
[Federal Register Volume 81, Number 180 (Friday, September 16, 2016)]
[Notices]
[Pages 63821-63825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22251]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78812; File No. SR-CHX-2016-17]


Self Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend Article 20, Rule 13(b) To Modify Certain Data Collection 
Requirements of the Regulation NMS Plan To Implement a Tick Size Pilot 
Program

September 12, 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 August 29, 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 amend Article 20, Rule 13(b) to modify certain data 
collection requirements of the Regulation NMS Plan to Implement a Tick 
Size Pilot Program.
    CHX has designated this proposed rule change as non-controversial 
pursuant to Section 19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(6) \4\ 
thereunder and has provided the Commission with the notice required by 
Rule 19b-4(f)(6)(iii).\5\
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    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \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

[[Page 63822]]

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
    On August 25, 2014, the Exchange, and several other self-regulatory 
organizations (the ``Plan Participants'' \6\) filed with the 
Commission, pursuant to Section 11A of the Act \7\ and Rule 608 of 
Regulation NMS thereunder,\8\ the Plan to Implement a Tick Size Pilot 
Program (the ``Plan'').\9\ The Plan Participants filed the Plan to 
comply with an order issued by the Commission on June 24, 2014.\10\ The 
Plan \11\ was published for comment in the Federal Register on November 
7, 2014, and approved by the Commission, as modified, on May 6, 
2015.\12\
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    \6\ 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.
    \7\ 15 U.S.C. 78k-1.
    \8\ 17 CFR 242.608.
    \9\ See Letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014.
    \10\ See Securities Exchange Act Release No. 72460 (June 24, 
2014), 79 FR 36840 (June 30, 2014).
    \11\ Unless otherwise specified, capitalized terms used in this 
rule filing are based on the defined terms of the Plan.
    \12\ 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.
    The Plan provides for the creation of a group of Pilot Securities, 
which shall be placed in a control group and three separate test 
groups, with each subject to varying quoting and trading increments. 
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 will be 
quoted in $0.05 minimum increments but will continue to trade at any 
price increment that is currently permitted.\13\ 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 exception.\14\ 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 
participant that is not displaying at the price of a Trading Center's 
``Best Protected Bid'' or ``Best Protected Offer,'' unless an 
enumerated exception applies.\15\ 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 \16\ will 
apply to the Trade-at requirement.
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    \13\ See Section VI(B) of the Plan.
    \14\ See Section VI(C) of the Plan.
    \15\ See Section VI(D) of the Plan.
    \16\ 17 CFR 242.611.
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    The Plan also requires a Trading Center \17\ or a Market Maker \18\ 
to collect and transmit certain data to its designated examining 
authority (``DEA''), and requires DEAs to transmit this data to the 
Commission. Plan Participants that operate a Trading Center also are 
required under the Plan to collect certain data, which is then 
transmitted directly to the Commission. With respect to Trading 
Centers, Appendix B.I to the Plan (Market Quality Statistics) requires 
a Trading Center to submit to the Plan Participant that is its DEA a 
variety of market quality statistics. Appendix B.II to the Plan (Market 
and Marketable Limit Order Data) requires a Trading Center to submit 
information to its DEA relating to market orders and marketable limit 
orders, including the time of order receipt, order type, the order 
size, and the National Best Bid and National Best Offer quoted price.
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    \17\ 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).
    \18\ 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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    With respect to Market Makers, Appendix B.III requires a Plan 
Participant that is a national securities exchange to collect daily 
Market Maker Registration statistics. Appendix B.IV requires a Plan 
Participant to collect data related to Market Maker participation with 
respect to each Market Maker engaging in trading activity on a Trading 
Center operated by the Plan Participant. Appendix C.I requires a Plan 
Participant to collect data related to Market Maker profitability from 
each Market Maker for which it is the DEA. Appendix C.II requires the 
Plan Participant, as DEA, to aggregate the Appendix C.I data, and to 
transmit this data to the Commission.
    The Commission approved the Pilot on a two-year basis, with 
implementation to begin no later than May 6, 2016.\19\ On November 6, 
2015, the SEC exempted the Plan Participants from implementing the 
pilot until October 3, 2016.\20\ As set forth in Appendices B and C to 
the Plan, data that is reported pursuant to the appendices shall be 
provided for dates starting six months prior to the Pilot Period 
through six months after the end of the Pilot Period. Under the revised 
Pilot implementation date, the Pre-Pilot data collection period 
commenced on April 4, 2016.
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    \19\ See Approval Order at 27533 and 27545.
    \20\ See Securities Exchange Act Release No. 76382 (November 6, 
2015), 80 FR 70284 (November 13, 2015) (File No. 4-657).
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    On March 28, 2016, the Exchange filed with the Commission a 
proposed rule change to adopt Article 20, Rule 13(b) to implement the 
data collection requirements of the Plan, which was immediately 
effective upon filing.\21\ On December 9, 2015, FINRA, on behalf of the 
Plan Participants, submitted an exemptive request to the Commission, 
seeking an exemption from certain data collection and reporting 
requirements set forth in the Plan.\22\
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    \21\ See Securities Exchange Act Release No. 77469 (March 29, 
2016), 81 FR 19275 (April 4, 2016) (SR-CHX-2016-03).
     The Exchange also submitted a proposed rule change to implement 
the quoting and trading requirements of the Plan. See Securities 
Exchange Act Release No. 78146 (June 23, 2016), 81 FR 42380 (June 
29, 2016) (SR-CHX-2016-09).
    \22\ See Letter from Marcia E. Asquith, Senior Vice President 
and Corporate Secretary, FINRA, to Robert W. Errett, Deputy 
Secretary, Commission, dated December 9, 2015 (``Exemptive 
Request''). The Commission, pursuant to its authority under Rule 
608(e) of Regulation NMS, granted the Exchange 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 John C. 
Roeser, Associate Director, Division of Trading and Markets, 
Commission, to Albert Kim, Vice President and Associate General 
Counsel, CHX, dated April 4, 2016 (``Exemption Letter'').
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    The Exchange now proposes to further amend Article 20, Rule 13(b) 
to modify additional data collection and reporting requirements.\23\ 
First,

