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, 56890-56894 [2012-22643]

Download as PDF 56890 Federal Register / Vol. 77, No. 179 / Friday, September 14, 2012 / Notices 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–NSX– 2012–14 and should be submitted on or before October 5, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–22641 Filed 9–13–12; 8:45 am] SECURITIES AND EXCHANGE COMMISSION 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 mstockstill on DSK4VPTVN1PROD with NOTICES September 10, 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 August 31, 2012 the EDGX Exchange, Inc. (the ‘‘Exchange’’ or the ‘‘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 selfregulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 16:39 Sep 13, 2012 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. The Exchange proposes to append Footnote 1 to Flag PI, where Flag PI removes liquidity from the EDGX book against the Midpoint Match. This charge would signal a rate change for Flag PI if the conditions for achieving the Mega Tier 4 are not satisfied. The Exchange also proposes to amend the text of Footnote 1 to add Flags BB and PI to the list of removal flags and to add text to specify that Members that do not meet the thresholds for the Mega Tier in the first paragraph of Footnote 1 will be charged the standard removal rate of $0.0030 per share. The Exchange proposes to assess a fee of $0.0006 per share in lieu of the current rebate of $0.0003 per share for Members who utilize Flag RA to route orders to EDGA Exchange, Inc. (‘‘EDGA’’) and add liquidity. The Exchange also proposes to offer a rebate of $0.0004 per share in lieu of the current charge of $0.0007 per share for Members who utilize Flag RR to route orders to EDGA using routing strategies IOCX or IOCT on EDGX and remove 3 As defined in Exchange Rule 1.5(n). Mega Tier conditions are discussed below in this filing. 1 15 VerDate Mar<15>2010 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose [Release No. 34–67818; File No. SR–EDGX– 2012–39] CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 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. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change BILLING CODE 8011–01–P 12 17 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change liquidity from EDGA. These proposed changes represent pass-throughs of the Exchange’s rates for routing orders to EDGA via its affiliated routing brokerdealer, Direct Edge ECN LLC d/b/a DE Route (‘‘DE Route’’), and these proposed changes are in response to pricing changes in EDGA’s filing with the Securities and Exchange Commission (the ‘‘SEC’’).5 The Exchange proposes to delete Flag RM from the fee schedule. Accordingly, Members that route to the Chicago Stock Exchange (the ‘‘CHX’’) will be assessed the default charge for routing liquidity of $0.0029 per share, as represented by Flag X. The Exchange proposes to increase the rebate and to modify the thresholds associated with the Mega Tier in Footnote 1. The Exchange proposes to offer Members a rebate of $0.0035 per share for all liquidity posted on EDGX where Members add or route at least 2 million shares of average daily volume (‘‘ADV’’) prior to 9:30 a.m. or after 4:00 p.m. (includes all flags except 6) and add a minimum of 35 million shares of ADV on EDGX in total, including during both market hours and pre and posttrading hours. Members will continue to also qualify for the Mega Tier but will earn a rebate of $0.0032 per share for all liquidity posted on EDGX if they add or route at least 4 million shares of ADV prior to 9:30 a.m. or after 4:00 p.m. (includes all flags except 6) and add a minimum of .20% of the Total Consolidated Volume (‘‘TCV’’) on a daily basis measured monthly, including during both market hours and pre and post-trading hours. The Exchange proposes to discontinue the Tape B tiers described in Footnote 1 on the Exchange’s fee schedule. Accordingly, the Exchange proposes to delete the following language from its fee schedule: ‘‘Members can qualify for the Mega Tape B Tier and be provided a $0.0034 rebate per share for liquidity added on EDGX in Tape B securities if the Member on a daily basis, measured monthly: (i) Posts greater than or equal to .10% of the TCV in ADV more than their January 2012 ADV added to EDGX; and (ii) posts greater than or equal to .10% of the TCV in ADV in Tape B securities more than their January 2012 ADV added to EDGX.’’ In addition, the Exchange also proposes to delete the following language from its fee schedule: ‘‘Members can qualify for the Mini Tape B Tier and be provided a $0.0030 rebate per share for liquidity added on EDGX in Tape B securities if the Member on a daily basis, measured 4 The Jkt 226001 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 5 See E:\FR\FM\14SEN1.SGM SR–EDGA–2012–39 (August 30, 2012). 14SEN1 Federal Register / Vol. 77, No. 179 / Friday, September 14, 2012 / Notices monthly: (i) Posts greater than or equal to .05% of the TCV in ADV more than their January 2012 ADV added to EDGX; and (ii) posts greater than or equal to .05% of the TCV in ADV in Tape B securities more than their January 2012 ADV added to EDGX.’’ As a result of the discontinuation of the Tape B tiers in Footnote 1, Tape B securities do not have a specific tier and are subject to the remaining EDGX tier structure, as applicable. The Exchange proposes to codify on the top of its fee schedule the premise that it uses footnotes to provide further explanatory text or, where annotated to flags, to indicate variable rate changes, provided the conditions in the footnote are met. In connection with this premise, the Exchange proposes to delete Footnote 12 that is appended to Flags B, V, Y, 3, 4, HA and MM because the rates for Flags B, V, Y, 3, 4, HA and MM 6 do not change where a Market Participant Identifier (‘‘MPID’’) achieves an add liquidity ratio equal to or greater than 10%. The Exchange will continue to append Footnote 12 to Flags N, W, 6, BB and PI, which denotes that the Exchange will charge a removal rate of $0.0029 per share where an MPID achieves an add liquidity ratio equal to or greater than 10%. Finally, the Exchange proposes to delete Footnote 6 that is appended to Flag M to also signify that a rate change is not signaled.7 These amendments support the Exchange’s efforts to annotate flags with footnotes to signify a potential rate change, rather than annotating every flag to denote which flags contribute towards the volume threshold and/or conditions necessary to achieve a potential rate change. The Exchange proposes to delete Footnote 1 that is appended to Flags HA and MM in order to specify that these non-displayed order types would not be eligible for the increased rebates for displayed orders in the tiers in Footnote 1 of the Exchange’s fee schedule. Rather, Flag HA is rebated $0.0015 per share and Flag MM is charged $0.0012 per share, regardless of whether the tiers in Footnote 1 are met.8 The Exchange also proposes to amend the text of Footnote 12 to include Flag PR, where Flag PR removes liquidity from the EDGX book using the ROUQ mstockstill on DSK4VPTVN1PROD with NOTICES 6 The Exchange notes that the volume from these flags will count towards achieving the add liquidity ratio in Footnote 12 of the Exchange’s fee schedule. 7 The Exchange notes that the volume from Flag M counts toward the tier in Footnote 6, which changes the rate charged on Flag U. 8 However, the Exchange notes that the volume from these flags will count towards the volume required to earn the rebates associated with the tiered pricing in Footnote 1; the rates for Flags HA and MM do not change. VerDate Mar<15>2010 16:39 Sep 13, 2012 Jkt 226001 routing strategy, as part of the ‘‘removal flags.’’ 