[Federal Register Volume 76, Number 90 (Tuesday, May 10, 2011)]
[Notices]
[Pages 27118-27121]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-11337]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64400; File No. SR-NYSEAmex-2011-27]


Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending its Fee 
Schedule To Eliminate Registered Representative Fees for Amex Trading 
Permit (``ATP'') Holders and To Institute a New Transaction-Based 
``Options Regulatory Fee''

May 4, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on April 28, 2011, NYSE Amex LLC (``NYSE Amex'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Fee Schedule to eliminate 
registered representative fees for Amex Trading Permit (``ATP'') 
Holders and institute a new transaction-based ``Options Regulatory 
Fee.'' The text of the proposed rule change is available at the 
Exchange, at the Commission's Public Reference Room, on the 
Commission's Web site at http://www.sec.gov, and http://www.nyse.com.

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

[[Page 27119]]

on the proposed rule change. The text of those statements may be 
examined at the places specified in Item IV below. The Exchange has 
prepared summaries, set forth in sections A, B, and C below, of the 
most significant parts of such statements.

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

1. Purpose
    This proposed rule change is based on a rule change previously 
submitted by NASDAQ OMX BX, Inc. on behalf of the Boston Options 
Exchange Group, LLC (``BOX'') that was effective upon filing.\3\ The 
Exchange proposes to amend the NYSE Amex Fee Schedule to institute a 
new transaction-based ``Options Regulatory Fee'' and eliminate 
registered representative fees. Each ATP Holder that registers an 
options principal and/or representative who is conducting business on 
NYSE Amex currently is assessed a registered representative fee (``RR 
Fee'') based on the action(s) associated with the registration. There 
are annual fees as well as initial, transfer and termination fees.\4\ 
RR Fees and other regulatory fees collected by the Exchange were 
intended to cover only a portion of the cost of the Exchange's 
regulatory programs. Prior to rule changes by other options exchanges, 
such as the Chicago Board Options Exchange (``CBOE''), BOX, NASDAQ OMX 
PHLX (``PHLX'') and the International Securities Exchange (``ISE''), 
all options exchanges, regardless of size, charged registered 
representative fees.
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    \3\ See Securities Exchange Act Release No. 61388 (January 20, 
2010), 75 FR 4431 (January 27, 2010) (SR-BX-2010-001) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating 
to the Registered Representative Fee and Options Regulatory Fee).
    \4\ In this regard, the Exchange proposes to eliminate from its 
options fee schedule any reference to fees the Exchange no longer 
asks FINRA to collect on its behalf relating to the processing of 
registered representatives. In particular, the following 
``Registration Fees'' will be eliminated from the options fee 
schedule: The Initial Processing Fee, the Annual Renewal Processing 
Fee, the Transfer Processing Fee, the Web CRD System Transition Fee, 
and the Terminations Fee. Fees relating to the processing of 
registered representatives that FINRA collects and retains will 
remain in the Exchange's options fee schedule. In particular, the 
following ``Registration Fees'' will remain in the options fee 
schedule: the Disclosure Processing Fee, the Fingerprint Card 
Processing Fee, and the fee for Fingerprint Results Processed thru 
other SROs.
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    The Exchange believes that the current RR Fee is no longer 
equitable. The options industry has evolved to a structure with many 
more Internet-based and discount brokerage firms. These firms have few 
registered representatives and thus pay very little in RR Fees compared 
to full service brokerage firms that have many registered 
representatives. Further, due to the manner in which RR Fees are 
charged, it is possible for an NYSE Amex ATP Holder to restructure its 
business to avoid paying these fees altogether. For example, a firm can 
avoid RR Fees by terminating its ATP status and sending its business to 
NYSE Amex through another separate NYSE Amex ATP Holder, even an 
affiliated firm that has many fewer registered representatives. If 
firms terminated their ATP status to avoid RR Fees, the Exchange would 
suffer the loss of a source of funding for its regulatory programs. 
More importantly, the regulatory effort the Exchange expends to review 
the transactions of each type of firm is not commensurate with the 
number of registered representatives that each firm employs.
    In order to address the inequity of the current regulatory fee 
structure and to offset more fully the cost of the Exchange's 
regulatory programs, the Exchange proposes to eliminate the current RR 
Fee for NYSE Amex ATP Holders and adopt an Options Regulatory Fee 
