[Federal Register Volume 77, Number 181 (Tuesday, September 18, 2012)]
[Notices]
[Pages 57633-57635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-22913]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67840; File No. SR-EDGX-2012-41]
Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Amendments to the EDGX Exchange, Inc. Fee Schedule
September 12, 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 September 5, 2012 the 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). All
of the changes described herein are applicable to EDGX Members. The
text of the proposed rule change is available on the Exchange's
Internet Web site at http://www.directedge.com, at the Exchange's
principal office, and at the Public Reference Room of the Commission.
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\3\ As defined in 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
The Exchange proposes to add Flag RP to the Exchange's fee schedule
for Non-Displayed Orders that add liquidity using the Route Peg Order
type.\4\ The Exchange proposes to offer a rebate of $0.0015 per share
for orders that yield Flag RP. The volume associated with Flag RP will
also count towards the volume tiers for orders that add liquidity.
Accordingly, the Exchange proposes making conforming changes to the
text of Footnotes 12 and 13 to include Flag RP as part of the ``added
flags.''
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\4\ See Securities and Exchange Act Release No. 67727 (August
24, 2012), (SR-EDGX-2012-25).
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As defined in Exchange Rule 11.5(c)(17), a Route Peg Order is a
non-displayed limit order that posts to the EDGX Book, and thereafter
is eligible for execution at the National Best Bid (``NBB'') for buy
orders and National Best Offer for sell orders (``NBO'', and together
with the NBB, the ``NBBO'') against the original size of the routable
orders that are equal to or less than the original size of the Route
Peg Orders. Route Peg Orders are passive, resting orders on the EDGX
Book and do not take liquidity. Route Peg Orders may be entered,
cancelled, and cancelled/replaced prior to and during Regular Trading
Hours.\5\ Route Peg Orders are eligible for execution in a given
security during Regular Trading Hours, except that, even after the
commencement of Regular Trading Hours, Route Peg Orders are not
eligible for execution (1) in the opening cross, and (2) until such
time that regular session orders in that security can be posted to the
EDGX Book. A Route Peg Order does not
[[Page 57634]]
execute at a price that is inferior to a Protected Quotation, and is
not permitted to execute if the NBBO is locked or crossed. Any and all
remaining, unexecuted Route Peg Orders are cancelled at the conclusion
of Regular Trading Hours.
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\5\ As defined in Rule 1.5(y).
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The Exchange proposes to implement these amendments to its fee
schedule on September 7, 2012.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\6\ in general, and
furthers the objectives of Section 6(b)(4),\7\ 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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\6\ 15 U.S.C. 78f.
\7\ 15 U.S.C. 78f(b)(4).
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The Exchange proposes to add Flag RP to the Exchange's fee schedule
for Non-Displayed Orders that add liquidity using the Route Peg Order
type. The Exchange believes that offering a rebate of $0.0015 per share
for orders that yield Flag RP represents an equitable allocation of
reasonable dues, fees and other charges among its Members and other
persons using its facilities because a rebate of $0.0015 per share is
equal to the prevailing rebate of $0.0015 that the Exchange offers for
Flag HA, which is a non-displayed order type that adds liquidity but
less than the default rebate of $0.0023 per share for adding displayed
liquidity on EDGX. By offering a proposed rebate of $0.0015 per share
for Flag RP, the Exchange believes it will encourage use of the new
order type, while maintaining consistency with the Exchange's overall
pricing philosophy of encouraging displayed liquidity. In addition, the
Exchange is setting the rebate at such level in order to incentivize
liquidity by encouraging Members to use Route Peg Orders (Flag RP)
since these orders provide Members that enter them and other Members an
additional way to offer/access liquidity at the NBBO, respectively. In
addition, since Flag RP has lowest priority according to Rule
11.8(a)(2), it would otherwise be rebated more than Flag HA, which has
a higher priority. However, the Exchange is offering the same rebate as
Flag HA because of the Route Peg Order type's unique features which
provides Members the ability to control interaction with certain types
of contra-side liquidity (i.e., routable orders of equal or lesser
size). This contributes to additional depth of book at the NBBO.
