Document ID: SEC-2013-0482-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGA Exchange, Inc.
Posted Date: 2013-03-13T04:00Z

[Federal Register Volume 78, Number 49 (Wednesday, March 13, 2013)]
[Notices]
[Pages 16023-16025]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-05741]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69066; File No. SR-EDGA-2013-10]

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

March 7, 2013.
    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 March 1, 2013, 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 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 Exchange 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 currently offers Members a rebate of $0.0014 per share 
for Members' orders that route to Nasdaq OMX BX, Inc. (``BX'') and 
remove liquidity, yielding Flag C, in securities priced at or above 
$1.00. The Exchange proposes to decrease the rebate from $0.0014 per 
share to $0.0010 per share in response to BX's fee filing that was 
effective February 1, 2013.\4\ Direct Edge ECN LLC (d/b/a DE Route) 
(``DE Route''), the Exchange's affiliated routing broker-dealer, 
qualifies for BX's volume tiered rebate of $0.0010 per share by adding 
an average of 25,000 shares but less than 1 million shares per day.\5\ 
DE Route passes through the rebate to the Exchange and the Exchange, in 
turn, passes through the rebate to its Members. The Exchange notes that 
its proposal does not modify the current rate of 0.10% of the dollar 
value of the transaction that it charges Members for Flag C in 
securities priced below $1.00 that route to BX and remove liquidity.
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    \4\ See Securities Exchange Act Release No. 68909 (February 12, 
2013), 78 FR 11935 (February 20, 2013) (SR-BX-2013-011).
    \5\ The Exchange notes that to the extent DE Route does or does 
not achieve any volume tiered rebate on BX, its rate for Flag C will 
not change.
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    The Exchange proposes to add a step-up tier to Footnote 4 of its 
fee schedule. A Member, at a Market Participant Identifier (``MPID'') 
level, will qualify for the ``Single MPID Step-up Add Tier'' by posting 
more than .10% of the Total Consolidated Volume (``TCV''), on a daily 
basis, measured monthly, on EDGA more than that MPID's December 2012 
added TCV (the ``December Baseline''). The volume generated from non-
displayed flags that add liquidity will count towards the Single MPID 
Step-up Add Tier. If the MPID meets this criterion, then the Exchange 
will assess that MPID a reduced charge of $0.0005 per share for Flags 
B, V, Y, 3 and 4 instead of its default rate of $0.0006 per share.\6\ 
The Exchange notes that where a MPID's December Baseline is zero, the 
Exchange will apply a default baseline of 10 million shares. The 
Exchange believes that the Single MPID Step-up Add Tier will encourage 
market participants to grow their volume over an established baseline 
in order to achieve the volume tiered pricing. The Exchange notes that 
Footnote 4 is already appended to Flags B, V, Y, 3, and 4.
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    \6\ Where ``default'' refers to the standard rate that the 
Exchange charges its Members for orders that add, remove, or route 
liquidity from the Exchange absent Members qualifying for additional 
volume tiered pricing. The Exchange maintains default rates for 
securities at or above $1.00 and securities priced below $1.00 for 
orders that add, remove, and route liquidity. The Exchange notes 
that a Member may qualify for a higher rebate if the Member 
satisfies the volume tier requirements outlined in Footnotes 1, 2, 
4, 6, 16 and 17 of the fee schedule for securities priced at or 
above $1.00. The Exchange notes that the volume from securities 
priced below $1.00 contributes toward volume tiered requirements for 
securities priced at or above $1.00 as outlined in Footnotes 1, 2, 
4, 6, 16 and 17 of the fee schedule. Unless otherwise stated in 
Footnotes 1 and 2 of the fee schedule, the Exchange does not offer 
volume tiered pricing for securities priced below $1.00.
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    The Exchange proposes to implement these amendments to its fee 
schedule on March 1, 2013.
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 its proposal to pass through BX's rebate 
of $0.0010 per share for orders that route

