[Federal Register Volume 77, Number 71 (Thursday, April 12, 2012)]
[Notices]
[Pages 22008-22011]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-8787]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66763; File No. SR-EDGA-2012-13]


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

April 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 March 30, 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, 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 22009]]

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 decrease the rebate for adding liquidity 
from $0.0004 per share to $0.0003 per share, and to decrease the 
rebates in Footnote 4 in the fee schedule from $0.0005 per share to 
$0.0004 per share as they relate to the calculation for the Total 
Consolidated Volume (``TCV'') in order to move in lockstep with the 
proposed rebate of $0.0003 per share for adding liquidity. In addition, 
the Exchange proposes to make conforming amendments on Flags B, V, Y, 3 
and 4 from a rebate of $0.0004 per share to a rebate of $0.0003 per 
share.
    Flag E represents a customer internalization \4\ charge per side if 
a Member inadvertently matches with itself. In order to provide 
additional transparency to Members, Flag E is proposed to be bifurcated 
into two flags: Flag EA (internalization on the adding liquidity side) 
and Flag ER (internalization on the removing liquidity side). The 
Exchange also proposes to increase the fee charged to Members to 
$0.0002 per share, per side, to move in lockstep with the maker/taker 
spread on EDGA, which the Exchange proposes to change to $0.0004. 
Similarly, the Exchange also proposes increasing the charge assessed in 
Flag 5 from $0.00015 to $0.0002.
---------------------------------------------------------------------------

    \4\ 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.
---------------------------------------------------------------------------

    The Exchange proposes to add Flag PR for orders that remove 
liquidity from EDGA using eligible routing strategies ROUZ, ROUD or 
ROUQ.\5\ The Exchange proposes to list the eligible routing strategies 
in Footnote 15. The Exchange proposes to assess no charge to Members 
that utilize Flag PR. Therefore, the Exchange proposes to append 
Footnote 1 to Flag PR so that the Members using Flag PR will also be 
subject to the conditions of Footnote 1, which state that the removal 
rate on EDGA is contingent on the attributed MPID adding (including 
hidden) and/or routing a minimum average daily share volume, measured 
monthly, of 50,000 shares on EDGA. Any attributed MPID not meeting the 
aforementioned minimum will be charged $0.0030 per share for removing 
liquidity from EDGA for securities priced $1.00 and over and 0.20% of 
dollar value for securities priced less than $1.00.
---------------------------------------------------------------------------

    \5\ See Exchange Rule 11.9(b)(3).
---------------------------------------------------------------------------

    The Exchange proposes to add Flag CR for orders that remove 
liquidity from EDGA using eligible routing strategies ROUT, RDOT, ROUE, 
ROUC, ROOC, ROCO, IOCT or ICMT.\6\ The Exchange proposes to list the 
eligible routing strategies in Footnote 13. The Exchange proposes to 
assess no charge to Members that utilize Flag CR. Therefore, the 
Exchange proposes to append Footnote 1 to Flag CR so that Member's 
using Flag CR will also be subject to the conditions of Footnote 1, 
which states that the removal rate on EDGA is contingent on the 
attributed MPID adding (including hidden) and/or routing a minimum 
average daily share volume, measured monthly, of 50,000 shares on EDGA. 
Any attributed MPID not meeting the aforementioned minimum will be 
charged $0.0030 per share for removing liquidity from EDGA for 
securities priced $1.00 and over and 0.20% of dollar value for 
securities priced less than $1.00.
---------------------------------------------------------------------------

    \6\ Id.
---------------------------------------------------------------------------

