
[Federal Register Volume 76, Number 146 (Friday, July 29, 2011)]
[Notices]
[Pages 45626-45629]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-19189]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64953; File No. SR-CHX-2011-19]


 Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Clarify the Application of the Fee Schedule to Certain Transactions of, 
and Services to, CHX Participants and Make Certain Rate Changes

July 25, 2011.
    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 July 20, 2011, 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.
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    \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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CHX proposes to amend its Schedule of Participant Fees and 
Assessments (the ``Fee Schedule''), effective July 25, 2011, to amend 
its Fee Schedule to clarify the application of the Fee Schedule to 
certain transactions of, and services to, CHX Participants and make 
certain rate changes. 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.

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 is proposing to amend its 
Schedule of Fees and Assessments (``Fee Schedule'') to clarify the 
application of the Fee Schedule to various transactions consummated on 
or through the Exchange and to certain services provided by the 
Exchange to its Participants. The proposed changes accurately describe 
the manner in which the Exchange has and will continue to apply the Fee 
Schedule to such transactions and services.
    Currently, the Fee Schedule provides for Processing Fees for 
fingerprinting, background checks and the provision of access badges by 
the Exchange.\5\ The Exchange no longer provides either fingerprinting 
or background checking services for current or prospective CHX 
Participants, and we no longer wish to impose a fee for access badges. 
Therefore, the Exchange proposes to eliminate the fees for these 
services.
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    \5\ Section C. (Registration Fees) of the Fee Schedule.
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    The Exchange is also clarifying the application of Section E.1. 
(Matching System single-sided order executions (one-sided orders of 
100+ shares)) of the Fee Schedule to note that the Average Daily Volume 
(``ADV'') calculations performed by the Exchange to determine the 
amount of provide credit paid to a Participant are not being performed 
when the Regular Trading Session closes early.\6\ Trade volume on days 
on which the Late Trading Sessions close early, however, would continue 
to be counted towards the ADV calculation. In addition, we are 
eliminating the provide credit paid to Exchange-registered 
Institutional Brokers (``Institutional Brokers'') in transactions in 
securities priced less than one dollar. As noted in the discussion of 
the changes to Section E.3. of the Fee Schedule, supra, we are 
proposing to eliminate the charge in transactions in securities priced 
less than one dollar to Participants which submit orders through an 
Institutional Broker. It would not be economically feasible for the 
Exchange to continue to pay a provide credit to Institutional Brokers 
in transactions in which the Exchange

[[Page 45627]]

