[Federal Register Volume 78, Number 26 (Thursday, February 7, 2013)]
[Notices]
[Pages 9092-9094]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-02706]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68802; File No. SR-CHX-2013-04]
Self Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending CHX Article 20, Rule 10 To Extend the Effective Date of
Certain Clearly Erroneous Transactions Provisions Operating Under a
Pilot Until September 30, 2013 and To Establish Guidelines for the
Handling of Clearly Erroneous Transactions in Connection With the Plan
To Address Extraordinary Market Volatility
February 1, 2013.
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 January 28, 2013, 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 CHX. CHX has filed this
proposal pursuant to Rule 19b-4(f)(6) of the Act \3\ which is effective
upon filing with the Commission. 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.
\3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CHX proposes to amend CHX Article 20, Rule 10, entitled ``Handling
of Clearly Erroneous Transactions,'' to extend the effective date of
certain provisions operating under a pilot until September 30, 2013.
The Exchange also proposes to adopt new paragraph (i) to Article 20,
Rule 10 in connection with the upcoming operation of the Plan to
Address Extraordinary Market Volatility Pursuant to Rule 608 of
Regulation NMS under the Act (the ``Limit Up-Limit Down Plan'' or
``Plan'').\4\ 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.
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\4\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (Order Approving,
on a Pilot Basis, the National Market System Plan to Address
Extraordinary Market Volatility by BATS Exchange, Inc., BATS Y-
Exchange, Inc., Chicago Board Options Exchange, Incorporated,
Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange,
Inc., Financial Industry Regulatory Authority, Inc., NASDAQ OMX BX,
Inc., NASDAQ OMX PHLX LLC, The Nasdaq Stock Market LLC, National
Stock Exchange, Inc., New York Stock Exchange LLC, NYSE MKT LLC, and
NYSE Arca, Inc).
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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
The purpose of this filing is to extend the effectiveness of the
Exchange's current rule applicable to Clearly Erroneous Transactions
and to adopt a new paragraph (i) to Article 20, Rule 10 in connection
with upcoming operation of the Limit Up-Limit Down Plan.
Proposal To Extend Pilot
Portions of Article 20, Rule 10, explained in further detail below,
are currently operating as a pilot program set to expire on February 4,
2013.\5\ The Exchange proposes to amend paragraph .01 of the
Interpretations and Policies of Article 20, Rule 10 to extend the pilot
program to September 30, 2013.
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\5\ See Securities Exchange Act Release No. 67572 (August 2,
2012), 77 FR 47481 (August 8, 2012) (SR-CHX-2012-11); see also
paragraph .01 of the Interpretations and Policies of CHX Article 20,
Rule 10.
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On September 10, 2010, the Commission approved, on a pilot basis,
changes to CHX Article 20, Rule 10 to provide for uniform treatment:
(1) of clearly erroneous transaction reviews in multi-stock events
involving twenty or more securities; and (2) in the event transactions
occur that result in the issuance of an individual stock trading pause
by the primary market and subsequent transactions that occur before the
trading pause is in effect on the Exchange.\6\ The Exchange also
adopted additional changes to CHX Article 20, Rule 10 that reduced the
[[Page 9093]]
ability of the Exchange to deviate from the objective standards set
forth in Article 20, Rule 10.\7\ The Exchange believes the benefits to
market participants from the more objective Clearly Erroneous
Transactions rule should continue on a pilot basis through September
30, 2013, which is the date that the Exchange anticipates that the
phased implementation of the Limit Up-Limit Down Plan will be complete.
As explained in further detail below, although the Limit Up-Limit Down
Plan is intended to prevent transactions that would need to be
nullified as clearly erroneous, the Exchange believes that certain
protections should be maintained while the industry gains initial
experience operating with the Limit Up-Limit Down Plan, including the
provisions of Article 20, Rule 10 that currently operate as a pilot.
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\6\ See Securities Exchange Act Release No. 62886 (September 10,
2010), 75 FR 56613 (September 16, 2010) (SR-CHX-2010-13).
\7\ Id.
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Proposed Limit Up-Limit Down Provision to Article 20, Rule 10
The Exchange proposes to adopt new paragraph (i) to Article 20,
Rule 10, to provide that the existing provisions of Article 20, Rule 10
will continue to apply to all Exchange transactions, including
transactions in securities subject to the Plan, other than as set forth
in proposed paragraph (i). Accordingly, other than as proposed below,
the Exchange proposes to maintain and continue to apply the Clearly
Erroneous Transaction standards in the same way that it does today.
Notably, this means that the Exchange might nullify transactions that
occur within the price bands disseminated pursuant to the Limit Up-
Limit Down Plan to the extent such transactions qualify as clearly
erroneous under existing criteria. As an example, assume that a Tier 1
security pursuant to the Plan has a reference price pursuant to both
the Plan and Article 20, Rule 10 of $100.00. The lower pricing band
under the Plan would be $95.00 and the upper pricing band under the
Plan would be $105.00. A transaction could occur on the Exchange in
this security at $96.00, as this is within the Plan's pricing bands.
However, if subjected to review as potentially clearly erroneous, the
Exchange would nullify a transaction at $96.00 as clearly erroneous
because it exceeds the 3% threshold that is in place pursuant to
Article 20, Rule 10(c)(1) for securities priced above $50.00 (i.e.,
with a reference price of $100.00, any transactions at or below $97.00
or above $103.00 could be nullified as clearly erroneous). Accordingly,
this proposal maintains the status quo with respect to review of
Clearly Erroneous Transactions and the application of objective
numerical guidelines by the Exchange. The proposal does not increase
the discretion afforded to the Exchange in connection with review of
Clearly Erroneous Transactions.
