Document ID: SEC-2012-1654-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2012-10-11T04:00Z

[Federal Register Volume 77, Number 197 (Thursday, October 11, 2012)]
[Notices]
[Pages 61797-61799]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-24980]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67981; File No. SR-EDGX-2012-45]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Amendments to the EDGX Exchange, Inc. Fee Schedule

October 4, 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 October 1, 2012 the 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 self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 EDGX Rule 15.1(a) and (c). Text 
of the proposed rule change is attached as Exhibit 5 at http://www.directedge.com/Regulation/ExchangeRuleFilings/EDGX.aspx.
---------------------------------------------------------------------------

    \3\ As defined in Exchange Rule 1.5(n).
---------------------------------------------------------------------------

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.

[[Page 61798]]

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Currently, Footnote 12 to the Exchange's fee schedule states that a 
removal rate of $0.0029 per share applies where a Market Participant 
Identifier's (``MPID'') add liquidity ratio is equal to or greater than 
10%. The add liquidity ratio is defined as ``added'' flags/(``added'' 
flags + ``removal'' flags) x 100, where added flags are defined as 
Flags B, HA, V, Y, MM, RP, 3, or 4 and removal flags are defined as 
Flags BB, MT, N, W, PI, PR, or 6. Where a Member does not meet the add 
liquidity ratio of at least 10%, then the Exchange will charge the 
default removal rate of $0.0030 per share, where ``default'' refers to 
the standard rates assessed by the Exchange to Members for orders that 
remove liquidity absent Members qualifying for additional volume tiered 
pricing.\4\ The Exchange proposes to delete Footnote 12 in its entirety 
and any references thereto.
---------------------------------------------------------------------------

    \4\ The Exchange notes that Members may qualify for a removal 
rate of $0.0029 per share for Flags N, W, 6, BB and PI where they 
satisfy the volume tier requirements for the Mega Tier in Footnote 
1.
---------------------------------------------------------------------------

    Currently, the Exchange's fee schedule displays a discounted 
removal rate of $0.0029 per share as the rate for removing liquidity 
and the rate for Flags N, W, 6, BB, and PI subject to the volume 
thresholds in Footnotes 1 and 12.\5\ Because the Exchange proposed to 
delete Footnote 12 in its entirety, the Exchange proposes to amend the 
rates displayed for removing liquidity on the fee schedule to $0.0030 
per share, which represents the current default rate. Accordingly, the 
Exchange proposes to amend the displayed rate for removing liquidity on 
the EDGX fee schedule and the removal rates for Flags N, W, 6, BB, and 
PI from $0.0029 per share to $0.0030 per share, and these rates will 
continue to remain subject to the volume tier requirements of the Mega 
Tier in Footnote 1.
---------------------------------------------------------------------------

    \5\ The Exchange notes that the default removal rate remains 
$0.0030 per share.
---------------------------------------------------------------------------

    Currently, Footnote 11 on the Exchange's fee schedule states that 
for Flags EA or ER, if a Member internalizes more than 4% of their 
average daily volume (``ADV'') on EDGX (added, removed, and routed 
liquidity) and the Member, at a minimum, meets the criteria for the 
Mega Tier rebate of $0.0032 per share as described in Footnote 1, then 
the Member receives the applicable rebate in Footnote 1 for adding 
liquidity, or is charged the applicable removal rate in Footnote 1 or 
12. Because the Exchange proposes to eliminate the discounted removal 
rate for achieving the volume tier requirements in Footnote 12 in its 
entirety, the Exchanges also proposes to eliminate the discounted 
removal rate for achieving the volume tier requirements in Footnote 12 
provided for in Footnote 11. Therefore, the Exchange will charge the 
default removal rate of $0.0030 per share regardless of the Member's 
add liquidity ratio unless that Member qualifies for the discounted 
removal rate of $0.0029 per share, as described in the Mega Tier of 
Footnote 1, should that Member achieve the volume tier requirements.
    The Exchange proposes to assess a fee of $0.0025 per share in lieu 
of the current fee of $0.0023 per share for Members' orders that are 
routed or re-routed to the New York Stock Exchange (``NYSE'') and 
remove liquidity, yielding Flag D. This proposed change represents a 
pass-through of the rate that Direct Edge ECN LLC d/b/a DE Route (``DE 
Route''), the Exchange's affiliated routing broker dealer, is charged 
for routing orders to NYSE, in response to the pricing changes in 
NYSE's filing with the Securities and Exchange Commission (the 
``SEC'').\6\
---------------------------------------------------------------------------

    \6\ See NYSE's Trader Update at http://www.nyse.com/pdfs/NYSE%20Client%20Notice% 20Fees%2010%201%202012.pdf (discussing 
NYSE's fee changes effective October 1, 2012).
---------------------------------------------------------------------------

