of Protected Bid B at $10.02, in violation of Rule 611 of Regulation
NMS.
     Buy Order G would execute against 100 shares of Sell Order
A at $10.03, leaving Sell Order A with 100 shares at $10.03.
     Sell Order F would be cancelled pursuant to its Post Only
designation because it would impermissible lock the NBO at $10.02 and
it is not routable.
     Buy Order H would be placed in the SNAP AOO Queue, since
it was received after the SNAP Order Acceptance Period and is, thus,
eligible for the next SNAP Cycle that is initiated.
     Buy Order I would execute against the remaining 100 shares
of Sell Order A at $10.03.
    Thus, the only remaining order on the CHX book is Buy Order A for
5,000 shares (i.e., 1,000 displayed and 4,000 undisplayed) at $10.00.
    Immediately after the FIFO Queue has been processed, pursuant to
proposed Article 18, Rule 1(b)(5)(C), the Exchange will notify the
market that the SNAP has concluded; publish its Protected Bid at $10.00
for 1,000 shares; and begin dissemination of information through the
CHX Book Feed, including information regarding the displayable portions
of all orders posted to the CHX book (i.e., 1,000 displayed shares of
Buy Order A).
SECTION SEVEN: Market Maker Requirements
    The Exchange does not propose to include any market making
requirements with regards to SNAP. Pursuant to current Article 16, Rule
8, Participant Market Makers in a security are required to maintain
two-sided quotes in the security and to meet certain pricing
obligations concerning such quotes, during the regular trading session.
As such, the current requirements would only be applicable during the
Open Trading State, which is the only time during the regular trading
session when quotes would be displayed and automatically executable.
Thus, the current requirements are inapplicable to SNAP Cycles because
quotes are never displayed and never automatically executable during a
SNAP Cycle. Moreover, in light of the substantial size and aggressive
pricing requirements to initiate a SNAP Cycle, the Exchange does not
believe it appropriate, at this time, to propose additional
requirements for Participant Market Makers with regards to SNAP.
    Thus, the Exchange proposes to amend Article 16, Rule 8(a) to
provide that the current two-sided quote and pricing obligations for
Participant Market Makers only apply during the Open Trading State.
Incidentally, the Exchange proposes to amend an obsolete reference to
``member'' with the more accurate ``Participant,'' under paragraph
(a)(1).
SECTION EIGHT: 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 two weeks' notice by the Exchange to its Participants via Regulatory
Notice. 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 use of the SNAP functionality. The
Exchange will also ensure that any special notices required pursuant to
the proposed rule change will be made to Participants, including
notices regarding securities that will not be eligible for SNAP.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with

Section 6(b) of the Act in general,\96\ and furthers the objectives of
section 6(b)(5) in particular,\97\ 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.
---------------------------------------------------------------------------

    \96\ 15 U.S.C. 78f(b).
    \97\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that SNAP will further the objectives of
section 6(b)(5) of the Act precisely because it will address a market
need, as noted by Chair White, for a trading service that deemphasizes
speed as a key to trading success in order to further serve the
interests of investors,\98\ which will operate in compliance with
Regulation NMS and Rule 201 of Regulation SHO or applicable exemptive
relief.\99\
---------------------------------------------------------------------------

    \98\ See supra note 7.
    \99\ See supra note 10
---------------------------------------------------------------------------

