[Federal Register: January 4, 2008 (Volume 73, Number 3)]
[Notices]
[Page 903-909]
[DOCID:fr04ja08-58]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57058; File No. SR-NYSE-2007-102]

Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Approving Proposed Rule Change, as Modified by Amendment No. 1 Thereto,
Relating to NYSE Rule 1500 (NYSE MatchPoint \SM\)

December 28, 2007.

I. Introduction

    On November 8, 2007, the New York Stock Exchange LLC (``NYSE'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
adopt NYSE Rule 1500 to establish NYSE MatchPoint \SM\
(``MatchPoint''), an electronic facility that matches aggregated orders
at predetermined, one-minute sessions

throughout regular hours and after hours of the Exchange. The proposed
rule change was published for comment in the Federal Register on
November 23, 2007.\3\ On December 27, 2007, NYSE filed Amendment No. 1
to the proposed rule change.\4\ The Commission received no comment
letters on the proposed rule change. This order approves the proposed
rule change, as modified by Amendment No. 1 thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 56798 (November 15,
2007), 72 FR 65787 (``Notice'').
    \4\ In Amendment No. 1, NYSE proposed technical and clarifying
amendments to the proposed rule change. In Amendment No. 1, NYSE
proposes to: (1) Clarify that allocation of orders in the MatchPoint
system may, during regular trading hours of the Exchange, occur some
seconds before or after the end of the one-minute matching session;
(2) clarify which securities may be traded on the MatchPoint system
and that MatchPoint will not trade securities that are not listed on
any securities exchange; (3) clarify that for purposes of the
MatchPoint system the ``primary market'' is the listing market and
if a security is dually listed, the ``primary market'' will be the
market in which the particular security is trading the greatest
volume of shares; (4) clarify that partial round lots (i.e., ``mixed
lots'') may be entered into MatchPoint as single orders or as part
of a portfolio, but the odd lot portion of the order will not be
executed; (5) clarify that the NYSE is requesting that the
Commission concur with the NYSE's interpretation that MatchPoint
orders entered from off the Floor of the Exchange comply with the
provisions of Rule 11a2-2(T) of the Act; (6) represent that
participation in MatchPoint would be voluntary and open to all
eligible NYSE market participants and would not result in any
advantage to market participants that participate in matching
sessions over those that do not participate; and (7) make conforming
technical and clarifying changes to the proposed rule text. Because
Amendment No. 1 is technical in nature, the Commission is not
publishing it for comment.
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II. Description of the Proposal

    NYSE proposes to adopt NYSE Rule 1500 to establish NYSE MatchPoint,
an electronic facility that matches aggregated orders at seven
predetermined, one-minute matching sessions during regular trading
hours and one matching session during the after hours of the
Exchange.\5\ MatchPoint will trade securities listed on NYSE as well as
securities listed on other exchanges and admitted to unlisted trading
privileges (``UTP'') on NYSE.\6\ MatchPoint is an anonymous trading
platform and no order information will be displayed and clearance and
settlement of executions will be anonymous. Trade reports will be
disseminated after each matching session.
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    \5\ MatchPoint matching sessions will occur during the Exchange
trading hours at 9:45 a.m., 10 a.m., 11 a.m., 12 p.m., 1 p.m., 2
p.m. and 3 p.m. A MatchPoint after hours matching session will occur
at 4:45 p.m. See proposed Rule 1500(a)(1). NYSE will need to file a
proposed rule change with the Commission if it plans to alter the
times of the MatchPoint matching sessions and/or add or eliminate
matching sessions.
    \6\ See proposed Rule 1500(b)(2)(E). Securities admitted to
unlisted trading privileges could be listed on NYSE Arca, Inc.
(``NYSE Arca''), the NASDAQ Stock Market, Inc. (``Nasdaq''), the
American Stock Exchange (``Amex''), or other stock exchanges.
MatchPoint will not trade securities that are not listed on any
securities exchange.
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A. Participation Eligibility

    All NYSE members, member organizations and sponsored participants
of sponsoring member organizations are automatically eligible for
access to MatchPoint.\7\ Before access is granted to MatchPoint users,
all users must go through a connectivity authorization process.\8\
Specialists on the floor of the Exchange are not authorized to access
MatchPoint.\9\ The off-floor operations of specialist firms may obtain
authorized access to MatchPoint provided they have policies and
procedures and barriers in place that preclude improper information
sharing between the specialist firm and the firm's specialist on the
floor of the Exchange.\10\
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    \7\ In Amendment No. 1, NYSE represented that participation in
MatchPoint will be voluntary and open to all eligible NYSE market
participants, and will not result in any advantage to market
participants that participate in matching sessions over those market
participants that do not participate.
    \8\ MatchPoint can only be accessed through an electronic
Financial Information exchange (``FIX'') application and/or an
internet based password-protected order entry application. Users
must fill out an application for connectivity through either of
these two electronic connectivity capabilities. Once granted
connectivity through the authorization process, eligible users may
access MatchPoint. 8
    \9\ See proposed Rule 1500(g)(4)(A).
    \10\ The Exchange stated that, currently, all specialist
organizations on the Exchange utilize information barrier procedures
pursuant to NYSE Rule 98 (Restrictions on Approved Person Associated
with a Specialist's Member Organization). The Exchange has
represented that the information barrier procedures that would be
utilized to block access by a specialist to any MatchPoint trading
information generated by the off-floor personnel of the specialist
organization would be similar in design and utilization.
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    Members who have authorized access to MatchPoint are not permitted
to enter orders into the MatchPoint system from the floor of the
Exchange when such orders are for their own accounts, the accounts of
associated persons, or accounts over which it or an associated person
exercises investment discretion.\11\ Similarly, members on the floor
may not have such orders entered into MatchPoint by sending them to an
off-floor facility for entry. Members with authorized access to
MatchPoint may only enter customer orders into MatchPoint from the
floor of the Exchange. Members that have authorized access to
MatchPoint may enter proprietary and customer orders into MatchPoint
from off the floor of the Exchange.\12\
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    \11\ See proposed Rule 1500(g)(4)(B).
    \12\ Id.
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B. MatchPoint Order Parameters

