[Federal Register Volume 76, Number 72 (Thursday, April 14, 2011)]
[Notices]
[Pages 21076-21078]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-9045]
[[Page 21076]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64267; File No. SR-EDGA-2011-10]
Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Amendments to the EDGA Exchange, Inc. Fee Schedule
April 8, 2011.
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 7, 2011, the EDGA Exchange, Inc. (the ``Exchange'' or the
``EDGA'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its fees and rebates applicable to
Members \3\ of the Exchange pursuant to EDGA Rule 15.1(a) and (c). All
of the changes described herein are applicable to EDGA Members. The
text of the proposed rule change is available on the Exchange's
Internet Web site at http://www.directedge.com.
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\3\ A Member is any registered broker or dealer, or any person
associated with a registered broker or dealer, that has been
admitted to membership in the Exchange.
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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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to increase the rebate on Flag P from $0.0025
per share to $0.0027 per share for adding liquidity on EDGX via an
EDGA-originated ROUC routing strategy, as defined in Rule
11.9(b)(3)(a).
The Exchange proposes to reduce the rate on Flag T from $0.0020 per
share to $0.0012 per share for routing using the ROUD/ROUE routing
strategies, as defined in Rules 11.9(b)(3)(b) and (c)(i).
Currently, for orders routed during the Pre-Opening \4\ and Post-
Closing Sessions, \5\ a charge of $0.0030 per share applies (yielding
Flag ``7''). The Exchange proposes to reduce the rate to $0.0027 per
share for routing during these trading sessions.
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\4\ As defined in EDGA Rule 1.5(q).
\5\ As defined in EDGA Rule 1.5(p).
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Currently, when an order is routed using the ROUT routing strategy,
(as defined in Rule 11.9(b)(3)(c)(ii), a flag ``RT'' is yielded and a
fee of $0.0025 per share is assessed. However, when an order routes to
EDGX using the ROUT routing strategy, a Flag ``I'' is yielded, and a
fee of $0.0030 per share is assessed. The Exchange proposes that when
an order is routed using the ROUT routing strategy to EDGX Exchange, a
Flag ``RX'' is yielded and a fee of $0.0027 per share will be assessed.
This proposed language is included in footnote 10 of the fee schedule.
Thus, the Exchange notes that when an order is routed using the ROUT
routing strategy, it can either yield either a Flag ``RT'' or ``RX.''
The Exchange also notes that a Flag ``RX'' can also be yielded when an
order is routed using the ROUX routing strategy, as defined in Rule
11.9(b)(3)(c)(iii).
As a result of the insert of new language in footnote 10,
conforming changes have been made to re-number existing footnotes 10-12
as footnotes 11-13. New footnote 11 is also proposed to be clarified to
insert ``per share'' after the fee of $0.0030 to conform it with other
footnotes on the fee schedule.
EDGA Exchange proposes to implement these amendments to the
Exchange fee schedule on April 7, 2011.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Exchange Act,\6\ in general,
and furthers the objectives of Section 6(b)(4),\7\ in particular, as it
is designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its members and other persons using its
facilities.
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\6\ 15 U.S.C. 78f.
\7\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that the proposed increased rebate for Flag P
from $0.0025 to $0.0027 per share is an equitable allocation of
reasonable dues, fees, and other charges. The ROUC routing strategy, as
defined in Rule 11.9(b)(3)(a), checks the System for available shares
and then is sent sequentially to destinations on the System routing
table, Nasdaq OMX BX, and NYSE. If shares remain unexecuted after
routing, they are posted to EDGX Exchange, Inc. (``EDGX''). The
increased rebate is designed to incentivize Members to route through
EDGA to reach multiple sources of liquidity before routing to other low
cost destinations, and thereby potentially increases volume on EDGA to
the extent an order using the ROUC routing strategy executes on EDGA.
The increased rebate allows Members to reach multiple sources of
liquidity by routing order flow through EDGA rather than going directly
to various venues. The increased rebate also provides Members with
superior economics as the $0.0027 per share rebate represents a flat
rate if the ROUC routing strategy posts to EDGX, and thus allows EDGA
Members to share in potential volume tier savings realized by the
Exchange.\8\ If the Member had routed to EDGX directly and the order
had added liquidity to EDGX, the Member could receive rebates ranging
from $0.0023-$0.0033, depending on if a volume threshold were
satisfied.\9\ The $0.0027 per share rebate thus represents a rate in
between these various tiered and non-tiered rebates provided for adding
liquidity to EDGX. This type of rate is also similar to EDGA's rate for
removing liquidity from LavaFlow (Flag M). The standard removal rate of
$0.0029 per share is reduced to $0.0023 per share for orders routed to
LavaFlow that achieve certain volume thresholds, as EDGA Members are
able to share in potential volume tier savings realized by EDGA when
routing to LavaFlow.\10\ This type of rate is also similar to other
rates that EDGA charges, such as ``one-under'' pricing for routing to
Nasdaq using the INET order type and is consistent with the processing
of similar routing strategies by EDGA's competitors.\11\ In
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this rate, EDGA takes into account the rates that it is charged or
rebated when routing to other low cost destinations, such as EDGX.
