[Federal Register Volume 81, Number 93 (Friday, May 13, 2016)]
[Notices]
[Pages 29936-29939]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11294]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77785; File No. SR-CHX-2016-06]
Self Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Its Schedule of Fees and Assessments To Modify and Clarify
Certain Fees Applicable to CHX Institutional Brokers
May 9, 2016.
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 May 3, 2016, 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 Exchange. 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 its Schedule of Fees and Assessments (the
``Fee Schedule'') to modify and clarify certain fees applicable to CHX
Institutional Brokers. 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 the Fee Schedule to modify and
clarify certain fees applicable to CHX Institutional Brokers
(``Institutional Brokers'').\3\ Specifically, the Exchange proposes to
amend Sections E.3(a) and E.7 of the Fee Schedule to modify and clarify
the application of the respective fee caps.\4\ The Exchange also
proposes to amend Section E.4 of the Fee Schedule to correct a
misstatement regarding its applicability.
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\3\ See CHX Article 1, Rule 1(n) defining ``Institutional
Broker''; see also generally CHX Article 17.
\4\ Section E.3(a) and E.7 fees are virtually identical as both
apply to executions effected through Institutional Brokers that are
cleared through the Exchange's clearing systems, except that Section
E.3(a) applies to executions within the Matching System, whereas
Section E.7 applies to qualified away executions pursuant to CHX
Article 21, Rule 6(a).
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Section E.3(a)
Currently, pursuant to Section E.3(a), the Exchange assesses a fee
of $0.0030/share capped at $100 per side \5\ for executions within the
Matching System resulting from single-sided \6\ or cross orders \7\ for
at least a Round Lot \8\ submitted by Institutional Brokers as agent
only (``Section E.3(a) executions''); except that a side that is
represented by two or more Institutional Broker Representatives \9\
(``IBR'') is subject to separate fee caps per IBR.\10\ Section E.3(a)
fees are assessed to the Participant in whose name the execution is
submitted for clearance and settlement. Section E.3(a) fees do not
apply to executions resulting from orders submitted as Odd Lots, which
are assessed fees pursuant to Section E.4.\11\
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\5\ While the Fee Schedule does not provide an explicit
definition for ``side,'' the Exchange currently defines ``side'' as
each Trading Account that is allocated a position per buy side and/
or sell side of a Section E.3(a) execution. See CHX Article 1, Rule
1(ll) defining ``Trading Account.'' A Participant may hold only one
Trading Permit, but may create more than one Trading Account under a
Trading Permit. See CHX Article 1, Rule 1(aa) defining ``Trading
Permit;'' see also CHX Article 3, Rule 2(e).
\6\ Single-sided orders include limit and market orders. See CHX
Article 1, Rule 2(a)(1) defining ``limit order''; see also CHX
Article 1, Rule 2(a)(3) defining ``market order.''
\7\ See CHX Article 1, Rule 2(a)(2) defining ``cross order.''
\8\ See CHX Article 1, Rule 2(f)(3) defining ``Round Lot.''
\9\ See CHX Article 1, Rule 1(gg) defining ``Institutional
Broker Representative.''
\10\ For example, a side may be represented by two or more
Institutional Broker Representatives where a Clearing Participant
represents two or more correspondent firms that are allocated
positions to a single Section E.3(a) execution resulting from a
cross order. In such case, two or more Institutional Broker
Representatives will never represent a single correspondent firm.
\11\ See infra note 16.
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Identifying the side to a Section E.3(a) execution resulting from a
single-sided order is simple because there will always be only one
Trading Account associated with the single-sided order.\12\ However,
identifying the sides to a Section E.3(a) execution resulting from a
cross order is usually more complex because such an execution is
frequently allocated to three or more Trading Accounts, which may
result in two or more clearing submissions. The following Example 1
illustrates how sides are currently allocated:
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\12\ All single-sided orders submitted to the Matching System
originate from a single Trading Account and, upon execution, are
locked-in and immediately reported to the relevant securities
information processor and Qualified Clearing Agency. See CHX Article
1, Rule 1(ff) defining ``Qualified Clearing Agency;'' see also supra
note 5.
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Example 1. Assume that a Section E.3(a) execution results from a
cross order for 100,000 shares of XYZ priced at $10.00/share. Assume
that the following Participants have been allocated the following
positions:
Trading Account A is allocated 40,000 shares on the buy
side and 20,000 shares on the sell side.\13\
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\13\ A Trading Account may be allocated positions on both sides
of a Section E.3(a) execution where, for example, the Participant
associated with the Trading Account is a Clearing Participant that
represents two or more correspondent firms on both sides of the
execution. See CHX Article 1, Rule 1(ee) defining ``Clearing
Participant.''