    MatchPoint participants (``users'') transmit their market and limit
orders, which are undisplayed, by means of an electronic interface.
MatchPoint users may enter, correct or cancel orders beginning at 3:30
a.m. until 4:45 p.m.\13\ The MatchPoint system will not accept any
orders before 3:30 a.m. or after 4:45 p.m. MatchPoint will accept and
execute single orders and NYSE MatchPoint Portfolios (``portfolios'').
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    \13\ See proposed Rule 1500(d)(1).
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    MatchPoint orders must be designated for only one of the matching
sessions during regular hours of the Exchange or for the single after
hours matching session.\14\ A user must designate an order for only one
matching session at a time. All MatchPoint orders, single and
portfolio, must have the following parameters: (1) List name;\15\ (2)
matching session (if a user fails to designate a specific matching
session, the system will provide a default function and direct the
order to the next eligible matching session); (3) side of the market
(i.e., buy, sell or short side); (4) symbol; and (5) minimum and
maximum amount of shares available for execution.\16\ Additionally, a
user may include an optional constraint (i.e., net cash and internal
match constraints) for a MatchPoint order.\17\ Orders may be either
market or limit orders and must have a minimum size of one round lot.
MatchPoint will permit odd lot and partial round lot orders to be
entered into the system; however, odd lot orders and the odd lot
portion of partial round lot orders will not be executed.\18\
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    \14\ If a MatchPoint order does not execute in the designated
matching session, it will be cancelled back to the user immediately
upon completion of the matching session. If a user fails to
designate a particular matching session for a MatchPoint order, the
order, by default, will be available for execution in the next
scheduled matching session. If an undesignated order does not
execute in the next scheduled regular hours matching session it will
be cancelled back to the user immediately upon completion of such
matching session. If a user fails to designate an order and enters
the order after 3 p.m., which is the last regular hours matching
session, the order will participate in the after hours matching
session at 4:45 p.m. If the order does not execute in the after
hours matching session it will be cancelled back to the user
immediately upon completion of the after hours matching session.
    \15\ A portfolio must have a unique portfolio name that is
distinct from the names of other portfolios of the same user.
    \16\ See proposed Rule 1500(d)(2)(A).
    \17\ Id.
    \18\ See proposed Rule 1500(d)(2)(C).
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    Orders may not be cancelled or replaced while a matching session is
in progress or when trading in the

applicable security is halted in the MatchPoint system.\19\ MatchPoint
orders will not be available for execution until the next eligible
matching session. All orders must be available for automatic execution.
MatchPoint has no order delivery capability and will not route to other
market centers. Users, however, would be able to enter eligible orders
into MatchPoint through a FIX \20\ application and/or an Internet based
order entry system provided the orders are available for automatic
execution. The Exchange stated that MatchPoint orders will not trade-
through a protected bid or protected offer as defined in Regulation
NMS.\21\
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    \19\ See proposed Rule 1500(d)(2).
    \20\ FIX Protocol is a messaging standard developed specifically
for the real-time electronic exchange of securities transactions.
    \21\ See 17 CFR 242.600(b)(57).
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C. MatchPoint Order Allocation

    MatchPoint matching sessions occur through an automated matching
mechanism. During the matching sessions, the MatchPoint Reference Price
(``Reference Price'') \22\ is determined and eligible orders are
executed at the designated hour at the randomly selected time during
the predetermined one-minute trading session.\23\ The matching and
execution of orders occurs immediately after the algorithm selects a
Reference Price.\24\ If an order is not executed in a particular
matching session it will be immediately cancelled back to the user upon
completion of the matching session. The user may resubmit the order in
any one of the subsequent matching sessions.
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    \22\ The Reference Price is the single trading price at which
MatchPoint orders will execute during a predetermined one-minute
``matching session.'' During the regular hours of the Exchange, the
Reference Price will be the midpoint of the national best bid and
national best offer (``NBBO'') which is randomly selected during a
predetermined one-minute pricing period. See proposed Rule
1500(b)(2)(I). For the after hours MatchPoint matching session, the
Reference Price will be the official closing price of the primary
market (i.e., the listing market) for securities listed on the NYSE,
NYSE Arca, Amex, Nasdaq, and regional stock exchanges. If, however,
there is no official closing price for a particular security, the
Reference Price will be the last sale price of the primary market
for a particular security. See proposed Rule 1500(c)(1)(A) and
(c)(2)(A).
    \23\ See proposed Rule 1500(c)(1)(A).
    \24\ During the Exchange's regular trading hours, the allocation
of orders in the matching sessions may occur some seconds after the
end of the one-minute matching session, depending on when within the
one-minute pricing window the MatchPoint algorithm randomly selects
the Reference Price. For example, if the algorithm selects the
Reference Price (i.e., the midpoint of the NBBO) early in the one-
minute pricing window, the algorithm has sufficient time to allocate
all of the orders before the end of the one-minute matching session.
If the algorithm selects the Reference Price late in the one-minute
pricing window, the one-minute matching session may be extended a
few seconds to allow the algorithm to allocate all MatchPoint
orders. In any case, execution takes place immediately after the
Reference Price is randomly selected, and all orders are executed at
the same Reference Price in a given matching session.
    During the after hours matching session, the Reference Price is
the official closing price or the last sale price of a particular
security. Because this price is static, there is no need to randomly
select a time during the one-minute pricing window to determine the
Reference Price. Therefore, the allocation of orders in the after
hours matching session will always be completed within the one-
minute matching session.
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    MatchPoint orders will be allocated on a pro rata basis.\25\ Shares
will be allocated pro rata in round lots (rounded down to the nearest
100 shares) to eligible orders based on the original size of the
order.\26\ In this process MatchPoint will honor all user-directed
constraints. If the allocation to an eligible order is less than the
minimum acceptable execution quantity for that order, the order will
not be eligible for execution in that matching session. If additional
shares remain after the initial pro rata allocation, those shares will
continue to be allocated pro rata to eligible orders. If additional
shares remain thereafter that are the same size or are unexecuted
because of rounding or minimum trade size constraints, the remaining
shares will be allocated in 100 share lots to the oldest eligible
orders.\27\
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    \25\ See proposed Rule 1500(d)(3).
    \26\ MatchPoint will execute orders only in round lots. The
MatchPoint system will accept odd lot orders but not execute them.
Similarly, orders containing partial round lots (i.e., ``mixed
lots'') may be entered into MatchPoint but the odd lot portion of
the order will not be executed. The system will permit the entry of
odd lot and partial round lot orders to accommodate portfolio
orders.
    \27\ For an example of how MatchPoint allocates shares on a pro
rata basis, see Notice, supra note 3, at 65790.
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1. Portfolio Trading
    A MatchPoint user may submit NYSE MatchPoint Portfolios into the
MatchPoint system for execution.\28\ An NYSE MatchPoint Portfolio is a
group of linked orders with user-directed parameters and a unique,
user-defined portfolio name.\29\ The portfolio orders may represent
separate and distinct broker-dealer-customer orders and separate and
distinct proprietary broker-dealer orders. A user may enter one
portfolio of buy and sell/short orders or many portfolios of buy and
sell/short orders.
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    \28\ See proposed Rule 1500(d)(2)(D).
    \29\ See proposed Rule 1500(b)(2)(g).
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2. Internal Match Constraints
    MatchPoint portfolio users may effectuate internal matches and
simultaneously match residual shares against orders from other users
within a single matching session when using an optional internal match
constraint. This type of constraint enables the user to execute trades
between the same user's portfolios first before trading with other
available orders in a particular matching session. If any residual
orders remain after an internal match occurs, the residual portfolios
will trade with all other orders. Single orders may be designated for
internal matches as well.
    Internal matches have priority over other executions. MatchPoint
will first process internal matches and then process all other orders
in the matching session. All user-directed constraints will be honored
in the internal match. An internal match constraint, like a MatchPoint
order, is active only for a single matching session. A user may
resubmit a new internal match constraint when resubmitting an order for
a different matching session.
    All orders that are designated with an internal match designation
and entered by the same user are eligible for matching with all such
orders. For example, single orders that have an internal match
designation are capable of matching with all other orders entered by
the same user that have an internal match designation. Portfolio orders
within a portfolio that are designated for internal matches are also
capable of matching with one another when entered by the same user.
Such orders are allocated on a pro rata basis.\30\
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    \30\ For an example of how an internal match is executed, see
Notice, supra note 3, at 65791.
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3. Net Cash Constraints
    MatchPoint portfolio users may utilize an optional ``net cash''
constraint.\31\ A user entering a single order may also place a net
cash constraint on that order. To execute a net cash constraint, a user
must enter a specific net buy dollar amount and a specific net sell
dollar amount for a portfolio. A net cash constraint is active only for
a single matching session. A user may resubmit a new net cash
constraint when resubmitting an order for a different matching session.
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    \31\ See proposed Rule 1500(b)(2)(C) and (d)(2)(D).
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    When calculating a customer's net cash constraint position, the
matching algorithm takes into account the eligible portfolio order
shares in a specific security, the Reference Price of the security and
the customer's net cash constraint. MatchPoint first processes the
stock with the largest orders in the largest portfolios. In order to
honor all cash constraints, the matching algorithm processes all single
and portfolio orders

