Document ID: SEC-2013-1608-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGA Exchange, Inc.
Posted Date: 2013-09-16T04:00Z

[Federal Register Volume 78, Number 179 (Monday, September 16, 2013)]
[Notices]
[Pages 56967-56970]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-22404]

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SECURITIES AND EXCHANGE COMMISSION

Release No. 34-70364; File No. SR-EDGA-2013-26]

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

September 10, 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 August 30, 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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[[Page 56968]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Fee Schedule to: (i) Decrease 
the fee for orders yielding Flag RP; (ii) add the Step-Up Tier 2; and 
(iii) move the bullets related to ``added flags,'' ``removal flags,'' 
and ``routed flags'' from the Definitions section to the General Notes 
section. All of the changes described herein are applicable to EDGA 
Members.\3\ 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 proposes to amend its Fee Schedule to: (i) Decrease 
the fee for orders yielding Flag RP; (ii) add the Step-Up Tier 2; and 
(iii) move the bullets related to ``added flags,'' ``removal flags,'' 
and ``routed flags'' from the Definitions section to the General Notes 
section.

Flag RP

    Currently, the Exchange assesses a fee of $0.0005 per share for 
non-displayed orders that add liquidity using the Route Peg order type, 
yielding Flag RP. The Exchange proposes to decrease this rate from a 
fee of $0.0005 to $0.0004 per share, resulting in a rate that is 
$0.0001 below the standard rate of $0.0005 for adding liquidity on the 
Exchange.

Addition of Step-Up Tier 2

    Currently, Footnote 4 of the Fee Schedule contains the Step-Up 
Tier, which provides Members with a reduced fee of $0.0003 per share to 
add liquidity to the Exchange when the Member, on an MPID basis, adds 
more than 0.10% of the total consolidated volume (``TCV'') on EDGA on a 
daily basis, measured monthly, more than the MPID's December 2012 added 
TCV. Where an MPID's December 2012 TCV is zero, the Exchange applies a 
default TCV baseline of 10,000,000 shares. The Exchange proposes to add 
the Step-Up Tier 2 to Footnote 4 of the Fee Schedule. The Step-Up Tier 
2 would provide Members with a reduced fee of $0.0003 per share to add 
liquidity to the Exchange when the Member: (i) On an MPID basis, adds 
more than 0.05% of the TCV on EDGA on a daily basis, measured monthly, 
more than the MPID's December 2012 added TCV; and (ii) has an ``added 
liquidity'' to ``added plus removed liquidity'' ratio of at least 85%. 
Where an MPID's December 2012 TCV is zero, the Exchange would apply a 
default TCV baseline of 10,000,000 shares.
    The Exchange also proposes to change the name of the Step-Up Tier 
to the ``Step-Up Tier 1'' to differentiate it from the proposed Step-Up 
Tier 2. Furthermore, the Exchange proposes to remove the phrase 
``Volume from non-displayed orders that add liquidity will count 
towards this tier'' under the Step-Up Tier 1 because the Fee Schedule 
includes the flags assigned to non-displayed orders that add liquidity 
(DM, HA, PA and RP) in the list of added flags that count towards tiers 
under the Definitions section (proposed to be moved to the General 
Notes section, see below). The Exchange notes that volume from non-
displayed orders that add liquidity will continue to count towards the 
volume tiers in Footnote 4, and would also count towards the proposed 
Step-Up Tier 2.

Amendments to Lists of Added, Removal and Routed Flags

    Currently, the Definitions section in the Fee Schedule contains 
three bullets that contain the list of applicable ``added flags,'' 
``removal flags,'' and ``routed flags,'' that may be considered when 
calculating whether a Member satisfied a certain tier. The Exchange 
proposes to move the text contained within each of the three bullets to 
the General Notes section. In addition, the Exchange proposes to re-
word the text of each bullet to improve readability and remove 
references to the flags as defined terms. For example, the amended 
bullet regarding added flags would read as follows: ``Unless otherwise 
indicated, the following added flags are counted towards tiers . . .'' 
The Exchange notes that the list of added/removal/routed flags 
associated with each bullet would remain unchanged.

Implementation Date

    The Exchange proposes to implement these amendments to its Fee 
Schedule on September 3, 2013.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\4\ in general, and 
furthers the objectives of Section 6(b)(4),\5\ 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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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(4).
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Flag RP

    The Exchange believes that amending the fee for orders that yield 
Flag RP from $0.0005 to $0.0004 per share represents an equitable 
allocation of reasonable dues, fees and other charges among its Members 
and other persons using its facilities because a rate of $0.0004 
continues to be less than the prevailing rates for other forms of non-
displayed order types that add liquidity (e.g., the Exchange assesses a 
charge of $0.0005 per share for non-displayed orders that add liquidity 
using the Midpoint Discretionary order type yielding Flag DM and 
$0.0010 per share for non-displayed orders that add liquidity yielding 
Flag HA).\6\ Within the non-displayed category of liquidity, Route Peg 
orders have the lowest order book priority, followed by Midpoint 
Discretionary orders and then non-displayed orders. Lower order book 
priority correlates to a lower chance of execution, which justifies a 
lower fee. Therefore, the Exchange is proposing to continue to offer a 
lower fee for Flag RP. Furthermore, the Exchange notes that the 
proposed rate change is in response to the August 2013 change in the 
standard rate from a fee of $0.0006 per share to $0.0005 per share for 
adding liquidity on EDGA.\7\ The proposed change would cause the fee 
for Flag RP to continue to be $0.0001 per share below the standard rate 
for adding liquidity on the Exchange. Lastly, the Exchange believes 
that the proposed rate is non-discriminatory in that it would apply 
uniformly to all Members.
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    \6\ See Securities Exchange Act Release No. 67839 (September 12, 
2012), 77 FR 57631 (September 18, 2012) (SR-EDGA-2012-41) (adding 
Flag RP to the Fee Schedule).
    \7\ See Securities Exchange Release No. 70146 (August 8, 2013), 
78 FR 49574 (August 14, 2013) (SR-EDGA-2013-21).

