[Federal Register Volume 75, Number 130 (Thursday, July 8, 2010)]
[Notices]
[Pages 39307-39311]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-16563]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62424; File No. SR-EDGX-2010-04]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Implementing 
Fees for Use of EDGX Exchange, Inc.

June 30, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 30, 2010, the EDGX Exchange, Inc. (the ``Exchange'' or the 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the

[[Page 39308]]

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 establish its initial fees and rebates 
applicable to Members \3\ of the Exchange pursuant to EDGX Rule 15.1(a) 
and (c). The Exchange intends to implement this rule proposal 
immediately upon commencement of its operations as a national 
securities exchange.
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    \3\ A Member is any registered broker or dealer that has been 
admitted to membership in the Exchange.
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    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 http://www.directedge.com.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in sections A, B and C below, of the 
most significant aspects of such statements.

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

1. Purpose
    On March 12, 2010, the Securities and Exchange Commission (``SEC'' 
or ``Commission'') approved EDGX Exchange, Inc.\4\ (the ``Exchange'') 
Form 1 application under the Act, which sought registration as a 
national securities exchange pursuant to Section 6 of the Act.\5\
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    \4\ EDGA Exchange, Inc. will file a separate fee schedule with 
the Commission.
    \5\ See Securities and Exchange Release No. 61698 (March 12, 
2010), 75 FR 13151 (March 18, 2010) (approving File No. 10-196). 
EDGA Exchange, Inc. (``EDGA'') was also approved as an exchange, and 
will file a separate 19b-4 filing with its fee schedule.
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    EDGX Exchange proposes to implement a fee schedule applicable to 
use of the Exchange commencing on the date it begins operating as a 
national securities exchange. The Exchange currently intends to 
commence operations as a national securities exchange on July 2, 2010. 
Please find below a description of the fees and rebates that the 
Exchange intends to impose under the initial, proposed fee schedule.

(i) Fees for Removing Liquidity

    For securities priced $1.00 and over, the Exchange is proposing to 
charge $0.0029 per share for executions that remove liquidity from the 
Exchange. For securities priced less than $1.00, there is a charge of 
0.10% of the total value of the transaction.
    The rebates for removing liquidity will apply to securities traded 
on the Exchange pursuant to unlisted trading privileges that are listed 
on: (A) The New York Stock Exchange (``NYSE''); (B) regional exchanges, 
such as NYSE Arca Equities (``NYSE Arca'') and NYSE Alternext US 
(``NYSE Alternext,'' formerly the American Stock Exchange); and (C) the 
NASDAQ Stock Market (``Nasdaq'') (``Tape A Securities'', ``Tape B 
Securities'' and ``Tape C Securities'', respectively, and collectively, 
``All Tapes'').

Applicable Flags \6\

    For orders in Tapes B and C Securities that remove liquidity from 
the EDGX book, a charge of $0.0029 per share is proposed, as described 
above, and this situation yields Flag ``N.'' For orders in Tape A 
Securities that remove liquidity from the EDGX book, a charge of 
$0.0029 is proposed, as described above, and this situation yields Flag 
``W.''
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    \6\ The following rebates and fees apply to orders in securities 
priced $1 and over. For securities priced less than $1.00, there is 
a charge of 0.10% of the total value of the transaction.
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    For orders that remove liquidity from LavaFlow ECN, a charge of 
$0.0029 per share is proposed and this situation yields Flag ``U.'' 
However, if a Member posts an average of 100,000 share or more per day 
using a ROLF strategy (yielding Flag ``M''), then said Member's fee 
when routed to LavaFlow decreases to $0.0023 per share (yielding Flag 
``U''). The latter rate reflects a pass-through of the LavaFlow ECN 
fee. A ROLF strategy sweeps the EDGA book and the remainder routes to 
LavaFlow.
    For orders that remove liquidity in the Pre-Opening \7\ and Post-
Closing \8\ Sessions in securities on all Tapes, a charge of $0.0029 
per share is also proposed. This situation yields Flag ``6.''
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    \7\ As defined in EDGA Rule 1.5(q).
    \8\ As defined in EDGA Rule 1.5(p).
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(ii) Standard Rebates for Adding Liquidity

