Document ID: SEC-2011-0996-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2011-07-14T04:00Z

[Federal Register Volume 76, Number 135 (Thursday, July 14, 2011)]
[Notices]
[Pages 41544-41546]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17694]

[[Page 41544]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64848; File No. SR-EDGX-2011-19]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Amendments to the EDGX Exchange, Inc. Fee Schedule

 July 8, 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 June 30, 2011, the EDGX Exchange, Inc. (the ``Exchange'' or the 
``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.
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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 EDGX Rule 15.1(a) and (c). All 
of the changes described herein are applicable to EDGX 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

Purpose
    Currently, Members can qualify for the Mega Tier Rebate and be 
provided a rebate of $0.0034 per share for all liquidity posted on EDGX 
if they add or route at least 4,000,000 shares of average daily volume 
prior to 9:30 a.m. or after 4 p.m. (including all flags except 6) And 
add a minimum of 38,000,000 shares of average daily volume on EDGX in 
total, including during both market hours and pre- and post-trading 
hours. The Exchange proposes to amend the second prong of this criteria 
for achieving a $0.0034 per share rebate to indicate that Members will 
qualify for such rebate if they add a minimum of 20,000,000 shares 
(instead of 38,000,000 shares) of average daily volume on EDGX in total 
including during both market hours and pre- and post-trading hours.
    Members can also currently qualify for the Mega Tier and be 
provided a rebate of $0.0032 per share for liquidity added on EDGX in 
either of two ways: (i) If the Member, on a daily basis, measured 
monthly, posts 0.75% of the Total Consolidated Volume (``TCV'') \4\ in 
average daily volume; or (ii) if the Member, on a daily basis, measured 
monthly, posts 10,000,000 shares more than their February 2011 average 
daily volume added to EDGX. The Exchange proposes to amend the Mega 
Tier criteria in (ii), above, for achieving a $0.0032 rebate to 
indicate that Members will qualify for such rebate if, on a daily 
basis, measured monthly, they post 0.12% of the TCV in average daily 
volume more than their February 2011 average daily volume added to 
EDGX. This latter criteria in (ii) is designed to reward a Member's 
growth pattern in providing liquidity beyond a designated baseline 
(Feb. 2011 average daily volume added to EDGX).
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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.
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    Finally, the Exchange proposes to provide an additional rebate of 
$0.0029 per share for Members who post 0.065% of TCV in average daily 
volume more than their February 2011 average daily volume added to 
EDGX, unless they otherwise qualify for a higher rebate. This criteria 
is also designed to reward a Member's growth pattern in providing 
liquidity beyond a designated baseline (Feb. 2011 average daily volume 
added to EDGX).
    EDGX Exchange proposes to implement these amendments to the 
Exchange fee schedule on July 1, 2011.
Basis
    The Exchange believes that the proposed rule changes are consistent 
with the objectives of Section 6 of the Exchange Act,\5\ in general, 
and furthers the objectives of Section 6(b)(4),\6\ 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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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(4).
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    The Exchange also believes that proposing an additional rebate of 
$0.0029 per share represents an equitable allocation of reasonable 
dues, fees, and other charges since higher rebates are correlated with 
Member's liquidity provision and/or meeting growth criteria beyond a 
designated baseline, as described above. The new rebate offers a new, 
flexible way for Members to achieve a higher rebate than the standard 
rebate of $0.0023 per share. The Exchange believes that the proposed 
rebate is non-discriminatory in that it applies uniformly to all 
Members.
    The Mega Tier rebate of $0.0034/$0.0032 per share has both strict 
liquidity provision and/or growth criteria associated with it, and is 
$0.0003/$0.0001 greater than the Ultra Tier rebate ($0.0031 per share) 
and $0.0004/$0.0002 greater than the Super Tier rebate ($0.0030 per 
share) and is $0.0005/$0.0003 per share greater than the new rebate 
proposed of $0.0029 per share.
    For example, and as proposed in this filing, based on average TCV 
for May 2011 (7.0 billion), in order for a Member to qualify for the 
Mega Tier rebate of $0.0034, the Member would have to add or route at 
least 4,000,000 shares of average daily volume during pre- and post-
trading hours and add a minimum of 20,000,000 shares of average daily 
volume on EDGX in total, including during both market hours and pre- 
and post-trading hours. The criteria for this qualification is the most 
stringent of the liquidity provision criteria amongst the tiers as 
fewer Members generally trade during pre- and post-trading hours 
because of the limited time parameters associated with these trading 
sessions. The Exchange believes that this higher rebate awarded to 
Members would incent liquidity during these trading sessions. Such 
increased volume increases potential revenue to the Exchange, and would 
allow the

[[Page 41545]]

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 a higher rebate. The increased liquidity also 
benefits all investors by deepening EDGX'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 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.
    Another way a Member can qualify for the Mega Tier (with a rebate 
of $0.0032 per share) would be to post 0.75% of TCV. Based on average 
TCV for May 2011 (7.0 billion), this would be 52.5 million shares on 
EDGX. A second method, as proposed in this filing, to qualify for the 
rebate of $0.0032 per share would be to post 0.12% of the TCV in 
average daily volume more than the Member's February 2011 average daily 
volume added to EDGX. As mentioned above, this criteria is designed to 
reward growth by a Member beyond a designated baseline (Feb. 2011 
average daily volume added to EDGX). Assuming the Member's February 
2011 average daily volume added to EDGX was 0 shares, this would amount 
to an additional 8.4 million shares. The Exchange believes that 
requiring Members to post 0.12% of the TCV in average daily volume more 
than a February 2011 average daily baseline volume offers an 
additional, flexible way to achieve the Mega Tier rebate and encourages 
Members to add increasing amounts of liquidity to EDGX each month, and 
thereby rewards a Member's growth patterns. 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 a higher rebate. The increased liquidity also 
benefits all investors by deepening EDGX'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 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/or growth patterns, and introduction of higher volumes of 
orders into the price and volume discovery processes.
    In order to qualify for the Ultra Tier, which has less stringent 
criteria than the analogous liquidity provision criteria of the Mega 
Tier, the Member would have to post 0.50% of TCV. Based on average TCV 
for May 2011 (7.0 billion shares), this would be 35 million shares on 
EDGX.
    Finally, the Super Tier has the least stringent criteria of the 
analogous tiers that only reward liquidity provision. In order for a 
Member to qualify for this rebate, the Member would have to post at 
least 10 million shares of average daily volume to EDGX. As stated 
above, these rebates also result, in part, from lower administrative 
and other costs associated with higher volume.
    Finally, the Exchange also believes that adding criteria that 
allows Members to qualify for a $0.0029 per share rebate if they add an 
average of 0.065% of the TCV in average daily volume more than their 
February 2011 average daily volume added to EDGX, provided they don't 
qualify for a higher rebate, allows Members even greater flexibility 
with respect to achieving an additional rebate and rewards growth 
patterns in volume by Members as this rebate's conditions encourage 
Members to add increasing amounts of liquidity to EDGX each month. 
Based on an average daily volume in February 2011 of 0 shares, the 
Member would have to add 4.5 million shares to qualify for such rebate. 
This rebate also result, in part, from lower administrative and other 
costs associated with higher volume.
    The Exchange 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 changes reflect 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 \7\ and Rule 19b-4(f)(2) \8\ 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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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 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-EDGX-2011-19 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-2011-19. This file

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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 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-2011-19 and should be 
submitted on or before August 4, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17694 Filed 7-13-11; 8:45 am]
BILLING CODE 8011-01-P