Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Implement a Cancellation Fee, 4436-4438 [2010-1606]
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4436
Federal Register / Vol. 75, No. 17 / Wednesday, January 27, 2010 / Notices
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–NYSEAmex–2010–02 on the
subject line.
Paper Comments
srobinson on DSKHWCL6B1PROD with NOTICES
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
SECURITIES AND EXCHANGE
COMMISSION
and C below, of the most significant
aspects of such statements.
[Release No. 34–61392; File No. SR–CHX–
2010–02]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Self-Regulatory Organizations;
Chicago Stock Exchange, Inc.; Notice
of Filing and Immediate Effectiveness
of a Proposed Rule Change To
Implement a Cancellation Fee
January 21, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on January
All submissions should refer to File No. 13, 2010, Chicago Stock Exchange, Inc.
(‘‘Exchange’’ or ‘‘CHX’’) filed with the
SR–NYSEAmex–2010–02. This file
Securities and Exchange Commission
number should be included on the
subject line if e-mail is used. To help the (‘‘Commission’’) the proposed rule
change as described in Items I, II, and
Commission process and review your
III below, which Items have been
comments more efficiently, please use
only one method. The Commission will prepared by the Exchange. CHX has
post all comments on the Commission’s filed the proposal pursuant to Section
19(b)(3)(A) of the Act 3 and Rule 19b–
Internet Web site (https://www.sec.gov/
4(f)(2) thereunder,4 which renders the
rules/sro.shtml). Copies of the
proposal effective upon filing with the
submission,11 all subsequent
Commission. The Commission is
amendments, all written statements
publishing this notice to solicit
with respect to the proposed rule
comments on the proposed rule change
change that are filed with the
from interested persons.
Commission, and all written
communications relating to the
I. Self-Regulatory Organization’s
proposed rule change between the
Statement of the Terms of Substance of
Commission and any person, other than the Proposed Rule Change
those that may be withheld from the
The CHX proposes to amend its
public in accordance with the
Schedule of Participant Fees and
provisions of 5 U.S.C. 552, will be
Assessments (the ‘‘Fee Schedule’’),
available for inspection and copying in
effective January 25, 2010, to implement
the Commission’s Public Reference
a cancellation fee for Participants
Room, 100 F Street, NE., Washington,
entering and subsequently cancelling
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m. orders under certain circumstances. The
text of this proposed rule change is
Copies of such filing also will be
available on the Exchange’s Web site at
available for inspection and copying at
https://www.chx.com/rules/
the principal office of NYSE Amex. All
proposed_rules.htm and in the
comments received will be posted
Commission’s Public Reference Room,
without change; the Commission does
100 F Street, NE., Washington, DC
not edit personal identifying
20549.
information from submissions. You
should submit only information that
II. Self-Regulatory Organization’s
you wish to make available publicly. All Statement of the Purpose of, and
submissions should refer to File No.
Statutory Basis for, the Proposed Rule
SR–NYSEAmex–2010–02 and should be Change
submitted on or before February 17,
In its filing with the Commission, the
2010.
CHX included statements concerning
For the Commission, by the Division of
the purpose of and basis for the
Trading and Markets, pursuant to delegated
proposed rule changes and discussed
authority.12
any comments it received regarding the
Florence E. Harmon,
proposal. The text of these statements
Deputy Secretary.
may be examined at the places specified
in Item IV below. The CHX has prepared
[FR Doc. 2010–1607 Filed 1–26–10; 8:45 am]
summaries, set forth in sections A, B
BILLING CODE 8011–01–P
11 The text of the proposed rule change is
available on the Commission’s Web site at https://
www.sec.gov.
12 17 CFR 200.30–3(a)(12).
VerDate Nov<24>2008
16:22 Jan 26, 2010
Jkt 220001
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(2).
2 17
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1. Purpose
Through this filing, the Exchange
would amend its Fee Schedule, effective
January 25, 2010, to impose a charge for
order cancellations in issues priced
$1.00 per share or more submitted by
Participants whose orders rarely are at
or near the National Best Bid or Offering
(‘‘NBBO’’).5 The Exchange believes that
the order cancellation fee will either
incent Participants to submit orders
which are closer to the NBBO or
compensate the Exchange for the
systems and operational costs and
burdens associated with handling and
recording orders which rarely execute.
