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, 24028-24031 [2014-09676]

Download as PDF 24028 Federal Register / Vol. 79, No. 82 / Tuesday, April 29, 2014 / Notices from the Web site cited above or by contacting the identified DFO. Moreover, in view of the possibility that the schedule for ACRS meetings may be adjusted by the Chairman as necessary to facilitate the conduct of the meeting, persons planning to attend should check with these references if such rescheduling would result in a major inconvenience. If attending this meeting, please enter through the One White Flint North building, 11555 Rockville Pike, Rockville, MD. After registering with security, please contact Mr. Theron Brown (Telephone 240–888–9835) to be escorted to the meeting room. Dated: April 22, 2014. Cayetano Santos, Chief, Technical Support Branch, Advisory Committee on Reactor Safeguards. [FR Doc. 2014–09737 Filed 4–28–14; 8:45 am] BILLING CODE 7590–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72002; File No. SR–EDGX– 2014–10] 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 23, 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 April 9, 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, 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change sroberts on DSK5SPTVN1PROD with NOTICES The Exchange proposes to amend its fees and rebates applicable to Members 3 of the Exchange pursuant to EDGX Rule 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 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). 2 17 VerDate Mar<15>2010 16:56 Apr 28, 2014 Jkt 232001 15.1(a) and (c) (‘‘Fee Schedule’’) to harmonize the definitions of Average Daily Trading Volume (‘‘ADV’’) and Total Consolidated Volume (‘‘TCV’’) with those contained in the BATS Exchange, Inc. (‘‘BATS’’) and BATS–Y Exchange, Inc. (‘‘BYX’’) fee schedules by: (i) Modifying the way that, for purposes of tiered pricing, the Exchange calculates ADV and average daily TCV; and (ii) clarify the manner in which Members may aggregate their ADV with other affiliated Members. The text of the proposed rule change is available on the Exchange’s Internet Web site at www.directedge.com, at the Exchange’s principal office, and at the Public Reference Room of the Commission. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose On January 31, 2014, Direct Edge Holdings LLC (‘‘DE Holdings’’), the former parent company of the Exchange, completed its business combination with BATS Global Markets, Inc., the parent company of BATS and BYX.4 As part of its effort to reduce regulatory duplication and relieve firms that are members of the Exchange, BATS, and BYX of conflicting or unnecessary regulatory burdens, the Exchange is now engaged in the process of reviewing and amending certain Exchange, BATS, and BYX Rules. To conform to comparable BATS and BYX rules for purposes of its harmonization efforts due to its business combination, the Exchange proposes to amend the definitions of ADV and TCV to make each definition similar to those 4 See Securities Exchange Act Release No. 71449 (January 30, 2014), 79 FR 6961 (February 5, 2014) (SR–EDGX–2013–43). Upon completion of the Combination, DE Holdings and BATS Global Markets, Inc. each became intermediate holding companies, held under a single new holding company. The new holding company, formerly named ‘‘BATS Global Markets Holdings, Inc.,’’ changed its name to ‘‘BATS Global Markets, Inc.’’ PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 contained in the BATS and BYX fee schedules by modifying the way that, for purposes of tiered pricing: (i) The Exchange calculates ADV and average daily TCV; and (ii) the manner in which Members may aggregate their ADV with other affiliated Members. The Exchange notes that it is not proposing to modify any of the existing rebates or the percentage thresholds at which a Member may qualify for certain rebates pursuant to the tiered pricing structure. ADV and TCV Currently, the Exchange determines the liquidity adding rebate that it will provide to Members based on the Exchange’s tiered pricing structure based on the calculation of ADV,5 and/ or average daily TCV.6 Unlike on BATS and BYX, the Exchange does not currently exclude any trading days from its calculation of ADV and TCV. Therefore, to harmonize the calculation of ADV and TCV with BATS and BYX, the Exchange proposes to amend the definitions of ADV and TCV to exclude shares on: (i) Any day that the Exchange’s system experiences a disruption that lasts for more than 60 minutes during Regular Trading Hours 7 (‘‘Exchange System Disruption’’); and (ii) the last Friday in June (the ‘‘Russell Reconstitution Day’’). The Exchange also proposes to amend the definition of ADV to clarify that routed shares are not included in ADV calculation. First, the Exchange proposes to modify the definitions of ADV and TCV to exclude trading days where the Exchange experiences a systems disruption that lasts for more than 60 minutes during Regular Trading Hours and define it as an Exchange System Disruption.8 As an example, an Exchange System Disruption may occur where a certain group of securities (i.e., securities in a select symbol range such as A through C) traded on the Exchange are unavailable for trading due to an Exchange system issue. Similarly, the Exchange may be able to perform certain functions with respect to accepting and processing orders, but may have a failure to another significant process, 5 As provided in the Fee Schedule, ‘‘ADV’’ is currently defined as the average daily volume of shares that a Member executed on the Exchange for the month in which the fees are calculated. 6 As provided in the Fee Schedule, ‘‘TCV’’ is currently defined as the volume reported by all exchanges and trade reporting facilities to the consolidated transaction reporting plans for Tapes A, B and C securities for the month in which the fees are calculated. 