94See supra note 53 and accompanying text. 

95See FIA PTG Letter 2, supra note 8. 

96See supra note 85 and accompanying text. 

97See Hudson River Trading Letter, supra note 5, 

at 8. 

98See id. at 1. As discussed above, the 

Commission believes that the discriminatory aspect 

of the LEAD is fair for the reasons discussed above. 

See supra Section III.A. 

99See Hudson River Trading Letter, supra note 5, 

at 1. 

100See Citadel Letter, supra note 5, at 4. 

101See CHX Letter 2, supra note 8, at 15. 

102See id. at 17. 

displayed limit orders make the first 

move by being displayed rather than 

executed and therefore provide a ‘‘free 

option’’ for other market participants to 

trade a stock by submitting marketable 

orders and taking the liquidity supplied 

by the displayd limit orders.89 The 

Commission notes that the quality of 

execution for marketable orders, which, 

in turn, trade with displayed liquidity, 

depends to a great extent on the quality 

of markets established by displayed 

limit orders (i.e., the narrowness of 

quoted spreads and the available 

liquidity at various price levels).90

Accordingly, the quality of execution for 

marketable orders is directly affected by 

the willingness of liquidity providers to 

take the execution risk associated with 

providing displayed liquidity. To the 

extent liquidity providers can be 

incentivized to display better prices or 

larger size, the market quality for 

liquidity taking orders should improve. 

National securities exchanges have 

historically discriminated among their 

members by, among other things, 

providing various advantages to 

members that register as market makers 

and thereby commit to certain 

undertakings designed to enhance 

market quality.91 CHX’s proposal 

discriminates in favor of LEAD MMs, by 

not subjecting LEAD MM liquidity 

providing orders and related cancels to 

the LEAD, to provide LEAD MMs with 

a risk management tool that should 

incentivize LEAD MMs to post larger 

size and more aggressively-priced 

quotes on CHX. The proposal also 

imposes heightened quoting and new 

transaction obligations on the LEAD 

MMs to obtain this benefit.92 LEAD 

MMs therefore have committed to 

provide a specific level of liquidity on 

the Exchange on an ongoing basis, 

unlike other liquidity providers or other 

CHX participants. These obligations will 

require LEAD MMs to take on greater 

risk, and they in turn will be provided 

a tool—the LEAD—to help them more 

effectively manage that risk. In this way, 

the difference in benefits is designed to 

reflect the different obligations of the 

parties. The Commission therefore 

believes that these minimum 

performance standards, particularly the 

quoting and transaction thresholds, are 

meaningful obligations that are 

proportionate to and balanced with the 

advantages conferred upon LEAD MMs. 

The Commission also notes that: (1) 

The minimum performance standards 

are quantitive standards that the 

Exchange can objectively measure to 

determine whether LEAD MMs are in 

compliance, which will allow the 

Exchange to apply them consistently to 

ensure that similarly situated parties are 

treated equally; and (2) the LEAD MM 

selection process is substantially similar 

to the market maker selection processes 

previously approved by the Commission 

and implemented on other national 

securities exchanges.93

With respect to one commenter’s 

concern that the LEAD would frustrate 

strategies that involve taking prices 

across multiple venues,94 the 

Commission believes that a market 

participant could modify its routing 

strategies to address the 350- 

microsecond LEAD and eliminate any 

added risk of information leakage. The 

Commission notes that, in its second 

comment letter,95 the commenter did 

not refute CHX’s rebuttal.96

For these reasons, the Commission 

finds that the proposed rule change, as 

modified by Amendments No. 1 and 

No. 2, is consistent with the 

requirement of Section 6(b)(5) of the 

Exchange Act that the rules of a national 

securities exchange be not designed to 

permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

Section 6(b)(8) of the Exchange Act 

requires that the rules of a national 

securities exchange not impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act. One 

commenter asserts that the LEAD would 

unduly burden competition between 

liquidty providers and firms that access 

displayed prices on CHX.97 This 

commenter states its view that benefits 

provided to market makers create a 

disparity that harms competition among 

market participants and leads to greater 

intermediation as the benefits are 

available only to certain 

intermediaries.98 This commenter 

believes that the LEAD may make it 

easier for LEAD MMs to quote better 

prices in larger size, but would make it 

more difficult for non-LEAD MMs to do 

so.99 Another commenter expresses 

concern that the LEAD would alter the 

competitive balance in the market by 

benefitting only LEAD MMs, as LEAD 

MMs would effectively be given extra 

time to determine whether to remain 

firm or cancel/modify a displayed 

quotation in order to avoid unfavorable 

executions.100

The Exchange believes that the LEAD 

would result in increased competition 

with liquidity providers of other 

markets, which furthers a primary goal 

of Regulation NMS, as such liquidity 

providers would have to provide 

enhanced liquidity or risk losing market 

share to LEAD MMs.101 The Exchange 

also responds that the LEAD would not 

create a new competitive balance as 

much as it would correct a competitive 

imbalance that serves to discourage 

displayed liquidity and is in itself an 

undue burden on competition.102

The Commission finds that the LEAD 

Rules are consistent with Section 6(b)(8) 

of the Exchange Act because they do not 

impose any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Exchange Act. 

The Commission believes that, while 

the proposal will provide a benefit to 

LEAD MMs by not subjecting their 

liquidity providing orders and related 

cancels to the LEAD, such benefit is 

appropriate in exchange for their 

commitment to provide meaningful 

liquidity on the Exchange as required by 

the minimum performance standards. 

By providing a mechanism for LEAD 

MMs to update their displayed 

quotations without delay, the LEAD is 

designed to incentivize LEAD MMs to 

improve the price and size of their 

quotes on CHX thereby improving 

market quality to the ultimate benefit of 

liquidity takers. The Commission notes 

that improvements to CHX’s quotations 

would benefit non-CHX market 

participants to the extent such 

quotations result in tightening the 

NBBO spread, as a number of execution 

venues price transactions off the NBBO. 

For these reasons, the Commission 

believes that the balance between the 

benefit to LEAD MMs afforded by the 

LEAD and their obligations under the 

minimum performance standards 

appropriately furthers the purposes of 

the Exchange Act. 

One commenter believes that, to 

assess the proposed rule change’s 

impact on competition, the Exchange 


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103See Leuchtkafer Letter 5, supra note 8, at 1. 

