
[Federal Register Volume 81, Number 84 (Monday, May 2, 2016)]
[Notices]
[Pages 26295-26296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-10152]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77711; File No. SR-CHX-2016-01]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Order Approving a Proposed Rule Change To Adopt and Amend Rules To 
Permit the Exchange To Initiate CHX SNAP Cycles

April 26, 2016.

I. Introduction

    On February 26, 2016, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend the functionality of the Exchange's Sub-
second Non-displayed Auction Process (``SNAP'') to permit the Exchange 
to initiate the SNAP when certain criteria are met. The proposed rule 
change was published for comment in the Federal Register on March 15, 
2016.\3\ The Commission did not receive any comment letters regarding 
the proposed rule change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 77331 (March 9, 
2016), 81 FR 13857 (``Notice'').
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II. Overview of the Proposal

    The SNAP is designed to facilitate the bulk trading of a security 
within the Exchange's matching system (``Matching System''). The SNAP 
is a fully-hidden, on-demand auction for a security that, under the 
Exchange's current rules, may be initiated only by the Exchange's 
Participants \4\ and may occur only during the Exchange's regular 
trading session. During the stages of a SNAP (``CHX SNAP Cycle''), the 
Exchange temporarily suspends automated trading on the Exchange for the 
security subject to the SNAP. At the conclusion of a CHX SNAP Cycle, 
the Exchange transitions back to automated trading for the subject 
security. The SNAP Cycle has the following five stages, which are set 
forth in CHX Article 18, Rule 1: \5\ (1) Initiating the SNAP; (2) SNAP 
Order Acceptance Period; (3) Pricing and Satisfaction Period; (4) Order 
Matching Period; and (5) Transition to Open Trading State.\6\
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    \4\ Article 1, Rule 1 of CHX's Rules defines the term 
``Participant.''
    \5\ See generally Securities Exchange Act Release No. 76087 
(October 6, 2015), 80 FR 61540 (SR-CHX-2015-03) (``Approval Order'') 
(order approving the adoption of the SNAP rules on the Exchange). 
The approved rule changes governing the SNAP are not yet operative 
and will become operative upon two weeks' notice by the Exchange to 
its Participants. See Notice, supra note 3, 81 FR at 13857, n.3.
    \6\ Open Trading State means the period of time during the 
regular trading session when orders are eligible for automatic 
execution on the Exchange. See CHX Article 1, Rule 1(qq).
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    Under the Exchange's current rules, only a Participant may initiate 
the SNAP Cycle by submitting a valid limit order marked Start SNAP.\7\ 
To initiate a SNAP Cycle, a Start SNAP order must meet certain size,\8\ 
price,\9\ and timing requirements.\10\ Orders marked with a SNAP 
Auction Only modifier (SNAP AOO--Day, SNAP AOO--One and Done, SNAP AOO- 
Pegged) that are received during Open Trading State are queued in the 
SNAP Auction Only Order (``AOO'') Queue and are eligible for execution 
only during a SNAP Cycle.\11\
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    \7\ See CHX Article 1, Rule 2(h)(1) and CHX Article 18, Rule 
1(b)(1).
    \8\ To initiate a SNAP Cycle, a Start SNAP order must be for (a) 
at least 2,500 shares and have a minimum aggregate notional value of 
$250,000 or (b) at least 20,000 shares with no minimum aggregate 
notional value requirement; provided, however, that certain issues 
specified in the rule may have special minimum size requirements. 
See CHX Article 1, Rule 2(h)(1)(A)(i).
    \9\ To initiate a SNAP Cycle, the limit price of a buy (sell) 
Start SNAP Order must be priced at or through the National Best 
Offer (National Best Bid) at the time the order was received by the 
Matching System. If the National Best Bid and Offer (``NBBO'') is 
crossed or a two-sided NBBO does not exist at the time the limit 
order marked Start SNAP is received by the Matching System, the 
limit order marked Start SNAP would not initiate a SNAP Cycle. A 
limit order marked Start SNAP and Sell Short, as defined under CHX 
Article 1, Rule 2(b)(3)(E), for a covered security subject to short 
sale price test restriction, may not initiate a SNAP Cycle and would 
be cancelled. See CHX Article 1, Rule 2(h)(1)(A)(ii).
    \10\ A Start SNAP order will initiate a SNAP Cycle only if it is 
received during the Exchange's regular trading session; provided, 
however, that it will not initiate a SNAP Cycle if it is received 
(a) within five minutes of the first two-sided quote in the subject 
security having been received by the Exchange from the primary 
market disseminated after either the beginning of the Exchange's 
regular trading session or a trading halt or pause that required the 
Exchange to suspend trading in the subject security; (b) within five 
minutes of the end of the regular trading session; (c) during a SNAP 
Cycle or (d) within one minute after the completion of the previous 
SNAP Cycle. See CHX Article 1, Rule 2(h)(1)(A)(iii).
    \11\ See CHX Article 20, Rule 8(b)(2)(A) and CHX Article 18, 
Rule 1(b)(2)(A)(i).
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    In the instant proposed rule change, the Exchange proposes to 
permit the Exchange to initiate a SNAP Cycle, under certain 
circumstances, in the absence of a Start SNAP order. The Exchange would 
conduct pro forma SNAP reviews of the contents of the CHX book, SNAP 
AOO Queue, and Protected Quotations of external markets for each SNAP-
eligible security, consecutively and continuously in a preset 
order,\12\ and would initiate a SNAP Cycle for a security if a review 
projects that the aggregate number of executions would satisfy certain 
minimum size and notional value requirements, as applicable. In 
conducting the pro forma SNAP review, the Exchange would take a market 
snapshot of the Protected Quotations of external markets in the subject 
security and calculate a pro forma SNAP Price to determine: (1) Whether 
the projected execution size (``PES'') at the pro forma SNAP Price is 
equal to or greater than the corresponding minimum PES; and (2) whether 
the PES within the Matching System at the pro forma SNAP Price would be 
equal to or greater than 80% of the corresponding minimum PES. The 
minimum PES for an Exchange-initiated SNAP is either: (1) 2,500 Shares 
with a minimum aggregate notional value of $250,000 based on the 
midpoint of the NBBO ascertained from the market snapshot; or (2) 
20,000 shares with no minimum aggregate notional value requirement; 
provided, however, that the PES for Berkshire Hathaway, Inc. (BRK-A) 
would be a flat 100 shares.
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    \12\ The Exchange represents that it will not modify this 
procedure absent an approved filing pursuant to Rule 19b-4 under the 
Act. See Notice, supra note 3, 81 FR at 13858, n.21.
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    There would be restrictions on when the Exchange may initiate a 
SNAP Cycle. Proposed Rule 1A(c) prohibits the Exchange from initiating 
a SNAP Cycle:
    (1) Within five minutes of the first two-sided quote in the subject 
security having been received by the Exchange from the primary market 
disseminated after either the beginning of the regular trading session 
or a trading halt, pause or suspension that required the Exchange to 
suspend trading in the subject security;
    (2) within five minutes of the end of the regular trading session;

