[Federal Register Volume 79, Number 239 (Friday, December 12, 2014)]
[Notices]
[Pages 73916-73919]
[FR Doc No: 2014-29108]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73782; File No. SR-EDGX-2014-32]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Related to
Fees for Use of EDGX Exchange, Inc.

December 8, 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 November 26, 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 Exchange. The
Exchange has designated the proposed rule change as one establishing or
changing a member due, fee, or other charge imposed by the Exchange
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2)
thereunder,\4\ which renders the proposed rule change effective upon
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange filed a proposal to amend the fee schedule applicable
to Members \5\ of the Exchange pursuant to EDGX Rules 15.1(a) and (c)
(``Fee Schedule''). Changes to the Fee Schedule pursuant to this
proposal are effective upon filing.
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    \5\ The term ``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.'' See Exchange Rule 1.5(n).
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    The text of the proposed rule change is available at the Exchange's
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 Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts 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 amend: (i) The
criteria

for the Retail Order Tier under Footnote 4; and (ii) the first two
bullets regarding added and removal flags under the General Notes
section to include Flags EA, ER, and 5, which include in [sic]
internalized volume.
Retail Order Tier
    The Exchange currently provides a rebate of $0.0032 per share for
Retail Orders \6\ that yield Flag ZA and add liquidity. The Exchange
currently offers a Retail Order Tier under Footnote 4 whereby Members
are provided a rebate of $0.0034 per share if they: (i) Add an Average
Daily Volume \7\ (``ADV'') of Retail Orders yielding Flag ZA that is
0.10% or more of the Total Consolidated Volume \8\ (``TCV'') on a daily
basis, measured monthly; and (ii) have an ``added liquidity'' to
``added to removed liquidity'' ratio of at least 85%. The Exchange
proposes to ease the criteria to satisfy this tier by: (i) Lowering the
requirement that a Member have an average daily volume of Retail Orders
of 0.10% or more of the TCV on a daily basis, measured monthly, to
0.07% or more of the TCV on a daily basis, measured monthly; and (ii)
deleting the requirement that a Member have an ``added liquidity'' to
``added to removed liquidity'' ratio of at least 85%. The Exchange
believes easing the criteria to satisfy the Retail Order Tier will
attract more Retail Orders to the Exchange.
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    \6\ Exchange Rule 11.21(a) 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.
    \7\ ADV is defined in the Exchange's Fee Schedule ``as the
average daily volume of shares that a Member executed on, or routed
by, the Exchange for the month in which the fees are calculated. ADV
is calculated on a monthly basis, excluding shares on any day that
the Exchange's system experiences a disruption that lasts for more
than 60 minutes during Regular Trading Hours (`Exchange System
Disruption'), on any day with a scheduled early market close and on
the last Friday in June (the `Russell Reconstitution Day').''
    \8\ TCV is defined in the Exchange's Fee Schedule ``as the
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 in which the fees are calculated, excluding
volume on any day that the Exchange experiences an Exchange System
Disruption, on any day with a scheduled early market close or the
Russell Reconstitution Day.''
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Added and Removal Flags
    The General Notes section of the Fee Schedule includes two bullets
that contain the list of applicable ``added flags'' and ``removal
flags'' that may be considered when calculating whether a Member
satisfied a certain pricing tier. The Exchange appends Flags EA, ER,
and 5 to orders that inadvertently match against each other and share
the same MPID (Member shares both sides of the trade). The Exchange
proposes to amend the first bullet regarding added flags to include
Flag EA, which covers internalized trades that add liquidity. The
Exchange also proposes to amend the second bullet regarding removal
flags to include Flag ER, which covers internalized trades that remove
liquidity. Lastly, the Exchange proposes to amend both the first and
second bullets to include Flag 5, which covers internalized trades that
add or remove liquidity during the pre and post market sessions. The
Exchange also proposes to add Footnote 10 to state that a Member's
monthly volume attributed to Flag 5 will be divided evenly between the
added flags and removal flags when determining whether that Member
satisfied a certain tier. The Exchange proposes to divide a Member's
Flag 5 volume as such because the Exchange's systems cannot currently
delineate orders yielding Flag 5 that added from those that removed
liquidity for purposes of determining whether a Member satisfies a
certain tier.
Implementation Date
    The Exchange proposes to implement these amendments to its Fee
Schedule on December 1, 2014.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\9\ in general, and
furthers the objectives of Section 6(b)(4),\10\ 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 also 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 that the
proposed rates are equitable and non-discriminatory in that they apply
uniformly to all Members. 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.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4).
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Retail Order Tier
    The Exchange believes that easing the criteria required to achieve
the Retail Order Tier is reasonable, equitable and not unfairly
discriminatory because it would continue to encourage Members to send
additional Retail Orders that add liquidity to the Exchange for
execution in order to qualify for an incrementally higher rebate for
such executions that add liquidity. The potential for increased volume
from Retail Orders would increase potential revenue to the Exchange,
and allow the Exchange to spread its administrative and infrastructure
costs over a greater number of shares, leading to lower per share
costs. These lower per share costs in turn would allow the Exchange to
pass on the savings to Members in the form of lower fees. 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. The Exchange notes that
a significant percentage of the orders of individual investors are
executed over-the-counter.\11\ The Exchange believes that it is thus
appropriate to continue to create a financial incentive to bring more
retail order flow to a public market, such as the Exchange, over off-
exchange venues. The Exchange believes that investor protection and
transparency is promoted by rewarding displayed liquidity on exchanges
over off-exchange executions. In this regard, the Exchange believes
that maintaining or increasing the proportion of Retail Orders in
exchange-listed securities that are executed on a registered national
securities exchange (rather than relying on certain available off-
exchange execution methods) would contribute to investors' confidence
in the fairness of their transactions and would benefit all investors
by deepening the Exchange's liquidity pool, supporting the quality of
price discovery, promoting market

