Document ID: SEC-2013-0261-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2013-02-07T05:00Z

[Federal Register Volume 78, Number 26 (Thursday, February 7, 2013)]
[Notices]
[Pages 9092-9094]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02706]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68802; File No. SR-CHX-2013-04]

Self Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending CHX Article 20, Rule 10 To Extend the Effective Date of 
Certain Clearly Erroneous Transactions Provisions Operating Under a 
Pilot Until September 30, 2013 and To Establish Guidelines for the 
Handling of Clearly Erroneous Transactions in Connection With the Plan 
To Address Extraordinary Market Volatility

February 1, 2013.
    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 January 28, 2013, 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 and 
II below, which Items have been prepared by the CHX. CHX has filed this 
proposal pursuant to Rule 19b-4(f)(6) of the Act \3\ which is effective 
upon filing with the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CHX proposes to amend CHX Article 20, Rule 10, entitled ``Handling 
of Clearly Erroneous Transactions,'' to extend the effective date of 
certain provisions operating under a pilot until September 30, 2013. 
The Exchange also proposes to adopt new paragraph (i) to Article 20, 
Rule 10 in connection with the upcoming operation of the Plan to 
Address Extraordinary Market Volatility Pursuant to Rule 608 of 
Regulation NMS under the Act (the ``Limit Up-Limit Down Plan'' or 
``Plan'').\4\ 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.
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    \4\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (Order Approving, 
on a Pilot Basis, the National Market System Plan to Address 
Extraordinary Market Volatility by BATS Exchange, Inc., BATS Y-
Exchange, Inc., Chicago Board Options Exchange, Incorporated, 
Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, 
Inc., Financial Industry Regulatory Authority, Inc., NASDAQ OMX BX, 
Inc., NASDAQ OMX PHLX LLC, The Nasdaq Stock Market LLC, National 
Stock Exchange, Inc., New York Stock Exchange LLC, NYSE MKT LLC, and 
NYSE Arca, Inc).
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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 Change

1. Purpose
    The purpose of this filing is to extend the effectiveness of the 
Exchange's current rule applicable to Clearly Erroneous Transactions 
and to adopt a new paragraph (i) to Article 20, Rule 10 in connection 
with upcoming operation of the Limit Up-Limit Down Plan.
Proposal To Extend Pilot
    Portions of Article 20, Rule 10, explained in further detail below, 
are currently operating as a pilot program set to expire on February 4, 
2013.\5\ The Exchange proposes to amend paragraph .01 of the 
Interpretations and Policies of Article 20, Rule 10 to extend the pilot 
program to September 30, 2013.
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    \5\ See Securities Exchange Act Release No. 67572 (August 2, 
2012), 77 FR 47481 (August 8, 2012) (SR-CHX-2012-11); see also 
paragraph .01 of the Interpretations and Policies of CHX Article 20, 
Rule 10.
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    On September 10, 2010, the Commission approved, on a pilot basis, 
changes to CHX Article 20, Rule 10 to provide for uniform treatment: 
(1) of clearly erroneous transaction reviews in multi-stock events 
involving twenty or more securities; and (2) in the event transactions 
occur that result in the issuance of an individual stock trading pause 
by the primary market and subsequent transactions that occur before the 
trading pause is in effect on the Exchange.\6\ The Exchange also 
adopted additional changes to CHX Article 20, Rule 10 that reduced the

[[Page 9093]]