in a particular security that have net cash constraints and calculates
share allocation by applying a percentage of the original order size to
contra side shares that are available to fill the order. The algorithm
takes this percentage calculation and multiplies it by the Reference
Price. This calculation is then compared to the order's net cash
constraint and determines if the allocation of the available contra
side shares will violate the order's net cash constraint. If the
calculation violates the net cash constraint, these shares will not be
allocated to the contra side order but may be allocated to other
eligible orders. This algorithmic process continues until all eligible
orders are executed.\32\ A net cash constraint placed on a portfolio
may affect the execution of other orders in the matching session by
generally allowing additional shares for such other orders to be
executed. In addition, net cash constraints will generally result in
fewer executions of a portfolio and may inhibit the maximum order
execution potential of a particular security in a particular matching
session.
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    \32\ For examples of (1) how portfolios, with and without a net
cash constraint, are executed in MatchPoint and (2) a chart
comparing the post match customer net cash position results (i.e.,
total dollars raised and total dollars spent), see Notice, supra
note 3, at 65791-92.
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4. Price Collar Threshold in the After Hours Matching Session
    In the after hours matching session, the Exchange will place
parameters called a ``Price Collar Threshold'' on the prices of all
MatchPoint eligible securities in order to dampen volatility and
provide accurate pricing for executions. A Price Collar Threshold is an
after hours market price beyond which a MatchPoint order will not be
executed.\33\ In a situation in which the market has moved
significantly from the official closing price of the primary market
based on information that becomes available after the market close, the
Exchange will cancel the after hours MatchPoint matching session rather
than execute the matching session at a price that no longer reflects
the market accurately. All unexecuted orders will be immediately
cancelled back to the user upon completion of the matching session. The
Price Collar Threshold will be set at two percent (2%) initially, and
may later be adjusted by the Exchange, up to a maximum of five percent
(5%) of the MatchPoint after hours Reference Price.\34\
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    \33\ See proposed Rule 1500(a)(2)(J) and (c)(2)(B).
    \34\ The Exchange has represented that it will inform its users
of any such adjustment via the NYSE MatchPoint Web site at http://www.nyse.com/MatchPoint
 and the Member Firm Notice, and will provide

notice of such adjustments to all users reasonably in advance of any
such adjustment. For an example of how the Price Collar Threshold is
calculated, see Notice, supra note 3, at 65793.
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5. Locked and Crossed Markets
    If the NBBO for a particular security is locked at the time of a
MatchPoint matching session during the regular trading hours of the
Exchange, the matching session will execute orders at the locked
price.\35\ Unexecuted MatchPoint orders in that security will be
cancelled back to the user immediately upon completion of the matching
session.
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    \35\ See proposed Rule 1500(c)(1)(B).
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    If the NBBO for a particular security is crossed at the time of a
MatchPoint matching session during the regular trading hours of the
Exchange, the matching session in that particular security will not
occur.\36\ Unexecuted MatchPoint orders in that security will be
cancelled back to the user immediately upon completion of the matching
session.
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    \36\ See proposed Rule 1500(c)(1)(C).
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D. Regulatory

1. Halting, Suspending and Closing of MatchPoint Trading on NYSE
    Trading on MatchPoint will be halted, suspended or closed \37\ when
necessary in order to maintain a fair and orderly market, and in
certain other conditions, as described below.\38\ If trading in a
particular security is halted, suspended or closed due to regulatory or
unusual market conditions at the time a matching session commences, the
matching session will not occur in that security and all unexecuted
orders will be immediately cancelled back to the user upon completion
of the matching session.
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    \37\ The use of the word ``close'' in the context of this rule
refers to the intentional closing of the market due to regulatory or
other unusual circumstances as described above, and does not refer
to the predetermined ``close'' or end of the regular trading day at
4 p.m.
    \38\ See proposed Rule 1500(f).
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    MatchPoint trading may be halted, suspended or closed when: (1) In
the exercise of its regulatory capacity, the Exchange determines such
action is necessary or appropriate to maintain a fair and orderly
market, to protect investors, or otherwise is in the public interest
due to extraordinary circumstances or unusual market conditions; (2) in
the case of a particular security whenever, for regulatory purposes,
trading in the related security has been halted, suspended or closed on
the Exchange or the primary listing exchange; (3) in the case of a
particular security trading on the Exchange pursuant to UTP, whenever,
for regulatory purposes, trading in that security has been halted,
suspended or closed on the primary listing exchange; (4) with respect
to a particular security trading on the Exchange pursuant to UTP, if
the authority under which a security trades on the Exchange or its
primary market is revoked (i.e., because it is delisted); or (5) in the
after hours matching session, news reports and/or corporate actions are
disclosed after the close of the regular hours of the market that have
a material impact on a particular security, which may include the
following situations: (a) New corporate earnings; (b) major market
index company deletions or additions; (c) corporate takeovers; (d)
other significant corporate actions; (e) court decisions and
injunctions; and (f) governmental announcements.\39\ No terms or
conditions specified in the proposed rule would be interpreted to be
inconsistent with any other rules of the Exchange.
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    \39\ Id.
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2. Clearance and Settlement of MatchPoint Executions
    Details of each MatchPoint trade will be automatically matched and
compared by the Exchange and will be submitted to a registered clearing
agency for clearing and settlement on a locked-in basis.\40\ All
executions effected by a member or member organization will be cleared
and settled using the member's and member organization's account, and
all executions effected by a sponsored participant will be cleared and
settled using the relevant sponsoring member organization's account.
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    \40\ See proposed Rule 1500(e)(1).
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    MatchPoint transaction reports will indicate the details of the
transaction but not to reveal contra party and clearing firm
identities, except under the following circumstances: (1) In the event
the NSCC \41\ ceases to act for a member or member organization, which
is the unidentified contra side of any such trade processing, and/or
the relevant clearing firm, the NYSE would have the responsibility to
identify to members or member organizations the trades included in
reports produced by the NSCC which are with the affected member or
member organization, and (2) for regulatory purposes or to comply with
an order of a court or arbitrator.\42\
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    \41\ Completed MatchPoint trades will be submitted for clearance
and settlement to National Securities Clearing Corporation
(``NSCC''), which is a subsidiary of the Depository Trust and
Clearing Corporation.
    \42\ See proposed Rule 1500(e)(2) and (e)(3).

