Document ID: SEC-2015-1173-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2015-07-14T04:00Z

[Federal Register Volume 80, Number 134 (Tuesday, July 14, 2015)]
[Notices]
[Pages 41131-41133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17171]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75393; File No. SR-EDGX-2015-29]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Related to 
Fees for Use of EDGX Exchange, Inc.

July 8, 2015.
    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, 2015, 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 Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend the fee schedule applicable 
to Members \5\ and non-members of the Exchange pursuant to EDGX Rules 
15.1(a) and (c). Changes to the fee schedule pursuant to this proposal 
are effective upon filing.
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    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in the Exchange.'' See 
Exchange Rule 1.5(n).
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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 Exchange 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 Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts 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 amend its Fee Schedule to: (i) Modify its 
fees for physical connectivity; and (ii) delete the MidPoint Match 
Volume Tier under footnote 3.
Physical Connectivity
    A physical port is utilized by a Member or non-Member to connect to 
the Exchange at the data centers where the Exchange's servers are 
located. The Exchange currently maintains a presence in two third-party 
data centers: (i) The primary data center where the Exchange's business 
is primarily conducted on a daily basis, and (ii) a secondary data 
center, which is predominantly maintained for business continuity 
purposes. The Exchange currently assesses the following physical 
connectivity fees for Members and non-Members on a monthly basis: $500 
per physical port that connects to the System \6\ via 1 gigabyte copper 
circuit; $1,000 per physical port that connects to the System via 1 
gigabyte fiber circuit; and $2,000 per physical port that connects to 
the System via 10 gigabyte fiber circuit.
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    \6\ The term ``System'' is defined as ``the electronic 
communications and trading facility designated by the Board through 
which securities orders of Users are consolidated for ranking, 
execution and, when applicable, routing away.'' See Exchange Rule 
1.5(cc).
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    The Exchange now proposes to amend its physical connectivity fees 
to align the Exchange's fees with its affiliates.\7\ First, the 
Exchange proposes to amend its Fee Schedule to no longer distinguish 
between fiber and copper circuits. Therefore, it proposes to delete the 
charge of $500 per month per physical port that connects to the System 
via 1 gigabyte copper circuit and to assess a monthly fee of $2,000 per 
physical port that connects to the System via 1 gigabyte circuit 
regardless of the type of connection. Second, the Exchange proposes to 
increase the fee per physical port that connects to the System via 10 
gigabyte circuit from $2,000 per month to $4,000 per month. The 
Exchange also proposes to replace the reference to ``fiber'' with 
``physical port'' within the description of the 1 gigabyte and 10 
gigabyte physical connectivity fees as it proposes to no longer 
distinguish between fiber and copper circuits within its Fee Schedule.
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    \7\ The Exchange's affiliates are EDGA Exchange, Inc. 
(``EDGA''), BATS Y-Exchange, Inc. (``BYX'') and BATS Exchange, Inc. 
(``BZX'', together with the Exchange, EDGA and BYX, the ``BATS 
Exchanges''). The Exchange notes that each of its affiliates will 
also file proposed rule changes with Commission to adopt similar 
physical connectivity fees to be effective July 1, 2015.
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    Lastly, to further align its physical connectivity fees with its 
affiliates, the Exchange proposes to pass through in full any hardware 
costs or connectivity fees incurred that are directly related to 
completing a cross-connect where the expense to the Exchange billed by 
a third party exceeds $1,000.\8\ The Exchange proposes to pass through 
the expense as an alternative to the flat installation fees charged by 
the Exchange's primary competitors. The Exchange does not anticipate 
that passing through these expenses will affect many of the Exchange's 
constituents, because the majority of cross-connect completions cost 
less than $1,000. For this reason, the Exchange proposes to pass-
through the charges associated with cross-connect completions that cost 
more than $1,000 rather than to charge an installation fee for all 
completions regardless of their cost.
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    \8\ See BZX fee schedule available at http://batstrading.com/support/fee_schedule/bzx/ and the BYX fee schedule available at 
http://batstrading.com/support/fee_schedule/byx/.
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MidPoint Match Volume Tier
    The Exchange proposes to delete the MidPoint Match Volume Tier 
under footnote 3 of its Fee Schedule. Under fee code MM, a Member is 
currently charged a fee of $0.00120 per share for orders that add 
liquidity at midpoint of NBBO using: (1) A MidPoint Match \9\ order; 
(2) an order with a Hide Not Slide \10\ instruction; or (3) an order 
with a Non-Displayed \11\ instruction. However, under the MidPoint 
Match Volume Tier, a Member would pay no

