Document ID: SEC-2012-0071-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2012-01-18T05:00Z

[Federal Register Volume 77, Number 11 (Wednesday, January 18, 2012)]
[Notices]
[Pages 2597-2600]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-769]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66129; File No. SR-EDGX-2011-39]

 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

January 11, 2012.
    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 December 30, 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

    EDGX Exchange, Inc. (``EDGX'' or 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). Text of the proposed rule change 
is attached as Exhibit 5.
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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 amend its fee schedule to add footnote b 
to it to

[[Page 2598]]

specify that trading activity on days when the market closes early \4\ 
does not count toward any volume tiers, which are currently found in 
footnotes 1, 6, and 11.
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    \4\ In 2012, these days include July 3, 2012, November 23, 2012, 
and December 24, 2012.
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    The Exchange proposes to amend the Super Tier to lower the rebate 
from $0.0030 per share to $0.0028 per share.
    The Exchange proposes to amend the following tier to lower the 
rebate to $0.0028 per share as well: Members that post 0.065% of the 
TCV in average daily volume more than their February 2011 average daily 
volume added to EDGX will qualify for a $0.0029 per share rebate 
(unless they otherwise qualify for a higher rebate) (the ``0.065% TCV 
Tier'').
    The Exchange proposes to add another method to qualify for the Mega 
Tier rebate of $0.0032 per share if Members add or route at least 
4,000,000 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 .20% of the 
Total Consolidated Volume (TCV) on a daily basis measured monthly, 
including during both market hours and/or pre and post-trading hours.
    The Exchange proposes to implement these amendments to its fee 
schedule on January 1, 2012.
Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Exchange 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 proposes to amend its schedule to add footnote b to 
specify that trading activity on days when the market closes early does 
not count toward volume tiers (footnotes 1, 6, and 11). Since the 
Exchange is only open until 1PM Eastern Time (``ET'') on these days 
(e.g., the day after Thanksgiving),\7\ the Exchange believes that 
counting volume on these days towards the tiers would not be 
illustrative of typical market activity or liquidity provision, since 
the trading day is shortened. Therefore, the Exchange proposes to 
exclude such shortened trading days from any volume tier calculations, 
as presently found in footnotes numbers 1, 6, and 11. The Exchange 
believes that the proposed amendment is non-discriminatory in that it 
applies uniformly to all Members and would more accurately represent 
their trading volume. In addition, the proposed amendment is in 
accordance with the practices employed by other Exchanges.\8\
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    \7\ In 2012, these days include July 3, 2012, November 23, 2012, 
and December 24, 2012.
    \8\ See fee schedules of Nasdaq and NYSE Arca found at: http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2; and https://usequities.nyx.com/sites/usequities.nyx.com/files/nyse_arca_marketplace_fees_12_1_2011.pdf
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    The reduction in rebate of the Super Tier from $0.0030 per share to 
$0.0028 per share 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, when the Exchange lowered its 
removal rate from $0.0030 per share to $0.0029 per share (October 
2012), a more significant percentage of EDGX members achieved inverted 
rates, where the rebate paid to Members for adding liquidity was more 
than the removal rate of $0.0029 per share. Given this result, and 
since the Super Tier has less stringent criteria than either the Mega 
Tier or Ultra Tier, the Exchange is proposing to moderate the rate and 
decrease the rebate so that the maker/taker spread is no longer 
inverted for such a large percentage of Members.
    The Exchange believes that the reduced rebate for the Super Tier 
and the alternative criteria to qualify for the Mega Tier rebate of 
$0.0032 per share 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 $0.0034/$0.0032 per share have the most 
stringent criteria associated with them, and are $0.0003/$0.0001 
greater than the Ultra Tier rebate ($0.0031 per share) and $0.0006/
$0.0004 greater than the proposed Super Tier rebate ($0.0028 per 
share).
    For example, in order for a Member to qualify for the Mega Tier 
rebate of $0.0034, the Member would have to add or route at least 
4,000,000 shares of average daily volume during pre and post-trading 
hours and add a minimum of 20,000,000 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 November 2011 (8.0 billion), this would be 60 million shares on 
EDGX. A second method to qualify for the rebate of $0.0032 per share 
would be to post 0.12% of the TCV (9.6 million shares) more than the 
Member's February 2011 average daily volume added to EDGX. Assuming the 
Member's February 2011 ADV is 1 million shares, the Exchange believes 
that requiring Members to post 10.6 million more shares 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 proposed Mega Tier rebate of $0.0032 
per share, a Member would have to add or route at least 4,000,000 
shares of average daily volume prior to 9:30 a.m. or after 4 p.m. 
(includes all flags except 6) and add a minimum of .20% of the Total 
Consolidated Volume (``TCV'') on a daily basis measured monthly, 
including during both market hours and/or pre and post-trading hours.

[[Page 2599]]

Based on an average TCV for November 2011 (8.0 billion shares), a 
Member would qualify by adding 16 million shares during both market 
hours and/or pre and post-trading hours and adding or routing at least 
4,000,000 shares of average daily volume during pre and post-trading 
hours. The Exchange notes that fewer Members generally trade during pre 
and post-trading hours because of the limited time parameters 
associated with these trading sessions. Therefore, the amount of shares 
that the Exchange requires to be added or routed to satisfy this tier 
is less than for the Ultra Tier,\9\ for example, which is based on 
posting liquidity to EDGX during regular trading hours. 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. The Exchange believes that the 
proposed amendment is non-discriminatory in that it applies uniformly 
to all Members.
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    \9\ See discussion in next paragraph regarding Ultra Tier.
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    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 November 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 and would qualify for the amended rebate of $0.0028 per share. As 
stated above, these rebates also result, in part, from lower 
administrative and other costs associated with higher volume. The 
reduction in rebate would allow the Exchange to recoup additional 
revenue to recover increased infrastructure and administrative 
expenses. This rebate also results, in part, from lower administrative 
and other costs associated with higher volume. The Exchange believes 
that the proposed amendment is non-discriminatory in that it applies 
uniformly to all Members.
    The reduction in rebate of the 0.065% TCV Tier from $0.0030 per 
share to $0.0028 per share 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. This tier allows Members 
even greater flexibility with respect to achieving an additional rebate 
and rewards growth patterns in volume by Members as this rebate's 
conditions encourage Members to add increasing amounts of liquidity to 
EDGX each month. Based on an average daily volume in February 2011 
(baseline) of 1,000,000 shares, the Member would have to add 6.2 
million shares total to qualify for such rebate. This rebate also 
results, in part, from lower administrative and other costs associated 
with higher volume. The Exchange believes that the proposed amendment 
is non-discriminatory in that it applies uniformly to all Members.
    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.

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 \10\ and Rule 19b-4(f)(2) \11\ 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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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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-EDGX-2011-39 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-2011-39. 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

[[Page 2600]]

available publicly. All submissions should refer to File Number SR-
EDGX-2011-39 and should be submitted on or before February 8, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-769 Filed 1-17-12; 8:45 am]
BILLING CODE 8011-01-P