Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change To Adopt and Amend Rules To Permit the Exchange To Initiate CHX SNAP SM, 13857-13861 [2016-05752]
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Federal Register / Vol. 81, No. 50 / Tuesday, March 15, 2016 / Notices
require a different response. Persons
relying upon this exemptive relief shall
discontinue transactions involving the
Shares of the Fund, pending
presentation of the facts for the
Commission’s consideration, in the
event that any material change occurs
with respect to any of the facts or
representations made by the Requestors,
and as is the case with all preceding
letters, particularly with respect to the
close alignment between the market
price of Shares and the Fund’s NAV. In
addition, persons relying on this
exemption are directed to the anti-fraud
and anti-manipulation provisions of the
Exchange Act, particularly Sections 9(a),
10(b), and Rule 10b–5 thereunder.
Responsibility for compliance with
these and any other applicable
provisions of the federal securities laws
must rest with the persons relying on
this exemption. This Order should not
be considered a view with respect to
any other question that the proposed
transactions may raise, including, but
not limited to, the adequacy of the
disclosure concerning, and the
applicability of other federal or state
laws to, the proposed transactions.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–05749 Filed 3–14–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
asabaliauskas on DSK3SPTVN1PROD with NOTICES
listed for the Closed Meeting in closed
session.
The subject matter of the Closed
Meeting will be:
Institution and settlement of
injunctive actions;
Institution and settlement of
administrative proceedings;
Adjudicatory matters;
Opinion; and
Other matters relating to enforcement
proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact the Office of the Secretary at
(202) 551–5400.
rules.htm, at the principal office of the
Exchange, and at the Commission’s
Public Reference Room.
Dated: March 10, 2016.
Lynn M. Powalski,
Deputy Secretary.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2016–05879 Filed 3–11–16; 11:15 am]
BILLING CODE 8011–01–P
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a Closed Meeting
on Thursday, March 17, 2016 at 2:00
p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or her designee, has
certified that, in her opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
and 17 CFR 200.402(a)(3), (5), (7), 9(ii)
and (10), permit consideration of the
scheduled matter at the Closed Meeting.
Commissioner Piwowar, as duty
officer, voted to consider the items
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77331; File No. SR–CHX–
2016–01]
Self-Regulatory Organizations;
Chicago Stock Exchange, Inc.; Notice
of Filing of Proposed Rule Change To
Adopt and Amend Rules To Permit the
Exchange To Initiate CHX SNAP SM
Cycles
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 February
26, 2016, the Chicago Stock Exchange,
Inc. (‘‘CHX’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
CHX proposes to adopt and amend
rules to permit the Exchange to initiate
CHX SNAP SM cycles. The text of this
proposed rule change is available on the
Exchange’s Web site at https://
www.chx.com/rules/proposed_
1 15
8 17
CFR 200.30–3(a)(6) and (9).
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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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.
1. Purpose
March 9, 2016.
Sunshine Act Meeting
13857
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The Exchange proposes to adopt and
amend rules to permit the Exchange to
initiate CHX SNAP (‘‘SNAP’’) Cycles.3
Currently, a SNAP Cycle may only be
initiated upon receipt of a valid limit
order marked Start SNAP (‘‘Start SNAP
order’’) submitted by an order sender.4
The Exchange now proposes to permit
the Exchange to initiate a SNAP Cycle,
without receipt of a valid Start SNAP
order, if a periodic pro forma SNAP
review of the contents of the CHX book,
SNAP Auction Only Order (‘‘AOO’’)
Queue 5 and Protected Quotations of
external markets, in a given security,
show that the projected execution size
that would result if a SNAP Cycle were
to be initiated at that moment would
meet certain minimum size and notional
value requirements, as applicable
(‘‘Exchange-initiated SNAP’’). This
proposal is designed to permit
marketable, yet inactive passive
liquidity of a substantial size (i.e.,
inactive SNAP AOOs), to execute via
SNAP in the absence of a Start SNAP
order. The proposed rule change does
not modify the operation of SNAP
Cycles in any other way.
3 See Securities Exchange Act Release No. 76262
(October 26, 2015), 80 FR 67440 (November 2, 2015)
(SR–CHX–2015–05); see also Securities Exchange
Act Release No. 76087 (October 6, 2015), 80 FR
61540 (October 13, 2015); see also Securities
Exchange Act Release No. 75346 (July 1, 2015), 80
FR 39172 (July 8, 2015) (SR–CHX–2015–03). The
approved rule changes are not yet operative and
will become operative upon two weeks’ notice by
the Exchange to its Participants.
4 See supra id.; see also CHX Article 1, Rule
2(h)(1); see also CHX Article 18, Rule 1(b)(1).
5 See supra note 3; see also CHX Article 20, Rule
8(b)(2)(A).
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Background
In sum, a SNAP Cycle 6 is comprised
of the following five stages:
• Stage one—Initiating the SNAP
Cycle;
• Stage two—SNAP Order
Acceptance Period;
• Stage three—Pricing and
Satisfaction Period;
• Stage four—Order Matching Period;
and
• Stage five—Transition to the Open
Trading State.7
Currently, only Start SNAP orders that
meet minimum size, price and time of
receipt requirements could initiate a
SNAP Cycle.8 Moreover, a Start SNAP
order sender may instruct the Exchange
to cancel the SNAP Cycle if a minimum
execution size condition would not be
met.9 Upon receipt and acceptance of a
valid Start SNAP order, order
cancellations in the security would be
prohibited 10 and a SNAP Cycle would
proceed as follows:
• During the stage one Initiating the
SNAP Cycle, automated trading in the
subject security on the Exchange would
be suspended and remain suspended for
the duration of the SNAP Cycle.
• During the stage two SNAP Order
Acceptance Period, the Exchange will
transition precedent SNAP Eligible
Orders 11 to the SNAP CHX book and
accept new SNAP Eligible Orders for a
randomized time period for inclusion
on the SNAP CHX book.12
• During the stage three Pricing and
Satisfaction Period, the Exchange will
attempt to ascertain a single auction
price (i.e., ‘‘SNAP Price’’) 13 from SNAP
Eligible Orders resting on the SNAP
CHX book based on a new market
snapshot (‘‘stage three market
snapshot’’). If the SNAP Price is
determined to be at a price that would
require orders to be routed away, the
Exchange would route away SNAP
Eligible Orders resting on the SNAP
CHX book.14 Immediately after the
necessary orders are routed away, the
asabaliauskas on DSK3SPTVN1PROD with NOTICES
6 See
supra note 3; see also CHX Article 18, Rule
1(b).
