Document ID: SEC-2013-2134-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGA Exchange, Inc.
Posted Date: 2013-12-17T05:00Z

[Federal Register Volume 78, Number 242 (Tuesday, December 17, 2013)]
[Notices]
[Pages 76360-76363]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29901]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71047; File No. SR-EDGA-2013-35]

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

December 11, 2013.
    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 29, 2013, EDGA Exchange, Inc. (the ``Exchange'' or 
``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) 
(``Fee Schedule'') to: (i) Remove Flag RS, which routes to NASDAQ OMX 
PSX (``PSX'') and adds liquidity; (ii) make a non-substantive, 
corrective change to both Step-Up Tier 1 and Step-Up Tier 2 under 
Footnote 4; and (3) amend the criteria of both Step-Up Tier 1 and Step-
Up Tier 2 under Footnote 4. The text of the proposed rule change is 
available on the Exchange's Internet Web site at www.directedge.com, at 
the Exchange's principal office, and at the Public Reference Room of 
the Commission.
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    \3\ 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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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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fee Schedule to: (i) Remove Flag 
RS, which routes to PSX and adds liquidity; (ii) make a non-
substantive, corrective change to both Step-Up Tier 1 and Step-Up Tier 
2 under Footnote 4; and (iii) amend the criteria of both Step-Up Tier 1 
and Step-Up Tier 2 under Footnote 4.
Flag RS
    The Exchange proposes to delete Flag RS from its Fee Schedule. 
Orders that yield Flag RS are routed to the PSX and add liquidity. The 
Exchange currently rebates orders that yield Flag RS $0.0020 per share 
for securities priced at or above $1.00 and charges no fee for 
securities priced below $1.00. These fees represent a pass through of 
the rate that Direct Edge ECN LLC (d/b/a DE Route) (``DE Route''), the 
Exchange's affiliated routing broker-dealer, is rebated for routing 
orders to PSX when it does not qualify for a volume tiered rate. The 
Exchange recently began to incur increased excessive messaging fees 
from PSX.\4\ To mitigate the increased messaging fees, the Exchange 
intends to delete Flag RS from its Fee Schedule and no longer permit 
Members to route orders via DE Route to post on the PSX. Members would 
continue to be able to route orders to PSX and remove liquidity via DE 
Route.
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    \4\ See the Excessive Messaging Policy under the Nasdaq Stock 
Market LLC fee schedule available at http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2 (last visited November 20, 2013).
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Step-Up Tiers 1 and 2
    Footnote 4 of the Fee Schedule contains the Step-Up Tier 1 and 
Step-

[[Page 76361]]

