[Federal Register Volume 80, Number 130 (Wednesday, July 8, 2015)]
[Notices]
[Pages 39172-39190]
[FR Doc No: 2015-16651]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75346; File No. SR-CHX-2015-03]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change To Implement CHX
SNAPSM, an Intra-Day and On-Demand Auction Service

July 1, 2015.
    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 June 23, 2015, 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, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    CHX proposes to adopt and amend rules to implement CHX
SNAPSM, an intra-day and on-demand auction service. The text
of this proposed rule change is available on the Exchange's Web site at
http://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 implement CHX
SNAPSM (Sub-second Non-displayed Auction Process), an
innovative intra-day and on-demand auction service that could occur
numerous times throughout a regular trading session \3\ at the request
of Participants seeking to trade securities in bulk. SNAP Cycles are
designed to transition seamlessly from, and back to, automated trading
in the subject security, and to occur simultaneously with automated
trading in the subject security elsewhere in the national market
system. SNAP is designed to address a specific market need for bulk
trading of securities on an exchange, which will operate efficiently
within the national market system.
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    \3\ CHX Article 20, Rule 1(b) provides that the ``regular
trading session--shall begin at 8:30 a.m. and shall end at 3:00 p.m.
each day for all securities.'' All times are in central time, unless
noted otherwise.
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    On June 5, 2014, Chair White noted, among other things, that a key
question concerning trading venues is whether they have sufficient
opportunity and flexibility to innovate successfully with initiatives
that seek to deemphasize speed as a key to trading success in order to
further serve the interests of investors.\4\ Chair White specifically
noted possible solutions to include frequent batch auctions designed to
minimize speed advantages.\5\
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    \4\ 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).
    \5\ See id.
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    Consistent with Chair White's statement, the Exchange proposes
SNAP, an innovative solution that deemphasizes speed as a hallmark of
its functionality, which will operate consistently with Regulation NMS
\6\ and Rule 201 of Regulation SHO or applicable exemptive relief.\7\
As discussed in detail below, the SNAP Cycle has several
characteristics specifically designed to minimize speed advantages,
which include, among other things, the following:
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    \6\ 17 CFR 242.611.
    \7\ 17 CFR 242.201. As discussed in detail below, SNAP
executions may be delayed up to 200 milliseconds from the market
snapshot utilized for determining the single auction price (i.e.,
SNAP Price), if the SNAP Price would require, among other things,
the routing of one or more orders to away markets for Rule 611 of
Regulation NMS compliance purposes. See infra Section 5. The purpose
of the routing delay is to give away markets sufficient to time to
respond to the routed orders, so that any unexecuted routed orders
would be included in the SNAP execution within the Matching System.
However, the SNAP execution delay may render the national best bid
ascertained from the aforementioned market snapshot no longer
``current,'' as required during a short sale price test restriction
in a covered security, pursuant to Rule 201(b)(1)(i) of Regulation
SHO. Accordingly, the Exchange will be submitting separately a
request for no-action relief or exemptive relief from certain
requirements of Rule 201 of Regulation SHO to address this issue.
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     SNAP Cycles will never be scheduled and will always be
driven by market demand for bulk trading in a security.
     The order acceptance period for SNAP Eligible Orders will
always be randomized.
     Order cancellations during a SNAP Cycle will be
prohibited.
     New order modifiers, such as SNAP Auction Only Order--
Pegged, will permit market participants to take advantage of the most
recent market data in competitively pricing their SNAP Eligible Orders,
regardless of their respective speed capabilities.
    As such, the Exchange proposes to adopt Article 18, Rule 1 (SNAP)
to outline the proposed SNAP Cycle; amend Article 1, Rule 2 (Order
Types, Modifiers and Related Terms) to adopt several new order
modifiers related to SNAP; and amend Article 20, Rule 8 (Operation of
the Matching System) to support a new order ranking plan for SNAP
executions. The Exchange also proposes to amend various other rules to
harmonize with SNAP.

Section 1: SNAP Cycle--Generally

    Proposed Article 18, Rule 1(a) provides a general overview of the
scope of SNAP. Specifically, SNAP is a fully-hidden on-demand auction
that may be initiated in a security (``subject security'') within the
Matching System, pursuant to the provisions of proposed Article 18,
Rule 1. Participants that submit valid limit orders marked Start SNAP
will initiate a SNAP Cycle and, thus, SNAP Cycles are always on-demand
and never scheduled or initiated by the Exchange.\8\ Also, the entire
SNAP Cycle is designed to be completed in less than one second. Except
for specified time frames noted in the proposed rules, all other
processes in the SNAP Cycle are virtually instantaneous.\9\
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    \8\ See infra Sections 3 and 5.
    \9\ See infra Section 5.
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    In addition, SNAP Cycles may only occur during the regular trading
session, but may occur more than once during a regular trading session
and may occur in different securities concurrently.\10\ However, during
a SNAP Cycle, automated trading in the subject security shall be
suspended. It is important to note that the Exchange operates only one
book and, thus, automated execution of orders in a subject security
will never occur simultaneously with a SNAP Cycle in the same security.
However, given the fundamental differences between automated execution
of orders and auctions, as discussed in detail below, the Exchange
proposes a distinction between the CHX book during the Open Trading
State \11\ and the CHX book during a SNAP Cycle (``SNAP CHX book'').
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    \10\ See supra note 3.
    \11\ See infra Section 2.
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    The Exchange also reserves the right to enable or disable SNAPs,
per security, pursuant to notice to its Participants. On initial
operation, the Exchange anticipates making the SNAP functionality
available for all securities that are traded within the Matching
System.\12\
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    \12\ Any changes to the list of SNAP eligible securities shall
be announced via Information Memorandum and shall be effective no
sooner than the trading day after the Information Memorandum has
been issued.
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    In sum, the SNAP Cycle is comprised of the following five stages
detailed under proposed Article 18, Rule 1(b), all of which are
discussed comprehensively under Section 5 and illustrated through
numerous examples under Section 6:
     Stage One: Initiating the SNAP Cycle.
     Stage Two: SNAP Order Acceptance Period.
     Stage Three: Pricing and Satisfaction Period.
     Stage Four: Order Matching Period.
     Stage Five: Transition to the Open Trading State.

Section 2: Proposed Defined Terms

    The Exchange proposes new defined terms related to SNAPs. Proposed
Article 1, Rule 1(qq) defines ``Open Trading State,'' as the period of
time during the regular trading session when orders are eligible for
automatic execution.\13\ As discussed in detail below, the SNAP Cycle
and the Open Trading State are mutually exclusive in a subject security
as the automated trading of securities in a subject security is always
suspended during the SNAP Cycle in the same security.
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    \13\ See supra note 3; see also supra note 7.
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    Proposed Article 1, Rule 1(rr) defines ``SNAP Price'' as a single
price at which the greatest number of shares may be executed during a
SNAP Cycle, as described under proposed Article 18, Rule 1(b), without
trading-through any more aggressively priced orders on either side of
the market, in compliance with all CHX Rules and relevant securities
laws and regulations, including Regulation NMS \14\ and Rule 201 of
Regulation SHO, and any applicable exemptive relief therefrom;\15\
provided the following:
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    \14\ 17 CFR 242.611.
    \15\ 17 CFR 242.201; see supra note 7.
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    (1) Where two or more price points are identified above, the SNAP
Price shall be the price closest to the last reported sale in the
security from the same trading day that was not permitted to trade-
through the National Best Bid and Offer (``NBBO'') at the time the last
sale was executed (``eligible same day last sale''). Where two or more
price points are equally close to the eligible same day last sale
price, the SNAP Price shall be the eligible same day last sale price.
    (2) If an eligible same day last sale cannot be ascertained,
pursuant to proposed paragraph (rr)(1) above, the SNAP Price shall be
the price closest to the NBBO midpoint. Where two or more price points
are equally close to the NBBO midpoint, the SNAP Price shall be the
NBBO midpoint.
    As discussed in detail below, the SNAP Price will only be
determined after the SNAP CHX book has been established during the
stage three Pricing and Satisfaction Period and the SNAP Price will
always be based on a single market snapshot in the subject security at
the time the SNAP Price is determined.\16\ Example 6 below illustrates
the process for determining the SNAP Price.\17\
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    \16\ See infra Section 4.
    \17\ See infra Section 6.
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    Proposed Article 1, Rule 1(ss) defines ``SNAP Eligible Order'' as a
limit order, as defined under Article 1, Rule 2(a)(1), not marked by,
or handled as, any one of the following modifiers:
    (1) Cancel On SNAP, as defined under proposed Article 1, Rule
2(h)(4).
    (2) Fill Or Kill, as defined under Article 1, Rule 2(d)(2).
    (3) Immediate Or Cancel (``IOC''), as defined under Article 1, Rule
2(d)(4).
    (4) Start SNAP, as defined under proposed Article 1, Rule 2(h)(1),
except where the limit order marked Start SNAP is eligible for SNAP
AOO--One And Done handling, pursuant to proposed Article 1, Rule
2(h)(1)(B).\18\
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    \18\ See infra Section 3.
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    In sum, aside from modifiers that require the immediate execution
or cancellation of the order (i.e., Fill Or Kill and IOC) or explicitly
prohibit the order from participating in SNAPs (i.e., Cancel On SNAP or
Start SNAP), all other limit orders shall be considered SNAP Eligible
Orders.\19\ Moreover, to ensure that modifiers attached to SNAP
Eligible Orders do not conflict with the SNAP Cycle, the Exchange
proposes to deactivate certain modifiers for the subject security
during the SNAP Cycle, pursuant to proposed Article 18, Rule
1(b)(2)(D).\20\
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    \19\ Cross and market orders are never SNAP Eligible Orders as
cross orders are always handled IOC and market orders are required
to be marked IOC. See CHX Article 1, Rule 2(a)(2) and (3).
    \20\ See infra Section 4.
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Section 3: Proposed Orders Modifiers Related to SNAP

    The Exchange proposes to adopt the following new limit order
modifiers related to SNAP, which are listed and defined under proposed
Article 1, Rule 2(h):
     Start SNAP, under proposed paragraph (h)(1);
     Cancel On SNAP, under proposed paragraph (h)(2);
     SNAP Auction Only Order (``SNAP AOO'')--Day, under
paragraph (h)(3)(A);
     SNAP AOO--One And Done, under paragraph (h)(3)(B); and
     SNAP AOO--Pegged, under paragraph (h)(3)(C).
    Proposed Article 1, Rule 2(h) provides that the valid use of a
modifier is subject to the modifier being compatible with other
applicable order modifiers or terms related to the order. The
compatibility of the order modifier with other modifiers is either
explicitly noted in the definition of the proposed modifier or implied
by the definition itself.

