[Federal Register Volume 79, Number 21 (Friday, January 31, 2014)]
[Notices]
[Pages 5476-5479]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-01964]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71404; File No. SR-CHX-2014-01]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to
Amend the Order Cancellation Fee
January 27, 2014.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on January 15, 2014, 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 self-regulatory
organization. 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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[[Page 5477]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CHX proposes to amend Section E.8 of its Schedule of Fees and
Assessments (the ``Fee Schedule'') to amend the Order Cancellation Fee.
The text of this proposed rule change is available on the Exchange's
Web site at http://www.chx.com/rules/proposed_rules.htm, at the
principal office of the Exchange, and at 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 self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B and C below, of the most
significant parts of such statements.
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 Section E.8 of the Fee Schedule to
amend the Order Cancellation Fee. Specifically, the Exchange proposes
to adopt proposed Section E.8(c) to provide an exemption from Order
Cancellation Fees for a given month if an Account Symbol \4\ meets an
Average Daily Volume (``ADV'') requirement for that month. The Exchange
does not propose to substantively amend the Order Cancellation Fee in
any other way.
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\4\ An ``Account Symbol'' identifies a specific ``Trading
Account,'' as defined under CHX Article 1, Rule 1(ll). The terms are
used interchangeably throughout this filing.
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Current Order Cancellation Fee
Under SR-CHX-2012-15,\5\ the Exchange adopted the current formula-
based Order Cancellation Fee detailed under Section E.8 of the Fee
Schedule, amended under SR-CHX-2013-11 \6\ and SR-CHX-2013-12,\7\ which
assesses a daily cancellation fee per Account Symbol and security, if
the order cancellation ratio exceeds a designated threshold. In sum,
the formula subtracts from the total daily number of ``Wide'' or ``W''
orders \8\ in a given security the product of ``Near'' or ``N'' orders
\9\ in the same security submitted by the Participant in the Regular
Trading Session in a given day and its corresponding ``N'' order
multiplier or ``Nmult.'' \10\ The difference is then divided by ``E,''
which is defined as the greater of the number one (1) or the sum of all
Wide and Near orders in a given security that are submitted and
executed (in whole or in part) in the Regular Trading Session
(excluding cross transactions) on a given day.
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\5\ See Securities Exchange Act Release No. 68219 (November 13,
2012), 77 FR 69673 (November 20, 2012) (SR-CHX-2012-15) (``Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Its Order Cancellation Fee'').
\6\ See Securities Exchange Act Release No. 69701 (June 5,
2013), 78 FR 35082 (June 11, 2013) (SR-CHX-2013-11) (``Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
the Order Cancellation Fee'').
\7\ See Securities Exchange Act Release No. 69903 (July 1,
2013), 78 FR 40788 (July 8, 2013) (SR-CHX-2013-12) (``Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
the Single-Sided Order Fees and Credits and the Order Cancellation
Fee'').
\8\ Section E.8(a) of the Fee Schedule provides that ```W'
equals the number of Wide orders in a security priced at $1.00/share
or more, that is submitted during the Regular Trading Session,
through an Account Symbol, on a given day. An order shall be
considered Wide if any one of the following conditions are met:
The order price of the security is inferior to the National Best
Bid (``NBB'') for a buy order or National Best Offer (``NBO'') for a
sell order at the time the order is received by the Matching System
and the difference between the order price and the NBB or NBO is
equal to or greater than the corresponding Threshold Away Amount of
the particular security; or
The order is voluntarily cancelled by the order sender prior to
the expiration of its corresponding Minimum Duration (expressed in
milliseconds) after acceptance by the Matching System, without any
executions; or
An order marked ``Do Not Display,'' pursuant to Article 1, Rule
2(c)(2).''