104See id. at 2. 

105See supra note 103 and accompanying text. 

106Under CHX’s execution rules, a non-LEAD 

MM order that was received by the Exchange before 

a LEAD MM order would have time priority over 

the LEAD MM order once it is ranked in the 

Exchange’s order book notwithstanding the delay 

imposed by the LEAD to reach the Exchange’s order 

book. See CHX Article 20, Rule 8(b). See also 

Amendment No. 1, supra note 12, at 7–8. 

107See Virtu Letter, supra note 5, at 2; CTC 

Trading Letter, supra note 5, at 3; Healthy Markets 

Letter, supra note 5, at 4–5; XR Securities Letter, 

supra note 5, at 2; FIA PTG Letter, supra note 5, 

at 4; SIFMA Letter, supra note 5, at 6; Citadel Letter, 

supra note 5, at 3; and Hudson River Trading Letter 

supra note 5, at 6. 

108See Virtu Letter, supra note 5, at 2; and CTC 

Trading Letter, supra note 5, at 3. 

109See Virtu Letter, supra note 5, at 2. 

110See CTC Trading Letter, supra note 5, at 3. 

111See id. at 6. 

112See Healthy Markets Letter, supra note 5, at 

4–5; XR Securities Letter, supra note 5, at 2; FIA 

PTG Letter, supra note 5, at 4; SIFMA Letter, supra 

note 5, at 6; Citadel Letter, supra note 5, at 3; and 

Hudson River Trading Letter supra note 5, at 6. In 

addition, as CHX is the only exchange to share 

quote revenue with its members, three commenters 

assert that the LEAD would result in unfair 

allocation of consolidated market data revenue by 

generating an increase in quoting, but not 

necessarily trading, on the Exchange. See Hudson 

River Trading Letter, supra note 5, at 7; Citadel 

Letter, supra note 5, at 6; and SIFMA Letter, supra 

note 5, at 7. The Securities Information Processors 

(‘‘SIPs’’) collect fees from subscribers for trade and 

quote tape data received from trading centers and 

reporting facilities (collectively ‘‘SIP Participants’’) 

and, after deducting the cost of operating each tape, 

the SIPs allocate profits among the SIP Participants 

(including CHX) on a quarterly basis. CHX shares 

with its members a portion of the revenue it 

receives that is attributed to members’ quote 

activity. See Securities Exchange Act Release No. 

70546 (September 27, 2013), 78 FR 61413 (October 

3, 2013) (SR–CHX–2013–18). The Exchange 

responds that the LEAD would not encourage nonbona fide quote activity for the purpose of earning 

rebates because quotes cancelled within the 350- 

microsecond LEAD would not be eligible for market 

data revenue rebates, and cancellation of such 

quotes could result in the CHX participant being 

assessed an order cancellation fee. See CHX Letter, 

supra note 5, at 10. 

113See Hudson River Trading Letter, supra note 

5, at 6; and Citadel Letter, supra note 5, at 3. 

Another commenter similarly predicted that the 

LEAD would result in complex trickle-down 

impacts on the NBBO including CHX quotes that 

would not be accessible. See FIA PTG Letter, supra 

note 5 at 3. 

114See XR Securities Letter, supra note 5, at 2. 

See also FIA PTG Letter, supra note 5, at 4 

(expressing concern that non-LEAD MMs would be 

forced to widen their bid/ask spreads across the 

marketplace). 

115See FIA PTG Letter, supra note 5, at 4 (stating 

that LEAD MMs may be forced to widen their bid/ 

ask spreads, which would be costly to investors); 

Leuchtkafer Letter 2, supra note 8, at 8 (asserting 

that the LEAD would result to increased transaction 

costs for retail and institutional investors, who 

would be exposed to adverse selection); XR 

Securities Letter, supra note 5, at 1 (asserting that 

the LEAD is likely to result in higher trading costs 

for the investing public); Hudson River Trading 

Letter, supra note 5, at 6 (asserting that providing 

LEAD MMs the ability to back away from quoted 

prices and sizes would increase the cost of finding 

liquidity); SIFMA Letter, supra note 5, at 8 (stating 

that the proposal could result in increased market 

complexity and costs); and Citadel Letter 2, supra 

note 5, at 3 (asserting that the LEAD would expose 

liquidity providers (other than LEAD MMs) to 

adverse selection, which would raise costs for 

providing liquidity). 

116See Leuchtkafer Letter 2, supra note 8, at 9. 

117See id. at 7–8. 

118See OIP, supra note 7, 82 FR at 24416. 

119See CHX Letter 2, supra note 8, at 9. The 

Exchange also asserts that current circuit breakers, 

include Limit Up-Limit Down, provide an adequate 

market-wide remedy for extraordinary market 

volatility. See id. 

