Document ID: SEC-2014-0184-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2014-01-31T05:00Z

[Federal Register Volume 79, Number 21 (Friday, January 31, 2014)]
[Notices]
[Pages 5476-5479]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-01964]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71404; File No. SR-CHX-2014-01]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Amend the Order Cancellation Fee

January 27, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on January 15, 2014, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.

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

[[Page 5477]]

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

    CHX proposes to amend Section E.8 of its Schedule of Fees and 
Assessments (the ``Fee Schedule'') to amend the Order Cancellation Fee. 
The text of this proposed rule change is available on the Exchange's 
Web site at http://www.chx.com/rules/proposed_rules.htm, 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Section E.8 of the Fee Schedule to 
amend the Order Cancellation Fee. Specifically, the Exchange proposes 
to adopt proposed Section E.8(c) to provide an exemption from Order 
Cancellation Fees for a given month if an Account Symbol \4\ meets an 
Average Daily Volume (``ADV'') requirement for that month. The Exchange 
does not propose to substantively amend the Order Cancellation Fee in 
any other way.
---------------------------------------------------------------------------

    \4\ An ``Account Symbol'' identifies a specific ``Trading 
Account,'' as defined under CHX Article 1, Rule 1(ll). The terms are 
used interchangeably throughout this filing.
---------------------------------------------------------------------------

Current Order Cancellation Fee
    Under SR-CHX-2012-15,\5\ the Exchange adopted the current formula-
based Order Cancellation Fee detailed under Section E.8 of the Fee 
Schedule, amended under SR-CHX-2013-11 \6\ and SR-CHX-2013-12,\7\ which 
assesses a daily cancellation fee per Account Symbol and security, if 
the order cancellation ratio exceeds a designated threshold. In sum, 
the formula subtracts from the total daily number of ``Wide'' or ``W'' 
orders \8\ in a given security the product of ``Near'' or ``N'' orders 
\9\ in the same security submitted by the Participant in the Regular 
Trading Session in a given day and its corresponding ``N'' order 
multiplier or ``Nmult.'' \10\ The difference is then divided by ``E,'' 
which is defined as the greater of the number one (1) or the sum of all 
Wide and Near orders in a given security that are submitted and 
executed (in whole or in part) in the Regular Trading Session 
(excluding cross transactions) on a given day.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 68219 (November 13, 
2012), 77 FR 69673 (November 20, 2012) (SR-CHX-2012-15) (``Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Its Order Cancellation Fee'').
    \6\ See Securities Exchange Act Release No. 69701 (June 5, 
2013), 78 FR 35082 (June 11, 2013) (SR-CHX-2013-11) (``Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
the Order Cancellation Fee'').
    \7\ See Securities Exchange Act Release No. 69903 (July 1, 
2013), 78 FR 40788 (July 8, 2013) (SR-CHX-2013-12) (``Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
the Single-Sided Order Fees and Credits and the Order Cancellation 
Fee'').
    \8\ Section E.8(a) of the Fee Schedule provides that ```W' 
equals the number of Wide orders in a security priced at $1.00/share 
or more, that is submitted during the Regular Trading Session, 
through an Account Symbol, on a given day. An order shall be 
considered Wide if any one of the following conditions are met:
    The order price of the security is inferior to the National Best 
Bid (``NBB'') for a buy order or National Best Offer (``NBO'') for a 
sell order at the time the order is received by the Matching System 
and the difference between the order price and the NBB or NBO is 
equal to or greater than the corresponding Threshold Away Amount of 
the particular security; or
    The order is voluntarily cancelled by the order sender prior to 
the expiration of its corresponding Minimum Duration (expressed in 
milliseconds) after acceptance by the Matching System, without any 
executions; or
    An order marked ``Do Not Display,'' pursuant to Article 1, Rule 
2(c)(2).''
    \9\ Section E.8(a) of the Fee Schedule provides that ```N' 
equals the number of Near orders (which must be display eligible) in 
a security priced at $1.00/share or more submitted in the Regular 
Trading Session, through an Account Symbol, on a given day. A Near 
order is:
    An order where the difference between the order price and the 
NBB or NBO is less than the corresponding Threshold Away Amount of 
the particular security; and
    Where the order is not voluntarily cancelled by the order sender 
prior to either (1) the expiration of the Minimum Duration of the 
particular security or (2) a partial execution of the order, 
whichever is earlier.''
    \10\ Section E.8(a) of the Fee Schedule provides that `` `Nmult' 
is the corresponding multiplier value to be applied against `N'.''
---------------------------------------------------------------------------

