
[Federal Register Volume 77, Number 174 (Friday, September 7, 2012)]
[Notices]
[Pages 55248-55251]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-22015]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67765; File No. SR-EDGA-2012-38]


Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Edge Routed Liquidity Report

August 31, 2012.
    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 August 21, 2012, EDGA Exchange, Inc. (the ``Exchange'' or 
``EDGA'') filed with the Securities and Exchange Commission 
(``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 offer a new Exchange market data product, 
Edge Routed Liquidity Report (``Edge Routed Liquidity Report'' or the 
``Service'') to Members \3\ and non-Members of the Exchange 
(collectively referred to as ``Subscribers''). The Exchange proposes to 
add a description of the Edge Routed Liquidity Report to new Rule 13.9. 
The text of the proposed rule change is attached as Exhibit 5 and is 
available on the Exchange's Web site at www.directedge.com, at the 
Exchange's principal office, and at the Public Reference Room of the 
Commission.
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    \3\ A Member is any 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 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 
Statutory Basis for, Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to begin offering Edge 
Routed Liquidity Report, a data feed that contains historical order 
information for orders routed to away destinations by the Exchange. 
Edge Routed Liquidity Report will be a data feed product that provides 
routed order information to Subscribers on the morning of the following 
trading day (T + 1), including: Limit price, routed quantity, symbol, 
side (bid/offer), time of routing, and the National Best Bid and Offer 
(NBBO) at the time of routing.
    The Exchange will make Edge Routed Liquidity Report available to 
all Subscribers via subscription through secure Internet connections. 
Edge Routed Liquidity Report will be offered as either a standard 
report (the ``Standard Report'') or a premium report (the ``Premium 
Report''). Both the Standard Report and the Premium Report will provide 
Subscribers with a view of all marketable orders that are routed to 
away destinations by the Exchange. However, the Premium Report will 
also identify the routing destination as either directed to a 
destination that is not an exchange (``Non-Exchange Destination'') or 
directed to another exchange. For orders that are routed to a Non-
Exchange Destination, the Premium Report will indicate the nature of 
any liquidity the originating routing strategy seeks.
    Purchasers of Edge Routed Liquidity Report will be able to elect to 
obtain data on a rolling thirty (30) day subscription or a calendar 
month request for as many months as desired.
    The Exchange is proposing to charge Subscribers a fee in the amount 
of $500.00/month for a rolling thirty (30) day Standard Report and 
$500.00/month for a calendar month request. With respect to the Premium 
Report, the Exchange is proposing to charge Subscribers a fee in the 
amount of $1,500.00/month for a rolling thirty (30) day Premium Report 
and $1,500.00/month for a calendar month request. Edge Routed Liquidity 
Report will be provided to Subscribers for internal use only, and thus, 
no redistribution will be permitted. Edge Routed Liquidity Report can 
be used by market participants to improve their trading and order 
routing strategies by being able to discern missed trading 
opportunities if a Member had been present on the EDGA book.
    Edge Routed Liquidity Report will provide an indication of the 
quantity/quality of the order flow that Members of the Exchange could 
have interacted with if they had additional posted liquidity on the 
Exchange's book. The purpose of Edge Routed Liquidity Report is to 
allow Subscribers to identify missed opportunities so that they can 
make the necessary trading system changes to better interact with 
missed liquidity. By making the Edge Routed Liquidity Report data 
available, the Exchange enhances market transparency and fosters 
competition among orders and markets.
    Historical data can be used for a variety of purposes, such as to 
support financial market research and analysis as well as back-testing 
of new trading strategies to gauge effectiveness. The

[[Page 55249]]

