Document ID: SEC-2012-1533-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGA Exchange, Inc.
Posted Date: 2012-09-18T04:00Z

[Federal Register Volume 77, Number 181 (Tuesday, September 18, 2012)]
[Notices]
[Pages 57631-57633]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-22912]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67839; File No. SR-EDGA-2012-41]

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

September 12, 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 September 5, 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\ As defined in 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
    The Exchange proposes to add Flag RP to the Exchange's fee schedule 
for Non-Displayed Orders that add liquidity using the Route Peg Order 
type.\4\ The Exchange proposes to assess a charge of $0.0005 per share 
for orders that yield Flag RP. The volume associated with Flag RP will 
also count towards the volume tiers for non-displayed orders that add 
liquidity.
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    \4\ See Securities and Exchange Act Release No. 67726 (August 
24, 2012) (SR-EDGA-2012-28).
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    As defined in Exchange Rule 11.5(c)(14), a Route Peg Order is a 
non-displayed limit order that posts to the EDGA Book, and thereafter 
is eligible for execution at the National Best Bid (``NBB'') for buy 
orders and National Best Offer (``NBO'', and together with the NBB, the 
``NBBO'') for sell orders against the original size of the routable 
orders that are equal to or less than the original size of the Route 
Peg Orders. Route Peg Orders are passive, resting orders on the EDGA 
Book and do not take liquidity. Route Peg Orders may be entered, 
cancelled, and cancelled/replaced prior to and during Regular Trading 
Hours.\5\ Route Peg Orders are eligible for execution in a given 
security during Regular Trading Hours, except that, even after the 
commencement of Regular Trading Hours, Route Peg Orders are not 
eligible for execution (1) in the opening cross, and (2) until such 
time that regular session orders in that security can be posted to the 
EDGA Book. A Route Peg Order does not execute at a price that is 
inferior to a Protected Quotation, and is not permitted to execute if 
the NBBO is locked or crossed. Any and all remaining, unexecuted Route 
Peg Orders are cancelled at the conclusion of Regular Trading Hours.
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    \5\ As defined in Rule 1.5(y).
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    The Exchange also proposes to amend the text of Footnote 2 of the 
fee schedule to list Flag RP as one of the non-displayed order types 
where the volume associated with Flag RP will count toward the volume 
threshold in Footnote 2.
    The Exchange proposes to implement these amendments to its fee 
schedule on September 7, 2012.

[[Page 57632]]

