
[Federal Register Volume 79, Number 82 (Tuesday, April 29, 2014)]
[Notices]
[Pages 24049-24053]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-09675]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72001; File No. SR-EDGA-2014-09]


Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Amendments to the EDGA Exchange, Inc. Fee Schedule

April 23, 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 April 9, 2014, EDGA Exchange, Inc. (the ``Exchange'' or 
``EDGA'') 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

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[[Page 24050]]

I. 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 EDGA Rule 15.1(a) and (c) 
(``Fee Schedule'') to harmonize the definitions of Average Daily 
Trading Volume (``ADV'') and Total Consolidated Volume (``TCV'') with 
those contained in the BATS Exchange, Inc. (``BATS'') and BATS-Y 
Exchange, Inc. (``BYX'') fee schedules by: (i) Modifying the way that, 
for purposes of tiered pricing, the Exchange calculates ADV and average 
daily TCV; and (ii) clarify the manner in which Members may aggregate 
their ADV with other affiliated Members. The text of the proposed rule 
change is available on the Exchange's Internet 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\ 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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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 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.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On January 31, 2014, Direct Edge Holdings LLC (``DE Holdings''), 
the former parent company of the Exchange, completed its business 
combination with BATS Global Markets, Inc., the parent company of BATS 
and BYX.\4\ As part of its effort to reduce regulatory duplication and 
relieve firms that are members of the Exchange, BATS, and BYX of 
conflicting or unnecessary regulatory burdens, the Exchange is now 
engaged in the process of reviewing and amending certain Exchange, 
BATS, and BYX Rules. To conform to comparable BATS and BYX rules for 
purposes of its harmonization efforts due to its business combination, 
the Exchange proposes to amend the definitions of ADV and TCV to make 
each definition similar to those contained in the BATS and BYX fee 
schedules by modifying the way that, for purposes of tiered pricing: 
(i) The Exchange calculates ADV and average daily TCV; and (ii) the 
manner in which Members may aggregate their ADV with other affiliated 
Members. The Exchange notes that it is not proposing to modify any of 
the existing rebates or the percentage thresholds at which a Member may 
qualify for certain rebates pursuant to the tiered pricing structure.
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    \4\ See Securities Exchange Act Release No. 71449 (January 30, 
2014), 79 FR 6961 (February 5, 2014) (SR-EDGA-2013-34). Upon 
completion of the Combination, DE Holdings and BATS Global Markets, 
Inc. each became intermediate holding companies, held under a single 
new holding company. The new holding company, formerly named ``BATS 
Global Markets Holdings, Inc.,'' changed its name to ``BATS Global 
Markets, Inc.''
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ADV and TCV
    Currently, the Exchange determines the liquidity adding reduced 
fees that it will provide to Members based on the Exchange's tiered 
pricing structure based on the calculation of ADV,\5\ and/or average 
daily TCV.\6\ Unlike on BATS and BYX, the Exchange does not currently 
exclude any trading days from its calculation of ADV and TCV. 
Therefore, to harmonize the calculation of ADV and TCV with BATS and 
BYX, the Exchange proposes to amend the definitions of ADV and TCV to 
exclude shares on: (i) Any day that the Exchange's system experiences a 
