[Federal Register Volume 78, Number 131 (Tuesday, July 9, 2013)]
[Notices]
[Pages 41132-41138]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-16378]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69911; File No. SR-EDGX-2013-25]
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
July 2, 2013.
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 July 1,
[[Page 41133]]
2013, 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\ pursuant to EDGX Rule 15.1(a) and (c) (``Fee Schedule'')
to: (1) Increase the fee to remove liquidity using Flag PR (removes
liquidity from EDGX using ROUQ routing strategy) from $0.0027 to
$0.0029 per share; (2) increase the fee when using Flag RQ (routing
using ROUQ routing strategy) from $0.0027 to $0.0029 per share; (3)
amend Footnote 1 \4\ by: (i) Correcting punctuation; (ii) easing the
criteria to meet the Market Depth Tier; (iii) decreasing the rebate for
the current $0.0032 Mega Tier (post 0.12% of TCV); and (iv) adding a
new $0.0032 Mega Step Up Tier; (4) amend the criteria for the Retail
Order Tier in Footnote 4; and (5) amend Footnote 13 to: (i) Add a
$0.0032 Investor Tier and (ii) make a non-substantive, corrective
change. The text of the proposed rule change is attached as Exhibit 5.
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 www.directedge.com, at the Exchange's principal
office, and at the Public Reference Room of the Commission.
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\3\ ``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.'' EDGX Rule 1.5(n).
\4\ References herein to ``Footnotes'' refer only to footnotes
on the Exchange's Fee Schedule and not to footnotes within the
current filing.
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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 amend its Fee Schedule to: (1) Increase
the fee to remove liquidity using Flag PR (removes liquidity from EDGX
using ROUQ routing strategy) from $0.0027 to $0.0029 per share; (2)
increase the fee when using Flag RQ (routing using ROUQ routing
strategy) from $0.0027 to $0.0029 per share; (3) amend Footnote 1 by:
(i) Correcting punctuation; (ii) easing the criteria to meet the Market
Depth Tier; (iii) decreasing the rebate for the current $0.0032 Mega
Tier (post 0.12% of TCV); and (iv) adding a new $0.0032 Mega Step Up
Tier; (4) amend the criteria for the Retail Order Tier in Footnote 4;
and (5) amend Footnote 13 to: (i) Add a $0.0032 Investor Tier and (ii)
make a non-substantive, corrective change.
Amendment to Flag PR
The Exchange proposes to increase the fee to remove liquidity using
Flag PR (removes liquidity from EDGX using the ROUQ \5\ routing
strategy) from $0.0027 to $0.0029 per share.
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\5\ ROUQ is a routing strategy that checks the System for
available shares before sending the order to other destinations on
the System routing table, and if shares remain unexecuted after
routing, then the shares are posted on the EDGX book unless the
Member instructs otherwise. See Exchange Rule 11.9(b)(2)(c)(iv). The
System is defined as the electronic communications and trading
facility designated by the Board through which securities orders of
Users are consolidated for ranking, execution and, when applicable,
routing away. See Exchange Rule 1.5(cc).
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Amendment to Flag RQ
The Exchange proposes to increase the fee to route orders using
Flag RQ (routed using ROUQ routing strategy) from $0.0027 to $0.0029
per share.
Ministerial Changes to Footnote 1
The Exchange proposes to make non-material changes to the first
paragraph of Footnote 1 regarding the Mega Tier that provides Members
with a rebate of $0.0035 per share (the ``$0.0035 Mega Tier''). These
changes simply align the formatting of Footnote 1 with similar
paragraphs within the Fee Schedule. The Exchange does not propose to
alter the requirements Members need to satisfy to achieve the increased
rebate offered by the $0.0035 Mega Tier.
The Exchange also proposes to relocate the definition of Total
Consolidate Volume (``TCV'') \6\ within Footnote 1 from the existing
$0.0032 Mega Tier to the Mega Tier, where TCV is first mentioned.
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\6\ TCV is defined as 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 prior to the month in
which the fees are calculated.
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Amendments to the Market Depth Tier
Footnote 1 of the Fee Schedule currently provides that Members may
qualify for the Market Depth Tier and receive a rebate of $0.0033 per
share for displayed liquidity added on EDGX if they post greater than
or equal to 0.50% of the TCV in average daily trading volume (``ADV'')
on EDGX in total, where at least 2,000,000 shares are Non-Displayed
Orders that yield Flag HA. The Exchange proposes to amend Footnote 1 of
its Fee Schedule to decrease the ADV requirement of the Market Depth
Tier from 2,000,000 shares of ADV to 1,800,000 shares of ADV. The
remainder of the footnote as it pertains to the Market Depth Tier
rebate would remain unchanged.
