[Federal Register Volume 77, Number 138 (Wednesday, July 18, 2012)]
[Notices]
[Pages 42345-42347]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-17419]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67420; File No. SR-NYSEMKT-2012-17]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending the NYSE Amex 
Options Fee Schedule for Professional Customers and Broker-Dealers To 
Increase the Transaction Fee for Electronic Executions and Introduce 
Volume-Based Tiers for Certain Electronic Executions That Would Be 
Charged a Lower per Contract Rate

July 12, 2012.
    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 June 29, 2012, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Amex Options Fee Schedule 
(``Fee Schedule'') for Professional Customers and Broker-Dealers to 
increase the transaction fee for electronic executions and introduce 
volume-based tiers for certain electronic executions that would be 
charged a lower per contract rate. The proposed rule change will be 
operative on July 1, 2012. The text of the proposed rule change is 
available on the Exchange's Web site at www.nyse.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

    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 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
    The Exchange proposes to amend the Fee Schedule for Professional 
Customers and Broker-Dealers to increase the transaction fee for 
electronic executions and introduce volume-based tiers for certain 
electronic executions that would be charged a lower per contract rate.
    Specifically, the Exchange proposes to increase the per contract 
transaction fee for electronically executed orders for Professional 
Customers and Broker-Dealers from $.23 and $.20, respectively, to $.28 
per contract for both categories of market participant.\3\ The Exchange 
notes that the proposed fee is within the range of Professional 
Customer fees presently assessed in the industry, which range from $.20 
per contract for non-Select Symbols on the International Securities 
Exchange (``ISE'') \4\ to $.50 per contract to take liquidity on The 
NASDAQ Options Market (``NOM'') for non-Penny Pilot securities.\5\ 
Similarly, the proposed fee for electronic Broker-Dealer transactions 
is within the range of fees assessed in the industry, which range from 
$.20 to add liquidity in Complex Orders on NASDAQ OMX

[[Page 42346]]

PHLX to $.60 to transact in non-Penny Pilot securities on NASDAQ OMX 
PHLX.\6\
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    \3\ In March 2012, the Exchange increased the per contract 
execution costs for certain participants. See Securities Exchange 
Act Release No. 66561 (Mar. 9, 2012), 77 FR 15429 (Mar. 15, 2012) 
(SR-NYSEAmex-2012-16). However, the Exchange inadvertently did not 
increase Broker-Dealer fees to the same level as Professional 
Customer fees, as required by the definition of Professional 
Customer in Rule 902.NY(18A), which provides that Professional 
Customer and Broker-Dealer fees must be the same. The proposed 
change would make the fees for Professional Customers and Broker-
Dealers the same level, as they were prior to March 2012.
    \4\ See ISE fee schedule dated June 1, 2012, available at http://www.ise.com/assets/documents/OptionsExchange/legal/fee/fee_schedule.pdf.
    \5\ See NOM Fee Schedule, available at http://www.nasdaqtrader.com/Micro.aspx?id=OptionsPricing.
    \6\ See NASDAQ OMX PHLX Fee Schedule, available at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLXTools/PlatformViewer.asp?selectednode=chp%5F1%5F4%5F1&manual=%2Fnasdaqomxphlx%2Fphlx%2Fphlx%2Drulesbrd%2F.
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    At the same time, the Exchange proposes to establish volume-based 
tiers for Professional Customers and Broker-Dealers that take liquidity 
on the Exchange.\7\ Upon achieving these volume tiers, they will 
automatically become eligible for a lower per contract rate on all of 
their electronic executions in that month irrespective of whether those 
executions resulted from taking or making liquidity. The proposed 
volume-based tiers and associated rates per contract are shown 
below.\8\
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    \7\ Whenever a participant sends a marketable order to 
immediately trade against a resting bid or offer in the Exchange's 
Consolidated Order Book, it will be viewed as taking liquidity. 
Conversely, whenever a participant posts a bid or offer that does 
not immediately execute they will be viewed as making liquidity on 
the Exchange.
    \8\ The average daily volume will be calculated by taking the 
sum total of a Professional Customer's or Broker-Dealer's taking 
liquidity volume and dividing it by the number of days the Exchange 
was open for business during the month. Any electronic volumes that 
arise from the execution of either Complex Orders or Qualified 
Contingent Cross (``QCC'') orders will not be included in the 
calculation of average daily volume. QCC orders will remain subject 
to the current $.20 per contract pricing in the Fee Schedule 
applicable to non-Customers.

