Document ID: SEC-2018-0468-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2018-03-20T04:00Z

[Federal Register Volume 83, Number 54 (Tuesday, March 20, 2018)]
[Notices]
[Pages 12214-12218]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05560]

[[Page 12214]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82870; File No. SR-CHX-2018-001]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change To Adopt the Route QCT Cross 
Routing Option

March 14, 2018.
    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 March 6, 2018, 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 below, which Items have been prepared by the self-regulatory 
organization. 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'') to 
adopt the Route QCT Cross routing option. The text of this proposed 
rule change is available on the Exchange's website at http://www.chx.com/regulatory-operations/rule-filings/, at the principal 
office of the Exchange, and at 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 self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B and C below, of the most 
significant parts of such statements.

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

1. Purpose
    The Exchange proposes to effect the following amendments to the CHX 
Rules to adopt the Route QCT \3\ Cross routing option:
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    \3\ See Securities Exchange Act Release No. 57620 (April 4, 
2008), 73 FR 19271 (April 4, 2008) (``Modified QCT Exemptive 
Order''); see also CHX Article 1, Rule 2(a)(2) defining ``cross 
order''; see also CHX Article 1, Rule 2(b)(2)(E) defining 
``Qualified Contingent Trade.''
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     Adopt Article 19, Rule 4(a)(1) describing the proposed 
``Route QCT Cross'' routing option.
     Amend the definition of ``Routable Order'' under Article 
1, Rule 1(oo), the definition of ``cross order'' under Article 1, Rule 
2(a)(2) and make various amendments to Article 19 (CHX Routing 
Services) to permit the routing of cross orders marked Route QCT Cross.
     Other non-substantive clarifying amendments.
(1) Background
    Currently, Routable Orders submitted to the CHX matching system 
(``Matching System'') \4\ for execution are routed away from the 
Matching System automatically if a Routing Event \5\ is triggered. All 
Routable Orders \6\ are limit orders only, and thus market \7\ and 
cross orders \8\ are never routable. Moreover, the Exchange does not 
permit orders to be directly routed to an away Trading Center \9\ 
without initially being submitted to the Matching System.
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    \4\ The Matching System is part of the Exchange's ``Trading 
Facilities,'' as defined under CHX Article 1, Rule 1(z).
    \5\ See CHX Article 19, Rule 3(a)(1)-(5).
    \6\ See CHX Article 1, Rule 1(oo) defining ``Routable Order.''
    \7\ See CHX Article 1, Rule 2(a)(3) defining ``market order.''
    \8\ See CHX Article 1, Rule 2(a)(2) defining ``cross order.''
    \9\ See CHX Article 1, Rule 1(nn) defining ``Trading Center.''
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    A large percentage of the Exchange's average daily volume (``ADV'') 
is attributed to cross orders that are component orders to Qualified 
Contingent Trades (``QCT Crosses''). Mechanically, the Matching System 
handles QCT Crosses like simple crosses (i.e., cross orders without any 
modifiers attached), except that the Matching System permits QCT 
Crosses to trade-through protected quotes of away markets as QCT 
Crosses are exempt from the trade-through prohibition of Rule 611 of 
Regulation NMS.\10\ Therefore, like simple crosses, all QCT Crosses are 
handled IOC \11\ and can never rest on the CHX book. Moreover, like 
simple crosses, a QCT Cross submitted to the Matching System will be 
cancelled back to the order sender as ``blocked'' if a precedent limit 
order priced at or better than the QCT Cross is resting on the CHX 
book,\12\ except that a QCT Cross priced at the top of the CHX book 
(i.e., the best-ranked order on the CHX book pursuant to Article 20, 
Rule 8(b)) that qualifies for Cross With Size \13\ handling will be 
permitted to execute. However, unlike simple crosses, which may be 
submitted by any Participant,\14\ QCT Crosses may only be submitted by 
Institutional Brokers (``IBs'').\15\
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    \10\ See supra note 3.
    \11\ See CHX Article 1, Rule 2(a)(2)
    \12\ See CHX Article 1, Rule 2(a)(2); see also CHX Article 20, 
Rule 8(e)(1).
    \13\ See CHX Article 1, Rule 2(g)(1).
    \14\ See CHX Article 1, Rule 1(s) defining ``Participant.''
    \15\ See CHX Article 1, Rule 2(b)(2)(E); see also CHX Article 1, 
Rule 1(n) defining ``Institutional Broker.''
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    In the event a QCT Cross is blocked and cancelled, the IB will 
usually cause the order to be executed over-the-counter (``OTC''). The 
OTC trade would then be reported to a Trade Reporting Facility 
(``TRF'') and cleared either through the Exchange's optional away trade 
clearing service,\16\ which may only be used by IBs, or another 
clearing service. The Exchange assesses a fee for use of the optional 
away trade clearing service,\17\ which is identical to the fee for a 
QCT Cross executed within the Matching System.\18\
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    \16\ See CHX Article 21, Rule 6.
    \17\ See Section E.7 of the CHX Fee Schedule.
    \18\ See Section E.3 of the CHX Fee Schedule.
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    In recent years, the percentage of the Exchange's average daily 
volume (``ADV'') attributed to cross orders has decreased, which has 
been offset by an increase in single-sided matching activity.\19\ This 
has primarily been driven by enhanced resting liquidity on the CHX 
book. Consequently, as the number of orders resting on the CHX book 
have increased, and the price of such orders have become more 
aggressive, blocked crosses have become more frequent.\20\
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    \19\ In 2014, the percentage of total CHX executed volume 
attributed to single-sided orders (``CHX Single-sided Volume'') was 
11.03%. In 2015 and 2016, this percentage increased to 17.39% and 
19.69%, respectively. In 2017, as of December 1, 2017, CHX Single-
sided Volume decreased to 12.05%, due primarily to the withdrawal of 
certain top CHX liquidity providers in late 2016.
    \20\ In 2014, 6.03% of all cross orders submitted to the 
Matching System were cancelled back to the order sender. In 2015, 
2016 and 2017 (as of December 1, 2017), this percentage increased to 
9.72%, 11.47% and 12.81%, respectively.
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    Considering this trend, the Exchange is now proposing to adopt the 
Route QCT Cross routing option, which will permit IBs \21\ to directly 
route a QCT Cross to a non-affiliated third-party