Amendments to the Current $0.0032 Mega Tier (Post 0.12% of TCV)
The Exchange proposes to decrease the rebate for the current Mega
Tier rebate of $0.0032 per share to $0.0030 per share in Footnote 1 of
the Fee Schedule. The Exchange also proposes to rename the tier the
Mega Step Up Tier. Currently, Footnote 1 of the Exchange's fee schedule
provides that Members may qualify for a Mega Tier rebate of $0.0032 per
share by posting 0.12% of the TCV in ADV more than their February 2011
ADV added to EDGX. The Exchange proposes to reduce the rebate offered
by this tier from $0.0032 to $0.0030 per share (the ``$0.0030 Mega Step
Up Tier''). The criteria required to meet the tier would remain
unchanged.
Addition of the New $0.0032 Mega Step Up Tier
The Exchange proposes to add a new Mega Tier (the ``$0.0032 Mega
Step Up Tier'') to provide for a rebate of $0.0032 per share if the
Member: (i) Posts 0.12% of the TCV in ADV more than their February 2011
ADV added to EDGX and (ii) adds a minimum of 0.35% of the TCV on a
daily basis, measured monthly.
Amendments to Retail Order Tier
Currently, Members are eligible for a rebate of $0.0034 per share
if they add an ADV of Retail Orders (Flag ZA) that is 0.10% or more of
the TCV on a daily basis, measured monthly. Flag ZA is
[[Page 41134]]
yielded for those Members that use Retail Orders \7\ that add liquidity
to EDGX. The Exchange now proposes to amend this criteria to also
require that Members have an ``added liquidity'' to ``added plus
removed liquidity'' ratio of at least 85%.
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\7\ Footnote 4 on the Exchange's Fee Schedule defines a ``Retail
Order,'' in part, as an: (i) An agency order or riskless principal
order that meets the criteria of FINRA Rule 5320.03 that originates
from a natural person; (ii) is submitted to EDGX by a Member,
provided that no change is made to the terms of the order; and (iii)
the order does not originate from a trading algorithm or any other
computerized methodology.
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Addition of $0.0032 Investor Tier
The Exchange proposes to add an additional Investor Tier to
Footnote 13 of the Fee Schedule. Members would qualify for the Investor
Tier and be provided a rebate of $0.0032 per share (``$0.0032 Investor
Tier'') for all liquidity posted on EDGX if they: (i) add a minimum of
0.15% of the TCV on a daily basis, measured monthly; and (ii) have an
``added liquidity'' to ``added plus removed liquidity'' ratio of at
least 85%.
Correction to Footnote 13
Members can currently qualify for an Investor Tier and be provided
a rebate of $0.0030 per share (``$0.0030 Investor Tier'') if they: (i)
On a daily basis, measured monthly, posts an ADV of at least 8,000,000
shares on EDGX where added flags are defined as B, HA, V, Y, MM, RP,
ZA, 3, or 4; (ii) have an ``added liquidity'' to ``removed liquidity''
ratio of at least 60% where added flags are defined as B, HA, V, Y, MM,
RP, ZA, 3, or 4 and removal flags are defined as BB, MT, N, W, PI, PR,
ZR, or 6; and (iii) have a message-to-trade ratio of less than 6:1. The
Exchange proposes to correct an inadvertent drafting error in the
criteria related to the add to remove liquidity ratio under (ii) above.
Specifically, the Exchange proposes to amend the add to remove
liquidity ratio language to specify that Members must have an added
liquidity to added plus removed liquidity ratio. The revised criteria
would read as follows:
. . . have an ``added liquidity'' to ``added plus removed
liquidity'' ratio of at least 60% where added flags are defined as B,
HA, V, Y, MM, RP, ZA, 3, or 4 and removal flags are defined as BB, MT,
N, W, PI, PR, ZR, or 6 (emphasis added) . . .
The Exchange notes that its proposal conforms to an existing
practice and does not modify the rebate that the Exchange has been
providing its Members for achieving the tier. The Exchange notes that
it will continue to calculate whether a Member satisfied criteria (ii)
under Footnote 13 if its ``added liquidity'' to ``added plus removed
liquidity'' ratio is at least 60%. Other than this correction, the
remainder of the footnote as it pertains to the $0.0030 Investor Tier
would remain unchanged.
