Document ID: SEC-2014-1458-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2014-08-29T04:00Z

[Federal Register Volume 79, Number 168 (Friday, August 29, 2014)]
[Notices]
[Pages 51633-51635]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-20558]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72909; File No. SR-CHX-2014-13]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt a General Prohibition Against Affiliation Between the Exchange 
and any Participant

August 25, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on August 18, 2014, the Chicago Stock Exchange, Inc. (``CHX'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CHX proposes to adopt Article 3, Rule 20 that establishes a general 
prohibition against affiliation between the Exchange and any 
Participants. The text of this proposed rule change is available on the 
Exchange's Web site at (www.chx.com) and in the Commission's Public 
Reference Room.

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

    In its filing with the Commission, the CHX included statements 
concerning the purpose of and basis for the proposed rule changes 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 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 Changes

1. Purpose
    The Exchange proposes to adopt Article 3, Rule 20 (No Affiliation 
between Exchange and any Participant). The purpose of the proposed rule 
is to guard against any possibility that the Exchange may exercise, or 
forbear to exercise, regulatory authority with respect to an affiliated 
Participant \4\ in a manner that is influenced by commercial 
considerations and to provide an opportunity for Commission review of 
certain proposed affiliations.
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    \4\ CHX Article 1, Rule 1(s) provides, in pertinent part, that 
```Participant' means, except as otherwise described in these Rules, 
any Participant Firm that hold a valid Trading Permit'' and that a 
``Participant shall be considered a `member' of the Exchange for the 
purposes of the Exchange Act.''
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    Specifically, the proposed rule provides that the Exchange or any 
entity with which it is affiliated shall not, directly or indirectly, 
acquire or maintain an ownership interest in a Participant in the 
absence of an effective filing under Section 19(b) of the Act.\5\ The 
proposed rule defines ``affiliate'' with reference to Rule 12b-2 under 
the Act.\6\ In addition, in order to make it clear that the obligation 
to avoid affiliations applies to both the Exchange and its 
Participants, the proposed rule also provides that a Participant shall 
not be or become an affiliate of the Exchange, or an affiliate of any 
affiliate of the Exchange, in the absence of an effective filing under 
Section 19(b) of the Act.\7\
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    \5\ 15 U.S.C. 78s(b).
    \6\ Rule 12b-2 under the Act provides the following definition 
of ``affiliate'': Affiliate. An ``affiliate'' of, or a person 
``affiliated'' with, a specified person, is a person that directly, 
or indirectly through one or more intermediaries, controls, or is 
controlled by, or is under common control with, the person 
specified. 17 CFR 240.12b-2.
    \7\ 15 U.S.C. 78s(b).
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    Moreover, the proposed rule provides that nothing in this proposed 
rule shall prohibit a Participant or its affiliate from acquiring or 
holding an equity interest in CHX Holdings, Inc. that is permitted by 
the ownership and voting limitation contained in the Certificate of 
Incorporation of CHX Holdings, Inc. Specifically, paragraph (b)(ii)(B) 
of the fifth section of the Certificate of Incorporation of CHX 
Holdings, Inc. provides that no Person, either alone or together with 
its Related Persons,\8\ who holds a trading permit of the Exchange 
(i.e., a Participant), may own, directly or indirectly, of record or 
beneficially shares of stock of CHX Holdings, Inc. representing in the 
aggregate more than twenty percent (20%) of the then outstanding votes 
entitled to be cast on any matter.
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    \8\ Paragraph (a)(ii) of the fifth section of the Certificate of 
Incorporation of CHX Holdings, Inc. states as follows: The term 
``Related Persons'' shall mean (A) with respect to any Person, all 
``affiliates'' and ``associates'' of such Persons (as such terms are 
defined in Rule 12b-2 under the Securities and Exchange Act of 1934, 
as amended); (B) with respect to any Person that holds a permit 
issued by the Chicago Stock Exchange, Inc. to trade securities on 
the Chicago Stock Exchange (``Participant''), any broker or dealer 
with which a Participant is associated; and (C) any two or more 
Persons that have any agreement, arrangement or understanding 
(whether or not in writing) to act together for the purpose of 
acquiring, voting, holding or disposing of shares of the capital 
stock of the Corporation.
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    The proposed rule also limits possible expansive interpretations of 
the term ``affiliate'' by providing that nothing in the proposed rule 
shall prohibit a Participant from being or becoming an affiliate of the 
Exchange, or an affiliate of any affiliate of the Exchange, solely by 
reason of such Participant or any officer, director, manager, managing 
member, partner or affiliate of such Participant being or becoming 
either (a) a Director (as such term is defined in the Bylaws of the 
Exchange) pursuant to the Bylaws of the Exchange, or (b) a Director 
