[Federal Register Volume 77, Number 201 (Wednesday, October 17, 2012)]
[Notices]
[Pages 63900-63902]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-25500]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68036; File No. SR-NYSEMKT-2012-50]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending the NYSE Amex 
Options Fee Schedule Relating to Criteria for Rebates to Order Flow 
Providers

October 11, 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 September 28, 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 amend the NYSE Amex Options Fee Schedule 
(the ``Fee Schedule'') to establish criteria for Order Flow Providers 
(``OFPs'') \4\ to earn rebates based on the average daily volume 
(``ADV'') of Customer \5\ electronic equity and exchange-traded fund 
(``ETF'') contracts executed by an OFP on the Exchange. 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).
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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 establish 
criteria for OFPs to earn rebates based on the ADV of Customer 
electronic equity and ETF contracts executed by an OFP on the Exchange. 
The Exchange proposes to implement these changes on October 1, 2012.
    The Exchange proposes to establish a rebate for OFPs based on the 
ADV of Customer electronic equity and ETF contracts executed by an OFP 
on the Exchange (the ``Tiers'') relative to the overall Total Industry 
Customer equity and ETF option ADV.\6\ In order to be eligible for the 
rebate, certain criteria must be met. Once all of the criteria have 
been met, the highest rebate earned will apply to all eligible volume 
for the particular month for the particular OFP. The criteria will be 
detailed in new endnote 17 to the Fee Schedule.
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    \6\ Total Industry Customer equity and ETF option ADV would be 
that which is reported for the month by OCC in the month in which 
the rebates may apply. For example, October 2012 Total Industry 
Customer equity and ETF option ADV will be used in determining what, 
if any, rebate an OFP may be eligible for based on the Customer 
electronic equity and ETF option ADV it transacts on the Exchange in 
October 2012. Total Industry Customer equity and ETF option ADV is 
comprised of those equity and ETF option contracts that clear in the 
customer account type at OCC and does not include contracts that 
clear in either the firm or market maker account type at OCC or 
contracts overlying a security other than an equity and ETF 
security.
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    The first criterion is that an OFP must execute Customer electronic 
equity and ETF option volume on the Exchange that is equal to or 
greater than the percentage of Total Industry Customer equity and ETF 
option ADV shown in the table below (e.g., 2.7% of Total Industry 
Customer equity and ETF option ADV for the lowest tier). However, no 
rebate would be paid on Customer electronic equity and ETF option 
volume that is less than 120,000 ADV; thus, in a month where the Total 
Industry Customer equity and ETF option ADV as a whole drops 
substantially, it is possible that no rebates will be paid.
    Volume from executions of Qualified Contingent Cross (``QCC'') 
Orders,\7\

[[Page 63901]]

Strategy Executions \8\ and orders that are routed to one or more 
exchanges in connection with the Options Order Protection and Locked/
Crossed Market Plan referenced in Rule 991NY (``routed orders'' for 
purposes of this proposed rebate) would not count toward either the 
120,000 Customer electronic equity and ETF option ADV minimum or any of 
the proposed Customer electronic equity and ETF option ADV Tiers. 
Volume from executions of Customer Electronic Complex Orders would not 
count toward the 120,000 Customer electronic equity and ETF option ADV 
minimum, but would count toward any of the Customer electronic equity 
and ETF option ADV Tiers. Volume attributable to the execution of QCC 
Orders, Strategy Executions, Customer Electronic Complex Orders or 
routed orders would not receive a rebate.\9\
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    \7\ A QCC Order is comprised of an order to buy or sell at least 
1,000 contracts that is identified as being part of a qualified 
contingent trade, as that term is defined in Commentary .01 to Rule 
900.3NY, coupled with a contra-side order to buy or sell an equal 
number of contracts. See Rule 900.3NY(y).
    \8\ Strategy Executions are defined in endnote 8 of the Fee 
Schedule.
    \9\ The Exchange notes that both QCC Orders and Customer 
Electronic Complex Orders are currently eligible to earn rebates and 
that Strategy Executions are capped on both a per trade and a 
monthly basis. Additionally, the Exchange notes that in complying 
with the requirements of the Options Order Protection and Locked/
Crossed Market Plan referenced in Rule 991NY, the Exchange incurs 
routing fees and clearing charges when it routes Customer orders to 
exchanges that in turn do not charge Customer fees, which the 
Exchange does not pass along to OFPs.
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    The second criterion that must be met in order for an OFP to 
qualify for the rebate is that an OFP must execute an ADV of at least 
200,000 Customer electronic equity and ETF contracts that specifically 
result from posting orders to the Exchange's Consolidated Order Book 
(also known as ``making'' liquidity). In calculating the 200,000 
Customer electronic equity and ETF option ADV posting requirement, the 
Exchange would exclude volume attributable to QCC Orders, Strategy 
Executions, Electronic Customer Complex Orders and routed orders.
    The proposed volume tiers and the corresponding per contract rebate 
would be as follows:

