Document ID: SEC-2016-0613-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2016-04-11T04:00Z

[Federal Register Volume 81, Number 69 (Monday, April 11, 2016)]
[Notices]
[Pages 21408-21415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08186]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77527; File No. SR-CHX-2016-04]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Rules of the Exchange Related to Market Makers

April 5, 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 March 30, 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 
III 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 the Rules of the Exchange (``CHX Rules'') 
related to Market Makers. CHX has designated this proposed rule change 
as non-controversial pursuant to Section 19(b)(3)(A) \3\ of the Act and 
Rule 19b-4(f)(6) \4\ thereunder and has provided the Commission with 
the notice required by Rule 19b-4(f)(6)(iii).\5\
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    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ 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 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 amend various CHX Rules related to Market 
Makers. The proposed rule change primarily addresses Market Maker 
application, registration and securities assignment procedures. 
Specifically, the Exchange proposes to consolidate and/or clarify 
certain rules under Article 16 (Market Makers); to adopt new rules 
under Article 16 that are similar to rules of other national securities 
exchanges; to make corresponding amendments to various CHX Rules 
impacted by the proposed amendments to Article 16; and to make other 
clarifying amendments throughout the CHX Rules, as described below. 
Notwithstanding the proposed amendments, the Exchange proposes to 
largely maintain the current requirements regarding Market Maker 
responsibilities (Article 16, Rule 8); limitation on dealings (Article 
16, Rule 9); and reporting of positions (Article 16, Rule 10).
Current Article 16 (Market Makers)
    Current Article 16 consists of the following rules:

 Rule 1. Registration and Appointment
 Rule 2. Initial Registration of Market Makers
 Rule 3. Approval by the Exchange
 Rule 4. Temporary Appointment of Market Maker
 Rule 5. Identification of Securities Traded as Market Maker
 Rule 6. Voluntary De-Registration as Market Maker
 Rule 7. Involuntary De-Registration as Market Maker
 Rule 8. Responsibilities
 Rule 9. Limitation on Dealings
 Rule 10. Reporting of Position Information

    Currently, a Participant may act as a Market Maker in a particular 
security only if it has registered with, and been approved by, the 
Exchange to act in that capacity, and is in good standing.\6\ A 
Participant who wishes to register as a Market Maker must complete a 
Market Maker application,\7\ which will be reviewed by the Exchange.\8\
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    \6\ See CHX Article 16, Rule 1(a).
    \7\ See CHX Article 16, Rule 2(b).
    \8\ See CHX Article 16, Rule 3.
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    The Exchange will announce the names of all successful Participant 
applicants.\9\ However, if the Exchange denies a Participant's Market 
Maker application, it will provide the Participant with a summary of 
the Exchange's reasons for the denial.\10\ A Participant may seek 
review of its denied Market Maker application.\11\ The Exchange also 
reserves the right to expedite the Market Maker application process and 
appoint a Market Maker on a temporary basis.\12\ A Participant's 
registration as a Market Maker may be -1- involuntarily terminated or 
suspended by the Exchange \13\ or -2- voluntarily terminated at the 
request of Participant.\14\
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    \9\ See CHX Article 16, Rule 2(d).
    \10\ See id.
    \11\ See id.
    \12\ See CHX Article 16, Rule 4.
    \13\ See CHX Article 16, Rule 7.
    \14\ See CHX Article 16, Rules 5 and 6.
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    Once approved, a Market Maker may then select securities in which 
it seeks to acts as Market Maker by notifying the Exchange in a manner 
prescribed by the Exchange.\15\ Any decision to add or drop securities 
from its existing selection must be communicated to the Exchange no 
later than 9 a.m. on the trading day immediately preceding the date on 
which the change is to take effect, unless the Exchange permits a later 
date and/or time.\16\ A Market Maker's decision to voluntarily add or 
drop securities from its existing selection are effective without 
approval; provided a Market Maker must seek prior Exchange approval for 
an initial request to trade more than 500 securities and each request 
to trade each increment of an additional 100 securities after that 
threshold is reached.\17\ Except for temporary and/or partial de-
registrations approved by the Exchange, a Market Maker may not re-

[[Page 21409]]

select a security from which it voluntarily withdrew for twenty (20) 
calendar days after such withdrawal.\18\ A Market Maker's assignment to 
one or more selected securities may be involuntarily terminated or 
suspended by the Exchange \19\ or voluntarily terminated \20\ or 
suspended at the request of the Participant.\21\
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    \15\ See CHX Article 16, Rule 5.
    \16\ See id.
    \17\ See paragraph .01 of CHX Article 16, Rule 5.
    \18\ See paragraph .02 of CHX Article 16, Rule 5.
    \19\ See CHX Article 16, Rule 7.
    \20\ See CHX Article 16, Rules 5 and 6.
    \21\ See paragraph .01 of CHX Article 16, Rule 6.
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    Also, a Market Maker may request that the Exchange approve one or 
more individuals as Market Maker Traders who would be authorized to 
enter bids and offers and execute transactions on behalf of a Market 
Maker.\22\ Prior to the Exchange approving such a request, the 
prospective Market Maker Trader must successfully complete the Market 
Maker Exam, as well as meet the Exchange's general registration 
requirements for associated persons.\23\
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    \22\ See paragraph .01 of CHX Article 16, Rule 1.
    \23\ See generally CHX Article 6.
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    In addition to the aforementioned registration procedures, a Market 
Maker has certain responsibilities, including quotation requirements 
and obligations,\24\ limitation on dealings (including information 
barrier requirements) \25\ and position reporting obligations.\26\
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    \24\ See CHX Article 16, Rule 8.
    \25\ See CHX Article 16, Rule 9.
    \26\ See CHX Article 16, Rule 10.
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Proposed Article 16 (Market Makers)
    The Exchange now proposes to reorganize Article 16 as follows:
 Proposed Rule 1. Registration of Market Makers
 Proposed Rule 2. Assignment of Securities to Market Makers
 Proposed Rule 3. Obligations of Market Maker Authorized 
Traders
 Proposed Rule 4. Obligations of Market Makers
 Proposed Rule 5. Limitation on Dealings of Market Makers
 Proposed Rule 6. Reporting of Position Information by Market 
Makers