    Proposed paragraph (h)(1) defines ``Start SNAP'' as a limit order
modifier that -1- initiates a SNAP Cycle in a specified security, as
described under proposed Article 18, Rule 1(b), if the limit order
marked Start SNAP meets the requirements of proposed subparagraph (A)
or, -2- joins a SNAP Cycle in progress, if it does not meet the
requirements of proposed subparagraph (A), but meets the requirements
of proposed subparagraph (C). Also, a limit order marked Start SNAP is
not executable during the Open Trading State, as defined under proposed
Article 1, Rule 1(qq). Consequently, a limit order marked Start SNAP
will never be permitted to post to the CHX book or be executed
otherwise than during a SNAP Cycle. A limit order marked Start SNAP
that does not meet the requirements of either proposed subparagraph (A)
or (C) shall be cancelled.
    Thereunder, proposed subparagraph (A) details the requirements for
a limit order marked Start SNAP to initiate a SNAP Cycle. If the limit
order marked Start SNAP does not meet all of the conditions under
proposed subparagraph (A), the limit order marked Start SNAP will be
cancelled, unless it meets the requirements for special handling
pursuant to proposed subparagraph (C).
    Proposed subparagraph (A)(i) provides that a limit order marked
Start SNAP must meet the following minimum size requirement attributed
to its limit price; provided, however, that certain issues specified
below have special minimum size requirements:

------------------------------------------------------------------------
                    Limit price
---------------------------------------------------     Minimum size
          From                       To
------------------------------------------------------------------------
            0.0001                    0.9999               100,000
            1.00                      4.99                  50,000
            5.00                     24.99                  25,000
           25.00                     49.99                  20,000
           50.00                     99.99                  10,000
          100.00                    499.99                   5,000
          500.00          ........................           2,500
------------------------------------------------------------------------

------------------------------------------------------------------------
                                                                Minimum
                        Special issue                             size
------------------------------------------------------------------------
Berkshire Hathaway, Inc. (BRK-A) \21\........................        100
------------------------------------------------------------------------

    Proposed subparagraph (A)(ii) details the pricing requirement of
the limit order marked Start SNAP. Specifically, the limit price of the
buy (sell) order marked Start SNAP must be priced at or through the
National Best Offer (National Best Bid) at the time the order was
received by the Matching System. That is, the limit order marked Start
SNAP must be priced at the market or more aggressively. The Exchange
believes that this pricing requirement will maximize the size of the
SNAP execution by encouraging aggressive pricing. In light of this
aggressive pricing requirement, a SNAP Cycle will not be initiated if
the National Best Bid and Offer (``NBBO'') in the subject security is
crossed or a two-sided NBBO does not exist at the time the limit order
marked Start SNAP is received by the Matching System.
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    \21\ The Exchange believes it necessary and appropriate to
establish a special minimum size requirement for BRK-A, due to its
exceptionally high market value and special round lot size.
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    Proposed subparagraph (A)(iii) details the timing requirement of
the limit order marked Start SNAP. Specifically, a limit order marked
Start SNAP will only initiate a SNAP Cycle if it is received during the
regular trading session; provided, however, that it will not initiate a
SNAP if it is received (a) 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 after a halt or pause that required the
Exchange to suspend trading in the subject security; (b) within five
minutes of the end of the regular trading session; (c) during a SNAP
Cycle; or (d) within one minute after the completion of the previous
SNAP Cycle. With respect to proposed subparagraph (A)(iii)(a), the
Exchange believes that requiring five minutes to have passed after the
dissemination of the first two-sided quote from the primary market in
the subject security before permitting a SNAP Cycle to be initiated is
necessary to ensure that sufficient time has passed for the market in
the subject security to have been established.
    Proposed subparagraph (A)(iv) provides a general condition that a
SNAP Cycle shall not be initiated if the CHX Routing Services, the
Exchange's outbound routing service, is not operational.\22\ Given the
aggressive pricing requirement for limit orders marked Start SNAP, it
is possible that one or more orders would have to be routed away to
execute against contra-side Protected Quotations of external markets
for purposes of Regulation NMS compliance. Thus, the Exchange proposes
to prohibit a SNAP Cycle from initiating when outbound routing is not
available at time of receipt of a limit order marked Start SNAP.\23\
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    \22\ See CHX Article 19, Rule 1.
    \23\ Moreover, a SNAP Cycle that was initiated may be aborted
prior to order matching at the SNAP Price, if the CHX Routing
Services are unavailable at the time the SNAP Price is to be
determined. See infra Section 5.
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    Proposed subparagraph (B) provides an optional minimum SNAP
execution size condition that may be selected by the Participant that
submitted the limit order marked Start SNAP. Specifically, an order
sender may instruct that the SNAP Cycle be cancelled, without any
executions, if the sum -1- of the minimum number of shares that may be
executed within the Matching System at the SNAP Price, as defined under
proposed Article 1, Rule 1(rr), and -2- the number of shares that would
be routed away, pursuant to proposed Article 19, Rule 3(a)(4) and (5),
is less than the minimum number of shares required for the Start SNAP
order to have initiated the current SNAP Cycle, pursuant to proposed
subparagraph (A)(i). The optional minimum size condition provides the
Start SNAP order sender with a tool to minimize information leakage
concerning orders that participated in the SNAP. That is, without a
minimum size condition, the Participant that submitted the limit order
marked Start SNAP may give up crucial information concerning its order,
without receiving the benefit of a substantial execution. Thus, the
minimum size condition is intended to minimize the probability and
magnitude of such information leakage.
    Proposed subparagraph (C) provides a default handling for a limit
order marked Start SNAP that does not meet the requirements to initiate
a SNAP Cycle. Specifically, by default, a limit order marked Start SNAP
that does not meet the requirements of proposed subparagraph (A) and is
received by the Matching System during a SNAP Order Acceptance Period,
as described under proposed Article 18, Rule 1(b)(2), shall be handled
as SNAP AOO--One And Done, as defined under proposed paragraph
(h)(3)(B), and join the SNAP Cycle in progress. This default handling
addresses the scenario, among others, where two or more limit orders
marked Start SNAP are received by the Matching System at nearly the
same time. Additionally, an order sender may instruct that the limit
order marked Start SNAP not be subject to this special handling even if
eligible.
    Proposed paragraph (h)(2) defines ``Cancel On SNAP,'' which is a
limit order modifier that requires the order to be cancelled upon
initiation of a SNAP Cycle or cancelled upon receipt if received during
a SNAP Cycle. Thus, resting orders marked Cancel On SNAP will be
cancelled immediately after acceptance of a valid limit order marked
Start SNAP and incoming orders

marked Cancel On SNAP will be cancelled by the Matching System if
received during a SNAP Cycle.\24\ Thus, Cancel On SNAP is similar to
the current Cancel On Halt modifier, defined under Article 1, Rule
2(b)(1)(B), which requires the order to be cancelled if a trading halt
or suspension is declared in the security.
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    \24\ An order marked Cancel On SNAP that is cancelled upon
initiation of a SNAP Cycle or upon receipt during a SNAP Cycle is
not a voluntary cancellation for the purposes of the Order
Cancellation Fee and are excluded from the Order Cancellation Fee
computation. See CHX Fee Schedule Section E.8.
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    Proposed paragraph (h)(3) details the three proposed SNAP AOO
modifiers. SNAP AOOs are limit orders marked by, or handled as, SNAP
AOO--One And Done; SNAP AOO--Day; or SNAP AOO--Pegged.\25\ As the name
suggests, SNAP AOOs shall not be active during the Open Trading State.
Also, SNAP AOOs shall only be accepted from the beginning of the early
session to five minutes prior to the end of the regular trading
session.\26\ Upon receipt by the Exchange, all valid SNAP AOOs are
either queued or immediately ranked, as described under proposed
Article 20, Rule 8(b)(2)(A), as discussed in detail below.\27\
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    \25\ As currently proposed, the only orders that would be
handled as a SNAP AOO, even if it not marked with an SNAP AOO
modifier, would be limit orders marked Start SNAP, pursuant to
Article 1, Rule 2(h)(1)(C), as described above. A limit order marked
by any of the SNAP AOO modifiers will always be handled as a SNAP
AOO.
    \26\ CHX Article 20, Rule 1(b) provides that the ``early
session--shall begin at 6:00 a.m. and shall end at 8:30 a.m.'' All
times are in central time, unless noted otherwise. See supra note 3.
    \27\ Invalid SNAP AOOs (e.g., received after the end of the
regular trading session) would be rejected. See infra Sections 4 and
5.
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    Moreover, all SNAP AOOs must meet the below minimum size
requirement at the time of original receipt associated with its
corresponding SNAP AOO Reference Price, provided, however, that certain
issues specified below have special minimum size requirements.\28\ If
there is no special minimum size requirement noted for a security, the
SNAP AOO Reference Price shall be the last sale in the subject security
that was not permitted to trade-through the NBBO at the time the last
sale was executed.\29\ If a SNAP AOO Reference Price cannot be
determined (i.e., there is no last sale in the security), the SNAP AOO
shall be cancelled. The following represents the SNAP AOO Reference
Prices and the corresponding minimum size requirement:
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    \28\ SNAP AOOs that are queued upon receipt may also be re-
queued, as discussed below. Thus, re-queued SNAP AOOs may be smaller
than the minimum size, due to partial executions. See infra Sections
4 and 5.
    \29\ Compare proposed Article 1, Rule 1(rr), which has an
additional requirement that the last sale be from the same trading
day.

------------------------------------------------------------------------
             SNAP AOO reference price
---------------------------------------------------     Minimum size
          From                       To
------------------------------------------------------------------------
            0.0001                    0.9999                10,000
            1.00                      4.99                   5,000
            5.00                     24.99                   2,500
           25.00                     49.99                   2,000
           50.00                     99.99                   1,000
          100.00                    499.99                     500
          500.00          ........................             250
------------------------------------------------------------------------

------------------------------------------------------------------------
                                                                Minimum
                        Special issues                            size
------------------------------------------------------------------------
Berkshire Hathaway, Inc. (BRK-A) \30\........................         10
------------------------------------------------------------------------

    By pegging the SNAP AOO Reference Price to the last reported sale
in the subject security, as opposed to the limit price of the SNAP AOO,
order senders are discouraged from submitting hypermarketable SNAP AOOs
in order to qualify for a lower minimum size tier. Moreover, the
requirement that the last reported sale in the subject security not
have been permitted to trade-through the NBBO at the time it was
executed, such as Benchmark,\31\ would better reflect the actual market
price of the subject security.
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    \30\ See supra note 21.
    \31\ See CHX Article 1, Rule 2(b)(2)(A).
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    Thereunder, proposed subparagraph (A) defines ``SNAP AOO--Day'' as
a limit order modifier that requires the order to only participate in
the next SNAP Cycle for which it is eligible and every SNAP Cycle
thereafter for the remainder of the trading session until fully-
executed or cancelled. Mechanically, the unexecuted balance of a limit
order marked SNAP AOO--Day will be re-queued based on its original time
of receipt and would be re-ranked in the SNAP CHX book during the next
SNAP Cycle, pursuant to proposed Article 20, Rule 8(b)(2)(A).\32\
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    \32\ See infra Sections 4 and 5.
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    Proposed subparagraph (B) defines ``SNAP AOO--One And Done'' as a
limit order modifier that requires the order to only participate in the
next SNAP Cycle for which it is eligible with any unexecuted remainder
to be cancelled; provided, however, that if the SNAP Cycle in which the
limit order marked SNAP AOO--One And Done was participating was aborted
prior to the stage three Pricing and Satisfaction Period, the order
shall be re-queued pursuant to proposed Article 20, Rule 8(b)(2)(A),
and not cancelled. Thus, unlike limit orders marked SNAP AOO--Day,
which may be re-queued for any reason if an unexecuted balance exists,
limit orders marked SNAP AOO--One And Done are only eligible to
participate in one SNAP Cycle and may only be re-queued if the SNAP
Cycle in which it was participating was aborted prior to the stage
three Pricing and Satisfaction Period.
    Proposed subparagraph (C) defines ``SNAP AOO--Pegged'' as a limit
order modifier only available for orders marked SNAP AOO--Day or SNAP
AOO--One And Done, that requires the order to be priced at the less
aggressive of an optional limit price or mandatory offset price from
the NBBO ascertained from the market snapshot taken pursuant to
proposed Article 18, Rule 1(b)(2)(E). An order sender that submits a
limit order marked SNAP AOO--Pegged must specify one of the following
proposed pricing options.
    (i) Midpoint. Priced at the midpoint of the NBBO or the locking
price if the NBBO is locked. If the NBBO is crossed, the order shall
not participate in the instant SNAP Cycle, even if there is an optional
limit price indicated.
    (ii) Market. A buy (sell) order shall be priced at, or a specified
offset below or above, the NBO (NBB).
    (iii) Primary. A buy (sell) order shall be priced at, or a
specified offset below or above, the NBB (NBO).
    Unlike non-auction pegged orders, which the Exchange does not
currently offer, limit orders marked SNAP AOO--Pegged do not
continuously track changes to the NBBO, but rather, are priced once per
SNAP Cycle based on an single market snapshot taken immediately prior
to the stage three Pricing and Satisfaction Period, as discussed in
detail below.\33\
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    \33\ See infra Section 5.
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Section 4: Proposed SNAP CHX Book and SNAP AOO Queue

    The SNAP CHX book will be used to establish the SNAP Price and
execution priority for participating SNAP Eligible Orders with Working
Prices \34\ at and more aggressive than the SNAP Price.\35\

