[Federal Register Volume 77, Number 95 (Wednesday, May 16, 2012)]
[Notices]
[Pages 28909-28912]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-11793]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66958; File No. SR-NSX-2012-07]


Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Clarify the Purpose of, and Statutory Basis for, the May 1, 2012 
Changes to the NSX Fee and Rebate Schedule

May 10, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on May 9, 2012, National Stock Exchange, Inc. 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 comment 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

    National Stock Exchange, Inc. (``NSX[supreg]'' or ``Exchange'') is 
proposing to clarify the purpose of, and statutory basis for, its 
amended Fee and Rebate Schedule (the ``Fee Schedule'') issued pursuant 
to Exchange Rule 16.1(c) that went into effect on May 1, 2012 pursuant 
to SR-NSX-2012-06 to adjust the take fee and rebates for certain orders 
executed in the Exchange's Automatic Execution Mode, adjust the rebates 
and for certain orders executed in the Exchange's Order Delivery Mode, 
and re-introduce a market data revenue rebate sharing program, and to 
reinstate the fee changes that were implemented in SR-NSX-2012-06 which 
was withdrawn on May 8, 2012.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nsx.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

1. Purpose
    With this rule change, the Exchange is proposing to more clearly 
state the purpose of, and statutory basis for, its amended Fee Schedule 
that went into effect on May 1, 2012, pursuant to SR-NSX-2012-06, and 
to reinstate the fee changes that were implemented in SR-NSX-2012-06 
which was withdrawn on May 8, 2012. No changes to the Fee Schedule are 
proposed other than those described in SR-NSX-2012-06.\3\
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    \3\ As a result of this filing, the fee changes that were 
implemented on May 1, 2012 will continue uninterrupted despite the 
withdrawal of SR-NSX-2012-06.
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    The fee change proposed by SR-NSX-2012-06 modified the Fee Schedule 
in four respects. First, SR-NSX-2012-06 amended the rebates applicable 
to liquidity adding order executions in securities priced at least one 
dollar in the Exchange's Automatic Execution Mode of order interaction 
(``AutoEx''). Second, SR-NSX-2012-06 amended the take fee applicable to 
order executions in securities priced at least one dollar in AutoEx. 
Third, SR-NSX-2012-06 amended the rebate tiers applicable to order 
executions in securities priced at least one dollar in the Exchange's 
Order Delivery Mode of order interaction (``Order Delivery''). Finally, 
with respect to the rebate adjustments in both AutoEx and Order 
Delivery, SR-NSX-2012-06 re-established a market data rebate sharing 
program with Exchange ETP Holders. Each of the changes is further 
addressed below.
1. Rebates for Executions in Securities Priced at Least One Dollar in 
AutoEx
    SR-NSX-2012-06 proposed to modify the rebates applicable to 
liquidity adding order executions in securities priced one dollar or 
more in AutoEx. These changes can be found in Section I of the Fee 
Schedule.
    Prior to May 1, 2012, a flat $0.0026 rebate per share applied to an 
ETP Holder's displayed liquidity adding order executions of securities 
of at least one dollar in AutoEx. Under SR-NSX-2012-06, progressively 
greater rebates, of $0.0024, $0.0026, $0.0027, $0.0028 or $0.0029 per 
share, plus 50% of market data revenues attributable to such orders if 
the second (or higher) volume tier is achieved, apply depending on an 
ETP Holder's ``Average Daily Volume'' (``ADV'') (as such term is 
further discussed below). A $0.0024 per share rebate (with no market 
data revenue sharing) applies to an ETP Holder's AutoEx, dollar or 
higher displayed order executions that add liquidity where the ETP 
Holder's ADV is less than 500,000 shares; a $0.0026 per share rebate 
(plus 50% market data revenue sharing, as further described below) 
applies to an ETP Holder's AutoEx, dollar or higher displayed order 
executions that add liquidity where the ETP Holder's ADV is at least 
500,000 shares but less than 1,500,000 shares; a $0.0027 per share 
rebate (plus 50% market data revenue sharing) applies to an ETP 
Holder's AutoEx, dollar or higher displayed order executions that add 
liquidity where the ETP Holder's ADV is at least 1,500,000 shares but 
less than 5,000,000 shares; a $0.0028 per share rebate (plus 50% market 
data revenue sharing) applies to an ETP Holder's AutoEx, dollar or 
higher displayed order executions that add liquidity where the ETP 
Holder's ADV is at least 5,000,000 shares but less than 10,000,000 
shares; and a $0.0029 per share rebate (plus 50% market data revenue 
sharing) applies to an ETP Holder's AutoEx, dollar or higher

