[Federal Register Volume 79, Number 154 (Monday, August 11, 2014)]
[Notices]
[Pages 46890-46892]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18875]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72759; File No. SR-CHX-2014-11]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend Section P of the Fee Schedule Concerning the Market Data
Revenue Rebates Program
August 5, 2014.
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 July 29, 2014, 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, 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\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CHX proposes to amend Section P of its Schedule of Fees and
Assessments (the ``Fee Schedule'') to amend the Market Data Revenue
(``MDR'') 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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
1. Purpose
The Exchange proposes to amend Section P.2 of the Fee Schedule to
modify the MDR thresholds for Tape A and C Quotes and Trade Reports.
The Exchange does not propose to modify the Tape B thresholds or to
otherwise substantively amend how MDR rebates are currently calculated
and allocated. The Exchange proposes to make the following proposed
amendments operative October 1, 2014.
Background
The current MDR Rebates Program calls for 50% of MDR received by
the Exchange in any one of six quote or trade reports pools that
exceeds the applicable Section P.2 threshold (``Excess MDR'') to be
shared with Participants in proportion to their respective Eligible
Quote Activity \3\ or Eligible Trade Activity \4\ in that pool from the
previous calendar quarter.\5\ The MDR rebate calculation is made each
quarter, per Participant, and per pool. The determination of how much a
Participant will receive pursuant to the MDR Rebates Program requires
the Exchange to first calculate Excess MDR and, if Excess MDR exists,
attribute quote and/or trade reports credits to eligible Participants.
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\3\ Section P.1 of the Fee Schedule defines ``Eligible Quote
Activity'' as ``a Participants quoting of displayed orders in Tapes
A, B and C securities.''
\4\ Section P.1 of the Fee Schedules defines ``Eligible Trade
Activity'' as ``trades resulting from single-sided resting orders
submitted by the Participant in Tapes A, B and C securities.'' By
definition, Eligible Trade Activity excludes (1) executions
resulting from removing liquidity from the CHX book and (2) cross
orders.
\5\ See Securities Exchange Act Release No. 71210 (December 31,
2013), 79 FR 869 (January 7, 2014) (SR-CHX-2013-24) (``Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Amend
the Market Data Revenue Rebates Program''); see also Securities
Exchange Act Release No. 70546 (September 27, 2013), 78 FR 61413
(October 3, 2013) (SR-CHX-2013-18) (``Notice of Filing and Immediate
Effectiveness of Proposed Rule Change to Adopt a Market Data Revenue
Rebates Program'').
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Current Section P.2 of the Fee Schedule provides the following MDR
thresholds:
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Source Tape A Tape B Tape C
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Quotes.......................................................... $3,000 $204,000 $12,000
Trade Reports................................................... 27,000 36,000 18,000
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The dollar values represent the amount of MDR that the Exchange will
keep (i.e., not eligible for sharing). Any amounts in excess of the
thresholds are considered Excess MDR and 50% of such Excess MDR could
be shared pursuant to the MDR Rebates Program. The current values are
based on historical data of the actual MDR received by the Exchange in
previous calendar quarters.
In determining whether Excess MDR exists in a given pool, the
Exchange includes all MDR received by the Exchange in a given pool for
the given quarter and does not exclude any MDR from the threshold
calculation.\6\ The
[[Page 46891]]
following Example 1 illustrates how Excess MDR is calculated:
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\6\ The Securities Information Processors (``SIPs'') do not
distinguish between trades from single-sided orders and from cross
orders when attributing Trade Reports MDR to a SIP Participant, such
as the CHX. The SIPs make one MDR payment to the Exchange per pool
and quarter. Article 1, Rule 2(a)(2) defines ``cross order,'' in
pertinent part, as ``an order to buy and sell the same security at a
specific price better than the best bid and offer displayed in the
Matching System and which would not constitute a trade-through under
Reg NMS (including all applicable exceptions and exemptions).''
