
[Federal Register Volume 79, Number 148 (Friday, August 1, 2014)]
[Notices]
[Pages 44938-44941]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18117]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72682; File No. SR-EDGA-2014-17]


Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Clarify 
for Members and Non-Members the Use of Certain Data Feeds for Order 
Handling and Execution, Order Routing and Regulatory Compliance of EDGA 
Exchange, Inc.

July 28, 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 July 15, 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 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 clarify for Members \3\ and non-Members 
the Exchange's use of certain data feeds for order handling and 
execution, order routing, and regulatory compliance. 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

[[Page 44939]]

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, the Proposed Rule Change

1. Purpose
    The Exchange submits this filing to clarify for Members and non-
Members the Exchange's use of certain data feeds for order handling and 
execution, order routing, and regulatory compliance.
Order Handling and Execution
    The Exchange's Matching Engine (the ``ME'') determines whether an 
order should be displayed, executed internally, or routed to another 
market center. In making this determination, the ME continually 
receives and maintains quote data that is delivered from an internal 
processor (the ``Feed Handler''). The market data processed by the Feed 
Handler is sourced directly from the Securities Information Processors 
(``SIP'') feeds.\4\ Specifically, the Exchange's ME uses the 
Consolidated Tape Association (CTA) market data operated by the 
Securities Industry Automation Corp. in Tapes A and B and Unlisted 
Trading Privileges (UTP) market data operated by NASDAQ OMX Group, Inc. 
in Tape C securities.
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    \4\ As part of the plan of integration pursuant to the merger 
between Direct Edge Holdings LLC, the holding company for the 
Exchange, and BATS Global Markets, Inc., in January 2015, the 
Exchange will transition to the use of quotes disseminated by major 
protected market centers through proprietary data feeds, and 
disseminated by the SIP for other protected market centers, to 
calculate the National Best Bid or Offer (``NBBO''). See 
www.bats.com/edgeintegration. The Exchange will submit a filing to 
the Commission prior to January 2015 to reflect the transition.
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    These SIP feeds contain the best (top-of-book) prices in round lot 
quotations of each protected venue. The ME utilizes the SIP feeds to 
obtain the top-of-book quotes. On EDGA, this excludes EDGA's top-of-
book quotes, but includes the top-of-book quotes from the Exchange's 
affiliates, EDGX Exchange, Inc. (``EDGX''), BATS Exchange, Inc. 
(``BZX''), and BATS Y-Exchange, Inc. (``BYX''). Based on the SIP feeds 
and the EDGA Book,\5\ the ME constructs the NBBO.
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    \5\ The term ``EDGA Book'' is defined as ``the System's 
electronic file of orders.'' See Exchange Rule 1.5(d).
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    The ME will also update the NBBO upon receipt of an Intermarket 
Sweep Order (``ISO'') with a time-in-force of Day (``Day ISO''). When a 
Day ISO is posted on the EDGA Book, the ME uses the receipt of a Day 
ISO as evidence that the protected quotes have been cleared, and the ME 
does not check away markets for equal or better-priced protected 
quotes.\6\ The ME will then display and execute non-ISO orders at the 
same price as the Day ISO.
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    \6\ Pursuant to Regulation NMS, a broker-dealer routing a Day 
ISO is required to simultaneously route one or more additional ISOs, 
as necessary, to execute against the full displayed size of any 
protected quote priced equal to or better than the Day ISO. See also 
Question 5.02 in the ``Division of Trading and Markets, Responses to 
Frequently Asked Questions Concerning Rule 611 and Rule 610 of 
Regulation NMS'' (last updated April 4, 2008) available at http://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm.
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    The NBBO is utilized for order handling and execution. The Exchange 
looks to its calculation of the NBBO, based on the SIP feeds and the 
EDGA Book, when determining the mid-point of the NBBO for purposes of a 
Mid-Point Peg Order \7\ and Mid-Point Discretionary Order \8\ or the 
