Daily Rules, Proposed Rules, and Notices of the Federal Government
CHX proposes to amend CHX Article 1, Rule 2 (Order Types and Conditions) and Article 20, Rules 4 (Eligible Orders) and 8 (Operation of the Matching System) to add the CHX Only order type. The text of this proposed rule change is available on the Exchange's Web site at (
In its filing with the Commission, the CHX included statements concerning the purpose of and basis for the proposed rule changes [sic] and discussed any comments it received regarding the proposal. The text of these statements may be examined at the places specified in Item IV below. The CHX has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements.
The Exchange proposes to amend CHX Article 1, Rule 2 (Order Types and Conditions) and Article 20, Rules 4 (Eligible Orders) and 8 (Operation of the Matching System) to add the CHX Only order type. CHX Only orders are designed to encourage displayed liquidity on the Exchange and reduce automatic cancellations by the Exchange's core trading facility, the Matching System, for orders which lock or cross the best displayed quotes in the National Market System. CHX Only orders will be automatically repriced by the Exchange, if necessary as discussed below, to reside in the Matching System and be displayed to the national market system at prices which are in conformity with Regulation NMS and the short sale price test restrictions of Rule 201 of Regulation SHO. An order sender can enter instructions to have all limit orders default to "CHX Only" and therefore be subject to the repricing process. In addition, an order sender can enter instructions to only use the repricing process if the CHX Only order locks the NBBO at the time of order entry, and not if it crosses the NBBO. Such instructions can be submitted on either an order-by-order or global basis by the order sending firm. If such instructions are given and the order crosses the NBBO, it will be rejected from the Matching System.
As a general matter, CHX Only orders are limit orders which are ranked and executed on the Exchange according to the provisions of Rule 8 of Article 20. By their nature, CHX Only orders are not eligible for routing away by the Exchange to another trading center.
In addition to the foregoing, a CHX Only order which, at the time of entry to the Matching System, would cross a Protected Quotation, as defined in Regulation NMS Rule 600(b)(58), will be automatically repriced by the Exchange to the locking price and ranked at such price in the Matching System. A CHX Only order that, if at the time of entry, would create a violation of Rule 610(d) of Regulation NMS by locking or crossing a Protected Quotation will be displayed by the Matching System at one minimum price variation below the current NBO (for bids) or to one minimum price variation above the current NBB (for offers) (the "NMS repricing process").
In order to promote compliance with recent amendments to Regulation SHO,
An example illustrates how the CHX Only order type would function. Suppose that the prevailing market for security XYZ (which is a security subject to the provisions of Regulation NMS and Regulation SHO) is $30.25 (bid)--$30.26 (offered) and the best priced bid in the Matching System is priced at $30.23. A CHX Only order to sell 100 shares of XYZ at $30.24 is submitted to the Matching System.
If the CHX Only order was a non-exempt sell short order and the short sale price test restrictions of Rule 201 of Regulation SHO were in effect for that security, then the order would have been ranked and displayed at one minimum increment above the current NBB at the time of receipt, in this case $30.26. Thus, the subsequent submission of a buy limit order priced at $30.25 would not result in a match, and the buy order would normally be displayed in the Matching System at $30.25. Only a buy order priced at $30.26 or above would result in a transaction by matching against the displayed CHX Only sell short order.
By submitting CHX Only orders, Participants will be able to avoid the risk that their orders will be routed away or rejected because of changes in the state of the national market system during the process of order transmission. In addition, the use of the CHX Only order type in connection with a sell short order will promote compliance with Rule 201 of Regulation SHO since non-exempt CHX Only sell short orders priced at or below the current NBB would be repriced to one increment above the current NBB.
The Exchange is also amending Rule 8 of Article 20 to describe how the Matching System will process sell short orders in light of the recent adoption of the short sale price test restrictions of Regulation SHO. For any execution or display of a short sale order in a covered security to occur on the Exchange when a short sale price test restriction is in effect, the price must be above the current NBB, unless the sell order was initially displayed by the Matching System at a price above the then-current NBB or is marked "short exempt" pursuant to Regulation SHO.
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act in general,
As noted above, CHX Only orders are designed to encourage displayed liquidity on the Exchange and reduce automatic cancellations by the Exchange's core trading facility, the Matching System, for orders which lock or cross the best displayed quotes in the National Market System. CHX Only orders will be automatically repriced by the Exchange's systems on behalf of order senders. Participants will not have to reenter orders which otherwise would have been cancelled and rejected by the Exchange's systems to avoid prohibited locked or crossed markets and trade throughs, therefore reducing messaging traffic and facilitating the speedy representation of such orders in the national market system. The use of the CHX Only order will also facilitate compliance with the short sale price test restrictions of Regulation SHO. Again, Participants will not have to reenter sell short orders which would have been rejected by the Matching System if they were at or below the current NBB at the time when they were received, and no exception to the short sale price test restrictions applied. The Exchange notes that other market centers, such as the BATS exchanges and Direct Edge exchanges, have order types which make use of the repricing process. The addition of these order types is intended to benefit Exchange customers by reducing message traffic and improving fill rates and promote competition among market centers offering similar products and services.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
No written comments were either solicited or received.
The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
* Use the Commission's Internet comment form (
* Send an e-mail to
* Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.