    For securities priced $1.00 and over, the Exchange is proposing to 
rebate $0.0029 per share for executions that add liquidity to the 
Exchange. For securities priced less than $1.00, there is a rebate of 
$0.00003 to add liquidity. The Exchange believes that this rebate is 
appropriate as it represents 30% of the minimum price increment for 
securities priced less than $1.00 ($0.0001) and effectively aligns the 
rebate with access fee caps under Regulation NMS.\9\ The charge for 
adding liquidity will apply to securities traded on the Exchange 
pursuant to unlisted trading privileges that are Tape A Securities, 
Tape B Securities, and Tape C Securities.
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    \9\ The Access Rule of Regulation NMS limits the fees any 
trading center can charge, or allow to be charged, for accessing its 
protected quotations, both displayed and reserve size, to no more 
than $0.003 per share. See Rule 610(c) of Regulation NMS, Securities 
and Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 
29, 2005).
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    However, Members can qualify for a rebate of $0.0032 per share for 
all liquidity posted on EDGX if they add or route at least 5,000,000 
shares of average daily volume prior to 9:30 a.m. or after 4:00 p.m. 
(includes all flags except 6) and add a minimum of 50,000,000 shares of 
average daily volume on EDGX in total, including during both market 
hours and Pre-Opening and Post-Closing Sessions. For the month of July 
2010 only, these average daily volume thresholds (5,000,000 and 
50,000,000) will be multiplied by a fraction, the numerator of which 
shall be the sum of the daily consolidated volumes for each Exchange-
traded symbol for all days that such symbol is traded on the Exchange 
during the month of July and the denominator of which shall be the 
monthly consolidated volume for all Exchange-traded symbols during the 
month of July. This calculation adjusts these volume thresholds during 
the month of July when trading is being phased into the Exchange from 
Direct Edge's ECN and reflects the portion of the volume that occurs on 
the Exchange during the month.
    Additionally, upon a Member's request, EDGX Exchange will aggregate 
share volume calculations for wholly owned affiliates on a prospective 
basis.

Applicable Flags \10\
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    \10\ The following rebates and fees apply to orders in 
securities priced $1.00 and over. For securities priced less than 
$1.00, there is no rebate.
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    For orders in Tape B Securities that add liquidity to the EDGX 
book, a rebate of $0.0029 per share is proposed, as described above, 
and this situation yields Flag ``B.'' For orders in Tape A

[[Page 39309]]

Securities that add liquidity to the EDGX book, a rebate of $0.0029 per 
share is proposed, as described above, and this situation yield Flag 
``V.'' For orders in Tape C Securities that add liquidity to the EDGX 
book, a rebate of $0.0002 per share is proposed, as described above, 
and this situation yields Flag ``Y.'' For all cases described above, 
Members could receive higher rebates if they meet the thresholds 
described above.
    For those orders that add liquidity on LavaFlow ECN, a rebate of 
$0.0024 per share is proposed and this situation would yield Flag 
``M.'' However, if a Member posts an average of 100,000 shares or more 
using a ROLF routing strategy, yielding flag M, then such Member's fee, 
when removing liquidity from LavaFlow, will decrease to $0.0023 per 
share and yield flag U, as described above. For orders that add 
liquidity in the Pre-Opening and Post-Closing Sessions in Tapes A & C 
Securities, a rebate of $0.0029 per share is proposed (yielding Flag 
``3''). For those orders that add liquidity in the Pre-Opening and 
Post-Closing Sessions in Tape B securities, a rebate of $0.0029 per 
share is also proposed (yielding Flag ``4''). However, Members could 
receive higher rebates if they meet the thresholds described above.
    The Exchange believes that this fee structure is equitable in that 
it applies uniformly to all Members and provide higher rebates for 
higher volume thresholds, resulting from lower administrative costs. 
Destination-specific fees are also based, in part, on fees charged by 
other market centers.