9 These removal flags are used to calculate whether an MPID satisfied the ‘‘add liquidity’’ ratio calculation 10 to qualify for a removal rate of $0.0029 per share instead of $0.0030 per share. The Exchange proposes to implement these amendments to its fee schedule on September 1, 2012. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the objectives of Section 6 of the Act,11 in general, and furthers the objectives of Section 6(b)(4),12 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. The Exchange believes that its proposal to append Footnote 1 to Flag PI, to make changes to the text of Footnote 1 to add Flags BB and PI to the list of removal flags, and to specify the default rate of $0.0030 per share (if the Mega tier’s conditions are not met) will incentivize Members to add liquidity to the Exchange. In turn, by posting liquidity, Members using these flags will achieve the discounted removal charge of $0.0029 per share for meeting the tier’s conditions rather than the default charge of $0.0030 per share. Such amendment represents an equitable allocation of reasonable dues, fees, and other charges because the resulting increased volume 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. In addition, by providing the ability to obtain the lower removal charge, which is a more favorable rate, the Exchange is encouraging posting of liquidity, which benefits the market as a whole by contributing to increased price discovery and market depth. These lower per share costs in turn would allow the Exchange to pass on the savings to Members in the form of lower fees (for example, $0.0029 per share for Flags BB and PI instead of $0.0030 per share). The increased liquidity benefits all investors by deepening EDGX’s liquidity pool, offering additional 9 See Securities Exchange Act Release No. 67379 (July 10, 2012), 77 FR 41864 (July 16, 2012) (SR– EDGX–2012–26) (introducing Flag PR to the Exchange’s fee schedule for orders that remove liquidity from the EDGX book using the ROUQ routing strategy). 10 The ‘‘add liquidity’’ ratio is the ratio of the ‘‘added’’ flags/(‘‘added’’ flags + ‘‘removal’’ flags) × 100. If the resulting ratio is equal to or greater than 10%, the MPID qualifies for the lower rate. 11 15 U.S.C. 78f. 12 15 U.S.C. 78f(b)(4). PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 56891 flexibility for all investors to enjoy cost savings, supporting the quality of price discovery, promoting market transparency and improving investor protection. Discounts based on volume 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. In addition, the Exchange also believes that these proposed amendments are non-discriminatory because they apply uniformly to all Members. The rates and rebates associated with routing orders to EDGA through DE Route on the Exchange’s fee schedule are pass-through rates from DE Route to the Exchange and represent an equitable allocation of reasonable dues, fees, and other charges among Members of the Exchange and other persons using its facilities because the Exchange does not levy additional fees or offer additional rebates for orders that it routes to EDGA through DE Route. The Exchange notes that routing through DE Route is voluntary and DE Route is treated like any other Member of EDGA. Currently, for orders yielding Flag RA, EDGA rebates DE Route $0.0003 per share, which, in turn, is passed through to the Exchange. The Exchange, in turn, rebates its Members $0.0003 per share as a pass-through. In EDGA’s September 1, 2012 fee filing, SR–EDGA–2012–39, EDGA proposed to amend the rate it charges its Members, such as DE Route, for orders that are routed to EDGA and add liquidity to $0.0006 per share. Therefore, the Exchange believes that the proposed change for Flag RA from a rebate of $0.0003 per share to a charge of $0.0006 per share is equitable and reasonable because it accounts for the pricing changes on EDGA. In addition, the proposal allows the Exchange to continue to charge its Members a passthrough rate for routing orders to EDGA via DE Route that add liquidity. Lastly, the Exchange also believes that the proposed amendment is nondiscriminatory because it applies uniformly to all Members. Similarly, for orders yielding Flag RR, EDGA currently charges its Members, such as DE Route, $0.0007 per share, which, in turn it passes through to the Exchange. The Exchange, in turn, charges its Members $0.0007 per share as a pass-through. In EDGA’s September 1, 2012 fee filing, SR–EDGA–2012–39, E:\FR\FM\14SEN1.SGM 14SEN1 mstockstill on DSK4VPTVN1PROD with NOTICES 56892 Federal Register / Vol. 77, No. 179 / Friday, September 14, 2012 / Notices EDGA proposed to amend the rate it charges its Members for orders that are routed to EDGA using routing strategies IOCX or IOCT on EDGX and remove liquidity from EDGA to a rebate of $0.0004 per share. Therefore, the Exchange believes that the proposed change for Flag RR from a charge of $0.0007 per share to a rebate of $0.0004 per share is equitable and reasonable because it accounts for the pricing changes on EDGA. In addition, the proposal allows the Exchange to continue to charge its Members a passthrough rate for routing orders to EDGA using routing strategies IOCX or IOCT on EDGX and that remove liquidity from EDGA. Lastly, the Exchange also believes that the proposed amendment is non-discriminatory because it applies uniformly to all Members. Exchange Rule 11.9(b)(3) defines the ‘‘System routing table’’ as the proprietary process for determining the specific trading venues to which the System 13 routes orders and the order in which the System routes to them. Specifically, the Exchange reserves the right to maintain a different System routing table for different routing options and to modify the System routing table at any time without notice. The Exchange proposes to delete the CHX as a posting destination on the System routing table. The Exchange previously charged no fee nor assessed a rebate to its Members when DE Route routed to the CHX. This was a pass through by the Exchange of the no rebate/fee provided to DE Route by CHX when liquidity was added to CHX. Since CHX is no longer on the System routing table, the Exchange proposes to delete Flag RM from the Exchange’s fee schedule. The Exchange notes that it will continue to comply with its obligations under Regulation NMS; however, it will not continue to offer Flag RM as a routing strategy to post liquidity to the CHX. Rather, the Exchange will now pass back Flag X ($0.0029 charge per share) as the standard default routing flag should an order be routed to CHX as a result of the Exchange’s Regulation NMS obligations. The Exchange believes that the proposed amendment is nondiscriminatory because it applies uniformly to all Members. The Exchange believes that its proposal to increase the rebate and modify the thresholds associated with the Mega Tier in Footnote 1, where the Exchange proposes to increase the rebate to $0.0035 per share for all liquidity posted on EDGX and to modify the volume thresholds for Members that 13 See Exchange Rule 1.5(cc). VerDate Mar<15>2010 16:39 Sep 13, 2012 Jkt 226001 add or route at least 2 million shares of ADV during pre and post-trading hours and add a minimum of 35 million shares of ADV on EDGX in total, represents an equitable allocation of reasonable dues, fees, and other charges because it incentivizes Members to add liquidity to the EDGX