
[Federal Register Volume 79, Number 154 (Monday, August 11, 2014)]
[Notices]
[Pages 46890-46892]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18875]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72759; File No. SR-CHX-2014-11]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend Section P of the Fee Schedule Concerning the Market Data 
Revenue Rebates Program

August 5, 2014.
    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 July 29, 2014, 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, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 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

    CHX proposes to amend Section P of its Schedule of Fees and 
Assessments (the ``Fee Schedule'') to amend the Market Data Revenue 
(``MDR'') Rebates Program. 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.

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 Changes

1. Purpose
    The Exchange proposes to amend Section P.2 of the Fee Schedule to 
modify the MDR thresholds for Tape A and C Quotes and Trade Reports. 
The Exchange does not propose to modify the Tape B thresholds or to 
otherwise substantively amend how MDR rebates are currently calculated 
and allocated. The Exchange proposes to make the following proposed 
amendments operative October 1, 2014.
Background
    The current MDR Rebates Program calls for 50% of MDR received by 
the Exchange in any one of six quote or trade reports pools that 
exceeds the applicable Section P.2 threshold (``Excess MDR'') to be 
shared with Participants in proportion to their respective Eligible 
Quote Activity \3\ or Eligible Trade Activity \4\ in that pool from the 
previous calendar quarter.\5\ The MDR rebate calculation is made each 
quarter, per Participant, and per pool. The determination of how much a 
Participant will receive pursuant to the MDR Rebates Program requires 
the Exchange to first calculate Excess MDR and, if Excess MDR exists, 
attribute quote and/or trade reports credits to eligible Participants.
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    \3\ Section P.1 of the Fee Schedule defines ``Eligible Quote 
Activity'' as ``a Participants quoting of displayed orders in Tapes 
A, B and C securities.''
    \4\ Section P.1 of the Fee Schedules defines ``Eligible Trade 
Activity'' as ``trades resulting from single-sided resting orders 
submitted by the Participant in Tapes A, B and C securities.'' By 
definition, Eligible Trade Activity excludes (1) executions 
resulting from removing liquidity from the CHX book and (2) cross 
orders.
    \5\ See Securities Exchange Act Release No. 71210 (December 31, 
2013), 79 FR 869 (January 7, 2014) (SR-CHX-2013-24) (``Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change to Amend 
the Market Data Revenue Rebates Program''); see also Securities 
Exchange Act Release No. 70546 (September 27, 2013), 78 FR 61413 
(October 3, 2013) (SR-CHX-2013-18) (``Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change to Adopt a Market Data Revenue 
Rebates Program'').
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    Current Section P.2 of the Fee Schedule provides the following MDR 
thresholds:

----------------------------------------------------------------------------------------------------------------
                             Source                                   Tape A          Tape B          Tape C
----------------------------------------------------------------------------------------------------------------
Quotes..........................................................          $3,000        $204,000         $12,000
Trade Reports...................................................          27,000          36,000          18,000
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The dollar values represent the amount of MDR that the Exchange will 
keep (i.e., not eligible for sharing). Any amounts in excess of the 
thresholds are considered Excess MDR and 50% of such Excess MDR could 
be shared pursuant to the MDR Rebates Program. The current values are 
based on historical data of the actual MDR received by the Exchange in 
previous calendar quarters.
    In determining whether Excess MDR exists in a given pool, the 
Exchange includes all MDR received by the Exchange in a given pool for 
the given quarter and does not exclude any MDR from the threshold 
calculation.\6\ The

[[Page 46891]]

following Example 1 illustrates how Excess MDR is calculated:
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    \6\ The Securities Information Processors (``SIPs'') do not 
distinguish between trades from single-sided orders and from cross 
orders when attributing Trade Reports MDR to a SIP Participant, such 
as the CHX. The SIPs make one MDR payment to the Exchange per pool 
and quarter. Article 1, Rule 2(a)(2) defines ``cross order,'' in 
pertinent part, as ``an order to buy and sell the same security at a 
specific price better than the best bid and offer displayed in the 
Matching System and which would not constitute a trade-through under 
Reg NMS (including all applicable exceptions and exemptions).''