disruption that lasts for more than 60 minutes during Regular Trading 
Hours \7\ (``Exchange System Disruption''); and (ii) the last Friday in 
June (the ``Russell Reconstitution Day''). The Exchange also proposes 
to amend the definition of ADV to clarify that routed shares are not 
included in ADV calculation.
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    \5\ As provided in the Fee Schedule, ``ADV'' is currently 
defined as the average daily volume of shares that a Member executed 
on the Exchange for the month in which the fees are calculated.
    \6\ As provided in the Fee Schedule, ``TCV'' is currently 
defined 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.
    \7\ ``Regular Trading Hours'' is defined as ``the time between 
9:30 a.m. and 4:00 p.m. Eastern Time.'' See Exchange Rule 1.5(y).
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    First, the Exchange proposes to modify the definitions of ADV and 
TCV to exclude trading days where the Exchange experiences a systems 
disruption that lasts for more than 60 minutes during Regular Trading 
Hours and define it as an Exchange System Disruption.\8\ As an example, 
an Exchange System Disruption may occur where a certain group of 
securities (i.e., securities in a select symbol range such as A through 
C) traded on the Exchange are unavailable for trading due to an 
Exchange system issue. Similarly, the Exchange may be able to perform 
certain functions with respect to accepting and processing orders, but 
may have a failure to another significant process, such as routing to 
other market centers, that would lead Members that rely on such process 
to avoid utilizing the Exchange until the Exchange's entire system was 
operational.
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    \8\ See SR-BATS-2014-010 and SR-BYX-2014-006 (proposing to 
exclude Exchange System Disruptions from the definition of ADV).
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    The Exchange believes that this modification is reasonable because 
it avoids penalizing Members that might otherwise qualify for certain 
tiered pricing but that, because of a significant Exchange system 
problem, did not participate on the Exchange to the extent that they 
might have otherwise participated. The Exchange believes that certain 
systems disruptions could preclude some Members from submitting orders 
to the Exchange even if such issue is not actually a complete systems 
outage. Therefore, the Exchange is proposing to modify its Fee Schedule 
to exclude trading activity occurring on any day that the Exchange 
experiences an Exchange System Disruption.
    Second, the Exchange proposes to exclude the last Friday of June 
each year from the definition of ADV and TCV because the last Friday of 
June is the day that Russell Investments reconstitutes its family of 
indexes (``Russell Rebalance''), resulting in particularly high trading 
volumes, much of which the Exchange believes derives from market 
participants who are not generally as active entering the market to 
rebalance their holdings in-line with the Russell Rebalance.\9\ The 
Exchange believes that trading occurring as a result of the Russell 
Rebalance can significantly skew the calculation of ADV and TCV. For 
example, since 2008, on the last Friday in June, the TCV has exceeded 
the average daily TCV for the preceding trading days in June by 
approximately 43% on average. The chart below reflects the TCV on the 
last Friday of June for each year dating to 2008 and compares it to the 
average daily TCV for the preceding trading days in the month of June.
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    \9\ Securities Exchange Act Release No. 69793 (July 18, 2013), 
78 FR 37865 (July 24, 2013) (SR-BATS-2013-034) (excluding the 
Russell Reconstitution Day from the definition of ADV).