Example 1. Assume that the Exchange receives $50,000 of MDR
payment in 4Q2014 for 3Q2014 Tape A Trade Reports. Given that
current Section P.2 provides that the MDR threshold for Tape A Trade
Reports to be $27,000, the result would be $23,000 Excess MDR in the
Tape A Trade Reports pool. Pursuant to current Section P.1 [sic], up
to $11,500, which is 50% of the $23,000 Excess MDR, could be shared
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with eligible Participants.
If Excess MDR exists in a pool, the Exchange will then attribute
quote credits to each Participant according to their Eligible Quote
Activity in that pool.\7\ If Excess MDR exists in a Trade Reports pool,
the Exchange will attribute trade reports credits to each Participant
according to their Eligible Trade Activity in that pool.\8\ These quote
and trade reports credits are calculated by the Exchange by utilizing a
set of calculations similar to calculations currently utilized by the
SIPs in attributing Quotes and Trade Reports MDR to SIP Participants.
Once all quote and trade reports credits have been allocated in a given
pool, each Participant is attributed an MDR rebate from the pool in an
amount that is equal to the product of a Participant's portion of the
total credits in that pool and 50% of the Excess MDR in that pool. The
sum of all attributed MDR rebates in a pool will equal 50% of the
Excess MDR in that pool.
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\7\ See supra note 3.
\8\ See supra note 4.
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If the sum of rebates attributed to a Participant from all six
pools in a given quarter satisfies the de minimis requirement of
current Section P.3, the Participant will receive a payment equal to
that amount. However, if the de minimis requirement is not satisfied,
the Exchange will keep the entire sum that was attributed to the
Participant.
Proposed MDR Thresholds
The Exchange now proposes to amend Section P.2 of the Fee Schedule
to eliminate the threshold values for Tapes A and C Quotes pools. This
will result in all MDR received in those pools to be considered Excess
MDR. Consequently, 50% of all MDR received in Tapes A and C Quotes
pools will be eligible for sharing with Participants pursuant to the
MDR Rebates Program.
The Exchange also proposes to modify the threshold values for Tapes
A and C Trade Reports pools from $27,000 and $18,000, respectively, to
amounts equal to Trade Reports MDR received by the Exchange that can be
attributed by the Exchange to trade reports resulting from cross orders
in each pool. Thus, the proposed MDR thresholds for Tapes A and C Trade
Reports MDR will be a floating value that will be calculated quarterly
and will virtually be equal to the product of the MDR payment received
by the Exchange from the SIPs and the percentage of executions (i.e.,
trade reports) within the CHX Matching System in the relevant quarter
resulting from cross orders. Since the SIPs do not distinguish between
trades resulting from cross orders and single-sided orders for MDR
purposes, the Exchange will be making the quarterly calculation
itself.\9\ The following Example 2 illustrates how the proposed
floating Excess MDR threshold value for Tapes A and C Trade Reports
will be calculated:
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\9\ See supra note 6.
Example 2. Assume the same as in Example 1, except that the Tape
A Trade Reports threshold is equal to the amount of MDR received by
the Exchange that can be attributed to cross orders. Assume further
that the Exchange calculates that, in 3Q2014, 60% of all executions
within the CHX Matching System resulted from cross orders. Thus, the
MDR threshold for 3Q2014 Tape A Trade Reports would be $30,000
(i.e., $50,000 x .60 = $30,000). Pursuant to current Section P.1
[sic], up to $10,000, which is 50% of the Excess MDR of $20,000,
could be distributed to eligible Participants.
If the Exchange, instead, received $60,000 of Tape A Trade
Reports MDR and 60% of the Trade Reports could be attributed to
cross orders, the MDR threshold for Tape A Trade Reports would be
$36,000. Pursuant to current Section P.1 [sic], $12,000, which is
50% of the Excess MDR of $24,000, could be distributed to eligible
Participants.