7 ‘‘Regular Trading Hours’’ is defined as ‘‘the time between 9:30 a.m. and 4:00 p.m. Eastern Time.’’ See Exchange Rule 1.5(y). 8 See SR–BATS–2014–010 and SR–BYX–2014– 006 (proposing to exclude Exchange System Disruptions from the definition of ADV). E:\FR\FM\29APN1.SGM 29APN1 24029 Federal Register / Vol. 79, No. 82 / Tuesday, April 29, 2014 / Notices such as routing to other market centers, that would lead Members that rely on such process to avoid utilizing the Exchange until the Exchange’s entire system was operational. The Exchange believes that this modification is reasonable because it avoids penalizing Members that might otherwise qualify for certain tiered pricing but that, because of a significant Exchange system problem, did not participate on the Exchange to the extent that they might have otherwise participated. The Exchange believes that certain systems disruptions could preclude some Members from submitting orders to the Exchange even if such issue is not actually a complete systems outage. Therefore, the Exchange is proposing to modify its Fee Schedule to exclude trading activity occurring on any day that the Exchange experiences an Exchange System Disruption. Second, the Exchange proposes to exclude the last Friday of June each year from the definition of ADV and TCV because the last Friday of June is the day that Russell Investments reconstitutes its family of indexes (‘‘Russell Rebalance’’), resulting in particularly high trading volumes, much of which the Exchange believes derives from market participants who are not generally as active entering the market Russell reconstitution date (RCD) sroberts on DSK5SPTVN1PROD with NOTICES 6/28/2013 6/29/2012 6/24/2011 6/25/2010 6/26/2009 6/27/2008 Because of the extremely high volume numbers and abnormally distributed daily volume or percentage of the TCV on this day, it stands that the ADV or percentage of average daily TCV can be significantly impacted. As such, the Exchange believes that eliminating the last Friday of June from the definition of ADV and TCV, and thereby eliminating that day from the calculation as it relates to rebates for adding liquidity to the Exchange, will help to eliminate significant uncertainty faced by Members as to their monthly ADV or percentage of average daily TCV and the rebates that this percentage will qualify for, providing Members with an increased certainty as to their monthly cost for trades executed on the Exchange. The Exchange further believes that removing this uncertainty will encourage Members to participate in trading on the Exchange during the remaining trading days in June in a manner intended to be incented by the Exchange’s Fee Schedule. Lastly, the Exchange proposes to clarify within the definition of ADV that ADV does not include shares that are routed to other trading centers. ADV is defined as the average daily volume of shares executed on the Exchange for the month in which the fees are calculated. Clarifying that routed orders are not included in the definition of ADV is designed to add further clarity and 9 Securities Exchange Act Release No. 69793 (July 18, 2013), 78 FR 37865 (July 24, 2013) (SR–BATS– 2013–034) (excluding the Russell Reconstitution Day from the definition of ADV). VerDate Mar<15>2010 16:56 Apr 28, 2014 Jkt 232001 MTD Average TCV as of day before RCD TCV on RCD ....................................................... ....................................................... ....................................................... ....................................................... ....................................................... ....................................................... 10,211,508,622 7,924,340,355 10,472,502,657 14,482,717,113 13,024,518,377 12,010,692,402 6,954,840,047 6,833,486,672 7,237,593,514 8,981,067,278 9,597,498,903 7,835,813,201 harmonize the definition with BATS and BYX. ADV Aggregation The Exchange also proposes to amend when a Member may aggregate share volumes with other affiliated Members. Currently, under the ‘‘General Notes’’ section of the Fee Schedule, the Exchange will aggregate share volume calculations for wholly owned affiliates on a prospective basis upon a Member’s request. The Exchange proposes to relocate this provision to the definition of ADV and amend the language to allow a Member to aggregate ADV with other Members that control, are controlled by, or are under common control with such Member (as evidenced on such Member’s Form BD).10 To the extent two or more affiliated companies maintain separate Exchange memberships and can demonstrate their affiliation by showing they control, are controlled by, or are under common control with each other, the Exchange will permit such Members to count overall volume of the affiliates in calculating ADV. Implementation Date The Exchange proposes to implement these amendments to its Fee Schedule on May 1, 2014. 