[Federal Register Volume 75, Number 130 (Thursday, July 8, 2010)]
[Notices]
[Pages 39307-39311]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-16563]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62424; File No. SR-EDGX-2010-04]
Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Implementing
Fees for Use of EDGX Exchange, Inc.
June 30, 2010.
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 June 30, 2010, the EDGX Exchange, Inc. (the ``Exchange'' or the
``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the
[[Page 39308]]
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 establish its initial fees and rebates
applicable to Members \3\ of the Exchange pursuant to EDGX Rule 15.1(a)
and (c). The Exchange intends to implement this rule proposal
immediately upon commencement of its operations as a national
securities exchange.
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\3\ A Member is any registered broker or dealer that has been
admitted to membership in the Exchange.
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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.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in sections A, B and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On March 12, 2010, the Securities and Exchange Commission (``SEC''
or ``Commission'') approved EDGX Exchange, Inc.\4\ (the ``Exchange'')
Form 1 application under the Act, which sought registration as a
national securities exchange pursuant to Section 6 of the Act.\5\
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\4\ EDGA Exchange, Inc. will file a separate fee schedule with
the Commission.
\5\ See Securities and Exchange Release No. 61698 (March 12,
2010), 75 FR 13151 (March 18, 2010) (approving File No. 10-196).
EDGA Exchange, Inc. (``EDGA'') was also approved as an exchange, and
will file a separate 19b-4 filing with its fee schedule.
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EDGX Exchange proposes to implement a fee schedule applicable to
use of the Exchange commencing on the date it begins operating as a
national securities exchange. The Exchange currently intends to
commence operations as a national securities exchange on July 2, 2010.
Please find below a description of the fees and rebates that the
Exchange intends to impose under the initial, proposed fee schedule.
(i) Fees for Removing Liquidity
For securities priced $1.00 and over, the Exchange is proposing to
charge $0.0029 per share for executions that remove liquidity from the
Exchange. For securities priced less than $1.00, there is a charge of
0.10% of the total value of the transaction.
The rebates for removing liquidity will apply to securities traded
on the Exchange pursuant to unlisted trading privileges that are listed
on: (A) The New York Stock Exchange (``NYSE''); (B) regional exchanges,
such as NYSE Arca Equities (``NYSE Arca'') and NYSE Alternext US
(``NYSE Alternext,'' formerly the American Stock Exchange); and (C) the
NASDAQ Stock Market (``Nasdaq'') (``Tape A Securities'', ``Tape B
Securities'' and ``Tape C Securities'', respectively, and collectively,
``All Tapes'').
Applicable Flags \6\
For orders in Tapes B and C Securities that remove liquidity from
the EDGX book, a charge of $0.0029 per share is proposed, as described
above, and this situation yields Flag ``N.'' For orders in Tape A
Securities that remove liquidity from the EDGX book, a charge of
$0.0029 is proposed, as described above, and this situation yields Flag
``W.''
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\6\ The following rebates and fees apply to orders in securities
priced $1 and over. For securities priced less than $1.00, there is
a charge of 0.10% of the total value of the transaction.
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For orders that remove liquidity from LavaFlow ECN, a charge of
$0.0029 per share is proposed and this situation yields Flag ``U.''
However, if a Member posts an average of 100,000 share or more per day
using a ROLF strategy (yielding Flag ``M''), then said Member's fee
when routed to LavaFlow decreases to $0.0023 per share (yielding Flag
``U''). The latter rate reflects a pass-through of the LavaFlow ECN
fee. A ROLF strategy sweeps the EDGA book and the remainder routes to
LavaFlow.
For orders that remove liquidity in the Pre-Opening \7\ and Post-
Closing \8\ Sessions in securities on all Tapes, a charge of $0.0029
per share is also proposed. This situation yields Flag ``6.''
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\7\ As defined in EDGA Rule 1.5(q).
\8\ As defined in EDGA Rule 1.5(p).
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(ii) Standard Rebates for Adding Liquidity
For securities priced $1.00 and over, the Exchange is proposing to
rebate $0.0029 per share for executions that add liquidity to the
Exchange. For securities priced less than $1.00, there is a rebate of
$0.00003 to add liquidity. The Exchange believes that this rebate is
appropriate as it represents 30% of the minimum price increment for
securities priced less than $1.00 ($0.0001) and effectively aligns the
rebate with access fee caps under Regulation NMS.\9\ The charge for
adding liquidity will apply to securities traded on the Exchange
pursuant to unlisted trading privileges that are Tape A Securities,
Tape B Securities, and Tape C Securities.
