Document ID: SEC-2016-0829-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2016-05-13T04:00Z

[Federal Register Volume 81, Number 93 (Friday, May 13, 2016)]
[Notices]
[Pages 29936-29939]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11294]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77785; File No. SR-CHX-2016-06]

Self Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Its Schedule of Fees and Assessments To Modify and Clarify 
Certain Fees Applicable to CHX Institutional Brokers

May 9, 2016.
    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 May 3, 2016, 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, II 
and III below, which Items have been prepared by the Exchange. 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 its Schedule of Fees and Assessments (the 
``Fee Schedule'') to modify and clarify certain fees applicable to CHX 
Institutional Brokers. 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 Changes

1. Purpose
    The Exchange proposes to amend the Fee Schedule to modify and 
clarify certain fees applicable to CHX Institutional Brokers 
(``Institutional Brokers'').\3\ Specifically, the Exchange proposes to 
amend Sections E.3(a) and E.7 of the Fee Schedule to modify and clarify 
the application of the respective fee caps.\4\ The Exchange also 
proposes to amend Section E.4 of the Fee Schedule to correct a 
misstatement regarding its applicability.
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    \3\ See CHX Article 1, Rule 1(n) defining ``Institutional 
Broker''; see also generally CHX Article 17.
    \4\ Section E.3(a) and E.7 fees are virtually identical as both 
apply to executions effected through Institutional Brokers that are 
cleared through the Exchange's clearing systems, except that Section 
E.3(a) applies to executions within the Matching System, whereas 
Section E.7 applies to qualified away executions pursuant to CHX 
Article 21, Rule 6(a).
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Section E.3(a)
    Currently, pursuant to Section E.3(a), the Exchange assesses a fee 
of $0.0030/share capped at $100 per side \5\ for executions within the 
Matching System resulting from single-sided \6\ or cross orders \7\ for 
at least a Round Lot \8\ submitted by Institutional Brokers as agent 
only (``Section E.3(a) executions''); except that a side that is 
represented by two or more Institutional Broker Representatives \9\ 
(``IBR'') is subject to separate fee caps per IBR.\10\ Section E.3(a) 
fees are assessed to the Participant in whose name the execution is 
submitted for clearance and settlement. Section E.3(a) fees do not 
apply to executions resulting from orders submitted as Odd Lots, which 
are assessed fees pursuant to Section E.4.\11\
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    \5\ While the Fee Schedule does not provide an explicit 
definition for ``side,'' the Exchange currently defines ``side'' as 
each Trading Account that is allocated a position per buy side and/
or sell side of a Section E.3(a) execution. See CHX Article 1, Rule 
1(ll) defining ``Trading Account.'' A Participant may hold only one 
Trading Permit, but may create more than one Trading Account under a 
Trading Permit. See CHX Article 1, Rule 1(aa) defining ``Trading 
Permit;'' see also CHX Article 3, Rule 2(e).
    \6\ Single-sided orders include limit and market orders. See CHX 
Article 1, Rule 2(a)(1) defining ``limit order''; see also CHX 
Article 1, Rule 2(a)(3) defining ``market order.''
    \7\ See CHX Article 1, Rule 2(a)(2) defining ``cross order.''
    \8\ See CHX Article 1, Rule 2(f)(3) defining ``Round Lot.''
    \9\ See CHX Article 1, Rule 1(gg) defining ``Institutional 
Broker Representative.''
    \10\ For example, a side may be represented by two or more 
Institutional Broker Representatives where a Clearing Participant 
represents two or more correspondent firms that are allocated 
positions to a single Section E.3(a) execution resulting from a 
cross order. In such case, two or more Institutional Broker 
Representatives will never represent a single correspondent firm.
    \11\ See infra note 16.
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    Identifying the side to a Section E.3(a) execution resulting from a 
single-sided order is simple because there will always be only one 
Trading Account associated with the single-sided order.\12\ However, 
identifying the sides to a Section E.3(a) execution resulting from a 
cross order is usually more complex because such an execution is 
frequently allocated to three or more Trading Accounts, which may 
result in two or more clearing submissions. The following Example 1 
illustrates how sides are currently allocated:
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    \12\ All single-sided orders submitted to the Matching System 
originate from a single Trading Account and, upon execution, are 
locked-in and immediately reported to the relevant securities 
information processor and Qualified Clearing Agency. See CHX Article 
1, Rule 1(ff) defining ``Qualified Clearing Agency;'' see also supra 
note 5.
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    Example 1. Assume that a Section E.3(a) execution results from a 
cross order for 100,000 shares of XYZ priced at $10.00/share. Assume 
that the following Participants have been allocated the following 
positions:
     Trading Account A is allocated 40,000 shares on the buy 
side and 20,000 shares on the sell side.\13\
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    \13\ A Trading Account may be allocated positions on both sides 
of a Section E.3(a) execution where, for example, the Participant 
associated with the Trading Account is a Clearing Participant that 
represents two or more correspondent firms on both sides of the 
execution. See CHX Article 1, Rule 1(ee) defining ``Clearing 
Participant.''
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     Trading Account B is allocated 40,000 shares on the buy 
side.
     Trading Account C is allocated 20,000 shares on the buy 
side.
     Trading Accounts D and E are each allocated 20,000 shares 
on the sell side.
     Trading Account F is allocated 40,000 shares on the sell 
side.
    Assume also that the execution results in the following five 
clearing submissions:

