[Federal Register Volume 77, Number 224 (Tuesday, November 20, 2012)]
[Notices]
[Pages 69679-69682]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-28144]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68227; File No. SR-NYSEArca-2012-123]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Change the
Monthly Fees for the Use of Ports
November 14, 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 1, 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 Equities Schedule of
Fees and Charges for Exchange Services (the ``Fee Schedule'') to change
the monthly fees for the use of ports. 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 change the
monthly fees for the use of ports that provide connectivity to the
Exchange's trading systems (i.e., ports for entry of orders and/or
quotes (``order/quote entry ports'')) and to implement a fee for ports
that allow for the receipt of ``drop copies'' of order or transaction
information (``drop copy ports'' and, together with order/quote entry
ports, ``ports'').\4\ The Exchange proposes to implement the fee
changes on November 1, 2012.
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\4\ Firms receive confirmations of their orders and receive
execution reports via the order/quote entry port that is used to
enter the order or quote. A ``drop copy'' contains redundant
information that a firm chooses to have ``dropped'' to another
destination (e.g., to allow the firm's back office and/or compliance
department, or another firm--typically the firm's clearing broker--
to have immediate access to the information). Such drop copies can
only be sent via a drop copy port. Drop copy ports cannot be used to
enter orders and/or quotes.
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Order/Quote Entry Ports
The Exchange currently makes order/quote entry ports available for
connectivity to its trading systems and charges $300 per port pair per
month for up to five pairs of ports, then $1,500 per month for each
additional five pairs of ports.\5\
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\5\ See Securities Exchange Act Release No. 63056 (October 6,
2010), 75 FR 63233 (October 14, 2010) (SR-NYSEArca-2010-87) (the
port fee ``Adopting Release''). See also Securities Exchange Act
Release No. 66110 (January 5, 2012), 77 FR 1766 (January 11, 2012)
(SR-NYSEArca-2012-01) (the port fee ``Amending Release''). For
example, the current fee for six pairs of ports would be $3,000
total per month (i.e., $1,500 total for the first five pairs and
$1,500 for the sixth pair). The fee would remain $3,000 for pairs
seven through 10. The fee would increase by $1,500, to $4,500 total,
for pairs 11 through 15.
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The Exchange proposes to change the current methodology for order/
quote entry port billing, such that order/quote entry ports would be
charged on a per port basis, without billing in groups of five and
without requiring that ports be in pairs.\6\ More specifically, the
Exchange proposes to charge $200 per port per month for order/quote
entry ports, which are currently charged $300 per pair per month for
activity on NYSE Arca Equities; \7\ provided, however, that (i) users
of the Exchange's Risk Management Gateway service (``RMG'') would not
be charged for order/quote entry ports if such ports are designated as
being used for RMG purposes, and (ii) unutilized order/quote entry
ports that connect to the Exchange via its backup datacenter would be
considered established for backup purposes and not charged port
fees.\8\
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\6\ The Exchange stated in the Adopting Release that the port
fee is charged per participant. The Exchange later clarified that
``per participant'' means per ETP ID for purposes of the port fees,
since an ETP Holder may have more than one unique ETP ID. See
Amending Release, at 1766-1767. The proposed fee change would change
the current methodology such that ports would not be charged on a
per ETP ID basis. Accordingly, reference to per ETP ID would be
removed from the Fee Schedule related to port fees.
\7\ The Exchange does not currently charge for order/quote entry
ports related to option activity on NYSE Arca Options. However, via
a separate proposed rule change, the Exchange is proposing to
implement port fees applicable to option activity on NYSE Arca
Options. See SR-NYSEArca-2012-122. In this regard, separate port
fees would be charged for an order/quote entry port that is
authorized for both equity and option order/quote entry.
\8\ Since the Adopting Release, the Exchange has not charged for
order/quote entry ports that connect to the Exchange through its
backup datacenter, which is currently located in Chicago, Illinois,
irrespective of whether activity was conducted through such ports.
