[Federal Register Volume 78, Number 243 (Wednesday, December 18, 2013)]
[Notices]
[Pages 76675-76677]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-30041]
[[Page 76675]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71057; File No. SR-CHX-2013-21]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Permit the Reporting of Odd Lot Transactions for Inclusion on the
Consolidated Tape and Clarify the Operation of the Market Order Type
December 12, 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 December 9, 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 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 Substance
of the Proposed Rule Change
CHX proposes to amend Article 20, Rule 8(g) (Operation of the
Matching System) to permit the reporting of odd lot transactions for
inclusion on the consolidated tape\,\, in light of the approval of an
amendment to the Consolidated Tape Association Plan (``CTA Plan'') by
the Securities and Exchange Commission (the ``Commission'') pursuant to
Rule 608 of Regulation NMS under the Act. The Exchange also proposes to
amend Article 1, Rule 2(a)(3) (Order Types, Modifiers, and Related
Terms) to amend the definition of ``market'' orders in light of the
anticipated market-wide reporting of odd lot transactions.
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 [sic]
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
On September 9, 2013, the Exchanges and the Financial Industry
Regulatory Authority (``FINRA'') (collectively, the ``Participants'')
filed with the Commission an amendment to the CTA Plan proposing to
permit the reporting of odd lot transactions to the consolidated tape,
which was published for notice on September 17, 2013.\4\ After
receiving no comment letters in response to the Notice, the Commission
approved the proposed amendment on October 31, 2013.\5\
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\4\ See Securities Exchange Act Release No. 70428 (September 17,
2013), 78 FR 58362 (September 23, 2013) (SR-CTA-2013-05) (``Notice
of Filing of the Eighteenth Substantive Amendment to the Second
Restatement of the CTA Plan'').
\5\ See Securities Exchange Act Release No. 70794 (October 31,
2013), 78 FR 66789 (November 6, 2013) (SR-CTA-2013-05) (``Order
Approving the Eighteenth Substantive Amendment to the Second
Restatement of the CTA Plan'').
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In sum, the Commission approved the proposed removal of odd lot
transactions from the list of transactions, under Section VI(d) of the
CTA Plan, that are not to be reported for inclusion on the consolidated
tape. Specifically, the Commission stated that ``odd lot transactions
account for a not insignificant percentage of the trading volume'' and
inclusion of ``odd lot transactions on the consolidated tape of CTA
last sale prices would add post-trade transparency to the
marketplace.'' \6\ Consequently, odd lot transactions that are reported
for inclusion on the consolidated tape will be included in calculations
of daily consolidated volume and will be subject to the same
calculations as round lot transactions are currently subject [sic]
(i.e., ``qualified transaction report'' calculations) for the purposes
of allocating trade revenue among the Participants under the CTA
Plan.\7\
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\6\ Id.
\7\ Due to the lack of economic significance of many individual
odd lot orders, odd lot bids and offers will not be included in the
best bid and offer calculations that the Participants make available
under the Consolidate Quote Plan. For the same reason, odd lot
transactions will not be included in calculations of last sale
price, will not be included in high and low price calculations, will
not be subject to Limit Up-Limit Down rules, and will not trigger
short sale restrictions or trading halts. See supra note 5.
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This amendment to the CTA Plan will be operative December 9, 2013.
Proposed Article 20, Rule 8(g)
The Exchange proposes to amend Article 20, Rule 8(g) to provide
that the Exchange shall report each transaction that occurs within the
Matching System to the appropriate consolidated reporting system.\8\
Specifically, the Exchange proposes to remove reference to ``round
lot'' transactions since the CTA Plan now permits the reporting odd lot
transactions. Moreover, the Exchange proposes to delete redundant
language concerning the reporting of executions of resting odd lot
orders that have been aggregated into round lots for display
purposes.\9\ Pursuant to the CTA Plan amendment, all executions will be
reported to the tape, notwithstanding the size of the execution or the
size of the resting order that was executed.
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\8\ The Exchange notes that with the removal of odd lot
transactions from Section VI(d) of the CTA Plan, the Exchange does
not execute any transactions that would not be permitted to be
reported for inclusion on the consolidated tape.
\9\ Article 20, Rule 8(d)(3) states as follows: Odd lot orders
and unexecuted odd lot remainders that are unable to be immediately
displayed according to Rule 8(b)(6) above (because they are at a
price that is better than the current CHX quote) shall either remain
in, or be rejected from, the Exchange's Matching System according to
each Participant's instructions. Orders remaining in the Matching
System will continue to be ranked at the price and time at which
they were originally received. Orders that are rejected from the
Matching System shall be routed away according to Rule 8(h) below
or, if designated ``do not route,'' automatically cancelled.
