[Federal Register Volume 78, Number 70 (Thursday, April 11, 2013)]
[Notices]
[Pages 21666-21668]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-08470]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69324; File No. SR-EDGX-2013-12]


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

April 5, 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 April 1, 2013, 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 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 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 Exchange 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 an additional tier, the Growth Tier, 
to Footnote 1 of its fee schedule. Such tier would provide Members a 
rebate of $0.0025 per share for liquidity added on EDGX if on a daily 
basis, measured monthly, they post 5,000,000 shares or more of average 
daily volume (``ADV'') to EDGX.
    Secondly, the Exchange currently provides a rebate of $0.0032 per 
share for Retail Orders, as defined in Footnote 4 of the Exchange's fee 
schedule, that add liquidity to EDGX. The Exchange currently offers a 
Retail Order Tier whereby Members are provided a rebate of $0.0034 per 
share if they add an ADV of Retail Orders (Flag ZA) that is 0.25% or 
more of the Total Consolidated Volume (``TCV'') on a daily basis, 
measured monthly. The Exchange proposes to lower the criteria to 
satisfy this tier to ``an average daily volume of Retail Orders that is 
0.10% or more of the TCV on a daily basis, measured monthly.'' 
(emphasis added).
    The Exchange proposes to implement these amendments to its fee 
schedule on April 1, 2013.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\4\ in general, and 
furthers the objectives of Section 6(b)(4),\5\ 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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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the addition of the Growth Tier 
represents an equitable allocation of reasonable dues, fees, and other 
charges because it incentivizes Members to add liquidity to the EDGX 
Book.\6\ Furthermore, such increased volume would increase 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 
in turn would allow the Exchange to pass on the savings to Members in 
the form of higher rebates and lower fees. The increased liquidity 
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, promoting market 
transparency and improving investor protection. Volume-based rebates 
such as the one proposed to be amended 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 
Exchange also believes that these proposed amendments are non-
discriminatory because they apply uniformly to all Members.
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    \6\ As defined in Exchange Rule 1.5(d).
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    The Exchange also believes that the proposed rebate of $0.0025 per 
share for the Growth Tier and volume thresholds that require Members to 
add an ADV of 5,000,000 shares or more also represents an equitable 
allocation of reasonable dues, fees, and other charges since higher 
(lower) rebates are directly correlated with more (less) stringent 
criteria. As explained in detail below, the proposed Growth Tier rebate 
of $0.0025 per share will have the least stringent criteria associated 
with it, and Members will receive $0.0003 less per share than the next 
best tiered rebates of $0.0028 per share (the Super Tier and an un-
named tier in Footnote 1 of the Exchange's fee schedule in which a 
Member must post 0.065% of the TCV in ADV more than their February 2011 
ADV added to EDGX).
    In order to qualify for the next best tier after the Growth Tier, 
the Super Tier (rebate of $0.0028), a Member must post double the 
number of shares (i.e., 10,000,000 shares or more of ADV to EDGX) than 
that required to qualify for the Growth Tier.
    In addition, the Exchange believes that the proposed rebate is 
reasonable in that it is in line with the BATS Exchange, Inc.'s (``BZX 
Exchange'') default rebate of $0.0025 per share for adding displayed 
liquidity to the BZX Exchange order book for members that do not 
satisfy a volume tier.\7\
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    \7\ See BATS Exchange, Inc., BATS BZX Exchange Fee Schedule, 
http://cdn.batstrading.com/resources/regulation/rule_book/BATS-Exchanges_Fee_Schedules.pdf.
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    The Exchange believes that reducing the percentage of TCV required 
to achieve the Retail Order Tier from 0.25% to 0.10% for Members' 
Retail Orders that add liquidity (Flag ZA) is reasonable, equitable and 
not unfairly discriminatory because it would

