Document ID: SEC-2011-0683-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGA Exchange, Inc.
Posted Date: 2011-05-11T04:00Z

[Federal Register Volume 76, Number 91 (Wednesday, May 11, 2011)]
[Notices]
[Pages 27370-27372]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11456]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64393; File No. SR-EDGA-2011-14]

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

May 4, 2011.
    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 29, 2011, the EDGA Exchange, Inc. (the ``Exchange'' or 
the ``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.
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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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to offer a reduced rate from $0.0023 per 
share to $0.0022 per share for Flag D executions (as noted in proposed 
footnote 14 of the fee schedule) provided that the Member routes an 
average daily volume (``ADV'') of more than 30,000,000 shares per day 
to NYSE using the RDOT or RDOX routing strategies, as defined in Rules 
11.9(b)(3)(h) and (i).
    The H flag represents non-displayed executions. The Exchange 
proposes to append the reference to footnote 2 on Flag H so that a 
reduced rate (of $0.0010 per share) would be offered provided that the 
Member adds greater than 1,000,000 shares hidden on a daily basis 
(yielding Flag H), measured monthly or posts greater than 8,000,000 
shares on a daily basis, measured monthly (yielding Flags B,V, Y, 3 or 
4). Members not meeting either minimum will be charged $0.0030 per 
share.
    For customer internalization (i.e., same MPID),\4\ currently there 
is no charge nor rebate. This was because when the Exchange launched in 
July 2010 the rebate for removing liquidity ($0.0002 per share) was 
offset by the fee for adding liquidity ($0.0002 per share). This 
situation yields Flag ``E'' on both sides of an execution. During the 
Pre-Opening and Post-Closing sessions,

[[Page 27371]]

there are also no charges nor rebates, but this situation yields Flag 
``5'' per side of an execution (adding liquidity/removing liquidity). 
The Exchange is now proposing to charge $0.0001 per share per side of 
an execution (for adding liquidity and for removing liquidity) for 
Flags E and 5 instead of the standard or tiered rebate/removal rates. 
Therefore, Members would incur a total internalization cost of $0.0002 
per share for both sides of an execution for customer internalization.
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    \4\ This occurs when two orders presented to the Exchange from 
the same Member (i.e., MPID) are presented separately and not in a 
paired manner, but nonetheless inadvertently match with one another. 
Members are advised to consult Rule 12.2 respecting fictitious 
trading.
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    Currently, orders routed to EDGX Mid-Point Match (``MPM'') using 
the IOCM routing strategy,\5\ as defined in Rule 11.9(b)(3)(q),\6\ are 
assessed a fee of $0.0010 per share and yield flag ``MT.'' The Exchange 
is proposing to increase this fee to $0.0012 per share.
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    \5\ EDGX Rule 11.5(c)(7) defines a MPM order as an order with an 
instruction to execute it at the midpoint of the NBBO. A MPM order 
may be a Day Order, Fill-or-Kill Order, or IOC Order. The Exchange 
notes that members can send in a MPM order directly to EDGX without 
routing through the EDGA platform as an IOCM routing option.
    \6\ IOCM is a routing option under which an order checks the 
System for available shares and then is sent to EDGX as an immediate 
or cancel (IOC) MPM order.
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    Finally, the Exchange is proposing to make a technical correction 
to the fee schedule to replace the term ``order type'' with ``routing 
strategy'' throughout the fee schedule in order to conform to language 
in Rule 11.9(b)(3). These amendments will appear in the text for Flags 
K, L, P, Q, T, Z, 2, 8, 9, BY, CL, MT, RT, RX, SW, and footnote 8.
    EDGA Exchange proposes to implement these amendments to the 
Exchange fee schedule on May 1, 2011.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\7\ in general, and 
furthers the objectives of Section 6(b)(4),\8\ 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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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed reduced rate of $0.0022 per 
share for Flag D executions provided that the Member routes an average 
daily volume (``ADV'') of more than 30,000,000 shares per day to NYSE 
using the RDOT or RDOX routing strategies represents an equitable 
allocation of reasonable dues, fees, and other charges. When EDGA 
routes to NYSE and removes liquidity, NYSE charges EDGA $0.0023 per 
share. If a member uses EDGA to route to NYSE, EDGA provides a $0.0001 
discount per share provided that the conditions of the volume threshold 
are met. The Exchange believes that this discounted rate would 
incentivize Members to first route through EDGA to reach NYSE and would 
thereby increase liquidity on EDGA. This type of rate is also similar 
to EDGA's rate for removing liquidity from LavaFlow (Flag M). The 
standard removal rate of $0.0029 per share is reduced to $0.0023 per 
share for orders routed to LavaFlow that achieve certain volume 
thresholds, as EDGA Members are able to share in potential volume tier 
savings realized by EDGA when routing to LavaFlow.\9\ This type of rate 
is also similar to other rates that EDGA charges, such as ``one-under'' 
pricing for routing to Nasdaq using the INET order type and is 
consistent with the processing of similar routing strategies by EDGA's 
competitors.\10\
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    \9\ See footnote 6 of the EDGA fee schedule.
    \10\ See footnote 7 of the EDGA fee schedule. See also BATS BZX 
fee schedule: Discounted Destination Specific Routing (``One 
Under'') to NYSE, NYSE ARCA and NASDAQ. See Securities Exchange Act 
Release No. 62858, 75 FR 55838 (September 14, 2010) (SR-BATS-2010-
023) (modifying the BATS fee schedule in order to amend the fees for 
its BATS + NYSE Arca destination specific routing option to continue 
to offer a ``one under'' pricing model).
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    The rate is also equitable in that it is designed to incentivize 
Members to use the RDOT or RDOX routing strategies to increase volume 
on EDGA. Such increased volume 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 reduced fees. The 
increased liquidity also benefits all investors by deepening EDGA's 
liquidity pool, supporting the quality of price discovery, promoting 
market transparency and improving investor protection. Volume-based 
discounts such as the reduced execution fee proposed here have been 
widely adopted in the cash equities markets 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. The Exchange believes 
that the proposed discounted rate is non-discriminatory in that it 
applies uniformly to all Members.
    The Exchange believes that the proposed reduced rate for Flag H 
executions of $0.0010 per share, as described in footnote 2, is an 
equitable allocation of reasonable dues, fees, and other charges. The 
reduced rate of $0.0010 \11\ provided that a volume threshold is 
satisfied is designed to incentivize Members to use non-displayed 
orders to increase volume on EDGA.
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    \11\ If a member fails to reach such volume thresholds, the 
Member will pay $0.0030 per share for Flag H executions.
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    Such increased volume 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 reduced fees. The 
increased liquidity also benefits all investors by deepening EDGA's 
liquidity pool, supporting the quality of price discovery, promoting 
market transparency and improving investor protection. Volume-based 
discounts such as the reduced execution fee proposed herein have been 
widely adopted in the cash equities markets 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. The Exchange believes 
that the proposed fee is non-discriminatory in that it applies 
uniformly to all Members.
    The Exchange believes that the increased fee for customer 
internalization of $0.0001 per share per side of an execution for both 
Flags E (regular trading session) and 5 (pre and post market) 
represents an equitable allocation of reasonable dues, fees, and other 
charges as it is designed to introduce a nominal and reasonable fee for 
members who inadvertently match with one another, thereby discouraging 
potential wash sales. The increased fee also allows the Exchange to 
offset its administrative, clearing, and other operating costs incurred 
in executing such trades. Finally, the fee is equitable in that it is 
in line with the EDGA fee structure which currently has a maker/taker 
spread of $0.0001 per share (the standard fee to add liquidity on EDGA 
is $0.00025 per share, while the standard rebate to remove liquidity is 
$0.00015 per share). EDGA also has a tiered rate for adding liquidity 
of $0.00005, which would make this spread -$0.0001 per share. As a 
result of the customer internalization charge, Members who internalized 
would be charged $0.0001 per side of an