book. Furthermore, such increased volume 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 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 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. The Exchange also believes that the rebate of $0.0035 per share and volume thresholds that require Members to add or route at least 2 million shares of ADV during pre and post-trading hours and to add a minimum of 35 million shares of ADV on EDGX in total also represent an equitable allocation of reasonable dues, fees, and other charges since higher rebates are directly correlated with more stringent criteria. As proposed, the Mega Tier rebate of $0.0035 per share will continue to have the most stringent criteria associated with it, and Members will receive $0.0002 more per share than the next best tiered rebate, the Market Depth Tier ($0.0033 per share). For example, in order for a Member to qualify for the Mega Tier rebate of $0.0035 per share, the Member would have to add or route at least 2 million shares of ADV during pre and posttrading hours and add a minimum of 35 million shares of ADV on EDGX in total, including during both market hours and pre and post-trading hours. The criteria PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 for this tier is the most stringent as fewer Members generally trade during pre and post-trading hours because of the limited time parameters associated with these trading sessions, which generally results in less liquidity. In addition, the Exchange assigns a higher value to this resting liquidity because liquidity received prior to the regular trading session typically remains resident on the Exchange throughout the remainder of the entire trading day. Furthermore, liquidity received during pre and post-trading hours is an important contributor to price discovery and acts as an important indication of price for the market as a whole considering the relative illiquidity of the pre and post-trading hour sessions. The Exchange believes that offering a higher rebate incentivizes Members to provide liquidity during these trading sessions. In order to qualify for the next best tier after the Mega Tier (at $0.0035), the Market Depth Tier, a Member would receive a rebate of $0.0033 per share for displayed liquidity added on EDGX if they post greater than or equal to 0.50% of the TCV in ADV on EDGX, at least 2 million shares of which are NonDisplayed Orders that yield Flag HA on EDGX in total. Assuming a TCV of 8 billion shares for July 2012, this would amount to 40 million shares, at least 2 million shares of which are NonDisplayed Orders. The criteria for this tier is less stringent then the proposed volume thresholds for the Mega Tier because Members must add a minimum of 35 million shares of ADV in addition to adding or routing at least 2 million shares of ADV during pre and posttrading hours to earn a rebate of $0.0035 per share. As discussed, the criteria for the Mega Tier is the most stringent as fewer Members generally trade during pre and post-trading hours because of the limited time parameters associated with these trading sessions, which generally results in less liquidity. The Exchange believes that its proposal to discontinue the Tape B tiers described in Footnote 1 on the Exchange’s fee schedule represents an equitable allocation of reasonable dues, fees, and other charges among its Members and other persons using its facilities because the Exchange notes that the Tape B tiered pricing has not incentivized Members to add liquidity to the EDGX book since its inception in March 2012.14 Because the Tape B tiers have not satisfied the justifications behind their creation, such as deepening EDGX’s liquidity pool, offering 14 See Securities Exchange Act Release No. 66558 (March 9, 2012), 77 FR 15432 (March 15, 2012) (SR– EDGX–2012–06). E:\FR\FM\14SEN1.SGM 14SEN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 77, No. 179 / Friday, September 14, 2012 / Notices additional flexibility for all investors to enjoy cost savings, supporting the quality of price discovery, promoting market transparency and improving investor protection increasing volume, the Exchange proposes to discontinue the Tape B tiers and delete the corresponding text from its fee schedule. The Exchange notes that Members will be subject to the current tiered pricing structure on EDGX as a result, which is reasonable and equitable because more favorable rates are associated with more stringent criteria that are designed to incent increased volume. In addition, the Exchange also believes that these proposed amendments are nondiscriminatory because they apply uniformly to all Members. The Exchange’s proposal to add language to the top of its fee schedule to state that it uses footnotes to provide further explanatory text, or where annotated to flags, to indicate variable rate changes, provided the conditions in the footnote are met, provides additional transparency to Members when reading the fee schedule. This is in line with the Exchange’s proposal to delete Footnote 12 that is appended to Flags B, V, Y, 3, 4, HA and MM because a rate change is not signified; thus, the rates for Flags B, V, Y, 3, 4, HA and MM do not change where an MPID achieves an add liquidity ratio equal to or greater than 10%. Similarly, the Exchange’s proposal to delete footnote 6 that is appended to Flag M also signifies that a rate change is not signaled on Flag M. The Exchange believes these amendments support the Exchange’s efforts to achieve consistent application among the flags on the fee schedule. In addition, these amendments support the Exchange’s efforts to annotate flags with footnotes to signify a potential rate change, rather than annotating every flag to denote which flags contribute towards the volume threshold and/or conditions necessary to achieve a potential rate change. The Exchange also believes that these proposed amendments are non-discriminatory because they apply to all Members. The Exchange’s deletion of Footnote 1 that is appended to Flags HA and MM in order to specify that these nondisplayed order types would not be eligible for the increased rebates for displayed orders in the tiers in Footnote 1 of the fee schedule is reasonable and equitable since non-displayed liquidity is not often eligible for the same rebates that displayed liquidity qualifies for because the Exchange places a higher value on displayed liquidity because displayed liquidity is a public good that benefits investors and traders generally VerDate Mar<15>2010 16:39 Sep 13, 2012 Jkt 226001 by providing greater price transparency and enhancing public price discovery, which ultimately lead to substantial reductions in transaction costs.15 The proposed change is non-discriminatory because it applies uniformly to all Members. The Exchange also proposes to amend the text of Footnote 12 to include Flag PR, where Flag PR removes liquidity from EDGX book using the ROUQ routing strategy, as part of the ‘‘removal flags.’’ 16 The Exchange notes that the liquidity ratio is intended to capture the PR removal flag as one of several removal flags in the calculation of the ‘‘add liquidity’’ ratio. The Exchange believes this amendment supports the Exchange’s efforts to achieve consistent application and specificity among the flags on the fee schedule and provide transparency for its Members. In SR– EDGX–2011–31, the Exchange included ‘‘removal flags’’ in its calculation of the ‘‘add liquidity’’ ratio.17 Since Flag PR is a removal flag, the Exchange believes it is appropriate to include the removal volume from Flag PR in its calculation of the ‘‘add liquidity’’ ratio. The Exchange also believes that these proposed amendments are nondiscriminatory because they apply 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 nondiscriminatory 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. 