Document ID: SEC-2013-1248-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2013-07-09T04:00Z

[Federal Register Volume 78, Number 131 (Tuesday, July 9, 2013)]
[Notices]
[Pages 41132-41138]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16378]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69911; File No. SR-EDGX-2013-25]

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

July 2, 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 July 1,

[[Page 41133]]

2013, 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.
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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\ pursuant to EDGX Rule 15.1(a) and (c) (``Fee Schedule'') 
to: (1) Increase the fee to remove liquidity using Flag PR (removes 
liquidity from EDGX using ROUQ routing strategy) from $0.0027 to 
$0.0029 per share; (2) increase the fee when using Flag RQ (routing 
using ROUQ routing strategy) from $0.0027 to $0.0029 per share; (3) 
amend Footnote 1 \4\ by: (i) Correcting punctuation; (ii) easing the 
criteria to meet the Market Depth Tier; (iii) decreasing the rebate for 
the current $0.0032 Mega Tier (post 0.12% of TCV); and (iv) adding a 
new $0.0032 Mega Step Up Tier; (4) amend the criteria for the Retail 
Order Tier in Footnote 4; and (5) amend Footnote 13 to: (i) Add a 
$0.0032 Investor Tier and (ii) make a non-substantive, corrective 
change. The text of the proposed rule change is attached as Exhibit 5. 
All of the changes described herein are applicable to EDGX Members. 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\ ``Member'' is defined as ``any registered broker or dealer, 
or any person associated with a registered broker or dealer, that 
has been admitted to membership in the Exchange. A Member will have 
the status of a ``member'' of the Exchange as that term is defined 
in Section 3(a)(3) of the Act.'' EDGX Rule 1.5(n).
    \4\ References herein to ``Footnotes'' refer only to footnotes 
on the Exchange's Fee Schedule and not to footnotes within the 
current filing.
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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: (1) Increase 
the fee to remove liquidity using Flag PR (removes liquidity from EDGX 
using ROUQ routing strategy) from $0.0027 to $0.0029 per share; (2) 
increase the fee when using Flag RQ (routing using ROUQ routing 
strategy) from $0.0027 to $0.0029 per share; (3) amend Footnote 1 by: 
(i) Correcting punctuation; (ii) easing the criteria to meet the Market 
Depth Tier; (iii) decreasing the rebate for the current $0.0032 Mega 
Tier (post 0.12% of TCV); and (iv) adding a new $0.0032 Mega Step Up 
Tier; (4) amend the criteria for the Retail Order Tier in Footnote 4; 
and (5) amend Footnote 13 to: (i) Add a $0.0032 Investor Tier and (ii) 
make a non-substantive, corrective change.
Amendment to Flag PR
    The Exchange proposes to increase the fee to remove liquidity using 
Flag PR (removes liquidity from EDGX using the ROUQ \5\ routing 
strategy) from $0.0027 to $0.0029 per share.
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    \5\ ROUQ is a routing strategy that checks the System for 
available shares before sending the order to other destinations on 
the System routing table, and if shares remain unexecuted after 
routing, then the shares are posted on the EDGX book unless the 
Member instructs otherwise. See Exchange Rule 11.9(b)(2)(c)(iv). The 
System is defined as the electronic communications and trading 
facility designated by the Board through which securities orders of 
Users are consolidated for ranking, execution and, when applicable, 
routing away. See Exchange Rule 1.5(cc).
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Amendment to Flag RQ
    The Exchange proposes to increase the fee to route orders using 
Flag RQ (routed using ROUQ routing strategy) from $0.0027 to $0.0029 
per share.
Ministerial Changes to Footnote 1
    The Exchange proposes to make non-material changes to the first 
paragraph of Footnote 1 regarding the Mega Tier that provides Members 
with a rebate of $0.0035 per share (the ``$0.0035 Mega Tier''). These 
changes simply align the formatting of Footnote 1 with similar 
paragraphs within the Fee Schedule. The Exchange does not propose to 
alter the requirements Members need to satisfy to achieve the increased 
rebate offered by the $0.0035 Mega Tier.
    The Exchange also proposes to relocate the definition of Total 
Consolidate Volume (``TCV'') \6\ within Footnote 1 from the existing 
$0.0032 Mega Tier to the Mega Tier, where TCV is first mentioned.
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    \6\ TCV is defined as volume reported by all exchanges and trade 
reporting facilities to the consolidated transaction reporting plans 
for Tapes A, B and C securities for the month prior to the month in 
which the fees are calculated.
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Amendments to the Market Depth Tier
    Footnote 1 of the Fee Schedule currently provides that Members may 
qualify for the Market Depth Tier and receive a rebate of $0.0033 per 
share for displayed liquidity added on EDGX if they post greater than 
or equal to 0.50% of the TCV in average daily trading volume (``ADV'') 
on EDGX in total, where at least 2,000,000 shares are Non-Displayed 
Orders that yield Flag HA. The Exchange proposes to amend Footnote 1 of 
its Fee Schedule to decrease the ADV requirement of the Market Depth 
Tier from 2,000,000 shares of ADV to 1,800,000 shares of ADV. The 
remainder of the footnote as it pertains to the Market Depth Tier 
rebate would remain unchanged.
Amendments to the Current $0.0032 Mega Tier (Post 0.12% of TCV)
    The Exchange proposes to decrease the rebate for the current Mega 
Tier rebate of $0.0032 per share to $0.0030 per share in Footnote 1 of 
the Fee Schedule. The Exchange also proposes to rename the tier the 
Mega Step Up Tier. Currently, Footnote 1 of the Exchange's fee schedule 
provides that Members may qualify for a Mega Tier rebate of $0.0032 per 
share by posting 0.12% of the TCV in ADV more than their February 2011 
ADV added to EDGX. The Exchange proposes to reduce the rebate offered 
by this tier from $0.0032 to $0.0030 per share (the ``$0.0030 Mega Step 
Up Tier''). The criteria required to meet the tier would remain 
unchanged.
Addition of the New $0.0032 Mega Step Up Tier
    The Exchange proposes to add a new Mega Tier (the ``$0.0032 Mega 
Step Up Tier'') to provide for a rebate of $0.0032 per share if the 
Member: (i) Posts 0.12% of the TCV in ADV more than their February 2011 
ADV added to EDGX and (ii) adds a minimum of 0.35% of the TCV on a 
daily basis, measured monthly.
Amendments to Retail Order Tier
    Currently, Members are eligible for a rebate of $0.0034 per share 
if they add an ADV of Retail Orders (Flag ZA) that is 0.10% or more of 
the TCV on a daily basis, measured monthly. Flag ZA is

