Document ID: SEC-2015-1875-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2015-11-10T05:00Z

[Federal Register Volume 80, Number 217 (Tuesday, November 10, 2015)]
[Notices]
[Pages 69734-69736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28514]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76351; File No. SR-CHX-2015-09]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt Business and Disaster Recovery Plans Testing Requirements for 
Certain Participants in Connection With Regulation Systems Compliance 
and Integrity

November 4, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on October 29, 2015, 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 Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CHX proposes to adopt business continuity and disaster recovery 
plans (``BC/DR plans'') testing requirements for certain Participants 
\3\ in connection with Regulation Systems Compliance and Integrity 
(``Regulation SCI'').\4\ CHX has designated this proposed rule change 
as non-controversial pursuant to Section 19(b)(3)(A) \5\ of the Act and 
Rule 19b-4(f)(6) \6\ thereunder and has provided the Commission with 
the notice required by Rule 19b-4(f)(6)(iii).\7\
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    \3\ Pursuant to CHX Article 1, Rule 1(s), a Participant is 
considered a ``member'' of the Exchange for the purposes of the Act.
    \4\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72252 (December 5, 2014) (``SCI Adopting Release'').
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6).
    \7\ 17 CFR 240.19b-4(f)(6)(iii).
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    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 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
    As adopted by the Commission, Regulation SCI applies to certain 
self-regulatory organizations (including the Exchange), alternative 
trading systems (``ATSs''), plan processors, and exempt clearing 
agencies (collectively, ``SCI entities''), and will require these SCI 
entities to comply with requirements with respect to the automated 
systems central to the performance of their regulated activities. Among 
the requirements of Regulation SCI is Rule 1001(a)(2)(v), which 
requires the Exchange and other SCI entities to maintain ``[b]usiness 
continuity and disaster recovery plans that include maintaining backup 
and recovery capabilities sufficiently resilient and geographically 
diverse and that are reasonably designed to achieve next business day 
resumption of trading and two-hour resumption of critical SCI systems 
following a wide-scale disruption.'' \8\ The Exchange has put extensive 
time and resources toward planning for system failures and already 
maintains robust BC/DR plans consistent with the Rule.\9\ As set forth 
below, in connection with Regulation SCI, the Exchange is proposing to 
require certain Participants to participate in testing of the operation 
of the Exchange's BC/DR plans.
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    \8\ 17 CFR 242.1001(a)(2)(v).
    \9\ The Exchange notes that it permits the trading of securities 
at two separate data centers; one in Secaucus, New Jersey (NY4) and 
the other in Chicago (CH2). Each location serves as the primary 
matching location for a security traded on the Exchange and no 
single security is simultaneously traded at both locations, as the 
Exchange maintains only one book. In the event trading cannot occur 
at one location, the Exchange may move trading in affected 
securities to the other location, pursuant to its BC/DR plans.
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    With respect to an SCI entity's BC/DR plans, including its backup 
systems, paragraph (a) of Rule 1004 of Regulation SCI requires each SCI 
entity to: ``[e]stablish standards for the designation of those members 
or participants that the SCI entity reasonably determines are, taken as 
a whole, the minimum necessary for the maintenance of fair and orderly 
markets in the event of the activation of such plans.'' \10\ Paragraph 
(b) of Rule 1004 further requires each SCI entity to ``[d]esignate 
members or participants pursuant to the standards established in 
paragraph (a) of [Rule 1004] and require participation by such 
designated members or participants in scheduled functional and 
performance testing of the operation of such plans, in the manner and 
frequency specified by the SCI entity, provided that such frequency 
shall not be less than once every 12 months.'' \11\ In order to comply 
with Rule 1004 of Regulation SCI, the Exchange proposes to adopt 
Article 3, Rule 21 (Mandatory Participation Testing of Backup Systems) 
requiring mandatory participation in testing of Exchange backup 
systems, as described below.
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    \10\ 17 CFR 242.1004(a).
    \11\ 17 CFR 242.1004(b).
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    First, in paragraph (a) of Rule 21, the Exchange proposes to 
include language from paragraph (a) of Rule 1004 of Regulation SCI to 
summarize the Exchange's obligation pursuant to such rule. 
Specifically, the Exchange proposes to state that ``[p]ursuant to 
Regulation SCI and with respect to the Exchange's business continuity 
and disaster recovery plans, including its backup systems, the Exchange 
is required to establish standards for the designation of Participants 
that the Exchange reasonably determines are, taken as a whole, the 
minimum necessary for the maintenance of fair and orderly markets in 
the event of the

