
[Federal Register Volume 81, Number 64 (Monday, April 4, 2016)]
[Notices]
[Pages 19275-19282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07515]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77469; File No. SR-CHX-2016-03]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt Article 20, Rule 13 To Implement the Regulation NMS Plan To 
Implement a Tick Size Pilot Program (``Plan'')

March 29, 2016.
    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 March 28, 2016, 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 Exchange. 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 adopt Article 20, Rule 13 to implement the 
Regulation NMS Plan to Implement a Tick Size Pilot Program (``Plan''). 
Specifically, the Exchange proposes to adopt Article 20, Rule 13 to set 
forth the requirements for the collection and transmission of data 
pursuant to Appendices B and C of the Plan. The proposed rule change is 
substantially similar to proposed rule changes recently approved or 
published by the Commission by the Bats BZX Exchange, Inc. f/k/a BATS 
Exchange, Inc. (``BZX'') to adopt BZX Rule 11.27(b) \3\ and by the 
Financial Industry Regulatory Authority (``FINRA'') to adopt FINRA Rule 
6191(b),\4\ both of which also sets forth requirements for the 
collection and transmission of data pursuant to Appendices B and C of 
the Plan. Therefore, the Exchange has designated this proposal as 
``non-controversial'' and provided the Commission with the notice 
required by Rule 19b-4(f)(6)(iii) under the Act.\5\
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    \3\ See Securities Exchange Act Release Nos. 77105 (February 10, 
2016), 81 FR 8112 (February 17, 2016) (order approving SR-BATS-2015-
102); and 77310 (March 7, 2016) (notice for comment and immediate 
effectiveness of SR-BATS-2016-27).
    \4\ See Securities Exchange Act Release No. 77164 (February 17, 
2016), 81 FR 9043 (February 23, 2016) (order approving SR-FINRA-
2015-048).
    \5\ 17 CFR 240.19b-4(f)(6)(iii).
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    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 Change

1. Purpose
    On August 25, 2014, NYSE Group, Inc., on behalf of the Exchange, 
Bats BYX Exchange, Inc., BZX, Bats EDGA Exchange, Inc., Bats EDGX 
Exchange, Inc., FINRA, NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, the 
Nasdaq Stock Market LLC, New York Stock Exchange LLC (``NYSE''), NYSE 
MKT LLC, and NYSE Arca, Inc. (collectively ``Plan Participants''), 
filed with the Commission, pursuant to Section 11A of the Act \6\ and 
Rule 608 of Regulation NMS thereunder,\7\ the Plan to Implement a Tick 
Size Pilot Program (``Pilot'').\8\ The Plan Participants filed the Plan 
to comply with an order issued by the Commission on June 24, 2014.\9\ 
The Plan \10\ was published for comment in the Federal Register on 
November 7, 2014, and approved by the Commission, as modified, on May 
6, 2015.\11\
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    \6\ 15 U.S.C. 78k-1.
    \7\ 17 CFR 242.608.
    \8\ See Letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014.
    \9\ See Securities Exchange Act Release No. 72460 (June 24, 
2014), 79 FR 36840 (June 30, 2014).
    \10\ Unless otherwise specified, capitalized terms used in this 
rule filing are based on the defined terms of the Plan.
    \11\ See Securities Exchange Act Release No. 74892 (May 6, 
2015), 80 FR 27513 (May 13, 2015) (``Approval Order'').
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    The Plan is designed to allow the Commission, market participants, 
and the public to study and assess the impact of increment conventions 
on the liquidity and trading of the common stocks of small-
capitalization companies. Each Plan Participant is required to comply, 
and to enforce compliance by its members, as applicable, with the 
provisions of the Plan. As is described more fully below, the proposed 
rules would require CHX Participants \12\ to comply with the applicable 
data collection requirements of the Plan.\13\
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    \12\ A ``Participant'' is a ``member'' of the Exchange for 
purposes of the Act. See CHX Article 1, Rule 1(s). For clarity, the 
Exchange proposes to utilize the term ``CHX Participant'' when 
referring to members of the Exchange and the term ``Plan 
Participant'' when referring to Participants of the Plan.
    \13\ The Exchange proposes Interpretations and Policies .11 to 
proposed Article 20, Rule 13 to provide that the Rule shall be in 
effect during a pilot period to coincide with the pilot period for 
the Plan (including any extensions to the pilot period for the 
Plan).
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    The Pilot will include stocks of companies with $3 billion or less 
in market capitalization, an average daily trading volume of one 
million shares or less, and a volume weighted average price of at least 
$2.00 for every trading day. The Pilot will consist of a control group 
of approximately 1400 Pilot Securities and three test groups with 400 
Pilot Securities in each (selected by a stratified random sampling 
process).\14\ During the pilot, Pilot Securities in the control group 
will be quoted at the current tick size increment of $0.01 per share 
and will trade at the currently permitted increments. Pilot Securities 
in the first test group (``Test Group One'') will be quoted in $0.05 
minimum increments but will continue to trade at any price increment 
that is currently permitted.\15\ Pilot Securities in the second test 
group (``Test Group Two'') will be quoted in $0.05 minimum increments 
and will trade at $0.05 minimum increments subject to a midpoint 
exception, a retail investor order exception, and a negotiated trade

