[Federal Register Volume 77, Number 242 (Monday, December 17, 2012)]
[Notices]
[Pages 74719-74722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-30321]



[[Page 74719]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68405; File No. SR-NYSEArca-2012-137]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE 
Arca Options Fee Schedule

December 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 December 3, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Options Fee Schedule 
and to Make the Fee Change Operative on December 1, 2012. 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 amend the Fee Schedule to (i) reorganize 
transaction fees, (ii) raise the take rate for certain electronic 
executions in Penny Pilot issues, (iii) revise the Customer monthly 
posting credit tiers, (iv) replace the Market Maker monthly posting 
credit tiers with one Super Tier, (v) lower the base credit applied to 
posted electronic Market Maker executions in SPY, (vi) revise the fees 
for Electronic Complex Order executions, and (vii) include days when 
the Exchange closes early in the calculations for qualifications for 
monthly posting credits. The Exchange proposes to make the fee change 
operative on December 1, 2012.
Transaction Fees
    Currently, the Exchange groups transaction fees for manual 
executions and electronic executions in Penny Pilot issues together on 
the Fee Schedule and transaction fees for electronic executions in non-
Penny Pilot issues together on the Fee Schedule. The Exchange proposes 
to reorganize the presentation of transaction fees on the Fee Schedule 
so that manual execution fees are grouped together and electronic 
executions in Penny Pilot issues and non-Penny Pilot issues are grouped 
together. The Exchange believes that this is a clearer way to present 
these transaction fees. In addition, the Exchange proposes to separate 
the take liquidity rate for electronic executions in Penny Pilots 
issues into two subcategories: Against a Customer and against a non-
Customer.
    For NYSE Arca Market Maker and Firm and Broker Dealer orders, the 
Exchange proposes to increase the take liquidity rate for executions in 
Penny Pilot issues against a Customer from $0.45 per contract to $0.47 
per contract. The Exchange does not propose to change any of the other 
current transaction fees in these categories.\4\
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    \4\ The Exchange proposes to amend endnote 5 accordingly to 
reflect the proposed reorganization of transaction fees and to 
replace the term ``Standard Executions'' with descriptions of 
``manual'' and ``electronic'' executions. The Exchange notes that it 
has filed a separate proposed rule change that modifies endnote 5. 
The text of endnote 5 in the Exhibit 5 assumes that the previously 
filed proposed rule change is operative. See File No. SR-NYSEArca-
2012-134.
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Customer Monthly Posing Credit Tiers
    Currently, the Exchange provides a credit for OTP Holders and OTP 
Firms that meet certain customer monthly posting tiers for executions 
in Penny Pilot issues. These credits are generally based on meeting 
certain combined thresholds in contracts from Customer posted orders in 
Penny Pilot issues and Electronic Complex Orders.\5\ The Exchange 
proposes not to count Electronic Complex Orders toward the Customer 
monthly posting credit tiers. The Exchange does not propose to amend 
any other credits or other requirements for these Customer monthly 
posting credit tiers.
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    \5\ Customer Monthly Posting Tier 4 also can be met if the OTP 
Holder or OTP Firm has average electronic executions per day of 
65,000 contracts combined from Customer posted orders in Penny Pilot 
issues and Electronic Complex Orders, including all account types 
and issues, plus 0.3% of U.S. Equity Market Share posted and 
executed on NYSE Arca Equity Market, including transaction volume 
from the OTP Holder's or OTP Firm's affiliates.
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Market Maker Monthly Posting Credit Tiers
    The Exchange currently offers three Market Maker monthly posting 
credit tiers based on contracts from posted orders in Penny Pilot 
issues:

----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Tier                                   Qualification basis (Average electronic    Credit applied  Credit applied
                                                 executions per day)                   to posted       to posted
                                                                                      electronic      electronic
                                                                                    market maker    market maker
                                                                                   executions in   executions in
                                                                                     penny pilot             SPY
                                                                                  issues (except
                                                                                            SPY)
----------------------------------------------------------------------------------------------------------------
Base..............................  .....................  .....................         ($0.32)         ($0.34)
Tier 1............................  30,000 Contracts from  .....................         ($0.34)         ($0.36)
                                     Market Maker Posted
                                     Orders in Penny
                                     Pilot Issues.