[[Page 41134]]

yielded for those Members that use Retail Orders \7\ that add liquidity 
to EDGX. The Exchange now proposes to amend this criteria to also 
require that Members have an ``added liquidity'' to ``added plus 
removed liquidity'' ratio of at least 85%.
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    \7\ Footnote 4 on the Exchange's Fee Schedule defines a ``Retail 
Order,'' in part, as an: (i) An agency order or riskless principal 
order that meets the criteria of FINRA Rule 5320.03 that originates 
from a natural person; (ii) is submitted to EDGX by a Member, 
provided that no change is made to the terms of the order; and (iii) 
the order does not originate from a trading algorithm or any other 
computerized methodology.
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Addition of $0.0032 Investor Tier
    The Exchange proposes to add an additional Investor Tier to 
Footnote 13 of the Fee Schedule. Members would qualify for the Investor 
Tier and be provided a rebate of $0.0032 per share (``$0.0032 Investor 
Tier'') for all liquidity posted on EDGX if they: (i) add a minimum of 
0.15% of the TCV on a daily basis, measured monthly; and (ii) have an 
``added liquidity'' to ``added plus removed liquidity'' ratio of at 
least 85%.
Correction to Footnote 13
    Members can currently qualify for an Investor Tier and be provided 
a rebate of $0.0030 per share (``$0.0030 Investor Tier'') if they: (i) 
On a daily basis, measured monthly, posts an ADV of at least 8,000,000 
shares on EDGX where added flags are defined as B, HA, V, Y, MM, RP, 
ZA, 3, or 4; (ii) have an ``added liquidity'' to ``removed liquidity'' 
ratio of at least 60% where added flags are defined as B, HA, V, Y, MM, 
RP, ZA, 3, or 4 and removal flags are defined as BB, MT, N, W, PI, PR, 
ZR, or 6; and (iii) have a message-to-trade ratio of less than 6:1. The 
Exchange proposes to correct an inadvertent drafting error in the 
criteria related to the add to remove liquidity ratio under (ii) above. 
Specifically, the Exchange proposes to amend the add to remove 
liquidity ratio language to specify that Members must have an added 
liquidity to added plus removed liquidity ratio. The revised criteria 
would read as follows:

