Document ID: SEC-2012-1652-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGA Exchange, Inc
Posted Date: 2012-10-11T04:00Z

[Federal Register Volume 77, Number 197 (Thursday, October 11, 2012)]
[Notices]
[Pages 61800-61802]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-24979]

[[Page 61800]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67980; File No. SR-EDGA-2012-45]

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

October 4, 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 October 1, 2012 the 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). Text 
of the proposed rule change is attached as Exhibit 5 at http://www.directedge.com/Regulation/ExchangeRuleFilings/EDGA.aspx.
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    \3\ As defined in 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
    On the Exchange's fee schedule, the Exchange currently charges a 
Member $0.0020 per share for orders that yield Flag Q, where the 
Member's order is routed using the ROUQ \4\ or ROUC \5\ routing 
strategy and executes at non-exchange destinations. The pricing of Flag 
Q is also subject to the volume tiers detailed in Footnote 16, which 
currently states that where a Member posts greater than or equal to 
0.30% of the Total Consolidated Volume (``TCV'') in Average Daily 
Volume (``ADV'') on EDGA and routes 2.5 million shares via Flag Q, then 
the Member's rate for Flag Q decreases to $0.0015 per share. Footnote 
16 also states that where a Member posts greater than or equal to 0.30% 
of the TCV in ADV on EDGA and routes 5 million shares via Flag Q, then 
the Member's rate for Flag Q decreases to $0.0010 per share. The 
Exchange proposes to expand the volume tiers in Footnote 16 to add 
additional criteria to achieve a lower rate of $0.0015 per share. 
Specifically, Members will be assessed a charge of $0.0015 per share 
for orders that yield Flag Q where a Member executes greater than or 
equal to an average daily volume of 12 million shares using the ROUC 
routing strategy and yields Flags C, D, I, K, Q, X, BY, CR and MT. The 
Exchange notes that Flags C, D, I, K, Q, X, BY, CR and MT correspond to 
the destinations on the System routing table \6\ where orders using the 
ROUC routing strategy may be executed; therefore, the Exchange proposes 
to count the volume generated from these flags in the proposed volume 
tier for Flag Q as described in Footnote 16.
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    \4\ As defined in Exchange Rule 11.9(b)(3)(c)(iv).
    \5\ As defined in Exchange Rule 11.9(b)(3)(a).
    \6\ Exchange Rule 11.9(b)(3) defines the ``System routing 
table'' as the proprietary process for determining the specific 
trading venues to which the System, as defined in Exchange Rule 
1.5(cc), routes orders and the order in which the System routes to 
them.
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    The Exchange proposes to amend the description of Flag Q on the 
Exchange's fee schedule in order to provide Members additional 
transparency that orders that are routed using ROUQ or ROUC may execute 
at non-exchange destinations, yielding Flag Q. Therefore, the Exchange 
proposes to revise the description of Flag Q to state that Flag Q 
encompasses orders routed using the ROUQ or ROUC routing strategy that 
execute at non-exchange destinations on the System routing table. The 
Exchange notes that its proposal does not modify the existing routing 
functionality associated with Flag Q; but rather, the Exchange's 
proposal clarifies that orders yielding Flag Q are executed at non-
exchange destinations.
    The Exchange proposes to amend the description of Flag MT on the 
Exchange's fee schedule in order to provide Members additional 
transparency. Currently, the Exchange's fee schedule states that orders 
routed to EDGX Exchange, Inc., (``EDGX'') Mid-Point Match (``MPM'') 
using the IOCM or ROCO routing strategies, as defined in Exchange Rule 
11.9(b)(3), will yield Flag MT. The Exchange proposes to revise the 
description of Flag MT on the Exchange's fee schedule to include ICMT 
and ROUC, as defined in Exchange Rule 11.9(b)(3), among the routing 
strategies listed. Accordingly, Members' orders that are routed to EDGX 
MPM using ICMT, IOCM, ROCO or ROUC routing strategies will yield Flag 
MT. The Exchange notes that its proposal does not modify the existing 
routing functionality associated with Flag MT; but rather, the 
Exchange's proposal modifies the fee schedule to reflect the specific 
routing strategies utilized and yielding Flag MT.
    Currently, the Exchange offers Members a rebate of $0.0005 per 
share for orders that are routed to NASDAQ OMX BX, Inc. (the ``BX'') 
and remove liquidity, yielding Flag C. The Exchange proposes to 
increase the rebate earned by Members' orders that yield Flag C to a 
$0.0014 per share rebate.\7\ The Exchange also proposes to remove 
Footnote 7 in its entirety, which is appended to Flag C, thereby 
removing the condition that requires Members to post an ADV of 25,000 
shares to the BX (yielding Flag RB) because the Exchange is proposing a 
rebate of $0.0014 per share for all Members' orders that yield Flag C.
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    \7\ Currently, the Exchange offers Members a default rebate of 
$0.0005 per share for orders that yield Flag C, where ``default'' 
refers to the standard rebate offered by the Exchange to Members for 
orders that yield Flag C absent Members qualifying for additional 
volume tiered pricing. The Exchange offered Members a rebate of 
$0.0014 per share where Members posted an ADV of 25,000 shares to 
the BX (yielding Flag RB).
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    The Exchange proposes to assess a fee of $0.0025 per share in lieu 
of the current fee of $0.0023 per share for Members' orders that are 
routed or re-routed to the New York Stock Exchange (``NYSE'') and 
remove liquidity, yielding Flag D. This proposed change represents 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 charged 
for routing orders to NYSE, in response to the pricing changes in 
NYSE's filing with the Securities and Exchange Commission (the 
``SEC'').\8\
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    \8\ See NYSE's Trader Update at http://www.nyse.com/pdfs/NYSE%20Client%20Notice%20Fees%2010%201%202012.pdf (discussing NYSE's 
fee changes effective October 1, 2012).
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    The Exchange proposes to implement these amendments to its fee 
schedule on October 1, 2012.