Thus, the Exchange proposes to amend Article 20, Rule 8(b) (Ranking and
display of orders) to adopt a distinction between the current ranking
of orders on the CHX book, the proposed ranking of orders on the SNAP
CHX book and the proposed queuing of certain SNAP AOO orders on the
SNAP AOO Queue that would not be ranked on receipt.
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    \34\ Incidentally, the Exchange proposes to amend current
Article 1, Rule 1(pp)) to expand and clarify the definition of
``Working Price.'' Specifically, amended Article 1, Rule 1(pp)
provides that Working Price means the most aggressive price at which
a limit order, as opposed to the current ``resting'' limit orders,
can execute within the Matching System, in compliance with CHX Rules
and relevant securities laws and regulations, including Rule 611 of
Regulation NMS and Rule 201 of Regulation SHO, and any applicable
exemptive relief therefrom. See supra note 7.
    \35\ As noted above, the Exchange only operates one book. The
SNAP CHX book merely reflects the reprioritizing of orders for the
purposes of the SNAP Cycle and is not an independent book of orders
maintained in addition to the regular CHX book. See supra Section 1.
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    Current Article 20, Rule 8(b) provides that all orders accepted by
the Matching System that will post to the CHX book shall be ranked at
each price point up or down to its limit price by display status then
sequence number. Thereunder, current Rule 8(b)(1)-(3) outline the three
display status pools according to priority on the CHX book as follows:
     Fully-displayable orders and displayed portions of Reserve
Size orders, under paragraph (b)(1); \36\
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    \36\ See CHX Article 1, Rule 2(c)(3) defining ``Reserve Size.''
---------------------------------------------------------------------------

     Undisplayed portion of Reserve Size orders, under
paragraph (b)(2); and
     Orders marked Do Not Display, under paragraph (b)(3).\37\
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    \37\ See CHX Article 1, Rule 2(c)(2) defining ``Do Not
Display.''
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    The Exchange now proposes to amend Article 20, Rule 8(b) to expand
the scope of the rules thereunder and to clarify the execution priority
of resting orders on the CHX book. Specifically, amended Article 20,
Rule 8(b) provides that orders shall be ranked and displayed as
follows. Thereunder, proposed Rule 8(b)(1) provides that otherwise than
during a SNAP Cycle, as described under proposed Article 18, Rule 1(b),
orders that may post to the CHX book shall be executable in Working
Price/display status/sequence number priority \38\ and shall be ranked
on the CHX book as described under proposed subparagraphs (A)-(C),
which mirrors current Article 20, Rule 8(b)(1)-(3), respectively, but
for amendments to certain cross-references affected by the proposed
rule change.
---------------------------------------------------------------------------

    \38\ Orders are currently executable in Working Price/display
status/sequence number priority. See Exchange Act Release No. 73150
(September 19, 2014), 79 FR 57603 (September 25, 2014) (SR-CHX-2014-
15) (``Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change to Adopt the CHX Routing Services'').
---------------------------------------------------------------------------

    Proposed Rule 8(b)(2) provides that the following orders shall not
be ranked on the CHX book upon receipt, but shall be queued until
ranked as follows. Thereunder, proposed subparagraph (A) describes the
SNAP AOO Queue, which provides that valid SNAP AOOs, as defined under
proposed Article 1, Rule 2(h)(3), shall be queued in the order in which
they were originally received; provided, however, that SNAP AOOs not
marked SNAP AOO--Pegged received during a SNAP Order Acceptance Period
shall be immediately ranked on the SNAP CHX book upon receipt and not
queued.\39\ All SNAP AOOs shall be ranked on the SNAP CHX book,
pursuant to proposed paragraph (b)(3)(E). Also, SNAP AOOs that are re-
queued shall be re-queued based on time of original receipt.
---------------------------------------------------------------------------

    \39\ As discussed below, SNAP AOOs marked SNAP AOO--Pegged can
only be priced based on the market snapshot taken immediately after
the end of the SNAP Order Acceptance Period, pursuant to proposed
Article 18, Rule 1(b)(2)(E), and thus, cannot be ranked upon
original receipt. See infra Section 5.
---------------------------------------------------------------------------

    Proposed Rule 8(b)(3) provides that during a SNAP Cycle, as
described under proposed Article 18, Rule 1(b), orders shall receive
execution priority as described under proposed Article 18, Rule
1(b)(4)(A) \40\ and be ranked on the SNAP CHX book, as provided under
proposed subparagraphs (A)-(E). In sum, all SNAP Eligible Orders ranked
on the CHX book at the time a SNAP Cycle is initiated (``precedent
orders'') shall maintain their priority in the SNAP CHX book, pursuant
proposed subparagraphs (A)--(C). Following such precedent orders, the
limit order marked Start SNAP that initiated the instant SNAP Cycle
would be ranked, pursuant to proposed subparagraph (D). Finally, after
the precedent orders and the limit order marked Start SNAP, SNAP AOOs
and other SNAP Eligible Orders received during the SNAP Order
Acceptance Period would be ranked by sequence number.
---------------------------------------------------------------------------

    \40\ See infra Section 5.
---------------------------------------------------------------------------

    Examples 2-5 illustrate the process of creating the SNAP CHX
book.\41\ A discussion concerning SNAP Cycle order execution priority
may be found below.\42\
---------------------------------------------------------------------------

    \41\ See infra Section 6.
    \42\ See infra Section 5.
---------------------------------------------------------------------------

Section 5: Proposed SNAP Cycle

Stage One: Initiating the SNAP Cycle

    Upon the acceptance of a valid limit order marked Start SNAP, the
Matching System shall begin the SNAP Cycle in the subject security,
pursuant to proposed Article 18, Rule 1(b)(1), and take the following
actions:
     Suspend automatic execution of orders in the subject
security.
     Remove the Exchange's Protected Quotation(s) in the
subject security, if any.
     Notify the market that a SNAP Cycle in the subject
security has begun.
     Disseminate messages through the CHX Book Feed indicating
that precedent orders on the CHX book in the subject security are no
longer automatically executable.\43\
---------------------------------------------------------------------------

    \43\ The CHX Book Feed is the Exchange's proprietary data feed,
which allows subscribers to view all displayable orders in the
Matching System, including the size and price associated with such
orders and trade data for executions that occur within the Matching
System. See CHX Article 4, Rule 1.
---------------------------------------------------------------------------

     Suspend dissemination of any other order information
concerning the subject security through the CHX Book Feed.
    Proposed Article 18, Rule 1(b)(1) describes how a SNAP Cycle is
initiated. Specifically, a SNAP Cycle may be initiated upon acceptance
by the Matching System of a valid limit order marked Start SNAP, as
defined under proposed Article 1, Rule 2(h)(1), discussed in detail
above. That is, a SNAP will only be initiated if all of the
requirements of proposed Article 1, Rule 2(h)(1) are met. If a valid
Start SNAP order is accepted by the Matching System, the Exchange shall
only then immediately suspend automated matching of orders in the
subject security and initiate the SNAP Cycle.
    Thereunder, proposed subparagraph (A) provides that the Exchange
will remove its Protected Quotation(s) in the subject security, if any,
and will notify the market that a SNAP is taking place in the subject
security.\44\ Aside from the identity of the security subject to the
SNAP, the Exchange will not disseminate any other information
concerning the SNAP, including, but not limited to, the size, price or
side of the Start SNAP order.
---------------------------------------------------------------------------

    \44\ As of the time of this filing, the Exchange anticipates
that the SNAP Cycle notice will be achieved by a unique identifier
that will be disseminated to the market through the relevant
securities information processor at the time the Exchange removes
its Protected Quotation(s) in the subject security and a message
through the CHX Book Feed indicating that a SNAP Cycle is occurring
in the subject security.
---------------------------------------------------------------------------

    Incidentally, the Exchange proposes to amend Article 20, Rule
8(b)(6) to provide that the displayed CHX best bid and offer protocol
shall be suspended during a SNAP Cycle, pursuant to proposed Article
18, Rule 1(b), and amend a citation to current ``paragraph (b)(1)'' to
``paragraph (b)(1)(A),'' as the citation has changed pursuant to this
rule filing.\45\
---------------------------------------------------------------------------

    \45\ See supra Section 4.
---------------------------------------------------------------------------

    Proposed subparagraph (B) provides that the Exchange shall submit
messages through the CHX Book Feed to reflect that precedent orders
previously disseminated through the CHX Book Feed are no longer
automatically executable and that the Exchange will suspend
dissemination of any other order information concerning the subject
security. Any executions and

cancellations that occur during the SNAP Cycle will continue to be
reported immediately to the relevant Participant order sender(s).
Similarly, any executions that occur during the SNAP Cycle will
continue to be reported immediately to the relevant securities
information processor and to clearing. However, information concerning
displayable orders received, and cancellations and executions effected,
during the SNAP Cycle shall not disseminated through the CHX Book Feed
for the remainder of the SNAP Cycle. Upon the restarting of the CHX
Book Feed, pursuant to proposed Article 18, Rule 1(b)(5)(C), the
Exchange shall only disseminate information concerning the displayable
orders posted to the CHX book at the conclusion of the SNAP Cycle.
Incidentally, the Exchange propose to amend current Article 4, Rule
1(a) to provide that the availability of the CHX Book Feed is subject
to proposed Article 18, Rule 1(b).\46\
---------------------------------------------------------------------------

    \46\ See supra note 43.
---------------------------------------------------------------------------

    Example 2 below illustrates how the SNAP Cycle could be
initiated.\47\
---------------------------------------------------------------------------

    \47\ See infra Section 6.
---------------------------------------------------------------------------

Stage Two: SNAP Order Acceptance Period
    Upon the initiation of the SNAP Cycle, the Matching System shall
take the following actions, pursuant to proposed Article 18, Rule
1(b)(2):
     Begin the SNAP Order Acceptance Period.
     Begin establishing the SNAP CHX book.
     Begin the First In--First Out (``FIFO'') Queue for certain
messages and orders received during the SNAP Cycle.
    Proposed paragraph (b)(2) starts by providing that the SNAP Order
Acceptance Period shall begin upon initiation of a SNAP Cycle and last
approximately 475 to 525 milliseconds, the actual length of which will
be randomized by the Matching System. By randomizing the exact length
of the SNAP Order Acceptance Period, market participants would not be
able to pinpoint exactly when the SNAP Order Acceptance Period would
end, thereby minimizing speed advantages, which is one of the goals of
the SNAP functionality.\48\
---------------------------------------------------------------------------

    \48\ See infra Statutory Basis.
---------------------------------------------------------------------------

    Proposed subparagraph (A) details how precedent resting orders
would be handled upon the initiation of a SNAP Cycle. Specifically,
subparagraph (A)(i) provides that SNAP Eligible Orders, as defined
under proposed Article 1, Rule 1(ss), not marked SNAP AOO--Pegged, as
defined under proposed Article 1, Rule 2(h)(3)(C), resting on the CHX
book or SNAP AOO Queue, as described under proposed Article 20, Rule
8(b)(2)(A), prior to the initiation of the current SNAP Cycle, shall be
ranked on the SNAP CHX book, pursuant to proposed Article 20, Rule
8(b)(3)(A)--(C) and (E), as applicable.\49\ In turn, precedent SNAP
AOOs marked SNAP AOO--Pegged shall remain on the SNAP AOO Queue until
ranked on the SNAP CHX book, pursuant to proposed paragraph (b)(3)(A).
---------------------------------------------------------------------------

    \49\ See supra Section 4.
---------------------------------------------------------------------------

    SNAP AOO--Pegged orders are not ranked on the SNAP CHX book during
the SNAP Order Acceptance Period because the limit price of SNAP AOO--
Pegged orders can only be confirmed by the market snapshot immediately
after the end of the SNAP Order Acceptance Period, pursuant to proposed
Article 18, Rule 1(b)(2)(E).\50\ In contrast, all other SNAP Eligible
Orders, including SNAP AOOs not marked SNAP AOO--Pegged, have confirmed
limit prices known at the time of original receipt, which enables such
orders to be immediately ranked on the SNAP CHX book upon initiation of
the SNAP Cycle or upon receipt if received during a SNAP Order
Acceptance Period.
---------------------------------------------------------------------------

    \50\ See supra note 39.
---------------------------------------------------------------------------

    Proposed subparagraph (A)(ii) provides that the limit order marked
Start SNAP that initiated the current SNAP Cycle shall be ranked on the
SNAP CHX book, pursuant to proposed Article 20, Rule 8(b)(3)(D).
Proposed subparagraph (A)(iii) provides that precedent non-SNAP
Eligible Orders resting on the CHX book (i.e., limit orders marked
Cancel On SNAP) shall be cancelled.
    Proposed subparagraph (B) details how incoming orders received
during the SNAP Cycle would be handled. Specifically, subparagraph
(B)(i) provides that incoming SNAP Eligible Orders received during the
SNAP Order Acceptance Period shall be immediately ranked on the SNAP
CHX book, pursuant to proposed Article 20, Rule 8(b)(3)(E); provided,
however, that SNAP AOOs marked SNAP AOO--Pegged shall be placed in the
SNAP AOO Queue upon receipt and shall only be ranked on the SNAP CHX
book, pursuant to paragraph (b)(3)(A).\51\ Incoming SNAP Eligible
Orders received after the SNAP Order Acceptance Period has expired, but
during a SNAP Cycle, shall not be eligible to participate in the
current SNAP Cycle and shall be queued in the FIFO Queue, pursuant to
proposed subparagraph (C). To the extent an order on the FIFO Queue is
a SNAP AOO, upon processing of the SNAP AOO during the stage five
Transition to the Open Trading State, the SNAP AOO will be placed in
the SNAP AOO Queue, for activation in the next SNAP Cycle for which it
is eligible to participate. Also, proposed subparagraph (B)(ii)
provides that incoming non-SNAP Eligible Orders received during the
SNAP Cycle shall be cancelled upon receipt, except for cross orders,
which shall be placed in the FIFO Queue.
---------------------------------------------------------------------------