price at which a Pegged Order \9\ is to be pegged. The Exchange also 
utilizes its calculation of the NBBO when re-pricing orders pursuant to 
Exchange Rule 11.5(c)(4) and when handling NBBO Offset Peg Orders \10\ 
and Route Peg Orders.\11\ As described below, the ME will include 
quotes from market centers that declare self-help in its calculation of 
the NBBO for the purpose of re-pricing orders whose price depends on 
the NBBO, such as pegging, midpoint, etc.
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    \7\ See Exchange Rule 11.5(c)(7).
    \8\ See Exchange Rule 11.5(c)(17).
    \9\ See Exchange Rule 11.5(c)(6).
    \10\ See Exchange Rule 11.5(c)(15).
    \11\ See Exchange Rule 11.5(c)(14).
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Order Routing
    When the Exchange has a marketable order with instructions from the 
sender that the order is eligible to be routed, and the ME identifies 
that there is no matching price available on the Exchange, but there is 
a matching price represented at another venue that displays protected 
quotes, then the ME will send the order to the Routing Engine (``RE'') 
of Direct Edge ECN LLC (d/b/a DE Route).
    In determining whether to route an order, the RE makes its own 
calculation of the NBBO for a security using quotes disseminated by 
market centers through proprietary data feeds (``Direct Feeds'') where 
available and the SIP feeds from those venues where the Exchange does 
not take the Direct Feeds.\12\
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    \12\ EDGA consumes Direct Feeds from EDGX, BZX and BYX.
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    The RE utilizes a third-party market data processor that consumes 
the Direct Feeds and the SIP feeds, aggregates the quantities of 
symbols by price level, and redistributes them to an internal quote 
processor (the ``Quote Server''). The RE will request from the Quote 
Server a market data snapshot which includes the top-of-book and/or 
depth-of-book of each market center offering depth-of-book feeds. Based 
on this snapshot, the RE calculates the NBBO for a security and routes 
the order, allocating the shares to the venues at each price level up 
to the limit price of the order, starting with the best protected 
quotes in accordance with Regulation NMS subject to the Member's 
instructions. If there are any shares remaining after the response to 
the initial route is received, the RE will take another snapshot from 
the Quote Server and send out orders based on the same logic. If the 
full quantity of the order is not executed after multiple route 
attempts, the order is returned to the ME.
    In addition, the RE utilizes in-flight order information in its 
routing methodology. The RE tracks the details of each in-flight order, 
including the quantity routed and the corresponding quote published by 
the routed venue. After the RE requests a market data snapshot from the 
Quote Server and the RE has already targeted this quote (identified by 
venue, symbol, price, quantity and time stamp), then the RE will 
subtract the routed quantity of in-flight orders from the quote size 
displayed in the market data snapshot. The RE will route an order for 
the remaining quantity to the venue. If there are no residual shares, 
the RE will bypass the quote.
    The RE also utilizes responses from other venues displaying 
protected quotes in its routing methodology. When the RE receives a 
response from a venue that does not completely fill the order targeting 
a quote, and no subsequent quote update has been received from that 
venue at the same price level, the RE will mark that venue's quote as 
stale at that price level.\13\ Absent additional quote updates from 
that venue, the RE will bypass the quote for one (1) second. After one 
second, if the quote is still included in the market data snapshot, the 
RE will target the quote again.
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    \13\ Question 11 of the ``Division of Market Regulation: 
Responses to Frequently Asked Questions Concerning Rule 611 and Rule 
610 of Regulation NMS'' describes routing practices in the context 
of stale quotes, available at http://www.sec.gov/divisions/marketreg/rule611faq.pdf.
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Regulatory Compliance
    Locked or Crossed Markets. The ME determines whether the display of 
an order would lock or cross the market. At the time an order is 
entered into the ME, the ME will establish, based upon the prevailing 
top-of-book quotes of other exchanges displaying protected quotes 
received from the SIP feeds, whether the