7 See supra note 3; see also CHX Article 1, Rule
1(qq).
8 See supra note 3; see also CHX Article 1, Rule
2(h)(1).
9 See id.
10 Among other things, order cancellation
messages would be queued for processing at the
conclusion of the SNAP Cycle. See supra note 3; see
also CHX Article 18, Rule 1(b)(2)(C)(i).
11 See supra note 3; see also CHX Article 1, Rule
1(ss).
12 See supra note 3; see also CHX Article 18, Rule
1(b)(2); see also CHX Article 20, Rule 8(b)(3).
13 See supra note 3; see also CHX Article 1, Rule
1(rr).
14 See supra note 3; see also CHX Article 19, Rule
3(a)(4) and (5).
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SNAP Cycle would enter the
Satisfaction Period, during which time
the Exchange would delay proceeding to
the stage four Order Matching Period for
a period of time not to exceed 200
milliseconds to allow for confirmations
of routed orders to be received from
external markets. However, if the SNAP
Price does not require orders to be
routed away, the SNAP Cycle would
immediately proceed to the stage four
Order Matching Period. Moreover, if the
SNAP Price could not be confirmed, the
SNAP Cycle would be aborted and
immediately proceed to the stage five
Transition to the Open Trading State.15
• During the stage four Order
Matching Period, SNAP Eligible Orders
on the SNAP CHX book would execute
at the SNAP Price within the Matching
System.16
• During the stage five Transition to
the Open Trading State, unexecuted
SNAP Eligible Orders, as well as other
orders and cancel messages that have
been queued during the SNAP Cycle,
would be transitioned to the CHX book
for automated trading based on a new
market snapshot.17 During the
transition, orders may, among other
things, be executed within the Matching
System or be routed away in a manner
consistent with how orders are currently
executed and routed during automated
trading.18
Proposed Article 18, Rule 1A (Initiating
SNAP)
The Exchange now proposes to adopt
Article 18, Rule 1A, which describes the
current and proposed mechanisms for
initiating SNAP Cycles. Thereunder,
proposed paragraph (a) provides that
subject to current Article 18, Rule 1(c),19
a SNAP Cycle in a security shall be
initiated either (1) upon receipt of a
valid limit order marked Start SNAP, as
defined under current Article 1, Rule
2(h)(1), or (2) by the Exchange pursuant
to proposed paragraph (b). Specifically,
15 See supra note 3; see also CHX Article 1, Rule
1(qq).
16 See supra note 3; see also CHX Article 18, Rule
1(b)(4).
17 See supra note 3; see also CHX Article 18, Rule
1(b)(5).
18 See CHX Article 19, Rule 3(a)(1)–(3); see also
CHX Article 20, Rule 8(e)(1).
19 See supra note 3; CHX Article 18, Rule 1(c)
provides, among other things, that if a trading halt,
pause or suspension is in effect for the subject
security that requires the Exchange to suspend
trading in that security at the time a limit order
marked Start SNAP is received, a SNAP Cycle shall
not be initiated. In light of the proposed Exchangeinitiated SNAP mechanism, the Exchange proposes
to amend CHX Article 18, Rule 1(c) to provide
generally that a SNAP Cycle shall not begin in a
security if a trading halt, pause or suspension is in
effect for a subject security that requires the
Exchange to suspend trading in that security.
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proposed paragraph (a)(1) is a
restatement of language from current
Article 18, Rule 1(b)(1) that provides
that a SNAP Cycle would be initiated
upon receipt of a limit order marked
Start SNAP,20 whereas proposed
paragraph (a)(2) is new language that
refers to the proposed Exchangeinitiated SNAP mechanism, as
described in detail under proposed
paragraph (b).
Proposed paragraph (b) details the
circumstances under which the
Exchange would initiate a SNAP Cycle
in a security. It provides that during the
Open Trading State for each SNAPeligible security and at preprogrammed
intervals,21 the Exchange shall review
the CHX book, SNAP AOO Queue and
Protected Quotations of external
markets to determine whether sufficient
liquidity exists to initiate a SNAP Cycle
without the receipt of a valid limit order
marked Start SNAP (‘‘pro forma SNAP
review’’). Proposed paragraph (b)
continues by providing that in
conducting the pro forma SNAP review,
the Exchange shall take a market
snapshot of the Protected Quotations of
external markets in the subject security
and calculate a pro forma SNAP Price,
as defined under current Article 1, Rule
1(rr),22 to determine:
(1) Whether the projected execution
size (‘‘PES’’) at the pro forma SNAP
Price is equal to or greater than the
corresponding minimum PES, as
described under paragraph (d); and
(2) whether the PES within the
Matching System at the pro forma SNAP
Price would be equal to or greater than
80% of the corresponding minimum
PES.
If the conditions set forth under
proposed paragraphs (b)(1) and (2) are
20 Correspondingly, the Exchange proposes to
amend current Article 18, Rule 1(b)(1) to
contemplate proposed Rule 1A and to amend the
subtitle of current Rule 1(b)(1) to provide
‘‘Beginning the SNAP Cycle,’’ so as to clarify the
distinction between the initiation of a SNAP Cycle,
as described under proposed Rule 1A, and the
initial steps that would be taken thereafter.
21 On a technical level, the Matching System is
comprised of several Matching Engines and each
security traded on the Exchange is placed into only
one Matching Engine. The Exchange proposes to
conduct pro forma SNAP reviews of each SNAPeligible security in a given Matching Engine
consecutively and continuously in a preset order.
The Exchange will not modify this procedure
absent an approved filing pursuant to Rule 19b–4
under the Act.
22 The Exchange notes that the calculation of the
pro forma SNAP Price is identical to the calculation
of the SNAP Price during the stage three Pricing
and Satisfaction Period, except that the pro forma
SNAP Price calculation would not include any new
orders received during the stage two Order
Acceptance Period, as a SNAP Cycle would not
have yet been initiated. Example 2 below describes
how the pro forma SNAP Price would be
calculated.