    In sum, proposed Rules 1-2 consolidate, restate, clarify and/or 
update current Rules 1-7, whereas proposed Rule 3 significantly expands 
the registration requirements for Market Maker Traders in a manner 
consistent with the rules of another national securities exchange, as 
described below. As such, the Exchange proposes to delete current Rules 
1-7, but to reincorporate relevant provisions throughout amended 
Article 16. Moreover, proposed Rules 4-6 are largely identical to 
current Rules 8-10, with certain amendments.
    Initially, the Exchange proposes to adopt two terms that are 
already in use throughout the CHX Rules, but are not currently defined. 
Proposed Article 1, Rule 1(tt) defines ``Market Maker'' as a 
Participant that is registered as a Market Maker pursuant to Article 
16, Rule 1. Correspondingly, the Exchange proposes to amend various CHX 
Rules to capitalize the term ``market maker'' or ``market makers.'' 
\27\ Incidentally, the Exchange proposes to amend Article 11, Rule 3(e) 
to capitalize the term ``institutional broker,'' as it is currently 
defined under Article 1, Rule 1(n).
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    \27\ See amended CHX Article 9, Rule 23(b); amended CHX Article 
11, Rule 3(e); proposed Article 16, Rule 4(d)(2)(A) and (B); 
proposed CHX Article 16, Rule 4(e)-(f); proposed CHX Article 16, 
Rule 5(a)-(d); and proposed CHX Article 16, Rule 6.
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    The Exchange also proposes to replace all references to ``Market 
Maker Trader'' and ``MMT'' throughout CHX Rules with the terms ``Market 
Maker Authorized Trader'' and ``MMAT,'' \28\ respectively, which are 
currently used by other national securities exchanges.\29\ Proposed 
Article 1, Rule 1(uu) defines MMAT as an individual trader authorized 
to enter bids and offers and execute transactions on behalf of a Market 
Maker and requires that an MMAT be registered with the Exchange 
pursuant to current Article 6 and proposed Article 16, Rule 3. The 
proposed definition is a restatement of current paragraph .01 under 
Article 16, Rule 1.\30\
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    \28\ See amended CHX Article 1, Rule 1(s); amended CHX Article 
3, Rule 2(a); amended paragraph .01(b) of CHX Article 6, Rule 3; 
amended CHX Article 6, Rule 6; proposed paragraph .02 of CHX Article 
16, Rule 5.
    \29\ See BYX Rule 11.6; see also NYSEArca Equities Rule 7.21.
    \30\ The portion of current paragraph .01 of Article 16, Rule 1 
prohibiting an MMT from also being registered as an Institutional 
Broker Representative is restated under proposed Article 16, Rule 
3(b)(6).
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Proposed Article 16, Rule 1 (Registration of Market Makers)
    Proposed Article 16, Rule 1 is largely a restatement of the current 
application procedure for a Participant to become registered \31\ as a 
Market Maker, with some minor changes to harmonize with similar 
procedures of other national securities exchanges.\32\ Specifically, 
proposed Rule 1(a) provides as follows:
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    \31\ In the context of proposed Article 16, the Exchange 
proposes to utilize the term ``registered'' in reference to either a 
Participant's general registration as a Market Maker or an MMAT's 
registration with a Market Maker. Currently, the term ``registered'' 
is also used in the context of securities assigned to a Market 
Maker. For clarity, the Exchange now proposes to refer to such 
securities as being ``assigned'' to Market Makers.
    \32\ Incidentally, the Exchange proposes to amend current CHX 
Article 12, Rule 8(h)(1) to update the cross-reference to CHX 
Article 16, Rule 1 and to adopt an additional cross-reference to 
proposed CHX Article 16, Rule 3 regarding the Registration of Market 
Maker Authorized Traders, as the Exchange proposes to break out 
rules regarding Market Maker Authorized Traders under proposed CHX 
Article 16, Rule 3, as discussed below. The Exchange propose to make 
a corresponding cross-reference amendment to the Minor Rule 
Violation Plan chart under the CHX Fee Schedule.
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    Application process. A Participant may only act as a Market Maker 
in a particular security if it is properly registered as a Market 
Maker, assigned to securities and remains in good standing pursuant to 
this Article 16. A Participant that wishes to register as a Market 
Maker shall file an application in writing on such form as the Exchange 
may prescribe. Applications shall be reviewed by the Exchange, which 
shall consider such factors including, but not limited to, the 
Participant's capital, operations, personnel, technical resources and 
disciplinary history.
    Notably, proposed Rule 1(a):
     Consolidates and simplifies current Article 16, Rules 
1(a), 2(b), 2(c) and 3 \33\ concerning the Market Maker application 
requirements by utilizing broader language that contemplates the 
current requirements; \34\
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    \33\ Current paragraph .01 of Article 16, Rule 3 has been 
restated as proposed paragraph .01 of Article 16, Rule 2, as 
discussed below.
    \34\ While the factors listed under current Article 16, Rule 3 
and proposed Article 16, Rule 1(a) largely overlap, current Article 
16, Rule 3, in some respects, provide more detailed and/or different 
factors than those stated under proposed Article 16, Rule 1(a).
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     is similar to BYX Rule 11.5(a) in that both rules would 
require applications be in writing on a form prescribed by the exchange 
and provide identical factors to be considered by the exchanges in 
reviewing such applications, except that under CHX Rules, the language 
requiring that Market Makers maintain minimum net capital in compliance 
with Rule 15c3-1 under the Exchange Act \35\ may be found under 
proposed Article 16, Rule 4(e); and
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    \35\ 17 CFR 240.15c3-1.
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     omits language under current Article 16, Rule 2(b) 
requiring the applicant to indicate the number of securities in which 
it wants to make a market, as that requirement is more accurately a 
part of the securities assignment process, described under proposed 
Rule 2.\36\
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    \36\ See supra note 31.
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    Proposed Rule 1(b) provides as follows:
    Approval of application. In the event a Participant's application 
to become a