[[Page 44940]]

order will lock or cross the prevailing NBBO for a security. In the 
event that the order would produce a locking or crossing condition, the 
ME will cancel the order, re-price \14\ the order or route the order 
based on the Member's instructions. Two exceptions to this logic are 
Day ISOs and declarations of self-help.
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    \14\ See Exchange Rule 11.5(c)(4).
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    Pursuant to Regulation NMS, when an Exchange receives a Day ISO, 
the sender of the ISO retains the responsibility to comply with 
applicable rules relating to locked and crossed markets.\15\ In such 
case, the Exchange is obligated only to display a Day ISO order at the 
Member's price, even if such price would lock or cross the market.\16\
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    \15\ See supra note 6.
    \16\ See supra note 6.
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    Declarations of self-help occur when the RE detects that an 
exchange displaying protected quotes is slow or non-responsive to the 
Exchange's routed orders. In this circumstance, according to Rule 
611(b) of Regulation NMS, the Exchange may display a quotation that may 
lock or cross quotations from the market where the quotation that it 
may lock or cross is displayed by the market that the Exchange invoked 
self-help against.\17\ The ME and RE, when they take their market data 
snapshots, maintain logic that will ignore the quotes generated from 
the self-helped market in their calculations of the NBBO for execution 
and routing determinations in compliance with Regulation NMS. The 
Exchange will also disable all routing to the self-helped market. The 
ME and Quote Server will continue to consume the self-helped market 
center's quotes; however, in order to immediately include the quote in 
the NBBO calculation and enable routing once self-help is revoked. As 
described above, the Exchange will include quotes from the self-helped 
market for re-pricing purposes such as pegged orders.
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    \17\ See also Question 5.03 in the ``Division of Trading and 
Markets, Responses to Frequently Asked Questions Concerning Rule 611 
and Rule 610 of Regulation NMS'' (last updated April 4, 2008) 
available at http://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm.
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    Trade-Through Rule. Pursuant to Rule 611 of Regulation NMS, the 
Exchange shall establish, maintain, and enforce written policies and 
procedures that are reasonably designed to prevent trade-throughs on 
trading centers of protected quotations in NMS stocks that do not fall 
within a valid exception and, if relying on such an exception, that are 
reasonably designed to ensure compliance with the terms of the 
exception. The ME will not permit an execution on the Exchange if there 
are better-priced protected quotations displayed in the market unless 
the order is an ISO. At the time an order is entered into the ME, the 
ME uses the view of the NBBO as described above. If the NBBO is priced 
better than what is resident on the Exchange, the Exchange will not 
match such order on the EDGA Book, and based on the Member's 
instructions, the ME will cancel the order, re-price the order or route 
the order.
    Regulation SHO. The Exchange cannot execute a Short Sale Order \18\ 
equal to or below the current National Best Bid (``NBB'') when a short 
sale price restriction is in effect pursuant to Rule 201 of Regulation 
SHO (``Short Sale Circuit Breaker'').\19\ When a Short Sale Circuit 
Breaker is in effect, the Exchange utilizes information received from 
the SIP feeds and a view of the EDGA Book to assess its compliance with 
Rule 201 of Regulation SHO. The NBBO used for compliance with Rule 201 
of Regulation SHO includes quotes from market centers against which the 
Exchange has declared self-help.
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    \18\ See Exchange Rule 11.15.
    \19\ 17 CFR 242.200(g); 17 CFR 242.201. On February 26, 2010, 
the Commission adopted amendments to Regulation SHO under the Act in 
the form of Rule 201, pursuant to which, among other things, short 
sale orders in covered securities generally cannot be executed or 
displayed by a trading center, such as the Exchange, at a price that 
is at or below the current NBB when a Short Sale Circuit Breaker is 
in effect for the covered security. See Securities Exchange Act 
Release No. 61595 (February 26, 2010), 75 FR 11232 (March 10, 2010). 
In connection with the adoption of Rule 201, Rule 200(g) of 
Regulation SHO was also amended to include a ``short exempt'' 
marking requirement. See also Securities Exchange Act Release No. 
63247 (November 4, 2010), 75 FR 68702 (November 9, 2010) (extending 
the compliance date for Rules 201 and 200(g) to February 28, 2011). 
See also Division of Trading & Markets: Responses to Frequently 
Asked Questions Concerning Rule 201 of Regulation SHO, www.sec.gov/divisions/marketreg/rule201faq.htm.
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    Latent or Inaccurate Direct Feeds. Where the Exchange's systems 
detect problems with one or more Direct Feeds, the Quote Server can 
manually fail over to the SIP feed to calculate the NBBO for the market 
center(s) where the applicable Direct Feed is experiencing issues. In 
order to make this determination, the Quote Server continuously polls 
every Direct Feed line and generates an email alert if the difference 
between a quote's sent time (as stamped by the sending market) and the 
time of receipt by the Exchange exceeds one (1) second.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \20\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \21\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in 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 does not 
believe that this proposal will permit unfair discrimination among 
customers, brokers, or dealers because it will be available to all 
Users.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal to describe the Exchange's 
use of data feeds removes impediments to and perfects the mechanism of 
a free and open market and protects investors and the public interest 
because it provides additional specificity and transparency. The 
Exchange's proposal will enable investors to better assess the quality 
of the Exchange's execution and routing services. The proposal does not 
change the operation of the Exchange or its use of data feeds; rather 
it describes how, and for what purposes, the Exchange uses the quotes 
disseminated from data feeds to calculate the NBBO for a security for 
purposes of Regulation NMS, Regulation SHO and various order types that 
update based on changes to the applicable NBBO. The Exchange believes 
the additional transparency into the operation of the Exchange as 
described in the proposal will remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, protect investors and the public interest.

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

    The Exchange does not believe that the proposal will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act. On the contrary, the Exchange believes the 
proposal would enhance competition because describing the Exchange's 
use of data feeds enhances transparency and enables investors to better 
assess the quality of the Exchange's execution and routing services.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Because the 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-4(f)(6) 
thereunder.\23\
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    At any time within 60 days of the filing of the 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 email to rule-comments@sec.gov. Please include 
File Number SR-EDGA-2014-17 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-2014-17. 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 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-2014-17 and should be 
submitted on or before August 22, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18117 Filed 7-31-14; 8:45 am]
BILLING CODE 8011-01-P


