[Federal Register Volume 78, Number 192 (Thursday, October 3, 2013)]
[Notices]
[Pages 61413-61416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24164]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70546; File No. SR-CHX-2013-18]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Adopt a Market Data Revenue Rebates Program
September 27, 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 September 26, 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 CHX. CHX has filed this
proposal pursuant to Exchange Act Rule 19b-4(f)(6) \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 the
Substance of the Proposed Rule Change
CHX proposes to amend its Schedule of Fees and Assessments (the
``Fee Schedule'') by adopting Section P to implement the Market Data
Revenue Rebates program. 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.
[[Page 61414]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fee Schedule to adopt Section P
to implement the Market Data Revenue (``MDR'') Rebate program. In sum,
the proposed MDR Rebate program calls for 50% of MDR that exceeds fixed
thresholds in any one of three pools (``Excess MDR'') to be shared with
Participants in proportion to their respective eligible quoting
activity in Tapes A, B and C securities. The proposed MDR Rebate
program is designed to improve display liquidity and promote order flow
to the Exchange by offering an incentive for market participants to
quote on the Exchange.
Background
The Securities Information Processors (``SIPs''), which include the
Securities Information [sic] Automation Corporation (``SIAC'') and the
Unlisted Trading Privilege Plan Quotation Data Feed (``UQDF''), collect
fees from subscribers for trade and quote tape data received from
trading centers and reporting facilities, such as the CHX (collectively
``SIP Participants''). After deducting the cost of operating each tape,
the profits are allocated among the SIP Participants on a quarterly
basis, according to a complex set of calculations that consider
estimates of anticipated MDR, adjustments to comport to actual MDR from
previous quarters and a non-linear aggregation of total trading and
quoting activity in Tapes A, B and C securities in attributing MDR to
each SIP Participant. Based on these calculations, the SIPs provide MDR
payments to each SIP Participant during the first month of each quarter
for trade and quote data from the previous calendar quarter, which are
subject to adjustment through subsequent quarterly payments. These
payments can be divided into six pools (i.e., trade and quote activity
in Tape A, B and C securities).
Proposed MDR Rebate Program
As the Exchange does not currently share MDR with Participants, the
Exchange now proposes to implement an MDR Rebate program to share MDR
attributed to quote activity only by adopting proposed Section P of the
Fee Schedule.\4\ Specifically, proposed Section P(1) provides that
assuming that the requirements of this proposed Section are met, a
Participant will receive a quarterly MDR Rebate attributable to the
Participant's quoting of displayed orders in Tapes A, B and C
securities, collectively referred to as ``eligible quote activity,''
from the previous calendar quarter.\5\ Furthermore, proposed Section
P(2) provides that MDR will be calculated separately for quote activity
in Tape A, B and C securities, for a total of three pools.
Specifically, if the MDR received by the Exchange in any given pool
exceeds the following proposed thresholds in any given calendar
quarter, 50% of such Excess MDR will be paid to Participants in
proportion to their respective eligible quote activity in that pool.
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\4\ The Exchange does not propose to share MDR attributed to
trading activity at this time.
\5\ Undisplayed orders are not eligible quote activity.
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Source Tape A Tape B Tape C
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Quotes..................................................... $3,000 $204,000 $12,000
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In addition, proposed Section P(3) provides a de minimis requirement
that states that a Participant will not receive an MDR Rebate in any
calendar quarter in which the total MDR Rebate attributed to a
Participant is less than $500.
In attributing eligible quote activity to Participants, the
Exchange proposes to utilize a set of calculations similar to those
used by the SIPs in allocating MDR to SIP Participants. In sum, if
Excess MDR exists in any given pool, the Exchange will allocate quote
credits to each Participant for eligible quote activity in that pool,
which will take into account the actual dollar amount of the quote and
how long the quote was at the National Best Bid or Offer (``NBBO''). In
turn, the actual dollar amount of the rebate for a Participant will be
the product of the percentage of the total quote credits attributed to
the Participant in a given pool and the Excess MDR in the same pool. If
a Participant is eligible for MDR Rebates from multiple pools, the
Participant will be eligible to receive an MDR rebate equal to the sum
of all the rebates. However, if the sum of the rebates is less than
$500, the Participant will not receive a payment and the rebate will be
kept by the Exchange. The purpose of the de minimis requirement is to
encourage significant quote activity and for the Exchange to avoid
having to pay Participants for de minimis Excess MDR.\6\
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\6\ For example, it would be unduly burdensome to the Exchange
to calculate and pay MDR Rebates to Participants if the total Excess
MDR of all the pools was $4000 and ten Participants were each
attributed $400 in rebates.
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As for calculating the pool of funds from which MDR Rebates will be
paid, unlike the SIPs, the Exchange will derive MDR Rebate allocation
from a fixed value that will not be subject to adjustment (i.e., the
amount of MDR actually received by the Exchange on a quarterly basis).