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continue to encourage Members to send additional Retail Orders that add 
liquidity to the Exchange for execution in order to qualify for an 
incrementally higher rebate for such executions that add liquidity on 
the Exchange if Members satisfy the conditions of the Retail Order 
Tier.
    The potential for increased volume from Retail Orders would 
increase potential revenue to the Exchange, and 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 in turn would allow the Exchange to pass on the savings to 
Members in the form of lower fees. The increased liquidity 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, promoting market transparency and improving 
investor protection. Volume-based rebates such as the one 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.
    The Exchange believes that reducing the percentage of TCV required 
to achieve the Retail Order Tier from 0.25% to 0.10% for Members' 
Retail Orders that add liquidity (Flag ZA) is reasonable, equitable and 
not unfairly discriminatory because this percentage continues to be 
within a range that the Exchange believes would incentivize Members to 
submit Retail Orders to the Exchange in order to qualify for the 
applicable rebate of $0.0034 per share. The Exchange notes that certain 
other existing pricing tiers within its fee schedule make rebates 
available to Members that are also based on the Member's level of 
activity as a percentage of TCV. These existing percentage thresholds, 
depending on other related factors and the level of the corresponding 
rebates, are both higher and lower than the 0.10% proposed herein.\8\ 
Moreover, like existing pricing on the Exchange that is tied to 
Member's volume levels as a percentage of TCV, the proposed Retail 
Order Tier continues to be equitable and not unfairly discriminatory 
because it is available to all Members on an equal and non-
discriminatory basis.
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    \8\ See for example, the Market Depth Tier Rebate ($0.0033 per 
share rebate), Mega Tier rebate ($0.0032 per share), Ultra Tier 
rebate ($0.0031 per share rebate), and Super Tier rebate ($0.0031 
per share rebate) that are all tied to a percentage of TCV.
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    The Exchange notes that a significant percentage of the orders of 
individual investors are executed over-the-counter.\9\ The Exchange 
believes that it is thus appropriate to continue to create a financial 
incentive to bring more retail order flow to a public market, such as 
the Exchange, over off-exchange venues. The Exchange believes that 
investor protection and transparency is promoted by rewarding displayed 
liquidity on exchanges over off-exchange executions. In this regard, 
the Exchange believes that maintaining or increasing the proportion of 
Retail Orders in exchange-listed securities that are executed on a 
registered national securities exchange (rather than relying on certain 
available off-exchange execution methods) would contribute to 
investors' confidence in the fairness of their transactions and would 
benefit all investors by deepening the Exchange's liquidity pool, 
supporting the quality of price discovery, promoting market 
transparency and improving investor protection.
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    \9\ See Concept Release on Equity Market Structure, Securities 
Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594 
(January 21, 2010) (noting that dark pools and internalizing broker-
dealers executed approximately 25.4% of share volume in September 
2009). See also Mary L. Schapiro, Strengthening Our Equity Market 
Structure (Speech at the Economic Club of New York, Sept. 7, 2010) 
(available on the Commission's Web site). In her speech, Chairman 
Schapiro noted that nearly 30 percent of volume in U.S.-listed 
equities was executed in venues that do not display their liquidity 
or make it generally available to the public and the percentage was 
increasing nearly every month.
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    The Exchange also notes that the Retail Order Tier is reasonable in 
that NYSE Arca, Inc. (``NYSE Arca'') offers a comparable Retail Order 
Tier (with an analogous Retail Order definition) that provides a rebate 
of $0.0033 per share for its Retail Orders that provide liquidity on 
NYSE Arca in Tapes A, B and C securities for ETP Holders that execute 
an ADV of Retail Orders that is 0.20% or more of the TCV.\10\ In 
addition, The NASDAQ Stock Market LLC (``Nasdaq'') offers its members a 
rebate of $0.0034 per share for Designated Retail Orders, as defined by 
Nasdaq, that are displayed orders that provide liquidity if a member 
enters Designated Retail Orders through an MPID through which (i) at 
least 90% of the shares of liquidity provided during the month are 
provided through Designated Retail Orders, and (ii) the members access, 
provide, or route shares of liquidity that represent at least 0.10% of 
TCV during the month.\11\
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    \10\ See Securities Exchange Act Release No. 69134 (March 14, 
2013), 78 FR 17247 (March 20, 2013) (SR-NYSEArca-2013-24). See also, 
NYSE Arca Equities, Inc., Schedule of Fees and Charges for Exchange 
Services, https://usequities.nyx.com/sites/usequities.nyx.com/files/nyse_arca_marketplace_fees_3_1_13.pdf.
    \11\ See Securities Exchange Release No. 69133 (March 14, 2013), 
78 FR 17272 (March 20, 2013) (SR-NASDAQ-2013-42). Nasdaq, Price 
List--Trading and Connectivity, http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
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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

    These proposed rule changes do not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. The Exchange does not believe these changes represent a 
significant departure from previous pricing offered by the Exchange or 
pricing offered by the Exchange's competitors. Additionally, Members 
may opt to disfavor EDGX's pricing if they believe that alternatives 
offer them better value. Accordingly, EDGX does not believe that the 
proposed changes will impair the ability of Members or competing venues 
to maintain their competitive standing in the financial markets.
    Regarding the Retail Order Tier, the Exchange believes that its 
proposal to amend the criteria to achieve the tier will increase 
competition for Retail Orders because the proposed Retail Order Tier is 
comparable in price and criteria to Nasdaq's retail order tier. The 
Exchange believes its proposal will not burden intramarket competition 
given that the Exchange's rates apply uniformly to all Members.
    Regarding the Exchange's proposed Growth Tier, the Exchange 
believes its proposal will not burden competition but rather increase 
competition with the Exchange's competitors that offer similar tiers 
and rebates. The Exchange believes its proposal will not burden

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intramarket competition given that the Exchange's rates apply uniformly 
to all Members.

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)(A) of 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 240.19b-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-2013-12 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-2013-12. 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-2013-12 and should be 
submitted on or before May 2, 2013.

    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. 2013-08470 Filed 4-10-13; 8:45 am]
BILLING CODE 8011-01-P