[[Page 41132]]

fee for its orders that yielded fee code MM where that Member added or 
removed a combined ADV \12\ of at least 2,500,000 shares yielding fee 
codes AA, AM, MM, or MT. Currently, no Member satisfies the tier's 
criteria. Therefore, the Exchange proposes to delete the MidPoint Match 
Volume Tier.
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    \9\ See Exchange Rule 11.8(d).
    \10\ See Exchange Rule 11.6(l)(1)(B).
    \11\ See Exchange Rule 11.6(e)(2).
    \12\ ``ADV'' is defined in the Exchange Fee Schedule available 
at http://batstrading.com/support/fee_schedule/edgx/.
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    The Exchange also notes that the MidPoint Match Volume Tier would 
no longer be necessary as of July 6, 2015. The Exchange intends to file 
with the Commission a separate proposal to amend it Fee Schedule for 
July 6, 2015 effectiveness to, among other things: (i) Delete fee codes 
AA, AM, and MT; and (ii) amend fee code MM to (a) only apply to orders 
that add liquidity at the midpoint of the NBBO using MidPoint Peg 
orders; (b) delete references to MidPoint Match orders, orders 
utilizing the Hide Not Slide instruction, and orders with a Non-
Displayed instruction. These changes are a result of proposed rule 
change to be filed with the Commission to align certain Exchange 
functionality with BZX.\13\ Therefore, removing the MidPoint Match 
Volume Tier as of July 1, 2015 would avoid Members confusion and 
prevent them from attempting to achieve the tier's criteria as the 
functionality necessary to achieve the tier may be discontinued before 
the end of July 2015.
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    \13\ A description of the changes proposed in this filing may be 
found in BATS EDGX Exchange Modifications, Effective July 6, 2015, 
available at http://cdn.batstrading.com/resources/release_notes/2015/BATS-EDGX-Exchange-Modifications-Effective-July-6-2015.pdf.
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    Lastly, as a result of the above, the Exchange also proposes to 
remove a reference to footnote 3 from fee code MM under the Fee Codes 
and Associated Fee table within its Fee Schedule.
Implementation Date
    The Exchange proposes to implement these amendments to its Fee 
Schedule on July 1, 2015.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\14\ in general, and 
furthers the objectives of Section 6(b)(4),\15\ 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. 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.
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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
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Physical Connectivity
    The Exchange believes that the proposed physical connectivity fees 
represent an equitable allocation of reasonable dues, fees, and other 
charges as its fees for physical connectivity are reasonably 
constrained by competitive alternatives. If a particular exchange 
charges excessive fees for connectivity, affected Members and non-
Members may opt to terminate their connectivity arrangements with that 
exchange, and adopt a possible range of alternative strategies, 
including routing to the applicable exchange through another 
participant or market center or taking that exchange's data indirectly. 
Accordingly, if the Exchange charges excessive fees, it would stand to 
lose not only connectivity revenues but also revenues associated with 
the execution of orders routed to it, and, to the extent applicable, 
market data revenues. The Exchange believes that this competitive 
dynamic imposes powerful restraints on the ability of any exchange to 
charge unreasonable fees for connectivity.
    Furthermore, the proposed rule change is also an equitable 
allocation of reasonable dues, fees, and other charges as the Exchange 
believes that the increased fees obtained will enable it to cover its 
increased infrastructure costs associated with establishing physical 
ports to connect to the Exchange's Systems. The additional revenue from 
the increased fees will also enable the Exchange to continue to 
maintain and improve its market technology and services. The Exchange 
believes that the proposed fees for 1 gigabyte circuit of $2,000 per 
month and for 10 gigabyte circuit of $4,000 per month are reasonable in 
that they are less than analogous fees charged by the Nasdaq Stock 
Market LLC (``Nasdaq''), which are $2,500 per month for 1 gigabyte 
connectivity and range from $10,000-$15,000 per month for 10 gigabyte 
circuits.\16\ In addition, the Exchange proposed physical connectivity 
fees are designed to align the Exchange's fees with its affiliates.\17\
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    \16\ See Nasdaq Rule 7034(b).
    \17\ See supra notes 7 and 8.
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    The Exchange also believes that passing through the cross-connect 
related expenses in excess of $1,000 as an alternative to the flat 
installation fees is equitable and reasonable. The proposed pass 
through would be in lieu of the flat installation fees charged by the 
Exchange's primary competitors. The Exchange does not anticipate that 
passing through these expenses will affect many of the Exchange's 
constituents, because the majority of cross-connect completions cost 
less than $1,000.
    Finally, the Exchange believes that the proposed rates are 
equitable and non-discriminatory in that they apply uniformly to all 
Members and non-Members. Members and non-Members will continue to 
choose whether they want more than one physical port and choose the 
method of connectivity based on their specific needs. All Exchange 
Members that voluntarily select various service options will be charged 
the same amount for the same services. As is true of all physical 
connectivity, all Members and non-Members have the option to select any 
connectivity option, and there is no differentiation with regard to the 
fees charged for the service.
MidPoint Match Volume Tier
    The Exchange believes that the proposal to delete the MidPoint 
Match Volume Tier represents an equitable allocation of reasonable 
dues, fees, and other charges as it would avoid confusion by removing a 
tier from its Fee Schedule for which no Member currently qualifies. It 
is also reasonable as it would prevent a Member from attempting to 
achieve the tier's criteria as the functionality necessary to achieve 
the tier is to be discontinued in the near future. Furthermore, 
removing the MidPoint Match Volume Tier as of July 1, 2015 would 
prevent Members attempting to achieve the tier's criteria when they 
will be unable to do so because the functionality necessary to achieve 
the tier will be discontinued before the end of July 2015, thereby 
avoiding Member or investor confusion. Lastly, the Exchange believes 
that removal of the MidPoint Match Volume Tier is equitable and non-
discriminatory in that they apply uniformly to all Members.