Implementation Date
The Exchange proposes to implement these amendments to its Fee
Schedule on July 1, 2013.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\8\ in general, and
furthers the objectives of Section 6(b)(4),\9\ 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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\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(4).
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Amendment to Flag PR
The Exchange believes that the proposed increased rate of $0.0029
from $0.0027 per share for Flag PR for orders that remove liquidity
from the EDGX book using the ROUQ routing strategy is an equitable
allocation of reasonable dues, fees, and other charges because the
reduced rate, in comparison to the default \10\ rate to remove
liquidity of $0.0030 per share, is reasonable as it is consistent with
similar rates charged by the Exchange's competitors.\11\
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\10\ ``Default'' refers to the standard rate provided to Members
for orders that remove liquidity from the Exchange absent Members
qualifying for additional volume tiered pricing.
\11\ See Fee to Remove Liquidity for Routable Orders in the
Nasdaq OMX PSX Price List available at http://www.nasdaqtrader.com/Trader.aspx?id=PSX_Pricing (last visited June 27, 2013) (charging
similar discounted rates to remove liquidity of $0.0025 and
$0.0028).
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Further, the Exchange believes that the increased rate of $0.0029
per share is reasonable because it will enable the Exchange to retain
additional funds to offset increased administrative, regulatory, and
other infrastructure costs associated with operating an exchange.
Lastly, the increased rate is non-discriminatory because it applies
uniformly to all Members of the Exchange. The Exchange also believes
that the rate is equitable because by utilizing the ROUQ routing
strategy, Members will qualify for a $0.0001 discounted removal rate in
Flag PR from the default rate to remove liquidity of $0.0030 per share
as the revenue generated by executing at away destinations enables the
Exchange to offer such discounted removal rate.
Amendment to Flag RQ
The Exchange believes that the proposed increased rate of $0.0029
from $0.0027 per share for Flag RQ for orders that are routed using the
ROUQ routing strategy is an equitable allocation of reasonable dues,
fees, and other charges because it now equals the Exchange's standard
routing rate under Flag X of $0.0029 per share. Further, the Exchange
believes that the increased rate of $0.0029 per share is reasonable
because it will enable the Exchange to retain additional funds to
offset increased administrative, regulatory, and other infrastructure
costs associated with operating an exchange. Lastly, the increased rate
is non-discriminatory because it applies uniformly to all Members of
the Exchange.
Ministerial Changes to Footnote 1
The Exchange believes that the proposed non-material changes to the
first paragraph of Footnote 1 regarding the $0.0035 Mega Tier are
reasonable and non-discriminatory because the changes simply align the
formatting of Footnote 1 with similar paragraphs within the Fee
Schedule. The Exchange does not propose to alter the requirements
Members need to satisfy to be eligible for the increased rebate to the
$0.0035 Mega Tier in Footnote 1.
The Exchange also believes relocating the definition of TCV within
Footnote 1 reasonable and non-discriminatory because it simply seeks to
add clarity to the Fee Schedule.
Amendments to the Market Depth Tier
The Exchange believes that lowering the ADV requirements in Flag HA
for the Market Depth Tier represents an equitable allocation of
reasonable dues, fees, and other charges because slightly lowering the
threshold to achieve the tier encourages Members to add displayed
liquidity to the EDGX Book \12\ each month, as only the displayed
liquidity in this tier is awarded the rebate of $0.0033 per share. This
tier also recognizes the contribution that non-displayed liquidity
provides to the marketplace, including: (i) Adding needed depth to the
EDGX market; (ii) providing price support/depth of liquidity; and (iii)
increasing diversity of liquidity to EDGX. The increased liquidity
benefits all investors by deepening EDGX's liquidity pool, offering
additional flexibility for all investors to enjoy cost savings,
supporting the quality of price discovery, promoting market
transparency and improving investor
[[Page 41135]]
protection. In addition, the Exchange also believes that the proposed
amendment to the Market Depth Tier is non-discriminatory because it
applies uniformly to all Members.
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\12\ The EDGX Book is the System's electronic file of orders.
See Exchange Rule 1.5(d).
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Amendments to the Current $0.0032 Mega Tier (Post 0.12% of TCV)
The Exchange believes that the reduction of the rebate offered by
the current $0.0032 Mega Tier from $0.0032 per share to $0.0030 per
share under the $0.0030 Mega Step Up Tier represents an equitable
allocation of reasonable dues, fees, and other charges because it will
enable the Exchange to retain additional funds to offset increased
administrative, regulatory, and other infrastructure costs associated
with operating an exchange. The rebate of $0.0030 per share is
reasonable when compared to the Exchanges' competitors.\13\
Additionally, the Exchange believes that the reduced rebate of $0.0030
per share justifies a less stringent criterion than the $0.0032 Mega
Step Up Tier discussed below. Lastly, the reduced rebate is non-
discriminatory because it applies uniformly to all Members of the
Exchange.
