Document ID: SEC-2012-1074-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGA Exchange, Inc.
Posted Date: 2012-07-05T04:00Z

[Federal Register Volume 77, Number 129 (Thursday, July 5, 2012)]
[Notices]
[Pages 39783-39785]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16439]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67300; File No. SR-EDGA-2012-24]

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

June 28, 2012.
    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 19, 2012 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, at the Exchange's 
principal office, and at the Public Reference Room of the Commission.
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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,

[[Page 39784]]

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

Purpose
    The Exchange proposes to add Flag DM to its fee schedule. Such flag 
will be yielded when Members add or remove liquidity in the 
discretionary (hidden) range using the Mid-Point Discretionary Order 
type (``MDO'').\4\ The Exchange proposes to assess a charge of $0.0005 
per share. In addition, the Exchange proposes appending Footnote 18 to 
Flag DM that states that trading activity in Flag DM does not count 
towards volume tiers.
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    \4\ See SR-EDGA-2012-22 (June 8, 2012) (As stated in the filing, 
MDOs to buy would be displayed at and pegged to the national best 
bid (the ``NBB''), with discretion to execute at prices up to and 
including the mid-point of the National Best Bid and Offer (the 
``NBBO''). MDOs to sell would be displayed at and pegged to the 
national best offer (the ``NBO''), with discretion to execute at 
prices down to and including the mid-point of the NBBO. The 
displayed prices of MDOs would move in tandem with changes in the 
NBB (for buy orders) or the NBO (for sell orders). Moreover, MDOs 
would not independently establish or maintain an NBB or NBO; rather, 
the displayed prices of MDOs would be derived from the then current 
NBB or NBO).
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    The Exchange proposes to implement this amendment to its fee 
schedule on June 19, 2012.
Basis
    The Exchange believes that the proposed rule changes are consistent 
with the objectives of Section 6 of the 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 believes that Flag DM is designed to provide for the 
equitable allocation of reasonable dues, fees and other charges among 
its Members and other customers using the Exchange's facilities. As 
stated in SR-EDGA-2012-22, MDOs represent a combination of two existing 
order types:

    The MDO has two discrete components--a displayed portion that is 
pegged to the NBB or NBO, and a non-displayed portion which gives 
discretion to execute to the mid-point of the NBBO, subject to 
certain limits. The displayed, pegged portion of the MDO is 
conceptually similar to the Exchange's Pegged Order.\7\ The non-
displayed portion of the MDO is conceptually similar to the 
Exchange's Mid-Point Peg Order \8\ (insofar as it would be eligible 
to execute in \1/2\ cent increments at the mid-point of the NBBO). 
And the MDO as a whole is conceptually similar to the Exchange's 
Discretionary Order \9\ (insofar as it would have displayed and 
undisplayed components, in both cases set to objectively determined 
parameters).
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    \7\ As defined in Exchange Rule 11.5(c)(6).
    \8\ As defined in Exchange Rule 11.5(c)(7).
    \9\ As defined in Exchange Rule 11.5(c)(13).

    As such, the proposed rate for Flag DM is reflective of this 
concept. When the MDO adds liquidity like a displayed Pegged Order, the 
Exchange will continue to offer a rebate of $0.0003 per share and the 
order will continue to receive Flags B, V, Y, 3, or 4. Where the MDO 
adds or removes liquidity, including upon entry, within the Member's 
specified discretionary (hidden) range, then it behaves like a Non-
Displayed or Discretionary Order, which is proposed to now be assessed 
a rate of $0.0005 per share. Today, without the addition of Flag DM, 
such Non-Displayed or Discretionary Orders would yield Flags HA or HR 
and be assessed a rate of $0.0010 per share or $0.0030 per share if the 
conditions in the volume tier are not satisfied by the Member.\10\ 
Therefore, the Exchange believes that assessing a proposed charge of 
$0.0005 per share for Flag DM is equitable because it represents a 
blended or hybrid rate between the rates the Exchange currently 
assesses for Pegged Orders (rebate of $0.0003) and the rates for Non-
Displayed Orders that add or remove liquidity (fee of $0.0010). In 
addition, the Exchange believes the proposed reduced rate from $0.0010 
to $0.0005 for the Non-Displayed or discretionary aspect of the order 
is also equitable because it reflects the value the Exchange attributes 
to the MDO's contribution to price discovery, displayed depth of 
liquidity at the national best bid/offer, and the added benefit that 
the Member makes the order transparent as compared to a traditional 
Non-Displayed Order, which is hidden on the order book.
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    \10\ The Exchange notes that the rate of $0.0010 per share for 
Flags HA and HR are contingent upon a Member adding or removing 
greater than 1,000,000 shares hidden on a daily basis, measured 
monthly. Members that do not meet this minimum will be charged 
$0.0030 per share.
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    The Exchange proposes to exclude the volume generated from Flag DM 
from counting towards the volume tiers because a Member can potentially 
receive Flag DM if the Member either adds or removes liquidity using 
the MDO; therefore, the Exchange believes it would be less confusing to 
exclude these executions from volume tiers (which are typically 
achieved by counting just the executions that add liquidity) and the 
footnote on the fee schedule would contribute towards more clarity and 
transparency for Members.
    In addition, the Exchange believes that the proposed rate is non-
discriminatory because the charge will apply 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 \11\ and Rule 19b-4(f)(2) \12\ 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

[[Page 39785]]

investors, or otherwise in furtherance of the purposes of the Act.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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-2012-24 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-2012-24. 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-2012-24 and should be 
submitted on or before July 26, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16439 Filed 7-3-12; 8:45 am]
BILLING CODE 8011-01-P