13246 Federal Register / Vol. 76, No. 47 / Thursday, March 10, 2011 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3A Member is any registered broker or dealer, or 

any person associated with a registered broker or 

dealer, that has been admitted to membership in the 

Exchange. 

4The Exchange notes that a Member can qualify 

for a Mega Tier rebate of $0.0033 per share if the 

Member adds or routes at least 5,000,000 shares of 

average daily volume prior to 9:30 a.m. or after 4 

p.m. (includes all flags except 6) AND adds a 

minimum of 25,000,000 shares of average daily 

volume on EDGX in total, including during both 

market hours and pre- and post-trading hours. 

5 15 U.S.C. 78f. 

6 15 U.S.C. 78f(b)(4). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–64036; File No. SR–EDGX– 

2011–05] 

Self-Regulatory Organizations; EDGX 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Relating to Amendments 

to the EDGX Exchange, Inc. Fee 

Schedule 

March 4, 2011. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on March 1, 

2011, the EDGX Exchange, Inc. (the 

‘‘Exchange’’ or the ‘‘EDGX’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which items 

have been prepared by the selfregulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend its 

fees and rebates applicable to Members 3

of the Exchange pursuant to EDGX Rule 

15.1(a) and (c). All of the changes 

described herein are applicable to EDGX 

Members. The text of the proposed rule 

change is available on the Exchange’s 

Internet Web site at http:// 

www.directedge.com. 

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 these statements may be examined at 

the places specified in Item IV below. 

The self-regulatory organization has 

prepared summaries, set forth in 

sections A, B and C below, of the most 

significant aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Reduction in Rebate on EDGX for 

Adding Liquidity 

Currently, on EDGX, there is a rebate 

of $0.0026 per share provided for 

adding liquidity in securities at or above 

$1.00. The Exchange proposes to reduce 

this rebate to $0.0023 per share. 

Conforming changes are proposed on 

Flags B, V, Y, 3, and 4 to reflect this 

reduced rebate. 

Changes to the Mega Tier 

Currently, Members can qualify for 

the Mega Tier 4 and be provided a 

$0.0032 rebate per share for liquidity 

added on EDGX if the Member on a 

daily basis, measured monthly, posts 

0.75% of the Total Consolidated 

Volume (‘‘TCV’’) in average daily 

volume. TCV is defined as volume 

reported by all exchanges and trade 

reporting facilities to the consolidated 

transaction reporting plans for Tapes A, 

B and C securities. 

First, the Exchange proposes to add 

clarifying language to the definition of 

TCV (in footnote 1) to explain that when 

TCV is calculated for Members, it is 

based on the month prior to the month 

in which the fees are calculated. So, 

when the calculation of TCV is done for 

March 2011 billing for February 2011 

trading activity, the appropriate TCV is 

based on February 2011 figures. 

The Exchange also proposes to 

provide an additional way for a Member 

to receive a $0.0032 rebate per share for 

liquidity added on EDGX. If a Member, 

on a daily basis, measured monthly, 

posts 15,000,000 shares more than their 

February 2011 average daily volume, 

provided that their February 2011 

average daily volume equals or exceeds 

1,000,000 shares added to EDGX, then 

the Member will receive a $0.0032 

rebate per share. 

Proposed Changes Associated With 

Routing to BATS BYX Exchange 

Currently, the BY flag is yielded when 

an order is routed to BATS BYX 

Exchange and removes liquidity using 

order types ROUC and ROBY, as 

defined in Exchange Rules 11.9(b)(3)(a) 

and (g). The Exchange proposes to add 

footnote 10 to the fee schedule to 

describe that stocks priced below $1.00 

will be charged $0.0010 per share. In 

addition, the Exchange proposes to 

increase the rebate from $0.0003 to 

$0.0004 when an order is routed to 

BATS BYX Exchange and removes 

liquidity using order types ROUC and 

ROBY. 

EDGX Exchange proposes to 

implement these amendments to the 

Exchange fee schedule on March 1, 

2011. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the objectives of Section 6 of the Act,5

in general, and furthers the objectives of 

Section 6(b)(4),6 in particular, as it is 

designed to provide for the equitable 

allocation of reasonable dues, fees and 

other charges among its members and 

other persons using its facilities. 

