[Federal Register Volume 77, Number 157 (Tuesday, August 14, 2012)]
[Notices]
[Pages 48568-48570]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-19842]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67618; File No. SR-NYSEARCA-2012-81]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE 
Arca Options Fee Schedule To Add an Additional Tier to the Lead Market 
Maker Rights Fee and an Alternative Qualification Basis for Market 
Makers That Post Liquidity in Penny Pilot Issues and Options on the 
SPDR S&P 500 ETF

August 8, 2012.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 27, 2012, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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\ 15 U.S.C. 78a.
    \3\ 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 Arca Options Fee Schedule 
(``Fee Schedule'') to add an additional tier to the Lead Market Maker 
(``LMM'') rights fee and an alternative qualification basis for Market 
Makers that post liquidity in Penny Pilot issues and options on the 
SPDR S&P 500 ETF (``SPY''). 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule to add an 
additional tier to the LMM rights fee and an alternative qualification 
basis for Market Makers that post liquidity in Penny Pilot issues and 
options on SPY.
LMM Rights
    OTP Firms \4\ acting as LMMs are assessed a fee for LMM rights for 
each appointed issue.\5\ The LMM rights fee is based on the average 
daily volume (``ADV'') of Customer contracts traded in that issue.\6\ 
Currently, the LMM rights fees are charged as follows:
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    \4\ See NYSE Arca Rule 1.1(r).
    \5\ ``Market Maker'' is defined in NYSE Arca Rule 6.32. ``Lead 
Market Maker'' is defined in NYSE Arca Rule 6.82.
    \6\ The term ``Customer'' excludes a broker-dealer. See NYSE 
Arca Rule 6.1A(a)(4).

------------------------------------------------------------------------
                                                                Monthly
          Average national daily customer contracts            issue fee
------------------------------------------------------------------------
0 to 2,000..................................................         $75
2,001 to 5,000..............................................         200
5,001 to 15,000.............................................         375
15,001 to 100,000...........................................         750
Over 100,000................................................       1,500
------------------------------------------------------------------------

    The Exchange proposes to add an additional tier for issues with an 
ADV of between 0-1000 contracts that will be charged an LMM rights fee 
of $45. The LMM rights fee for issues with an ADV of between 1001-2000 
contracts would continue to be $75. The fees are assessed at the end of 
each month on each issue that an LMM holds in their LMM appointment. 
The proposed LMM rights fees would be charged as follows:

------------------------------------------------------------------------
                                                                Monthly
          Average national daily customer contracts            issue fee
------------------------------------------------------------------------
0-1000......................................................         $45
1001 to 2,000...............................................          75
2,001 to 5,000..............................................         200
5,001 to 15,000.............................................         375
15,001 to 100,000...........................................         750
Over 100,000................................................       1,500
------------------------------------------------------------------------

Penny Pilot Issues
    Currently, Market Makers receive a per contract credit for posted 
electronic executions based on certain volume thresholds in Penny Pilot 
issues, with an additional credit for posted electronic executions in 
SPY, as follows:

----------------------------------------------------------------------------------------------------------------
                                                                           Credit applied to
                                                                           posted electronic   Credit applied to
                                         Qualification basis  (average       market maker      posted electronic
                Tier                    electronic executions per day)       executions in       market maker
                                                                          penny pilot issues   executions in SPY
                                                                              (except SPY)
----------------------------------------------------------------------------------------------------------------
Base................................  ..................................             ($0.32)             ($0.34)
Tier 1..............................  30,000 Contracts from Market Maker             ($0.34)             ($0.36)
                                       Posted Orders in Penny Pilot
                                       Issues.
Tier 2..............................  80,000 Contracts from Market Maker             ($0.38)             ($0.40)
                                       Posted Orders in Penny Pilot
                                       Issues.
Tier 3..............................  150,000 Contracts from Market                  ($0.40)             ($0.42)
                                       Maker Posted Orders in Penny
                                       Pilot Issues.
----------------------------------------------------------------------------------------------------------------

    For example, if a Market Maker has average electronic executions 
per day of 40,000 contracts from posted orders in Penny Pilot issues, 
the Market Maker receives a credit of $0.34 per contract for posted 
electronic executions in non-SPY Penny Pilot issues, and a credit of 
$0.36 per contract for posted electronic executions in SPY.
    The Exchange proposes to add an alternative qualification basis for 
Market Makers that post liquidity in Penny Pilot issues and SPY. Market 
Makers will have an alternative method to

