
[Federal Register: November 24, 2010 (Volume 75, Number 226)]
[Notices]               
[Page 71783-71785]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24no10-145]                         

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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 rule-comments@sec.gov. 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

[[Page 71785]]

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