[[Page 74720]]

 
Tier 2............................  80,000 Contracts from  150,000 Contracts             ($0.38)         ($0.40)
                                     Market Maker Posted    Combined from Market
                                     Orders in Penny        Maker Posted Orders
                                     Pilot Issues.          and Customer
                                                            Electronic Posted
                                                            Orders in Penny
                                                            Pilot Issues
                                                            (Includes
                                                            transaction volume
                                                            from the Market
                                                            Maker's affiliates).
Tier 3............................  150,000 Contracts      .....................         ($0.40)         ($0.42)
                                     from Market Maker
                                     Posted Orders in
                                     Penny Pilot Issues.
----------------------------------------------------------------------------------------------------------------

    The Exchange proposes to replace these three tiers with one Super 
Tier that would require average electronic executions per day of 80,000 
contracts from Market Maker posted orders in all issues or 200,000 
liquidity adding and liquidity removing contracts combined from all 
orders in Penny Pilot issues, all account types, with at least 100,000 
contracts from posted orders in Penny Pilot issues, including 
transaction volume from the Market Maker's affiliates. If a Market 
Maker meets either of the new Super Tier thresholds, the Market Maker 
would receive a credit of $0.37 applied to posted electronic Market 
Maker executions in Penny Pilot issues (except SPY) and a credit of 
$0.39 applied to posted electronic Market Maker executions in SPY. In 
addition, the base credit applied to posted electronic Market Maker 
executions in SPY would be reduced from $0.34 to $0.32.
Electronic Complex Order Executions
    Currently, the Exchange charges $0.06 per contract side for 
Electronic Complex Order executions. Complex orders in non-Penny Pilot 
issues executed against individual orders in the Consolidated Book are 
subject to the standard execution rate (``Standard Execution Rate'') 
per contract. Complex orders in Penny Pilot issues executed against 
individual orders in the Consolidated Book are subject to the take 
liquidity rate (``Take Liquidity Rate'') per contract for that issue.
    The Exchange proposes to modify the transaction fees for Electronic 
Complex Order executions based on order type: whether it is a Customer 
or non-Customer Electronic Complex Order and whether such order is in a 
Penny Pilot Issue or a non-Penny Pilot Issue. For a Customer Electronic 
Complex Order against a non-Customer Electronic Complex Order in Penny 
Pilot issues, the Customer would receive a $0.39 credit per contract 
and the non-Customer would pay a $0.50 fee per contract. In non-Penny 
Pilot issues, the Customer would receive a $0.75 credit per contract 
and the non-Customer would pay a $0.85 fee per contract. For a Customer 
Electronic Complex Order against a Customer Electronic Complex Order in 
all issues, there would be no transaction fee. For a non-Customer 
Electronic Complex Order against a non-Customer Electronic Complex 
Order, the non-Customer would pay a $0.50 fee per contract in Penny 
Pilot issues and a $0.85 fee per contract in non-Penny Pilot issues.
Early Closing Days
    Currently, the Exchange does not include days when the Exchange 
closes early in the calculations for qualifications for the Customer 
monthly posting credit tiers and the Market Maker monthly posting 
credit tiers, as set forth in endnote 8. The Exchange closes early on a 
small number of trading days each year, generally one to three days 
each year--July 3, the Friday following Thanksgiving, and December 24--
depending on the day of the week on which those days fall. For example, 
if in a given year July 3 and December 24 both fell on weekends, there 
would be only one scheduled early closing day for that year. In 
addition, when any holiday observed by the Exchange falls on a 
Saturday, the Exchange is not open on the preceding Friday and when any 
holiday observed by the Exchange falls on a Sunday, the Exchange is not 
open on the succeeding Monday. Accordingly, if in a given year July 4 
fell on a Saturday, the Exchange would be closed on Friday, July 3, 
rather than have an early closing day. When an early closing day 
occurs, the Exchange is required to manually back out such day when 
calculating the credits described above in the affected months. The 
Exchange proposes to amend endnote 8 to include days when the Exchange 
closes early in the calculations for qualifications for monthly posting 
credits, which would affect the Customer monthly posting credit tiers 
and the proposed Market Maker monthly posting credit Super Tier.
    The Exchange notes that the proposed changes are not otherwise 
intended to address any other issues, and the Exchange is not aware of 
any problems that OTP Holders and OTP Firms would have in complying 
with the proposed change.
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''),\6\ in general, and furthers the objectives of Section 6(b)(4) 
of the Act,\7\ 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. 
The Exchange also believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Act,\8\ 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that reorganizing its transaction fees is 
reasonable because the Exchange believes that grouping the transaction 
fees by order type is a clearer way to