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[[Page 56969]]

Addition of Step-Up Tier 2
    The Exchange believes a reduced fee of $0.0003 per share for adding 
liquidity provided by the Step-Up Tier 2 versus the standard fee of 
$0.0005 per share represents an equitable allocation of reasonable 
dues, fees, and other charges since reduced fees reward higher 
liquidity provision commitments by Members. The Exchange believes that 
offering Members a reduced fee will incentivize adding liquidity on the 
Exchange. Such increased volume would increase potential revenue to the 
Exchange and allow the Exchange to spread its administrative and 
infrastructure costs over a greater number of shares, which would 
result in lower per share costs. The Exchange may then pass on these 
savings to Members in the form of reduced fees. The increased liquidity 
would also benefit 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 reduced 
fees such as the proposed Step-Up Tier 2 have been widely adopted in 
the cash equities markets, and are equitable because volume-based 
reduced fees 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 process.
    In addition, the criteria for the Step-Up Tier 2 is also reasonable 
as compared to similar pricing mechanisms employed by The Nasdaq Stock 
Market LLC (``Nasdaq'') that also offers rebates and tiers to add 
liquidity through a single MPID.\8\ 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. 
The Exchange also wishes to ensure that its Fee Schedule does not 
provide excessive encouragement to Members to aggregate the activity of 
multiple MPIDs 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. The Exchange believes that it is reasonable 
and equitable to offer a discounted rate to Members that provide volume 
through a single MPID because the Exchange 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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    \8\ See Nasdaq OMX, Price List--Trading & Connectivity, http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
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    The Exchange notes that the reduced fee provided by the Step-Up 
Tier 2 is equivalent to that provided by the Step-Up Tier 1. The 
Exchange believes that the reduced fee of $0.0003 per share provided by 
the Step-Up Tier 2 is reasonable because, although the Step-Up Tier 2 
requires a lower added TCV threshold in comparison to the Step-Up Tier 
1, the Step-Up Tier 2 contains an additional requirement that the 
Member have an ``added liquidity'' to ``added plus liquidity'' ratio of 
at least 85%. The Exchange believes that the requirement that a Member 
have an ``added liquidity'' to ``added plus removed liquidity'' ratio 
of at least 85% is reasonable because it would incentivize Members 
aspiring to achieve the Step-Up Tier 2 to add liquidity to the 
Exchange. Members that primarily post liquidity are more valuable 
Members to the Exchange and the marketplace in terms of liquidity 
provision and would therefore be rewarded with a reduced fee for having 
a high ``added liquidity'' to ``added plus removed liquidity'' ratio.
    The Exchange also believes that removal of the phrase ``Volume from 
non-displayed orders that add liquidity will count towards this tier'' 
under the Step-Up Tier 1 is reasonable because the Fee Schedule already 
includes the flags assigned to non-displayed orders that add liquidity 
(DM, HA, PA and RP) in the list of added flags that count towards tiers 
under the Definitions section (proposed to be moved to the General 
Notes section, see below). The Exchange notes that volume from non-
displayed orders that add liquidity will continue to count towards the 
volume tiers in Footnote 4, and would also count towards the proposed 
Step-Up Tier 2. The removal of such language from Footnote 4 eliminates 
redundancy and clarifies the Fee Schedule.
    Lastly, the Exchange believes that the proposed Step-Up Tier 2 is 
non-discriminatory because it would apply uniformly to all 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, the 
Exchange 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.
Flag RP
    The Exchange believes that its proposal to decrease the fee for 
orders yielding Flag RP from $0.0005 to $0.0004 per share would 
increase intermarket competition because the lower fee for orders that 
yield Flag RP would incent market participants to send to the Exchange 
non-displayed orders that add liquidity using the Route Peg order type 
and yield Flag RP. The Exchange believes that the proposed rate change 
would neither increase nor decrease intramarket competition because the 
proposed rate would apply uniformly to all Members.
Addition of Step-Up Tier 2
    The Exchange believes that the proposed addition of the Step-Up 
Tier 2 would increase intermarket competition as it would incentivize 
market participants to add liquidity to the Exchange in order to 
qualify for the reduced fee for adding liquidity. The Exchange believes 
that the Step-Up Tier 2 would neither increase nor decrease intramarket 
competition because the reduced fee for adding liquidity would be 
available to all Members that satisfy the criteria required to achieve 
the tier.
Amendments to Lists of Added, Removal and Routed Flags
    The Exchange believes that the proposed relocation and changes to 
the bullets related to ``added flags,'' ``removal flags,'' and ``routed 
flags'' in its Fee Schedule would not affect intermarket nor 
intramarket competition because this change is not designed to amend 
any fee or rebate or alter the manner in which the Exchange assesses 
fees or calculates rebates. The proposed change is intended to provide 
greater transparency to Members with regard to which added, removal and 
routed flags are counted towards certain tiers.

[[Page 56970]]

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 \9\ and Rule 19b-4(f)(2) \10\ 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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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 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-2013-26 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-2013-26. 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-2013-26 and should be 
submitted on or before October 7, 2013.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-22404 Filed 9-13-13; 8:45 am]
BILLING CODE 8011-01-P