In determining whether the order
cancellation fee would be imposed upon
a given Participant, the Exchange would
utilize a formula which subtracts the
number of Quotable or ‘‘Q’’ orders
submitted by the Participant in the
Regular Trading Session in a particular
month from the number of Wide or ‘‘W’’
orders. Q orders are defined as provide
orders in issues priced $1.00 per share
or more submitted by the Participant in
the Regular Trading Session which are
priced at the relevant side of the NBBO
up to (but not including) two (2) cents
inferior to the relevant side of the NBBO
(bid for buy orders; offer for sell orders)
at the time the order is received by the
Matching System.6 W orders are defined
as those submitted by the Participant in
the Regular Trading Session in issues
priced $1.00 per share or more which
are two (2) or more cents inferior to the
relevant side of the NBBO at the time
the order is received by the Matching
System.7 The difference between these
two values is then divided by ‘‘E,’’ which
is defined as the greater of (a) one (1) or
(b) the number of all provide orders (W
and Q) which are submitted and
executed (in whole or in part) in the
Regular Trading Session (excluding
cross transactions) within the Matching
System during the calendar month in
5 We are excluding orders and cancellations in
issues priced under $1 per share from this proposal
as it does not appear that the activity in those issues
gives rise to the same concerns as expressed herein
for issues priced at or greater than $1 per share.
6 Provide orders are those which, for some period
of time, reside in our Matching System prior to
trade execution. They contrast with ‘‘take’’ orders,
which interact with orders resting in our book.
7 As a result, W order can only be ‘‘provide’’
orders and never ‘‘takers’’ of liquidity residing in our
Matching System.
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Federal Register / Vol. 75, No. 17 / Wednesday, January 27, 2010 / Notices
srobinson on DSKHWCL6B1PROD with NOTICES
question by the Participant.8 If the
remaining value is greater than 100,
then the cancellation fee applies to the
Participant for that month’s activity and
the Participant would be assessed a fee
of $0.01 per order cancellation. If the
value is 100 or less, the Participant
would not be assessed any fee on its
cancellation instructions.
The cancellation fee will be
calculated and applied as to the
Account Symbols maintained by each
clearing Participant. Individual Account
Symbols are assigned to each trading
account maintained by a clearing
Participant. Each clearing Participant
which executes orders on the Exchange
has at least one Account Symbol, while
some clearing Participants have
multiple account symbols. Multiple
accounts can be used by clearing
Participants, for example, to segregate
the order activity of different clients.
Calculating and applying the
cancellation fee by the Account
Symbols maintained by the clearing
Participant provides a more precise way
of identifying the conduct and
correspondent firms implicated by the
proposed fee provisions.
The operation of this formula can be
illustrated by the use of some examples.
For Example 1, we assume that in a
given month, a Participant firm submits
1,000,000 provide orders to our
Matching System. Of this amount,
950,000 orders are two (2) cents or more
inferior to the prevailing NBBO at the
time when the Matching System
received them, and would therefore be
classified as Wide or W orders. The
remaining 50,000 orders were priced at
the NBBO or within two (2) cents at the
time when the Matching System
received them, and would therefore be
classified as Quotable or Q orders. Of
these 1,000,000 orders, we assume that
a total of 10,000 orders are executed in
whole or in part during the month.9
Finally, we assume that the Participant
submits 1,000,000 cancellation
instructions for the W and Q orders
noted above during the month. Pursuant
to the proposed formula, the difference
between W and Q (950,000 less 50,000)
would be 900,000. Dividing that figure
by the number of orders which were
8 Cancellations from ‘‘Immediate or Cancel’’ or
‘‘Fill or Kill’’ orders will not be counted towards the
number of cancellations resulting in a fee charged
to a Participant. In the event that a Participant has
no executed provide orders in a month, we assume
that E has a value of one (1) in order to avoid a
mathematical error in applying the cancellation fee
formula.
9 Since orders may be partially executed, the
Participants may receive more trade executions
than orders. The Exchange believes that the formula
should be based upon the number of orders
executed and not the number of trades reported.
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16:22 Jan 26, 2010
Jkt 220001
executed (E or 10,000) gives us an
amount of 90. Since that value is less
than 100, no fee would be imposed on
the cancellations.