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Trading Account B is allocated 40,000 shares on the buy
side.
Trading Account C is allocated 20,000 shares on the buy
side.
Trading Accounts D and E are each allocated 20,000 shares
on the sell side.
Trading Account F is allocated 40,000 shares on the sell
side.
Assume also that the execution results in the following five
clearing submissions:
[[Page 29937]]
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Buyers Sellers
Clearing submission -------------------------------------------------- Quantity ------------------------------------------------
Trading account Subaccount \14\ Trading account Subaccount
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1................................... A...................... a...................... 20,000 A...................... c
2................................... A...................... b...................... 20,000 D...................... f
3................................... B...................... d...................... 20,000 E...................... g
4................................... B...................... d...................... 20,000 F...................... none
5................................... C...................... e...................... 20,000 F...................... none
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\14\ Clearing Participants usually identify its correspondent firms via subaccounts, but do not always do so. As discussed below, the Exchange proposes
to modify the Section E.3(a) fee allocation to consider subaccounts, so as to encourage the use of subaccount designations by Participants.
Participants may create subaccounts under a Trading Account for no additional fee.
Pursuant to current Section E.3(a), Participants would be allocated
fees as follows:
Trading Account A would be attributed two sides, one on
each side of the execution. Thus, the Participant associated with
Trading Account A would be assessed a $100 fee on the buy side (i.e.,
40,000 shares x $0.0030/share = $120, capped at the $100 maximum fee)
and a $60 fee on the sell side (i.e., 20,000 shares x $0.0030/share =
$60) for a total of $160.
Trading Account B would be attributed one side. Thus, the
Participant associated with Trading Account B would be assessed a $100
fee (i.e., 40,000 shares x $0.0030/share = $120, capped at the $100
maximum fee).
Trading Accounts C, D and E would be attributed one side
each. Thus, each Participant associated with each Trading Account would
be assessed a $60 fee (i.e., 20,000 shares x $0.0030/share = $60).
Trading Account F would be attributed one side. Thus, the
Participant associated with Trading Account F would be assessed a $100
fee (i.e., 40,000 shares x $0.0030/share = $120, capped at the $100
maximum fee).
As shown under Example 1, a single Trading Account would be
assessed a single capped fee for each side of the Section E.3(a)
execution, regardless of the number of subaccounts under the Trading
Account allocated positions to the Section E.3(a) execution. The
Exchange believes that the Section E.3(a) fee can be more equitably
applied by applying the fee cap per subaccount, which would better
ensure that, for example, Participants representing different
correspondent firms \15\ on the same side of a single Section E.3(a)
execution would be assessed separate capped fees per correspondent
firm, whereas Participants that do not represent different
correspondent firms on the same side of a Section E.3(a) execution
would continue to be assessed a single capped fee. Thus, the Exchange
proposes to amend Section E.3 to effect this change.
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\15\ The term ``correspondent firm'' refers to the customer of a
Clearing Participant utilizing the clearing services of the Clearing
Participant.
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Initially, the Exchange proposes to capitalize the term
``executions'' in the title of current Section E.3(a) to be consistent
with the capitalized ``Executions'' in the title of current Section
E.3(b).
Also, the Exchange proposes to replace the first full paragraph of
current Section E.3 with proposed paragraphs (a)(1) and (a)(2), which
largely restate and clarify the current provisions, while omitting
certain outdated or inaccurate language, as described below.
Specifically, proposed paragraph (a)(1) provides that amended Section
E.3(a) shall apply to all executions within the Matching System
resulting from single-sided or cross orders submitted as at least a
Round Lot \16\ by Institutional Brokers as agent only. Proposed
paragraph (a)(2) provides that Section E.3(a) fees shall be charged to
each Clearing Participant allocated position(s) to a Section E.3(a)
execution; provided if a Section E.3(a) execution results from a
single-sided order, the Institutional Broker will be charged the
Section E.3(a) fee and attributed credits pursuant to Section E.1(b)
and (c).\17\
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\16\ The first full paragraph under current Section E.3
provides, in pertinent part, that single-sided and cross orders
submitted as Odd Lots that otherwise would be assessed fees pursuant
to current Section E.3(a) are assessed fees pursuant to current
Section E.4 (``Odd Lot fee''). However, current Section E.4 provides
that the Odd Lot fee applies to single-sided orders only. Thus, the
Exchange proposes to amend current Section E.4 to eliminate the word
``single-sided'' from the title and amend the first sentence of
Section E.4 to provide that subject to Section E.9, these fees are
charged to the Participant that submits an Odd Lot order to the
Matching System, whether electronically by the Participant or
through an Institutional Broker; provided that these fees shall not
apply to executions resulting from cross orders subject to fees set
forth under Sections E.2 (cross orders submitted by non-
Institutional Brokers) and E.3(b) (cross orders submitted by
Institutional Brokers where the Institutional Broker is acting as
principal on one side and agent on the other). Section E.3(b)
executions are not subject to the Odd Lot fee because Section E.3(b)
explicitly provides that the Section E.3(b) fee applies to
executions resulting from Odd Lots as well.
