[Federal Register Volume 79, Number 239 (Friday, December 12, 2014)]
[Notices]
[Pages 73916-73919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-29108]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73782; File No. SR-EDGX-2014-32]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Related to 
Fees for Use of EDGX Exchange, Inc.

December 8, 2014.
    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 November 26, 2014, EDGX Exchange, Inc. (the ``Exchange'' or 
``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 Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend the fee schedule applicable 
to Members \5\ of the Exchange pursuant to EDGX Rules 15.1(a) and (c) 
(``Fee Schedule''). Changes to the Fee Schedule pursuant to this 
proposal are effective upon filing.
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    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer, or any person associated with a registered broker or dealer, 
that has been admitted to membership in the Exchange. A Member will 
have the status of a ``member'' of the Exchange as that term is 
defined in Section 3(a)(3) of the Act.'' See Exchange Rule 1.5(n).
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    The text of the proposed rule change is available at the Exchange's 
Web site at http://www.directedge.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange 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 Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fee Schedule to amend: (i) The 
criteria

[[Page 73917]]

for the Retail Order Tier under Footnote 4; and (ii) the first two 
bullets regarding added and removal flags under the General Notes 
section to include Flags EA, ER, and 5, which include in [sic] 
internalized volume.
Retail Order Tier
    The Exchange currently provides a rebate of $0.0032 per share for 
Retail Orders \6\ that yield Flag ZA and add liquidity. The Exchange 
currently offers a Retail Order Tier under Footnote 4 whereby Members 
are provided a rebate of $0.0034 per share if they: (i) Add an Average 
Daily Volume \7\ (``ADV'') of Retail Orders yielding Flag ZA that is 
0.10% or more of the Total Consolidated Volume \8\ (``TCV'') on a daily 
basis, measured monthly; and (ii) have an ``added liquidity'' to 
``added to removed liquidity'' ratio of at least 85%. The Exchange 
proposes to ease the criteria to satisfy this tier by: (i) Lowering the 
requirement that a Member have an average daily volume of Retail Orders 
of 0.10% or more of the TCV on a daily basis, measured monthly, to 
0.07% or more of the TCV on a daily basis, measured monthly; and (ii) 
deleting the requirement that a Member have an ``added liquidity'' to 
``added to removed liquidity'' ratio of at least 85%. The Exchange 
believes easing the criteria to satisfy the Retail Order Tier will 
attract more Retail Orders to the Exchange.
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    \6\ Exchange Rule 11.21(a) defines a ``Retail Order,'' in part, 
as an: (i) An agency order or riskless principal order that meets 
the criteria of FINRA Rule 5320.03 that originates from a natural 
person; (ii) is submitted to EDGX by a Member, provided that no 
change is made to the terms of the order; and (iii) the order does 
not originate from a trading algorithm or any other computerized 
methodology.
    \7\ ADV is defined in the Exchange's Fee Schedule ``as the 
average daily volume of shares that a Member executed on, or routed 
by, the Exchange for the month in which the fees are calculated. ADV 
is calculated on a monthly basis, excluding shares on any day that 
the Exchange's system experiences a disruption that lasts for more 
than 60 minutes during Regular Trading Hours (`Exchange System 
Disruption'), on any day with a scheduled early market close and on 
the last Friday in June (the `Russell Reconstitution Day').''
    \8\ TCV is defined in the Exchange's Fee Schedule ``as the 
volume reported by all exchanges and trade reporting facilities to 
the consolidated transaction reporting plans for Tapes A, B and C 
securities for the month in which the fees are calculated, excluding 
volume on any day that the Exchange experiences an Exchange System 
Disruption, on any day with a scheduled early market close or the 
Russell Reconstitution Day.''
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Added and Removal Flags
    The General Notes section of the Fee Schedule includes two bullets 
that contain the list of applicable ``added flags'' and ``removal 
flags'' that may be considered when calculating whether a Member 
satisfied a certain pricing tier. The Exchange appends Flags EA, ER, 
and 5 to orders that inadvertently match against each other and share 
the same MPID (Member shares both sides of the trade). The Exchange 
proposes to amend the first bullet regarding added flags to include 
Flag EA, which covers internalized trades that add liquidity. The 
Exchange also proposes to amend the second bullet regarding removal 
flags to include Flag ER, which covers internalized trades that remove 
liquidity. Lastly, the Exchange proposes to amend both the first and 
second bullets to include Flag 5, which covers internalized trades that 
add or remove liquidity during the pre and post market sessions. The 
Exchange also proposes to add Footnote 10 to state that a Member's 
monthly volume attributed to Flag 5 will be divided evenly between the 
added flags and removal flags when determining whether that Member 
satisfied a certain tier. The Exchange proposes to divide a Member's 
Flag 5 volume as such because the Exchange's systems cannot currently 
delineate orders yielding Flag 5 that added from those that removed 
liquidity for purposes of determining whether a Member satisfies a 
certain tier.
Implementation Date
    The Exchange proposes to implement these amendments to its Fee 
Schedule on December 1, 2014.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\9\ in general, and 
furthers the objectives of Section 6(b)(4),\10\ 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 also 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 and non-discriminatory 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.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4).
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Retail Order Tier
    The Exchange believes that easing the criteria required to achieve 
the Retail Order Tier is reasonable, equitable and not unfairly 
discriminatory because it would continue to encourage Members to send 
additional Retail Orders that add liquidity to the Exchange for 
execution in order to qualify for an incrementally higher rebate for 
such executions that add liquidity. The potential for increased volume 
from Retail Orders would increase potential revenue to the Exchange, 
and 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 in turn would allow the Exchange to 
pass on the savings to Members in the form of lower fees. The increased 
liquidity 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. The Exchange notes that 
a significant percentage of the orders of individual investors are 
executed over-the-counter.\11\ The Exchange believes that it is thus 
appropriate to continue to create a financial incentive to bring more 
retail order flow to a public market, such as the Exchange, over off-
exchange venues. The Exchange believes that investor protection and 
transparency is promoted by rewarding displayed liquidity on exchanges 
over off-exchange executions. In this regard, the Exchange believes 
that maintaining or increasing the proportion of Retail Orders in 
exchange-listed securities that are executed on a registered national 
securities exchange (rather than relying on certain available off-
exchange execution methods) would contribute to investors' confidence 
in the fairness of their transactions and would benefit all investors 
by deepening the Exchange's liquidity pool, supporting the quality of 
price discovery, promoting market