Exchange notes that various historical data products are offered by the 
Exchange and other market centers as discussed below.\4\
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    \4\ See Securities Exchange Act Release No. 61885 (April 9, 
2010), 75 FR 20018 (April 16, 2010) (SR-BATS-2010-002) (adopting 
BATS market data products, including BATS Historical Data Products); 
see also, NYSE Technologies, Market Data, www.nyxdata.com (providing 
information regarding historical data products offered by the New 
York Stock Exchange (``NYSE''); see also, NASDAQ Rules 7022 and 7023 
(establishing fees for Historical Research and Administrative 
Reports and NASDAQ Depth-of-Book Data); see also, Securities 
Exchange Act Release No. 61416 (January 25, 2010), 75 FR 5821 
(February 4, 2010) (SR-NASDAQ-2010-010) (relating to NASDAQ rule 
governing Historical ModelView product); see also, Securities 
Exchange Act Release No. 66403 (February 15, 2012), 77 FR 10593 
(February 22, 2012) (SR-EDGA-2012-05) (adopting EdgeBook Cloud 
service); see also, Securities Exchange Act Release No. 66402 
(February 15, 2012), 77 FR 10595 (February 22, 2012) (SR-EDGX-2012-
05) (adopting EdgeBook Cloud service).
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    The Exchange intends to implement the proposed rule change on or 
about September 4, 2012 and will announce its availability via an 
information circular to be posted on the Exchange's Web site.
2. Statutory Basis
    The proposed rule change is consistent with the requirements of the 
Act \5\ and the rules and regulations thereunder that are applicable to 
a national securities exchange. The bases under the Act for the 
proposed rule change are: (1) The requirement under Section 6(b)(4) \6\ 
that an exchange have rules that provide for the equitable allocation 
of reasonable dues, fees and other charges among its members and other 
persons using its facilities; and (2) the requirement under Section 
6(b)(5) \7\ that the rules of an exchange be designed to promote just 
and equitable principles of trade and not to permit unfair 
discrimination between customers, issuers, brokers or dealers.
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(4).
    \7\ 15 U.S.C. 78f(b)(5).
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    Indeed, the Exchange believes that the proposed change is 
consistent with Section 6(b)(4) of the Act \8\ because it provides an 
equitable allocation of reasonable dues, fees and other charges among 
the Subscribers of the Exchange data. Edge Routed Liquidity Report is 
optional and fees charged for the Service will be the same for both 
Member and non-Member Subscribers.
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    \8\ 15 U.S.C. 78f(b)(4).
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    Furthermore, as the Service will be provided in multiple packages, 
the Exchange intends to allow the purchase of such access in the manner 
that best meets the needs of, and is most cost efficient for, each 
respective Subscriber. The fees for Edge Routed Liquidity Report are 
uniform except with respect to reasonable distinctions with respect to 
Standard Report and the Premium Report. The Exchange proposes charging 
more for the Premium Report than for the Standard Report because of the 
additional features provided on the Premium Report, as described above. 
The fees reflect the differing offerings that a Subscriber may choose 
and are reasonable in light of the benefits of market transparency and 
additional information to aid Subscribers in developing or modifying 
their trading strategies.
    The revenue generated by Edge Routed Liquidity Report will pay for 
the development, marketing, technical infrastructure and operating 
costs of the Service, an important tool for market participants to use 
for purposes of analysis, research and testing. Profits generated above 
these costs will help offset the costs that the Exchange incurs in 
operating and regulating a highly efficient and reliable platform for 
the trading of U.S. equities. This increased revenue stream will allow 
the Exchange to offer an innovative Service at a reasonable rate, 
consistent with other self-regulatory organizations (``SROs'') who 
provide similar types of historical market data products.\9\ 
Furthermore, the fees are fair and reasonable because competition 
provides an effective constraint on the market data fees that the 
Exchange has the ability and incentive to charge for its market data 
products.\10\
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    \9\ See Securities Exchange Act Release No. 61885 (April 9, 
2010), 75 FR 20018 (April 16, 2010) (SR-BATS-2010-002) (adopting 
BATS market data products, including BATS Historical Data Products); 
see also, NYSE Technologies, Market Data, www.nyxdata.com (providing 
information regarding historical data products offered by the NYSE; 
see also, NASDAQ Rules 7022 and 7023 (establishing fees for 
Historical Research and Administrative Reports and NASDAQ Depth-of-
Book Data); see also, Securities Exchange Act Release No. 61416 
(January 25, 2010), 75 FR 5821 (February 4, 2010) (SR-NASDAQ-2010-
010) (relating to NASDAQ rule governing Historical ModelView 
product); see also, Securities Exchange Act Release No. 66403 
(February 15, 2012), 77 FR 10593 (February 22, 2012) (SR-EDGA-2012-
05) (adopting EdgeBook Cloud service); see also, Securities Exchange 
Act Release No. 66402 (February 15, 2012), 77 FR 10595 (February 22, 
2012) (SR-EDGX-2012-05) (adopting EdgeBook Cloud service).
    \10\ Id.
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    The Exchange believes that the proposed rule change is also 
consistent with the objectives of Section 6(b)(5) of the Act,\11\ which 
requires, among other things, that the Exchange's rules are not 
designed to unfairly discriminate between customers, issuers, brokers 
or dealers and are designed to prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, 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 Exchange believes that this proposal is in keeping with those 
principles by promoting increased transparency through the 
dissemination of an additional market data product and by announcing 
its availability via information circular. In addition, the Exchange is 
making a voluntary decision to make this Service available and through 
the dissemination of such market data, the Exchange will provide market 
participants with the opportunity to obtain additional data in 
furtherance of their investment decisions. Purchase of the Service is 
not a prerequisite for participation on the Exchange, nor is membership 
to the Exchange a prerequisite to purchase of the Service. Only those 
Subscribers that deem this market data product to be of sufficient 
overall value and usefulness will purchase it. Moreover, the fees will 
apply uniformly to all Subscribers of the Standard Report and Premium 
Report, respectively, irrespective of whether the Subscriber is a 
Member of the Exchange.
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    \11\ 15 U.S.C. 78f(b)(5).
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    The Exchange is not required by the Act in the first instance to 
make the Service available. The Exchange chooses to make the Service 
available as proposed in order to improve market quality, to attract 
order flow, and to increase market transparency. Once this filing 
becomes effective, the Exchange will be required to continue making the 
Service available until such time as the Exchange changes its rule.
    In adopting Regulation NMS, the Commission granted SROs and broker-
dealers (``BDs'') increased authority and flexibility to offer new and 
unique market data services to the public. The Commission believed this 
authority would expand the amount of data available to market 
participants, and also spur innovation and competition for the 
provision of market data. Edge Routed Liquidity Report appears to be 
precisely the sort of market data service that the Commission 
envisioned when it adopted Regulation NMS.\12\ The Service

