[Federal Register Volume 79, Number 239 (Friday, December 12, 2014)]
[Notices]
[Pages 73942-73944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-29106]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73780; File No. SR-EDGX-2014-28]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 
13.9 of EDGX Exchange, Inc. Related to Communication and Routing 
Service Known as ConnectEdge

December 8, 2014.
    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 November 25, 2014, 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 Exchange. The Exchange 
has designated this proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with 
the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend Rule 13.9 related to a 
communication and routing service known as ConnectEdge. The Exchange 
also proposes to add fees related to ConnectEdge to its fee schedule.
    The text of the proposed rule change is available at the Exchange's 
Web site at http://www.directedge.com/, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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 Exchange 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 Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts 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 13.9 related to a communication 
and routing service known as ConnectEdge. The Exchange also proposes to 
add fees related to ConnectEdge to its fee schedule. The Exchange 
currently offers and proposes to continue offering ConnectEdge on a 
voluntary basis in a capacity similar to a vendor. ConnectEdge is a 
communication service that provides Members \5\ an additional means to 
receive market data from and route orders to any destination connected 
to Exchange's network. ConnectEdge does not provide any advantage to 
subscribers for connecting to the Exchange's affiliates \6\ as compared 
to other method of connectivity available to subscribers. The servers 
of the Member need not be located in the same facilities as the 
Exchange in order to subscribe to ConnectEdge. Members may also seek to 
utilize ConnectEdge in the event of a market disruption where other 
alternative connection methods become unavailable.
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    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer, or any person associated with a registered broker or dealer, 
that has been admitted to membership in the Exchange. A Member will 
have the status of a ``member'' of the Exchange as that term is 
defined in Section 3(a)(3) of the Act.'' See Exchange Rule 1.5(n).
    \6\ The Exchange's affiliated exchanges are EDGA Exchange, Inc. 
(``EDGA''), BATS Exchange, Inc. (``BATS''), and BATS Y-Exchange, 
Inc. (``BYX'').
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    Specifically, this service allows Members to route orders to other 
exchanges and market centers that are connected to the Exchange's 
network. This communications or routing service would not effect trade 
executions and would not report trades to the relevant Securities 
Information Processor. An order sent via the service does not pass 
through the Exchange's matching engine before going to a market center 
outside of the Exchange (i.e., a participant could choose to route an 
order directly to any market center on the Exchange's network). A 
participant would be responsible for identifying the appropriate 
destination for any orders sent through the service and for ensuring 
that it had authority to access the selected destination; the Exchange 
would merely provide the connectivity by which orders (and associated 
messages) could be routed by a participant to a destination and from 
the destination back to the participant.\7\
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    \7\ This service is an alternative to a service that the 
Exchange already provides to its Members--current order-sending 
Members route orders through access provided by the Exchange to the 
Exchange that either check the Exchange for available liquidity and 
then route to other destinations or, in certain circumstances, 
bypass the Exchange and route to other destinations. See Exchange 
Rule 11.9(b)(2) (setting forth routing options whereby Members may 
select their orders be routed to other market centers).
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    The Exchange will charge a monthly connectivity fee to Members 
utilizing ConnectEdge to route orders to other exchanges and broker-
dealers that are connected to the Exchange's network. The amount of the 
connectivity fee varies based solely on the bandwidth selected by the 
Member. Specifically, the Exchange proposes to charge $350 for 1 Mb, 
$700 for 5 Mb, $950 for 10 Mb, $1,500 for 25 Mb, $2,500 for 50 Mb, and 
$3,500 for 100 Mb.
    ConnectEdge would also allow participants to receive market data 
feeds from the exchanges connected to the Exchange's network. In such 
case, the Member would pay the Exchange a connectivity fee, which 
varies and is based solely on the amount of bandwidth required to 
transmit the selected data product to the Member. The proposed 
connectivity fees are set forth in the Exhibit 5 attached hereto and 
range from $100 to $3,500 based on the market data product the vendor 
selects. The Members would pay any fees charged by the exchange 
providing the market data feed directly to that exchange.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of Section 6(b) of the Act,\8\ in general, and Section 
6(b)(5) of the Act,\9\ in particular, in that it promotes just and 
equitable principles of trade, removes impediments to, and perfect the 
mechanism of, a free and open market and a national market system, and, 
in general, protects investors and the public interest. Specifically, 
the

[[Page 73943]]