    If the resulting value is equal to or greater than the 
corresponding ``Cancellation Ratio'' for that security, found under 
paragraph (b), a corresponding Order Cancellation Fee would apply to 
the Participant for that day's activity in that security. If, however, 
the value is less than the corresponding Cancellation Ratio, the 
Participant would not be assessed a fee. Currently, the Cancellation 
Ratio and other values listed under paragraph (b) are consistent for 
Tape A, B, and C securities. Although the fee is assessed daily, 
Account Symbols are only billed after the end of the month.
    The purpose of the Order Cancellation Fee is to recoup some of the 
costs associated with administering and processing large numbers of 
cancelled orders and to incent Participants to post marketable orders 
and, thereby, promote liquidity and single-sided order executions on 
the Exchange.\11\
---------------------------------------------------------------------------

    \11\ See supra note 5.
---------------------------------------------------------------------------

Proposed ADV Exemption
    Since the Order Cancellation Fee became operative on November 1, 
2012, the Exchange has observed that some Account Symbols have been 
billed Order Cancellation Fees notwithstanding exceptionally high ADV 
in securities subject to the Order Cancellation Fee. That is, despite 
consistent order sending and cancellation activity throughout the 
course of the month, some high ADV Trading Accounts exhibited unusually 
low ADV on one or two trading days and were consequently billed Order 
Cancellation Fees for the month because the Order Cancellation Fee is 
assessed daily. The Exchange submits that the need for an Order 
Cancellation Fee for a Trading Account is obviated if it provides 
valuable single-sided order executions and revenue to the Exchange. 
This is because such exceptionally high ADV Trading Accounts support 
the purpose of the Order Cancellation Fee (e.g., to promote single-
sided order executions), regardless of order cancellation activity.
    The current Order Cancellation Fee does not permit Trading Accounts 
to leverage exceptionally high ADV attained over the course of a month 
to eliminate the Order Cancellation Fee assessed due to unusually weak 
trading days. Thus, in order to more equitably apply the current Order 
Cancellation Fee, the Exchange now proposes to adopt proposed Section 
E.8(c), which provides that all Order Cancellation Fees assessed to an 
Account Symbol in a given month shall be waived if the ADV attributable 
to the Account Symbol for the month is equal to or greater than 100,000 
shares from single-sided orders executed at or greater than $1.00/
share.\12\ Trades resulting from cross orders and single-sided orders 
executed below $1.00/share shall not be included in the ADV calculation 
because such

[[Page 5478]]

orders are not subject to the Order Cancellation Fee.\13\ Moreover, the 
proposed exemption will be applied at the Account Symbol level and not 
at a security-specific level. That is, if a Trading Account meets the 
100,000 shares ADV requirement for a given month, all Order 
Cancellation Fees assessed under the Account Symbol for the month will 
be waived. Correspondingly, the Exchange proposes to amend the first 
paragraph of current Section E.8(a) to provide that the Order 
Cancellation Fee is subject to the proposed exemption as stated under 
proposed paragraph (c). The following example illustrates this 
exemption.
---------------------------------------------------------------------------

    \12\ The 100,000 shares value was determined based on historical 
trading activity on the Exchange and shall only be modified by a 
proposed rule filing pursuant to Rule 19b-4 under the Act.
    \13\ Section E.8(a) provides, in pertinent part, that ``a 
cancellation fee shall apply for all cancellation messages relating 
to orders in each security priced at $1.00/share or more.''

