[Federal Register Volume 79, Number 142 (Thursday, July 24, 2014)]
[Notices]
[Pages 43106-43108]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-17399]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72642; File No. SR-NYSEArca-2014-63]


Self-Regulatory Organizations; NYSE Arca, Inc.; Suspension of and 
Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change Amending the NYSE Arca Options Fee 
Schedule Relating to Lead Market Maker Rights Fees

July 18, 2014.

I. Introduction

    On May 23, 2013, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend the NYSE Arca Options Fee Schedule 
relating to lead market maker (``LMM'') rights fees. NYSE Arca 
designated the proposed rule change as immediately effective upon 
filing with the Commission pursuant to Section 19(b)(3)(A) of the 
Act.\3\ The Commission published notice of filing of the proposed rule 
change in the Federal Register on June 10, 2014.\4\ To date, the 
Commission has not received any comment letters on the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A). The Exchange proposed to implement 
the fee change effective June 1, 2014.
    \4\ See Securities Exchange Act Release No. 72312 (June 4, 
2014), 79 FR 33247 (June 10, 2014) (``Notice'').
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    Pursuant to Section 19(b)(3)(C) of the Act, the Commission hereby 
is: (1) Temporarily suspending the proposed rule change; and (2) 
instituting proceedings to determine whether to approve or disapprove 
the proposed rule change.

II. Summary of the Proposed Rule Change

    The Exchange's proposal amends its fee schedule by providing a 
discount on LMM rights fees for certain LMMs. LMMs pay monthly LMM 
rights fees for each issue that they are allocated. These fees range 
from $45 to $1,500 per month, depending on the average national daily 
customer contracts for the issue.\5\ The Exchange's proposed rule 
change provides LMMs to which the Exchange has allocated 400 or more 
issues with a 50% discount on total LMM rights fees from June 1, 2014 
through December 31, 2014.\6\ At the time of the filing of the proposed 
rule change, the Exchange stated that there were approximately 2,600 
underlying options issues listed on the Exchange.\7\ The Exchange 
stated that it receives five to ten requests per week to list new 
issues, and that it usually receives one or two responses to its 
requests for LMM applications per new issue.\8\
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    \5\ See Notice, supra note 4, at 33248.
    \6\ See id.
    \7\ See id.
    \8\ See id.
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III. Suspension of SR-NYSEArca-2014-63

    Pursuant to Section 19(b)(3)(C) of the Act,\9\ at any time within 
60 days of the date of filing of a proposed rule change pursuant to 
Section 19(b)(1) of the Act,\10\ the Commission summarily may 
temporarily suspend the change in the rules of a self-regulatory 
organization 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.
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    \9\ 15 U.S.C. 78s(b)(3)(C).
    \10\ 15 U.S.C. 78s(b)(1).
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    The Commission believes it is appropriate in the public interest to 
temporarily suspend the proposal to solicit comment on and evaluate 
further the statutory basis for NYSE Arca's proposal to provide a 50% 
discount on LMM rights fees through December 31, 2014 for those LMMs to 
which the Exchange has allocated 400 or more issues.
    In justifying its proposed rule change, NYSE Arca stated its view 
that providing a discount to LMM firms that have a large number of 
issues allocated to them will encourage LMM firms to apply for 
additional allocations,\11\ although the Exchange did not provide data 
concerning the existing LMMs that may qualify, or be close to 
qualifying, for the LMM rights fee discount. In addition, NYSE Arca 
stated its view that the proposal is reasonable because it will reduce 
the overhead costs of LMM firms with a large number of issues in their 
allocations and will help some LMMs meet their obligations to provide 
liquidity in a diverse selection of issues.\12\ The Exchange also 
stated its view that it is not unfairly discriminatory to provide a 
discount to large LMM firms because reducing those firms' overhead 
costs will enhance the ability of LMMs to provide liquidity, thereby 
benefitting all market participants.\13\ The Exchange further stated 
its view that the proposal is not unfairly discriminatory because the 
discount is available to any LMM firm that wishes to apply for 
appointment in a large number of issues.\14\ The Exchange also stated 
its view that the proposed discount reduces the burden on competition 
because it will enhance LMM firms' ability to quote competitively in 
more issues.\15\
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    \11\ See Notice, supra note 4, at 33248.
    \12\ Id. See also Section 6(b)(4) of the Act, which requires 
that the rules of a national securities exchange ``provide for the 
equitable allocation of reasonable dues, fees, and other charges 
among its members and issuers and other persons using its 
facilities.''
    \13\ See Notice, supra note 4, at 33248. See also Section 
6(b)(5) of the Act, which requires, among other things, that the 
rules of a national securities exchange not be ``designed to permit 
unfair discrimination between customers, issuers, brokers, or 
dealers.''
    \14\ See Notice, supra note 4, at 33248.
    \15\ Id. See also See Section 6(b)(8) of the Act, which requires 
that the rules of a national securities exchange ``not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of [the Act].''
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    The Exchange did not in its filing specifically address how it 
determined that the 400 allocated issues threshold was appropriate to 
achieve its stated goals of the proposed rule change. In addition, the 
Exchange did not address why it believes the proposed discount 
constitutes an equitable allocation of fees nor did it analyze the 
burden, if any, of the discount on competition within the LMM 
community.
    In temporarily suspending the proposal, the Commission intends to 
further assess whether the proposed discount on LMM rights fees, which 
is only available through the end of 2014 to LMMs with 400 or more 
allocated issues, is consistent with the statutory requirements 
applicable to a national securities exchange under the Act as described 
below. In particular, the Commission will assess whether the proposed 
rule change satisfies the requirements of the Act and the rules 
thereunder requiring, among other things, that an exchange's rules 
provide for the equitable allocation of reasonable fees among members, 
issuers, and other persons using its facilities; not be designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers; and do not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\16\
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    \16\ See 15 U.S.C. 78f(b)(4), (5) and (8).
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    Therefore, the Commission finds that it is appropriate in the 
public interest,\17\ for the protection of investors, and otherwise in 
furtherance of the purposes

