[Federal Register Volume 77, Number 240 (Thursday, December 13, 2012)]
[Notices]
[Pages 74261-74263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-30046]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68381; File No. SR-NYSEMKT-2012-77]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Proposing To Modify the 
NYSE Amex Options Fee Schedule Regarding the Manner in Which Funds From 
Marketing Charges Are Controlled

December 7, 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 30, 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 modify the NYSE Amex Options Fee Schedule 
with respect to the manner in which funds from marketing charges are 
controlled. 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 modify the NYSE Amex Options Fee Schedule 
with respect to the manner in which funds from marketing charges are 
controlled.\4\
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    \4\ The Exchange is not proposing any changes to the current 
rates of the marketing charges. The marketing charge is currently 
$0.65 per contract side on transactions in non Penny Pilot issues 
where Market Makers trade against electronic customer orders or 
$0.25 per contract side on transactions in Penny Pilot issues where 
Market Makers trade against electronic customer orders.
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    The Exchange currently imposes a marketing charge against a Market 
Maker that trades against an electronic customer order.\5\ Currently, 
the pool of monies resulting from the collection of marketing charges 
on electronic non-Directed Order flow is controlled by the Specialist 
or the e-Specialist with superior volume performance over the previous 
quarter for distribution by the Exchange at the direction of such 
Specialist or e-Specialist to eligible payment accepting firms.\6\ The 
pool of monies resulting from collection of marketing charges on 
electronic Directed Order flow is controlled by the NYSE Amex Options 
Market Maker to which the order was directed and distributed by the 
Exchange at the direction of such NYSE Amex Options Market Maker to 
payment accepting firms.\7\
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    \5\ See endnote 9 in the Fee Schedule. Broker Dealer and 
Professional Customer electronic orders that trade contra to a 
Market Maker do not result in the collection of marketing charges, 
nor do executed Qualified Contingent Cross orders.
    \6\ See endnote 10 in the Fee Schedule. In making this 
determination, the Exchange, on a class by class basis, evaluates 
Specialist and e-Specialist performance based on the number of 
electronic contracts executed at the Exchange per class. The 
Specialist/e-Specialist with the best volume performance will 
control the pool of marketing charges collected on electronic non-
Directed Order flow for these issues for the following quarter.
    \7\ See endnote 10 in the Fee Schedule.
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    Notwithstanding the description above, an ATP Holder that submits 
an Electronic Complex Order to the Exchange may designate an NYSE Amex 
Options Market Maker to control the pool of monies resulting from the 
collection of marketing charges related thereto, regardless of whether 
such Market Maker is assigned to the particular class, and such funds 
are distributed by the Exchange at the direction of such designated 
NYSE Amex Options Market Maker to payment accepting firms.\8\ The 
Exchange proposes to expand this method of control of marketing charge 
funds, such that an ATP Holder that submits any electronic non-Directed 
Order to the Exchange may designate an NYSE Amex Options Market Maker 
to control the pool of monies resulting from the collection of 
marketing charges related thereto, regardless of whether such Market 
Maker is assigned to the particular class, and such funds will be 
distributed by the Exchange at the direction of such designated NYSE 
Amex Options Market Maker to payment accepting firms. As is currently 
the case for Electronic Complex Orders, if an ATP Holder submits an 
electronic non-Directed Order to the Exchange without designating an 
NYSE Amex Options Market Maker, the pool of monies resulting from the 
collection of such marketing charges will be distributed in the same 
manner as is currently applicable for non-Directed Order flow, as 
described above.
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    \8\ See endnote 10 in the Fee Schedule. If an ATP Holder submits 
an Electronic Complex Order to the Exchange without designating an 
NYSE Amex Options Market Maker, the pool of monies resulting from 
the collection of such marketing charges is distributed in the same 
manner as non-Directed Order flow, as described above.
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    The Exchange recently learned that other option exchanges allow 
their market participants to have access to those exchanges' marketing 
fee funds, regardless of whether the market participant has an 
appointment in the class in which the order is received and

[[Page 74262]]

