[Federal Register Volume 76, Number 91 (Wednesday, May 11, 2011)]
[Notices]
[Pages 27370-27372]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-11456]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64393; File No. SR-EDGA-2011-14]
Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Amendments to the EDGA Exchange, Inc. Fee Schedule
May 4, 2011.
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 29, 2011, the EDGA Exchange, Inc. (the ``Exchange'' or
the ``EDGA'') 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 EDGA Rule 15.1(a) and (c). All
of the changes described herein are applicable to EDGA Members. The
text of the proposed rule change is available on the Exchange's
Internet Web site at http://www.directedge.com.
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\3\ A Member is any registered broker or dealer, or any person
associated with a registered broker or dealer, that has been
admitted to membership in the Exchange.
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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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to offer a reduced rate from $0.0023 per
share to $0.0022 per share for Flag D executions (as noted in proposed
footnote 14 of the fee schedule) provided that the Member routes an
average daily volume (``ADV'') of more than 30,000,000 shares per day
to NYSE using the RDOT or RDOX routing strategies, as defined in Rules
11.9(b)(3)(h) and (i).
The H flag represents non-displayed executions. The Exchange
proposes to append the reference to footnote 2 on Flag H so that a
reduced rate (of $0.0010 per share) would be offered provided that the
Member adds greater than 1,000,000 shares hidden on a daily basis
(yielding Flag H), measured monthly or posts greater than 8,000,000
shares on a daily basis, measured monthly (yielding Flags B,V, Y, 3 or
4). Members not meeting either minimum will be charged $0.0030 per
share.
For customer internalization (i.e., same MPID),\4\ currently there
is no charge nor rebate. This was because when the Exchange launched in
July 2010 the rebate for removing liquidity ($0.0002 per share) was
offset by the fee for adding liquidity ($0.0002 per share). This
situation yields Flag ``E'' on both sides of an execution. During the
Pre-Opening and Post-Closing sessions,
[[Page 27371]]
there are also no charges nor rebates, but this situation yields Flag
``5'' per side of an execution (adding liquidity/removing liquidity).
The Exchange is now proposing to charge $0.0001 per share per side of
an execution (for adding liquidity and for removing liquidity) for
Flags E and 5 instead of the standard or tiered rebate/removal rates.
Therefore, Members would incur a total internalization cost of $0.0002
per share for both sides of an execution for customer internalization.
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\4\ This occurs when two orders presented to the Exchange from
the same Member (i.e., MPID) are presented separately and not in a
paired manner, but nonetheless inadvertently match with one another.
Members are advised to consult Rule 12.2 respecting fictitious
trading.
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Currently, orders routed to EDGX Mid-Point Match (``MPM'') using
the IOCM routing strategy,\5\ as defined in Rule 11.9(b)(3)(q),\6\ are
assessed a fee of $0.0010 per share and yield flag ``MT.'' The Exchange
is proposing to increase this fee to $0.0012 per share.
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\5\ EDGX Rule 11.5(c)(7) defines a MPM order as an order with an
instruction to execute it at the midpoint of the NBBO. A MPM order
may be a Day Order, Fill-or-Kill Order, or IOC Order. The Exchange
notes that members can send in a MPM order directly to EDGX without
routing through the EDGA platform as an IOCM routing option.
\6\ IOCM is a routing option under which an order checks the
System for available shares and then is sent to EDGX as an immediate
or cancel (IOC) MPM order.
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Finally, the Exchange is proposing to make a technical correction
to the fee schedule to replace the term ``order type'' with ``routing
strategy'' throughout the fee schedule in order to conform to language
in Rule 11.9(b)(3). These amendments will appear in the text for Flags
K, L, P, Q, T, Z, 2, 8, 9, BY, CL, MT, RT, RX, SW, and footnote 8.
EDGA Exchange proposes to implement these amendments to the
Exchange fee schedule on May 1, 2011.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\7\ in general, and
furthers the objectives of Section 6(b)(4),\8\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its members and other persons using its
facilities.
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\7\ 15 U.S.C. 78f.
\8\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that the proposed reduced rate of $0.0022 per
share for Flag D executions provided that the Member routes an average
daily volume (``ADV'') of more than 30,000,000 shares per day to NYSE
using the RDOT or RDOX routing strategies represents an equitable
allocation of reasonable dues, fees, and other charges. When EDGA
routes to NYSE and removes liquidity, NYSE charges EDGA $0.0023 per
share. If a member uses EDGA to route to NYSE, EDGA provides a $0.0001
discount per share provided that the conditions of the volume threshold
are met. The Exchange believes that this discounted rate would
incentivize Members to first route through EDGA to reach NYSE and would
thereby increase liquidity on EDGA. This type of rate is also similar
to EDGA's rate for removing liquidity from LavaFlow (Flag M). The
standard removal rate of $0.0029 per share is reduced to $0.0023 per
share for orders routed to LavaFlow that achieve certain volume
thresholds, as EDGA Members are able to share in potential volume tier
savings realized by EDGA when routing to LavaFlow.\9\ This type of rate
is also similar to other rates that EDGA charges, such as ``one-under''
pricing for routing to Nasdaq using the INET order type and is
consistent with the processing of similar routing strategies by EDGA's
competitors.\10\
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\9\ See footnote 6 of the EDGA fee schedule.