    The Exchange proposes to add Flag XR for orders that remove 
liquidity from EDGA using eligible routing strategies ROUX, RDOX, ROPA, 
INET, ROBB, ROBY, ROBX, ROBA, SWPA, SWPB, SWPC, ROLF, IOCX or IOCM.\7\ 
The Exchange proposes to list the eligible routing strategies in 
Footnote 14. The Exchange proposes to assess a charge of $0.0007 per 
share to Members that utilize Flag XR, which corresponds to the default 
rate on EDGA for removing liquidity. Therefore, the Exchange proposes 
to append Footnote 1 to Flag XR so that Member's using Flag XR will 
also subject to the conditions of Footnote 1, which states that the 
removal rate on EDGA is contingent on the attributed MPID adding 
(including hidden) and/or routing a minimum average daily share volume, 
measured monthly, of 50,000 shares on EDGA. Any attributed MPID not 
meeting the aforementioned minimum will be charged $0.0030 per share 
for removing liquidity from EDGA for securities priced $1.00 and over 
and 0.20% of dollar value for securities priced less than $1.00.
---------------------------------------------------------------------------

    \7\ Id.
---------------------------------------------------------------------------

    The Exchange proposes to amend the description of Flag K in 
reference to orders routed to the PSX to include the ROUE routing 
strategy in addition to the ROUC routing strategy. The Exchange 
proposes to continue to assess a charge of $0.0025 per share.
    Similarly, the Exchange proposes to amend the description of Flag 
BY in reference to orders routed to the BATS BYX Exchange to include 
the ROUE routing. The Exchange proposes to continue to offer a rebate 
of $0.0002 per share.
    Currently, when an order is routed using the ROUQ or ROUC routing 
strategies, as defined in Rule 11.9(b)(3), a fee of $0.0020 per share 
is charged. The Exchange proposes to append footnote 16 to the Q flag 
to provide a lower rate for Q flag executions in the following 
circumstances: If a Member posts greater than or equal to 0.30% of the 
TCV in ADV on EDGA and routes 2.5 million shares through the use of the 
Q flag, then the Member's rate for the Q flag decreases to $0.0015 per 
share. If a Member posts greater than or equal to 0.30% of the TCV in 
ADV on EDGA and routes 5 million shares through the use of the Q flag, 
then the Member's rate for the Q flag decreases to $0.0010 per share.
    The Exchange also proposes to make a technical amendment to 
Footnote 1 on the fee schedule to remove ``the'' and replace it with 
``all,'' remove ``is'' and replace it with ``are,'' and pluralize 
``rate.'' In addition, the Exchange also proposes to make a technical 
amendment to remove the word ``customer'' in the description of Flag 5.
    The Exchange proposes to implement these amendments to its fee 
schedule on April 1, 2012.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with the objectives of Section 6 of the Act,\8\ in general, and 
furthers the objectives of Section 6(b)(4),\9\ 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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange proposes to decrease the rebate for adding liquidity 
from $0.0004 per share to $0.0003 per share, and to decrease the rebate 
in Footnote 4 in the fee schedule from $0.0005 per share to $0.0004 per 
share as they relate to the calculation for the TCV in order to move in 
lockstep with the proposed rebate of $0.0003 per share for adding 
liquidity. In addition, the Exchange will make corresponding changes to 
Flags B, V, Y, 3 and 4 because these Flags also add liquidity to the 
EDGA book. In addition, the increased revenue to the Exchange from the 
decreased rebate allows the Exchange to have additional revenue to 
offset administrative and infrastructure costs, and to offset the no 
charge for Flags PR and CR as described

[[Page 22010]]

below. The Exchange believes that the proposed rate is non-
discriminatory in that it applies uniformly to all Members.
    The Exchange believes that the proposed technical amendment to 
delete Flag E and replace it with Flags EA and ER promotes market 
transparency and improves investor protection by adding additional 
transparency to its fee schedule by more precisely delineating for 
Members whether they are ``adders of liquidity'' or ``removers of 
liquidity'' for purposes of paying an internalization fee. Similarly, 
the Exchange also proposes increasing the charge assessed in Flag 5 
from $0.00015 to $0.0002 because it pertains to internalization. In 
addition, the internalization rebate is equitable in that it is in line 
with the EDGA fee structure \10\ which currently has a maker/taker 
spread of $0.0004 per share (the proposed standard rebate to add 
liquidity on EDGA is $0.0003 per share, while the standard fee to 
remove liquidity is $0.007 per share). EDGA also has a proposed tiered 
rate for adding liquidity of $0.0004, which would make this spread 
$0.0003 per share. As a result of the internalization charge, Members 
who internalize would be charged $0.0002 per side of an execution 
(total of $0.0004 per share) instead of capturing the maker/taker 
spread of $0.0003 per share if Members achieve this tier. Therefore, 
the total net amount equals $0.0004 per share, which would be an 
internalization rate that is no more favorable than the prevailing 
maker/taker spread. The Exchange also believes that the proposal is 
non-discriminatory because it applies to all Members.
---------------------------------------------------------------------------