For Example 2, we assume the same
facts as above, with the exception that
the Participant firm submits a total of
2,000,000 provide orders to our
Matching System and 1,950,000 of those
orders are two (2) cents or more inferior
to the prevailing NBBO at the time
when the Matching System received
them, and would therefore be classified
as Wide or W orders. Pursuant to the
proposed formula, the difference
between W and Q (1,950,000 less
50,000) would be 1,900,000. Dividing
that figure by the number of orders
which were executed (E or 10,000) gives
us an amount of 190. Since that value
exceeds 100, a fee would be imposed on
the cancellations associated with the
orders. Multiplying the number of those
cancellations (1,000,000) by the
proposed rate would result in a monthly
cancellation fee to the Participant of ten
thousand dollars ($10,000).
For the month of December 2009,
CHX Participants entered in total
11,293,590 Wide (W) orders and
5,603,173 Quotable (Q) orders, of which
161,420 were executed in whole or in
part (the ‘‘E’’ value under the proposal).
Of the approximately 11.3 million Wtype orders submitted in December, over
7.75 million of them were entered by a
single CHX Participant firm. This same
firm was responsible for the entry of
7,754,446 cancellation instructions in
December, out of a total of 16,629,795
such instructions for all Participant
firms, and it would have been assessed
a cancellation fee pursuant to the
proposal.
The purpose of this charge is to incent
high-frequency trading Participants to
submit orders which, when quoted, are
at or close to the NBBO or, if their
behavior remains unchanged, to
compensate the Exchange for the
processing and electronic storage costs
associated with orders which ‘‘quote
around’’ the NBBO and rarely execute.
Under the proposed formula, the
likelihood that the cancellation fee
would be imposed increases the greater
the number of Wide orders submitted by
the Participant. The formula is designed
to isolate a pattern of behavior in which
a firm submits orders which are quoted
well outside the NBBO and frequently
cancels and reenters such order to
continuously stay outside the NBBO.10
10 Although the Exchange is not privy to the
trading strategies of the firms submitting large
numbers of orders well outside the NBBO, it
appears that they are hoping to benefit from
Intermarket Sweep Order (‘‘ISO’’) satisfaction orders
sent to the Exchange pursuant to the requirements
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4437
Firms which submit a small number of
Wide orders or which also submit a
relatively significant number of
Quotable orders are less likely to be
impacted by the proposed fee. In
addition, the likelihood that the
cancellation fee will be assessed
diminishes as the number of provide
orders actually executed (E) increases.
The Exchange believes that there is
relatively little benefit added to the
national market system by the behavior
impacted by the proposed cancellation
fee. The processing of such orders and
the associated cancellation instructions
has the potential to impact our systems
capacity and does result in increased
order and market data storage costs.
Because Wide orders are infrequently
executed (which normally generates
trading fee revenue for the Exchange),
such orders are more expensive on a
relative basis for the Exchange to receive
and process. Moreover the presence of
Wide orders in our book can make it
more difficult to execute other, Reg
NMS trade-through exempt orders, due
to our normal price-time order priority
provisions. By discouraging the frequent
use of Wide orders, the Exchange
believes that such trade-through exempt
transactions can be more readily
executed.
The Exchange proposes to implement
the cancellation charge effective January
25, 2010. The formula by which the
cancellation fee is derived shall be
calculated for the remaining trading
days in January and billed after the end
of the month, and thereafter calculated
for the entire month and billed after the
end of that month.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act 11 in general, and
furthers the objectives of Section 6(b)(4)
of the Act 12 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees and other charges
among its members. Among other
things, the Exchange believes that the
cancellation fee described herein should
help address the operational costs and
burdens associated with the processing
and storage of orders well outside the
NBBO.
of Regulation NMS when a trade through occurs on
another trading center and the Wide orders are at
the CHX BBO. Since the sending of ISO satisfaction
orders is not required for non-Regular Trading
Session activity, we are excluding such activity
from the proposed fee.
11 15 U.S.C. 78f.
12 15 U.S.C. 78f(b)(4)
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4438
Federal Register / Vol. 75, No. 17 / Wednesday, January 27, 2010 / Notices
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.
