Document ID: SEC-2016-2229-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2016-12-19T05:00Z

[Federal Register Volume 81, Number 243 (Monday, December 19, 2016)]
[Notices]
[Pages 91979-91982]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30391]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79538; File No. SR-CHX-2016-21]

Self Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Modify the Web Site Data Publication Requirements and Clarify 
Certain Data Reporting Obligations Related to the Regulation NMS Plan 
To Implement a Tick Size Pilot Program

December 13, 2016.
    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 November 29, 2016, 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 amend Article 20, Rule 13(b) of the Rules of the 
Exchange (``CHX Rules'') to modify the Web site data publication 
requirements and clarify the Exchange's data reporting obligations 
relating to the Regulation NMS Plan to Implement a Tick Size Pilot 
Program.
    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
    On August 25, 2014, the Exchange, and several other self-regulatory 
organizations (the ``Plan Participants''\3\) filed with the Commission, 
pursuant to Section 11A of the Act \4\ and Rule 608 of Regulation NMS 
thereunder,\5\ the Plan to Implement a Tick Size Pilot Program (the 
``Plan'').\6\ The Plan Participants filed the Plan to comply with an 
order issued by the Commission on June 24, 2014.\7\ The Plan\8\ was 
published for comment in the Federal Register on November 7, 2014, and 
approved by the Commission, as modified, on May 6, 2015.\9\ The 
Commission approved the Pilot on a two-year basis, with implementation 
to begin no later than May 6, 2016.\10\ On November 6, 2015, the SEC 
exempted the Plan Participants from implementing the pilot until 
October 3, 2016.\11\ As set forth in Appendices B and C to the Plan, 
data that is reported pursuant to the appendices shall be provided for 
dates starting six months prior to the Pilot Period through six months 
after the end of the Pilot Period. Under the revised Pilot 
implementation date, the Pre-Pilot data collection period commenced on 
April 4, 2016. On September 13, 2016, the Commission exempted the Plan 
Participants from the requirement to fully implement the Pilot on 
October 3, 2016, to permit the Plan Participants to implement the pilot 
on a phased-in basis, as described in the Plan Participants' exemptive 
request.\12\
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    \3\ A ``Participant'' is a ``member'' of the Exchange for 
purposes of the Act. See CHX Article 1, Rule 1(s). For clarity, the 
Exchange proposes to utilize the term ``CHX Participant'' when 
referring to members of the Exchange and the term ``Plan 
Participant'' when referring to Participants of the Plan.
    \4\ 15 U.S.C. 78k-1.
    \5\ 17 CFR 242.608.
    \6\ See Letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014.
    \7\ See Securities Exchange Act Release No. 72460 (June 24, 
2014), 79 FR 36840 (June 30, 2014).
    \8\ Unless otherwise specified, capitalized terms used in this 
rule filing are based on the defined terms of the Plan.
    \9\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 
80 FR 27513 (May 13, 2015) (``Approval Order'').
    \10\ See Approval Order at 27533 and 27545.
    \11\ See Securities Exchange Act Release No. 76382 (November 6, 
2015), 80 FR 70284 (November 13, 2015) (File No. 4-657).
    \12\ See Letter from David S. Shillman, Associate Director, 
Division of Trading and Markets, Commission, to Eric Swanson, EVP, 
General Counsel and Secretary, Bats Global Markets, Inc., dated 
September 13, 2016; see also Letter from Eric Swanson, EVP, General 
Counsel and Secretary, Bats Global Markets, Inc., to Brent J. 
Fields, Secretary, Commission, dated September 9, 2016.
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    The Plan is designed to allow the Commission, market participants, 
and the public to study and assess the impact of increment conventions 
on the liquidity and trading of the common stocks of small-
capitalization companies. Each Plan Participant is required to comply, 
and to enforce compliance by its members, as applicable, with the 
provisions of the Plan.
    On March 28, 2016, the Exchange filed with the Commission a 
proposed rule change to adopt Article 20, Rule 13(b), which was 
immediately effective upon filing, to implement the data collection 
requirements of the Plan, including requirements relating to Web site 
data publication.\13\ Specifically, current Article 20, Rule 
13(b)(2)(A)(v) provides that the Exchange shall make Appendix B.I and 
B.II data of certain

[[Page 91980]]