\9\ Section E.8(a) of the Fee Schedule provides that ```N'
equals the number of Near orders (which must be display eligible) in
a security priced at $1.00/share or more submitted in the Regular
Trading Session, through an Account Symbol, on a given day. A Near
order is:
An order where the difference between the order price and the
NBB or NBO is less than the corresponding Threshold Away Amount of
the particular security; and
Where the order is not voluntarily cancelled by the order sender
prior to either (1) the expiration of the Minimum Duration of the
particular security or (2) a partial execution of the order,
whichever is earlier.''
\10\ Section E.8(a) of the Fee Schedule provides that `` `Nmult'
is the corresponding multiplier value to be applied against `N'.''
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If the resulting value is equal to or greater than the
corresponding ``Cancellation Ratio'' for that security, found under
paragraph (b), a corresponding Order Cancellation Fee would apply to
the Participant for that day's activity in that security. If, however,
the value is less than the corresponding Cancellation Ratio, the
Participant would not be assessed a fee. Currently, the Cancellation
Ratio and other values listed under paragraph (b) are consistent for
Tape A, B, and C securities. Although the fee is assessed daily,
Account Symbols are only billed after the end of the month.
The purpose of the Order Cancellation Fee is to recoup some of the
costs associated with administering and processing large numbers of
cancelled orders and to incent Participants to post marketable orders
and, thereby, promote liquidity and single-sided order executions on
the Exchange.\11\
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\11\ See supra note 5.
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Proposed ADV Exemption
Since the Order Cancellation Fee became operative on November 1,
2012, the Exchange has observed that some Account Symbols have been
billed Order Cancellation Fees notwithstanding exceptionally high ADV
in securities subject to the Order Cancellation Fee. That is, despite
consistent order sending and cancellation activity throughout the
course of the month, some high ADV Trading Accounts exhibited unusually
low ADV on one or two trading days and were consequently billed Order
Cancellation Fees for the month because the Order Cancellation Fee is
assessed daily. The Exchange submits that the need for an Order
Cancellation Fee for a Trading Account is obviated if it provides
valuable single-sided order executions and revenue to the Exchange.
This is because such exceptionally high ADV Trading Accounts support
the purpose of the Order Cancellation Fee (e.g., to promote single-
sided order executions), regardless of order cancellation activity.
The current Order Cancellation Fee does not permit Trading Accounts
to leverage exceptionally high ADV attained over the course of a month
to eliminate the Order Cancellation Fee assessed due to unusually weak
trading days. Thus, in order to more equitably apply the current Order
Cancellation Fee, the Exchange now proposes to adopt proposed Section
E.8(c), which provides that all Order Cancellation Fees assessed to an
Account Symbol in a given month shall be waived if the ADV attributable
to the Account Symbol for the month is equal to or greater than 100,000
shares from single-sided orders executed at or greater than $1.00/
share.\12\ Trades resulting from cross orders and single-sided orders
executed below $1.00/share shall not be included in the ADV calculation
because such
[[Page 5478]]
orders are not subject to the Order Cancellation Fee.\13\ Moreover, the
proposed exemption will be applied at the Account Symbol level and not
at a security-specific level. That is, if a Trading Account meets the
100,000 shares ADV requirement for a given month, all Order
Cancellation Fees assessed under the Account Symbol for the month will
be waived. Correspondingly, the Exchange proposes to amend the first
paragraph of current Section E.8(a) to provide that the Order
Cancellation Fee is subject to the proposed exemption as stated under
proposed paragraph (c). The following example illustrates this
exemption.
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\12\ The 100,000 shares value was determined based on historical
trading activity on the Exchange and shall only be modified by a
proposed rule filing pursuant to Rule 19b-4 under the Act.
\13\ Section E.8(a) provides, in pertinent part, that ``a
cancellation fee shall apply for all cancellation messages relating
to orders in each security priced at $1.00/share or more.''
