Document ID: SEC-2014-0704-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2014-04-30T04:00Z

[Federal Register Volume 79, Number 83 (Wednesday, April 30, 2014)]
[Notices]
[Pages 24463-24465]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-09809]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72016; File No. SR-EDGX-2014-13]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing of Proposed Rule Change To Amend Footnote 4 of the Exchange's 
Fee Schedule To Permit Members To Designate Their Retail Orders To Be 
Identified as Retail on the EDGX Book Feed

April 24, 2014.
    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 April 17, 2014, EDGX Exchange, Inc. (the ``Exchange'' or 
``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Footnote 4 of its Fee Schedule to 
permit Members to designate that their Retail Orders be identified as 
Retail on the EDGX Book Feed. The text of the proposed rule change is 
available on the Exchange's Internet Web site at 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 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.

[[Page 24464]]

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 amend Footnote 4 of its Fee Schedule to 
permit Members to designate that their Retail Orders be identified as 
Retail on the EDGX Book Feed. Footnote 4 of the Exchange's Fee Schedule 
defines a Retail Order \3\ and provides an attestation requirement \4\ 
that Members must complete to send Retail Orders to the Exchange. 
Footnote 4 of the Exchange's Fee Schedule also provides that Members 
may designate orders as Retail Orders on an order-by-order basis or a 
port level basis by designating particular FIX ports as Retail Order 
Ports.\5\
---------------------------------------------------------------------------

    \3\ A Retail Order is defined as (i) an agency order or riskless 
principal order that meets the criteria of FINRA Rule 5320.03 that 
originates from a natural person; (ii) is submitted to EDGX by a 
Member, provided that no change is made to the terms of the order; 
and (iii) the order does not originate from a trading algorithm or 
any other computerized methodology. See Footnote 4 of the Exchange's 
Fee Schedule available at http://www.directedge.com/Trading/EDGXFeeSchedule.aspx; Securities Exchange Act Release No. 68310 
(November 28, 2012), 77 FR 71860 (December 4, 2012) (SR-EDGX-2012-
47) (Notice of Filing and Immediate Effectiveness); Securities 
Exchange Act Release No. 69378 (April 15, 2013), 78 FR 23617 (April 
19, 2013) (SR-EDGX-2013-13) (Notice of Filing and Immediate 
Effectiveness).
    \4\ Members must submit a signed written attestation, in a form 
prescribed by the Exchange, that they have implemented policies and 
procedures that are reasonably designed to ensure that substantially 
all orders designated by the Member as a ``Retail Order'' comply 
with the above requirements. See Footnote 4 of the Exchange's Fee 
Schedule available at http://www.directedge.com/Trading/EDGXFeeSchedule.aspx; Securities Exchange Act Release No. 68310 
(November 28, 2012), 77 FR 71860 (December 4, 2012) (SR-EDGX-2012-
47) (Notice of Filing and Immediate Effectiveness). See also 
Securities Exchange Act Release No. 69852 (June 25, 2013), 78 FR 
39420 (July 1, 2013) (SR-EDGX-2013-20) (Notice of Filing and 
Immediate Effectiveness).
    \5\ See Securities Exchange Act Release No. 68554 (December 31, 
2012), 78 FR 966 (January 7, 2013) (SR-EDGX-2012-48) (Notice of 
Filing and Immediate Effectiveness).
---------------------------------------------------------------------------

    Currently, Members may elect that their display-eligible orders 
entered into the Exchange utilize Attributable Orders \6\ to include 
their market participant identifier (``MPID'') with their published 
quotations on the EDGX Book Feed. The Exchange now proposes to amend 
Footnote 4 of its Fee Schedule to permit Members to designate that 
their Retail Orders be identified as Retail on the EDGX Book Feed, 
rather than by their MPID.\7\ A Member may elect that their Retail 
Orders be identified as Retail on an order-by-order basis or instruct 
the Exchange to identify all its Retail Orders as Retail on a port-by-
port basis where that port is also designated as a Retail Order Port. 
However, if a Member instructs the Exchange to identify all its orders 
as Retail on a Retail Order Port, it will not be able to designate any 
Retail Order from that port as an Attributable Order or as a Non-
Attributable Order.\8\
---------------------------------------------------------------------------