15 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37516 (June 29, 2005); See also Securities Exchange Act Release No. 42450 (February 23, 2000), 65 FR 10577, 10584 n. 53 (February 28, 2000) (SR–NYSE–99–48) (citing academic studies finding that the required display of customer limit orders, by providing greater price transparency and enhancing public price discovery, led to substantial reductions in transaction costs for both retail and institutional investors). 16 See Securities Exchange Act Release No. 65541 (October 12, 2011), 76 FR 64409 (October 18, 2011) (SR–EDGX–2011–31). 17 Id. PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 56893 B. Self-Regulatory Organization’s Statement on Burden on Competition This 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 18 and Rule 19b–4(f)(2) 19 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. 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 rulecomments@sec.gov. Please include File Number SR–EDGX–2012–39 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–2012–39. 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 18 15 19 17 E:\FR\FM\14SEN1.SGM U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(2). 14SEN1 56894 Federal Register / Vol. 77, No. 179 / Friday, September 14, 2012 / Notices 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– 2012–39 and should be submitted on or before October 5, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–22643 Filed 9–13–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–67812; File No. SR–NYSE– 2012–29] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving Proposed Rule Change Amending NYSE Rule 76 To Add Supplementary Material Relating to a Cross Function That Provides a Regulation NMS Rule 611—Compliant Tool for Floor Brokers mstockstill on DSK4VPTVN1PROD with NOTICES September 10, 2012. I. Introduction On July 13, 2012, New York Stock Exchange LLC (‘‘Exchange’’ or ‘‘NYSE ’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change amending NYSE Rule 76 to add 20 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Mar<15>2010 16:39 Sep 13, 2012 Jkt 226001 supplementary material to provide Floor Brokers with a new functionality through which to effect manual cross transactions of block size. The proposed rule change was published for comment in the Federal Register on July 27, 2012.3 The Commission received no comment letters regarding the proposed rule change. This order approves the proposed rule change. II. Description of the Proposal Currently, the Floor Broker and Designated Market Maker (‘‘DMM’’), after announcing a proposed cross transaction to the trading crowd,4 must manually monitor the protected best bid or offer to ensure that the proposed cross can be executed in accordance with the customer’s instructions and in compliance with Rule 611 of Regulation NMS (‘‘Rule 611’’).5 The Exchange contends that, in today’s fast-moving electronic markets, this manual monitoring process may not be the optimal manner by which to facilitate and evidence compliance with Rule 611. Accordingly, the Exchange proposes to add a new Supplementary Material to NYSE Rule 76.6 The proposed Supplementary Material would allow Floor Brokers to enter a cross transaction into their hand held device (‘‘HHD’’); the Exchange would provide a quote minder function that would monitor protected bids and offers to 3 See Securities Exchange Act Release No. 67488 (July 23, 2012), 77 FR 44302 (‘‘Notice’’). 4 According to the Exchange, a DMM, on behalf of a Floor Broker, will enter a cross transaction into the Exchange’s Display Book system as a completed transaction in situations where no one in the trading crowd otherwise breaks up a proposed cross. The completed transaction is printed to the consolidated tape (‘‘Tape’’) at that price. 5 17 CFR 242.611. Commission staff has issued guidance pertaining to the manual execution of orders under staff FAQ 3.23 of Rule 611 (‘‘FAQ 3.23’’). 6 NYSE Rule 76 governs the execution of ‘‘cross’’ or ‘‘crossing’’ orders by Floor Brokers. NYSE Rule 76 applies only to manual transactions executed at the point of sale on the trading floor and provides that when a member has an order to buy and an order to sell the same security that can be crossed at the same price, the member is required to announce to the trading crowd the proposed cross by offering the security at a price that is higher than his or her bid by a minimum variation permitted in the security before crossing the orders. Any other member, including the Designated Market Maker (‘‘DMM’’), can break up the announced bid and offer by trading with either side of the proposed cross transaction. According to the Exchange, an agency ‘‘cross’’ of 10,000 shares or more at or between the Exchange best bid or offer has priority and can only be broken up to provide price improvement that is better than the cross price as to all or part of such bid or offer. A buy and sell order to be crossed pursuant to NYSE Rule 72(d) is subject to Rule 76, including the requirement that such a proposed cross be announced to the crowd. See Notice, supra note 3 at 44302; see also, NYSE Rule 72(d). PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 determine when the limit price assigned to the proposed crossed transaction is such that the orders may be executed consistent with Regulation NMS Rule 611. When the trade can be effected at or between the protected bid and offer, the Exchange-provided quote minder will: (i) Deliver an alert message to the Floor Broker’s HHD indicating that the orders may be crossed; (ii) capture a timestamped quote within Exchange systems that includes the time that the alert was sent to the HHD and the protected bid and offer at that time; (iii) commence a 20-second timer from the moment a cross trade may be executed at or between the protected and bid offer; and (iv) enable a print key function in the HHD permitting the Floor Broker to cross the orders and print the trade through Exchange systems to the Tape within that 20-second time period. When the Floor Broker receives the alert message mentioned above, the Floor Broker must first announce the proposed cross transaction to the trading crowd; if the crowd or the DMM does not break up the proposed cross trade, the Floor Broker may then execute the trade using the print key function of the HHD before the expiration of the 20-second time period. The proposed Supplementary Material would require the proposed cross transaction to consist of at least 10,000 shares or a quantity of stock having a market value of $200,000 or more. Further, the proposed cross transaction may not be for the account of the member or member organization, an account of an associated person, or an account with respect to which the member, member organization or associated person exercises investment discretion. The Exchange has represented that this restriction would help ensure that the functionality would not be used for affiliated principal order flow. III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.7 Specifically, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,8 in that it is designed to foster cooperation and coordination with persons engaged in regulating, 7 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). 8 15 U.S.C. 78f(b)(5). E:\FR\FM\14SEN1.SGM 14SEN1