serving on the Board of Directors of CHX Holdings, Inc.
    The Exchange believes that it is currently in compliance with the 
proposed rule. The Exchange and CHXBD, LLC are both wholly owned 
subsidiaries of CHX Holdings, Inc. (together ``CHX affiliates''). None 
of the CHX affiliates have an ownership interest in a Participant and 
neither CHX Holdings, Inc. nor CHXBD, LLC are Participants.\9\ 
Moreover, although some

[[Page 51634]]

Participants currently hold an equity interest in CHX Holdings, Inc., 
as currently permitted and limited by the Certificate of Incorporation 
of CHX Holdings, Inc., the Exchange does not believe that any of these 
Participants are affiliated with the Exchange or any affiliate of the 
Exchange.
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    \9\ CHXBD, LLC is a registered broker-dealer and member of the 
Financial Industry Regulatory Authority. However, CHXBD, LLC is not 
yet a Participant of the Exchange nor is it operational. The 
Exchange intends to operate CHXBD, LLC as an outbound routing 
facility of the Exchange only upon adoption of effective rules 
pursuant to Rule 19b-4 under the Act and notice to Participants. See 
17 CFR 240.19b-4. In addition, CHXBD, LLC will only become a 
Participant of the Exchange pursuant to an effective filing under 
Section 19(b) of the Act. See 15 U.S.C. 78s(b).
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2. Statutory Basis
    The Exchange believes that the proposed rule change to adopt a 
general prohibition of affiliation between the Exchange and any 
Participant is consistent with Section 6(b) of the Act in general \10\ 
and furthers the objectives of Section 6(b)(5) in particular,\11\ 
because it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transaction in securities, to remove impediments to, and perfect the 
mechanisms of, a free and open market and, in general, by protecting 
investors and the public interest. Specifically, the proposed rule 
would guard against any possibility that the Exchange may exercise, or 
forbear to exercise, regulatory authority with respect to an affiliated 
Participant in a manner that is influenced by commercial considerations 
by (1) establishing a general prohibition on affiliation between the 
Exchange and Participants and (2) requiring an effective filing 
pursuant to Section 19(b) of the Act \12\ before the Exchange acquires 
or maintains an ownership interest in a Participant or a Participant 
becomes affiliated with the Exchange or any of its affiliates.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 15 U.S.C. 78s(b).
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B. Self-Regulatory Organization's Statement of Burden on Competition

    The Exchange does not believe that the proposed rule change 
implicates any competitive issues because the proposed rule only 
addresses the relationship between the Exchange and its Participants.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \13\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission notes that it has previously expressed concern 
about the potential for unfair competition and conflicts of interest 
between an exchange's self-regulatory obligations and its commercial 
interests that could exist if an exchange were to otherwise become 
affiliated with one of its members, as well as the potential for unfair 
competitive advantage that the affiliated member could have by virtue 
of informational or operational advantages, or the ability to receive 
preferential treatment.\15\ The Exchange states the purpose of the 
proposed rule is to guard against any possibility that the Exchange may 
exercise, or forbear to exercise, regulatory authority with respect to 
an affiliated Participant in a manner that is influenced by commercial 
considerations and to provide an opportunity for Commission review of 
certain proposed affiliations,\16\ and that waiver of the 30-day 
operative delay will allow the Exchange to provide immediate 
transparency concerning its position on affiliations with 
Participants.\17\ The Commission also notes that the proposed rule is 
consistent with the rules of other national securities exchanges 
previously approved by the Commission.\18\ For these reasons, the 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Therefore, the Commission designates the proposed rule change to be 
operative upon filing.\19\
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    \15\ See, e.g., Securities Exchange Act Release No. 58375 
(August 18, 2008), 73 FR 49498 (August 21, 2008) (approving the 
registration of BATS Exchange as a national securities exchange) 
(``BATS Exchange Approval''), at 49502 n.90 and accompanying text.
    \16\ See supra note 4 and accompanying text.
    \17\ See SR-CHX-2014-13, Item 7.
    \18\ See, e.g., BYX Rule 2.10 and Nasdaq Rule 2160(a); BATS 
Exchange Approval, supra note 15; and Securities Exchange Act 
Release No. 54170 (July 18, 2006), 71 FR 42149 (July 25, 2006) 
(approving Nasdaq's rule restricting affiliations between Nasdaq and 
its members).
    \19\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CHX-2014-13 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-2014-13. 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

[[Page 51635]]

Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for Web site viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE., Washington, DC 20549, on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of the CHX. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-CHX-2014-13 and should be submitted on or before 
September 19, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20558 Filed 8-28-14; 8:45 am]
BILLING CODE 8011-01-P