[[Page 29937]]

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Buyers                                                            Sellers
         Clearing submission         --------------------------------------------------     Quantity    ------------------------------------------------
                                          Trading account          Subaccount \14\                           Trading account            Subaccount
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1...................................  A......................  a......................          20,000   A......................  c
2...................................  A......................  b......................          20,000   D......................  f
3...................................  B......................  d......................          20,000   E......................  g
4...................................  B......................  d......................          20,000   F......................  none
5...................................  C......................  e......................          20,000   F......................  none
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\14\ Clearing Participants usually identify its correspondent firms via subaccounts, but do not always do so. As discussed below, the Exchange proposes
  to modify the Section E.3(a) fee allocation to consider subaccounts, so as to encourage the use of subaccount designations by Participants.
  Participants may create subaccounts under a Trading Account for no additional fee.

    Pursuant to current Section E.3(a), Participants would be allocated 
fees as follows:
     Trading Account A would be attributed two sides, one on 
each side of the execution. Thus, the Participant associated with 
Trading Account A would be assessed a $100 fee on the buy side (i.e., 
40,000 shares x $0.0030/share = $120, capped at the $100 maximum fee) 
and a $60 fee on the sell side (i.e., 20,000 shares x $0.0030/share = 
$60) for a total of $160.
     Trading Account B would be attributed one side. Thus, the 
Participant associated with Trading Account B would be assessed a $100 
fee (i.e., 40,000 shares x $0.0030/share = $120, capped at the $100 
maximum fee).
     Trading Accounts C, D and E would be attributed one side 
each. Thus, each Participant associated with each Trading Account would 
be assessed a $60 fee (i.e., 20,000 shares x $0.0030/share = $60).
     Trading Account F would be attributed one side. Thus, the 
Participant associated with Trading Account F would be assessed a $100 
fee (i.e., 40,000 shares x $0.0030/share = $120, capped at the $100 
maximum fee).
    As shown under Example 1, a single Trading Account would be 
assessed a single capped fee for each side of the Section E.3(a) 
execution, regardless of the number of subaccounts under the Trading 
Account allocated positions to the Section E.3(a) execution. The 
Exchange believes that the Section E.3(a) fee can be more equitably 
applied by applying the fee cap per subaccount, which would better 
ensure that, for example, Participants representing different 
correspondent firms \15\ on the same side of a single Section E.3(a) 
execution would be assessed separate capped fees per correspondent 
firm, whereas Participants that do not represent different 
correspondent firms on the same side of a Section E.3(a) execution 
would continue to be assessed a single capped fee. Thus, the Exchange 
proposes to amend Section E.3 to effect this change.
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    \15\ The term ``correspondent firm'' refers to the customer of a 
Clearing Participant utilizing the clearing services of the Clearing 
Participant.
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    Initially, the Exchange proposes to capitalize the term 
``executions'' in the title of current Section E.3(a) to be consistent 
with the capitalized ``Executions'' in the title of current Section 
E.3(b).
    Also, the Exchange proposes to replace the first full paragraph of 
current Section E.3 with proposed paragraphs (a)(1) and (a)(2), which 
largely restate and clarify the current provisions, while omitting 
certain outdated or inaccurate language, as described below. 
Specifically, proposed paragraph (a)(1) provides that amended Section 
E.3(a) shall apply to all executions within the Matching System 
resulting from single-sided or cross orders submitted as at least a 
Round Lot \16\ by Institutional Brokers as agent only. Proposed 
paragraph (a)(2) provides that Section E.3(a) fees shall be charged to 