Thus, the Odd Lot fee only applies to executions resulting from
-1- Odd Lot single-sided orders submitted by any Participant and -2-
Odd Lot agency cross orders submitted by Institutional Brokers.
\17\ The first full paragraph under current Section E.3
provides, in pertinent part, that if the Institutional Broker
executes the Section E.3(a) order in the Matching System, the
Institutional Broker (not its customer) will be assessed applicable
Matching System fees pursuant to Sections E.1 and E.2. While the
current language is generally correct, the second clause of proposed
paragraph (a)(2) updates and clarifies its meaning. Specifically,
the current language contemplates an outdated distinction between
orders ``executed within the Matching System'' and orders executed
by Institutional Brokers. Since all orders executed on the Exchange
are always executed within the Matching System, the Exchange
proposes to eliminate that distinction. See CHX Article 9, Rule
13(a). Also, while Section E.1(a) provides that Section E.3(a)
orders are not subject to the Section E.1 liquidity removing fee,
the Exchange believes that it is clearer to state that Section
E.3(a) orders are subject to the Section E.3(a) fee and attributed
credits pursuant to Section E.1(b) and (c), as opposed to stating
that Section E.3(a) orders are subject to Section E.1 fees.
Moreover, since Section E.2 fees only apply to cross orders
submitted by non-Institutional Broker Participants, the Exchange
proposes to eliminate the reference to Section E.2.
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Moreover, so as to implement a more intuitive and equitable
application of the Section E.3(a) fee cap, the Exchange propose to
adopt proposed paragraph (a)(3), which adopts the term ``Clearing
Side,'' which means the buy or sell side of an individual clearing
submission that is related to a Section E.3(a) or Section E.7
execution; \18\ provided all Clearing Sides of a given execution
attributed to a single subaccount shall be aggregated per buy and sell
sides separately and each aggregation subject to separate capped
fee.\19\
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\18\ See supra note 4; see also infra description of proposed
amendments to Section E.7.
\19\ Correspondingly, the Exchange proposes to replace
references to ``side'' under the first sentence of the second
columns of Sections E.3(a) and E.7 with ``Clearing Side.''
In light of the proposed definition of ``Clearing Side,'' the
Exchange also proposes to delete the last paragraph of current
Section E.3 as obviated and redundant of amended Section E.3(a).
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Currently, a Trading Account may be represented on two or more
clearing submissions on the same side of the Section E.3(a) execution
if the portion of the execution allocated to that Trading Account is
larger than allocations to two or more contra-side Trading
Accounts.\20\
[[Page 29938]]
Utilizing the concept of the Clearing Side, current Section E.3(a)
would require that all Clearing Sides attributed to a single Trading
Account be aggregated per buy and sell sides separately, with each
aggregation subject to a single capped fee, unless two or more IBRs are
associated with the Trading Account, in which case the Section E.3(a)
fee cap would be applied per IBR. However, amended Section E.3(a) would
require that all Clearing Sides attributed to a single subaccount under
a Trading Account be aggregated per buy and sell sides separately, with
each aggregation subject to a single capped fee. Since a subaccount
attributed to a single correspondent firm could never be represented by
two or more IBRs on the same Section E.3(a) or Section E.7 execution,
the Exchange proposes to eliminate the current IBR consideration
described under the last paragraph of current Section E.3, as the
proposed subaccount aggregation provides sufficient granularity to
obviate the IBR consideration.\21\
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\20\ See Trading Account A under Example 1.
\21\ See supra note 19.
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The following Example 2 illustrates the application of amended
Section E.3(a):
Example 2. Assume the same as Example 1, except that fees are
allocated pursuant to amended Section E.3(a). Pursuant to amended
Section E.3(a), Participants would be allocated fees as follows:
Trading Account A would be attributed three Clearing
Sides, two on the buy side representing subaccounts a and b,
respectively, and one on the sell side. Thus, the Participant
associated with Trading Account A would be assessed a $120 fee on the
buy side (i.e., 20,000 shares x $0.0030/share = $60 for each
subaccount) and a $60 fee on the sell side (i.e., 20,000 shares x
$0.0030/share = $60) for a total of $180.