    In recent years, market participants seeking to trade securities in
bulk have largely avoided exchanges due to a lack of trading services
that sufficiently minimize the downside of exposing large orders to the
market, which may include unfavorable market activity in response to
the posting of a large displayed order and insufficient displayed
liquidity, both of which result in inadequate price discovery for bulk
orders. It is a vicious cycle: Market participants seeking to execute
bulk orders in whole at marketable or even hypermarketable prices are
frequently unable to find sufficient liquidity on exchanges, whereas
market participants wishing to provide bulk liquidity to the market are
unwilling to display such orders on an exchange due to the inevitable
and unfavorable market activity to follow.
    The Exchange believes that the key to bulk trading success on an
exchange is a functionality that momentarily consolidates trading
interest in a security in one place, while automated trading in the
security continues elsewhere in the national market system, and to
permit such orders to interact on a fully-hidden book based on a set of
carefully-designed rules that minimize the downside of exposing large
orders to the market. The Exchange submits that SNAP is precisely such
a functionality because it would enhance market liquidity and the price
discovery process, while minimizing information leakage and speed
advantages.
    The Exchange believes that incentivizing market participants to
initiate and respond to SNAPs would remove impediments and perfect the
mechanisms of a free and open market because it would enhance market
liquidity. In order to incentivize market participants to initiate SNAP
Cycles, upon initiation of a SNAP Cycle, the Exchange will notify the
market that a SNAP Cycle has been initiated, which gives the Start SNAP
order sender the benefit of notifying the market of its bulk trading
interest, without giving away crucial details, such as exact price,
size or side of the Start SNAP order, that could disadvantage the Start
SNAP order sender.\100\ In turn, market participants will be
incentivized to respond to SNAP Cycles knowing that a SNAP Cycle will
only be initiated by a valid marketable or hypermarketable Start SNAP
order that meets a substantial minimum size requirement.\101\ Also,
market participants will also know that SNAP AOOs that could
participate in a SNAP Cycle will also be ranked on the SNAP CHX book,
all of which must meet a substantial minimum size requirement, thereby
potentially increasing the size of interest on the SNAP CHX book.\102\
Moreover, SNAP will further incentivize market participants to
participate in SNAP Cycles by prohibiting order cancellations during a
SNAP Cycle, which will assure potential order senders that the Start
SNAP order that initiated the SNAP Cycle, as well as any other orders
participating in the instant SNAP Cycle, will not be cancelled, and has
the additional effect of encouraging order senders to submit bona fide
SNAP Eligible Orders.\103\ In light of all of these characteristics,
the market will be on notice that aggressively priced interest of a
substantial size is guaranteed to exist at CHX.
---------------------------------------------------------------------------

    \100\ See proposed CHX Article 18, Rule 1(b)(1)(A).
    \101\ See proposed CHX Article 1, Rule 2(h)(1)(A).
    \102\ See proposed CHX Article 1, Rule 2(h)(3).
    \103\ See proposed CHX Article 18, Rule 1(b)(2)(C)(i).
---------------------------------------------------------------------------

    Similarly, the Exchange believes that incentivizing market
participants to initiate and respond to SNAPs would remove impediments
and perfect the mechanisms of a free and open market because it would
enhance the price discovery process. That is, SNAP would enhance the
price discovery process through enhanced market liquidity.
Specifically, the concentration of liquidity at CHX combined with the
aggressive pricing requirement of the Start SNAP order will maximize
the probability of overlap of orders at one or more price points. If
overlap exists, a SNAP Price will be determined pursuant to a ruled-
based algorithm that balances maximum execution size with an execution
price that accurately reflects market demand.\104\ As such, SNAP
Eligible Order senders can submit aggressively priced orders knowing
that the SNAP Price will be equitable, which enhances the price
discovery process.
---------------------------------------------------------------------------

    \104\ See proposed CHX Article 1, Rule 1(rr); see also supra
Section 6, Example 6.
---------------------------------------------------------------------------

