Document ID: SEC-2012-1330-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGA Exchange, Inc.
Posted Date: 2012-08-13T04:00Z

[Federal Register Volume 77, Number 156 (Monday, August 13, 2012)]
[Notices]
[Pages 48188-48191]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19740]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67607; File No. SR-EDGA-2012-35]

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

August 7, 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 August 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). All 
of the changes described herein are applicable to EDGA 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
    The Exchange proposes to append Footnote 18 to its standard rebate 
of $0.0003 per share for adding liquidity on the EDGA fee schedule to 
add the Step Up Tier. The Exchange also proposes to append Footnote 18 
to Flags B, V, Y, 3, and 4 to signify a potential rate change should 
the Member meet the criteria of the Step Up Tier. Members may qualify 
for a rebate of $0.0005 per share on their displayed shares (Flags B, 
V, Y, 3, and 4) for adding liquidity to EDGA if the Member, on a daily 
basis, measured monthly, posts 0.10% of the Total Consolidated Volume 
(``TCV'') \4\ in Average Daily Volume (``ADV'') more than their July 
2012 ADV added to EDGA.
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    \4\ 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 for the month prior to the month in 
which the fees are calculated.
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    Because the Exchange can now differentiate non-displayed orders 
that add liquidity using the Mid Point Discretionary Order type \5\ 
(Flag DM) from non-displayed orders that remove liquidity using the Mid 
Point Discretionary Order type (Flag DT),\6\ the Exchange proposes to 
count the volume generated from Flags DM and DT toward the volume 
threshold in Footnote 2 since Flags DM and DT represent a non-displayed 
order type. Therefore, where a Member adds or removes liquidity using 
non-displayed (hidden) orders, a Member is charged a rate of $0.0010 
per share for Flags HA or HR, contingent upon a Member adding or 
removing greater than 1,000,000 shares hidden on a daily basis, 
measured monthly (where the volume generated from Flags HA, HR, DM and 
DT count towards this tier) or a Member posting greater than 8,000,000 
shares on a daily basis, measured monthly. Members not meeting either 
minimum will be charged $0.0030 per share for Flags HA or HR. The 
Exchange proposes to make conforming amendments to the text of Footnote 
2. The Exchange notes that it will continue to charge Members a rate of 
$0.0005 per share for non-displayed orders that add liquidity using Mid 
Point Discretionary Orders that yield Flag DM and $0.0005 per share for 
non-displayed orders that remove liquidity using Mid Point 
Discretionary Orders that yield Flag DT.
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    \5\ See Securities Exchange Act Release No. 67226 (June 20, 
2012), 77 FR 38113 (June 26, 2012) (SR-EDGA-2012-22).
    \6\ See Securities and Exchange Act Release No. 67380 (July 10, 
2012), 77 FR 41847 (July 16, 2012) (SR-EDGA-2012-29) (where the 
Exchange provided additional transparency to Members by bifurcating 
then existing Flag DM into two flags: Flag DM (adds liquidity in the 
discretionary range) and Flag DT (removes liquidity in the 
discretionary range)).
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    The Exchange proposes to delete Footnote 4 that is appended to Flag 
HA in order to clarify for Members that the volume from Flag HA counts 
towards achieving the tiered pricing in Footnote 4 and the rate for 
Flag HA does not change where a Member achieves the thresholds outlined 
in Footnote 4. The Exchange notes that these proposed changes do not 
modify the Exchanges existing treatment of Flag HA. This amendment 
supports the Exchange's