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\13\ See NYSE Arca Equities, Inc. Schedule of Fees and Charges
for Exchange Services available at https://usequities.nyx.com/sites/usequities.nyx.com/files/nyse_arca_marketplace_fees_5_1_13.pdf
(last visited June 27, 2013) (Arca offers a rebate of $0.00295 and
$0.0029 for its Step-Up Tier 1 and Tier 2 respectively for Tape A
and C securities).
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Addition of the New $0.0032 Mega Step Up Tier
The Exchange believes that the addition of the new $0.0032 Mega
Step Up Tier represents an equitable allocation of reasonable dues,
fees, and other charges because it incentivizes Members to add
liquidity to the EDGX Book. In particular, the $0.0032 Mega Step Up
Tier is designed to incentivize members to achieve preferred pricing by
adding liquidity on the Exchange.
The Exchange also believes that the $0.0032 Mega Step Up Tier is
reasonable and equitably allocated because such increased liquidity
benefits all investors by deepening EDGX's liquidity pool, offering
additional flexibility for all investors to enjoy cost savings and
improving investor protection. Volume-based rebates such as the one
proposed herein are widely utilized 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
opportunities for price improvement.
Higher Rebates are Correlated With More Stringent Criteria
Furthermore, the Exchange believes that the criteria for tiered
rebates listed above represents an equitable allocation of reasonable
dues, fees, and other charges because higher rebates are directly
correlated with more stringent criteria.
For example, in order for a Member to qualify for the $0.0035 Mega
Tier Rebate, the Member would have to add or route at least 2 million
shares of ADV during pre- and post-trading hours and add a minimum of
35 million shares of ADV on EDGX in total, including during both market
hours and pre- and post-trading hours in order to obtain the $0.0015
discount routing and removal rates. The criteria for this tier is the
most stringent of all other tiers on the Exchange's fee schedule as
fewer Members generally trade during pre- and post-trading hours
because of the limited time parameters associated with these trading
sessions, which generally results in less liquidity. In addition, the
Exchange assigns a higher value to this resting liquidity because
liquidity received prior to the regular trading session typically
remains resident on the EDGX Book throughout the remainder of the
entire trading day. Furthermore, liquidity received during pre- and
post-trading hours is an important contributor to price discovery and
acts as an important indication of price for the market as a whole
considering the relative illiquidity of the pre- and post-trading hour
sessions. The Exchange believes that offering a higher rebate and
reduced fees for removal of liquidity and/or routing incentivizes
Members to provide liquidity during these trading sessions.
In order to qualify for the next best tier, the Market Depth Tier,
and receive a rebate of $0.0033 per share for displayed liquidity, such
Member must post at least 0.50% of the TCV in ADV on EDGX in total,
where at least 2,000,000 million (herein proposed to be amended to
1,800,000) shares are non-displayed orders that add liquidity to EDGX
yielding Flag HA. This criteria is more stringent than that of the
proposed $0.0032 Mega Step Up Tier because the Market Depth Tier
requires a Member to post at least 0.50% of the TCV in ADV on EDGX
whereas the $0.0032 Mega Step Up Tier only requires a Member to post a
minimum of 0.35% of the TCV in ADV on EDGX. Based on a TCV for May 2013
of six (6) billion shares, this would amount to 30,000,000 shares for
the Market Depth Tier and 21,000,000 shares for the $0.0032 Mega Step
Up Tier.
In order to qualify for the next tier after the $0.0032 Mega Step
Up Tier, as discussed above, the Ultra Tier, a Member must, on a daily
basis, measured monthly, post 0.50% of TCV in ADV to EDGX to receive a
rebate of $0.0031 per share. The criteria for this tier is less
stringent than the $0.0032 Mega Step Up Tier because a Member aspiring
to meet the $0.0032 Mega Step Up Tier must satisfy two criteria: (1)
Post 0.12% of the TCV in ADV more than their February 2011 ADV added to
EDGX; and (2) add a minimum of 0.35% of the TCV on a daily basis,
measured monthly, including during both market hours and pre and post-
trading hours. The Ultra Tier only requires a Member post 0.50% of TCV
in ADV to EDGX. Based on a TCV for May 2013 of six (6) billion shares,
this would amount to 30,000,000 shares for the Ultra Tier and
21,000,000 shares for the $0.0032 Mega Step Up Tier. While the Ultra
Tier's TCV requirement is higher, Members seeking the achieve the
$0.0032 Mega Step Up Tier would also be required to post 0.12% of the
TCV in ADV more than their February 2011 ADV added to EDGX. The
Exchange believes this additional requirement establishing a Member's
February 2011 added baseline rewards liquidity provision and encourages
price discovery and market transparency by incentivizing growth in
liquidity over a defined baseline.