Agencies

[Federal Register Volume 77, Number 179 (Friday, September 14, 2012)]
[Notices]
[Pages 56890-56894]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-22643]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67818; File No. SR-EDGX-2012-39]


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 10, 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 August 31, 2012 the EDGX Exchange, Inc. (the ``Exchange'' or 
the ``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.
---------------------------------------------------------------------------

    \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 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.
---------------------------------------------------------------------------

    \3\ As defined in Exchange Rule 1.5(n).
---------------------------------------------------------------------------

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 append Footnote 1 to Flag PI, where Flag 
PI removes liquidity from the EDGX book against the Midpoint Match. 
This charge would signal a rate change for Flag PI if the conditions 
for achieving the Mega Tier \4\ are not satisfied. The Exchange also 
proposes to amend the text of Footnote 1 to add Flags BB and PI to the 
list of removal flags and to add text to specify that Members that do 
not meet the thresholds for the Mega Tier in the first paragraph of 
Footnote 1 will be charged the standard removal rate of $0.0030 per 
share.
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    \4\ The Mega Tier conditions are discussed below in this filing.
---------------------------------------------------------------------------

    The Exchange proposes to assess a fee of $0.0006 per share in lieu 
of the current rebate of $0.0003 per share for Members who utilize Flag 
RA to route orders to EDGA Exchange, Inc. (``EDGA'') and add liquidity. 
The Exchange also proposes to offer a rebate of $0.0004 per share in 
lieu of the current charge of $0.0007 per share for Members who utilize 
Flag RR to route orders to EDGA using routing strategies IOCX or IOCT 
on EDGX and remove liquidity from EDGA. These proposed changes 
represent pass-throughs of the Exchange's rates for routing orders to 
EDGA via its affiliated routing broker-dealer, Direct Edge ECN LLC d/b/
a DE Route (``DE Route''), and these proposed changes are in response 
to pricing changes in EDGA's filing with the Securities and Exchange 
Commission (the ``SEC'').\5\
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    \5\ See SR-EDGA-2012-39 (August 30, 2012).
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    The Exchange proposes to delete Flag RM from the fee schedule. 
Accordingly, Members that route to the Chicago Stock Exchange (the 
``CHX'') will be assessed the default charge for routing liquidity of 
$0.0029 per share, as represented by Flag X.
    The Exchange proposes to increase the rebate and to modify the 
thresholds associated with the Mega Tier in Footnote 1. The Exchange 
proposes to offer Members a rebate of $0.0035 per share for all 
liquidity posted on EDGX where Members add or route at least 2 million 
shares of average daily volume (``ADV'') prior to 9:30 a.m. or after 
4:00 p.m. (includes all flags except 6) and add a minimum of 35 million 
shares of ADV on EDGX in total, including during both market hours and 
pre and post-trading hours. Members will continue to also qualify for 
the Mega Tier but will earn a rebate of $0.0032 per share for all 
liquidity posted on EDGX if they add or route at least 4 million shares 
of ADV prior to 9:30 a.m. or after 4:00 p.m. (includes all flags except 
6) and add a minimum of .20% of the Total Consolidated Volume (``TCV'') 
on a daily basis measured monthly, including during both market hours 
and pre and post-trading hours.
    The Exchange proposes to discontinue the Tape B tiers described in 
Footnote 1 on the Exchange's fee schedule. Accordingly, the Exchange 
proposes to delete the following language from its fee schedule: 
``Members can qualify for the Mega Tape B Tier and be provided a 
$0.0034 rebate per share for liquidity added on EDGX in Tape B 
securities if the Member on a daily basis, measured monthly: (i) Posts 
greater than or equal to .10% of the TCV in ADV more than their January 
2012 ADV added to EDGX; and (ii) posts greater than or equal to .10% of 
the TCV in ADV in Tape B securities more than their January 2012 ADV 
added to EDGX.'' In addition, the Exchange also proposes to delete the 
following language from its fee schedule: ``Members can qualify for the 
Mini Tape B Tier and be provided a $0.0030 rebate per share for 
liquidity added on EDGX in Tape B securities if the Member on a daily 
basis, measured

