[Federal Register Volume 76, Number 218 (Thursday, November 10, 2011)]
[Notices]
[Pages 70202-70204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-29107]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65685; File No. SR-EDGA-2011-36]
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
November 4, 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 October 31, 2011, 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.
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\3\ A Member is any registered broker or dealer, or any person
associated with a registered broker or dealer, that has been
admitted to membership in the Exchange.
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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
Statutory Basis for, the Proposed Rule Change
Purpose
The Exchange proposes to increase its charge for customer
internalization on Flag 5 from $0.0001 per share, per side, to $0.00015
per share per side, to move in lockstep with the proposed maker/taker
fee spread of $0.0003, which was implemented in the October 1, 2011 fee
schedule, where the Exchange decreased its rebate from $0.0005 per
share to $0.0004 per share for adding liquidity and increased its
charge from $0.0006 per share to $0.0007 per share for removing
liquidity. The increase in the charge for Flag 5 corresponds to the
Exchange's increase in its charge for customer internalization in Flag
E from $0.0001 per share, per side (prior to October 1, 2011) to
$0.00015 per share per side on October 1, 2011.
The Exchange proposes to add a new tier that provides if a Member,
on a daily basis, measured monthly, posts more than 0.25% of the Total
Consolidated Volume \4\ (``TCV'') in average daily volume and removes
more than 0.25% of TCV in average daily volume, then the Member will
receive a rebate of $0.0005 per share. This amendment is reflected in
the language in footnote 4 of the Exchange's fee schedule. The new tier
will also apply to Flags B, V, Y, 3 and 4, as these flags have a
footnote 4 appended to them.
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\4\ 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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The Exchange also proposes to decrease the charge assessed for a
Directed Intermarket Sweep Order \5\ (``Directed ISO'') from $0.0033
per share to $0.0032 per share, which is reflected in Flag S of the
Exchange's fee schedule.
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\5\ See Exchange Rule 11.5(d)(2).
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The Exchange proposes to implement these amendments to its fee
schedule on November 1, 2011.
Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Exchange Act,\6\ in general,
and furthers the objectives of Section 6(b)(4),\7\ in particular, as it
is designed to provide
[[Page 70203]]
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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The Exchange proposes to increase its charge for customer
internalization in Flag 5 from $0.0001 per share, per side, to $0.00015
per share per side. This increase will enable the charge on Flag 5 to
move in lockstep with the Exchange's October 1, 2011 decrease in its
rebate from $0.0005 per share to $0.0004 per share for adding liquidity
and increase in its charge from $0.0006 to $0.0007 per share for
removing liquidity. The latter amendments to the Exchange's fee
schedule were designed to allow the Exchange to compete with other
market centers.\8\ In addition, the increase in the charge for Flag 5
corresponds to the Exchange's increase in its charge for customer
internalization in Flag E from $0.0001 per share, per side, to $0.00015
per share per side on its October 1, 2011, fee schedule. The increased
revenue to the Exchange from the rate increase would allow the Exchange
to have additional revenue to offset administrative and infrastructure
costs. The Exchange believes that the proposed rate is non-
discriminatory in that it applies uniformly to all Members.
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\8\ In its October 2011 fee filing, the Exchange stated that the
proposed maker/taker fee spread of $0.0002 or $0.0003, depending on
if a tier is met (see footnote 4), was reasonable as the proposed
maker/taker spread was competitive with other market centers maker/
taker spreads (BATS BZX Exchange, 0-$0.0004 per share), Nasdaq OMX
PSX ($.0001-$.0003 per share), and Nasdaq BX ($0.0001-$0.0013) per
share).
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The Exchange's proposal to amend its fee schedule to create a tier
to provide an increased rebate of $0.0005 per share if Members post
more than 0.25% of the TCV in average daily volume and remove more than
0.25% of TCV in average daily volume is designed to incentivize Members
to both add and remove liquidity from EDGA.
The potential increase in volume from the new tier benefits all
investors by deepening EDGA's liquidity pool, supporting the quality of
price discovery, promoting market transparency and improving investor
protection. Volume-based discounts such as the rebate proposed herein
have been widely adopted in the cash equities markets 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 introduction of higher
volumes of orders into the price and volume discovery processes. Such
increased volume increases potential revenue to the Exchange, and would
allow the Exchange to spread its administrative and infrastructure
costs over a greater number of shares, leading to lower per share
costs. These lower per share costs would allow the Exchange to pass on
the savings to Members in the form of a rebate of $0.0005 per share.