[[Page 21410]]

Market Maker has been approved by the Exchange, Participant's 
registration as a Market Maker shall become effective upon receipt by 
the Participant of a notice of approval by the Exchange. Thereafter, a 
Market Maker shall only be permitted to make markets in securities to 
which it has been assigned, pursuant to Rule 2 below.
    Notably, proposed Rule 1(b):
     Is similar to BYX Rule 11.5(b) regarding the effectiveness 
of an approval of a Market Maker application, as both rules require 
that an applicant's registration shall become effective upon receipt by 
the applicant of a notice of approval by the exchange.
     omits language under current Article 16, Rule 2(d) 
providing that a list of successful applicants would be announced by 
the Exchange, as the Exchange does not propose to continue this 
practice moving forward; and
     clarifies that the process of registering as a Market 
Maker is distinct from the process for assignment of securities to 
Market Makers, which is detailed under amended Rule 2.\37\
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    \37\ Id.
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    Proposed Rule 1(c) provides as follows:
    Denial of application. In the event a Participant's application to 
become a Market Maker has been denied by the Exchange, the Exchange 
shall communicate the denial in writing to Participant, which will 
include a summary of the Exchange's reasons for the denial. An 
unsuccessful Participant applicant may seek review of the Exchange's 
decision pursuant to this paragraph (c) under the provisions of Article 
15.\38\
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    \38\ Correspondingly, the Exchange proposes to amend Article 15, 
Rule 1(a) to eliminate specific cross-references to various CHX 
Rules and to replace such cross-references with language providing 
that decisions that may be reviewed pursuant to Article 15 shall be 
noted in the relevant CHX rule.
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    Notably, proposed Rule 1(c):
     Restates the portion of current Article 16, Rule 2(d) 
addressing the denial of a Market Maker application.
    Proposed Rule 1(d) provides as follows:
    Suspension or termination of registration. The Exchange may 
suspend, terminate or otherwise limit a Participant's registration as a 
Market Maker upon a determination of any substantial or continued 
failure by the Market Maker to engage in dealings in accordance with 
Rule 4 below or failure to meet any other obligations as set forth in 
CHX Rules. Nothing in this paragraph (d) will limit any other power of 
the Exchange to discipline a Participant pursuant to CHX Rules.
    A Participant may terminate its status as a Market Maker 
voluntarily by completing the appropriate form and submitting it to the 
Exchange. A Participant that terminates its status as a Market Maker 
that wishes to re-register as a Market Maker must submit a new 
application pursuant to paragraph (a) above.
    A Participant whose Market Maker registration has been 
involuntarily suspended, terminated or otherwise limited pursuant to 
this paragraph (d) may seek review under the provisions of Article 15.
    The Exchange may involuntarily withdraw a Participant from one or 
more assigned securities pursuant to Rule 2(e) below without suspending 
or terminating the Participant's registration as a Market Maker 
pursuant to this paragraph (d).
    Notably, proposed Rule 1(d):
     Restates current Article 16, Rule 1(b), current Article 
16, Rules 6 (Voluntary De-Registration as Market Maker) and 7 
(Involuntary De-Registration as Market Maker), while clarifying that 
the Exchange may terminate a Participant's registration as a Market 
Maker pursuant to the Participant's failure to meet any of its 
obligations as set forth in CHX Rules generally in addition to any 
failure to meet Market Maker specific obligations provided under 
Article 16;
     restates current Article 15, Rule 1(a)(3) that a 
Participant whose Market Maker registration that has been involuntarily 
cancelled by the Exchange may review such a decision pursuant to 
current Article 15; and
     clarifies that the Exchange also has the power to 
involuntarily withdraw a Participant from one or more assigned 
securities pursuant to proposed Rule 2(e), discussed below, without 
affecting Participant's general status as a Market Maker, which is 
currently implied by current Article 16, Rule 7.\39\
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    \39\ Current CHX Article 16, Rule 7 permits the Exchange to, 
among other things, ``limit'' a Market Maker's registration. One way 
a Market Maker's registration could be limited would be for the 
Exchange to involuntarily withdraw a Market Maker from certain 
securities, but otherwise permit the Market Maker to continue making 
markets in other securities to which it is registered.
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    Proposed Rule 1(e) provides as follows:
    Emergency registration and/or assignment. Where emergency 
circumstances require the expedited registration of a Market Maker and/
or assignment of securities thereto, the Exchange may make such 
registrations and/or assignments of securities on a temporary basis, at 
the Exchange's discretion, in the interests of maintaining fair and 
orderly markets.
    Notably, proposed Rule 1(e):
     Restates current Article 16, Rule 4 (Temporary Appointment 
of Market Maker), with a clarification that the Exchange's authority 
includes both the ability to temporarily register Participants as 
Market Makers and temporarily assign securities to Market Makers.\40\
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    \40\ See supra note 31.
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    Proposed Rule 1(f) provides as follows:
    Market Maker as dealer. A Market Maker is designated as a dealer 
for all purposes under the Exchange Act and the rules and regulations 
thereunder. Market Makers may trade only on a proprietary basis and may 
not handle any agency orders, subject to Rule 5 below. A Market Maker 
shall establish at least one separately designated CHX Market Maker 
Trading Account through which all and only market making activities in 
securities assigned to the Market Maker shall originate. To the extent 
that a Participant wishes to act as a Market Maker and also handle 
orders from customers, it must create and strictly enforce information 
barrier procedures pursuant to Rule 5 below. Since Exchange-registered 
Market Makers are not permitted to handle agency orders, the Matching 
System will reject any cross orders that originate from a CHX Market 
Maker Trading Account.
    Notably, proposed Rule 1(f):
     Restates and updates current Article 16, Rule 1(c) and 
paragraph. 02 thereunder, with a clarification that a Market Maker 
shall conduct all and only market making activities through one or more 
CHX Market Maker Trading Accounts.
Proposed CHX Article 16, Rule 2 (Assignment of Securities to Market 
Makers)
    Proposed Article 16, Rule 2 is a restatement of the current 
procedures for the assignment of securities to Market Makers with some 
minor changes to harmonize with similar procedures of other national 
securities exchanges.\41\ Specifically, proposed Rule 2(a) provides as 
follows:
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    \41\ Id.
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    Assignment of securities. The Exchange will post on its Web site a 
list of all issues that are, or soon will be, trading on the Exchange 
and that are available for assignment to a Market Maker. Prior to 
beginning any market making activities in a security on the Exchange, 
Market Maker shall communicate its selected securities and the date on 
which the Market Maker intends to begin market making