[[Page 19276]]

exception.\16\ Pilot Securities in the third test group (``Test Group 
Three'') will be subject to the same quoting and trading increments as 
Test Group Two and also will be subject to the ``Trade-at'' requirement 
to prevent price matching by a market Plan Participant that is not 
displaying at a Trading Center's ``Best Protected Bid'' or ``Best 
Protected Offer,'' unless an enumerated exception applies.\17\ In 
addition to the exceptions provided under Test Group Two, an exception 
for Block Size orders and exceptions that mirror those under Rule 611 
of Regulation NMS \18\ will apply to the Trade-at requirement.
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    \14\ See Section V of the Plan for identification of Pilot 
Securities, including criteria for selection and grouping.
    \15\ See Section VI(B) of the Plan.
    \16\ See Section VI(C) of the Plan.
    \17\ See Section VI(D) of the Plan.
    \18\ 17 CFR 242.611.
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    In approving the Plan, the Commission noted that the Trading Center 
data reporting requirements would facilitate an analysis of the effects 
of the Pilot on liquidity (e.g., transaction costs by order size), 
execution quality (e.g., speed of order executions), market maker 
activity, competition between trading venues (e.g., routing frequency 
of market orders), transparency (e.g., choice between displayed and 
hidden orders), and market dynamics (e.g., rates and speed of order 
cancellations).\19\ The Commission noted that Market Maker 
profitability data would assist the Commission in evaluating the 
effect, if any, of a widened tick increment on market marker profits 
and any corresponding changes in the liquidity of small-capitalization 
securities.\20\
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    \19\ See Approval Order, 80 FR at 27543.
    \20\ Id.
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Compliance With the Data Collection Requirements of the Plan
    The Plan contains requirements for collecting and transmitting data 
to the Commission and to the public.\21\ Specifically, Appendix B.I of 
the Plan (Market Quality Statistics) requires Trading Centers \22\ to 
submit a variety of market quality statistics, including information 
about an order's original size, whether the order was displayable or 
not, the cumulative number of orders, the cumulative number of shares 
of orders, and the cumulative number of shares executed within specific 
time increments, e.g., from 30 seconds to less than 60 seconds after 
the time of order receipt. This information shall be categorized by 
security, order type, original order size, hidden status, and coverage 
under Rule 605.\23\ Appendix B.I of the Plan also contains additional 
requirements for market orders and marketable limit orders, including 
the share-weighted average effective spread for executions of orders; 
the cumulative number of shares of orders executed with price 
improvement; and, for shares executed with price improvement, the 
share-weighted average amount per share that prices were improved.
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    \21\ The Exchange is also required by the Plan to establish, 
maintain, and enforce written policies and procedures that are 
reasonably designed to comply with applicable quoting and trading 
requirements specified in the Plan. The Exchange intends to 
separately propose rules that would require compliance by its CHX 
Participants with the applicable quoting and trading requirements 
specified in the Plan, and has reserved paragraph (a) of proposed 
Article 20, Rule 13 for such rules.
    \22\ The Plan incorporates the definition of a ``Trading 
Center'' from Rule 600(b)(78) of Regulation NMS. Regulation NMS 
defines a ``Trading Center'' as ``a national securities exchange or 
national securities association that operates an SRO trading 
facility, an alternative trading system, an exchange market maker, 
an OTC market maker, or any other broker or dealer that executes 
orders internally by trading as principal or crossing orders as 
agent.'' See 17 CFR 242.600(b).
    \23\ 17 CFR 242.605.
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    Appendix B.II of the Plan (Market and Marketable Limit Order Data) 
requires Trading Centers to submit information relating to market 
orders and marketable limit orders, including the time of order 
receipt, order type, the order size, the National Best Bid and National 
Best Offer (``NBBO'') quoted price, the NBBO quoted depth, the average 
execution price-share-weighted average, and the average execution time-
share-weighted average.
    The Plan requires Appendix B.I and B.II data to be submitted by 
Plan Participants that operate a Trading Center, and by members of the 
Plan Participants that operate Trading Centers. The Plan provides that 
each Plan Participant that is the Designated Examining Authority 
(``DEA'') for a member of the Plan Participant that operates a Trading 
Center shall collect such data in a pipe delimited format, beginning 
six months prior to the Pilot Period and ending six months after the 
end of the Pilot Period. The Plan also requires the Plan Participant, 
operating as DEA, to transmit this information to the SEC within 30 
calendar days following month end.
    The Exchange is therefore proposing Article 20, Rule 13(b) to set 
forth the requirements for the collection and transmission of data 
pursuant to Appendices B and C of the Plan. Proposed Article 20, Rule 
13(b) is substantially similar to proposed rule changes by BZX that 
were recently approved or published by the Commission to adopt BZX Rule 
11.27(b) which also sets forth requirements for the collection and 
transmission of data pursuant to Appendices B and C of the Plan; \24\ 
provided the following:
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    \24\ See supra note 3.
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     Proposed Article 20, Rule 13(b)(2)(A) is similar to 
proposed rule changes by FINRA that were recently approved or published 
by the Commission to adopt FINRA Rule 6191(b)(2).\25\
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    \25\ Prior to the operative date of the proposed rule change, 
the Exchange will enter into a Tick Size Pilot Program Regulatory 
Services Agreement with FINRA (``TSPP RSA''), pursuant to which 
FINRA will consume and process certain data elements required under 
Appendices B.I, B.II, B.IV and C.I of the Plan that would either be 
submitted to FINRA by the Exchange (for Appendices B.I and B.II 
data) or by CHX Participants directly (for Appendices B.IV and C.I 
data). In turn, FINRA would provide the Exchange with processed data 
in a form as required for submission to the SEC under the Plan. At 
all times, the Exchange will maintain its data reporting obligations 
pursuant to the Plan.
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     Proposed Article 20, Rule 13(b)(3)(B) is similar to 
approved BZX Rule 11.27(b)(3)(B), except that the Exchange is also 
proposing to require CHX Participant Market Makers for which the 
Exchange is the DEA to transmit Appendix B.IV data to FINRA directly, 
as discussed below.\26\
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    \26\ See id.
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     Proposed Article 20, Rule 13(b)(4)(B) is similar to 
approved BZX Rule 11.27(b)(4)(B), except that the Exchange is also 
proposing to require CHX Participant Market Makers for which the 
Exchange is the DEA to transmit Appendix C.I data to FINRA directly, as 
discussed below.\27\
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    \27\ See id.
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Appendices B.I and B.II
    Proposed Article 20, Rule 13(b)(1) requires that a CHX Participant 
that operates a Trading Center shall establish, maintain and enforce 
written policies and procedures that are reasonably designed to comply 
with the data collection and transmission requirements of Items I and 
II to Appendix B of the Plan, and a CHX Participant that is a Market 
Maker shall establish, maintain and enforce written policies and 
procedures that are reasonably designed to comply with the data 
collection and transmission requirements of Item IV of Appendix B of 
the Plan and Item I of Appendix C of the Plan.
    The Exchange notes that the data requirements of Items I and II to 
Appendix B of the Plan necessitates that the Exchange adopt two sets of 
rules: One for CHX Participants that operate Trading Centers subject to 
the Plan for which the Exchange is the DEA (i.e., proposed Article 20, 
Rule 13(b)(2)(A)) and another for the Trading Center operated by the 
Exchange (i.e., proposed Article 20, Rule 13(b)(2)(B)), as discussed 
below.

