[Federal Register Volume 75, Number 226 (Wednesday, November 24, 2010)]
[Notices]
[Pages 71783-71785]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-29590]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63335; File No. SR-EDGA-2010-18]
Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of
Filing of Proposed Rule Change To Amend EDGA Rules 11.9(b)(1)(C) and
11.5(c)(7) Regarding Step-Up Orders
November 18, 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 November 8, 2010, EDGA Exchange, Inc. (the ``Exchange'' or
``EDGA'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. 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 EDGA Rule 11.9(b)(1)(C) regarding
the description of the Step-up order type. The Exchange also proposes
to introduce Rule 11.5(c)(7) to allow Mid-Point Match orders entered in
response to Step-up orders to be processed pursuant to Rule
11.9(b)(1)(C).). The text of the proposed rule change is available on
the Exchange's Internet Web site at http://www.directedge.com, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
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 Exchange 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
Exchange Rule 11.5(c)(11) defines a Step-up order as a ``market or
limit order with the instruction that the System display the order to
Users at or within the NBBO price pursuant to Rule 11.9(b)(1)(C).''
Exchange Rule 11.9(b)(1)(C), in turn, states that orders shall be
displayed to Users \3\ (hereinafter referred to as ``Members''),\4\ in
a manner that is separately identifiable from other Exchange orders, at
or within the NBBO price for a period of time not to exceed five
hundred milliseconds as determined by the Exchange (the ``Step-up
Display Period).'' The Step-up Display Period is currently set at 25
milliseconds.
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\3\ Exchange Rule 11.9(b)(1) provides that (prior to display of
an order to a User), an incoming order shall first attempt to be
matched for execution against orders in the EDGA Book.
\4\ Exchange Rule 1.5(cc) defines a User as ``any Member or
Sponsored Participant who is authorized to obtain access to the
System pursuant to Rule 11.3.''
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The Exchange proposes to amend Rule 11.9(b)(1)(C) to add language
to the rule text which will provide that at the conclusion of the Step-
up Display Period, the Step-up order shall execute against responsive
User orders priced at or within the NBBO, prevailing at the end of the
Step-up Display Period on a price/time priority basis consistent with
Rule 11.8(a)(1) and (2). Rules 11.8(a)(1) and (2), in turn, provide
that orders of Users shall be ranked and maintained in the EDGA Book
based on the following priority: (i) The highest-priced order to buy
(or lowest-priced order to sell) shall have priority over all other
orders to buy (or orders to sell); (ii) where orders to buy (or sell)
are made at the same price, the order clearly established as the first
entered into the System at such particular price shall have precedence
at that price, up to the number of shares of stock specified in the
order. Commencing on the six month anniversary of {Insert Commission
approval date of this rule filing{time} , the orders eligible for
executing against Step-up orders shall be expanded to include User
orders priced better but not outside the NBBO at the end of the Step-up
Display Period (such orders, ``Eligible Book Orders'').
In effect, Step-up orders permit a Member to initiate a price
auction of such orders by displaying order solicitation information to
other Members simultaneously, provided such other Members have elected
to receive such order information (each such Member, an ``Electing
Member.''). After the passage of the Step-up Display Period, the Step-
up orders are executed against responses and, commencing on the six
month anniversary of {Insert Commission approval date of this rule
filing{time} , Eligible Book Orders, on a price/time priority basis in
accordance with Rule 11.8(a)(1) and (2). Responses are accumulated for
the Step-up Display Period by the Exchange, rather than processed at
arrival time. Eligible Book Orders will continue to be eligible for
execution against the EDGA Book during the Step-up Display Period.
For example, assume the NBBO (national best bid/offer) is 10.10 x
10.12. If Member A enters a Step-up order to buy 500 shares of ABC
security at the prevailing national best offer ($10.12) and such Step-
up order cannot execute against the EDGA Book, then Electing Members
will receive a solicitation to sell 500 shares of ABC security at
$10.12 or lower. If Electing Members X, Y, and Z transmit an order to
sell 500 shares (or less) of ABC security at the prevailing national
best offer or lower (i.e., $10.12 or lower), within the Step-up Display
Period, they would all participate in a price auction, which would be
awarded at the end of the Step-up Display Period on a price/time
priority basis based on the prevailing NBBO at the end of such time
period. Therefore, if EDGA receives an order to sell 500 shares at
$10.11 from Electing Member X, then receives an order to sell 200
shares at $10.10 from Electing Member Y and lastly receives an order to
sell 200 shares at $10.11 from Electing Member Z, Electing Member Y
would have priority over Electing Members X and Z based on price
priority, assuming that such orders were received within the Step-up
Display Period. As a result, Electing Member Y's order would execute
[[Page 71784]]
against Member A's Step-up order for 200 shares at $10.10. The
remaining 300 shares would be awarded to Electing Member X at $10.11,
since Electing Member X has time priority over Electing Member Z.
