2013-19668. 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

August 8, 2013.

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 5, 2013, 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.

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] pursuant to EDGA Rule 15.1(a) and (c) (“Fee Schedule”) to: (1) Increase the fee charged from $0.0029 per share to $0.0030 per share for orders that yield Flag U, which routes to LavaFlow, Inc. (“LavaFlow”); (2) eliminate underutilized pricing tiers from its Fee Schedule; and (3) make a number of non-substantive amendments and clarifications. All of the changes described herein are applicable to EDGA 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.

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

The Exchange proposes to amend its Fee Schedule to: (1) Increase the fee charged from $0.0029 per share to $0.0030 per share for orders that yield Flag U, which routes to LavaFlow; (2) eliminate underutilized pricing tiers from its Fee Schedule; and (3) make a number of non-substantive amendments and clarifications.

Fee Change for Flag U

In securities priced at or above $1.00, the Exchange currently assesses a fee of $0.0029 per share for Members' orders that yield Flag U, which routes to LavaFlow. The Exchange proposes to amend its Fee Schedule to increase this fee to $0.0030 per share for Members' orders that yield Flag U. The proposed change represents a pass through of the rate that Direct Edge ECN LLC (d/b/a DE Route) (“DE Route”), the Exchange's affiliated routing broker-dealer, is charged for routing orders to LavaFlow and do not qualify for a volume tiered discount. When DE Route routes to LavaFlow, it is charged a default fee of $0.0030 per share.^[4] DE Route will pass through this rate on LavaFlow to the Exchange and the Exchange, in turn, will pass through this rate to its Members. The Exchange notes that the proposed change is in response to LavaFlow's July 2013 fee change where LavaFlow increased the rate it charges its customers, such as DE Route, from a charge of $0.0029 per share to a charge of $0.0030 per share for orders that are routed to LavaFlow and add liquidity.^[5]

Elimination of the Tier Under Footnote 6 ^[6]

Currently, under Footnote 6, Members can qualify for a decreased fee of $0.0023 per share for orders yielding Flag U where they post an average of 100,000 shares or more per day using routing strategy ROLF (yielding Flag M). The Exchange proposes to amend its Fee Schedule to remove this pricing tier under Footnote 6. This pricing tier represented a pass through of the rate that DE Route was charged for routing orders to LavaFlow that qualify for an identical volume tiered discount provided by LavaFlow. When DE Route routed to LavaFlow and satisfied its tier, it was charged a reduced fee of $0.0023 per share. DE Route passed through this rate on LavaFlow to the Exchange and the Exchange, in turn, passed through this rate to its Members. The Exchange notes that the proposed change is in response to LavaFlow's recent fee change where LavaFlow eliminated its equivalent pricing tier from its fee schedule.^[7] The Exchange also proposes to remove references to Footnote 6 from Flag U in the list of “Liquidity Flags.” Lastly, the Exchange notes that with the deletion of this tier, Members will continue to be subject to the other fees and tiers listed on the Exchange's Fee Schedule.

Elimination of Tiers Under Footnote 16

The Exchange proposes to eliminate the pricing tiers included under Footnote 16 because they are underutilized by Members. Currently, the Exchange offers the following pricing tiers for Flag Q under Footnote 16:

• $0.0015 per share where the Member posts greater than or equal to 0.30% of the total consolidated volume (“TCV”) ^[8] in average daily volume (“ADV”) ^[9] on the Exchange and routes 2.5 million shares through the use of Flag Q;

• $0.0015 per share where the Member executes greater than or equal to an ADV of 12 million shares using the ROUC routing strategy and yielding Flags C, D, I, K, Q, X, BY, CR and MT; and
• $0.0010 per share where the Member posts greater than or equal to 0.30% of the TCV in ADV on EDGA and routes 5 million shares through the use of Flag Q.

The Exchange notes that no Member has qualified for these tiers during the previous three months, nor does the Exchange anticipate a Member to qualify for these tiers in the near future. Therefore, the Exchange proposes to remove these tiers from its Fee Schedule. The Exchange also proposes to remove references to Footnote 16 from the list of “Liquidity Flags.” Lastly, the Exchange notes that with the deletion of these tiers, Members will continue to be subject to the other fees and tiers listed on the Exchange's Fee Schedule.