[[Page 28910]]

displayed orders that add liquidity where the ETP Holder's ADV is at 
least 10,000,000 shares.
    SR-NSX-2012-06 also introduced the term ``ADV'', as defined in 
Endnote 3. Endnote 3 provides that ``ADV'' means, with respect to an 
ETP Holder, the number of shares such ETP Holder has executed on 
average per trading day (excluding partial trading days) in Auto-Ex or 
Order Delivery, as applicable, across all tapes in securities priced at 
least one dollar on NSX for the calendar month (or partial month, as 
applicable) in which the executions occurred. Endnote 3 further 
clarifies that ``ADV'', as used with respect to AutoEx, shall mean only 
those executed shares of the ETP Holder that are submitted in AutoEx 
mode and that ADV, as used with respect to Order Delivery, shall mean 
only those executed shares of the ETP Holder that are submitted in 
Order Delivery mode. The definition of ``ADV'' as proposed was derived 
from the previously defined term ``Liquidity Adding ADV'', which 
defined term was eliminated. The term ``ADV'' differs from ``Liquidity 
Adding ADV'' in that: (i) ADV captures both liquidity adding and taking 
volume (whereas Liquidity Adding ADV captured only liquidity adding 
volume); (ii) ADV is limited to volumes in AutoEx or Order Delivery 
depending on the rebate or take fee that is being calculated, i.e., the 
rebates in AutoEx only measure for purposes of ADV those executions of 
orders that the ETP Holder has submitted in AutoEx mode, and the 
rebates in Order Delivery only measure for purposes of ADV those 
executions of orders that the ETP Holder has submitted in Order 
Delivery mode (whereas Liquidity Adding ADV captured volumes in both 
modes of order interaction); and (iii) ADV does not include sub-dollar 
securities for any purpose (whereas Liquidity Adding ADV carved out 
sub-dollar securities only with respect to rebates in order delivery, 
notwithstanding that no rebate or taking volume tiers previously 
applied in AutoEx).
2. Take Fee for Execution of Securities Priced at Least One Dollar in 
AutoEx
    Prior to May 1, 2012, a flat fee of $0.0030 per share applied to 
order executions that take liquidity in securities of at least one 
dollar in AutoEx. SR-NSX-2012-06 offered a progressively lower take fee 
of $0.0030, $0.0029, $0.0028, or $0.0026 per share depending on an ETP 
Holder's ADV. A $0.0030 per share take fee applies to an ETP Holder's 
AutoEx, dollar or higher order executions that take liquidity where the 
ETP Holder's ADV is less than 5,000,000 shares; a $0.0029 per share 
take fee applies to an ETP Holder's AutoEx, dollar or higher order 
executions that take liquidity where the ETP Holder's ADV is at least 
5,000,000 shares but less than 10,000,000 shares; a $0.0028 per share 
take fee applies to an ETP Holder's AutoEx, dollar or higher order 
executions that take liquidity where the ETP Holder's ADV is at least 
10,000,000 shares but less than 20,000,000 shares; and a $0.0026 per 
share take fee applies to an ETP Holder's AutoEx, dollar or higher 
order executions that take liquidity where the ETP Holder's ADV is at 
least 20,000,000 shares. As noted above, ADV with respect to the take 
fee is calculated to include only the ETP Holder's volumes in AutoEx 
and excludes sub-dollar securities.
3. Rebates for Executions of Displayed Orders of Securities Priced at 
Least One Dollar in Order Delivery
    As previously reflected in Section II of the Fee Schedule, for all 
liquidity adding displayed orders of securities priced at least one 
dollar in Order Delivery, the Exchange prior to May 1, 2012 offered an 
$0.0008 per share rebate for each Order Delivery displayed order 
execution that adds liquidity where an ETP Holder's Liquidity Adding 
ADV was less than 15 million, or a $0.0024 per share rebate for each 
such order execution where an ETP Holder's Liquidity Adding ADV was at 
least 15 million. Under SR-NSX-2012-06, progressively greater rebates, 
of $0.0008, $0.0024 or $0.0027 per share, plus 25% of market data 
