Self-Regulatory Organizations; Proposed Rule Changes:

Federal Register: February 10, 2011 (Volume 76, Number 28)

Notices

Page 7620-7622

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

DOCID:fr10fe11-105

SECURITIES AND EXCHANGE COMMISSION

Release No. 34-63837; File No. SR-EDGX-2011-03

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of

Filing and Immediate Effectiveness of Proposed Rule Change Relating to

Amendments to the EDGX Exchange, Inc. Fee Schedule

February 3, 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 February 1, 2011, the EDGX Exchange, Inc. (the ``Exchange'' or the ``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.

\1\ 15 U.S.C. 78s(b)(1).

\2\ 17 CFR 240.19b-4.

1. 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 EDGX Rule 15.1(a) and (c). 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.

   \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.

2. 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 7621

   1. Self-Regulatory Organization's Statement of the Purpose of, and

      Statutory Basis for, the Proposed Rule Change 1. Purpose

      In SR-EDGX-2010-10,\4\ the Exchange filed for immediate effectiveness a rule filing to charge for legacy ISE \5\ Financial

      Information Exchange (``FIX'') sessions (``Sessions'') used to connect to EDGX and thereby, amended its fee schedule accordingly.\6\ These

      Sessions are logical ports used to enter orders into the Exchange's trading system and to receive order messages from the Exchange. The

      Sessions are currently being used to send orders to EDGX by certain legacy Members of the ISE who became Members of EDGX. The amendment to the fee schedule enabled the Exchange to continue to bill Members for these Sessions until they are terminated.

      \4\ See Securities Exchange Act Release No. 62640 (August 4, 2010), 75 FR 48734 (August 11, 2010) (SR-EDGX-2010-10).

      \5\ A wholly-owned subsidiary of Direct Edge Holdings, LLC

      (prior to July 16, 2010) previously operated the ISE Stock Exchange as a facility of ISE. These Session fees are identical to the fees filed previously filed by and billed for by the ISE. See Securities

      Exchange Act Release No. 56379 (September 10, 2007), 72 FR 52591

      (September 14, 2007) (SR-ISE-2007-79).

      \6\ As stated in SR-ISE-2007-79, the ISE used the FIX protocol, which Members program to in order to develop applications that send trading commands and/or queries to and receive broadcasts and/or transactions from the trading system. The protocol processes quotes, receives orders from Members, tracks activity in the underlying markets, when applicable, executes trades in the matching engine, and broadcasts trade details to participating Members.

      The Exchange notes that all Members have transitioned their order entry to other ports and no firms currently send orders over ISE FIX sessions as of February 1, 2011. Therefore, effective February 1, 2011, the Exchange will be discontinuing the ISE FIX sessions as all Members of EDGX that previously used ISE FIX sessions have transitioned to their Direct EDGX Sessions.

      In SR-EDGX-2011-01, the Exchange added the ROOC routing option in

      Rule 11.9(b)(3)(p) for orders that the entering firm wishes to designate for participation in the opening or closing process of a primary listing market (NYSE, Nasdaq, NYSE Amex, or NYSE Arca) if received before the opening/closing time of such market. If shares remain unexecuted after attempting to execute in the opening or closing process, they are either posted to the book, executed, or routed like a

      ROUT routing option, as described in Rule 11.9(b)(3)(h). In this filing, the Exchange proposes to add the corresponding flags for the use of the ROOC strategy to its fee schedule and assign corresponding fees. If the entering firm wishes the order to participate in the listing market close via the ROOC strategy, it will be assigned a flag of ``CL'' and a fee of $0.0010 per share, except for NYSE Arca. This fee represents a blended rate of all four primary listing market fees for participation in the market close. For ease of administration, the

      Exchange uses this blended rate as it represents an average fee from the primary listing markets. However, a flag of ``O'' will be yielded and the associated fee for the ``O'' flag, $0.0005 per share, will be assessed, if the order is routed to the NYSE Arca closing process. This is clarified in proposed footnote 9 to the fee schedule and represents a pass through of the NYSE Arca fee. If the entering firm wishes to designate that the order participate in the opening process of NYSE

      Amex and it adds liquidity, it will be assigned a flag of ``8'' and a rebate of $0.0015 per share. This rebate represents a pass through of the NYSE Amex rebate. If the entering firm wishes to designate that the order participate in the opening process of NYSE Arca and it adds liquidity, it will be assigned a flag of ``9'' and a rebate of $0.0021 per share. This rebate represents a pass through of the NYSE Arca rebate. The Exchange proposes to add these flags effective February 1, 2011 but not implement them until the ROOC strategy is effective, which is on or about February 14, 2011.