[[Page 48569]]

qualify for the Tier 2 credit applied to posted electronic executions 
in Penny Pilot issues and SPY. A Market Maker may qualify for the Tier 
2 credit by:
     Having an ADV of 80,000 executed electronic Market Maker 
posted contracts in Penny Pilot issues, including SPY, or
     Having a combined ADV of 150,000 executed electronic 
Market Maker and Customer posted contracts in Penny Pilot issues, 
including SPY, from all affiliated OTP Holders \7\ and OTP Firms.
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    \7\ See NYSE Arca Rule 1.1(q).
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    For purposes of this calculation, days when the market closes early 
are not included in the ADV. The Exchange does not propose to change 
the base rate, Tier 1, or Tier 3 credits for Market Makers that post 
electronic executions in Penny Pilot issues or SPY. The proposed Market 
Maker monthly posting credit tiers and qualifications for executions in 
Penny Pilot issues and SPY would be as follows:

----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
          Tier            Qualification basis     Credit applied to posted electronic market   Credit applied to
                          (average electronic        maker executions in penny pilot issues    posted electronic
                           executions per day).                   (except SPY)                   market maker
                                                                                               executions in SPY
----------------------------------------------------------------------------------------------------------------
Base....................  ......................  ......................             ($0.32)             ($0.34)
Tier 1..................  30,000 Contracts from   ......................             ($0.34)             ($0.36)
                           Market Maker Posted
                           Orders in Penny Pilot
                           Issues.
Tier 2..................  80,000 Contracts from   150,000 Contracts                  ($0.38)             ($0.40)
                           Market Maker Posted     Combined from Market
                           Orders in Penny Pilot   Maker Posted Orders
                           Issues.                 and Customer
                                                   Electronic Posted
                                                   Orders in Penny Pilot
                                                   Issues*.
Tier 3..................  150,000 Contracts from  ......................             ($0.40)             ($0.42)
                           Market Maker Posted
                           Orders in Penny Pilot
                           Issues.
                           * Includes transaction volume from the Market Maker's affiliates.
----------------------------------------------------------------------------------------------------------------

    For example, if a Market Maker has average electronic executions 
per day of 160,000 contracts combined from Market Maker posted orders 
and Customer electronic posted orders in Penny Pilot issues, the Market 
Maker receives a credit of $0.38 per contract for Market Maker posted 
electronic executions in non-SPY Penny Pilot issues, and a credit of 
$0.40 per contract for Market Maker posted electronic executions in 
SPY.
    The Exchange proposes to make all of the changes described above 
operative on August 1, 2012.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\8\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act,\9\ in particular, because it 
provides for the equitable allocation of reasonable dues, fees, and 
other charges among its members, issuers and other persons using its 
facilities and does not unfairly discriminate between customers, 
issuers, brokers or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that including an additional tier for LMM 
rights fees is reasonable, equitable, and not unfairly discriminatory 
because certain issues have declined to an ADV below 1,000 Customer 
contracts, which in turn produces a profit for LMMs that is lower than 
the amount of the LMM rights fee. Issues that are particularly 
unprofitable run the risk of being delisted, even though the decline in 
ADV may be temporary. Therefore, it is reasonable to lower the LMM 
rights fee to an amount that is more closely aligned to the revenues 
generated by these issues. In addition, the fee is equitable and not 
unfairly discriminatory because it would apply uniformly to all 
similarly situated LMMs.
    The Exchange further believes that the proposed alternative 
qualification basis for Market Makers is reasonable, equitable and not 
unfairly discriminatory because it is set at a level that would be more 
achievable for Market Makers and encourages Market Makers to send 
additional Customer orders to the Exchange. In this regard, the 
Exchange has proposed more than one method of qualifying for the Tier 2 
credit. Overall, the Exchange believes that this will result in more 
Market Makers qualifying for the tier, receiving the increased credits, 
and therefore reducing their overall transaction costs on the Exchange. 
In addition, the Exchange believes that the proposed alternative 
qualification basis would continue to incent Market Makers to increase 
the level of Customer order flow sent to, and liquidity added on, the 
Exchange, thereby potentially improving the quality and efficiency of 
order interaction and executions on the Exchange. The Exchange believes 
that the aspect of the proposed change related to the activity of an 
affiliated OTP Holder or OTP Firm is reasonable, equitable and not 
unfairly discriminatory because it would encourage increased trading 
activity on the Exchange. In this regard, the proposal is designed to 
bring additional posted order flow to the Exchange, so as to provide 
additional opportunities for all OTP Holders and OTP Firms to trade on 
the Exchange. The Exchange further believes that the proposed change is 
reasonable, equitable and not unfairly discriminatory because the 
tiers, and the corresponding credits, will apply uniformly to all 
Market Makers.
    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 exchanges.

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) \10\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \11\

[[Page 48570]]

thereunder, because it establishes a due, fee, or other charge imposed 
by NYSE Arca.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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-NYSEArca-2012-81 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-NYSEArca-2012-81. 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 20549-1090 on official business days between the hours 
of 10:00 a.m. and 3:00 p.m. Copies of the filing will also be available 
for inspection and copying at the Exchange's principal office and on 
its Internet Web site at www.nyse.com. 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-NYSEArca-2012-81 and should be submitted 
on or before September 4, 2012.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19842 Filed 8-13-12; 8:45 am]
BILLING CODE 8011-01-P