Document ID: SEC-2010-1213-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2010-08-10T04:00Z

[Federal Register: August 10, 2010 (Volume 75, Number 153)]
[Notices]               
[Page 48404-48405]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10au10-96]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62642; File No. SR-CHX-2010-19]

 
Self-Regulatory Organizations; The Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Its Order Cancellation Fee

August 4, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 30, 2010, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. CHX has filed 
the proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 
19b-4(f)(2) thereunder,\4\ which renders the proposal effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The CHX proposes to amend its Schedule of Participant Fees and 
Assessments (the ``Fee Schedule''), effective August 1, 2010, to amend 
its order cancellation fee for Participants entering and subsequently 
cancelling orders under certain circumstances. The text of this 
proposed rule change is available on the Exchange's Web site at http://
www.chx.com/rules/proposed_rules.htm and in the Commission's Public 
Reference Room, 100 F Street, NE., Washington, DC 20549.

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

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

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

1. Purpose
    Through this proposal, the Exchange is seeking to amend its Fee 
Schedule to exempt from its existing Order Cancellation Fee all orders, 
transactions and cancellation activity in Exchange Traded Funds 
(``ETFs''), Exchange Traded Notes (``ETNs'') or Exchange Traded 
Vehicles (``ETVs''), collectively referred to as Exchange Traded 
Products (``ETPs''). The Order Cancellation Fee would continue in its 
current form and effect with respect to all other securities.
    Beginning in January 2010, the Exchange's published Fee Schedule 
imposed a charge for order cancellations submitted by Participants 
whose orders rarely are at or near the National Best Bid or Offering 
(``NBBO'').\5\ The application of the order cancellation fee depends on 
a calculation (done on a Participant-by-Participant basis) involving 
the number of wide orders (defined as display-eligible orders in the 
Matching System which are 2 or more cents away from the NBBO), quotable 
orders (all other display-eligible orders), the number of trades 
executed and number of cancellations submitted by a Participant in a 
month.\6\ The purpose of the order cancellation fee was to incent 
Participants to submit orders which are close to the NBBO (and are 
therefore more likely to be executed) or compensate the Exchange for 
the systems and operational costs and burdens associated with handling 
and recording orders which rarely execute.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 61392 (Jan. 21, 
2010), 75 FR 4436 (Jan. 27, 2010) (SR-CHX-2010-02).
    \6\ The activity also must have occurred in our Regular Trading 
Session and be in securities priced $1 per share or more. 
Cancellations arising from Immediate or Cancel or Fill or Kill order 
types are excluded from the calculation. Executions of cross orders 
are also excluded.
---------------------------------------------------------------------------

    Since the imposition of the order cancellation fee, however, the 
Exchange has observed that the number of unexecuted and displayed 
orders has actually increased for certain Participants. In order to 
avoid application of the cancellation fee, certain Participants are 
submitting Quotable orders (i.e., those within 2 cents of the NBBO) to 
the CHX's Matching System, but for an extremely short duration (e.g., 
20 milliseconds). Due to the short duration of the order, the amount of 
trade activity generated by such orders is negligible. This

[[Page 48405]]

quotation activity also tends to exacerbate the operational costs which 
the Exchange was seeking to avoid in creating the order cancellation 
fee.
    In order to better target the wide quotations which originally were 
causing the problems which led to the creation of the order 
cancellation fee, we are proposing to exempt ETP activity from the 
cancellation fee. The Exchange has observed that those firms entering 
the limited durational orders described above conduct much of their 
business on our trading facilities in ETP securities. By exempting ETP 
securities from the order cancellation fee, we would remove much of 
their incentive to submit quotable orders with a very limited lifespan. 
The fee would continue to apply to activity in all other securities 
where it appears to have the intended impact. The Exchange considered 
other alternatives, such as imposing a minimum duration on orders to 
qualify as ``quotable'' for purposes of the fee computation. The 
Exchange believes, however, that such a requirement would introduce an 
excessive amount of complexity to the determination of whether the 
order cancellation fee applies and could have the effect of 
discouraging Participants from sending any orders to the Exchange for 
display and execution. The proposed changes to the Cancellation Fee 
would go into effect on August 1, 2010.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \7\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act \8\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among its members. Among other things, the Exchange 
believes that the exclusion of ETP securities from the existing order 
cancellation fee should help the Exchange to better address the 
operational costs and burdens associated with the processing and 
storage of orders well outside the NBBO.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4)
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments Regarding the 
Proposed Rule Change Received From Members, Participants or Others

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section 
19(B)(3)(A)(ii) of the Act \9\ and subparagraph (f)(2) of Rule 19b-4 
thereunder \10\ because it establishes or changes a due, fee, or other 
charge applicable only to a member imposed by the self-regulatory 
organization. Accordingly, the proposal is effective upon Commission 
receipt of the filing. At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-CHX-2010-19 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CHX-2010-19. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make publicly available. All 
submissions should refer to File Number SR-CHX-2010-19 and should be 
submitted on or before August 31, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-19651 Filed 8-9-10; 8:45 am]
BILLING CODE 8010-01-P