Document ID: SEC-2012-0784-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2012-05-17T04:00Z

[Federal Register Volume 77, Number 96 (Thursday, May 17, 2012)]
[Notices]
[Pages 29438-29440]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-11925]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66970; File No. SR-EDGX-2012-17]

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

May 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 May 1, 2012 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, at the Exchange's 
principal office, and at the Public Reference Room of the Commission.
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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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Currently, Flag N is yielded when an order removes liquidity from 
the EDGX book in Tapes B or C securities. In this case, a charge of 
$0.0029 per share is assessed.
    In order to provide additional transparency to Members, the 
Exchange proposes to amend Flag N so that it only applies to orders 
that remove liquidity from the EDGX book in Tape C securities. The 
Exchange will continue to assess a charge of $0.0029 per share for 
Members that utilize Flag N. The Exchange then proposes to add Flag BB 
for orders that remove liquidity from the EDGX book in Tape B 
securities. The Exchange proposes to assess a charge of $0.0029 per 
share for Members that utilize Flag BB. In addition, similar to the 
footnotes appended to Flag N, the Exchange proposes to append Footnotes 
1 and 12 to Flag BB. Therefore, Members will be eligible for the tiers 
provided for in Footnote 1 if the conditions outlined therein are 
satisfied. In addition, Members using Flag BB will be subject to the 
conditions of Footnote 12 because Flag BB is a removal flag. The 
Exchange also proposes to include Flag BB in the list of removal flags 
in Footnote 13 with regards to the Investor Tier. The Exchange notes 
that Flag N is currently in the list of removal flags for Footnotes 12 
and 13.
    The Exchange also proposes to amend the message-to-trade ratio in 
(iii) of Footnote 13 from less than 4:1 to less than 6:1. Therefore, 
Footnote 13, after the amendments described above are applied will 
read, ``A Member can qualify for an Investor Tier and be provided a 
rebate of $0.0030 per share if they meet the following criteria: (i) On 
a daily basis, measured monthly, posts an ADV of at least 8 million 
shares on EDGX where added flags are defined as B, HA, V, Y, MM, 3, or 
4; (ii) have an ``added liquidity'' to ``removed liquidity'' ratio of 
at least 70% where added flags are defined as B, HA, V, Y, MM, 3, or 4 
and removal flags are defined as BB, MT, N, W, PI, or 6; and (iii) have 
a message-to-trade ratio of less than 6:1.''
    The Exchange also proposes to make a technical amendment to reduce 
the rebate from $0.0004 per share to $0.0003 per share for Flag RA. 
This change is a pass through of the EDGA reduction in

[[Page 29439]]

rebate for removing liquidity, which was effective on April 1, 2012.\4\
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    \4\ See Securities Exchange Act Release No. 66763 (April 6, 
2012), 77 FR 22008 (April 12, 2012) (SR-EDGA-2012-13).
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    The Exchange appended Footnote 11 to Flag 5 in its June 8, 2011 
rule filing.\5\ The Exchange proposes to make a technical amendment to 
the first paragraph of Footnote 11 to identify Flag 5 in the 
description of the footnote as one of the flags that yields 
internalization. In the second paragraph of Footnote 11, the Exchange 
also proposes a technical amendment to specify that this paragraph only 
applies to Flags EA or ER.
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    \5\ See Securities Exchange Act Release No. 64632 (June 8, 
2011), 76 FR 34792 (June 14, 2012) (SR-EDGX-2011-17)[sic]. In SR-
EDGX-2011-17, the Exchange appended Footnote 11 to Flag 5 and the 
Exchange represented that the internalization fee is no more 
favorable than each prevailing maker/taker spread. However, the 
Exchange noted that if a Member receives a tiered rebate because the 
Member posts 10,000,000 shares or more of average daily volume to 
EDGX, then the Member would get the current rate of $0.0001 per 
share per side for customer internalization.
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    The Exchange also proposes to make a technical amendment to the 
title of the EDGX Book Feed. The Exchange proposes to rename ``EDGX 
Book Feed'' to ``EdgeBook Depth X'' and to make conforming changes in 
the description on the fee schedule.
    The Exchange proposes to implement these amendments to its fee 
schedule on May 1, 2012.
2. Basis
    The Exchange believes that the proposed rule changes are consistent 
with the objectives of Section 6 of the Act,\6\ in general, and 
furthers the objectives of Section 6(b)(4),\7\ 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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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
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    In order to provide additional transparency to Members, the 
Exchange proposes to amend Flag N to apply to orders that remove 
liquidity from EDGX book in Tape C securities and to add Flag BB to 
orders that remove liquidity from the EDGX book in Tape B securities. 
The Exchange proposes to continue to assess a charge of $0.0029 per 
share for Members that utilize Flag N and the Exchange proposes to 
assess a charge of $0.0029 per share for Members that utilize Flag BB. 
The Exchange believes that utilizing Flag BB to identify Members that 
remove liquidity from the EDGX book in Tape B securities and utilizing 
Flag N to identify Members that remove liquidity from EDGX book in Tape 
C securities promotes market transparency and improves investor 
protection by adding additional transparency to the EDGX fee schedule. 
This proposed change more precisely delineates for Members whether they 
are removing liquidity in Tape B or Tape C securities. The proposed 
changes to Footnotes 12 and 13 to add Flag BB to the list of removal 
flags for the applicable tiers/rates outlined also provides additional 
transparency to Members. The Exchange also believes that the proposal 
is non-discriminatory because it applies uniformly to all Members.
    The Exchange proposes to amend the message-to-trade ratio in (iii) 
of Footnote 13 from less than 4:1 to less than 6:1 because the Exchange 
believes that a message-to-trade ratio of less than 6:1 represents a 
more appropriate criterion for Members to qualify for a rebate of 
$0.0030 per share associated with the Investor Tier. The Exchange 
believes the proposed message-to-trade ratio incentivizes Members to 
direct a high quality order flow to the Exchange because the Exchange 
believes that such high quality liquidity provisions will encourage 
price discovery and market transparency and improve investor protection 
by encouraging growth in liquidity. In addition, the Exchange also 
believes that the proposal is non-discriminatory because it applies 
uniformly to all Members.
    The reduction in rebate on Flag RA is a pass-through of the 
reduction in rebate on EDGA's fee schedule for adding liquidity from 
$0.0004 to $0.0003, effective April 1, 2012.\8\ The Exchange believes 
the proposed rebate of $0.0003 is equitable and reasonable as it 
represents a pass-through of the rebate for adding liquidity to the 
EDGA book. In addition, the Exchange also believes that the proposed 
pass-through of this rate is non-discriminatory because it applies 
uniformly to all Members.
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    \8\ See Securities Exchange Act Release No. 66763 (April 6, 
2012), 77 FR 22008 (April 12, 2012) (SR-EDGA-2012-13).
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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.

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 \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 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-2012-17 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-2012-17. This file 
number should be included on the subject line if email is used. To help 
the

[[Page 29440]]

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-2012-17 and should be 
submitted on or before June 7, 2012.

    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. 2012-11925 Filed 5-16-12; 8:45 am]
BILLING CODE 8011-01-P