    . . . have an ``added liquidity'' to ``added plus removed 
liquidity'' ratio of at least 60% where added flags are defined as B, 
HA, V, Y, MM, RP, ZA, 3, or 4 and removal flags are defined as BB, MT, 
N, W, PI, PR, ZR, or 6 (emphasis added) . . .
    The Exchange notes that its proposal conforms to an existing 
practice and does not modify the rebate that the Exchange has been 
providing its Members for achieving the tier. The Exchange notes that 
it will continue to calculate whether a Member satisfied criteria (ii) 
under Footnote 13 if its ``added liquidity'' to ``added plus removed 
liquidity'' ratio is at least 60%. Other than this correction, the 
remainder of the footnote as it pertains to the $0.0030 Investor Tier 
would remain unchanged.
Implementation Date
    The Exchange proposes to implement these amendments to its Fee 
Schedule on July 1, 2013.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\8\ in general, and 
furthers the objectives of Section 6(b)(4),\9\ 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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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
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Amendment to Flag PR
    The Exchange believes that the proposed increased rate of $0.0029 
from $0.0027 per share for Flag PR for orders that remove liquidity 
from the EDGX book using the ROUQ routing strategy is an equitable 
allocation of reasonable dues, fees, and other charges because the 
reduced rate, in comparison to the default \10\ rate to remove 
liquidity of $0.0030 per share, is reasonable as it is consistent with 
similar rates charged by the Exchange's competitors.\11\
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    \10\ ``Default'' refers to the standard rate provided to Members 
for orders that remove liquidity from the Exchange absent Members 
qualifying for additional volume tiered pricing.
    \11\ See Fee to Remove Liquidity for Routable Orders in the 
Nasdaq OMX PSX Price List available at http://www.nasdaqtrader.com/Trader.aspx?id=PSX_Pricing (last visited June 27, 2013) (charging 
similar discounted rates to remove liquidity of $0.0025 and 
$0.0028).
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    Further, the Exchange believes that the increased rate of $0.0029 
per share is reasonable because it will enable the Exchange to retain 
additional funds to offset increased administrative, regulatory, and 
other infrastructure costs associated with operating an exchange. 
Lastly, the increased rate is non-discriminatory because it applies 
uniformly to all Members of the Exchange. The Exchange also believes 
that the rate is equitable because by utilizing the ROUQ routing 
strategy, Members will qualify for a $0.0001 discounted removal rate in 
Flag PR from the default rate to remove liquidity of $0.0030 per share 
as the revenue generated by executing at away destinations enables the 
Exchange to offer such discounted removal rate.
Amendment to Flag RQ
    The Exchange believes that the proposed increased rate of $0.0029 
from $0.0027 per share for Flag RQ for orders that are routed using the 
ROUQ routing strategy is an equitable allocation of reasonable dues, 
fees, and other charges because it now equals the Exchange's standard 
routing rate under Flag X of $0.0029 per share. Further, the Exchange 
believes that the increased rate of $0.0029 per share is reasonable 
because it will enable the Exchange to retain additional funds to 
offset increased administrative, regulatory, and other infrastructure 
costs associated with operating an exchange. Lastly, the increased rate 
is non-discriminatory because it applies uniformly to all Members of 
the Exchange.
Ministerial Changes to Footnote 1
    The Exchange believes that the proposed non-material changes to the 
first paragraph of Footnote 1 regarding the $0.0035 Mega Tier are 
reasonable and non-discriminatory because the changes simply align the 
formatting of Footnote 1 with similar paragraphs within the Fee 
Schedule. The Exchange does not propose to alter the requirements 
Members need to satisfy to be eligible for the increased rebate to the 
$0.0035 Mega Tier in Footnote 1.
    The Exchange also believes relocating the definition of TCV within 
Footnote 1 reasonable and non-discriminatory because it simply seeks to 
add clarity to the Fee Schedule.
Amendments to the Market Depth Tier
    The Exchange believes that lowering the ADV requirements in Flag HA 
for the Market Depth Tier represents an equitable allocation of 
reasonable dues, fees, and other charges because slightly lowering the 
threshold to achieve the tier encourages Members to add displayed 
liquidity to the EDGX Book \12\ each month, as only the displayed 
liquidity in this tier is awarded the rebate of $0.0033 per share. This 
tier also recognizes the contribution that non-displayed liquidity 
provides to the marketplace, including: (i) Adding needed depth to the 
EDGX market; (ii) providing price support/depth of liquidity; and (iii) 
increasing diversity of liquidity to EDGX. The increased liquidity 
benefits all investors by deepening EDGX'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