[[Page 63823]]

Appendix B.I.a(21) through B.I.a(27) currently requires that Trading 
Centers report the cumulative number of shares of cancelled orders 
during a specified duration of time after receipt of the order that was 
cancelled. The Exchange and the other Plan Participants believe that, 
for purposes of reporting cancelled orders, it is appropriate to 
categorize unexecuted Immediate or Cancel orders separately as one 
bucket irrespective of the duration of time after order receipt, i.e., 
without a time increment, to better differentiate orders cancelled 
subsequent to entry from those where the customer's intent prior to 
order entry was to cancel the order if no execution could be 
immediately obtained. The Exchange, therefore, proposes to modify 
Interpretations and Policies paragraph .04 to provide that unexecuted 
Immediate or Cancel orders shall be categorized separately for purposes 
of Appendix B.I.a(21) through B.I.a(27).
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    \23\ The Exchange notes that, in connection with this proposed 
rule change, FINRA, on behalf of the Plan Participants, intends to 
file an exemptive request seeking relief from certain of the Plan's 
data collection requirements.
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    The second change relates to the reporting of daily market quality 
statistics pursuant to Appendix B.I. Currently, Appendix B.I sets forth 
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. The Exchange and the other Plan 
Participants have determined that it is appropriate to include an order 
type for limit orders priced more than $0.10 away from the NBBO for 
purposes of Appendix B reporting. The Exchange therefore proposes to 
amend Interpretations and Policies paragraph .06 to provide that limit 
orders priced more than $0.10 away from the NBBO shall be included as 
an order type for purposes of Appendix B reporting, and shall be 
assigned the number (22). These orders are not currently required to be 
reported pursuant to Appendix B, and the Exchange and the other Plan 
Participants believe that requiring the reporting of such orders will 
produce a more comprehensive data set.
    The third change relates to the reporting of market quality 
statistics pursuant to Appendix B.I for a variety of order types, 
including inside-the-quote resting limit orders (12), at-the-quote 
resting limit orders (13), and near-the-quote resting limit orders 
(within $0.10 of the NBBO) (14). The Exchange and the other Plan 
Participants believe that it is appropriate to require Trading Centers 
to report all orders that fall within these categories, and not just 
those orders that are ``resting.'' The Exchange, therefore, proposes to 
amend Interpretations and Policies paragraph .06 to make this change.
    In the fourth change, the Exchange proposes to add new 
Interpretations and Policies paragraph .09 to modify the manner in 
which market maker participation statistics are calculated. Currently, 
Appendix B.IV provides that market maker participation statistics shall 
be calculated based on share participation, trade participation, cross-
quote share (trade) participation, inside-the-quote share (trade) 
participation, at-the-quote share (trade) participation, and outside-
the-quote share (trade) participation. The Exchange and the other Plan 
Participants have determined that it is appropriate to add the count of 
the number of Market Makers used in the calculation of share (trade) 
participation to each category. The Exchange is therefore proposing 
this change as part of Interpretations and Policies paragraph .09. In 
addition, Appendix B.IV(b) and (c) currently require that, when 
aggregating across Market Makers, share participation and trade 
participation shall be calculated using the share-weighted average and 
trade-weighted average, respectively. The Exchange and the other Plan 
Participants believe that it is more appropriate to calculate share and 
trade participation by providing the total count of shares or trades, 
as applicable, rather than weighted averages, and the Exchange is 
therefore proposing this change as part of Interpretations and Policies 
paragraph .09.
    The fifth change relates to the NBBO that a Trading Center is 
required to use when performing certain quote-related calculations. 
When calculating cross-quote share (trade) participation pursuant to 
Appendix B.IV(d) and inside-the-quote share (trade) participation 
pursuant to Appendix B.IV(e), the Plan requires the Trading Center to 
utilize the NBBO at the time of the trade for both share and trade 
participation calculations. When calculating at-the-quote share (trade) 
participation and outside-the-quote share (trade) participation 
pursuant to Appendix B.IV(f) and (g), the Plan allows the Trading 
Center to utilize the National Best Bid or National Best Offer (NBBO) 
at the time of or immediately before the trade for both share and trade 
participation calculations. The Exchange and the other Plan 
Participants believe that it is appropriate to calculate all quote 
participation (cross-quote share (trade) participation, inside-the-
quote share (trade) participation, at-the-quote share (trade) 
participation and outside-the-quote share (trade) participation) solely 
by reference to the NBBO in effect immediately prior to the trade. The 
Exchange therefore proposes to make this change as part of 
Interpretations and Policies paragraph .09.
    Finally, the Exchange proposes to change the end date until which 
the Pre-Pilot Data Collection Securities shall be used to fulfill the 
Plan's data collection requirements. Currently, Interpretations and 
Policies paragraph .10 provides that Pre-Pilot Data Collection 
Securities are 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 to 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 Exchange and 
the other Plan Participants believe that it is appropriate to use the 
Pilot Securities to satisfy the Plan's data collection requirements 
prior to the commencement of the Pilot. According, the Exchange is 
revising Interpretations and Policies paragraph .10 (which will be re-
numbered as Interpretations and Policies paragraph .11) to provide that 
the Pre-Pilot Data Collection Securities shall be used to satisfy the 
Plan's data collection requirements through thirty-one days prior to 
the Pilot Period, after which time the Pilot Securities shall be used 
for purposes of the data collection requirements.\24\
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    \24\ After regular trading hours on September 2, 2016, the 
national securities exchanges will establish which securities will 
be included as Pilot Securities for purposes of the Plan. The 
Exchange and the other Plan Participants have determined that 
members should use the Pilot Securities list for data collection 
purposes once it becomes available. Thus, the proposed rule change 
requires that, beginning thirty days prior to the first day of the 
Pilot Period--i.e., September 3, 2016--the Exchange and CHX 
Participants will comply with the data collection obligations of the 
Plan by collecting data on the Pilot Securities. As a result, 
beginning on September 3, 2016, CHX Participants must migrate from 
using the Exchange's published Pre-Pilot Data Collection Security 
list and begin using the Pilot Securities list. September 2, 2016 
will be the last day that CHX Participants use the Pre-Pilot Data 
Collection Security list.
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    The Exchange has filed the proposed rule change for immediate 
effectiveness. The Exchange has requested that the SEC waive the 30-day 
operative period so that the proposed rule change can become operative 
on August 30, 2016.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \25\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \26\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in