The Exchange believes that the proposed rebate is nondiscriminatory in
that it applies uniformly to all Members.
Currently, there is a tier on EDGA's fee schedule that provides a
rebate of $0.0005 per share where a Member, on a daily basis, measured
monthly, posts more than 1% of the TCV in average daily volume. Based
on average TCV for September 2011 (8.5 billion), in order to a Member
to qualify for a rebate of $0.0005 per share under this criteria, the
Member would have to post 85 million shares.
Another way to qualify for a rebate of $0.0005 per share, as
proposed in this filing, would be for the Member, based on average TCV
for September 2011 (8.5 billion), to add more than 22,000,000 shares
and remove more than 22,000,000 shares. The Exchange believes that
adding an additional way to qualify for the $0.0005 rebate per share
represents an equitable allocation of reasonable dues, fees, and other
charges since other exchanges offer similar rebates for adding and
removing different amounts of liquidity based on the inherent value of
said activity to their exchange. Likewise, the Exchange values Members
that post more than 0.25% of TCV in average daily volume and remove
more than 0.25% of TCV in average daily volume similar to Members that
post more than 1% of TCV in average daily volume. The Exchange believes
that adding another means to qualify for the tiered rebate incentivizes
adders and removers of liquidity as well as just adders of liquidity
and the practice of offering tiers to attract removers of liquidity to
an exchange has become commonplace throughout the equities markets.\9\
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\9\ See NASDAQ's price list where NASDAQ offers a rebate of
$0.00295 per share for members adding greater than 1.0% and adding
and removing greater than 200,000 total contracts on the NASDAQ
Options Market, and NASDAQ offers a rebate of $0.0029 per share for
members adding greater than 0.15% and adding and removing greater
than 115,000 total contracts on the NASDAQ Options Market. In
addition, NASDAQ also offers a rebate of $0.0029 per share for
members adding a minimum of 2 million shares per day and removing
greater than 0.65%. NASDAQ also offers a rebate of $0.0025 per share
for members that add a minimum of 2 million shares per day and
remove greater than 0.45%. See also http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2. See also the BATS Exchange Fee
schedule where BATS offers a rebate of $0.0029 per share for adding
displayed liquidity for members who have an ADV equal to or greater
than 1.0% of average TCV, where ADV means average daily volume
calculated as the number of shares added or removed, combined, per
day on a monthly basis. See also http://www.batstrading.com/resources/regulation/rule_book/BZX_Fee_Schedule.pdf.
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The Exchange believes that the proposed decrease in the rate for
Directed ISOs from $0.0033 per share to $0.0032 per share represents an
equitable allocation of reasonable dues, fees, and other charges. The
Exchange believes that this decreased fee to Members would provide an
incentive for Members to provide liquidity that supports the quality of
price discovery and promotes market transparency. Such increased volume
also increases potential revenue to the Exchange, and would allow the
Exchange to spread its administrative and infrastructure costs over a
greater number of shares, leading to lower per share costs. These lower
per share costs would allow the Exchange to pass on the savings to
Members in the form of a lower fee. The fee is reasonable when compared
to other market centers' fees for Directed ISOs, including, BATS that
charges a fee of $0.0033 per share and NASDAQ that charges a fee of
$0.0035 per share for routing Directed ISOs.\10\ The Exchange believes
that the proposed rate is non-discriminatory in that it applies
uniformly to all Members.
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\10\ Id.
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The Exchange also notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive. The proposed rule change reflects a competitive pricing
structure designed to incent market participants to direct their order
flow to the Exchange. The Exchange believes that the proposed rates are
equitable and non-discriminatory in that they apply uniformly to all
Members. The Exchange believes the fees and credits remain competitive
with those charged by other venues and therefore continue to be
reasonable and equitably allocated to Members.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
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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 \11\ and Rule 19b-4(f)(2) \12\ thereunder. At any
time within 60 days of the filing of such proposed rule change, the
Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 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 email to [email protected]. Please include
File Number SR-EDGA-2011-36 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-EDGA-2011-36. 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-2011-36 and should be
submitted on or before December 1, 2011.
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\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-29107 Filed 11-9-11; 8:45 am]
BILLING CODE 8011-01-P