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    The trade reports that the NSCC will receive from MatchPoint for
anonymous trades will contain the identities of the parties to the
trade. This measure will enable the NSCC to conduct its risk management
functions and settle anonymous trades. The trade report sent to the
NSCC will contain an indicator noting that the trade is anonymous. On
the contract sheets the NSCC issues to its participants, the NSCC will
substitute ``ANON'' for the acronym of the contra-party.
3. Dissemination of Trading Information
    The MatchPoint system will report trade information to the
Securities Information Processors for all MatchPoint eligible
securities. Trades will be reported as one print for each security with
the total volume of the transaction reported with the price. Market
data for NYSE-listed securities will be disseminated via the
consolidated tape pursuant to the Consolidated Tape Association Plan
(``CTA Plan'').\43\ Trade reports of securities that are governed by
the Joint Self-Regulatory Organization Plan Governing the Collection,
Consolidation and Dissemination of Quotation and Transaction
Information for Nasdaq-Listed Securities Traded on an Unlisted Trading
Privilege Basis (``UTP Plan'') will be disseminated pursuant to the UTP
Plan.\44\ All trades will indicate the market of execution as the NYSE
for CTA and UTP purposes.
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    \43\ See proposed Rule 1500(c)(1).
    \44\ Id.
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4. Member Organization and Non-Member Access to MatchPoint
    Members and member organizations of the Exchange are automatically
eligible for access to MatchPoint by their membership on the Exchange.
A non-member who wishes to trade securities on MatchPoint may do so as
a ``Sponsored Participant'' of a member organization, i.e.,
``Sponsoring Member Organization,'' and must enter into a written
agreement with the Sponsoring Member Organization and with the
Exchange.\45\ All members, member organizations, and Sponsored
Participants of Sponsoring Member Organizations must first obtain
connectivity authorization before they can access MatchPoint.\46\
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    \45\ See proposed Rule 1500(g)(1).
    \46\ See proposed Rule 1500(g)(2).
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    The proposed rule requires the Sponsoring Member Organization and
the Sponsored Participant to enter into a sponsorship arrangement and
maintain a written ``sponsorship agreement.'' The sponsorship agreement
must be agreed to by both the Sponsoring Member Organization and the
Sponsored Participant and include provisions for ``Authorized
Traders.'' \47\ Such written agreement must include the Sponsoring
Member's consent to sponsor the Sponsored Participant.\48\
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    \47\ See proposed Rule 1500(g)(3)(D).
    \48\ The provisions that must be included in the proposed
sponsorship agreement are outlined in the Notice, supra note 3. See
proposed Rule 1500(g)(3)(B).
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III. Discussion and Commission Findings

    After careful consideration, the Commission finds that the proposed
rule change, as amended, is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to a national
securities exchange \49\ and, in particular, the requirements of
section 6 of the Act.\50\ Specifically, the Commission finds that the
proposed rule change is consistent with section 6(b)(5) of the Act,\51\
which requires, among other things, that the rules of a national
securities exchange be designed to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, and processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest, and are not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers. MatchPoint, via both single order and portfolio trading, would
provide market participants and investors with an additional mechanism
for order execution. The Commission, in relying on NYSE's
representation that participation in the matching session would be
voluntary and open to all eligible NYSE market participants and would
not result in any advantage to market participants that participate in
matching sessions over those market participants that do not choose to
participate, believes that MatchPoint is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
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    \49\ In approving this proposed rule change the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
    \50\ 15 U.S.C. 78f.
    \51\ 15 U.S.C. 78f(b)(5).
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    NYSE has proposed to execute matching session orders at a
predetermined Reference Price at a randomly selected point in time
during a one-minute trading window. The Commission notes that using the
automated and random matching mechanism to execute a matching session
cross should minimize the opportunity for manipulation. In addition,
the Commission notes that, should NYSE desire to institute additional
matching sessions or to modify the time of matching sessions in the
future, it must submit a rule change to the Commission pursuant to
19(b) of the Act.\52\
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    \52\ 15 U.S.C. 78s(b).
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A. Trading Ahead

    Because matching session orders that are executed during the
regular hours session would be executed at the midpoint of the NBBO, it
is possible that a NYSE member would trade ahead of a held customer
order by less than $0.01 (i.e., $ 0.005). In the event a MatchPoint
order executes at the midpoint of the NBBO and results in a member or
member organization's trading ahead of a held customer order at the
same price, NYSE Rule 92 (Limitations on Member's Trading Because of
Customers' Orders) may be implicated. Rule 92(a) generally restricts a
member or member organization from entering a proprietary order while
in possession of a customer order. Rule 92(b) through (d) provides
several exceptions to the general restrictions of Rule 92(a). The
Commission notes that the Exchange has stated that all users must
comply with Rule 92(a) when trading on the MatchPoint system unless
such trading falls within an applicable exception in NYSE Rule 92(b)
through (d).

B. Section 11(a) of the Act

    Section 11(a) of the Act prohibits a member of a national
securities exchange from effecting transactions on that exchange for
its own account, the account of an associated person, or an account
over which it or its associated person exercises discretion (``Covered
Accounts'') unless an exception applies.\53\ Rule 11a2-2(T), known as
the ``effect versus execute'' rule, provides exchange members with an
exemption from the section 11(a) prohibition. To comply with Rule 11a2-
2(T)'s conditions, a member: (1) Must transmit the order from off the
exchange floor; (2) may not participate in the execution of the
transaction once it has been transmitted to the member performing the
execution; (3) may not be affiliated with the executing member; and (4)
with respect to an account over which the member has investment
discretion,

neither the member nor its associated person may retain any
compensation in connection with effecting the transaction without
express written consent from the person authorized to transact business
for the account in accordance with the Rule. NYSE requests that the
Commission concur with its interpretation that MatchPoint orders
entered from off the floor of the Exchange comply with these provisions
of Rule 11a2-2(T).
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78k(a).
---------------------------------------------------------------------------

1. Off-Floor Transmission
    The requirement in Rule 11a2-2(T) for orders to be transmitted from
off the exchange floor reflects Congress's intent that section 11(a)
should operate to put member money managers and non-member money
managers on the same footing for purposes of their transactions for
covered accounts. In considering other automated systems, the
Commission and the staff have stated that the off-floor transmission
requirement would be met if a covered account order is transmitted from
off the floor directly to the exchange floor by electronic means.\54\
Because all orders for Covered Accounts sent to MatchPoint will be
electronically submitted directly to the system from locations other
than on the Exchange floor,\55\ the Commission believes that orders
transmitted for execution on MatchPoint satisfy the off-floor
transmission requirement.
---------------------------------------------------------------------------