[[Page 74721]]

present these transaction fees in the Fee Schedule. The Exchange 
believes that the proposed change is equitable and not unfairly 
discriminatory because it is designed to better organize the Fee 
Schedule, which will benefit all market participants equally.
    The Exchange believes that raising the take liquidity rate for NYSE 
Market Maker, Firm and Broker Dealer electronic executions in Penny 
Pilot issues that take liquidity against a Customer is reasonable 
because resting Customer orders are considered less sophisticated order 
flow than resting non-Customer orders, which in turn attract non-
Customers to take liquidity in such Customer orders rather than non-
Customer orders. The Exchange believes that the proposed change is 
reasonable because it will encourage NYSE Arca Market Makers, Firms, 
and Broker Dealers to take resting non-Customer orders. The Exchange 
believes that it is reasonable to charge less for Lead Market Maker 
(``LMM'') electronic executions in Penny Pilot issues that take 
liquidity against a Customer because LMMs have higher quoting 
obligations and often have order flow arrangements with Customers that 
they must maintain, therefore it is reasonable to charge a lower fee to 
LMMs in order to encourage LMMs to take posted Customer liquidity. In 
addition, the Exchange believes that it is equitable and not unfairly 
discriminatory to charge less for LMM electronic executions in Penny 
Pilot issues that take liquidity against a Customer because only LMMs 
are required to pay a monthly Rights fee per issue, which increases 
based on the average national daily customer contracts, and the Rights 
fee for Penny Pilot issues are usually higher because such issues are 
the most active. The Exchange believes that it is reasonable to charge 
less for Customer electronic executions in Penny Pilot issues that take 
liquidity against a Customer because it would continue to encourage 
Customer order flow, which is beneficial to all market participants. 
The Exchange believes that the proposed change is equitable and not 
unfairly discriminatory because NYSE Market Makers, Firms, and Broker 
Dealers can use Arca Book to see if there is a Customer resting order 
at the top of the Consolidated Book, and avoid taking liquidity against 
such order. In addition, the Exchange believes it is equitable and not 
unfairly discriminatory to charge a lower fee to LMMs because they make 
significant contributions to market quality by providing higher volumes 
of liquidity. The Exchange believes that it is equitable and not 
unfairly discriminatory to charge a lower fee to Customers, because 
they are less sophisticated than non-Customers and the proposed change 
will continue to attract a high level of Customer order flow, which 
benefits both Customers and non-Customers.
    The Exchange believes that not counting Electronic Complex Orders 
toward Customer monthly posting credit tiers is reasonable because it 
is designed to attract higher levels of Customer posted orders in Penny 
Pilot issues. In addition, the Exchange believes that the proposed 
change is reasonable because it is not changing any of the credits 
offered. The Exchange believes that the proposed change is equitable 
and not unfairly discriminatory because the credit tiers are open to 
all OTP Holders and OTP Firms on an equal basis and would continue to 
provide credits that are reasonably related to the value to the 
Exchange's market quality associated with higher volumes in Customer 
posted orders in Penny Pilot issues.
    The Exchange believes that replacing the Market Maker monthly 
posting credit tiers with one Super Tier is reasonable because it 
simplifies the monthly posting credit tiers and encourages Market 
Makers to post greater volumes in all issues, including non-Penny Pilot 
issues. In addition, the proposed change is reasonable because it would 
incent OTP Holders and OTP Firms that have a Market Making presence in 
addition to a proprietary or agency order flow presence to provide 
greater order flow in Penny Pilot issues. The Exchange believes that 
the proposed change is equitable and not unfairly discriminatory 
because it would provide more than one way for Market Makers to achieve 
the proposed credits--either by providing high levels of Market Maker 
posted orders in all issues or high levels of orders in Penny Pilot 
issues by the Market Maker and its affiliates. In addition, the 
proposed credits are reasonably related to the value to the Exchange's 
market quality associated with higher volumes in Market Maker posted 
orders and orders in Penny Pilot issues.
    The Exchange believes that lowering the base credit applied to 