[[Page 63824]]

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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    \25\ 15 U.S.C. 78f(b).
    \26\ 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 to 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.

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

    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 to the Plan. The Exchange 
also notes that, other than the change to require use of the Pilot 
Securities beginning thirty days prior to the beginning of the Pilot 
Period, the proposed changes will not affect the data collection and 
reporting requirements for CHX Participants that operate Trading 
Centers; the proposed changes will only affect how the Exchange and 
Plan Participants that operate Trading Centers collect and report data. 
The Exchange notes that, with respect to the change to require the use 
of the Pilot Securities beginning thirty days prior to the start of the 
Pilot Period, the proposed change reduces the number of securities on 
which affected CHX Participants otherwise would have been required to 
collect data pursuant to the Plan and Article 20, Rule 13(b). In 
addition, the proposed rule change applies equally to all similarly 
situated CHX Participants. Therefore, 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.

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 has become effective pursuant to Section 
19(b)(3)(A) of the Act \27\ and Rule 19b-4(f)(6) \28\ thereunder 
because the proposal does not: (i) Significantly affect the protection 
of investors or the public interest; (ii) impose any significant burden 
on competition; and (iii) by its terms, become operative for 30 days 
from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest.
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    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \29\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\30\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that so that the 
proposed rule change can become operative on August 30, 2016.
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    \29\ 17 CFR 240.19b-4(f)(6).
    \30\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will allow the Exchange to implement the proposed rules 
immediately thereby preventing delays in the implementation of the 
Plan. The Commission notes that the Plan is scheduled to start on 
October 3, 2016. Therefore, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change to be operative 
upon filing with the Commission.\31\
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    \31\ For purposes only of waiving the operative delay for this 
proposal, the Commission has 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.\32\
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    \32\ 15 U.S.C. 78s(b)(3)(C).
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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-2016-17 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-CHX-2016-17. 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-2016-17 and should be 
submitted on or before October 7, 2016.


[[Page 63825]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-22251 Filed 9-15-16; 8:45 am]
 BILLING CODE 8011-01-P