Non-Substantive Clarifying Changes

The Exchange also proposes to make a number of clarifying, non-substantive changes to its Fee Schedule to provide greater transparency to Members on how the Exchange assesses fees and calculates rebates. The Exchange notes that none of these changes substantively amend any fee or rebate, nor alter the manner in which it assesses fees or calculates rebates. These proposed changes are outlined below:

• Amend “EDGA Exchange” at the top of the Fee Schedule to read “EDGA Exchange, Inc.” and make a similar change to the last sentence of the “EdgeBook AttributedSM Fees” section.
• Amend the sentence at the top of the Fee Schedule from “Rebates & Charges for Adding, Removing or Routing Liquidity per Share for Tape A, B, & C Securities” to “Rebates & Charges for Adding, Removing or Routing Liquidity per share for Tape A, B, & C securities.
• Add language to the beginning of the Fee Schedule to clarify that the rates listed in the “Standard Rates” table apply unless a Member is assigned a liquidity flag other than a standard flag. If a Member is assigned a liquidity flag other than a standard flag, the rates listed in the “Liquidity Flags” table will apply.
• Title the first section of the Fee Schedule as “Standard Rates” and the second section “Liquidity Flags” by deleting current text “Liquidity Flags and Associated Fees.”
• Add a row to the “Standard Rates” section of the Fee Schedule specifying to which flags the standard rates apply. These flags are B, V, Y, 3 and 4 for adding liquidity, N, W, 6, BB, CR, PR and XR for removing liquidity, and X for routing and removing liquidity. The Exchange notes that the flags listed in this row are also listed as “Liquidity Flags” indicating a rate equal to the standard rate. The Exchange believes adding a row indicating which flags provide the standard rate would add clarity to its Fee Schedule.
• Make grammatical changes to the “Liquidity Flags” section. These proposed changes are the following: (i) Replacing “Add” with “Adds” under flags B, V, Y, 3 and 4; (ii) replacing “Remove” with “Removes” under flags N, W, 6, BB and CR; (iii) replace “primary” with “listing” under Flag O; (iv) delete “order” from Flag S as it is repetitive; (v) replace “MPM” with “MidPoint Match” under Flag MT; (vi) replace “Mid Point” with “Midpoint” under Flags PA and PX; (vii) add the word “away” to Flag R to clarify that the flag is referring to an away exchange and not the Exchange; and (viii) remove instances of “book” from footnotes B, N, V, W, Y and BB.
• Add a section titled “Definitions,” which would consist of terms that are currently defined within the footnotes of the Fee Schedule. This section would consist of definitions for “Added Flags,” “Removal Flags,” “Routed Flags,” “Average Daily Volume” and “Total Consolidated Volume.” “Added Flags” would be defined as the following flags that are counted towards tiers, where applicable: B, V, Y, DM, HA, PA, RP, 3, and 4. “Removal Flags” would be defined as the following flags that are counted towards tiers, where applicable: BB, N, W, CR, DT, HR, PR, PT, XR and 6. “Routed Flags” would be defined as the following flags that are counted towards tiers, where applicable: A, C, D, F, G, I, J, K, L, M, O, P, Q, R, S, T, U, X, Z, 2, 7, 8, 9, 10, BY, CL, PX, RA, RB, RC, RM, RR, RS, RT, RW, RX, RY, RZ, and SW. ADV would be defined as the average daily volume of shares that a Member executed on the Exchange for the month in which the fees are calculated. TCV would be 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. Where these terms appear in the footnotes, such terms would be abbreviated to match the “Definitions” section. The Exchange notes that these terms were previously defined within the footnotes. The Exchange does not propose any substantive changes to the definitions; it is simply moving the definitions from the footnotes and consolidating them under the “Definitions” section.
• Add a section entitled “General Notes” to help clarify the application of the footnotes. First, the “General Notes” section would clarify that, to the extent a Member: (i) does not qualify for any of the tiers included in the footnotes, the rates listed in the “Liquidity Flags” section will apply; or (ii) qualifies for higher rebates and/or lower fees than those provided by a tier for which such Member qualifies, the higher rebates and/or lower fees shall apply.^[10] Second, the section will incorporate text currently located in footnotes “a” and “b” that (i) trading activity on days when the market closes early does not count toward volume tiers and (ii) upon a Member's request, EDGA will aggregate share volume calculations for wholly owned affiliates on a prospective basis. Lastly, the section will clarify that variable rates provided by tiers apply only to executions in securities priced at or above $1.00.