[[Page 41135]]

protection. In addition, the Exchange also believes that the proposed 
amendment to the Market Depth Tier is non-discriminatory because it 
applies uniformly to all Members.
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    \12\ The EDGX Book is the System's electronic file of orders. 
See Exchange Rule 1.5(d).
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Amendments to the Current $0.0032 Mega Tier (Post 0.12% of TCV)
    The Exchange believes that the reduction of the rebate offered by 
the current $0.0032 Mega Tier from $0.0032 per share to $0.0030 per 
share under the $0.0030 Mega Step Up Tier represents an equitable 
allocation of reasonable dues, fees, and other charges because it will 
enable the Exchange to retain additional funds to offset increased 
administrative, regulatory, and other infrastructure costs associated 
with operating an exchange. The rebate of $0.0030 per share is 
reasonable when compared to the Exchanges' competitors.\13\ 
Additionally, the Exchange believes that the reduced rebate of $0.0030 
per share justifies a less stringent criterion than the $0.0032 Mega 
Step Up Tier discussed below. Lastly, the reduced rebate is non-
discriminatory because it applies uniformly to all Members of the 
Exchange.
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    \13\ See NYSE Arca Equities, Inc. Schedule of Fees and Charges 
for Exchange Services available at https://usequities.nyx.com/sites/usequities.nyx.com/files/nyse_arca_marketplace_fees_5_1_13.pdf 
(last visited June 27, 2013) (Arca offers a rebate of $0.00295 and 
$0.0029 for its Step-Up Tier 1 and Tier 2 respectively for Tape A 
and C securities).
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Addition of the New $0.0032 Mega Step Up Tier
    The Exchange believes that the addition of the new $0.0032 Mega 
Step Up Tier represents an equitable allocation of reasonable dues, 
fees, and other charges because it incentivizes Members to add 
liquidity to the EDGX Book. In particular, the $0.0032 Mega Step Up 
Tier is designed to incentivize members to achieve preferred pricing by 
adding liquidity on the Exchange.
    The Exchange also believes that the $0.0032 Mega Step Up Tier is 
reasonable and equitably allocated because such increased liquidity 
benefits all investors by deepening EDGX's liquidity pool, offering 
additional flexibility for all investors to enjoy cost savings and 
improving investor protection. Volume-based rebates such as the one 
proposed herein are widely utilized in the cash equities markets, and 
are equitable because they 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 
opportunities for price improvement.
Higher Rebates are Correlated With More Stringent Criteria
    Furthermore, the Exchange believes that the criteria for tiered 
rebates listed above represents an equitable allocation of reasonable 
dues, fees, and other charges because higher rebates are directly 
correlated with more stringent criteria.
    For example, in order for a Member to qualify for the $0.0035 Mega 
Tier Rebate, the Member would have to add or route at least 2 million 
shares of ADV during pre- and post-trading hours and add a minimum of 
35 million shares of ADV on EDGX in total, including during both market 
hours and pre- and post-trading hours in order to obtain the $0.0015 
discount routing and removal rates. The criteria for this tier is the 
most stringent of all other tiers on the Exchange's fee schedule as 
fewer Members generally trade during pre- and post-trading hours 
because of the limited time parameters associated with these trading 
sessions, which generally results in less liquidity. In addition, the 
Exchange assigns a higher value to this resting liquidity because 
liquidity received prior to the regular trading session typically 