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 foregoing rule change has become
effective pursuant to Section
19(B)(3)(A)(ii) of the Act 13 and
subparagraph (f)(2) of Rule 19b–4
thereunder 14 because it establishes or
changes a due, fee, or other charge
applicable only to a member imposed by
the self-regulatory organization.
Accordingly, the proposal is effective
upon Commission receipt of the filing.
At any time within 60 days of the filing
of such rule change, the Commission
may summarily abrogate 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 purpose of the Act.
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:
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://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 inspection and copying in
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of such 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 publicly available. All
submissions should refer to File
Number SR–CHX–2010–02 and should
be submitted on or before February 17,
2010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–1606 Filed 1–26–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
srobinson on DSKHWCL6B1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–CHX–2010–02 on the
subject line.
[Release No. 34–61389; File No. SR–BX–
2010–002]
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–2010–02. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
January 20, 2010.
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
of Proposed Rule Change To Amend
Rule 2342 To Reflect Changes to
Corresponding FINRA Rule
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January 5,
2010, NASDAQ OMX BX, Inc. (the
‘‘Exchange’’ or ‘‘BX’’) 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
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
13 15
U.S.C. 78s(b)(3)(A)(ii).
14 17 CFR 240.19b–4(f)(2).
VerDate Nov<24>2008
16:22 Jan 26, 2010
prepared by the Exchange. The
Exchange has designated the proposed
rule change as constituting a noncontroversial rule change under Rule
19b–4(f)(6) under the Act,3 which
renders the proposal effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange is filing this proposed
rule change to amend BX Rule 2342 to
reflect recent changes to a
corresponding rule of the Financial
Industry Regulatory Authority
(‘‘FINRA’’). BX will implement the
proposed rule change thirty days after
the date of the filing. The text of the
proposed rule change is available at
https://nasdaqomxbx.cchwallstreet.com,
at the Exchange’s principal office, 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
Exchange 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 these
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 aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Many of BX’s rules are based on rules
of FINRA (formerly the National
Association of Securities Dealers
(‘‘NASD’’)). During 2008, FINRA
embarked on an extended process of
moving rules formerly designated as
‘‘NASD Rules’’ into a consolidated
FINRA rulebook. In most cases, FINRA
has renumbered these rules, and in
some cases has substantively amended
them. Accordingly, BX also proposes to
initiate a process of modifying its
rulebook to ensure that BX rules
corresponding to FINRA/NASD rules
continue to mirror them as closely as
practicable. In some cases, it will not be
possible for the rule numbers of BX
1 15
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3 17
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CFR 240.19b–4(f)(6).
27JAN1
]]>Agencies
[Federal Register Volume 75, Number 17 (Wednesday, January 27, 2010)]
[Notices]
[Pages 4436-4438]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-1606]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61392; File No. SR-CHX-2010-02]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Implement a Cancellation Fee
January 21, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 13, 2010, Chicago Stock Exchange, Inc. (``Exchange'' or
``CHX'') 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. CHX has
filed the proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal effective
upon filing with the Commission. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CHX proposes to amend its Schedule of Participant Fees and
Assessments (the ``Fee Schedule''), effective January 25, 2010, to
implement a cancellation fee for Participants entering and subsequently
cancelling orders under certain circumstances. The text of this
proposed rule change is available on the Exchange's Web site at https://www.chx.com/rules/proposed_rules.htm and in the Commission's Public
Reference Room, 100 F Street, NE., Washington, DC 20549.
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 regarding the proposal. 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
Through this filing, the Exchange would amend its Fee Schedule,
effective January 25, 2010, to impose a charge for order cancellations
in issues priced $1.00 per share or more submitted by Participants
whose orders rarely are at or near the National Best Bid or Offering
(``NBBO'').\5\ The Exchange believes that the order cancellation fee
will either incent Participants to submit orders which are closer to
the NBBO or compensate the Exchange for the systems and operational
costs and burdens associated with handling and recording orders which
rarely execute.
---------------------------------------------------------------------------
\5\ We are excluding orders and cancellations in issues priced
under $1 per share from this proposal as it does not appear that the
activity in those issues gives rise to the same concerns as
expressed herein for issues priced at or greater than $1 per share.