(iii) Routing Charges

    The Exchange proposes to charge the routing charges described 
below. All charges by the Exchange for routing are applicable only in 
the event that an order is executed. In other words, there is no charge 
for orders that are routed away from the Exchange but are not filled. 
In connection with routing of orders away from the Exchange, the 
Exchange proposes to charge $0.0029 per share for securities priced 
$1.00 and over and 0.30% of the total dollar value of the transaction 
\11\ for securities priced less than $1.00.
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    \11\ This charge applies in all cases, except when (i) routing 
to the NYSE, where securities priced under $1.00 are charged $0.0021 
per share when removing liquidity; (ii) when routing to Nasdaq BX 
and removing liquidity in Tapes A & C Securities, where securities 
priced under $1.00 are charged 0.10% of the dollar value of the 
transaction; and (iii) when routing to Nasdaq and removing liquidity 
in securities on all Tapes, securities priced under $1.00 are 
charged 0.20% of the dollar value of the transaction. These fees are 
proposed to be indicated by footnote number 3 being appended to the 
``C,'' ``J,'' ``L,'' and ``2'' flags.
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    For destination specific orders, the following fees/rebates are 
proposed to apply to all securities priced $1 and over:\12\ For orders 
that are routed to Nasdaq using the INET order type, and remove 
liquidity in Tape B Securities, a charge of $0.0030 per share is 
proposed (yielding Flag ``2''). For securities routed to Nasdaq using 
the INET order type and that remove liquidity in Tape A & C Securities, 
a charge of $0.0030 per share is proposed (yielding Flag ``L''). The 
INET order type sweeps the EDGA book and removes liquidity from Nasdaq, 
if the order is marketable, or posts on Nasdaq, if the order is non-
marketable. Members routing an average daily volume (``ADV''): (i) Less 
than 5,000,000 shares will be charged $0.0030 per share, as described 
above; (ii) equal to or greater than 5,000,000 shares but less than 
20,000,000 shares will be charged Nasdaq's best removal tier rate per 
share; (iii) equal to or greater than 20,000,000 shares but less than 
30,000,001 shares will be charged Nasdaq's best removal tier rate--
$0.0001 per share; and (iv) equal to or greater than 30,000,001 shares 
will be charged Nasdaq's best removal tier rate--$0.0002 per share. The 
rates, in all cases, are calculated for shares removed from Nasdaq. The 
Exchange believes that this fee structure is equitable in that it 
applies uniformly to all Members and provides lower fees for higher 
volume thresholds, resulting from lower administrative costs. 
Destination-specific fees are also based, in part, on fees charged by 
other market centers.
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    \12\ For securities priced below $1.00, a standard routing 
charge of 0.30% of the total dollar value of the transaction 
applies, except when routing to the NYSE, as described above.
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    For those orders routed to Nasdaq that add liquidity, a rebate of 
$0.0020 per share is proposed (yielding Flag ``A''). For orders routed 
to Nasdaq OMX BX in Tape A and C Securities and that remove liquidity, 
a rebate of $0.0001 per share is proposed (yielding Flag ``C''). For 
orders routed or re-routed to NYSE and that remove liquidity, a charge 
of $0.0021 per share is proposed (yielding Flag ``D'').\13\ For orders 
routed to NYSE that add liquidity, a rebate of $0.0013 per share is 
proposed (yielding Flag ``F''). For orders routed to NYSE Arca in Tape 
A & C Securities that remove liquidity, a charge of $0.0030 per share 
is proposed (yielding Flag ``G''). For orders routed to EDGA Exchange, 
Inc., a charge of $0.0029 per share is proposed (yielding Flag ``I''). 
For orders routed to Nasdaq that remove liquidity, a charge of $0.0030 
per share is proposed (yielding Flag ``J''). For orders routed to the 
BATS Exchange (``BATS'') using a ROBA order type, a charge of $0.0025 
per share is proposed (yielding Flag ``K''). A ROBA order type sweeps 
the EDGA book and routes to BATS Exchange as an immediate or cancel 
(IOC) order, with the remainder being cancelled if there is no 
execution.
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    \13\ This charge, instead of the standard 0.30% of the dollar 
value of the transaction described above, also applies to securities 
priced less than $1.00.
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    For orders using the ROUQ or ROUC order types, a charge of $0.0020 
per share is proposed (yielding Flag ``Q''). A ROUQ order type sweeps 
the EDGA book, then routes to other destination centers. A ROUC order 
type sweeps the EDGA book, then other destination centers, then Nasdaq 
OMX BX, then NYSE, and the remainder posts to EDGX. For any orders that 
are re-routed by EDGA, a charge of $0.0030 per share is proposed 
(yielding Flag ``R''). For Directed Intermarket Sweep Orders \14\ 
(yielding Flag ``S''), a charge of $0.0033 per share is proposed. For 
orders that are routed and no other flag applies, a standard charge of 
$0.0029 per share applies, as discussed above (yielding Flag ``X''). 
For orders that are routed using the ROUZ order type, a charge of 
$0.0010 per share is proposed (yielding Flag ``Z''). A ROUZ order type 
sweeps the EDGA book before interacting with solicited orders. For 
orders routed during the Pre-Opening and Post-Closing Sessions, a 
charge of $0.0030 per share applies (yielding Flag ``7''). For orders 
that are routed using the ROUD or ROUE order types, a charge of $0.0020 
is proposed (yielding Flag ``T''). A ROUD order sweeps the EDGA book 
before being routed to other destination centers. A ROUE order type 
sweeps the EDGA book, then other destination centers, and any remainder 
routes to other market centers.
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    \14\ As defined in EDGA Rule 11.5(d).
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    The differences between the fees charged for routing to specific 
market centers and routing of specific order types described above are 
due to different cost structures at the various market centers to which 
orders may be routed and other factors. Similarly, lower transaction 
fees at other destination centers permit the Exchange to charge lower 
routing fees for orders routed to such venues. Because the Exchange 
incurs additional costs and performs additional services in connection 
with the routing of Directed ISOs, it charges a higher routing fee for 
such orders. Finally, because the Exchange believes that a uniform 
routing fee for all other orders routed away from the Exchange (other 
than those described above) provides