[[Page 12215]]

broker-dealer designated by the IB (``designated executing broker'') 
for execution. The purpose of Route QCT Cross is to provide IBs with a 
routing option that will simplify and streamline the OTC execution 
process for QCTs,\22\ which will enhance the value of IB registration 
with the Exchange. As such, the Exchange believes that the proposal 
will facilitate the ability of IBs to execute QCT Crosses in compliance 
with the requirements of the Modified QCT Exemptive Order \23\ and CHX 
Rules,\24\ which fosters cooperation and coordination with persons 
engaged in facilitating transactions in securities in furtherance of 
Section 6(b)(5) of the Act.\25\
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    \21\ The Exchange is proposing to limit use of Route QCT Cross 
to IBs to be consistent with the fact that only IBs are currently 
permitted to submit QCT Crosses to the Matching System. See CHX 
Article 1, Rule 2(b)(2)(E).
    \22\ CHX Article 19, Rule 1.
    \23\ See supra note 3.
    \24\ Id.
    \25\ 15 U.S.C. 78f(b)(5).
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(2) Operation of Route QCT Cross
    In sum, a Route QCT Cross order submitted by an IB will be handled 
like a current Routable Order,\26\ except that the Route QCT Cross 
order will never be submitted to the Matching System for execution. 
Specifically, upon receipt of a Route QCT Cross order, the Exchange 
will cause the order to be routed IOC from the Exchange, through CHXBD, 
LLC (``CHXBD''), the Exchange's affiliated routing broker, to the 
designated executing broker identified by the IB.\27\ The relationship 
between a designated executing broker and CHXBD will be governed by 
applicable CHX Rules \28\ and customary interbroker agreements, such as 
fully-disclosed clearing and customer agreements. At all times, the use 
of Route QCT Cross will be optional.
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    \26\ See CHX Article 1, Rule 1(oo).
    \27\ In the event the proposed rule change is approved and 
becomes operative, IBs will be permitted to identify only one 
designated executing broker to which all Route QCT Cross orders 
submitted by the IB will be routed, subject to additional 
requirements, as described below.
    \28\ See e.g., CHX Article 19, Rule 2(a).
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    While the Matching System, CHX Routing Services and CHXBD are each 
regulated as a ``facility'' of the Exchange,\29\ as defined under 
Section 3(a)(2) of the Act,\30\ the Exchange submits that a designated 
executing broker would not be facility of the Exchange for the reasons 
described below. Therefore, the execution of Route QCT Cross orders by 
the designated executing broker would not be subject to the Exchange's 
book and execution priority rules.\31\
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    \29\ See CHX Article 1, Rule 1(z); see also CHX Article 19, Rule 
2(a)(1).
    \30\ 15 U.S.C. 78c(a)(2). ``The term ``facility'' when used with 
respect to an exchange includes its premises, tangible or intangible 
property whether on the premises or not, any right to the use of 
such premises or property or any service thereof for the purpose of 
effecting or reporting a transaction on an exchange (including, 
among other things, any system of communication to or from the 
exchange, by ticker or otherwise, maintained by or with the consent 
of the exchange), and any right of the exchange to the use of any 
property or service.'' Id.
    \31\ See CHX Article 20, Rules 8(b) and (d).
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    Specifically, a designated executing broker would not be owned by, 
or affiliated or associated with, the Exchange or CHXBD, and thus a 
designated executing broker would not be a premise or property of the 
Exchange. In addition, while the Exchange would provide the routing 
infrastructure to permit IBs to execute QCTs OTC, the Exchange does not 
have a ``right'' to ``use'' \32\ the property or services of the 
designated executing broker (nor does the designated executing broker 
have a right to use the property or services of the Exchange) for the 
following reasons:
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    \32\ 15 U.S.C. 78c(a)(2).
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     An IB has sole discretion as to the designated executing 
broker to which its Route QCT Cross order will be routed.
     Use of the Route QCT Cross routing option is optional. The 
Exchange will have no discretion on when and if the Route QCT Cross 
will be used.
     Route QCT Cross orders are not eligible for execution 
within the Matching System and could be used without regard to the 
state of the CHX book. Therefore, the designated executing broker 
cannot be considered a mere extension of the Matching System.
    The Exchange notes that Route QCT Cross is similar to the following 
routing options of other national securities exchanges:
     Directed Order. Like Route QCT Cross, the ``Directed 
Order'' routing option offered by the Nasdaq Stock Market (``Nasdaq'') 
permits an order sender to route an order to another market center 
while bypassing the Nasdaq's order book,\33\ which may result in the 
routed order executing at a price through Nasdaq's top of book.
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    \33\ ```Directed Order' is an Order designed to use a routing 
strategy under which the Order is directed to an automated trading 
center (as defined in Regulation NMS) other than Nasdaq, as directed 
by the entering party, without checking the Nasdaq Book.'' See 
Nasdaq Equities Rule 4758(a)(1)(A)(ix).
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     DRT. Like Route QCT Cross, the ``DRT'' routing option 
offered by the Cboe BYX and Cboe BZX exchanges permit an order to be 
routed to one or more away alternative trading systems.\34\
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    \34\ DRT is a ``a routing option in which the entering firm 
instructs the System to route to alternative trading systems 
included in the System routing.'' See Cboe BYX Rule 11.13(b)(3)(D); 
see also Cboe BZX Rule 11.13(b)(3)(D). Both Cboe BYX and BZX have 
``the right to maintain a different System routing table for 
different routing options and to modify the System routing table at 
any time without notice.'' See Cboe BYX Rule 11.13(b)(3); see also 
Cboe BZX Rule 11.13(b).
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(3) Proposed Article 19, Rule 4 (Routing Options) and Related 
Amendments
    Adoption of the Route QCT Cross routing option requires amendments 
to the CHX Rules to describe its functionality and to permit cross 
orders to be routed through the CHX Routing Services. As such, the 
Exchange proposes the following amendments to the CHX Rules.
    The Exchange proposes to adopt Article 19, Rule 4 (Routing 
Options). Proposed paragraph (a) provides that routing options may be 
combined with all available order types, modifiers and related terms, 
except for order types, modifiers, and related terms that are 
inconsistent with the terms of a routing option. Paragraph (a) also 
provides that the Exchange may activate or deactivate any routing 
option at its discretion and, if practicable, after notice to 
Participants.
    Thereunder, proposed paragraph (a)(1) provides that Route QCT Cross 
is a routing option, which may only be utilized by Institutional 
Brokers, that instructs the Exchange to route a cross order marked QCT 
directly to a non-affiliated third-party broker-dealer designated by 
the Institutional Broker without submitting the order into the Matching 
System for execution. Also, each Institutional Broker is permitted to 
identify only one designated executing broker to which all Route QCT 
Cross orders submitted by the Institutional Broker shall be routed. 
Furthermore, prior to the Exchange accepting any Route QCT Cross orders 
directed to a specific designated executing broker, the Exchange shall 
confirm that the designated executing broker has established 
connectivity to the Exchange's routing systems. In addition, the 
Institutional Broker shall be responsible for all away execution fees 
resulting from the execution of Route QCT Cross orders, including any 
guaranteed payments to its designated executing broker.\35\ Moreover, 
Route