    Example 1. Assume that the Exchange receives $50,000 of MDR 
payment in 4Q2014 for 3Q2014 Tape A Trade Reports. Given that 
current Section P.2 provides that the MDR threshold for Tape A Trade 
Reports to be $27,000, the result would be $23,000 Excess MDR in the 
Tape A Trade Reports pool. Pursuant to current Section P.1 [sic], up 
to $11,500, which is 50% of the $23,000 Excess MDR, could be shared 
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with eligible Participants.

    If Excess MDR exists in a pool, the Exchange will then attribute 
quote credits to each Participant according to their Eligible Quote 
Activity in that pool.\7\ If Excess MDR exists in a Trade Reports pool, 
the Exchange will attribute trade reports credits to each Participant 
according to their Eligible Trade Activity in that pool.\8\ These quote 
and trade reports credits are calculated by the Exchange by utilizing a 
set of calculations similar to calculations currently utilized by the 
SIPs in attributing Quotes and Trade Reports MDR to SIP Participants. 
Once all quote and trade reports credits have been allocated in a given 
pool, each Participant is attributed an MDR rebate from the pool in an 
amount that is equal to the product of a Participant's portion of the 
total credits in that pool and 50% of the Excess MDR in that pool. The 
sum of all attributed MDR rebates in a pool will equal 50% of the 
Excess MDR in that pool.
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    \7\ See supra note 3.
    \8\ See supra note 4.
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    If the sum of rebates attributed to a Participant from all six 
pools in a given quarter satisfies the de minimis requirement of 
current Section P.3, the Participant will receive a payment equal to 
that amount. However, if the de minimis requirement is not satisfied, 
the Exchange will keep the entire sum that was attributed to the 
Participant.
Proposed MDR Thresholds
    The Exchange now proposes to amend Section P.2 of the Fee Schedule 
to eliminate the threshold values for Tapes A and C Quotes pools. This 
will result in all MDR received in those pools to be considered Excess 
MDR. Consequently, 50% of all MDR received in Tapes A and C Quotes 
pools will be eligible for sharing with Participants pursuant to the 
MDR Rebates Program.
    The Exchange also proposes to modify the threshold values for Tapes 
A and C Trade Reports pools from $27,000 and $18,000, respectively, to 
amounts equal to Trade Reports MDR received by the Exchange that can be 
attributed by the Exchange to trade reports resulting from cross orders 
in each pool. Thus, the proposed MDR thresholds for Tapes A and C Trade 
Reports MDR will be a floating value that will be calculated quarterly 
and will virtually be equal to the product of the MDR payment received 
by the Exchange from the SIPs and the percentage of executions (i.e., 
trade reports) within the CHX Matching System in the relevant quarter 
resulting from cross orders. Since the SIPs do not distinguish between 
trades resulting from cross orders and single-sided orders for MDR 
purposes, the Exchange will be making the quarterly calculation 
itself.\9\ The following Example 2 illustrates how the proposed 
floating Excess MDR threshold value for Tapes A and C Trade Reports 
will be calculated:
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    \9\ See supra note 6.

    Example 2. Assume the same as in Example 1, except that the Tape 
A Trade Reports threshold is equal to the amount of MDR received by 
the Exchange that can be attributed to cross orders. Assume further 
that the Exchange calculates that, in 3Q2014, 60% of all executions 
within the CHX Matching System resulted from cross orders. Thus, the 
MDR threshold for 3Q2014 Tape A Trade Reports would be $30,000 
(i.e., $50,000 x .60 = $30,000). Pursuant to current Section P.1 
[sic], up to $10,000, which is 50% of the Excess MDR of $20,000, 
could be distributed to eligible Participants.
    If the Exchange, instead, received $60,000 of Tape A Trade 
Reports MDR and 60% of the Trade Reports could be attributed to 
cross orders, the MDR threshold for Tape A Trade Reports would be 
$36,000. Pursuant to current Section P.1 [sic], $12,000, which is 
50% of the Excess MDR of $24,000, could be distributed to eligible 
Participants.

