Document ID: SEC-2011-1736-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGA Exchange, Inc.
Posted Date: 2011-11-10T05:00Z

[Federal Register Volume 76, Number 218 (Thursday, November 10, 2011)]
[Notices]
[Pages 70183-70184]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29106]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65684; File No. SR-EDGA-2011-35]

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

November 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 October 24, 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

Purpose
    Currently, a rebate of $0.0027 per share is provided to Members who 
add liquidity on the EDGX Exchange, Inc. (``EDGX'') via an EDGA-
originated ROUC routing strategy, as defined in Exchange Rule 
11.9(b)(3)(a), during Regular Trading Hours.\4\ This situation yields 
Flag P. The Exchange proposes to apply Flag P's rebate to the Pre-
Opening Session \5\ and Post-Closing Session \6\ so that Members may 
earn the same rebate for adding liquidity on EDGX as they earn during 
Regular Trading Hours, which is defined as ``pre & post market'' in 
EDGA's fee schedule.
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    \4\ See EDGA Exchange Rule 1.5(w).
    \5\ See EDGA Exchange Rule 1.5(q).
    \6\ See EDGA Exchange Rule 1.5(p).
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    The Exchange proposes to implement this amendment to its fee 
schedule on October 24, 2011.
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 rebate for Flag P of $0.0027 per 
share is an equitable allocation of reasonable dues, fees, and other 
charges. During the Pre-Opening Session and the Post-Closing Session, 
the ROUC strategy is the only means for Members to post liquidity to an 
away exchange. The ROUC routing strategy checks the System for 
available shares and then is sent sequentially to destinations on the 
System routing table, Nasdaq OMX BX, and NYSE. If shares remain 
unexecuted after routing, they are posted to EDGX. The rebate is 
designed to incentivize Members to also route through EDGA during the 
Pre-Opening Session and the Post-Closing Session to reach multiple 
sources of liquidity before routing to other low cost destinations, and 
thereby potentially increases volume on EDGA to the extent an order 
using the ROUC routing strategy executes on EDGA. The rebate allows 
Members to reach multiple sources of liquidity by routing order flow 
through EDGA rather than going directly to various venues. The rebate 
also provides Members with a flat rate of $0.0027 per share rebate if 
the ROUC routing strategy posts to EDGX. When the Exchange's routing 
broker/dealer, Direct Edge ECN LLC d/b/a DE Route (``DE Route'') 
achieves certain tiers on EDGX, it is able to pass through a better 
rebate than if it had not achieved a tier.\9\ For example, if the 
Member had routed to EDGX directly and the order had added liquidity to 
EDGX, the Member could receive rebates ranging from $0.0023-$0.0034, 
depending on if a volume threshold were satisfied.\10\ The $0.0027 per 
share rebate thus represents a rate in between these various tiered and 
non-tiered rebates provided for adding liquidity to EDGX. This allows 
EDGA Members to share in potential volume tier savings realized by DE 
Route when it achieves certain tiers.
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    \9\ See EDGX fee schedule, footnote 1.
    \10\ Id.
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    This type of rate is also similar to EDGA's rate for removing 
liquidity from LavaFlow (Flag U). 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.\11\ This rebate is also comparable to other rebates offered 
by the Exchange that add liquidity, such as the ROOC \12\ routing 
strategy, which yields Flags 8 and 9.\13\ For Flags 8 and

[[Page 70184]]

9, the Exchange passes through the default rebate (i.e., non-tier) from 
the primary listing market (i.e., NYSE Arca, NYSE Amex) to Members 
because DE Route does not generally achieve a favorable tier rate. This 
rate is also consistent with the processing of similar routing 
strategies by EDGA's competitors where EDGA takes into account the 
rates that it is charged or rebated when routing to other low cost 
destinations.\14\ Finally, as another example, when EDGA routes to a 
primary exchange's opening cross, (Flag O), the Exchange passes through 
the tier savings that DE Route achieves on an away exchange to its 
Members.\15\ This tier savings takes the form of a cap of Members' fees 
at $10,000 per month for using Flag O.
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    \11\ See footnote 6 of the EDGA fee schedule.
    \12\ See EDGA Exchange Rule 11.9(b)(3)(n).
    \13\ See the EDGA Fee Schedule where Flag 8 offers a rebate of 
$.0015 where a member routes an order to NYSE Amex using the ROOC 
routing strategy and adds liquidity, and Flag 9 offers a rebate of 
$.0021 where a member routes an order to NYSE Arca using the ROOC 
routing strategy and adds liquidity.
    \14\ See also BATS BZX fee schedule, describing 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).
    \15\ See footnote 5 of the EDGA fee schedule.
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    The Exchange believes that the rebate of $0.0027 is reasonable as 
it is consistent with how other exchanges pass through charges or 
rebates for orders routed to a different exchange that add liquidity. 
For example, when Nasdaq routes to Nasdaq PSX, Nasdaq passes back 
Nasdaq PSX's standard charge of $0.0027 per share. When NYSE Arca 
routes to NYSE, NYSE Arca passes back the standard NYSE rebate of 
$0.0015 per share. These rebates generally approximate what the 
originating exchange receives from the exchange that is routed to plus 
or minus a certain differential. EDGA's pricing is consistent with this 
premise.
    The Exchange believes that the proposed rebate is non-
discriminatory in that it applies uniformly to all Members.
    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

    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 \16\ and Rule 19b-4(f)(2) \17\ 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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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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 email to rule-comments@sec.gov. Please include 
File Number SR-EDGA-2011-35 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-2011-35. 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 
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-2011-35 and should be 
submitted on or before December 1, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-29106 Filed 11-9-11; 8:45 am]
BILLING CODE 8011-01-P