    \51\ See id.
---------------------------------------------------------------------------

    Currently, cross orders are always handled Immediate Or Cancel,
pursuant to Article 1, Rule 2(a)(2). In light of SNAP, the Exchange now
proposes to amend the definition of cross orders, under Article 1, Rule
2(a)(2), to provide that cross orders received during a SNAP Cycle
shall be placed in the FIFO Queue for later processing and not
immediately cancelled. This special handling of cross orders is
necessary because, for example, the Exchange receives a significant
number of cross orders marked Qualified Contingent Trade (``QCT''),\52\
the execution of which is required, among other things, to be
contingent upon the execution of all other components at or near the
same time. Thus, the Exchange believes it preferable to momentarily
delay processing of QCTs to give such orders the opportunity to clear
the CHX book, whereas an immediate cancellation could result in the QCT
being out-of-hedge with the other component trades. Moreover, in light
of the manual nature of QCT order packaging process, the Exchange
submits that the approximate one second delay in processing a QCT on
the FIFO Queue is immaterial with respect to the execution ``at or near
the same time'' requirement for QCTs.\53\
---------------------------------------------------------------------------

    \52\ See CHX Article 1, Rule 2(b)(2)(E).
    \53\ See infra Statutory Basis.
---------------------------------------------------------------------------

    Proposed subparagraph (C) lists the following messages received
during a SNAP Cycle that would be placed in the FIFO Queue for later
processing, pursuant to proposed paragraph (b)(5)(B):
    (i) Cancel and cancel/replace messages for resting or queued
orders.
    (ii) Cancel messages from away markets for routed orders received
after the SNAP Order Acceptance Period.\54\
---------------------------------------------------------------------------

    \54\ Cancel messages from away markets for routed orders
received during the SNAP Order Acceptance Period would result in the
corresponding order being immediately released as unexecuted. The
released order will then either join the SNAP Cycle in progress or
be cancelled, if marked Cancel On SNAP.
---------------------------------------------------------------------------

    (iii) SNAP Eligible Orders received after the SNAP Order Acceptance
Period.

    (iv) Cross orders.
    The FIFO Queue is necessary because the immediate processing of
most messages are suspended during the SNAP Cycle. The Exchange submits
that the momentary delay of processing such messages is reasonable
because the delay will be no longer than the approximate one second
that it would take for the SNAP Cycle to be completed. In addition,
market liquidity in the subject security would be enhanced by
preserving such orders and reducing unnecessary order cancellations.
    Proposed subparagraph (D) provides that prior to being ranked on
the SNAP CHX book, the following modifiers shall be deactivated for the
subject security only:
    (i) CHX Only, as defined under Article 1, Rule 2(b)(1)(C).
    (ii) Post Only, as defined under Article 1, Rule 2(b)(1)(D).
    (iii) Do Not Route, as defined under Article 1, Rule 2(b)(3)(A).
    (iv) Match Trade Prevention, as defined under Article 1, Rule
2(b)(3)(F).
    (v) Always Quote, as defined under Article 1, Rule 2(c)(1).
    (vi) Reserve Size, as defined under Article 1, Rule 2(c)(3).
    Deactivating each of these modifiers is necessary so that SNAP
Eligible Orders subject to a SNAP Cycle are handled in a manner which
do not violate the terms of the specified order modifiers, as the SNAP
Cycle requires all participating orders to be routable, undisplayed in
whole and executable, without restriction.
    Specifically, the CHX Only, Post Only and Do Not Route modifiers
\55\ must be deactivated because each of these modifiers, among other
things, requires the order to be unroutable and, as discussed in detail
below, the SNAP Price may require the routing of one or more orders to
prevent improper trade-through(s) of Protected Quotations of external
markets. In addition, the Always Quote and Reserve Size modifiers must
be deactivated because each of these modifiers requires all or a
portion of the order to be displayed, whereas all SNAP Eligible Orders
must be fully-hidden during a SNAP Cycle.\56\ Also, the Match Trade
Prevention (``MTP'') modifier must be deactivated because the MTP
modifier will prevent the execution of certain orders that originate
from the same MTP Trading Group or subgroup, whereas all participating
SNAP Eligible Orders must be executable without condition.\57\
Incidentally, the Exchange proposes to amend Article 1, Rule 2 to
provide that order modifiers listed under proposed Article 18, Rule
1(b)(2)(D) shall not be active for a security that is subject to a SNAP
Cycle, as described under proposed Article 18, Rule 1.
---------------------------------------------------------------------------

    \55\ CHX Only and Post Only orders are always handled ``Do Not
Route,'' even if not marked Do Not Route. See CHX Article 1, Rule
2(b)(1)(C) and (D).
    \56\ While precedent Reserve Size orders will not have a
displayed portion during the SNAP Cycle, as all orders participating
in a SNAP Cycle are fully-hidden, the Matching System will maintain
the distinction between the displayed and reserved portions of
Reserve Size orders for the purposes of ranking on the SNAP CHX
book. See supra Section 4.
    \57\ The Exchange notes that the deactivation of the MTP
modifier during the SNAP Cycle does not extinguish Participants'
obligations regarding self-trades, pursuant to CHX Rules and
securities laws and regulations. See e.g., CHX Article 9, Rule 9
(Fictitious Transactions).
---------------------------------------------------------------------------

    Proposed subparagraph (E) provides that upon conclusion of the SNAP
Order Acceptance Period, the Matching System shall take a snapshot of
the Protected Quotation(s) of external market(s) in the subject
security and determine whether or not the CHX Routing Services are
available. If the snapshot of the Protected Quotation(s) of external
market(s) in the subject security shows that a two-sided NBBO exists
and the CHX Routing Services are available, the SNAP Cycle shall
continue to the stage three Pricing and Satisfaction Period. This
proposed subparagraph (E) market snapshot will serve as the basis for
the stage three Pricing and Satisfaction Period, as described below.
    Alternatively, proposed subparagraph (F) provides that if the
market snapshot taken pursuant to proposed subparagraph (E) above shows
that a two-sided NBBO does not exist or the CHX Routing Services are
unavailable, the SNAP Cycle shall be aborted without any executions and
the Matching System shall take another market snapshot of the Protected
Quotation(s) of external market(s) in the subject security and
immediately begin the stage five Transition to the Open Trading State,
as described below.
    In sum, one or two market snapshots may be taken during the stage
two Order Acceptance Period, depending on whether or not the SNAP Cycle
was aborted during the stage two Order Acceptance Period. Specifically,
if the market snapshot taken pursuant to proposed subparagraph (E)
shows that a two-sided NBBO exists and the CHX Routing Services are
available, the Matching System would not take any additional market
snapshots during the stage two Order Acceptance Period, as the SNAP
Cycle would immediately continue to the stage three Pricing and
Satisfaction Period. In such a case, a third market snapshot would be
taken during either the stage three Pricing and Satisfaction Period or
the stage four Order Matching Period, as applicable, as discussed
below. However, if the market snapshot taken pursuant to proposed
subparagraph (E) shows that a two-sided NBBO does not exist or the CHX
Routing Services are unavailable, the Matching System would immediately
take a final market snapshot, pursuant to proposed subparagraph (F),
abort the SNAP Cycle, skip stages three and four and enter the stage
five Transition to the Open Trading State. Thus, there would always be
a total of three market snapshots taken during the course of any given
SNAP Cycle.\58\
---------------------------------------------------------------------------

    \58\ See infra note 79.
---------------------------------------------------------------------------

    Examples 3-4 below illustrate the various processes of the stage
two SNAP Order Acceptance Period.\59\
---------------------------------------------------------------------------

    \59\ See supra Section 6.
---------------------------------------------------------------------------

Stage Three: Pricing and Satisfaction Period
    Upon the conclusion of the stage two SNAP Order Acceptance Period,
the Matching System shall take the following actions, pursuant to
proposed Article 18, Rule 1(b)(3):
     Process the remaining orders on the SNAP AOO Queue and
finalize the SNAP CHX book.
     Determine the SNAP Price.
     Route orders away to satisfy Protected Quotations of
external markets, if necessary.
    Proposed Article 18, Rule 1(b)(3) provides that, if permitted,
pursuant to proposed paragraph (b)(2)(E), the Matching System will
utilize the market snapshot taken pursuant to proposed paragraph
(b)(2)(E) to initiate the Pricing and Satisfaction Period by taking the
actions described under proposed subparagraphs (A)-(C).
    Thereunder, proposed subparagraph (A) provides that the Matching
System shall price all SNAP AOOs marked SNAP AOO--Pegged remaining on
the SNAP AOO Queue, then rank such orders on the SNAP CHX book,
pursuant to proposed Article 20, Rule 8(b)(3)(E). SNAP AOO--Pegged
orders will be priced based on the market snapshot taken pursuant to
proposed paragraph (b)(2)(E). Upon the completion of processing the
remaining orders on the SNAP AOO Queue, the SNAP CHX book will be
complete.
    Proposed subparagraph (B) provides that once the process described
under proposed subparagraph (A) has been completed, the Matching System
shall determine the SNAP Price, as defined under Article 1, Rule
1(rr).\60\ If the SNAP Price cannot be determined, the

Matching System shall take a snapshot of the Protected Quotation(s) of
external market(s) in the subject security and the SNAP Cycle shall
continue to the stage five Transition to the Open Trading State, as
described below. The most obvious reason that a SNAP Price could not be
determined is that there are no orders that could matched. Another
reason why the SNAP Price could not be determined is if the limit order
marked Start SNAP noted a SNAP minimum size condition, pursuant to
proposed Article 1, Rule 2(h)(1)(B), and the minimum size condition was
not met. In such a case, the SNAP Price would not be in compliance with
``CHX Rules,'' per the proposed definition. However, if the SNAP Price
could be determined and one or more orders must be routed away,
pursuant to proposed Article 19, Rule 3(a)(4) and/or (5), the SNAP
Cycle would continue to the Satisfaction Period, pursuant to proposed
subparagraph (C). If no order routing is necessary, the SNAP Cycle
shall continue to the stage four Order Matching Period.
---------------------------------------------------------------------------

    \60\ See supra Section 2.
---------------------------------------------------------------------------

    By definition, the SNAP Price will always be at a price that is in
compliance with Rule 611 of Regulation NMS, LULD price bands and Rule
201 of Regulation SHO or applicable exemptive relief.\61\ Specifically,
the SNAP Price will be in compliance with Rule 611 of Regulation NMS
through the routing of one or more Intermarket Sweep Orders (``ISOs'')
to satisfy Protected Quotations of external markets, as necessary,
pursuant to proposed subparagraph (C). Moreover, the SNAP Price will
never be outside the LULD Price Bands.
---------------------------------------------------------------------------

    \61\ See supra note 7.
---------------------------------------------------------------------------

    The SNAP Price would also be in compliance with Rule 201 of
Regulation SHO or applicable exemptive relief by ensuring that SNAP
Eligible Orders marked Sell Short, as defined under Article 1, Rule
2(b)(3)(D), in a covered security subject to the short sale price test
restriction, would never participate in a SNAP execution if the SNAP
Price were determined to be at or below the NBB ascertained from the
market snapshot taken pursuant to proposed Article 18, Rule
1(b)(2)(E).\62\ Specifically, such SNAP Eligible Orders marked Sell
Short ranked on the SNAP CHX book will 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) because such SNAP Eligible Orders marked Sell Short with
limit prices at or below that NBB would be repriced to one minimum
price increment above that NBB, whereas such SNAP Eligible Orders
marked Sell Short with limit prices at one minimum price increment
above that NBB or higher would be ranked on the SNAP CHX book at their
limit prices without being repriced.\63\ Thus, if the SNAP Price were
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),
such participating SNAP Eligible Orders marked Sell Short would not be
able to execute at the SNAP Price. However, if the SNAP Price were
determined to be at one price increment above the NBB ascertained from
the market snapshot taken pursuant to proposed Article 18, Rule
1(b)(2)(E) or higher, such SNAP Eligible Orders marked Sell Short may
execute at the SNAP Price, depending on their respective executable
prices and rank on the SNAP CHX book.
---------------------------------------------------------------------------