Up Tier 2 (collectively, the ``Step-Up Tiers''). Step-Up Tier 1 
provides Members with a reduced fee of $0.0003 per share for adding 
liquidity to the Exchange when the Member, on an MPID basis, adds more 
than 0.10% of the total consolidated volume (``TCV'') on EDGA on a 
daily basis, measured monthly, more than the MPID's December 2012 added 
TCV. The Step-Up Tier 2 provides Members with a reduced fee of $0.0003 
per share to add liquidity to the Exchange when the Member: (i) On an 
MPID basis, adds more than 0.05% of the TCV on EDGA on a daily basis, 
measured monthly, more than the MPID's December 2012 added TCV; and 
(ii) has an ``added liquidity'' to ``added plus removed liquidity'' 
ratio of at least 85%. Under both tiers, where an MPID's December 2012 
TCV is zero, the Exchange would apply a default TCV baseline of 
10,000,000 shares. The Exchange now proposes to make two changes to 
both Step-Up Tiers.
    First, the Exchange proposes to correct an inadvertent drafting 
error in the criteria related to TCV requirements for the Step-Up Tiers 
outlined above. Specifically, the Exchange proposes to amend the Step-
Up Tiers to replace the term ``TCV'' \5\ with ``ADV'' \6\ when 
referring to the baseline the Member must exceed to achieve the tier. 
In practice, a Member cannot have an added TCV on the Exchange since 
TCV is comprised of volume reported by all exchanges and trade 
reporting facilities to the consolidated transaction reporting plans. 
Therefore, basing a Member's eligibility for the Step-Up Tiers on their 
added TCV is impracticable. The Exchange notes that its proposal 
conforms to an existing practice and does not modify the criteria that 
the Exchange has been using for its Members for achieving the tiers. 
The Exchange will continue to calculate whether a Member satisfied 
criteria based on the Member's ADV, not TCV, when considering the 
baseline the Member must exceed to achieve the tier.
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    \5\ ``TCV'' is defined 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.'' See Exchange Fee Schedule available 
at http://www.directedge.com/Trading/EDGAFeeSchedule.aspx (last 
visited November 27, 2013).
    \6\ ``ADV'' is defined as the ``average daily volume of shares 
that a Member executed on the Exchange for the month in which the 
fees are calculated.'' See Exchange Fee Schedule available at http://www.directedge.com/Trading/EDGAFeeSchedule.aspx (last visited 
November 27, 2013).
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    Second, the Exchange proposes to amend the baseline eligibility 
criteria for the Step-Up Tiers to allow a greater number of Members to 
participate. In general terms, the baseline eligibility criteria is the 
liquidity in percentage of TCV a Member adds to the Exchange in excess 
of their December 2012 ADV. To the extent that a Member's added 
liquidity exceeds their December 2012 ADV, the Member may be eligible 
for the Step-Up Tiers. The current baseline eligibility for Step-Up 
Tier 1 requires the Member to, on an MPID basis, add more than 0.10% of 
the TCV on EDGA on a daily basis, measured monthly, more than the 
MPID's December 2012 added ADV.\7\ The current baseline eligibility for 
Step-Up Tier 2 requires the Member to, on an MPID basis, add more than 
0.05% of the TCV on EDGA on a daily basis, measured monthly, more than 
the MPID's December 2012 added ADV.\8\
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    \7\ The Exchange notes that the current criteria for the Step-Up 
Tiers inaccurately states ``. . . MPID's December 2012 added TCV.'' 
As stated above, the Exchange is proposing to amend the Step-Up 
Tiers to replace the term ``TCV'' with ``ADV.''
    \8\ Id.
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    The Exchange proposes to modify the baseline eligibility for the 
Step-Up Tiers to allow the Member's added liquidity in percentage of 
TCV to be more than the lower of its ADV for December 2012 or September 
2013. Thus, to the extent a Member's eligibility is limited by having a 
high ADV in December 2012, the Member may have a greater chance to be 
eligible for either Step-Up Tier 1 or Step-Up Tier 2 to the extent its 
ADV was lower in September 2013 than December 2012. Conversely, a 
Member with a lower ADV in December 2012 would continue to be eligible 
for the Step-Up Tiers based on that ADV. Specifically, the Exchange 
proposes to amend the criteria for Step-Up Tier 1 to now require that 
the Member, on an MPID basis, measured monthly, add more than 0.10% of 
the MPID's December 2012 or September 2013 added ADV, whichever is 
lower. Likewise, the Exchange proposes amend the criteria for Step-Up 
Tier 2 to require that Members add more than adds more than 0.05% of 
the MPID's December 2012 or September 2013 added ADV, whichever is 
lower.
    The revised criteria for Step-Up Tier 1 would read as follows:
    On an MPID basis, add more than 0.10% of the TCV on EDGA on a daily 
basis, measured monthly, more than the MPID's December 2012 or 
September 2013 added ADV, whichever is lower.
    Where an MPID's December 2012 and September 2013 ADV is zero, then 
the Exchange applies a default ADV baseline of 10,000,000 shares.
    The revised criteria for Step-Up Tier 2 would read as follows:
    On an MPID basis:
    (1) Add more than 0.05% of the TCV on EDGA on a daily basis, 
measured monthly, more than the MPID's December 2012 or September 2013 
added ADV, whichever is lower; and
    (2) Have an ``added liquidity'' to ``added plus removed liquidity'' 
ratio of at least 85%. (No change).
    Where an MPID's December 2012 and September 2013 ADV is zero, then 
the Exchange applies a default ADV baseline of 10,000,000 shares.
    The remainder of the footnote as it pertains to Step-Up Tier 1 and 
Step-Up Tier 2 would remain unchanged.
Implementation Date
    The Exchange proposes to implement these amendments to its Fee 
Schedule on December 2, 2013.
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.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4).
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Flag RS
    The Exchange believes that its proposal to delete Flag RS from its 
Fee Schedule represents an equitable allocation of reasonable dues, 
fees, and other charges among Members and other persons using its 
facilities because it will no longer offer routing to the PSX via its 
System routing table. The Exchange recently began to incur increased 
excessive messaging fees from PSX.\11\ To mitigate the increased 
messaging fees, the Exchange intends to delete Flag RS and no longer 
allow Members to route orders DE Route to post on the PSX. The Exchange 
notes that it will continue to comply with its obligations under 
Regulation NMS and will route to PSX to remove liquidity; however, it 
will not continue to offer Flag RS as a routing option to post 
liquidity to the PSX. Members seeking to post orders on the PSX may 
select alternative routing methods or to access the PSX directly. The 
Exchange believes that the proposed amendment is non-

[[Page 76362]]