CHX Participants that operate Trading Centers \14\ collected pursuant 
to current Article 20, Rule 13(b)(2)(A) publicly available on the 
Exchange Web site on a monthly basis at no charge and shall not 
identify the Trading Center that generated the data. Also, current 
Article 20, Rule 13(b)(B)(ii) provides that the Exchange shall make 
Appendix B.I and B.II data of the Exchange operated Trading Center 
collected pursuant to current Article 20, Rule 13(b)(2)(B)(i) publicly 
available on the Exchange Web site on a monthly basis at no charge and 
shall not identify the Trading Center that generated the data. In 
addition, current Article 20, Rule 13(b)(3)(C) provides that the 
Exchange shall make Appendix B.IV data collected pursuant to current 
Article 20, Rule 13(b)(3)(A) and (B) publicly available on the Exchange 
Web site on a monthly basis at no charge and shall not identify the 
Trading Center that generated the data.
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    \13\ See Securities Exchange Act Release No. 77469 (March 29, 
2016), 81 FR 19275 (April 4, 2016) (SR-CHX-2016-03).
    \14\ The Plan incorporates the definition of a ``Trading 
Center'' from Rule 600(b)(78) of Regulation NMS. Regulation NMS 
defines a ``Trading Center'' as ``a national securities exchange or 
national securities association that operates an SRO trading 
facility, an alternative trading system, an exchange market maker, 
an OTC market maker, or any other broker or dealer that executes 
orders internally by trading as principal or crossing orders as 
agent.'' See 17 CFR 242.600(b).
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    The Exchange is now proposing amendments to Article 20, Rule 
13(b)(2)(A)(v) (regarding Appendix B.I and B.II data for Trading 
Centers operated by CHX Participants), Article 20, Rule 13(b)(2)(B)(ii) 
(regarding Appendix B.I and B.II data for the Exchange operated Trading 
Center) and Article 20, Rule 13(b)(3)(C) (regarding Appendix B.IV data) 
to provide that data required to be made available on the Exchange Web 
site be published within 120 calendar days following the month end. The 
Exchange also proposes to adopt new language under Article 20, Rule 
13(b)(5) (regarding Appendix B.III data) that provides that the 
Exchange shall make its Appendix B.III data publicly available on the 
CHX Web site within 120 calendar days following month end at no charge 
and shall not identify the Trading Center that generated the data.
    Moreover, the Exchange is proposing to adopt Article 20, Rule 
13(b)(4)(C) (regarding Appendix C data) to clarify that the Exchange, 
as a Designated Examining Authority (``DEA''), shall collect the data 
required by Item I of Appendix C to the Plan and current paragraph 
(b)(4)(A) for those CHX Participants that are Market Makers for which 
the Exchange is the DEA, and on a monthly basis transmit such data, 
categorized by the Control Group and each Test Group, to the SEC in a 
pipe delimited format. Also, in light of the recently proposed 
amendment to the Financial Industry Regulatory Authority (``FINRA'') 
Rule 6191(b)(4)(B),\15\ which provides, among other things, that FINRA 
shall aggregate and publish (i) Market Maker profitability statistics 
for Market Makers for which FINRA is the DEA; (ii) Market Maker 
profitability statistics collected from other Plan Participants that 
are DEAs; and (iii) Market Maker profitability statistics for Market 
Maker profitability statistics [sic] for Market Makers whose DEA is not 
a Plan Participant, the Exchange is proposing to adopt additional 
language that provides the Exchange, as DEA, shall also make the data 
collected pursuant to current paragraph (b)(4)(A) available to FINRA 
for aggregation and publication, categorized by the Control Group and 
each Test Group, on the FINRA Web site pursuant to FINRA Rules.
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    \15\ See SR-FINRA-2016-042, filed November 15, 2016.
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    Furthermore, the Exchange is proposing amendments to paragraph .08 
of the Interpretations and Policies under Article 20, Rule 13(b) to 
conform its provisions to the above proposed changes. Specifically, 
amended paragraph. 08 would provide that with respect to data for the 
Pilot Period, the Exchange shall make the data collected pursuant to 
current paragraph (b)(4)(A) available to FINRA for aggregation and 
publication on the FINRA Web site pursuant to FINRA Rules and the 
Exchange will publish the data collected pursuant to current paragraphs 
(2) and (3) on the Exchange Web site, which shall commence at the 
beginning of the Pilot Period. Also, notwithstanding the provisions of 
amended paragraphs (b)(2)(A)(v), (b)(2)(B(ii) and (b)(3)(C), the 
Exchange shall make data for the Pre-Pilot Period publicly available on 
the Exchange's Web site pursuant to Appendix B to the Plan by February 
28, 2017.
    The purpose of delaying the publication of the Web site data is to 
address confidentiality concerns by providing for the passage of 
additional time between the market information reflected in the data 
and the public availability of such information.\16\ In addition, the 
purpose of adopting language that the Exchange will transmit Appendix C 
data to the SEC for the Market Making activity of a CHX Participant for 
which the Exchange is the DEA is to clarify the Exchange's data 
reporting obligations pursuant to the Plan. Moreover, the purpose of 
explicitly stating that the Exchange will publish the relevant Appendix 
B data on its Web site and that FINRA will publish the relevant 
Appendix C data on its Web site is to conform CHX Rules to the Web site 
publication procedures recently proposed by FINRA.\17\
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    \16\ The Exchange understands that some Market Makers may 
utilize a DEA that is not a Plan Participant and that their 
Designated Examining Authority (``DEA'') would not be subject to the 
Plan's data collection requirements. Prior to this proposal, the 
Plan Participants implemented rules that required members that were 
Market Makers whose DEA is not a Plan Participant to transmit 
transaction data for Market Maker profitability calculations to 
FINRA. See e.g., Securities Exchange Act Release No. 77469 (March 
29, 2016), 81 FR 19275 (April 4, 2016) (SR-CHX-2016-03).
    \17\ See supra note 15.
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    The Exchange notes that the proposed rule change is similar to SR-
FINRA-2016-042 in all material respects, except that the Exchange does 
not propose to adopt provisions regarding the calculation and public 
dissemination of Appendix C data as FINRA will be conducting that 
function on behalf of all Plan Participants. Also, the Exchange has 
filed the proposed rule change for immediate effectiveness and has 
requested that the Commission waive the 30-day operative delay. If the 
Commission waives the 30-day operative delay, the operative date of the 
proposed rule change will be the date of the filing.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \18\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \19\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in 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; and are not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that this proposal is consistent with the Act 
because it is designed to assist the Plan Participants in meeting their 
regulatory obligations pursuant to the Plan and is in furtherance of 
the objectives of the Plan, as identified by the SEC. The Exchange 
believes that the instant proposal is consistent with the Act in that 
it is designed to (1) address confidentiality concerns by permitting 
the Exchange to delay Web site publication to provide for passage of 
additional time between the market information reflected in the data 
and the