transparency and improving investor protection.
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    \11\ See Concept Release on Equity Market Structure, Securities
Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594
(January 21, 2010) (noting that dark pools and internalizing broker-
dealers executed approximately 25.4% of share volume in September
2009). 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's Web site). In her speech, Chairman
Schapiro noted that nearly 30 percent of volume in U.S.-listed
equities was executed in venues that do not display their liquidity
or make it generally available to the public and the percentage was
increasing nearly every month.
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    The Exchange believes that reducing the percentage of TCV required
to achieve the Retail Order Tier from 0.10% to 0.07% for Members'
Retail Orders that add liquidity (Flag ZA) is reasonable, equitable and
not unfairly discriminatory because this percentage continues to be
within a range that the Exchange believes would incentivize Members to
submit Retail Orders to the Exchange in order to qualify for the
applicable rebate of $0.0034 per share. The Exchange notes that certain
other existing pricing tiers within its Fee Schedule make rebates
available to Members that are also based on the Member's level of
activity as a percentage of TCV. These existing percentage thresholds,
depending on other related factors and the level of the corresponding
rebates, are both higher and lower [sic] than the 0.07% proposed
herein.\12\
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    \12\ See for example, the Market Depth Tier 1 Rebate ($0.00325
per share rebate), Mega Step-Up Tier Rebate ($0.0032 per share),
Ultra Tier rebate ($0.0031 per share rebate), and Investor Tier
rebate ($0.0032 per share rebate) that are all tied to a percentage
of TCV.
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    The Exchange also notes that the revisions to the Retail Order
Tier, including removing the requirement that Members have an ``added
liquidity'' to ``added to removed liquidity'' ratio of at least 85%,
are reasonable in that NYSE Arca, Inc. (``NYSE Arca'') offers a
comparable Retail Order Tier (with an analogous Retail Order
definition) that provides a rebate of $0.0033 per share for its Retail
Orders that provide liquidity on NYSE Arca in Tapes A, B and C
securities for ETP Holders that execute an ADV of Retail Orders that is
0.20% or more of the TCV with no additional criteria.\13\ In addition,
The NASDAQ Stock Market LLC (``Nasdaq'') recently proposed to offer its
members a rebate of $0.0034 per share for Designated Retail Orders, as
defined by Nasdaq, where the member adds Customer and/or Professional
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of
1.40% or more of national customer volume in multiply-listed equity and
ETF options classes in a month as pursuant to Chapter XV, Section 2 of
the Nasdaq Options Market rules.\14\ Moreover, like existing pricing on
the Exchange and the NYSE that are tied to Member's volume levels as a
percentage of TCV, the proposed Retail Order Tier continues to be
equitable and not unfairly discriminatory because it is available to
all Members on an equal and non-discriminatory basis.
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    \13\ See Securities Exchange Act Release No. 69134 (March 14,
2013), 78 FR 17247 (March 20, 2013) (SR-NYSEArca-2013-24). See also,
NYSE Arca Equities, Inc., Schedule of Fees and Charges for Exchange
Services, https://usequities.nyx.com/sites/usequities.nyx.com/files/nyse_arca_marketplace_fees_3_1_13.pdf.
    \14\ See Securities Exchange Act Release No. 73648 (November 19,
2014) (SR-Nasdaq-2014-108). See also Nasdaq Price List available at
http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
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Added and Removal Flags
    The Exchange believes that its proposal to amend two bullets under
the General Notes section of the Fee Schedule that contain the list of
applicable ``added flags'' and ``removal flags'' are [sic] represents
an equitable allocation of reasonable dues, fees, and other charges
among Members and other persons using its facilities. The Exchange
appends Flag EA, ER, and 5 to buy and sell orders that inadvertently
match against each other and share the same MPID (Member shares both