    The Exchange proposes to implement these amendments to its fee 
schedule on October 1, 2012.
2. Statutory 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange currently offers Members a discounted removal rate of 
$0.0029 per share where their add liquidity ratio is equal to or 
greater than 10%, as described in Footnote 12. The Exchange proposes to 
eliminate the discounted removal rate for achieving the volume tier 
requirements of Footnote 12 in its entirety and any references thereto, 
and the Exchange proposes to charge Members the default removal rate of 
$0.0030 per share regardless of their add liquidity ratio. The Exchange 
believes that its proposal to eliminate the discounted removal rate for 
achieving the volume tier requirements of Footnote 12 in its entirety 
represents an equitable allocation of reasonable dues, fees and other 
charges among its Members and other persons using its facilities 
because the Exchange will use the additional $0.0001 per share revenue 
generated from removing this volume tier to offset the administrative 
and infrastructure costs associated with operating a national 
securities exchange. In addition, the Exchange's proposal is reasonable 
because it will allow the Exchange to assess a fee for removing 
liquidity from EDGX that is competitive with other market centers.\9\ 
The Exchange also notes that with the removal of this tier, Members 
will continue to be subject to the other fees and tiers listed on the 
Exchange's fee schedule. Lastly, the Exchange believes that the 
proposed amendment is non-discriminatory because it applies uniformly 
to all Members.
---------------------------------------------------------------------------

    \9\ See NASDAQ OMX Group, Inc., Price List--Trading & 
Connectivity, http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2#remove. The NASDAQOMX Group Inc.'s 
default rate for removing liquidity in Tape A, B and C securities 
for all MPIDs is $0.0030 per share. See also BATS BZX Exchange, 
Inc., BATS BZX Exchange Fee Schedule (effective September 10, 2012), 
http://cdn.batstrading.com/resources/regulation/rule_book/BATS-Exchanges_Fee_Schedules.pdf. BATS BZX Exchange, Inc.'s default 
rate for removing liquidity in Tape A, B and C securities for all 
MPIDs is $0.0029 per share.
---------------------------------------------------------------------------

    The Exchange currently offers Members a discounted removal rate of 
$0.0029 per share, as described in Footnote 11 and subject to the 
volume tier requirements in Footnotes 1 and 12, where the Member 
internalizes more than 4% of their ADV on EDGX (added, removed, and 
routed liquidity) and the Member, at a minimum, meets the criteria for 
the Mega Tier rebate of $0.0032 per share in Footnote 1. Because the 
Exchange proposed to eliminate the discounted removal rate for 
achieving the volume tier requirements of Footnote 12 in its entirety 
and any references thereto, the Exchange also proposes to eliminate the 
discounted removal rate for achieving the volume tier requirements of 
Footnote 12 provided for in Footnote 11. Accordingly, the Exchange 
proposes to charge the default removal rate of $0.0030 per share 
regardless of a Member's add liquidity ratio unless that Member 
qualifies for a discounted removal rate of $0.0029 per share, as 
described in Footnote 11 and pursuant to the volume tier requirements 
in the Mega Tier in Footnote 1. The Exchange believes that its proposal 
to eliminate the discounted removal rate for achieving the volume tier 
requirements of Footnote 12, as described in Footnote 11, represents an 
equitable allocation of

[[Page 61799]]

reasonable dues, fees and other charges among its Members and other 
persons using its facilities because the Exchange will use the 
additional $0.0001 per share revenue generated from removing this 
volume tier to offset the administrative and infrastructure costs 
associated with operating a national securities exchange. In addition, 
the Exchange's proposal is reasonable because it will allow the 
Exchange to assess a fee for removing liquidity from EDGX that is 
competitive with other market centers.\10\ The Exchange also notes that 
with the removal of this tier, Members will continue to be subject to 
the other fees and tiers listed on the Exchange's fee schedule. Lastly, 
the Exchange believes that the proposed amendment is non-discriminatory 
because it applies uniformly to all Members.
---------------------------------------------------------------------------

    \10\ Id.
---------------------------------------------------------------------------

    The rates associated with routing orders to NYSE through DE Route 
on the Exchange's fee schedule are pass-through rates from DE Route to 
the Exchange and represent an equitable allocation of reasonable dues, 
fees, and other charges among Members of the Exchange and other persons 
using its facilities because the Exchange does not levy additional fees 
or offer additional rebates for orders that it routes to NYSE through 
DE Route. The Exchange notes that routing through DE Route is 
voluntary. Currently, for orders yielding Flag D, NYSE charges DE Route 
a fee of $0.0023 per share, which, in turn, is passed through to the 
Exchange. The Exchange, in turn, charges its Members a fee of $0.0023 
per share as a pass-through. In NYSE's pricing changes for October 1, 
2012, NYSE increased the rate it charges its customers, such as DE 
Route, from $0.0023 per share to a charge of $0.0025 per share for 
orders that are routed or re-routed to NYSE and remove liquidity. 
Therefore, the Exchange believes that the proposed change for Flag D 
from a fee of $0.0023 per share to a fee of $0.0025 per share is 
equitable and reasonable because it accounts for the pricing changes on 
NYSE. In addition, the proposal allows the Exchange to continue to 
charge its Members a pass-through rate for orders that are routed or 
re-routed to NYSE and remove liquidity using DE Route. Lastly, the 
Exchange also believes that the proposed amendment is non-
discriminatory because 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)(A) 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 investors, or otherwise 
in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 19b-4(f)(2).
---------------------------------------------------------------------------

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-2012-45 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-2012-45. 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-EDGX-2012-45 and should be 
submitted on or before November 1, 2012.
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-24980 Filed 10-10-12; 8:45 am]
BILLING CODE 8011-01-P