[[Page 56891]]

monthly: (i) Posts greater than or equal to .05% of the TCV in ADV more 
than their January 2012 ADV added to EDGX; and (ii) posts greater than 
or equal to .05% of the TCV in ADV in Tape B securities more than their 
January 2012 ADV added to EDGX.'' As a result of the discontinuation of 
the Tape B tiers in Footnote 1, Tape B securities do not have a 
specific tier and are subject to the remaining EDGX tier structure, as 
applicable.
    The Exchange proposes to codify on the top of its fee schedule the 
premise that it uses footnotes to provide further explanatory text or, 
where annotated to flags, to indicate variable rate changes, provided 
the conditions in the footnote are met. In connection with this 
premise, the Exchange proposes to delete Footnote 12 that is appended 
to Flags B, V, Y, 3, 4, HA and MM because the rates for Flags B, V, Y, 
3, 4, HA and MM \6\ do not change where a Market Participant Identifier 
(``MPID'') achieves an add liquidity ratio equal to or greater than 
10%. The Exchange will continue to append Footnote 12 to Flags N, W, 6, 
BB and PI, which denotes that the Exchange will charge a removal rate 
of $0.0029 per share where an MPID achieves an add liquidity ratio 
equal to or greater than 10%. Finally, the Exchange proposes to delete 
Footnote 6 that is appended to Flag M to also signify that a rate 
change is not signaled.\7\ These amendments support the Exchange's 
efforts to annotate flags with footnotes to signify a potential rate 
change, rather than annotating every flag to denote which flags 
contribute towards the volume threshold and/or conditions necessary to 
achieve a potential rate change.
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    \6\ The Exchange notes that the volume from these flags will 
count towards achieving the add liquidity ratio in Footnote 12 of 
the Exchange's fee schedule.
    \7\ The Exchange notes that the volume from Flag M counts toward 
the tier in Footnote 6, which changes the rate charged on Flag U.
---------------------------------------------------------------------------

    The Exchange proposes to delete Footnote 1 that is appended to 
Flags HA and MM in order to specify that these non-displayed order 
types would not be eligible for the increased rebates for displayed 
orders in the tiers in Footnote 1 of the Exchange's fee schedule. 
Rather, Flag HA is rebated $0.0015 per share and Flag MM is charged 
$0.0012 per share, regardless of whether the tiers in Footnote 1 are 
met.\8\
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    \8\ However, the Exchange notes that the volume from these flags 
will count towards the volume required to earn the rebates 
associated with the tiered pricing in Footnote 1; the rates for 
Flags HA and MM do not change.
---------------------------------------------------------------------------

    The Exchange also proposes to amend the text of Footnote 12 to 
include Flag PR, where Flag PR removes liquidity from the EDGX book 
using the ROUQ routing strategy, as part of the ``removal flags.'' \9\ 
These removal flags are used to calculate whether an MPID satisfied the 
``add liquidity'' ratio calculation \10\ to qualify for a removal rate 
of $0.0029 per share instead of $0.0030 per share.
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    \9\ See Securities Exchange Act Release No. 67379 (July 10, 
2012), 77 FR 41864 (July 16, 2012) (SR-EDGX-2012-26) (introducing 
Flag PR to the Exchange's fee schedule for orders that remove 
liquidity from the EDGX book using the ROUQ routing strategy).
    \10\ 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 rate.
---------------------------------------------------------------------------

    The Exchange proposes to implement these amendments to its fee 
schedule on September 1, 2012.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\11\ in general, and 
furthers the objectives of Section 6(b)(4),\12\ 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that its proposal to append Footnote 1 to 
Flag PI, to make changes to the text of Footnote 1 to add Flags BB and 
PI to the list of removal flags, and to specify the default rate of 
$0.0030 per share (if the Mega tier's conditions are not met) will 
incentivize Members to add liquidity to the Exchange. In turn, by 
posting liquidity, Members using these flags will achieve the 
discounted removal charge of $0.0029 per share for meeting the tier's 
conditions rather than the default charge of $0.0030 per share. Such 
amendment represents an equitable allocation of reasonable dues, fees, 
and other charges because the resulting increased volume 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. In addition, by 
providing the ability to obtain the lower removal charge, which is a 
more favorable rate, the Exchange is encouraging posting of liquidity, 
which benefits the market as a whole by contributing to increased price 
discovery and market depth. These lower per share costs in turn would 
allow the Exchange to pass on the savings to Members in the form of 
lower fees (for example, $0.0029 per share for Flags BB and PI instead 
of $0.0030 per share). 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. Discounts based on volume 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. In addition, the Exchange also believes that these proposed 
amendments are non-discriminatory because they apply uniformly to all 
Members.
    The rates and rebates associated with routing orders to EDGA 
through DE Route on the Exchange's fee schedule are pass-through rates 
from DE Route to the Exchange and represent an equitable allocation of 
reasonable dues, fees, and other charges among Members of the Exchange 
and other persons using its facilities because the Exchange does not 
levy additional fees or offer additional rebates for orders that it 
routes to EDGA through DE Route. The Exchange notes that routing 
through DE Route is voluntary and DE Route is treated like any other 
Member of EDGA. Currently, for orders yielding Flag RA, EDGA rebates DE 
Route $0.0003 per share, which, in turn, is passed through to the 
Exchange. The Exchange, in turn, rebates its Members $0.0003 per share 
as a pass-through. In EDGA's September 1, 2012 fee filing, SR-EDGA-
2012-39, EDGA proposed to amend the rate it charges its Members, such 
as DE Route, for orders that are routed to EDGA and add liquidity to 
$0.0006 per share. Therefore, the Exchange believes that the proposed 
change for Flag RA from a rebate of $0.0003 per share to a charge of 
$0.0006 per share is equitable and reasonable because it accounts for 
the pricing changes on EDGA. In addition, the proposal allows the 
Exchange to continue to charge its Members a pass-through rate for 
routing orders to EDGA via DE Route that add liquidity. Lastly, the 
Exchange also believes that the proposed amendment is non-
discriminatory because it applies uniformly to all Members.
    Similarly, for orders yielding Flag RR, EDGA currently charges its 
Members, such as DE Route, $0.0007 per share, which, in turn it passes 
through to the Exchange. The Exchange, in turn, charges its Members 
$0.0007 per share as a pass-through. In EDGA's September 1, 2012 fee 
filing, SR-EDGA-2012-39,