    \10\ In SR-EDGA-2011-14 (April 29, 2011), the Exchange 
represented that it ``will continue to ensure that the 
internalization fee is no more favorable than each prevailing maker/
taker spread.''
---------------------------------------------------------------------------

    The Exchange proposes to add Flag PR for orders that remove 
liquidity from EDGA using eligible routing strategies ROUZ, ROUD or 
ROUQ. The Exchange believes that the proposed rate of $0.0000 per share 
for Flag PR is an equitable allocation of reasonable dues, fees, and 
other charges because the rate correlates to the dues, fees, and other 
charges the Exchange receives when routing to low cost destinations. By 
routing to several low cost destinations using the eligible routing 
strategies, there is a greater potential for orders to be executed at 
these low cost destinations rather than a higher cost destination. For 
example, ROUD, as defined in Rule 11.9(b)(3)(b), is a routing option 
under which an order checks the System \11\ for available shares and 
then is sent sequentially to low cost destinations on the System 
routing table. Therefore, the more low cost destinations that an order 
routes to allows the Exchange to pass on the savings it receives from 
such destinations to the Exchange's Members. In addition, the Exchange 
believes that the proposed rate is non-discriminatory in that it 
applies uniformly to all Members.
---------------------------------------------------------------------------

    \11\ See Exchange Rule 1.5(cc).
---------------------------------------------------------------------------

    The Exchange proposes to add Flag CR for orders that remove 
liquidity from EDGA using eligible routing strategies ROUT, RDOT, ROUE, 
ROUC, ROOC, ROCO, IOCT or ICMT, which route to a combination of low 
cost destinations and higher cost destinations. The Exchange believes 
that the proposed rate of $0.0000 per share for Flag CR is an equitable 
allocation of reasonable dues, fees, and other charges because the rate 
correlates to the dues, fees, and other charges the Exchange receives 
when routing to low cost destinations. By routing to several low cost 
destinations using the eligible routing strategies, there is a greater 
potential for orders to be executed at these low cost destinations. For 
example, RDOT, as defined in Rule 11.9(b)(3)(h), is a routing option 
under which an order checks the System for available shares and then is 
sent sequentially to low cost destinations on the System routing table. 
If shares remain unexecuted after routing, they are sent to the NYSE 
and can be re-routed by the NYSE, which is a high cost destination. 
Therefore, the more low cost destinations that an order routes to 
allows the Exchange to pass on the savings it receives from such 
destinations to the Exchange's Members. In addition, the Exchange 
believes that the proposed rate is non-discriminatory in that it 
applies uniformly to all Members.
    In addition, the Exchange believes its proposed rate of $0.0000 per 
share for Flags PR and CR is equitable because Flags PR and CR both 
route to low cost destinations in the System.
    The Exchange proposes to add Flag XR for orders that remove 
liquidity from EDGA using eligible routing strategies ROUX, RDOX, ROPA, 
INET, ROBB, ROBY, ROBX, ROBA, SWPA, SWPB, SWPC, ROLF, IOCX or IOCM. The 
Exchange believes that the proposed rate of $0.0007 per share for Flag 
XR which corresponds to the default rate on EDGA for removing 
liquidity, is an equitable allocation of reasonable dues, fees, and 
other charges because the rate is directly correlated with a higher 
number of high cost destinations; therefore, Flag XR creates a greater 
potential for an execution at a higher cost destination. For example, 
ROPA, as defined in Rule 11.9(b)(3)(k), is a routing option under which 
an order checks the System for available shares and then is sent, as an 
immediate or cancel (IOC) order, to NYSE Arca, which is a higher cost 
destination. Therefore, the Exchange passes through the charges 
associated with such higher cost destinations to the Exchange's 
Members. The Exchange believes that the proposed rate is non-
discriminatory in that it applies uniformly to all Members.
    The Exchange proposes to amend the description of Flag K in 
reference to orders routed to the PSX to include the ROUE routing 
strategy in addition to the ROUC routing strategy. The Exchange 
proposes to continue to assess a charge of $0.0025 per share. The 
Exchange believes that including the ROUE routing strategy will benefit 
Members because it provides another routing strategy to earn Flag K. In 
addition, the Exchange offers Members additional transparency in the 
fee schedule because Members can identify the routing strategy used to 
achieve Flag K. This encourages Members to utilize the Exchange to 
route to various destinations, which results in a lower overall routed 
rate for Members and allows the Exchange to pass on the savings it 
receives to the Exchange's Members. The Exchange believes that the 
proposed rebate is non-discriminatory in that it applies uniformly to 
all Members.
    Similarly, the Exchange proposes to amend the description of Flag 
BY in reference to orders routed to the BATS BYX Exchange to include 
the ROUE routing strategy. The Exchange proposes to continue to offer a 
rebate of $0.0002 per share. The Exchange believes that including the 
ROUE routing strategy will benefit Members because it provides another 
routing strategy to earn Flag BY. In addition, the Exchange offers 
Members additional transparency in the fee schedule because Members can 
identify the routing strategy used to achieve Flag BY. This encourages 
Members to utilize the Exchange to route to various destinations, which 
results in a lower overall routed rate for Members and allows the 
Exchange to pass on the savings it receives to the Exchange's Members. 
The Exchange believes that the proposed rebate is non-discriminatory in 
that it applies uniformly to all Members.
    The Exchange believes that the lower rate on the Q flag if a Member 
satisfies the conditions in proposed footnote 16 of the fee schedule 
represents and equitable allocation of reasonable dues, fees, and other 
charges as it is designed to incentivize Members to utilize the