each Clearing Participant allocated position(s) to a Section E.3(a) 
execution; provided if a Section E.3(a) execution results from a 
single-sided order, the Institutional Broker will be charged the 
Section E.3(a) fee and attributed credits pursuant to Section E.1(b) 
and (c).\17\
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    \16\ The first full paragraph under current Section E.3 
provides, in pertinent part, that single-sided and cross orders 
submitted as Odd Lots that otherwise would be assessed fees pursuant 
to current Section E.3(a) are assessed fees pursuant to current 
Section E.4 (``Odd Lot fee''). However, current Section E.4 provides 
that the Odd Lot fee applies to single-sided orders only. Thus, the 
Exchange proposes to amend current Section E.4 to eliminate the word 
``single-sided'' from the title and amend the first sentence of 
Section E.4 to provide that subject to Section E.9, these fees are 
charged to the Participant that submits an Odd Lot order to the 
Matching System, whether electronically by the Participant or 
through an Institutional Broker; provided that these fees shall not 
apply to executions resulting from cross orders subject to fees set 
forth under Sections E.2 (cross orders submitted by non-
Institutional Brokers) and E.3(b) (cross orders submitted by 
Institutional Brokers where the Institutional Broker is acting as 
principal on one side and agent on the other). Section E.3(b) 
executions are not subject to the Odd Lot fee because Section E.3(b) 
explicitly provides that the Section E.3(b) fee applies to 
executions resulting from Odd Lots as well.
    Thus, the Odd Lot fee only applies to executions resulting from 
-1- Odd Lot single-sided orders submitted by any Participant and -2- 
Odd Lot agency cross orders submitted by Institutional Brokers.
    \17\ The first full paragraph under current Section E.3 
provides, in pertinent part, that if the Institutional Broker 
executes the Section E.3(a) order in the Matching System, the 
Institutional Broker (not its customer) will be assessed applicable 
Matching System fees pursuant to Sections E.1 and E.2. While the 
current language is generally correct, the second clause of proposed 
paragraph (a)(2) updates and clarifies its meaning. Specifically, 
the current language contemplates an outdated distinction between 
orders ``executed within the Matching System'' and orders executed 
by Institutional Brokers. Since all orders executed on the Exchange 
are always executed within the Matching System, the Exchange 
proposes to eliminate that distinction. See CHX Article 9, Rule 
13(a). Also, while Section E.1(a) provides that Section E.3(a) 
orders are not subject to the Section E.1 liquidity removing fee, 
the Exchange believes that it is clearer to state that Section 
E.3(a) orders are subject to the Section E.3(a) fee and attributed 
credits pursuant to Section E.1(b) and (c), as opposed to stating 
that Section E.3(a) orders are subject to Section E.1 fees. 
Moreover, since Section E.2 fees only apply to cross orders 
submitted by non-Institutional Broker Participants, the Exchange 
proposes to eliminate the reference to Section E.2.
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    Moreover, so as to implement a more intuitive and equitable 
application of the Section E.3(a) fee cap, the Exchange propose to 
adopt proposed paragraph (a)(3), which adopts the term ``Clearing 
Side,'' which means the buy or sell side of an individual clearing 
submission that is related to a Section E.3(a) or Section E.7 
execution; \18\ provided all Clearing Sides of a given execution 
attributed to a single subaccount shall be aggregated per buy and sell 
sides separately and each aggregation subject to separate capped 
fee.\19\
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    \18\ See supra note 4; see also infra description of proposed 
amendments to Section E.7.
    \19\ Correspondingly, the Exchange proposes to replace 
references to ``side'' under the first sentence of the second 
columns of Sections E.3(a) and E.7 with ``Clearing Side.''
    In light of the proposed definition of ``Clearing Side,'' the 
Exchange also proposes to delete the last paragraph of current 
Section E.3 as obviated and redundant of amended Section E.3(a).
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    Currently, a Trading Account may be represented on two or more 
clearing submissions on the same side of the Section E.3(a) execution 
if the portion of the execution allocated to that Trading Account is 
larger than allocations to two or more contra-side Trading 
Accounts.\20\

