Document ID: SEC-2012-1517-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGA Exchange, Inc.
Posted Date: 2012-09-14T04:00Z

[Federal Register Volume 77, Number 179 (Friday, September 14, 2012)]
[Notices]
[Pages 56900-56902]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-22644]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67819; File No. SR-EDGA-2012-40]

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

September 10, 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 August 31, 2012 the EDGA Exchange, Inc. (the ``Exchange'' or 
the ``EDGA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 EDGA Rule 15.1(a) and (c). All 
of the changes described herein are applicable to EDGA Members. The 
text of the proposed rule change is available on the Exchange's 
Internet Web site at http://www.directedge.com, at the Exchange's 
principal office, and at the Public Reference Room of the Commission.
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    \3\ As defined in Exchange Rule 1.5(n).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at

[[Page 56901]]

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 discontinue the Message Efficiency 
Incentive Program (the ``MEIP'') \4\ and to delete the reference to the 
MEIP in Footnote c, which is appended to the rebate for adding 
liquidity in securities at or above $1.00 on the Exchange's fee 
schedule. Under the MEIP, Members received standard rebates and tier 
rebates as provided on the Exchange's fee schedule based upon the 
Member's average inbound message-to-trade ratio for that month being 
equal to or less than 100:1. Members could receive the maximum rebate 
of $0.0003 per share if their average inbound message-to-trade ratio, 
measured monthly, was equal to or less than 100:1, subject to 
applicable rebate tiers.\5\ Where a Member exceeded the 100:1 message-
to-trade ratio, measured monthly, the Exchange reduced its rebates by 
$0.0001 per share, without regard to the rebate tier for which the 
Member qualified that month. In addition, under the MEIP, the following 
Members were exempt from earning the rebate: (i) All Members that sent 
less than 1,000,000 messages per day to the Exchange; and (ii) 
registered Market Makers provided that they were registered in at least 
100 securities on the Exchange over the course of a month and met their 
continuous, two-sided quoting obligations under Exchange Rule 11.21(d) 
on at least ten (10) consecutive trading days in the month. The 
Exchange proposes to discontinue the $0.0001 per share reduction in 
standard rebates and tier rebates that the Exchange applied to Members 
that exceeded an average inbound message-to-trade ratio of 100:1, 
measured monthly.
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    \4\ See Securities Exchange Act Release No. 67160 (June 7, 
2012), 77 FR 35450 (June 13, 2012) (SR-EDGA-2012-19) (where the 
Exchange introduced the MEIP).
    \5\ The Commission notes that the Exchange filed a proposed rule 
change to modify the maximum rebate of $0.0003 per share as of 
September 1, 2012. See SR-EDGA-2012-39.
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    The Exchange proposes to implement these amendments to its fee 
schedule on September 1, 2012.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\6\ in general, and 
furthers the objectives of Section 6(b)(4) \7\ 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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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
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    In its original filing introducing the MEIP, the Exchange stated 
that it was establishing the MEIP in order to promote a more efficient 
marketplace, to encourage liquidity provision and to enhance the 
trading experience of Members on an ongoing basis.\8\ Having 
implemented the MEIP for the period since its launch, the Exchange has 
not seen these benefits, and thus believes that discontinuation of the 
MEIP is appropriate at this time. Specifically, the Exchange believes 
that, by not adequately isolating purely inefficient message flow, the 
MEIP may have unintentionally captured, and therefore disincentivized, 
order behavior that benefits market liquidity. For example, the MEIP 
potentially discourages market participants from posting multiple 
levels of liquidity in less actively traded securities. Thus, while the 
Exchange's intention was to encourage efficiency and consequently 
attract more liquidity, the MEIP appears to have resulted in the 
opposite effect.
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    \8\ See Securities Exchange Act Release No. 67160 (June 7, 
2012), 77 FR 35450 (June 13, 2012) (SR-EDGA-2012-19).
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    The Exchange believes its proposal to discontinue the MEIP is 
equitable because it allows Members the freedom to manage their order 
and message flow consistently with their business models. In addition, 
the Exchange believes its proposal is reasonable because other 
exchanges, e.g., BATS Exchange, Inc., maintain pricing models that are 
designed to incentivize customers to increase liquidity, without any 
restriction on order activity that applied under the MEIP. By 
discontinuing the MEIP, the Exchange believes that it will remain 
competitive with other exchanges that do not offer reductions in 
standard rebates and/or tier rebates based on customers' message 
efficiency. The Exchange believes that the proposal is equitable and 
non-discriminatory in that it applies uniformly to all Members.
    The Exchange 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 encourage market participants to direct their order flow to 
the Exchange, or at least not to discourage the direction of order flow 
to the Exchange. 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

    This 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 \9\ and Rule 19b-4(f)(2) \10\ thereunder. At any 
time within 60 days of the filing of such proposed rule change, the 
Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-EDGA-2012-40 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.

[[Page 56902]]

All submissions should refer to File Number SR-EDGA-2012-40. 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-EDGA-2012-40 and should be 
submitted on or before October 5, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-22644 Filed 9-13-12; 8:45 am]
BILLING CODE 8011-01-P