10 Securities Exchange Act Release No. 64211 (April 6, 2011), 76 FR 20414 (April 12, 2014 [sic]) (SR–BATS–2011–012) (permitting Members to aggregate shares volumes with affiliated entities). PO 00000 Frm 00102 Fmt 4703 to rebalance their holdings in-line with the Russell Rebalance.9 The Exchange believes that trading occurring as a result of the Russell Rebalance can significantly skew the calculation of ADV and TCV. For example, since 2008, on the last Friday in June, the TCV has exceeded the average daily TCV for the preceding trading days in June by approximately 43% on average. The chart below reflects the TCV on the last Friday of June for each year dating to 2008 and compares it to the average daily TCV for the preceding trading days in the month of June. Sfmt 4703 % Difference 46.83 15.96 44.70 61.26 35.71 53.28 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 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 structures at a particular venue to be unreasonable and/or excessive. Members who are also members of BATS or BYX are subject to different definitions of ADV and TCV as well as differing standards for aggregating ADV with affiliated Members when seeking to qualify for certain tiered pricing. The Exchange believes that the proposed rule change will provide greater harmonization between similar Exchange, BATS and BYX rules, resulting in greater uniformity and less burdensome and more efficient regulatory compliance for common members. As such, the proposed rule change would foster cooperation and coordination with persons engaged in facilitating transactions in securities and would remove impediments to and perfect the mechanism of a free and 11 15 12 15 E:\FR\FM\29APN1.SGM U.S.C. 78f. U.S.C. 78f(b)(4). 29APN1 24030 Federal Register / Vol. 79, No. 82 / Tuesday, April 29, 2014 / Notices sroberts on DSK5SPTVN1PROD with NOTICES open market and a national market system. Lastly, the Exchange believes that the proposed change is nondiscriminatory because it applies uniformly to all Members. Volume-based tiers such as the liquidity adding tiers maintained by the Exchange have been widely adopted, and are equitable and not unfairly discriminatory. They are open to all Members on an equal basis and provide higher rebates or lower fees 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 process. Accordingly, the Exchange believes that the proposal is equitably allocated and not unfairly discriminatory because it is consistent with the overall goals of enhancing market quality. Further, the Exchange believes that a tiered pricing model not significantly altered by a day of atypical trading behavior which allows Members to predictably calculate what their costs associated with trading activity on the Exchange will be is reasonable, fair and equitable and not unreasonably discriminatory as it is uniform in application amongst Members and should enable such participants to operate their business without concern of unpredictable and potentially significant changes in expenses. ADV and TCV The Exchange believes that its proposed amendments to the definitions of ADV and TCV to exclude shares on the day of an Exchange System Disruption are reasonable because, as explained above, they will help provide Members with a greater level of certainty as to their level of rebates and costs for trading in any month where the Exchange experiences an Exchange System Disruption on one or more trading days. The Exchange is not proposing to amend the thresholds a Member must achieve to become eligible for, or the dollar value associated with, the tiered rebates or fees. By eliminating the inclusion of a trading day on which an Exchange System Disruption occurs the Exchange would almost certainly be excluding a day that would otherwise lower a Member’s ADV or percentage of average daily TCV. Thus, the proposed change will make the majority of Members more likely to meet the minimum or higher tier thresholds, incentivizing Members to increase their participation on the Exchange in order to meet the next highest tier. In addition, the Exchange believes that the proposed changes to its VerDate Mar<15>2010 16:56 Apr 28, 2014 Jkt 232001 Fee Schedule are equitably allocated among Exchange constituents and not unfairly discriminatory as the methodology for calculating ADV and TCV will apply equally to all Members. While, although unlikely, certain Members may have a higher ADV or percentage of average daily TCV with their activity included from days where the Exchange experiences an Exchange System Disruption, the proposal will make all Members’ cost of trading on the Exchange more predictable, regardless of how the proposal affects their ADV or percentage of average daily TCV. The Exchange believes that its proposed amendments to the definitions of ADV and TCV to exclude shares on the Russell Reconstitution Day are reasonable because, as explained above, it will help provide Members with a greater level of certainty as to their level of rebates for trading in the month of June. The Exchange also believes that its proposal is reasonable because it is not changing the thresholds to become eligible or the dollar value associated with the rebates. Moreover, by eliminating the inclusion of a trading day that would almost certainly lower a Member’s ADV or percentage of average daily TCV, it will make the majority of Members more likely to meet the minimum or higher tier thresholds, which will provide additional incentive to Members to increase their participation on the Exchange in order to meet the next tier. In addition, the Exchange believes that the proposed changes are equitably allocated among Exchange constituents as the methodology for calculating ADV and TCV will apply equally to all Members. While, although unlikely, certain Members may have a higher ADV or percentage of average daily TCV with the day included, the proposal will make June trading rebates more similar to other months. Moreover, all Members’ cost of trading on the Exchange will become more predictable, regardless of how the proposal affects their ADV or percentage of average daily TCV, which in turn will preserve Members’ incentives to participate in trading on the Exchange in a manner intended to be incented by the Exchange’s Fee Schedule. Lastly, the Exchange proposes to clarify within the definition of ADV that ADV does not include shares that are routed to other trading centers. Clarifying that routed orders are not included in the calculation of ADV will promote just and