This avoids the problem of having to adjust MDR rebates that have
already been paid to Participants to comport to adjustments to MDR made
by the SIPs.\7\
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\7\ For example, if MDR paid to the Exchange was less than
anticipated in Q3 2014 due to an adjustment to the MDR paid to the
Exchange in Q2 2014 (i.e., actual MDR in Q2 fell short of
estimates), the Exchange will not recoup the difference from the
Participants that had been paid the Q2 MDR Rebate. Instead, the MDR
Rebate for Q3 will be calculated based on the actual MDR paid to the
Exchange in Q3.
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In addition, the Exchange proposes to adopt three of the six MDR
pools utilized by the SIPs, by excluding the three pools for trading
activity, for the purposes of attributing the proposed MDR Rebates to
Participants (i.e., quote activity in each Tape A, B and C security).
The proposed thresholds were selected based on historical data of the
Exchange's quote activity and MDR that has been paid to the Exchange in
previous quarters. The dollar values represent the amount of MDR that
must be paid to the Exchange by the SIPs before the Excess MDR would be
eligible for distribution.
The following Examples 1 and 2 illustrate how Excess MDR will be
calculated and distributed.
Example 1. The following table represents the proposed MDR pool
thresholds:
[[Page 61415]]
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Source Tape A Tape B Tape C
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Quotes..................................................... $3,000 $204,000 $12,000
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Assume that the Q1 2014 MDR paid to the Exchange is apportioned as
follows:
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Source Tape A Tape B Tape C
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Quotes..................................................... $2,900 $244,000 $12,000
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Under this Example, the Tape B pool has Excess MDR in the amount of
$40,000. However, the Tapes A and C pools have no Excess MDR because
the actual MDR received in the Tape A pool was $100 short of its $3,000
threshold and the Tape C pool was equal to its $12,000 threshold. Thus,
Participants may be paid MDR Rebates for attributed eligible quoting
activity from 50% of the Excess MDR in the Tape B pool, which is
$20,000.
Example 2. Assume the same as Example 1 and there are five
Participants (i.e., Participants A, B, C, D and E) that had eligible
quote activity in Tape B securities in the previous calendar quarter.
After calculating the Tape B quote credits for each Participant, the
attributed MDR for each Participant would be as follows:
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Tape B Quote
Participant Credits Attributed MDR
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A....................................... 24,000 $480
B....................................... 75,000 1,500
C....................................... 201,000 4,020
D....................................... 300,000 6,000
E....................................... 400,000 8,000
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TOTAL............................... 1,000,000 20,000
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In sum, each Participant would be attributed MDR according to their
[sic] respective percentage of the Tape B quote credits allocated. For
instance, Participant A was allocated 2.4% (i.e., 24,000 credits) of
the total 1,000,000 Tape B quote credits attributed to all five
Participants. As such, Participant A would be attributed 2.4% of the
Excess MDR, which is $480 (i.e., 2.4% x $20,000 = $480). However, since
the attributed MDR is less than $500 and there are no other MDR pools
with Excess MDR, the de minimis exception would result in Participant A
not receiving an MDR payment. In contrast, since the other Participants
were attributed MDR in amounts greater than $500, these Participants
would be paid MDR according to the above amounts.
As a final matter, the Exchange proposes to amend the initial
subtitle to the Fee Schedule to accurately reflect that the Fee
Schedule includes ``Fees, Assessments, Credits and Rebates,'' as
opposed to merely ``Fees and Assessments.''
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \8\ in general, and furthers the
objectives of Section 6(b)(4) of the Act \9\ in particular, in that it
provides for the equitable allocation of MDR Rebates among members and
other persons using any facility or system which the Exchange operates
or controls. The Exchange believes that the proposed MDR Rebate program
will promote display liquidity and order flow to the Exchange. In
addition, these changes to the Fee Schedule would equitably allocate
MDR Rebates among Participants by paying MDR Rebates according to the
total quoting activity in Tape A, B and C securities attributable to a
Participant in any given calendar quarter.
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\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(4).
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B. 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. The proposed change to
provide MDR Rebates contributes to the protection of investors and the
public interest by promoting display liquidity on, and order flow to,
the Exchange. Consequently, the proposed MDR rebates will promote
competition that is necessary and appropriate in furtherance of the
purpose of the Act.
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 foregoing 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 \10\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\13\ 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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\12\ 17 CFR 240.19b-4(f)(6).
\13\ 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.
The Exchange proposes to implement the program in time for the final
calendar quarter for 2013. Waiver would allow the Exchange to adhere to
this proposed timetable. Also, prompt implementation of the program may
encourage competition among exchanges that have market data revenue
sharing programs. For these reasons, and because the proposed rule
change presents no novel issues, the Commission hereby waives the 30-
day operative delay and designates the proposal operative upon
filing.\14\
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\14\ For purposes only of waiving the 30-day operative delay,
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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[[Page 61416]]
At any time within 60 days of the filing of such 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 under
Section 19(b)(2)(B) \15\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\15\ 15 U.S.C. 78s(b)(2)(B).
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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 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-2013-18 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-2013-18. 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 on official business
days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for inspection and copying at the
principal offices 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-2013-18, and should be submitted on or before
October 24, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24164 Filed 10-2-13; 8:45 am]
BILLING CODE 8011-01-P