Chicago Stock Exchange, Inc. Market Regulation Department Information Memorandum

Transcription

1 April 22, 2014 MR Chicago Stock Exchange, Inc. Market Regulation Department Information Memorandum RE: CHX Introduces New Risk Management Tools On January 17, 2014, the Chicago Stock Exchange, Inc., ("CHX" or "the Exchange") filed a proposal with the Securities and Exchange Commission to offer new risk management tools for CHX Participants, which was effective upon filing and became operative on April 23, 2014 (see SR-CHX ). To assist CHX Participants in managing their financial risk level, the Exchange will implement a new Kill Switch risk management control to allow Participants to monitor and address order-related exposure and risk. The Kill Switch feature will provide mechanisms that would facilitate, among other things, blocking of a Participant s orders if certain defined exposure thresholds are met. This new risk management tool will provide Participants with the ability to segment activity into risk groups and to monitor exposure in real time as trades execute. Participants may also take certain actions in response to an unwanted buildup in risk levels, such as bulk blocking or bulk cancelling orders by risk group. Additionally, Participants may define risk limits that may be adjusted intraday. The Exchange will be phasing in its risk technology tools and will announce by Information Memorandum when specific risk management tools will be available. The Exchange intends to make available the ability to segment activity into risk groups, define risk limits and enter bulk block and bulk cancel messages during the first rollout which is expected to begin during the first quarter of The proposed Kill Switch risk management tool will be optional and made available to Participants at no charge. Attached as Exhibit 1 is the Request to Enable Kill Switch Form, which must be completed prior to using the CHX s Kill Switch Functionality. Attached as Exhibit 2 is the Request to Disable Kill Switch Form, which must be completed prior to disabling CHX s Kill Switch Functionality. The CHX Risk Management Tools Technical User Interface Guide can be found at ns/chx_risk_management_tools_technical_ui_guide.pdf, and the CHX Risk Management Tools Web Interface Protocol, which supports Kill Switch functionality, can be found at ns/chx_risk_management_tools_web_interface_protocol.pdf. 1

2 Please be advised that CHX s Kill Switch functionality, and other related risk management tools, are offered as a service to CHX Participants and that the use of this functionality does not constitute, in and of itself, compliance with a Participant s obligations under CHX Article 6, Rule 5(c) and (d), or other Exchange or federal rules. The tools are meant to be supplemental, acting as a backstop for a Participant s internal monitoring and procedures related to risk management. The Exchange does not guarantee that the tools will be sufficiently comprehensive to meet all of a Participant s needs, and the tools are not designed to be the sole means of risk control. For operational questions concerning CHX s Kill Switch functionality, including help on setting up such functionality at your firm, please contact CHX s Trading Operations Department at (312) or ctrbldesk2@chx.com. For any regulatory questions concerning this Notice, please contact the undersigned at (312) Marguerite Donovan Senior Vice President Market Regulation Department 2

3 Exhibit 1 to Information Memorandum MR Version 1.0 PARTICIPANT REQUEST TO ENABLE KILL SWITCH (Please Print Name of Clearing or Trading Firm), a Participant of the Chicago Stock Exchange, Inc. (the Exchange or CHX ), assigned Trading Permit No., hereby requests that the Exchange enable risk management tools capability ( Kill Switch ) for the following Clearing Firm (and its related Trading Firm(s)) or Trading Firm (the Request ): Username Address 1. Nullification of Limits by Clearing Firm. The Kill Switch limits set at the Trading Account level may be nullified if the account s Clearing Firm enters limits at a lower level. 2. Participant Acknowledgements: a. The Participant acknowledges that enabling the Kill Switch is at the discretion of the Participant. b. The Participant further acknowledges that it fully understands the functionality of the Kill Switch and has read and understands the information provided concerning the Kill Switch, including, but not limited to, SR-CHX filed with the Securities Exchange Commission and published in the Federal Register on January 31, 2014; and Regulatory Notice MR c. The Participant further acknowledges that the Kill Switch is being offered as part of the Exchange s Trading Facilities, as that term is defined in CHX Article 1, Rule 1(z). The Participant s use of the Exchange s Trading Facilities are governed by federal securities laws, federal securities rules, CHX Rules and any agreements prescribed thereunder, and the duties and obligations of the Participant and the Exchange pursuant to the aforementioned remain in full force and effect. This Request shall not create any new duties or obligations on either the Exchange or the Participant that are not set forth in CHX Rules and proscribed agreements. 3. Use of Kill Switch Optional. The Exchange does not guarantee that Kill Switch will be sufficiently comprehensive to meet all of a Participant s needs, and the tools are not designed to be the sole means of risk control. Moreover, the use of Kill Switch is OPTIONAL and will not automatically constitute compliance with any rules, laws or agreements, including, but not limited to, federal securities laws, federal securities rules, CHX Rules and any agreements prescribed thereunder. 4. Timeliness of Request to Enable Kill Switch. The Participant acknowledges that enabling Kill Switch functionality cannot be performed intraday and that any request to enable 3

4 Kill Switch functionality must be received by CHX prior to 2:00pm, Central Time, and will be effective upon the next business day following receipt of this request. 5. LIMITATION OF LIABILITY. THE EXCHANGE SHALL NOT BE LIABLE FOR ANY LOSS, EXPENSE, DAMAGES OR CLAIMS ARISING OUT OF THE USE OF THE KILL SWITCH, PURSUANT TO CHX ARTICLE 3, RULE 19. THE EXCHANGE MAKES NO EXPRESS OR IMPLIED WARRANTIES AS TO THE KILL SWITCH OR THE USE THEREOF. THE EXCHANGE MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO THE KILL SWITCH OR THE USE OR MAINTENANCE THEREOF. NAME OF PARTICIPANT FIRM NAME OF AUTHORIZED TITLE OF AUTHORIZED SIGNATURE DATE 4

5 Exhibit 2 to Information Memorandum MR Version 1.0 PARTICIPANT REQUEST TO DISABLE KILL SWITCH (Please Print Name of Clearing or Trading Firm), a Participant of the Chicago Stock Exchange, Inc. (the Exchange or CHX ), assigned Trading Permit No., hereby requests that the Exchange disable risk management tools capability ( Kill Switch ) for the following Clearing Firm (and its related Trading Firm(s)) or Trading Firm (the Request ): Username Address The Participant acknowledges that disabling Kill Switch functionality cannot be performed intraday and that any request to disable Kill Switch functionality must be received by CHX prior to 2:00pm, Central Time, and will be effective upon the next business day following receipt of this request. NAME OF PARTICIPANT FIRM NAME OF AUTHORIZED TITLE OF AUTHORIZED SIGNATURE DATE 5