[[Page 21411]]

activities in the selected securities (``effective date''), to the 
Exchange in writing, on a form prescribed by the Exchange, by no later 
than 9 a.m. on the trading day immediately preceding the effective 
date; provided the Exchange may, at its discretion, (1) delay the 
assignment date in one or more selected securities; and/or (2) deny 
assignment in one or more selected securities.
    In the event the Exchange delays and/or denies assignment of 
securities pursuant to paragraph (a)(1) and/or (2) above, the Exchange 
shall notify the Market Maker in writing of such action(s). If the 
Exchange does not delay and/or deny assignment of securities pursuant 
to paragraph (a)(1) and/or (2) above, the selected securities shall be 
deemed assigned to the Market Maker as of the relevant effective 
date(s); provided prior written approval of assignment by the Exchange 
shall be required for -1- a Market Maker's initial selection of 500 or 
more securities or -2- each request to add 100 or more securities if 
the Market Marker is already assigned 500 securities.
    Notably, proposed Rule 2(a):
     Restates the portion of paragraph .01 of current Article 
16, Rule 1 providing that a Participant may seek registration as a 
Market Maker in an issue; and
     restates current Article 16, Rule 5 and paragraph .01 
thereunder, while clarifying that written approval of selected 
securities by the Exchange prior to assignment is not always required, 
as the assignment of securities to a Market Maker that does not meet 
the numerical thresholds of current Rule 5 and proposed Rule 2(a) could 
be effected without prior Exchange approval, and that the Exchange has 
the power to delay or deny assignment of securities, which is implied 
by current Article 16, Rules 2 and 3.\42\
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    \42\ Current Article 16, Rule 2(d) provides procedures in the 
event the Exchange approves or denies a market maker registration 
application, whereas current Article 16, Rule 3 provides factors 
that the Exchange may consider when considering a market maker 
registration application, including the overall best interest of the 
Exchange. Thus, in light of these provisions, it logically flows 
that the Exchange may also delay approval of registration if, for 
example, the Exchange believes that such delay is in the best 
interest of the Exchange.
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    Proposed Rule 2(b) provides as follows:
    Relevant factors. In considering whether to deny, delay and/or 
approve the assignment of securities pursuant to paragraph (a) above, 
the Exchange may consider, among other things, the:
    (1) Financial resources available to the Market Maker;
    (2) Market Maker's experience, expertise and past performance in 
making markets, including the Market Maker's performance in other 
securities;
    (3) Market Maker's operational capability;
    (4) Maintenance and enhancement of competition among Market Makers 
in each security in which they are registered;
    (5) Existence of satisfactory arrangements for clearing the Market 
Maker's transactions; and
    (6) Character of the market for the security, e.g., price, 
volatility, and relative liquidity.
    Notably, proposed Rule 2(b):
     Is similar to current BYX Rule 11.7(a), in that both rules 
articulate the same factors that may be considered by the exchange in 
considering the assignment of securities to Market Makers, except that 
unlike BYX, the Exchange has a different Market Maker securities 
selection process, which is described under proposed Article 16, Rule 
2(a).
    Proposed CHX Article 16, Rule 2(c) provides that:
    Voluntary withdrawal in assigned securities. A Market Maker may 
voluntarily withdraw from an assigned security by providing the 
Exchange with written notice of such withdrawal, which must be received 
by the Exchange no later than 9 a.m. on the trading day immediately 
preceding the date on which the change is to take effect or as 
otherwise permitted by the Exchange. The Exchange may place such other 
conditions on voluntary withdrawal and subsequent reassignment of a 
security following withdrawal as it deems appropriate in the interests 
of maintaining fair and orderly markets.
    A Market Maker that voluntarily withdraws in a security may not 
make markets in that security for twenty (20) calendar days. A Market 
Maker that fails to give advanced written notice of voluntary 
withdrawal to the Exchange may be subject to formal disciplinary 
action.
    The Exchange may terminate a Participant's registration as a Market 
Maker, pursuant to Rule 1(d) above if a Market Maker voluntarily 
withdraws from all of its assigned securities.
    Notably, proposed Rule 2(c):
     Restates the portion of current Article 16, Rule 5 that 
addresses the removal of securities from a Market Maker's selection of 
securities;
     restates paragraph .02 of current Article 16, Rule 5 
regarding the twenty (20) calendar days re-assignment prohibition 
period after voluntary withdrawal from the security;
     restates current Article 16, Rule 6 by permitting the 
Exchange to terminate a Participant's registration as a Market Maker if 
it is not assigned to any securities pursuant to proposed Article 16, 
Rule 1(d); and
     is similar to BYX Rule 11.7(b) with respect to following 
proposed provisions:
    [cir] Market Maker may voluntarily withdraw with prior written 
notice.
    [cir] The Exchange may place other conditions as it deems 
appropriate in the interests of maintaining fair and orderly markets.
    [cir] Failure to give advanced written notice of voluntary 
withdrawal to the Exchange may result in Market Maker being subject to 
formal disciplinary action.
    Proposed Rule 2(d) provides as follows:
    Temporary withdrawal in assigned securities. A Market Maker may 
receive Exchange approval for a temporary withdrawal as a Market Maker 
in one or more securities in the following circumstances:
    (1) Software, hardware, connectivity or other problems interfere 
with the Market Maker's ability to appropriately send bids or offers to 
the Exchange or otherwise act as a Market Maker;
    (2) Legal or regulatory considerations temporarily prevent the 
Participant from acting as a Market Maker in an assigned security; or
    (3) Other circumstances, including, but not limited to, those that 
are beyond a Market Maker's control or that interfere with the 
Participant's ability to act as a Market Maker in an assigned security.
    Each request for a temporary withdrawal by a Market Maker must be 
made in writing in a form prescribed by the Exchange and, whenever 
practicable, must be made prior to the condition that causes a Market 
Maker to be unable to continue in that role. The Exchange may grant a 
request for a temporary withdrawal for up to sixty (60) days, which may 
be extended by the Exchange at its discretion.
    A Participant that was denied a temporary withdrawal pursuant to 
this paragraph (d) may seek review under the provisions of Article 15.
    Notably, proposed Rule 2(d):
     Is virtually identical to paragraph .01 of current Article 
16, Rule 6, with the clarification that a Participant that is denied a 
temporary withdrawal pursuant to this paragraph (d) may seek review 
under the provisions of Article 15.
    Proposed Rule 2(e) provides as follows:
    Involuntary withdrawal in assigned securities. The Exchange may 
suspend or terminate a Market Maker's

[[Page 21412]]

