Document ID: SEC-2018-2001-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2018-12-27T05:00Z

[Federal Register Volume 83, Number 247 (Thursday, December 27, 2018)]
[Notices]
[Pages 66830-66832]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27987]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84866; File No. SR-CHX-2018-08]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Amend Article 14 of the Rules of the Exchange Related to Arbitration 
Proceedings

December 19, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19bd-4 thereunder,\3\ notice is hereby 
given that, on December 7, 2018, 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, 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\ 15 U.S.C. 78a.
    \3\ 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

    The Exchange proposes to amend Article 14 of the rules of the 
Exchange (``Rules'') to adopt arbitration provisions that are 
substantively similar to Rule 12 of the rules of NYSE National, Inc. 
(``NYSE National''), a national securities

[[Page 66831]]

exchange and affiliate of CHX, and Rule 12.110 of the rules of the 
Investors Exchange LLC (``IEX''). The proposed rule change is available 
on the Exchange's website at www.nyse.com, 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
(1) Background
    The Exchange and its direct parent, CHX Holdings, Inc., were 
recently acquired by NYSE Group, Inc.\4\ As a result of its 
acquisition, the Exchange became part of a corporate family including 
five separate registered national securities exchanges.\5\ Following 
the acquisition, the Exchange has continued to operate as a separate 
self-regulatory organization and continues to have rules, membership 
rosters and listings distinct from the rules, membership rosters and 
listings of the other NYSE Group Exchanges.
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    \4\ See Exchange Act Release No. 83635 (July 13, 2018), 83 FR 
34182 (July 19, 2018) (SR-CHX-2018-004); see also Exchange Act 
Release No. 83303 (May 22, 2018), 83 FR 24517 (May 29, 2018) (SR-
CHX-2018-004).
    \5\ The Exchange has four registered national securities 
exchange affiliates: New York Stock Exchange LLC (``NYSE''), NYSE 
Arca, Inc. (``NYSE Arca''), NYSE National and NYSE America LLC 
(``NYSE American'' and together with the Exchange, NYSE, NYSE Arca, 
and NYSE National, the ``NYSE Group Exchanges'').
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    As part of its ongoing post-acquisition transition, the Exchange 
anticipates shortly entering into a Regulatory Services Agreement 
(``RSA'') with the Financial Industry Regulatory Authority (``FINRA'') 
pursuant to which FINRA will perform certain regulatory functions of 
the Exchange on behalf of the Exchange, such as conducting arbitration 
proceedings.
    To facilitate implementation of the RSA between the Exchange and 
FINRA, the Exchange proposes to amend its current rules related to 
arbitration proceedings under Article 14 to incorporate FINRA 
arbitration rules by reference.\6\ Accordingly, the Exchange proposes 
to amend current Article 14 to be substantively similar to NYSE 
National Rule 12, as described below.
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    \6\ The Exchange proposes to file a request that the Commission 
exercise its authority under Section 36 of the Act and Rule 0-12 
thereunder and grant the Exchange an exemption from the rule filing 
requirements of Section 19(b) of the Act for changes to Exchange 
rules that will be effected solely by virtue of changes to FINRA 
rules--including FINRA rules designated as NASD rules--that are 
cross-referenced in those Exchange rules. This application would 
address all FINRA rules that the Exchange proposes to cross 
reference.
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(2) Proposed Rule Change
    Current Article 14 (Arbitration) provides rules related to the 
Exchange's arbitration program.\7\ Specifically, current Article 14, 
Rule 1 (Arbitration of Participant Controversies) includes general 
provisions on the arbitration program, including the jurisdiction, how 
the arbitration panel is to be selected and the effect of any decision 
of the arbitration panel. Current Article 14, Rule 2 (Arbitration 
Rules) includes arbitration procedure requirements and the schedule of 
arbitration related fees.
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    \7\ As of the time of this filing, there are no ongoing 
arbitration proceedings pursuant to current Article 14 nor has the 
Exchange been notified by any person of an intent to begin 
arbitration proceedings pursuant to current Article 14.
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    Proposed Article 14, Rule 1(a) would be renamed ``Arbitration'' and 
incorporate by reference the Rule 12000 Series and the Rule 13000 
Series of the FINRA Manual (Code of Arbitration Procedure for Customer 
Disputes and Code of Arbitration Procedure for Industry Disputes) (the 
``FINRA Codes of Arbitration''). As proposed, definitions in the FINRA 
Codes of Arbitration would have the same meaning as that prescribed 
therein, and procedures contained in the FINRA Codes of Arbitration 
would have the same application as towards Exchange arbitrations.
    Proposed Rule 1(b) would set forth jurisdiction and would provide 
that any dispute, claim, or controversy arising out of or in connection 
with the business of any Participant, or arising out of the employment 
or termination of employment of associated person(s) with any 
Participant may be arbitrated under this proposed Rule except that: (1) 
A dispute, claim, or controversy alleging employment discrimination 
(including a sexual harassment claim) in violation of a statute may 
only be arbitrated if the parties have agreed to arbitrate it after the 
dispute arose; and (2) any type of dispute, claim, or controversy that 
is not permitted to be arbitrated under the FINRA Codes of Arbitration 
(such as class action claims) shall not be eligible for arbitration 
under this proposed Rule.
    Proposed Rule 1(c) would provide that the requirements of FINRA 
Rule 2268, which would be incorporated by reference, would apply to 
predispute arbitration agreements between Participants and their 
customers.
    Proposed Rule 1(d) would provide that if any matter comes to the 
attention of an arbitrator during and in connection with the 
arbitrator's participation in a proceeding, either from the record of 
the proceeding or from material or communications related to the 
proceeding, that the arbitrator has reason to believe may constitute a 
violation of the Exchange's Rules or the federal securities laws, the 
arbitrator may initiate a referral of the matter to the Exchange for 
disciplinary investigation; provided, however, that any such referral 
should only be initiated by an arbitrator after the matter before him 
has been settled or otherwise disposed of, or after an award finally 
disposing of the matter has been rendered pursuant to Rule 12904 or 
13904 (as applicable) of the FINRA Codes of Arbitration.
    Proposed Rule 1(e) would provide that any Participant, or person 
associated with a Participant, who fails to honor an award of 
arbitrators appointed in accordance with this proposed Rule shall be 
subject to disciplinary proceedings in accordance with Article 12 
(Disciplinary Matters and Trial Proceedings).
    Finally, proposed Rule 1(f) would provide that the submission of 
any matter to arbitration under this proposed Rule shall in no way 
limit or preclude any right, action or determination by the Exchange 
which it would otherwise be authorized to adopt, administer or enforce.
    Proposed Article 14, Rules 1(a)-(c), (e) and (f) are based on NYSE 
National Rules 12(a)-(c), (e) and (f), and proposed Article 14, Rules 
1(a)-(f) are based on IEX Rules 12.110(a)-(f), with non-substantive 
differences to use Exchange terminology.
    Because proposed Article 14, Rule 1 would set forth the Exchange's 
rules relating to arbitration, the Exchange proposes to delete the 
current rules under Article 14 in their entirety.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with

