Document ID: SEC-2011-0677-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2011-05-12T04:00Z

[Federal Register Volume 76, Number 92 (Thursday, May 12, 2011)]
[Notices]
[Pages 27702-27704]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11617]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64428; File No. SR-EDGX-2011-14]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing of Proposed Rule Change To Amend EDGX Rules 11.13 and 11.14

May 6, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 4, 2011, EDGX Exchange, Inc. (``EDGX'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by EDGX. 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 EDGX Rules 11.13 and 11.14 to 
include additional securities in the pilot by

[[Page 27703]]

which such rule operates. The text of the proposed rule change is 
attached as Exhibit 5 and is available on the Exchange's Web site at 
http://www.directedge.com, at the Exchange's principal office, and at 
the Public Reference Room of the Commission.

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 Exchange 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
    The Exchange proposes to amend EDGX Rules 11.13 and 11.14 to 
include additional securities in the pilot by which such rule operates.

Background

    EDGX Rule 11.14 allows the Exchange to provide for uniform market-
wide trading pause standards for individual securities in the S&P 500 
Index, securities included in the Russell 1000[supreg] Index (``Russell 
1000''), and specified Exchange Traded Products (``ETP'') that 
experience rapid price movement (collectively known as ``Circuit 
Breaker Securities''). Pursuant to Rule 11.14, the Exchange is allowed 
to pause trading in any Circuit Breaker Securities when the primary 
listing market for such stock issues a trading pause in any Circuit 
Breaker Securities.
    EDGX Rule 11.14 was approved by the Commission on June 10, 2010 on 
a pilot basis to end on December 10, 2010.\3\ The pilot was 
subsequently extended until April 11, 2011.\4\ It was further extended 
then through the earlier of August 11, 2011 or the date on which a 
limit up/limit down mechanism to address extraordinary market 
volatility, if adopted, applies.\5\
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    \3\ See Securities Exchange Act Release No. 62252 (June 10, 
2010) (SR-EDGX-2010-01), 75 FR 34186 (June 16, 2010).
    \4\ See Securities Exchange Act Release No. 63507 (December 9, 
2010) (SR-EDGX-2010-22), 75 FR 78787 (December 16, 2010).
    \5\ See Securities Exchange Act Release No. 64205 (April 6, 
2011) (SR-EDGX-2011-10), 76 FR 20417 (April 12, 2011).
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    As the Exchange noted in its filing to adopt EDGX Rule 11.14, 
during the pilot period, the Exchange would continue to assess whether 
additional securities need to be added and whether the parameters of 
the rule would need to be modified to accommodate trading 
characteristics of different securities. The original pilot list of 
securities was all securities included in the S&P 500[supreg] Index 
(``S&P 500''). As noted in comment letters to the original filing to 
adopt EDGX Rule 11.14, concerns were raised that including only 
securities in the S&P 500 in the pilot rule was too narrow. In 
particular, commenters noted that securities that experienced 
volatility on May 6, 2010, including ETFs, should be included in the 
pilot.
    In response to these concerns, various exchanges and national 
securities associations collectively determined to expand the list of 
pilot securities to include securities in the Russell 1000 (``Russell 
1000'') and specified ETPs to the pilot beginning in September 2010.\6\ 
The Exchange believed that adding these securities would address 
concerns that the scope of the pilot may be too narrow, while at the 
same time recognizing that during the pilot period, the markets will 
continue to review whether and when to add additional securities to the 
pilot and whether the parameters of the rule should be adjusted for 
different securities.
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    \6\ See Securities Exchange Act Release No. 62884 (September 10, 
2010) (SR-EDGX-2010-05), 75 FR 56618 (September 16, 2010).
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    As noted above, during the pilot, the Exchange continued to re-
assess, in consultation with other markets whether: (i) Specific ETPs 
should be added or removed from the pilot list; (ii) the parameters for 
invoking a trading pause continue to be the appropriate standard; and 
(iii) the parameters should be modified.
    The Exchange has continued to assess whether additional securities 
need to be added to the pilot and whether the parameters of Rule 11.14 
need to be modified to accommodate trading characteristics of different 
securities. In consultation with other markets and the staff of the 
Commission, the Exchange proposes to include all NMS stocks within the 
pilot that are not already included therein. In particular, the 
proposed additional stocks are those not currently included in the S&P 
500 Index, Russell 1000 Index, or specified ETPs, and therefore are 
more likely to be less liquid securities or securities with lower 
trading volumes. As a result, the Exchange notes that the primary 
listing markets will also apply a wider Trading Pause Trigger Price, as 
defined in Rule 11.13(c)(4), to the newly added securities.\7\ 
Similarly, because leveraged ETPs trade at a ratio against the 
associated index, primary listing markets will also apply a broader 
Trading Pause Trigger Price for leveraged ETPs. Accordingly, the 
Exchange proposes to delete the last sentence in Interpretations and 
Policies .05, which defines the scope of the pilot, as the text therein 
would no longer be necessary as well as delete the reference to 
``Circuit Breaker Securities'' in Rule 11.13(c)(4) and replace it with 
``NMS stock.''
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    \7\ Other primary listing markets are submitting rule filings 
describing these Trading Pause Trigger Prices. The Exchange notes 
that the rationale for the differentiation in Trading Pause Trigger 
Prices between securities at or above $1 (30% threshold) and 
securities below $1 (50% threshold) is that lower-priced securities 
may tend to be more volatile, and price movements of lower-priced 
stocks equate to a higher percentage move than a similar price 
change for a higher-priced stock.
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    The Exchange is not proposing any other changes to the text of 
Rules 11.13, 11.14, or the operation of the pilot, and will continue to 
assess whether the parameters for invoking a Trading Pause continue to 
be appropriate and whether the parameters should be modified.
2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Act,\8\ which requires the rules of an exchange to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
and, in general, to protect investors and the public interest. The 
proposed rule change also is designed to support the principles of 
Section 11A(a)(1) \9\ of the Act in that it seeks to ensure fair 
competition among brokers and dealers and among exchange markets. The 
Exchange believes that the proposed rule meets these requirements 
because it expands the scope of the pilot to cover all NMS stocks that 
will promote uniformity across markets concerning decisions to pause 
trading in a security when there are significant price movements.
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    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78k-1(a)(1).
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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.

[[Page 27704]]

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2011-14 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-2011-14. 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, 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 such filing also will be available for 
inspection and copying at the principal office of EDGX. 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 publicly available. All 
submissions should refer to File Number SR-EDGX-2011-14 and should be 
submitted on or before June 2, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11617 Filed 5-11-11; 8:45 am]
BILLING CODE 8011-01-P