Document ID: SEC-2011-1738-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGA Exchange, Inc.
Posted Date: 2011-11-10T05:00Z

[Federal Register Volume 76, Number 218 (Thursday, November 10, 2011)]
[Notices]
[Pages 70202-70204]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29107]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65685; File No. SR-EDGA-2011-36]

 Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Amendments to the EDGA Exchange, Inc. Fee Schedule

November 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 October 31, 2011, the EDGA Exchange, Inc. (the ``Exchange'' or 
the ``EDGA'') 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 self-regulatory 
organization. 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.
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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 EDGA Rule 15.1(a) and (c). All 
of the changes described herein are applicable to EDGA Members. The 
text of the proposed rule change is available on the Exchange's 
Internet Web site at http://www.directedge.com.
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    \3\ A 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.
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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

Purpose
    The Exchange proposes to increase its charge for customer 
internalization on Flag 5 from $0.0001 per share, per side, to $0.00015 
per share per side, to move in lockstep with the proposed maker/taker 
fee spread of $0.0003, which was implemented in the October 1, 2011 fee 
schedule, where the Exchange decreased its rebate from $0.0005 per 
share to $0.0004 per share for adding liquidity and increased its 
charge from $0.0006 per share to $0.0007 per share for removing 
liquidity. The increase in the charge for Flag 5 corresponds to the 
Exchange's increase in its charge for customer internalization in Flag 
E from $0.0001 per share, per side (prior to October 1, 2011) to 
$0.00015 per share per side on October 1, 2011.
    The Exchange proposes to add a new tier that provides if a Member, 
on a daily basis, measured monthly, posts more than 0.25% of the Total 
Consolidated Volume \4\ (``TCV'') in average daily volume and removes 
more than 0.25% of TCV in average daily volume, then the Member will 
receive a rebate of $0.0005 per share. This amendment is reflected in 
the language in footnote 4 of the Exchange's fee schedule. The new tier 
will also apply to Flags B, V, Y, 3 and 4, as these flags have a 
footnote 4 appended to them.
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    \4\ 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 for the month prior to the month in 
which the fees are calculated.
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    The Exchange also proposes to decrease the charge assessed for a 
Directed Intermarket Sweep Order \5\ (``Directed ISO'') from $0.0033 
per share to $0.0032 per share, which is reflected in Flag S of the 
Exchange's fee schedule.
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    \5\ See Exchange Rule 11.5(d)(2).
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    The Exchange proposes to implement these amendments to its fee 
schedule on November 1, 2011.
Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Exchange Act,\6\ in general, 
and furthers the objectives of Section 6(b)(4),\7\ in particular, as it 
is designed to provide

[[Page 70203]]