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of the Act, to temporarily suspend the proposed rule change.
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    \17\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2014-63

    The Commission is instituting proceedings pursuant to Sections 
19(b)(3)(C) \18\ and 19(b)(2) of the Act \19\ to determine whether NYSE 
Arca's proposed rule change should be approved or disapproved. Pursuant 
to Section 19(b)(2)(B) of the Act,\20\ the Commission is providing 
notice of the grounds for disapproval under consideration. As discussed 
above, the proposal provides a 50% discount through December 31, 2014 
on total LMM rights fees for LMMs with 400 or more issues in their 
allocations. The Act requires that exchange rules provide for the 
equitable allocation of reasonable fees among members, issuers, and 
other persons using its facilities; that exchange rules not be designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers; and that exchange rules not impose any burden on competition 
not necessary or appropriate in furtherance of the purposes of the Act. 
The Commission intends to assess whether the Exchange's proposal is 
consistent with these and other requirements of the Act.
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    \18\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \19\ 15 U.S.C. 78s(b)(2).
    \20\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also 
provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
Id. The time for conclusion of the proceedings may be extended for 
up to 60 days if the Commission finds good cause for such extension 
and publishes its reasons for so finding. Id.
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    The Commission believes it is appropriate to institute disapproval 
proceedings at this time in view of the legal and policy issues raised 
by the proposal. Institution of disapproval proceedings does not 
indicate, however, that the Commission has reached any conclusions with 
respect to the issues involved. The sections of the Act and the rules 
thereunder which are applicable to the proposed rule change include:
     Section 6(b)(4) of the Act,\21\ which requires that the 
rules of a national securities exchange ``provide 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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    \21\ 15 U.S.C. 78f(b)(4).
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     Section 6(b)(5) of the Act,\22\ which requires that the 
rules of a national securities exchange be designed to, among other 
things, ``remove impediments to and perfect the mechanism of a free and 
open market and a national market system, and, in general, to protect 
investors and the public interest'' and not be ``designed to permit 
unfair discrimination between customers, issuers, brokers, or 
dealers.''
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    \22\ 15 U.S.C. 78f(b)(5).
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     Section 6(b)(8) of the Act,\23\ which requires that the 
rules of a national securities exchange ``not impose any burden on 
competition not necessary or appropriate'' in furtherance of the Act.
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    \23\ 15 U.S.C. 78f(b)(8).
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V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as other relevant 
concerns. Such comments should be submitted by August 13, 2014. 
Rebuttal comments should be submitted by August 27, 2014. Although 
there do not appear to be any issues relevant to approval or 
disapproval which would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\24\
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    \24\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change. In particular, the Commission seeks comment on 
the following:
     As noted above, Section 6(b)(4) of the Act, requires that 
the rules of a national securities exchange ``provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and issuers and other persons using its facilities.'' The 
Commission seeks comment on whether it is an equitable allocation of 
reasonable fees to provide a 50% discount on LMM rights fees through 
the end of 2014 only to LMMs with 400 or more allocated issues;
     The Exchange stated that the proposed discount is intended 
to encourage LMM firms to apply for additional allocations, although 
the Exchange did not provide data concerning existing LMMs that may 
qualify, or be close to qualifying, for the LMM rights fee discount. 
The Commission seeks comments on whether the proposed LMM rights fee 
discount is designed to achieve this stated purpose;
     The Commission seeks comment on whether the filing was 
sufficient under Section 19(b) of the Act in addressing whether the 
proposed discount constitutes an equitable allocation of fees;
     As noted above, Section 6(b)(5) of the Act requires, among 
other things, that the rules of a national securities exchange not be 
``designed to permit unfair discrimination between customers, issuers, 
brokers or dealers.'' The Commission seeks comment on whether 
discrimination among LMMs on the basis of being allocated 400 or more 
issues is a ``fair'' basis for discrimination with respect to the LMM 
rights fees charged by the Exchange;
     The Commission seeks comment on whether the filing was 
sufficient under Section 19(b) of the Act in addressing issues 
regarding the basis for discrimination between LMMs with 400 or more 
allocations and LMMs with less than 400 allocations, and whether the 
basis for such discrimination is fair, and why or why not;
     Section 6(b)(8) of the Act requires that the rules of a 
national securities exchange ``not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of [the Act].'' 
The Commission seeks comment on whether the filing was sufficient in 
addressing issues regarding the potential effects of the proposed fee 
change on competition, and what, if any, impact the proposed fee change 
might have on competition; and
     Whether the proposed discount on LMM rights fees through 
the end of 2014 for LMMs with 400 or more allocations will affect 
competition within the LMM community, and if so, how and what type of 
impact might it have.
    Interested persons are invited to submit written data, views, and 
arguments concerning the proposed rule change, 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

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     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2014-63 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2014-63. 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. 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 publicly available. All submissions should refer to File Number 
SR-NYSEArca-2014-63 and should be submitted on or before August 14, 
2014. Rebuttal comments should be submitted by August 28, 2014.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\25\ that File Number SR-NYSEArca-2014-63, be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
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    \25\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(57) and (58).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-17399 Filed 7-23-14; 8:45 am]
BILLING CODE 8011-01-P