[[Page 12216]]

QCT Cross orders shall be routed IOC and that a Route QCT Cross order 
that could not be executed by a designated executing broker, for any 
reason,\36\ shall be cancelled back to the original order sender.
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    \35\ For example, the Exchange anticipates that a typical 
designated executing broker would require a per execution fee and a 
guaranteed monthly minimum that would be offset by any executions 
fees collected during the month. These fees would be assessed to 
CHXBD, which would in turn pass on the fees to the relevant IBs. In 
the event a guaranteed payment is due for a given month (i.e., the 
guaranteed monthly minimum was not met), the Exchange would divide 
the balance equally among the IBs that had identified the broker as 
the designated executing broker at any point during that month. For 
example, if there were two IBs that each designated Broker A as its 
designated executing broker at any point during the month of 
November 2018 and a guaranteed payment of $2,000 became due to 
Broker A for November 2018, each IB would be assessed a fee of 
$1,000 for November 2018.
    \36\ The Exchange notes that a Route QCT Cross order will most 
likely be executed upon receipt by a designated executing broker. In 
the unlikely event a Route QCT Cross order is cancelled by a 
designated executing broker, such an event would most likely be 
related to systems issues at a designated executing broker or a 
regulatory prohibition (e.g., declaration of a market wide trading 
halt in the security during the time the Route QCT Cross order was 
in flight to a designated executing broker). A Route QCT Cross order 
would not be cancelled for reasons related to the state of a 
designated executing broker's order book.
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    As Route QCT Cross orders will be routed away from the Exchange 
without being submitted to the Matching System for execution, the 
Exchange proposes to amend Article 19, Rules 1(a) and (c) to replace 
the term ``Matching System'' with ``Exchange.'' Thus, amended Rule 1(a) 
would provide, in pertinent part, that Routable Orders that have been 
submitted to, and accepted by, the Exchange may be routed from the 
Exchange to other Trading Centers pursuant to this Article 19. Amended 
Rule 1(c) would provide, in pertinent part, that Routable Orders 
submitted to the Exchange are firm orders, pursuant to Article 20, Rule 
3.
    Similarly, the Exchange proposes to amend Article 1, Rule 2(a) to 
replace the term ``Matching System'' with ``Exchange,'' as a Route QCT 
Cross order is a routable cross order marked QCT that is not eligible 
to be submitted to the Matching System for execution. Thus, amended 
Rule 2(a) would provide in pertinent part that the order types 
described under Article 20, Rule 2(a) ``shall be accepted by the 
Exchange, subject to the requirements of Article 20, Rule 4.''
    Moreover, since Route QCT Cross orders are a subset of cross orders 
that will not be handled IOC upon receipt by the Exchange, and all 
cross orders currently received by the Exchange are deemed to have been 
received IOC, the Exchange proposes to amend the definition of ``cross 
orders'' under Article 1, Rule 2(a)(2) to provide that all cross orders 
submitted to the Matching System for execution shall be deemed to have 
been received IOC.
    Since the cross orders are not currently Routable Orders, the 
Exchange proposes to amend Article 1, Rule 1(oo) by adopting paragraph 
(oo)(2), which expands the definition of Routable Orders to include any 
order marked by a routing option listed under proposed Article 19, Rule 
4 (i.e., Route QCT Cross). Also, the Exchange proposes to eliminate the 
word ``incoming'' from proposed Rule 1(oo)(1), as it is redundant in 
light of the proposed clarifying amendments to Article 19, Rule 3 
described below. Thus, amended Article 1, Rule 1(oo) would provide that 
``Routable Order'' means: (1) Any 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; provided, however, that during 
a SNAP Cycle,\37\ participating SNAP Eligible Orders are always 
Routable Orders; or (2) any order marked by a routing option listed 