(``ORF'') of $0.004 per contract.\5\ As described below, this fee would 
be assessed by the Exchange on each ATP Holder for all options 
transactions executed or cleared by the ATP Holder that are cleared by 
OCC in the customer range, regardless of the marketplace of execution. 
In particular, the Exchange would impose the ORF on all options 
transactions executed in the customer range by an ATP Holder,\6\ even 
if the transactions do not take place on NYSE Amex. The ORF would also 
be charged for transactions that are not executed by an ATP Holder but 
are ultimately cleared by an ATP Holder. In the case where an ATP 
Holder executes a transaction and a different ATP Holder clears the 
transaction, the ORF would be assessed to the ATP Holder who executes 
the transaction. In the case where a non-ATP Holder executes a 
transaction and an ATP Holder clears the transaction, the ORF would be 
assessed to the ATP Holder who clears the transaction.
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    \5\ Because the annual component of the RR Fee has already been 
assessed for 2011, the Exchange will make a pro rata refund for the 
remaining portion of the year following elimination of the RR Fee. 
In addition, the Exchange notes that permit holders who conduct only 
equities business will no longer be subject to the RR Fee as a 
result of the elimination of this fee. Consequently, the Exchange 
proposes to eliminate from its NYSE Amex Equities Price List any 
reference to fees the Exchange no longer asks FINRA to collect on 
its behalf relating to the processing of registered representatives. 
In particular, the following ``Registration Fees'' will be 
eliminated from the equities fee schedule: the Initial Processing 
Fee, the Annual Renewal Processing Fee, the Transfer Processing Fee, 
the Web CRD System Transition Fee, and the Terminations Fee. Fees 
relating to the processing of registered representatives that FINRA 
collects and retains will remain in the Exchange's equities fee 
schedule. In particular, the following ``Registration Fees'' will 
remain in the equities fee schedule: the Disclosure Processing Fee, 
the Fingerprint Card Processing Fee, and the fee for Fingerprint 
Results Processed thru other SROs. The Exchange will separately 
submit a rule filing to address funding for equities regulation.
    \6\ Such transactions must be cleared by an ATP Holder in the 
customer range for the ORF to apply. Subject to the foregoing, the 
ORF would apply to all customer orders executed by an ATP Holder on 
NYSE Amex. Exchange rules require each ATP Holder to submit trade 
information in order to allow the Exchange to properly prioritize 
and match orders and quotations and report resulting transactions to 
the OCC. See NYSE Amex Rule 956NY. The Exchange represents that it 
has surveillances in place to verify that ATP Holders comply with 
the rule.
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    As noted, the ORF would replace RR Fees, which relate to an ATP 
Holder's options customer business. Further, RR Fees constituted the 
single-largest fee assessed that is related to regulation of customer 
trading activity, and the Exchange believes it is appropriate to charge 
the ORF only to transactions that clear as customer at the OCC. The 
Exchange believes that its broad regulatory responsibilities with 
respect to an ATP Holders' activities supports applying the ORF to 
transactions cleared but not executed by an ATP Holder. The Exchange's 
regulatory responsibilities are the same regardless of whether an ATP 
Holder executes a transaction or clears a transaction executed on its 
behalf. The Exchange regularly reviews all such activities, including 
performing surveillance for position limit violations, manipulation, 
front-running, contrary exercise advice violations and insider 
trading.\7\ These activities span across multiple exchanges.
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    \7\ The Exchange also participates in The Options Regulatory 
Surveillance Authority (``ORSA'') national market system plan and in 
doing so shares information and coordinates with other exchanges 
designed to detect the unlawful use of undisclosed material 
information in the trading of securities options. ORSA is a national 
market system comprised of several self-regulatory organizations 
whose functions and objectives include the joint development, 
administration, operation and maintenance of systems and facilities 
utilized in the regulation, surveillance, investigation and 
detection of the unlawful use of undisclosed material information in 
the trading of securities options. The Exchange compensates ORSA for 
the Exchange's portion of the cost to perform insider trading 
surveillance on behalf of the Exchange. The ORF will cover the costs 
associated with the Exchange's arrangement with ORSA.
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    The Exchange believes the initial level of the fee is reasonable 
because it relates to the recovery of the costs of supervising and 
regulating an ATP

[[Page 27120]]