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Federal Register / Vol. 81, No. 50 / Tuesday, March 15, 2016 / Notices
met, the Exchange shall initiate a SNAP
Cycle pursuant to current Article 18,
Rule 1(b), subject to proposed paragraph
(c). Proposed paragraphs (b) is designed
to ensure that a SNAP Cycle would only
be initiated by the Exchange if
marketable passive liquidity of a
substantial size is available at the
Exchange.23 Specifically, the condition
set forth under proposed paragraph (b)
is intended to avoid a scenario where
the market snapshot taken pursuant to
proposed paragraph (b) shows
substantial liquidity displayed away
from the Exchange, but by the time the
SNAP Cycle is initiated and the stage
three market snapshot is taken to
determine the actual SNAP Price, the
away liquidity has disappeared, thus
resulting in an aggregate SNAP
execution size that is much smaller than
the PES. By requiring that 80% of the
PES be projected to occur within the
Matching System, this scenario is
avoided.24
Proposed paragraph (d) is similar to
current Article 1, Rule 2(h)(1)(A)(i) and
provides that the minimum PES for an
Exchange-initiated SNAP pursuant to
proposed paragraph (b) shall either be
(1) 2,500 shares with a minimum
aggregate notional value of $250,000
based on the midpoint of the National
Best Bid and Offer (‘‘NBBO’’)
ascertained from the market snapshot
taken pursuant to paragraph (b) above or
(2) 20,000 shares with no minimum
aggregate notional value requirement;
provided, however, Berkshire
Hathaway, Inc. (BRK–A) will be a flat
100 shares minimum PES, due to its
extraordinary share price.
Proposed paragraph (c) places
conditions on Exchange-initiated SNAP
that are virtually identical to conditions
for a valid Start SNAP order under
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23 The Exchange notes that the aggregate size of
the stage three SNAP executions may be
substantially larger than the PES due to, among
other things, the possibility of new orders being
received during the stage two Order Acceptance
Period. See supra note 3; see also CHX Article 18,
Rule 1(b)(2).
24 Since order cancellations are prohibited during
a SNAP Cycle, the liquidity at the Exchange
ascertained from the pro forma SNAP review would
always be available by the stage three market
snapshot if a SNAP Cycle were initiated by the
Exchange. See supra note 3; see also CHX Article
18, Rule 1(b)(2)(C)(i).
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current Article 1, Rule 2(h)(1). Similar
to current Article 1, Rule 2(h)(1)(A)(iii),
proposed paragraph (c)(1) provides that
the Exchange shall not initiate a SNAP
Cycle within five minutes of the first
two-sided quote in the subject security
having been received by the Exchange
from the primary market disseminated
after either the beginning of the regular
trading session or a trading halt, pause
or suspension that required the
Exchange to suspend trading in the
subject security; within five minutes of
the end of the regular trading session;
during a SNAP Cycle; or within one
minute after the completion of the
previous SNAP Cycle. Also, similar to
Article 1, Rule 2(h)(1)(A)(iv), proposed
paragraph (c)(2) provides that the
Exchange shall not initiate a SNAP
Cycle if the CHX Routing Services, as
described under Article 19, are not
available at the time of the market
snapshot taken pursuant to be proposed
paragraph (b) above. Finally, similar to
current Article 1, Rule 2(h)(1)(A)(ii),
proposed paragraph (c)(3) provides that
the Exchange shall not initiate a SNAP
Cycle if the National Best Bid and Offer
(‘‘NBBO’’) ascertained from the market
snapshot taken pursuant to proposed
paragraph (b) is crossed or a two-sided
NBBO does not exist.
Incidentally, the Exchange proposes
to amend current CHX Article 1, Rule
2(h)(1)(A)(iii) to replace a reference to
‘‘trading halt or pause’’ with the more
accurate, ‘‘trading halt, pause or
suspension,’’ as the Exchange had
updated the CHX Rules previously to
adopt this term change elsewhere in the
CHX Rules.25
Examples
The following Examples 1 and 2 are
illustrative of the proposed Exchangeinitiated SNAP mechanism, but do not
exhaustively depict every possible
scenario. Moreover, the charts used
herein are illustrative and do not
necessarily depict the actual technical
processes involved in sorting orders.
Example 1: Precedent Orders. Assume
that at 10:59:58 a.m. the NBBO for
25 See Securities Exchange Act No. 76262
(October 26, 2015), 80 FR 67440 (November 2, 2015)
(SR–CHX–2015–05); see also supra note 3.
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13859
security XYZ is $99.99 × $100.01 and
Protected Quotations of external
markets in security XYZ are as follows:
• Protected Bid A at Exchange 1
displaying 500 shares at $99.99
• Protected Offer A at Exchange 2
displaying 1000 shares at $100.01.
Assume also that the CHX book is
empty, but that the Exchange receives
the following orders in security XYZ at
10:59:59 a.m.:
• Buy Order A for 500 shares priced
at $99.98/share marked Do Not
Display.26
• Buy Order B for 500 shares priced
at $100.01/share marked SNAP AOO—
Day.
• Buy Order C for 1,000 shares
marked SNAP AOO—Day and SNAP
AOO—Pegged—Midpoint.
• Sell Order A for 3,000 shares priced
at $99.98/share marked SNAP AOO—
Day.
Under this Example 1, Buy Order A
would be immediately posted to the
CHX book and ranked in the CHX book
pursuant to current Article 20, Rule
8(b)(1)(A)–(C), whereas Buy Orders B
and C and Sell Order A would be placed
in the SNAP AOO Queue, pursuant to
Article 20, Rule 8(b)(2)(A), and not
immediately ranked, as SNAP AOOs are
never active during the Open Trading
State.
Example 2: Pro forma SNAP review.
Assume the same as Example 1. Assume
also that at 11:00:00 a.m., the Exchange
conducts a pro forma SNAP review of
security XYZ and that the NBBO, CHX
book and SNAP AOO Queue for security
XYZ has not changed.