[[Page 29938]]

Utilizing the concept of the Clearing Side, current Section E.3(a) 
would require that all Clearing Sides attributed to a single Trading 
Account be aggregated per buy and sell sides separately, with each 
aggregation subject to a single capped fee, unless two or more IBRs are 
associated with the Trading Account, in which case the Section E.3(a) 
fee cap would be applied per IBR. However, amended Section E.3(a) would 
require that all Clearing Sides attributed to a single subaccount under 
a Trading Account be aggregated per buy and sell sides separately, with 
each aggregation subject to a single capped fee. Since a subaccount 
attributed to a single correspondent firm could never be represented by 
two or more IBRs on the same Section E.3(a) or Section E.7 execution, 
the Exchange proposes to eliminate the current IBR consideration 
described under the last paragraph of current Section E.3, as the 
proposed subaccount aggregation provides sufficient granularity to 
obviate the IBR consideration.\21\
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    \20\ See Trading Account A under Example 1.
    \21\ See supra note 19.
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    The following Example 2 illustrates the application of amended 
Section E.3(a):
    Example 2. Assume the same as Example 1, except that fees are 
allocated pursuant to amended Section E.3(a). Pursuant to amended 
Section E.3(a), Participants would be allocated fees as follows:
     Trading Account A would be attributed three Clearing 
Sides, two on the buy side representing subaccounts a and b, 
respectively, and one on the sell side. Thus, the Participant 
associated with Trading Account A would be assessed a $120 fee on the 
buy side (i.e., 20,000 shares x $0.0030/share = $60 for each 
subaccount) and a $60 fee on the sell side (i.e., 20,000 shares x 
$0.0030/share = $60) for a total of $180.
     Trading Account B would be attributed two Clearing Sides. 
However, pursuant to proposed Section E.3(a)(3), all Clearing Sides 
attributed to a single subaccount would be aggregated for fee cap 
purposes. Thus, the Participant associated with Trading Account B would 
be assessed a $100 fee (i.e., 40,000 shares x $0.0030/share = $120, 
capped at $100).
     Trading Accounts C, D and E would each continue to be 
attributed one Clearing Side. Thus, each Participant associated with 
each Trading Account would be assessed a $60 fee (i.e., 20,000 shares x 
$0.0030/share = $60).
     Trading Account F would be attributed two Clearing Sides. 
However, because the Participant associated with Trading Account F did 
not designate any subaccounts, the Participant would be assessed $120 
fee (i.e., 20,000 x $0.0030 = $60 for each Clearing Side for a total of 
$120).\22\
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    \22\ If the Trading Account F Clearing Sides shared the same 
subaccount, the Participant would have been assessed a single capped 
fee of $100. See supra note 14.
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Section E.7
    Current Section E.7 provides a fee that is virtually identical to 
Section E.3(a), except that it applies to non-CHX executed trades for 
which clearing information is entered by an Institutional Broker into 
the Exchange's systems and submitted to a Qualified Clearing Agency 
pursuant to Article 21, Rule 6(a) (``Section E.7 execution''). Given 
that the application of the Section E.7 fee is virtually identical to 
the application of the Section E.3(a) fee, the Exchange proposes to 
adopt amendments under Section E.7 that are similar to the proposed 
amendments to Section E.3(a).
    Specifically, the Exchange proposes to designate the first sentence 
of the last paragraph under current Section E.7 as proposed paragraph 
(a) and add language referring to the execution subject to the Section 
E.7 fee as ``Section E.7 execution.'' The Exchange further proposes to 