---------------------------------------------------------------------------
In determining whether the order cancellation fee would be imposed
upon a given Participant, the Exchange would utilize a formula which
subtracts the number of Quotable or ``Q'' orders submitted by the
Participant in the Regular Trading Session in a particular month from
the number of Wide or ``W'' orders. Q orders are defined as provide
orders in issues priced $1.00 per share or more submitted by the
Participant in the Regular Trading Session which are priced at the
relevant side of the NBBO up to (but not including) two (2) cents
inferior to the relevant side of the NBBO (bid for buy orders; offer
for sell orders) at the time the order is received by the Matching
System.\6\ W orders are defined as those submitted by the Participant
in the Regular Trading Session in issues priced $1.00 per share or more
which are two (2) or more cents inferior to the relevant side of the
NBBO at the time the order is received by the Matching System.\7\ The
difference between these two values is then divided by ``E,'' which is
defined as the greater of (a) one (1) or (b) the number of all provide
orders (W and Q) which are submitted and executed (in whole or in part)
in the Regular Trading Session (excluding cross transactions) within
the Matching System during the calendar month in
[[Page 4437]]
question by the Participant.\8\ If the remaining value is greater than
100, then the cancellation fee applies to the Participant for that
month's activity and the Participant would be assessed a fee of $0.01
per order cancellation. If the value is 100 or less, the Participant
would not be assessed any fee on its cancellation instructions.
---------------------------------------------------------------------------
\6\ Provide orders are those which, for some period of time,
reside in our Matching System prior to trade execution. They
contrast with ``take'' orders, which interact with orders resting in
our book.
\7\ As a result, W order can only be ``provide'' orders and
never ``takers'' of liquidity residing in our Matching System.
\8\ Cancellations from ``Immediate or Cancel'' or ``Fill or
Kill'' orders will not be counted towards the number of
cancellations resulting in a fee charged to a Participant. In the
event that a Participant has no executed provide orders in a month,
we assume that E has a value of one (1) in order to avoid a
mathematical error in applying the cancellation fee formula.
---------------------------------------------------------------------------
The cancellation fee will be calculated and applied as to the
Account Symbols maintained by each clearing Participant. Individual
Account Symbols are assigned to each trading account maintained by a
clearing Participant. Each clearing Participant which executes orders
on the Exchange has at least one Account Symbol, while some clearing
Participants have multiple account symbols. Multiple accounts can be
used by clearing Participants, for example, to segregate the order
activity of different clients. Calculating and applying the
cancellation fee by the Account Symbols maintained by the clearing
Participant provides a more precise way of identifying the conduct and
correspondent firms implicated by the proposed fee provisions.
The operation of this formula can be illustrated by the use of some
examples. For Example 1, we assume that in a given month, a Participant
firm submits 1,000,000 provide orders to our Matching System. Of this
amount, 950,000 orders are two (2) cents or more inferior to the
prevailing NBBO at the time when the Matching System received them, and
would therefore be classified as Wide or W orders. The remaining 50,000
orders were priced at the NBBO or within two (2) cents at the time when
the Matching System received them, and would therefore be classified as
Quotable or Q orders. Of these 1,000,000 orders, we assume that a total
of 10,000 orders are executed in whole or in part during the month.\9\
Finally, we assume that the Participant submits 1,000,000 cancellation
instructions for the W and Q orders noted above during the month.
Pursuant to the proposed formula, the difference between W and Q
(950,000 less 50,000) would be 900,000. Dividing that figure by the
number of orders which were executed (E or 10,000) gives us an amount
of 90. Since that value is less than 100, no fee would be imposed on
the cancellations.
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\9\ Since orders may be partially executed, the Participants may
receive more trade executions than orders. The Exchange believes
that the formula should be based upon the number of orders executed
and not the number of trades reported.
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For Example 2, we assume the same facts as above, with the
exception that the Participant firm submits a total of 2,000,000
provide orders to our Matching System and 1,950,000 of those orders are
two (2) cents or more inferior to the prevailing NBBO at the time when
the Matching System received them, and would therefore be classified as
Wide or W orders. Pursuant to the proposed formula, the difference
between W and Q (1,950,000 less 50,000) would be 1,900,000. Dividing
that figure by the number of orders which were executed (E or 10,000)
gives us an amount of 190. Since that value exceeds 100, a fee would be
imposed on the cancellations associated with the orders. Multiplying
the number of those cancellations (1,000,000) by the proposed rate
would result in a monthly cancellation fee to the Participant of ten
thousand dollars ($10,000).