[[Page 48189]]

efforts to annotate flags with footnotes to signify a potential rate 
change, rather than annotating every flag to denote which flags 
contribute towards the volume threshold and/or conditions necessary to 
achieve a potential rate change. Accordingly, the Exchange also 
proposes to add conforming language to Footnote 4 that indicates to 
Members that the rebate of $0.0004 per share applies to Flags B, V, Y, 
3 and 4, which is already indicated on the fee schedule by the Exchange 
having appended Footnote 4 to these flags.
    In SR-EDGA-2012-29, the Exchange proposed to pass-through the rates 
for routing orders to the Nasdaq OMX PSX (the ``PSX'') on Flags K and 
RS.\7\ Accordingly, in response to the proposed pricing changes in the 
PSX's pending filing with the Securities and Exchange Commission, which 
is effective August 1, 2012, the Exchange proposes to amend the fees 
for Flags K and RS in response to the PSX's proposed fee changes.\8\ 
The Exchange proposes to increase the rate for Flag K from $0.0005 per 
share to $0.0027 per share. The Exchange also proposes to change the 
rate for Flag RS from a charge of $0.0005 per share to a rebate of 
$0.0016 per share.
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    \7\ See Securities and Exchange Act Release No. 67380 (July 10, 
2012), 77 FR 41847 (July 16, 2012) (SR-EDGA-2012-29).
    \8\ See NASDAQ OMX PSX, Price List--Trading and Connectivity, 
http://www.nasdaqtrader.com/Trader.aspx?id=PSX_pricing.
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    The Exchange proposes to implement these amendments to its fee 
schedule on August 1, 2012.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are 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 proposes to append Footnote 18 to its standard rebate 
of $0.0003 per share for adding liquidity on the EDGA fee schedule and 
Flags B, V, Y, 3, and 4 to add the Step Up Tier where Members may 
qualify for a rebate of $0.0005 per share on their displayed shares 
(Flags B, V, Y, 3, and 4) for liquidity added to EDGA if the Member on 
a daily basis, measured monthly, posts at least 0.10% of the TCV in ADV 
more than their July 2012 ADV added to EDGA. The Exchange believes a 
rebate of $0.0005 per share for adding liquidity versus the default 
rebate of $0.0003 per share represents an equitable allocation of 
reasonable dues, fees, and other charges since higher rebates reward 
higher liquidity provision commitments by Members. For example, in 
order for a Member to qualify for the Step Up Tier rebate of $0.0005 
per share, the Member must add on a daily basis, measured monthly, 
0.10% of the TCV in ADV more than their July 2012 ADV. The Exchange 
created a baseline of July 2012 ADV in order to reward a Member's 
growth pattern in providing liquidity beyond a designated benchmark. 
The Exchange believes that offering Members a higher rebate will 
incentivize liquidity. Such increased volumes increase potential 
revenue to the Exchange, and allows 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 higher rebates. 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 rebates such as the Step Up Tier have been widely adopted 
in the cash equities markets,\11\ and are equitable because volume-
based rebates 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.
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    \11\ See Nasdaq's Investor Support Program where Nasdaq rewards 
a member's growth pattern in tiers 1, 2 and 3 based on a defined 
benchmark. See NASDAQ, Price List--Trading and Connectivity, http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2. See also NYSE 
Arca's Step Up tier where NYSE Arca rewards a member's growth 
pattern based on a defined benchmark. See NYSE Arca, NYSE Arca 
Equities Trading Fees, http://usequities.nyx.com/markets/nyse-arca-equities/trading-fees.
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    In Footnote 4 of the fee schedule, the Exchange notes that it 
currently offers a $0.0004 per share rebate for Members that, on a 
daily basis, measured monthly, posts more than 1% of the TCV in average 
daily volume on EDGA, including non-displayed orders that add 
liquidity. Secondly, a Member, on a daily basis, measured monthly, that 
posts more than .25% of the TCV on EDGA, including non-displayed orders 
that add liquidity, and removes more than .25% of TCV in average daily 
volume, will also qualify for the rebate of $0.0004 per share in 
Footnote 4. The Exchange believes that the $0.0005 per share rebate in 
the Step Up assigns a higher value to and rewards a Member's growth 
pattern over a designated benchmark in a way that attracts new 
liquidity to the market and is distinctly different from the volume-
based tier in Footnote 4. Such increased volume from a Member's growth 
over said designated benchmark and the resulting liquidity to the 
market 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 higher rebates. 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. Offering rebates that 
reward growth patterns such as the ones 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 SR-EDGA-2012-29, the Exchange bifurcated Flag DM into Flags DM 
and DT to promote market transparency and improve investor protection 
by adding additional transparency to its fee schedule in order to more 
precisely delineate for Members whether they were ``adders of 
liquidity'' or ``removers of liquidity'' for purposes of Members' non-
displayed orders using the Mid Point Discretionary order type. 
Similarly, the Exchange believes that counting the volume generated 
from Flags DM and DT toward the volume threshold in Footnote 2 is 
reasonable and equitable given that the Exchange can now differentiate 
between non-displayed orders that add liquidity in the discretionary 
range from non-displayed orders that remove liquidity in the 
discretionary range, as explained above. Including Flags DM and DT in 
Footnote 2 allows their associated

