[Federal Register Volume 77, Number 28 (Friday, February 10, 2012)]
[Notices]
[Pages 7225-7227]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-3095]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66335; File No. SR-EDGA-2012-03]


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

February 6, 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 January 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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,

[[Page 7226]]

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
    In SR-EDGA-2011-40,\4\ the Exchange amended several routing options 
contained in Rule 11.9(b)(3) to allow Users \5\ more discretion if 
shares remain unexecuted after routing. In particular, Rule 11.9(b)(3) 
was amended to provide that Users may elect that any remainder of an 
order be posted to the EDGX Exchange, Inc. (``EDGX'') for any of the 
routing options listed in the rule, except those listed.\6\ As a result 
of this amendment, the Exchange proposes to make a corresponding 
amendment to Flag P of its fee schedule. The subject amendment provides 
a rebate of $0.0027 per share for any order that after passing through 
EDGA and other destinations adds liquidity to EDGX (including during 
the Pre-Opening Session \7\ and Post-Closing Sessions) \8\ and yields 
Flag P. This would occur as a result of the Member's order using any of 
the routing strategies listed in Rule 11.9(b)(3) where the residual of 
the order posts to EDGX.\9\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 66231 (January 24, 
2012), 77 FR 4605 (January 30, 2012).
    \5\ As defined in Rule 1.5(cc) [sic].
    \6\ Routing options listed in Rules 11.9(b)(3)(a) and (n)-(q) 
are not altered as a result of this amendment. The routing option in 
Rule 11.9(b)(3)(a) already posts to EDGX and no amendment to the 
rule was needed as no discretion is provided to the User. The 
routing options in Rules 11.9(b)(3)(n)-(q) do not have the option to 
post the remainder of an order to EDGX.
    \7\ As defined in EDGA Rule 1.5(s).
    \8\ As defined in EDGA Rule 1.5(r).
    \9\ This includes all routing strategies in Rule 11.9(b)(3), 
except for (n)-(q), that do not have the option to post the 
remainder of an order to EDGX.
---------------------------------------------------------------------------

    As a result of this change, the Exchange proposes to revise the 
description on the Flag P to broaden its applicability to several 
routing strategies, instead of just an EDGA-originated ROUC routing 
strategy. The Flag P is thus proposed to state ``Adds liquidity on 
EDGX, including pre & post market.''
    The Exchange proposes to implement this amendment to its fee 
schedule on February 1, 2012.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\10\ in general, and 
furthers the objectives of Section 6(b)(4),\11\ 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the rebate for Flag P of $0.0027 per 
share is an equitable allocation of reasonable dues, fees, and other 
charges. First, the rebate is designed to incentivize Members to route 
through EDGA using any of the applicable strategies listed in Rule 
11.9(b)(3), as discussed above, to reach multiple sources of liquidity 
on EDGA before routing to other destinations, and thereby potentially 
increases volume on EDGA to the extent an order using any of these 
routing strategies executes on EDGA. The routing strategy allows 
Members to reach multiple sources of liquidity by routing order flow 
through EDGA rather than going directly to various venues. The rebate 
provides Members with a flat rate of $0.0027 per share rebate if the 
particular routing strategy posts to EDGX and is later executed. When 
the Exchange's routing broker/dealer, Direct Edge ECN LLC d/b/a DE 
Route (``DE Route'') achieves certain tiers on EDGX using any of the 
applicable routing strategies in Rule 11.9(b)(3) that post residual on 
EDGX, it is able to pass through a better rebate than if it had not 
achieved a tier.\12\ For example, if the Member had routed to EDGX 
directly and the order had added liquidity to EDGX, the Member could 
receive rebates ranging from $0.0023-$0.0034, depending on if a volume 
threshold were satisfied. \13\ The $0.0027 per share rebate thus 
represents a rate in between these various tiered and non-tiered 
rebates provided for adding liquidity to EDGX. This allows EDGA Members 
to share in potential volume tier savings realized by DE Route when it 
achieves certain tiers.
---------------------------------------------------------------------------

    \12\ See EDGX fee schedule, footnote 1.
    \13\ Id.
---------------------------------------------------------------------------