[[Page 56892]]

EDGA proposed to amend the rate it charges its Members for orders that 
are routed to EDGA using routing strategies IOCX or IOCT on EDGX and 
remove liquidity from EDGA to a rebate of $0.0004 per share. Therefore, 
the Exchange believes that the proposed change for Flag RR from a 
charge of $0.0007 per share to a rebate of $0.0004 per share is 
equitable and reasonable because it accounts for the pricing changes on 
EDGA. In addition, the proposal allows the Exchange to continue to 
charge its Members a pass-through rate for routing orders to EDGA using 
routing strategies IOCX or IOCT on EDGX and that remove liquidity from 
EDGA. Lastly, the Exchange also believes that the proposed amendment is 
non-discriminatory because it applies uniformly to all Members.
    Exchange Rule 11.9(b)(3) defines the ``System routing table'' as 
the proprietary process for determining the specific trading venues to 
which the System \13\ routes orders and the order in which the System 
routes to them. Specifically, the Exchange reserves the right to 
maintain a different System routing table for different routing options 
and to modify the System routing table at any time without notice. The 
Exchange proposes to delete the CHX as a posting destination on the 
System routing table. The Exchange previously charged no fee nor 
assessed a rebate to its Members when DE Route routed to the CHX. This 
was a pass through by the Exchange of the no rebate/fee provided to DE 
Route by CHX when liquidity was added to CHX. Since CHX is no longer on 
the System routing table, the Exchange proposes to delete Flag RM from 
the Exchange's fee schedule. The Exchange notes that it will continue 
to comply with its obligations under Regulation NMS; however, it will 
not continue to offer Flag RM as a routing strategy to post liquidity 
to the CHX. Rather, the Exchange will now pass back Flag X ($0.0029 
charge per share) as the standard default routing flag should an order 
be routed to CHX as a result of the Exchange's Regulation NMS 
obligations. The Exchange believes that the proposed amendment is non-
discriminatory because it applies uniformly to all Members.
---------------------------------------------------------------------------

    \13\ See Exchange Rule 1.5(cc).
---------------------------------------------------------------------------

    The Exchange believes that its proposal to increase the rebate and 
modify the thresholds associated with the Mega Tier in Footnote 1, 
where the Exchange proposes to increase the rebate to $0.0035 per share 
for all liquidity posted on EDGX and to modify the volume thresholds 
for Members that add or route at least 2 million shares of ADV during 
pre and post-trading hours and add a minimum of 35 million shares of 
ADV on EDGX in total, represents an equitable allocation of reasonable 
dues, fees, and other charges because it incentivizes Members to add 
liquidity to the EDGX book. Furthermore, such increased volume 
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 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 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.
    The Exchange also believes that the rebate of $0.0035 per share and 
volume thresholds that require Members to add or route at least 2 
million shares of ADV during pre and post-trading hours and to add a 
minimum of 35 million shares of ADV on EDGX in total also represent an 
equitable allocation of reasonable dues, fees, and other charges since 
higher rebates are directly correlated with more stringent criteria.
    As proposed, the Mega Tier rebate of $0.0035 per share will 
continue to have the most stringent criteria associated with it, and 
Members will receive $0.0002 more per share than the next best tiered 
rebate, the Market Depth Tier ($0.0033 per share).
    For example, in order for a Member to qualify for the Mega Tier 
rebate of $0.0035 per share, the Member would have to add or route at 
least 2 million shares of ADV during pre and post-trading hours and add 
a minimum of 35 million shares of ADV on EDGX in total, including 
during both market hours and pre and post-trading hours. The criteria 
for this tier is the most stringent as fewer Members generally trade 
during pre and post-trading hours because of the limited time 
parameters associated with these trading sessions, which generally 
results in less liquidity. In addition, the Exchange assigns a higher 
value to this resting liquidity because liquidity received prior to the 
regular trading session typically remains resident on the Exchange 
throughout the remainder of the entire trading day. Furthermore, 
liquidity received during pre and post-trading hours is an important 
contributor to price discovery and acts as an important indication of 
price for the market as a whole considering the relative illiquidity of 
the pre and post-trading hour sessions. The Exchange believes that 
offering a higher rebate incentivizes Members to provide liquidity 
during these trading sessions.
    In order to qualify for the next best tier after the Mega Tier (at 
$0.0035), the Market Depth Tier, a Member would receive a rebate of 
$0.0033 per share for displayed liquidity added on EDGX if they post 
greater than or equal to 0.50% of the TCV in ADV on EDGX, at least 2 
million shares of which are Non-Displayed Orders that yield Flag HA on 
EDGX in total. Assuming a TCV of 8 billion shares for July 2012, this 
would amount to 40 million shares, at least 2 million shares of which 
are Non-Displayed Orders. The criteria for this tier is less stringent 
then the proposed volume thresholds for the Mega Tier because Members 
must add a minimum of 35 million shares of ADV in addition to adding or 
routing at least 2 million shares of ADV during pre and post-trading 
hours to earn a rebate of $0.0035 per share. As discussed, the criteria 
for the Mega Tier is the most stringent as fewer Members generally 
trade during pre and post-trading hours because of the limited time 
parameters associated with these trading sessions, which generally 
results in less liquidity.
    The Exchange believes that its proposal to discontinue the Tape B 
tiers described in Footnote 1 on the Exchange's fee schedule represents 
an equitable allocation of reasonable dues, fees, and other charges 
among its Members and other persons using its facilities because the 
Exchange notes that the Tape B tiered pricing has not incentivized 
Members to add liquidity to the EDGX book since its inception in March 
2012.\14\ Because the Tape B tiers have not satisfied the 
justifications behind their creation, such as deepening EDGX's 
liquidity pool, offering

