82 FR 23078 - Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Anonymous Trade Reporting and Clearing

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 96 (May 19, 2017)

[Federal Register Volume 82, Number 96 (Friday, May 19, 2017)]
[Notices]
[Pages 23078-23080]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-10128]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80673; File No. SR-CHX-2017-09]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Regarding Anonymous Trade Reporting and Clearing

May 15, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on May 11, 2017, the Chicago Stock Exchange, Inc. (``CHX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    CHX proposes to amend Article 21, Rule 5 of the Rules of the 
Exchange (``CHX Rules'') regarding anonymous trade reporting and 
clearing. The text of this proposed rule change is available on the 
Exchange's Web site at (www.chx.com) and in the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the CHX included statements 
concerning the purpose of and basis for the proposed rule changes [sic] 
and discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The CHX has prepared summaries, set forth in sections A, 
B and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Article 21, Rule 5 to mandate 
anonymity for all transaction and clearing reports resulting from all 
executions on the

[[Page 23079]]

Exchange, which would include executions resulting from both single-
sided and cross orders,\3\ subject to certain current exceptions. To 
this end, the Exchange proposes to eliminate (1) the requirement that a 
Participant \4\ affirmatively request that its identity remain 
anonymous on transaction and clearing reports and (2) the exclusion of 
cross orders from the scope of Article 21, Rule 5.
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    \3\ See CHX Article 1, Rule 2(a)(2) defining ``cross order.''
    \4\ A Participant is a ``member'' of the Exchange for purposes 
of the Act. See CHX Article 1, Rule 1(s).
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    The Exchange is proposing the amendments to update its outdated 
trade and clearing anonymity rule and to harmonize the rule with 
similar rules and practices of other exchanges, such as Bats BYX 
Exchange and the Investors Exchange (``IEX'').\5\ Aside from these 
changes, the Exchange does not propose any other amendments to the CHX 
Rules.
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    \5\ See Bats BYX Rule 11.15(d); see also IEX Rule 11.250(c).
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(1) Background
    In October 2007, the Exchange adopted current Article 21, Rule 5 
(Anonymous Trade Reporting and Clearing).\6\ Thereunder, current Rule 
5(a) provides that, except as provided under current Rule 5(e), 
transaction reports for all trades executed on the Exchange will 
indicate the details of the transaction, but will not reveal a 
Participant's identity as a contra party if that Participant has 
requested that its identity remain anonymous. Also, current Rule 5(e) 
provides that the provisions of Rule 5 shall not apply to any type of 
cross trade executed on the Exchange, the result of which is that 
transaction reports for cross executions will always reveal the 
identity of the parties.
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    \6\ See Exchange Act Release No. 56704 (October 25, 2007), 72 FR 
61921 (November 1, 2007) (SR-CHX-2007-20).
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    However, in recent years, trading activity on the Exchange has 
evolved such that trade and clearing anonymity have become routinely 
necessary for Participants for all types of executions on the Exchange. 
In particular, trade and clearing anonymity have become ubiquitous 
market wide and many Participants are members of other national 
securities exchanges that mandate trade and clearing anonymity, subject 
to certain exceptions.\7\ At CHX, all of the most active Participants 
have requested trade anonymity and the Exchange is not aware of any 
Participant that requires its identity be disclosed on transaction and 
clearing reports. Consequently, the Exchange believes that the current 
requirement that a Participant elect anonymity for single-sided 
executions imposes an unnecessary compliance burden on Participants, 
especially on those Participants that are members of other national 
securities exchanges with mandatory trade and clearing anonymity, which 
would be eliminated by harmonizing Article 21, Rule 5 with the rules of 
other national securities exchanges, such [sic] Bats BYX.
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    \7\ See supra note 5.
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    With respect to cross executions, the Exchange believes that the 
original purpose for excluding cross executions from the scope of 
Article 21, Rule 5, which was to provide Participants [sic] ``with a 
sufficiently detailed trade or clearing report to permit it to 
effectively service its customers' needs,'' \8\ has been obviated by 
enhancements to back office operations realized by Participants that 
submit cross orders. As such, the disclosure of the identity of parties 
to the trade on a cross transaction report is no longer necessary. In 
fact, the Participants that submit cross orders have recently expressed 
a strong preference for anonymous transaction reports. Accordingly, the 