Under this Example 2, pursuant to
proposed Article 18, Rule 1A(b), the
Exchange would take a market snapshot
of the Protected Quotations of external
markets in security XYZ and then create
a pro forma SNAP CHX book based on
the contents of the CHX book (i.e., Buy
Order A), SNAP AOO Queue (i.e., Buy
Orders B and C and Sell Order A) and
the Protected Quotations of external
markets (i.e., Protected Bid A and
Protected Offer A). Thus, the pro forma
SNAP CHX book in security XYZ would
be as follows:
26 See
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Federal Register / Vol. 81, No. 50 / Tuesday, March 15, 2016 / Notices
PRO FORMA SNAP CHX BOOK—EXAMPLE 2
Buy orders
Sell orders
Total CHX
buy size at
price point
Total away buy size at price point
0 ..........................................................
0 ..........................................................
0 ..........................................................
500 ......................................................
0 ..........................................................
0
500
1000
0
500
Based on this pro forma SNAP CHX
book, the Matching System would
calculate a pro forma SNAP Price,
pursuant to proposed Article 18, Rule
1A(b). Pursuant to current Article 1,
Rule 1(rr), the SNAP Price is a single
price at which the greatest number of
shares may be executed during a SNAP
Cycle, which would not trade-through
any more aggressively priced orders on
either side of the market. Under this
Example 2, the pro forma SNAP Price
would be $99.98 with a PES of 2500
shares.
Pursuant to proposed Article 18, Rule
1A(b)(1), the Exchange would then
determine if the PES at the pro forma
SNAP Price is equal to or greater than
the corresponding minimum PES, as
described under proposed Article 18,
Rule 1A(d). Since the PES is 2,500
shares and the NBBO midpoint is
$100.00, the aggregate notional value for
this PES would be $250,000, which
meets the minimum PES requirement of
2,500 shares and an aggregate notional
value of $250,000.
Pursuant to proposed Article 18, Rule
1A(b)(2), the Exchange would also
determine whether the PES within the
Matching System at the pro forma SNAP
Price is at least 80% of the minimum
PES. Since the PES within the Matching
System of 2,000 shares (i.e., 2,500 total
PES¥500 away PES = 2,000) is exactly
80% of the corresponding minimum
PES of 2,500, this requirement is met.
Thus, the Exchange would initiate a
SNAP Cycle in security XYZ and
conduct the SNAP Cycle pursuant to
current Article 18, Rule 1(b).
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Operative Date
In the event the proposed rule change
is approved by the SEC, the Exchange
proposes to make the proposed rule
change operative pursuant to one week
notice by the Exchange to its
Participants. Prior to the operative date,
the Exchange will ensure that policies
and procedures are in place to allow
Exchange operations personnel to
effectively monitor the operation of the
proposed Exchange-initiated SNAP
mechanism.
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Total buy
size better
than price
point
Total buy
size at and
better than
price point
0
0
500
1500
2000
0
500
1500
2000
2500
Price point
Total sell
size at and
better than
price point
100.02 .....................
100.01 .....................
100.00 (Midpoint) ....
99.99 .......................
99.98 .......................
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act in general,27 and
furthers the objectives of Section 6(b)(5)
in particular,28 in that it is designed to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments and perfect the
mechanisms of a free and open market,
and, in general, to protect investors and
the public interest.
In addition to the reasons stated
under the original SNAP rule filing,29
the Exchange believes that proposed
Exchange-initiated SNAP mechanism
will promote just and equitable
principles of trade because it will
promote bulk executions resulting from,
among other things, SNAP AOOs that
may remain unexecuted if the Exchange
were not to receive a valid Start SNAP
order that would trigger a SNAP Cycle.
The Exchange believes that promoting
such bulk executions will enhance
market liquidity and the price discovery
process for all securities, which protects
investors and the public interest.
Also, the Exchange believes that the
proposed rule change would promote
just and equitable principles because
the proposed Exchange-initiated SNAP
mechanism will further minimize any
information leakage that would result
from SNAP executions. Currently,
SNAP Cycles could only be initiated
upon receipt of a valid Start SNAP
order, which must meet certain size and
pricing requirements. However, with the
adoption of the proposed Exchangeinitiated SNAP mechanism, SNAP
executions may result even without
receipt of a Start SNAP order. Thus, the
proposed rule change will further
minimize any information leakage from
SNAP executions, as a market
participant will not be able to discern
with certainty which initiating
mechanism triggered a given SNAP
27 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
29 See supra note 3.
28 15
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Total sell
size better
than price
point
4000
4000
3000
3000
3000
4000
3000
3000
3000
0
Total CHX
sell size at
price point
0
0
0
0
3000
Total away
sell size at
price point
0
1000
0
0
0
Cycle. Under either initiation scenario,
market participants would continue to
know that resting liquidity of a
substantial size exists at the Exchange
when a SNAP Cycle is initiated.
Moreover, the Exchange believes the
proposed rule change furthers the
objectives of Section 6(b)(1) 30 in that
the proposed amendment to current
Article 1, Rule 2(h)(1)(A)(iii) to replace
a reference to ‘‘trading halt or pause’’
with ‘‘trading halt, pause or
suspension’’ would result in consistent
references to ‘‘trading halt, pause or
suspension’’ throughout the CHX Rules,
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.
The Exchange notes that the proposed
rule change does not implicate
Regulation NMS or Regulation SHO
considerations as the proposed
Exchange-initiated SNAP mechanism is
based on a pro forma SNAP review that
does not involve displaying, executing
or routing any orders. If the pro forma
SNAP review were to trigger a SNAP
Cycle, the SNAP Cycle would be
conducted in compliance with
Regulation NMS and Rule 201 of
Regulation SHO, as described under
current CHX rules and applicable
exemptive relief.31
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. To the
contrary, the Exchange believes that any
30 15
U.S.C. 78f(b)(1).
supra note 3; see also Letter from Josephine
Tao, Assistant Director, Securities and Exchange
Commission (the ‘‘Commission’’ or ‘‘SEC’’),
Division of Trading and Markets, to Albert J. Kim,
Vice President and Associate General Counsel,
CHX, dated October 6, 2015.
31 See
E:\FR\FM\15MRN1.SGM
15MRN1
Federal Register / Vol. 81, No. 50 / Tuesday, March 15, 2016 / Notices
burden on competition is necessary and
appropriate in furtherance of the
purposes of Section 6(b)(5) of the Act
because it enhances and promotes the
frequency of SNAP Cycles, which is a
functionality that seeks to deemphasize
speed as a key to trading success in
order to further serve the interests of
investors, as recently noted by Chair
White, and thereby removes
impediments and perfects the
mechanisms of a free and open
market.32
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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be 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:
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CHX–2016–01 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–2016–01. This file
number should be included on the
32 See Mary Jo White, Chair, Securities and
Exchange Commission, Speech at Sandler O’Neil &
Partners L.P. Global Exchange and Brokerage
Conference (June 5, 2014).