• Add text to Footnote 2 to clarify that both displayed and non-displayed liquidity count towards the 8,000,000 share posting requirement to qualify for the rates for flags HA and HR listed in the “Liquidity Flags” table.
• Delete the language “Intentionally omitted” from Footnote 3 and replace it with the content from Footnote 17, which would be provided in table format. The Exchange does not propose to alter the fees or rebates offered under this tier or the requirements of the tier; it simply seeks to reformat the tier as a table to make it easier to read and understand. The Exchange also proposes to name the tier as the “RPMT Tier.” Conforming changes are proposed to be made to references to the footnotes in the “Liquidity Flags” section.
• Convert the tiers in Footnote 4 into table format and provide a name for each tier. The Exchange does not propose to alter the fees or rebates offered under these tiers or the requirements of the tiers; it simply seeks to reformat the tiers as a table to make them easier to read and understand. The Exchange also proposes to name the tiers under Footnote 4 as the “Add Volume Tiers.” In addition, the Exchange proposes to clarify that the fee to add for meeting any of these tiers is applicable to flags B, V, Y, 3 and 4.
• As discussed above, the Exchange proposes to delete the content of Footnote 6. In its place, the Exchange proposes to move the text, unchanged, from Footnote 15. Conforming changes are proposed to be made to references to the footnotes in the “Liquidity Flags” section.
• Delete the language “Intentionally omitted” from Footnote 7 and replace it with the exact content from Footnote 14. Conforming changes are proposed to be made to references to the footnotes in the “Liquidity Flags” section.
• Amend footnotes 8, 9, 10, and 11 to include similar language when stating which flag would be yielded when an order is routed using a particular routing strategy or to a specific trading center as contained in each footnote. In addition, pricing information in the footnotes would also be removed because such information is redundant and its removal would simplify the Fee Schedule.
• Delete the language “Intentionally omitted” from Footnote 12 and replace it with the exact content from Footnote 13. Conforming changes are proposed to be made to references to the footnotes in the “Liquidity Flags” section.
• Delete footnotes 13—17 and “a”—“c” as well as references to the footnotes in the “Liquidity Flags” section.
• Delete Footnote “d” and rename it as a new section entitled, “Late Fees.” The Exchange does not propose to amend the text of Footnote “d,” which will now be included under the new “Late Fees” section. References to Footnote “d” would be removed from the “Liquidity Flags” section.
• Amend the section “Port Fees” to replace the word “Edge” with “EDGE” and add the word “Ports” after “EdgeRisk.”
• Remove references to the effective date of a rule filing where such filing has become effective (i.e., Port Fees, EdgeRisk Gateway, Physical Connectivity Fees, Membership Fees, EdgeBook Attributed Fees, Edge Attribution Incentive Program and Edge Routed Liquidity Report).
• Conform titles of products in the sections following the footnotes to read first as product name followed by “Fees” rather than “Pricing,” where applicable. Furthermore, the titles of columns would be amended to conform to a common format.
• Insert and remove trademark symbols where applicable throughout the Fee Schedule (i.e., EDGA®, EDGX®, EDGE XPRS®, EdgeRisk PortsSM, EdgeRisk GatewaySM, EdgeBook DepthSM, EdgeBook AttributedSM, Edge Routed Liquidity ReportSM, and EdgeBook Cloud®).

Implementation Date

The Exchange proposes to implement these amendments to its Fee Schedule on August 5, 2013.

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 also believes the proposed rule change is consistent with the Section 6(b)(5) ^[13] requirements that the rules of an exchange be 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.