      Currently, the ``K'' flag is yielded when an order is routed to

      BATS BZX Exchange using the ROBA order type. The Exchange proposes that this flag be yielded and its associated fee of $0.0025 per share be assessed when an order is routed to Nasdaq PSX using the ROUC order type, as defined in Rule 11.9(b)(3)(a).\7\ This fee of $0.0025 per share represents a pass through of the Nasdaq PSX rate.

      \7\ Rule 11.9(b)(3)(a) defines the ROUC order type as a routing option under which an order 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 on the Exchange's book.

      Currently, stocks priced below $1.00 are charged 0.20% of the dollar value of the transaction when routed to Nasdaq and removing liquidity in securities on all Tapes, as noted in footnote 3 of the fee schedule and as indicated on corresponding flag J. The Exchange proposes to increase this fee to 0.30% of the dollar value of the transaction to reflect an increase in rate provided by Nasdaq, effective January 3, 2011.

      EDGX Exchange proposes to implement these amendments to the

      Exchange fee schedule on February 1, 2011. 2. Statutory Basis

      The Exchange believes that the proposed rule change is consistent with the objectives of Section 6 of the Act,\8\ in general, and furthers the objectives of Section 6(b)(4),\9\ 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.

      \8\ 15 U.S.C. 78f.

      \9\ 15 U.S.C. 78f(b)(4).

      The Exchange believes that the fees associated with the new flags described above represent an equitable allocation of reasonable dues, fees, and other charges. The fee associated with the ``CL'' flag

      ($0.0010) (except for NYSE Arca) represents a blended rate of all four primary listing market fees for participation in the market close.

      However, a flag of ``O'' will be yielded and the associated fee for the

      ``O'' flag, $0.0005 per share, will be assessed, if the order is routed to the NYSE Arca closing process. This represents a pass through of the

      NYSE Arca fee. If the entering firm wishes to designate that the order participate in the opening process of NYSE Amex and it adds liquidity, it will be assigned a flag of ``8'' and a rebate of $0.0015 per share.

      This rebate represents a pass through of the NYSE Amex rebate. If the entering firm wishes to designate that the order participate in the opening process of NYSE Arca and it adds liquidity, it will be assigned a flag of ``9'' and a rebate of $0.0021 per share. This rebate also represents a pass through of the NYSE Arca rebate. The fee associated with the K flag ($0.0025 per share) also represents a pass through of the Nasdaq PSX rate. In addition, as discussed above, stocks priced below $1.00 are now proposed to be charged 0.30% of the dollar value of the transaction when routed to Nasdaq and removing liquidity in securities on all Tapes, as noted in proposed footnote 3 of the fee schedule. This increase in fee (from 0.20% of the dollar value of the transaction) reflects a pass through of the Nasdaq's increased rate, effective January 3, 2011.

      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 that

      Page 7622

      the proposed rates are equitable 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.

   2. 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.

   3. 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.

3. 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 \10\ and Rule 19b-4(f)(2) \11\ 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.

   \10\ 15 U.S.C. 78s(b)(3)(A).

   \11\ 17 CFR 19b-4(f)(2).

4. 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 rule-comments@sec.gov. Please include

   File Number SR-EDGX-2011-03 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-2011-03. 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,\12\ 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-

   EDGX-2011-03 and should be submitted on or before March 3, 2011.

   \12\ 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.\13\

   \13\ 17 CFR 200.30-3(a)(12).

   Cathy H. Ahn,

   Deputy Secretary.

   FR Doc. 2011-2950 Filed 2-9-11; 8:45 am

   BILLING CODE 8011-01-P