assignment to one or more securities whenever the Exchange determines 
that:
    (1) Market Maker has not met any of its obligations as set forth 
under CHX Rules, including Rule 4 below; or
    (2) Market Maker has failed to maintain fair and orderly markets.
    A Participant whose assignment to one or more securities has been 
suspended or terminated pursuant to this paragraph (e) may seek review 
under the provisions of Article 15.
    Notably, proposed Rule 2(e):
     Is virtually identical to BYX Rule 11.7(c), both of which 
permit the exchanges to involuntary withdraw Market Makers from 
assigned securities in the same manner; and
     clarifies the Exchange's implied authority under current 
Article 16, Rule 7 to involuntarily withdraw a Market Maker from a 
security.
    Proposed paragraph .01 of proposed Article 16, Rule 2 provides as 
follows:
    There may be more than one Market Maker assigned to a security 
traded on the Exchange. The Exchange may limit the number of Market 
Makers assigned to any security at its discretion.
    Notably, proposed paragraph .01:
     Restates paragraph .01 of current Article 16, Rule 3, with 
a clarification that the Exchange may limit the number of Market Makers 
assigned to any security at its discretion.
Proposed CHX Article 16, Rule 3 (Obligations of Market Maker Authorized 
Traders)
    Proposed Article 16, Rule 3 provides rules regarding obligations of 
MMATs and significantly expands the registration requirements for 
Market Maker Traders in a manner consistent with the rules of another 
national securities exchange. Generally, proposed Rule 3 restates 
paragraph .01 of current Article 16, Rule 1 and provides additional 
detail as to MMAT registration and obligations.\43\ Specifically, 
proposed Rule 3 provides as follows:
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    \43\ See supra note 32.
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    (a) General. MMATs are permitted to enter orders only for the 
Market Maker Trading Account(s) of the Market Maker for which they are 
registered.
    (b) Registration of MMATs. The Exchange may, upon receiving an 
application in writing from a Market Maker on a form prescribed by the 
Exchange, register a person as an MMAT, consistent with the following 
minimum requirements:
    (1) MMATs may be officers, partners, employees or other associated 
persons of Participants that are registered with the Exchange as Market 
Makers pursuant to Rule 1 above.
    (2) To be eligible for registration as a MMAT, a person must be 
registered with the Exchange as provided in Article 6 and complete any 
other training and/or certification programs as may be required by the 
Exchange.
    (3) The Exchange may require a Market Maker to provide any and all 
additional information the Exchange deems necessary to establish 
whether registration should be granted.
    (4) The Exchange may grant a person conditional registration as an 
MMAT subject to any conditions it considers appropriate in the 
interests of maintaining a fair and orderly market.
    (5) A Market Maker must ensure that an MMAT is properly qualified 
to perform market making activities, including, but not limited to, 
ensuring the MMAT has met the requirements set forth under paragraph 
(b)(2) of this Rule.
    (6) A person cannot be registered both as an MMAT and as an 
Institutional Broker Representative, as defined under Article 1, Rule 
1(gg).
    (c) Suspension or Termination of Registration.
    (1) Pursuant to Article 13, Rule 2, the Exchange may suspend or 
terminate the registration previously given to a person to be an MMAT 
if the Exchange determines that the:
    (A) Person has caused the Market Maker to fail to comply with the 
securities laws, rules and regulations or the Bylaws, Rules and 
procedures of the Exchange;
    (B) person is not properly performing the responsibilities of an 
MMAT;
    (C) person has failed to meet the conditions set forth under 
paragraph (b) above; or
    (D) MMAT has failed to maintain fair and orderly markets.
    (2) If the Exchange suspends or terminates the registration of an 
individual as an MMAT, the Market Maker must not allow the individual 