The criteria for the $0.0032 Mega Step Up Tier is also more
stringent than the $0.0030 Mega Step Up Tier discussed above. While
both tiers require a Member post 0.12% of the TCV in ADV more than
their February 2011 ADV, the $0.0032 Mega Step Up Tier also requires
Members to add a minimum of 0.35% of the TCV on a daily basis, measured
monthly, including during both market hours and pre and post-trading
hours. This additional requirement is designed to incentivize Members
to add liquidity to the EDGX Book in order to achieve preferred pricing
by adding liquidity on the Exchange.
To qualify for the next tier after the $0.0030 Mega Step Up Tier,
the Super Tier, and receive a rebate of $0.0028 per share for liquidity
added to EDGX, a Member must, on a daily basis, measured monthly, posts
10,000,000 shares or more of ADV to EDGX. The Exchange believes that
establishing a Member's February 2011 added baseline rewards liquidity
provision and encourages price discovery and market transparency by
incentivizing growth in liquidity over a defined baseline. The Exchange
believes the $0.0030 Mega
[[Page 41136]]
Step Up Tier will also encourage large market participants, who are not
currently large adders, to grow their add volume over an established
baseline in order to achieve the tier.
Lastly, the Exchange also believes that the proposed amendment is
non-discriminatory because it applies uniformly to all Members.
Amendment to Retail Order Tier
The Exchange believes that its proposal to add an additional
requirement to the Retail Order Tier in Footnote 4 that a Member must
have an ``added liquidity'' to ``added liquidity plus removed
liquidity'' ratio of at least 85% represents an equitable allocation of
reasonable dues, fees, and other charges because it is designed to
incentivize and further align the tier's requirements with the trading
behaviors of Members that primarily represent retail customers. The
Retail Order Tier is designed to encourage greater participation on
EDGX by Members that represent retail customers.\14\ In particular, the
Exchange notes that an ``added liquidity'' to ``added plus removed
liquidity'' ratio of at least 85% is a characteristic of retail order
flow, where retail members add substantially more liquidity than they
remove. Members that primarily post liquidity are more valuable Members
to the Exchange and the marketplace in terms of liquidity provision.
Because retail orders are more likely to reflect long-term investment
intentions than the orders of proprietary traders, they promote price
discovery and dampen volatility. Accordingly, their presence on the
EDGX Book has the potential to benefit all market participants. For
this reason, EDGX believes that it is equitable to provide significant
financial incentives to encourage greater retail participation in the
market in general and on EDGX in particular. The Exchange believes that
increasing the volume requirement and requiring the addition of an
``added liquidity'' to ``added plus removed liquidity'' ratio of at
least 85% may result in increased volume in retail orders by firms
aspiring to meet the criteria of the tier and, accordingly, would lead
to benefits for all market participants.
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\14\ See Securities Exchange Act Release No. 69067 (March 7,
2013), 78 FR 16003, 16004 (March 13, 2013) (SR-EDGX-2013-11)
(stating that the Retail Order Tier is designed to ``encourage
Members to send additional Retail Orders that add liquidity to the
Exchange''). The Exchange notes that the Commission has expressed
concern that a significant percentage of the orders of individual
investors are executed in over-the-counter markets, that is, at off
exchange markets. Securities Exchange Act Release No. 61358 (January
14, 2010), 75 FR 3594 (January 21, 2010) (Concept Release on Equity
Market Structure, ``Concept Release''). In the Concept Release, the
Commission recognized the strong policy preference under the Act in
favor of price transparency and displayed markets. See also Mary L.
Schapiro, Strengthening Our Equity Market Structure (Speech at the
Economic Club of New York, Sept. 7, 2010) (available on the
Commission Web site) (comments of Commission Chairman on what she
viewed as a troubling trend of reduced participation in the equity
markets by individual investors, and that nearly 30 percent of
volume in U.S.-listed equities is executed in venues that do not
display their liquidity or make it generally available to the
public).