does not earn any transaction revenue. Finally, the provide credit paid 
to Institutional Brokers in transactions in securities at or above one 
dollar during the Regular Trading Session is being reduced to $0.0027/
share in Tape A and C securities and $0.0028/share in Tape B securities 
from $0.0029/share. This reduction reflects the lower amount of revenue 
generated in such transactions due to the rate changes for agency 
executions submitted through an Institutional Broker.\7\ The Exchange 
is also lowering the rate of the provide credit paid to Institutional 
Brokers representing the Participant which originated the order 
(regardless of the ADV attributable to either firm) for trades executed 
in the Early and Late Trading Sessions to $0.0022/share in Tape A, B 
and C securities priced $1.00/share.
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    \6\ The Exchange proposes to change the phrase ``single order 
executions'' in the caption to Section E.1, to ``single-sided order 
executions'' to clarify that this section does not apply to cross 
orders.
    \7\ These rate changes are discussed infra as part of the 
modifications to Section E.3. of the Fee Schedule.
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    The Exchange believes that it would be beneficial to clarify the 
application of the Fee Schedule to certain cross transactions by 
modifying the text of Section E.2. (Matching System crosses (All 
Sessions)) of the Fee Schedule. The Exchange proposes to move the 
reference to proprietary trades by an Institutional Broker from Section 
E.2. to Section E.3. (Executions through an Institutional Broker 
Registered with the Exchange Under Article 17 (All Sessions)). The 
Exchange believes that Section E.2. is properly construed to apply 
solely to cross transactions entered directly by a Participant firm to 
the Matching System by electronic means, and without the involvement of 
an Institutional Broker. Unlike transactions (including cross trades) 
handled by an Institutional Broker, cross transactions entered directly 
into the Matching System by a CHX Participant and executed there are 
not assessed any charge. The removal of the language regarding 
proprietary cross trades executed by an Institutional Broker from this 
section should help to eliminate any potential ambiguity on this 
treatment. To reinforce this point, we are adding a clause to the last 
sentence in this section which states that these provisions do not 
apply to cross orders submitted by an Institutional Broker registered 
with the Exchange.\8\
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    \8\ Throughout the proposal, the Exchange proposes to modify 
references to ``institutional brokers'' to clarify that such 
references are limited to Institutional Brokers registered with the 
Exchange pursuant to Article 17 of our rules, and not to 
institutional brokers as colloquially referred to in the securities 
industry.
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    The Exchange is modifying Section E.3. of the Fee Schedule to 
clarify the proper application of the Fee Schedule to transactions 
handled by an Institutional Broker. We propose to move the charge 
relating to proprietary crosses of an Institutional Broker formerly 
reflected in Section E.2 to new Section E.3.b. (Proprietary 
Executions). The new language clarifies that the fee assessed to the 
Institutional Broker of $.0007/share also applies to any odd lot 
component of the cross trade. The new text also explicitly provides 
that the Participant on the other side of the transaction is to be 
assessed the fee normally assessed to a Participant whose order is 
handled by an Institutional Broker, as set forth in proposed new 
Section E.3.a. of the Fee Schedule. Current Section E.3. has been 
renumbered as Proposed Section E.3.a. Proposed Section E.3.a. sets 
forth a revised fee rate of $.003/share for all trades (regardless of 
whether the security is a Tape A, B or C security) handled through an 