    \62\ Id. Rule 201(b)(1) of Regulation SHO provides as follows:
``A trading center shall establish, maintain, and enforce written
policies and procedures reasonably designed to: (i) Prevent the
execution or display of a short sale order of a covered security at
a price that is less than or equal to the current national best bid
if the price of that covered security decreases by 10% or more from
the covered security's closing price as determined by the listing
market for the covered security as of the end of regular trading
hours on the prior day; and (ii) Impose the requirements of
paragraph (b)(1)(i) of this section for the remainder of the day and
the following day when a national best bid for the covered security
is calculated and disseminated on a current and continuing basis by
a plan processor pursuant to an effective national market system
plan. (iii) Provided, however, that the policies and procedures must
be reasonably designed to permit: (A) The execution of a displayed
short sale order of a covered security by a trading center if, at
the time of initial display of the short sale order, the order was
at a price above the current national best bid; and (B) The
execution or display of a short sale order of a covered security
marked `short exempt' without regard to whether the order is at a
price that is less than or equal to the current national best bid.''
See ``Division of Trading and Markets: Responses to Frequency Asked
Questions Concerning Rule 201 of Regulation SHO.'' U.S. Securities
and Exchange Commission, 20 Jan. 2011. Web. 16 June 2014. <http://www.sec.gov/divisions/marketreg/rule201faq.htm>; see also Securities
Exchange Act Release No. 50103 (July 28, 2004), 69 FR 48008 (August
6, 2004) (``Short Sales'').
    \63\ See infra Section 6, Examples referring to ``Sell Order
E.''
---------------------------------------------------------------------------

    In order to clarify how SNAP is designed to comply with Rule 201 of
Regulation SHO or applicable exemptive relief, the Exchange proposes to
amend Article 20, Rule 8(d)(4) (Rule 201 of Regulation SHO).\64\
Initially, the Exchange proposes to reorganize current Rule 8(d)(4) by
creating subparagraphs (A) and (B). Proposed subparagraph (A) would
contain the current rules concerning Rule 201 of Regulation SHO
compliance during the Open Trading State, as well as the stage five
Transition to the Open Trading State, as described under proposed
Article 18, Rule 1(b)(5), whereas proposed subparagraph (B) would apply
to Rule 201 of Regulation SHO compliance (or compliance with applicable
exemptive relief) during the stage four Order Matching Period, as
described under proposed Article 18, Rule 1(b)(4).\65\
---------------------------------------------------------------------------

    \64\ See supra note 7.
    \65\ Id.
---------------------------------------------------------------------------

    Specifically, proposed subparagraph (A) provides that during the
Open Trading State, as defined under proposed Article 1, Rule 1(qq),
and the stage five Transition to the Open Trading State, as described
under proposed Article 18, Rule 1(b)(5), orders marked Sell Short in a
covered security subject to the short sale price test restriction shall
be handled as described thereunder. The contents of proposed
subparagraphs (A)(i)--(iv) mirror current Article 20, Rule 8(d)(4).
    Proposed subparagraph (B) provides that during the stage four Order
Matching Period of a SNAP Cycle, as described under proposed Article
18, Rule 1(b)(4), in a covered security subject to the short sale price
test restriction, participating SNAP Eligible Orders, as defined under
Article 1, Rule 1(ss), marked Sell Short shall not 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) and
shall be handled as described thereunder.
    Proposed subparagraph (B)(i) provides that a SNAP Eligible Order
marked Sell Short in a covered security subject to the short sale price
test restriction, 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), shall be repriced to one minimum price increment above that
NBB for ranking purposes on the SNAP CHX book. A SNAP Eligible Order
marked Sell Short in a covered security subject to the short sale price
test restriction, 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, shall be ranked on the
SNAP CHX book at its limit price, without repricing. A SNAP Eligible
Order marked Short Exempt, as defined under current Article 1, Rule
2(b)(3)(E), in a covered security subject to the short sale price test
restriction, shall be handled like a SNAP Eligible Order not marked
Sell Short, as described under proposed Article 18, Rule 1(b). Also, a
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).
    Proposed subparagraph (B)(ii) provides that the Rule
201(b)(1)(iii)(A) of Regulation SHO exception shall not apply to a SNAP
Eligible Order marked Sell Short that is being transitioned to the SNAP
CHX book and such an order shall be repriced, if necessary, pursuant to
subparagraph (B)(i) above. This language clarifies that the Rule
201(b)(1)(iii)(A) of Regulation SHO exception would not apply to a
resting Sell Short order that had been transitioned to the SNAP CHX
book because the order would no longer be displayed.
    Proposed subparagraph (B)(iii) provides that a limit order marked
Start SNAP and Sell Short for a covered security subject to the short
sale price test restriction shall not initiate a SNAP Cycle and shall
be cancelled. This language mirrors the last sentence of proposed
Article 1, Rule 2(h)(1)(A)(ii), which sets forth the pricing
requirements for a limit order marked Start SNAP.\66\
---------------------------------------------------------------------------

    \66\ See supra Section 3.
---------------------------------------------------------------------------

    Proposed Article 18, Rule 1(b)(3)(C) provides that if the SNAP
Price requires the routing of one or more orders, pursuant to proposed
Article 19, Rule 3(a)(4) and/or (5), the Exchange's routing systems
shall route away the necessary SNAP Eligible Orders, or portions
thereof, based on their execution priority, pursuant to proposed
paragraph (b)(4)(A). The Matching System shall then delay proceeding to
the stage four Order Matching Period for 200 milliseconds or until all
the confirmations for routed orders have been received from away
market(s), whichever occurs first. Moreover, the unexecuted remainders
of orders routed away pursuant to proposed Article 19, Rule 3(a)(4)
and/or (5) returned to the Matching System prior to the expiration of
the Satisfaction Period during which the orders were routed away shall
maintain their respective original execution priority within the SNAP
CHX book,\67\ whereas such unexecuted remainders returned to the
Matching System after the expiration of the Satisfaction Period during
which the orders were routed away shall be handled pursuant to amended
Article 20, Rule 8(b)(7), as discussed below.
---------------------------------------------------------------------------

    \67\ See infra Section 6, Examples 7 and 9 regarding ``Buy Order
F.''
---------------------------------------------------------------------------

    The purpose of the Satisfaction Period, which includes the period
of time during which orders are routed away pursuant to proposed
Article 19, Rule 3(a)(4) and/or (5) (``SNAP routed orders'') and the
subsequent delay of up to 200 milliseconds, is to give away markets
sufficient time to respond to the SNAP routed orders, so that any
unexecuted SNAP routed orders would be included in the SNAP execution
within the Matching System. If the Exchange receives confirmations
concerning all SNAP routed orders prior to the expiration of the 200-
millisecond period, the SNAP Cycle will immediately move on to the
stage four Order Matching Period. At the expiration of the 200-
millisecond time period, the SNAP Cycle will continue to the stage four
Order Matching Period, even if the Exchange had not received
confirmations for all SNAP routed orders. To the extent that the
Exchange does not receive confirmation(s) for routed order(s) prior to
the expiration of the 200 millisecond time period, the corresponding
SNAP Eligible Order(s) would not participate in the instant SNAP Cycle.
In such a case, upon the eventual receipt of the away execution or
cancellation confirmation by the Matching System, the corresponding
order(s) would be handled pursuant to amended Article 20, Rule 8(b)(7).
    While current Article 20, Rule 8(b)(7) addresses the priority of
unexecuted remainders of routed orders returned to the Matching System,
it does not address such priority in the context of the SNAP Cycle.
Thus, the Exchange proposes to expand Article 20, Rule 8(b)(7) to
provide that an unexecuted remainder of a routed order returned to the
Matching System in one or more parts shall be added to the existing
balance of the related Routable Order already posted to the CHX book,
the SNAP CHX book or the SNAP AOO Queue,\68\ as applicable. Moreover,
if no balance exists at the time a part of an unexecuted remainder of a
routed order is returned to the Matching System, it shall be treated as
a new incoming order, subject to proposed Article 18, Rule 1(b)(3)(C).
As discussed above, proposed Article 18, Rule 1(b)(3)(C) provides, in
pertinent part, that the unexecuted remainders of orders routed away
pursuant to proposed Article 19, Rule 3(a)(4) and/or (5) returned to
the Matching System prior to the expiration of the Satisfaction Period
during which the orders were routed away would maintain their
respective original execution priority within the SNAP CHX book and,
thus, would not be treated as new incoming orders.
---------------------------------------------------------------------------

    \68\ For example, an unexecuted remainder of a partially routed
SNAP AOO--Day returned to the Matching System after the conclusion
of the SNAP Cycle during which the order was partially routed would
be added to any existing unrouted and unexecuted balance of the same
SNAP AOO--Day that was re-queued during the stage five transition
the Open Trading State.
---------------------------------------------------------------------------

    The Exchange also proposes to adopt two new Routing Events, as
proposed Article 19, Rule 3(a)(4) and (5). In sum, proposed Article 19,
Rule 3(a)(4) is designed to prevent improper trade-through(s) in
compliance with Regulation NMS, whereas proposed Article 19, Rule
3(a)(5) is designed to increase the execution of participating SNAP
Eligible Orders at the SNAP Price if they cannot be executed within the
Matching System due to an order imbalance at the SNAP Price.\69\
---------------------------------------------------------------------------

    \69\ Currently, Routable Orders may be routed away from the
Exchange if a Routing Event, listed under Article 19, Rule 3(a) is
triggered.
---------------------------------------------------------------------------

    Specifically, proposed paragraph (a)(4) provides that Routable
Orders, or portions thereof, shall be routed away to permit SNAP
Eligible Orders to be executed within the Matching System at the SNAP
Price (``Routing Event #4'') in compliance with Regulation NMS.\70\
Orders routed away pursuant to this Routing Event #4 shall be priced at
the SNAP Price, as opposed to the contra-side Protected Quotation
price, so that the routed order would maximize the chance of executions
at multiple price points. Moreover, where the SNAP Price is priced at a
price increment smaller than the relevant minimum price increment
(e.g., $10.005), the routed order shall be priced at the minimum price
increment less aggressive than the SNAP Price.
---------------------------------------------------------------------------

    \70\ Incidentally, the Exchange proposes to amend Article 1,
Rule 1(oo) defining ``Routable Order'' to add that during a SNAP
Cycle, participating SNAP Eligible Orders are always Routable
Orders.
---------------------------------------------------------------------------

    Proposed paragraph (a)(5) provides that Routable Orders, or
portions thereof, shall be routed away so as to execute SNAP Eligible
Orders at the SNAP Price against Protected Quotations of external
markets priced at the SNAP Price that could not be matched within the
Matching System during a SNAP Cycle (``Routing Events #5). Routing
Event #5 addresses order imbalances on the SNAP CHX book at the SNAP
Price by routing away orders, or portions thereof, that could not be
executed within the Matching System, only if the contra-side Protected
Quotation(s) of external market(s) are priced at the SNAP Price.
    Mechanically, similar to how routed orders are currently handled
during the Open Trading State, SNAP Eligible Orders or portions thereof
that have been routed away are placed in a pending state by the
Exchange's routing systems. Away execution confirmations will result in
the corresponding SNAP

Eligible Order being released from the pending state as executed. Away
cancellation confirmations, however, will be handled differently
depending on when the confirmation was received. If the away
cancellation confirmation is received during the Satisfaction Period,
the corresponding SNAP Eligible Order would be released as cancelled
and placed back in the SNAP CHX book at its original rank. If the away
cancellation confirmation is received after the Satisfaction Period,
but during the SNAP Cycle, or during a subsequent SNAP Cycle, the
cancellation confirmation would be placed in the FIFO Queue for
processing during the stage five Transition to the Open Trading State.
If the away cancellation confirmation is received otherwise than during
a SNAP Cycle, it shall be processed immediately upon receipt, as they
are currently.
    Examples 5-8 illustrate the various processes of the stage three
Pricing and Satisfaction Period.\71\
---------------------------------------------------------------------------

    \71\ See infra Section 6.
---------------------------------------------------------------------------