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The Exchange proposes that users of RMG would not be charged for
order/quote entry ports if such ports are designated as being used for
RMG purposes. RMG enables Sponsoring ETP Holders to verify whether a
Sponsored Participant's orders comply with order criteria established
by the Sponsoring ETP Holder for the Sponsored Participant, including,
among other things, criteria related to order size (per order or daily
quantity limits), credit limits (per order or daily value), specific
symbols or end users.\9\ Currently, users of RMG are required to pay
the existing order/quote entry port fees for connectivity to the
Exchange's trading systems, in addition to the RMG
[[Page 69680]]
connection fees related to such ports.\10\ The Exchange proposes that
users of RMG would no longer be required to pay port fees for order/
quote entry ports designated as being used for RMG because, in the
Exchange's opinion, order/quote entry ports are an integral part of RMG
and such users are already charged a fee for RMG, including additional
connections related thereto, which the Exchange believes is sufficient
to cover its costs related to making the order/quote entry ports
available for RMG purposes. Accordingly, the Exchange proposes to
specify that port fees are not applicable to order/quote entry ports
designated as being used for RMG.
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\9\ See Securities Exchange Act Release No. 60607 (September 1,
2009), 74 FR 46275 (September 8, 2009) (SR-NYSEArca-2009-80) (order
approving RMG). See also Securities Exchange Act Release No. 60664
(September 14, 2009), 74 FR 48110 (September 21, 2009) (SR-NYSEArca-
2009-81) (establishing RMG fees). The Exchange proposes a non-
substantive change to the Fee Schedule to move the first instance of
Risk Management Gateway being defined as ``RMG.''
\10\ Currently, a $3,000 charge per month applies for an initial
RMG connection and a $1,000 charge for every additional connection
thereafter.
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Drop Copy Ports
The Exchange proposes to implement a fee for drop copy ports,\11\
for which the Exchange does not currently charge a fee, provided,
however, that users of RMG would not be charged for drop copy ports if
such ports are designated as being used for RMG purposes. The Exchange
proposes to charge $500 per port per month for drop copy ports.\12\
Additionally, the Exchange proposes to specify that only one fee per
drop copy port would apply, even if the port receives drop copies from
multiple order/quote entry ports and/or drop copies for activity on
both NYSE Arca Equities and NYSE Arca Options.
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\11\ See supra note 4.
\12\ The Exchange proposes to add language to the Fee Schedule
to differentiate between drop copy ports and order/quote entry
ports.
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In addition, the Exchange proposes that users of RMG would not be
charged for drop copy ports if such ports are designated as being used
for RMG purposes. The Exchange proposes that users of RMG not be
required to pay port fees for drop copy ports designated as being used
for RMG because, in the Exchange's opinion, ports are an integral part
of RMG and such users are already charged a fee for RMG, including
additional connections related thereto, which the Exchange believes is
sufficient to cover its costs related to making the ports available for
RMG purposes. Accordingly, the Exchange proposes to specify that port
fees are not applicable to drop copy ports designated as being used for
RMG.
Backup Datacenter
Finally, the Exchange proposes that unutilized order/quote entry
ports that connect to the Exchange via its backup datacenter and are
not utilized be considered established for backup purposes and not
charged port fees.\13\ However, if activity were conducted through one
of these order/quote entry ports, whether for backup or any other
purposes, port fees would apply for the relevant month or months. In
this regard, the Exchange notes that it monitors usage of these
particular ports. Accordingly, if an order/quote were sent to the
Exchange via one of these ports, then the port would be charged the
applicable monthly port fee.
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\13\ See supra note 8.
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The Exchange also proposes that drop copy ports that connect to the
Exchange via its backup datacenter not be charged if the drop copy port
is configured such that it is duplicative of another drop copy port of
the same user, regardless of whether the drop copy port is utilized or
not. The Exchange is proposing to treat drop copy ports in this manner
because a firm would not derive any value or utility from a drop copy
port in the datacenter that is duplicative of another drop copy port
that it already has outside of the datacenter, in that, because drop
copy ports are used to send duplicative information, a second drop copy
port carrying the same information would not be a useful resource,
except for a backup purpose.