[[Page 73918]]

transparency and improving investor protection.
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    \11\ See Concept Release on Equity Market Structure, Securities 
Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594 
(January 21, 2010) (noting that dark pools and internalizing broker-
dealers executed approximately 25.4% of share volume in September 
2009). See also Mary L. Schapiro, Strengthening Our Equity Market 
Structure (Speech at the Economic Club of New York, Sept. 7, 2010) 
(available on the Commission's Web site). In her speech, Chairman 
Schapiro noted that nearly 30 percent of volume in U.S.-listed 
equities was executed in venues that do not display their liquidity 
or make it generally available to the public and the percentage was 
increasing nearly every month.
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    The Exchange believes that reducing the percentage of TCV required 
to achieve the Retail Order Tier from 0.10% to 0.07% for Members' 
Retail Orders that add liquidity (Flag ZA) is reasonable, equitable and 
not unfairly discriminatory because this percentage continues to be 
within a range that the Exchange believes would incentivize Members to 
submit Retail Orders to the Exchange in order to qualify for the 
applicable rebate of $0.0034 per share. The Exchange notes that certain 
other existing pricing tiers within its Fee Schedule make rebates 
available to Members that are also based on the Member's level of 
activity as a percentage of TCV. These existing percentage thresholds, 
depending on other related factors and the level of the corresponding 
rebates, are both higher and lower [sic] than the 0.07% proposed 
herein.\12\
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    \12\ See for example, the Market Depth Tier 1 Rebate ($0.00325 
per share rebate), Mega Step-Up Tier Rebate ($0.0032 per share), 
Ultra Tier rebate ($0.0031 per share rebate), and Investor Tier 
rebate ($0.0032 per share rebate) that are all tied to a percentage 
of TCV.
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    The Exchange also notes that the revisions to the Retail Order 
Tier, including removing the requirement that Members have an ``added 
liquidity'' to ``added to removed liquidity'' ratio of at least 85%, 
are reasonable in that NYSE Arca, Inc. (``NYSE Arca'') offers a 
comparable Retail Order Tier (with an analogous Retail Order 
definition) that provides a rebate of $0.0033 per share for its Retail 
Orders that provide liquidity on NYSE Arca in Tapes A, B and C 
securities for ETP Holders that execute an ADV of Retail Orders that is 
0.20% or more of the TCV with no additional criteria.\13\ In addition, 
The NASDAQ Stock Market LLC (``Nasdaq'') recently proposed to offer its 
members a rebate of $0.0034 per share for Designated Retail Orders, as 
defined by Nasdaq, where the member adds Customer and/or Professional 
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of 
1.40% or more of national customer volume in multiply-listed equity and 
ETF options classes in a month as pursuant to Chapter XV, Section 2 of 
the Nasdaq Options Market rules.\14\ Moreover, like existing pricing on 
the Exchange and the NYSE that are tied to Member's volume levels as a 
percentage of TCV, the proposed Retail Order Tier continues to be 
equitable and not unfairly discriminatory because it is available to 
all Members on an equal and non-discriminatory basis.
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    \13\ See Securities Exchange Act Release No. 69134 (March 14, 
2013), 78 FR 17247 (March 20, 2013) (SR-NYSEArca-2013-24). See also, 
NYSE Arca Equities, Inc., Schedule of Fees and Charges for Exchange 
Services, https://usequities.nyx.com/sites/usequities.nyx.com/files/nyse_arca_marketplace_fees_3_1_13.pdf.
    \14\ See Securities Exchange Act Release No. 73648 (November 19, 
2014) (SR-Nasdaq-2014-108). See also Nasdaq Price List available at 
http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
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Added and Removal Flags
    The Exchange believes that its proposal to amend two bullets under 
the General Notes section of the Fee Schedule that contain the list of 
applicable ``added flags'' and ``removal flags'' are [sic] represents 
an equitable allocation of reasonable dues, fees, and other charges 
among Members and other persons using its facilities. The Exchange 
appends Flag EA, ER, and 5 to buy and sell orders that inadvertently 
match against each other and share the same MPID (Member shares both 
sides of the trade). The Exchange also believes proposed Footnote 10 
stating that a Member's monthly volume attributed to Flag 5 will be 
divided evenly between the added flags and removal flags when 
determining whether that Member satisfied a certain tier represents an 
equitable allocation of reasonable dues, fees, and other charges. The 
Exchange proposes to divide a Member's Flag 5 volume as such because 
Flag 5 includes both added and removed liquidity because the Exchange's 
systems cannot currently delineate orders yielding Flag 5 that added 
from those that removed liquidity purposes of determining whether a 
Member satisfies a certain tier. The Exchange believes that Members 
orders that yield Flags EA, ER, or 5 should be included in the 
calculation of the ADV threshold as added or removal flags for purposes 
of determining whether a tier's criteria has been met. Including such 
Flags would be a reasonable means to encourage Members to direct their 
orders to the Exchange because they would have certainty that certain 
orders will not be excluded from their ADV calculations because it 
inadvertently matched against an order sharing the same MPID. Lastly, 
the Exchange also believes that the proposed amendment is non-
discriminatory because it applies uniformly to all Members.