For the month of December 2009, CHX Participants entered in total
11,293,590 Wide (W) orders and 5,603,173 Quotable (Q) orders, of which
161,420 were executed in whole or in part (the ``E'' value under the
proposal). Of the approximately 11.3 million W-type orders submitted in
December, over 7.75 million of them were entered by a single CHX
Participant firm. This same firm was responsible for the entry of
7,754,446 cancellation instructions in December, out of a total of
16,629,795 such instructions for all Participant firms, and it would
have been assessed a cancellation fee pursuant to the proposal.
The purpose of this charge is to incent high-frequency trading
Participants to submit orders which, when quoted, are at or close to
the NBBO or, if their behavior remains unchanged, to compensate the
Exchange for the processing and electronic storage costs associated
with orders which ``quote around'' the NBBO and rarely execute. Under
the proposed formula, the likelihood that the cancellation fee would be
imposed increases the greater the number of Wide orders submitted by
the Participant. The formula is designed to isolate a pattern of
behavior in which a firm submits orders which are quoted well outside
the NBBO and frequently cancels and reenters such order to continuously
stay outside the NBBO.\10\ Firms which submit a small number of Wide
orders or which also submit a relatively significant number of Quotable
orders are less likely to be impacted by the proposed fee. In addition,
the likelihood that the cancellation fee will be assessed diminishes as
the number of provide orders actually executed (E) increases.
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\10\ Although the Exchange is not privy to the trading
strategies of the firms submitting large numbers of orders well
outside the NBBO, it appears that they are hoping to benefit from
Intermarket Sweep Order (``ISO'') satisfaction orders sent to the
Exchange pursuant to the requirements of Regulation NMS when a trade
through occurs on another trading center and the Wide orders are at
the CHX BBO. Since the sending of ISO satisfaction orders is not
required for non-Regular Trading Session activity, we are excluding
such activity from the proposed fee.
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The Exchange believes that there is relatively little benefit added
to the national market system by the behavior impacted by the proposed
cancellation fee. The processing of such orders and the associated
cancellation instructions has the potential to impact our systems
capacity and does result in increased order and market data storage
costs. Because Wide orders are infrequently executed (which normally
generates trading fee revenue for the Exchange), such orders are more
expensive on a relative basis for the Exchange to receive and process.
Moreover the presence of Wide orders in our book can make it more
difficult to execute other, Reg NMS trade-through exempt orders, due to
our normal price-time order priority provisions. By discouraging the
frequent use of Wide orders, the Exchange believes that such trade-
through exempt transactions can be more readily executed.
The Exchange proposes to implement the cancellation charge
effective January 25, 2010. The formula by which the cancellation fee
is derived shall be calculated for the remaining trading days in
January and billed after the end of the month, and thereafter
calculated for the entire month and billed after the end of that month.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \11\ in general, and furthers the
objectives of Section 6(b)(4) of the Act \12\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among its members. Among other things, the Exchange
believes that the cancellation fee described herein should help address
the operational costs and burdens associated with the processing and
storage of orders well outside the NBBO.
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\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(4)
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[[Page 4438]]
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.
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 foregoing rule change has become effective pursuant to Section
19(B)(3)(A)(ii) of the Act \13\ and subparagraph (f)(2) of Rule 19b-4
thereunder \14\ because it establishes or changes a due, fee, or other
charge applicable only to a member imposed by the self-regulatory
organization. Accordingly, the proposal is effective upon Commission
receipt of the filing. At any time within 60 days of the filing of such
rule change, the Commission may summarily abrogate 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 purpose of the Act.
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\13\ 15 U.S.C. 78s(b)(3)(A)(ii).
\14\ 17 CFR 240.19b-4(f)(2).
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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 (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-CHX-2010-02 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-2010-02. This file
number should be included on the subject line if e-mail 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 (https://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 inspection and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such 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 publicly available. All
submissions should refer to File Number SR-CHX-2010-02 and should be
submitted on or before February 17, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-1606 Filed 1-26-10; 8:45 am]
BILLING CODE 8011-01-P
