Document ID: SEC-2015-0468-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2015-03-18T04:00Z

[Federal Register Volume 80, Number 52 (Wednesday, March 18, 2015)]
[Notices]
[Pages 14193-14195]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-06091]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74487; File No. SR-CHX-2015-02]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Concerning the CHX Routing Services

March 12, 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 March 4, 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

[[Page 14194]]

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 clarify for Participants and non-Participants the 
Exchange's smart versus direct routing protocol.\3\ On September 8, 
2014, the Exchange filed a proposed rule change adopting, among other 
things, the CHX Routing Services, which is a Regulation NMS compliant 
outbound order routing service that is not yet operational (``the 
initial rule filing''), with the Securities and Exchange Commission 
(the ``Commission'').\4\ The Exchange now submits this supplemental 
filing. The Exchange has designated this proposed rule change as non-
controversial and provided the Commission with the notice required by 
Rule 19b-4(f)(6)(iii) under the Act.\5\
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    \3\ CHX Article 1, Rule 1(s) defines ``Participant,'' in 
pertinent part, as ``any Participant Firm that holds a valid Trading 
Permit and any person associated with a Participant Firm who is 
registered with the Exchange under Articles 16 and 17 as a Market 
Maker Trader or Institutional Broker Representative, respectively. A 
Participant shall be considered a `member' of the Exchange for 
purposes of the Exchange Act.''
    \4\ See Exchange Act Release No. 73150 (September 19, 2014), 79 
FR 57603 (September 25, 2014) (SR-CHX-2014-15).
    \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 Change

1. Purpose
    The Exchange proposes to clarify for Participants and non-
Participants the Exchange's smart versus direct routing protocol 
related to the CHX Routing Services. As described in the initial rule 
filing, upon the triggering of a Routing Event,\6\ the Exchange will 
route away Routable Orders,\7\ or portions thereof, through CHXBD, LLC, 
which is an affiliated routing broker that will operate as a facility 
of the Exchange, which would then forward orders to a third-party 
routing broker for routing to the ultimate routing destination. All 
orders routed to the third-party routing broker will include 
instructions for the third-party routing broker to either direct route 
the order to a specific destination or to smart route the order, 
utilizing the third-party routing broker's routing technology, pursuant 
to a routing table provided and maintained by the Exchange.
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    \6\ CHX Article 19, Rule 3(a), which is not yet operative, 
details Routing Events.
    \7\ CHX Article 1, Rule 1(oo), which is not yet operative, 
defines ``Routable Order'' as ``any incoming limit order, as defined 
under Article 1, Rule 2(a)(1), of any size, not marked by any order 
modifiers or related terms listed under Article 1, Rule 2 that 
prohibit the routing of the order to another Trading Center.''
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    The Exchange would like to clarify the smart versus direct routing 
protocol and to propose special handling of Routable Orders in relation 
to Protected Quotations \8\ displayed on the Alternative Display 
Facility (``ADF'') operated by the Financial Industry Regulatory 
Authority (``FINRA'').\9\ The Exchange does not propose to amend any 
CHX Rules nor substantively modify the CHX Routing Services in any 
other way.
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    \8\ See 17 CFR 242.600(b)(58).
    \9\ See FINRA Rule 6210.
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    Under footnote 50 of the initial rule filing,\10\ the Exchange 
utilized the term ``routed order'' to describe smart versus direct 
routing. For clarity, ``routed order'' describes the portion of a 
Routable Order that is to be routed to satisfy Protected Quotations of 
external markets at a single price point. Thus, by replacing the term 
``routed order'' with the more descriptive phrase ``the portion of a 
Routable Order that is to be routed'' and adding references to ``a 
single price point,'' the meaning of footnote 50 becomes clearer. The 
revised footnote 50 would read as follows:
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    \10\ Footnote 50 of the initial rule filing provides:
    Where the routed order is smaller than the aggregate size of two 
or more contra-side Protected Quotations that could be satisfied, 
the Exchange will rely on the third-party routing broker to utilize 
its smart-routing technology to route the order pursuant to a 
routing table provided by the Exchange. Thus, the relevant snapshot 
of the NBBO for Regulation NMS purposes will be taken by the third-
party routing broker and the third-party routing broker would route 
orders IOC and ISO. However, where the routed order is smaller than 
the size of one Protected Quotation that could be satisfied or is 
the same size as the aggregate size of one or more contra-side 
Protected Quotations that could be satisfied, the Exchange will 
direct the third-party routing broker to route orders to specific 
routing destinations. Thus, the relevant snapshot of the NBBO will 
be taken by the Exchange and the Exchange would mark the directed 
orders IOC and ISO. See supra note 4.

