Document ID: SEC-2011-1291-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2011-08-30T04:00Z

[Federal Register Volume 76, Number 168 (Tuesday, August 30, 2011)]
[Notices]
[Pages 53990-53993]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-22134]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65189; File No. SR-EDGX-2011-26]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
EDGX Fee Schedule To Establish an Annual Membership Fee, Monthly 
Trading Rights Fee, and a Monthly MPID Fee

August 24, 2011.
    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 19, 2011, the 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, 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 the fee schedule assessed on 
members, effective September 1, 2011, to establish: (i) An Annual 
Membership Fee; (ii) a monthly Trading Rights Fee; and (iii) a monthly 
fee for each member Market Participant Identifier (``MPID'') in excess 
of five MPIDs. The text of the proposed rule change is available on the 
Exchange's Web site at http://www.directedge.com, at the Exchange's 
principal office, and at the Public Reference Room of the Commission.

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 53991]]

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

Purpose
    To help pay for the costs of regulating EDGA members, the Exchange 
proposes to establish the following membership fees: (i) An Annual 
Membership Fee for EDGA members; (ii) a Trading Rights Fee for EDGA 
members; and (iii) a fee for each MPID approved by EDGA for use by a 
member firm on EDGA's systems in excess of five. The Exchange believes 
that each fee is warranted in order to provide for a dedicated source 
of revenue to be applied toward funding the overall regulation of the 
Exchange and its members. On July 26, 2011, the Exchange provided its 
Members with notice about these proposed fees, which would be 
implemented on September 1, 2011, pending SEC approval.
Annual Membership Fee and Trading Rights Fee
    First, EDGA proposes to charge an Annual Membership fee of $2,000 
to each member firm of EDGA which will support their exchange 
membership for the calendar year. The fee will be charged per member 
firm. For 2011, the Exchange proposes to charge firms on a pro-rated 
basis beginning September 1, 2011. Beginning in January 2012, the 
Exchange plans to charge an Annual Membership Fee which will be 
assessed on all EDGA members as of a date determined by EDGA in January 
of each year. For any month in which a firm is approved for membership 
with the Exchange after the January renewal period, the Annual 
Membership Fee will be pro-rated beginning on the date on which 
membership is approved. The pro-rated fee will be calculated based on 
the remaining trading days in that year, and assessed in the month 
following membership approval. For example, if a firm applies for 
membership with the Exchange on or before the close of the January 
renewal period, and is approved for membership in the same month, the 
new Member will pay a $2,000 Annual Membership fee. However, if a firm 
applies and is accepted for membership with the Exchange in February 
2012, the new Member will be assessed a pro-rated Annual Membership Fee 
for the period beginning the first trading day in February in which 
they are a member through the end of 2012. The fee will be assessed in 
the next month's billing cycle. In this case, March 2012.
    In addition, the fee will not be refundable in the event that the 
firm ceases to be an EDGA member following the date on which fees are 
assessed. However, if a Member is pending a voluntary termination of 
rights as a Member pursuant to Rule 2.8 prior to the date any Annual 
Membership Fee for a given year will be assessed (i.e., September 1, 
2011, January 1, 2012, etc.) and the Member does not utilize the 
facilities of EDGA \3\ during such time, then the Member will not be 
obligated to pay the Annual Membership Fee. For example, if a Member 
submits a request to terminate their membership prior to close of 
business on August 31, 2011, the Member will not be charged any Annual 
Membership Fee regardless of how long it takes for the Member's 
voluntary termination of membership to become effective. Prior to the 
September 1, 2011 implementation date for these fee changes only, the 
Exchange will also waive monthly Trading Rights and MPID fees, as 
described below, if a Member is pending a voluntary termination of 
rights pursuant to Rule 2.8 and the Member does not utilize the 
facilities of EDGA during such time. This waiver of such fees by the 