[[Page 19277]]

Certain CHX Participant Trading Centers
    Similar to FINRA Rule 6191(b)(2)(A)(i), proposed Article 20, Rule 
13(b)(2)(A)(i) requires that a CHX Participant that operates a Trading 
Center subject to the Plan, and for which CHX is the DEA, shall collect 
and transmit to the Exchange the data described in Items I and II of 
Appendix B of the Plan with respect to each Pre-Pilot Data Collection 
Security for the period beginning six months prior to the Pilot Period 
through the trading day immediately preceding the Pilot Period; and 
each Pilot Security for the period beginning on the first day of the 
Pilot Period through six months after the end of the Pilot Period.\28\
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    \28\ As of the date of this filing, the Exchange has three CHX 
Participants that would be subject to the requirements of proposed 
paragraph (b)(2)(A). All three of these firms are also members of 
FINRA.
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    Section IV of the Plan (Policies and Procedures) provides that each 
Plan Participant that is the DEA of a member of a Plan Participant 
operating a Trading Center is required to develop appropriate policies 
and procedures for collecting and reporting the data described in Items 
I and II of Appendix B, as applicable, to the DEA Plan Participant. The 
Exchange has determined that all of the data required by Appendix B.I 
and B.II to the Plan currently is reported to the Exchange pursuant to 
CHX Article 11, Rule 3, which requires CHX Participants for which the 
Exchange is the DEA, among others, to record certain order and 
execution information into an electronic system designated by the 
Exchange. In the interest of increasing the efficiency of the data 
collection process and the consistency of that data to be collected 
under the Plan, the Exchange proposes to use Article 11, Rule 3 as the 
vehicle through which Trading Centers must comply with their reporting 
obligations pursuant to Appendix B.I and B.II of the Plan.
    Accordingly, similar to FINRA Rule 6191(b)(2)(A)(ii), proposed 
Article 20, Rule 13(b)(2)(A)(ii) provides that each CHX Participant 
that operates a Trading Center subject to the Plan, and for which CHX 
is the DEA, shall meet the data collection and reporting requirements 
in Items I and II of Appendix B through their submission of data 
elements required pursuant to Article 11, Rule 3, as well as the 
following additional data elements, when an order in a Pilot Security 
or Pre-Pilot Data Collection Security is received or originated: (a) 
Whether the CHX Participant is a Trading Center in either the Pilot 
Security or the Pre-Pilot Data Collection Security; and (b) whether the 
order is routable.
    Moreover, similar to FINRA Rule 6191(b)(2)(A)(iii), proposed CHX 
Article 20, Rule 13(b)(2)(A)(iii) provides that when an order in a 
Pilot Security or Pre-Pilot Data Collection Security is executed, each 
CHX Participant subject to this paragraph (b)(2)(A) shall comply with 
its collection and transmission obligations under Items I and II of 
Appendix B to the Plan and this Rule by identifying whether CHX 
Participant is relying upon the Retail Investor Order exception with 
respect to the execution of the order.
    As an initial matter, only those CHX Participants that operate a 
Trading Center and for which the Exchange is the DEA are required to 
make any changes to their Article 11, Rule 3 data recording. CHX 
Participants that do not operate Trading Centers or that have another 
self-regulatory organization as DEA will be permitted to leave the new 
fields blank. CHX Participants that operate Trading Centers and which 
the Exchange is the DEA will be required to indicate their status as a 
Trading Center for new orders involving Pre-Pilot Data Collection 
Securities and Pilot Securities.\29\
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    \29\ The Exchange notes that CHX Participants are already 
required to record the display size of an order, pursuant to the CHX 
Article 11, Rule 3(c)(5) and (16), and thus, the Exchange already 
captures information required by Appendix B regarding hidden and 
displayed size.
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    Moreover, the proposed rule change adds a new requirement to 
capture whether an order in a Pre-Pilot Data Collection Security or a 
Pilot Security received by a CHX Participant that operates a Trading 
Center and for which the Exchange is the DEA is routable \30\ and 
whether the CHX Participant is relying on the Retail Investor Order 
exception in the Plan with respect to the execution of the order. These 
additional fields are necessary so that the Exchange can capture the 
information required by Item II(n) and II(o) of Appendix B to the Plan.
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    \30\ The Exchange notes that it currently requires CHX 
Participants for which the Exchange is the DEA to record whether an 
order received by the CHX Participant is routable, pursuant to CHX 
Article 11, Rule 3(c)(27), which provides that the Exchange may 
require CHX Participants to record ``such other information as the 
Exchange may from time to time require.''
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    Similar to FINRA Rule 6191(b)(2)(A)(iv), proposed Article 20, Rule 
13(b)(2)(A)(iv) provides that each CHX Participant that operates a 
Trading Center subject to the Tick Size Pilot Program, and for which 
the Exchange is the DEA, shall submit data required under this 
paragraph (b)(2)(A) by 8:00 a.m. CST the calendar day following the 
reportable event.
    As set forth in Section VII of the Plan (Collection of Pilot Data) 
and similar to FINRA Rule 6191(b)(2)(B), proposed Article 20, Rule 
13(b)(2)(A)(v) provides that the Exchange shall collect and transmit to 
the SEC the data described in Items I and II of Appendix B of the Plan 
and collected pursuant to this paragraph (b)(2)(A).\31\ The Exchange 
shall transmit such data to the SEC in a pipe delimited format, on a 
disaggregated basis by Trading Center, within 30 calendar days 
following month end. Also, the Exchange shall make such data publicly 
available on the CHX Web site on a monthly basis at no charge and shall 
not identify the Trading Center that generated the data.
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    \31\ See supra note 25.
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CHX Trading Center
    Proposed Article 20, Rule 13(b)(2)(B)(i) provides that the Exchange 
shall collect and transmit to the SEC the data described in Items I and 
II of Appendix B of the Plan relating to trading activity in Pre-Pilot 
Securities and Pilot Securities on a Trading Center operated by the 
Exchange. The Exchange shall transmit such data to the SEC in a pipe 
delimited format, on a disaggregated basis by Trading Center, within 30 
calendar days following month end for: (i) Each Pre-Pilot Data 
Collection Security for the period beginning six months prior to the 
Pilot Period through the trading day immediately preceding the Pilot 
Period; and (ii) each Pilot Security for the period beginning on the 
first day of the Pilot Period through six months after the end of the 
Pilot Period. The Exchange also shall make such data publicly available 
on the Exchange Web site on a monthly basis at no charge and will not 
identify the CHX Participant that generated the data.
Appendix B.IV
    Appendix B.IV (Daily Market Maker Participation Statistics) 
requires a Plan Participant to collect data related to Market Maker 
participation from each Market Maker \32\ engaging in trading activity 
on a Trading Center operated by the Plan Participant. The Exchange is 
therefore proposing Article 20, Rule 13(b)(3) to gather data about a 
Market Maker's participation in Pilot Securities and Pre-Pilot Data 
Collection Securities. Proposed Article 20, Rule 13(b)(3)(A) provides 
that a CHX Participant that is