    \54\ See Securities Exchange Act Release Nos. 54552 (September
29, 2006), 71 FR 59546 (October 10, 2006) (order approving proposed
rule change of the American Stock Exchange LLC to establish new
hybrid market); 29237 (May 31, 1991) (regarding NYSE's Off-Hours
Trading Facility); and 15533 (January 29, 1979), 44 FR 6084 (January
31, 1979) (regarding the Amex Post Execution Reporting System, the
Amex Switching System, the Intermarket Trading System, the Multiple
Dealer Trading Facility of the Cincinnati Stock Exchange, the PCX's
Communications and Execution System, and the Phlx's Automated
Communications and Execution System) (``1979 Release''). See also
Letter from Paula R. Jensen, Deputy Chief Counsel, Division of
Market Regulation, Commission, to Angelo Evangelou, Senior Attorney,
Chicago Board Options Exchange (``CBOE''), dated March 31, 2003
(regarding CBOE's CBOEdirect system) (``CBOEdirect Letter''); Letter
from Paula R. Jenson, Deputy Chief Counsel, Division, Commission, to
Jeffrey P. Burns, Assistant General Counsel, American Stock Exchange
LLC (``Amex''), dated July 9, 2002 (regarding Amex's auto-ex system
for options); Letter from Paula R. Jenson, Deputy Chief Counsel,
Division, Commission, to Richard S. Rudolph, Counsel, Philadelphia
Stock Exchange, Inc. (``Phlx''), dated April 15, 2002 (regarding
Phlx's AUTOM System and its automatic execution feature AUTO-X);
Letter from Paula R. Jenson, Deputy Chief Counsel, Division,
Commission, to Kathryn L. Beck, Senior Vice President, Special
Counsel and Antitrust Compliance Officer, Pacific Exchange, Inc.
(``PCX''), dated October 25, 2001 (regarding Archipelago Exchange
(``ArcaEx'')) (``ArcaEx Letter''); and Letter from Brandon Becker,
Director, Division, Commission, to George T. Simon, Foley & Lardner,
dated November 30, 1994 (regarding Chicago Match) (``Chicago Match
Letter'').
    \55\ The Commission notes that NYSE Rule 1500(g)(4)(B) will
prohibit members from entering orders into the MatchPoint system
from the floor of the Exchange when such orders are for their own
accounts, the accounts of associated persons, or accounts over which
it or an associated person exercises investment discretion. Further,
the rule also prohibits members from having such orders entered into
MatchPoint by sending them to an off-floor facility for entry.
Members with authorized access to MatchPoint may only enter customer
orders into the MatchPoint system from the floor of the Exchange.
---------------------------------------------------------------------------

2. Non-Participation in Order Execution
    Rule 11a2-2(T) further provides that the exchange member and its
associated persons may not participate in the execution of the
transaction once the order has been transmitted to the exchange
floor.\56\ This requirement was included to prevent members with their
own brokers on the exchange floor from using those persons to influence
or guide their orders' execution. This requirement does not preclude
members from canceling or modifying orders, or from modifying the
instructions for executing orders, after they have been transmitted to
the floor. Such cancellations or modifications, however, also must be
transmitted from off the exchange floor.\57\
---------------------------------------------------------------------------

    \56\ See Securities Exchange Act Release No. 44983 (October 25,
2001), 66 FR 55225 (November 1, 2001) (Order approving ArcaEx as the
equities trading facility of PCX Equities Inc.); 1979 Release, supra
note 54. See also CBOEdirect Letter, supra note 54; Letter from
Larry E. Bergmann, Senior Associate Director, Division, Commission,
to Edith Hallahan, Associate General Counsel, Phlx, dated March 24,
1999 (regarding Phlx's VWAP Trading System); Letter from Catherine
McGuire, Chief Counsel, Division, to David E. Rosedahl, PCX dated
November 30, 1998 (regarding OptiMark); Chicago Match Letter, supra
note 54.
    \57\ See Securities Exchange Act Release No. 14563 (March 14,
1978), 43 FR 11542 (March 17, 1978); see also Securities Exchange
Act Release No. 53128 (January 13, 2006), 71 FR 3550 (January 23,
2006) (order approving Nasdaq Stock Market LLC's registration as a
national securities exchange) (``Nasdaq Exchange Order'').
---------------------------------------------------------------------------

    The Commission has stated that the non-participation requirement is
satisfied by automated systems when the member's use of such a system
entails relinquishing the ability to influence or guide the execution
of a covered account order once transmitted into the system.\58\ In
MatchPoint, matching sessions commence automatically at a predetermined
time. Matching, trading and pricing of orders is effectuated through a
fixed algorithm, which does not permit entry, correction or
cancellation of orders during the matching session. Once a member
submits an order to the MatchPoint system, the order will be executed
pursuant to the MatchPoint algorithm and in accordance with Exchange
rules. Although a member will still have the ability to modify or
cancel an order entered into the MatchPoint system (prior to the
commencement of the matching session), they will not otherwise have
control over their order. Because MatchPoint users will relinquish
control of their orders upon transmission to the MatchPoint system, and
will not be able to influence or guide the execution of their orders,
the Commission believes that the non-participation requirement is met
with respect to orders that are executed automatically in MatchPoint.
---------------------------------------------------------------------------

    \58\ See 1979 Release, supra note 54; see also, e.g., Securities
Exchange Act Release Nos. 54422 (September 11, 2006), 71 FR 54537
(September 15, 2006) (order approving proposed rule change of CBOE
to establish a screen based trading system for non-option
securities) (``CBOE STOC Order''); 51666 (May 9, 2005), 70 FR 25631,
25633 (May 13, 2005) (order approving proposed rule change by
International Securities Exchange, Inc. to establish facilitation,
block order and solicited order mechanism).
---------------------------------------------------------------------------

3. Execution Through Unaffiliated Member
    Although Rule 11a2-2(T) contemplates having an order executed by an
exchange member who is unaffiliated with the member initiating the
order, the Commission has recognized that the requirement is not
applicable when automated exchange facilities are used, if the
execution of the order is automatic once it has been transmitted into
the system, and if the design of the system ensures that members do not
possess any special or unique trading advantages in handling their
orders after transmitting them to the system.\59\ In such instances,
the Commission has stated that executions obtained through these
systems satisfy the independent execution requirement of Rule 11a2-
2(T).\60\ The Commission notes that NYSE has represented that the
MatchPoint system is designed to ensure that members using MatchPoint

will not possess any special or unique trading advantages in the
handling of their orders after transmitting them to the MatchPoint
system.
---------------------------------------------------------------------------

    \59\ In considering the operation of automated execution systems
operated by an exchange, the Commission has noted that while there
is no independent executing exchange member, the execution of an
order is automatic once it has been transmitted into the system.
Because the design of these systems ensures that members do not
possess any special or unique trading advantages in handling their
orders after transmitting them to the exchange, the Commission has
stated that executions obtained through these systems satisfy the
independent execution requirement of Rule 11a2-2(T). See 1979
Release, supra note 54; see also, e.g., Securities Exchange Act
Release No. 54365 (August 25, 2006), 71 FR 52192 (September 1, 2006)
(order approving initial phase of the Boston Stock Exchange, Inc.'s
proposed rule change to establish Boston Equities Exchange Trading
System) (``BeX Phase I Order''); CBOE STOC Order, supra note 58.
    \60\ See 1979 Release, supra note 54; see also, e.g., Securities
Exchange Act Release No. 54238 (July 28, 2005), 71 FR 44758 (August
7, 2006) (order approving proposed rule change of NYSE Arca, Inc. to
establish the OX trading platform); Nasdaq Exchange Order, supra
note 57.
---------------------------------------------------------------------------

4. Non-Retention of Compensation for Discretionary Accounts
    The Commission notes that MatchPoint users who intend to rely on
Rule 11a2-2(T) in connection with transactions using the MatchPoint
system must comply with the requirements of Section (a)(2)(iv) of the
Rule.
    In reliance on NYSE's representations and for the reasons set forth
above, the Commission believes that members entering orders into the
MatchPoint system would satisfy the requirements of Rule 11a2-2(T)
under the Act.