The Exchange believes that the 

reduced rebate of $0.0023 per share for 

adding liquidity on EDGX is an 

equitable allocation of reasonable dues, 

fees, and other charges as the additional 

revenue that results from the lower 

rebate enables the Exchange to cover 

increased infrastructure and 

administrative expenses. In addition, 

the rebate is competitive with rebates 

offered by Nasdaq and NYSE Arca 

($0.0020 and $0.0021 per share, 

respectively). 

The Exchange believes that the fee 

associated with the BY flag ($0.0010 per 

share) for stocks priced below $1 

represents an equitable allocation of 

reasonable dues, fees, and other charges 

since it reflects a pass through of the 

BATS fee for removing liquidity. EDGX 

believes that it is reasonable and 

equitable to pass on these fees to its 

members. 

The proposed increased rebate when 

an order is routed to BATS BYX 

Exchange and removes liquidity (from 

$0.0003 to $0.0004 per share) is 

designed to incentivize Members to use 

this routing strategy to increase volume 

on EDGX. Such increased volume 

increases potential revenue to the 

Exchange, and would allow the 

Exchange to spread its administrative 

and infrastructure costs over a greater 

number of shares, leading to lower per 

share costs. These lower per share costs 

would allow the Exchange to pass on 

the savings to Members in the form of 

an increased rebate. The increased 

liquidity also benefits all investors by 

deepening EDGX’s liquidity pool, 

supporting the quality of price 


jdjones on DSK8KYBLC1PROD with NOTICES
Federal Register / Vol. 76, No. 47 / Thursday, March 10, 2011 / Notices 13247 

7See BATS fee schedule: Discounted Destination 

Specific Routing (‘‘One Under’’) to NYSE, NYSE 

ARCA and NASDAQ. See Securities Exchange Act 

Release No. 62858, 75 FR 55838 (September 14, 

2010) (SR–BATS–2010–023) (modifying the BATS 

fee schedule in order to amend the fees for its BATS 

+ NYSE Arca destination specific routing option to 

continue to offer a ‘‘one under’’ pricing model). 

8 15 U.S.C. 78s(b)(3)(A). 

9 17 CFR 19b–4(f)(2). 

discovery, promoting market 

transparency and improving investor 

protection. 

This proposed rate represents a 

discount over the pass through rate of 

$0.0003 per share currently provided. 

The Exchange also believes that this fee 

structure is an equitable allocation of 

reasonable dues, fees, and other charges 

in that it applies uniformly to all 

Members and the increased rebate for 

removing liquidity from BATS is 

consistent with the processing of similar 

routing strategies by EDGX’s 

competitors.7

The Exchange believes that adding an 

additional way to qualify for the Mega 

Tier also represents an equitable 

allocation of reasonable dues, fees, and 

other charges since higher rebates are 

directly correlated with more stringent 

criteria. 

The Mega Tier rebates of $0.0033/ 

$0.0032 per share have the most 

stringent criteria associated with them, 

and are $0.0002/$0.0001 greater than 

the Ultra Tier rebate ($0.0031 per share) 

and $0.0003/$0.0002 greater than the 

Super Tier rebate ($0.0030 per share). 

For example, based on average TCV 

for January 2011 (8.0 billion), in order 

for a Member to qualify for the Mega 

Tier rebate of $0.0033, the Member 

would have to add or route at least 

5,000,000 shares of average daily 

volume during pre and post-trading 

hours and add a minimum of 25,000,000 

shares of average daily volume on EDGX 

in total, including during both market 

hours and pre and post-trading hours. 

The criteria for this tier is the most 

stringent as fewer Members generally 

trade during pre and post-trading hours 

because of the limited time parameters 

associated with these trading sessions. 

The Exchange believes that this higher 

rebate awarded to Members would 

incent liquidity during these trading 

sessions. Such increased volume 

increases potential revenue to the 

Exchange, and would allow the 

Exchange to spread its administrative 

and infrastructure costs over a greater 

number of shares, leading to lower per 

share costs. These lower per share costs 

would allow the Exchange to pass on 

the savings to Members in the form of 

a higher rebate. 