------------------------------------------------------------------------
  Average daily volume tiers for professional customers and     Rate per
               broker-dealers taking liquidity                  contract
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0 to 50,000..................................................       $.28
50,001 to 100,000............................................        .26
Over 100,000.................................................        .23
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    Thus, for Professional Customers that have average daily volume of 
over 100,000 contracts, the fee per contract will remain the same as it 
currently is at $.23.
    In addition, the Exchange proposes to amend the Fee Schedule to 
clarify that the ``Broker Dealer Manual'' fee and ``Professional 
Customer Manual'' fee are the same.
    The proposed change will be operative on July 1, 2012.
 2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) \9\ of the Securities Exchange Act 
of 1934 (the ``Act''), in general, and Section 6(b)(4) \10\ 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 
members and other persons using its facilities and is not unfairly 
discriminatory.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
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    Specifically, the Exchange believes that the proposed fee increase 
for certain electronically executed orders on behalf of Professional 
Customers and Broker-Dealers is equitable and reasonable because it 
will help offset the Exchange's costs in processing the relatively 
higher volume of orders, many of which do not execute, that are being 
submitted to the Exchange by Professional Customers and Broker-
Dealers.\11\ Rather than passing the costs of higher order volumes 
along to all participants, the Exchange believes it is more equitable 
to assess those costs to the participants that are responsible for 
them.\12\
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    \11\ The Exchange does not believe that the costs associated 
with this increased volume are fully addressed through the 
Exchange's existing fee structure. Cancellation fees only apply to 
public customer orders, the messages-to-contracts ratio fee only 
applies after 1 billion messages, and the order-to-trades ratio fee 
only applies after the ratio reaches 10,000 orders to 1 execution.
    \12\ At this time, the Exchange is leaving in place current rate 
of $.20 per contract for Firms because unlike Professional Customers 
and Broker-Dealers, the majority of Firm volumes are transacted in 
open outcry or manually, and de facto market making activity by Firm 
participants is very limited.
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    The Exchange notes that other participants pay substantially more 
for the ability to trade on the Exchange and, as such, the proposed 
amount of the increase is reasonable. For example, Market Makers have 
much higher fixed monthly costs as compared to Professional Customers 
and Broker-Dealers. A Market Maker seeking to stream quotes in the 
entire universe of names traded on the Exchange would have to pay 
$20,000 per month in Amex Trading Permit (``ATP'') fees. In addition, a 
Market Maker acting as a Specialist, e-Specialist, or Directed Order 
Market Maker will incur monthly Rights Fees that range from $75 per 
option to $1,500 per option. Professional Customers and Broker-Dealers, 
who access the Exchange via an order routing firm, pay only $500 per 
month in ATP fees (assuming the cost is passed back to them), and for 
that low monthly cost are able to send orders in all issues traded on 
the Exchange.\13\ For Broker-Dealers who are ATP Holders and do access 
the Exchange directly, they will incur the monthly ATP fee of $500 and 
in turn have the ability to send orders in all issues traded on the 
Exchange. Other participants have a much higher per contract cost to 
trade on the Exchange, such as Non-NYSE Amex Options Market Makers, who 
pay $.43 per contract to transact on the Exchange electronically. Given 
these facts, coupled with the aforementioned range in Professional 
Customer and Broker-Dealer fees on other exchanges, the Exchange 
believes that the proposed increase is both reasonable and equitable.
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    \13\ The Exchange notes that it has proposed to increase the ATP 
fees for an order routing firm from $500 per month to $1,000 per 
month effective July 1, 2012. See SR-NYSEMKT-2012-16.
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    The Exchange further notes that Broker-Dealers and Professional 
Customers may directly compete with Market Makers; unlike Customers, 
they are not prohibited from de facto market making.\14\ Both Broker-
Dealers and Professional Customers have a measurable economic advantage 
relative to a NYSE Amex Options Market Maker's cost when trading with 
Customer order flow. For example, an NYSE Amex Options Market Maker 
trading against a Customer order in a non-Penny Pilot name will pay as 
much as $.85 in transaction charges, whereas under the proposal, both 
Broker-Dealers and Professional Customers will pay a maximum of $.28 
per contract.\15\ The proposed fee increase will diminish the maximum 
per contract differential between Market Makers with quoting 
obligations who trade against Customers versus Broker-Dealers and 
Professional Customers who do not have such obligations and who may 
trade electronically against Customers in a manner that the Exchange 
believes is more equitable in light of the differing roles such 
participants play on the Exchange and the attendant costs, benefits, 
and obligations.
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    \14\ See Rule 995NY(b).
    \15\ NYSE Amex Options Market Makers must pay marketing charges 
of $.65 per contract when they trade contra to a Customer order 
electronically. This is in addition to the Exchange transaction fee 
of $.20 per contract applicable to a NYSE Amex Options Market Maker. 
The Exchange notes that the marketing charges are used by NYSE Amex 
Options Market Makers to attract Customer order flow to the 
Exchange. Such order flow is beneficial to all participants on the 
Exchange, including Broker-Dealers and Professional Customers who 
are permitted to act as a de facto market maker by placing 
electronic orders on both sides of the market simultaneously.
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    The Exchange believes the proposed change to increase fees as high 
as $.28 per contract for lower volume Professional Customer and Broker-
Dealer participants is not unfairly discriminatory as the change will 
apply to all Professional Customers and Broker-Dealers equally. 
Further, Professional Customers and Broker-Dealers are free to change 
the manner in which they access the Exchange. A Professional Customer 
may, by sending fewer than 390 orders per day across the industry, 
begin participating as a