Exchange will again occur regardless of how long it takes for the 
Member's voluntary termination of membership to become effective. The 
Exchange believes this to be appropriate since ordinarily there is a 30 
day waiting period before such resignation shall take effect provided 
the conditions provided for in Rule 2.8 are satisfied.\4\
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    \3\ This would include Members adding, removing, or routing 
liquidity to EDGA.
    \4\ These conditions include: (i) The Exchange's receipt of such 
written resignation; (ii) the member's having satisfied all 
outstanding indebtedness due the Exchange; (iii) any Exchange 
investigation or disciplinary action brought against the Member 
having reached a final disposition; and (iv) any examination of such 
Member in process having been completed, and all exceptions arising 
out of such examination having been satisfactorily resolved.
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    Second, EDGA proposes to charge member firms a monthly Trading 
Rights Fee of $300 per month for the ability to trade on the EDGA 
Exchange. Firms will be charged per month, regardless of the volume of 
shares traded. For any month in which a firm is approved for membership 
with the Exchange, the monthly Trading Rights Fee will be pro-rated 
beginning on the date on which membership is approved. The pro-rated 
fee will be calculated based on the remaining trading days in that 
month. In any month in which the firm terminates membership with the 
Exchange, the monthly Trading Rights Fee will be pro-rated based on the 
number of trading days which have elapsed in that month. The Exchange 
plans to implement the Trading Rights Fee and charge firms directly 
beginning September 1, 2011.
    EDGA believes that even with these proposed fees, the cost of EDGA 
membership is generally lower than the cost of membership in other 
SROs.\5\
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    \5\ See, e.g., NASDAQ OMX Group, Inc., Equity Rule 7001, at 
http://nasdaq.cchwallstreet.com/NASDAQTools/PlatformViewer.asp?selectednode=chp%5F1%5F1%5F4%5F4&manual=%2Fnasdaq%2Fmain%2Fnasdaq%2Dequityrules%2F (assessing an $3,000 annual 
membership fee and $500 per month trading rights fee on members); 
New York Stock Exchange Price List 2011, at http://www.nyse.com/pdfs/nyse_equities_pricelist.pdf (assessing a $40,000 annual 
trading license fee for the first two licenses held by a member 
organization, among other itemized regulatory and trading rights 
fees); Chicago Stock Exchange Fees and Assessments, at http://www.chx.com/content/Participant_Information/Downloadable_Docs/Rules/CHX_Fee_Schedule_04252011.pdf (assessing a $7,200 annual 
trading permit fee).
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Market Participant Identifier (``MPID'') Fee
    An MPID is a four character identifier that is approved by the 
Exchange and assigned to the member firm for use on the EDGX exchange 
to identify the firm on the orders sent to the Exchange and resulting 
executions. Many member firms request the use of one MPID as the 
identifier for their exchange transactions. However, a member firm may 
request additional MPIDs for use by separate business units and trading 
desks or to support sponsored access participants. EDGX notes that 
certain member firms possess many underutilized MPIDs through which 
very little or no activity occurs. These unused or underutilized MPIDs 
provide negligible benefit to the market, yet represent an 
administrative and regulatory burden to EDGX. In order to address the 
burden of administering and supporting multiple MPIDs for member firms, 
EDGX proposes to assess a monthly fee of $250 per month beginning 
September 1, 2011 for each MPID approved by the Exchange for use by a 
member firm on EDGX's systems in excess of five MPIDs. The MPID Fee 
will be assessed on a pro-rated basis by charging the firm based on the 
trading day in the month during which an MPID greater than five becomes 
effective for use. If the MPID is terminated within a month, the MPID 
Fee will be charged in full regardless of the number of trading days 
elapsed or remaining in that month. The Exchange believes that this 
practice is appropriate because of the administrative costs associated 
with disabling MPIDs. The Exchange also believes that assessing a fee 
on supplemental MPIDs will benefit the markets and investors because 
such fee will promote efficiency in MPID use.
    The Exchange notes that NASDAQ currently assesses a Supplemental 
MPID Fee of $1,000 per month, per MPID, for