The Exchange believes that the proposed MDR threshold amendments to
Tapes A and C securities is consistent with the purpose of the MDR
Rebates Program, which is to increase single-sided trading activity on
the CHX by incentivizing Participants with MDR rebates. Specifically,
the Exchange believes that the proposed thresholds will increase the
probability of higher Excess MDR amounts, which will, in turn, increase
the likelihood of larger rebate payments to eligible Participants.
Moreover, the proposed floating MDR threshold values for Tapes A and C
Trade Reports will provide the Exchange with flexibility in ensuring
that the threshold values follow variations in Trade Reports MDR that
is attributable to cross orders. For quarters where Trade Reports MDR
resulting cross orders is less than previous quarters, this floating
value will result in greater Excess MDR that could be available for
rebates. Thus, since two-sided cross orders are deemed ineligible
trading activity with regard to the MDR Rebates Program, the Exchange
hopes that the proposed threshold amendments will encourage more
single-sided orders to be submitted to the Matching System. Aside from
these proposed MDR threshold amendments, the Exchange does not propose
to modify any other part of the current MDR Rebates Program.
The Exchange also submits that the proposed threshold amendments
will not materially impact the Exchange's ability to meet its
regulatory and surveillance obligations as a self-regulatory
organization. Specifically, the proposed elimination of the Tapes A and
C Quotes thresholds will result in, at most, the Exchange sharing an
additional $7,500 of total MDR from Tapes A and C Quotes pools and an
additional few thousand dollars from the Tapes A and C Trade Reports
pools. These amounts are immaterial as the sum represents a very small
portion of the quarterly MDR payments received by the Exchange, which
have historically been approximately $300,000 per quarter. Moreover,
the Exchange notes that if the proposed amendments have the intended
effect of increased order flow to, and executions within, the Matching
System, the Exchange will receive additional MDR from the SIPs, which
would offset the proposed threshold amendments.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \10\ in general, and furthers the
objectives of Section 6(b)(4) of the Act \11\ 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 purpose of the MDR Rebates Program is to increase
single-sided trading activity on the CHX by incentivizing Participants
with MDR rebates. The Exchange believes that the amended MDR thresholds
will increase the likelihood of larger Excess MDR amounts and payable
rebates to Participants, which will, in turn, promote single-sided
order flow to the
[[Page 46892]]
Exchange and order executions within the Matching System. Moreover,
since two-sided cross orders are deemed ineligible trading activity
with regard to the MDR Rebates Program, the Exchange believes that the
proposed floating threshold amendments will result in more MDR that is
available for sharing, which will, in turn, encourage more single-sided
orders to be submitted to the Matching System. Notwithstanding, the
proposed amendments to the Fee Schedule would equitably allocate MDR
Rebates among Participants by continuing to pay MDR Rebates in
proportion to their Eligible Quote and Trade Activity in Tape A, B and
C securities in any given calendar quarter.
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\10\ 15 U.S.C. 78f.
\11\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement of 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 amendment will
only enhance the effectiveness of the current MDR Rebates Program in
promoting display liquidity on, and order flow to, the Exchange.
Consequently, the MDR rebates, as amended, will promote competition
that is necessary and appropriate in furtherance of the purpose of the
Act.
C. Self-Regulatory Organization's Statement on Comments Regarding the
Proposed Rule Changes Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Changes and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A)(ii) of the Act \12\ and subparagraph(f)(2) of Rule
19b-4 thereunder \13\ because it establishes or changes a due, fee or
other charge imposed by the Exchange.
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\12\ 15 U.S.C. 78s(b)(3)(A)(ii).
\13\ 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 proposal 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 No. SR-CHX-2014-11 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549.
All submissions should refer to File No. SR-CHX-2014-11. 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 changes 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 CHX. 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-2014-11 and should be
submitted on or before September 2, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18875 Filed 8-8-14; 8:45 am]
BILLING CODE 8011-01-P