Stage Four: Order Matching Period
    Upon the conclusion of the stage three Pricing and Satisfaction
Period, proposed paragraph (b)(4) provides that orders remaining on the
SNAP CHX book, if any, shall be matched at the SNAP Price.
    Proposed subparagraph (A) provides the execution priority of orders
at the SNAP Price. Specifically, SNAP Eligible Orders with a Working
Price at or more aggressive than the SNAP Price shall be executed in
Working Price priority and if more than one such order shares the same
Working Price, then as described under proposed Article 20, Rule
8(b)(3).\72\ That is, orders will be executed according to their rank
at the SNAP Price, except that orders with a more aggressive Working
Price shall be executed first.
---------------------------------------------------------------------------

    \72\ Compare e.g., BATS Exchange Rule 11.23(b)(2)(C).
---------------------------------------------------------------------------

    The Exchange utilizes the term ``Working Price,'' as opposed to
``limit price'' or ``price,'' in discussing execution priority, so as
to be clear that orders with a limit price through the LULD Price Bands
or marked Sell Short with a limit price at or below the NBB during a
short sale price test restriction, shall only receive execution
priority based on the most aggressive price at which such orders could
execute (i.e., Working Price) and not based on a limit price that could
not be executable. For example, a SNAP Eligible buy order priced
through the Upper Price Band would receive priority based on its
Working Price, which is at the Upper Price Band, and a SNAP Eligible
Order 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), during a short sale price test restriction of Rule
201 of Regulation SHO, would be repriced, pursuant to proposed Article
20, Rule 8(d)(4)(B)(i), and would receive priority based on its new
price.\73\
---------------------------------------------------------------------------

    \73\ See supra note 7.
---------------------------------------------------------------------------

    It is important to note that during the Open Trading State, orders
always execute at the Working Price of the resting order, pursuant to
current Article 20, Rule 8(d)(1). However, as noted above, during a
SNAP Cycle, participating SNAP Eligible Orders may execute at prices
less aggressive than its Working Price. Thus, as an exception to
current Article 20, Rule 8(d)(1), the Exchange proposes to amend
Article 20, Rule 8(e)(2) to provide that during a SNAP Cycle,
participating SNAP Eligible Orders shall be executed within the
Matching System at the SNAP Price, pursuant to proposed Article 18,
Rule 1(b)(4)(A). Incidentally, the Exchange proposes to amend the
header to current Article 20, Rule 8(e) to provide that the amended
rule addresses execution of certain orders, order types and auctions.
    Proposed subparagraph (B) provides that upon conclusion of the
matching of orders at the SNAP Price, the Matching System shall then
take a snapshot of the Protected Quotation(s) of external market(s) in
the subject security. Similar to the market snapshot taken pursuant to
proposed Article 18, Rule 1(b)(2)(E), this snapshot will be utilized
for regulatory compliance purposes in transitioning to the Open Trading
State.
    Example 9 illustrates the execution priority of the stage four
Order Matching Period.\74\
---------------------------------------------------------------------------

    \74\ See infra Section 6.
---------------------------------------------------------------------------

Stage Five: Transition to the Open Trading State
    Upon conclusion of the stage two SNAP Order Acceptance Period or
stage four Order Matching Period, as applicable, the Exchange shall
take the following actions, pursuant to proposed Article 18, Rule
1(b)(5):
     Route away or cancel resting orders on the SNAP CHX book
or transfer such resting orders to the CHX book or SNAP AOO Queue, as
applicable, in preparation for the Open Trading State.
     Process the FIFO Queue.
     Notify the market that the SNAP has concluded and begin
the normal dissemination of relevant market data in the subject
security.
    Proposed Article 18, Rule 1(b)(5) provides that upon conclusion of
stages two, three or four of the SNAP Cycle, the Matching System shall
utilize the relevant market snapshot taken pursuant to proposed
paragraph (b)(2)(E) or (F), (b)(3)(B) or (b)(4)(B), as applicable, to
transition trading in the subject security to the Open Trading State by
taking the actions described under proposed subparagraphs (A)--(C).
    Proposed subparagraph (A) provides that orders resting on the SNAP
CHX book shall be transitioned to the CHX book and shall be ranked,
pursuant to proposed Article 20, Rule 8(b)(1); routed away, pursuant to
Article 19, Rule 3(a); placed in the proposed SNAP AOO Queue, pursuant
to proposed Article 20, Rule 8(b)(2)(A), if the order is a SNAP AOO
that may participate in a subsequent SNAP Cycle; or otherwise
cancelled. All order modifiers attached to the SNAP Eligible Orders
being transitioned to the CHX book that were deactivated shall be
reactivated prior to transition to the CHX book.
    Proposed subparagraph (B) provides that once the process under
subparagraph (A) has been completed, all messages queued under the FIFO
Queue, as described under proposed paragraph (b)(2)(C), shall be
processed as incoming messages in the order in which they were
received.\75\ Thus, new orders that have been queued in the FIFO Queue
may be ranked, cancelled, deactivated or routed, depending on the
attached order modifiers and the relevant market snapshot.
---------------------------------------------------------------------------

    \75\ Messages queued in the FIFO Queue are not considered to
have been received by the Matching System.
---------------------------------------------------------------------------

    Proposed subparagraph (C) provides that once the processes under
proposed subparagraphs (A) and (B) have been completed, the Exchange
will notify the market that the SNAP Cycle has concluded; publish CHX's
Protected Quotation(s) in the subject security, if any; and begin the
dissemination of relevant order information concerning orders resting
on the CHX book, pursuant to current Article 4, Rule 1.\76\
---------------------------------------------------------------------------

    \76\ See supra note 43.
---------------------------------------------------------------------------

    Example 10 illustrates the various processes of the stage five
Transition to the Open Trading State.\77\
---------------------------------------------------------------------------

    \77\ See infra Section 6.
---------------------------------------------------------------------------

Halt and Pause during a SNAP Cycle
    Proposed Article 18, Rule 1(c) outlines the interplay between the
SNAP Cycle and trading halts or pauses that require the Exchange to
suspend trading in the subject security (``material

halt or pause'').\78\ Currently, the Exchange suspends trading in a
subject security upon receipt of a material halt or pause messages from
the securities information processor (``SIP''). Since the SNAP Cycle is
a sub-second process and the Matching System only draws upon the SIP
data at three different points in the SNAP Cycle,\79\ the Exchange
proposes to require the SNAP Cycle to be aborted at those points if a
material halt or pause is declared in the subject security and to
unwind the SNAP Cycle in a manner consistent with current CHX
Rules.\80\
---------------------------------------------------------------------------

    \78\ Certain trading halts initiated by away markets would be
considered immaterial for the purposes of proposed CHX Article 18,
Rule 1(c), because such a halt would not require the Exchange to
cease trading in the subject security (e.g., technical problems at
an away exchange which causes other exchanges to declare self-help).
    \79\ As discussed above, the Matching System will take three
market snapshots during the SNAP Cycle based on SIP data of away
markets. The first snapshot will be taken in validating the pricing
requirement of a limit order marked Start SNAP, pursuant to proposed
CHX Article 1, Rule 2(h)(1)(A)(ii). The second snapshot will be
taken to establish the SNAP Price and route orders, pursuant to
proposed CHX Article 18, Rule 1(b)(2)(E). The third snapshot will be
taken to transition orders to the Open Trading State at one of three
points during a SNAP Cycle, as applicable: -1- during the stage two
Order Acceptance Period, pursuant to proposed CHX Article 18, Rule
1(b)(2)(F), if a two-sided NBBO does not exist or the CHX Routing
Services are unavailable; -2- during the stage three Pricing and
Satisfaction Period, pursuant to proposed CHX Article 18, Rule
1(b)(3)(B), if a SNAP Price could not be determined; or during the
stage four Order Matching Period, pursuant to proposed CHX Article
18, Rule 1(b)(4)(B), after the matching of orders at the SNAP Price.
    \80\ The Exchange has two different processes for addressing
material halts or pauses. LULD trading pauses are addressed pursuant
to CHX Article 20, Rule 2A(c), whereas all other material halts or
pauses are addressed pursuant to paragraph .02 of CHX Article 20,
Rule 1. The Exchange also has the authority to cancel orders within
the Matching System, pursuant to CHX Article 20, Rule 12(a).
---------------------------------------------------------------------------

    Proposed paragraph (c) provides that if a material halt or pause is
in effect for a subject security at the time a limit order marked Start
SNAP is received, a SNAP Cycle shall not be initiated. In the event a
material halt or pause has been declared for the subject security
during a SNAP Cycle, the Exchange shall take the actions as described
thereunder, as applicable.
    Proposed paragraph (c)(1) provides that during either -1- a LULD
Trading Pause or -2- a material halt or pause other than a LULD Trading
Pause, the Exchange shall take the steps as described under
subparagraphs (A)--(C), as applicable.
    Subparagraph (A) (During stages one or two) provides that if the
market snapshot taken pursuant to proposed paragraph (b)(2)(E) or (F)
indicates that a material halt or pause is in effect, the SNAP Cycle
shall be aborted and not proceed to stage three or stage five, as
applicable. The Exchange shall then either:
    (i) Cancel all orders resting on the SNAP CHX book, subject to
proposed paragraph (c)(2) below, for a LULD Trading Pause; or
    (ii) cancel all resting orders received during the SNAP Order
Acceptance Period that have been ranked on the SNAP CHX book, but
otherwise maintain all other resting orders not marked Cancel On Halt,
as defined under Article 1, Rule 2(b)(1)(B), subject to proposed
paragraph (c)(2) below and Article 20, Rule 12(a),\81\ for a material
halt or pause other than an LULD Trading Pause.
---------------------------------------------------------------------------

    \81\ CHX Article 20, Rule 12(a) permits the Exchange to cancel
orders as it deems to be necessary to maintain fair and orderly
markets if, among other places, a technical or systems issue occurs
at the Exchange.
---------------------------------------------------------------------------

    Proposed subparagraph (A)(i) is consistent with the current LULD
Trading Pause rules, which requires the Exchange to cancel all orders
resting on the CHX book during a LULD Trading Pause.\82\
---------------------------------------------------------------------------

    \82\ See CHX Article 20, Rule 2A(c)(3)(A).
---------------------------------------------------------------------------

    Proposed subparagraph (A)(ii) is consistent with the current rules
for a material halt or pause other than an LULD Trading Pause, which
permits the Exchange to maintain all orders within the Matching System
during a material halt or pause other than a LULD Trading Pause.\83\
Since the SNAP CHX book could be locked and/or crossed after the
conclusion of the stage two SNAP Order Acceptance Period, the Exchange
proposes to unlock or uncross the SNAP CHX book by cancelling all
orders received during the SNAP Order Acceptance Period, subject to
proposed paragraph (c)(2) and Article 20, Rule 12(a). Thus, an
uncrossed book would be achieved by essentially reverting to the state
of the CHX book at the time the SNAP Cycle was initiated because the
CHX book is never locked or crossed during the Open Trading State.
---------------------------------------------------------------------------

    \83\ See paragraph .02 of CHX Article 20, Rule 1.
---------------------------------------------------------------------------

    Subparagraph (B) (During stages three or four) provides that if the
market snapshot taken pursuant to proposed paragraph (b)(3)(B) or
paragraph (b)(4)(B) indicates that a material halt or pause is in
effect for the subject security, the SNAP Cycle shall be aborted and
will not proceed to stage five. The Exchange shall then either:
    (i) Cancel the unexecuted remainders of all orders resting on the
SNAP CHX book, subject to paragraph (c)(2) below, for a LULD Trading
Pause; or
    (ii) maintain all unexecuted resting orders not marked Cancel On
Halt, subject to paragraph (c)(2) below and Article 20, Rule 12(a),\84\
for a material halt or pause other than an LULD Trading Pause;
provided, however, that if the SNAP Price could not be determined,
pursuant to proposed paragraph (b)(3)(B) above, resting orders will be
handled pursuant to proposed subparagraph (A)(ii) above.
---------------------------------------------------------------------------

    \84\ See supra note 81.
---------------------------------------------------------------------------

    Proposed subparagraph (B)(i) is consistent with the current LULD
Trading Pause rules, which requires the Exchange to cancel all orders
resting on the CHX book during a LULD Trading Pause.\85\
---------------------------------------------------------------------------

    \85\ See supra note 80.
---------------------------------------------------------------------------