[[Page 66832]]

Section 6(b)(5) of the Exchange Act,\8\ in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \8\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that proposed Article 14, Rule 
1 relating to arbitration would remove impediments to and perfect the 
mechanisms of a free and open market and a national market system 
because it would update the Exchange's rules governing arbitration to 
reflect that any such arbitrations would be processed by FINRA pursuant 
to the FINRA Codes of Arbitration. The proposed rule is not novel as it 
is based on NYSE National Rule 12 and IEX Rule 12.110. The Exchange 
believes the proposed rule change fosters uniformity and consistency in 
arbitration proceedings and, as a result, would enhance the 
administration and operation of the arbitration process, thereby 
protecting investors and the public interest. The proposed rule change 
would therefore promote consistency among the Exchange and other SROs, 
such as NYSE National and IEX, and make its rules easier to navigate 
for the public, the Commission, and members.

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 Exchange Act. The proposed rule 
change is not intended to address competitive issues but rather is 
concerned solely with the Exchange's arbitration program.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such 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 under 
Section 19(b)(2)(B) \11\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \11\ 15 U.S.C. 78s(b)(2)(B).
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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 email to rule-comments@sec.gov. Please include 
File Number SR-CHX-2018-08 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-2018-08. This file 
number should be included in 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 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 will also be available for inspection 
and copying at the Exchange's principal office and on its internet 
website at www.nyse.com. 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-2018-08 and 
should be submitted on or before January 17, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2018-27987 Filed 12-26-18; 8:45 am]
 BILLING CODE 8011-01-P