remains resident on the EDGX Book throughout the remainder of the 
entire trading day. Furthermore, liquidity received during pre- and 
post-trading hours is an important contributor to price discovery and 
acts as an important indication of price for the market as a whole 
considering the relative illiquidity of the pre- and post-trading hour 
sessions. The Exchange believes that offering a higher rebate and 
reduced fees for removal of liquidity and/or routing incentivizes 
Members to provide liquidity during these trading sessions.
    In order to qualify for the next best tier, the Market Depth Tier, 
and receive a rebate of $0.0033 per share for displayed liquidity, such 
Member must post at least 0.50% of the TCV in ADV on EDGX in total, 
where at least 2,000,000 million (herein proposed to be amended to 
1,800,000) shares are non-displayed orders that add liquidity to EDGX 
yielding Flag HA. This criteria is more stringent than that of the 
proposed $0.0032 Mega Step Up Tier because the Market Depth Tier 
requires a Member to post at least 0.50% of the TCV in ADV on EDGX 
whereas the $0.0032 Mega Step Up Tier only requires a Member to post a 
minimum of 0.35% of the TCV in ADV on EDGX. Based on a TCV for May 2013 
of six (6) billion shares, this would amount to 30,000,000 shares for 
the Market Depth Tier and 21,000,000 shares for the $0.0032 Mega Step 
Up Tier.
    In order to qualify for the next tier after the $0.0032 Mega Step 
Up Tier, as discussed above, the Ultra Tier, a Member must, on a daily 
basis, measured monthly, post 0.50% of TCV in ADV to EDGX to receive a 
rebate of $0.0031 per share. The criteria for this tier is less 
stringent than the $0.0032 Mega Step Up Tier because a Member aspiring 
to meet the $0.0032 Mega Step Up Tier must satisfy two criteria: (1) 
Post 0.12% of the TCV in ADV more than their February 2011 ADV added to 
EDGX; and (2) add a minimum of 0.35% of the TCV on a daily basis, 
measured monthly, including during both market hours and pre and post-
trading hours. The Ultra Tier only requires a Member post 0.50% of TCV 
in ADV to EDGX. Based on a TCV for May 2013 of six (6) billion shares, 
this would amount to 30,000,000 shares for the Ultra Tier and 
21,000,000 shares for the $0.0032 Mega Step Up Tier. While the Ultra 
Tier's TCV requirement is higher, Members seeking the achieve the 
$0.0032 Mega Step Up Tier would also be required to post 0.12% of the 
TCV in ADV more than their February 2011 ADV added to EDGX. The 
Exchange believes this additional requirement establishing a Member's 
February 2011 added baseline rewards liquidity provision and encourages 
price discovery and market transparency by incentivizing growth in 
liquidity over a defined baseline.
    The criteria for the $0.0032 Mega Step Up Tier is also more 
stringent than the $0.0030 Mega Step Up Tier discussed above. While 
both tiers require a Member post 0.12% of the TCV in ADV more than 
their February 2011 ADV, the $0.0032 Mega Step Up Tier also requires 
Members to add a minimum of 0.35% of the TCV on a daily basis, measured 
monthly, including during both market hours and pre and post-trading 
hours. This additional requirement is designed to incentivize Members 
to add liquidity to the EDGX Book in order to achieve preferred pricing 
by adding liquidity on the Exchange.
    To qualify for the next tier after the $0.0030 Mega Step Up Tier, 
the Super Tier, and receive a rebate of $0.0028 per share for liquidity 
added to EDGX, a Member must, on a daily basis, measured monthly, posts 
10,000,000 shares or more of ADV to EDGX. The Exchange believes that 
establishing a Member's February 2011 added baseline rewards liquidity 
provision and encourages price discovery and market transparency by 
incentivizing growth in liquidity over a defined baseline. The Exchange 
believes the $0.0030 Mega

