[Federal Register Volume 77, Number 158 (Wednesday, August 15, 2012)]
[Notices]
[Pages 49035-49037]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-19986]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67635; File No. SR-NYSEMKT-2012-34]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Relating to Amendments 
to the NYSE Amex Options Fee Schedule Regarding a Rebate for Order Flow 
Providers, an Increase in the Service Fee Applicable to Market Makers, 
and a Fee for Market Maker Executions of SPY Options

August 9, 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 31, 2012, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') 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 proposes to [sic] amend the NYSE Amex 
Options Fee Schedule to (i) Establish a rebate for Order Flow Providers 
(``OFPs'') \4\ based on the average daily volume (``ADV'') of Customer 
\5\ Electronic Complex Orders \6\ executed by an OFP on the Exchange; 
(ii) increase the service fee applicable to NYSE Amex Options Market 
Makers \7\ that have reached the monthly Market Maker fee cap, from 
$0.05 per contract to $0.10 per contract for executions of Electronic 
Complex Orders; and (iii) establish a fee of $0.10 per contract for 
NYSE Amex Options Market Maker executions of SPY options as part of an 
Electronic Complex Order. 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.
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    \4\ An OFP is any ATP Holder that submits, as agent, orders to 
the Exchange. See Rule 900.2NY(57).
    \5\ The term ``Customer'' means an individual or organization 
that is not a broker-dealer. See Rule 900.2NY(18).
    \6\ See Rule 980NY.
    \7\ References herein to Market Makers include Specialists and 
e-Specialists. See Rule 900.2NY(76). See also Rule 927.4NY.
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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 (i) Establish a 
rebate for OFPs based on the ADV of Customer Electronic Complex Orders 
executed by an OFP on the Exchange; (ii) increase the service fee 
applicable to NYSE Amex Options Market Makers that have reached the 
monthly Market Maker fee cap, from $0.05 per contract to $0.10 per 
contract for executions of Electronic Complex Orders; and (iii) 
establish a fee of $0.10 per contract for NYSE Amex Options Market 
Maker executions of SPY options as part of an Electronic Complex Order. 
The Exchange proposes to implement these changes on August 1, 2012.
    The Exchange proposes to establish a rebate for OFPs based on the 
ADV of Customer Electronic Complex Orders

[[Page 49036]]

executed by an OFP on the Exchange. An OFP would be required to execute 
an ADV of at least 35,000 contracts of Customer Electronic Complex 
Orders to qualify for the rebate. The proposed volume tiers and the 
corresponding per contract rebate would be as follows: \8\
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    \8\ The Exchange proposes that the highest rebate amount 
achieved by an OFP for the calendar month would apply retroactively 
to all Customer Electronic Complex Orders executed by the OFP during 
such calendar month.

------------------------------------------------------------------------
                                                 Rebate per contract for
                                                 all customer electronic
                                                      complex orders
  Customer electronic complex order ADV tiers      (retroactive to the
                                                  first contract traded
                                                    during the month)
------------------------------------------------------------------------
35,000 to 49,999...............................                    $0.04
50,000 to 69,999...............................                     0.06
70,000 to 109,999..............................                     0.08
110,000 and greater............................                     0.10
------------------------------------------------------------------------