    The Exchange further believes that certain aspects of SNAP designed
to minimize information leakage concerning orders participating in a
SNAP Cycle would promote just and equitable principles of trade and
remove impediments and perfect the mechanisms of a free and open market
because such measures would minimize the probability of unfavorable
market activity in response to a SNAP that could disadvantage orders
participating in a SNAP Cycle and, in particular, the Start SNAP order.
Specifically, this would be achieved by requiring the SNAP CHX book to
be fully-hidden and market data dissemination to be suspended during
the SNAP Cycle (except for SNAP execution reports to the relevant SIP
and order senders).\105\ Also, since orders are only executed within
the Matching System during the stage four Order Matching Period, market
participants will be prevented from ``pinging'' the SNAP CHX book in an
attempt to glean the contents of the book.\106\ Moreover, a Start SNAP
order sender has the option to place a minimum SNAP execution size
condition equal to the minimum size requirement to initiate a SNAP
Cycle, which prevents the market from being able to deduce crucial
information concerning the Start SNAP order without maximizing the
probability of substantial executions.\107\
---------------------------------------------------------------------------

    \105\ See proposed CHX Article 18, Rule 1(a) and (b)(1).
    \106\ See proposed CHX Article 18, Rule 1(b)(4).
    \107\ See proposed CHX Article 1, Rule 2(h)(1)(B).
---------------------------------------------------------------------------

    The Exchange also believes that the fact that SNAP would never be
scheduled and that the length of the SNAP Order Acceptance Period would
be randomized would promote just and equitable principles of trade and
remove impediments and perfect the mechanisms of a free and open market
because such aspects deemphasize speed as a key for trading success.
For example, by randomizing key aspects of the SNAP Cycle, market
participants will not be able to utilize speed advantages to ascertain
precisely when a SNAP Cycle will be initiated and when certain events
during a SNAP Cycle will begin or end. That is, since SNAP Cycles are
never scheduled, market participants, other than the Start

SNAP order sender, will never know precisely when a SNAP Cycle will be
initiated.\108\ Similarly, since the stage two SNAP Order Acceptance
Period is randomized, within a time frame of 475 to 525 milliseconds,
market participants will never be able to know exactly when the SNAP
Order Acceptance Period will end.\109\ At the same time, the Exchange
believes that 475 to 525 milliseconds is sufficient time for virtually
all order senders to submit SNAP Eligible Orders in response to a SNAP
Cycle notification.
---------------------------------------------------------------------------

    \108\ See proposed CHX Article 18, Rule 1(a).
    \109\ See proposed CHX Article 18, Rule 1(b)(2).
---------------------------------------------------------------------------

    The Exchange further believes that the special order ranking plan
and new order modifiers for SNAP promote just and equitable principles
of trade and remove impediments and perfect the mechanisms of a free
and open market because such aspects also deemphasize speed as a key
for trading success. Specifically, SNAP Eligible Orders received in
response to a SNAP Cycle notification will be subordinated in rank on
the SNAP CHX book to all precedent SNAP Eligible Orders.\110\ Thus,
market participants submitting orders in response to a notice of a SNAP
Cycle will never be able to utilize speed advantages to achieve
priority over precedent resting SNAP Eligible Orders. Moreover, SNAP
AOOs further minimize speed advantages by permitting order senders to
submit SNAP AOOs from as early as the beginning of the early
session,\111\ well before a SNAP Cycle could be initiated.\112\ Thus,
an order sender could submit a SNAP AOO before a SNAP Cycle is
initiated knowing that that order will never lose priority to orders
received during a subsequent SNAP Order Acceptance Period. Similarly,
SNAP AOO--Pegged further minimize speed advantages by obviating the
need to directly consume and process market data at the crucial moment
when the order is submitted because such orders will be priced at the
last possible moment, after the end of the SNAP Order Acceptance
Period, by the Exchange's systems, which will utilize the most recent
market data.\113\
---------------------------------------------------------------------------

    \110\ See proposed CHX Article 20, Rule 8(b)(3).
    \111\ See supra note 29.
    \112\ See proposed CHX Article 1, Rule 2(h)(3).
    \113\ See proposed CHX Article 1, Rule 2(h)(3)(C).
---------------------------------------------------------------------------