[[Page 19278]]

a Market Maker shall collect and transmit to their DEA data relating to 
Item IV of Appendix B of the Plan with respect to activity conducted on 
any Trading Center in Pilot Securities and Pre-Pilot Data Collection 
Securities in furtherance of its status as a registered Market Maker, 
including a Trading Center that executes trades otherwise than on a 
national securities exchange, for transactions that have settled or 
reached settlement date. The proposed rule requires Market Makers to 
transmit such data in a format required by their DEA, by 12:00 p.m. EST 
on T+4 for: (i) Transactions in each Pre-Pilot Data Collection Security 
for the period beginning six months prior to the Pilot Period through 
the trading day immediately preceding the Pilot Period; and (ii) for 
transactions in each Pilot Security for the period beginning on the 
first day of the Pilot Period through six months after the end of the 
Pilot Period.
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    \32\ The Plan defines a Market Maker as ``a dealer registered 
with any self-regulatory organization, in accordance with the rules 
thereof, as (i) a market maker or (ii) a liquidity provider with an 
obligation to maintain continuous, two-sided trading interest.''
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    However, the Exchange understands that some CHX Participants may 
utilize a DEA that is not a Plan Participant to the Plan and that their 
DEA would not be subject to the Plan's data collection requirements. In 
such case, a DEA that is not a Plan Participant of the Plan would not 
be required to collect the required data and may not establish 
procedures for CHX Participants for which it acts as DEA to report the 
data required under subparagraphs (b)(3)(A) of proposed Article 20, 
Rule 13(b)(3)(A) and in accordance with Item IV of Appendix B of the 
Plan.
    Moreover, to facilitate the linking of relevant transactions across 
various Trading Centers by a CHX Participant Market Maker, the Exchange 
proposes to require CHX Participants Market Makers for which the 
Exchange is the DEA to submit data relating to Item IV of Appendix B to 
FINRA directly.\33\
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    \33\ See supra note 25.
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    Therefore, the Exchange proposes to adopt subparagraph (b)(3)(B) to 
proposed Article 20, Rule 13 to require a CHX Participant that is a 
Market Maker whose DEA (i) is not a Plan Participant to the Plan or 
(ii) is the Exchange to transmit the data collected pursuant to 
paragraph (3)(A) of proposed Article 20, Rule 13 to FINRA, which is a 
Plan Participant to the Plan and is to collect data relating to Item IV 
of Appendix B of the Plan on behalf of the Plan Participants. For 
Market Makers for which it is the DEA, FINRA issued a Market Maker 
Transaction Data Technical Specification to collect data on Pre-Pilot 
Data Collection Securities and Pilot Securities from Trading Centers to 
comply with the Plan's data collection requirements.\34\
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    \34\ CHX Participant Market Makers that would be obligated to 
submit data relating to Item IV of Appendix B to FINRA directly 
should refer to the Market Maker Transaction Data Technical 
Specification on the FINRA Web site at http://www.finra.org/sites/default/files/market-maker-transaction-data-tech-specs.pdf.
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    Proposed Article 20, Rule 13(b)(3)(C) provides that the Exchange 
shall transmit the data collected by the DEA or FINRA pursuant to 
proposed Article 20, Rule 13(b)(3)(A) and (B) above relating to Market 
Maker activity on a Trading Center operated by the Exchange to the SEC 
in a pipe delimited format within 30 calendar days following month end. 
The Exchange shall also make such data publicly available on the 
Exchange Web site on a monthly basis at no charge and shall not 
identify the Trading Center that generated the data.
Appendix C.I
    Appendix C.I (Market Maker Profitability) requires a Plan 
Participant to collect data related to Market Maker profitability from 
each Market Maker for which it is the DEA. Specifically, the Plan 
Participant is required to collect the total number of shares of orders 
executed by the Market Maker; the raw Market Maker realized trading 
profits, and the raw Market Maker unrealized trading profits. Data 
shall be collected for dates starting six months prior to the Pilot 
Period through six months after the end of the Pilot Period. This data 
shall be collected on a monthly basis, to be provided in a pipe 
delimited format to the Plan Participant, as DEA, within 30 calendar 
days following month end. Appendix C.II (Aggregated Market Maker 
Profitability) requires the Plan Participant, as DEA, to aggregate the 
Appendix C.I data, and to categorize this data by security as well as 
by the control group and each Test Group. That aggregated data shall 
contain information relating to total raw Market Maker realized trading 
profits, volume-weighted average of raw Market Maker realized trading 
profits, the total raw Market Maker unrealized trading profits, and the 
volume-weighted average of Market Maker unrealized trading profits.
    The Exchange is therefore proposing Article 20, Rule 13(b)(4) to 
set forth the requirements for the collection and transmission of data 
pursuant to Appendix C.I of the Plan. Proposed Article 20, Rule 
13(b)(4)(A) requires that a CHX Participant that is a Market Maker 
shall collect and transmit to their DEA the data described in Item I of 
Appendix C of the Plan with respect to executions in Pilot Securities 
that have settled or reached settlement date that were executed on any 
Trading Center. The proposed rule also requires CHX Participants to 
provide such data in a format required by their DEA by 12 p.m. EST on 
T+4 for executions during and outside of Regular Trading Hours in each: 
(i) Pre-Pilot Data Collection Security for the period beginning six 
months prior to the Pilot Period through the trading day immediately 
preceding the Pilot Period; and (ii) Pilot Security for the period 
beginning on the first day of the Pilot Period through six months after 
the end of the Pilot Period.
    For the same reasons set forth above for subparagraph (b)(3)(B) to 
proposed Article 20, Rule 13, the Exchange proposes to adopt 
subparagraph (b)(4)(B) to proposed Article 20, Rule 13 to require a CHX 
Participant that is a Market Maker whose DEA (i) is not a Plan 
Participant to the Plan or (ii) the Exchange to transmit the data 
collected pursuant to paragraph (4)(A) of Article 20, Rule 13 to FINRA 
directly. As stated above, FINRA is a Plan Participant to the Plan and 
is to collect data relating to Item I of Appendix C of the Plan on 
behalf of the Plan Participants. For Market Makers for which it is the 
DEA, FINRA issued a Market Maker Transaction Data Technical 
Specification to collect data on Pre-Pilot Data Collection Securities 
and Pilot Securities from Trading Centers to comply with the Plan's 
data collection requirements.\35\
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    \35\ Id.
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Appendix B.III
    The Exchange is also adopting a rule setting forth the manner in 
which Market Maker participation will be calculated. Item III of 
Appendix B of the Plan requires each Plan Participant that is a 
national securities exchange to collect daily Market Maker registration 
statistics categorized by security, including the following 
information: (i) Ticker symbol; (ii) the Plan Participant exchange; 
(iii) number of registered market makers; and (iv) the number of other 
registered liquidity providers. Therefore, the Exchange proposes to 
adopt proposed Article 20, Rule 13(b)(5) providing that the Exchange 
shall collect and transmit to the SEC the data described in Item III of 
Appendix B of the Plan relating to daily Market Maker registration 
statistics in a pipe delimited format within 30 calendar days following 
month end for: (i) Transactions in each Pre-Pilot Data Collection 
Security for the period beginning six months prior to the Pilot Period 
through the trading day immediately preceding the Pilot Period;

[[Page 19279]]