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\9\ The Access Rule of Regulation NMS limits the fees any
trading center can charge, or allow to be charged, for accessing its
protected quotations, both displayed and reserve size, to no more
than $0.003 per share. See Rule 610(c) of Regulation NMS, Securities
and Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June
29, 2005).
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However, Members can qualify for a rebate of $0.0032 per share for
all liquidity posted on EDGX if they add or route at least 5,000,000
shares of average daily volume prior to 9:30 a.m. or after 4:00 p.m.
(includes all flags except 6) and add a minimum of 50,000,000 shares of
average daily volume on EDGX in total, including during both market
hours and Pre-Opening and Post-Closing Sessions. For the month of July
2010 only, these average daily volume thresholds (5,000,000 and
50,000,000) will be multiplied by a fraction, the numerator of which
shall be the sum of the daily consolidated volumes for each Exchange-
traded symbol for all days that such symbol is traded on the Exchange
during the month of July and the denominator of which shall be the
monthly consolidated volume for all Exchange-traded symbols during the
month of July. This calculation adjusts these volume thresholds during
the month of July when trading is being phased into the Exchange from
Direct Edge's ECN and reflects the portion of the volume that occurs on
the Exchange during the month.
Additionally, upon a Member's request, EDGX Exchange will aggregate
share volume calculations for wholly owned affiliates on a prospective
basis.
Applicable Flags \10\
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\10\ The following rebates and fees apply to orders in
securities priced $1.00 and over. For securities priced less than
$1.00, there is no rebate.
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For orders in Tape B Securities that add liquidity to the EDGX
book, a rebate of $0.0029 per share is proposed, as described above,
and this situation yields Flag ``B.'' For orders in Tape A
[[Page 39309]]
Securities that add liquidity to the EDGX book, a rebate of $0.0029 per
share is proposed, as described above, and this situation yield Flag
``V.'' For orders in Tape C Securities that add liquidity to the EDGX
book, a rebate of $0.0002 per share is proposed, as described above,
and this situation yields Flag ``Y.'' For all cases described above,
Members could receive higher rebates if they meet the thresholds
described above.
For those orders that add liquidity on LavaFlow ECN, a rebate of
$0.0024 per share is proposed and this situation would yield Flag
``M.'' However, if a Member posts an average of 100,000 shares or more
using a ROLF routing strategy, yielding flag M, then such Member's fee,
when removing liquidity from LavaFlow, will decrease to $0.0023 per
share and yield flag U, as described above. For orders that add
liquidity in the Pre-Opening and Post-Closing Sessions in Tapes A & C
Securities, a rebate of $0.0029 per share is proposed (yielding Flag
``3''). For those orders that add liquidity in the Pre-Opening and
Post-Closing Sessions in Tape B securities, a rebate of $0.0029 per
share is also proposed (yielding Flag ``4''). However, Members could
receive higher rebates if they meet the thresholds described above.
The Exchange believes that this fee structure is equitable in that
it applies uniformly to all Members and provide higher rebates for
higher volume thresholds, resulting from lower administrative costs.
Destination-specific fees are also based, in part, on fees charged by
other market centers.
(iii) Routing Charges
The Exchange proposes to charge the routing charges described
below. All charges by the Exchange for routing are applicable only in
the event that an order is executed. In other words, there is no charge
for orders that are routed away from the Exchange but are not filled.
In connection with routing of orders away from the Exchange, the
Exchange proposes to charge $0.0029 per share for securities priced
$1.00 and over and 0.30% of the total dollar value of the transaction
\11\ for securities priced less than $1.00.
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\11\ This charge applies in all cases, except when (i) routing
to the NYSE, where securities priced under $1.00 are charged $0.0021
per share when removing liquidity; (ii) when routing to Nasdaq BX
and removing liquidity in Tapes A & C Securities, where securities
priced under $1.00 are charged 0.10% of the dollar value of the
transaction; and (iii) when routing to Nasdaq and removing liquidity
in securities on all Tapes, securities priced under $1.00 are
charged 0.20% of the dollar value of the transaction. These fees are
proposed to be indicated by footnote number 3 being appended to the
``C,'' ``J,'' ``L,'' and ``2'' flags.