under proposed Article 19, Rule 4.
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    \37\ See CHX Article 18, Rule 1.
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(4) Amended Article 19, Rule 3 (Mandatory Routing Events)
    Current Article 19, Rule 3 (Routing Events) describes mandatory 
routing for Routable Orders submitted to the Matching System, whereas 
proposed Article 19, Rule 4 would list routing options, such as Route 
QCT Cross, which must be affirmatively selected by the order sender. To 
clarify this distinction, the Exchange proposes to amend the title to 
Article 19, Rule 3 from ``Routing Events'' to ``Mandatory Routing 
Events'' and to amend Article 19, Rule 3(a) to provide that a Routable 
Order that is submitted to the Matching System shall be routed away 
from the Matching System pursuant to the CHX Routing Services if a 
Routing Event is triggered.
    Moreover, the Exchange proposes additional non-substantive 
amendments to Article 19, Rules 3(a)(1)-(5) to clarify the current 
operation of the current Routing Events.\38\ Amended paragraph (a)(1) 
provides that an incoming limit Routable Order shall be routed away to 
permit its display and/or execution on the Exchange in compliance with 
Rules 610(d) and 611 of Regulation NMS and, for the duration of the 
Pilot Period to coincide with the Pilot Period for the Regulation NMS 
Plan to Implement a Tick Size Pilot (``Plan''),\39\ the Trade-at 
Prohibition described under the Plan.
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    \38\ For a comprehensive description of the Routing Events 
described under Article 19, Rules 3(a)(1)-(3), see Exchange Act No. 
73150 (September 19, 2014), 79 FR 57603 (September 25, 2014) (SR-
CHX-2014-15). For a comprehensive description of the Routing Events 
described under Article 19, Rules 3(a)(4) and (5), see Exchange Act 
Release No. 75346 (July 1, 2015), 80 FR 39172 (July 8, 2015) (SR-
CHX-2015-03).
    \39\ See CHX Article 20, Rule 13; see also Securities Exchange 
Act Release No. 72460 (June 24, 2014), 79 FR 36840 (June 30, 2014); 
see also Securities Exchange Act Release No. 74892 (May 6, 2015), 80 
FR 27513 (May 13, 2015).
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    Amended paragraph (a)(2) provides that an incoming limit Routable 
Order for an Odd Lot shall be routed away to prevent its execution 
within the Matching System if it would trade-through a Protected 
Quotation of an external market.
    Amended paragraph (a)(3) provides that (3) an incoming limit 
Routable Order marked Do Not Display or an incoming limit Routable 
Order for an Odd Lot that could not be displayed (``incoming 
undisplayed limit Routable Order'') shall be routed away to execute 
against any Protected Quotation(s) of external market(s) priced at or 
better than the limit price of the incoming undisplayed limit Routable 
Order if there are no contra-side resting orders on the CHX book 
against which the incoming undisplayed limit Routable Order could 
execute.
    Amended paragraph (a)(4) provides that Routable Order(s) shall be 
routed away to permit orders to be executed within the Matching System 
at the SNAP Price, as defined under Article 1, Rule 1(rr), in 
compliance with Regulation NMS. Also, orders routed away pursuant to 
this paragraph (a)(4) shall be priced -1- at the SNAP Price or, -2- if 
the SNAP Price is priced at an increment smaller than the relevant 
minimum price increment, at the minimum price increment less aggressive 
than the SNAP Price.
    Amended paragraph (a)(5) provides that (5) Routable Order(s) that 
could not be matched within the Matching System during a SNAP Cycle, as 
described under Article 18, Rule 1(b), shall be routed away at the SNAP 
Price to execute against Protected Quotations of external markets 
priced at the SNAP Price.
(5) Operative Date
    In the event the proposed rule change is approved, the proposed 
rule change shall become operative pursuant to notice to Participants.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act in general,\40\ and furthers the 
objectives of Section 6(b)(1) \41\ in particular, in that it 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