should also collect and disclose order 

book queue metrics.103 That commenter 

also asserts that to assess the ‘‘anticompetitive effect’’ of shifting latency 

arbitrage costs to non-LEAD MM 

participants, CHX should collect and 

disclose: (1) The number of times a nonLEAD MM’s resting order was executed 

within 350 microseconds of any LEAD 

MM’s order cancellation at the same 

price or better, and (2) the number of 

times any LEAD MM’s order was 

cancelled while any marketable contra 

sat in the LEAD queue.104 While the 

Exchange will not be collecting the 

statistitics that the commenter suggests, 

the Exchange will be collecting other 

data that are designed to allow the 

Exchange and the Commission to assess 

the impact of the proposal on 

competition. Specifically, the Exchange 

will collect and publish matched trade 

difference statistics. These metrics will 

measure the volume executed 

hypothetically without LEAD and the 

volume executed in reality with LEAD, 

and will be grouped by different PEV 

Range values such that analysis can be 

conducted to determine how much, if at 

all, this cost increases during periods of 

excessive volatility. This data will allow 

the Exchange and the Commission to 

examine the effect on competition that 

the commenter suggests by determining 

the difference between the hypothetical 

and actual executed volume, and 

focusing specifically on periods of 

higher volatility. This difference, 

combined with type of market 

participant who provided liquidity, 

should shed light on how competition 

has been affected. Also, analysis of this 

data will allow the Commission to 

assess and weigh the degree to which 

latency arbitrage costs are being borne 

by non-LEAD liquidity providers and if 

those costs outweigh any of the 

displayed benefits. With respect to the 

commenter’s suggestion that the 

Exchange also provide order book queue 

statistics,105 it is not sufficiently clear 

what benefit such statistics would 

provide.106

The Commission’s views of the 

proposal’s consistency with Sections 

6(b)(5) and 6(b)(8) of the Exchange Act 

are informed by its views that the 

proposal is appropriately designed to 

enhance market quality by striking a 

balance between the new obligations for 

LEAD MMs and the accompanying 

benefits. Several commenters discuss 

the potential impact of the proposal on 

displayed liquidity and price discovery 

as well as market quality in general.107

Two commenters assert that the LEAD 

would enable liquidity providers to 

improve displayed liquidity.108 One 

commenter states that LEAD MMs will 

be more inclined to post larger orders at 

better prices in assigned securities on 

CHX with confidence that their orders 

will not be ‘‘picked off’’ by speed 

arbitrageurs. The commenter believes 

this will improve displayed liquidity 

available to institutional investors, and 

all investors, without limiting the ability 

of retail and institutional investors to 

access liquidity.109 Another commenter 

states its views that the LEAD will 

reduce adverse selection risk and 

incentivize market makers to provide 

more liquidity, leading to deeper quotes 

and tighter bid-ask spreads,110 which 

would reduce the costs of investors.111

Six other commenters express 

concern that the LEAD could deteriorate 

the accessibility of quotes and overall 

market quality.112 Two commenters 

predict that, while overall spreads and 

liquidity may improve, the increased 

liquidity would be more conditional 

and less accessible.113 In addition, one 

commenter predicts that spreads made 

by ‘‘real’’ liquidity providers—as 

distinguished from ‘‘fleeting’’ quotes 

submitted by LEAD MMs—would 

widen.114 Several commenters express 

concern about the potential transaction 

costs that the LEAD could impose on 

investors.115

In addition, one commenter believes 

that the LEAD could result in 

institutional migration to dark venues, 

which could reduce market quality over 

time.116 The commenter also asserts that 

the LEAD could result in volatility 

during stressed trading conditions.117 In 

the OIP, the Commission asked about 

how the proposal would affect price 

volatility on the Exchange.118 In 

response, the Exchange states that, 

although LEAD MM quotes would likely 

widen during stressed trading 

conditions, LEAD MMs would be 

subject to the minimum performance 

standards, which may have a mitigating 

effect on price volatility.119

The Exchange asserts that the 

proposal would provide LEAD MMs 

with a risk management tool that would 

encourage LEAD MMs to display larger 

orders at aggressive prices, which 

should provide meaningful 


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120See Amendment No. 1, supra note 12, at 8. 

121See id. 

122See id. 

123See id. 

124See CHX Letter, supra note 5, at 4. With 

respect to retail customers, the Exchange states that 

wholesalers base execution price on the NBBO and 

that a slight narrowing of the average NBBO, which 

the Exchange predicts will occur because of the 

LEAD, will favorably affect the pricing that 

wholesalers provide for retail orders, at the expense 

of the wholesalers’ bottom line. See CHX Letter 2, 

supra note 8, at 10. The Exchange predicts that, 

because wholesalers prefer to trade at or inside the 

NBBO, when the NBBO is narrowed, wholesalers 

would either have to choose among matching the 

better price, improving the better price, or routing 

the customer order to the better price, and the 

Exchange asserts that any of these outcomes will 

benefit retail customers. See id. at 15. The Exchange 

states that institutional order flow is not directed to 

wholesalers, and some institutional orders are 

executed during opening and closing auctions. See 

id. at 10. The LEAD would not impact the cost of 

those transactions, according to the Exchange. But 

the Exchange also states that: (1) Most institutional 

orders are broken down into much smaller ‘‘child 

orders,’’ which are executed in the marketplace 

using a variety of algorithms; (2) in general, 

execution costs for such child orders would be 

reduced when average NBBO spreads are narrowed; 

and therefore (3) to the extent that the LEAD 

increases competition among orders and narrows 

the average NBBO spread, institutional order flow 

would also experience lower execution costs. See 

id. With respect to an institutional investor’s 

experience taking liquidity, CHX states that 

institutional investors would have the same 

experience as any other liquidity taker and that the 

LEAD would not have a materially negative effect 

on liquidity takers not engaged in latency arbitrage 

strategies. See id. at 11. 

125See CHX Letter, supra note 5, at 4–5. 

126See Amendment No. 1, supra note 12, at 12. 

127See CHX Letter 2, supra note 8, at 12. In the 

OIP, the Commission raised several questions about 

the impact that the LEAD would have on market 

quality. In particular, the Commission raised 

questions about volatility during stressed trading 

conditions, whether the proposed rule change 

would increase displayed liquidity on the 

Exchange, and whether liquidity provided by LEAD 

MMs would be ‘‘fleeting’’ and how significant such 

‘‘fleeting’’ liquidity would be. See OIP, supra note 

7, 82 FR at 24416. 

128See proposed CHX Article 20, Rule 8(h)(2). 

129See proposed CHX Article 20, Rules 8(h)(4), 

8(h)(5), and 8(h)(6). 

130See proposed CHX Article 20, Rule 8(h)(7) 

(requiring CHX to collect variable processing delay 

statistics). 

131See Leuchtkafer Letter, supra note 5, at 2–4; 

Leuchtkafer Letter 2, supra note 8, at 6; and 

Leuchtkafer Letter 4, supra note 8, at 1. 