proposal is consistent with Section 6(b)(5) of the Act,\10\ in that it 
provides Members an alternative means to receive market data from and 
route orders to any destination connected to the Exchange's network, 
thereby removing impediments to and perfecting the mechanism of a free 
and open market and a national market system, and, in general, 
protecting investors and the public interest. In addition, ConnectEdge 
removes impediments to and perfects the mechanism of a free and open 
market and a national market system because, in the event of a market 
disruption, Members would be able to utilize ConnectEdge to connect to 
other market centers where other alternative connection methods become 
unavailable. The proposed rule change is also similar to a 
communication and routing service implemented by the Chicago Stock 
Exchange, Inc. (``CHX'').\11\ The proposed rule change will also not 
permit unfair discrimination among customers, brokers, or dealers 
because ConnectEdge will be available to all of the Exchange's 
customers on an equivalent basis regardless of whether the servers of 
the Member are located in the same facilities as the Exchange.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
    \11\ See Securities Exchange Act Release No. 54846 (November 30, 
2006), 71 FR 71003 (December 7, 2006) (SR-CHX-2006-34) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Regarding 
the Implementation of a Communication and Routing Service).
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    The Exchange also believes that its proposal is consistent with 
Section 6(b)(4) of the Act,\12\ in that it provides for the equitable 
allocation of reasonable dues, fees and other charges among members and 
other persons using its facilities. First, the Exchange will charge a 
connectivity fee to Members utilizing ConnectEdge to route orders to 
other exchanges and market centers that are connected to the Exchange's 
network, which varies based solely on the amount of bandwidth selected 
by the Member. The amounts of the connectivity fees are also reasonable 
as compared to similar fees charged by other exchanges. For purposes of 
order routing, the Exchange proposes to charge $350 for 1 Mb, $700 for 
5 Mb, $950 for 10 Mb, $1,500 for 25 Mb, $2,500 for 50 Mb, and $3,500 
for 100 Mb. The New York Stock Exchange, Inc. (``NYSE'') currently 
charges $300 for 1 Mb, $700 for 5 Mb, $900 for 10 Mb, $1,500 for 25 Mb, 
$2,000 for 50 Mb, and $2,600 for 100 Mb.\13\ The Exchange notes that, 
overall, the connectivity fee for routing of orders to other market 
centers proposed by the Exchange is either similar to or less than that 
charged by the NYSE.
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    \12\ 15 U.S.C. 78f(b)(4).
    \13\ See NYSE's SFTI Americas Product and Service List available 
at http://www.nyxdata.com/docs/connectivity.
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    Second, with regard to utilizing ConnectEdge to receive market data 
products from other exchanges, the Exchange would only charge 
participants a connectivity fee, the amount of which is based solely on 
the amount of bandwidth required to transmit that specific data product 
to the Member. The amounts of the connectivity fees are also reasonable 
as compared to similar fees charged by other exchanges. For example, 
for market data connectivity, the Nasdaq Stock Market LLC (``Nasdaq'') 
charges $1,412 per month for CQS/CTS data feed, and the Exchange 
proposes to charge $1,000 per month connectivity for CQS/CTS data 
feed.\14\ The Exchange notes that, overall, the connectivity fee for 
receipt of other market centers' data feed proposed by the Exchange is 
either similar to or less than that charged by Nasdaq.
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    \14\ See Nasdaq Rule 7034 (setting forth Nasdaq's connectivity 
fees for receipt of third party market data products).
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    The participants would pay any fees: (i) Charged by the exchange 
providing the market data feed directly to that exchange (ii) charged 
by a market center to which they routed an order and an execution 
occurred directly to that market center. The Exchange itself would not 
charge any additional fees.\15\ ConnectEdge is offered and purchased on 
a voluntary basis, in that neither the Exchange nor Members are 
required by any rule or regulation to make this product available. 
Accordingly, Members can discontinue use at any time and for any 
reason, including due to an assessment of the reasonableness of fees 
charged.
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    \15\ The Exchange's rules and fees would not address the fees or 
manner of operation of any destination to which the participant 
asked that an order be routed.
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    Moreover, the Exchange believes the proposed fees are reasonable 
and equitable because they are based on the Exchange's costs to cover 
hardware, installation, testing and connection, as well expenses 
involved in maintaining and managing the service. The proposed fees 
allow the Exchange to recoup these costs, while providing Members with 
an alternative means to connect to other exchange and market centers. 
The Exchange believes that the proposed fees are reasonable and 
equitable in that they reflect the costs and the benefit of providing 
alternative connectivity.
    Lastly, the Exchange also believes that the proposed amendments to 
its fee schedule are non-discriminatory because they will apply 
uniformly to all Members. All Members that voluntarily select various 
service options will be charged the same amount for the same services. 
All Members have the option to select any connectivity option, and 
there is no differentiation among Members with regard to the fees 
charged for the service. Further, the benefits of selecting such 
services are the same for all Members, irrespective of whether their 
servers are located in the same facility as the Exchange.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. To the contrary, 
the Exchange believes that the proposal will promote competition by the 
Exchange offering a service similar to those offered by the CHX, Nasdaq 
and NYSE. Thus, the Exchange believes this proposed rule change is 
necessary to permit fair competition among national securities 
exchanges. In addition, the proposed rule change is designed to provide 
Members with an alternative means to access other market centers if 
they chose or in the event of a market disruption where other 
alternative connection methods become unavailable. Therefore, the 
Exchange does not believe the proposed rule change will have any effect 
on competition.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \16\ and Rule 19b-4(f)(6) thereunder.\17\ 
Because the 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 from the date on which it

[[Page 73944]]

was filed, or such shorter time as the Commission may designate, the 
proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.\18\
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    \16\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of the Exchange's intent to file 
the proposed rule change, along with a brief description and text of 
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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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange has asked the Commission to waive the 
30-day operative delay so that the proposal may become operative 
immediately upon filing. Waiver of the 30-day operative delay would 
permit the Exchange to provide Members with an alternative means to 
access other market centers particularly in the event of a market 
disruption. In addition, the Exchange represents that ConnectEdge does 
not provide any advantage to subscribers for connecting to the 
Exchange's affiliates \19\ as compared to other methods of connectivity 
available to subscribers. Based on the foregoing, the Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest.\20\ The Commission 
hereby grants the Exchange's request and designates the proposal 
operative upon filing.
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    \19\ See supra note 6.
    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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-2014-28 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-EDGX-2014-28. 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-2014-28 and should be 
submitted on or before January 2, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29106 Filed 12-11-14; 8:45 am]
BILLING CODE 8011-01-P