Fee Change for Flag U

The Exchange believes that its proposal to increase the pass through charge for Members' orders that yield Flag U from $0.0029 to $0.0030 per share represents an equitable allocation of reasonable dues, fees, and other charges among Members and other persons using its facilities because the Exchange does not levy additional fees or offer additional rebates for orders that it routes to LavaFlow through DE Route. Prior to LavaFlow's July 2013 fee change, LavaFlow charged DE Route a fee of $0.0029 per share for orders yielding Flag U, which DE Route passed through to the Exchange and the Exchange passed through to its Members. In July 2013, LavaFlow increased the rate it charges its customers, such as DE Route, from a charge of $0.0029 per share to a charge of $0.0030 per share for orders that are routed to LavaFlow.^[14] Therefore, the Exchange believes that the proposed change in Flag U from a fee of $0.0029 per share to a fee of $0.0030 per share is equitable and reasonable because it accounts for the pricing changes on LavaFlow. In addition, the proposal allows the Exchange to continue to charge its Members a pass-through rate for orders that are routed to LavaFlow and remove liquidity using DE Route. The Exchange notes that routing through DE Route is voluntary. Lastly, the Exchange also believes that the proposed amendment is non-discriminatory because it applies uniformly to all Members.

Elimination of the Tier Under Footnote 6

The Exchange believes that its proposal to eliminate the pricing tier under Footnote 6 represents an equitable allocation of reasonable dues, fees, and other charges among Members and other persons using its facilities because the Exchange does not levy additional fees or offer additional rebates for orders that it routes to LavaFlow through DE Route. Prior to LavaFlow's recent fee change, LavaFlow charged DE Route a fee of $ 0.0023 per share when volume criteria identical to that contained in Footnote 6 were met. DE Route, in turn, passed through this rate to the Exchange and the Exchange passed it through to its Members. Recently, LavaFlow eliminated this pricing tier from its fee schedule.^[15] Therefore, the Exchange believes that removing the related pricing tier under Footnote 6 is equitable and reasonable because it accounts for the pricing changes on LavaFlow. The Exchange notes that routing through DE Route is voluntary. The Exchange also believes the elimination of unnecessary and obsolete tiers simplifies its Fee Schedule. Removal of the tiers under Footnote 6 is also equitable and not unfairly discriminatory because those tiers would be eliminated and no longer be available to any Member. Lastly, the Exchange notes that with the deletion of this tier, Members would continue to be subject to the other fees and tiers listed on the Exchange's Fee Schedule.

Elimination of Tiers Under Footnote 16

The Exchange believes that the proposal to eliminate the tiers under Footnote 16 from its Fee Schedule is reasonable because these tiers are underutilized and have generally not incentivized Members to add liquidity to the Exchange. The Exchange notes that no Member has qualified for these tiers during the past three months, nor does the Exchange anticipate a Member to qualify for these tiers in the near future. Therefore, the Exchange believes eliminating the tiers under Footnote 16 would clarify its Fee Schedule. The Exchange also believes the elimination of unnecessary and obsolete tiers simplifies its Fee Schedule. Removal of the tiers under Footnote 16 is also equitable and not unfairly discriminatory because those tiers would be eliminated and no longer be available to any Member. Lastly, the Exchange notes that with the deletion of these tiers, Members would continue to be subject to the other fees and tiers listed on the Exchange's Fee Schedule.

Non-Substantive Clarifying Changes

The Exchange believes that the non-substantive clarifying changes to its Fee Schedule are reasonable because they are designed to provide greater transparency to Members with regard to how the Exchange assesses fees and provides rebates. The Exchange notes that none of the proposed non-substantive clarifying changes are designed to amend any fee or rebate, nor alter the manner in which it assesses fees or calculates rebates. The Exchange believes that Members would benefit from clear guidance in its Fee Schedule that describes the manner in which the Exchange would assess fees and calculate rebates. These non-substantive, technical changes to the Fee Schedule as intended to make the Fee Schedule clearer and less confusing for investors and eliminate potential investor confusion, thereby removing impediments to and perfecting the mechanism of a free and open market and a national market system, and, in general, protecting investors and the public interest.