    In adopting Regulation NMS, the SEC highlighted the importance of
maintaining an appropriate balance between competition among markets
and competition among orders.\114\ Specifically, the SEC stated,
``vigorous competition among markets promotes more efficient and
innovative trading services, while integrated competition among orders
promotes more efficient pricing of individual stocks for all types of
orders, large and small.'' \115\ The SEC noted, however, the difficulty
in striking that balance in that ``competition among multiple markets
trading the same stock can detract from the most vigorous competition
among orders in an individual stock, thereby impeding efficient price
discovery for orders of all sizes.'' \116\ The Exchange believes that
SNAP is consistent with these concepts because it is an innovative
functionality that promotes competition among markets by enhancing the
price discovery process for orders of all sizes, thereby also promoting
competition among orders. As such, the Exchange believes that SNAP
would further the objectives of section 6(b)(5) the Act precisely
because it would operate consistently with Regulation NMS \117\ and
Rule 201 of Regulation SHO or applicable exemptive relief.\118\
---------------------------------------------------------------------------

    \114\ See Exchange Act Release No. 51808 (June 9, 2005), 70 FR
37496 (June 29, 2005) (``NMS Release'').
    \115\ Id.
    \116\ Id.
    \117\ 17 CFR 242.611.
    \118\ See supra note 10; 17 CFR 242.201.
---------------------------------------------------------------------------

    Specifically, SNAP will be compliant with the Order Protection Rule
of Rule 611 of Regulation NMS.\119\ SNAP executions during the stage
four Order Matching Period will only occur after the routing of one or
more ISOs to execute against the Protected Quotations of external
markets priced better than the SNAP Price.\120\ In addition, where
there are additional orders resting on the SNAP CHX book at the SNAP
Price that could not be executed within the Matching System during the
stage four Order Matching Period, but could be executed against
Protected Quotations of external markets at the SNAP Price, the
Exchange will route those orders to execute against such Protected
Quotations, even though such routing is not required by Rule 611 of
Regulation NMS.\121\ Thus, SNAP routing is compliant with Rule 611 of
Regulation NMS because executions at the SNAP Price will never
impermissibly trade-through better priced Protected Quotations of
external markets.
---------------------------------------------------------------------------

    \119\ Since the Exchange will remove its Protected Quotations in
the subject security, if any, upon the initiation of a SNAP Cycle
and will not disseminate Protected Quotations in the subject
security until the end of the SNAP Cycle, SNAP does not implicate
any Rule 610 of Regulation NMS issues.
    \120\ See proposed CHX Article 19, Rule 3(a)(4).
    \121\ See proposed CHX Article 19, Rule 3(a)(5).
---------------------------------------------------------------------------

    With respect to the proposed queuing of cross orders on the FIFO
Queue received during a SNAP Cycle for later processing during the
stage five Transition to the Open Trading State,\122\ the Exchange
believes that the queuing of cross orders marked Qualified Contingent
Transaction (``QCT'') during a SNAP Cycle will have no material impact
on its ability to meet all of the requirements for the QCT
exemption.\123\
---------------------------------------------------------------------------

    \122\ See proposed CHX Article 18, Rule 1(b)(2)(C)(iv).
    \123\ See Securities Exchange Act Release No. 54389 (August 31,
2006), 71 FR 52829 (September 7, 2006) (``Order Granting an
Exemption for Qualified Contingent Trades From Rule 611(a) of
Regulation NMS Under the Securities Exchange Act of 1934''); see
also Securities Exchange Act Release No. 57620 (April 4, 2008), 73
FR 19271 (April 4, 2008) [sic] (``Order Modifying the Exemption for
Qualified Contingent Trades From Rule 611(a) of Regulation NMS Under
the Securities Exchange Act of 1934''); see also Article 1, Rule
2(b)(2)(E).
---------------------------------------------------------------------------

