[Federal Register Volume 79, Number 83 (Wednesday, April 30, 2014)]
[Notices]
[Pages 24463-24465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-09809]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72016; File No. SR-EDGX-2014-13]
Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing of Proposed Rule Change To Amend Footnote 4 of the Exchange's
Fee Schedule To Permit Members To Designate Their Retail Orders To Be
Identified as Retail on the EDGX Book Feed
April 24, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 17, 2014, EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Footnote 4 of its Fee Schedule to
permit Members to designate that their Retail Orders be identified as
Retail on the EDGX Book Feed. The text of the proposed rule change is
available on the Exchange's Internet Web site at www.directedge.com, at
the Exchange's principal office, and at the Public Reference Room of
the Commission.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in sections A, B and C below, of the
most significant aspects of such statements.
[[Page 24464]]
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 Footnote 4 of its Fee Schedule to
permit Members to designate that their Retail Orders be identified as
Retail on the EDGX Book Feed. Footnote 4 of the Exchange's Fee Schedule
defines a Retail Order \3\ and provides an attestation requirement \4\
that Members must complete to send Retail Orders to the Exchange.
Footnote 4 of the Exchange's Fee Schedule also provides that Members
may designate orders as Retail Orders on an order-by-order basis or a
port level basis by designating particular FIX ports as Retail Order
Ports.\5\
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\3\ A Retail Order is defined as (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. See Footnote 4 of the Exchange's
Fee Schedule available at http://www.directedge.com/Trading/EDGXFeeSchedule.aspx; Securities Exchange Act Release No. 68310
(November 28, 2012), 77 FR 71860 (December 4, 2012) (SR-EDGX-2012-
47) (Notice of Filing and Immediate Effectiveness); Securities
Exchange Act Release No. 69378 (April 15, 2013), 78 FR 23617 (April
19, 2013) (SR-EDGX-2013-13) (Notice of Filing and Immediate
Effectiveness).
\4\ Members must submit a signed written attestation, in a form
prescribed by the Exchange, that they have implemented policies and
procedures that are reasonably designed to ensure that substantially
all orders designated by the Member as a ``Retail Order'' comply
with the above requirements. See Footnote 4 of the Exchange's Fee
Schedule available at http://www.directedge.com/Trading/EDGXFeeSchedule.aspx; Securities Exchange Act Release No. 68310
(November 28, 2012), 77 FR 71860 (December 4, 2012) (SR-EDGX-2012-
47) (Notice of Filing and Immediate Effectiveness). See also
Securities Exchange Act Release No. 69852 (June 25, 2013), 78 FR
39420 (July 1, 2013) (SR-EDGX-2013-20) (Notice of Filing and
Immediate Effectiveness).
\5\ See Securities Exchange Act Release No. 68554 (December 31,
2012), 78 FR 966 (January 7, 2013) (SR-EDGX-2012-48) (Notice of
Filing and Immediate Effectiveness).
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Currently, Members may elect that their display-eligible orders
entered into the Exchange utilize Attributable Orders \6\ to include
their market participant identifier (``MPID'') with their published
quotations on the EDGX Book Feed. The Exchange now proposes to amend
Footnote 4 of its Fee Schedule to permit Members to designate that
their Retail Orders be identified as Retail on the EDGX Book Feed,
rather than by their MPID.\7\ A Member may elect that their Retail
Orders be identified as Retail on an order-by-order basis or instruct
the Exchange to identify all its Retail Orders as Retail on a port-by-
port basis where that port is also designated as a Retail Order Port.
However, if a Member instructs the Exchange to identify all its orders
as Retail on a Retail Order Port, it will not be able to designate any
Retail Order from that port as an Attributable Order or as a Non-
Attributable Order.\8\
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\6\ An Attributable Order is defined as, ``[a]n order that is
designated for display (price and size) including the Member's
market participant identifier (`MPID').'' See Rule 11.5(c)(18).