[[Page 61801]]

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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    The Exchange believes that its proposal to expand the volume tiers 
in Footnote 16 to also assess a charge of $0.0015 per share for orders 
that yield Flag Q where a Member executes greater than or equal to an 
average daily volume of 12 million shares using the ROUC routing 
strategy, which yields Flags C, D, I, K, Q, X, BY, CR and MT, 
represents an equitable allocation of reasonable dues, fees and other 
charges among its Members and other persons using its facilities. The 
ROUC routing strategy initially routes orders to non-exchange 
destinations on the System routing table, which are associated with 
higher rebates and lower fees, before the orders are routed to higher 
cost exchange destinations. The Exchange believes that by initially 
routing orders to non-exchange destinations, the likelihood of the 
order being executed at the non-exchange destination increases. 
Accordingly, the Exchange proposes to pass along the potential cost 
savings to Members that DE Route achieves in the form of a reduced 
charge for orders that yield Flag Q where those orders are routed to 
and executed on these non-exchange destinations.
    In addition, the Exchange also believes that charging Members a 
lower rate for achieving volume tiers in Footnote 16 will incentivize 
liquidity to the Exchange by increasing the use of the ROUC routing 
strategy, which is consistent with EDGA's low cost exchange model 
because ROUC offers the Exchange potential cost savings that it can 
pass on to its Members given that ROUC routes to a series of low cost 
destinations on the System routing table. Such increased volumes 
increase potential revenue to the Exchange, and allow the Exchange to 
spread its administrative and infrastructure costs over a greater 
number of shares, which results in lower per share costs. The Exchange 
may then pass on these savings to Members in the form of lower charges. 
The increased liquidity also benefits 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. 
Volume-based discounts such as these have been widely adopted in the 
cash equities markets, and are equitable because volume-based discounts 
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 process. Lastly, the Exchange 
believes that the proposed amendment is non-discriminatory because it 
applies uniformly to all Members.
    The Exchange believes that the proposed tier is equitable and 
reasonable when compared with the existing tier in Footnote 16 that 
also offers a discounted rate of $0.0015 per share because the Exchange 
regards the criteria of each tier as equally stringent: Members posting 
greater than or equal to 0.30% of the TCV in ADV on EDGA and routing 
2.5 million shares via Flag Q or Members posting greater than or equal 
to an average daily volume of 12 million shares using the ROUC routing 
strategy and yielding a variety of flags (i.e., Flags C, D, I, K, Q, X, 
BY, CR and MT). As discussed above, because of the potential cost 
savings to the Exchange where Members use the ROUC routing strategy, 
the Exchange can offer Members a reduced charge of $0.0015 per share 
and require less volume than in the existing tier to achieve this rate 
given that these two tiers are equally beneficial to the Exchange in 
terms of their contribution towards liquidity.
    The Exchange believes that its proposal to amend the description of 
Flag Q on the Exchange's fee schedule to state that Flag Q encompasses 
orders routed using ROUQ or ROUC and executed at non-exchange 
destinations represents an equitable allocation of reasonable dues, 
fees and other charges among its Members and other persons using its 
facilities because it supports the Exchange's efforts to provide 
additional transparency to Members when reading the fee schedule. 
Accordingly, the proposed revised description will advise Members that 
Flag Q encompasses orders routed using the ROUQ or ROUC routing 
strategy that execute at non-exchange destinations on the System 
routing table and yield Flag Q. The Exchange also believes that its 
proposed amendment is non-discriminatory because it applies uniformly 
to all Members.
    The Exchange believes that its proposal to amend the description of 
Flag MT on the Exchange's fee schedule represents an equitable 
allocation of reasonable dues, fees and other charges among its Members 
and other persons using its facilities because it supports the 
Exchanges' efforts to provide additional transparency to Members when 
reading the fee schedule. Currently, the Exchange's fee schedule states 
that orders routed to EDGX MPM using the IOCM or ROCO routing 
strategies will yield Flag MT. The Exchange proposes to revise the 
description of Flag MT on the Exchange's fee schedule to include ICMT 
and ROUC among the routing strategies listed. Accordingly, the proposed 
revised description will advise Members that orders that are routed to 
EDGX MPM using ICMT, IOCM, ROCO or ROUC routing strategies will yield 
Flag MT. The Exchange also believes that its proposed amendment is non-
discriminatory because it applies uniformly to all Members.
    The Exchange believes that its proposal to increase the rebate 
earned by Members' orders that yield Flag C from $0.0005 per share to 
$0.0014 per share represents an equitable allocation of reasonable 
dues, fees and other charges among its Members and other persons using 
its facilities. The Exchange notes that it will provide to its Members 
the $0.0014 per share rebate regardless of whether DE Route achieves 
the BX tier that requires posting an ADV of 25,000 shares. The Exchange 
believes that its proposal to increase the rebate earned by Members' 
orders that yield Flag C from $0.0005 per share to $0.0014 per share is 
also reasonable given that the BATS BZX Exchange, Inc., the BATS BYX 
Exchange, Inc., and NASDAQ OMX Group, Inc. also offer their customers a 
rebate of $0.0014 per share for orders that are routed to the BX.\11\ 
The Exchange also notes that routing through DE Route is voluntary. 
Lastly, the Exchange also believes that the proposed amendment is non-
discriminatory because it applies uniformly to all Members.
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    \11\ See NASDAQ OMX Group, Inc., Price List--Trading & 
Connectivity at http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2. See also BATS BZX Exchange, Inc., 
BATS BZX Exchange Fee Schedule (Effective September 10, 2012) and 
BATS BYX Exchange, Inc., BATS BYX Exchange Fee Schedule (effective 
September 10, 2012), http://cdn.batstrading.com/resources/regulation/rule_book/BATS-Exchanges_Fee_Schedules.pdf.
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    The Exchange currently offers Members a more favorable rebate of 
$0.0014 per share for removing liquidity from BX where Members post an 
ADV of 25,000 shares to BX, as described in Footnote 7. The Exchange 
proposes to