    \6\ An Attributable Order is defined as, ``[a]n order that is 
designated for display (price and size) including the Member's 
market participant identifier (`MPID').'' See Rule 11.5(c)(18).
    \7\ A Member's decision on whether to identify their Retail 
Order as Retail under the proposed rule change will not impact that 
Member's eligibility to qualify for a rebate under the Retail Order 
Tier included in Footnote 4 of the Exchange's Fee Schedule.
    \8\ A Non-Attributable Order is defined as ``[a]n order that is 
designated for display (price and size) on an anonymous basis by the 
Exchange. See Rule 11.5(c)(19).
---------------------------------------------------------------------------

Implementation Date
    The Exchange will announce the effective date of the proposed rule 
change in a Trading Notice to be published no later than 30 days 
following approval of the proposed rule change by the Commission.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\10\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, and to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposal will benefit market 
participants and help to promote transparency by providing additional 
information regarding quotations displayed on the Exchange and 
disseminated via the EDGX Book Feed. Specifically, any Member who 
satisfies the requirement under Footnote 4 of the Fee Schedule that 
wishes to disclose via the EDGX Book Feed that their order is a Retail 
Order will be permitted to do so, and such retail quotations will be 
analogous to identified trading interest in other contexts.\11\ The 
proposal also promotes transparency by disseminating additional order 
information from Members who may otherwise designate their order as 
Non-Attributable, and thereby not include their MPID with their 
published quote on the EDGX Book Feed. As a result, the proposal will 
provide Members additional visibility into the types of orders they may 
interact with when an order is identified as a Retail Order. The 
Exchange also believes that the proposed rule change is reasonable, 
equitable and not unfairly discriminatory because it would encourage 
Members who wish to execute against Retail Orders to send additional 
orders to the Exchange. For example, the Exchange conducted a study of 
its execution data from January 1, 2014 to March 31, 2014, which 
indicated that Members who represent Retail Orders and utilize 
Attributable Orders to include their MPID with their published quote on 
the EDGX Book Feed received an 18% higher execution rate than Members 
who represent Retail Orders that elected not to include their MPID on 
the EDGX Book Feed via the use of a Non-Attributable Order.\12\ 
Therefore, the Exchange believes the increased liquidity would 
potentially stimulating further price competition for Retail Orders, 
deepening the Exchange's liquidity pool, supporting the quality of 
price discovery, and promoting market transparency.
---------------------------------------------------------------------------

    \11\ For example, under the New York Stock Exchange, Inc.'s 
(``NYSE'') Retail Liquidity Program, when there is a Retail Price 
Improvement Order in a particular security, the NYSE disseminates an 
indicator, known as the Retail Liquidity Identifier. See NYSE Rule 
107C(j). See also NYSE MKT LLC (``NYSE MKT'') Rule 107C(j); NYSE 
Arca, Inc. (``NYSE Arca'') Rule 7.44(j).
    \12\ The Exchange compared the execution rates of Attributed 
Orders to Non-Attributed Orders submitted by Members whose primary 
business is representing retail customers or who designate their 
orders as Retail Orders for purposes of Footnote 4 of the Exchange's 
Fee Schedule. The Exchange calculated the execution rate by dividing 
the total executed quantity by the total order quantity for buy 
orders with a limit price greater than or equal to the National Best 
Bid (``NBB'') and less than National Best Offer (``NBO'') and sell 
orders with limit price greater than the NBB and less than or equal 
to the NBO.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes its proposed amendments to its Fee Schedule 
would not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
believes that the proposed amendment will not burden intramarket 
competition because the ability to designate Retail Orders to be 
identified as Retail on the EDGX Book Feed, rather than by their MPID, 
would be open to all Members that wish to send Retail Orders to the 
Exchange. The Exchange believes the proposed rule change would increase 
intermarket competition by identifying orders as Retail via the EDGX 
Book Feed would enable the Exchange to better compete with other 
exchanges that offer similar

[[Page 24465]]

retail order programs.\13\ The Exchange believes that the amendment, by 
increasing the amount of disseminated information regarding Retail 
Orders, will increase the level of competition around retail executions 
resulting in better prices for retail investors.
---------------------------------------------------------------------------

    \13\ Id.
---------------------------------------------------------------------------

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 up to 90 days (i) as the 
Commission may designate 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 email to rule-comments@sec.gov. Please include 
File Number SR-EDGX-2014-13 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-EDGX-2014-13. 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 
10:00 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-2014-13, and should be 
submitted on or before May 21, 2014.
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09809 Filed 4-29-14; 8:45 am]
BILLING CODE 8011-01-P