Document ID: SEC-2012-1871-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2012-11-15T05:00Z

[Federal Register Volume 77, Number 221 (Thursday, November 15, 2012)]
[Notices]
[Pages 68183-68184]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27713]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68180; File No. SR-CHX-2012-18]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Alter Its Fee Schedule To Amend Its Institutional Broker Credits

November 8, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 31, 2012, 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. 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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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 November 1, 2012, to 
alter its schedule of fees for Participants relating to credits to 
Institutional Brokers. 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 proposes to amend its Schedule of 
Participant Fees and Assessments (the ``Fee Schedule''), effective 
November 1, 2012, to amend its existing credits related to 
Institutional Brokers. Currently, Institutional Brokers are charged 
monthly fees for their transactions.\5\ To reduce the burden of such 
fees on certain Institutional Brokers, the Exchange historically 
developed a credit system whereby certain Institutional Brokers receive 
credits on a percentage basis of their transaction and clearing 
submission fees. This credit system applies to only certain 
Institutional Brokers as, for example, the Exchange distributes a 
credit to an Institutional Broker's Clearing Broker to defray the 
Institutional Broker's transaction fee costs. Also, related to clearing 
submissions, only FINRA-registered Institutional Brokers may take 
advantage of the fee credit. This fee change is being proposed to 
remove credits for transactions types that are rarely used, to reduce 
current Institutional Broker Credits, to remove inapplicable 
definitions, and to make the fee credits for transaction fees and 
clearing submission fees consistent.
---------------------------------------------------------------------------

    \5\ Fee Schedule Section A.
---------------------------------------------------------------------------

    The Exchange proposes to amend its current credits to Institutional 
Brokers related to transaction fees. Currently, the Exchange credits 
Institutional Brokers at a rate of 12% of their transaction fees per 
month. Such fees relate to agency trades executed by the Institutional 
Broker. The credit is paid to the Clearing Broker for its handling of 
the transactions. To increase revenue to the Exchange as well as to 
defray the technical and regulatory costs associated with supporting 
the Institutional Broker program, the Exchange proposes to reduce its 
credit for transaction fees to Institutional Brokers to a rate of 10% 
per month. Because the volume of transaction fees is significant, the 
Exchange will gain notable revenue by lowering its transaction fee 
credits. The Exchange is proposing to reduce these credits specifically 
from its Institutional Brokers because of the increased regulatory 
costs related to Institutional Brokers. The Exchange also proposes to 
remove references related to the rarely used transaction fees by 
removing the 4% credit for payment to Originating Brokers. The Exchange 
has found that this type of transaction is rarely utilized and, 
therefore, such credits are not necessary. Therefore, the Exchange 
proposes to use one 10% credit in relation to transaction fees. The 
Exchange further proposes to remove the definition of ``Originating 
Broker'' from the rule. The Exchange believes the removal of the term 
is warranted in that the term Originating Broker is used only once in 
the rule and, through this proposed rule change, the Exchange is 
deleting that one use. Therefore, to avoid retaining inapplicable 
definitions in its rules, the Exchange proposes to delete the 
definition of Originating Broker.
    The Exchange also proposes to amend its current credits related to 
clearing submissions. Currently, Institutional Brokers receive a credit 
on fees for their clearing submissions. That credit is at a rate of 8% 
per side and is paid to the Clearing Broker handling the transactions. 
Further, this credit is only available to those Institutional Brokers 
who are members of the Financial Industry Regulatory Authority 
(``FINRA''). The Exchange proposes to raise the credit related to 
clearing submissions to a rate of 10%. The Exchange believes that this 
amendment will bring result in an equitable allocation of reasonable 
fees to its Institutional Brokers in that both the Transaction Fee 
Credit and the Clearing Submission Fee Credit will be at a 10% rate. 
Notably, due to the volume of transactions on the Exchange, the 
Transaction Fee Credits have a higher impact on the Exchange's revenue 
while its Clearing Submission Fees do not. The Exchange, therefore, 
proposes to lower the percentage credits related to

[[Page 68184]]

Transaction Fees to increase its revenue. Correspondingly, the Exchange 
proposes to raise credits related to clearing submissions as it 
experiences less volume related to clearing submissions. Such change 
will equitably allocate fee credits at a 10% rate while fairly allowing 
Institutional Brokers who send clearing submissions through the 
Exchange a moderate increase in credits.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with Section 6(b) of the Act \6\ in general, and further the objectives 
of Section 6(b)(4) of the Act \7\ in particular. The Exchange believes 
that the proposed amendments to the fee structure are necessary 
responses to the increasing regulatory costs. Section 6(b)(4) states 
that exchange rules must ``provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and issuers 
and other persons using its facilities.'' To increase revenue to the 
Exchange and thereby defray technical and regulatory costs associated 
with supporting its Institutional Broker program, the Exchange proposes 
to amend its fee schedule to allocate additional costs specifically to 
the Institutional Brokers as an equitable solution. The Exchange 
believes that such change will allow for fees and credits that are not 
designed to permit unfair discrimination between customers, issuers, 
brokers or dealers since the rules will apply only to certain groups of 
Institutional Brokers that incur additional costs to the Exchange. In 
reducing the credits related to transaction fees, the Exchange will 
gain revenue due to the significant amount of transactions that are 
charged fees on the Exchange. The Exchange is raising credits related 
to clearing submissions because it does not experience as many clearing 
submissions as it does transactions. To fairly compensate its 
Institutional Brokers for the reduction in transaction fee credits, it 
has proposed to minimally raise its clearing submission fee credits. 
The revenue the Exchange will gain from lowering its transaction fee 
credits will far outweigh the funds it will expend in raising the 
clearing submission fee credits. The Exchange believes that by lowering 
the transaction fee credits and raising the clearing submission fee 
credits is a reasonable solution to gain more revenue while still 
allocating enough credits to its Institutional Brokers. Finally, the 
Exchange believes that eliminating Section F(2) subsection (a), 
outlining credits for rarely used transactions, will benefit the 
Exchange to better reflect the business of its Institutional Brokers 
while bringing clarity to its rules. Because its Institutional Brokers 
only rarely utilize this type of transaction, the Exchange believes 
that it is not necessary to provide related credits.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

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.

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 \8\ and subparagraph (f)(2) of Rule 19b-4 
thereunder \9\ because it establishes or changes a due, fee or other 
charge applicable to the Exchange's members and non-members, which 
renders the proposed rule change effective upon filing.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \9\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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.

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-2012-18 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-2012-18. 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 on 
official business days between the hours of 10:00 a.m. and 3:00 p.m. 
Copies of such filing also will be available for inspection and copying 
at the principal offices of CHX. 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-2012-18, and should be submitted on or before 
December 6, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27713 Filed 11-14-12; 8:45 am]
BILLING CODE 8011-01-P