[[Page 22011]]

routing strategies on flag Q (ROUQ/ROUC) to route through EDGA before 
routing to other low cost destinations and other venues. If a Member 
does so and adds a significant amount of liquidity to EDGA (posts 
greater than or equal to 0.30% of the TCV in ADV on EDGA), while at the 
same time routes through ROUQ or ROUC a certain number of shares (2.5 
million or 5 million shares), then the Member's rate will decrease to 
$0.0015 per share or $0.0010 per share, depending on the amount of 
liquidity routed using the ROUQ or ROUC routing strategies. The 
Exchange believes that volume discounts such as the ones proposed 
herein 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 lower rates. The increased liquidity also 
benefits all investors by deepening EDGA's liquidity pool, offering 
additional flexibility for all investors to enjoy cost savings, 
supporting the quality of price discovery, promoting market 
transparency and improving investor protection. Volume-based discounts 
such as the ones proposed herein have been widely adopted in the cash 
equities markets, and are equitable because they are open to all 
Members on an equal basis 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. In addition, the rates on the flag Q 
are reasonable when compared to competitive strategies on BATS, the DRT 
strategy \12\, which is priced at $0.0020 per share and is similar to 
ROUQ; the ROUC routing strategy is similar to BATS's SLIM strategy \13\ 
(rates ranging from $0.0022 per share to $0.0029 per share) and to 
NASDAQ's SAVE/SOLV strategies\14\ (rates ranging from $0.0022 per share 
to $0.0027 per share).
---------------------------------------------------------------------------

    \12\ See the BATS BZX and BATS BYX Fee Schedules, http://batstrading.com/FeeSchedule
    \13\ Id.
    \14\ See NASDAQ Price List, http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2
---------------------------------------------------------------------------

    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 \15\ and Rule 19b 4(f)(2) \16\ 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.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 19b 4(f)(2) [sic].
---------------------------------------------------------------------------

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-2012-13 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-2012-13. 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-2012-13 and should be 
submitted on or before May 3, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

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

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-8787 Filed 4-11-12; 8:45 am]
BILLING CODE 8011-01-P