[[Page 24051]]



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                                                                 MTD average TCV as of
  Russell reconstitution date (RCD)           TCV on RCD             day before RCD            % Difference
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6/28/2013............................           10,211,508,622            6,954,840,047                    46.83
6/29/2012............................            7,924,340,355            6,833,486,672                    15.96
6/24/2011............................           10,472,502,657            7,237,593,514                    44.70
6/25/2010............................           14,482,717,113            8,981,067,278                    61.26
6/26/2009............................           13,024,518,377            9,597,498,903                    35.71
6/27/2008............................           12,010,692,402            7,835,813,201                    53.28
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Because of the extremely high volume numbers and abnormally distributed 
daily volume or percentage of the TCV on this day, it stands that the 
ADV or percentage of average daily TCV can be significantly impacted.
    As such, the Exchange believes that eliminating the last Friday of 
June from the definition of ADV and TCV, and thereby eliminating that 
day from the calculation as it relates to reduced fees for adding 
liquidity to the Exchange, will help to eliminate significant 
uncertainty faced by Members as to their monthly ADV or percentage of 
average daily TCV and the reduced fees that this percentage will 
qualify for, providing Members with an increased certainty as to their 
monthly cost for trades executed on the Exchange. The Exchange further 
believes that removing this uncertainty will encourage Members to 
participate in trading on the Exchange during the remaining trading 
days in June in a manner intended to be incented by the Exchange's Fee 
Schedule.
    Lastly, the Exchange proposes to clarify within the definition of 
ADV that ADV does not include shares that are routed to other trading 
centers. ADV is defined as the average daily volume of shares executed 
on the Exchange for the month in which the fees are calculated. 
Clarifying that routed orders are not included in the definition of ADV 
is designed to add further clarity and harmonize the definition with 
BATS and BYX.
ADV Aggregation
    The Exchange also proposes to amend when a Member may aggregate 
share volumes with other affiliated Members. Currently, under the 
``General Notes'' section of the Fee Schedule, the Exchange will 
aggregate share volume calculations for wholly owned affiliates on a 
prospective basis upon a Member's request. The Exchange proposes to 
relocate this provision to the definition of ADV and amend the language 
to allow a Member to aggregate ADV with other Members that control, are 
controlled by, or are under common control with such Member (as 
evidenced on such Member's Form BD).\10\ To the extent two or more 
affiliated companies maintain separate Exchange memberships and can 
demonstrate their affiliation by showing they control, are controlled 
by, or are under common control with each other, the Exchange will 
permit such Members to count overall volume of the affiliates in 
calculating ADV.
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    \10\ Securities Exchange Act Release No. 64211 (April 6, 2011), 
76 FR 20414 (April 12, 2014 [sic]) (SR-BATS-2011-012) (permitting 
Members to aggregate shares volumes with affiliated entities).
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Implementation Date
    The Exchange proposes to implement these amendments to its Fee 
Schedule on May 1, 2014.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\11\ in general, and 
furthers the objectives of Section 6(b)(4),\12\ 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 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 structures at a particular venue to 
be unreasonable and/or excessive.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
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    Members who are also members of BATS or BYX are subject to 
different definitions of ADV and TCV as well as differing standards for 
aggregating ADV with affiliated Members when seeking to qualify for 
certain tiered pricing. The Exchange believes that the proposed rule 
change will provide greater harmonization between similar Exchange, 
BATS and BYX rules, resulting in greater uniformity and less burdensome 
and more efficient regulatory compliance for common members. As such, 
the proposed rule change would foster cooperation and coordination with 
persons engaged in facilitating transactions in securities and would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system. Lastly, the Exchange believes that 
the proposed change is non-discriminatory because it applies uniformly 
to all Members.
    Volume-based tiers such as the liquidity adding tiers maintained by 
the Exchange have been widely adopted, and are equitable and not 
unfairly discriminatory. They are open to all Members on an equal basis 
and provide higher rebates or lower fees that are reasonably related to 
the value to an exchange's market quality associated with higher levels 
of market activity, such as higher levels of liquidity provision and 
introduction of higher volumes of orders into the price and volume 
discovery process. Accordingly, the Exchange believes that the proposal 
is equitably allocated and not unfairly discriminatory because it is 
consistent with the overall goals of enhancing market quality. Further, 
the Exchange believes that a tiered pricing model not significantly 
altered by a day of atypical trading behavior which allows Members to 
predictably calculate what their costs associated with trading activity 
on the Exchange will be is reasonable, fair and equitable and not 
unreasonably discriminatory as it is uniform in application amongst 
Members and should enable such participants to operate their business 
without concern of unpredictable and potentially significant changes in 
expenses.
ADV and TCV
    The Exchange believes that its proposed amendments to the 
definitions of ADV and TCV to exclude shares on the day of an Exchange 
System Disruption are reasonable because, as explained above, they will 
help provide Members with a greater level of certainty as to their 
level of costs for trading in any month where the Exchange experiences 
an Exchange System Disruption on one or more trading days. The Exchange 
is not proposing to amend the thresholds a Member must achieve to 
become eligible for, or the dollar value associated with, the tiered 
pricing. By eliminating the inclusion of a trading day on which an 
Exchange System Disruption occurs the Exchange would almost certainly 
be excluding a day that would otherwise lower a Member's ADV

[[Page 24052]]

