[Federal Register Volume 79, Number 215 (Thursday, November 6, 2014)]
[Notices]
[Pages 66004-66007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-26348]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73489; File No. SR-NYSEARCA-2014-123]


Self-Regulatory Organizations: NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE 
Arca Options Fee Schedule To Modify the Fees Related to the Use of 
Ports That Provide Connectivity to the Exchange's Trading Systems for 
Entry of Orders and/or Quotes

October 31, 2014.
    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 October 23, 2014, 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 Options Fee Schedule 
(``Fee Schedule'') to modify the fees related to the use of ports that 
provide connectivity to the Exchange's trading systems for entry of 
orders and/or quotes. The Exchange proposes to implement the fee 
changes effective November 1, 2014. 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 modify the fees 
related to the use of ports that provide connectivity to the Exchange's 
trading systems for entry of orders and/or quotes. The Exchange 
proposes to implement the fee changes on November 1, 2014. The purpose 
of the proposed fee changes are to ensure a fair and reasonable use of 
Exchange resources by allowing the Exchange to recoup certain of its 
connectivity costs (described below), while continuing to offer 
competitive rates to OTP Holders and OTP Firms (``OTPs'').
    The Exchange currently makes available to OTPs order/quote entry 
ports for connectivity to Exchange trading systems (each a ``Port''). 
OTPs may be authorized to utilize Port(s) for option activity on NYSE 
Arca Options and incur monthly Port Fees by the Exchange, as set forth 
in the table below.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
PORT FEES:
    ORDER/QUOTE ENTRY PORT *...........  Ports 1-5: no charge.
                                         Ports 6-100: $200 per port per
                                          month.
                                         Ports 101 and greater: $100 per
                                          port per month.

[[Page 66005]]

 
                                         Backup datacenter port: no fee
                                          unless utilized during the
                                          relevant month, in which case,
                                          above fees shall apply.
------------------------------------------------------------------------
* For purpose of calculating the number of order/quote entry ports, the
  Exchange shall aggregate the ports of affiliates.\4\

    Thus, while there is no charge to an OTP authorized to utilize five 
Ports, an OTP will, for example, pay $200 per month for a sixth Port. 
Once OTPs exceed the first five Ports, the charges may look as follows: 
An OTP authorized to utilize 50 Ports is charged $9,000 in monthly Port 
Fees (i.e., 45 x $200); 100 Ports is charged $19,000 in monthly Port 
Fees (i.e., 95 x $200); or 120 Ports is charged $21,000 in monthly 
Ports Fees (i.e., 95 x $200 plus 20 x $100). Finally, unutilized Ports 
that connect to the Exchange via its backup datacenter are considered 
to have been established for backup purposes and are not charged Port 
Fees.\5\
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    \4\ An affiliate is a person or firm that directly, or 
indirectly through one or more intermediaries, controls or is 
controlled by, or is under common control with, the firm. See Rule 
1.1(a).
    \5\ The Exchange's backup datacenter is currently located in 
Chicago, Illinois. The Exchange notes that it monitors usage of 
these particular Ports and, accordingly, if an order/quote is sent 
to the Exchange via one of these Ports, then the Port is charged the 
applicable monthly Port Fee.
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    At this time, the Exchange is proposing to modify its Port Fees as 
set forth in the table below, with new charges appearing underlined and 
deletions appearing in brackets.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
PORT FEES:
    ORDER/QUOTE ENTRY PORT *...........  [Ports 1-5: no charge].
                                         [Ports 6-100: $200 per port per
                                          month].
                                         Ports 1-40: $450 per port per
                                          month.
                                         Ports [101]41 and greater:
                                          [$100]$150 per port per month.
NYSE Arca Market Maker Open Outcry       Any NYSE Arca Market Maker that
 Discount.                                executes 50% or more of their
                                          market maker volume in open
                                          outcry shall receive a
                                          discount on their monthly port
                                          fees of 60%, not to exceed a
                                          maximum dollar discount of
                                          $10,000 per month.
------------------------------------------------------------------------