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Addition of $0.0032 Investor Tier
The Exchange believes that the addition of the $0.0032 Investor
Tier represents an equitable allocation of reasonable dues, fees, and
other charges because it incentivizes Members to add liquidity to the
EDGX Book. The increased liquidity benefits all investors by deepening
EDGX's liquidity pool, offering additional flexibility for all
investors to enjoy cost savings, supporting the quality of price
discovery, promoting market transparency and improving investor
protection. Volume-based rebates such as the one proposed herein have
been widely adopted in the cash equities markets, and are equitable
because they are open to all Members on an equal basis and provide
financial incentives that are reasonably related to the value to an
exchange's market quality associated with higher levels of market
activity, such as higher levels of liquidity provision and introduction
of higher volumes of orders into the price and volume discovery
processes. In addition, the Exchange also believes that these proposed
amendments are nondiscriminatory because they apply uniformly to all
Members.
Furthermore, the Exchange believes that its proposal to add a
requirement that a Member must have an ``added liquidity'' to ``added
liquidity plus removed liquidity'' ratio of at least 85% represents an
equitable allocation of reasonable dues, fees, and other charges
because it is designed to incentivize Members that represent retail
customers to send order flow to the Exchange. The $0.0032 Investor Tier
is designed to encourage greater participation on EDGX by Members that
represent retail customers but may not be able to satisfy the
requirements to achieve the Retail Order Tier in Footnote 4 above. In
particular, the Exchange notes that an ``added liquidity'' to ``added
plus removed liquidity'' ratio of at least 85% is a characteristic of
retail order flow, where retail members add substantially more
liquidity than they remove. Members that primarily post liquidity are
more valuable Members to the Exchange and the marketplace in terms of
liquidity provision. Because retail orders are more likely to reflect
long-term investment intentions than the orders of proprietary traders,
they promote price discovery and dampen volatility. Accordingly, their
presence on the EDGX Book has the potential to benefit all market
participants. For this reason, EDGX believes that it is equitable to
provide significant financial incentives to encourage greater retail
participation in the market in general and on EDGX in particular. The
Exchange believes that increasing the volume requirement and requiring
the addition of an ``added liquidity'' to ``added plus removed
liquidity'' ratio of at least 85% may result in increased volume in
retail orders by firms aspiring to meet the criteria of the tier and,
accordingly, would lead to benefits for all market participants.
The Exchange also believes that the proposed rebate of $0.0032 per
share for the $0.0032 Investor Tier and volume thresholds that require
Members to add a minimum of 0.15% of the TCV on a daily basis
represents an equitable allocation of reasonable dues, fees, and other
charges since higher rebates are directly correlated with more
stringent criteria.
For example, the tier most similar to the $0.0032 Investor Tier
that offers a higher rebate than the $0.0032 Investor Tier is the
$0.0035 Mega Tier. The $0.0035 Mega Tier provides a rebate of $0.0035
per share for all liquidity posted by a Member to EDGX if such Member
(i) adds or routes at least 4,000,000 shares of ADV prior to 9:30 a.m.
or after 4:00 p.m. (includes all flags except 6), (ii) adds a minimum
of 35,000,000 shares of ADV on EDGX in total, including during both
market hours and pre and post-trading hours, and (iii) has an ``added
liquidity'' to ``added plus removed liquidity'' ratio of at least 85%
where added flags are defined as B, V, Y, 3, 4, HA, MM, RP, and ZA and
removal flags are defined as N, W, 6, BB, MT, PI, PR, and ZR. In
addition, for meeting the aforementioned criteria, the Member will pay
a reduced rate for removing and/or routing liquidity of $0.0015 per
share for Flags N, W, 6, 7, BB, PI, RT, and ZR. The Exchange believes
that the criteria for the $0.0032 Investor Tier is far less onerous
than that of the $0.0035 Mega Tier because the $0.0035 Mega Tier
requires trading during pre- and post-trading hours, which is more
stringent for Members because of the limited time parameters associated
with these trading sessions, which generally results in less liquidity.
Therefore, the rebate of $0.0032 offered by the Investor Tier
accurately reflects the effort a Member would need to expend to
[[Page 41137]]
achieve the tier in comparison to the effort required to meet the
$0.0035 Mega Tier.