[[Page 41133]]

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Physical Connectivity
    As discussed above, the Exchange believes that fees for 
connectivity are constrained by the robust competition for order flow 
among exchanges and non-exchange markets. Further, excessive fees for 
connectivity, including port fee access, would serve to impair an 
exchange's ability to compete for order flow rather than burdening 
competition. The proposal to increase the fees for physical 
connectivity would bring the fees charged by the Exchange closer to 
similar fees charged for physical connectivity by other exchanges.\18\ 
In addition, the proposal to pass through cross-connect installation 
related expenses serves as an alternative to the flat installation fees 
charged by the Exchange's primary competitors.
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    \18\ See supra note 16.
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    Lastly, the proposed rule change does not impose any burden on 
intramarket competition as the fees are uniform for all Members and 
non-Members. The Exchange notes that Members and non-Members also have 
the ability to obtain access to these services without the need for an 
independent physical port connection, such as through alternative means 
of financial extranets and service bureaus that act as a conduit for 
orders entered by Members and non-Members.
MidPoint Match Volume Tier
    The Exchange does not believe that its proposal to delete the 
MidPoint Match Tier will impose any burden on competition. As stated 
above, no Member currently satisfies the tier's criteria and the 
Exchange is proposing to remove it to avoid investor confusion as the 
functionality necessary to achieve the tier is to be discontinued 
before the end of July 2015. Therefore, the Exchange believes deleting 
the MidPoint Match Tier will have no impact on competition.

(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 \19\ and paragraph (f) of Rule 19b-4 
thereunder.\20\ At any time within 60 days of the filing of the 
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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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f).
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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-EDGX-2015-29 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-EDGX-2015-29. 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 will also 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-2015-29 and should be 
submitted on or before August 4, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-17171 Filed 7-13-15; 8:45 am]
 BILLING CODE 8011-01-P