    Where the portion of a Routable Order that is to be routed at a 
certain price point is smaller than the aggregate size of two or more 
contra-side Protected Quotations that could be satisfied at a single 
price point, the Exchange will rely on the third-party routing broker 
to utilize its smart-routing technology to route the order pursuant to 
a routing table provided by the Exchange. Thus, the relevant snapshot 
of the NBBO for Regulation NMS purposes will be taken by the third-
party routing broker and the third-party routing broker would route 
orders IOC and ISO. However, where the portion of a Routable Order that 
is to be routed is smaller than the size of one Protected Quotation 
that could be satisfied or is the same size as the aggregate size of 
one or more contra-side Protected Quotations that could be satisfied at 
a single price point, the Exchange will direct the third-party routing 
broker to route orders to specific routing destinations. Thus, the 
relevant snapshot of the NBBO will be taken by the Exchange and the 
Exchange would mark the directed orders IOC and ISO.
    The Exchange also proposes to adopt special routing handling for 
Protected Quotations displayed on the ADF, as an exception to the 
aforementioned price point by price point determination to either smart 
or direct route an order. Specifically, upon the triggering of any 
Routing Event based on a Protected Quotation displayed on the ADF, the 
Exchange will route away the entire remaining balance of the Routable 
Order for smart routing by a third-party routing broker. The Exchange 
submits that this special handling is the most efficient way for the 
Exchange to meet its Regulation NMS obligations regarding Protected 
Quotation(s) displayed on the ADF and is consistent with the routing-
related rules adopted pursuant to the initial rule filing.\11\ 
Unexecuted remainders of smart routed orders returned to the Matching 
System from the third-party routing broker will be handled pursuant to 
Article 20, Rule 8(b)(7), as described under the initial rule 
filing.\12\
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    \11\ In the event the Exchange decides to modify its smart 
versus direct routing protocol, the Exchange will submit a proposed 
rule filing to that effect, pursuant to Rule 19b-4 under the Act.
    \12\ See CHX Article 20, Rule 8(b)(7), which is not yet 
operative.

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[[Page 14195]]

2. Statutory Basis
    The Exchange believes that the proposed clarification of the smart 
versus direct routing protocol described in the initial rule filing and 
special handling of the Protected Quotations displayed on the ADF is 
consistent with Section 6(b) of the Act in general \13\ and furthers 
the objectives of Sections 6(b)(1) \14\ and 6(b)(5) in particular.\15\ 
Specifically, the Exchange believes that the proposed filing would 
further enable 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, by clarifying the smart 
versus direct routing protocol for the benefit of Participants and non-
Participants, in furtherance of the objectives of Section 6(b)(1). For 
similar reasons, the Exchange believes that the proposal is also 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transaction in 
securities, to remove impediments to, and perfect the mechanisms of, a 
free and open market and, in general, by protecting investors and the 
public interest, in furtherance of the objectives of Section 6(b)(5).
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(1).
    \15\ 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. Given that the proposed 
changes promote clarity as to existing rules and does not amend any 
rules, the Exchange believes that any burden on competition is 
necessary and appropriate as clarity of the Exchange's rules further 
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 either solicited or received.

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

    The foregoing rule change has been filed by the Exchange as a 
``non-controversial'' rule change pursuant to Section 19(b)(3)(A)(i) of 
the Act \16\ and Rule 19b-4(f)(6).\17\ 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 pursuant to Section 19(b)(3)(A) of 
the Act \18\ and Rule 19b-4(f)(6).\19\
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    \16\ 15 U.S.C. 78s(b)(3)(A)(i).
    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \19\ 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) 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 asserts 
that waiver of this requirement would allow the Exchange to clarify its 
initial rule filing prior to the CHX Routing Services becoming 
operational, and notes that the Exchange provides these services in a 
highly competitive market in which market participants may avail 
themselves of a wide variety of options offered by self-regulatory 
organizations, alternative trading systems and other broker-dealers. 
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 clarify its rules in a timely 
manner and thereby avoid potential confusion. Therefore, the Commission 
hereby waives the 30-day operative delay and designates the proposed 
rule change to be operative upon filing with the Commission.\20\
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    \20\ For purposes only of waiving the 30-day operative delay, 
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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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-2015-02 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-2015-02. 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-2015-02 and should be 
submitted on or before April 8, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Brent J. Fields,
Secretary.
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    \21\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2015-06091 Filed 3-17-15; 8:45 am]
BILLING CODE 8011-01-P