    In sum, the Exchange is proposing to no longer offer Ports 1-5 free 
of charge and will instead charge OTPs $450 per Port, per month for the 
first 40 Ports that an OTP is authorized to utilize. The Exchange 
further proposes to charge $150 per Port, per month for any Port in 
excess of 40 for which an OTP is authorized. Using the example above, 
an OTP would be charged as follows: An OTP authorized to utilize 50 
Ports would be charged $19,500 in monthly Port Fees (i.e., 40 x $450 
plus 10 x $150); 100 Ports is charged $27,000 in monthly Port Fees 
(i.e., 40 x $450 plus 60 x $150); or 120 Ports is charged $30,000 in 
monthly Ports Fees (i.e., 40 x $450 plus 80 x $150). In addition, the 
Exchange proposes to offer a discount on monthly Port Fees of 60%, not 
to exceed $10,000, for any NYSE Arca Market Maker that execute at least 
50% of their Market Maker volume in open outcry in any given month.\6\
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    \6\ For example, a Market Maker authorized to utilize 100 Ports 
is charged $27,000 in monthly Port Fees (i.e., $450 x 40 = $18,000 
plus $150 x 60 = $9,000). However, if during that month, the Market 
Maker executes at least 50% of their volume in open outcry, the 
Market Maker then becomes eligible for a discount of 60%--or a 
reduction of $16,200. However, the proposal caps the amount of the 
available discount to $10,000 per month. Thus, in this example, the 
Port Fees charged would be $17,000 ($27,000 less the maximum monthly 
discount of $10,000).
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    The Exchange proposes to implement these changes on November 3, 
2014[sic]. In this regard, as is the case today, the Exchange notes 
that billing for Ports would continue to be based on the number of 
Ports for which an OTP has been authorized for option activity on the 
third business day prior to the end of the month. Similarly, the 
Exchange would continue to assess the Port Fees based on the number of 
Ports authorized--except for Ports that are considered established for 
backup purposes--such that the level of activity with respect to a 
particular Port would not affect the assessment of monthly fees. With 
regard to the discount on monthly Port Fees for Market Maker volume 
executed in open outcry, the measurement period for billing purposes 
will be based on the activity in the month prior, such that September 
Market Maker volumes will be used to decide if the Market Maker 
qualified for the 60% discount on their October Port Fees.
    The Exchange is also proposing a non-substantive, formatting change 
to the section of the fee schedule that applies to Port Fees. The 
Exchange is proposing to re-format that section of the Fee Schedule as 
a table with distinct rows and columns to make the Fee Schedule easier 
for participants to understand.
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''),\7\ in general, and furthers the objectives of Section 6(b)(4) 
of the Act,\8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed fee changes are reasonable, 
equitable and not unfairly discriminatory because they are designed to 
ensure a fair and reasonable use of Exchange resources by allowing the 
Exchange to recoup for certain of its connectivity costs, while 
continuing to offer competitive rates to OTPs. The Exchange notes that 
it has not increased its Port Fees since November 2012,\9\ and the 
proposed increases are intended to adjust the Port Fees to reflect the 
increased costs that the Exchange bears with respect to maintaining the 
Ports. Specifically, the Exchange believes that the proposed increase 
in Port Fees are reasonable because the proposed fees charged for Ports 
would enable 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 the proposed Port Fees are in line with 
those charged by other venues, and that in some cases its Port Fees 
would be less expensive than many of its primary competitors. For 
example, the Chicago Board Options Exchange (``CBOE'')

[[Page 66006]]