[[Page 56893]]

additional flexibility for all investors to enjoy cost savings, 
supporting the quality of price discovery, promoting market 
transparency and improving investor protection increasing volume, the 
Exchange proposes to discontinue the Tape B tiers and delete the 
corresponding text from its fee schedule. The Exchange notes that 
Members will be subject to the current tiered pricing structure on EDGX 
as a result, which is reasonable and equitable because more favorable 
rates are associated with more stringent criteria that are designed to 
incent increased volume. In addition, the Exchange also believes that 
these proposed amendments are non-discriminatory because they apply 
uniformly to all Members.
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 66558 (March 9, 
2012), 77 FR 15432 (March 15, 2012) (SR-EDGX-2012-06).
---------------------------------------------------------------------------

    The Exchange's proposal to add language to the top of its fee 
schedule to state that it uses footnotes to provide further explanatory 
text, or where annotated to flags, to indicate variable rate changes, 
provided the conditions in the footnote are met, provides additional 
transparency to Members when reading the fee schedule. This is in line 
with the Exchange's proposal to delete Footnote 12 that is appended to 
Flags B, V, Y, 3, 4, HA and MM because a rate change is not signified; 
thus, the rates for Flags B, V, Y, 3, 4, HA and MM do not change where 
an MPID achieves an add liquidity ratio equal to or greater than 10%. 
Similarly, the Exchange's proposal to delete footnote 6 that is 
appended to Flag M also signifies that a rate change is not signaled on 
Flag M. The Exchange believes these amendments support the Exchange's 
efforts to achieve consistent application among the flags on the fee 
schedule. In addition, these amendments support the Exchange's efforts 
to annotate flags with footnotes to signify a potential rate change, 
rather than annotating every flag to denote which flags contribute 
towards the volume threshold and/or conditions necessary to achieve a 
potential rate change. The Exchange also believes that these proposed 
amendments are non-discriminatory because they apply to all Members.
    The Exchange's deletion of Footnote 1 that is appended to Flags HA 
and MM in order to specify that these non-displayed order types would 
not be eligible for the increased rebates for displayed orders in the 
tiers in Footnote 1 of the fee schedule is reasonable and equitable 
since non-displayed liquidity is not often eligible for the same 
rebates that displayed liquidity qualifies for because the Exchange 
places a higher value on displayed liquidity because displayed 
liquidity is a public good that benefits investors and traders 
generally by providing greater price transparency and enhancing public 
price discovery, which ultimately lead to substantial reductions in 
transaction costs.\15\ The proposed change is non-discriminatory 
because it applies uniformly to all Members.
---------------------------------------------------------------------------

    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37516 (June 29, 2005); See also Securities 
Exchange Act Release No. 42450 (February 23, 2000), 65 FR 10577, 
10584 n. 53 (February 28, 2000) (SR-NYSE-99-48) (citing academic 
studies finding that the required display of customer limit orders, 
by providing greater price transparency and enhancing public price 
discovery, led to substantial reductions in transaction costs for 
both retail and institutional investors).
---------------------------------------------------------------------------

    The Exchange also proposes to amend the text of Footnote 12 to 
include Flag PR, where Flag PR removes liquidity from EDGX book using 
the ROUQ routing strategy, as part of the ``removal flags.'' \16\ The 
Exchange notes that the liquidity ratio is intended to capture the PR 
removal flag as one of several removal flags in the calculation of the 
``add liquidity'' ratio. The Exchange believes this amendment supports 
the Exchange's efforts to achieve consistent application and 
specificity among the flags on the fee schedule and provide 
transparency for its Members. In SR-EDGX-2011-31, the Exchange included 
``removal flags'' in its calculation of the ``add liquidity'' 
ratio.\17\ Since Flag PR is a removal flag, the Exchange believes it is 
appropriate to include the removal volume from Flag PR in its 
calculation of the ``add liquidity'' ratio. The Exchange also believes 
that these proposed amendments are non-discriminatory because they 
apply to all Members.
---------------------------------------------------------------------------

    \16\ See Securities Exchange Act Release No. 65541 (October 12, 
2011), 76 FR 64409 (October 18, 2011) (SR-EDGX-2011-31).
    \17\ Id.
---------------------------------------------------------------------------

    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

    This 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 \18\ and Rule 19b-4(f)(2) \19\ 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.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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 rule-comments@sec.gov. Please 
include File Number SR-EDGX-2012-39 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-2012-39. 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

[[Page 56894]]

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-2012-39 and should be 
submitted on or before October 5, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Kevin M. O'Neill,
Deputy Secretary.
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    \20\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2012-22643 Filed 9-13-12; 8:45 am]
BILLING CODE 8011-01-P