[[Page 16024]]

to BX and remove liquidity (Flag C) represents an equitable allocation 
of reasonable dues, fees and other charges among its Members and other 
persons using its facilities because the Exchange does not levy 
additional fees or offer additional rebates for orders that it routes 
to BX through DE Route. Currently, BX offers a rebate to DE Route for 
orders that route to BX and remove liquidity, and DE Route passes 
through that rebate to the Exchange and the Exchange passes through 
that rebate to its Members. As of February 1, 2012, BX rebates DE Route 
$0.0010 per share for orders that route to BX and remove liquidity 
provided that DE Route achieves the required volume on BX to qualify 
for such tier. Therefore, the Exchange's proposal will enable DE Route 
to pass through BX's rebate of $0.0010 per share, and DE Route, in 
turn, may pass through the rebate of $0.0010 per share to the Exchange 
and the Exchange, in turn, pass through the rebate of $0.0010 per share 
to its Members. The Exchange believes its proposal is equitable and 
reasonable because it allows the Exchange to continue to pass through 
BX's rebate to its Members. The Exchange notes that routing through DE 
Route is voluntary. Lastly, the Exchange also believes that this 
proposed amendment is non-discriminatory because it applies uniformly 
to all Members.
    The Exchange believes that the proposed Single MPID Step-up Add 
Tier is designed to provide for the equitable allocation of reasonable 
dues, fees and other charges among its Members and other persons using 
its facilities. The requirements of the Single MPID Step-up Add Tier to 
post more than .10% of the TCV on EDGA, on a daily basis, measured 
monthly more than the MPID's December Baseline incentivizes substantial 
volume from Members (on an MPID basis) that generally add volume to the 
Exchange by offering MPIDs a discounted removal rate of $0.0005 per 
share. The Exchange also believes that establishing an MPID's December 
Baseline rewards liquidity provision attributes and encourages price 
discovery and market transparency by encouraging growth in liquidity 
over a defined baseline. The Exchange believes the Single MPID Step-up 
Add Tier will also encourage certain market participants, who are not 
currently adders, to grow their add volume over an established baseline 
of 10 million shares set by the Exchange in order to achieve the tier. 
In addition, the Exchange believes that this proposed amendment is non-
discriminatory because it applies uniformly to all Members.
    The Exchange believes the Single MPID Step-up Add Tier will 
increase and attract volume to the Exchange. Therefore, the Exchange 
can discount the removal rate from the default rate of $0.0006 per 
share to $0.0005 per share. The increased volume increases potential 
revenue to the Exchange, and allows 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 
in turn would allow the Exchange to pass on the savings to Members in 
the form of lower fees. The increased liquidity 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, promoting market transparency and improving investor 
protection. Volume-based rebates such as the one 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.
    In addition, the criteria for the Single MPID Step-up Add Tier is 
also reasonable as compared to similar pricing mechanisms employed by 
Nasdaq that also offers rebates and tiers to add liquidity through a 
single MPID.\9\ The concept of a single MPID also encourages those 
MPIDs that do the most to enhance EDGA's market quality through unified 
management of a high volume of added liquidity. EDGA also wishes to 
ensure that its fee schedule does not provide excessive encouragement 
to Members to aggregate the activity of several firms for the sole 
purpose of achieving a tiered discounted rate. Thus, a Member that is 
not able to achieve the requisite level of liquidity provision will not 
be able to meet the threshold by coordinating and consolidating the 
trading activity of other related firms using multiple MPIDs. EDGA 
believes that it is reasonable and equitable to offer a discounted rate 
to Members that provide volume through a single MPID because EDGA 
believes that such Members are most likely to provide consistent 
liquidity during periods of market stress and to manage their quotes/
orders in a coordinated manner that promotes price discovery and market 
stability.
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    \9\ See Nasdaq OMX, Price List--Trading & Connectivity, http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
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    The Single MPID Step-up Add Tier is also reasonable in that NYSE 
Arca \10\ offers its customers a step-up tier for Tape C securities 
that discount the default removal rate of $0.0030 per share when a 
baseline ADV is achieved. The Tape C Step Up Tier requires customers to 
add in excess of the greater of (i) 0.10% of US Tape C ADV over a 
January 2012 benchmark or (ii) 20% more than their January 2012 
benchmark to earn a discounted removal rate of $0.0029 per share.
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    \10\ See NYSE Arca Equities Trading Fees, https://usequities.nyx.com/sites/usequities.nyx.com/files/nyse_arca_marketplace_fees_2_26_13.pdf. See also Securities Exchange 
Release No. 66568 (March 9, 2012), 77 FR 15819 (March 16, 2012) (SR-
NYSEARCA-2012-17).
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    The Exchange's discounted rate from its default rate of $0.0006 per 
share to $0.0005 per share for Members that achieve the Single MPID 
Step-up Tier is also reasonable because it is within the range of 
discounts offered by BATS BYX, where the default rate to add liquidity 
is $0.0005 per share and customers that qualify for the tiers pay rates 
ranging from $0.0002-$0.00025 per share.\11\
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    \11\ See Securities Exchange Act Release No. 68665 (January 16, 
2013), 78 FR 4946 (January 23, 2013) (SR-BYX-2013-001).
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    Additionally, defaulting the baseline to a set volume (i.e., 10 
million shares) is also reasonable as Nasdaq defaults its baseline for 
its Investor Support Program to a baseline.\12\ In addition,