B. Self-Regulatory Organization's Statement on Burden on Competition

    These proposed rule changes do not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. The Exchange does not believe that any of these changes 
represent a significant departure from previous pricing offered by the 
Exchange or pricing offered by the Exchange's competitors. 
Additionally, Members may opt to disfavor EDGX's pricing if they 
believe that alternatives offer them better value. Accordingly, the 
Exchange does not believe that the proposed changes will impair the 
ability of Members or competing venues to maintain their competitive 
standing in the financial markets.
Retail Order Tier
    Regarding the Retail Order Tier, the Exchange believes that its 
proposal to amend the criteria to achieve the tier will increase 
intermarket competition for Retail Orders because the proposed Retail 
Order Tier is comparable in price and criteria to NYSE Arca and 
Nasdaq's retail order tier.\15\ In addition, the proposed rule change 
is in direct response to Nasdaq recently implementing a rebate for 
retail orders of $0.0034 per share where the member adds Customer and/
or Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of 1.40% or more of national customer volume in multiply-listed 
equity and ETF options classes in a month as pursuant to Chapter XV, 
Section 2 of the Nasdaq Options Market rules.\16\ The Exchange believes 
that its proposal would neither increase nor decrease intramarket 
competition because the Retail Order Tier would continue to apply 
uniformly to all Members and the ability of some Members to meet the 
Retail Order Tier would only benefit other Members by contributing to 
increased retail liquidity on the Exchange.
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    \15\ See NYSE Arca, NYSE Arca Equities Trading Fees--Retail 
Order Tier, available at http://usequities.nyx.com/markets/nyse-arca-equities/trading-fees (last visited June 27, 2013). See also 
Nasdaq, Price List--Rebate to Add Displayed Designated Retail 
Liquidity, available at http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2 (last visited June 27, 2013).
    \16\ See supra note 14.
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Added and Removal Flags
    The Exchange believes that adding orders yielding Flags EA, ER, and 
5 to the ``added flags'' and ``removal flags'' would increase 
intermarket competition because it would encourage Members to direct 
their orders to the Exchange because they would have certainty that 
their orders will not be excluded from their ADV calculations because 
it inadvertently matched against an order sharing the same MPID. The 
Exchange believes that its proposal would neither increase nor decrease 
intramarket competition because the added and removal flags would 
continue to apply uniformly to all Members and the ability of some 
Members to meet the tiers

[[Page 73919]]

would only benefit other Members by contributing to increased liquidity 
and improve market quality at the Exchange.

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)(A) of the Act \17\ and paragraph (f) of Rule 19b-4 
thereunder.\18\ 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.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f).
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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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#a8daddc4cd85cbc7c5c5cdc6dcdbe8dbcdcb86cfc7de"><span class="__cf_email__" data-cfemail="1a686f767f37797577777f746e695a697f79347d756c">[email protected]</span></a>. Please include 
File Number SR-EDGX-2014-32 on the subject line.

Paper Comments

    <bullet> 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 Number SR-EDGX-2014-32. 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 Web site (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 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 
10:00 a.m. and 3:00 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-2014-32, and should be 
submitted on or before January 2, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29108 Filed 12-11-14; 8:45 am]
BILLING CODE 8011-01-P


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