VerDate Sep<11>2014
17:40 Mar 14, 2016
Jkt 238001
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 (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 Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange and on its
Internet Web site at www.chx.com. 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–2016–01, and should
be submitted on or before April 5, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–05752 Filed 3–14–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77330; File No. SR–BATS–
2016–26]
Self-Regulatory Organizations; Bats
BZX Exchange, Inc. f/k/a BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Related to Fees for Use
of BATS Exchange, Inc.
March 9, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 1,
2016, Bats BZX Exchange, Inc. f/k/a
BATS Exchange, Inc. (the ‘‘Exchange’’
33 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00091
Fmt 4703
Sfmt 4703
13861
or ‘‘BZX’’) 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 Exchange has designated the
proposed rule change as one
establishing or changing a member due,
fee, or other charge imposed by the
Exchange under Section 19(b)(3)(A)(ii)
of the Act 3 and Rule 19b–4(f)(2)
thereunder,4 which renders the
proposed rule change 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 Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend the fee schedule applicable to
Members 5 and non-members of the
Exchange pursuant to BZX Rules 15.1(a)
and (c).
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.com, 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
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 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 modify its
fee schedule applicable to the
Exchange’s options platform to: (i)
Modify the standard fees for both
3 15
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
5 The term ‘‘Member’’ is defined as ‘‘any
registered broker or dealer that has been admitted
to membership in the Exchange.’’ See Exchange
Rule 1.5(n).
4 17
E:\FR\FM\15MRN1.SGM
15MRN1
]]>Agencies
[Federal Register Volume 81, Number 50 (Tuesday, March 15, 2016)]
[Notices]
[Pages 13857-13861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-05752]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77331; File No. SR-CHX-2016-01]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change To Adopt and Amend Rules To
Permit the Exchange To Initiate CHX SNAP[hairsp]\SM\ Cycles
March 9, 2016.
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 February 26, 2016, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CHX proposes to adopt and amend rules to permit the Exchange to
initiate CHX SNAP[hairsp]\SM\ cycles. The text of this proposed rule
change is available on the Exchange's Web site at https://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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt and amend rules to permit the
Exchange to initiate CHX SNAP (``SNAP'') Cycles.\3\ Currently, a SNAP
Cycle may only be initiated upon receipt of a valid limit order marked
Start SNAP (``Start SNAP order'') submitted by an order sender.\4\ The
Exchange now proposes to permit the Exchange to initiate a SNAP Cycle,
without receipt of a valid Start SNAP order, if a periodic pro forma
SNAP review of the contents of the CHX book, SNAP Auction Only Order
(``AOO'') Queue \5\ and Protected Quotations of external markets, in a
given security, show that the projected execution size that would
result if a SNAP Cycle were to be initiated at that moment would meet
certain minimum size and notional value requirements, as applicable
(``Exchange-initiated SNAP''). This proposal is designed to permit
marketable, yet inactive passive liquidity of a substantial size (i.e.,
inactive SNAP AOOs), to execute via SNAP in the absence of a Start SNAP
order. The proposed rule change does not modify the operation of SNAP
Cycles in any other way.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 76262 (October 26,
2015), 80 FR 67440 (November 2, 2015) (SR-CHX-2015-05); see also
Securities Exchange Act Release No. 76087 (October 6, 2015), 80 FR
61540 (October 13, 2015); see also Securities Exchange Act Release
No. 75346 (July 1, 2015), 80 FR 39172 (July 8, 2015) (SR-CHX-2015-
03). The approved rule changes are not yet operative and will become
operative upon two weeks' notice by the Exchange to its
Participants.
\4\ See supra id.; see also CHX Article 1, Rule 2(h)(1); see
also CHX Article 18, Rule 1(b)(1).
\5\ See supra note 3; see also CHX Article 20, Rule 8(b)(2)(A).
---------------------------------------------------------------------------
[[Page 13858]]
Background
In sum, a SNAP Cycle \6\ is comprised of the following five stages:
---------------------------------------------------------------------------
\6\ See supra note 3; see also CHX Article 18, Rule 1(b).
---------------------------------------------------------------------------
Stage one--Initiating the SNAP Cycle;
Stage two--SNAP Order Acceptance Period;
Stage three--Pricing and Satisfaction Period;
Stage four--Order Matching Period; and
Stage five--Transition to the Open Trading State.\7\
---------------------------------------------------------------------------
\7\ See supra note 3; see also CHX Article 1, Rule 1(qq).
Currently, only Start SNAP orders that meet minimum size, price and
time of receipt requirements could initiate a SNAP Cycle.\8\ Moreover,
a Start SNAP order sender may instruct the Exchange to cancel the SNAP
Cycle if a minimum execution size condition would not be met.\9\ Upon
receipt and acceptance of a valid Start SNAP order, order cancellations
in the security would be prohibited \10\ and a SNAP Cycle would proceed
as follows:
---------------------------------------------------------------------------
\8\ See supra note 3; see also CHX Article 1, Rule 2(h)(1).
\9\ See id.
\10\ Among other things, order cancellation messages would be
queued for processing at the conclusion of the SNAP Cycle. See supra
note 3; see also CHX Article 18, Rule 1(b)(2)(C)(i).
---------------------------------------------------------------------------
During the stage one Initiating the SNAP Cycle, automated
trading in the subject security on the Exchange would be suspended and
remain suspended for the duration of the SNAP Cycle.
During the stage two SNAP Order Acceptance Period, the
Exchange will transition precedent SNAP Eligible Orders \11\ to the
SNAP CHX book and accept new SNAP Eligible Orders for a randomized time
period for inclusion on the SNAP CHX book.\12\
---------------------------------------------------------------------------
\11\ See supra note 3; see also CHX Article 1, Rule 1(ss).
\12\ See supra note 3; see also CHX Article 18, Rule 1(b)(2);
see also CHX Article 20, Rule 8(b)(3).