The next best similar tier after the $0.0032 Investor Tier, the
$0.0030 Investor Tier, provides a rebate of $0.0030 per share when
qualifying Members (i) post an ADV of at least 8,000,000 shares on
EDGX, (ii) have an ``added liquidity'' to ``added plus removed
liquidity'' ratio of at least 60% and (iii) have a message-to-trade
ratio of less than 6:1. The Exchange believes that the volume
requirement of the $0.0032 Investor Tier to add a minimum of 0.15% of
TCV is a more stringent volume requirement than that presented in the
$0.0030 Investor Tier. Likewise, the ``added liquidity'' to ``added
plus removed liquidity'' ratio of 85% in the $0.0032 Investor Tier is
more stringent than the 60% requirement in the $0.0030 Investor Tier.
Accordingly, the Exchange believes that, because Members aspiring to
meet the $0.0032 Investor Tier are required to add more liquidity to
EDGX compared to those aspiring to meet the $0.0030 Investor Tier,
those Members should be rewarded with a higher rebate.
Correction to Footnote 13
The Exchange believes that correcting an inadvertent drafting error
in the criteria of the $0.0030 Investor Tier with regard to the ``added
liquidity'' to ``added plus removed liquidity'' ratio is reasonable
because it will increase the level of transparency on the Exchange's
fee schedule and improve the Exchange's ability to effectively convey
the criteria necessary to achieve the $0.0030 Investor Tier. The
Exchange notes that its proposal conforms to an existing practice and
does not modify the rebate that the Exchange has been providing its
Members for achieving the tier. The Exchange has historically in
practice and will continue to calculate whether a Member satisfied
criteria (ii) under Footnote 13 if its ``added liquidity'' to ``added
plus removed liquidity'' ratio is at least 60%. Other than this
correction, the remainder of the footnote as it pertains to the $0.0030
Investor Tier would remain unchanged. Lastly, the Exchange also
believes that these proposed amendments are non-discriminatory because
they apply uniformly to all Members.
B. Self-Regulatory Organization's Statement on Burden on Competition
These proposed rule changes do 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 any of these changes
represent a significant departure from previous pricing offered by the
Exchange or pricing offered by any of the Exchange's competitors.
Additionally, Members may opt to disfavor the Exchange's pricing if
they believe that alternatives offer them better value. Accordingly,
the Exchange believes that the proposed changes would not impair the
ability of Members or competing venues to maintain their competitive
standing in the financial markets.
Amendment to Flag PR
The Exchange believes the proposed increased fee from $0.0027 to
$0.0029 per share for orders that yield Flag PR would increase
intermarket competition between the Exchange and its competitors that
offer similar discount in fees to remove liquidity associated with
routing strategies.\15\ The Exchange believes that its proposal would
neither increase nor decrease intramarket competition because the
increased rate would apply uniformly to all Members.
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\15\ See Fee to Remove Liquidity for Routable Orders in the
Nasdaq OMX PSX Price List available at http://www.nasdaqtrader.com/Trader.aspx?id=PSX_Pricing (last visited June 27, 2013) (charging
similar discounted rates to remove liquidity of $0.0025 and
$0.0028).
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Amendment to Flag RQ
The Exchange believes the proposed increased fee from $0.0027 to
$0.0029 per share for orders that yield Flag RQ would increase
intermarket competition between the Exchange and its competitors that
offer similar routing fees.\16\ The Exchange believes that its proposal
would neither increase nor decrease intramarket competition because the
increased rate would apply uniformly to all Members.
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\16\ See BATS BZX fee schedule, describing Standard Routing
Pricing available at http://cdn.batstrading.com/resources/regulation/rule_book/BATS-Exchanges_Fee_Schedules.pdf (last
visited June 27, 2013) (charging $0.0029 per share for shares
executed at any other venue utilizing routing strategies ``CYCLE'',
``RECYCLE'', ``Parallel D'', and ``Parallel 2D'').
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Ministerial Changes to Footnote 1
The Exchange believes that the non-material changes to the first
paragraph of Footnote 1 regarding the $0.0035 Mega Tier would not
impose a burden on competition because it simply seeks to align the
formatting of Footnote 1 with similar paragraphs within the Fee
Schedule. The Exchange does not propose to alter the requirements
Members need to satisfy to be eligible for the $0.0035 Mega Tier rebate
in Footnote 1.
The Exchange also believes relocating the definition of TCV within
Footnote 1 would not impose a burden on competition because it simply
seeks to add clarity to the Fee Schedule.
Amendments to the Market Depth Tier
The Exchange believes that its proposal to decrease the ADV
requirement in Flag HA in the Market Depth Tier would increase
intermarket competition because the lower ADV requirement would
incentive Members that could not previously meet the tier to send
higher volume to the Exchange. The Exchange believes that its proposal
would neither increase nor decrease intramarket competition because the
rate for the Market Depth Tier would continue to apply uniformly to all
Members and the ability of some Members to meet the tier would only
benefit other Members by contributing to increased price discovery and
better market quality at the Exchange.
