[Federal Register Volume 77, Number 221 (Thursday, November 15, 2012)]
[Notices]
[Pages 68186-68188]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-27716]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68183; File No. SR-NYSEMKT-2012-54]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Increase the Options 
Regulatory Fee and To Revise the Circumstances Under Which NYSE Amex 
Options LLC Will Collect the Options Regulatory Fee

November 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 November 7, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Amex Options Fee Schedule 
to increase its Options Regulatory Fee (``ORF'') and to revise the 
circumstances under which the Exchange will collect the ORF. 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 increase its ORF and to revise the 
circumstances under which the Exchange will collect the ORF.
Background
    The ORF, which is currently $0.004 per contract, is assessed by the 
Exchange on each ATP Holder for all options transactions executed or 
cleared by the ATP Holder that are cleared by The Options Clearing 
Corporation (``OCC'') in the customer range, i.e., transactions that 
clear in the customer account of the ATP Holder's clearing firm at OCC, 
regardless of the marketplace of execution.\4\ In other words, the 
Exchange imposes the ORF on all customer-range transactions executed by 
an ATP Holder even if the transactions do not take place on the 
Exchange. In the case where an ATP Holder executes a transaction and a 
different ATP Holder clears the transaction, the ORF is assessed to the 
ATP Holder who executes the transaction. In the case where a non-ATP 
Holder executes a transaction and an ATP Holder clears the transaction, 
the ORF is assessed to the ATP Holder who clears the transaction.
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    \4\ See Securities Exchange Act Release No. 64400 (May 4, 2011), 
76 FR 27118 (May 10, 2011) (SR-NYSEAmex-2011-27).
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    The dues and fees paid by ATP Holders go into the general funds of 
the Exchange, a portion of which is used to help pay the costs of 
regulation. In particular, the ORF is designed to recover a material 
portion of the costs to the Exchange of the supervision and regulation 
of ATP Holders, including performing routine surveillance and 
investigations, as well as policy, rulemaking, interpretive and 
enforcement activities. The Exchange monitors the amount of revenue 
collected from the ORF so that, in combination with other regulatory 
fees and fines, it does not exceed regulatory costs. The ORF is 
collected indirectly from ATP Holders through their clearing firms by 
OCC on behalf of the Exchange.
Proposed Change
    The Exchange proposes to (1) increase the ORF from $0.004 per 
contract to $0.005 per contract in order to recoup increased regulatory 
expenses while also monitoring the revenue collected so that the ORF 
will not exceed such expenses, and (2) revise the

[[Page 68187]]