Furthermore, as stated in SR-EDGX-2012-25, the Exchange believes
that by encouraging the use of the Route Peg Order, Members seeking to
access liquidity at the NBBO would be more motivated to direct their
orders to EDGX because they would have a heightened expectation of the
availability of liquidity at the NBBO. 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, and improving investor
protection. In addition, a User \8\ whose order executed against a
Route Peg Order would be able to obtain an execution at the NBB or NBO
while minimizing the risk that incremental latency associated with
routing the order to an away destination may result in an inferior
execution.
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\8\ As defined in Rule 1.5(ee).
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The Exchange believes that offering a proposed rebate of $0.0015
per share for orders that yield Flag RP is reasonable because the
pricing is similar to analogous order types offered by other exchanges.
On NASDAQ, customers earn a rebate of $0.0015 per share executed for
MPIDs adding less than 1 million shares of Supplemental Orders and
customers earn a rebate of $0.0018 per share executed for MPIDs adding
greater than 1 million shares of Supplemental Orders.\9\ Similarly,
NYSE Arca offers the Tracking Order type where its customers earn
credits ranging from $0.001 to $0.0015 per share based on achieving
applicable tiers.\10\ Lastly, the Exchange believes that the proposed
amendment is non-discriminatory because it applies uniformly to all
Members.
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\9\ See Securities Exchange Act Release No. 66540 (March 8,
2012), 77 FR 15167 (March 14, 2012) (SR-NASDAQ-2012-031). The Route
Peg Order is functionally similar to NASDAQ's Supplemental Order
type, as the Supplemental Order is a non-displayed order that posts
to the book, that is accessed only after other liquidity on the
NASDAQ book, and that executes only at the NBBO. See also NASDAQ's
Price List--Trading & Connectivity, at http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
\10\ See Securities Exchange Act Release No. 60944 (November 5,
2009), 74 FR 58668 (November 13, 2009) (SR-NYSEArca-2009-99). The
Route Peg Order is functionally similar to NYSE Arca's Tracking
Order type, which is a non-displayed order that will only execute at
the NBBO and incoming orders are matched against all other orders on
the book before executing against NYSE Arca's Tracking Orders. See
also NYSE Arca Equities Order Types, at https://usequities.nyx.com/sites/usequities.nyx.com/files/nyse_arca_marketplace_fees__8_01_12.pdf.
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The Exchange's proposal to amend the text of Footnotes 12 and 13 of
the fee schedule to list Flag RP as one of the ``added flags'' where
the volume associated with Flag RP will count toward the volume
thresholds in Footnotes 12 and 13 is reasonable and equitable as the
volume tiers in Footnotes 12 and 13 include ``added'' liquidity flags
and Flag RP is an added liquidity flag. The Exchange notes that the
liquidity ratio will now capture the RP ``add flag'' as one of several
add flags in the calculation of the ``add liquidity'' ratio.\11\ The
Exchange believes this amendment to Footnotes 12 and 13 supports the
Exchange's efforts to achieve consistent application and specificity
among the flags on the fee schedule and provide transparency for its
Members.
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\11\ The ``add liquidity'' ratio is the ratio of the ``added''
flags/(``added'' flags + ``removal'' flags) x 100. If the resulting
ratio is equal to or greater than 10%, the MPID qualifies for the
lower removal rate of $0.0029 per share instead of $0.0030 per
share.
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The Exchange believes that the above proposal is nondiscriminatory
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
[[Page 57635]]
the Act \12\ and Rule 19b-4(f)(2) \13\ 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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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 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-2012-41 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-EDGX-2012-41. 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 available publicly. All
submissions should refer to File Number SR-EDGX-2012-41 and should be
submitted on or before October 9, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-22913 Filed 9-17-12; 8:45 am]
BILLING CODE 8011-01-P