---------------------------------------------------------------------------
During the stage three Pricing and Satisfaction Period,
the Exchange will attempt to ascertain a single auction price (i.e.,
``SNAP Price'') \13\ from SNAP Eligible Orders resting on the SNAP CHX
book based on a new market snapshot (``stage three market snapshot'').
If the SNAP Price is determined to be at a price that would require
orders to be routed away, the Exchange would route away SNAP Eligible
Orders resting on the SNAP CHX book.\14\ Immediately after the
necessary orders are routed away, the SNAP Cycle would enter the
Satisfaction Period, during which time the Exchange would delay
proceeding to the stage four Order Matching Period for a period of time
not to exceed 200 milliseconds to allow for confirmations of routed
orders to be received from external markets. However, if the SNAP Price
does not require orders to be routed away, the SNAP Cycle would
immediately proceed to the stage four Order Matching Period. Moreover,
if the SNAP Price could not be confirmed, the SNAP Cycle would be
aborted and immediately proceed to the stage five Transition to the
Open Trading State.\15\
---------------------------------------------------------------------------
\13\ See supra note 3; see also CHX Article 1, Rule 1(rr).
\14\ See supra note 3; see also CHX Article 19, Rule 3(a)(4) and
(5).
\15\ See supra note 3; see also CHX Article 1, Rule 1(qq).
---------------------------------------------------------------------------
During the stage four Order Matching Period, SNAP Eligible
Orders on the SNAP CHX book would execute at the SNAP Price within the
Matching System.\16\
---------------------------------------------------------------------------
\16\ See supra note 3; see also CHX Article 18, Rule 1(b)(4).
---------------------------------------------------------------------------
During the stage five Transition to the Open Trading
State, unexecuted SNAP Eligible Orders, as well as other orders and
cancel messages that have been queued during the SNAP Cycle, would be
transitioned to the CHX book for automated trading based on a new
market snapshot.\17\ During the transition, orders may, among other
things, be executed within the Matching System or be routed away in a
manner consistent with how orders are currently executed and routed
during automated trading.\18\
---------------------------------------------------------------------------
\17\ See supra note 3; see also CHX Article 18, Rule 1(b)(5).
\18\ See CHX Article 19, Rule 3(a)(1)-(3); see also CHX Article
20, Rule 8(e)(1).
---------------------------------------------------------------------------
Proposed Article 18, Rule 1A (Initiating SNAP)
The Exchange now proposes to adopt Article 18, Rule 1A, which
describes the current and proposed mechanisms for initiating SNAP
Cycles. Thereunder, proposed paragraph (a) provides that subject to
current Article 18, Rule 1(c),\19\ a SNAP Cycle in a security shall be
initiated either (1) upon receipt of a valid limit order marked Start
SNAP, as defined under current Article 1, Rule 2(h)(1), or (2) by the
Exchange pursuant to proposed paragraph (b). Specifically, proposed
paragraph (a)(1) is a restatement of language from current Article 18,
Rule 1(b)(1) that provides that a SNAP Cycle would be initiated upon
receipt of a limit order marked Start SNAP,\20\ whereas proposed
paragraph (a)(2) is new language that refers to the proposed Exchange-
initiated SNAP mechanism, as described in detail under proposed
paragraph (b).
---------------------------------------------------------------------------
\19\ See supra note 3; CHX Article 18, Rule 1(c) provides, among
other things, that if a trading halt, pause or suspension is in
effect for the subject security that requires the Exchange to
suspend trading in that security at the time a limit order marked
Start SNAP is received, a SNAP Cycle shall not be initiated. In
light of the proposed Exchange-initiated SNAP mechanism, the
Exchange proposes to amend CHX Article 18, Rule 1(c) to provide
generally that a SNAP Cycle shall not begin in a security if a
trading halt, pause or suspension is in effect for a subject
security that requires the Exchange to suspend trading in that
security.
\20\ Correspondingly, the Exchange proposes to amend current
Article 18, Rule 1(b)(1) to contemplate proposed Rule 1A and to
amend the subtitle of current Rule 1(b)(1) to provide ``Beginning
the SNAP Cycle,'' so as to clarify the distinction between the
initiation of a SNAP Cycle, as described under proposed Rule 1A, and
the initial steps that would be taken thereafter.
---------------------------------------------------------------------------
Proposed paragraph (b) details the circumstances under which the
Exchange would initiate a SNAP Cycle in a security. It provides that
during the Open Trading State for each SNAP-eligible security and at
preprogrammed intervals,\21\ the Exchange shall review the CHX book,
SNAP AOO Queue and Protected Quotations of external markets to
determine whether sufficient liquidity exists to initiate a SNAP Cycle
without the receipt of a valid limit order marked Start SNAP (``pro
forma SNAP review''). Proposed paragraph (b) continues by providing
that in conducting the pro forma SNAP review, the Exchange shall take a
market snapshot of the Protected Quotations of external markets in the
subject security and calculate a pro forma SNAP Price, as defined under
current Article 1, Rule 1(rr),\22\ to determine:
---------------------------------------------------------------------------
\21\ On a technical level, the Matching System is comprised of
several Matching Engines and each security traded on the Exchange is
placed into only one Matching Engine. The Exchange proposes to
conduct pro forma SNAP reviews of each SNAP-eligible security in a
given Matching Engine consecutively and continuously in a preset
order. The Exchange will not modify this procedure absent an
approved filing pursuant to Rule 19b-4 under the Act.
\22\ The Exchange notes that the calculation of the pro forma
SNAP Price is identical to the calculation of the SNAP Price during
the stage three Pricing and Satisfaction Period, except that the pro
forma SNAP Price calculation would not include any new orders
received during the stage two Order Acceptance Period, as a SNAP
Cycle would not have yet been initiated. Example 2 below describes
how the pro forma SNAP Price would be calculated.
---------------------------------------------------------------------------
(1) Whether the projected execution size (``PES'') at the pro forma
SNAP Price is equal to or greater than the corresponding minimum PES,
as described under paragraph (d); and
(2) whether the PES within the Matching System at the pro forma
SNAP Price would be equal to or greater than 80% of the corresponding
minimum PES.