    Proposed subparagraph (B)(ii) is consistent with the current rules
for a material halt or pause other than an LULD Trading Pause, which
permits the Exchange to maintain all orders within the Matching System
during a material halt or pause other than a LULD Trading Pause.\86\
While a SNAP Cycle that was completed through the stage four Order
Matching Period would always result in an unlocked and uncrossed SNAP
CHX book, a SNAP Cycle that was aborted due to an inability to
determine a SNAP Price, pursuant to proposed paragraph (b)(3)(B), could
result in a locked or crossed SNAP CHX book (e.g., the SNAP Price did
not meet the SNAP minimum execution size condition). Thus, in such a
case, the Exchange proposes to handle order cancellations pursuant to
proposed subparagraph (A)(ii), as discussed above.
---------------------------------------------------------------------------

    \86\ See paragraph .02 of CHX Article 20, Rule 1.
---------------------------------------------------------------------------

    Proposed subparagraph (C) provides that any subsequent material
halt or pause shall be handled pursuant to the relevant CHX Rules.\87\
---------------------------------------------------------------------------

    \87\ See supra note 80.
---------------------------------------------------------------------------

    Proposed paragraph (c)(2) (SNAP AOOs) provides an exception for
SNAP AOOs from the order cancellation requirements of proposed
paragraph (c)(1). It provides that upon initiation of a material halt
or pause, all SNAP AOOs not marked Cancel On Halt or otherwise
cancelled by the order sender that are -1- on the SNAP AOO Queue or -2-
resting on the SNAP CHX book and may be re-queued on the SNAP AOO
Queue,\88\ shall remain or be re-queued on the SNAP AOO Queue, as
applicable, and not cancelled.
---------------------------------------------------------------------------

    \88\ See proposed CHX Article 1, Rule 2(h)(3)(A) and (B).
---------------------------------------------------------------------------

    Proposed paragraph (c)(3) (FIFO Queue) provides that upon the
initiation of a material halt or pause, the FIFO Queue shall be
processed until exhausted. The FIFO Queue must be processed because
messages on the FIFO Queue are not considered to have been received by
the Matching System

until they are sent to the Matching System. Thus, the FIFO Queue
messages will be handled as incoming messages and processed pursuant to
proposed paragraphs (c)(4) and (c)(5).
    Proposed paragraph (c)(4) (Incoming orders) provides that upon
initiation of a material halt or pause and for the remainder of the
material halt or pause, all incoming orders shall be rejected;
provided, however, that incoming SNAP AOOs shall be placed on the SNAP
AOO Queue, if the material halt or pause is not the result of a systems
issue at the Exchange. That is, if the material halt or pause is the
result of a systems issue at the Exchange, all incoming orders shall be
rejected, without exception.
    Proposed paragraph (c)(5) (Incoming cancel messages) provides that
incoming cancel messages and the cancel component of cancel/replace
messages shall be immediately processed during a material halt or
pause. The replace component of a cancel/replace message, which is a
new incoming order, would be ignored, pursuant to proposed paragraph
(c)(4).
    In light of the proposed paragraph (c), the Exchange proposes to
amend paragraph .02 of Article 20, Rule 1 and Article 20, Rule 2A(c)(3)
to provide that the actions described thereunder are subject to
proposed Article 18, Rule 1(c), as the current rules do not contemplate
special treatment for SNAP AOOs or the SNAP AOO Queue. The Exchange
also proposes to clarify that the provisions of paragraph .02 of
Article 20, Rule 1 only apply to halts or pauses, ``which requires the
Exchange to suspend trading in the issue, other than a LULD Trading
Pause.'' \89\
---------------------------------------------------------------------------

    \89\ See supra note 78.
---------------------------------------------------------------------------

    Example 5 illustrates how a trading halt or pause may abort a SNAP
Cycle in progress.
SECTION SIX: Examples
    The following Examples are illustrative of the SNAP Cycle, but do
not exhaustively depict every possible scenario during a SNAP Cycle.
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 the NBBO for security XYZ
is $10.00 x $10.01 and the short sale price test restriction is in
effect. Assume that the CHX book is empty. Assume also that the
Protected Quotations of external markets in security XYZ is as follows:
     Protected Bid A at Exchange 1 displaying 500 shares at
$10.00.
     Protected Offer A at Exchange 2 displaying 500 shares at
$10.01.
     Protected Offer B at Exchange 3 displaying 500 shares at
$10.02.
    Assume then that the Exchange receives orders in security XYZ at
10:59 a.m. during the Open Trading State in the following sequence:
     Buy Order A for 5000 shares priced at $10.00/share marked
Reserve Size, with 1000 displayed and 4000 reserved.
     Buy Order B for 100 shares priced at $10.04/share marked
CHX Only,\90\ price slid to a Working Price of $10.01 and displayed at
$10.00.
---------------------------------------------------------------------------

    \90\ See CHX Article 1, Rule 2(b)(3)(C).
---------------------------------------------------------------------------

     Buy Order C for 100 shares priced at $9.99/share marked
Cancel On SNAP.
     Sell Order A for 200 shares priced at $10.03/share.
     Sell Order B for 3,000 shares priced at $10.00/share
marked SNAP AOO-Day and SNAP AOO-Pegged-Midpoint.
    Under this Example 1, Buy Orders A through C and Sell Order A would
be immediately posted to the CHX book and ranked in the CHX book
pursuant to proposed Article 20, Rule 8(b)(1)(A)-(C) (i.e., current
Article 20, Rule 8(b)(1)-(3)). However, Sell Order B would be placed in
the SNAP AOO Queue, pursuant to proposed Article 20, Rule 8(b)(2)(A),
and not immediately ranked, as SNAP AOOs are never active during the
Open Trading State.
    Example 2: Initiating the SNAP Cycle. Assume the same as Example 1.
Assume that at 11:00 a.m., the Matching System receives the following
order:
     Buy Order D for 25,000 shares of security XYZ priced at
$10.02/share marked Start SNAP with a minimum SNAP execution size
condition noted.
    Assume also that the CHX Routing Services are available and
operational. Under this Example 2, Buy Order D would initiate a SNAP
Cycle in security XYZ because Buy Order D meets the size, price, time
and routing availability requirements of proposed Article 1, Rule
2(h)(1)(A). Thus, the Matching System would validate Buy Order D. The
Exchange would then take the actions as described under proposed
Article 18, Rule 1(b)(1).
    The Matching System would then begin the stage two SNAP Order
Acceptance Period, pursuant to Article 18, Rule 1(b)(2), as follows:
     All order modifiers listed under proposed subparagraph (D)
would be deactivated.
     Buy Order A would be ranked on the SNAP CHX book. The 1000
displayed shares would be ranked at each price point up to its limit
price of $10.00, pursuant to proposed Article 20, Rule 8(b)(3)(A),
while the remaining undisplayed 4000 reserved shares would be ranked at
each price point up to its limit price of $10.00, pursuant to proposed
Article 20, Rule 8(b)(3)(B).
     Buy Order B would be ranked on the SNAP CHX book at each
price point up to its limit price of $10.04, pursuant to proposed
Article 20, Rule 8(b)(3)(A). In doing so, Buy Order B would be unslid
from its previous Working Price of $10.00 because the CHX Only modifier
would be deactivated prior to the order being ranked on the SNAP CHX
book.
     Buy Order C would be cancelled because it is ineligible
for SNAP.
     Sell Order A would be ranked on the SNAP CHX book at each
price point down to its limit price of $10.03, pursuant to proposed
Article 20, Rule 8(b)(3)(A).
     Sell Order B would remain on the SNAP AOO Queue, as SNAP
AOOs marked SNAP AOO-Pegged are only ranked on the SNAP CHX book during
the stage three Pricing and Satisfaction Period, pursuant to proposed
Article 18, Rule 1(b)(3)(A).
     Buy Order D would be ranked on the SNAP CHX book at each
price point up to its limit price of $10.02, pursuant to proposed
Article 20, Rule 8(b)(3)(D).
    Thus, the SNAP CHX book for security XYZ is now as follows:

                                                                       SNAP CHX Book and Away Protected Quotes--Example 2
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Buy orders                                                                                Sell orders
--------------------------------------------------------------------------------------------------------------------             ---------------------------------------------------------------
                                                                                Total buy size                 Total sell      Total sell
                                                                      Total CHX buy  Total buy size   at and better  Price point    size at and     size better   Total CHX sell    Total away
                 Total away buy size at price point                   size at price    better than     than price                   better than     than price     size at price   sell size at
                                                                          point        price point        point                     price point        point           point        price point
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0..................................................................               0               0               0        10.05           1,200           1,200               0               0

0..................................................................             100               0             100        10.04           1,200           1,200               0               0
0..................................................................               0             100             100        10.03           1,200           1,000             200               0
0..................................................................          25,000             100          25,100        10.02           1,000             500               0             500
0..................................................................               0          25,100          25,100        10.01             500               0               0             500
500................................................................           5,000          25,100          30,600        10.00               0               0               0               0
0..................................................................               0          30,600          30,600         9.99               0               0               0               0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Example 3: SNAP Order Acceptance Period. Assume the same as Example
2 and the eligible same day last sale in security XYZ was priced at
$10.01. Assume then that during the SNAP Order Acceptance Period, the
Exchange receives the following orders in security XYZ:
     Buy Order E for 5,000 shares of security XYZ priced at
$10.03/share marked SNAP AOO-Day.
     Sell Order C for 25,000 shares of security XYZ at $10.00/
share marked Start SNAP.
     Sell Order D for 100 shares of security XYZ at market.
     Sell Order E for 100 shares of security XYZ priced at
$10.00/share marked Sell Short and Do Not Display.
     Buy Order F for 2,500 shares of security XYZ marked SNAP
AOO--One And Done and SNAP AOO--Pegged--Market (+ three minimum price
increments more aggressive).
    The Exchange would handle the orders as follows:
     Buy Order E would be ranked on the SNAP CHX book at each
price point up to its limit price of $10.03, pursuant to Article 20,
Rule 8(b)(3)(E).
     Sell Order C would not trigger a SNAP Cycle because it was
received during an ongoing SNAP Cycle, pursuant to proposed Article 1,
Rule 2(h)(1)(A)(iii). However, Sell Order C would nevertheless join the
SNAP Cycle in progress, pursuant to proposed Article 1, Rule
2(h)(1)(C), because it meets the minimum size requirement for SNAP
AOOs, pursuant to proposed Article 1, Rule 2(h)(3). Thus, Sell Order C
would be handled as SNAP AOO--One And Done and would be ranked on the
SNAP CHX book at each price point down to its limit price of $10.00.
     Sell Order D would be immediately cancelled by the
Matching System because it is a market order and, thus, not a SNAP
Eligible Order.
     Sell Order E would be ranked on the SNAP CHX book,
pursuant to Article 20, Rule 8(b)(3)(E), at each price point down to
its Working Price of $10.01 and not its limit price of $10.00, pursuant
to proposed Article 20, Rule 8(d)(4)(B)(i), because it is a Sell Short
order priced at the NBB during a short sale price test restriction in a
covered security. This would be achieved by repricing Sell Order E from
$10.00 to $10.01.
     Buy Order F would be placed on the SNAP AOO Queue,
pursuant to proposed Article 20, Rule 8(b)(2)(A), as SNAP AOOs marked
SNAP AOO--Pegged are only ranked on the SNAP CHX book during the stage
three Pricing and Satisfaction Period, pursuant to proposed Article 18,
Rule 1(b)(3)(A).
    Thus, the SNAP AOO Queue for security XYZ is as follows:

------------------------------------------------------------------------

------------------------------------------------------------------------
SNAP AOO QUEUE--Example 3...............................................
------------------------------------------------------------------------
1.........................................  Sell Order B.
2.........................................  Buy Order F.
------------------------------------------------------------------------

    Example 4: FIFO Queue. Assume the same as Example 3. Assume then
that during the SNAP Order Acceptance Period, the Exchange receives the
following messages in order:
     Cancel Buy Order B.
     Cross Order A for 100,000 shares of security XYZ priced at
$10.01/share.
    Under this Example 4, the Exchange will place Cancel Buy Order B
and Cross Order A in the FIFO Queue, pursuant to proposed Article 18,
Rule 1(b)(2)(C), in the order in which they were received.
    Thus, the FIFO Queue for security XYZ is as follows:

------------------------------------------------------------------------

------------------------------------------------------------------------
FIFO QUEUE--Example 4...................................................
------------------------------------------------------------------------
1.........................................  Cancel Buy Order B.
2.........................................  Cross Order A.
------------------------------------------------------------------------