equitable principles of trade and remove impediments to a free and open market by providing greater transparency concerning the operation PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 of the Exchange and a Member’s share volumes that are included in their ADV. ADV Aggregation The proposed language permitting aggregation of volume amongst Members that share common control for purposes of the ADV calculation is intended to avoid disparate treatment of Members that have divided their various business activities between separate corporate entities as compared to Members that operate those business activities within a single corporate entity. By way of example, subject to appropriate information barriers, many firms that are Members of the Exchange operate both a market making desk and a public customer business within the same corporate entity. In contrast, other Members may be part of a corporate structure that separates those business lines into different corporate affiliates, either for business, compliance or historical reasons, and those affiliates are not also considered wholly owned affiliates. Those corporate affiliates, in turn, are required to maintain separate memberships with the Exchange. Absent the proposed change, such corporate affiliates that cannot be considered wholly owned but are under common control would not receive the same treatment as Members who are considered wholly owned affiliates. Current Members who aggregate share volumes on the Exchange with wholly owned affiliates will be considered as being under common control and continue to be able to aggregate share volumes. Accordingly, the Exchange believes that its proposed policy is fair and equitable, and not unreasonably discriminatory. In addition to ensuring fair and equal treatment of its Members, the Exchange does not want to create incentives for its Members to restructure their business operations or compliance functions simply due to the Exchange’s pricing structure. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange believes its proposed amendments to its Fee Schedule would 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 that the proposed change represents 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, the Exchange does not believe that the proposed change will impair the ability of Members or E:\FR\FM\29APN1.SGM 29APN1 Federal Register / Vol. 79, No. 82 / Tuesday, April 29, 2014 / Notices competing venues to maintain their competitive standing in the financial markets. The proposed change will help to promote intramarket competition by avoiding a penalty to Members for days when trading on the Exchange is disrupted for a significant portion of the day. In addition, excluding the Russell Rebalance Day from the definition of ADV and TCV will help the Exchange to continue to incentivize higher levels of liquidity at a tighter spread while providing more stable and predictable costs to its Members. Lastly, easing Member’s ability to aggregate volumes with Members who are under common control would increase competition because it would incentivize Members that could not previously aggregate their volumes to send higher volume to the Exchange in an effort to achieve tierbased pricing. As stated above, the Exchange 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 structures to be unreasonable or excessive. 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 13 and Rule 19b–4(f)(2) 14 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. sroberts on DSK5SPTVN1PROD with NOTICES 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: 13 15 14 17 U.S.C. 78s(b)(3)(A). CFR 240.19b–4 (f)(2). VerDate Mar<15>2010 16:56 Apr 28, 2014 Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– EDGX–2014–10 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–2014–10. 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 (https://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– 2014–10, and should be submitted on or before May 20, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Kevin M. O’Neill, Deputy Secretary. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72006; File No. SR–ISE– 2014–10] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Designation of a Longer Period for Commission Action on a Proposed Rule Change Related to Complex Orders April 23, 2014. On February 25, 2014, the International Securities Exchange, LLC (the ‘‘Exchange’’ or ‘‘ISE’’) filed with the Securities and Exchange Commission (the ‘‘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 relating to complex orders. The proposed rule change was published for comment in the Federal Register on March 14, 2014.3 The Commission received no comments on the proposed rule change. Section 19(b)(2) of the Act 4 provides that within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or as to which the self-regulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day for this filing is April 28, 2014. The Commission is extending this 45-day time period. The Commission finds it appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider this proposed rule change. The proposed rule change, if approved, would prevent certain types of complex order strategies from legging into the regular market. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,5 designates June 12, 2014, as the date by which the Commission should either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change (File No. SR–ISE–2014–10). [FR Doc. 2014–09676 Filed 4–28–14; 8:45 am] BILLING CODE 8011–01–P 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 71669 (March 10, 2014), 79 FR 14563. 4 15 U.S.C. 78s(b)(2). 5 15 U.S.C. 78s(b)(2). 2 17 15 17 Jkt 232001 24031 PO 00000 CFR 200.30–3(a)(12). Frm 00104 Fmt 4703 Sfmt 4703 E:\FR\FM\29APN1.SGM 29APN1