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\8\ See EDGX fee schedule, footnote 1.
\9\ Id.
\10\ See footnote 6 of the EDGA fee schedule.
\11\ See footnote 7 of the EDGA fee schedule. See also BATS BZX
fee schedule: Discounted Destination Specific Routing (``One
Under'') to NYSE, NYSE ARCA and NASDAQ. See Securities Exchange Act
Release No. 62858, 75 FR 55838 (September 14, 2010) (SR-BATS-2010-
023) (modifying the BATS fee schedule in order to amend the fees for
its BATS + NYSE Arca destination specific routing option to continue
to offer a ``one under'' pricing model).
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The Exchange believes that the rebate of $0.0027 is reasonable as
it is consistent with how other exchanges pass through rebates for
orders routed to a different exchange that add liquidity. For example,
when Nasdaq routes to Nasdaq BX, Nasdaq passes back Nasdaq BX's
standard rebate of $0.0014 per share. When NYSE Arca routes to NYSE,
NYSE Arca passes back the standard NYSE rebate of $0.0015 per share.
These rebates generally approximate what the originating exchange
receives from the exchange that is routed to plus or minus a certain
differential. EDGA's pricing is consistent with this premise.
The Exchange believes that the proposed rebate is non-
discriminatory in that it applies uniformly to all Members.
The Exchange believes that the proposed reduced rate for Flag T
(routing using ROUD/ROUE routing strategies) of $0.0012 per share is an
equitable allocation of reasonable dues, fees, and other charges. Lower
fees are directly correlated with a higher number of intermediate low
cost destinations as the more intermediate low cost destinations that
there are creates a greater potential for an execution at a lower cost
destination before reaching a higher cost destination. For example, the
ROUQ routing strategy, as defined in Rule 11.9(b)(3)(c)(iv),\12\ routes
to the lowest number of low cost destinations compared to the ROUD/ROUE
\13\ and ROUZ \14\ routing strategies. As a result, the Exchange
charges a higher fee for such strategy of $0.0020 per share (Flag Q).
The ROUD/ROUE routing strategies route to a medium number of low cost
destinations and the ROUZ routing strategy routes to the highest number
of low costs destinations amongst these routing strategies. As a
result, the Exchange will assess a proposed fee of $0.0012 per share
for the ROUD/ROUE routing strategies and assesses the lowest fee for
the ROUZ routing strategy of $0.0010 per share. The more low cost
destinations that an order routes to allows the Exchange to pass on the
savings it receives from such destinations to its members in lower
fees. Therefore, it is equitable that ROUQ has the highest fee of
$0.0020 per share, while ROUD/ROUE has an intermediate fee of $0.0012
per share, and ROUZ has the lowest fee of the three strategies of
$0.0010 per share. The Exchange also notes that a difference between
ROUQ and ROUZ routing strategies is that the additional routing
destinations in the ROUZ routing strategy are intermediate between the
routing destinations in ROUQ. This also accounts for the differences in
fees. Therefore, for each additional intermediate low cost destination
that an order routes to, the prices of the strategies mentioned above
(ROUQ, ROUD/ROUE, ROUZ) decrease accordingly.
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\12\ See SR-EDGA-2011-09 (April 1, 2011).
\13\ The Exchange notes that ROUD/ROUE routing strategies route
to the identical number of low cost destinations.
\14\ See SR-EDGA-2011-09 (April 1, 2011). See Rule
11.9(b)(3)(c)(v).
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The Exchange believes that the rate is reasonable when compared to
other market centers using similar routing strategies. The comparable
routing strategy to the ROUD/ROUE routing strategies is Parallel D or
Parallel 2D with the DRT (Dark routing technique) option on BZX. BZX
charges $0.0020 per share for its DRT option. The Exchange believes
that the proposed rebate is non-discriminatory in that it applies
uniformly to all Members.
