Document ID: SEC-2011-0336-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2011-03-10T05:00Z

[Federal Register Volume 76, Number 47 (Thursday, March 10, 2011)]
[Notices]
[Pages 13246-13248]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-5442]

[[Page 13246]]

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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 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). 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.
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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

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.
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    \4\ The 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.
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    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.
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(4).
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    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

[[Page 13247]]

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\
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    \7\ See 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).
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    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.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 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 e-mail to rule-comments@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,

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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.
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    \10\ The 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.

    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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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5442 Filed 3-9-11; 8:45 am]
BILLING CODE 8011-01-P