Agencies

[Federal Register Volume 79, Number 82 (Tuesday, April 29, 2014)]
[Notices]
[Pages 24028-24031]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-09676]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72002; File No. SR-EDGX-2014-10]


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 23, 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 April 9, 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, II 
and III below, which items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its fees and rebates applicable to 
Members \3\ of the Exchange pursuant to EDGX Rule 15.1(a) and (c) 
(``Fee Schedule'') to harmonize the definitions of Average Daily 
Trading Volume (``ADV'') and Total Consolidated Volume (``TCV'') with 
those contained in the BATS Exchange, Inc. (``BATS'') and BATS-Y 
Exchange, Inc. (``BYX'') fee schedules by: (i) Modifying the way that, 
for purposes of tiered pricing, the Exchange calculates ADV and average 
daily TCV; and (ii) clarify the manner in which Members may aggregate 
their ADV with other affiliated 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\ 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).
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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
    On January 31, 2014, Direct Edge Holdings LLC (``DE Holdings''), 
the former parent company of the Exchange, completed its business 
combination with BATS Global Markets, Inc., the parent company of BATS 
and BYX.\4\ As part of its effort to reduce regulatory duplication and 
relieve firms that are members of the Exchange, BATS, and BYX of 
conflicting or unnecessary regulatory burdens, the Exchange is now 
engaged in the process of reviewing and amending certain Exchange, 
BATS, and BYX Rules. To conform to comparable BATS and BYX rules for 
purposes of its harmonization efforts due to its business combination, 
the Exchange proposes to amend the definitions of ADV and TCV to make 
each definition similar to those contained in the BATS and BYX fee 
schedules by modifying the way that, for purposes of tiered pricing: 
(i) The Exchange calculates ADV and average daily TCV; and (ii) the 
manner in which Members may aggregate their ADV with other affiliated 
Members. The Exchange notes that it is not proposing to modify any of 
the existing rebates or the percentage thresholds at which a Member may 
qualify for certain rebates pursuant to the tiered pricing structure.
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    \4\ See Securities Exchange Act Release No. 71449 (January 30, 
2014), 79 FR 6961 (February 5, 2014) (SR-EDGX-2013-43). Upon 
completion of the Combination, DE Holdings and BATS Global Markets, 
Inc. each became intermediate holding companies, held under a single 
new holding company. The new holding company, formerly named ``BATS 
Global Markets Holdings, Inc.,'' changed its name to ``BATS Global 
Markets, Inc.''
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ADV and TCV
    Currently, the Exchange determines the liquidity adding rebate that 
it will provide to Members based on the Exchange's tiered pricing 
structure based on the calculation of ADV,\5\ and/or average daily 
TCV.\6\ Unlike on BATS and BYX, the Exchange does not currently exclude 
any trading days from its calculation of ADV and TCV. Therefore, to 
harmonize the calculation of ADV and TCV with BATS and BYX, the 
Exchange proposes to amend the definitions of ADV and TCV to exclude 
shares on: (i) Any day that the Exchange's system experiences a 
disruption that lasts for more than 60 minutes during Regular Trading 
Hours \7\ (``Exchange System Disruption''); and (ii) the last Friday in 
June (the ``Russell Reconstitution Day''). The Exchange also proposes 
to amend the definition of ADV to clarify that routed shares are not 
included in ADV calculation.
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    \5\ As provided in the Fee Schedule, ``ADV'' is currently 
defined as the average daily volume of shares that a Member executed 
on the Exchange for the month in which the fees are calculated.
    \6\ As provided in the Fee Schedule, ``TCV'' is currently 
defined as the volume reported by all exchanges and trade reporting 
facilities to the consolidated transaction reporting plans for Tapes 
A, B and C securities for the month in which the fees are 
calculated.
    \7\ ``Regular Trading Hours'' is defined as ``the time between 
9:30 a.m. and 4:00 p.m. Eastern Time.'' See Exchange Rule 1.5(y).
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    First, the Exchange proposes to modify the definitions of ADV and 
TCV to exclude trading days where the Exchange experiences a systems 
disruption that lasts for more than 60 minutes during Regular Trading 
Hours and define it as an Exchange System Disruption.\8\ As an example, 
an Exchange System Disruption may occur where a certain group of 
securities (i.e., securities in a select symbol range such as A through 
C) traded on the Exchange are unavailable for trading due to an 
Exchange system issue. Similarly, the Exchange may be able to perform 
certain functions with respect to accepting and processing orders, but 
may have a failure to another significant process,