Amendments to the Current $0.0032 Mega Tier (Post 0.12% of TCV)
The Exchange believes that decreasing the rebate for the current
$0.0032 Mega Tier will not impose any burden on intermarket competition
not necessary or appropriate in furtherance of the purposes of the Act.
The proposed rebate decrease, in conjunction with the addition of the
new $0.0032 Mega Step Up Tier, would contribute to increased price
discovery and better market quality at the Exchange as a result of the
liquidity added by those Members that aspire to meet the tier. This
would make the Exchange more competitive with other market centers. The
Exchange believes that its proposal would neither increase nor decrease
intramarket competition because the increased rate would apply
uniformly to all Members.
Addition of the New $0.0032 Mega Step Up Tier
The Exchange believes that its proposal to add the $0.0032 Mega
Step Up Tier would increase intermarket competition because Members
that seek to meet the tier would be required to send higher volume to
the Exchange. The Exchange believes that its proposal would neither
increase nor decrease intramarket competition because the rate for the
$0.0032 Market Step Up Tier would continue to apply uniformly to all
Members and the ability of some Members to meet the tier would only
benefit other Members by contributing to increased price discovery and
better market quality at the Exchange as a result of the liquidity
added by those Members that aspire to meet the tier.
Amendment to Retail Order Tier
The Exchange believes that adding criteria to the Retail Order Tier
that
[[Page 41138]]
Members must also have an ``added liquidity'' to ``added plus removed
liquidity'' ratio of at least 85% would increase intermarket
competition because Members that seek to meet the tier would be
required to send higher added volume to the Exchange. Regarding the
Retail Order Tier, the Exchange believes that its proposal to amend the
criteria to achieve the tier will increase competition for Retail
Orders because the proposed Retail Order Tier is comparable in price
and criteria to NYSE Arca, Inc. (``NYSE Arca'') and Nasdaq's retail
order tier.\17\
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\17\ See NYSE Arca, NYSE Arca Equities Trading Fees--Retail
Order Tier, available at http://usequities.nyx.com/markets/nyse-arca-equities/trading-fees (last visited June 27, 2013). See also
Nasdaq, Price List--Rebate to Add Displayed Designated Retail
Liquidity, available at http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2 (last visited June 27, 2013).
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The Exchange believes that its proposal would neither increase nor
decrease intramarket competition because the rate for the Retail Order
Tier would continue to apply uniformly to all Members and the ability
of some Members to meet the tier would only benefit other Members by
contributing to increased price discovery and better market quality at
the Exchange.
Addition of $0.0032 Investor Tier
The Exchange believes the addition of the $0.0032 Investor Tier to
Footnote 13 of the Fee Schedule would increase intermarket competition
because Members that seek to meet the tier would be required to send
higher volume to the Exchange. The Exchange believes that its proposal
would neither increase nor decrease intramarket competition because the
rate for the $0.0032 Investor Tier would continue to apply uniformly to
all Members and the ability of some Members to meet the tier would only
benefit other Members by contributing to increased price discovery and
better market quality at the Exchange, especially during pre- and post-
market sessions.
Correction to Footnote 13
The Exchange believes that correcting an inadvertent drafting error
in the criteria regarding the ``added to remove liquidity ratio'' would
not impose a burden on intermarket competition because it simply
clarifies for Members how the ratio under criteria (ii) in Footnote 13
has and will continue to be calculated by the Exchange. The Exchange
has historically and will continue to calculate whether a Member
satisfied criteria (ii) under Footnote 13 by dividing ``added
liquidity'' by ``added plus removed liquidity'' and determining whether
the ratio is at least 60%. The Exchange does not propose to amend any
of the existing criteria under Footnote 13. It simply seeks to correct
in its Fee Schedule how the ratio under criteria (ii) has and will
continue to be calculated. The Exchange believes that its proposal
would neither increase nor decrease intramarket competition because the
criteria, as amended, in Footnote 13 would continue to apply uniformly
to all Members.
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 \18\ and Rule 19b-4(f)(2) \19\ thereunder. At
any time within 60 days of the filing of such proposed rule change, the
Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-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-2013-25 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-2013-25. 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 10:00 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-2013-25 and should be
submitted on or before July 30, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-16378 Filed 7-8-13; 8:45 am]
BILLING CODE 8011-01-P