[Federal Register Volume 77, Number 181 (Tuesday, September 18, 2012)]
[Notices]
[Pages 57633-57635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-22913]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67840; File No. SR-EDGX-2012-41]


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

September 12, 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 September 5, 2012 the EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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 EDGX Rule 15.1(a) and (c). 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, at the Exchange's 
principal office, and at the Public Reference Room of the Commission.
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    \3\ As defined in 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 
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 add Flag RP to the Exchange's fee schedule 
for Non-Displayed Orders that add liquidity using the Route Peg Order 
type.\4\ The Exchange proposes to offer a rebate of $0.0015 per share 
for orders that yield Flag RP. The volume associated with Flag RP will 
also count towards the volume tiers for orders that add liquidity. 
Accordingly, the Exchange proposes making conforming changes to the 
text of Footnotes 12 and 13 to include Flag RP as part of the ``added 
flags.''
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    \4\ See Securities and Exchange Act Release No. 67727 (August 
24, 2012), (SR-EDGX-2012-25).
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    As defined in Exchange Rule 11.5(c)(17), a Route Peg Order is a 
non-displayed limit order that posts to the EDGX Book, and thereafter 
is eligible for execution at the National Best Bid (``NBB'') for buy 
orders and National Best Offer for sell orders (``NBO'', and together 
with the NBB, the ``NBBO'') against the original size of the routable 
orders that are equal to or less than the original size of the Route 
Peg Orders. Route Peg Orders are passive, resting orders on the EDGX 
Book and do not take liquidity. Route Peg Orders may be entered, 
cancelled, and cancelled/replaced prior to and during Regular Trading 
Hours.\5\ Route Peg Orders are eligible for execution in a given 
security during Regular Trading Hours, except that, even after the 
commencement of Regular Trading Hours, Route Peg Orders are not 
eligible for execution (1) in the opening cross, and (2) until such 
time that regular session orders in that security can be posted to the 
EDGX Book. A Route Peg Order does not

[[Page 57634]]