2. Statutory Basis
    The Exchange believes that the proposed rule change is 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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    The Exchange proposes to add Flag RP to the Exchange's fee schedule 
for Non-Displayed Orders that add liquidity using the Route Peg Order 
type. The Exchange believes that assessing a charge of $0.0005 per 
share for orders that yield Flag RP represents an equitable allocation 
of reasonable dues, fees and other charges among its Members and other 
persons using its facilities because a rate of $0.0005 per share is 
equal or less than the prevailing rates for other forms of non-
displayed order types that add liquidity, (e.g., the Exchange assesses 
a charge of $0.0005 per share for Flag DM and $0.0010 per share for 
Flag HA). Within the non-displayed category of liquidity, Flag RP is 
similar to Flag DM in that both have lower order book priority in Rule 
11.8(a)(2) compared to Flag HA (Non-Displayed Orders). Lower order book 
priority correlates to a lower chance of execution on EDGA, which 
justifies a lower price. Therefore, the Exchange is offering comparable 
pricing to Flag DM.
    Furthermore, the Route Peg Order type gives the Member a valuable 
ability to control the interaction with certain types of contra-side 
liquidity (i.e., routable orders of equal or lesser size). The Mid-
Point Discretionary Order (``MDO'') (Flag DM) has a displayed component 
\8\ and non-displayed component. The Exchange assesses a lower fee for 
the non-displayed component when compared to the standard displayed 
charge of $0.0006 as an acknowledgement of the fact that the MDO also 
brings in valuable displayed liquidity. The Route Peg Order, on the 
other hand, has no displayed component, but has the lowest priority in 
the order book. Even though the priority is lower, the Exchange assigns 
the same charge to the Route Peg Order type as to Flag DM because of 
its unique features, as described above.
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    \8\ See Securities Exchange Act Release No. 67226 (June 20, 
2012), 77 FR 38113 (June 26, 2012) (SR-EDGA-2012-22) (The MDO has 
two discrete components--a displayed portion that is pegged to the 
national best bid or national best offer, and a non-displayed 
portion which gives discretion to execute to the mid-point of the 
national best bid/offer (``NBBO''), subject to certain limits).
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    Similarly, the Exchange is assigning a lower charge for Flag RP 
when compared to the standard displayed charge of $0.0006 because of 
its lower priority ranking in Rule 11.8(a)(2). The Exchange recently 
implemented a taker/maker model \9\ to make the Exchange more 
attractive to liquidity takers for their routing decisions because 
liquidity takers would be receiving a rebate. For liquidity providers, 
it is an attractive place to post liquidity since liquidity takers are 
rebated to remove liquidity. Therefore, EDGA is ranked as one of the 
first markets in the intermarket queue on system routing tables because 
of its attractive removal rebate compared to other markets. As a 
result, liquidity providers are willing to pay a fee to compete to 
interact with these liquidity takers, resulting in a deeper order book. 
As such, order book priority is an important determinant of their 
interaction. The Exchange has set the fees for various orders types 
(Flags DM, RP, and HA) that reflect that order book priority. 
Therefore, orders that have a higher priority in the order book 
(displayed orders) will generally be charged more than orders of lower 
priority (e.g., Flag DM and RP) because they are more likely to 
interact with a liquidity taker and obtain a quicker execution.
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    \9\ See SR-EDGA-2012-39 (August 30, 2012).
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    By assessing a proposed rate of $0.0005 per share for Flag RP, the 
Exchange believes it will encourage use of the new order type. In 
addition, the Exchange is setting the fee at such level in order to 
incentivize liquidity by encouraging Members to use Route Peg Orders 
(Flag RP) since these orders provide Members that enter them and other 
Members an additional way to offer/access liquidity at the NBBO, 
respectively. This contributes to additional depth of book at the NBBO. 
Furthermore, as stated in SR-EDGA-2012-28, the Exchange believes that 
by encouraging the use of the Route Peg Order, Members seeking to 
access liquidity at the NBBO would be more motivated to direct their 
orders to EDGA because they would have a heightened expectation of the 
availability of liquidity at the NBBO. 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, and improving investor 
protection. In addition, a User \10\ whose order executed against a 
Route Peg Order would be able to obtain an execution at the NBB or NBO 
while minimizing the risk that incremental latency associated with 
routing the order to an away destination may result in an inferior 
execution.
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    \10\ As defined in Rule 1.5(ee).
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    The Exchange's proposal to amend the text of Footnote 2 \11\ of the 
fee schedule to list Flag RP as one of the non-displayed order types 
where the volume associated with Flag RP will count toward the volume 
threshold in Footnote 2 is reasonable and equitable as the volume tiers 
in Footnote 2 include ``non-displayed'' liquidity flags and Flag RP is 
a non-displayed liquidity flag. Therefore, the Exchange believes it is 
appropriate to include Flag RP in Footnote 2 in order to provide 
additional transparency to Members.
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    \11\ Footnote 2 currently provides that rates for Flags HA and 
HR are contingent upon Members adding or removing greater than 
1,000,000 shares non-displayed (hidden) on a daily basis, measured 
monthly (yield Flags HA, HR, DM and DT) or 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 and HR.
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    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.

[[Page 57633]]

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-2012-41 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-2012-41. 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-2012-41 and should be 
submitted on or before October 9, 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. 2012-22912 Filed 9-17-12; 8:45 am]
BILLING CODE 8011-01-P