[[Page 61802]]

eliminate the volume tier requirement in Footnote 7 in its entirety and 
any references thereto, and the Exchange proposes to offer Members a 
rebate of $0.0014 per share regardless of their volume. The Exchange 
believes that its proposal to delete Footnote 7 from the Exchange's fee 
schedule represents an equitable allocation of reasonable dues, fees, 
and other charges among its Members and other persons using its 
facilities because the Exchange is proposing to amend the rate for 
orders that yield Flag C to a rebate of $0.0014 per share. The Exchange 
also notes that with the deletion of this tier, Members will continue 
to be subject to the other fees and tiers listed on the Exchange's fee 
schedule, and routing through DE Route is voluntary. Lastly, the 
Exchange also believes that the proposed amendment is non-
discriminatory because it applies uniformly to all Members.
    The rates associated with routing orders to NYSE through DE Route 
on the Exchange's fee schedule are pass-through rates from DE Route to 
the Exchange and represent an equitable allocation of reasonable dues, 
fees, and other charges among Members of the Exchange and other persons 
using its facilities because the Exchange does not levy additional fees 
or offer additional rebates for orders that it routes to NYSE through 
DE Route. The Exchange notes that routing through DE Route is 
voluntary. Currently, for orders yielding Flag D, NYSE charges DE Route 
a fee of $0.0023 per share, which, in turn, is passed through to the 
Exchange. The Exchange, in turn, charges its Members a fee of $0.0023 
per share as a pass-through. In NYSE's pricing changes for October 1, 
2012, NYSE increased the rate it charges its customers, such as DE 
Route, from $0.0023 per share to a charge of $0.0025 per share for 
orders that are routed or re-routed to NYSE and remove liquidity. 
Therefore, the Exchange believes that the proposed change for Flag D 
from a fee of $0.0023 per share to a fee of $0.0025 per share is 
equitable and reasonable because it accounts for the pricing changes on 
NYSE. In addition, the proposal allows the Exchange to continue to 
charge its Members a pass-through rate for orders that are routed or 
re-routed to NYSE and remove liquidity using DE Route. Lastly, the 
Exchange also believes that the proposed amendment is non-
discriminatory because 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)(A) of the Act \12\ and Rule 19b-4(f)(2) \13\ 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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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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-EDGA-2012-45 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-2012-45. 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 available publicly. All 
submissions should refer to File Number SR-EDGA-2012-45 and should be 
submitted on or before November 1, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-24979 Filed 10-10-12; 8:45 am]
BILLING CODE 8011-01-P