Overall, the Exchange believes that the changes proposed herein
will result in the method of billing for ports more closely aligning
with the needs of firms with ports. The proposed changes will also
permit the Exchange to remain competitive with other exchanges with
respect to fees charged for ports.\14\ The Exchange notes that the
proposed changes are not otherwise intended to address any other issues
surrounding ports or port fees and that the Exchange is not aware of
any problems that port users would have in complying with the proposed
change.
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\14\ For example, the charge for connectivity to the NASDAQ
Stock Market LLC (``NASDAQ'') NY-Metro and Mid-Atlantic Datacenters
is $500 and a separate charge for Pre-Trade Risk Management ports is
applicable, which ranges from $400 to $600 and is capped at $25,000
per firm per month. Also, the BATS Exchange, Inc. (``BZX'') charges
$400 per month per pair (primary and secondary data center) for
logical ports. Additionally, EDGA Exchange, Inc. (``EDGA'') and EDGX
Exchange, Inc. (``EDGX'') each charge $500 per port. EDGA and EDGX
also provide the first five ports for free.
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The Exchange proposes to implement these changes on November 1,
2012. In this regard, the Exchange notes that billing for ports would
be based, as is currently on the case, on the number of ports on the
third business day prior to the end of the month. In addition, the
level of activity with respect to a particular port would still not
affect the assessment of monthly fees, such that, except for ports that
are not charged and ports considered established for backup purposes,
even if a particular port is not used, a port fee would still apply.
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''),\15\ in general, and furthers the objectives of Section
6(b)(4) of the Act,\16\ 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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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4).
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Overall, the Exchange believes that the proposed changes, including
the rates proposed, are reasonable because the fees charged for order/
quote entry ports and drop copy ports are expected to permit the
exchange to offset, in part, its connectivity costs associated with
making such ports available, including costs based on gateway software
and hardware enhancements and resources dedicated to gateway
development, quality assurance, and support. In this regard, the
Exchange believes that its fees are competitive with those charged by
other venues, and that in some cases its port fees are less expensive
than many of its primary competitors.\17\ The Exchange believes that
the changes proposed herein will result in the method of billing for
ports more closely aligning with the needs of firms with ports.
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\17\ See supra note 14.
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The Exchange believes that the proposed change to the methodology
for billing for order/quote entry ports is reasonable because it will
simplify the fees for ports by eliminating the pair requirement and
allowing a firm that requires more than five pairs of ports to request,
and pay for, the specific number of ports that it requires, rather than
requesting ports in pairs and in groups of five. This aspect of the
proposed change is also equitable and not unfairly discriminatory
because it will result in charges for order/entry ports being based on
the number of ports utilized. This aspect of the proposed change is
also equitable and not unfairly discriminatory because it will apply on
an equal basis for all ports on the Exchange, except for order/quote
entry ports related to RMG and order/quote entry ports in the backup
datacenter that are not utilized.\18\
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\18\ The Exchange describes below how the proposed changes
regarding RMG and the backup datacenter are consistent with the Act.
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[[Page 69681]]
The Exchange believes that it is reasonable to charge $200 per port
per month for order/quote entry ports because, when combined with the
change to the methodology for billing for ports, it could result in a
decrease in the overall cost to users of ports. The proposed rate is
also reasonable because it is comparable to the rates of other
exchanges.\19\ The Exchange also believes that these changes to the
fees are equitable and not unfairly discriminatory because they would
apply to all users of order/quote entry ports on the Exchange, subject
to the exceptions noted above.
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\19\ See supra note 14.
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The Exchange believes that the proposed new fee for drop copy ports
is reasonable because it will result in a fee being charged for the use
of technology and infrastructure provided by the Exchange. In this
regard, the Exchange believes that the rate is reasonable because it is
comparable to the rate charged by other exchanges for drop copy
ports.\20\ Furthermore, the Exchange believes that the proposed rate
for a drop copy port is reasonable because, when compared to the
proposed rate for order/quote entry ports, it reflects the level of
resources required of the Exchange to establish and maintain the port,
including the various sources from which data comes (i.e., establishing
connections to order/quote entry ports as well as, in certain
circumstances, to order/quote entry ports on both NYSE Arca Equities
and NYSE Arca Options). The proposed rate is also reasonable in light
of the functional/operational differences between a drop copy port and
an order/quote entry port (e.g., that configuration and monitoring of
the drop copy port is more substantial and because drop copy ports
capture cumulative activity).