Exchange believes it necessary and appropriate to apply mandatory trade 
and clearing anonymity to cross executions.
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    \8\ See SR-CHX-2007-20, id, at 61921.
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(2) Amended Article 21, Rule 5
    In light of the above, the Exchange proposes to amend current Rule 
5(a) to mandate trade and clearing anonymity for all executions on the 
Exchange. Specifically, amended Rule 5(a) would provide that 
transaction reports produced by the Exchange will indicate the details 
of transactions executed on the Exchange, but shall not reveal contra 
party identities. Amended Rule 5(a) would further provide that except 
as set forth in paragraph (b) below,\9\ transactions executed on the 
Exchange will also be cleared and settled anonymously. In addition, in 
order to mandate trade and clearing anonymity for cross executions, the 
Exchange proposes to delete current Rule 5(e) in its entirety and, 
since two or more Participants may be parties to a particular cross 
execution,\10\ the Exchange proposes to amend current Rule 5(b)(3) \11\ 
to provide that the Exchange will reveal the identity of a Participant 
or a Participant's clearing firm if all parties to the trade consent.
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    \9\ Current CHX Article 21, Rule 5(b) provides that the Exchange 
will reveal the identity of a Participant or a Participant's 
clearing firm in the following circumstances: (1) For regulatory 
purposes or to comply with an order of a court or arbitrator; (2) 
when the National Securities Clearing Corporation (``NSCC'') ceases 
to act for a Participant or a Participant's clearing firm and NSCC 
determines not to guarantee the settlement of a Participant's 
trades; or (3) if both parties to the trade consent.
    \10\ See Exchange Act Release No. 77785 (May 9, 2016), 81 FR 
29936 (May 13, 2016) (SR-CHX-2016-06).
    \11\ See supra note 9.
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2. Statutory Basis
    The Exchange believes that proposed rule change is consistent with 
Section 6(b) of the Act \12\ in general and Section 6(b)(5) of the Act 
\13\ in particular, which requires, among other things, that the 
Exchange's rules be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, and to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, protect investors and the public 
interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes that the proposed rule change 
will remove impediments to and perfect the mechanism of a free and open 
market and a national market system by promoting consistency and 
uniformity among different markets \14\ regarding trade and clearing 
anonymity. For Participants that are members of other exchanges, the 
proposed rule change will result in efficiencies with respect to such 
Participants' rule compliance efforts.
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    \14\ See supra note 5.
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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. The Exchange believes that 
the proposed rule change will reduce the regulatory burden placed on 
market participants that are members of various markets, as well as 
reduce administrative burden on the Exchange. The Exchange believes 
that the harmonization of the anonymous trade reporting and clearing 
provisions across the various markets \15\ will reduce burdens on 
competition by removing impediments to participation in the national 
market system.
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    \15\ See id.

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[[Page 23080]]

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

    Because the foregoing proposed rule change does not (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \16\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \17\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of its filing. However, 
Rule 19b-4(f)(6)(iii) \18\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay so that the proposed rule 
change will become operative on May 15, 2017. The Exchange stated that 
the proposed rule change is consistent with the protection of investors 
and the public interest by immediately eliminating the administrative 
burden of enforcing an outdated rule and by facilitating compliance 
with CHX Rules by current and new Participants that are already 
accustomed to the mandatory trade and clearing anonymity rules and 
practices of other exchanges. Waiver of the operative delay would allow 
the Exchange, without delay, to make its trade and clearing anonymity 
rules consistent with the rules and practices of other exchanges. The 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest as 
it will permit CHX to harmonize its trade and clearing rules with those 
of the other exchanges without delay. Therefore, the Commission 
designates the proposed rule change to be operative on May 15, 
2017.\19\
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    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CHX-2017-09 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-2017-09. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the 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 available publicly. All 
submissions should refer to File Number SR-CHX-2017-09, and should be 
submitted on or before June 9, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10128 Filed 5-18-17; 8:45 am]
 BILLING CODE 8011-01-P