[[Page 41136]]

Step Up Tier will also encourage large market participants, who are not 
currently large adders, to grow their add volume over an established 
baseline in order to achieve the tier.
    Lastly, the Exchange also believes that the proposed amendment is 
non-discriminatory because it applies uniformly to all Members.
Amendment to Retail Order Tier
    The Exchange believes that its proposal to add an additional 
requirement to the Retail Order Tier in Footnote 4 that a Member must 
have an ``added liquidity'' to ``added liquidity plus removed 
liquidity'' ratio of at least 85% represents an equitable allocation of 
reasonable dues, fees, and other charges because it is designed to 
incentivize and further align the tier's requirements with the trading 
behaviors of Members that primarily represent retail customers. The 
Retail Order Tier is designed to encourage greater participation on 
EDGX by Members that represent retail customers.\14\ In particular, the 
Exchange notes that an ``added liquidity'' to ``added plus removed 
liquidity'' ratio of at least 85% is a characteristic of retail order 
flow, where retail members add substantially more liquidity than they 
remove. Members that primarily post liquidity are more valuable Members 
to the Exchange and the marketplace in terms of liquidity provision. 
Because retail orders are more likely to reflect long-term investment 
intentions than the orders of proprietary traders, they promote price 
discovery and dampen volatility. Accordingly, their presence on the 
EDGX Book has the potential to benefit all market participants. For 
this reason, EDGX believes that it is equitable to provide significant 
financial incentives to encourage greater retail participation in the 
market in general and on EDGX in particular. The Exchange believes that 
increasing the volume requirement and requiring the addition of an 
``added liquidity'' to ``added plus removed liquidity'' ratio of at 
least 85% may result in increased volume in retail orders by firms 
aspiring to meet the criteria of the tier and, accordingly, would lead 
to benefits for all market participants.
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    \14\ See Securities Exchange Act Release No. 69067 (March 7, 
2013), 78 FR 16003, 16004 (March 13, 2013) (SR-EDGX-2013-11) 
(stating that the Retail Order Tier is designed to ``encourage 
Members to send additional Retail Orders that add liquidity to the 
Exchange''). The Exchange notes that the Commission has expressed 
concern that a significant percentage of the orders of individual 
investors are executed in over-the-counter markets, that is, at off 
exchange markets. Securities Exchange Act Release No. 61358 (January 
14, 2010), 75 FR 3594 (January 21, 2010) (Concept Release on Equity 
Market Structure, ``Concept Release''). In the Concept Release, the 
Commission recognized the strong policy preference under the Act in 
favor of price transparency and displayed markets. See also Mary L. 
Schapiro, Strengthening Our Equity Market Structure (Speech at the 
Economic Club of New York, Sept. 7, 2010) (available on the 
Commission Web site) (comments of Commission Chairman on what she 
viewed as a troubling trend of reduced participation in the equity 
markets by individual investors, and that nearly 30 percent of 
volume in U.S.-listed equities is executed in venues that do not 
display their liquidity or make it generally available to the 
public).
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Addition of $0.0032 Investor Tier
    The Exchange believes that the addition of the $0.0032 Investor 
Tier represents an equitable allocation of reasonable dues, fees, and 
other charges because it incentivizes Members to add liquidity to the 
EDGX Book. The increased liquidity benefits all investors by deepening 
EDGX'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 rebates such as the one proposed herein have 
been widely adopted in the cash equities markets, and are equitable 
because they are open to all Members on an equal basis and provide 
financial incentives 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 
processes. In addition, the Exchange also believes that these proposed 
amendments are nondiscriminatory because they apply uniformly to all 
Members.
    Furthermore, the Exchange believes that its proposal to add a 
requirement that a Member must have an ``added liquidity'' to ``added 
liquidity plus removed liquidity'' ratio of at least 85% represents an 
equitable allocation of reasonable dues, fees, and other charges 
because it is designed to incentivize Members that represent retail 
customers to send order flow to the Exchange. The $0.0032 Investor Tier 
is designed to encourage greater participation on EDGX by Members that 
represent retail customers but may not be able to satisfy the 
requirements to achieve the Retail Order Tier in Footnote 4 above. In 
particular, the Exchange notes that an ``added liquidity'' to ``added 
plus removed liquidity'' ratio of at least 85% is a characteristic of 
retail order flow, where retail members add substantially more 
liquidity than they remove. Members that primarily post liquidity are 
more valuable Members to the Exchange and the marketplace in terms of 
liquidity provision. Because retail orders are more likely to reflect 
long-term investment intentions than the orders of proprietary traders, 
they promote price discovery and dampen volatility. Accordingly, their 
presence on the EDGX Book has the potential to benefit all market 
participants. For this reason, EDGX believes that it is equitable to 
provide significant financial incentives to encourage greater retail 
participation in the market in general and on EDGX in particular. The 
Exchange believes that increasing the volume requirement and requiring 
the addition of an ``added liquidity'' to ``added plus removed 
liquidity'' ratio of at least 85% may result in increased volume in 
retail orders by firms aspiring to meet the criteria of the tier and, 
accordingly, would lead to benefits for all market participants.
    The Exchange also believes that the proposed rebate of $0.0032 per 
share for the $0.0032 Investor Tier and volume thresholds that require 
Members to add a minimum of 0.15% of the TCV on a daily basis 
represents an equitable allocation of reasonable dues, fees, and other 
charges since higher rebates are directly correlated with more 
stringent criteria.
    For example, the tier most similar to the $0.0032 Investor Tier 
that offers a higher rebate than the $0.0032 Investor Tier is the 
$0.0035 Mega Tier. The $0.0035 Mega Tier provides a rebate of $0.0035 
per share for all liquidity posted by a Member to EDGX if such Member 
(i) adds or routes at least 4,000,000 shares of ADV prior to 9:30 a.m. 
or after 4:00 p.m. (includes all flags except 6), (ii) adds a minimum 
of 35,000,000 shares of ADV on EDGX in total, including during both 
market hours and pre and post-trading hours, and (iii) has an ``added 
liquidity'' to ``added plus removed liquidity'' ratio of at least 85% 
where added flags are defined as B, V, Y, 3, 4, HA, MM, RP, and ZA and 
removal flags are defined as N, W, 6, BB, MT, PI, PR, and ZR. In 
addition, for meeting the aforementioned criteria, the Member will pay 
a reduced rate for removing and/or routing liquidity of $0.0015 per 
share for Flags N, W, 6, 7, BB, PI, RT, and ZR. The Exchange believes 
that the criteria for the $0.0032 Investor Tier is far less onerous 
than that of the $0.0035 Mega Tier because the $0.0035 Mega Tier 
requires trading during pre- and post-trading hours, which is more 
stringent for Members because of the limited time parameters associated 
with these trading sessions, which generally results in less liquidity. 
Therefore, the rebate of $0.0032 offered by the Investor Tier 
accurately reflects the effort a Member would need to expend to