executed.\9\ As such, the Exchange has decided to permit the same on 
its market for all electronic orders.
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    \9\ The Exchange understands that this is currently permitted on 
the Chicago Board Options Exchange (``CBOE''), the International 
Securities Exchange (``ISE'') and NASDAQ OMX PHLX (``PHLX''). See 
(i) footnote 6 in the CBOE Fee Schedule; (ii) the section in the 
PHLX Pricing Schedule pertaining to Payment for Order Flow Fees; and 
(iii) Section IV(D) of the ISE Fee Schedule, respectively, none of 
which contain requirements that a market maker (or similar market 
participant) have an appointment in the class in which an electronic 
order is received and executed in order to have access to the 
marketing charge funds generated from that order. See also 
Securities Exchange Act Release No. 68131 (November 1, 2012), 77 FR 
67032 (November 8, 2012) (SR-CBOE-2012-101).
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    The Exchange believes that permitting a Market Maker to control 
marketing charge funds generated from all electronic non-Directed 
Orders, regardless of whether the order is for a class in which the 
Market Maker is assigned, may allow Market Makers to encourage greater 
order flow to be sent to the Exchange. A Market Maker could be able to 
amass a greater pool of funds with which to use to incent order flow 
providers to send order flow to the Exchange. The Exchange believes 
that this increased order flow would benefit all market participants on 
the Exchange. Indeed, a Market Maker would likely often not even be the 
direct beneficiary of the increased order flow, since the Market Maker 
would not trade with that order (as the Market Maker is not assigned to 
that class). The market participants who can trade with that order 
would be the direct beneficiaries. Allowing a Market Maker to control 
marketing charge funds generated from an electronic non-Directed Order, 
regardless of whether the order is for a class in which the Market 
Maker is assigned, would provide a Market Maker with an incentive to 
encourage the routing of order flow into classes in which the Market 
Maker otherwise would not (i.e., classes in which the Market Maker is 
not assigned or quoting). Further, this will also provide Market Makers 
with more flexibility to change their assignments, as they will not 
have to be concerned with whether or not they have made arrangements to 
pay for order flow in a specific class prior to changing assignments.
    Therefore, the Exchange proposes that an ATP Holder that submits 
any electronic non-Directed Order to the Exchange may designate an NYSE 
Amex Options Market Maker to control the pool of monies resulting from 
the collection of marketing charges related thereto, regardless of 
whether such Market Maker is assigned to the particular class, and such 
funds will be distributed by the Exchange at the direction of such 
designated NYSE Amex Options Market Maker to payment accepting firms. 
The Exchange proposes to amend endnote 10 in the Fee Schedule, as 
necessary, to reflect this proposed change. The purpose of this 
proposed change is to encourage the direction of increased order flow 
to the Exchange, to allow Market Makers more flexibility to change 
classes to which they are appointed, and to place the Exchange on even 
competitive footing with other option exchanges.
    The Exchange notes that the proposed change is not otherwise 
intended to address any other issues surrounding marketing charges and 
that the Exchange is not aware of any problems that ATP Holders, Market 
Makers or any other market participants on the Exchange 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''),\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. The 
Exchange also believes that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\12\ in particular, because it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to, and perfect the mechanisms of, 
a free and open market and a national market system and, in general, to 
protect investors and the public interest and because it is not 
designed to permit unfair discrimination 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).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed change is reasonable 
because it will allow Market Makers greater access to marketing charge 
funds. In this regard, the Exchange believes that permitting a Market 
Maker to control marketing charge funds generated from all electronic 
non-Directed Orders, regardless of whether the order is for a class in 
which the Market Maker is assigned, may allow Market Makers to 
encourage greater order flow to be sent to the Exchange. A Market Maker 
could be able to amass a greater pool of funds with which to use to 
incent order flow providers to send order flow to the Exchange. This 
increased order flow would benefit all market participants on the 
Exchange. Indeed, a Market Maker would likely often not even be the 
direct beneficiary of the increased order flow, since the Market Maker 
would not trade with that order (as the Market Maker is not assigned to 
that class). The market participants who can trade with that order 
would be the direct beneficiaries. Allowing a Market Maker to control 
marketing charge funds generated from an electronic non-Directed Order, 
regardless of whether the order is for a class in which the Market 
Maker is assigned, would provide a Market Maker with an incentive to 
encourage the routing of order flow into classes in which the Market 
Maker otherwise would not (i.e., classes in which the Market Maker is 
not assigned or quoting). Further, this will also provide Market Makers 
with more flexibility to change their assignments, as they will not 
have to be concerned with whether or not they have made arrangements to 
pay for order flow in a specific class prior to changing assignments.
    The Exchange also believes that the proposal is reasonable because 
other option exchanges allow their market participants to have access 
to and control those exchanges' marketing fee funds, regardless of 
whether the market participant has an appointment in the class in which 
the order is received and executed.\13\ As such, the Exchange has 
decided to permit the same on its market.
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    \13\ See supra note 9.
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    The Exchange believes that the proposed change is equitable and not 
unfairly discriminatory because it is designed to allow Market Makers 
to encourage greater order flow to be sent to the Exchange. A Market 
Maker could be able to amass a greater pool of funds with which to use 
to incent order flow providers to send order flow to the Exchange. This 
increased order flow would benefit all market participants on the 
Exchange. Further, allowing a Market Maker to control marketing charge 
funds generated from an electronic non-Directed Order, regardless of 
whether the order is for a class in which the Market Maker is assigned, 
would provide a Market Maker with an incentive to encourage the routing 
of order flow into classes in which the Market Maker otherwise

[[Page 74263]]

would not (i.e., classes in which the Market Maker is not assigned or 
quoting).
    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) \14\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \15\ thereunder, because it establishes a due, fee, or other 
charge imposed by NYSE MKT.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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-2012-77 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-2012-77. 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 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 offices of NYSE. 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-2012-77, and should be submitted on or before 
January 3, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30046 Filed 12-12-12; 8:45 am]
BILLING CODE 8011-01-P