\10\ See footnote 7 of the EDGA fee schedule. See also BATS BZX
fee schedule: Discounted Destination Specific Routing (``One
Under'') to NYSE, NYSE ARCA and NASDAQ. See Securities Exchange Act
Release No. 62858, 75 FR 55838 (September 14, 2010) (SR-BATS-2010-
023) (modifying the BATS fee schedule in order to amend the fees for
its BATS + NYSE Arca destination specific routing option to continue
to offer a ``one under'' pricing model).
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The rate is also equitable in that it is designed to incentivize
Members to use the RDOT or RDOX routing strategies to increase volume
on EDGA. 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 would allow the Exchange
to pass on the savings to Members in the form of reduced fees. The
increased liquidity also benefits all investors by deepening EDGA's
liquidity pool, supporting the quality of price discovery, promoting
market transparency and improving investor protection. Volume-based
discounts such as the reduced execution fee proposed here have been
widely adopted in the cash equities markets and provide discounts that
are reasonably related to the value to an exchange's market quality
associated with higher levels of market activity, such as higher levels
of liquidity provision and introduction of higher volumes of orders
into the price and volume discovery processes. The Exchange believes
that the proposed discounted rate is non-discriminatory in that it
applies uniformly to all Members.
The Exchange believes that the proposed reduced rate for Flag H
executions of $0.0010 per share, as described in footnote 2, is an
equitable allocation of reasonable dues, fees, and other charges. The
reduced rate of $0.0010 \11\ provided that a volume threshold is
satisfied is designed to incentivize Members to use non-displayed
orders to increase volume on EDGA.
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\11\ If a member fails to reach such volume thresholds, the
Member will pay $0.0030 per share for Flag H executions.
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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 would allow the Exchange
to pass on the savings to Members in the form of reduced fees. The
increased liquidity also benefits all investors by deepening EDGA's
liquidity pool, supporting the quality of price discovery, promoting
market transparency and improving investor protection. Volume-based
discounts such as the reduced execution fee proposed herein have been
widely adopted in the cash equities markets and provide discounts that
are reasonably related to the value to an exchange's market quality
associated with higher levels of market activity, such as higher levels
of liquidity provision and introduction of higher volumes of orders
into the price and volume discovery processes. The Exchange believes
that the proposed fee is non-discriminatory in that it applies
uniformly to all Members.
The Exchange believes that the increased fee for customer
internalization of $0.0001 per share per side of an execution for both
Flags E (regular trading session) and 5 (pre and post market)
represents an equitable allocation of reasonable dues, fees, and other
charges as it is designed to introduce a nominal and reasonable fee for
members who inadvertently match with one another, thereby discouraging
potential wash sales. The increased fee also allows the Exchange to
offset its administrative, clearing, and other operating costs incurred
in executing such trades. Finally, the fee is equitable in that it is
in line with the EDGA fee structure which currently has a maker/taker
spread of $0.0001 per share (the standard fee to add liquidity on EDGA
is $0.00025 per share, while the standard rebate to remove liquidity is
$0.00015 per share). EDGA also has a tiered rate for adding liquidity
of $0.00005, which would make this spread -$0.0001 per share. As a
result of the customer internalization charge, Members who internalized
would be charged $0.0001 per side of an
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execution (total of $0.0002 per share) instead of capturing the maker/
taker spread of -$0.0001 per share.
As mentioned above, when the Exchange launched in July 2010, this
spread was zero (0). This increased fee per side of an execution
($0.0001 per side instead of free) thus brings the internalization fee
in line with the current maker/taker spreads.\12\ The Exchange believes
that the proposed fee is non-discriminatory in that it applies
uniformly to all Members.
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\12\ The Exchange will continue to ensure that the
internalization fee is no more favorable than each prevailing maker/
taker spread.
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The Exchange believes that the proposed increased fee to $0.0012
per share for the ``MT'' flag for routing to EDGX MPM using the IOCM
routing strategy represents an equitable allocation of reasonable dues,
fees, and other charges as such increased fee offsets the Exchange's
administrative and other operational costs. The fee increase represents
a pass through by EDGA to its members of EDGX's increased fee (from
$0.0010 to $0.0012 per share) for removing liquidity from EDGX MPM,
effective May 1, 2011. The $0.0012 per share is competitive and
superior to comparable exchange standard removal rates of $0.0030 per
share (Nasdaq), $0.0030 per share (NYSE Arca), $0.0023 per share
(NYSE), and $0.0028 per share (BATS BZX). The fee is also equitable as
it is competitive with other fees assessed for routing strategies that
access low cost destinations, such as ROUZ, as defined in Rule
11.9(b)(3)(c)(v) (yields Flag Z, $0.0010 per share) and ROUD/ROUE, as
defined in Rules 11.9(b)(3)(b) and 11.9(b)(3)(c)(i) (Flag T, $0.0012
per share). The Exchange believes that the proposed fee is non-
discriminatory in that it applies uniformly to all Members.
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 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
The 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 \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.
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-EDGA-2011-14 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-EDGA-2011-14. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission,\15\ 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 a.m. and 3 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-
EDGA-2011-14 and should be submitted on or before June 1, 2011.
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\15\ The text of the proposed rule change is available on
Exchange's Web site at http://www.directedge.com, on the
Commission's Web site at http://www.sec.gov, at EDGA, and at the
Commission's Public Reference Room.
\16\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11456 Filed 5-10-11; 8:45 am]
BILLING CODE 8011-01-P