enhancements to market quality.120 The 

Exchange explains that, currently, it has 

less than one-percent market share in 

NMS securities and little to no resting 

liquidity in the vast majority of NMS 

securities.121 The Exchange believes 

that the proposal would enhance market 

quality across all securities traded on 

CHX.122 In particular, CHX believes that 

the LEAD Rules would significantly 

enhance market quality for securities 

that are actively traded on CHX and 

attract robust markets in securities that 

are currently not actively traded at 

CHX.123 In addition, the Exchange 

asserts that the LEAD would reduce the 

cost of LEAD MMs providing liquidity, 

which the Exchange believes would 

result in more efficient price discovery 

for retail and institutional investors.124

The Exchange also asserts that there is 

no evidence that the proposal would 

result in CHX quotes being less 

accessible to retail or institutional 

buyers and sellers,125 and, in fact, the 

heightened quoting and trading 

obligations for LEAD MMs would 

ensure that CHX quotes remain reliable 

and accessible.126 The Exchange also 

states its view that: (1) A market 

participant that places an order to take 

liquidity posted on any national 

securities exchange today may find that 

the liquidity is not be present by the 

time the order reaches the exchange’s 

limit order book; (2) this has nothing to 

do with the presence of intentional 

delays; and therefore (3) the LEAD 

would not render CHX quotes any more 

‘‘fleeting’’ than they are today.127

As discussed above, the Commission 

believes that the LEAD Rules are 

reasonably designed to incentivize 

LEAD MMs to post larger size and more 

aggressively-priced quotes on CHX, 

which in turn could lead to broader 

enhancements to market quality by 

improving the NBBO and increasing 

quote competition. The extremely short 

access delay will allow LEAD MMs to 

adjust their quotations in response to 

changing market conditions and thereby 

reduce their exposure to losses from 

professional traders with micro-second 

speed advantages. As a result, LEAD 

MMs should be more inclined to post 

larger displayed orders at better prices 

on CHX with greater confidence that 

they will have an opportunity to update 

their quotes and therefore avoid an 

execution at a stale price or size. The 

reduction in risk in these limited 

conditions should allow LEAD MMs to 

provide more liquidity and narrower 

spreads throughout much of the trading 

day. 

The Commission recognizes that 

commenters also were concerned that a 

350 microsecond delay could reduce 

access to CHX quotations and thereby 

detract from market quality in a variety 

of contexts. The Commission believes, 

however, that the LEAD is reasonably 

designed to impact access only to CHX 

quotations by market participants racing 

to respond to symmetric information 

about market conditions, while the 

potential benefits generated by LEAD 

MMs posting larger sized and more 

aggressive quotations should inure 

throughout most of the trading day. 

Accordingly, the Commission believes 

that the LEAD Rules are reasonably 

designed to improvet market quality, 

particularly for investors who are 

unlikely to have speed advantages over 

professional traders. 

However, because the Exchange 

proposes to implement the LEAD Rules 

on a pilot basis, the Exchange and the 

Commission will be able to assess the 

actual impact of the proposal.128 During 

the pilot period, CHX will collect and 

analyze the Pilot Data, which will 

measure the impact, if any, of the LEAD 

Rules on market quality, including 

quote accessibility and quoted and 

effective spreads, and should allow CHX 

to quantify any effects on the market. 

Among other things, the Exchange will 

collect and publicly disseminate data 

designed to measure the impact of the 

LEAD, including whether it: (1) 

Increases the amount and 

competitiveness of liquidity displayed 

on CHX; and (2) impacts the 

accessibility of liquidity posted on 

CHX.129 Specifically, the Exchange will 

collect, distribute, and analyze data 

measuring quote and execution quality 

both on CHX and more broadly, 

separated by levels of volatility. This 

data should allow the Exchange and 

Commissoin to assess not only changes 

in overall market quality but also 

changes during the most volatile periods 

on both the Exchange and the overall 

market. The Exchange also will collect 

matched trade difference statistics, 

which will indicate the number of 

shares that would have been executed, 

hypothetically, without the LEAD and 

the number of shares executed with the 

LEAD. This data will be aggregated by 

different levels of volatility. The 

Commission believes that analyzing the 

matched trade difference statistics will 

be insightful in determining if, and to 

what degree, the LEAD changed the 

accessibility of CHX quotes during 

different periods of volatility. 

Accordingly, the Pilot Data is intended 

to help CHX and the Commission assess 

whether the proposal is having the 

intended impact on improving market 

quality. 

The Exchange will also collect and 

provide to the Commission and the 

public data regarding variable delays 

experienced by both LEAD MMs and 

non-LEAD MMs.130 One commenter 

asserts that a fixed delay implemented 

with software could result in variable 

delays that could be excessive and/or 

unevenly distributed between market 

participants, with non-LEAD MMs 

bearing the bulk of the variable 

delays.131 The commenter suggests a 

variety of different approaches to 


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132See Leuchtkafer Letter 5, supra note 8, at 

1(asserting that, for every message and for the 

length of the pilot program, CHX should timestamp 

every transaction on receipt, on LEAD queue entry 

and exit (if applicable), and on matching engine 

processing start to finish). That commenter believes 

that every message should also be clearly labeled 

if it was received immediately before, during, or 

immediately after a PEV and the PEV Range value 

itself. See Leuchtkafer Letter 5, supra note 8, at 1. 

133See CHX Letter, supra note 5, at 9. 

134See XR Securities Letter, supra note 5, at 3; 

FIA PTG Letter, supra note 5 at 3–4; and Hudson 

River Trading Letter supra note 5, at 5. 

135See Hudson River Trading Letter, supra note 

5, at 2. See also Healthy Markets Letter, supra note 

5, at 5; and SIFMA Letter, supra note 5, at 6. These 

commenters cite a recent study regarding TSX 

Alpha: See Chen, Haoming, Foley, Sean, Goldstein, 

Michael, and Ruf, Thomas, ‘‘The Value of a 

Millisecond: Harnessing Information in Fast, 

Fragmented Markets,’’ available at https://

papers.ssrn.com/sol3/papers.cfm?abstract_

id=2860359. One commenter notes that, while 

quoted depth increased on TSX Alpha, the 

exchange did not demonstrate tighter spreads, and 

the accessibility of quotes significantly degraded. 

See Hudson River Trading Letter, supra note 5, at 

2. In addition, a commenter asserts that the only 

counterbalance to the negative impact on market 

quality caused by an asymmetric delay (such as that 

exhibited due to TSX Alpha) would be coupling it 

with ‘‘robust and rigorous’’ affirmative obligations 

for those benefitting from the delay. See Healthy 

Markets Letter, supra note 5, at 5. The commenter 

urges the Commission to proceed cautiously, using 

data-driven analyses, and not within the context of 

the instant proposal. See id. As discussed, the 

Commission will review the Pilot Data and analyses 

of that data. 

136See CHX Letter, supra note 5, at 8. 137See id. at 8–9. 138See Healthy Markets Letter, supra note 5, at 

5; Leuchtkafer Letter 2, supra note 5, at 6; and FIA 

PTG Letter, supra note 5, at 2–3. 139See infra note 143 and accompanying text. 140See FIA PTG Letter, supra note 5, at 2–3. 

