Document ID: SEC-2012-0061-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; ProposedRule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2012-01-13T05:00Z

[Federal Register Volume 77, Number 9 (Friday, January 13, 2012)]
[Notices]
[Pages 2103-2106]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-533]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66118; File No. SR-CHX-2011-33]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Add a Rule Regarding the Brokerplex Order Entry, Recordation, and 
Management System

January 9, 2012.
    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 December 28, 2011, the Chicago Stock Exchange, Inc. (``CHX'' 
or ``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. CHX has filed 
the proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 
19b-4(f)(6) thereunder,\4\ which renders the proposal effective upon 
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CHX proposes to add Article 17, Rule 5 (Brokerplex) to include an 
explicit description of the Exchange's Brokerplex order entry, 
recordation, and management system. 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 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 is proposing to add new Rule 5 to Article 17 
(Institutional Brokers) to set forth the terms governing the operation 
of the Brokerplex[reg] system. Brokerplex is an Exchange-owned order 
and trade entry, recordation and management system developed and 
operated by the CHX for use by Participant Firms registered with the 
Exchange as Institutional Brokers under Article 17 (``Institutional 
Brokers''). The Exchange provides the Brokerplex trading system for use 
by Institutional Broker Representatives (``IBRs''), as defined in Rule 
1 of this Article and the Interpretations and Policies thereto, who are 
affiliated with Institutional Brokers. Brokerplex can be used by IBRs 
to receive, transmit and hold orders from their clients while seeking 
execution within the CHX

[[Page 2104]]

Matching System or elsewhere in the National Market System.\5\ 
Brokerplex can be used to record trade executions and send transaction 
reports to a Trade Reporting Facility (``TRF''), as defined in FINRA 
Rules 6300 et seq., as amended from time-to-time. Brokerplex can also 
be used by IBRs to initiate clearing submissions to a Qualified 
Clearing Agency via the Exchange's reporting systems. Reports of 
orders, executions and clearing submissions received, handled or 
submitted via Brokerplex are kept by the system. The Brokerplex system 
has been generally described in rule filings made by the CHX with the 
Commission, but the Exchange's rules do not contain a comprehensive 
description of the system.\6\ In order to remove any potential 
ambiguity about the nature of the Exchange's technology offerings, we 
are now proposing to add language to our rules which fully describes 
the basic functionality of the Brokerplex system.
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    \5\ The Exchange is amending Article 17, Rule 3(b) to make 
explicit that use of Brokerplex satisfies the requirement that each 
Institutional Broker handle orders within an integrated system 
acceptable to the Exchange.
    \6\ See infra note 12.
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    Proposed new Rule 5 provides that IBR users of the Brokerplex 
system are responsible for entering all transactional, order and other 
information into the system as required by CHX rules and in an 
accurate, timely and complete manner. As the operator of the Brokerplex 
system, the CHX retains such information on behalf of the Institutional 
Broker users in conformity with applicable rules and regulations. The 
Exchange provides such information to Institutional Brokers in a format 
designated by the Exchange to assist Institutional Brokers in 
processing orders and transactions, responding to requests for 
information from customers and regulatory bodies and for other 
legitimate business purposes. The Exchange charges the Institutional 
Brokers the fees specified in its published Schedule of Fees and 
Assessments for the retrieval of information.\7\
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    \7\ Pursuant to Section L.2. of the Exchange's Schedule of Fees 
and Assessments, trade and order data is rebilled to the Participant 
at cost.
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    Brokerplex accepts and handles all of the order types, conditions 
and instructions accepted by the Matching System as specified in 
Article 20, Rule 4.\8\ Orders may be entered into Brokerplex manually 
by an IBR or submitted by an Exchange-approved electronic connection. 
In addition to the order types accepted by the Matching System, 
Brokerplex permits the entry and processing of certain additional order 
types, conditions and instructions accepted by other market centers. 
Finally, Brokerplex accepts and processes certain specified orders 
types, conditions and instructions, specifically--Quote@CHX and 
Reprice@CHX.\9\
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    \8\ Additionally, Institutional Brokers may use the services of 
a layoff vendor, i.e., a broker-dealer or routing services provider 
to transmit orders to other trading centers. Those layoff vendors 
may offer additional orders types beyond those in Brokerplex and 
which are not part of this rule filing. Brokerplex can be used by 
the Institutional Broker to record the terms of those orders and any 
resulting executions.
    \9\ The existing provisions in our rules regarding the Quote@CHX 
and Reprice@CHX order types are being moved from Interpretation and 
Policy .03 of Rule 3 of Article 17 to new Rule 5. Current 
Interpretation and Policy .04 is being renumbered as Interpretation 
and Policy .03, and certain minor clarifying changes within are 
being proposed as well.