If the conditions set forth under proposed paragraphs (b)(1) and (2)
are
[[Page 13859]]
met, the Exchange shall initiate a SNAP Cycle pursuant to current
Article 18, Rule 1(b), subject to proposed paragraph (c). Proposed
paragraphs (b) is designed to ensure that a SNAP Cycle would only be
initiated by the Exchange if marketable passive liquidity of a
substantial size is available at the Exchange.\23\ Specifically, the
condition set forth under proposed paragraph (b) is intended to avoid a
scenario where the market snapshot taken pursuant to proposed paragraph
(b) shows substantial liquidity displayed away from the Exchange, but
by the time the SNAP Cycle is initiated and the stage three market
snapshot is taken to determine the actual SNAP Price, the away
liquidity has disappeared, thus resulting in an aggregate SNAP
execution size that is much smaller than the PES. By requiring that 80%
of the PES be projected to occur within the Matching System, this
scenario is avoided.\24\
---------------------------------------------------------------------------
\23\ The Exchange notes that the aggregate size of the stage
three SNAP executions may be substantially larger than the PES due
to, among other things, the possibility of new orders being received
during the stage two Order Acceptance Period. See supra note 3; see
also CHX Article 18, Rule 1(b)(2).
\24\ Since order cancellations are prohibited during a SNAP
Cycle, the liquidity at the Exchange ascertained from the pro forma
SNAP review would always be available by the stage three market
snapshot if a SNAP Cycle were initiated by the Exchange. See supra
note 3; see also CHX Article 18, Rule 1(b)(2)(C)(i).
---------------------------------------------------------------------------
Proposed paragraph (d) is similar to current Article 1, Rule
2(h)(1)(A)(i) and provides that the minimum PES for an Exchange-
initiated SNAP pursuant to proposed paragraph (b) shall either be (1)
2,500 shares with a minimum aggregate notional value of $250,000 based
on the midpoint of the National Best Bid and Offer (``NBBO'')
ascertained from the market snapshot taken pursuant to paragraph (b)
above or (2) 20,000 shares with no minimum aggregate notional value
requirement; provided, however, Berkshire Hathaway, Inc. (BRK-A) will
be a flat 100 shares minimum PES, due to its extraordinary share price.
Proposed paragraph (c) places conditions on Exchange-initiated SNAP
that are virtually identical to conditions for a valid Start SNAP order
under current Article 1, Rule 2(h)(1). Similar to current Article 1,
Rule 2(h)(1)(A)(iii), proposed paragraph (c)(1) provides that the
Exchange shall not initiate a SNAP Cycle within five minutes of the
first two-sided quote in the subject security having been received by
the Exchange from the primary market disseminated after either the
beginning of the regular trading session or a trading halt, pause or
suspension that required the Exchange to suspend trading in the subject
security; within five minutes of the end of the regular trading
session; during a SNAP Cycle; or within one minute after the completion
of the previous SNAP Cycle. Also, similar to Article 1, Rule
2(h)(1)(A)(iv), proposed paragraph (c)(2) provides that the Exchange
shall not initiate a SNAP Cycle if the CHX Routing Services, as
described under Article 19, are not available at the time of the market
snapshot taken pursuant to be proposed paragraph (b) above. Finally,
similar to current Article 1, Rule 2(h)(1)(A)(ii), proposed paragraph
(c)(3) provides that the Exchange shall not initiate a SNAP Cycle if
the National Best Bid and Offer (``NBBO'') ascertained from the market
snapshot taken pursuant to proposed paragraph (b) is crossed or a two-
sided NBBO does not exist.
Incidentally, the Exchange proposes to amend current CHX Article 1,
Rule 2(h)(1)(A)(iii) to replace a reference to ``trading halt or
pause'' with the more accurate, ``trading halt, pause or suspension,''
as the Exchange had updated the CHX Rules previously to adopt this term
change elsewhere in the CHX Rules.\25\
---------------------------------------------------------------------------
\25\ See Securities Exchange Act No. 76262 (October 26, 2015),
80 FR 67440 (November 2, 2015) (SR-CHX-2015-05); see also supra note
3.
---------------------------------------------------------------------------
Examples
The following Examples 1 and 2 are illustrative of the proposed
Exchange-initiated SNAP mechanism, but do not exhaustively depict every
possible scenario. Moreover, the charts used herein are illustrative
and do not necessarily depict the actual technical processes involved
in sorting orders.
Example 1: Precedent Orders. Assume that at 10:59:58 a.m. the NBBO
for security XYZ is $99.99 x $100.01 and Protected Quotations of
external markets in security XYZ are as follows:
Protected Bid A at Exchange 1 displaying 500 shares at
$99.99
Protected Offer A at Exchange 2 displaying 1000 shares at
$100.01.
Assume also that the CHX book is empty, but that the Exchange
receives the following orders in security XYZ at 10:59:59 a.m.:
Buy Order A for 500 shares priced at $99.98/share marked
Do Not Display.\26\
---------------------------------------------------------------------------
\26\ See CHX Article 1, Rule 2
---------------------------------------------------------------------------
Buy Order B for 500 shares priced at $100.01/share marked
SNAP AOO--Day.
Buy Order C for 1,000 shares marked SNAP AOO--Day and SNAP
AOO--Pegged--Midpoint.
Sell Order A for 3,000 shares priced at $99.98/share
marked SNAP AOO--Day.
Under this Example 1, Buy Order A would be immediately posted to
the CHX book and ranked in the CHX book pursuant to current Article 20,
Rule 8(b)(1)(A)-(C), whereas Buy Orders B and C and Sell Order A would
be placed in the SNAP AOO Queue, pursuant to Article 20, Rule
8(b)(2)(A), and not immediately ranked, as SNAP AOOs are never active
during the Open Trading State.
Example 2: Pro forma SNAP review. Assume the same as Example 1.
Assume also that at 11:00:00 a.m., the Exchange conducts a pro forma
SNAP review of security XYZ and that the NBBO, CHX book and SNAP AOO
Queue for security XYZ has not changed.