    Example 5: SNAP AOO Queue Processing. Assume the same as Example 4
and that the SNAP Order Acceptance Period ends without any additional
orders received. Assume also that the market snapshot taken of security
XYZ, pursuant to proposed Article 18, Rule 1(b)(2)(E), remains
unchanged from Example 1.
    Assuming that the market snapshot does not indicate that a material
halt or pause has been issued in the security and that the CHX Routing
Services are available, the SNAP Cycle would continue to the stage
three Pricing and Satisfaction Period.
    Thus, pursuant to proposed Article 18, Rule 1(b)(3)(A), the
Matching System would utilize that single market snapshot and process
the SNAP AOO Queue and rank such orders on the SNAP CHX book as
follows:
     Sell Order B would be processed first and since Sell Order
B is marked SNAP AOO--Midpoint, the Matching System will utilize the
latest market snapshot to determine the NBBO midpoint price of $10.005.
Since $10.005 is less aggressive than the stated limit price of Sell
Order B of $10.00, pursuant to proposed Article 1, Rule 2(h)(3)(C), the
Matching System will rank all 3,000 shares of Sell Order B at each
price point down to $10.005.
     Buy Order F would then be processed and since Buy Order F
is marked SNAP AOO--Market (+ three minimum price increments more
aggressive) and does not have an optional limit price noted, the
Matching System will rank all 2,500 shares of Buy Order F at each price
point up to three minimum price increments more aggressive than the
NBO, which is $10.04.
    Thus, the SNAP CHX book for security XYZ is now as follows:

                                                                       SNAP CHX Book and Away Protected Quotes--Example 5
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Buy orders                                                                                Sell orders
--------------------------------------------------------------------------------------------------------------------             ---------------------------------------------------------------
                                                                                Total buy size                 Total sell      Total sell
                                                                      Total CHX buy  Total buy size   at and better  Price point    size at and     size better   Total CHX sell    Total away
                 Total away buy size at price point                   size at price    better than     than price                   better than     than price     size at price   sell size at
                                                                          point        price point        point                     price point        point           point        price point
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0..................................................................               0               0               0        10.05          29,300          29,300               0               0
0..................................................................           2,600               0           2,600        10.04          29,300          29,300               0               0
0..................................................................           5,000           2,600           7,600        10.03          29,300          29,100             200               0
0..................................................................          25,000           7,600          32,600        10.02          29,100          28,600               0             500
0..................................................................               0          32,600          32,600        10.01          28,600          28,000             100             500
0..................................................................               0          32,600          32,600       10.005          28,000          25,000           3,000               0
500................................................................           5,000          32,600          38,100        10.00          25,000               0          25,000               0
0..................................................................               0          38,100          38,100         9.99               0               0               0               0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    If, however, the market snapshot indicated that a relevant trading
halt or pause was issued in the subject security, the SNAP Cycle would
not continue to the stage three Pricing and Satisfaction Period and the
SNAP would be unwound pursuant to proposed Article 18, Rule 1(c).
Similarly, if the CHX Routing Services were not available at the
conclusion of the stage two SNAP Order Acceptance Period, the SNAP
Cycle would immediately proceed to the stage five Transition to the
Open Trading State.
    Example 6: SNAP Price and Minimum Size Condition. Assume the same
as Example 5. The Matching System will now attempt to establish the
SNAP Price, pursuant to proposed Article 18, Rule 1(b)(3)(B). Pursuant
to proposed 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. The size requirement is inclusive
of all executions that may result during the SNAP Cycle, which would
include executions within and without the Matching System.
    Under this Example 6, the SNAP Price is determined by ascertaining
the price point with the greatest number of shares that may be
executed. Pursuant to the Example 5 chart, that price point would be
$10.02, with 29,100 executable shares (i.e., 1,000 executable shares
away and 28,100 executable shares within the Matching System).
    The next step would be to ensure that no orders priced more
aggressively than $10.02 on the SNAP CHX book would be traded-through
by verifying that -1- the total buy size at and better than $10.02,
minus away size, is equal to or greater than the total sell size better
than $10.02 (i.e., 32,600 >= 28,600) and -2- the total sell size at and
better than $10.02, minus away size, is equal to or greater than the
total buy size better than $10.02 (i.e., 28,100 >= 7,600). Thus, the
total executable size within the Matching System on one side of the
market will cover all orders that must be executed within the Matching
System on the other side of the market to avoid an impermissible trade-
through of the CHX book and Protected Quotations of external markets.
This requirement is satisfied at $10.02. Since Buy Order D noted a
minimum SNAP execution size condition, the SNAP Price will only be
$10.02, if the size requirement, as described under proposed Article 1,
Rule 2(h)(1)(B), is met.
    Under this Example 6, the sum of the minimum number of shares that
could be executed within the Matching System (i.e., 28,100), plus all
shares that are to be routed away (i.e., 1,000 shares), equals 29,100
shares, which is greater than the minimum size requirement that was
necessary to trigger the instant SNAP Cycle (i.e., 25,000 shares).
Thus, the minimum size condition is met and the SNAP Price will be
$10.02.
    Example 7: Satisfaction Period. Assume the same as Example 6. Since
execution at the SNAP Price of $10.02 would result in one or more
orders, or portions thereof, to be routed away (i.e., to satisfy
Protected Offers A and B), the SNAP Cycle will enter the Satisfaction
Period prior to matching orders within the Matching System at the SNAP
Price.
    Pursuant to proposed Article 18, Rule 1(b)(3)(C), orders to be
routed away would be selected based on their execution priority, in a
manner consistent with proposed Article 19, Rule 3(a)(4). After routing
orders away, the Matching System will delay executing the 28,100 shares
within the Matching System for 200 milliseconds or until all
confirmations are received from away markets, whichever is sooner.
    Under this Example 7, execution priority on the buy side is as
follows:
     Buy Order B for 100 shares, with a Working Price of
$10.04.
     Buy Order F for 2,500 shares, with a Working Price of
$10.04.
     Buy Order E for 5,000 shares with a Working Price of
$10.03.
     Buy Order D for 25,000 shares, with a Working Price of
$10.02. Whereas, execution priority on the sell side is as follows:
     Sell Order C for 25,000 shares, with a Working Price of
$10.00.
     Sell Order B for 3,000 shares, with a Working Price of
$10.005.
     Sell Order E for 100 shares, with a Working Price of
$10.01.
    Pursuant to proposed Article 19, Rule 3(a)(4), the Exchange's
routing systems would route away one corresponding routing buy order
for 500 shares of security XYZ priced at $10.02/share to execute
against the 500 displayed shares of Protected Offer A at $10.01,
representing 100 shares of Buy Order B and 400 shares of Buy Order F
(``Routed Order A''). In addition, pursuant to proposed Article 19,
Rule 3(a)(5), the Exchange's routing systems would route away one
corresponding routing buy order for 500 shares of security XYZ priced
at $10.02/share to execute against the 500 displayed shares of
Protected Offer B at $10.02, representing the next 500 shares of Buy
Order F (``Routed Order B''). During the Satisfaction Period, the
routed portions of Buy Orders B and F will enter a pending state on the
Exchange's routing systems. The routed portions of Buy Orders B and F
will be released as either executed or cancelled, depending on the
confirmation returned from the away market.
    Assume then that within the Satisfaction Period, the Matching
System receives an order execution confirmation for Routed Order A and
a cancellation confirmation for Routed Order B. In this case, -1- all
100 shares of Buy Order B and -2- 400 shares of Buy Order F represented
by Routed

Order A would be released as executed. However, the 500 shares of Buy
Order F represented by Routed Order B would be released as unexecuted
and would join the existing balance of Buy Order F at its original rank
on the SNAP CHX book.
    Example 8: SNAP Eligible Order received after SNAP Order Acceptance
Period. Assume the same as Example 7 and that during the Satisfaction
Period, the Exchange receives the following orders:
     Buy Order G for 100 shares of security XYZ priced at
$10.03/share.
     Sell Order F for 100 shares of security XYZ priced at
$10.02/share marked Post Only.
     Buy Order H for 5,000 shares of security XYZ priced at
$10.02/share marked SNAP AOO--One And Done.
     Buy Order I for 100 shares of security XYZ priced at
$10.03/share.
     Buy Order J for 100 shares of security XYZ priced at
$10.02/share marked IOC. Pursuant to proposed Article 18, Rule
1(b)(2)(B)(i), incoming SNAP Eligible Orders that are received after
the SNAP Order Acceptance Period, but during a SNAP Cycle, will be
placed in the FIFO Queue, pursuant to proposed subparagraph (C).
Pursuant to proposed Article 18, Rule 1(b)(2)(B)(ii), incoming non-SNAP
Eligible Orders will be immediately cancelled.
    Since Buy Orders G--I and Sell Order F are SNAP Eligible Orders,
they will all be placed in the FIFO Queue, which is now as follows:

------------------------------------------------------------------------

------------------------------------------------------------------------
FIFO QUEUE--Example 8...................................................
------------------------------------------------------------------------
1.........................................  Cancel Buy Order B.
2.........................................  Cross Order A.
3.........................................  Buy Order G.
4.........................................  Sell Order F.
5.........................................  Buy Order H.
6.........................................  Buy Order I.
------------------------------------------------------------------------

    Buy Order J will be immediately cancelled because it is non-SNAP
Eligible Order by virtue of its IOC designation.
    Example 9: Order Matching. Assume the same as Example 8.
    Upon conclusion of the Satisfaction Period, the SNAP Cycle would
continue to the stage four Order Matching Period and execute 28,100
shares within the Matching System at the SNAP Price of $10.02, in the
following priority, pursuant to proposed Article 18, Rule 1(b)(4)(A):
    Under this Example 9, execution priority on the buy side is as
follows:
     Buy Order F for the remaining 2,100 shares.
     Buy Order E for all 5,000 shares.
     Buy Order D for 21,000 shares, with 4,000 shares remaining
unexecuted.\91\
---------------------------------------------------------------------------

    \91\ Note that while the minimum execution size condition of
25,000 shares was met, Buy Order D received an execution size less
than the minimum. This may result if there are orders on the SNAP
CHX book, on the same side of the market as a Start SNAP order, that
have more aggressive Working Prices.
---------------------------------------------------------------------------

    Whereas, execution priority on the sell side is as follows:
     Sell Order C for 25,000 shares.
     Sell Order B for 3,000 shares.
     Sell Order E for 100 shares.
    These orders are matched by the Matching System and each trade is
reported first to the appropriate SIP and then to the parties of each
side of the trade as follows:

----------------------------------------------------------------------------------------------------------------
                                                                                Number of
                   Buy order                               Sell order                 shares        Trade price
----------------------------------------------------------------------------------------------------------------
F.............................................  C...............................           2,100           10.02
E.............................................  C...............................           5,000           10.02
D.............................................  C...............................          17,900           10.02
D.............................................  E...............................             100           10.02
D.............................................  B...............................           3,000           10.02
----------------------------------------------------------------------------------------------------------------

    Thus, the SNAP CHX book after execution at the SNAP Price would be
as follows:

                                                                       SNAP CHX Book and Away Protected Quotes--Example 9
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Buy Orders                                                                                Sell Orders
--------------------------------------------------------------------------------------------------------------------             ---------------------------------------------------------------
                                                                                Total buy size                 Total sell      Total sell
                                                                      Total CHX buy  Total buy size   at and better  Price point    size at and     size better   Total CHX sell    Total away
                 Total away buy size at price point                   size at price    better than     than price                   better than     than price     size at price   sell size at
                                                                          point        price point        point                     price point        point           point        price point
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0..................................................................               0               0               0        10.05             200             200               0               0
0..................................................................               0               0               0        10.04             200             200               0               0
0..................................................................               0               0               0        10.03             200               0             200               0
                                                                                (A)
0..................................................................       4,000 (D)               0           4,000        10.02               0               0               0               0
0..................................................................               0           4,000           4,000        10.01               0               0               0               0
0..................................................................               0           4,000           4,000       10.005               0               0               0               0
0..................................................................       5,000 (A)           4,000           9,000        10.00               0               0               0               0
0..................................................................               0           9,000           9,000         9.99               0               0               0               0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    The only remaining orders are the unexecuted balance of Buy Order
D, Buy Order A and Sell Order A.
    Example 10: Transition to Open Trading State. Assume the same as
Example 9. Assume also that after executing the orders within the
Matching System at the SNAP Price, the Matching System takes another
market snapshot of security XYZ, pursuant to proposed Article 18, Rule
1(b)(4)(B),

which shows that the NBBO for security XYZ is now $10.02 x. $10.03.
Assume also that the Protected Quotations of away markets in security
XYZ is as follows:
     Protected Bid B on Exchange 4 displaying 100 shares at
$10.02.