C. Surveillance

    The Commission notes that NYSE Regulation has represented that it
has appropriate policies and procedures in place to adequately and
effectively regulate the MatchPoint system, and that a surveillance
plan will be implemented prior to any trading to monitor the operation
of MatchPoint. Also, the Financial Industry Regulatory Authority, Inc.
(``FINRA''), as agent for NYSE Group, will perform examinations of
specialist firms that trade on MatchPoint.\61\
---------------------------------------------------------------------------

    \61\ As stated in the Notice, supra note 3, FINRA examiners will
perform an on-site review of the combined specialist firm's written
policies and procedures and determine if they are adequate in
relation to trading on MatchPoint. In addition, FINRA will interview
appropriate individuals both within the affected departments as well
as other areas of the specialist firm to determine whether firm
policies have been appropriately disseminated and appear to be
followed in relation to MatchPoint trading. The examination will
also determine whether there have been any apparent breaches of the
information barriers.
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\62\ that the proposed rule change (File No. SR-NYSE-2007-102), as
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
---------------------------------------------------------------------------

    \62\ 15 U.S.C. 78s(b)(2).
    \63\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\63\
Nancy M. Morris,
Secretary.
[FR Doc. E7-25626 Filed 1-3-08; 8:45 am]

BILLING CODE 8011-01-P


[Federal Register: November 24, 2009 (Volume 74, Number 225)]
[Proposed Rules]
[Page 61291-61292]
[DOCID:fr24no09-11]

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

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 73

[Docket No. FAA-2009-0693; Airspace Docket No. 09-AAL-14]
RIN 2120-AA66

Proposed Amendment of Restricted Area R-2204 High and R-2204 Low;
Oliktok Point, AK

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking (NPRM).

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

SUMMARY: This action proposes to amend R-2204 High and R-2204 Low at
Oliktok Point, AK, by increasing the authorized times of designation
and extending the duration of the restricted areas beyond 2009, until
they are no longer needed by the Department of Energy (DOE). The DOE is
continuing their study of rapid climate changes occurring in the
arctic. Continued access to R-2204 High and R-2204 Low at Oliktok, AK,
is required for current moored balloon and future climate-related
aviation activities.

DATES: Comments must be received on or before January 8, 2010.

ADDRESSES: Send comments on this proposal to the U.S. Department of
Transportation, Docket Operations, M-30, 1200 New Jersey Avenue, SE.,
West Building Ground Floor, Room W12-140, Washington, DC 20590-0001;
telephone:<PHONE_NUMBER>. You must identify FAA Docket No. FAA-2009-
0693 and Airspace Docket No. 09-AAL-14 at the beginning of your
comments. You may also submit comments through the Internet at http://
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Ken McElroy, Airspace and Rules Group,
Office of System Operations Airspace and AIM, Federal Aviation
Administration, 800 Independence Avenue, SW., Washington, DC 20591;
telephone:<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Comments Invited

    Interested parties are invited to participate in this proposed
rulemaking by submitting such written data, views, or arguments as they
may desire. Comments that provide the factual basis supporting the
views and suggestions presented are particularly helpful in developing
reasoned regulatory decisions on the proposal. Comments are
specifically invited on the overall regulatory, aeronautical, economic,
environmental, and energy-related aspects of the proposal.
    Communications should identify both docket numbers (FAA Docket No.
FAA-2009-0693 and Airspace Docket No. 09-AAL-14) and be submitted in
triplicate to the Federal Docket Management System (see ADDRESSES
section for address and phone number). You may also submit comments
through the Internet at http://www.regulations.gov.
    Commenters wishing the FAA to acknowledge receipt of their comments
on this action must submit with those comments a self-addressed,
stamped postcard on which the following statement is made: ``Comments
to FAA Docket No. FAA-2009-0693 and Airspace Docket No. 09-AAL-14.''
The postcard will be date/time stamped and returned to the commenter.
    All communications received on or before the specified closing date
for comments will be considered before taking action on the proposed
rule. The proposal contained in this action may be changed in light of
comments received. All comments submitted will be available for
examination in the public docket both before and after the closing date
for comments. A report summarizing each substantive public contact with
FAA personnel concerned with this rulemaking will be filed in the
docket.

Availability of NPRMs

    An electronic copy of this document may be downloaded through the
Internet at http://www.regulations.gov. Recently published rulemaking
documents can also be accessed through the FAA's Web page at http://
www.faa.gov/airports_airtraffic/air_traffic/publications/airspace_
amendments/.
    You may review the public docket containing the proposal, any
comments received, and any final disposition in person in the Federal
Docket Management System office (see ADDRESSES section for address and
phone number) between 9 a.m. and 5 p.m., Monday through Friday, except
Federal holidays. An informal docket may also be examined during normal
business hours at the office of the Western Service Center, Operations
Support Group, Federal Aviation Administration, 1601 Lind Avenue, SW.,
Renton, WA 98055.
    Persons interested in being placed on a mailing list for future
NPRMs should contact the FAA's Office of Rulemaking,<PHONE_NUMBER>,
for a copy of Advisory Circular No. 11-2A, Notice of Proposed
Rulemaking Distribution System, which describes the application
procedure.

Background

    The DOE, Sandia National Laboratories, is conducting arctic
climatology research on the North Slope of Alaska. Their Adjacent
Arctic Ocean site is providing data about cloud and radiative processes
at high latitudes. The arctic area has been identified as one of the
most sensitive regions to climate change. In 2004, the need to operate
an unlighted moored balloon in clouds resulted in the establishment of
R-2204 at Oliktok Point. That site was selected because of its
proximity to the Arctic Ocean, availability of ground infrastructure to
support the scientists, and remoteness that lessens the impacts to
other instrument flight rules and visual flight rules air traffic.
    In addition to the current moored balloon activities, scientists
are interested in testing the use of unmanned aircraft (UAS) over the
coastal waters (in clouds) of the Arctic Ocean and propose to launch
and recover UAS aircraft at the Oliktok station. A Certificate of
Approval for flight outside of R-2204 would be required by the FAA for
UAS operations not contained within R-2204. The DOE has stated that
they are anticipating the development of Letters of Agreement with
other aircraft operators using airspace in the vicinity of Oliktok to
ensure that access to airspace within R-2204 is available within the
parameters agreed upon by the parties involved.
    On May 28, 2004, the FAA published in the Federal Register a final
rule to establish Restricted Area R-2204 (69 FR 30576). The rule stated
that the ``area [would] be activated starting October 2004 for
approximately 30 days a year, and be effective through the year 2009.''
On April 21, 2008, the FAA published in the Federal Register a final
rule to amend R-2204 by changing the using agency and subdividing the
area to create R-2204 High and R-2204 Low (73 FR 21246).