and (ii) transactions in each Pilot Security for the period beginning 
on the first day of the Pilot Period through six months after the end 
of the Pilot Period.
    The Exchange is also proposing, through Interpretations and 
Policies, to clarify other aspects of the data collection 
requirements.\36\ Proposed Interpretations and Policies .02 relates to 
the use of the retail investor order flag for purposes of Appendix 
B.II(n) reporting. The Plan currently states that market and marketable 
limit orders shall include a ``yes/no'' field relating to the Retail 
Investor Order flag. The Exchange is proposing Interpretations and 
Policies .02 to clarify that, for purposes of the reporting requirement 
in Appendix B.II(n), a Trading Center shall report ``y'' to their DEA 
where it is relying upon the Retail Investor Order exception to Test 
Groups Two and Three, and ``n'' for all other instances.\37\ The 
Exchange believes that requiring the identification of a Retail 
Investor Orders only where the exception may apply (i.e., Pilot 
Securities in Test Groups Two and Three) is consistent with Appendix 
B.II(n).
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    \36\ The Exchange is also proposing Interpretations and Policies 
.01 to Article 20, Rule 13 to clarify that certain enumerated terms 
used throughout Article 20, Rule 13 shall have the same meaning as 
set forth in the Plan.
    \37\ FINRA, on behalf of the Plan Participants submitted a 
letter to Commission requesting exemption from certain provisions of 
the Plan related to data collection. See letter from Marcia E. 
Asquith, Senior Vice President and Corporate Secretary, FINRA dated 
December 9, 2015 to Robert W. Errett, Deputy Secretary, Commission 
(``Exemption Request''). The Commission, pursuant to its authority 
under Rule 608(e) of Regulation NMS, granted BZX a limited exemption 
from the requirement to comply with certain provisions of the Plan 
as specified in the letter and noted herein. See letter from David 
Shillman, Associate Director, Division of Trading and Markets, 
Commission to Eric Swanson, General Counsel, BZX, dated February 10, 
2016 (``Exemption Letter'').
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    Interpretations and Policies .03 requires that CHX Participants 
populate a field to identify to their DEA whether an order is affected 
by the bands in place pursuant to the National Market System Plan to 
Address Extraordinary Market Volatility.\38\ Pursuant to the Limit-Up 
Limit-Down Plan, between 9:30 a.m. and 4:00 p.m., the Securities 
Information Processor (``SIP'') calculates a lower price band and an 
upper price band for each NMS stock. These price bands represent a 
specified percentage above or below the stock's reference price, which 
generally is calculated based on reported transactions in that stock 
over the preceding five minutes. When one side of the market for an 
individual security is outside the applicable price band, the SIP 
identifies that quotation as non-executable. When the other side of the 
market reaches the applicable price band (e.g., the offer reaches the 
lower price band), the security enters a Limit State. The stock would 
exit a Limit State if, within 15 seconds of entering the Limit State, 
all Limit State Quotations were executed or canceled in their entirety. 
If the security does not exit a Limit State within 15 seconds, then the 
primary listing exchange declares a five-minute trading pause, which 
would be applicable to all markets trading the security.
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    \38\ See National Market System Plan to Address Extraordinary 
Market Volatility, Securities Exchange Act Release No. 67091 (May 
31, 2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (``Limit-Up 
Limit-Down Plan'').
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    The Exchange and the other Plan Participants have determined that 
it is appropriate to create a new flag for reporting orders that are 
affected by the Limit-Up Limit-Down bands. Accordingly, a Trading 
Center shall report a value of ``Y'' to their DEA when the ability of 
an order to execute has been affected by the Limit-Up Limit-Down bands 
in effect at the time of order receipt. A Trading Center shall report a 
value of ``N'' to their DEA when the ability of an order to execute has 
not been affected by the Limit-Up Limit-Down bands in effect at the 
