Document ID: SEC-2013-2141-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2013-12-17T05:00Z

[Federal Register Volume 78, Number 242 (Tuesday, December 17, 2013)]
[Notices]
[Pages 76337-76339]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29902]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71048; File No. SR-EDGX-2013-44]

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

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, 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 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 EDGX Rule 15.1(a) and (c) 
(``Fee Schedule'') to(i) remove Flag RS, which routes to PSX and adds 
liquidity; and (ii) increase the rebate to add liquidity under the 
Market Depth Tier 1 from $0.0032 per share to $0.00325 per share and 
amend the criteria necessary to achieve the tier. 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; and (ii) increase the 
rebate to add liquidity under the Market Depth Tier 1 from $0.0032 per 
share to $0.00325 per share and amend the criteria necessary to achieve 
the tier.
Flag RS
    The Exchange proposes to amend its Fee Schedule to remove Flag RS, 
which routes to PSX and adds 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

[[Page 76338]]

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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Amendments to the Market Depth Tier 1
    The Exchange proposes to amend its Fee Schedule to increase the 
rebate to add liquidity under the Market Depth Tier 1 and amend the 
criteria necessary to achieve the tier. Footnote 1 of the Fee Schedule 
currently provides that Members may qualify for the Market Depth Tier 1 
and receive a rebate of $0.0032 per share for displayed liquidity added 
on EDGX if they post greater than or equal to 0.50% of the TCV in 
average daily trading volume (``ADV'') on EDGX in total, where at least 
1,800,000 shares are Non-Displayed Orders that yield Flag HA. First, 
the Exchange proposes to increase the rebate to add liquidity under the 
Market Depth Tier 1 from $0.0032 per share to $0.00325 per share. 
Second, the Exchange proposes to amend Footnote 1 of its Fee Schedule 
to increase the ADV requirement of the Market Depth Tier from 1,800,000 
shares of ADV to 4,000,000 shares of ADV of Non-Displayed Orders that 
yield Flag HA. Lastly, the Exchange also proposes to increase the 
requirement to post greater than or equal to 0.50% of the TCV in ADV on 
EDGX in total to 0.85% of the TCV on EDGX. The remainder of the 
footnote as it pertains to the Market Depth Tier 1 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,\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.
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    \5\ 15 U.S.C. 78f.
    \6\ 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.\7\ 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-discriminatory 
because it applies uniformly to all Members.
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    \7\ 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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Market Depth Tier 1
    The Exchange believes that increasing the TCV and ADV requirements 
for the Market Depth Tier 1 represents an equitable allocation of 
reasonable dues, fees, and other charges because increasing the 
thresholds to achieve the tier encourages Members to add displayed 
liquidity to the EDGX Book \8\ each month, as only the displayed 
liquidity in this tier is awarded the rebate of $0.00325 per share. 
This tier also recognizes the contribution that non-displayed liquidity 
provides to the marketplace, including: (i) adding needed depth to the 
EDGX market; (ii) providing price support/depth of liquidity; and (iii) 
increasing diversity of liquidity to EDGX. 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. In addition, the 
Exchange also believes that the proposed amendment to the Market Depth 
Tier is non-discriminatory because it is available to all Members 
equally.
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    \8\ The ``EDGX Book'' is defined as ``the System's electronic 
file of orders.'' See Exchange Rule 1.5(d).
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    The Exchange also believes that the increased rebate for the Market 
Depth Tier 1 represents an equitable allocation of reasonable dues, 
fees, and other charges because the higher rebate is directly 
correlated with this tier's amended criteria. The Exchange believes 
that the increased volume requirements necessary to achieve the Market 
Depth Tier 1 justifies its increased rebate. For example, for a Member 
to qualify for the tier most similar to the Market Depth Tier 1, the 
Market Depth Tier 2 and receive a rebate of $0.0029 per share, a Member 
needs to add 10,000,000 shares or more of ADV on a daily basis, 
measured monthly, and add at least 1,000,000 shares as non-displayed 
orders that yield Flag HA. For a Member to qualify for the Market Depth 
Tier 1, a Member must post at least 0.85% of the TCV in ADV on EDGX in 
total, where at least 4 million shares are non-displayed orders that 
add liquidity to EDGX yielding Flag HA. Based on a TCV of six (6) 
billion shares, this would amount to 51,000,000 shares for the Market 
Depth Tier 1 while the Market Depth Tier 2 would require an ADV of 
10,000,000 shares. Members seeking to achieve the Market Depth Tier 1 
would also be required to post at least 4 million shares of non-
displayed orders that add liquidity to EDGX yielding Flag HA, whereas 
the Market Depth Tier 2 would require that Members post 1,000,000 
shares of non-displayed orders that add liquidity to EDGX yielding Flag 
HA.
    Lastly, the Exchange believes that its proposal to increase the 
rebate offered by the Market Depth Tier 1 is non-discriminatory because 
the proposed rate would continue to be available to all Members 
equally.

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

    The Exchange believes its proposal amendments its Fee Schedule 
would 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.
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.

[[Page 76339]]

Market Depth Tier 1
    The Exchange believes that its proposal amendments to the Market 
Depth Tier would increase intermarket competition because the increased 
volume requirements would incentivize Members to send higher volume to 
the Exchange. The Exchange believes that its proposal would neither 
increase nor decrease intramarket competition because the rate for the 
Market Depth Tier would continue to be available all Members equally 
and the ability of Members to meet the tier would benefit other Members 
by contributing to increased price discovery and better 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 \9\ and Rule 19b-4(f)(2) \10\ 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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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 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-EDGX-2013-44 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-EDGX-2013-44. 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-2013-44 and should be 
submitted on or before January 7, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29902 Filed 12-16-13; 8:45 am]
BILLING CODE 8011-01-P