The Proposal

    The FAA is proposing an amendment to Title 14 Code of Federal
Regulations (14 CFR) part 73 to amend the time of designation to allow
activation of R-2204 High and R-2204 Low by NOTAM 24 hours in advance
for up to 75 days per year. Special Use Airspace R-2204 High and R-2204
Low would continue to be designated until it is no longer required by
the DOE to conduct research.
    Section 73.22 of Title 14 CFR part 73 was republished in FAA Order
7400.8R, effective February 16, 2009.
    The FAA has determined that this proposed regulation only involves
an

established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
Therefore, this proposed regulation: (1) Is not a ``significant
regulatory action'' under Executive Order 12866; (2) is not a
``significant rule'' under Department of Transportation (DOT)
Regulatory Policies and Procedures (44 FR 11034; February 26, 1979);
and (3) does not warrant preparation of a regulatory evaluation as the
anticipated impact is so minimal. Since this is a routine matter that
will only affect air traffic procedures and air navigation, it is
certified that this proposed rule, when promulgated, will not have a
significant economic impact on a substantial number of small entities
under the criteria of the Regulatory Flexibility Act.
    The FAA's authority to issue rules regarding aviation safety is
found in Title 49 of the United States Code. Subtitle I, Section 106
describes the authority of the FAA Administrator. Subtitle VII,
Aviation Programs, describes in more detail the scope of the agency's
authority.
    This rulemaking is promulgated under the authority described in
Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the
FAA is charged with prescribing regulations to assign the use of the
airspace necessary to ensure the safety of aircraft and the efficient
use of airspace. This regulation is within the scope of that authority
as it proposes to amend times of designation for restricted area
airspace at Oliktok Point, Alaska.

Environmental Review

    This proposal will be subject to an environmental analysis in
accordance with FAA Order 1050.1E, ``Environmental Impacts: Policies
and Procedures,'' prior to any FAA final regulatory action.

List of Subjects in 14 CFR Part 73

    Airspace, Prohibited areas, Restricted areas.

The Proposed Amendment

    In consideration of the foregoing, the Federal Aviation
Administration proposes to amend 14 CFR part 73 as follows:

PART 73-SPECIAL USE AIRSPACE

    1. The authority citation for part 73 continues to read as follows:

    Authority: 49 U.S.C. 106(g), 40103, 40113, 40120; E.O. 10854, 24
FR 9565, 3 CFR, 1959-1963 Comp., p. 389.

Sec.  73.22  [Amended]

    2. Sec.  73.22 is amended as follows:
* * * * *

R-2204 High, Oliktok Point, AK [Amended]

    Under Time of Designation, remove the words ``By NOTAM, 24 hours
in advance, not to exceed 30 days annually'' and insert Time of
designation. By NOTAM, 24 hours in advance, not to exceed 75 days
per year.
* * * * *

R-2204 Low, Oliktok Point, AK [Amended]

    Under Time of Designation, remove the words ``By NOTAM, 24 hours
in advance, not to exceed 30 days annually'' and insert Time of
designation. By NOTAM, 24 hours in advance, not to exceed 75 days
per year.
* * * * *

    Issued in Washington, DC, on November 12, 2009.
Edith V. Parish,
Manager, Airspace and Rules Group.
[FR Doc. E9-28194 Filed 11-23-09; 8:45 am]

BILLING CODE 4910-13-P


[Federal Register Volume 83, Number 118 (Tuesday, June 19, 2018)]
[Notices]
[Pages 28477-28479]
[FR Doc No: 2018-13084]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83425; File No. SR-CHX-2018-001]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Order Instituting Proceedings To Determine Whether To Approve or
Disapprove a Proposed Rule Change To Adopt the Route QCT Cross Routing
Option

June 13, 2018.

I. Introduction

    On March 6, 2018, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt the Route QCT Cross
routing option. The proposed rule change was published for comment in
the Federal Register on March 20, 2018.\3\ On May 1, 2018, pursuant to
Section 19(b)(2) of the Exchange Act,\4\ the Commission designated a
longer period within which to approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to disapprove the proposed rule change.\5\ The
Commission received no comment letters on the proposed rule change.
This order institutes proceedings under Section 19(b)(2)(B) of the
Exchange Act \6\ to determine whether to approve or disapprove the
proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 82870 (March 14,
2018), 83 FR 12214 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 83143, 83 FR 20123
(May 7, 2018). The Commission designated June 18, 2018, as the date
by which the Commission shall approve or disapprove, or institute
proceedings to determine whether to disapprove, the proposed rule
change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    Currently, under the Exchange's rules, Routable Orders \7\
submitted to the CHX matching system (``Matching System'') \8\ for
execution are routed away from the Matching System automatically if a
Routing Event \9\ is triggered. The Exchange's current rules provide
that all Routable Orders \10\ are limit orders. Market \11\ and cross
orders \12\ are never routable. The Exchange does not currently permit
orders to be directly routed to an away Trading Center \13\ without
first being submitted to the Matching System.
---------------------------------------------------------------------------

    \7\ See CHX Article 1, Rule 1(oo).
    \8\ The Matching System is part of the Exchange's ``Trading
Facilities,'' as defined under CHX Article 1, Rule 1(z).
    \9\ See CHX Article 19, Rule 3(a)(1)-(5).
    \10\ See CHX Article 1, Rule 1(oo) defining ``Routable Order.''
    \11\ See CHX Article 1, Rule 2(a)(3) defining ``market order.''
    \12\ See CHX Article 1, Rule 2(a)(2) defining ``cross order.''
    \13\ See CHX Article 1, Rule 1(nn) defining ``Trading Center.''
---------------------------------------------------------------------------

    Because Qualifed Contingent Trade (``QCT'') Crosses \14\ are exempt
from the trade-through prohibition of Rule 611 of Regulation NMS,\15\
the Matching System permits QCT Crosses to trade-through protected
quotes of away markets. Under the Exchange's current rules, QCT Crosses
are handled IOC \16\ and can never rest on the CHX book. Moreover, a
QCT Cross submitted to the Matching System will be cancelled back to
the order sender as ``blocked'' if a precedent limit order priced at or
better than the QCT Cross is resting on the CHX book,\17\ except that a
QCT Cross priced at the top of the CHX book (i.e., the best-ranked
order on the CHX book pursuant to Article 20, Rule 8(b)) that qualifies
for Cross With Size \18\ handling will be permitted to execute.
---------------------------------------------------------------------------

    \14\ QCT Crosses are cross orders that are component orders to
Qualified Contingent Trades that are submitted by an Institutional
Broker. See CHX Article 1, Rule 2(b)(2)(E) defining ``Qualified
Contingent Trade.'' See also CHX Article 1, Rule 2(a)(2) defining
``cross order.''
    \15\ See Securities Exchange Act Release No. 57620 (April 4,
2008), 73 FR 19271 (April 4, 2008).
    \16\ See CHX Article 1, Rule 2(a)(2)
    \17\ See CHX Article 1, Rule 2(a)(2). See also CHX Article 20,
Rule 8(e)(1).
    \18\ See CHX Article 1, Rule 2(g)(1).
---------------------------------------------------------------------------

    The Exchange has proposed to adopt the Route QCT Cross routing
option, which will permit only Institutional Brokers (``IBs'') \19\ to
directly route a QCT Cross to a non-affiliated third-party broker-
dealer designated by the IB (``designated executing broker'') for
execution. Route QCT Cross orders will be handled like current Routable
Orders,\20\ except that the Route QCT Cross order will never be
submitted to the Matching System for execution. Specifically, upon
receipt of a Route QCT Cross order, the Exchange will cause the order
to be routed IOC \21\ from the Exchange, through CHXBD, LLC
(``CHXBD''), the Exchange's affiliated routing broker, to the
designated executing broker identified by the IB.\22\ The Exchange
states that the relationship between a designated executing broker and
CHXBD will be governed by applicable CHX Rules \23\ and customary
interbroker agreements, such as fully-disclosed clearing and customer
agreements. The Exchange represents that at all times, the use of Route
QCT Cross will be optional.\24\ The Exchange also states that Route QCT
Cross is similar to the routing options available on the Nasdaq Stock
Market \25\ and Cboe BYX and Cboe BZX exchanges.\26\
---------------------------------------------------------------------------