Following the six month anniversary of {Insert Commission approval date
of this rule filing{time} , if non-electing Member W had an order to
sell 500 shares at $10.11 that was entered before Electing Member X's
order and it was not otherwise executed on the EDGX Book prior to the
end of the Step-up Display Period, then the remaining 300 shares in the
above example would be executed against Member W's order, since Member
W would have time priority over both Electing Members X and Z.
The Exchange believes that this proposed amendment provides more
transparency regarding the timing associated with the price auction.
The Exchange also proposes to add a new order type as Rule
11.5(c)(7) to allow Mid-Point Match orders that are entered in response
to Step-up orders to be eligible for execution pursuant to Rule
11.9(b)(1)(C), as described above. As proposed, the Mid-Point Match
order would be ``an order with an instruction to execute it at the
midpoint of the NBBO.'' This order type differs from the Mid-Point Peg
order in that it can only be used in response to a Step-up order type,
whereas the Mid-Point Peg order can be entered as a limit order but
cannot be used in response to a Step-up order. Further, the Mid-Point
Peg order can execute at a price better than the midpoint of the NBBO,
while the Mid-Point Match order will be time-stamped and priced at the
end of the Step-up Display Period.
In response to the price auction described above, the Exchange will
not accept orders priced in subpennies. The respondent User could enter
a Mid-Point Match order, however, that would be eligible for execution
at the midpoint of the prevailing NBBO at the end of the Step-up
Display Period.
The Exchange believes the midpoint response described above will
provide an additional pricing mechanism for the respondent User that is
willing to offer price improvement, but is unwilling to cross the
spread between the national best bid and offer to do so. By providing
this option, the Exchange believes that a greater proportion of Step-up
orders will receive price improvement. In addition, because the
midpoint response will execute all trades at the midpoint of the NBBO,
it will never execute a trade outside of the NBBO. If the national best
bid for a security underlying a Step-up order equals or ``locks'' the
national best offer for such security, a Mid-Point Match order response
will execute all trades at the locked price.
The Step-up order process will not generate an execution if the
national best bid (offer) for the security underlying a Step-up order
is priced better than or ``crosses'' the national best offer (bid) for
such security. In the event of a ``crossed'' market or an absence of
responsive User orders at or within the NBBO and, commencing on the six
month anniversary of {Insert Commission approval date of this rule
filing{time} , Eligible Book Orders at the end of the Step-up Display
Period, the Step-up process shall terminate and the Step-up order shall
be cancelled or routed in accordance with the User's instructions.
Other Technical Amendments
The Exchange proposes to make conforming changes to the numbering
of current rules 11.5(c)(7)-(14) to (c)(8)-(15) as a result of the
insertion of the Mid-Point Match order type in Rule 11.5(c)(7), as
described above. Similarly, the references to the newly numbered rules
are also proposed to be amended in Rule 11.5(c) and Rule 11.8(a)(2)(C).
2. Statutory Basis
The statutory basis for the proposed rule change is Section 6(b)(5)
of the Securities Exchange Act of 1934 (the ``Act''),\5\ which requires
the rules of an exchange to promote just and equitable principles of
trade, to remove impediments to and perfect the mechanism of a free and
open market and a national market system and, in general, to protect
investors and the public interest. The proposed rule change also is
designed to support the principles of Section 11A(a)(1) \6\ of the Act
in that it seeks to assure fair competition among brokers and dealers
and among exchange markets. The Exchange believes that the proposed
rule meets these requirements in that it seeks to promote the efficient
execution of investor transactions, and thus investor confidence, over
the long term by providing additional transparency relating to the
execution of Step-up orders.
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\5\ 15 U.S.C. 78f(b)(5).
\6\ 15 U.S.C. 78k-1(a)(1).
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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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date 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 e-mail to [email protected]. Please include
File Number SR-EDGA-2010-18 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-EDGA-2010-18. 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,\7\ all subsequent
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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, 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-EDGA-2010-18 and should be
submitted on or before December 15, 2010.
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\7\ The text of the proposed rule change is available on the
Commission's Web site at http://www.sec.gov/rules/sro.shtml.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-29590 Filed 11-23-10; 8:45 am]
BILLING CODE 8011-01-P