[[Page 27372]]

execution (total of $0.0002 per share) instead of capturing the maker/
taker spread of -$0.0001 per share.
    As mentioned above, when the Exchange launched in July 2010, this 
spread was zero (0). This increased fee per side of an execution 
($0.0001 per side instead of free) thus brings the internalization fee 
in line with the current maker/taker spreads.\12\ The Exchange believes 
that the proposed fee is non-discriminatory in that it applies 
uniformly to all Members.
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    \12\ The Exchange will continue to ensure that the 
internalization fee is no more favorable than each prevailing maker/
taker spread.
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    The Exchange believes that the proposed increased fee to $0.0012 
per share for the ``MT'' flag for routing to EDGX MPM using the IOCM 
routing strategy represents an equitable allocation of reasonable dues, 
fees, and other charges as such increased fee offsets the Exchange's 
administrative and other operational costs. The fee increase represents 
a pass through by EDGA to its members of EDGX's increased fee (from 
$0.0010 to $0.0012 per share) for removing liquidity from EDGX MPM, 
effective May 1, 2011. The $0.0012 per share is competitive and 
superior to comparable exchange standard removal rates of $0.0030 per 
share (Nasdaq), $0.0030 per share (NYSE Arca), $0.0023 per share 
(NYSE), and $0.0028 per share (BATS BZX). The fee is also equitable as 
it is competitive with other fees assessed for routing strategies that 
access low cost destinations, such as ROUZ, as defined in Rule 
11.9(b)(3)(c)(v) (yields Flag Z, $0.0010 per share) and ROUD/ROUE, as 
defined in Rules 11.9(b)(3)(b) and 11.9(b)(3)(c)(i) (Flag T, $0.0012 
per share). The Exchange believes that the proposed fee is non-
discriminatory in that it applies uniformly to all Members.
    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 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 \13\ and Rule 19b-4(f)(2) \14\ 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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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-EDGA-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-EDGA-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,\15\ 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-2011-14 and should be submitted on or before June 1, 2011.
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    \15\ The text of the proposed rule change is available on 
Exchange's Web site at http://www.directedge.com, on the 
Commission's Web site at http://www.sec.gov, at EDGA, and at the 
Commission's Public Reference Room.
    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11456 Filed 5-10-11; 8:45 am]
BILLING CODE 8011-01-P