[[Page 55250]]

will offer routed order-specific data in a form not previously 
available to market data consumers, yet the Service will act in a 
manner functionally similar to market data products offered by the 
Exchange and other market centers.\13\ The Service offers a new, 
alternative, innovative, useful and cost-effective market data product 
that is consistent with existing historical type market data products. 
It will allow market participants to purchase useful historical data 
from the Exchange while at the same time enabling the Exchange to 
better cover its infrastructure costs and to improve its market 
technology and services. Finally, Edge Routed Liquidity Report will 
better enable market participants to conduct trading/investment 
analyses and discern useful market data concerning routed order flow to 
better meet their needs.
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    \12\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (``[E]fficiency is promoted when 
broker-dealers who do not need the data beyond the prices, sizes, 
market center identifications of the NBBO and consolidated last sale 
information are not required to receive (and pay for) such data. The 
Commission also believes that efficiency is promoted when broker-
dealers may choose to receive (and pay for) additional market data 
based on their own internal analysis of the need for such data.'').
    \13\ See Securities Exchange Act Release No. 61885 (April 9, 
2010), 75 FR 20018 (April 16, 2010) (SR-BATS-2010-002) (adopting 
BATS market data products, including BATS Historical Data Products); 
see also, NYSE Technologies, Market Data, www.nyxdata.com (providing 
information regarding historical data products offered by the NYSE; 
see also, NASDAQ Rules 7022 and 7023 (establishing fees for 
Historical Research and Administrative Reports and NASDAQ Depth-of-
Book Data); see also, Securities Exchange Act Release No. 61416 
(January 25, 2010), 75 FR 5821 (February 4, 2010) (SR-NASDAQ-2010-
010) (relating to NASDAQ rule governing Historical ModelView 
product); see also, Securities Exchange Act Release No. 66403 
(February 15, 2012), 77 FR 10593 (February 22, 2012) (SR-EDGA-2012-
05) (adopting EdgeBook Cloud service); see also, Securities Exchange 
Act Release No. 66402 (February 15, 2012), 77 FR 10595 (February 22, 
2012) (SR-EDGX-2012-05) (adopting EdgeBook Cloud service).
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    By removing unnecessary regulatory restrictions on the ability of 
exchanges to sell their own data, Regulation NMS advanced the goals of 
the Act and the principles reflected in its legislative history. If the 
free market should determine whether proprietary data is sold to BDs at 
all, it follows that the price at which such data is sold should be set 
by the market as well.
    The recent decision of the United States Court of Appeals for the 
District of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (DC 
Cir. 2010), upheld the Commission's reliance upon competitive markets 
to set reasonable and equitably allocated fees for market data. ``In 
fact, the legislative history indicates that the Congress intended that 
the market system `evolve through the interplay of competitive forces 
as unnecessary regulatory restrictions are removed' and that the SEC 
wield its regulatory power `in those situations where competition may 
not be sufficient,' such as in the creation of a `consolidated 
transactional reporting system.' \14\ The court agreed with the 
Commission's conclusion that ``Congress intended that `competitive 
forces should dictate the services and practices that constitute the 
U.S. national market system for trading equity securities.' '' \15\
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    \14\ NetCoalition, at 535 (quoting H.R. Rep. No. 94-229, at 92 
(1975), as reprinted in 1975 U.S.C.C.A.N. 321, 323).
    \15\ Id.
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    The Court in NetCoalition, while upholding the Commission's 
conclusion that competitive forces may be relied upon to establish the 
fairness of prices, nevertheless concluded that the record in that case 
did not adequately support the Commission's conclusions as to the 
competitive nature of the market for NYSEArca's data product at issue 