time of order receipt.
    Interpretations and Policies .03 also requires, for securities that 
may trade in a foreign market, that the Plan Participant indicate 
whether the order was handled domestically, or routed to a foreign 
venue. Accordingly, the Plan Participant will indicate, for purposes of 
Appendix B.I, whether the order was: (1) Fully executed domestically, 
or (2) fully or partially executed on a foreign market. For purposes of 
Appendix B.II, the Plan Participant will classify all orders in 
securities that may trade in a foreign market Pilot and Pre-Pilot 
Securities as: (1) Directed to a domestic venue for execution; (2) may 
only be directed to a foreign venue for execution; or (3) was fully or 
partially directed to a foreign venue at the discretion of the CHX 
Participant. The Exchange believes that this proposed flag will better 
identify orders in securities that may trade in a foreign market, as 
such orders that were routed to foreign venues would not be subject to 
the Plan's quoting and trading requirements, and could otherwise 
compromise the integrity of the data.
    Interpretations and Policies .04 relates to the time ranges 
specified in Appendix B.I.a(14), B.I.a(15), B.I.a(21) and 
B.I.a(22).\39\ The Exchange and the other Plan Participants have 
determined that it is appropriate to change the reporting times in 
these provisions to require more granular reporting for these 
categories. Accordingly, the Exchange proposes to add Appendix 
B.I.a(14A), which will require Trading Centers to report the cumulative 
number of shares of orders executed from 100 microseconds to less than 
1 millisecond after the time of order receipt. Appendix B.I.a(15) will 
be changed to require the cumulative number of shares of orders 
executed from 1 millisecond to less than 100 milliseconds after the 
time of order receipt. The Exchange also proposes to add Appendix 
B.I.a(21A), which will require Trading Centers to report the cumulative 
number of shares of orders canceled from 100 microseconds to less than 
1 millisecond after the time of order receipt. Appendix B.I.a(22) will 
be changed to require the cumulative number of shares of orders 
canceled from 1 millisecond to less than 100 milliseconds after the 
time of order receipt. The Exchange believes that these new reporting 
requirements will contribute to a meaningful analysis of the Pilot by 
producing more granular data on these points.\40\
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    \39\ Specifically, Appendix B.I.a(14) requires reporting of the 
cumulative number of shares of orders executed from 0 to less than 
100 microseconds after the time of order receipt; Appendix B.I.a(15) 
requires reporting of the cumulative number of shares of orders 
executed from 100 microseconds to less than 100 milliseconds after 
the time of order receipt; Appendix B.I.a(21) requires reporting of 
the cumulative number of shares of orders cancelled from 0 to less 
than 100 microseconds after the time of order receipt; and Appendix 
B.I.a(22) requires reporting of the cumulative number of shares of 
orders cancelled from 100 microseconds to less than 100 milliseconds 
after the time of order receipt.
    \40\ The Commission granted BZX an exemption from Rule 608(c) 
related to this provision. See Exemption Letter, supra note 37.
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    Interpretations and Policies .05 relates to the relevant 
measurement for purposes of Appendix B.I.a(31)-(33) reporting. 
Currently, the Plan states that this data shall be reported as of the 
time of order execution. The Exchange and the other Plan Participants 
believe that this information should more properly be captured at the 
time of order receipt as evaluating share-weighted average prices at 
the time of order receipt is more consistent with the goal of observing 
the effect of the Pilot on the liquidity of Pilot Securities. The 
Exchange is therefore proposing to make this change through 
Interpretations and Policies .05.\41\ This change will make these 
provisions consistent with the remainder of the statistics in Appendix 
B.I.a, which are all based on order receipt.
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    \41\ Id.
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    Interpretations and Policies .06 addresses the status of not-held 
and auction orders for purposes of Appendix