sides of the trade). The Exchange also believes proposed Footnote 10
stating that a Member's monthly volume attributed to Flag 5 will be
divided evenly between the added flags and removal flags when
determining whether that Member satisfied a certain tier represents an
equitable allocation of reasonable dues, fees, and other charges. The
Exchange proposes to divide a Member's Flag 5 volume as such because
Flag 5 includes both added and removed liquidity because the Exchange's
systems cannot currently delineate orders yielding Flag 5 that added
from those that removed liquidity purposes of determining whether a
Member satisfies a certain tier. The Exchange believes that Members
orders that yield Flags EA, ER, or 5 should be included in the
calculation of the ADV threshold as added or removal flags for purposes
of determining whether a tier's criteria has been met. Including such
Flags would be a reasonable means to encourage Members to direct their
orders to the Exchange because they would have certainty that certain
orders will not be excluded from their ADV calculations because it
inadvertently matched against an order sharing the same MPID. Lastly,
the Exchange also believes that the proposed amendment is non-
discriminatory because it applies 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 the Exchange's competitors.
Additionally, Members may opt to disfavor EDGX's pricing if they
believe that alternatives offer them better value. Accordingly, the
Exchange does not believe that the proposed changes will impair the
ability of Members or competing venues to maintain their competitive
standing in the financial markets.
Retail Order Tier
    Regarding the Retail Order Tier, the Exchange believes that its
proposal to amend the criteria to achieve the tier will increase
intermarket competition for Retail Orders because the proposed Retail
Order Tier is comparable in price and criteria to NYSE Arca and
Nasdaq's retail order tier.\15\ In addition, the proposed rule change
is in direct response to Nasdaq recently implementing a rebate for
retail orders of $0.0034 per share where the member adds Customer and/
or Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options of 1.40% or more of national customer volume in multiply-listed
equity and ETF options classes in a month as pursuant to Chapter XV,
Section 2 of the Nasdaq Options Market rules.\16\ The Exchange believes
that its proposal would neither increase nor decrease intramarket
competition because the Retail Order Tier would continue to apply
uniformly to all Members and the ability of some Members to meet the
Retail Order Tier would only benefit other Members by contributing to
increased retail liquidity on the Exchange.
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    \15\ 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).
    \16\ See supra note 14.
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Added and Removal Flags
    The Exchange believes that adding orders yielding Flags EA, ER, and
5 to the ``added flags'' and ``removal flags'' would increase
intermarket competition because it would encourage Members to direct
their orders to the Exchange because they would have certainty that
their orders will not be excluded from their ADV calculations because
it inadvertently matched against an order sharing the same MPID. The
Exchange believes that its proposal would neither increase nor decrease
intramarket competition because the added and removal flags would
continue to apply uniformly to all Members and the ability of some
Members to meet the tiers

would only benefit other Members by contributing to increased liquidity
and improve market quality at the Exchange.

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 \17\ and paragraph (f) of Rule 19b-4
thereunder.\18\ At any time within 60 days of the filing of the
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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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f).
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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_ADDRESS>Please include
File Number SR-EDGX-2014-32 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-2014-32. 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-2014-32, and should be
submitted on or before January 2, 2015.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29108 Filed 12-11-14; 8:45 am]
BILLING CODE 8011-01-P