[[Page 12217]]

and regulations thereunder, and the rules of the Exchange.
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    \40\ 15 U.S.C. 78f(b).
    \41\ 15 U.S.C. 78f(b)(1).
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    Specifically, the Exchange believes that the non-substantive 
amendments to Article 19, Rule 3 will clarify the operation of the 
mandatory Routing Events described thereunder, as distinguished from 
the optional Route QCT Cross routing option described under proposed 
Article 19, Rule 4(a)(1). Similarly, the various amendments to provide 
that the Route QCT Cross routing option will result in Routable Orders 
being routed away from the ``Exchange'' generally and to specifically 
provide when orders would be routed away from the Matching System will 
clarify how the different types of Routable Orders will be routed away. 
In addition, the proposal to permit the Exchange to activate or 
deactivate the routing options under proposed Article 19, Rule 4 at its 
discretion and, if practicable, after notice to Participants, would be 
consistent with the Exchange's current authority to activate and 
deactivate certain order types, modifiers and terms pursuant to Article 
20, Rule 4(b). Since the proposed Route QCT Cross routing option is an 
order type (albeit one that cannot be utilized within the Matching 
System), the Exchange believes that harmonizing these provisions under 
proposed Article 19, Rule 4 and current Article 20, Rule 4(b) would 
clarify the Exchange's discretionary authority with respect to order 
types, modifiers and related terms.
    Accordingly, the Exchange believes that the amendments will better 
enable the Exchange to enforce compliance by Participants and its 
associated persons with CHX Rules in furtherance of the objectives of 
Section 6(b)(1) of the Act.
    The Exchange also believes that the proposed rule change furthers 
the objectives of Section 6(b)(5) of the Act \42\ in that it is 
designed to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in 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; and is not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \42\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that the proposed Route QCT 
Cross routing option will foster cooperation and coordination with 
persons engaged in facilitating transactions in securities by providing 
Participants with an additional execution option for QCT Crosses, which 
will enhance their ability to coordinate the execution of QCT Crosses 
in a timely manner with other market participants that are handling 
related component orders, as required by the Modified QCT Exemptive 
Order and CHX Rules.\43\ Moreover, given that that investors typically 
utilize QCTs to execute exceptionally large trades and to manage the 
substantial risk inherent to large positions, the Exchange submits that 
the proposed Route QCT Cross routing option will also protect investors 
and the public interest by facilitating the execution (and hedging) of 
such important transactions.
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    \43\ See supra note 3.
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    In addition, since current CHX Rules only permit IBs to submit QCT 
Crosses to the Matching System,\44\ restricting use of the Route QCT 
Cross option to IBs only would be consistent with current CHX Rules and 
thus not unfairly discriminatory. Moreover, the proposal is not 
designed to be unfairly discriminatory as each IB will be (1) permitted 
to select the designated executing broker of its choice, subject to 
certain requirements applicable to all prospective designated executing 
brokers (e.g., the designated executing broker is a non-affiliated 
third-party broker-dealer and must establish connectivity to the 
Exchange's routing systems) and (2) responsible for all execution fees 
and guaranteed payments due to its designated executing broker, the 
latter of which may be divided equally among IBs that select the same 
designated executing broker during a relevant fee measurement 
period.\45\
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    \44\ See supra note 21.
    \45\ See supra note 35.
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    Accordingly, the Exchange believes that all proposed amendments to 
implement the Route QCT Cross routing option, including amendments to 
Article 1, Rule 1(oo) and Article 1, Rule 2(a)(2) to permit cross 
orders to become Routable Orders, are consistent with Section 6(b)(5) 
of the Act.

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. To the contrary, the 
Exchange believes that the proposal will enhance competition among the 
exchanges by improving QCT Cross execution options for Institutional 
Brokers. Moreover, the Exchange notes that other national securities 
exchanges offer order routing options that permit an order sender to 
bypass the exchange's own limit order book \46\ or allows the exchange 
to route an order to alternative trading systems designated by the 
exchange.\47\ As such, the proposed rule change is a competitive 
proposal that will enhance competition among the national securities 
exchanges to the benefit of market participants.
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    \46\ See Nasdaq Equities Rule 4758(a)(1)(A)(ix), supra note 33.
    \47\ See e.g., Cboe BYX Rule 11.13(b)(3) and 11.13(b)(3)(D), 
supra note 34.
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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 with respect to the 
proposed rule change.

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

    Within 45 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 or disapprove the 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 email to [email protected]. Please include 
File Number SR-CHX-2018-001 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-2018-001. 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

[[Page 12218]]

post all comments on the Commission's internet website (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 website 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 Exchange. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-CHX-
2018-001 and should be submitted on or before April 10, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\48\
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    \48\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-05560 Filed 3-19-18; 8:45 am]
 BILLING CODE 8011-01-P