Holder's customer options business. The Exchange believes the amount of 
the ORF is fair and reasonably allocated because it is a closer 
approximation to the Exchange's actual costs in administering its 
regulatory program with respect to customer options activity.
    The ORF would be collected indirectly from ATP Holders through 
their clearing firms by OCC on behalf of the Exchange. The Exchange 
expects that ATP Holders will pass-through the ORF to their customers 
in the same manner that firms pass-through to their customers the fees 
charged by Self Regulatory Organizations (``SROs'') to help the SROs 
meet their obligations under Section 31 of the Exchange Act.
    The ORF is designed to recover a material portion of the costs to 
the Exchange of the supervision and regulation of ATP Holders, 
including performing routine surveillances, investigations, as well as 
policy, rulemaking, interpretive and enforcement activities.\8\ The 
Exchange believes that revenue generated from the ORF will cover the 
substantial majority of the Exchange's regulatory costs related to the 
NYSE Amex options market. At present, RR Fees make up the largest part 
of the Exchange's total options regulatory fee revenue, however, the 
total amount of NYSE Amex specific regulatory fees collected by the 
Exchange is significantly less than the regulatory costs incurred by 
NYSE Amex on an annual basis. The Exchange notes that its regulatory 
responsibilities with respect to an ATP Holder's compliance with 
options sales practice rules have been allocated to FINRA under a 17d-2 
agreement. The ORF is not designed to cover the cost of options sales 
practice regulation.
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    \8\ As stated above, the RR Fees collected by the Exchange were 
originally intended to cover only a portion of the cost of the 
Exchange's regulatory programs.
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    The Exchange would monitor the amount of revenue collected from the 
ORF to ensure that it, in combination with its other NYSE Amex 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs. The Exchange expects to monitor NYSE Amex regulatory 
costs and revenues at a minimum on an annual basis. If the Exchange 
determines NYSE Amex regulatory revenues exceed regulatory costs, the 
Exchange would adjust the ORF by submitting a fee change filing to the 
Commission. The Exchange would notify ATP Holders of adjustments to the 
ORF via a Regulatory Bulletin.
    The Exchange believes the proposed ORF is equitably allocated 
because it would be charged to all ATP Holders on all their customer 
options business. The Exchange believes the proposed ORF is reasonable 
because it will raise revenue related to the amount of customer options 
business conducted by an ATP Holder, and thus the amount of Exchange 
regulatory services those ATP Holders will require with respect to that 
activity, instead of how many registered representatives a particular 
ATP Holder employs.\9\
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    \9\ The Exchange expects that implementation of the proposed ORF 
will result generally in many traditional brokerage firms paying 
less regulatory fees while Internet and discount brokerage firms 
will pay more.
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    With almost all transactions on the Exchange conducted 
electronically, the amount of resources required by the Exchange to 
surveil non-customer trading activity is significantly less than the 
amount of resources the Exchange must dedicate to surveil customer 
trading activity. This is because surveilling customer trading activity 
is much more labor-intensive and requires greater expenditure of human 
and technical resources than surveilling non-customer trading activity, 
which tends to be more automated and less labor-intensive. As a result, 
the costs associated with administering the customer component of the 
Exchange's overall regulatory program are materially higher than the 
costs associated with administering the non-customer component (e.g., 
market maker) of its regulatory program.
    The Exchange believes it is reasonable and appropriate for the 
Exchange to charge the ORF for options transactions regardless of the 
exchange on which the transactions occur. The Exchange has a statutory 
obligation to enforce compliance by ATP Holders and their associated 
persons under the Exchange Act and the rules of the Exchange and to 
surveil for other manipulative conduct by market participants 
(including non-ATP Holders) trading on the Exchange. The Exchange 
cannot effectively surveil for such conduct without looking at and 
evaluating activity across all options markets. Many of the Exchange's 
market surveillance programs require the Exchange to look at and 
evaluate activity across all options markets, such as surveillance for 
position limit violations, manipulation, front-running and contrary 
exercise advice violations/expiring exercise declarations.\10\ Also, 
the Exchange and the other options exchanges are required to populate a 
consolidated options audit trail (``COATS'') system in order to surveil 
an ATP Holder's activities across markets.\11\
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    \10\ The Exchange and other options SROs are parties to a 17d-2 
agreement allocating among the SROs regulatory responsibilities 
relating to compliance by the common members with rules for expiring 
exercise declarations, position limits, OCC trade adjustments, and 
Large Option Position Report reviews. See, e.g., Securities Exchange 
Act Release No. 61588 (February 25, 2010).
    \11\ COATS effectively enhances intermarket options surveillance 
by enabling the options exchanges to reconstruct the market promptly 
to effectively surveil certain rules.
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    In addition to its own surveillance programs, the Exchange works 
with other SROs and exchanges on intermarket surveillance related 
issues. Through its participation in the Intermarket Surveillance Group 
(``ISG''),\12\ the Exchange shares information and coordinates 
inquiries and investigations with other exchanges designed to address 
potential intermarket manipulation and trading abuses. The Exchange's 
participation in ISG helps it to satisfy the Exchange Act requirement 
that it have coordinated surveillance with markets on which security 
futures are traded and markets on which any security underlying 
security futures are traded to detect manipulation and insider 
trading.\13\
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    \12\ ISG is an industry organization formed in 1983 to 
coordinate intermarket surveillance among the SROs by cooperatively 
sharing regulatory information pursuant to a written agreement 
between the parties. The goal of the ISG's information sharing is to 
coordinate regulatory efforts to address potential intermarket 
trading abuses and manipulations.
    \13\ See Exchange Act Section 6(h)(3)(I).
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    The Exchange believes that charging the ORF across markets will 
avoid having ATP Holders direct their trades to other markets in order 
to avoid the fee and to thereby avoid paying for their fair share of 
regulation. If the ORF did not apply to activity across markets then an 
ATP Holder would send their orders to the least cost, least regulated 
exchange. Other exchanges do impose a similar fee on their member's 
activity, including the activity of those members on NYSE Amex.\14\
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    \14\ The Exchange notes that CBOE currently assesses an options 
regulatory fee similar to the one proposed herein, which fee is also 
assessed on the trading activity of a CBOE member on NYSE Amex. See 
Securities Exchange Act Release No. 58817 (October 20, 2008), 73 FR 
63744 (October 27, 2008). Similar regulatory fees have also been 
instituted by PHLX (See Securities Exchange Act Release No. 61133 
(December 9, 2009), 74 FR 66715 (December 16, 2009) (SR-Phlx-2009-
100)); and ISE (See Securities Exchange Act Release No. 61154 
(December 11, 2009), 74 FR 67278 (December 18, 2009) (SR-ISE-2009-
105)).
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    The Exchange notes that there is established precedent for an SRO 
charging a fee across markets, namely, FINRA's Trading Activity Fee 
\15\ and the CBOE's, PHLX's, ISE's and BOX's ORF.