    Example. Assume that a Participant Trading Permit \14\ holder 
has two Trading Accounts with Account Symbols ``A'' and ``B.'' For 
the month of December 2013, the Participant was billed $3,000 in 
Order Cancellation Fees. Specifically, Account Symbol A was assessed 
$1,000 in Order Cancellation Fees for activity in five different 
securities and had an ADV of 90,000 shares from qualified orders, 
whereas Account Symbol B was assessed $2,000 in Order Cancellation 
Fees for activity in three different securities and had an ADV of 
110,000 shares from qualified orders.
---------------------------------------------------------------------------

    \14\ See Article 1, Rule 1(aa).

    Given that Account Symbol B had an ADV of 110,000 shares from 
qualified orders in December 2013, the entire $2,000 in Order 
Cancellation Fees assessed to Account Symbol B would be waived pursuant 
to proposed Section E.8(c). However, given that Account Symbol A had an 
ADV of 90,000 shares from qualified orders, the Trading Account would 
not qualify for the proposed exemption and would be billed $1,000 in 
Order Cancellation Fees. For the purposes of the proposed ADV 
exemption, the Order Cancellation Fee assessed to specific securities 
and ADV in specific securities is irrelevant.
    The Exchange proposes to make these amendments to Section E.8 
operative February 3, 2014. The Order Cancellation Fee shall continue 
to be calculated daily and billed after the end of the month. If an 
Account Symbol meets the requirements of proposed paragraph (c), the 
Account Symbol will not be billed an Order Cancellation Fee for that 
month.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \15\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act \16\ 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. The 
Exchange believes that the proposed ADV exemption from the Order 
Cancellation Fee described herein promotes the equitable allocation of 
the Order Cancellation Fee as it will more fairly allocate costs among 
Participants according to their respective trading activity. A 
Participant with a Trading Account that has exceptionally high ADV 
provides additional revenue to the Exchange (e.g., Liquidity Removing 
Fee under Section E.1 of the Fee Schedule and market data revenue), 
which may be used to recoup some of the costs of administering and 
processing cancelled orders. Thus, Participants with Trading Accounts 
that meet the proposed ADV threshold for a given month should not be 
billed Order Cancellation Fees assessed to such Trading Accounts for 
that month.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f.
    \16\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    In addition, these changes to the Fee Schedule would equitably 
allocate reasonable fees among Participants in a non-discriminatory 
manner by assessing cancellation fees on all Trading Accounts that 
exceed a fixed Cancellation Ratio and by waiving cancellation fees on 
all Trading Accounts that satisfy the requirements of the proposed ADV 
exemption. Since all Participants are subject to the Order Cancellation 
Fee and given that the proposed ADV exemption is available to all 
Participants, the Exchange submits that the amended Order Cancellation 
Fee is non-discriminatory.

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. The Exchange does not 
believe that the proposed ADV exemption to the Order Cancellation Fee 
burdens competition, but instead, enhances competition, as it is 
intended to increase the competitiveness of, and draw additional volume 
to, the Exchange. 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 
proposed ADV exemption provides relief from the Order Cancellation Fee 
to Participants that execute a requisite number of certain single-sided 
orders submitted to the Exchange, which is intended to increase revenue 
derived from trades and to draw additional liquidity to the Exchange. 
Thus, the proposed rule change is a competitive proposal that is 
intended to add additional liquidity and order executions to the 
Exchange, which will, in turn, benefit the Exchange and all 
Participants.

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 foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A)(ii) of the Act \17\ and subparagraph(f)(2) of Rule 
19b-4 thereunder \18\ because it establishes or changes a due, fee or 
other charge imposed by the Exchange.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 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. 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-2014-01 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-2014-01. This file 
number should be included on the

[[Page 5479]]

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 also will be available for inspection and copying at the 
principal offices 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-2014-01, and should be submitted on or before 
February 21, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-01964 Filed 1-30-14; 8:45 am]
BILLING CODE 8011-01-P