Document ID: SEC-2010-0736-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2010-05-19T04:00Z

[Federal Register: May 19, 2010 (Volume 75, Number 96)]
[Notices]               
[Page 28083-28085]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19my10-113]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62085; File No. SR-CHX-2010-08]

 
Self-Regulatory Organizations; The Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Establish a Fixed Provide Credit for CHX-Registered Institutional 
Brokers

May 12, 2010.
    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 April 30, 2010, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II 
and III

[[Page 28084]]

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)(2) 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)(2).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The CHX proposes to amend its Schedule of Participant Fees and 
Assessments (the ``Fee Schedule''), effective May 3, 2010, to establish 
a fixed provide credit for CHX-registered institutional brokers for 
agency trade executions of one-sided orders entered by their customers 
in Tape A, B and C securities which execute within the Exchange's 
Matching System. The proposal also removes certain obsolete references 
to the now-defunct ITS trading system in the Fee Schedule. The text of 
this proposed rule change is available on the Exchange's Web site at 
http://www.chx.com/rules/proposed_rules.htm and in the Commission's 
Public Reference Room, 100 F Street, NE., Washington, DC 20549.

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
    Through this filing, the Exchange would amend its Fee Schedule, 
effective May 3, 2010, to establish a non-variable credit for certain 
liquidity-providing single-sided orders submitted by CHX-registered 
Institutional Brokers on behalf of their customers to the Exchange's 
Matching System and subsequently executed there. The Exchange's Fee 
Schedule provides for a tiered schedule of fees and rebates for 
Participants for trade executions of single-sided orders in securities 
priced over $1 in the event that certain volume thresholds (described 
as the ``Average Daily Volume'' or ``ADV'') are achieved.\5\ For 
transactions subject to the Agency Execution fee of Section E.3., the 
Fee Schedule states that the take fees and provide credits accruing 
pursuant to Section E.1. (Matching System single order executions (one-
sided orders of 100+ shares)) shall be assessed against the 
Institutional Broker handling the transaction, and not the Participant 
which is a party to the transaction.\6\ Currently, the Institutional 
Broker is exempt from payment of the liquidity taking fee normally 
charged to Participants if it is handling an order subject to the 
Agency Execution fees.\7\
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    \5\ Section E.1 of the Fee Schedule defines ADV as follows: `` 
`ADV' means, with respect to a Participant, the number of shares 
such Participant has executed as a liquidity provider in any and all 
trading sessions on average per trading day (excluding partial 
trading days) across all tapes on the trading facilities of the CHX 
(excluding all cross transactions and transactions in issues priced 
less than $1.00/share) for the calendar month in which the 
executions occurred.''
    \6\ See, Section E.3. of the Fee Schedule. (``If the 
institutional broker executes the order in the Matching System or as 
otherwise permitted by CHX rules, the institutional broker (not its 
customer) will be assessed applicable Matching System fees (see (1) 
and (2) above).'')
    \7\ Section E.1. of the Fee Schedule.
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    Pursuant to this filing, the Exchange would modify its Fee Schedule 
to state that Institutional Brokers would be entitled to a fixed 
provide credit irrespective of its ADV for orders subject to the Agency 
Execution fees. A provide credit of $0.0029/share in Tape A and C 
securities and $0.0032/share in Tape B securities priced $1.00/share or 
more would be paid to the Institutional Broker representing the 
Participant which originated the order (regardless of the ADV 
attributable to either firm). The filing also calls for a provide 
credit of 0.20% of the trade value in Tape A, B and C securities priced 
less than $1.00/share to be paid to the Institutional Broker 
representing the Participant which originated the order (regardless of 
the ADV attributable to either firm).
    Institutional Brokers are typically smaller firms that enter orders 
manually and cannot realistically achieve the higher ADV levels needed 
for preferential pricing.\8\ Payment of a fixed provide credit at a 
preferential rate to Institutional Brokers acts as an incentive to post 
liquidity in the CHX Matching System when those firms are considering 
how best to seek execution of their customer's orders. Representation 
of such orders within the CHX Matching System in turn benefits the 
Exchange by potentially increasing transaction revenue (in the form of 
take fees for orders which interact with posted liquidity) and market 
data revenue. Creating a fixed provide rate which does not vary based 
upon the Institutional Broker's ADV allows for a simple and consistent 
formula which these firms can rely upon when deciding to how to handle 
their customer's orders. Furthermore, any market participant may apply 
for registration as a CHX Institutional Broker and, if eligible, avail 
themselves of the fixed provide credit.
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    \8\ Institutional Broker firms (formerly Floor Brokers under the 
Exchange's old floor based trading model) are firms that primarily 
receive orders needing special handling and manual entry into the 
CHX system. These brokers are essentially order-entry firms for 
which the Exchange is the designated examining authority.
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    The Exchange also proposes to remove from Section E.1. and E.3. of 
the Fee Schedule certain obsolete references to the Intermarket Trading 
System (``ITS'') and the payment obligations relating to orders 
transmitted to other ITS participating markets through the ITS system. 
The ITS system was deactivated in 2007 and is no longer is use. The 
removal of these obsolete references will serve to eliminate a 
potential source of confusion for Exchange Participants.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \9\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act \10\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among its members. Among other things, the change to the 
Fee Schedule would provide incentives to Exchange-registered 
Institutional Brokers to increase the amount of liquidity provided on 
our trading facilities, which may contribute to an increase in trading 
volume on the Exchange and in the income derived therefrom. The removal 
of the obsolete references to the Intermarket Trading System in the Fee 
Schedule will serve to eliminate a potential source of confusion for 
Exchange Participants.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4)
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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.

[[Page 28085]]

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

    The foregoing rule change has become effective pursuant to Section 
19(B)(3)(A)(ii) of the Act \11\ and subparagraph (f)(2) of Rule 19b-4 
thereunder \12\ because it establishes or changes a due, fee, or other 
charge applicable only to a member imposed by the self-regulatory 
organization. Accordingly, the proposal is effective upon Commission 
receipt of the filing. At any time within 60 days of the filing of such 
rule change, the Commission may summarily abrogate 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 purpose of the Act.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 17 CFR 240.19b-4(f)(2).
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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 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-2010-08 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-2010-08. 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 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 such 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 publicly available. All 
submissions should refer to File Number SR-CHX-2010-08 and should be 
submitted on or before June 9, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-11938 Filed 5-18-10; 8:45 am]
BILLING CODE 8010-01-P