[[Page 19280]]

B.I reporting. Currently, Appendix B.I sets forth eight categories of 
orders, including market orders, marketable limit orders, and inside-
the-quote resting limit orders, for which daily market quality 
statistics must be reported. Currently, Appendix B.I does not provide a 
category for not held orders, clean cross orders, auction orders, or 
orders received when the NBBO is crossed. The Exchange and the other 
Plan Participants have determined that it is appropriate to include 
separate categories for these orders types for purposes of Appendix B 
reporting. The Exchange is therefore proposing Interpretations and 
Policies .06 to provide that not held orders shall be included as an 
order type for purposes of Appendix B reporting, and shall be assigned 
the number (18). Clean cross orders shall be included as an order type 
for purposes of Appendix B reporting, and shall be assigned the number 
(19); auction orders shall be included an as order type for purposes of 
Appendix B reporting, and shall be assigned the number (20); and orders 
that cannot otherwise be classified, including, for example, orders 
received when the NBBO is crossed shall be included as an order type 
for purposes of Appendix B reporting, and shall be assigned the number 
(21). All of these orders already are included in the scope of Appendix 
B; however, without this proposed change, these order types would be 
categorized with other orders, such as regular held orders, that should 
be able to be fully executed upon receipt, which would compromise the 
value of this data.
    The Exchange is proposing Interpretations and Policies .07 to 
clarify the scope of the Plan as it relates to CHX Participants that 
only execute orders limited purposes. Specifically, the Exchange and 
the other Plan Participants believe that a CHX Participant that only 
executes orders otherwise than on a national securities exchange for 
the purpose of: (1) Correcting a bona fide error related to the 
execution of a customer order; (2) purchasing a security from a 
customer at a nominal price solely for purposes of liquidating the 
customer's position; or (3) completing the fractional share portion of 
an order \42\ shall not be deemed a Trading Center for purposes of 
Appendix B to the Plan. The Exchange is therefore proposing 
Supplementary Material .09 to make this clarification.
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    \42\ The Exchange notes that where a CHX Participant purchases a 
fractional share from a customer, the Trading Center that executes 
the remaining whole shares of that customer order would subject to 
subject to Appendix B of the Plan.
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    The Exchange is proposing Interpretations and Policies .08 to 
clarify that, for purposes of the Plan, Trading Centers must begin the 
data collection required pursuant to Appendix B.I.a(1) through B.II.(y) 
of the Plan and Item I of Appendix C of the Plan on April 4, 2016. 
While the Exchange or the CHX Participant's DEA will provide the 
information required by Appendix B and C of the Plan during the Pilot 
Period, the requirement that the Exchange or their DEA provide 
information to the SEC within 30 days following month end and make such 
data publicly available on its Web site pursuant to Appendix B and C 
shall commence six months prior to the beginning of the Pilot 
Period.\43\
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    \43\ In its order approving the Plan, the SEC noted that the 
Pilot shall be implemented within one year of the date of 
publication of its order, e.g., by May 6, 2016. See Approval Order, 
80 FR at 27545. However, on November 6, 2015, the SEC extended the 
implementation date approximately five months to October 3, 2016. 
See Securities Exchange Act Release No. 76382 (November 6, 2015), 80 
FR 70284 (File No. 4-657) (Order Granting Exemption From Compliance 
With the National Market System Plan To Implement a Tick Size Pilot 
Program); see also Letter from Brendon J. Weiss, Co-Head, Government 
Affairs, Intercontinental Exchange/NYSE, to Brent J. Fields, 
Secretary, Commission, dated November 4, 2015 (requesting the data 
collection period be extended until six months after the requisite 
SRO rules are approved, and the implementation data of the Tick Size 
Pilot until six months thereafter).
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    The Exchange is proposing Interpretations and Policies .09 to 
address the requirement in Appendix C.I(b) of the Plan that the 
calculation of raw Market Maker realized trading profits utilize a last 
in, first out (``LIFO'')-like method to determine which share prices 
shall be used in that calculation. The Exchange and the other Plan 
Participants believe that it is more appropriate to utilize a 
methodology that yields LIFO-like results, rather than utilizing a 
LIFO-like method, and the Exchange is therefore proposing 
Interpretations and Policies .09 to make this change.\44\ The Exchange 
is proposing that, for purposes of Item I of Appendix C, the Plan 
Participants shall calculate daily Market Maker realized profitability 
statistics for each trading day on a daily LIFO basis using reported 
trade price and shall include only trades executed on the subject 
trading day. The daily LIFO calculation shall not include any positions 
carried over from previous trading days. For purposes of Item I.c of 
Appendix C, the Plan Participants shall calculate daily Market Maker 
unrealized profitability statistics for each trading day on an average 
price basis. Specifically, the Plan Participants must calculate the 
volume weighted average price of the excess (deficit) of buy volume 
over sell volume for the current trading day using reported trade 
price. The gain (loss) of the excess (deficit) of buy volume over sell 
volume shall be determined by using the volume weighted average price 
compared to the closing price of the security as reported by the 
primary listing exchange. In reporting unrealized trading profits, the 
Plan Participant shall also report the number of excess (deficit) 
shares held by the Market Maker, the volume weighted average price of 
that excess (deficit) and the closing price of the security as reported 
by the primary listing exchange used in reporting unrealized 
profit.\45\
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    \44\ Appendix C.I currently requires Market Maker profitability 
statistics to include (1) the total number of shares of orders 
executed by the Market Maker; (2) raw Market Maker realized trading 
profits, which is the difference between the market value of Market 
Maker shares and the market value of Market Maker purchases, using a 
LIFO-like method; and (3) raw Market Maker unrealized trading 
profits, which is the difference between the purchase or sale price 
of the end-of-day inventory position of the Market Maker and the 
Closing Price. In the case of a short position, the Closing Price 
from the sale will be subtracted; in the case of a long position, 
the purchase price will be subtracted from the Closing Price.
    \45\ The Commission granted BZX an exemption from Rule 608(c) 
related to this provision. See Exemption Letter, supra note 37.
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    Finally, the Exchange is proposing Interpretations and Policies .10 
to address the securities that will be used for data collection 
purposes prior to the commencement of the Pilot. The Exchange and the 
other Plan Participants have determined that it is appropriate to 
collect data for a group of securities that is larger, and using 
different quantitative thresholds, than the group of securities that 
will be Pilot Securities. The Exchange is therefore proposing 
Interpretations and Policies .10 to define ``Pre-Pilot Data Collection 
Securities'' as the securities designated by the Plan Participants for 
purposes of the data collection requirements described in Items I, II 
and IV of Appendix B and Item I of Appendix C of the Plan for the 
period beginning six months prior to the Pilot Period and ending on the 
trading day immediately preceding the Pilot Period. The Plan 
Participants shall compile the list of Pre-Pilot Data Collection 
Securities by selecting all NMS stocks with a market capitalization of 
$5 billion or less, a Consolidated Average Daily Volume (CADV) of 2 
million shares or less and a closing price of $1 per share or more. The 
market capitalization and the closing price thresholds shall be applied 
to the last day of the Pre-Pilot measurement period, and the CADV 
threshold shall be applied to the