[[Page 16025]]

defaulting to a baseline of 10 million shares enables the Exchange to 
offer the tier only to those Members (on an MPID level) that satisfy it 
over an Exchange-established baseline instead of zero volume for the 
month of December 2012.
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    \12\ See Nasdaq Rule 7014, which provides that ``[a] member 
wishing to participate in the Investor Support Program (``ISP'') 
must submit an application in the form prescribed by Nasdaq and 
designate one or more of its Nasdaq ports for ISP use. By 
participating in the ISP and entering in the Nasdaq Market Center 
eligible orders in System Securities, a member may qualify for a 
monthly ISP fee credit.'' Nasdaq Rule 7014(c)(1) provides that ``a 
[Nasdaq] member shall be entitled to receive an ISP credit at the 
$0.00005 rate with respect to all shares of displayed liquidity that 
are executed at a price of $1 or more in the Nasdaq Market Center 
during a given month if: (A) The member's ISP Execution Ration for 
the month in question is less than 10; (B) the shares of liquidity 
provided by the member through ISP-designated ports during the month 
are equal to or greater than 0.2% of the Consolidated Volume during 
the month; (C) at least 30% of the liquidity provided by the member 
during the month is provided through ISP-designated ports; and (D) 
the member's Participation Ratio for the month equals or exceeds its 
Baseline Participation Ratio.'' Nasdaq Rule 7014(k)(1) further 
states that ``[t]he term `Baseline Participation Ratio,' shall mean, 
with respect to a member, the lower of such member's Participation 
Ratio for the month of August 2010 or the month of August 2011, 
provided that in calculating such Participation Ratios, the 
numerator shall be increased by the amount (if any) of the member's 
Indirect Order Flow for such month, and provided further that if the 
result is zero for either month, the Baseline Participation Ratio 
shall be deemed to be 0.485% (when rounded to three decimal 
places).'' (emphasis added). See also Securities Exchange Act 
Release No. 63270 (November 8, 2010), 75 FR 69489 (November 12, 
2010) (SR-NASDAQ-2010-141).
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    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

    These proposed rule changes do not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. The Exchange does not believe that any of these changes 
represent a significant departure from previous pricing offered by the 
Exchange or pricing offered by the Exchange's competitors. 
Additionally, Members may opt to disfavor EDGA's pricing if they 
believe that alternatives offer them better value. Accordingly, EDGA 
does not believe that the proposed changes will impair the ability of 
Members or competing venues to maintain their competitive standing in 
the financial markets.
    Regarding Flag C's proposed reduction in rebate, the Exchange 
believes that its proposal to pass through BX's lower rebate of $0.0010 
per share for securities priced at or above $1.00 that route to BX and 
remove liquidity will increase competition because it is comparable to 
the rates charged by BX for removing liquidity. The Exchange believes 
its proposal will not burden intramarket competition given that the 
Exchange's rates apply uniformly to all Members that place orders. The 
Exchange believes that its proposal will increase competition for 
routing services because the market for order execution is competitive 
and the Exchange's proposal provides customers with another alternative 
to route their orders. The Exchange notes that routing through DE Route 
is voluntary.
    Regarding the Single MPID Step-up Add Tier, EDGA believes that its 
proposal to offer such tier will increase competition as it will allow 
EDGA to compete with BATS BYX as a result of their January 2013 pricing 
change.\13\ The Exchange believes its proposal will not burden 
intramarket competition given that the Exchange's rates apply uniformly 
to all Members that place orders.
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    \13\ See Securities Exchange Act Release No. 68665 (January 16, 
2013), 78 FR 4946 (January 23, 2013) (SR-BYX-2013-001).
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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)(A) of the Act \14\ and Rule 19b-4(f)(2) \15\ 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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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-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-2013-10 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-2013-10. 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-EDGA-2013-10 and should be 
submitted on or before April 3, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05741 Filed 3-12-13; 8:45 am]
BILLING CODE 8011-01-P