[[Page 27121]]

While the Exchange does not have all the same regulatory 
responsibilities as FINRA, the Exchange believes that, like other 
exchanges that have adopted an ORF, its broad regulatory 
responsibilities with respect to an ATP Holders' activities, 
irrespective of where their transactions take place, supports a 
regulatory fee applicable to transactions on other markets. Unlike 
FINRA's Trading Activity Fee, the ORF would apply only to a an ATP 
Holder's customer options transactions.
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    \15\ See Securities Exchange Act Release No. 47946 (May 30, 
2003), 68 FR 3402 (June 6, 2003).
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    The Exchange has designated this proposal to be operative on May 1, 
2011.
2. Statutory Basis
    Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \16\ in general, and furthers the objectives of 
Section6(b)(4) \17\ of the Act in particular, in that it is designed to 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its ATP Holders and other persons using its 
facilities. The Exchange believes that the ORF is objectively allocated 
because it would be charged to all ATP Holders for all their 
transactions that clear as customer at the OCC through an ATP Holder. 
Moreover, the Exchange believes the ORF ensures fairness by assessing 
higher fees to those participants that require more Exchange regulatory 
services based on the amount of customer options business they conduct.
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    \16\ 15 U.S.C. 78f (b).
    \17\ 15 U.S.C. 78f (b)(4).
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    The Exchange notes that the Commission has addressed the funding of 
an SRO's regulatory operations in the Concept Release Concerning Self-
Regulation\18\ and the release on the Fair Administration and 
Governance of Self-Regulatory Organizations.\19\ In the Concept 
Release, the Commission states that: ``Given the inherent tension 
between an SRO's role as a business and as a regulator, there 
undoubtedly is a temptation for an SRO to fund the business side of its 
operations at the expense of regulation.''\20\ In order to address this 
potential conflict, the Commission proposed in the Governance Release 
rules that would require an SRO to direct monies collected from 
regulatory fees, fines, or penalties exclusively to fund the regulatory 
operations and other programs of the SRO related to its regulatory 
responsibilities.\21\ The Exchange has designed the ORF to generate 
revenues that, when combined with all of the Exchange's other 
regulatory fees, will be less than or equal to the Exchange's 
regulatory costs, which is consistent with the Commission's view that 
regulatory fees be used for regulatory purposes and not to support the 
Exchange's business side. In this regard, the Exchange believes that 
the initial level of the fee is reasonable.
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    \18\ See Securities Exchange Act Release No. 50700 (November 18, 
2004), 69 FR 71256 (December 8, 2004) (``Concept Release'').
    \19\ See Securities Exchange Act Release No. 50699 (November 18, 
2004), 69 FR 71126 (December 8, 2004) (``Governance Release'').
    \20\ Concept Release at 71268.
    \21\ Governance Release at 71142.
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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 
impose 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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \22\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \23\ thereunder, because it establishes a due, fee, or other 
charge imposed by the NYSE Amex.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(2).
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    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 e-mail to [email protected]. Please include 
File Number SR-NYSEAmex-2011-27 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-NYSEAmex-2011-27. This 
file number should be included on the subject line if e-mail 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-
NYSEAmex-2011-27 and should be submitted on or before May 31, 2011.

    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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11337 Filed 5-9-11; 8:45 am]
BILLING CODE 8011-01-P