141See Leuchtkafer Letter, supra note 5, at 4. 

142See Notice, supra note 3, 82 FR at 11269. 

143See CHX Letter, supra note 5, at 11. 

144See Regulation NMS Interpretation, infra note 

162, at 40792. 

145See infra Section III.B. 

146One commenter asserts that LEAD MMs would 

make trading decisions with more information than 

any of their potential counterparties. See XR 

Securities Letter, supra note 5, at 1. Another 

commenter asserts that CHX should require LEAD 

MMs to establish information barriers to prevent 

such firms from using their advantage on CHX in 

their other proprietary trading. See Leuchtkafer 

Letter, supra note 5, at 5. The Commission believes 

that the operation of the LEAD Rules would not 

provide LEAD MMs with any unique information 

and therefore, the Commission believes that it is 

unnecessary to require LEAD MMs to adopt 

information barriers. 

147CHX will start providing the Pilot Data to the 

Commission by no later than the end of the second 

month of the pilot program. The Commission 

believes this timeline is appropriate because it will 

allow the Exchange sufficient time to properly 

collect and organize the Pilot Data while still 

making such data available to the Commission close 

in time to the start of the pilot program. A 

commenter asserts that the LEAD could result in 

delays that are longer than 350 microseconds, and 

that with the variable delay, the total delay could 

be long enough to increase risk of manipulative 

practices. See Leuchtkafer Letter, supra note 5, at 

3–4; and Leuchtkafer Letter 2, supra note 5, at 5– 

6. The Commission believes that the variable 

processing delay statistics should allow the 

Exchange to monitor for persistent delays and 

measure these variable delays.132

Although CHX asserts that variable 

delays occur on other markets without 

intentional access delays,133 the 

Exchange will be collecting variable 

delay statistics to measure this type of 

delay. The Commission believes that 

these statistics will provide the 

necessary information on whether 

different types of market participants 

experience differing variable processing 

delays. Analysis of this data will allow 

the Exchange to implement any 

necessary changes to correct for a 

discrepancy. The Commission 

emphasizes that CHX would have to file 

another proposed rule change to 

continue LEAD after the pilot period. 

The Commission would consider, 

among other things, the Pilot Data and 

analyses of that data if, in the future, the 

Exchange proposed to make permanent 

the LEAD Rules. 

Some commenters assert that the 

LEAD would impinge upon price 

discovery across the national market 

system.134 Some commenters cite 

studies showing that an asymmetric 

delay on TSX Alpha, a Canadian 

exchange, degraded overall market 

quality, harmed institutional order 

routers, and increased effective 

spreads.135 In response, the Exchange 

asserts that the TSX Alpha delay is 

materially different from LEAD because 

it is randomized and, unlike CHX, TSX 

Alpha utilizes a taker-maker model.136

The Exchange also observes that TSX 

Alpha does not require its liquidity 

providers to meet heightened 

requirements designed to enhance 

market quality.137

The Commission notes that the LEAD 

proposal differs from TSX Alpha. The 

delay on TSX Alpha is a longer, 

randomized delay of 1–3 milliseconds 

that occurs in a different market with a 

different pricing structure and 

regulatory environment. A randomized 

delay on an exchange will not allow a 

smart order router to send child orders 

to different exchanges such that the 

orders arrive simultaneously, preventing 

the sweeping of volume displayed on 

the NBBO without information leakage. 

To adjust for the potential of 

information leakage, a smart order 

router could be adjusted to avoid the 

TSX Alpha exchange when sweeping 

NBBO volume. The possible increase of 

informed volume on exchanges other 

than TSX Alpha, could have been a 

factor in the degradation of market 

quality on those exchanges. Also, given 

TSX Alpha’s taker-maker pricing 

structure, market makers on this 

exchange could attract order flow by 

only matching the now degraded NBBO. 

Therefore, given this combination of 

factors, the effects of TSX Alpha may 

not be relevant in assessing the potential 

results of the LEAD on market quality. 

The Exchange will collect, analyze, and 

publicly disclose data that should show 

how the LEAD affects market quality, 

including the statistics disclosing width, 

displayed size, and effective spreads 

during different periods of market 

volatility. 

Section 6(b)(5) of the Exchange Act 

requires that the rules of a national 

securities exchange be designed to 

prevent fraudulent and manipulative 

activity. A number of commenters 

question whether the length and means 

of implementing the delay is consistent 

with the requirement in Section 6(b)(5) 

of the Exchange Act that the rules of the 

exchange be designed to prevent 

fraudulent and manipulative acts and 

practices.138 One commenter states that 

CHX does not support its conclusion 139

that the Fixed LEAD Period would be 

too short to introduce any incremental 

risk of manipulative activity.140 Another 

commenter asks CHX to state how long 

a delay would have to be to permit 

manipulative practices and what it will 

do to ensure that its software does not 

result in delays that would permit such 

practices.141

The Exchange asserts that the LEAD 

would not introduce incremental risk of 

manipulative activity.142 The Exchange 

believes that the Fixed LEAD Period is 

too short to provide any actionable 

advantage to a LEAD MM reacting to 

information already in its possession or 

to introduce incremental risk of 

manipulative activity.143

The Commission finds that the 

proposed rule change, as modified by 

Amendments No. 1 and No. 2, is 

consistent with the requirement of 

Section 6(b)(5) of the Exchange Act that 

the rules of a national securities 

exchange be designed to prevent 

fraudulent and manipulative activity. 

The Commission previously stated that 

it does not expect that any de minimis 

delay will alter the potential for 

manipulative activity or make it harder 

to detect and prosecute.144 The Fixed 

LEAD Period will be a de minimis delay 

(as discussed below),145 and the 

Commission continues to believe that 

such a delay will neither increase the 

potential for manipulative activity nor 

make it more difficult to detect and 

prosecute.146 In addition, the Pilot Data 

will allow the Exchange and the 

Commission to assess in a timely 

fashion whether the LEAD presents any 

increased risks of manipulation.147


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implement any necessary changes to remove such 

delays. 

148 15 U.S.C. 78k–1(a)(1)(C). 

149 17 CFR 242.611. 