[[Page 39310]]

Members with certainty as to transaction costs, it proposes to charge a 
standard routing fee of $0.0029 per share, as described above, for such 
orders, rather than further differentiating routing fees that it 
charges to Members.

Other Charges and Flags

    For customer internalization (i.e, same MPID),\15\ there is no 
charge nor rebate because the fees for removing liquidity would be 
offset by the rebate received for adding liquidity. This situation 
yields Flag ``E.'' During the Pre-Opening and Post-Closing sessions, 
there are also no charges nor rebates, but this situation yields Flag 
``5.''
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    \15\ This occurs when two orders presented to the Exchange from 
the same Member (i.e, MPID) are presented separately and not in a 
paired manner, but nonetheless inadvertently match with one another. 
Members are advised to consult Rule 12.2 respecting fictitious 
trading.
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    For orders that execute during the Nasdaq opening cross (NOOP), it 
is proposed that these orders will be charged $0.0005 per share and 
yield Flag ``O.'' However, this fee is proposed to be capped at $10,000 
per month per Member, which is a pass-through of Nasdaq's opening cross 
cap.
    For Direct Edge opening transactions, where Members match with each 
other at the midpoint of the national best bid/offer (``NBBO'') during 
EDGX's opening process, IPO, or post-halt, a charge of $0.0010 is 
proposed, yielding flag ``OO.''
    For Mid-Point Match (``MPM'') orders,\16\ the following applies:
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    \16\ As defined in EDGX Rule 11.5(c)(7).
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     Where a Member added liquidity in the MPM product, a 
charge of $0.0010 per share is proposed (yielding Flag ``MM.'')
     Where a Member removed liquidity in the MPM product, a 
charge of $0.0010 per share is proposed (yielding Flag ``MT.'')
     A MPM Cross, where a Member crossed/matched with itself in 
the MPM product (Member is both sides of the trade), there is no charge 
proposed (yielding Flag ``AA'').
    The lower charge for MPM orders is designed to incent Members to 
use this order type, which provides price improvement by providing 
liquidity at the midpoint, and is similar to existing pricing for this 
order type on the International Securities Exchange, LLC.\17\
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    \17\ See Securities Exchange Act Release No. 57828 (May 15, 
2008), 73 FR 30433 (May 27, 2008) (SR-ISE-2008-38).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\18\ in general, and 
furthers the objectives of Section 6(b)(4),\19\ 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. 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 incent market participants to direct their order 
flow to the Exchange. Finally, the Exchange believes that the proposed 
rates are equitable in that they apply uniformly to all Members and 
provide higher rebates for higher volume thresholds, resulting from 
lower administrative costs. 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 those members that 
opt to direct orders to the Exchange rather than competing venues. 
Finally, the Exchange believes that the proposed rates further the 
objectives of Regulation NMS by promoting competition and granting fair 
and equal access to all exchange participants.
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    \18\ 15 U.S.C. 78f.
    \19\ 15 U.S.C. 78f(b)(4).
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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 \20\ and Rule 19b-4(f)(2) \21\ thereunder. At any 
time within 60 days of the filing of such proposed rule change, the 
Commission may summarily abrogate 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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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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 [email protected]. Please include 
File Number SR-EDGX-2010-04 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-EDGX-2010-04. 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,\22\ 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 39311]]

available publicly. All submissions should refer to File Number SR-
EDGX-2010-04 and should be submitted on or before July 29, 2010.
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    \22\ The text of the proposed rule change is available on 
Exchange's Web site at http://www.directedge.com, on the 
Commission's Web site at http://www.sec.gov, at EDGX, and at the 
Commission's Public Reference Room.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16563 Filed 7-7-10; 8:45 am]
BILLING CODE 8010-01-P