Another way a Member can qualify 

for the Mega Tier (with a rebate of 

$0.0032 per share) would be to post 

0.75% of TCV. Based on average TCV 

for January 2011 (8.0 billion), this 

would be 60 million shares on EDGX. A 

second method, proposed in this filing, 

to qualify for the rebate of $0.0032 per 

share would be to post 15,000,000 

shares more than the Member’s 

February 2011 average daily volume, 

provided that the Member’s February 

2011 average daily volume equals or 

exceeds 1,000,000 shares added to 

EDGX. The Exchange believes that 

requiring Members to post 15,000,000 

shares more than a February 2011 

baseline average daily volume 

encourages Members to add increasing 

amounts of liquidity to EDGX each 

month. Such increased volume 

increases potential revenue to the 

Exchange, and would allow the 

Exchange to spread its administrative 

and infrastructure costs over a greater 

number of shares, leading to lower per 

share costs. These lower per share costs 

would allow the Exchange to pass on 

the savings to Members in the form of 

a higher rebate. The increased liquidity 

also benefits all investors by deepening 

EDGX’s liquidity pool, offering 

additional flexibility for all investors to 

enjoy cost savings, supporting the 

quality of price discovery, promoting 

market transparency and improving 

investor protection. Volume-based 

rebates such as the one proposed herein 

have been widely adopted in the cash 

equities markets, and are equitable 

because they are open to all members on 

an equal basis and provide discounts 

that are reasonably related to the value 

to an exchange’s market quality 

associated with higher levels of market 

activity, such as higher levels of 

liquidity provision and introduction of 

higher volumes of orders into the price 

and volume discovery processes. 

In order to qualify for the Ultra Tier, 

which has less stringent criteria than the 

Mega Tier, the Member would have to 

post 0.50% of TCV. Based on average 

TCV for January 2011 (8.0 billion 

shares), this would be 40 million shares 

on EDGX. 

Finally, the Super Tier has the least 

stringent criteria of the tiers mentioned 

above. In order for a Member to qualify 

for this rebate, the Member would have 

to post at least 10 million shares on 

EDGX. As stated above, these rebates 

also result, in part, from lower 

administrative and other costs 

associated with higher volume. 

The Exchange notes that it operates in 

a highly competitive market in which 

market participants can readily direct 

order flow to competing venues if they 

deem fee levels at a particular venue to 

be excessive. The proposed rule change 

reflects a competitive pricing structure 

designed to incent market participants 

to direct their order flow to the 

Exchange. The Exchange believes that 

the proposed rates are equitable in that 

they apply uniformly to all Members. 

The Exchange believes the fees and 

credits remain competitive with those 

charged by other venues and therefore 

continue to be reasonable and equitably 

allocated to Members. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The proposed rule change does not 

impose any burden on competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has not solicited, and 

does not intend to solicit, comments on 

this proposed rule change. The 

Exchange has not received any 

unsolicited written comments from 

members or other interested parties. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 19(b)(3) of 

the Act 8 and Rule 19b–4(f)(2) 9

thereunder. At any time within 60 days 

of the filing of such 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. 

IV. Solicitation of Comments 

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: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–EDGX–2011–05 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 


jdjones on DSK8KYBLC1PROD with NOTICES
13248 Federal Register / Vol. 76, No. 47 / Thursday, March 10, 2011 / Notices 

10The text of the proposed rule change is 

available on Exchange’s Web site at http:// 

www.directedge.com, on the Commission’s Web site 

at http://www.sec.gov, at EDGX, and at the 

Commission’s Public Reference Room. 

11 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 63751 

(January 21, 2011), 76 FR 4966 (‘‘Notice’’). 

4See FINRA By-Laws, Schedule A, section 1 

(describing how the TAF is applied). 

5See FINRA Rule 6710(m) (defining ‘‘AssetBacked Security’’). 

6 In addition to the TAF, the other member 

regulatory fees are the Gross Income Assessment 

and the Personnel Assessment. 

7See FINRA By-Laws, Schedule A, section 

1(b)(2). 

8See Securities Exchange Act Release No. 61566 

(February 22, 2010), 75 FR 9262 (March 1, 2010). 