or percentage of average daily TCV. Thus, the proposed change will make 
the majority of Members more likely to meet the minimum or higher tier 
thresholds, incentivizing Members to increase their participation on 
the Exchange in order to meet the next highest tier. In addition, the 
Exchange believes that the proposed changes to its Fee Schedule are 
equitably allocated among Exchange constituents and not unfairly 
discriminatory as the methodology for calculating ADV and TCV will 
apply equally to all Members. While, although unlikely, certain Members 
may have a higher ADV or percentage of average daily TCV with their 
activity included from days where the Exchange experiences an Exchange 
System Disruption, the proposal will make all Members' cost of trading 
on the Exchange more predictable, regardless of how the proposal 
affects their ADV or percentage of average daily TCV.
    The Exchange believes that its proposed amendments to the 
definitions of ADV and TCV to exclude shares on the Russell 
Reconstitution Day are reasonable because, as explained above, it will 
help provide Members with a greater level of certainty as to their 
level of fees for trading in the month of June. The Exchange also 
believes that its proposal is reasonable because it is not changing the 
thresholds to become eligible or the dollar value associated with the 
reduced fees. Moreover, by eliminating the inclusion of a trading day 
that would almost certainly lower a Member's ADV or percentage of 
average daily TCV, it will make the majority of Members more likely to 
meet the minimum or higher tier thresholds, which will provide 
additional incentive to Members to increase their participation on the 
Exchange in order to meet the next tier. In addition, the Exchange 
believes that the proposed changes are equitably allocated among 
Exchange constituents as the methodology for calculating ADV and TCV 
will apply equally to all Members. While, although unlikely, certain 
Members may have a higher ADV or percentage of average daily TCV with 
the day included, the proposal will make June trading fees more similar 
to other months. Moreover, all Members' cost of trading on the Exchange 
will become more predictable, regardless of how the proposal affects 
their ADV or percentage of average daily TCV, which in turn will 
preserve Members' incentives to participate in trading on the Exchange 
in a manner intended to be incented by the Exchange's Fee Schedule.
    Lastly, the Exchange proposes to clarify within the definition of 
ADV that ADV does not include shares that are routed to other trading 
centers. Clarifying that routed orders are not included in the 
calculation of ADV will promote just and equitable principles of trade 
and remove impediments to a free and open market by providing greater 
transparency concerning the operation of the Exchange and a Member's 
share volumes that are included in their ADV.
ADV Aggregation
    The proposed language permitting aggregation of volume amongst 
Members that share common control for purposes of the ADV calculation 
is intended to avoid disparate treatment of Members that have divided 
their various business activities between separate corporate entities 
as compared to Members that operate those business activities within a 
single corporate entity. By way of example, subject to appropriate 
information barriers, many firms that are Members of the Exchange 
operate both a market making desk and a public customer business within 
the same corporate entity. In contrast, other Members may be part of a 
corporate structure that separates those business lines into different 
corporate affiliates, either for business, compliance or historical 
reasons, and those affiliates are not also considered wholly owned 
affiliates. Those corporate affiliates, in turn, are required to 
maintain separate memberships with the Exchange. Absent the proposed 
change, such corporate affiliates that cannot be considered wholly 
owned but are under common control would not receive the same treatment 
as Members who are considered wholly owned affiliates. Current Members 
who aggregate share volumes on the Exchange with wholly owned 
affiliates will be considered as being under common control and 
continue to be able to aggregate share volumes. Accordingly, the 
Exchange believes that its proposed policy is fair and equitable, and 
not unreasonably discriminatory. In addition to ensuring fair and equal 
treatment of its Members, the Exchange does not want to create 
incentives for its Members to restructure their business operations or 
compliance functions simply due to the Exchange's pricing structure.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes its proposed amendments to its Fee Schedule 
would 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 the proposed change represents a significant 
departure from previous pricing offered by the Exchange or pricing 
offered by the Exchange's competitors. Additionally, Members may opt to 
disfavor EDGA's pricing if they believe that alternatives offer them 
better value. Accordingly, the Exchange does not believe that the 
proposed change will impair the ability of Members or competing venues 
to maintain their competitive standing in the financial markets.
    The proposed change will help to promote intramarket competition by 
avoiding a penalty to Members for days when trading on the Exchange is 
disrupted for a significant portion of the day. In addition, excluding 
the Russell Rebalance Day from the definition of ADV and TCV will help 
the Exchange to continue to incentivize higher levels of liquidity at a 
tighter spread while providing more stable and predictable costs to its 
Members. Lastly, easing Member's ability to aggregate volumes with 
Members who are under common control would increase competition because 
it would incentivize Members that could not previously aggregate their 
volumes to send higher volume to the Exchange in an effort to achieve 
tier-based pricing. As stated above, 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 
structures to be unreasonable or excessive.

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 \13\ and Rule 19b-4(f)(2) \14\ 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..
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(2).

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[[Page 24053]]

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-2014-09 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-EDGA-2014-09. 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-EDGA-2014-09, and should be 
submitted on or before May 20, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09675 Filed 4-28-14; 8:45 am]
BILLING CODE 8011-01-P