Institutional Broker.\9\ The revised text makes explicit that the fees 
pursuant to both Section 3.a. of the Fee Schedule are charged to the 
Participant Firm in which name the transaction is submitted for 
clearance and settlement (including both single-sided and cross orders) 
through an Institutional Broker. The Exchange proposes to add text 
excluding odd-lot orders from these provisions, as those orders are 
assessed the Odd Lot fee pursuant to Section E.4. (Odd-lot Matching 
System fee (single-sided orders of less than 100 shares) (All 
Sessions)) of the Fee Schedule. The Exchange also proposes to eliminate 
the reference to trades executed by an Institutional Broker ``in 
another market,'' since the Exchange does not impose the transaction 
fee under Section E.3. for non-CHX executions. The Exchange further 
proposes to clarify that the maximum charge per side shall be computed 
for each Participant firm on a side (buy or sell) of a execution and 
separately for a Participant which is represented by more than one 
Institutional Broker Representative (as defined in Article 17, Rule 1 
of the Exchange's rules). Finally, the Exchange proposes to add a 
provision setting the fees at zero for Institutional Broker-handled 
transactions in securities priced under $1.
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    \9\ The revised fee rate conforms to the proscriptions of the 
Reg NMS Rule 610 (the ``Access Rule'').
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    The Exchange proposes to modify the text of Section E.4. of the Fee 
Schedule relating to transactions in odd lots. The proposed new 
language would clarify that the odd lot fees apply to orders submitted 
to the Matching System (whether electronically by the Participant or 
through an Institutional Broker) as an odd-lot order. The revised text 
reflects CHX's current practice of not applying odd lot fees to orders 
not entered into the Matching System as an odd-lot order, but which 
become odd lots due to partial executions. Transactions in odd-lot 
remainders would be charged the fee rate set forth in Section E.1. of 
the Fee Schedule.
    The Exchange is proposing to delete Section E.6. of the Fee 
Schedule relating to Matching System routing fees, since the CHX does 
not currently offer automated routing services. This Section will be 
reserved for future use in the event that the Exchange decides to offer 
such services, or for other purposes.
    The Exchange is proposing certain changes to the trade processing 
fees to clarify that such fees are charged to CHX Participants for 
cross transactions that are executed in the over-the-counter (``OTC'') 
marketplace and are reported to clearing by the Exchange's systems, 
pursuant to Section E.7. (Trade Processing Fees) of the Fee Schedule. 
The Exchange is also modifying the types of transactions subject to the 
Trade Processing Fee to eliminate transaction executed directly in the 
OTC marketplace by an Institutional Broker and in its place substitute 
executed cross trades which originated with an Institutional Broker and 
were transmitted to and executed by another broker-dealer (which is not 
an Institutional Broker) in the OTC marketplace and which were 
submitted to clearing by the Exchange's systems.\10\ This amendment 
reflects ongoing discussions between the Exchange and the staff of the 
Commission regarding limitations on the ability of Institutional 
Brokers to directly execute trades in the OTC marketplace. The Exchange 
also proposes to modify the current fee rate and maximum charge for 
trade processing fees to conform to the rates charged for transactions 
submitted through an Institutional Broker pursuant to Section E.3. of 
the Fee Schedule. In such transactions, the Exchange currently charges 
$.0035/share, up to a maximum of $100 per side for Tape A and B 
securities, and $.0025/share, up to a maximum of $100 per side for Tape 
C securities. By this proposal, we would change these rates to $.003/
share, up to

