[Federal Register Volume 77, Number 218 (Friday, November 9, 2012)]
[Notices]
[Pages 67419-67420]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-27362]



[[Page 67419]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68156; File No. SR-NYSEMKT-2012-57]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Amend the NYSE 
Amex Options Fee Schedule To Remove Dividend Spreads From the List of 
Strategy Executions for Which Fee Caps Apply

November 5, 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 October 24, 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 
(``Fee Schedule'') to remove dividend spreads from the list of strategy 
executions for which fee caps apply. 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 its Fee Schedule to remove dividend 
spreads from the list of strategy executions for which fee caps apply. 
The proposed fee change will be operative on November 1, 2012.
    Under the Exchange's current Fee Schedule, there is a $750 cap on 
transaction fees for strategy executions involving (a) reversals and 
conversions,\4\ (b) dividend spreads,\5\ (c) box spreads,\6\ (d) short 
stock interest spreads,\7\ (e) merger spreads,\8\ and (f) jelly 
rolls\9\ (``Strategy Executions''). The cap applies to each Strategy 
Execution executed on the same trading day in the same option class. 
Transaction fees for Strategy Executions are further capped at $25,000 
per month per initiating firm. Manual Broker Dealer and Firm 
Proprietary Strategy trades that do not reach the $750 cap are billed 
at $0.25 per contract.\10\
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    \4\ A ``reversal'' is established by combining a short security 
position with a short put and a long call position that shares the 
same strike and expiration. A ``conversion'' is established by 
combining a long position in the underlying security with a long put 
and a short call position that shares the same strike and 
expiration.
    \5\ A ``dividend spread'' is defined as transactions done to 
achieve a dividend arbitrage involving the purchase, sale and 
exercise of in-the-money options of the same class, executed prior 
to the date on which the underlying stock goes ex-dividend.
    \6\ A ``box spread'' is defined as transactions involving a long 
call option and a short put option at one strike, combined with a 
short call option and long put at a different strike, to create 
synthetic long and synthetic short stock positions, respectively.
    \7\ A ``short stock interest spread'' is defined as transactions 
done to achieve a short stock interest arbitrage involving the 
purchase, sale and exercise of in-the-money options of the same 
class.
    \8\ A ``merger spread'' is defined as transactions done to 
achieve a merger arbitrage involving the purchase, sale and exercise 
of options of the same class and expiration date, each executed 
prior to the date on which shareholders of record are required to 
elect their respective form of consideration, i.e., cash or stock.
    \9\ A ``jelly roll'' is created by entering into two separate 
positions simultaneously. One position involves buying a put and 
selling a call with the same strike price and expiration. The second 
position involves selling a put and buying a call, with the same 
strike price, but with a different expiration from the first 
position.
    \10\ All Royalty fees associated with Strategy Executions on 
Index and Exchange Traded Funds are passed through to trading 
participants on the Strategy Executions on a pro-rata basis. These 
Royalty fees are not included in the calculation of the $750 per 
trade cap or the $25,000 per month strategy fee cap. FLEX Option 
trades also are not eligible for strategy treatment. In addition, 
any qualifying Strategy Execution executed as a Qualified Contingent 
Cross order is ineligible for the fee caps.
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    The Exchange proposes to remove dividend spreads from the list of 
Strategy Executions that are subject to the fee caps. The fee caps may 
provide an incentive to engage in the Strategy Executions. The Exchange 
has determined that it does not wish to continue to provide an 
incentive via its Fee Schedule to engage in dividend spread trading 
because this strategy may encourage high volumes of trading of certain 
securities near the ex-dividend date and present operational risks to 
market participants with respect to clearing, exercise, and assignment 
or other issues that may prevent the market participant from the timely 
exercise of call options and collecting the dividend owed. As such, the 
Exchange proposes to remove dividend spreads from the Strategy 
Executions fee caps.
    The Exchange also proposes to specify that, as a result of removing 
dividend spreads from the list of Strategy Executions that are subject 
to the fee caps, the type of execution that the Exchange currently 
considers to be a dividend spread \11\ would no longer be excluded when 
determining whether certain other caps and thresholds that exclude 
Strategy Executions have been satisfied, as described in the Fee 
Schedule. This would apply to (i) the $350,000 cap and the volume 
threshold of 3,500,000 contracts described in endnote 5 in the Fee 
Schedule (ii) the $100,000 fee cap described in endnote 6 of the Fee 
Schedule, (iii) the 75% volume threshold related to Market Maker ATP 
fees, (iv) the 120,000 average daily volume (``ADV'') threshold related 
to Customer Electronic ADV Tiers, and (v) the 120,000 and 200,000 
volume thresholds described in endnote 17 of the Fee Schedule as well 
as the rebate referenced therein.\12\ Currently, all Strategy 
Executions, including dividend spreads, are excluded from these fee 
caps and volume thresholds. However, because dividend spreads would no 
longer be considered a Strategy Execution for purposes of billing on 
the Exchange, the caps and thresholds would no longer exclude such 
executions. However, the Exchange does not anticipate that this would 
result in a significant amount of such executions occurring on the 
Exchange. In this regard, the Exchange believes that the elimination of 
the $750 fee cap would eliminate the incentive for market participants 
to effect such executions on the Exchange.
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    \11\ See supra note 5.
    \12\ The Exchange proposes to remove references to dividend 
spreads from endnotes 5 and 6.
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    The proposed change is not otherwise intended to address any other 
matter, and the Exchange is not aware of any significant problem that 
the affected

[[Page 67420]]

market participants would have in complying with the proposed 
change.\13\
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    \13\ The Exchange is proposing a minor non-substantive change to 
the Fee Schedule to correct the grammar of the existing text 
therein.
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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''),\14\ in general, and furthers the objectives of Section 
6(b)(4) of the Act,\15\ 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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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed change is reasonable 
because the fee caps may provide an incentive to engage in dividend 
spreads and the Exchange has determined that it no longer wishes to 
offer any potential incentive via its Fee Schedule in light of the 
operational risks that dividend spreads may present. The Exchange also 
believes that the proposed change is equitable and not unfairly 
discriminatory because it would apply equally to all market 
participants and because the remaining Strategy Executions that would 
continue to be subject to the fee caps do not present the same type of 
potential operational risks.
    Furthermore, it is reasonable to specify that the type of execution 
that the Exchange currently considers to be a dividend spread \16\ 
would no longer be excluded from the fee caps and volume thresholds 
described in the Fee Schedule. Specifically, because dividend spreads 
would no longer be considered a Strategy Execution for purposes of 
billing on the Exchange, the fee caps and volume thresholds would no 
longer exclude such executions. However, the Exchange does not 
anticipate that this would result in a significant amount of such 
executions occurring on the Exchange. In this regard, the Exchange 
believes that the elimination of the $750 fee cap would eliminate the 
incentive for market participants to effect such executions on the 
Exchange. This would also be equitable and not unfairly discriminatory 
because it would not differentiate between any particular market 
participants when determining whether the fee caps and volume 
thresholds have been reached with respect to the inclusion of the type 
of execution that the Exchange currently considers to be a dividend 
spread.
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    \16\ See supra note 5.
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    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues. 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) \17\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \18\ thereunder, because it establishes a due, fee, or other 
charge imposed by the NYSE MKT.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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-2012-57 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-2012-57. 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 NYSE'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-2012-57 and should be submitted on or before 
November 30, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27362 Filed 11-8-12; 8:45 am]
BILLING CODE 8011-01-P