posted electronic Market Maker executions in SPY is reasonable because 
the current higher credit did not attracted [sic] the anticipated 
additional volume in SPY, and it is the same credit previously offered 
by the Exchange. The Exchange also believes that lowering the base 
credit applied to posted electronic market maker executions in SPY is 
equitable and not unfairly discriminatory because it would impact all 
Market Makers equally and is offset by providing an additional credit 
for posted electronic Market Maker executions in SPY that meet the 
Super Tier threshold.
    The Exchange believes that revising the fees for Electronic Complex 
Order executions is reasonable because the Exchange believes that it 
would encourage increased Customer flow in Electronic Complex Orders 
whereas the Exchange believes that the current flat rate does not 
incent additional trading. In addition, the proposed fees and credits 
are competitive with fees and credits on at least one other 
exchange.\9\ The Exchange also believes that the non-Customer fees for 
Electronic Complex Orders are reasonable because they are consistent 
with the take liquidity rates for non-Customers that execute against 
individual orders in Penny Pilot and non-Penny Pilot issues. The 
Exchange believes that the proposed change is equitable and not 
unfairly discriminatory because it is designed to attract Customer 
Electronic Complex Order flow, which ultimately benefits all market 
participants. In addition, the Exchange believes that the non-Customer 
fees for Electronic Complex Order executions are equitable and not 
unfairly discriminatory because all non-Customers will be assessed the 
same fee.
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    \9\ See International Securities Exchange Schedule of Fees as of 
November 6, 2012, available at http://www.ise.com/assets/documents/OptionsExchange/legal/fee/fee_schedule.pdf.
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    The Exchange believes that including days when the Exchange closes 
early in the calculations for qualifications for monthly posting 
credits is reasonable because it is not expected to have a material 
impact on OTP Holders, OTP Firms, or Market Makers. The Exchange 
generally closes early on only one to three days a year, which 
generally affects a maximum of three billing months (July, November, 
and December) and may only impact one or two billing months if July 3 
or December 24 occur on weekends or observed holidays when the Exchange 
is otherwise closed. The change would have no impact on the credit 
calculations for the other months. In addition, the proposed change is 
reasonable because it would streamline credit calculations because the 
Exchange and OTP Holders, OTP Firms, and Market Makers that track their 
performance during the month would no longer be required to back out 
transactions from early closing days. The Exchange believes the 
proposed change is equitable and not unfairly discriminatory because 
all similarly situated OTP Holders, OTP Firms, and Market Makers would 
be subject to the

[[Page 74722]]

same fee structure. In addition, trading activity is generally lower on 
early closing days, so the Tier 4 Customer monthly posting credit, 
which is based on a threshold percentage of trading activity, would 
adjust automatically. Credit tiers based on a fixed threshold, 
including the Tier 1, 2, and 3 Customer monthly posting credit and the 
Super Tier Market Maker monthly posting credit, would be minimally 
impacted and OTP Holders, OTP Firms, and Market Makers would still 
benefit from the streamlined process for calculating trading activity 
during the month.
    The Exchange believes that the proposed changes bring better 
organization to the Fee Schedule and are designed to incent all market 
participants, thereby removing impediments to and perfecting the 
mechanism of a free and open market system. In addition, for the 
reasons stated above, the proposed changes are not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
    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) \10\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \11\ thereunder, because it establishes a due, fee, or other 
charge imposed by NYSE Arca.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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-NYSEArca-2012-137 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-2012-137. 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-NYSEArca-2012-137, and 
should be submitted on or before January 7, 2013.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30321 Filed 12-14-12; 8:45 am]
BILLING CODE 8011-01-P