execute at a price that is inferior to a Protected Quotation, and is 
not permitted to execute if the NBBO is locked or crossed. Any and all 
remaining, unexecuted Route Peg Orders are cancelled at the conclusion 
of Regular Trading Hours.
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    \5\ As defined in Rule 1.5(y).
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    The Exchange proposes to implement these amendments to its fee 
schedule on September 7, 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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    The Exchange proposes to add Flag RP to the Exchange's fee schedule 
for Non-Displayed Orders that add liquidity using the Route Peg Order 
type. The Exchange believes that offering a rebate of $0.0015 per share 
for orders that yield Flag RP represents an equitable allocation of 
reasonable dues, fees and other charges among its Members and other 
persons using its facilities because a rebate of $0.0015 per share is 
equal to the prevailing rebate of $0.0015 that the Exchange offers for 
Flag HA, which is a non-displayed order type that adds liquidity but 
less than the default rebate of $0.0023 per share for adding displayed 
liquidity on EDGX. By offering a proposed rebate of $0.0015 per share 
for Flag RP, the Exchange believes it will encourage use of the new 
order type, while maintaining consistency with the Exchange's overall 
pricing philosophy of encouraging displayed liquidity. In addition, the 
Exchange is setting the rebate at such level in order to incentivize 
liquidity by encouraging Members to use Route Peg Orders (Flag RP) 
since these orders provide Members that enter them and other Members an 
additional way to offer/access liquidity at the NBBO, respectively. In 
addition, since Flag RP has lowest priority according to Rule 
11.8(a)(2), it would otherwise be rebated more than Flag HA, which has 
a higher priority. However, the Exchange is offering the same rebate as 
Flag HA because of the Route Peg Order type's unique features which 
provides Members the ability to control interaction with certain types 
of contra-side liquidity (i.e., routable orders of equal or lesser 
size). This contributes to additional depth of book at the NBBO.
    Furthermore, as stated in SR-EDGX-2012-25, the Exchange believes 
that by encouraging the use of the Route Peg Order, Members seeking to 
access liquidity at the NBBO would be more motivated to direct their 
orders to EDGX because they would have a heightened expectation of the 
availability of liquidity at the NBBO. The increased liquidity also 
benefits all investors by deepening EDGX's liquidity pool, offering 
additional flexibility for all investors to enjoy cost savings, 
supporting the quality of price discovery, and improving investor 
protection. In addition, a User \8\ whose order executed against a 
Route Peg Order would be able to obtain an execution at the NBB or NBO 
while minimizing the risk that incremental latency associated with 
routing the order to an away destination may result in an inferior 
execution.
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    \8\ As defined in Rule 1.5(ee).
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    The Exchange believes that offering a proposed rebate of $0.0015 
per share for orders that yield Flag RP is reasonable because the 
pricing is similar to analogous order types offered by other exchanges. 
On NASDAQ, customers earn a rebate of $0.0015 per share executed for 
MPIDs adding less than 1 million shares of Supplemental Orders and 
customers earn a rebate of $0.0018 per share executed for MPIDs adding 
greater than 1 million shares of Supplemental Orders.\9\ Similarly, 
NYSE Arca offers the Tracking Order type where its customers earn 
credits ranging from $0.001 to $0.0015 per share based on achieving 
applicable tiers.\10\ Lastly, the Exchange believes that the proposed 
amendment is non-discriminatory because it applies uniformly to all 
Members.
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    \9\ See Securities Exchange Act Release No. 66540 (March 8, 
2012), 77 FR 15167 (March 14, 2012) (SR-NASDAQ-2012-031). The Route 
Peg Order is functionally similar to NASDAQ's Supplemental Order 
type, as the Supplemental Order is a non-displayed order that posts 
to the book, that is accessed only after other liquidity on the 
NASDAQ book, and that executes only at the NBBO. See also NASDAQ's 
Price List--Trading & Connectivity, at http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
    \10\ See Securities Exchange Act Release No. 60944 (November 5, 
2009), 74 FR 58668 (November 13, 2009) (SR-NYSEArca-2009-99). The 
Route Peg Order is functionally similar to NYSE Arca's Tracking 
Order type, which is a non-displayed order that will only execute at 
the NBBO and incoming orders are matched against all other orders on 
the book before executing against NYSE Arca's Tracking Orders. See 
also NYSE Arca Equities Order Types, at https://usequities.nyx.com/sites/usequities.nyx.com/files/nyse_arca_marketplace_fees__8_01_12.pdf.
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    The Exchange's proposal to amend the text of Footnotes 12 and 13 of 
the fee schedule to list Flag RP as one of the ``added flags'' where 
the volume associated with Flag RP will count toward the volume 
thresholds in Footnotes 12 and 13 is reasonable and equitable as the 
volume tiers in Footnotes 12 and 13 include ``added'' liquidity flags 
and Flag RP is an added liquidity flag. The Exchange notes that the 
liquidity ratio will now capture the RP ``add flag'' as one of several 
add flags in the calculation of the ``add liquidity'' ratio.\11\ The 
Exchange believes this amendment to Footnotes 12 and 13 supports the 
Exchange's efforts to achieve consistent application and specificity 
among the flags on the fee schedule and provide transparency for its 
Members.
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    \11\ The ``add liquidity'' ratio is the ratio of the ``added'' 
flags/(``added'' flags + ``removal'' flags) x 100. If the resulting 
ratio is equal to or greater than 10%, the MPID qualifies for the 
lower removal rate of $0.0029 per share instead of $0.0030 per 
share.
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    The Exchange believes that the above proposal is nondiscriminatory 
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

[[Page 57635]]

the Act \12\ and Rule 19b-4(f)(2) \13\ 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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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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-EDGX-2012-41 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-2012-41. 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-EDGX-2012-41 and should be 
submitted on or before October 9, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-22913 Filed 9-17-12; 8:45 am]
BILLING CODE 8011-01-P