[[Page 19281]]

duration of the Pre-Pilot measurement period. The Pre-Pilot measurement 
period shall be the three calendar months ending on the day when the 
Pre-Pilot Data Collection Securities are selected. The Pre-Pilot Data 
Collection Securities shall be selected thirty days prior to the 
commencement of the six-month Pre-Pilot Period. On the trading day that 
is the first trading day of the Pilot Period through six months after 
the end of the Pilot Period, the data collection requirements will 
become applicable to the Pilot Securities only. A Pilot Security will 
only be eligible to be included in a Test Group if it was a Pre-Pilot 
Security.
Implementation Date
    The proposed rule change will be operative on April 4, 2016.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \46\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \47\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \46\ 15 U.S.C. 78f(b).
    \47\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that this proposal is consistent with the Act 
because it implements and clarifies the provisions of the Plan, and is 
designed to assist the Exchange in meeting its regulatory obligations 
pursuant of the Plan. In approving the Plan, the SEC noted that the 
Pilot was an appropriate, data-driven test that was designed to 
evaluate the impact of a wider tick size on trading, liquidity, and the 
market quality of securities of smaller capitalization companies, and 
was therefore in furtherance of the purposes of the Act. The Exchange 
believes that this proposal is in furtherance of the objectives of the 
Plan, as identified by the SEC, and is therefore consistent with the 
Act because the proposal implements and clarifies the requirements of 
the Plan and applies specific obligations to CHX Participants in 
furtherance of compliance with the Plan.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
notes that the proposed rule change implements the provisions of the 
Plan, and is designed to assist the Exchange in meeting its regulatory 
obligations pursuant of the Plan. The Exchange also notes that the data 
collection requirements for CHX Participants that operate Trading 
Centers will apply equally to all such CHX Participants, as will the 
data collection requirements for Market Makers.

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, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \48\ and Rule 19b-4(f)(6) thereunder.\49\
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    \48\ 15 U.S.C. 78s(b)(3)(A).
    \49\ 17 CFR 240.19b-4(f)(6). 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 pursuant to Rule 19b-4(f)(6) under the 
Act \50\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \51\ permits the 
Commission to 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. The 
Commission believes that waiver of the operative delay is consistent 
with the protection of investors and the public interest because it 
would allow the Exchange to implement the proposed amendments on April 
4, 2016, the date upon which the data collection requirements of the 
Plan become effective.\52\ Therefore, the Commission hereby waives the 
operative delay and designates the proposal operative on April 4, 
2016.\53\
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    \50\ 17 CFR 240.19b-4(f)(6).
    \51\ 17 CFR 240.19b-4(f)(6)(iii).
    \52\ See Securities Exchange Act Release No. 76382 (November 6, 
2015), 80 FR 70284 (File No. 4-657) (Order Granting Exemption From 
Compliance With the National Market System Plan To Implement a Tick 
Size Pilot Program).
    \53\ 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change 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-2016-03 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CHX-2016-03. 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

[[Page 19282]]

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-2016-03, and should be submitted on or before April 
25, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\54\
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    \54\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-07515 Filed 4-1-16; 8:45 am]
 BILLING CODE 8011-01-P


