[Federal Register Volume 77, Number 11 (Wednesday, January 18, 2012)]
[Notices]
[Pages 2597-2600]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-769]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66129; File No. SR-EDGX-2011-39]
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
January 11, 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 December 30, 2011, 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.
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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
EDGX Exchange, Inc. (``EDGX'' or 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). Text of the proposed rule change
is attached as Exhibit 5.
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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
Purpose
The Exchange proposes to amend its fee schedule to add footnote b
to it to
[[Page 2598]]
specify that trading activity on days when the market closes early \4\
does not count toward any volume tiers, which are currently found in
footnotes 1, 6, and 11.
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\4\ In 2012, these days include July 3, 2012, November 23, 2012,
and December 24, 2012.
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The Exchange proposes to amend the Super Tier to lower the rebate
from $0.0030 per share to $0.0028 per share.
The Exchange proposes to amend the following tier to lower the
rebate to $0.0028 per share as well: Members that post 0.065% of the
TCV in average daily volume more than their February 2011 average daily
volume added to EDGX will qualify for a $0.0029 per share rebate
(unless they otherwise qualify for a higher rebate) (the ``0.065% TCV
Tier'').
The Exchange proposes to add another method to qualify for the Mega
Tier rebate of $0.0032 per share if Members add or route at least
4,000,000 shares of average daily volume prior to 9:30 a.m. or after 4
p.m. (includes all flags except 6) and adds a minimum of .20% of the
Total Consolidated Volume (TCV) on a daily basis measured monthly,
including during both market hours and/or pre and post-trading hours.
The Exchange proposes to implement these amendments to its fee
schedule on January 1, 2012.
Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Exchange Act,\5\ in general,
and furthers the objectives of Section 6(b)(4),\6\ 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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\5\ 15 U.S.C. 78f.
\6\ 15 U.S.C. 78f(b)(4).
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The Exchange proposes to amend its schedule to add footnote b to
specify that trading activity on days when the market closes early does
not count toward volume tiers (footnotes 1, 6, and 11). Since the
Exchange is only open until 1PM Eastern Time (``ET'') on these days
(e.g., the day after Thanksgiving),\7\ the Exchange believes that
counting volume on these days towards the tiers would not be
illustrative of typical market activity or liquidity provision, since
the trading day is shortened. Therefore, the Exchange proposes to
exclude such shortened trading days from any volume tier calculations,
as presently found in footnotes numbers 1, 6, and 11. The Exchange
believes that the proposed amendment is non-discriminatory in that it
applies uniformly to all Members and would more accurately represent
their trading volume. In addition, the proposed amendment is in
accordance with the practices employed by other Exchanges.\8\
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\7\ In 2012, these days include July 3, 2012, November 23, 2012,
and December 24, 2012.
\8\ See fee schedules of Nasdaq and NYSE Arca found at: http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2; and https://usequities.nyx.com/sites/usequities.nyx.com/files/nyse_arca_marketplace_fees_12_1_2011.pdf
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The reduction in rebate of the Super Tier from $0.0030 per share to
$0.0028 per share is an equitable allocation of reasonable dues, fees,
and other charges as the additional revenue that results from the lower
rebate enables the Exchange to cover increased infrastructure and
administrative expenses. In addition, when the Exchange lowered its
removal rate from $0.0030 per share to $0.0029 per share (October
2012), a more significant percentage of EDGX members achieved inverted
rates, where the rebate paid to Members for adding liquidity was more
than the removal rate of $0.0029 per share. Given this result, and
since the Super Tier has less stringent criteria than either the Mega
Tier or Ultra Tier, the Exchange is proposing to moderate the rate and
decrease the rebate so that the maker/taker spread is no longer
inverted for such a large percentage of Members.
The Exchange believes that the reduced rebate for the Super Tier
and the alternative criteria to qualify for the Mega Tier rebate of
$0.0032 per share also represents an equitable allocation of reasonable
dues, fees, and other charges since higher rebates are directly
correlated with more stringent criteria.
The Mega Tier rebates of $0.0034/$0.0032 per share have the most
stringent criteria associated with them, and are $0.0003/$0.0001
greater than the Ultra Tier rebate ($0.0031 per share) and $0.0006/
$0.0004 greater than the proposed Super Tier rebate ($0.0028 per
share).