[[Page 24029]]

such as routing to other market centers, that would lead Members that 
rely on such process to avoid utilizing the Exchange until the 
Exchange's entire system was operational.
---------------------------------------------------------------------------

    \8\ See SR-BATS-2014-010 and SR-BYX-2014-006 (proposing to 
exclude Exchange System Disruptions from the definition of ADV).
---------------------------------------------------------------------------

    The Exchange believes that this modification is reasonable because 
it avoids penalizing Members that might otherwise qualify for certain 
tiered pricing but that, because of a significant Exchange system 
problem, did not participate on the Exchange to the extent that they 
might have otherwise participated. The Exchange believes that certain 
systems disruptions could preclude some Members from submitting orders 
to the Exchange even if such issue is not actually a complete systems 
outage. Therefore, the Exchange is proposing to modify its Fee Schedule 
to exclude trading activity occurring on any day that the Exchange 
experiences an Exchange System Disruption.
    Second, the Exchange proposes to exclude the last Friday of June 
each year from the definition of ADV and TCV because the last Friday of 
June is the day that Russell Investments reconstitutes its family of 
indexes (``Russell Rebalance''), resulting in particularly high trading 
volumes, much of which the Exchange believes derives from market 
participants who are not generally as active entering the market to 
rebalance their holdings in-line with the Russell Rebalance.\9\ The 
Exchange believes that trading occurring as a result of the Russell 
Rebalance can significantly skew the calculation of ADV and TCV. For 
example, since 2008, on the last Friday in June, the TCV has exceeded 
the average daily TCV for the preceding trading days in June by 
approximately 43% on average. The chart below reflects the TCV on the 
last Friday of June for each year dating to 2008 and compares it to the 
average daily TCV for the preceding trading days in the month of June.
---------------------------------------------------------------------------

    \9\ Securities Exchange Act Release No. 69793 (July 18, 2013), 
78 FR 37865 (July 24, 2013) (SR-BATS-2013-034) (excluding the 
Russell Reconstitution Day from the definition of ADV).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                MTD Average TCV as of day
               Russell reconstitution date (RCD)                         TCV on RCD                    before RCD                   % Difference
--------------------------------------------------------------------------------------------------------------------------------------------------------
6/28/2013.....................................................                10,211,508,622                 6,954,840,047                         46.83
6/29/2012.....................................................                 7,924,340,355                 6,833,486,672                         15.96
6/24/2011.....................................................                10,472,502,657                 7,237,593,514                         44.70
6/25/2010.....................................................                14,482,717,113                 8,981,067,278                         61.26
6/26/2009.....................................................                13,024,518,377                 9,597,498,903                         35.71
6/27/2008.....................................................                12,010,692,402                 7,835,813,201                         53.28
--------------------------------------------------------------------------------------------------------------------------------------------------------