[[Page 42347]]

Customer and avoid incurring any transaction fees. Additionally 
Professional Customers may elect to register as a Broker-Dealer and, 
once registered as a Broker-Dealer, may apply to become Market Makers 
to transact on a proprietary basis as Market Makers or become ATP 
Holders to transact on the Exchange as a Firm. In light of the ability 
to access the Exchange in a variety of ways, each of which is priced 
differently, Professional Customers, Broker-Dealers and other 
participants may access the Exchange in a manner that makes the most 
economic sense for them.
    The Exchange believes that the proposed change to establish volume-
based tiers for Professional Customers and Broker-Dealers that transact 
electronically is reasonable, equitable, and not unfairly 
discriminatory. As noted previously, they have lower aggregate fees 
when compared to, for example, the ATP fees incurred by a NYSE Amex 
Market Maker to quote the entire universe of names traded on the 
Exchange. Further, the establishment of the tiers will enable 
Professional Customers and Broker-Dealers that transact in sufficient 
volumes to obtain a lower per contract rate on all of their electronic 
volumes in a given month. This is reasonable and equitable given that a 
higher volume of marketable orders, which these volume tiers will 
encourage, is beneficial to other Exchange participants due to the 
increased opportunity to trade. The Exchange believes the proposed 
change to adopt volume-based tiers for Professional Customers and 
Broker-Dealers that transact electronically is not unfairly 
discriminatory because the change will apply to all participants in 
those categories equally.
    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues if they 
determine that such venues offer more favorable trading conditions and 
rates.
    Finally, the Exchange believes that the amendment of the ``Broker 
Dealer Manual'' and ``Professional Customer Manual'' fees in the Fee 
Schedule is equitable and reasonable because it would result in 
increased clarity in the Fee Schedule regarding such fees.

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) \16\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \17\ thereunder, because it establishes a due, fee, or other 
charge imposed by NYSE MKT.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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 email to [email protected]. Please include 
File Number SR-NYSEMKT-2012-17 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-NYSEMKT-2012-17. 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 
10:00 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-NYSEMKT-2012-17 and should 
be submitted on or before August 8, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17419 Filed 7-17-12; 8:45 am]
BILLING CODE 8011-01-P