    Quote@CHX. The Quote@CHX order type allows 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 NBBO. For 
buy orders, the relevant side of the NBBO is the offer; for sell 
orders it is the bid. An IBR handling a customer limit order must 
enter the limit price into Brokerplex as part of submitting a 
Quote@CHX order. In pricing the Quote@CHX, Brokerplex will reject 
any entries if the systematically-generated price would be outside 
the customer's specified limit price. The Quote@CHX order may not be 
transmitted to destinations other than the CHX Matching System. The 
Matching System itself will not be eligible to receive this order 
type; rather, it will receive a standard limit order at a price 
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generated by Brokerplex.

    Reprice@CHX. The Reprice@CHX order type allows a Brokerplex user 
to cancel 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. An IBR handling a customer limit order must 
enter the limit price into Brokerplex as part of submitting a 
Reprice@CHX order. In pricing the Reprice@CHX orders, Brokerplex 
will reject any entries if the systematically-generated price would 
be outside the customer's specified limit price. The Reprice@CHX 
order type may not be transmitted to destinations other than the CHX 
Matching System. The Matching System itself will not be eligible to 
receive this order type; rather, it will receive a standard limit 
order at a price generated by Brokerplex.

    As permitted by CHX rules, an IBR may make post-trade entries in 
Brokerplex to transfer positions from one Clearing Participant to one 
or more other Clearing Participants or from its own account to the 
account of a Clearing Participant.\10\
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    \10\ See Article 21, Rule 6 (Submission of Clearing Information 
for Transactions Executed Off-Exchange).
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    Brokerplex also provides for the transmission of orders to the 
Exchange's Matching System, another trading center which is connected 
to Brokerplex, or a systems provider which can perform routing 
services. As directed by the user, Brokerplex will either send orders 
that are eligible for submission to the Matching System under Article 
20, Rule 4 first to the Matching System to execute or display and then, 
if they cannot be executed or displayed in the Matching System, to 
another destination according to the Institutional Broker's 
instructions, or to another trading center designated by the user. 
Orders which are not eligible for submission to the Matching System 
will be directly sent to another destination in accordance with the 
IBR's instructions.
    Any order entered into Brokerplex and sent through Brokerplex to 
another exchange or trading center via the provisions of this rule and 
which results in an execution shall be binding on the Participant on 
whose behalf such order was entered, including any access, transaction 
or other fee imposed by that trading center. The Institutional Broker 
will be responsible for ensuring that it has a relationship with its 
chosen destinations to permit the requested access. The Exchange shall 
not have responsibility for the handling of the order by the other 
destination, but will report any execution or cancellation of the order 
reported by the other destination to Brokerplex, and will notify the 
other venue of any cancellations or changes to the order submitted by 
the IBR into Brokerplex.
    An IBR may use Brokerplex to record the execution of a trade in the 
Over-the-Counter (``OTC'') marketplace using Brokerplex.\11\ As 
directed by the IBR, Brokerplex will transmit an execution report to a 
Trade Reporting Facility designated by the Institutional Broker, either 
directly or through a service provider designated by the Institutional 
Broker.
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    \11\ The Institutional Broker would retain the responsibility 
for compliance with all applicable rules of FINRA or other self-
regulatory organization with jurisdiction over that activity.
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    The Exchange makes clearing submissions for trades entered and/or 
recorded in Brokerplex as directed by an IBR to a Qualified Clearing 
Agency pursuant to the provisions of Article 21, Rules 1 (Trade 
Recording with a Qualified Clearing Agency) and 6 (Submission of 
Clearing Information for Transactions Executed Off-Exchange), for CHX 
and non-CHX trade executions, respectively. These submissions can be 
made for trades executed by either an Institutional Broker or a third-
party

[[Page 2105]]