For example, in order for a Member to qualify for the Mega Tier
rebate of $0.0034, the Member would have to add or route at least
4,000,000 shares of average daily volume during pre and post-trading
hours and add a minimum of 20,000,000 shares of average daily volume 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.
The Exchange believes that this higher rebate awarded to Members would
incent liquidity during these trading sessions. 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 a higher rebate.
Another way a Member can qualify for the Mega Tier (with a rebate
of $0.0032 per share) would be to post 0.75% of TCV. Based on average
TCV for November 2011 (8.0 billion), this would be 60 million shares on
EDGX. A second method to qualify for the rebate of $0.0032 per share
would be to post 0.12% of the TCV (9.6 million shares) more than the
Member's February 2011 average daily volume added to EDGX. Assuming the
Member's February 2011 ADV is 1 million shares, the Exchange believes
that requiring Members to post 10.6 million more shares than a February
2011 baseline average daily volume encourages Members to add increasing
amounts of liquidity to EDGX each month. 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 a higher rebate. The increased liquidity also
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 order to qualify for the proposed Mega Tier rebate of $0.0032
per share, a Member would have to add or route at least 4,000,000
shares of average daily volume prior to 9:30 a.m. or after 4 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/or pre and post-trading hours.
[[Page 2599]]
Based on an average TCV for November 2011 (8.0 billion shares), a
Member would qualify by adding 16 million shares during both market
hours and/or pre and post-trading hours and adding or routing at least
4,000,000 shares of average daily volume during pre and post-trading
hours. The Exchange notes that fewer Members generally trade during pre
and post-trading hours because of the limited time parameters
associated with these trading sessions. Therefore, the amount of shares
that the Exchange requires to be added or routed to satisfy this tier
is less than for the Ultra Tier,\9\ for example, which is based on
posting liquidity to EDGX during regular trading hours. The Exchange
believes that this higher rebate awarded to Members would incent
liquidity during these trading sessions. 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 a higher rebate. The Exchange believes that the
proposed amendment is non-discriminatory in that it applies uniformly
to all Members.
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\9\ See discussion in next paragraph regarding Ultra Tier.
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In order to qualify for the Ultra Tier, which has less stringent
criteria than the Mega Tier, the Member would have to post 0.50% of
TCV. Based on average TCV for November 2011 (8.0 billion shares), this
would be 40 million shares on EDGX.
Finally, the Super Tier has the least stringent criteria of the
tiers mentioned above. In order for a Member to qualify for this
rebate, the Member would have to post at least 10 million shares on
EDGX and would qualify for the amended rebate of $0.0028 per share. As
stated above, these rebates also result, in part, from lower
administrative and other costs associated with higher volume. The
reduction in rebate would allow the Exchange to recoup additional
revenue to recover increased infrastructure and administrative
expenses. This rebate also results, in part, from lower administrative
and other costs associated with higher volume. The Exchange believes
that the proposed amendment is non-discriminatory in that it applies
uniformly to all Members.
The reduction in rebate of the 0.065% TCV Tier from $0.0030 per
share to $0.0028 per share is an equitable allocation of reasonable
dues, fees, and other charges as the additional revenue that results
from the lower rebate enables the Exchange to cover increased
infrastructure and administrative expenses. This tier allows Members
even greater flexibility with respect to achieving an additional rebate
and rewards growth patterns in volume by Members as this rebate's
conditions encourage Members to add increasing amounts of liquidity to
EDGX each month. Based on an average daily volume in February 2011
(baseline) of 1,000,000 shares, the Member would have to add 6.2
million shares total to qualify for such rebate. This rebate also
results, in part, from lower administrative and other costs associated
with higher volume. The Exchange believes that the proposed amendment
is non-discriminatory in that it applies uniformly 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 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 \10\ and Rule 19b-4(f)(2) \11\ 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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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 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 email to [email protected]. Please include
File Number SR-EDGX-2011-39 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-2011-39. 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 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
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
[[Page 2600]]
available publicly. All submissions should refer to File Number SR-
EDGX-2011-39 and should be submitted on or before February 8, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-769 Filed 1-17-12; 8:45 am]
BILLING CODE 8011-01-P