Trading Account B would be attributed two Clearing Sides.
However, pursuant to proposed Section E.3(a)(3), all Clearing Sides
attributed to a single subaccount would be aggregated for fee cap
purposes. Thus, the Participant associated with Trading Account B would
be assessed a $100 fee (i.e., 40,000 shares x $0.0030/share = $120,
capped at $100).
Trading Accounts C, D and E would each continue to be
attributed one Clearing Side. Thus, each Participant associated with
each Trading Account would be assessed a $60 fee (i.e., 20,000 shares x
$0.0030/share = $60).
Trading Account F would be attributed two Clearing Sides.
However, because the Participant associated with Trading Account F did
not designate any subaccounts, the Participant would be assessed $120
fee (i.e., 20,000 x $0.0030 = $60 for each Clearing Side for a total of
$120).\22\
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\22\ If the Trading Account F Clearing Sides shared the same
subaccount, the Participant would have been assessed a single capped
fee of $100. See supra note 14.
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Section E.7
Current Section E.7 provides a fee that is virtually identical to
Section E.3(a), except that it applies to non-CHX executed trades for
which clearing information is entered by an Institutional Broker into
the Exchange's systems and submitted to a Qualified Clearing Agency
pursuant to Article 21, Rule 6(a) (``Section E.7 execution''). Given
that the application of the Section E.7 fee is virtually identical to
the application of the Section E.3(a) fee, the Exchange proposes to
adopt amendments under Section E.7 that are similar to the proposed
amendments to Section E.3(a).
Specifically, the Exchange proposes to designate the first sentence
of the last paragraph under current Section E.7 as proposed paragraph
(a) and add language referring to the execution subject to the Section
E.7 fee as ``Section E.7 execution.'' The Exchange further proposes to
delete the second sentence of the last paragraph under current Section
E.7, which the Exchange believes is redundant of the Section E.7 fee
cap, which is already stated previously under Section E.7 and obviated
by the definition of Clearing Side, under proposed Section E.3(a)(3).
The Exchange also proposes to adopt proposed paragraph (b), which
provides that Section E.7 fees shall be charged to each Clearing
Participant allocated position(s) to a Section E.7 execution. Proposed
paragraph (b) is virtually identical to proposed Section E.3(a)(2),
except that proposed paragraph (b) omits reference to the billing of
executions resulting from single-sided orders, as Section E.7 does not
apply to single-sided orders submitted to the Matching System.
Operative Date
The proposed rule change is effective upon filing, but will be
operative on June 1, 2016.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \23\ in general, and furthers the
objectives of Section 6(b)(4) of the Act \24\ 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.
Specifically, Sections E.3(a) and E.7 fees will continue to be
equitably allocated among all Clearing Participants and Institutional
Brokers. Moreover, the Exchange believes that the modified fee cap
allocation method is reasonable as it attempts to apply the fee cap at
a more granular level per beneficial party to the Section E.3(a) and
Section E.7 transactions, which will more equitably allocate fees among
Participants based on their activity on the Exchange.
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\23\ 15 U.S.C. 78f.
\24\ 15 U.S.C. 78f(b)(4).
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Moreover, the Exchange believes that the proposed rule change is
consistent with Section 6(b)(1) of the Act \25\ in particular in that
the proposed rule change clarifies the applicability of Section E.3(a)
and E.4 fees, which would further enable the Exchange to be so
organized as to have the capacity to be able to carry out the purposes
of the Act and to comply, and to enforce compliance by its Participants
and persons associated with its Participants, with the provisions of
the Act, the rules and regulations thereunder, and the rules of the
Exchange.
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\25\ 15 U.S.C. 78f(b)(1).
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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 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 Exchange believes that the proposed
rule change modifies the application of the fee cap to be more
equitable and intuitive. Thus, the Exchange believes that the proposed
rule change will further encourage market participants to submit orders
to the Exchange through Institutional Brokers, which will enhance
competition in the national market system.
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
[[Page 29939]]
19(b)(3)(A)(ii) of the Act \26\ and subparagraph(f)(2) of Rule 19b-4
thereunder \27\ because it establishes or changes a due, fee or other
charge imposed by the Exchange.
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\26\ 15 U.S.C. 78s(b)(3)(A)(ii).
\27\ 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-2016-06 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CHX-2016-06. 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 such filing will also 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-2016-06 and should be
submitted on or before June 3, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-11294 Filed 5-12-16; 8:45 am]
BILLING CODE 8011-01-P