discriminatory because it applies uniformly to all Members.
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    \11\ See the Excessive Messaging Policy under the Nasdaq Stock 
Market LLC fee schedule available at http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2 (last visited November 20, 2013).
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Step-Up Tiers 1 and 2
    The Exchange believes that its proposal to replace the term ``TCV'' 
with ``ADV'' in the Step-Up Tiers when referring to the baseline the 
Member must exceed to achieve the tier is reasonable because it will 
increase the level of transparency on the Exchange's Fee Schedule and 
improve the Exchange's ability to effectively convey the criteria 
necessary to achieve the tiers. The Exchange notes that its proposal 
conforms to an existing practice and does not modify the rebate that 
the Exchange has been providing its Members for achieving the Step-Up 
Tiers. The Exchange has historically calculated and will continue to 
calculate whether a Member satisfied the Step-Up Tier's criteria based 
on their ADV, and not TCV. Lastly, the Exchange also believes that 
these proposed amendments are non-discriminatory because they would be 
available to all Members equally.
    The Exchange believes its proposal to modify the baseline 
eligibility for the Step-Up Tiers to allow the Member's added liquidity 
in percentage of TCV to be based on the lower of its ADV for December 
2012 or September 2013 represents an equitable allocation of reasonable 
dues, fees, and other charges since reduced fees reward higher 
liquidity provision commitments by Members. The primary objective to 
amending the baseline eligibility criteria for the Step-Up Tiers to 
increase the number of Members who may be eligible to achieve the tier. 
The change enhances the number of Members by modifying the baseline 
eligibility for the Step-Up Tiers to reflect the lower of its ADV for 
December 2012 or September 2013. Given the requirement that a Member 
must exceed a percentage of liquidity in excess of their December 2012 
ADV, the change will enhance the value of the Step-Up Tiers to Members 
whose market participation was higher in December 2012 than September 
2013, thereby encouraging them to increase their volume on the Exchange 
over such baseline. Such increased volume would increase potential 
revenue to the Exchange and allow the Exchange to spread its 
administrative and infrastructure costs over a greater number of 
shares, which would result in lower per share costs. The Exchange may 
then pass on these savings to Members in the form of reduced fees. The 
increased liquidity would also benefit all investors by deepening 
EDGA'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.
    In addition, the amended criteria for the Step-Up Tiers is also 
reasonable as compared to similar pricing mechanisms based on similar 
criteria (the lower volume of two months) employed by The Nasdaq Stock 
Market LLC (``Nasdaq''). Nasdaq's Investor Support Program enables 
members to receive a fee credit for providing additional liquidity to 
Nasdaq based on the Member equaling or exceeding a baseline volume of 
liquidity added to Nasdaq.\12\ Under the Nasdaq program, the member's 
baseline is a percentage of monthly consolidated volume calculated by 
dividing the total number of share of liquidity that the member added 
on Nasdaq in August 2010 or August 2011, whichever is lower. Lastly, 
the Exchange believes that it is reasonable and equitable to offer a 
discounted rate to Members who satisfy a baseline eligibility based on 
the percentage of a Member's added liquidity to be based on the lower 
of its ADV for December 2012 or September 2013 because the Exchange 
believes that such Members are most likely to provide consistent 
liquidity during periods of market stress and to manage their quotes/
orders in a coordinated manner that promotes price discovery and market 
stability.
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    \12\ See Nasdaq Rule 7014.
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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 EDGA'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.
Flag RS
    The Exchange believes that its proposal to delete Flag RS from its 
Fee Schedule would not impact intermarket competition because Members 
seeking to access the PSX to add liquidity may select alternative 
routing methods or access the PSX directly. The Exchange believes that 
its proposal would not burden intramarket competition because the 
proposed repeal of Flag RS would be available to all Members equally.
Step-Up Tiers 1 and 2
    The Exchange believes that correcting an inadvertent drafting error 
by replacing the term ``TCV' with ``ADV'' in the Step-Up Tiers when 
referring to the baseline the Member must exceed to achieve the tier 
would not impose a burden on intermarket competition because it simply 
clarifies for Members how the criteria under the Step-Up Tiers has and 
will continue to be calculated by the Exchange. The Exchange has 
historically and will continue to calculate whether a Member satisfied 
criteria based on the Member's ADV, and not TCV. The Exchange does not 
propose to amend any of the existing criteria under the Step-Up Tiers. 
It simply seeks to correct in its Fee Schedule how the criteria under 
the Step-Up Tiers has and will continue to be calculated. The Exchange 
believes that its proposal would neither increase nor decrease 
intramarket competition because the criteria, as amended, in Step-Up 
Tiers would continue to be available to all Members equally.
    The Exchange also believes that its proposal to modify the baseline 
eligibility for the Step-Up Tiers to allow the percentage of a Member's 
added liquidity to be based on the lower of its ADV for December 2012 
or September 2013 would increase intermarket competition because it 
offers Members increased opportunities to be eligible for the Step-Up 
Tiers and receive the discounted rate. Given the requirement that a 
Member must exceed a percentage of liquidity in excess of their 
December 2012 ADV, the change will enhance the value of the Step-Up 
Tiers to Members whose market participation was higher in December 2012 
than September 2013, thereby encouraging them to increase their volume 
on the Exchange, and thereby increasing intermarket competition. The 
Exchange believes that its proposal would not burden intramarket 
competition because the proposed rate would be available to all Members 
equally.

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.

[[Page 76363]]

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 \13\ and Rule 19b-4(f)(2) \14\ 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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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-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-2013-35 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-2013-35. 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-EDGA-2013-35 and should be 
submitted on or before January 7, 2014.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29901 Filed 12-16-13; 8:45 am]
BILLING CODE 8011-01-P