[[Page 41137]]

achieve the tier in comparison to the effort required to meet the 
$0.0035 Mega Tier.
    The next best similar tier after the $0.0032 Investor Tier, the 
$0.0030 Investor Tier, provides a rebate of $0.0030 per share when 
qualifying Members (i) post an ADV of at least 8,000,000 shares on 
EDGX, (ii) have an ``added liquidity'' to ``added plus removed 
liquidity'' ratio of at least 60% and (iii) have a message-to-trade 
ratio of less than 6:1. The Exchange believes that the volume 
requirement of the $0.0032 Investor Tier to add a minimum of 0.15% of 
TCV is a more stringent volume requirement than that presented in the 
$0.0030 Investor Tier. Likewise, the ``added liquidity'' to ``added 
plus removed liquidity'' ratio of 85% in the $0.0032 Investor Tier is 
more stringent than the 60% requirement in the $0.0030 Investor Tier. 
Accordingly, the Exchange believes that, because Members aspiring to 
meet the $0.0032 Investor Tier are required to add more liquidity to 
EDGX compared to those aspiring to meet the $0.0030 Investor Tier, 
those Members should be rewarded with a higher rebate.
Correction to Footnote 13
    The Exchange believes that correcting an inadvertent drafting error 
in the criteria of the $0.0030 Investor Tier with regard to the ``added 
liquidity'' to ``added plus removed liquidity'' ratio is reasonable 
because it will increase the level of transparency on the Exchange's 
fee schedule and improve the Exchange's ability to effectively convey 
the criteria necessary to achieve the $0.0030 Investor Tier. The 
Exchange notes that its proposal conforms to an existing practice and 
does not modify the rebate that the Exchange has been providing its 
Members for achieving the tier. The Exchange has historically in 
practice and will continue to calculate whether a Member satisfied 
criteria (ii) under Footnote 13 if its ``added liquidity'' to ``added 
plus removed liquidity'' ratio is at least 60%. Other than this 
correction, the remainder of the footnote as it pertains to the $0.0030 
Investor Tier would remain unchanged. Lastly, the Exchange also 
believes that these proposed amendments are non-discriminatory because 
they 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 any of the Exchange's competitors. 
Additionally, Members may opt to disfavor the Exchange's pricing if 
they believe that alternatives offer them better value. Accordingly, 
the Exchange believes that the proposed changes would not impair the 
ability of Members or competing venues to maintain their competitive 
standing in the financial markets.
Amendment to Flag PR
    The Exchange believes the proposed increased fee from $0.0027 to 
$0.0029 per share for orders that yield Flag PR would increase 
intermarket competition between the Exchange and its competitors that 
offer similar discount in fees to remove liquidity associated with 
routing strategies.\15\ The Exchange believes that its proposal would 
neither increase nor decrease intramarket competition because the 
increased rate would apply uniformly to all Members.
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    \15\ See Fee to Remove Liquidity for Routable Orders in the 
Nasdaq OMX PSX Price List available at http://www.nasdaqtrader.com/Trader.aspx?id=PSX_Pricing (last visited June 27, 2013) (charging 
similar discounted rates to remove liquidity of $0.0025 and 
$0.0028).
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Amendment to Flag RQ
    The Exchange believes the proposed increased fee from $0.0027 to 
$0.0029 per share for orders that yield Flag RQ would increase 
intermarket competition between the Exchange and its competitors that 
offer similar routing fees.\16\ The Exchange believes that its proposal 
would neither increase nor decrease intramarket competition because the 
increased rate would apply uniformly to all Members.
---------------------------------------------------------------------------