    The Exchange believes that the proposed MDR threshold amendments to 
Tapes A and C securities is consistent with the purpose of the MDR 
Rebates Program, which is to increase single-sided trading activity on 
the CHX by incentivizing Participants with MDR rebates. Specifically, 
the Exchange believes that the proposed thresholds will increase the 
probability of higher Excess MDR amounts, which will, in turn, increase 
the likelihood of larger rebate payments to eligible Participants. 
Moreover, the proposed floating MDR threshold values for Tapes A and C 
Trade Reports will provide the Exchange with flexibility in ensuring 
that the threshold values follow variations in Trade Reports MDR that 
is attributable to cross orders. For quarters where Trade Reports MDR 
resulting cross orders is less than previous quarters, this floating 
value will result in greater Excess MDR that could be available for 
rebates. Thus, since two-sided cross orders are deemed ineligible 
trading activity with regard to the MDR Rebates Program, the Exchange 
hopes that the proposed threshold amendments will encourage more 
single-sided orders to be submitted to the Matching System. Aside from 
these proposed MDR threshold amendments, the Exchange does not propose 
to modify any other part of the current MDR Rebates Program.
    The Exchange also submits that the proposed threshold amendments 
will not materially impact the Exchange's ability to meet its 
regulatory and surveillance obligations as a self-regulatory 
organization. Specifically, the proposed elimination of the Tapes A and 
C Quotes thresholds will result in, at most, the Exchange sharing an 
additional $7,500 of total MDR from Tapes A and C Quotes pools and an 
additional few thousand dollars from the Tapes A and C Trade Reports 
pools. These amounts are immaterial as the sum represents a very small 
portion of the quarterly MDR payments received by the Exchange, which 
have historically been approximately $300,000 per quarter. Moreover, 
the Exchange notes that if the proposed amendments have the intended 
effect of increased order flow to, and executions within, the Matching 
System, the Exchange will receive additional MDR from the SIPs, which 
would offset the proposed threshold amendments.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \10\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act \11\ in particular, in that it 
provides for the equitable allocation of MDR Rebates among members and 
other persons using any facility or system which the Exchange operates 
or controls. The purpose of the MDR Rebates Program is to increase 
single-sided trading activity on the CHX by incentivizing Participants 
with MDR rebates. The Exchange believes that the amended MDR thresholds 
will increase the likelihood of larger Excess MDR amounts and payable 
rebates to Participants, which will, in turn, promote single-sided 
order flow to the

[[Page 46892]]

Exchange and order executions within the Matching System. Moreover, 
since two-sided cross orders are deemed ineligible trading activity 
with regard to the MDR Rebates Program, the Exchange believes that the 
proposed floating threshold amendments will result in more MDR that is 
available for sharing, which will, in turn, encourage more single-sided 
orders to be submitted to the Matching System. Notwithstanding, the 
proposed amendments to the Fee Schedule would equitably allocate MDR 
Rebates among Participants by continuing to pay MDR Rebates in 
proportion to their Eligible Quote and Trade Activity in Tape A, B and 
C securities in any given calendar quarter.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement of 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 proposed amendment will 
only enhance the effectiveness of the current MDR Rebates Program in 
promoting display liquidity on, and order flow to, the Exchange. 
Consequently, the MDR rebates, as amended, will promote competition 
that is necessary and appropriate in furtherance of the purpose of the 
Act.

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

    No written comments were either solicited or received.

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

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A)(ii) of the Act \12\ and subparagraph(f)(2) of Rule 
19b-4 thereunder \13\ because it establishes or changes a due, fee or 
other charge imposed by the Exchange.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 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. 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 proposal 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 No. SR-CHX-2014-11 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549.

All submissions should refer to File No. SR-CHX-2014-11. 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 changes 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 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 No. SR-CHX-2014-11 and should be 
submitted on or before September 2, 2014.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18875 Filed 8-8-14; 8:45 am]
BILLING CODE 8011-01-P