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\20\ See supra note 14.
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The Exchange also believes that it is reasonable that only one fee
per drop copy port would apply, even if the port receives drop copies
from multiple order/quote entry ports and/or from both NYSE Arca
Equities and NYSE Arca Options, because the purpose of drop copies is
such that a trading unit's or a firm's entire order and execution
activity is captured, including with respect to both equities and
options. This is also reflected in the rate of $500 that is proposed
for drop copy ports, which is higher than the rate proposed for order/
quote entry ports. The Exchange believes that the proposed new fee for
drop copy ports is equitable and not unfairly discriminatory because it
will apply on an equal basis to all users of drop copy ports and to all
drop copy ports on the Exchange, except for those order/entry ports
related to RMG and ports in the backup datacenter.\21\ In this regard,
all firms are able to request drop copy ports, as is the case with
order/quote entry ports.
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\21\ See supra note 18.
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The Exchange believes that not charging for ports that are
designated to be used for RMG is reasonable because ports are an
integral part of RMG and such users are already charged a fee for RMG,
including additional connections related thereto, which the Exchange
believes is sufficient to cover its costs related to making the ports
available for RMG purposes.\22\ In this regard, ports not designated as
being used for RMG purposes would remain subject to port fees. The
Exchange also believes that this is equitable and not unfairly
discriminatory because it would apply equally to all ETP Holders that
utilize RMG, which is fully-voluntary and is available to any ETP
Holder.
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\22\ See supra note 9.
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The Exchange believes that it is reasonable to not charge for
order/quote entry ports in its backup datacenter that are not utilized.
However, the exchange does not restrict firms from using order/quote
entry ports from the backup datacenter and, as described above, if one
of these ports is utilized for order/quote entry, then port fees would
apply. The Exchange believes that this is equitable and not unfairly
discriminatory because it would permit firms to have ports established
for backup purposes, should they ever be needed, without the burden of
paying for such ports when they are not utilized. The Exchange believes
this is equitable and not unfairly discriminatory because firms will
not be disincentivized from requesting backup ports because of a fee
that may otherwise apply. This would contribute to the efficiency of a
backup process if primary order/quote entry ports ever became
unavailable.
The Exchange also believes that it is reasonable to not charge for
drop copy ports in its backup datacenter if configured such that it is
duplicative of another drop copy port of the same user, regardless of
whether the drop copy port is utilized or not. The Exchange believes
that it is reasonable to treat drop copy ports in this manner because a
firm would not derive any value/use from a drop copy port in the
datacenter that is duplicative of another drop copy port that it
already has outside of the datacenter (i.e., because drop copy ports
are used to send duplicative information anyways, a second drop copy
port carrying the same information would not be a useful resource),
except for a backup purpose. The Exchange believes that this is
equitable and not unfairly discriminatory because it would permit firms
to have ports established for drop copy purposes in the backup
datacenter, should they ever be needed, without the burden of paying
for such ports. Because the drop copy port would not be providing any
information that the firm did not already have, since the port would be
configured such that it is duplicative of another drop copy port of the
same user, the Exchange believes that it is equitable and not unfairly
discriminatory to treat order/quote entry ports and drop copy ports
differently in this manner. The Exchange believes this is also
equitable and not unfairly discriminatory because firms will not be
disincentivized from requesting backup drop copy ports because of a fee
that may otherwise apply. This would contribute to the efficiency of a
backup process if primary drop copy ports ever became unavailable.
Finally, 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) \23\ of the Act and subparagraph (f)(2) of Rule
19b-4 \24\ thereunder, because it establishes a due, fee, or other
charge imposed by the NYSE Arca.
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 17 CFR 240.19b-4(f)(2).
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[[Page 69682]]
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-2012-123 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-2012-123. 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 the 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-NYSEArca-2012-123 and should
be submitted on or before December 11, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28144 Filed 11-19-12; 8:45 am]
BILLING CODE 8011-01-P