    This type of rate is also similar to EDGA's rate for removing 
liquidity from LavaFlow (Flag U). The standard removal rate of $0.0029 
per share is reduced to $0.0023 per share for orders routed to LavaFlow 
that achieve certain volume thresholds, as EDGA Members are able to 
share in potential volume tier savings realized by EDGA when routing to 
LavaFlow.\14\ This rebate is also comparable to other rebates offered 
by the Exchange that add liquidity, such as the ROOC \15\ routing 
strategy, which yields Flags 8 and 9.\16\ For Flags 8 and 9, the 
Exchange passes through the default rebate (i.e., non-tier) from the 
primary listing market (i.e., NYSE Arca, NYSE Amex) to Members because 
DE Route does not generally achieve a favorable tier rate. This rate is 
also consistent with the processing of similar routing strategies by 
EDGA's competitors where EDGA takes into account the rates that it is 
charged or rebated when routing to other low cost destinations.\17\ 
Finally, as another example, when EDGA routes to a primary exchange's 
opening cross, (Flag O), the Exchange passes through the tier savings 
that DE Route achieves on an away exchange to its Members.\18\ This 
tier savings takes the form of a cap of Members' fees at $10,000 per 
month for using Flag O.
---------------------------------------------------------------------------

    \14\ See footnote 6 of the EDGA fee schedule.
    \15\ See EDGA Exchange Rule 11.9(b)(3)(n).
    \16\ See the EDGA Fee Schedule where Flag 8 offers a rebate of 
$.0015 where a member routes an order to NYSE Amex using the ROOC 
routing strategy and adds liquidity, and Flag 9 offers a rebate of 
$.0021 where a member routes an order to NYSE Arca using the ROOC 
routing strategy and adds liquidity.
    \17\ See also BATS BZX fee schedule, describing Discounted 
Destination Specific Routing (``One Under'') to NYSE, NYSE ARCA and 
NASDAQ. See Securities Exchange Act Release No. 62858, 75 FR 55838 
(September 14, 2010) (SR-BATS-2010-023) (modifying the BATS fee 
schedule in order to amend the fees for its BATS + NYSE Arca 
destination specific routing option to continue to offer a ``one 
under'' pricing model).
    \18\ See footnote 5 of the EDGA fee schedule.
---------------------------------------------------------------------------

    The Exchange believes that the rebate is consistent with how other 
Exchanges rebate Members for routing through an affiliated Exchange. 
For example, when a Member removes liquidity from Nasdaq BX, it is 
rebated $0.0005 per share if it does not achieve any tiers, or $0.0014 
per share if it does achieve certain tiers.\19\ However, when the 
Member removes liquidity from Nasdaq BX by routing through Nasdaq OMX 
using any number of strategies such as SAVE/SOLV/CART, and removes 
liquidity from Nasdaq BX as a result, it is rewarded a higher rebate of 
$0.0014 per share.\20\
---------------------------------------------------------------------------

    \19\ See Nasdaq OMX BX Rule 7018.
    \20\ See Nasdaq OMX Rule 7018.
---------------------------------------------------------------------------

    The Exchange believes that the rebate of $0.0027 is also reasonable 
as it is consistent with how other exchanges pass through charges or 
rebates for orders routed to a different exchange that add or remove 
liquidity. For example, when Nasdaq routes to Nasdaq PSX, Nasdaq passes 
back Nasdaq PSX's standard charge of $0.0027 per share. When NYSE Arca 
routes to NYSE, NYSE Arca passes back the standard NYSE rebate of 
$0.0015 per share. These charges or rebates generally

[[Page 7227]]

approximate what the originating exchange receives from the exchange 
that is routed to plus or minus a certain differential. EDGA's pricing 
is consistent with this premise.
    The Exchange believes that the proposed rebate is non-
discriminatory in that it applies uniformly to all Members.
    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.

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 \21\ and Rule 19b-4(f)(2) \22\ 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.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 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 [email protected]. Please include 
File Number SR-EDGA-2012-03 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-2012-03. 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-EDGA-2012-03 and should be 
submitted on or before March 2, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-3095 Filed 2-9-12; 8:45 am]
BILLING CODE 8011-01-P