to submit orders into the Matching System.\44\
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    \44\ Current CHX Article 13, Rule 2(c) permits an appeal of any 
decision made under Rule 2 pursuant to current CHX Article 15.
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    (3) The registration of an MMAT will be terminated upon the written 
request of the Participant for which the MMAT is registered. Such 
written request shall be submitted on a form prescribed by the 
Exchange.
    Notably, proposed Rule 3 is substantively similar to BYX Rule 11.6, 
in that both rules set forth similar obligations of MMATs, except that:
     Under proposed paragraph (b)(2), the Exchange proposes to 
continue to require MMATs to be registered with the Exchange pursuant 
to current Article 6, which includes a requirement that an MMAT take 
and pass the Exchange-administered Market Maker Authorized Trader Exam, 
pursuant to paragraph .01(b) of Article 6, Rule 3; \45\
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    \45\ Incidentally, the Exchange proposes to amend paragraph 
.01(b) of CHX Article 6, Rule 3 to harmonize with, and refer to, 
proposed CHX Article 16, Rule 3, which includes replacing the term 
``Market Maker Exam'' with the more accurate ``Market Maker 
Authorized Trader Exam,'' replacing the term ``qualify'' with 
``register'' and clarifying that a Participant would request that an 
``individual'' be registered as an MMAT, as an MMAT refers to a 
single individual. See CHX Article 1, Rule 1(s) defining 
``Participant.''
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     under proposed paragraph (b)(6), an MMAT cannot be also 
registered as an Institutional Broker Representative, which is 
currently prohibited under paragraph .01 of current Article 16, Rule 1; 
and
     under proposed paragraph (c)(1), the Exchange's authority 
to suspend or terminate the registration of an MMAT is based on current 
CHX Article 13, Rule 2.\46\
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    \46\ While current Article 13, Rule 2(a)(1) explicitly applies 
to, among others, associated persons of Market Makers and 
Institutional Brokers, the Exchange proposes to amend current 
Article 13, Rule 2(a)(1)(B) to clarify that the Exchange may 
suspend, limit or revoke the registration of an Institutional Broker 
Representative and Market Maker Authorized Trader for failure to 
perform its material duties.
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Proposed CHX Article 16, Rule 4 (Obligations of Market Makers)
    Proposed Article 16, Rule 4 is largely a restatement of current 
Article 16, Rule 8 (Responsibilities) with additional language 
clarifying general Market Maker obligations, except that the Exchange 
proposes to delete current Rule 8(c), which provides for heightened 
quoting and trading requirements, so as to be consistent with the rules 
of other national securities exchanges.\47\ Specifically, proposed Rule 
4(a) provides:
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    \47\ Current Rule 8(c) is a minimum performance standard for 
Market Makers that other national securities exchanges only apply to 
special subsets of Market Makers (known as Designated or Lead Market 
Makers depending on the exchange) that are eligible for special fees 
and rebates for meeting the minimum performance standard. See e.g., 
NYSEArca Equities Rule 7.24(c), which limit the minimum performance 
standard to Designated Market Makers; see also e.g., BATS Rule 
11.8(e)(1)(D) and (e)(2). Since the Exchange's Market Maker program 
only includes regular Market Makers that do not receive any special 
financial incentives for meeting the special requirements of current 
Rule 8(c) and the rules of other national securities exchanges do 
not require regular Market Makers to meet similar performance 
standards in addition to the general quotation requirements and 
obligations consistent among the national securities exchanges, the 
Exchange proposes to eliminate the provisions of current Rule 8(c).
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    General. Market Makers in one or more securities traded on the 
Exchange must engage in a course of dealings for