charges $500 per port per month for a Network Access Port.\10\ The 
NASDAQ Options Market (``NOM'') charges $550 per port per month.\11\
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    \9\ See Securities and Exchange Release No. 34-68230 (November 
14, 2012), 77 FR 69670 (November 20, 2012) (SR-NYSEArca-2012-122).
    \10\ See CBOE Fee Schedule available here, http://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf (CBOE Command Connectivity 
Charges, at p 10).
    \11\ See NOM Price List, available here, http://nasdaq.cchwallstreet.com/NASDAQTools/bookmark.asp?id=nasdaq-rule-options_XVS3&manual=/nasdaq/main/nasdaq-optionsrules (Section 3, 
NASDAQ Options Market--Access Services).
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    The Exchange believes that the proposed fees are reasonable, 
equitable and not unfairly discriminatory because--just as they do 
today--OTPs are able to request, and pay for, only those Ports that 
they require, with no impact to other OTPs.
    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to no longer offer the first five ports free of 
charge as all OTPs are being treated in the same manner. Further, as 
noted above, the Exchange believes that the proposed fee changes are 
reasonable, equitable and not unfairly discriminatory because they are 
designed to ensure a fair and reasonable use of Exchange resources by 
allowing the Exchange to recoup for certain of its connectivity costs, 
while continuing to offer competitive rates to OTPs.
    The Exchange believes that the proposed monthly per Port fee of 
$450 for the first 40 Ports is reasonable, equitable and not unfairly 
discriminatory because it is comparable to the rates of other 
exchanges.\12\ The Exchange also believes that the proposed fees are 
equitable and not unfairly discriminatory because they would apply to 
all OTPs that utilize Ports for options activity on the Exchange.
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    \12\ See supra nn. 10-11.
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    The Exchange also believes that it is reasonable, equitable and not 
unfairly discriminatory to decrease the monthly per Port rate from $450 
to $150 once an OTP has exceeded 40 Ports (i.e., a monthly per Port 
charge of $150 for Ports 41+). Specifically, reducing the monthly fee 
to $150 per Port when an OTP needs to utilize more than 40 Ports would 
enable those firms to maintain those connections to the Exchange, while 
helping to offset the increased costs of that connection. In addition, 
the reduced fee is likewise appropriate given that certain market 
participants, particularly options Market Makers, require more than 40 
Ports in order to satisfy their responsibilities and obligations to 
investors, which stem from the significant number of series that exist 
for any particular option class \13\ and the requirement for NYSE Arca 
Market Makers to maintain a bid or offer in assigned classes. 
Furthermore, Market Makers that quote across a significant number, if 
not all, of the 2,602 classes traded on the Exchange have 
responsibility for upwards of 650,000 individual option series.\14\ 
Accordingly, the level of activity that is required to satisfy a Market 
Maker's quoting obligations, which directly relates to the number of 
Ports required, is such that the Exchange believes it is reasonable, 
equitable and not unfairly discriminatory to offer a reduced fee to 
OTPs that utilize more than 40 Ports on the Exchange in a given month.
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    \13\ For example, as of October 9, 2014, there were more than 
2350 individual option series overlying Chipotle Mexican Grill, Inc. 
(NYSE: CMG).
    \14\ These figures are valid as of October 9, 2014.
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    Further, the Exchange believes that the proposal to offer a 60% 
discount on Port Fees, not to exceed a maximum discount of $10,000 per 
month, to those Market Makers that execute at least 50% of their market 
maker volume in a given month in open outcry is also reasonable, 
equitable and not unfairly discriminatory. First, the Exchange believes 
that the trading floor plays an important role in the options market. 
Specifically, trading floors provide price discovery for large or 
complex strategies not easily exposed in electronic auctions. In order 
to encourage robust participation in the Exchange's outcry markets, the 
Exchange believes that it is reasonable to offer a discount in the 
manner described for those Market Makers that continue to provide price 
discovery in open outcry as evidenced by the relative level of their 
market maker volume executed in open outcry. The Exchange notes that 
other options exchanges offer similar discounts in the to encourage 
market makers to maintain a presence in the open outcry market.\15\
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    \15\ See the NYSE Amex Options Fee Schedule, available here, 
https://www.nyse.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf (charging lower ATP fees for 
Floor Market Makers, based on volume transacted in open outcry, to 
encourage their presence and participation in the outcry markets on 
the trading floor).
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    As the proposed discount is available to any Market Maker that 
executes at least 50% of their market maker volume in open outcry, the 
Exchange believes that the current proposal is not unfairly 
discriminatory as any market making firm can seek to place individual 
traders on the trading floor. The Exchange believes the proposal is 
reasonable and equitable as the price discovery found in the outcry 
markets benefits all participants. The Exchange notes that the proposed 
discount would apply for those Market Makers that reach or exceed the 
volume threshold for open outcry transactions. The Exchange believes 
that this threshold has been appropriately set to provide an incentive 
for floor-based market making because this threshold represents a level 
where the preponderance of volume is in open outcry and therefore not 
dependent on a Port, but a Port is nonetheless necessary to meet Market 
Maker quoting obligations. The Exchange notes that Market Makers that 
do not meet this volume threshold for their options activity in open 
outcry would continue to be charged at the same rate for Port Fees as 
all other OTPs.
    The Exchange believes that the proposal to re-format the section of 
the fee schedule describing Port Fees into a table, with distinct rows 
and columns, is reasonable, equitable and not unfairly discriminatory 
as the proposed change will reduce confusion and will make the fee 
schedule more transparent and easier for all participants to 
understand.
    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition.

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

    In accordance with Section 6(b)(8) of the Act,\16\ the Exchange 
does not believe that the proposed rule change would impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Act. The Exchange believes the proposed fee change 
is reasonably designed to be fair and equitable, and therefore, will 
not unduly burden any particular group of market participants trading 
on the Exchange vis-[agrave]-vis another group (i.e., Market Markers 
versus non-Market Makers). Specifically, the Exchange believes that the 
reduced fee for OTPs that utilize more than 40 Ports will relieve any 
undue burden that the proposed fee change might have on Marker Makers. 
Further, the Exchange believes that the proposed discount to the 
monthly Port Fee, capped at $10,000 for those Market Maker that 
executes at least 50% of their market maker volume in open outcry, 
likewise does not impose any undue burden on competition among and 
between market participants because as any market making firm can seek 
to place individual traders on the trading floor. In addition, the 
Exchange believes that the proposed changes will enhance the 
competiveness of the Exchange relative

[[Page 66007]]

to other exchanges and, as noted above, the increased fees are 
comparable to port fees offered by competing option exchanges.\17\ 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.
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    \16\ 15 U.S.C. 78f(b)(8).
    \17\ See supra nn. 10-11.
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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) \18\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \19\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \20\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \20\ 15 U.S.C. 78s(b)(2)(B).
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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-2014-123 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEARCA-2014-123. 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 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-2014-123 and should 
be submitted on or before November 28, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-26348 Filed 11-5-14; 8:45 am]
BILLING CODE 8011-01-P