Document ID: SEC-2011-1370-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2011-09-12T04:00Z

[Federal Register Volume 76, Number 176 (Monday, September 12, 2011)]
[Notices]
[Pages 56246-56248]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-23171]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65268; File No. SR-CHX-2011-25]

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

September 6, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 25, 2011, 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, II, 
and III 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.
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    \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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CHX proposes to amend its Schedule of Fees and Assessments (the 
``Fee Schedule''), effective September 1, 2011, relating to 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.

[[Page 56247]]

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

1. Purpose
    Through this filing, the Exchange proposes to amend its Fee 
Schedule, effective September 1, 2011, to make changes to its existing 
order cancellation fee. This fee change is being proposed to recoup 
some of the costs of administering and processing large numbers of 
cancelled orders while fairly allocating costs among Participants 
according to system use.
    Beginning in January 2010, the Exchange's 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 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. After the imposition of the order 
cancellation fee, however, the Exchange observed that the number of 
unexecuted and displayed orders had actually increased for certain 
Participants. In order to avoid application of the cancellation fee, 
certain Participants were 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). The Exchange observed 
that those firms entering the limited durational orders conducted much 
of their business on our trading facilities in Exchange Traded Funds 
(``ETFs''), Exchange Traded Notes (``ETNs'') or Exchange Traded 
Vehicles (``ETVs''), collectively referred to as Exchange Traded 
Products (``ETPs''). Therefore, in August, 2010 the Exchange amended 
its order cancellation fee to exempt ETPs.\6\
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    \5\ See, SR-CHX-2010-02, Exchange Act. Rel. No. 34-61392 
(January 21, 2010), 75 FR 4436 (Jan. 27, 2010).
    \6\ See, SR-CHX-2010-19, Exchange Act. Rel. No. 34-62642 (August 
4, 2010), 75 FR 48404 (August 10, 2010).
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    Since the imposition of the order cancellation fee, and subsequent 
exemption of ETPs, the Exchange has observed that certain Participants 
have found a number of methods for avoiding the application of the 
order cancellation fee. For example, certain Participants submit 
Quotable orders to the CHX's Matching System in non-ETPs, but for an 
extremely short duration. In other cases, Participants submit a large 
number of Quotable orders in very thinly traded securities prior to the 
end of the month. These and other methods utilized affect the 
calculated ratio for a given Participant and therefore the 
applicability of the order cancellation fee but rarely result in 
executions.
    In order to recoup some of the costs of administering and 
processing large numbers of cancelled orders, the Exchange is proposing 
to alter the methodology it uses in determining whether the order 
cancellation fee would be imposed upon a given Participant.
    In determining whether the order cancellation fee would be imposed 
upon a given Participant, the Exchange would utilize a formula, 
calculated on a daily basis, that divides the Participant's total 
cancelled volume in a given issue (``cvissue'') by the Participant's 
total executed volume in that issue (``exvissue''). In those instances 
where a Participant's daily statistic in a given issue exceeds 30, the 
Exchange would impose an order cancellation fee of $.30 on each 
cancellation in that issue for that day. The Exchange proposes to 
calculate and impose order cancellation fees by Participant, by issue, 
by day, and bill such fees on a monthly basis. The Exchange believes 
that this methodology is less subject to manipulation and will allow 
the Exchange to recoup some of the costs of administering and 
processing large numbers of cancelled orders while fairly allocating 
costs among Participants according to system use.
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 members and other persons using any facility or 
system which the Exchange operates or controls. The Exchange believes 
that amendments to the order cancellation fee described herein should 
help to recoup some of the costs of administering and processing large 
numbers of cancelled orders while fairly allocating costs among 
Participants according to system use. Furthermore, these changes to the 
Fee Schedule would equitably allocate reasonable fees among 
Participants in a non-discriminatory manner by properly imposing fees 
on those Participants which excessively enter and subsequently cancel 
orders while not imposing fees on Participants that do not engage in 
this resource draining behavior.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4).
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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 on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received.

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

    The proposed rule change is to take effect 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 to the Exchange's members and non-members, which 
renders the proposed rule change effective upon filing.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(f)(2).
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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.

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-2011-25 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-2011-25. This file

[[Page 56248]]

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 will also be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-CHX-2011-25 and should be 
submitted on or before October 3, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-23171 Filed 9-9-11; 8:45 am]
BILLING CODE 8011-01-P