revenues attributable to such orders if the third volume tier is 
achieved or 50% of market data revenues if the fourth volume tier is 
achieved, applies depending on an ETP Holder's ADV. A $0.0008 per share 
rebate (with no market data revenue sharing) applies to an ETP Holder's 
Order Delivery, dollar or higher displayed order executions that add 
liquidity where the ETP Holder's ADV is less than 15,000,000 shares; a 
$0.0024 per share rebate (with no market data revenue sharing) applies 
to an ETP Holder's Order Delivery, dollar or higher displayed order 
executions that add liquidity where the ETP Holder's ADV is at least 
15,000,000 shares but less than 25,000,000 shares; a $0.0027 per share 
rebate (plus 25% market data revenue sharing, as further described 
below) applies to an ETP Holder's Order Delivery, dollar or higher 
displayed order executions that add liquidity where the ETP Holder's 
ADV is at least 25,000,000 shares but less than 30,000,000 shares; and 
a $0.0027 per share rebate (plus 50% market data revenue sharing) 
applies to an ETP Holder's Order Delivery, dollar or higher displayed 
order executions that add liquidity where the ETP Holder's ADV is at 
least 30,000,000 shares. As noted above, ADV with respect to the rebate 
in Order Delivery is calculated to include only the ETP Holder's 
volumes in Order Delivery and excludes sub-dollar securities.
4. Market Data Rebate Sharing Program
    Prior to May 1, 2012, market data revenues attributable to quoting 
and trading were not shared with ETP Holders. Under SR-NSX-2012-06, the 
Fee Schedule provides a rebate to each ETP Holder equal to a specified 
percentage (not exceeding 50%) of the market data revenue received by 
the Exchange that is attributable to such ETP Holder's trading and 
quoting of displayed orders priced at one dollar or higher in both 
AutoEx and Order Delivery, provided that the ETP Holder achieves the 
required ADV during the measurement period as described above.
    Explanatory Endnote 8 of the Fee Schedule describes the market data 
revenue rebate program.\4\ Explanatory Endnote 8 makes explicit that no 
market data rebates will be provided with respect to Zero Display 
Reserve Orders or securities priced less than a dollar. Explanatory 
Endnote 8 provides that ETP Holders that have achieved an ADV as 
required in Section I (AutoEx) or Section II (Order Delivery) of the 
Fee Schedule shall receive a specified percentage rebate of Tape A, B 
and C market data revenue attributable to such ETP Holder's trading and 
quoting of displayed orders priced at or above one dollar.
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    \4\ Explanatory Endnote 8 is based on prior Exchange Rule 16.4, 
which was deleted from NSX Rules pursuant to a rule change effective 
April 1, 2011. See Securities Exchange Act Release No. 64208 (April 
6, 2011), 76 FR 20412 (April 12, 2011) (SR-NSX-2011-02). The 
Exchange had previously established other iterations of market data 
rebate sharing programs as approved by the Commission which shared 
up to 50% of trade and quote market data revenue; see Securities 
Exchange Act Release No. 61103 (December 3, 2009), 74 FR 65576 
(December 10, 2009) (SR-NSX-2009-07); Securities Exchange Act 
Release No. 58935 (November 13, 2008), 73 FR 69703 (November 19, 
2008) (SR-NSX-2008-19); and Securities Exchange Act Release No. 
56890 (December 4, 2007), 72 FR 70360 (December 11, 2007) (SR-NSX-
2007-13). While the volume tiers and certain other aspects of the 
current market data revenue sharing program differ from prior 
programs offered by the Exchange, the methodology utilized by the 
Exchange to calculate an ETP Holder's market data rebates under the 
program remains identical to the previously utilized methodology.
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    Explanatory Endnote 8 also established that market data rebates 
paid or payable to ETP Holders may be modified based on market data 
revenue adjustments applicable to the Exchange