[[Page 45628]]

a maximum of $100 per side for all securities. We are also proposing to 
define ``per side'' in the same manner as in Section E.3. These changes 
would maintain the current state under which the fees charged pursuant 
to Sections E.3. and E.7. are identical.
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    \10\ In such transactions, the third-party broker-dealer would 
report the transaction to the appropriate Trade Reporting Facility, 
and provide an execution report to the Institutional Broker, which 
in turn would enter the information into the Exchange's systems for 
submission to clearing.
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    The Exchange is proposing to eliminate the Clearing Support Fees 
currently set forth in Section H of the Fee Schedule. The CHX no longer 
performs the services described in Section H and has no present 
intention of doing so in the future. The elimination of these fees 
would clarify to CHX Participants that the Exchange does not provide 
clearing support services.
    Finally, the Exchange proposes to eliminate the fees for CCH 
Rulebooks (which the Exchange no longer provides to Participants) and 
monthly Brokerplex reports (which the Exchange will provide at no cost) 
pursuant to Section L.2. and 3. (Supplies and Reports), respectively.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \11\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act \12\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and other persons using any facility or 
system which the Exchange operates or controls. The Exchange is 
proposing to eliminate certain fees in their entirety which would 
reduce the financial obligation of Participants to the CHX. The fees to 
be eliminated include certain processing fees for fingerprints, 
background checks and badges (Section C of the Fee Schedule), Matching 
System routing fees (Section E.6. of the Fee Schedule), Clearing 
Support Fees (Section H of the Fee Schedule), and fees for rulebooks 
and certain reports (Section L of the Fee Schedule). In Section E.1., 
the Exchange is reducing the provide credit paid to Institutional 
Brokers in Regular Trading Hours session transaction from $0.0029/share 
in Tape A and C securities to $0.0027/share and from transaction from 
$0.0031/share in Tape B securities to $0.0028/share. In this same 
Section, the Exchange is further proposing a provide credit be paid to 
Institutional Brokers of $0.0022/share in securities priced greater 
than $1.00/share for trades in the Early and Late Trading Sessions. The 
Exchange also proposes that no provide credit shall be paid to 
Institutional Brokers in transactions in securities priced less than 
$1.00/share. The Exchange believes that the reduction in provide 
credits paid to Institutional Brokers for trades during the Regular 
Trading Session, as well as the elimination of the provide credit paid 
to Institutional Brokers in transactions in all trading sessions in 
securities priced less than $1.00, are appropriate because they will 
enable the Exchange to retain a greater amount of the revenue 
associated with such transactions, which in turn will assist the CHX in 
funding its internal operations including the oversight of 
Institutional Brokers. The Exchange further believes that the rate 
changes in Section E.1. as to the Early and Late Trading Sessions are 
appropriate because the proposed rates corresponds to the provide 
credit generally paid to Participants for trades in the Early and Late 
Trading Sessions.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the rate changes for CHX-executed 
transactions entered through an Institutional Broker are fair and 
appropriate (Section E.3. of the Fee Schedule). The Exchange hopes that 
these rate changes will help it attract additional order flow to the 
Exchange, as well as be consistent with the limitations on fees charged 
by exchanges for access to quotations as set forth in Rule 610(c) of 
Regulation NMS. The Exchange is making parallel changes to the Trade 
Processing Fees set forth in Section E.7. of the Fee Schedule charged 
in connection with the submission to clearing by the CHX of non-
Exchange trades handled by an Institutional Broker in order to maintain 
the current level of parity in such fees with the fees charged pursuant 
to Section E.3. of the Fee Schedule. The Exchange is also adding to the 
types of transactions subject to the Trade Processing Fee any executed 
trades submitted to Clearing by the Exchange's systems which originated 
with an Institutional Broker and were transmitted to and executed by 
another broker-dealer in the over-the-counter market. This addition 
reflects ongoing discussions between the Exchange and the staff of the 
Commission regarding limitations on the ability of Institutional 
Brokers to directly execute trades in the over-the-counter marketplace.
    The Exchange further believes that the proposed rule change is 
consistent with Section 6(b) of the Act in general, and furthers the 
objectives of Section 6(b)(1) of the Act in particular, in that it 
allows the Exchange to be organized and have the capacity to be able to 
carry out the purposes of the Act and to comply, and (subject to any 
rule or order of the Commission pursuant to section 17(d) or 19(g)(2) 
of the Act) to enforce compliance by its members and persons associated 
with such members, with the provisions of the Act, the rules and 
regulations thereunder, and the rules of the exchange. The proposed 
clarifying changes to the Fee Schedule would establish the fees as they 
were approved by the Exchange and would contribute to the ability of 
its Participants to comply with the provisions of the Fee Schedule by 
clarifying to such Participants the basis upon which the Exchange 
charges for various of its fees and services. The proposed clarifying 
changes include the following: (1) The limitation of Section E.1. to 
single-sided orders (2) that the Average Daily Trading volume 
calculation for purposes of applying the tiered rate schedule of 
Section E.1. does not include days when the Regular Trading Session 
closes early; (3) that the phrase ``institutional broker'' be 
capitalized to reflect the intention to limit it to Institutional 
Brokers registered with the CHX pursuant to Article 17 of our rules; 
(4) that the provisions of Section E.2. apply only to crosses executed 
in the Matching System and which were not entered through an 
Institutional Broker; (5) the manner in which the CHX imposes fees on 
Institutional Brokers for proprietary trades executed in the Matching 
System; (6) the manner in which the CHX imposes fees on Participants 
for Exchange transactions entered through an Institutional Broker; (7) 
the application of the $100 maximum charge in the transactions noted in 
(6); and (8) the imposition of fees on odd-lot orders.

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 \13\ and subparagraph (f)(2) of Rule 19b-4 
thereunder \14\ because it establishes or changes a due, fee or other 
charge

[[Page 45629]]

applicable to the Exchange's members, which renders the proposed rule 
change effective upon filing.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 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.

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-CHX-2011-19 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-2011-19. This file 
number should be included on the subject line if e-mail 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 
a.m. and 3 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 No. SR-CHX-2011-19 and should be 
submitted on or before August 19, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-19189 Filed 7-28-11; 8:45 am]
BILLING CODE 8011-01-P