    \16\ See BATS BZX fee schedule, describing Standard Routing 
Pricing available at http://cdn.batstrading.com/resources/regulation/rule_book/BATS-Exchanges_Fee_Schedules.pdf (last 
visited June 27, 2013) (charging $0.0029 per share for shares 
executed at any other venue utilizing routing strategies ``CYCLE'', 
``RECYCLE'', ``Parallel D'', and ``Parallel 2D'').
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Ministerial Changes to Footnote 1
    The Exchange believes that the non-material changes to the first 
paragraph of Footnote 1 regarding the $0.0035 Mega Tier would not 
impose a burden on competition because it simply seeks to align the 
formatting of Footnote 1 with similar paragraphs within the Fee 
Schedule. The Exchange does not propose to alter the requirements 
Members need to satisfy to be eligible for the $0.0035 Mega Tier rebate 
in Footnote 1.
    The Exchange also believes relocating the definition of TCV within 
Footnote 1 would not impose a burden on competition because it simply 
seeks to add clarity to the Fee Schedule.
Amendments to the Market Depth Tier
    The Exchange believes that its proposal to decrease the ADV 
requirement in Flag HA in the Market Depth Tier would increase 
intermarket competition because the lower ADV requirement would 
incentive Members that could not previously meet the tier to send 
higher volume to the Exchange. The Exchange believes that its proposal 
would neither increase nor decrease intramarket competition because the 
rate for the Market Depth Tier would continue to apply uniformly to all 
Members and the ability of some Members to meet the tier would only 
benefit other Members by contributing to increased price discovery and 
better market quality at the Exchange.
Amendments to the Current $0.0032 Mega Tier (Post 0.12% of TCV)
    The Exchange believes that decreasing the rebate for the current 
$0.0032 Mega Tier will not impose any burden on intermarket competition 
not necessary or appropriate in furtherance of the purposes of the Act. 
The proposed rebate decrease, in conjunction with the addition of the 
new $0.0032 Mega Step Up Tier, would contribute to increased price 
discovery and better market quality at the Exchange as a result of the 
liquidity added by those Members that aspire to meet the tier. This 
would make the Exchange more competitive with other market centers. The 
Exchange believes that its proposal would neither increase nor decrease 
intramarket competition because the increased rate would apply 
uniformly to all Members.
Addition of the New $0.0032 Mega Step Up Tier
    The Exchange believes that its proposal to add the $0.0032 Mega 
Step Up Tier would increase intermarket competition because Members 
that seek to meet the tier would be required to send higher volume to 
the Exchange. The Exchange believes that its proposal would neither 
increase nor decrease intramarket competition because the rate for the 
$0.0032 Market Step Up Tier would continue to apply uniformly to all 
Members and the ability of some Members to meet the tier would only 
benefit other Members by contributing to increased price discovery and 
better market quality at the Exchange as a result of the liquidity 
added by those Members that aspire to meet the tier.
Amendment to Retail Order Tier
    The Exchange believes that adding criteria to the Retail Order Tier 
that

[[Page 41138]]

Members must also have an ``added liquidity'' to ``added plus removed 
liquidity'' ratio of at least 85% would increase intermarket 
competition because Members that seek to meet the tier would be 
required to send higher added volume to the Exchange. Regarding the 
Retail Order Tier, the Exchange believes that its proposal to amend the 
criteria to achieve the tier will increase competition for Retail 
Orders because the proposed Retail Order Tier is comparable in price 
and criteria to NYSE Arca, Inc. (``NYSE Arca'') and Nasdaq's retail 
order tier.\17\
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    \17\ See NYSE Arca, NYSE Arca Equities Trading Fees--Retail 
Order Tier, available at http://usequities.nyx.com/markets/nyse-arca-equities/trading-fees (last visited June 27, 2013). See also 
Nasdaq, Price List--Rebate to Add Displayed Designated Retail 
Liquidity, available at http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2 (last visited June 27, 2013).
---------------------------------------------------------------------------

    The Exchange believes that its proposal would neither increase nor 
decrease intramarket competition because the rate for the Retail Order 
Tier would continue to apply uniformly to all Members and the ability 
of some Members to meet the tier would only benefit other Members by 
contributing to increased price discovery and better market quality at 
the Exchange.
Addition of $0.0032 Investor Tier
    The Exchange believes the addition of the $0.0032 Investor Tier to 
Footnote 13 of the Fee Schedule would increase intermarket competition 
because Members that seek to meet the tier would be required to send 
higher volume to the Exchange. The Exchange believes that its proposal 
would neither increase nor decrease intramarket competition because the 
rate for the $0.0032 Investor Tier would continue to apply uniformly to 
all Members and the ability of some Members to meet the tier would only 
benefit other Members by contributing to increased price discovery and 
better market quality at the Exchange, especially during pre- and post-
market sessions.
Correction to Footnote 13
    The Exchange believes that correcting an inadvertent drafting error 
in the criteria regarding the ``added to remove liquidity ratio'' would 
not impose a burden on intermarket competition because it simply 
clarifies for Members how the ratio under criteria (ii) in Footnote 13 
has and will continue to be calculated by the Exchange. The Exchange 
has historically and will continue to calculate whether a Member 
satisfied criteria (ii) under Footnote 13 by dividing ``added 
liquidity'' by ``added plus removed liquidity'' and determining whether 
the ratio is at least 60%. The Exchange does not propose to amend any 
of the existing criteria under Footnote 13. It simply seeks to correct 
in its Fee Schedule how the ratio under criteria (ii) has and will 
continue to be calculated. The Exchange believes that its proposal 
would neither increase nor decrease intramarket competition because the 
criteria, as amended, in Footnote 13 would continue to apply uniformly 
to all Members.

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 \18\ and Rule 19b-4(f)(2) \19\ 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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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-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-2013-25 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-2013-25. 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-EDGX-2013-25 and should be 
submitted on or before July 30, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-16378 Filed 7-8-13; 8:45 am]
BILLING CODE 8011-01-P