------------------------------------------------------------------------
                                             Rebate per contract for all
                                             customer electronic equity
                                             and ETF option volume over
 Customer electronic equity and ETF option  120,000 ADV (excludes volume
                 ADV tiers                    from QCC Orders, Strategy
                                             Executions, Complex Orders,
                                                 and routed orders)
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at least 2.7% of Total Industry Customer                           $0.07
 equity and ETF option ADV................
at least 3.6% of Total Industry Customer                            0.08
 equity and ETF option ADV................
at least 4.4% of Total Industry Customer                            0.09
 equity and ETF option ADV................
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the 
``Act''),\10\ in general, and furthers the objectives of Section 
6(b)(4) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 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 equity and ETF contracts on the 
Exchange is reasonable because it is designed to attract additional 
Customer electronic equity and ETF 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 proposed rebate is 
reasonable because it would incentivize OFPs to submit Customer 
electronic equity and ETF option 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 proposed thresholds for the tiers are reasonable because 
they will reward OFPs with a greater rebate when they bring a larger 
number of equity and ETF orders to the Exchange. 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 equity and ETF option orders on the Exchange on an 
equal and non-discriminatory basis. The Exchange also believes that the 
proposed rebate is not new or novel. Instead, the Exchange understands 
that at least two other option exchanges currently offer a rebate 
specifically for Customer volume.\12\ Further, the amount of the 
proposed per contract rebate is within the range of similar rebates on 
other exchanges.\13\
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    \12\ For example, the Chicago Board Options Exchange (``CBOE'') 
has a Volume Incentive Program that pays order flow providers on 
CBOE a tiered rebate, from $0.00 to $0.20 per contract, based on the 
number of Customer contracts per day that execute electronically on 
the exchange. This is described on page 3 of the CBOE fee schedule 
dated September 18, 2012, available at http://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf. Additionally, NASDAQ OMX PHLX 
(``PHLX'') has a Customer Rebate Program that pays tiered rebates 
that range from $0.00 to $0.12 per contract, as described in the 
PHLX fee schedule amended September 4, 2012, available at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLXTools/PlatformViewer.asp?selectednode=chp%5F1%5F4%5F1&manual=%2Fnasdaqomxphlx%2Fphlx%2Fphlx%2Drulesbrd%2F.
    \13\ See id.
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    The Exchange believes that the proposal to exclude volume 
attributable to QCC Orders, Strategy Executions, Customer Electronic 
Complex Orders and routed orders from receiving the rebate is 
reasonable, equitable and not unfairly discriminatory for the following 
reasons. First, because all OFPs are treated equally in this regard, it 
is not unfairly discriminatory. Second, it is reasonable and equitable 
to exclude these volumes from receiving the rebate because QCC Orders 
and Customer Electronic Complex Orders already are eligible to receive 
separate rebates.\14\ It is reasonable and equitable to exclude 
Strategy Executions because these transactions are already offered at a 
discounted rate of $750 per day and further capped at $25,000 per month 
per initiating firm. Additionally, it is reasonable and equitable to 
exclude routed orders because the Exchange often incurs a charge for 
routing Customer orders to away markets. Accordingly, excluding these 
volumes is both reasonable and equitable.
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    \14\ The Exchange makes a rebate available to Floor Brokers for 
the execution of QCC Orders as well as a rebate available to OFPs 
for the execution of Customer Electronic Complex Orders, as 
described in the Exchange's Fee Schedule, dated September 1, 2012, 
available at http://globalderivatives.nyx.com/sites/globalderivatives.nyx.com/files/nyse_amex_options_fee_schedule_09_01_12.pdf.

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[[Page 63902]]

    The Exchange believes that the proposal to only make a rebate 
available for Customer electronic equity and ETF option ADV in excess 
of 120,000 contracts is reasonable and equitable because it would 
reasonably ensure that the Exchange will derive sufficient revenue to 
continue to fund the rebates, for the benefit of all participants. 
Further this requirement is not unfairly discriminatory because it 
applies to all OFPs.
    The Exchange believes that the requirement for an OFP to execute an 
ADV of at least 200,000 Customer electronic equity and ETF contracts as 
a result of posting orders to the Consolidated Book (i.e., ``making'' 
liquidity) to be eligible for the rebate is reasonable, equitable and 
not unfairly discriminatory for the following reasons. This provision 
is designed to encourage OFPs to send orders to the Exchange, which 
will contribute to the Exchange's depth of book as well as to the top 
of book liquidity. Encouraging the posting of orders is both reasonable 
and equitable because it enhances transparency, price discovery and 
liquidity for all participants on the Exchange, benefiting all 
investors. As the requirement will apply to all OFPs equally, it is 
also not unfairly discriminatory.
    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) \15\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \16\ thereunder, because it establishes a due, fee, or other 
charge imposed by the NYSE MKT.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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-2012-50 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-2012-50. 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. Copies of the filing will also 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-2012-50 and should 
be submitted on or before November 7, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25500 Filed 10-16-12; 8:45 am]
BILLING CODE 8011-01-P