[[Page 53992]]

any MPID in excess of one. Similarly, the New York Stock Exchange 
(``NYSE'') charges fees for access to its floor which are analogous to 
the proposed MPID fee. The NYSE fees are based on the number of 
individuals that a member firm wishes to employ on the floor of the 
exchange and include, among other things, an annual fee of $40,000 per 
trading license per floor broker, a $5,000 annual fee per handheld 
device used on the floor, and a $250 annual badge maintenance fee per 
badge. Under the proposed MPID Fee schedule, EDGA member firms would 
not be charged for maintaining five or less MPIDs, but would pay the 
proposed $250 monthly MPID fee only if the member maintains more than 
five MPIDS. In addition, members would be charged a proposed $2,000 
annual membership fee and trading rights fee of $300 per month, 
totaling $5,600 annually.\6\ Thus, EDGA believes that even with the 
proposed MPID fee, the cost of EDGA membership is generally lower than 
the cost of membership in other SROs.
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    \6\ See supra note 5 (explaining the fee structure of the NASDAQ 
OMX Group, Inc., the New York Stock Exchange, and the Chicago Stock 
Exchange).
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Basis
    EDGX believes that the proposed rule changes are consistent with 
the provisions of Section 6 of the Act,\7\ in general, and Section 
6(b)(4) of the Act,\8\ in particular, because it provides for the 
equitable allocation of reasonable dues, fees and other charges among 
members and issuers and other persons using any facility or system that 
EDGX operates or controls, and it does not unfairly discriminate 
between customers, issuers, brokers or dealers.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4).
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    First, the Exchange believes that assessing an Annual Membership 
Fee and a Trading Rights Fee provides an equitable allocation of 
reasonable dues, fees and other charges among its members and other 
persons using its facilities. The Exchange makes all services and 
products subject to these fees available on a non-discriminatory basis 
to similarly situated recipients. EDGX believes the Annual Membership 
Fee and monthly Trading Rights Fee are a reasonable and equitable 
method of ensuring that its fees fund a greater portion of the cost of 
regulating the EDGX market, and that even after assessing these fees, 
the overall cost of EDGX membership is reasonable as compared with the 
costs of membership in other SROs.
    Second, with respect to MPID fees, member firms will continue to 
have discretion to request EDGX approval to use additional MPIDs on 
EDGX. Use of more than five MPIDs is voluntary and solely determined by 
the member firm's needs. The Exchange believes that charging for more 
than five MPIDs is reasonable given that other exchanges charge members 
for having more than one MPID.\9\ The proposed Market Participant 
Identifier Fee will be imposed on all member firms equally based on the 
number of MPIDs approved for use on EDGX. EDGX also believes that the 
proposed fee will encourage efficiency in member firm's use of MPIDs.
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    \9\ See, e.g., NASDAQ OMX Group, Inc., Equity Rule 7001, at 
http://nasdaq.cchwallstreet.com/NASDAQTools/PlatformViewer.asp?selectednode=chp%5F1%5F1%5F4%5F4&manual=%2Fnasdaq%2Fmain%2Fnasdaq%2Dequityrules%2F (assessing a Supplemental MPID Fee 
of $1,000 per month, per MPID, for any MPID in excess of one).
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    Further, the market for transaction execution and routing services 
is highly competitive. Broker-dealers currently have numerous 
alternative venues for their order flow, including multiple competing 
self-regulatory organization's markets, as well as broker-dealers and 
aggregators such as electronic communications networks. A member firm 
is able to select any venue of which it is a member or participant to 
send its order flow. As such, if member firms believe that the proposed 
(i) Annual membership fee, (ii) trading rights fee, or (iii) fee for 
MPIDs in excess of five, is excessive they may easily choose to move 
their order flow elsewhere. EDGX believes that its proposed fees are 
comparable to, and lower than, analogous NASDAQ and NYSE fees.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3) of the Act \10\ and Rule 19b-4(f)(2) \11\ 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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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-EDGX-2011-26 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-EDGX-2011-26. 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 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

[[Page 53993]]

available publicly. All submissions should refer to File Number SR-
EDGX-2011-26 and should be submitted on or before September 20, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-22134 Filed 8-29-11; 8:45 am]
BILLING CODE 8011-01-P