Document ID: SEC-2010-2006-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2010-12-28T05:00Z

[Federal Register Volume 75, Number 248 (Tuesday, December 28, 2010)]
[Notices]
[Pages 81691-81692]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-32613]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63589; File No. SR-EDGX-2010-24]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change to Amend 
EDGX Rule 11.5

December 21, 2010.
    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 December 13, 2010, EDGX Exchange, Inc. (the ``Exchange'' or the 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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 the 
Substance of the Proposed Rule Change

    EDGX proposes to amend EDGX Rule 11.5(a)(2) to provide that the 
system functionality that cancels any portion of a market order 
submitted to the Exchange that would execute at a price that is more 
than $0.50 or 5 percent worse than last sale at the time the order 
initially reaches the Exchange, whichever is greater, does not apply to 
Destination-on-Open orders, as defined in Rule 11.5(c)(10). The text of 
the proposed rule change is available on the Exchange's Internet Web 
site at http://www.directedge.com, on the Commission's Web site at 
http://www.sec.gov, 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 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

1. Purpose
    As provided in SR-EDGX-2010-14,\3\ Exchange Rule 11.5(a)(2) 
protects market participants from executions at prices that are 
significantly worse than the last sale at the time of order entry by 
providing Exchange system functionality that cancels any portion of a 
market order (as defined in Rule 11.5(a)(2)) that would execute at a 
price that is 50 cents or 5 percentage points worse than the 
consolidated last sale, whichever is greater. Any portion of a market 
order that would otherwise execute outside of these thresholds is 
immediately cancelled back to the User.\4\
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    \3\ See Securities Exchange Act Release No. 63163 (October 22, 
2010), 75 FR 66408 (October 28, 2010) (SR-EDGX-2010-14).
    \4\ A User is defined in Exchange Rule 1.5(cc) as ``any Member 
or Sponsored Participant who is authorized to obtain access to the 
System pursuant to Rule 11.3''.
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    The Exchange proposes to modify Rule 11.5(a)(2) to provide that 
Destination-on-Open orders, as defined in Rule 11.5(c)(10),\5\ are not 
subject to these market collars.\6\ The rationale for this exception is 
twofold. First, using a reference price calculation for market collar 
thresholds at the open of trading is problematic because of the 
potential lack of trading activity just prior to the open and the 
resulting price dislocation. Therefore, the reference price for a 
market collar on a Destination-on-Open order could be out of line with 
the market at the open of the regular trading session. In addition, 
other Exchanges also address this issue similarly by excluding market 
on open orders as well.\7\
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    \5\ Rule 11.5(c)(10) defines a Destination-on-Open order, in 
part, as ``a market or limit order that instructs the System to 
route the order to a specified away trading center to participate in 
said trading center's opening process, without being processed by 
the System as described below in Rule 11.9(b)(1).''
    \6\ The Exchange notes that when orders are routed to an away 
trading center, such away trading centers' collar rules apply, when 
applicable, regardless of the Exchange's proposed exclusion for 
Destination-on-Open orders.
    \7\ See, e.g., Nasdaq Rule 4751(f)(13) which excludes market on 
open orders from the definition of ``collared orders.'' See also 
Securities Exchange Act Release No. 60371 (July 23, 2009), 74 FR 
38075 (July 30, 2009) (SR-Nasdaq-2009-070).
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2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Act,\8\ which requires the rules of an exchange to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
and, in general, to protect investors and the public interest. The 
Exchange believes that excluding Destination-on-Open orders from the 
application of market collars is appropriate in order to avoid the 
potential dislocation between the reference price for a market collar 
on a Destination-on-Open order and the market at the open of the 
regular trading session. Accordingly, the modifications to Exchange 
Rule 11.5 promote just and

[[Page 81692]]

equitable principles of trade, remove impediments to, and perfect the 
mechanism of, a free and open market and a national market system.
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    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange will issue an information circular to all Members 
prior to implementation, which will be on or about December 14, 2010.

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 Regarding 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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) \9\ of the Act and Rule 19b-4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has met this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \11\ normally 
may not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \12\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange requests that the 
Commission waive the 30-day operative delay, as specified in Rule 19b-
4(f)(6)(iii),\13\ which would make the proposed rule change effective 
and operative upon filing. The Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and 
the public interest.\14\ The Commission notes that the proposal is 
based on the rules of another SRO that similarly excludes market on 
open orders from its market collar functionality.\15\ Accordingly, the 
Commission designates the proposed rule change operative upon filing 
with the Commission.
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    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ Id.
    \14\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \15\ See supra note 7.
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    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.

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-EDGX-2010-24 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-EDGX-2010-24. This file 
number should be included on the subject line if e-mail 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 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 on official business days 
between the hours of 10 a.m. and 3 p.m. Copies of such 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 
publicly available. All submissions should refer to File Number SR-
EDGX-2010-24 and should be submitted on or before January 18, 2011.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-32613 Filed 12-27-10; 8:45 am]
BILLING CODE 8011-01-P