Document ID: SEC-2009-1098-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Add the Quote@CHX and Reprice@CHX Order Types to Brokerplex System
Posted Date: 2009-08-04T04:00Z

[Federal Register: August 4, 2009 (Volume 74, Number 148)]
[Notices]               
[Page 38678-38679]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04au09-86]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60395; File No. SR-CHX-2009-10]

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing of a Proposed Rule Change To Add the Quote@CHX and 
Reprice@CHX Order Types to Brokerplex System

July 28, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 23, 2009, 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, II 
and III below, which Items have been prepared by CHX. 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

    The CHX proposes to amend its rules to allow Exchange-registered 
Institutional Brokers to enter two new order types, known as Quote@CHX 
and Reprice@CHX, when using the Brokerplex[reg] order entry system. The 
text of this proposed rule change is available on the Exchange's Web 
site at (http://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 regarding the proposal. The text of 
these statements may be examined at the places specified in Item IV 
below. The CHX has prepared summaries, set forth in sections A, B and C 
below, of the most significant aspects of such statements.

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

1. Purpose
    The Exchange proposes to add Interpretations and Policies .04 to 
the Article 17 obligations of CHX-registered Institutional Brokers to 
permit the entry of two new order types within Brokerplex for 
Institutional Brokers to use when submitting orders to the CHX Matching 
System for display and potential execution. The new order types are 
known as ``Quote@CHX'' and ``Reprice@CHX.''
    The Brokerplex system is an order entry and management system 
developed and operated by the Exchange for use on a non-exclusive basis 
by CHX-registered Institutional Brokers to receive and hold orders from 
their clients while seeking execution on the CHX or elsewhere in the 
National Market System. The Exchange seeks to add two new order types 
within Brokerplex for Institutional Brokers to use when submitting 
orders to the CHX Matching System for display and potential execution.
    In many instances, Institutional Brokers would like to display 
orders in the CHX Matching System when seeking trade execution rather 
than simply hitting bids or lifting offers already displayed in the 
marketplace. By doing so, they could achieve a level of price 
improvement for their customers. Rapidly changing quotes in today's 
market environment often make it difficult to successfully post a bid 
or offer, however, since a standard limit order entered by the 
Institutional Broker may lock or cross the National Best Bid or Offer 
(``NBBO'') by the time that order entry is complete (by our rules, the 
Matching System automatically rejects orders in such circumstances).\3\
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    \3\ It is important to keep in mind that Institutional Brokers 
manually enter orders into the Matching System through Brokerplex 
and those orders are often competing for priority with system-
generated orders of algorithmic order senders.
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    The new Quote@CHX order type would allow the Institutional Broker 
to submit an order to be priced within Brokerplex at a defined limit 
price which is one minimum price increment (normally 1 cent for most 
securities) from the relevant side of the National Best Bid or Offer 
(``NBBO'') at the time of order submission. For buy orders, the 
relevant side of the NBBO is the offer; for sell orders it is the bid. 
The pricing of the Quote@CHX (and Reprice@CHX) order is done solely 
within Brokerplex and the order is then sent as a limit order by 
Brokerplex to the Matching System. For example, if the Institutional 
Broker has set the incremental offset at 1 cent and the NBBO was 20.10 
x 20.13, a Quote@CHX buy order would be automatically priced and 
submitted by Brokerplex to the Matching System as a 20.12 limit order. 
The systematic pricing of the Quote@CHX (and Reprice@CHX) orders is 
non-dynamic, i.e., the order does not automatically reprice upon 
changes to the NBBO once it has been accepted by the Matching System.
    The Reprice@CHX order type allows an Institutional Broker to change 
an existing limit order residing in the Matching System and replace it 
with an order generated in the same manner as a Quote@CHX order type. 
Submission of a Reprice@CHX order would generate an instruction to (1) 
cancel a limit order previously submitted by an Institutional Broker to 
the Matching System and (2) generate a new order to either buy or sell 
(priced by Brokerplex in the same manner as for Quote@CHX orders as 
described above) and send it to the Matching System as a limit order.

[[Page 38679]]

    Generally, usage of an agency Quote@CHX or Reprice@CHX order by an 
Institutional Broker should be confined to situations in which it is 
handling a non-marketable or ``not held'' limit order on behalf of a 
customer.\4\ There may be limited circumstances in which it could be 
appropriate for an Institutional Broker handling a market order to 
submit a Quote@CHX (but not a Reprice@CHX) order. Institutional Brokers 
handling a customer limit order would be required to enter the limit 
price into Brokerplex when submitting a Quote@CHX or Reprice@CHX order. 
In pricing the Quote@CHX and Reprice@CHX orders, Brokerplex will reject 
any entries if the systematically-generated price would be outside the 
customer's specified limit price.
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    \4\ A ``not held'' order is one in which the Institutional 
Broker has been given price and time discretion by its customer. See 
Article 1, Rule 2(w).
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    Our standard Matching System validations for locked and crossed 
markets would apply equally to these orders upon receipt. Neither the 
Quote@CHX nor Reprice@CHX order type would be available for 
Institutional Brokers submitting orders to destinations other than the 
CHX Matching System. The Matching System itself will not be eligible to 
receive these order types. As the owner and operator of the Brokerplex 
system, the Exchange would collect and maintain all of the order 
records relating to these two order types required by our rules, 
although the responsibility for the accurate entry of transaction-
related information lies with the Brokerplex user.
    Our belief is that these two order types will permit Institutional 
Brokers to enter displayable orders in a more efficient manner and 
avoid the delays associated with reentering a rejected order at a new 
price. This functionality is optional, so an Institutional Broker which 
does not want its order priced by Brokerplex can simply enter a 
traditional limit order.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act in general,\5\ and furthers the objectives 
of Section 6(b)(5) in particular,\6\ in that it is designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transaction 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. In this case, providing Institutional Brokers with the 
ability to enter display-eligible orders on a more efficient basis 
protects investors and removes an impediment to a free and open market 
in that it improves the ability of Institutional Brokers to seek the 
best execution of the orders which they are handling.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

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

    No written comments were solicited or received.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-CHX-2009-10 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CHX-2009-10. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of 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 publicly available. All 
submissions should refer to File Number SR-CHX-2009-10 and should be 
submitted on or before August 25, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-18563 Filed 8-3-09; 8:45 am]

BILLING CODE 8010-01-P