in that case. The Exchange believes that there is substantial evidence 
of competition in the marketplace for data that was not in the record 
in the NetCoalition case, and that the Commission is entitled to rely 
upon such evidence in concluding that the fees established in this 
filing are the product of competition, and therefore in accordance with 
the relevant statutory standards.\16\ Moreover, the Exchange further 
notes that the product at issue in this filing, a historical data 
product that is functionally similar to other historical data products 
whose fees have been reviewed and filed with the Commission,\17\ is 
quite different from the NYSEArca depth-of-book data product at issue 
in NetCoalition. Accordingly, any findings of the court with respect to 
that product may not be relevant to the product at issue in this 
filing.
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    \16\ It should also be noted that Section 916 of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank 
Act'') has amended paragraph (A) of Section 19(b)(3) of the Act, 15 
U.S.C. 78s(b)(3), to make it clear that all exchange fees, including 
fees for market data, may be filed by exchanges on an immediately 
effective basis. Although this change in the law does not alter the 
Commission's authority to evaluate and ultimately disapprove 
exchange rules if it concludes that they are not consistent with the 
Act, it unambiguously reflects a conclusion that market data fee 
changes do not require prior Commission review before taking effect, 
and that a proceeding with regard to a particular fee change is 
required only if the Commission determines that it is necessary or 
appropriate to suspend the fee and institute such a proceeding.
    \17\ See Securities Exchange Act Release No. 61885 (April 9, 
2010), 75 FR 20018 (April 16, 2010) (SR-BATS-2010-002) (adopting 
BATS market data products, including BATS Historical Data Products); 
see also, NYSE Technologies, Market Data, www.nyxdata.com (providing 
information regarding historical data products offered by the NYSE; 
see also, NASDAQ Rules 7022 and 7023 (establishing fees for 
Historical Research and Administrative Reports and NASDAQ Depth-of-
Book Data); see also, Securities Exchange Act Release No. 61416 
(January 25, 2010), 75 FR 5821 (February 4, 2010) (SR-NASDAQ-2010-
010) (relating to NASDAQ rule governing Historical ModelView 
product); see also, Securities Exchange Act Release No. 66403 
(February 15, 2012), 77 FR 10593 (February 22, 2012) (SR-EDGA-2012-
05) (adopting EdgeBook Cloud service); see also, Securities Exchange 
Act Release No. 66402 (February 15, 2012), 77 FR 10595 (February 22, 
2012) (SR-EDGX-2012-05) (adopting EdgeBook Cloud service).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended.
    There is significant competition for the provision of market data 
to market participants, as well as competition for the orders that 
generate that data. In introducing the proposed Service, the Exchange 
would be providing an additional market data product to those already 
offered by other market centers.\18\
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    \18\ Id.
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    The Service is purely optional and can be used by Subscribers who 
see value in the format in which the Service presents historical data. 
Given this, the Exchange does not believe that the Service will result 
in 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 its Members or other interested 
parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act\19\ and Rule 19b-
4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the

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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.

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 rule-comments@sec.gov. Please include 
File Number SR-EDGA-2012-38 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.

All submissions should refer to File Number SR-EDGA-2012-38. 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 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of EDGA. 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-2012-38 and should be 
submitted on or before September 28, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-22015 Filed 9-6-12; 8:45 am]
BILLING CODE 8011-01-P