[[Page 48190]]

volume to be tracked by the Exchange in the appropriate tier(s), which 
may incent Members to increase use of the volume tiers in the fee 
schedule. Such volume will increase 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 higher rebates/lower 
costs. 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. The Exchange also believes that the proposed change is non-
discriminatory because it applies uniformly to all Members.
    The Exchange proposes to delete Footnote 4 that is appended to Flag 
HA because the volume from Flag HA counts towards achieving the tiered 
pricing in Footnote 4 and the rate for Flag HA does not change where a 
Member achieves the thresholds outlined in Footnote 4. The Exchange 
believes this amendment to Flag HA supports the Exchange's effort to 
achieve consistent application among the flags on the fee schedule and 
provide transparency for its Members. In addition, this amendment 
supports the Exchange's efforts to annotate flags with footnotes to 
signify a potential rate change, rather than annotating every flag to 
denote which flags contribute towards the volume threshold and/or 
conditions necessary to achieve a potential rate change. Accordingly, 
the Exchange also proposed to add conforming language to Footnote 4 
that indicates to Members that the rebate of $0.0004 per share applies 
to Flags B, V, Y, 3 and 4, as was already indicated by appending 
Footnote 4 to these flags on the fee schedule. The Exchange also 
believes that these proposed amendments are non-discriminatory because 
they apply to all Members.
    The Exchange proposes to amend the fees for Flags K and RS in 
response to the proposed pricing changes in the PSX's pending filing 
with the Securities and Exchange Commission, which is effective August 
1, 2012, where the PSX proposed a range of fees and rebates for Tape A 
and Tapes B and C securities. At this time, the PSX passes through 
applicable fees and/or rebates to DE Route, which, in turn, passes 
through the applicable fees and/or rebates to the Exchange. In response 
to the PSX's pending filing, the Exchange proposes to increase the rate 
for Flag K from $0.0005 per share to $0.0027 per share, and the rate 
for Flag RS from a charge of $0.0005 per share to a rebate of $0.0016 
per share. Because the Exchange's fee schedule currently does not 
differentiate between Tape A and Tapes B and C securities that are 
routed to the PSX in Flags K and RS and the Exchange cannot mirror the 
new PSX fees associated with each tape, the Exchange proposes assessing 
its Members the highest fee and the lowest rebate associated with the 
PSX's pending filing for all tapes for ease of administration and to 
prevent potential arbitrage. The Exchange also notes that routing 
through DE Route is voluntary. The Exchange believes this represents an 
equitable allocation of reasonable dues, fees and other charges since 
it reflects the pass-through of these fees from the PSX. In addition, 
the Exchange believes that it is reasonable and equitable to pass-
through certain fees to its Members. The Exchange also believes that 
the proposed pass-through of fees is non-discriminatory because it 
applies 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 \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-2012-35 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-2012-35. 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

[[Page 48191]]

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-EDGA-2012-35 and should be 
submitted on or before September 4, 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. 2012-19740 Filed 8-10-12; 8:45 am]
BILLING CODE 8011-01-P