[[Page 21413]]

their own account to assist in the maintenance, insofar as reasonably 
practicable, of fair and orderly markets on the Exchange in accordance 
with CHX Rules. The responsibilities and duties of a Market Maker 
specifically include, but are not limited to, the following:
    (1) Maintain continuous quotations consistent with the requirements 
of paragraph (d) below;
    (2) Remain in good standing with the Exchange and in compliance 
with all CHX Rules applicable to it;
    (3) Inform the Exchange of any material change in financial or 
operational condition or in personnel;
    (4) Maintain a current list of MMATs who are permitted to enter 
orders on behalf of the Market Maker and provide an updated version of 
this list to the Exchange upon any change in MMATs;
    (5) Clear and settle transactions through the facilities of a 
registered clearing agency. This requirement may be satisfied by direct 
participation, use of direct clearing services, or by entry into a 
correspondent clearing arrangement with another Participant that clears 
trades through such agency; and
    (6) Comply with the requirements of Rule 5 below, as applicable.
    Notably, proposed Rule 4(a):
     Is similar to BYX Rule 11.8(a), in that both rules set 
forth the same general Market Maker obligations and specific Market 
Maker responsibilities and duties, except that proposed paragraph 
(a)(6) includes an additional obligation not found under BYX rules 
requiring Participants that conduct business other than acting as a 
Market Maker on the Exchange to comply with the requirements of 
proposed Rule 5 (i.e., current Rule 9) regarding information barriers; 
and
     restates the first paragraph of current Article 16, Rule 8 
as the first paragraph of proposed Rule 4(a).
    Proposed Rule 4(b) and (c) provide as follows:
    (b) A Market Maker shall be responsible for the acts and omissions 
of its MMATs.
    (c) If the Exchange finds any substantial or continued failure by a 
Market Maker to engage in a course of dealings as specified under this 
Rule, such Market Maker may be subject to disciplinary action by the 
Exchange pursuant to Rule 1(d) and/or Rule 2(e) above. Nothing in this 
Rule 4 will limit any other power of the Exchange under the Bylaws, 
Rules, or procedures of the Exchange with respect to the registration 
of a Market Maker or MMAT or in respect of any violation by a Market 
Maker or MMAT of the provisions of this Rule 4.
    Notably, proposed Rule 4(b) and (c):
     Is similar to BYX Rules 11.8(b) and (c), in that both 
rules provide that Market Makers shall be responsible for the acts and 
omissions of its MMATs and provisions regarding the exchange's 
authority to prosecute noncompliance of Market Maker obligations, 
except that proposed Rule 4(c) does not refer to a review process for 
Exchange decisions made pursuant to proposed Rules 1(d) and/or 2(e), as 
those proposed rules already cite to the Article 15 review process.
    Proposed Rules 4(d) is virtually identical to current Article 16, 
Rules 8(a), with proposed amendments to capitalize the term ``Market 
Maker,'' as noted above.\48\ The Exchange does not propose to 
substantively modify any obligations provided thereunder.
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    \48\ See supra note 27.
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    Proposed Rule 4(e) is a restatement of current Article 16, Rule 
8(b), with a clarification that each Market Maker must have and 
maintain minimum net capital of at least the amount required under Rule 
15c3-1 under the Exchange Act \49\ and Article 7 (Financial 
Responsibility and Reporting Requirements).\50\
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    \49\ 17 CFR 240.15c3-1.
    \50\ The Exchange notes that current CHX Article 7, Rule 
3(a)(1)(A) provides, in pertinent part, that Participant shall at 
all times maintain net capital not less than that prescribed by SEC 
15c3-1 (17 CFR 240.15c3-1).
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Proposed CHX Article 16, Rule 5 (Limitation on Dealings of Market 
Makers)
    Proposed Rule 5 is virtually identical to current Article 16, Rule 
9, with the following clarifying amendments:
     The term ``Market Maker'' is capitalized.\51\
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    \51\ See supra note 27.
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     Proposed Rule 5(a) clarifies that affected Market Makers 
must meet information barrier requirements ``that comport to the 
requirements of this Rule 5.''
     Proposed Rule 5(c), which addresses the approval of 
information barrier procedures by the Exchange, is substantively 
identical to current Rule 9(c), with the following clarifications:
    [cir] Participants must promptly notify the Exchange of any 
material changes to a Participant's organizational structure or 
compliance and audit procedures that were previously approved by the 
Exchange pursuant to Rule 5(c).
    [cir] The Exchange must approve any material changes to a 
Participant's organizational structure or compliance and audit 
procedures that were previously approved by the Exchange pursuant to 
Rule 5(c) and must notify such approval to the Participant in writing.
    [cir] Explicitly state that absent approval of the information 
barrier procedures pursuant to proposed Rule 5(c), a Participant may 
not conduct any business activities other than making markets in 
assigned securities pursuant to Article 16, as opposed to merely 
stating that such a Participant may not conduct any ``other'' business 
activities.
     Paragraph .02(c)(2) of proposed Rule 5 is amended to 
replace ``a'' with ``an'' before the acronym ``MMAT'' for grammatical 
correctness and stylistic consistency.
Proposed CHX Article 16, Rule 6 (Reporting of Position Information by 
Market Makers)
    Proposed Rule 6 is virtually identical to current Article 16, Rule 
10, with amendments to capitalize the term ``Market Maker,'' as noted 
above.\52\ Incidentally, the Exchange proposes to amend Article 12, 
Rule 8(h)(1)(U) and the Minor Rule Violation chart under the CHX Fee 
Schedule to update cross-references to proposed CHX Article 16, Rule 6.
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    \52\ See id.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \53\ in general and furthers the 
objectives of Sections 6(b)(1) \54\ in particular, in that it further 
enables the Exchange to be so organized as to have the capacity to be 
able to carry out the purposes of the Act and to comply, and to enforce 
compliance by its Participants and persons associated with its 
Participants, with the provisions of the Act, the rules and regulations 
thereunder, and the rules of the Exchange, in furtherance of the 
objectives of Section 6(b)(1). Specifically, the Exchange believes that 
the proposed rule change, notably amended Article 16, would promote 
clarity of CHX Rules related to the Market Maker application, 
registration and securities assignment procedures, which furthers the 
objectives of Section 6(b)(1).
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    \53\ 15 U.S.C. 78f(b).
    \54\ 15 U.S.C. 78f(b)(1).
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    The Exchange also believes that the proposed rule change furthers 
the objectives of Section 6(b)(5) in particular,\55\ in that it is 
designed to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in