circumstances in which the Exchange will collect the ORF from ATP 
Holders. Transaction volumes across the industry have declined, thereby 
reducing ORF revenue, but the Exchange's regulatory expenses have not 
declined. The Exchange believes that revenue generated from the 
proposed ORF, when combined with all of the Exchange's other regulatory 
fees, will cover a material portion, but not all, of the Exchange's 
regulatory costs. The Exchange will continue to monitor the amount of 
revenue collected from the ORF so that, in combination with the 
Exchange's other regulatory fees and fines, it does not exceed 
regulatory costs. If the Exchange determines that regulatory revenues 
exceed regulatory costs, the Exchange will adjust the ORF by submitting 
a proposed rule change to the Commission.\5\
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    \5\ The Exchange notes that its regulatory responsibilities with 
respect to member compliance with options sales practice rules have 
been allocated to the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') under an SEC Rule 17d-2 agreement. The ORF is not 
designed to cover the cost of options sales practice regulation. See 
supra note 4.
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    Additionally, the Exchange proposes to revise the manner in which 
it assesses the ORF. Currently, upon becoming an ATP Holder, a 
participant immediately becomes liable for the ORF. In certain 
instances, particularly at the outset of becoming an ATP Holder, a 
participant may be registered with the Exchange prior to obtaining the 
requisite technological certification needed to act as a Floor Broker, 
Market Maker, Clearing Member or Order Flow Provider. The Exchange 
believes that it is not equitable to assess the ORF on an ATP Holder 
that, prior to initially satisfying certain technology requirements, is 
not capable of availing itself of the benefits of its status as an ATP 
Holder.\6\ The Exchange does not desire to assess the ORF on such ATP 
Holders until they have satisfied applicable technological requirements 
necessary to commence operations on the Exchange. The proposed change 
will have no effect on the assessment of fees for current ATP Holders 
that are fully certified to transact business on the Exchange, as 
described above. The Exchange notes that at least one other exchange 
has such a provision for assessing the options regulatory fee after 
satisfaction of applicable technology requirements.\7\
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    \6\ The Exchange anticipates that any delay in satisfying 
applicable technological requirements necessary to commence 
operations on the Exchange would be brief.
    \7\ See Securities Exchange Act Release No. 62804 (August 31, 
2010), 75 FR 54688 (September 8, 2010) (SR-BX-2010-060).
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    The Exchange notes that the proposed change is not otherwise 
intended to address any other issues surrounding the ORF and that the 
Exchange is not aware of any problems that ATP Holders would have in 
complying with the proposed change. The Exchange proposes to implement 
these changes on December 1, 2012.
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''),\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 and issuers and other persons using its facilities.
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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 the proposal is reasonable because the 
Exchange's revenue from the collection of the ORF has declined due to a 
decrease in industry volume, but the Exchange's regulatory expenses 
have not declined. As described above, through the ORF the Exchange 
seeks to recover the costs of supervising and regulating ATP Holders, 
including performing routine surveillance and investigations, as well 
as policy, rulemaking, interpretive and enforcement activities. The 
proposed ORF increase will help to maintain the total revenue collected 
to offset these regulatory expenses, but would not exceed those 
regulatory costs. The Exchange further notes that another options 
exchange has raised its options regulatory fee to $0.0065 per contract, 
so the Exchange's proposed ORF of $0.005 per contract will still be 
below that level.\10\
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    \10\ See Securities Exchange Act Release No. 67597 (August 6, 
2012), 77 FR 47887 (August 10, 2012) (SR-CBOE-2012-065).
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    The Exchange believes that the proposed ORF increase is equitable 
and not unfairly discriminatory because it is objectively allocated to 
all ATP Holders on all of their transactions that clear in the customer 
range at OCC. Moreover, the Exchange believes that the ORF is equitable 
and not unfairly discriminatory because it results in fees being 
charged to those ATP Holders that require more Exchange regulatory 
services based on the amount of customer options business they conduct. 
In this regard, regulating customer trading activity is more labor 
intensive and requires greater expenditure of human and technical 
resources than regulating non-customer trading activity. Surveillance 
and regulation of non-customer trading activity generally tends to be 
more automated and less labor intensive. As a result, the costs 
associated with administering the customer component of the Exchange's 
overall regulatory program are anticipated to be higher than the costs 
associated with administering the non-customer component of its 
regulatory program. As such, the Exchange proposes to continue to 
assess the ORF to those ATP Holders that will require more Exchange 
regulatory services based on the amount of customer options business 
they conduct.\11\
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    \11\ The ORF is not charged for orders that clear in categories 
other than the customer range (e.g., market maker orders) because 
ATP Holders incur the costs of acquiring trading permits and through 
these permits are charged transaction fees, dues and other fees that 
go into the general funds of the Exchange, a portion of which is 
used to help pay the costs of regulation.
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    The Exchange believes that the ORF will continue to be equitable 
and not unfairly discriminatory because the fee increase is objectively 
allocated to all ATP Holders. The only ATP Holders that would not pay 
the fee will be those that have not yet achieved the technical 
certifications that are needed to actually begin acting as a Floor 
Broker, Market Maker, Clearing Member or Order Flow Provider on the 
Exchange. The Exchange believes that this exception is reasonable, 
equitable and not unfairly discriminatory. Not assessing the ORF on an 
ATP Holder that is not yet able to act in the capacity for which it is 
attempting to obtain certification is reasonable because the ATP Holder 
is not yet able to generate the revenue associated with serving in that 
capacity. In this respect, it is equitable and not unfairly 
discriminatory to not begin charging the ORF until the ATP Holder can 
generate the revenue to pay the fee. It is also equitable and not 
unfairly discriminatory because it will apply in an objective manner to 
all similarly situated ATP Holders.
    As noted above, the Exchange will continue to monitor the amount of 
revenue collected from the ORF so that, in combination with its other 
regulatory fees and fines, it does not exceed regulatory costs. If the 
Exchange determines that regulatory revenues exceed regulatory costs, 
the Exchange will adjust the ORF by submitting a proposed rule change 
to the Commission.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose

[[Page 68188]]

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) \12\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \13\ thereunder, because it establishes a due, fee, or other 
charge imposed by the NYSE MKT.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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-2012-54 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-2012-54. 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-2012-54, and should 
be submitted on or before December 6, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27716 Filed 11-14-12; 8:45 am]
BILLING CODE 8011-01-P