    The SEC defines ``QCT'' as a transaction consisting of two or more
component orders, executed as agent or principal, where:
    (1) At least one component order is in an NMS stock;
    (2) all components are effected with a product or price contingency
that either has been agreed to by the respective counterparties or
arranged for by a broker-dealer as principal or agent;
    (3) the execution of one component is contingent upon the execution
of all other components at or near the same time;
    (4) the specific relationship between the component orders (e.g.,
the spread between the prices of the component orders) is determined at
the time the contingent order is placed;
    (5) the component orders bear a derivative relationship to one
another, represent different classes of shares of the same issuer, or
involve the securities of participants in mergers or with intentions to
merge that have been announced or since cancelled; and
    (6) the Exempted NMS Stock Transaction is fully hedged (without
regard to any prior existing position) as a result of the other
components of the contingent trade.\124\
---------------------------------------------------------------------------

    \124\ See id.
---------------------------------------------------------------------------

    The proposed queuing of QCTs on the FIFO Queue only implicates the
QCT timing requirement because the proposed queuing would only impact
the timing of the QCT execution. However, the Exchange believes that
the momentary delay resulting from the proposed queuing would be
immaterial because of the fact that the execution of the different
components that comprise QCTs usually take many seconds, if not
minutes, to accomplish. This is because the packaging of QCTs is
inherently a manual process that frequently involves numerous broker-
dealers representing several counter-parties with two or more component
orders to be executed on two

or more venues. In fact, this reality is recognized by the QCT
exemption itself through the timing requirement of ``at or near the
same time,'' which does not note a specific time requirement.\125\
---------------------------------------------------------------------------

    \125\ See id (emphasis added).
---------------------------------------------------------------------------

    SNAP is also consistent with Rule 201 of Regulation SHO or
applicable exemptive relief.\126\ Specifically, SNAP Eligible Orders
marked Sell Short in a covered security subject to the short sale price
test restriction will never be permitted to execute at prices at or
below the NBB ascertained from the market snapshot taken pursuant to
proposed Article 18, Rule 1(b)(2)(E). For SNAP Eligible Orders marked
Sell Short with a limit price at one minimum price increment above the
NBB ascertained from the market snapshot taken pursuant to proposed
Article 18, Rule 1(b)(2)(E) or higher, such orders would simply be
ranked on the SNAP CHX book at its limit price. However, for SNAP
Eligible Orders marked Sell Short with a limit price at or below the
NBB ascertained from the market snapshot taken pursuant to proposed
Article 18, Rule 1(b)(2)(E), the Matching System would reprice such
orders to one minimum price increment above that NBB and rank such
orders on the SNAP CHX book at the new higher price.\127\ Thus, if the
SNAP Price is ultimately determined to be at or below the NBB
ascertained from the market snapshot taken pursuant to proposed Article
18, Rule 1(b)(2)(E), during a short sale price test restriction, this
ranking methodology would ensure that SNAP Eligible Orders marked Sell
Short would not participate in the SNAP execution, as such orders would
never have an executable price lower than one minimum price increment
above the NBB ascertained from the market snapshot taken pursuant to
proposed Article 18, Rule 1(b)(2)(E).\128\
---------------------------------------------------------------------------

    \126\ See supra note 10.
    \127\ See proposed CHX Article 20, Rule 8(d)(4)(B)(i).
    \128\ See proposed CHX Article 18, Rule 1(b)(4)(A).
---------------------------------------------------------------------------

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 burden on competition is necessary and
appropriate in furtherance of the purposes of section 6(b)(5) of the
Act because SNAP is an initiative 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.\129\
---------------------------------------------------------------------------

    \129\ See supra note 7; see also supra Statutory Basis.
---------------------------------------------------------------------------

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 self-regulatory organization consents, the Commission will:
    A. By order approve or disapprove the 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 Amendment No. 1, including whether the proposed
rule change as modified by Amendment No. 1, 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_ADDRESS>Please include
File Number SR-CHX-2015-03 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-2015-03. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal offices 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-2015-03,
and should be submitted on or before September 24, 2015.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\130\
---------------------------------------------------------------------------

    \130\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-22607 Filed 9-8-15; 8:45 am]
BILLING CODE 8011-01-P