Example. Assume that a Participant Trading Permit \14\ holder
has two Trading Accounts with Account Symbols ``A'' and ``B.'' For
the month of December 2013, the Participant was billed $3,000 in
Order Cancellation Fees. Specifically, Account Symbol A was assessed
$1,000 in Order Cancellation Fees for activity in five different
securities and had an ADV of 90,000 shares from qualified orders,
whereas Account Symbol B was assessed $2,000 in Order Cancellation
Fees for activity in three different securities and had an ADV of
110,000 shares from qualified orders.
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\14\ See Article 1, Rule 1(aa).
Given that Account Symbol B had an ADV of 110,000 shares from
qualified orders in December 2013, the entire $2,000 in Order
Cancellation Fees assessed to Account Symbol B would be waived pursuant
to proposed Section E.8(c). However, given that Account Symbol A had an
ADV of 90,000 shares from qualified orders, the Trading Account would
not qualify for the proposed exemption and would be billed $1,000 in
Order Cancellation Fees. For the purposes of the proposed ADV
exemption, the Order Cancellation Fee assessed to specific securities
and ADV in specific securities is irrelevant.
The Exchange proposes to make these amendments to Section E.8
operative February 3, 2014. The Order Cancellation Fee shall continue
to be calculated daily and billed after the end of the month. If an
Account Symbol meets the requirements of proposed paragraph (c), the
Account Symbol will not be billed an Order Cancellation Fee for that
month.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \15\ in general, and furthers the
objectives of Section 6(b)(4) of the Act \16\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among members and other persons using its facilities. The
Exchange believes that the proposed ADV exemption from the Order
Cancellation Fee described herein promotes the equitable allocation of
the Order Cancellation Fee as it will more fairly allocate costs among
Participants according to their respective trading activity. A
Participant with a Trading Account that has exceptionally high ADV
provides additional revenue to the Exchange (e.g., Liquidity Removing
Fee under Section E.1 of the Fee Schedule and market data revenue),
which may be used to recoup some of the costs of administering and
processing cancelled orders. Thus, Participants with Trading Accounts
that meet the proposed ADV threshold for a given month should not be
billed Order Cancellation Fees assessed to such Trading Accounts for
that month.
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\15\ 15 U.S.C. 78f.
\16\ 15 U.S.C. 78f(b)(4).
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In addition, these changes to the Fee Schedule would equitably
allocate reasonable fees among Participants in a non-discriminatory
manner by assessing cancellation fees on all Trading Accounts that
exceed a fixed Cancellation Ratio and by waiving cancellation fees on
all Trading Accounts that satisfy the requirements of the proposed ADV
exemption. Since all Participants are subject to the Order Cancellation
Fee and given that the proposed ADV exemption is available to all
Participants, the Exchange submits that the amended Order Cancellation
Fee is non-discriminatory.
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 Exchange does not
believe that the proposed ADV exemption to the Order Cancellation Fee
burdens competition, but instead, enhances competition, as it is
intended to increase the competitiveness of, and draw additional volume
to, the Exchange. The Exchange operates in a highly competitive market
in which market participants can readily direct order flow to competing
venues if they deem fee levels set by the Exchange to be excessive. The
proposed ADV exemption provides relief from the Order Cancellation Fee
to Participants that execute a requisite number of certain single-sided
orders submitted to the Exchange, which is intended to increase revenue
derived from trades and to draw additional liquidity to the Exchange.
Thus, the proposed rule change is a competitive proposal that is
intended to add additional liquidity and order executions to the
Exchange, which will, in turn, benefit the Exchange and all
Participants.
C. 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 with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A)(ii) of the Act \17\ and subparagraph(f)(2) of Rule
19b-4 thereunder \18\ because it establishes or changes a due, fee or
other charge imposed by the Exchange.
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\17\ 15 U.S.C. 78s(b)(3)(A)(ii).
\18\ 17 CFR 240.19b-4(f)(2).
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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. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
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-2014-01 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-2014-01. This file
number should be included on the
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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
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-2014-01, and should be submitted on or before
February 21, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-01964 Filed 1-30-14; 8:45 am]
BILLING CODE 8011-01-P