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

These proposed rule changes do 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 any of these changes represent a significant departure from previous pricing offered by the Exchange or pricing offered by any of the Exchange's competitors. Additionally, Members may opt to disfavor the Exchange's pricing if they believe that alternatives offer them better value. Accordingly, the Exchange believes that the proposed changes would not impair the ability of Members or competing venues to maintain their competitive standing in the financial markets.

Fee Change for Flag U

The Exchange believes that its proposal to pass through a charge of $0.0030 per share for Members' orders that yield Flag U would increase intermarket competition because it offers customers an alternative means to route to LavaFlow for the same price as entering orders on LavaFlow directly. The Exchange believes that its proposal would not burden intramarket competition because the proposed rate would apply uniformly to all Members.

Elimination of the Tier Under Footnote 6

The Exchange believes that its proposal to eliminate the pricing tier under Footnote 6 would not impact intermarket competition because the change is in response to LavaFlow removing an identical corresponding tier from its fee schedule. The Exchange believes that its proposal would not burden intramarket competition because the pricing tier would no longer be available to any Members.

Elimination of Tiers Under Footnote 16

The Exchange believes that elimination of the tiers under Footnote 16 would not affect intermarket nor intramarket competition because the tiers have generally not incentivized Members to add liquidity to the Exchange.

Non-Substantive Clarifying Changes

The Exchange believes that non-substantive, clarifying changes to the Fee Schedule would not affect intermarket nor intramarket competition because none of these changes are designed to amend any fee or rebate or alter the manner in which the Exchange assesses fees or calculates rebates. These changes are intended to provide greater transparency to Members with regard to how the Exchange access fees and provides rebates.

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^[16] and Rule 19b-4(f)(2)^[17] 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.

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 [e-mail]. Please include File Number SR-EDGA-2013-23 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-2013-23. 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-2013-23 and should be submitted on or before September 4, 2013.

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.^[18]

 

Kevin M. O'Neill,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  “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.” EDGA Rule 1.5(n).

4.  The Exchange notes that to the extent DE Route does or does not achieve any volume tiered discount on LavaFlow, its rate for Flag U will not change.

5.  See LavaFlow Pricing, available at https://www.lavatrading.com/​solutions/​pricing.php (July 1, 2013) (charging a fee of $0.0030 per share for removing liquidity in shares priced at or above $1.00) (last visited July 19, 2013).

6.  References herein to “footnotes” refer only to footnotes on the Exchange's Fee Schedule and not to footnotes within the current filing.

7.  See LavaFlow Pricing, available at https://www.lavatrading.com/​solutions/​pricing.php (July 1, 2013) (no longer charging a fee of $0.0023 per share for members that post an average of 100,000 shares or more per day) (last visited July 19, 2013).

8.  TCV is defined as the volume reported by all exchanges and the trade reporting facilities to the consolidated transaction reporting plans for Tapes A, B, and C securities for the month in which fees are calculated.

9.  ADV is defined as the average daily trading volume of shares that a Member executed on the Exchange.

10.  These clarifications are similar to text included in footnotes 2 and 4 of the EDGX Exchange, Inc. Fee Schedule. See EDGX Exchange, Inc., Fee Schedule, available at https://www.directedge.com/​Membership/​FeeSchedule/​EDGXFeeSchedule.aspx (July 1, 2013).

11.  15 U.S.C. 78f.

12.  15 U.S.C. 78f(b)(4).

13.  15 U.S.C. 78f(b)(5).

14.  See LavaFlow Pricing, available at https://www.lavatrading.com/​solutions/​pricing.php (July 1, 2013) (charging a fee of $0.0030 per share for removing liquidity in shares priced at or above $1.00).

15.  See LavaFlow Pricing, available at https://www.lavatrading.com/​solutions/​pricing.php (July 1, 2013) (eliminating a fee of $0.0023 per share for orders yielding Flag U where they post an average of 100,000 shares or more per day).

16.  15 U.S.C. 78s(b)(3)(A).

17.  17 CFR 240.19b-4 (f)(2).

18.  17 CFR 200.30-3(a)(12).