[[Page 91981]]

public availability of such information, (2) clarify the Exchange's 
data reporting obligations pursuant to the Plan and (3) conform CHX 
Rules to the Web site publication procedures recently proposed by 
FINRA.\20\
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    \20\ See supra note 15.
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B. Self-Regulatory Organization's Statement of Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
notes that the proposed rule change implements the provisions of the 
Plan, and is designed to assist the Plan Participants in meeting their 
regulatory obligations pursuant to the Plan.
    The proposal is intended to (1) address confidentiality concerns 
that may adversely impact competition by permitting the Exchange to 
delay Web site publication to provide for passage of additional time 
between the market information reflected in the data and the public 
availability of such information, (2) clarify the Exchange's data 
reporting obligations pursuant to the Plan and (3) conform CHX Rules 
with the Web site publication procedures recently proposed by 
FINRA.\21\ The Exchange notes that the proposed change will not affect 
the data reporting requirements for CHX Participants. The proposal also 
does not alter the information required to be submitted to the SEC.
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    \21\ See supra note 15.
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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 Changes 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 upon filing pursuant to Section 19(b)(3)(A) of the Act \22\ 
and Rule 19b-4(f)(6) \23\ thereunder.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii), the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has filed 
the proposed rule change for immediate effectiveness and has requested 
that the Commission waive the requirement that the proposed rule change 
not become operative for 30 days after the date of the filing so that 
it may become operative immediately.
    The Exchange notes that the proposed rule change implements the 
provisions of the Plan, and is designed to assist the Participants in 
meeting their regulatory obligations pursuant to the Plan. The proposal 
is intended to address confidentiality concerns by permitting the 
Exchange to (1) delay Web site publication to provide for passage of 
additional time between the market information reflected in the data 
and the public availability of such information; and (2) allow for 
FINRA to aggregate and publish Market Maker profitability data for all 
Participant DEAs. The Exchange notes that the proposed change will not 
affect the data reporting requirements for members for which CHX is the 
DEA. The proposal also does not alter the information required to be 
submitted to the Commission.
    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will allow the Exchange to implement these proposed changes 
that are intended to address confidentiality concerns. The Commission 
notes that some Pilot data was scheduled to be published on November 
30, 2016. Therefore, the Commission hereby waives the 30-day operative 
delay and designates the proposed rule change to be operative on 
November 30, 2016.\24\
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    \24\ For purposes only of waiving the operative delay for this 
proposal, the Commission has 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.\25\ If the 
Commission takes such action, the Commission shall institute 
proceedings under Section 19(b)(2)(B) \26\ of the Act to determine 
whether the proposed rule change should be approved or disapproved.
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    \25\ 15 U.S.C. 78s(b)(3)(C).
    \26\ 15 U.S.C. 78s(b)(2)(B).
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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-2016-21 on the subject line.

Paper Comments

     Send paper comments in triplicate to Robert W. Errett, 
Deputy Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-CHX-2016-21. 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 changes 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 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 No. SR-CHX-2016-21 and should be 
submitted on or before January 9, 2017.
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    \27\ 17 CFR 200.30-3(a)(12).

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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-30391 Filed 12-16-16; 8:45 am]
 BILLING CODE 8011-01-P