150 17 CFR 242.602. 

151See Regulation NMS Adopting Release, supra 

note 87, 70 FR at 37501. 

152See id. at 37496. 

153See Citadel Letter, supra note 5, at 5–6; 

Hudson River Trading Letter, supra note 5, at 6. 

154See Hudson River Trading Letter, supra note 

5, at 3; Citadel Letter, supra note 5, at 6–7; NYSE 

Letter, supra note 5, at 3–4; and XR Securities 

Letter, supra note 5, at 1. See also SIFMA Letter, 

supra note 5, at 3 (suggesting that the Commission 

should ‘‘carefully consider the implications’’ of 

market participants routing orders to CHX to access 

a protected quote when the accessibility of such 

quote is ‘‘questionable’’). 

155See Hudson River Trading Letter, supra note 

5, at 3; Citadel Letter, supra note 5, at 6–7; NYSE 

Letter, supra note 5, at 3–4; and XR Securities 

Letter, supra note 5, at 1. 

156See FIA PTG Letter, supra note 5, at 2; Hudson 

River Trading Letter, supra note 5, at 7; Citadel 

Letter, supra note 5, at 6; NYSE Letter, supra note 

5, at 4; XR Securities Letter, supra note 5, at 1; and 

SIFMA Letter, supra note 5, at 6 (questioning the 

effect of an access delay coupled with existing 

geographic or technological latencies on the fair and 

efficient access to an exchange’s protected 

quotations). 

157See XR Securities Letter, supra note 5, at 3. 

158See FIA PTG Letter, supra note 5, at 4. 

159See XR Securities Letter, supra note 5, at 3. 

160See CHX Letter, supra note 5, at 13. 

161See id. See also 17 CFR 242.600(b)(3). 

162See CHX Letter, supra note 5, at 13. See also 

Commission Interpretation Regarding Automated 

Quotations Under Regulation NMS, Securities 

Exchange Act Release No. 78102 (June 17, 2016), 81 

FR 40785 (June 23, 2016) (‘‘Regulation NMS 

Interpretation’’). 

163See CHX Letter, supra note 5, at 14. 

164See id. 

165See Regulation NMS Interpretation, supra note 

162, 81 FR at 40785–86. 

Collection of the Pilot Data will also 

assist the Exchange in discharging its 

ongoing responsibility to surveil for 

manipulative activity. 

B. Section 11A of the Exchange Act 

Section 11A(a)(1) of the Exchange Act 

articulates Congress’ finding that, 

among other things, it is in the public 

interest and appropriate for the 

protection of investors and the 

maintenance of fair and orderly markets 

to assure: Economically efficient 

execution of securities transactions; fair 

competition among brokers and dealers, 

among exchange markets, and between 

exchange markets; the availability to 

brokers, dealers, and investors of 

information with respect to quotations 

for and transactions in securities; the 

practicability of brokers executing 

investors’ orders in the best market; and 

an opportunity, consistent with the 

economically efficient execution of 

securities transactions and the 

practicability of brokers executing 

investors’ orders in the best market, for 

investors’ orders to be executed without 

the participation of a dealer.148

As discussed below, certain 

commenters questioned whether the 

proposed rule change is consistent with 

Rule 611 of Regulation NMS (‘‘Order 

Protection Rule’’) 149 and Rule 602 of 

Regulation NMS (‘‘Quote Rule’’),150 both 

of which were adopted pursuant to 

Section 11A of the Exchange Act. 

The Order Protection Rule, among 

other things, requires trading centers to 

establish, maintain, and enforce written 

policies and procedures reasonably 

designed to prevent the execution of 

trades at prices inferior to protected 

quotations displayed by other trading 

centers.151 To be protected, a quotation 

must, among other things, be 

immediately and automatically 

accessible and be the best bid or best 

offer of a national securities 

exchange.152 Certain commenters argue 

that the proposal, which would allow 

LEAD MMs to post and reprice 

displayed orders without delay, could 

hinder the ability of investors to access 

such displayed quotations on CHX.153

Several commenters assert that the 

LEAD would be inconsistent with 

CHX’s protected quotation status under 

Regulation NMS.154 These commenters 

argue that, if CHX implemented the 

LEAD, CHX’s displayed quotations 

would not be immediately accessible 

and would be inconsistent with the 

definition of ‘‘automated quotation’’ 

under Rule 600(b)(3) and, therefore, the 

LEAD would prevent CHX’s displayed 

quotations from being considered 

‘‘protected’’ under Regulation NMS.155

More specifically, some commenters 

assert that by providing LEAD MMs 

with a structural advantage, the LEAD 

would frustrate the purposes the Order 

Protection Rule by impairing fair and 

efficient access to an exchange’s 

quotations.156 One commenter 

distinguishes the LEAD from the delay 

on the Investors Exchange, LLC (‘‘IEX’’), 

noting that IEX’s delay only affected 

access to non-displayed orders.157

Another commenter expresses concern 

that, unlike other examples of permitted 

discrimination, the LEAD would affect 

the regulatory mechanics of trading 

because, in some cases, traders would 

be required to route orders to the 

Exchange pursuant to the Order 

Protection Rule.158 Similarly, one 

commenter expresses concern that the 

regulatory requirement to interact with 

a LEAD MM’s protected quote could 

prevent investors from achieving 

optimal executions because the LEAD 

MMs would have the benefit of making 

their trading decisions with more 

information than any of their potential 

counterparties.159

In response, the Exchange asserts that 

the LEAD is consistent with the Order 

Protection Rule.160 CHX notes that Rule 

600(b)(3) of Regulation NMS requires 

that a trading center displaying an 

automated quotation permit, among 

other things, an incoming immediate-orcancel order to immediately and 

automatically execute against the 

automated quotation up to its full size; 

and immediately and automatically 

cancel any unexecuted portion of the 

immediate-or-cancel order without 

routing the order elsewhere.161 CHX 

highlights that the Commission recently 

issued a final interpretation with respect 

to the definition of automated quotation 

under Rule 600(b)(3) of Regulation 

NMS, which, CHX notes, did not 

interpret the term ‘‘immediate’’ used in 

Rule 600(b)(3) by itself to prohibit a 

trading center from implementing an 

intentional access delay that is de 

minimis (i.e., a delay so short as to not 

frustrate the purposes of the Order 

Protection Rule by impairing fair and 

efficient access to an exchange’s 

quotations).162 CHX concludes that the 

Commission’s revised interpretation 

provides that the term ‘‘immediate’’ 

precludes any coding of automated 

systems or other type of intentional 

device that would delay the action taken 

with respect to a quotation unless such 

delay is de minimis.163 CHX believes 

that the LEAD would be a de minimis 

delay so short as not to frustrate the 

purposes of the Order Protection Rule 

by impairing fair and efficient access to 

the Exchange’s quotations.164

The Order Protection Rule provides 

intermarket protection against tradethroughs for ‘‘automated’’ (as opposed 

to ‘‘manual’’) quotations of NMS stocks. 