broker dealer which in turn instructs an Institutional Broker to make 
the submission to clearing, including any substitution of Clearing 
Participants and allocation of the trade.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act in general, and furthers the objectives of 
Section 6(b)(1) of the Act in particular, in that it allows the 
Exchange to be organized and have the capacity to be able to carry out 
the purposes of the Act and to comply, and (subject to any rule or 
order of the Commission pursuant to section 17(d) or 19(g)(2) of the 
Act) to enforce compliance by its members and persons associated with 
such members, with the provisions of the Act, the rules and regulations 
thereunder, and the rules of the exchange. The Brokerplex system has 
been generally described in rule filings made by the CHX with the 
Commission, but the Exchange's rules do not contain a comprehensive 
description of the system.\12\ In order to remove any potential 
ambiguity about the nature of the Exchange's technology offerings, we 
are now proposing to add language to our rules which fully describes 
the basic functionality of the Brokerplex system.
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    \12\ See Exchange Act Release No. 53772 (May 8, 2006), 71 FR 
27758 (May 12, 2006) (SR-CHX-2004-38). This proposal amended the 
Exchanges rules regarding the required reporting of orders and 
executions by CHX Participants. Footnote 6 contains a basic 
description of the Brokerplex systems used at that time by CHX floor 
brokers to ``manage their orders, route orders to the Exchange's co-
specialists for execution and report executed trades.''; Exchange 
Act Release No. 60620 (Sept. 3, 2009), 74 FR 46814 (Sept. 11, 2009) 
(SR-CHX-2009-10). This proposal added the ``Quote@CHX'' and 
``Reprice@CHX'' order types as orders which could be entered into 
the Brokerplex system by Institutional Brokers in handling and 
seeking execution of their customer's orders.
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    In addition, the Exchange believes that the proposed rule change is 
consistent with Section 6(b) of the Act in general,\13\ and furthers 
the objectives of Section 6(b)(5) in particular,\14\ 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 by setting forth the rules and 
principles governing the use of Brokerplex by Institutional Brokers. 
Brokerplex is the principal system used by the Exchange's Institutional 
Brokers to handle orders placed by their customers. Brokerplex has been 
designed specifically for use by IBRs and it represents a customized 
solution for those firms. The adoption of rules governing the use of 
Brokerplex will help facilitate the ability of Institutional Brokers 
and their IBRs to meet their customers' needs. The proposed changes to 
Article 17, Rule 3 conform those rules to the proposed new Rule 5 of 
Article 17 by transferring certain order types currently described in 
Rule 3 and consolidating them with others more fully set out in new 
Rule 5. The additional language in Rule 3(b) clarifies that use of the 
Brokerplex system satisfies the requirement that Institutional Brokers 
utilize an acceptable, integrated order management system. Proposed 
Rule 5(a) provides a basic description of the Brokerplex system and the 
uses of that system. Proposed Rule 5(b) specifies the record retention 
requirements regarding the use of Brokerplex, which provides certainty 
to Participants on that issue. Proposed Rule 5(c) sets forth the order 
types accepted and processed by Brokerplex, including those order types 
accepted by the Exchange's Matching System pursuant to Article 20, Rule 
4, as well as additional order types which can be sent to other trading 
centers for execution. The specification of these order types helps 
Institutional Brokers and Participants who may wish to have their 
orders handled by Institutional Brokers understand the conditions and 
obligations associated with each particular order type which can by 
employed by Institutional Brokers and IBRs using Brokerplex. Proposed 
Rule 5(d) describes the trade allocation process within Brokerplex 
which allows IBRs to make post-trade substitution of Clearing 
Participants pursuant to the provisions of CHX rules. The facilitation 
of trade allocation should assist Institutional Brokers in the handling 
of customer orders, in particular the execution and post-trade 
processing of the equities component of complex derivatives 
transactions. Proposed Rule 5(e) permits Institutional Brokers to send 
orders to other trading centers and destinations. By facilitating the 
transmission of such orders when they cannot be executed or displayed 
on the Exchange, the proposed rule assists customers seeking execution 
of their orders in a prompt and fair manner. Proposed Rule 5(f) permits 
Institutional Brokers to use Brokerplex to execute trades in the OTC 
marketplace, provided that all FINRA requirements are satisfied. 
Allowing Institutional Brokers to use Brokerplex to execute trades in 
the OTC marketplace should give them additional flexibility and options 
in handling their customer's orders. Brokerplex can also be used to 
submit trade reports for OTC transactions. Finally, the proposal 
provides that transactions reflected in Brokerplex be submitted to a 
Qualified Clearing Agency pursuant to Exchange rules, which should help 
ensure the reliable and prompt clearance and settlement of such 
transactions.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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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 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
its provision of an order management system for certain of its 
Participants acts as a competitive force, since there are a number of 
other private systems providers for order routing and execution 
systems. Additionally, use of an Exchange-provided system is a benefit 
for smaller firms, since they may lack the resources to develop or 
lease a system specifically tailored for their needs as CHX-registered 
Institutional Brokers.

C. Self-Regulatory Organization's Statement on Comments Regarding 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

    Pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder,\16\ CHX has designated this proposal as one that 
effects a change that (A) Does not significantly affect the protection 
of investors or the public interest; (B) does not impose any 
significant burden on competition; and (C) will not become operative 
for 30 days after the date of the filing, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest. CHX has provided the Commission written notice 
of its 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.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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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

[[Page 2106]]

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 Exchange Act.

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-2011-33 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CHX-2011-33. 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 
a.m. and 3 p.m. Copies of the filing also will 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-2011-33 and should be 
submitted on or before February 3, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-533 Filed 1-12-12; 8:45 am]
BILLING CODE 8011-01-P