Because of the extremely high volume numbers and abnormally distributed 
daily volume or percentage of the TCV on this day, it stands that the 
ADV or percentage of average daily TCV can be significantly impacted.
    As such, the Exchange believes that eliminating the last Friday of 
June from the definition of ADV and TCV, and thereby eliminating that 
day from the calculation as it relates to rebates for adding liquidity 
to the Exchange, will help to eliminate significant uncertainty faced 
by Members as to their monthly ADV or percentage of average daily TCV 
and the rebates that this percentage will qualify for, providing 
Members with an increased certainty as to their monthly cost for trades 
executed on the Exchange. The Exchange further believes that removing 
this uncertainty will encourage Members to participate in trading on 
the Exchange during the remaining trading days in June in a manner 
intended to be incented by the Exchange's Fee Schedule.
    Lastly, the Exchange proposes to clarify within the definition of 
ADV that ADV does not include shares that are routed to other trading 
centers. ADV is defined as the average daily volume of shares executed 
on the Exchange for the month in which the fees are calculated. 
Clarifying that routed orders are not included in the definition of ADV 
is designed to add further clarity and harmonize the definition with 
BATS and BYX.
ADV Aggregation
    The Exchange also proposes to amend when a Member may aggregate 
share volumes with other affiliated Members. Currently, under the 
``General Notes'' section of the Fee Schedule, the Exchange will 
aggregate share volume calculations for wholly owned affiliates on a 
prospective basis upon a Member's request. The Exchange proposes to 
relocate this provision to the definition of ADV and amend the language 
to allow a Member to aggregate ADV with other Members that control, are 
controlled by, or are under common control with such Member (as 
evidenced on such Member's Form BD).\10\ To the extent two or more 
affiliated companies maintain separate Exchange memberships and can 
demonstrate their affiliation by showing they control, are controlled 
by, or are under common control with each other, the Exchange will 
permit such Members to count overall volume of the affiliates in 
calculating ADV.
---------------------------------------------------------------------------

    \10\ Securities Exchange Act Release No. 64211 (April 6, 2011), 
76 FR 20414 (April 12, 2014 [sic]) (SR-BATS-2011-012) (permitting 
Members to aggregate shares volumes with affiliated entities).
---------------------------------------------------------------------------

Implementation Date
    The Exchange proposes to implement these amendments to its Fee 
Schedule on May 1, 2014.
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 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 structures at a particular venue to 
be unreasonable and/or excessive.
---------------------------------------------------------------------------

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

    Members who are also members of BATS or BYX are subject to 
different definitions of ADV and TCV as well as differing standards for 
aggregating ADV with affiliated Members when seeking to qualify for 
certain tiered pricing. The Exchange believes that the proposed rule 
change will provide greater harmonization between similar Exchange, 
BATS and BYX rules, resulting in greater uniformity and less burdensome 
and more efficient regulatory compliance for common members. As such, 
the proposed rule change would foster cooperation and coordination with 
persons engaged in facilitating transactions in securities and would 
remove impediments to and perfect the mechanism of a free and

[[Page 24030]]