ability of the Exchange to deviate from the objective standards set 
forth in Article 20, Rule 10.\7\ The Exchange believes the benefits to 
market participants from the more objective Clearly Erroneous 
Transactions rule should continue on a pilot basis through September 
30, 2013, which is the date that the Exchange anticipates that the 
phased implementation of the Limit Up-Limit Down Plan will be complete. 
As explained in further detail below, although the Limit Up-Limit Down 
Plan is intended to prevent transactions that would need to be 
nullified as clearly erroneous, the Exchange believes that certain 
protections should be maintained while the industry gains initial 
experience operating with the Limit Up-Limit Down Plan, including the 
provisions of Article 20, Rule 10 that currently operate as a pilot.
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    \6\ See Securities Exchange Act Release No. 62886 (September 10, 
2010), 75 FR 56613 (September 16, 2010) (SR-CHX-2010-13).
    \7\ Id.
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Proposed Limit Up-Limit Down Provision to Article 20, Rule 10
    The Exchange proposes to adopt new paragraph (i) to Article 20, 
Rule 10, to provide that the existing provisions of Article 20, Rule 10 
will continue to apply to all Exchange transactions, including 
transactions in securities subject to the Plan, other than as set forth 
in proposed paragraph (i). Accordingly, other than as proposed below, 
the Exchange proposes to maintain and continue to apply the Clearly 
Erroneous Transaction standards in the same way that it does today. 
Notably, this means that the Exchange might nullify transactions that 
occur within the price bands disseminated pursuant to the Limit Up-
Limit Down Plan to the extent such transactions qualify as clearly 
erroneous under existing criteria. As an example, assume that a Tier 1 
security pursuant to the Plan has a reference price pursuant to both 
the Plan and Article 20, Rule 10 of $100.00. The lower pricing band 
under the Plan would be $95.00 and the upper pricing band under the 
Plan would be $105.00. A transaction could occur on the Exchange in 
this security at $96.00, as this is within the Plan's pricing bands. 
However, if subjected to review as potentially clearly erroneous, the 
Exchange would nullify a transaction at $96.00 as clearly erroneous 
because it exceeds the 3% threshold that is in place pursuant to 
Article 20, Rule 10(c)(1) for securities priced above $50.00 (i.e., 
with a reference price of $100.00, any transactions at or below $97.00 
or above $103.00 could be nullified as clearly erroneous). Accordingly, 
this proposal maintains the status quo with respect to review of 
Clearly Erroneous Transactions and the application of objective 
numerical guidelines by the Exchange. The proposal does not increase 
the discretion afforded to the Exchange in connection with review of 
Clearly Erroneous Transactions.
    The Limit Up-Limit Down Plan is designed to prevent transactions 
from occurring outside of dynamic price bands disseminated to the 
public by the single plan processor as defined in the Limit Up-Limit 
Down Plan.\8\ The possibility remains that the Exchange could 
experience a technology or systems problem with respect to the 
implementation of the price bands disseminated pursuant to the Plan. To 
address such possibilities, the Exchange proposes to adopt language to 
make clear that if an Exchange technology or systems issue results in 
any transactions occurring outside of the price bands disseminated 
pursuant to the Plan, an Officer of the Exchange or senior level 
employee designee, acting on his or her own motion or at the request of 
a third party, shall review and declare any trades null and void. 
Absent extraordinary circumstances, any such action of the Officer of 
the Exchange or other senior level employee designee shall be taken in 
a timely fashion, generally within thirty (30) minutes of the detection 
of the erroneous transaction. When extraordinary circumstances exist, 
any such action of the Officer of the Exchange or other senior level 
employee designee must be taken by no later than the start of the 
Regular Trading Session \9\ on the trading day following the date on 
which the transaction(s) under review occurred. Although the Exchange 
will act as promptly as possible and the proposed objective standard 
(i.e., whether a transaction occurred outside the band) should make it 
feasible to quickly make a determination, there may be circumstances in 
which additional time may be needed for verification of facts or 
coordination with outside parties, including the single plan processor 
responsible for disseminating the price bands and other market centers. 
Accordingly, the Exchange believes it necessary to maintain some 
flexibility to make a determination outside of the thirty (30) minute 
guideline. In addition, the Exchange proposes that a transaction that 
is nullified pursuant to new paragraph (i) would be appealable in 
accordance with the provisions of Article 20, Rule 10(e)(2). In 
addition, the Exchange proposes to make clear that in the event that a 
single plan processor experiences a technology or systems problem that 
prevents the dissemination of price bands, the Exchange would make the 
determination of whether to nullify transactions based on Article 20, 
Rule 10(a)-(h).
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    \8\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (Order Approving, 
on a Pilot Basis, the National Market System Plan To Address 
Extraordinary Market Volatility by BATS Exchange, Inc., BATS Y-
Exchange, Inc., Chicago Board Options Exchange, Incorporated, 
Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, 
Inc., Financial Industry Regulatory Authority, Inc., NASDAQ OMX BX, 
Inc., NASDAQ OMX PHLX LLC, The Nasdaq Stock Market LLC, National 
Stock Exchange, Inc., New York Stock Exchange LLC, NYSE MKT LLC, and 
NYSE Arca, Inc).
    \9\ The Regular Trading Session commences at 9:30 a.m. Eastern 
Time. See CHX Article 20, Rule 1(b).
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    The Exchange believes that cancelling trades that occur outside of 
the price bands disseminated pursuant to the Plan is consistent with 
the purpose and intent of the Plan, as such transactions are not 
intended to occur in the first place. If transactions do occur outside 
of the price bands and no exception applies--which necessarily would be 
caused by a technology or systems issue--then the Exchange believes the 
appropriate result is to nullify such transactions.
 2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\10\ In particular, 
the proposal is consistent with Section 6(b)(5) of the Act,\11\ because 
it would promote just and equitable principles of trade, remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system. The Exchange believes that the pilot 
program promotes just and equitable principles of trade in that it 
promotes transparency and uniformity across markets concerning review 
of transactions as clearly erroneous. More specifically, the Exchange 
believes that the extension of the pilot would help assure that the 
determination of whether a clearly erroneous trade has occurred will be 
based on clear and objective criteria, and that the resolution of the 
incident will occur promptly through a transparent process. The 
proposed rule change would also help assure consistent results in 
handling erroneous trades across the U.S. markets, thus furthering fair 
and orderly markets, the protection of investors and the public 
interest. Although the Limit Up-Limit

[[Page 9094]]

Down Plan will be operational during the same time period as the 
proposed extended pilot, the Exchange believes that maintaining the 
pilot for at least through the phased implementation of the Plan is 
operational will help to protect against unanticipated consequences. To 
that end, the extension will allow the Exchange to determine whether 
Article 20, Rule 10 is necessary once the Plan is operational and, if 
so, whether improvements can be made. Further, the Exchange believes it 
consistent with the protection of investors and the public interest to 
adopt objective criteria to nullify transactions that occur outside of 
the Plan's price bands when such transactions should not have been made 
but were due to a systems or technology issue.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change 
implicates any competitive issues. To the contrary, the Exchange 
believes that FINRA and other national securities exchanges are also 
filing similar proposals, and thus, that the proposal will help to 
ensure consistent rules across market centers.

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

    No written comments were either solicited or received.

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

    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 for 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 \12\ and Rule 19b-
4(f)(6)(iii) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii) \15\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing.
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
it will allow the pilot program to continue uninterrupted, thereby 
avoiding the investor confusion that could result from a temporary 
interruption in the pilot program. For this reason, the Commission 
designates the proposed rule change to be operative upon filing.\16\
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    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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.

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-2013-04 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-2013-04. 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 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; 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-2013-04 and should be 
submitted on or before February 28, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02706 Filed 2-6-13; 8:45 am]
BILLING CODE 8011-01-P