    \19\ The Exchange states that it has proposed to limit use of
Route QCT Cross to IBs to be consistent with the fact that only IBs
are currently permitted to submit QCT Crosses to the Matching
System. See CHX Article 1, Rule 2(b)(2)(E).
    \20\ See CHX Article 1, Rule 1(oo).
    \21\ See CHX Article 1, Rule 2(a)(2).
    \22\ The Exchange states that IBs will be permitted to identify
only one designated executing broker to which all Route QCT Cross
orders submitted by the IB will be routed, subject to additional
requirements, as described below.
    \23\ See e.g., CHX Article 19, Rule 2(a).
    \24\ See Notice, supra note 3 at 12215.
    \25\ See id. The Exchange states that like Route QCT Cross, the
``Directed Order'' routing option offered by the Nasdaq Stock Market
(``Nasdaq'') permits an order sender to route an order to another
market center while bypassing the Nasdaq's order book, which may
result in the routed order executing at a price through Nasdaq's top
of book. See id.
    \26\ The Exchange states that like Route QCT Cross, the ``DRT''
routing option offered by the Cboe BYX and Cboe BZX exchanges
permits an order to be routed to one or more away alternative
trading systems. See id.
---------------------------------------------------------------------------

    Specifically, the Exchange has proposed to adopt proposed Article
19, Rule 4 (Routing Options) to provide that routing options may be
combined with all available order types, modifiers and related terms,
except for order types, modifiers, and related terms that are
inconsistent with the terms of a routing option, and that the Exchange
may activate or deactivate any routing option at its discretion and, if
practicable, after notice to Participants.\27\ Article 19, Rule 4(a)(1)
provides that Route QCT Cross is

a routing option,\28\ which may only be utilized by IBs, that instructs
the Exchange to route a cross order marked QCT directly to a non-
affiliated third-party broker-dealer designated by the IB without
submitting the order into the Matching System for execution. In
addition, each IB is permitted to identify only one designated
executing broker to which all Route QCT Cross orders submitted by the
IB would be routed. Furthermore, the Exchange represents that prior to
the Exchange accepting any Route QCT Cross orders directed to a
specific designated executing broker, the Exchange would confirm that
the designated executing broker has established connectivity to the
Exchange's routing systems.\29\ In addition, the IB would be
responsible for all away execution fees resulting from the execution of
Route QCT Cross orders, including any guaranteed payments to its
designated executing broker.\30\ Moreover, Route QCT Cross orders would
be routed IOC and a Route QCT Cross order that could not be executed by
a designated executing broker, for any reason, would be cancelled back
to the original order sender.\31\
---------------------------------------------------------------------------

    \27\ See CHX Article 1, Rule 1(s).
    \28\ In addition, since the cross orders are not currently
Routable Orders, the Exchange has proposed to amend Article 1, Rule
1(oo) by adopting paragraph (oo)(2), which would expand the
definition of Routable Orders to include any order marked by a
routing option listed under proposed Article 19, Rule 4 (i.e., Route
QCT Cross).
    \29\ See Notice, supra note 3 at 12215.
    \30\ See id.
    \31\ See id. at 12215-16.
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    As Route QCT Cross orders would be routed away from the Exchange
without being submitted to the Matching System for execution, the
Exchange proposes to amend Article 19, Rules 1(a) and (c), and Rule
2(a) to replace the term ``Matching System'' with ``Exchange.''
Moreover, since Route QCT Cross orders are a subset of cross orders
that will not be handled IOC upon receipt by the Exchange, and all
cross orders currently received by the Exchange are deemed to have been
received IOC, the Exchange proposes to amend the definition of ``cross
orders'' under Article 1, Rule 2(a)(2) to provide that all cross orders
submitted to the Matching System for execution shall be deemed to have
been received IOC.
    The Exchange has also proposed to amend Article 19, Rule 3(a) to
provide that a Routable Order that is submitted to the Matching System
would be routed away from the Matching System pursuant to the CHX
Routing Services if a Routing Event is triggered.\32\
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    \32\ To clarify this distinction, the Exchange has proposed to
amend the title to Article 19, Rule 3 from ``Routing Events'' to
``Mandatory Routing Events.'' Also, the Exchange has proposed to
eliminate the word ``incoming'' from proposed Rule 1(oo)(1), which
it states is redundant in light of the proposed clarifying
amendments to Article 19, Rule 3.
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    In addition, the Exchange proposes non-substantive amendments to
Article 19, Rules 3(a)(1)-(5) to clarify the current operation of the
Routing Events.\33\
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    \33\ See Notice, supra note 3.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-CHX-
2018-001 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act \34\ to determine whether the proposed
rule change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comments
on the proposed rule change.
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    \34\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\35\ the
Commission is providing notice of the grounds for disapproval under
consideration. As discussed above, the Exchange has proposed to offer a
new Route QCT Cross routing option, which would be available only to
IBs. Route QCT Crosses would not check the CHX order book. In addition,
Route QCT Crosses would only route to a single designated broker, as
designated by each IB, for execution.
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    \35\ Id.
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    The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with Sections
6(b)(5) \36\ and 6(b)(8) \37\ of the Exchange Act. Section 6(b)(5) of
the Exchange Act requires that the rules of a national securities
exchange be designed, among other things, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system and, in general,
to protect investors and the public interest, and not be designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers. Section 6(b)(8) of the Exchange Act requires that the rules of
a national securities exchange not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Exchange Act.
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    \36\ 15 U.S.C. 78f(b)(5).
    \37\ 15 U.S.C. 78f(b)(8).
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III. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Sections 6(b)(5) and 6(b)(8), or any other provision of
the Exchange Act, or the rules and regulations thereunder. Although
there do not appear to be any issues relevant to approval or
disapproval that would be facilitated by an oral presentation of views,
data, and arguments, the Commission will consider, pursuant to Rule
19b-4, any request for an opportunity to make an oral presentation.\38\
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    \38\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975),
grants the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No.
75, 94th Cong., 1st Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by July 10, 2018. Any person who wishes to file a rebuttal
to any other person's submission must file that rebuttal by July 24,
2018.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-CHX-2018-001 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Numbers SR-CHX-2018-001. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's

internet website (http://www.sec.gov/rules/sro.shtml). Copies of the
submission, all subsequent amendments, all written statements with
respect to the proposed rule change that are filed with the Commission,
and all written communications relating to the proposed rule change
between the Commission and any person, other than those that may be
withheld from the public in accordance with the provisions of 5 U.S.C.
552, will be available for website viewing and printing in the
Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of these filings also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CHX-2018-001 and should be submitted on
or before July 10, 2018. Rebuttal comments should be submitted by July
24, 2018.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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    \39\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13084 Filed 6-18-18; 8:45 am]
BILLING CODE 8011-01-P