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For destination specific orders, the following fees/rebates are
proposed to apply to all securities priced $1 and over:\12\ For orders
that are routed to Nasdaq using the INET order type, and remove
liquidity in Tape B Securities, a charge of $0.0030 per share is
proposed (yielding Flag ``2''). For securities routed to Nasdaq using
the INET order type and that remove liquidity in Tape A & C Securities,
a charge of $0.0030 per share is proposed (yielding Flag ``L''). The
INET order type sweeps the EDGA book and removes liquidity from Nasdaq,
if the order is marketable, or posts on Nasdaq, if the order is non-
marketable. Members routing an average daily volume (``ADV''): (i) Less
than 5,000,000 shares will be charged $0.0030 per share, as described
above; (ii) equal to or greater than 5,000,000 shares but less than
20,000,000 shares will be charged Nasdaq's best removal tier rate per
share; (iii) equal to or greater than 20,000,000 shares but less than
30,000,001 shares will be charged Nasdaq's best removal tier rate--
$0.0001 per share; and (iv) equal to or greater than 30,000,001 shares
will be charged Nasdaq's best removal tier rate--$0.0002 per share. The
rates, in all cases, are calculated for shares removed from Nasdaq. The
Exchange believes that this fee structure is equitable in that it
applies uniformly to all Members and provides lower fees for higher
volume thresholds, resulting from lower administrative costs.
Destination-specific fees are also based, in part, on fees charged by
other market centers.
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\12\ For securities priced below $1.00, a standard routing
charge of 0.30% of the total dollar value of the transaction
applies, except when routing to the NYSE, as described above.
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For those orders routed to Nasdaq that add liquidity, a rebate of
$0.0020 per share is proposed (yielding Flag ``A''). For orders routed
to Nasdaq OMX BX in Tape A and C Securities and that remove liquidity,
a rebate of $0.0001 per share is proposed (yielding Flag ``C''). For
orders routed or re-routed to NYSE and that remove liquidity, a charge
of $0.0021 per share is proposed (yielding Flag ``D'').\13\ For orders
routed to NYSE that add liquidity, a rebate of $0.0013 per share is
proposed (yielding Flag ``F''). For orders routed to NYSE Arca in Tape
A & C Securities that remove liquidity, a charge of $0.0030 per share
is proposed (yielding Flag ``G''). For orders routed to EDGA Exchange,
Inc., a charge of $0.0029 per share is proposed (yielding Flag ``I'').
For orders routed to Nasdaq that remove liquidity, a charge of $0.0030
per share is proposed (yielding Flag ``J''). For orders routed to the
BATS Exchange (``BATS'') using a ROBA order type, a charge of $0.0025
per share is proposed (yielding Flag ``K''). A ROBA order type sweeps
the EDGA book and routes to BATS Exchange as an immediate or cancel
(IOC) order, with the remainder being cancelled if there is no
execution.
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\13\ This charge, instead of the standard 0.30% of the dollar
value of the transaction described above, also applies to securities
priced less than $1.00.
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For orders using the ROUQ or ROUC order types, a charge of $0.0020
per share is proposed (yielding Flag ``Q''). A ROUQ order type sweeps
the EDGA book, then routes to other destination centers. A ROUC order
type sweeps the EDGA book, then other destination centers, then Nasdaq
OMX BX, then NYSE, and the remainder posts to EDGX. For any orders that
are re-routed by EDGA, a charge of $0.0030 per share is proposed
(yielding Flag ``R''). For Directed Intermarket Sweep Orders \14\
(yielding Flag ``S''), a charge of $0.0033 per share is proposed. For
orders that are routed and no other flag applies, a standard charge of
$0.0029 per share applies, as discussed above (yielding Flag ``X'').
For orders that are routed using the ROUZ order type, a charge of
$0.0010 per share is proposed (yielding Flag ``Z''). A ROUZ order type
sweeps the EDGA book before interacting with solicited orders. For
orders routed during the Pre-Opening and Post-Closing Sessions, a
charge of $0.0030 per share applies (yielding Flag ``7''). For orders
that are routed using the ROUD or ROUE order types, a charge of $0.0020
is proposed (yielding Flag ``T''). A ROUD order sweeps the EDGA book
before being routed to other destination centers. A ROUE order type
sweeps the EDGA book, then other destination centers, and any remainder
routes to other market centers.