The Limit Up-Limit Down Plan is designed to prevent transactions
from occurring outside of dynamic price bands disseminated to the
public by the single plan processor as defined in the Limit Up-Limit
Down Plan.\8\ The possibility remains that the Exchange could
experience a technology or systems problem with respect to the
implementation of the price bands disseminated pursuant to the Plan. To
address such possibilities, the Exchange proposes to adopt language to
make clear that if an Exchange technology or systems issue results in
any transactions occurring outside of the price bands disseminated
pursuant to the Plan, an Officer of the Exchange or senior level
employee designee, acting on his or her own motion or at the request of
a third party, shall review and declare any trades null and void.
Absent extraordinary circumstances, any such action of the Officer of
the Exchange or other senior level employee designee shall be taken in
a timely fashion, generally within thirty (30) minutes of the detection
of the erroneous transaction. When extraordinary circumstances exist,
any such action of the Officer of the Exchange or other senior level
employee designee must be taken by no later than the start of the
Regular Trading Session \9\ on the trading day following the date on
which the transaction(s) under review occurred. Although the Exchange
will act as promptly as possible and the proposed objective standard
(i.e., whether a transaction occurred outside the band) should make it
feasible to quickly make a determination, there may be circumstances in
which additional time may be needed for verification of facts or
coordination with outside parties, including the single plan processor
responsible for disseminating the price bands and other market centers.
Accordingly, the Exchange believes it necessary to maintain some
flexibility to make a determination outside of the thirty (30) minute
guideline. In addition, the Exchange proposes that a transaction that
is nullified pursuant to new paragraph (i) would be appealable in
accordance with the provisions of Article 20, Rule 10(e)(2). In
addition, the Exchange proposes to make clear that in the event that a
single plan processor experiences a technology or systems problem that
prevents the dissemination of price bands, the Exchange would make the
determination of whether to nullify transactions based on Article 20,
Rule 10(a)-(h).
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\8\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (Order Approving,
on a Pilot Basis, the National Market System Plan To Address
Extraordinary Market Volatility by BATS Exchange, Inc., BATS Y-
Exchange, Inc., Chicago Board Options Exchange, Incorporated,
Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange,
Inc., Financial Industry Regulatory Authority, Inc., NASDAQ OMX BX,
Inc., NASDAQ OMX PHLX LLC, The Nasdaq Stock Market LLC, National
Stock Exchange, Inc., New York Stock Exchange LLC, NYSE MKT LLC, and
NYSE Arca, Inc).
\9\ The Regular Trading Session commences at 9:30 a.m. Eastern
Time. See CHX Article 20, Rule 1(b).
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The Exchange believes that cancelling trades that occur outside of
the price bands disseminated pursuant to the Plan is consistent with
the purpose and intent of the Plan, as such transactions are not
intended to occur in the first place. If transactions do occur outside
of the price bands and no exception applies--which necessarily would be
caused by a technology or systems issue--then the Exchange believes the
appropriate result is to nullify such transactions.
2. Statutory Basis
The Exchange believes that its proposal is consistent with the
requirements of the Act and the rules and regulations thereunder that
are applicable to a national securities exchange, and, in particular,
with the requirements of Section 6(b) of the Act.\10\ In particular,
the proposal is consistent with Section 6(b)(5) of the Act,\11\ because
it would promote just and equitable principles of trade, remove
impediments to, and perfect the mechanism of, a free and open market
and a national market system. The Exchange believes that the pilot
program promotes just and equitable principles of trade in that it
promotes transparency and uniformity across markets concerning review
of transactions as clearly erroneous. More specifically, the Exchange
believes that the extension of the pilot would help assure that the
determination of whether a clearly erroneous trade has occurred will be
based on clear and objective criteria, and that the resolution of the
incident will occur promptly through a transparent process. The
proposed rule change would also help assure consistent results in
handling erroneous trades across the U.S. markets, thus furthering fair
and orderly markets, the protection of investors and the public
interest. Although the Limit Up-Limit
[[Page 9094]]
Down Plan will be operational during the same time period as the
proposed extended pilot, the Exchange believes that maintaining the
pilot for at least through the phased implementation of the Plan is
operational will help to protect against unanticipated consequences. To
that end, the extension will allow the Exchange to determine whether
Article 20, Rule 10 is necessary once the Plan is operational and, if
so, whether improvements can be made. Further, the Exchange believes it
consistent with the protection of investors and the public interest to
adopt objective criteria to nullify transactions that occur outside of
the Plan's price bands when such transactions should not have been made
but were due to a systems or technology issue.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change
implicates any competitive issues. To the contrary, the Exchange
believes that FINRA and other national securities exchanges are also
filing similar proposals, and thus, that the proposal will help to
ensure consistent rules across market centers.
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 if consistent with the protection of investors
and the public interest, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6)(iii) thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6)(iii). 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 under Rule 19b-4(f)(6) \14\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii) \15\ 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 the proposal
may become operative immediately upon filing.
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 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, as
it will allow the pilot program to continue uninterrupted, thereby
avoiding the investor confusion that could result from a temporary
interruption in the pilot program. For this reason, the Commission
designates the proposed rule change to be operative upon filing.\16\
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\16\ 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.
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 [email protected]. Please include
File Number SR-CHX-2013-04 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-2013-04. 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 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-2013-04 and should be
submitted on or before February 28, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02706 Filed 2-6-13; 8:45 am]
BILLING CODE 8011-01-P