[[Page 21414]]

facilitating transactions in securities, to remove impediments and 
perfect the mechanisms of a free and open market, and, in general, to 
protect investors and the public interest. Generally, the Exchange 
believes that harmonizing certain proposed rules with the rules of 
other national securities exchanges, such as BYX, would remove 
impediments and perfect the mechanisms of a free and open market, which 
furthers the objectives of Section 6(b)(5).
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    \55\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that proposed Article 16, Rule 
3 would promote just and equitable principles of trade and protect 
investors and the public investors by expanding the requirements of 
MMATs. The Exchange believes that heightened MMAT requirements would 
enhance oversight of market making on the Exchange.
    Similarly, the Exchange believes that proposed Article 16, Rule 4 
would promote just and equitable principles of trade and protect 
investors and the public investors by providing more detailed Market 
Maker obligations and explicitly stating that the Market Maker shall be 
responsible for the acts and omissions of its MMATs, which would 
further incentivize Market Makers to maintain robust oversight over its 
MMATs.

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. Rather, the 
Exchange believes that the proposed rule change will enhance 
competition through clarifying and updating CHX Market Maker-related 
rules.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \56\ and Rule 19b-4(f)(6) thereunder.\57\ 
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 from the date on which it was filed, or such shorter time as the 
Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \58\ and Rule 19b-
4(f)(6) thereunder.\59\
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    \56\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \57\ 17 CFR 240.19b-4(f)(6).
    \58\ 15 U.S.C. 78s(b)(3)(A).
    \59\ In addition, Rule 19b-4(f)(6)(iii) 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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    A proposed rule change filed under Rule 19b-4(f)(6) under the Act 
\60\ normally does not become operative for 30 days after the date of 
filing. However, Rule 19b-4(f)(6)(iii) \61\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange states that 
although its Market Maker program is currently dormant, it anticipates 
restarting the program shortly and is currently in the process of 
reviewing new Market Maker applications. The Exchange also notes that 
without a waiver of the operative delay, newly approved Market Makers 
would be required to begin making markets pursuant to a set of rules 
that have been amended by the proposed rule change and then later 
modify their procedures to comport to the proposed rule change when it 
becomes operative; the Exchange believes such a requirement would be 
unnecessarily burdensome. Based on the foregoing, the Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest.\62\ The Commission 
hereby grants the Exchange's request and designates the proposal 
operative upon filing.
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    \60\ 17 CFR 240.19b-4(f)(6).
    \61\ 17 CFR 240.19b-4(f)(6)(iii).
    \62\ 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-2016-04 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-2016-04. 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 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 Number SR-CHX-2016-04 and should be 
submitted on or before May 2, 2016.

[[Page 21415]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\63\
Robert W. Errett,
Deputy Secretary.
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    \63\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-08186 Filed 4-8-16; 8:45 am]
 BILLING CODE 8011-01-P