Under this Example 2, pursuant to proposed Article 18, Rule 1A(b),
the Exchange would take a market snapshot of the Protected Quotations
of external markets in security XYZ and then create a pro forma SNAP
CHX book based on the contents of the CHX book (i.e., Buy Order A),
SNAP AOO Queue (i.e., Buy Orders B and C and Sell Order A) and the
Protected Quotations of external markets (i.e., Protected Bid A and
Protected Offer A). Thus, the pro forma SNAP CHX book in security XYZ
would be as follows:
[[Page 13860]]
Pro Forma SNAP CHX Book--Example 2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Buy orders Sell orders
------------------------------------------------------------------------- ---------------------------------------------------
Total buy Total buy Total sell Total sell Total CHX Total away
Total away buy size at price Total CHX size better size at and Price point size at and size better sell size sell size
point buy size at than price better than better than than price at price at price
price point point price point price point point point point
--------------------------------------------------------------------------------------------------------------------------------------------------------
0................................ 0 0 0 100.02.................... 4000 4000 0 0
0................................ 500 0 500 100.01.................... 4000 3000 0 1000
0................................ 1000 500 1500 100.00 (Midpoint)......... 3000 3000 0 0
500.............................. 0 1500 2000 99.99..................... 3000 3000 0 0
0................................ 500 2000 2500 99.98..................... 3000 0 3000 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Based on this pro forma SNAP CHX book, the Matching System would
calculate a pro forma SNAP Price, pursuant to proposed Article 18, Rule
1A(b). Pursuant to current Article 1, Rule 1(rr), the SNAP Price is a
single price at which the greatest number of shares may be executed
during a SNAP Cycle, which would not trade-through any more
aggressively priced orders on either side of the market. Under this
Example 2, the pro forma SNAP Price would be $99.98 with a PES of 2500
shares.
Pursuant to proposed Article 18, Rule 1A(b)(1), the Exchange would
then determine if the PES at the pro forma SNAP Price is equal to or
greater than the corresponding minimum PES, as described under proposed
Article 18, Rule 1A(d). Since the PES is 2,500 shares and the NBBO
midpoint is $100.00, the aggregate notional value for this PES would be
$250,000, which meets the minimum PES requirement of 2,500 shares and
an aggregate notional value of $250,000.
Pursuant to proposed Article 18, Rule 1A(b)(2), the Exchange would
also determine whether the PES within the Matching System at the pro
forma SNAP Price is at least 80% of the minimum PES. Since the PES
within the Matching System of 2,000 shares (i.e., 2,500 total PES-500
away PES = 2,000) is exactly 80% of the corresponding minimum PES of
2,500, this requirement is met.
Thus, the Exchange would initiate a SNAP Cycle in security XYZ and
conduct the SNAP Cycle pursuant to current Article 18, Rule 1(b).
Operative Date
In the event the proposed rule change is approved by the SEC, the
Exchange proposes to make the proposed rule change operative pursuant
to one week notice by the Exchange to its Participants. Prior to the
operative date, the Exchange will ensure that policies and procedures
are in place to allow Exchange operations personnel to effectively
monitor the operation of the proposed Exchange-initiated SNAP
mechanism.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act in general,\27\ and furthers the
objectives of Section 6(b)(5) in particular,\28\ in that it is designed
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments and perfect the
mechanisms of a free and open market, and, in general, to protect
investors and the public interest.
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\27\ 15 U.S.C. 78f(b).
\28\ 15 U.S.C. 78f(b)(5).
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In addition to the reasons stated under the original SNAP rule
filing,\29\ the Exchange believes that proposed Exchange-initiated SNAP
mechanism will promote just and equitable principles of trade because
it will promote bulk executions resulting from, among other things,
SNAP AOOs that may remain unexecuted if the Exchange were not to
receive a valid Start SNAP order that would trigger a SNAP Cycle. The
Exchange believes that promoting such bulk executions will enhance
market liquidity and the price discovery process for all securities,
which protects investors and the public interest.
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\29\ See supra note 3.
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Also, the Exchange believes that the proposed rule change would
promote just and equitable principles because the proposed Exchange-
initiated SNAP mechanism will further minimize any information leakage
that would result from SNAP executions. Currently, SNAP Cycles could
only be initiated upon receipt of a valid Start SNAP order, which must
meet certain size and pricing requirements. However, with the adoption
of the proposed Exchange-initiated SNAP mechanism, SNAP executions may
result even without receipt of a Start SNAP order. Thus, the proposed
rule change will further minimize any information leakage from SNAP
executions, as a market participant will not be able to discern with
certainty which initiating mechanism triggered a given SNAP Cycle.
Under either initiation scenario, market participants would continue to
know that resting liquidity of a substantial size exists at the
Exchange when a SNAP Cycle is initiated.
Moreover, the Exchange believes the proposed rule change furthers
the objectives of Section 6(b)(1) \30\ in that the proposed amendment
to current Article 1, Rule 2(h)(1)(A)(iii) to replace a reference to
``trading halt or pause'' with ``trading halt, pause or suspension''
would result in consistent references to ``trading halt, pause or
suspension'' throughout the CHX Rules, 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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\30\ 15 U.S.C. 78f(b)(1).
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The Exchange notes that the proposed rule change does not implicate
Regulation NMS or Regulation SHO considerations as the proposed
Exchange-initiated SNAP mechanism is based on a pro forma SNAP review
that does not involve displaying, executing or routing any orders. If
the pro forma SNAP review were to trigger a SNAP Cycle, the SNAP Cycle
would be conducted in compliance with Regulation NMS and Rule 201 of
Regulation SHO, as described under current CHX rules and applicable
exemptive relief.\31\
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\31\ See supra note 3; see also Letter from Josephine Tao,
Assistant Director, Securities and Exchange Commission (the
``Commission'' or ``SEC''), Division of Trading and Markets, to
Albert J. Kim, Vice President and Associate General Counsel, CHX,
dated October 6, 2015.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. To the contrary, the
Exchange believes that any
[[Page 13861]]
burden on competition is necessary and appropriate in furtherance of
the purposes of Section 6(b)(5) of the Act because it enhances and
promotes the frequency of SNAP Cycles, which is a functionality that
seeks to deemphasize speed as a key to trading success in order to
further serve the interests of investors, as recently noted by Chair
White, and thereby removes impediments and perfects the mechanisms of a
free and open market.\32\
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\32\ See Mary Jo White, Chair, Securities and Exchange
Commission, Speech at Sandler O'Neil & Partners L.P. Global Exchange
and Brokerage Conference (June 5, 2014).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CHX-2016-01 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-2016-01. 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 (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 Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange and
on its Internet Web site at www.chx.com. 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-2016-01, and should be submitted on
or before April 5, 2016.
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\33\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-05752 Filed 3-14-16; 8:45 am]
BILLING CODE 8011-01-P