\7\ A Member's decision on whether to identify their Retail
Order as Retail under the proposed rule change will not impact that
Member's eligibility to qualify for a rebate under the Retail Order
Tier included in Footnote 4 of the Exchange's Fee Schedule.
\8\ A Non-Attributable Order is defined as ``[a]n order that is
designated for display (price and size) on an anonymous basis by the
Exchange. See Rule 11.5(c)(19).
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Implementation Date
The Exchange will announce the effective date of the proposed rule
change in a Trading Notice to be published no later than 30 days
following approval of the proposed rule change by the Commission.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\9\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\10\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, and to remove
impediments to and perfect the mechanism of a free and open market and
a national market system.
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\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposal will benefit market
participants and help to promote transparency by providing additional
information regarding quotations displayed on the Exchange and
disseminated via the EDGX Book Feed. Specifically, any Member who
satisfies the requirement under Footnote 4 of the Fee Schedule that
wishes to disclose via the EDGX Book Feed that their order is a Retail
Order will be permitted to do so, and such retail quotations will be
analogous to identified trading interest in other contexts.\11\ The
proposal also promotes transparency by disseminating additional order
information from Members who may otherwise designate their order as
Non-Attributable, and thereby not include their MPID with their
published quote on the EDGX Book Feed. As a result, the proposal will
provide Members additional visibility into the types of orders they may
interact with when an order is identified as a Retail Order. The
Exchange also believes that the proposed rule change is reasonable,
equitable and not unfairly discriminatory because it would encourage
Members who wish to execute against Retail Orders to send additional
orders to the Exchange. For example, the Exchange conducted a study of
its execution data from January 1, 2014 to March 31, 2014, which
indicated that Members who represent Retail Orders and utilize
Attributable Orders to include their MPID with their published quote on
the EDGX Book Feed received an 18% higher execution rate than Members
who represent Retail Orders that elected not to include their MPID on
the EDGX Book Feed via the use of a Non-Attributable Order.\12\
Therefore, the Exchange believes the increased liquidity would
potentially stimulating further price competition for Retail Orders,
deepening the Exchange's liquidity pool, supporting the quality of
price discovery, and promoting market transparency.
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\11\ For example, under the New York Stock Exchange, Inc.'s
(``NYSE'') Retail Liquidity Program, when there is a Retail Price
Improvement Order in a particular security, the NYSE disseminates an
indicator, known as the Retail Liquidity Identifier. See NYSE Rule
107C(j). See also NYSE MKT LLC (``NYSE MKT'') Rule 107C(j); NYSE
Arca, Inc. (``NYSE Arca'') Rule 7.44(j).
\12\ The Exchange compared the execution rates of Attributed
Orders to Non-Attributed Orders submitted by Members whose primary
business is representing retail customers or who designate their
orders as Retail Orders for purposes of Footnote 4 of the Exchange's
Fee Schedule. The Exchange calculated the execution rate by dividing
the total executed quantity by the total order quantity for buy
orders with a limit price greater than or equal to the National Best
Bid (``NBB'') and less than National Best Offer (``NBO'') and sell
orders with limit price greater than the NBB and less than or equal
to the NBO.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes its proposed amendments to its Fee Schedule
would not impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
believes that the proposed amendment will not burden intramarket
competition because the ability to designate Retail Orders to be
identified as Retail on the EDGX Book Feed, rather than by their MPID,
would be open to all Members that wish to send Retail Orders to the
Exchange. The Exchange believes the proposed rule change would increase
intermarket competition by identifying orders as Retail via the EDGX
Book Feed would enable the Exchange to better compete with other
exchanges that offer similar
[[Page 24465]]
retail order programs.\13\ The Exchange believes that the amendment, by
increasing the amount of disseminated information regarding Retail
Orders, will increase the level of competition around retail executions
resulting in better prices for retail investors.
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\13\ Id.
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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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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-2014-13 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-EDGX-2014-13. 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-2014-13, and should be
submitted on or before May 21, 2014.
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\14\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09809 Filed 4-29-14; 8:45 am]
BILLING CODE 8011-01-P