Self-Regulatory Organizations; Proposed Rule Changes:
Federal Register Volume 76, Number 176 (Monday, September 12, 2011)
Notices
Pages 56246-56248
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
FR Doc No: 2011-23171
SECURITIES AND EXCHANGE COMMISSION
Release No. 34-65268; File No. SR-CHX-2011-25
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Alter Cancellation Fee
September 6, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on August 25, 2011, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. CHX has filed the proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(2).
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Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The CHX proposes to amend its Schedule of Fees and Assessments (the
``Fee Schedule''), effective September 1, 2011, relating to its order cancellation fee for Participants entering and subsequently cancelling orders under certain circumstances. The text of this proposed rule change is available on the Exchange's Web site at http://www.chx.com/rules/proposed_rules.htm and in the Commission's Public Reference
Room, 100 F Street, NE., Washington, DC 20549.
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Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the CHX included statements concerning the purpose of and basis for the proposed rule changes and discussed any comments it received regarding the proposal. The text of these statements may be examined at the places specified in Item IV below. The CHX has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements.
Page 56247
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Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change 1. Purpose
Through this filing, the Exchange proposes to amend its Fee
Schedule, effective September 1, 2011, to make changes to its existing order cancellation fee. This fee change is being proposed to recoup some of the costs of administering and processing large numbers of cancelled orders while fairly allocating costs among Participants according to system use.
Beginning in January 2010, the Exchange's Fee Schedule imposed a charge for order cancellations submitted by Participants whose orders rarely are at or near the National Best Bid or Offering (``NBBO'').\5\
The purpose of the order cancellation fee was to incent Participants to submit orders which are close to the NBBO (and are therefore more likely to be executed) or compensate the Exchange for the systems and operational costs and burdens associated with handling and recording orders which rarely execute. After the imposition of the order cancellation fee, however, the Exchange observed that the number of unexecuted and displayed orders had actually increased for certain
Participants. In order to avoid application of the cancellation fee, certain Participants were submitting Quotable orders (i.e., those within 2 cents of the NBBO) to the CHX's Matching System, but for an extremely short duration (e.g., 20 milliseconds). The Exchange observed that those firms entering the limited durational orders conducted much of their business on our trading facilities in Exchange Traded Funds
(``ETFs''), Exchange Traded Notes (``ETNs'') or Exchange Traded
Vehicles (``ETVs''), collectively referred to as Exchange Traded
Products (``ETPs''). Therefore, in August, 2010 the Exchange amended its order cancellation fee to exempt ETPs.\6\
\5\ See, SR-CHX-2010-02, Exchange Act. Rel. No. 34-61392
(January 21, 2010), 75 FR 4436 (Jan. 27, 2010).
\6\ See, SR-CHX-2010-19, Exchange Act. Rel. No. 34-62642 (August 4, 2010), 75 FR 48404 (August 10, 2010).
Since the imposition of the order cancellation fee, and subsequent exemption of ETPs, the Exchange has observed that certain Participants have found a number of methods for avoiding the application of the order cancellation fee. For example, certain Participants submit
Quotable orders to the CHX's Matching System in non-ETPs, but for an extremely short duration. In other cases, Participants submit a large number of Quotable orders in very thinly traded securities prior to the end of the month. These and other methods utilized affect the calculated ratio for a given Participant and therefore the applicability of the order cancellation fee but rarely result in executions.
In order to recoup some of the costs of administering and processing large numbers of cancelled orders, the Exchange is proposing to alter the methodology it uses in determining whether the order cancellation fee would be imposed upon a given Participant.
In determining whether the order cancellation fee would be imposed upon a given Participant, the Exchange would utilize a formula, calculated on a daily basis, that divides the Participant's total cancelled volume in a given issue (``cvissue'') by the Participant's total executed volume in that issue (``exvissue''). In those instances where a Participant's daily statistic in a given issue exceeds 30, the
Exchange would impose an order cancellation fee of $.30 on each cancellation in that issue for that day. The Exchange proposes to calculate and impose order cancellation fees by Participant, by issue, by day, and bill such fees on a monthly basis. The Exchange believes that this methodology is less subject to manipulation and will allow the Exchange to recoup some of the costs of administering and processing large numbers of cancelled orders while fairly allocating costs among Participants according to system use. 2. Statutory Basis
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act \7\ in general, and furthers the objectives of Section 6(b)(4) of the Act \8\ in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and other persons using any facility or system which the Exchange operates or controls. The Exchange believes that amendments to the order cancellation fee described herein should help to recoup some of the costs of administering and processing large numbers of cancelled orders while fairly allocating costs among
Participants according to system use. Furthermore, these changes to the
Fee Schedule would equitably allocate reasonable fees among
Participants in a non-discriminatory manner by properly imposing fees on those Participants which excessively enter and subsequently cancel orders while not imposing fees on Participants that do not engage in this resource draining behavior.
\7\ 15 U.S.C. 78f.
\8\ 15 U.S.C. 78f(b)(4).
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Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
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Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received.
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Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The proposed rule change is to take effect pursuant to Section 19(b)(3)(A)(ii) of the Act \9\ and subparagraph (f)(2) of Rule 19b-4 thereunder \10\ because it establishes or changes a due, fee or other charge applicable to the Exchange's members and non-members, which renders the proposed rule change effective upon filing.
\9\ 15 U.S.C. 78s(b)(3)(A)(ii).
\10\ 17 CFR 240.19b-4(f)(2).
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.
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Solicitation of Comments
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-CHX-2011-25 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CHX-2011-25. This file
Page 56248
number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro/shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-CHX-2011-25 and should be submitted on or before October 3, 2011.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\11\
\11\ 17 CFR 200.30-3(a)(12).
Elizabeth M. Murphy,
Secretary.
FR Doc. 2011-23171 Filed 9-9-11; 8:45 am
BILLING CODE 8011-01-P