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\14\ As defined in EDGA Rule 11.5(d).
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The differences between the fees charged for routing to specific
market centers and routing of specific order types described above are
due to different cost structures at the various market centers to which
orders may be routed and other factors. Similarly, lower transaction
fees at other destination centers permit the Exchange to charge lower
routing fees for orders routed to such venues. Because the Exchange
incurs additional costs and performs additional services in connection
with the routing of Directed ISOs, it charges a higher routing fee for
such orders. Finally, because the Exchange believes that a uniform
routing fee for all other orders routed away from the Exchange (other
than those described above) provides
[[Page 39310]]
Members with certainty as to transaction costs, it proposes to charge a
standard routing fee of $0.0029 per share, as described above, for such
orders, rather than further differentiating routing fees that it
charges to Members.
Other Charges and Flags
For customer internalization (i.e, same MPID),\15\ there is no
charge nor rebate because the fees for removing liquidity would be
offset by the rebate received for adding liquidity. This situation
yields Flag ``E.'' During the Pre-Opening and Post-Closing sessions,
there are also no charges nor rebates, but this situation yields Flag
``5.''
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\15\ This occurs when two orders presented to the Exchange from
the same Member (i.e, MPID) are presented separately and not in a
paired manner, but nonetheless inadvertently match with one another.
Members are advised to consult Rule 12.2 respecting fictitious
trading.
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For orders that execute during the Nasdaq opening cross (NOOP), it
is proposed that these orders will be charged $0.0005 per share and
yield Flag ``O.'' However, this fee is proposed to be capped at $10,000
per month per Member, which is a pass-through of Nasdaq's opening cross
cap.
For Direct Edge opening transactions, where Members match with each
other at the midpoint of the national best bid/offer (``NBBO'') during
EDGX's opening process, IPO, or post-halt, a charge of $0.0010 is
proposed, yielding flag ``OO.''
For Mid-Point Match (``MPM'') orders,\16\ the following applies:
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\16\ As defined in EDGX Rule 11.5(c)(7).
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Where a Member added liquidity in the MPM product, a
charge of $0.0010 per share is proposed (yielding Flag ``MM.'')
Where a Member removed liquidity in the MPM product, a
charge of $0.0010 per share is proposed (yielding Flag ``MT.'')
A MPM Cross, where a Member crossed/matched with itself in
the MPM product (Member is both sides of the trade), there is no charge
proposed (yielding Flag ``AA'').
The lower charge for MPM orders is designed to incent Members to
use this order type, which provides price improvement by providing
liquidity at the midpoint, and is similar to existing pricing for this
order type on the International Securities Exchange, LLC.\17\
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\17\ See Securities Exchange Act Release No. 57828 (May 15,
2008), 73 FR 30433 (May 27, 2008) (SR-ISE-2008-38).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\18\ in general, and
furthers the objectives of Section 6(b)(4),\19\ 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. The Exchange 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. Finally, the Exchange believes that the proposed
rates are equitable in that they apply uniformly to all Members and
provide higher rebates for higher volume thresholds, resulting from
lower administrative costs. 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 those members that
opt to direct orders to the Exchange rather than competing venues.
Finally, the Exchange believes that the proposed rates further the
objectives of Regulation NMS by promoting competition and granting fair
and equal access to all exchange participants.
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\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(4).
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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 \20\ and Rule 19b-4(f)(2) \21\ thereunder. At any
time within 60 days of the filing of such proposed rule change, the
Commission may summarily abrogate 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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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-EDGX-2010-04 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-2010-04. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission,\22\ 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 39311]]
available publicly. All submissions should refer to File Number SR-
EDGX-2010-04 and should be submitted on or before July 29, 2010.
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\22\ The text of the proposed rule change is available on
Exchange's Web site at http://www.directedge.com, on the
Commission's Web site at http://www.sec.gov, at EDGX, and at the
Commission's Public Reference Room.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16563 Filed 7-7-10; 8:45 am]
BILLING CODE 8010-01-P