    In addition to this proposed rebate, the Exchange proposes to amend 
the rate for the incremental service fee charged to NYSE Amex Options 
Market Makers that have reached the monthly fee cap for their 
executions of Electronic Complex Orders. Currently, and as described in 
endnote 5 to the Fee Schedule, NYSE Amex Options Market Maker fees are 
aggregated and capped at $350,000 per month. An incremental service fee 
of $0.01 per contract applies for NYSE Amex Options Market Maker volume 
executed in excess of 3,500,000 contracts per month. However, the 
incremental service fee is $0.05 for an execution of an Electronic 
Complex Order. The Exchange is proposing to increase this incremental 
service fee for Electronic Complex Order executions from $0.05 per 
contract to $0.10 per contract.
    The Exchange is also proposing to implement a fee of $0.10 per 
contract for any NYSE Amex Options Market Maker executions of SPY 
options as part of an Electronic Complex Order. NYSE Amex Options 
Market Makers that execute Electronic Complex Orders in options other 
than SPY would continue to pay the existing transaction charges, as 
provided in the Fee Schedule.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act, 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 and issuers and other persons using its 
facilities and does not unfairly discriminate between customers, 
issuers, brokers or dealers.
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    \9\ 15 U.S.C. 78f(b)(4).
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    The proposal to establish a tiered rebate for OFPs that execute the 
requisite ADV of Customer Electronic Complex Orders on the Exchange is 
reasonable because it is designed to attract additional Customer 
Electronic Complex Order volume to the Exchange, which would benefit 
all participants by offering greater price discovery, increased 
transparency and an increased opportunity to trade on the Exchange. 
Additionally, the Exchange believes that the rates proposed for the 
rebate are reasonable because they would incentivize OFPs to submit 
Customer Electronic Complex Orders to the Exchange and would result in 
a rebate that is reasonably related to an exchange's market quality 
that is associated with higher volumes. The Exchange also believes that 
the proposed thresholds for the tiers are reasonable because they will 
reward OFPs with a greater rebate when they bring a larger number of 
orders to the Exchange. The Exchange also believes that retroactively 
applying the highest rebate amount achieved by an OFP to all Customer 
Electronic Complex Orders executed by the OFP during the calendar month 
is reasonable because it will increase the incentive for OFPs to 
achieve a higher tier. Moreover, the Exchange believes that the 
proposed rebate is equitable and not unfairly discriminatory because it 
will be available to all OFPs that execute Customer Electronic Complex 
Orders on the Exchange on an equal and non-discriminatory basis. The 
Exchange also believes that the proposed rebate is reasonable because 
it is not new or novel. Instead, the Exchange understands that at least 
two other option exchanges currently offer a rebate specifically for 
Customer Complex Order volume.\10\
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    \10\ For example, the International Securities Exchange 
(``ISE'') Schedule of Fees provides that a rebate of $0.32 per 
contract per leg will apply to Priority Customer Complex orders in 
the Select Symbols (excluding SPY) that trade with non-Priority 
Customer orders in the ISE Complex Order book; provided, however, 
that a greater rebate shall apply to an ISE Member during a calendar 
month that achieves a certain ADV of Priority Customer Complex Order 
contracts executed during the calendar month, as follows: if the ISE 
Member achieves an ADV of 75,000 Priority Customer Complex Order 
contracts, the rebate amount shall be $0.33 per contract per leg; if 
the ISE Member achieves an ADV of 125,000 Priority Customer Complex 
Order contracts, the rebate amount shall be $0.34 per contract per 
leg; and if the ISE Member achieves an ADV of 250,000 Priority 
Customer Complex Order contracts, the rebate amount shall be $0.35 
per contract per leg. Similar to the Exchange's proposal, the 
highest rebate amount achieved by the ISE Member for a calendar 
month applies retroactively to all contracts executed by the ISE 
Member during such month. See endnote 3 [sic] of the ISE Schedule of 
Fees. Similarly, NASDAQ OMX PHLX (``PHLX'') provides a rebate for 
Customer Complex Orders. See Section I, Part B of the PHLX Pricing 
Schedule.
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    The Exchange believes that the proposal to increase the capped NYSE 
Amex Market Maker service fee from $0.05 to $0.10 for executions of 
Electronic Complex Orders is reasonable because the capped NYSE Amex 
Options Market Maker would still be incentivized to continue to trade 
sufficient volume once it has achieved the fee cap, thereby lowering 
the effective rate for its executions over the course of the month. 
Specifically, the Exchange believes that the proposed new rate is 
reasonable because, among other things, the new rate would be factored 
into an NYSE Amex Options Market Maker's overall transaction costs, 
including the rebate proposed herein for Customer Electronic Complex 
Order executions. The Exchange also believes that the proposed new rate 
is reasonable because the anticipated increase in Customer Electronic 
Complex Order volume that would result from the proposed rebate will 
directly benefit capped NYSE Amex Options Market Makers, as they will 
have an increased opportunity to trade. The Exchange believes that the 
increased opportunity to trade reasonably balances the proposed 
increase in the service fee, which would continue to be less than the 
rate that the NYSE Amex Options Market Maker

[[Page 49037]]

would pay if it was not capped. In this regard, the Exchange believes 
that the proposed rate is reasonable because it would continue to 
incentivize NYSE Amex Options Market Makers to trade sufficient volume 
to achieve the fee cap. The Exchange believes that this aspect of the 
proposed rule change is equitable and not unfairly discriminatory 
because it will apply to all capped NYSE Amex Options Market Makers on 
an equal and non-discriminatory basis.
    The Exchange believes that the proposal to charge $0.10 per 
contract to all NYSE Amex Options Market Makers that execute SPY 
options as part of an Electronic Complex Order is reasonable because 
the rate is set at a level that the Exchange believes may attract 
greater Market Maker participation in the Exchange's Complex Order Book 
for SPY options. Additionally, the Exchange notes that NYSE Amex 
Options Market Makers will continue to be assessed Marketing Charges 
when they execute SPY options as part of an Electronic Complex Order 
where the contra party is a Customer. The Marketing Charges for SPY 
options are currently $0.25 per contract, which, when coupled with the 
proposed $0.10 per contract rate, results in a $0.35 per contract 
charge. This all-in cost is reasonable because it is comparable to what 
other participants on the Exchange will pay under the proposal, ranging 
from $0.20 per contract for firms trading electronically to $0.43 per 
contract for non-NYSE Amex Options Market Makers trading 
electronically. In this regard, the fee is equitable and not unfairly 
discriminatory, particularly when considering the quoting obligations 
that NYSE Amex Options Market Makers must satisfy. The Exchange notes 
that Market Maker quotes establish the Exchange's best bid and best 
offer, which serve as an important price discovery tool for 
participants that enter Complex Orders into the Exchange's Complex 
Order Book. Accordingly, the Exchange believes that the proposed change 
is reasonable, equitable and not unfairly discriminatory. The Exchange 
also believes that the proposed rule change is equitable and not 
unfairly discriminatory because it will apply to all NYSE Amex Options 
Market Makers on an equal and non-discriminatory basis.
    For these reasons, the Exchange believes that the entire proposal 
is reasonable, equitable and not unfairly discriminatory. Finally, 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 review, and consider adjusting, its fees 
and credits to remain competitive with other exchanges. For the reasons 
described above, the Exchange believes that the proposed rule change 
reflects this competitive environment.

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) \11\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \12\ thereunder, because it establishes a due, fee, or other 
charge imposed by NYSE MKT.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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-2012-34 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-2012-34. 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 Section, 100 F Street 
NE., Washington, DC 20549-1090 on official business days between the 
hours of 10 a.m. and 3 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-NYSEMKT-2012-34 and should be submitted 
on or before September 5, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19986 Filed 8-14-12; 8:45 am]
BILLING CODE 8011-01-P