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Proposed Article 1, Rule 2(a)(3)
The Exchange's Matching System is designed to begin accepting
market orders in a security once the primary market prints the first
transaction in the security that is at least a round lot. Thus, current
Article 1, Rule 2(a)(3) provides that the Exchange shall not accept
market orders in a security until (i) the primary market in a security
has opened trading in that security or (ii) two senior officers of the
Exchange have determined that it is appropriate for the Exchange to
accept IOC market orders. In light of the anticipated inclusion of odd
lot transactions on the consolidated tape and operation of the Matching
System, the Exchange proposes to amend Article 1, Rule 2(a)(3) to
clarify that for the purposes of determining when to accept market
orders, the primary market will be considered to have opened for
trading in a security when the first trade in that security that is at
least a round lot, occurs in that market on or after 8:30 a.m. Central
[[Page 76676]]
Standard Time. Given that substantial resources would have to be
dedicated to make any changes to the operation of any order type, the
Exchange proposes to clarify the current operation of the market order
type, as opposed to modifying its operation to also consider an odd lot
trade to be an opening transaction on the primary market.\10\
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\10\ As of December 9, 2013, the Exchange has no NMS securities
primarily listed on the Exchange.
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2. Statutory Basis
The proposed rule change to permit the reporting of odd lot
transactions for inclusion on the consolidated tape is consistent with
Rule 608(c) of Regulation NMS,\11\ which requires the Exchange, as a
sponsor and participant to an effective national market system plan,
namely the CTA Plan, to comply with the terms of the Plan, as submitted
to the Commission on September 9, 2013 \12\ and approved by the
Commission on October 31, 2013,\13\ pursuant to Rule 608(b)(2) of
Regulation NMS.\14\
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\11\ 17 CFR 242.608(c).
\12\ See supra note 4.
\13\ See supra note 5.
\14\ 17 CFR 242.608(b)(2).
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Moreover, the proposed rule changes are [sic] consistent with
Section 6(b) of the Act \15\ in general, and furthers the objectives of
Section 6(b)(5) \16\ in particular, in that it is designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transaction in
securities, to remove impediments and perfect the mechanisms of a free
and open market, and, in general, to protect investors and the public
interest. Specifically, the Exchange believes that the proposed rule
change to permit the reporting of odd lot transactions for inclusion on
the consolidated tape supports the objectives of the Act by providing
harmonization between CHX Rules and rules of all other organization
subject to the requirements of the Plan, so as to promote uniformity
across markets concerning the permissibility of reporting odd lot
transactions for inclusion on the consolidated tape. Such uniformity
would also result in less burdensome and more efficient regulatory
compliance. Moreover, the proposed amendment to amend the definition of
``market'' orders also supports the objectives of the Act by clarifying
the operation of the Matching System and, specifically, the conditions
required for the Exchange to begin accepting market orders in a
security. In addition, the Exchange submits that the proposed rules are
consistent with the protection of investors and the public interest in
that the proposed rules will promote investor confidence by providing
greater post-trade transparency to the market.
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\15\ 15 U.S.C. 78f(b).
\16\ 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 will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Specifically, the Exchange
believes that since all plan Participants will be permitted to report
odd lot transactions for inclusion on the consolidated tape, the
Participants will be able to make similar amendments to their rules,
pursuant to Rule 19b-4 under the Act.\17\
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\17\ 17 CFR 240.19b-4.
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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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A) of the Act \18\ and Rule 19b-4(f)(6) thereunder.\19\
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, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6)
thereunder.\20\
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and 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. The
Exchange has satisfied this requirement.
\20\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(ii),\22\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest.
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\21\ 17 CFR 240.19b-4(f)(6).
\22\ 17 CFR 240.19b-4(f)(6)(ii).
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The Exchange has asked the Commission to waive the 30-day operative
delay so that the proposal may become operative as of December 9, 2013,
which is the current operative date of the CTA Plan amendment proposed
by the Participants. According to the Exchange, encouraging competitors
to provide higher quality and better value is the essence of a well-
functioning competitive marketplace. The Exchange stated that it
provides these services in a highly competitive market in which market
participants may avail themselves of a wide variety of options offered
by self-regulatory organizations, alternative trading systems and other
broker-dealers. As such, the Exchange's proposed reporting of odd lot
transactions for inclusion on the consolidated tape and amendment to
the definition of ``market'' orders does not burden competition and is
consistent with the public interest because such amendments can be
adopted by the other Participants pursuant to the CTA Plan amendment
and it would promote order flow to the Exchange only if it offers
market participants an incentive to utilize the Exchange's services
over its competitors. The Commission is waiving the 30-day operative
delay so that CHX's rules are consistent with the terms of the CTA Plan
such that odd lot trades can be reported effective December 9, 2013,
which is consistent with the public interest. Therefore, the Commission
designates the proposal as operative upon filing.\23\
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\23\ 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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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) \24\
of the Act to determine whether the proposed rule should be approved or
disapproved.
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\24\ 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 proposal is
consistent with the Act. Comments may
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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-2013-21 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-2013-21. 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-2013-21 and should be
submitted on or before January 8, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30041 Filed 12-17-13; 8:45 am]
BILLING CODE 8011-01-P