for the equitable allocation of reasonable dues, fees and other charges 
among its members and other persons using its facilities.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
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    The Exchange proposes to increase its charge for customer 
internalization in Flag 5 from $0.0001 per share, per side, to $0.00015 
per share per side. This increase will enable the charge on Flag 5 to 
move in lockstep with the Exchange's October 1, 2011 decrease in its 
rebate from $0.0005 per share to $0.0004 per share for adding liquidity 
and increase in its charge from $0.0006 to $0.0007 per share for 
removing liquidity. The latter amendments to the Exchange's fee 
schedule were designed to allow the Exchange to compete with other 
market centers.\8\ In addition, the increase in the charge for Flag 5 
corresponds to the Exchange's increase in its charge for customer 
internalization in Flag E from $0.0001 per share, per side, to $0.00015 
per share per side on its October 1, 2011, fee schedule. The increased 
revenue to the Exchange from the rate increase would allow the Exchange 
to have additional revenue to offset administrative and infrastructure 
costs. The Exchange believes that the proposed rate is non-
discriminatory in that it applies uniformly to all Members.
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    \8\ In its October 2011 fee filing, the Exchange stated that the 
proposed maker/taker fee spread of $0.0002 or $0.0003, depending on 
if a tier is met (see footnote 4), was reasonable as the proposed 
maker/taker spread was competitive with other market centers maker/
taker spreads (BATS BZX Exchange, 0-$0.0004 per share), Nasdaq OMX 
PSX ($.0001-$.0003 per share), and Nasdaq BX ($0.0001-$0.0013) per 
share).
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    The Exchange's proposal to amend its fee schedule to create a tier 
to provide an increased rebate of $0.0005 per share if Members post 
more than 0.25% of the TCV in average daily volume and remove more than 
0.25% of TCV in average daily volume is designed to incentivize Members 
to both add and remove liquidity from EDGA.
    The potential increase in volume from the new tier benefits all 
investors by deepening EDGA's liquidity pool, supporting the quality of 
price discovery, promoting market transparency and improving investor 
protection. Volume-based discounts such as the rebate proposed herein 
have been widely adopted in the cash equities markets 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. 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 rebate of $0.0005 per share. 
The Exchange believes that the proposed rebate is nondiscriminatory in 
that it applies uniformly to all Members.
    Currently, there is a tier on EDGA's fee schedule that provides a 
rebate of $0.0005 per share where a Member, on a daily basis, measured 
monthly, posts more than 1% of the TCV in average daily volume. Based 
on average TCV for September 2011 (8.5 billion), in order to a Member 
to qualify for a rebate of $0.0005 per share under this criteria, the 
Member would have to post 85 million shares.
    Another way to qualify for a rebate of $0.0005 per share, as 
proposed in this filing, would be for the Member, based on average TCV 
for September 2011 (8.5 billion), to add more than 22,000,000 shares 
and remove more than 22,000,000 shares. The Exchange believes that 
adding an additional way to qualify for the $0.0005 rebate per share 
represents an equitable allocation of reasonable dues, fees, and other 
charges since other exchanges offer similar rebates for adding and 
removing different amounts of liquidity based on the inherent value of 
said activity to their exchange. Likewise, the Exchange values Members 
that post more than 0.25% of TCV in average daily volume and remove 
more than 0.25% of TCV in average daily volume similar to Members that 
post more than 1% of TCV in average daily volume. The Exchange believes 
that adding another means to qualify for the tiered rebate incentivizes 
adders and removers of liquidity as well as just adders of liquidity 
and the practice of offering tiers to attract removers of liquidity to 
an exchange has become commonplace throughout the equities markets.\9\
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    \9\ See NASDAQ's price list where NASDAQ offers a rebate of 
$0.00295 per share for members adding greater than 1.0% and adding 
and removing greater than 200,000 total contracts on the NASDAQ 
Options Market, and NASDAQ offers a rebate of $0.0029 per share for 
members adding greater than 0.15% and adding and removing greater 
than 115,000 total contracts on the NASDAQ Options Market. In 
addition, NASDAQ also offers a rebate of $0.0029 per share for 
members adding a minimum of 2 million shares per day and removing 
greater than 0.65%. NASDAQ also offers a rebate of $0.0025 per share 
for members that add a minimum of 2 million shares per day and 
remove greater than 0.45%. See also http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2. See also the BATS Exchange Fee 
schedule where BATS offers a rebate of $0.0029 per share for adding 
displayed liquidity for members who have an ADV equal to or greater 
than 1.0% of average TCV, where ADV means average daily volume 
calculated as the number of shares added or removed, combined, per 
day on a monthly basis. See also http://www.batstrading.com/resources/regulation/rule_book/BZX_Fee_Schedule.pdf.
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    The Exchange believes that the proposed decrease in the rate for 
Directed ISOs from $0.0033 per share to $0.0032 per share represents an 
equitable allocation of reasonable dues, fees, and other charges. The 
Exchange believes that this decreased fee to Members would provide an 
incentive for Members to provide liquidity that supports the quality of 
price discovery and promotes market transparency. Such increased volume 
also 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 lower fee. The fee is reasonable when compared 
to other market centers' fees for Directed ISOs, including, BATS that 
charges a fee of $0.0033 per share and NASDAQ that charges a fee of 
$0.0035 per share for routing Directed ISOs.\10\ The Exchange believes 
that the proposed rate is non-discriminatory in that it applies 
uniformly to all Members.
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    \10\ Id.
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    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.

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.

[[Page 70204]]

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 \11\ and Rule 19b-4(f)(2) \12\ 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.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 19b-4(f)(2).
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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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-EDGA-2011-36 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-EDGA-2011-36. 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 
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-EDGA-2011-36 and should be 
submitted on or before December 1, 2011.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-29107 Filed 11-9-11; 8:45 am]
BILLING CODE 8011-01-P