
[Federal Register Volume 77, Number 169 (Thursday, August 30, 2012)]
[Notices]
[Pages 52771-52772]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21388]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67726; File No. SR-EDGA-2012-28]


Self-Regulatory Organizations; EDGA Exchange, Inc.; Order 
Approving a Proposed Rule Change To Amend EDGA Rules To Add the Route 
Peg Order

August 24, 2012.

I. Introduction

    On June 26, 2012, EDGA Exchange, Inc. (``Exchange'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to amend Exchange 
Rule 11.5 to provide an additional order type, the Route Peg Order. In 
addition, the Exchange proposed to amend Exchange Rule 11.8 to describe 
the priority of the Route Peg Order relative to other orders on the 
EDGA Book. The proposed rule change was published for comment in the 
Federal Register on July 5, 2012.\3\ The Commission received no comment 
letters on the proposed rule change. On August 16, 2012, the Commission 
extended to October 3, 2012, the time period in which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\4\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 67291 (June 28, 
2012), 77 FR 39785 (``Notice'').
    \4\ See Securities Exchange Act Release No. 67677 (August 16, 
2012), 77 FR 50740 (August 22, 2012).

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[[Page 52772]]

II. Description of the Proposed Rule Change

    The Exchange proposed to add a new order type, the Route Peg 
Order.\5\ A Route Peg Order would be a non-displayed limit order 
eligible for execution at the national best bid (the ``NBB'') for Route 
Peg Orders to buy, and at the national best offer (the ``NBO'') \6\ for 
Route Peg Orders to sell, against routeable orders that are equal to or 
less than the size of the Route Peg Order. The Route Peg Order would be 
a passive, resting order that could only provide liquidity. The Route 
Peg Order would not be permitted to take liquidity. Incoming orders 
that are designated as eligible for routing would be able to interact 
with Route Peg Orders. The incoming order would first be matched 
according to the price/time priority rules established by Exchange Rule 
11.8(a)(2)(A)-(C). If any portion of the incoming order remained 
unexecuted only then would such order be eligible to execute against 
Route Peg Orders.\7\ The Route Peg Order is intended to provide 
liquidity in the event that a marketable order would otherwise route to 
another destination. In addition, a Route Peg Order would only trade 
with orders that are equal to or smaller in quantity than the original 
order quantity of the Route Peg Order.\8\ If a Route Peg Order were 
partially executed, it would be assigned a new time priority and new 
timestamp after each partial execution until either the remaining size 
is exhausted or the Route Peg Order is cancelled by the Member.\9\
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    \5\ The Exchange proposed to amend Exchange Rule 11.5(c) to add 
a new subparagraph (14) describing the Route Peg Order. See Notice, 
supra note 3 at 39785.
    \6\ Together, the NBO and NBB are referred to as the ``NBBO.''
    \7\ The Exchange proposed to codify the priority of the Route 
Peg Order in proposed new paragraph (a)(2)(D) of Exchange Rule 11.8. 
See Notice, supra note 3 at 39785 n. 5.
    \8\ If a Route Peg Order were partially executed, it would be 
able to execute against orders that were larger than the remaining 
balance of the Route Peg Order, but those orders would still need to 
be equal to or smaller than the original order quantity of the Route 
Peg Order. The Exchange stated that it elected to design the system 
in this manner to avoid the possibility of a single block-sized 
order potentially clearing all of the liquidity posted on the 
Exchange attributable to Route Peg Orders. Id. at 39786.
    \9\ The Exchange proposed to codify this principle in new 
subparagraph (a)(7) of Exchange Rule 11.8. The Exchange also 
proposes to add an exception for the Route Peg Order in Exchange 
Rule 11.8(a)(5), which otherwise would require that a partially 
executed order retain priority at the same limit price. The Exchange 
asserted that assigning a new timestamp after each partial execution 
would allow for a rotating priority of execution for Users (as 
defined in Exchange Rule 1.5(ee)) who place Route Peg Orders. Id. at 
39786 n. 6.
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    Route Peg Orders would be able to be entered, cancelled and 
cancelled/replaced prior to and during Regular Trading Hours.\10\ Route 
Peg Orders would be eligible for execution in a given security during 
Regular Trading Hours, except that, even after the commencement of 
Regular Trading Hours, Route Peg Orders would not be eligible for 
execution (1) in the opening cross, and (2) until such time that 
regular session orders in that security could be posted to the EDGA 
Book.\11\ A Route Peg Order would not execute at a price that is 
inferior to a Protected Quotation,\12\ and would not be permitted to 
execute if the NBBO were locked or crossed. Any and all remaining, 
unexecuted Route Peg Orders would be cancelled at the conclusion of 
Regular Trading Hours.
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    \10\ As defined in Exchange Rule 1.5(y).
    \11\ For example, for stocks listed on the New York Stock 
Exchange LLC (the ``NYSE''), regular session orders can be posted to 
the EDGA Book upon the dissemination by the responsible Securities 
Information Processor (``SIP'') of an opening print in that stock on 
the NYSE. Conversely, for stocks listed on the NASDAQ Stock Market 
LLC, regular session orders can be posted to the EDGA Book upon the 
dissemination of the NBBO by the responsible SIP in that stock.
    \12\ As defined in Exchange Rule 1.5(v).
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\13\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\14\ which 
requires, among other things, that the rules of a national securities 
exchange be designed 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, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \13\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Exchange notes that the Route Peg Order is designed to 
incentivize Users \15\ to place greater liquidity at the NBBO, thereby 
promoting more favorable executions for the benefit of public 
customers. According to the Exchange, the Route Peg Order would result 
in more favourable and efficient executions by: (1) Offering liquidity 
providers a means to use the Exchange to post larger limit orders that 
are only executable at the NBBO and that do not disclose their trading 
interest to other market participants in advance of execution; (2) 
offering market participants seeking to access liquidity a greater 
expectation of market depth at the NBBO than may currently be the case; 
and (3) offering more predictable executions at the NBBO for Users by 
reducing the risk that incremental latency associated with routing an 
order to an away destination may result in an inferior execution.
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    \15\ As defined in Exchange Rule 1.5(ee).
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    Further, the Exchange believes that these benefits of the Route Peg 
Order would be realized only if they interact with orders that are 
eligible for routing, as they are characteristic of public customers 
who desire to execute at the best price. In contrast, notes the 
Exchange, professional traders typically expect to post to the book, 
execute immediately against the Exchange's best bid or offer, or ferret 
out hidden liquidity at or inside the NBBO and use non-routable orders 
to achieve these ends. The Exchange believes that Users would be 
reluctant to post liquidity through the Route Peg Order if such orders 
could interact with professional traders. Finally, the Exchange 
highlights that any User can place a routable order that is eligible 
for execution against a Route Peg Order.
    Based on the Exchange's statements, the Commission believes that 
the proposed rule change is consistent with Section 6(b)(5) of the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-EDGA-2012-28) be, and it 
hereby is, approved.
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    \16\ 15 U.S.C. 78s(b)(2).
    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-21388 Filed 8-29-12; 8:45 am]
BILLING CODE 8011-01-P