See also Regulatory Notice 10–23 (April 2010). 

9See FINRA Rules 6730(c)(2) and 6730(d)(2). 

10See Securities Exchange Act Release No. 63223 

(November 1, 2010), 75 FR 68654 (November 8, 

2010) (extending the operational date of SR– 

FINRA–2009–065 to no later than June 1, 2011). 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–EDGX–2011–05. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission,10 all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. All comments received will 

be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–EDGX– 

2011–05 and should be submitted on or 

before March 31, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.11

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–5442 Filed 3–9–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–64041; File No. SR–FINRA– 

2011–004] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Granting 

Approval of a Proposed Rule Change 

Relating to the Trading Activity Fee 

Rate for Transactions in Asset-Backed 

Securities 

March 4, 2011. 

I. Introduction 

On January 10, 2011, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’), 

pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a 

proposed rule change to provide a new 

method of calculating the Trading 

Activity Fee (‘‘TAF’’) for transactions in 

Asset-Backed Securities. The proposed 

rule change was published for comment 

in the Federal Register on January 27, 

2011.3 The Commission received no 

comments on the proposal. This order 

approves the proposed rule change. 

II. Description of the Proposal 

FINRA proposes to amend Section 1 

of Schedule A to the FINRA By-Laws to 

provide a new method of calculating the 

TAF 4 for transactions in Asset-Backed 

Securities.5 The TAF is one of the 

member regulatory fees FINRA uses to 

fund its member regulation activities, 

which include examinations; financial 

monitoring; and FINRA’s policymaking, 

rulemaking, and enforcement activities.6

Generally, the TAF is assessed on the 

sale of all exchange-registered securities 

wherever executed (except debt 

securities that are not Trade Reporting 

and Compliance Engine (‘‘TRACE’’)- 

Eligible Securities), over-the-counter 

equity securities, security futures, 

TRACE-Eligible Securities (provided 

that the transaction is a Reportable 

TRACE Transaction), and all municipal 

securities subject to MSRB reporting 

requirements. The rules governing the 

TAF also include a list of transactions 

exempt from the TAF.7

In 2010, the Commission approved a 

proposed rule change that generally 

makes transactions in Asset-Backed 

Securities reportable to TRACE.8

Because Asset-Backed Securities will be 

TRACE-Eligible Securities, transactions 

in Asset-Backed Securities will 

generally be subject to the TAF. 

Currently, when reporting the size of 

a corporate bond transaction to TRACE, 

the number of bonds is reported and the 

TRACE System, which is programmed 

to reflect that one bond equals $1,000 

par value, calculates the total dollar 

volume of the transaction (e.g., 10 bonds 

× $1,000=$10,000).9 Based on this 

reporting structure, the TAF is assessed 

on a per-bond basis, but the number of 

bonds is a proxy for the size of the total 

dollar volume of a transaction in $1,000 

increments. Although some AssetBacked Securities are structured like 

conventional corporate bonds, many are 

structured differently. For example, 

many Asset-Backed Securities are based 

on financial assets that amortize, and 

the principal (or face) value declines 

over time. Accordingly, transactions in 

Asset-Backed Securities will not be 

reported to TRACE on a per-bond basis 

like conventional corporate bonds, but 

rather will be reported based on the 

original principal (or face) value of the 

underlying security or the Remaining 

Principal Balance. 

Consequently, FINRA is proposing to 

conform the TAF rate for sales of AssetBacked Securities consistent with the 

reporting of such transactions to 

TRACE. Accordingly, FINRA is 

proposing to base the TAF for sales of 

Asset-Backed Securities on the size of 

the transaction as reported to TRACE 

(i.e., par value, or, where par value is 

not used to determine the size of the 

transaction, the lesser of original face 

value or Remaining Principal Balance) 

at a rate of $0.00000075 times the size 

of the transaction as reported to TRACE, 

with a maximum charge of $0.75 per 

trade. 

The effective date of the proposed 

rule change will be the date the 

proposed rule change SR–FINRA–2009– 

065 becomes effective, which is 

currently anticipated to be May 16, 

2011.10


jdjones on DSK8KYBLC1PROD with NOTICES