The Exchange believes that the proposed reduced rate for Flag 7
executions of $0.0027 per share is an equitable allocation of
reasonable dues, fees, and other charges. The reduced rate is designed
to incentivize Members to increase volume on EDGA during the Pre-
Opening and Post-Closing Sessions, which have limited trading hours. In
addition, it represents a blended flat-rate for customers which EDGA
has derived by taking into account its costs of routing to various
destinations on its fee schedule. The blended, flat-rate provides
simplicity for customers, instead of passing through the actual rates
that EDGA receives from various destinations on its schedule. This type
of rate is similar to other rates that EDGA charges, such as ``one-
under'' pricing for routing to Nasdaq using the INET order type and is
consistent with the processing of similar routing strategies by EDGA's
competitors.\15\
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\15\ See footnote 7 of the EDGA fee schedule. See also BATS BZX
fee schedule: Discounted Destination Specific Routing (``One
Under'') to NYSE, NYSE ARCA and NASDAQ. See Securities Exchange Act
Release No. 62858, 75 FR 55838 (September 14, 2010) (SR-BATS-2010-
023) (modifying the BATS fee schedule in order to amend the fees for
its BATS + NYSE Arca destination specific routing option to continue
to offer a ``one under'' pricing model).
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In addition, the Exchange notes that fewer Members generally trade
during pre and post trading hours because of the limited time
parameters associated with these trading sessions. The Exchange
believes that the rate is equitable in that it is lower than comparable
routing strategies that route during regular trading hours (i.e., Flag
X, $0.0029 per share). The Exchange believes that the proposed rebate
is non-discriminatory in that it applies uniformly to all Members.
Currently, when a Member uses the ROUT strategy, it is charged
$0.0030 per share (Flag ``I'') when it routes to EDGX. The Exchange
proposes to lower this fee to $0.0027 per share and yield Flag ``RX''
instead. The Exchange believes that the proposed decreased rate for
orders that route to EDGX Exchange, Inc. using the ROUT routing
strategy (as noted in footnote 10) represents an equitable allocation
of reasonable dues, fees, and other charges since the decreased fee is
designed to cap Member's routed fees at $0.0027 per share. The
decreased fee is also designed to incentivize Members to sweep
liquidity through EDGA before going to other destinations while
allowing Members to reach multiple source of liquidity by routing order
flow through EDGA rather than going directly to various venues.
The rate does not favor routing to EDGX as it is higher than the
rate for routing to any other destination (i.e., Nasdaq) using the ROUT
routing strategy, in which a fee of $0.0025 per share is assessed. For
example, if a Member uses EDGA to route to Nasdaq using the ROUT
routing strategy, the Member is charged $0.0025 per share (Flag RT).
However, EDGA is charged Nasdaq's standard removal rate of $0.0030 per
share. Analogously, when a member uses EDGA to route to EDGX using the
ROUT routing strategy, the member is proposed to be charged $0.0027 per
share. However, EDGA is charged EDGX's standard removal rate of $0.0030
per share. Therefore, a Member is more likely to use the ROUT routing
strategy to route to Nasdaq rather than EDGX since the potential costs
savings that is achieved by the Member is greater. ($0.0005 vs.
$0.0003).
The comparable routing strategy to the ROUT strategy is either
Parallel D or Parallel 2D with the DRT (Dark routing technique) option
on BZX or SCAN/STGY on Nasdaq OMX Exchange (``Nasdaq.'') BATS BZX
Exchange charges $0.0028 per share for its Parallel D and Parallel 2D
routing strategies and $0.0020 per share for its DRT option. Nasdaq
charges $0.0030 per share for its SCAN and STGY routing strategies. The
Exchange believes that the proposed rebate is non-discriminatory in
that it
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applies uniformly to all Members. Based on these comparisons, the
Exchange believes that the rate is reasonable as it is line with the
fees assessed by BATS BZX Exchange.
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. The Exchange believes the fees and credits remain
competitive with those charged by other venues and therefore continue
to be reasonable and equitably allocated to Members.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3) of the Act \16\ and Rule 19b-4(f)(2) \17\ 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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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 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-EDGA-2011-10 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-2011-10. 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,\18\ all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for Web site
viewing and printing in the Commission's Public Reference Room, 100 F
Street, NE., Washington, DC 20549, on official business days between
the hours of 10 a.m. and 3 p.m. Copies of the filing also will be
available for inspection and copying at the principal office of the
Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
EDGA-2011-10 and should be submitted on or before May 5, 2011.
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\18\ 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 EDGA, and at the
Commission's Public Reference Room.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-9045 Filed 4-13-11; 8:45 am]
BILLING CODE 8011-01-P