[[Page 28911]]

that may be made from time to time by the securities information 
processors. Explanatory Endnote 8 also specifies that such rebates 
shall be paid quarterly and that, notwithstanding the foregoing, an ETP 
Holder shall not be eligible for market data revenue rebates which 
aggregate less than $250 per quarter with respect to such ETP Holder. 
This exception for de minimis payments is based the Exchange's belief 
that the monetary value of such rebate is outweighed by the associated 
administrative burden both to the Exchange and to the recipient ETP 
Holders.\5\
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    \5\ See Securities Exchange Act Release No. 57316 (February 12, 
2008), 73 FR 9379 (February 20, 2008) (NSX-2008-01).
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Rationale
    In adjusting the volume thresholds necessary to achieve 
progressively higher rebates and lower take fees \6\ in SR-NSX-2012-06, 
the Exchange regarded these changes as necessary to create incentives 
for ETP Holders to submit increased volumes of orders in to the 
Exchange and, ultimately, to increase the revenues of the Exchange for 
the purpose of continuing to adequately fund its regulatory and general 
business functions. The Exchange believes that these rebate changes, 
and in particular the reintroduced market data rebate program, will not 
impair its ability to carry out its regulatory responsibilities. The 
modifications are reasonable and equitably allocated to those ETP 
Holders that opt to submit orders in AutoEx (as liquidity provider or 
taker) and Order Delivery, and are not unfairly discriminatory because 
ETP Holders are free to elect whether or not to send such orders to the 
Exchange. In addition, the modifications, by providing a market data 
rebate for displayed orders only (and not Zero Display Reserve Orders), 
will tend to incentivize ETP Holders to submit displayed orders over 
Zero Display Reserve Orders. Based upon the information above, the 
Exchange believes that the adjustments to the Fee Schedule are 
consistent with the protection of investors and the public interest.
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    \6\ At the higher ADV volume tiers, the fees and rebate 
schematic will be inverted in that the displayed liquidity provider 
rebates will be greater than the liquidity taker fees.
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2. Statutory Basis
    The Exchange believes that the rule changes as described in SR-NSX-
2012-06 and as clarified herein are consistent with the provisions of 
Section 6(b) of the Act, in general, and Section 6(b)(4) of the Act,\7\ 
in particular in that each change is designed to provide for the 
equitable allocation of reasonable dues, fees and other charges among 
its members and other persons using the facilities of the Exchange.
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    \7\ 15 U.S.C. 78f(b)(4).
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    The changes to the rebates payable for executions in securities 
priced at least one dollar in AutoEx are reasonable because they are 
designed to incentivize the submission of such orders and increase 
order volume on the Exchange. The changes are equitably allocated and 
not unfairly discriminatory because all qualified ETP Holders are 
eligible to submit (or not submit) displayed liquidity providing orders 
of securities priced at least one dollar in AutoEx on the Exchange. The 
volume adjustments are reasonable methods to incentivize the submission 
of such orders. All similarly situated members are subject to the same 
fee structure, and access to the Exchange is offered on terms that are 
not unfairly-discriminatory. Volume-based rebates and discounts have 
been widely adopted in the equities markets, and are equitable because 
they are open to all members on an equal basis and provide rebates that 
are reasonably related to the value of an exchange's market quality 
associated with the requirements for the favorable pricing tier.
    The changes to the take fees for executions in securities priced at 
least one dollar in AutoEx are reasonable because they are designed to 
incentivize the submission of such orders and increase order volume on 
the Exchange. The changes are equitably allocated and not unfairly 
discriminatory because all qualified ETP Holders are eligible to submit 
(or not submit) displayed liquidity taking orders of securities priced 
at least one dollar in AutoEx on the Exchange. The volume adjustments 
are reasonable methods to incentivize the submission of such orders. 
All similarly situated members are subject to the same fee structure, 
and access to the Exchange is offered on terms that are not unfairly-
discriminatory. Volume-based take fee discounts have been widely 
adopted in the equities markets, and are equitable because they are 
open to all members on an equal basis and offer fees that are 
reasonably related to the value of an exchange's market quality 
associated with the requirements for the favorable pricing tier.
    The changes to the rebates payable for executions in securities 
priced at least one dollar in Order Delivery are reasonable because 
they are designed to incentivize the submission of such orders and 
increase order volume on the Exchange. The changes are equitably 
allocated and not unfairly discriminatory because all qualified ETP 
Holders are eligible to submit (or not submit) displayed liquidity 
providing orders of securities priced at least one dollar in Order 
Delivery on the Exchange. The volume adjustments are reasonable methods 
to incentivize the submission of such orders. All similarly situated 
members are subject to the same fee structure, and access to the 
Exchange is offered on terms that are not unfairly-discriminatory. 
Volume-based rebates and discounts have been widely adopted in the 
equities markets, and are equitable because they are open to all 
members on an equal basis and provide rebates that are reasonably 
related to the value of an exchange's market quality associated with 
the requirements for the favorable pricing tier.
    The market data rebate sharing program that is applicable to 
providers of displayed liquidity in both AutoEx and Order Delivery for 
executions of orders in securities priced at least one dollar is 
reasonable because it is designed to incentivize ETP Holders to provide 
such order flow to the Exchange. The changes are equitably allocated 
and not unfairly discriminatory because all qualified ETP Holders are 
eligible to submit (or not submit) displayed liquidity providing orders 
of securities priced at least one dollar in AutoEx and Order Delivery 
on the Exchange. The volume adjustments are reasonable methods to 
incentivize the submission of such orders. All similarly situated 
members are subject to the same fee structure, and access to the 
Exchange is offered on terms that are not unfairly-discriminatory. 
Volume-based take discounts in the form of market data rebates have 
been historically widely adopted in the equities markets, and are 
equitable because they are open to all members on an equal basis and 
offer rebates that are reasonably related to the value of an exchange's 
market quality associated with the requirements for the favorable 
pricing tier. The Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other market centers.

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

    The Exchange does not believe that the proposed rule change will 
impose

[[Page 28912]]

any inappropriate burden on competition.

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.

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)(ii) of the Act \8\ and subparagraph (f)(2) of Rule 19b-4 
thereunder.\9\ 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.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \9\ 17 CFR 240.19b-4(f)(2).
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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 [email protected]. Please include 
File Number SR-NSX-2012-07 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-NSX-2012-07. 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 such 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-NSX-2012-07 and should be 
submitted on or before June 6, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-11793 Filed 5-15-12; 8:45 am]
BILLING CODE 8011-01-P