Under Regulation NMS, an ‘‘automated’’ 

quotation is one that, among other 

things, can be executed ‘‘immediately 

and automatically’’ against an incoming 

immediate-or-cancel order. This 

formulation was intended to distinguish 

and exclude from protection quotations 

manual markets that produced delays 

measured in seconds in responding to 

an incoming order, because delays of 

that magnitude would impair fair and 

efficient access to an exchange’s 

quotations.165

As CHX notes, the Commission, in 

connection with its approval of IEX’s 

exchange application, interpreted 

‘‘immediate’’ in the context of 

Regulation NMS as not precluding a de 

minimis intentional delay—i.e., a delay 

so short as to not frustrate the purposes 

of the Order Protection Rule by 

impairing fair and efficient access to an 


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166See id. at 40792. 

167See id. at 40789, text accompanying n.50. 

168See Staff Guidance on Automated Quotations 

under Regulation NMS, Securities and Exchange 

Commission, June 17, 2016, available at https://

www.sec.gov/divisions/marketreg/automatedquotations-under-regulation-nms.htm (‘‘Regulation 

NMS Staff Guidance’’). One commenter questions 

whether 350 microseconds is an appropriate 

duration for the delay. See Healthy Markets Letter, 

supra note 5, at 5 (stating that CHX, unlike IEX, 

failed to explain why it is proposing a delay of 350 

microseconds). See also Leuchtkafer Letter, supra 

note 5, at 2 (stating that the length of the LEAD is 

based on IEX and the speed arms race, which it 

describes as ‘‘a relative and constantly changing 

issue,’’ and questioning whether CHX will change 

the length of the LEAD if IEX changes its delay or 

if LEAD MMs speed up or other firms slow down 

or exit the market). As discussed below, the Fixed 

LEAD period will be a de minimis delay. 

169See Regulation NMS Staff Guidance, supra 

note 168. 

170See Regulation NMS Interpretation, supra note 

162, at 40792. 171 17 CFR 242.602(b)(2). 172See CTC Trading Letter, supra note 5, at 6. 173See FIA PTG Letter, supra note 5, at 5; Citadel 

Letter, supra note 5, at 5; NYSE Letter, supra note 

5, at 2–3; and Hudson River Trading Letter, supra 

note 5, at 6 (asserting that ‘‘at best, [the LEAD] is 

designed to circumvent’’ the Quote Rule). 174See FIA PTG Letter, supra note 5, at 5; Hudson 

River Trading Letter, supra note 5, at 6; Citadel 

Letter, supra note 5, at 5; NYSE Letter, supra note 

5, at 2–3. 

175See CHX Letter, supra note 5, at 13. One 

commenter agrees with CHX’s interpretation of the 

Quote Rule. See CTC Trading Letter, supra note 5, 

at 6. 

176 17 CFR 242.602(b)(2). 

exchange’s quotations.166 Specifically, 

while acknowledging that even a de 

minimis access delay may increase the 

overall latency in accessing a particular 

protected quotation, the Commission 

reasoned that, just as the geographic and 

technological delays do not impair fair 

and efficient access to an exchange’s 

quotations or otherwise frustrate the 

objectives of Rule 611, the addition of 

a de minimis intentional access delay is 

consistent with the immediacy 

requirement of Rule 600(b)(3).167 In its 

related interpretative guidance, the 

Commission’s staff found that ‘‘delays of 

less than a millisecond are at a de 

minimis level that would not impair fair 

and efficient access to a quotation, 

consistent with the goals of Rule 

611.’’ 168

The Commission believes that the 

LEAD is consistent with the Order 

Protection Rule. The Commission notes 

that its recent interpretation with 

respect to the definition of automated 

quotation under Rule 600(b)(3) of 

Regulation NMS, and the corresponding 

staff guidance, does not distinguish 

between intentional delays designed to 

benefit non-displayed liquidity, as was 

the case with the IEX delay, or 

displayed liquidity, as is the case with 

the LEAD. The Commission’s staff 

found that ‘‘delays of less than a 

millisecond are at a de minimis level 

that would not impair fair and efficient 

access to a quotation, consistent with 

the goals of Rule 611.’’ 169 Accordingly, 

because the 350 microsecond delay 

imposed by the LEAD is less than a 

millisecond, it is de minimis. The 

Commission’s interpretation recognized 

‘‘that a de minimis access delay, even if 

it involves an ‘intentional device’ that 

delays access to an exchange’s 

quotation, is compatible with the 

exchange having an ‘automated 

quotation’ under Rule 600(b)(3) and 

thus a ‘protected quotation’ under Rule 

611.’’ 170 Accordingly, the LEAD will 

not change CHX’s protected quotation 

status. 