[[Page 26296]]

    (3) during a SNAP Cycle;
    (4) within one minute after the completion of the previous SNAP 
Cycle;
    (5) if the CHX Routing Services are not available at the time of 
the market snapshot taken pursuant to be proposed Rule 1A(b);
    (6) if the NBBO ascertained from the market snapshot taken pursuant 
to proposed Rule 1A(b) is crossed or a two-sided NBBO does not exist.

III. Discussion and Commission Findings

    After careful review and consideration, the Commission finds that 
the proposed rule change is consistent with the requirements of the Act 
and the rules and regulations thereunder that are applicable to a 
national securities exchange.\13\ In particular, the Commission finds 
that the proposed rule change is consistent with Section 6(b)(5) of the 
Act,\14\ which requires, among other things, that the rules of a 
national securities exchange be designed to promote just and equitable 
principles of trade; 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, and that the 
rules of a national securities exchange not be designed to permit 
unfair discrimination between customers, issuers, brokers or dealers.
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    \13\ In approving this proposed rule change, as amended, the 
Commission notes that it has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
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    When it approved the SNAP, the Commission stated that it believed 
that the SNAP: (1) Was reasonably designed to facilitate the auction 
trading of securities on CHX in a fair and orderly manner, and could 
improve market quality for market participants seeking to execute bulk 
trading interests and for other market participants submitting orders 
in response to that interest; \15\ and (2) may promote liquidity while 
minimizing potential information leakage that could disadvantage market 
participants whose orders are participating in the SNAP Cycle.\16\ The 
Commission believes that the Exchange-initiated SNAP functionality may 
result in more bulk executions in SNAP-eligible securities by 
allowing--under certain circumstances--SNAP AOOs queued in the Matching 
System to match in the absence of a valid Start SNAP order. 
Additionally, the Commission believes that the proposed restrictions on 
when the Exchange may initiate a SNAP Cycle are reasonably designed to 
provide for a fair and orderly market.
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    \15\ See Approval Order, supra note 5, 80 FR at 61544.
    \16\ See id.
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    Further, the Commission believes that the proposed rule change 
would further minimize information leakage from SNAP Cycles in that 
market participants would not know which initiating mechanism triggered 
a particular SNAP Cycle.
    For the above reasons, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act.

IV. Conclusion

    It is therefore ordered that, pursuant to Section 19(b)(2) of the 
Act,\17\ the proposed rule change (SR-CHX-2016-01) be, and hereby is, 
approved.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-10152 Filed 4-29-16; 8:45 am]
 BILLING CODE 8011-01-P