delete the second sentence of the last paragraph under current Section 
E.7, which the Exchange believes is redundant of the Section E.7 fee 
cap, which is already stated previously under Section E.7 and obviated 
by the definition of Clearing Side, under proposed Section E.3(a)(3).
    The Exchange also proposes to adopt proposed paragraph (b), which 
provides that Section E.7 fees shall be charged to each Clearing 
Participant allocated position(s) to a Section E.7 execution. Proposed 
paragraph (b) is virtually identical to proposed Section E.3(a)(2), 
except that proposed paragraph (b) omits reference to the billing of 
executions resulting from single-sided orders, as Section E.7 does not 
apply to single-sided orders submitted to the Matching System.
Operative Date
    The proposed rule change is effective upon filing, but will be 
operative on June 1, 2016.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \23\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act \24\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and other persons using its facilities. 
Specifically, Sections E.3(a) and E.7 fees will continue to be 
equitably allocated among all Clearing Participants and Institutional 
Brokers. Moreover, the Exchange believes that the modified fee cap 
allocation method is reasonable as it attempts to apply the fee cap at 
a more granular level per beneficial party to the Section E.3(a) and 
Section E.7 transactions, which will more equitably allocate fees among 
Participants based on their activity on the Exchange.
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    \23\ 15 U.S.C. 78f.
    \24\ 15 U.S.C. 78f(b)(4).
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    Moreover, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(1) of the Act \25\ in particular in that 
the proposed rule change clarifies the applicability of Section E.3(a) 
and E.4 fees, which 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.
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    \25\ 15 U.S.C. 78f(b)(1).
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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 operates in a 
highly competitive market in which market participants can readily 
direct order flow to competing venues if they deem fee levels set by 
the Exchange to be excessive. The Exchange believes that the proposed 
rule change modifies the application of the fee cap to be more 
equitable and intuitive. Thus, the Exchange believes that the proposed 
rule change will further encourage market participants to submit orders 
to the Exchange through Institutional Brokers, which will enhance 
competition in the national market system.

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

    No written comments were either solicited or received.

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

    The foregoing rule change is effective upon filing pursuant to 
Section

[[Page 29939]]

19(b)(3)(A)(ii) of the Act \26\ and subparagraph(f)(2) of Rule 19b-4 
thereunder \27\ because it establishes or changes a due, fee or other 
charge imposed by the Exchange.
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    \26\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \27\ 17 CFR 240.19b-4(f)(2).
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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 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 purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 rule-comments@sec.gov. Please include 
File Number SR-CHX-2016-06 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-2016-06. 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 
10:00 a.m. and 3:00 p.m. Copies of such filing will also 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-2016-06 and should be 
submitted on or before June 3, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-11294 Filed 5-12-16; 8:45 am]
 BILLING CODE 8011-01-P