[Federal Register Volume 78, Number 8 (Friday, January 11, 2013)]
[Notices]
[Pages 2477-2478]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-00433]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68596; File No. SR-EDGX-2012-49]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
EDGX Rule 11.5(c) (NBBO Offset Peg Order)

January 7, 2013.
    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 December 27, 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 and 
II 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 Rule 11.5(c), which describes the 
manner in which the NBBO Offset Peg Order operates. 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 www.directedge.com, at the Exchange's principal office, and at the 
Public Reference Room of the Commission.

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
    The Exchange proposes to amend Rule 11.5(c), the NBBO Offset Peg 
Order. As described in the Exchange's filing to create the NBBO Offset 
Peg Order,\3\ the NBBO Offset Peg Order enables Users \4\ to submit buy 
and sell orders to the Exchange that are pegged to a designated 
percentage away from the National Best Bid (the ``NBB'') and National 
Best Offer (the ``NBO'', and together with the NBB, the ``NBBO''), 
respectively, while providing them full control over order origination 
and order marking. This retention of control, in turn, enables Market 
Makers to comply independently with the requirements of Regulation SHO 
\5\ under the Securities Exchange Act of 1934 (the ``Act'') and Rule 
15c3-5 \6\ under the Act (the ``Market Access Rule'').
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    \3\ See Securities Exchange Act Release No. 67959 (October 2, 
2012), 77 FR 61449 (October 9, 2012) (SR-EDGX-2012-44).
    \4\ As defined in Rule 1.5(ee).
    \5\ 17 CFR 242.200 through 242.204.
    \6\ 17 CFR 242.15c3-5.

    As described in the Exchange's filing to create the NBBO Offset 
Peg Order: upon entry and at any time the price of the order reached 
the `Defined Limit', or moved a specified number of percentage 
points away from the `Designated Percentage' toward the then current 
NBB (for NBBO Offset Peg Orders to buy) or NBO (for NBBO Offset Peg 
Orders to sell), the price of the NBBO Offset Peg Order would be 
automatically adjusted by the System to the Designated Percentage 
away from the then current NBB or NBO, as the case may be. In the 
event that there was no NBB or NBO, the price of the NBBO Offset Peg 
Order would be automatically adjusted by the System to the 
Designated Percentage away from the last reported sale from the 
responsible single plan processor, unless the User instructed the 
Exchange upon entry to cancel or reject the order under such 
circumstances.\7\
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    \7\ See Securities Exchange Act Release No. 67959 (October 2, 
2012), 77 FR 61449 (October 9, 2012) (SR-EDGX-2012-44).

    The Exchange proposes to amend the text of Rule 11.5(c)(15) to not 
allow the User to cancel or reject the order under the circumstances 
outlined above. Therefore, the Exchange proposes to delete the 
following text in Rule 11.5(c)(15): ``unless instructed by the User 
upon order entry to cancel or reject rather than adjust based on the 
last reported sale from the single plan processor.'' The text of the 
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rule will now read that:

    [u]pon reaching the Defined Limit (as defined in Rule 
11.21(d)(2)(F)), the price of an NBBO Offset Peg Order bid or offer 
will be automatically adjusted by the System to the Designated 
Percentage away from the then current NBB or NBO, respectively, or 
if there is no NBB or NBO at such time, to the Designated Percentage 
away from the last reported sale from the responsible single plan 
processor. If an NBBO Offset Peg Order bid or offer moves a 
specified number of percentage points away from the Designated 
Percentage toward the then current NBB or NBO, the price of such bid 
or offer will be automatically adjusted by the System to the 
Designated Percentage away from the then current NBB and NBO. If 
there is no NBB or NBO at such time, the order will be automatically 
adjusted by the System to the Designated Percentage away from the 
last reported sale from the responsible single plan processor.

    Thus, when processing NBBO Offset Peg Orders, the System will not 
condition adjustment of the price upon the User's instructions.
    The Exchange originally stated in SR-EDGX-2012-44 that it ``intends 
to implement the proposed rule change on or about November 19, 2012, 
and will notify its Members and other market participants in an 
information circular to be posted on the Exchange's Web site.'' \8\ The 
Exchange proposes to revise this implementation date to on or about 
April 15, 2013. This additional time will enable the Exchange to assess 
the usefulness of the NBBO Offset Peg Order in light of the upcoming 
implementation of the National Market System Plan to Address 
Extraordinary Market Volatility (as amended, the ``Plan'') as approved 
by the Commission \9\ and proposed changes to market making quoting 
requirements through uniform industry-wide amendments to Designated 
Percentages \10\ and Defined Limits \11\ to realign the percentages 
based on the Plan's Appendix A Percentage Parameters.
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    \8\ See Securities Exchange Act Release No. 67959 (October 2, 
2012), 77 FR 61449 (October 9, 2012) (SR-EDGX-2012-44).
    \9\ See Securities Exchange Release No. 67091 (May 31, 2012), 77 
FR 33498 (June 6, 2012) (approving the Plan on a pilot basis).
    \10\ As defined in Rule 11.21(d)(2)(D).
    \11\ As defined in Rule 11.21(d)(2)(F).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \12\ and furthers the objectives of 
Section 6(b)(5) of the Act,\13\ in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. The Exchange believes that the 
proposed rule filing meets these requirements because it eliminates 
certain rule text to

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conform with NASDAQ's Market Maker Peg Order, which is a similar order 
type to the NBBO Offset Peg Order,\14\ and updates the implementation 
date in light of the Plan and proposed changes to market making quoting 
requirements. Thus, the Exchange believes that the proposed rule change 
promotes the efficient execution of investor transactions, and thus 
investor confidence, over the long term.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ See Securities Exchange Act Release No. 67584 (August 2, 
2012), 77 FR 47472 (August 8, 2012) (SR-NASDAQ-2012-066).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act, as amended. The proposed 
rule change will increase competition among the exchanges because the 
NBBO Offset Peg Order will directly compete with substantially similar 
existing order types offered by other exchanges.\15\
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    \15\ See Securities Exchange Act Release No. 67584 (August 2, 
2012), 77 FR 47472 (August 8, 2012) (SR-NASDAQ-2012-066) (order 
approving NASDAQ's Market Maker Peg Order available for exchange 
market makers). See Securities Exchange Act Release No. 67756 
(August 29, 2012), 77 FR 54633 (September 5, 2012) (SR-BATS-2012-
026) (order approving BATS's Market Maker Peg Order available for 
exchange market makers). See also Securities Exchange Act Release 
No. 67755 (August 29, 2012), 77 FR 54630 (September 5, 2012) (SR-
BYX-2012-012) (order approving BATS Y-Exchange Inc.'s Market Maker 
Peg Order available for exchange market makers).
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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 neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-4(f)(6) 
\17\ thereunder.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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-2012-49 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-2012-49. 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-EDGX-2012-49 and should be 
submitted on or before February 1, 2013.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00433 Filed 1-10-13; 8:45 am]
BILLING CODE 8011-01-P