[[Page 69735]]

activation of such plans.'' The Exchange further proposes that 
paragraph (a) indicate that the ``Exchange has established standards 
and will designate Participants according to those standards'' as set 
forth in the proposed Rule. In addition, the Exchange proposes to make 
clear that all Participants are permitted to connect to the Exchange's 
backup systems as well as to participate in testing of such systems. 
Proposed paragraph (a) is consistent with the Commission's adoption of 
Regulation SCI, which encouraged ``SCI entities to permit non-
designated members or participants to participate in the testing of the 
SCI entity's BC/DR plans if they request to do so.'' \12\
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    \12\ See SCI Adopting Release, supra note 4 at 72350.
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    Second, in paragraph (b) of Rule 21, the Exchange proposes to 
specify the criteria that will result in a Participant receiving a 
designation requiring it to connect to the Exchange's backup systems 
and to participate in functional and performance testing as announced 
by the Exchange, which shall occur at least once every 12 months. 
Specifically, proposed paragraph (b)(1) would require all Participants 
that account for a meaningful percentage of the Exchange's overall 
trades or volume to connect to the Exchange's backup systems and to 
participate in functional and performance testing.
    The Exchange notes that it encourages all Participants to connect 
to the Exchange's backup systems and to participate in testing of such 
systems. In fact, if a Participant executes an average daily volume of 
1 million or more provide shares in the Matching System during the 
month, CHX will impose a cap on logical port charges equal to the 
greatest number of ports attributable to that Participant in either of 
CHX's data centers which helps reduce the economic burden of 
maintaining connectivity to Exchange's data centers.\13\ However, in 
adopting the requirements of proposed Rule 21(b), including both the 
requirement to maintain connectivity to Exchange backup systems and to 
participate in mandatory testing of such systems, the Exchange intends 
to subject to the Rule only those Participants that the Exchange 
believes are necessary to maintain fair and orderly markets at the 
Exchange. The Exchange believes that designating Participants to 
participate in mandatory testing because they account for a meaningful 
percentage of the Exchange's overall trades or volume is a reasonable 
means to ensure the maintenance of a fair and orderly market on the 
Exchange.
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    \13\ See Section D.1 of the CHX Fee Schedule.
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    In addition to paragraphs (a) and (b) described above, the Exchange 
also proposes to adopt Interpretation and Policy .01, which would 
provide additional detail regarding the notice that will be provided to 
Participants that have been designated pursuant to subparagraph (b) of 
the Rule as well as the Exchange's method for measuring the trades and 
volume thresholds. As proposed, Interpretation and Policy .01 would 
state that for purposes of identifying Participants that account for a 
meaningful percentage of the Exchange's overall trades or volume, the 
Exchange will measure trades and volume executed on the Exchange on a 
quarterly basis. The percentage of trades and volume that the Exchange 
considers to be meaningful for purposes of this Interpretation and 
Policy .01 will be determined by the Exchange and will be published in 
a circular distributed to Participants. The Exchange will publish the 
first circular consistent with this proposal prior to the Regulation 
SCI compliance date of November 3, 2015. The proposed Interpretation 
and Policy would also require the Exchange to notify individual 
Participants quarterly that are subject to proposed paragraph (b) based 
on the prior calendar quarter's trades and volume. Finally, as 
proposed, if a Participant has not previously been subject to the 
requirements of proposed paragraph (b), then such Participant would 
have until the next calendar quarter before such requirements are 
applicable. The Exchange believes the proposed notice requirements are 
necessary to provide Participants with proper advance notice in the 
event they become subject to proposed Rule 21(b). The proposed 
timeframes would also provide Participants with adequate time to become 
compliant with such Rule due to the necessary infrastructure changes it 
may take to connect to the Exchange's backup systems for a Participant 
that is not already connected.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \15\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest. The proposal will ensure that the Participants necessary to 
ensure the maintenance of a fair an orderly market are properly 
designated consistent with Rule 1004 of Regulation SCI. Specifically, 
the proposal will adopt criteria with respect to the designation of 
Participants that are required to participate in the testing of the 
Exchange's BC/DR plans, as well as appropriate notification regarding 
such designation. As set forth in the SCI Adopting Release, ``SROs have 
the authority, and legal responsibility, under Section 6 of the 
Exchange Act, to adopt and enforce rules (including rules to comply 
with Regulation SCI's requirements relating to BC/DR testing) 
applicable to their members or participants that are designed to, among 
other things, foster cooperation and coordination with persons engaged 
in regulating, clearing, settling, processing information with respect 
to, and facilitating transactions in securities, 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.'' \16\ The Exchange believes that this proposal is consistent 
with such authority and legal responsibility.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ See SCI Adopting Release, supra note 4 at 72350.
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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 not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, the proposal 
is not a competitive proposal but rather is necessary for the 
Exchange's compliance with Regulation SCI.

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 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 after the date of the filing, or such shorter time as the 
Commission may designate, it has become effective pursuant to 
19(b)(3)(A)

[[Page 69736]]

of the Act \17\ and Rule 19b-4(f)(6) \18\ thereunder.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii) \20\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
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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 believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest 
as it will allow the Exchange to incorporate changes required under 
Regulation SCI, such as establishing standards for designating business 
continuity and disaster recovery plan participants, prior to the 
November 3, 2015 compliance date. Therefore, the Commission designates 
the proposed rule change to be operative upon filing.\21\
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    \21\ 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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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 No. SR-CHX-2015-09 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549.

All submissions should refer to File No. SR-CHX-2015-09. 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 the filing will also 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 No. SR-CHX-2015-09 and should be 
submitted on or before December 1, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-28514 Filed 11-9-15; 8:45 am]
 BILLING CODE 8011-01-P