open market and a national market system. Lastly, the Exchange believes 
that the proposed change is non-discriminatory because it applies 
uniformly to all Members.
    Volume-based tiers such as the liquidity adding tiers maintained by 
the Exchange have been widely adopted, and are equitable and not 
unfairly discriminatory. They are open to all Members on an equal basis 
and provide higher rebates or lower fees 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 process. Accordingly, the Exchange believes that the proposal 
is equitably allocated and not unfairly discriminatory because it is 
consistent with the overall goals of enhancing market quality. Further, 
the Exchange believes that a tiered pricing model not significantly 
altered by a day of atypical trading behavior which allows Members to 
predictably calculate what their costs associated with trading activity 
on the Exchange will be is reasonable, fair and equitable and not 
unreasonably discriminatory as it is uniform in application amongst 
Members and should enable such participants to operate their business 
without concern of unpredictable and potentially significant changes in 
expenses.
ADV and TCV
    The Exchange believes that its proposed amendments to the 
definitions of ADV and TCV to exclude shares on the day of an Exchange 
System Disruption are reasonable because, as explained above, they will 
help provide Members with a greater level of certainty as to their 
level of rebates and costs for trading in any month where the Exchange 
experiences an Exchange System Disruption on one or more trading days. 
The Exchange is not proposing to amend the thresholds a Member must 
achieve to become eligible for, or the dollar value associated with, 
the tiered rebates or fees. By eliminating the inclusion of a trading 
day on which an Exchange System Disruption occurs the Exchange would 
almost certainly be excluding a day that would otherwise lower a 
Member's ADV or percentage of average daily TCV. Thus, the proposed 
change will make the majority of Members more likely to meet the 
minimum or higher tier thresholds, incentivizing Members to increase 
their participation on the Exchange in order to meet the next highest 
tier. In addition, the Exchange believes that the proposed changes to 
its Fee Schedule are equitably allocated among Exchange constituents 
and not unfairly discriminatory as the methodology for calculating ADV 
and TCV will apply equally to all Members. While, although unlikely, 
certain Members may have a higher ADV or percentage of average daily 
TCV with their activity included from days where the Exchange 
experiences an Exchange System Disruption, the proposal will make all 
Members' cost of trading on the Exchange more predictable, regardless 
of how the proposal affects their ADV or percentage of average daily 
TCV.
    The Exchange believes that its proposed amendments to the 
definitions of ADV and TCV to exclude shares on the Russell 
Reconstitution Day are reasonable because, as explained above, it will 
help provide Members with a greater level of certainty as to their 
level of rebates for trading in the month of June. The Exchange also 
believes that its proposal is reasonable because it is not changing the 
thresholds to become eligible or the dollar value associated with the 
rebates. Moreover, by eliminating the inclusion of a trading day that 
would almost certainly lower a Member's ADV or percentage of average 
daily TCV, it will make the majority of Members more likely to meet the 
minimum or higher tier thresholds, which will provide additional 
incentive to Members to increase their participation on the Exchange in 
order to meet the next tier. In addition, the Exchange believes that 
the proposed changes are equitably allocated among Exchange 
constituents as the methodology for calculating ADV and TCV will apply 
equally to all Members. While, although unlikely, certain Members may 
have a higher ADV or percentage of average daily TCV with the day 
included, the proposal will make June trading rebates more similar to 
other months. Moreover, all Members' cost of trading on the Exchange 
will become more predictable, regardless of how the proposal affects 
their ADV or percentage of average daily TCV, which in turn will 
preserve Members' incentives to participate in trading on the Exchange 
in a manner intended to be incented by the Exchange's Fee Schedule.
    Lastly, the Exchange proposes to clarify within the definition of 
ADV that ADV does not include shares that are routed to other trading 
centers. Clarifying that routed orders are not included in the 
calculation of ADV will promote just and equitable principles of trade 
and remove impediments to a free and open market by providing greater 
transparency concerning the operation of the Exchange and a Member's 
share volumes that are included in their ADV.
ADV Aggregation
    The proposed language permitting aggregation of volume amongst 
Members that share common control for purposes of the ADV calculation 
is intended to avoid disparate treatment of Members that have divided 
their various business activities between separate corporate entities 
as compared to Members that operate those business activities within a 
single corporate entity. By way of example, subject to appropriate 
information barriers, many firms that are Members of the Exchange 
operate both a market making desk and a public customer business within 
the same corporate entity. In contrast, other Members may be part of a 
corporate structure that separates those business lines into different 
corporate affiliates, either for business, compliance or historical 
reasons, and those affiliates are not also considered wholly owned 
affiliates. Those corporate affiliates, in turn, are required to 
maintain separate memberships with the Exchange. Absent the proposed 
change, such corporate affiliates that cannot be considered wholly 
owned but are under common control would not receive the same treatment 
as Members who are considered wholly owned affiliates. Current Members 
who aggregate share volumes on the Exchange with wholly owned 
affiliates will be considered as being under common control and 
continue to be able to aggregate share volumes. Accordingly, the 
Exchange believes that its proposed policy is fair and equitable, and 
not unreasonably discriminatory. In addition to ensuring fair and equal 
treatment of its Members, the Exchange does not want to create 
incentives for its Members to restructure their business operations or 
compliance functions simply due to the Exchange's pricing structure.

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

    The Exchange believes its proposed amendments to its Fee Schedule 
would 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 that the proposed change represents 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, the Exchange does not believe that the 
proposed change will impair the ability of Members or

[[Page 24031]]

competing venues to maintain their competitive standing in the 
financial markets.
    The proposed change will help to promote intramarket competition by 
avoiding a penalty to Members for days when trading on the Exchange is 
disrupted for a significant portion of the day. In addition, excluding 
the Russell Rebalance Day from the definition of ADV and TCV will help 
the Exchange to continue to incentivize higher levels of liquidity at a 
tighter spread while providing more stable and predictable costs to its 
Members. Lastly, easing Member's ability to aggregate volumes with 
Members who are under common control would increase competition because 
it would incentivize Members that could not previously aggregate their 
volumes to send higher volume to the Exchange in an effort to achieve 
tier-based pricing. As stated above, the Exchange 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 
structures to be unreasonable or excessive.

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 \13\ and Rule 19b-4(f)(2) \14\ 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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-EDGX-2014-10 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-2014-10. 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 (https://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-2014-10, and should be 
submitted on or before May 20, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09676 Filed 4-28-14; 8:45 am]
BILLING CODE 8011-01-P
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