Under the firm quote provisions of the 

Quote Rule, a responsible broker-dealer 

must execute any order to buy or sell a 

subject security (other than an odd-lot 

order) presented to it by another brokerdealer at a price at least as favorable to 

such buyer or seller as the responsible 

broker-dealer’s published bid or 

published offer in any amount up to its 

published quotation size unless an 

exception applies.171 One commenter 

states its view that the LEAD would be 

consistent with the Quote Rule because 

the Exchange is not proposing to notify 

a LEAD MM that an inbound order that 

has been delayed may imminently 

execute, and therefore, should a LEAD 

MM revise its quote prior to the end of 

the delay, the inbound order would not 

have been presented to the LEAD 

MM.172 Some commenters assert that 

the LEAD may be inconsistent with the 

firm quote provisions of the Quote Rule 

or the intent behind the Quote Rule 

because, in their view, it would allow 

liquidity providers to ‘‘back away’’ from 

their quotes.173 These commenters are 

concerned that the LEAD would allow 

LEAD MMs to update their quotes to 

potentially inferior prices while orders 

to execute against their quotes are being 

held in the LEAD queue.174 The 

Exchange responds that the LEAD 

would not result in violations of the 

Quote Rule because orders delayed 

pursuant to the LEAD would not have 

been ‘‘presented’’ to LEAD MMs and 

therefore the duty of a broker or dealer 

to stand behind its quote would not 

have yet vested when the LEAD 

applies.175

The Commission notes that the firm 

quote provisions of the Quote Rule 

require each responsible broker or 

dealer to execute an order presented to 

it at a price at least as favorable as its 

published bid or published offer in any 

amount up to its published quotation 

size.176 There may be circumstances in 

which a LEAD MM posts a quote on 

CHX, a contra-side order is submitted 

and delayed by the LEAD, and the 

LEAD MM without any knowledge of 

the contra-side order modifies or 

cancels its quote prior to release of the 

contra-side order from the LEAD queue. 

In this case, the Commission believes 

that Quote Rule compliance issues 

would not be raised because the contraside order was not yet presented to the 

LEAD MM. Accordingly, the 

Commission believes that the LEAD is 

not inconsistent with the Quote Rule. 

IV. Solicitation of Comments on 

Amendments No. 1 and No. 2 

Interested persons are invited to 

submit written data, views, and 

arguments concerning Amendments No. 

1 and No. 2. 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– 

CHX–2017–04 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–2017–04. 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 this 

filing will also 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 


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177See supra notes 12 and 13. 

178 15 U.S.C. 78s(b)(2). 

179 15 U.S.C. 78s(b)(2). 

180 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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–CHX–2017–04 and should 

be submitted on or before November 15, 

2017. 

V. Accelerated Approval of Proposed 

Rule Change, as Modified by 

Amendments No. 1 and No. 2 

The Commission finds good cause to 

approve the proposed rule change, as 

modified by Amendments No. 1 and No. 

2, prior to the 30th day after the date of 

publication of notice of Amendments 

No. 1 and No. 2 in the Federal Register. 

Neither Amendment No. 1 nor 

Amendment No. 2 expands the structure 

of the proposed rule change as it was 

previously published for notice and 

comment.177 Rather, the Exchange 

circumscribed its proposal to implement 

the LEAD during the regular trading 

session on a pilot basis to provide an 

opportunity to study the impact of the 

LEAD Rules on the markets and to 

address comments by further explaining 

the purpose and the intended impact of 

the proposal. Accordingly, the 

Commission finds good cause, pursuant 

to Section 19(b)(2) of the Exchange 

Act,178 to approve the proposed rule 

change, as modified by Amendments 

No. 1 and No. 2, on an accelerated basis. 

VI. Conclusion 

For the foregoing reasons, the 

Commission finds that the proposed 

rule change, as modified by 

Amendments No. 1 and No. 2, is 

consistent with the Exchange Act and 

the rules and regulations thereunder 

applicable to a national securities 

exchange. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act 179

that the proposed rule change (SR– 

CHX–2017–04), as modified by 

Amendments No. 1 and No. 2, be, and 

hereby is, approved on an accelerated 

basis, subject to a pilot period set to 

expire twenty- four months after 

implementation of the pilot program. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.180

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–23122 Filed 10–24–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81907; File No. SR–MRX– 

2017–21] 

Self-Regulatory Organizations; Nasdaq 

MRX, LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend the 

Exchange’s Schedule of Fees 

October 19, 2017. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on October 

5, 2017, Nasdaq MRX, LLC (‘‘MRX’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘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 amend its 

Schedule of Fees to add new fees for colocation services, direct circuit 

connections to the Exchange, 

connections to third party services, 

point of presence (‘‘POP’’) connectivity, 

and connectivity to the Exchange’s Test 

Facility (the ‘‘Test Facility’’). 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at www.ise.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 

The Exchange proposes to amend its 

Fee Schedule to eliminate certain fees 

associated with legacy options for 

connecting to ISE and to replace them 

with fees associated with new options 

for connecting to the Exchange that are 

similar to those that MRX’s sister 

exchanges presently offer. 

The Exchange is engaged in an 

initiative to migrate the Exchange’s 

trading system to the Nasdaq INET 

architecture. As part of that initiative, 

the Exchange proposes to offer 

customers various new options to 

connect to the Exchange and to assess 

fees for such connectivity. The 

connectivity options that the Exchange 

proposes to offer—colocation, direct 

circuit connectivity, connectivity to 

third party services, POP connectivity, 

and connectivity to the Exchange’s Test 

Facility—and the fees that the Exchange 

proposes to assess for such connectivity 

are similar to those that the Exchange’s 

affiliated Nasdaq, Inc. markets— 

including The NASDAQ Stock Market, 

LLC (‘‘Nasdaq’’), Nasdaq BX, Inc. 

(‘‘BX’’), and Nasdaq Phlx LLC 

(‘‘Phlx’’)—presently offer and assess to 

their customers under their respective 

rules. They are also the same as the 

connectivity options and fees that 

Nasdaq GEMX, LLC (‘‘GEMX’’) and 

Nasdaq ISE, LLC (‘‘ISE’’) propose to 

offer and assess under their respective 

rules in tandem with this filing. This 

proposal, in other words, seeks to 

harmonize the Exchange’s connectivity 

offerings and fees with those of its sister 

exchanges. 

The first new connectivity option that 

the Exchange proposes to offer its 

customers is co-location. Co-location is 

a suite of hardware, power, 

telecommunication, and other ancillary 

products and services that allow market 

participants and vendors to place their 

trading and communications equipment 

in close physical proximity to the 

quoting and execution facilities of the 

Exchange and other Nasdaq, Inc. 

markets. The Exchange provides colocation services and imposes fees 

through Nasdaq Technology Services 

LLC and pursuant to agreements with 

the owner/operator of its data center 

where both the Exchange’s quoting and 

trading facilities and co-located 

customer equipment are housed. Users 

of colocation services include private 

extranet providers, data vendors, as well 

as Exchange members and nonVerDate Sep<11>2014 22:06 Oct 24, 2017 Jkt 244001 PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 E:\FR\FM\25OCN1.SGM 25OCN1

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