[Federal Register Volume 80, Number 86 (Tuesday, May 5, 2015)]
[Notices]
[Pages 25755-25758]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-10410]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74840; File No. SR-NYSEMKT-2015-31]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Modifying Its Rules To 
Provide for the Use of Ports That Provide Connectivity to the 
Exchange's Trading Systems Solely for the Cancellation or ``Takedown'' 
of Quotes and Changes to the NYSE Amex Options Fee Schedule Related to 
This Quote Takedown Service

April 29, 2015.
    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 April 17, 2015, 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 and II 
below, which 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 modify its rules to provide for the use of 
ports that provide connectivity to the Exchange's trading systems 
solely for the cancellation or ``takedown'' of quotes. In addition, the 
proposed rule change reflects changes to the NYSE Amex Options Fee 
Schedule (``Fee Schedule'') related to this quote takedown service. 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 its rules to provide for the use of 
ports that provide connectivity to the Exchange's trading systems 
solely for the cancellation or ``takedown'' of quotes. In addition, the 
proposed rule change reflects changes to the Fee Schedule related to 
this quote takedown service.
Order/Quote Entry Ports
    The Exchange currently makes available to ATP Holders order/quote 
entry ports for connectivity to Exchange trading systems (each an 
``order/quote entry port''). ATP Holders may be authorized to utilize 
order/quote entry ports for option activity on NYSE Amex Options and 
incur monthly Port Fees. Currently, the Exchange charges $450 per 
month, per order/quote entry port for the first 40 ports and $150 per 
month, per order/quote entry port for any additional ports in excess of 
40 (i.e., ports 41 and greater).\4\
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    \4\ See Fee Schedule, available at, https://www.nyse.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf. Unutilized order/quote entry 
ports that connect to the Exchange via its backup datacenter are 
considered established for backup purposes and are not subject to 
Port Fees. In addition, for purpose of calculating the number of 
order/quote entry ports, the Exchange shall aggregate the ports of 
Affiliates. See id.
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    While order/quote entry ports may be used by ATP Holders registered 
as Market Makers to both enter and cancel or remove quotes, Market 
Makers may dedicate certain ports solely to the removal of quotes, 
i.e., a ``quote takedown port,'' \5\ and, until now, the

[[Page 25756]]

Exchange has treated such dedicated quote takedown ports the same as 
order/quote entry port for Port Fee purposes.
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    \5\ See Trader Update regarding Options Pre-Trade and Post-Trade 
Risk Controls, available at, https://www.nyse.com/publicdocs/nyse/markets/amex-options/US_Options_Risk_Controls_Client_Document.pdf 
(announcing availability of ports dedicated to quote takedown to 
minimize latency for quote takedowns).
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Quote Takedown Ports
    The Exchange is proposing to modify its rules to provide ports 
specifically dedicated to quote cancellation or ``quote takedown'' 
(each a ``Quote Takedown Port'') as a service distinct from order/quote 
entry ports, which may be used both for entering quotes or orders and 
removing or cancelling quotes. The proposed Quote Takedown Ports would 
be designed to assist ATP Holders registered as Marker Makers in the 
management of, and risk control over, their quotes, particularly if 
they have a large number of options issues in their appointment. For 
example, if a Market Maker detects market indications that may 
influence the direction or bias of its quotes, the Market Maker may 
attempt to cancel all of its quotes in a number of classes, thereby 
avoiding unintended executions, while it evaluates the direction of the 
market. Thus, to reduce uncertainty, the Marker Maker may submit to the 
Exchange a ``quote takedown'' message through a dedicated Quote 
Takedown Port for the prompt removal of quotes. By entering a quote 
takedown message through a dedicated Quote Takedown Port, a Market 
Maker may reduce its exposure to risk because of heavy quote traffic-
induced latency.
    The Exchange proposes to modify the Fee Schedule to provide that 
certain Quote Takedown Ports would not be subject to Port Fees. 
Specifically, for each order/quote entry port utilized, the Exchange 
proposes to allow Market Makers to utilize, free of charge, one Quote 
Takedown Port. Because Quote Takedown Ports would not be available for 
quote or order submission, the Exchange is proposing to allow one Quote 
Takedown Port free of charge for every order/quote entry port that a 
Market Maker utilizes. In other words, provided a Market Maker does not 
exceed a 1-to-1 ratio of order/quote entry port-to-Quote Takedown Port, 
the Quote Takedown Port(s) would be free (the ``1-to-1 ratio''). 
However, a Market Maker that exceeds the 1-to-1 ratio would be charged 
for additional Quote Takedown Ports. For example, a Market Maker with 
thirty-five (35) order/quote entry ports and forty-two (42) Quote 
Takedown Ports would have forty-two (42) ports subject to charge 
because the Exchange would charge for the 35 order/quote entry ports 
and the seven Quote Takedown Ports that exceed the 1-1 ratio (42-35=7). 
The Exchange would not charge for the first 35 Quote Takedown Ports 
because those ports would meet the 1-to-1 ratio.
    Similarly, the Exchange would not include those Quote Takedown 
Ports that meet the 1-to-1 ratio to determine a Market Maker's total 
number of ports for purposes of calculating Port Fees. As noted above, 
the Exchange charges $450 per month, per port for the first forty 
ports, and $150 per month for each additional port in excess of forty. 
Thus, using the example above, the Exchange would not count the thirty-
five (35) Quote Takedown Ports (which align with the 35 order/quote 
entry ports) against the Market Maker's total number of ports utilized, 
but would count seven (7) additional Quote Takedown Ports. Thus, 
because the Market Maker would have forty-two (42) chargeable ports, 
the Market Maker's total monthly port fee would be $18,300 (i.e., 40 
ports x $450 per port = $18,000; and 2 ports x $150 per port $300).
    The Exchange notes that options Market Makers typically require 
more than forty (40) order/quote entry ports, in part to satisfy their 
obligation to maintain continuous two-sided markets in their appointed 
classes. Thus, the Exchange believes that the proposed change would 
enhance the ability of Market Maker firms to manage quotes, quote 
traffic, and their quoting obligations by eliminating fees for certain 
Quote Takedown Ports, which function as risk management tools rather 
than trade opportunity tools. The Exchange believes this proposed 
change would permit the Exchange to remain competitive with other 
exchanges with respect to fees charged for ports.
    To reflect the proposed change, the Exchange proposes to add to the 
Fee Schedule, in Section V. (Technology & System Access Fees), 
subsection A. (Port Fees), a new category for ``Quote Takedown Ports,'' 
together with the following language: ``For each order/quote entry port 
utilized, NYSE Amex Options Market Makers may utilize, free of charge, 
one port dedicated to quote cancellation or `quote takedown,' which 
port(s) will not be included in the count of order/quote entry ports 
utilized. Any quote takedown port utilized by a NYSE Amex Options 
Market Maker that is in excess of the number of order/quote entry ports 
utilized will be counted and charged as an order/quote entry port.'' 
The Exchange also proposes to make clear that the Quote Takedown Ports 
of Affiliates, like order/quote entry ports, are aggregated.\6\ 
Finally, to add clarity regarding Port Fees, the Exchange proposes a 
non-substantive change to the layout of the table setting forth Port 
Fees, which the Exchange believes will simplify and add transparency to 
the Fee Schedule.
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    \6\ See proposed Fee Schedule, Section V.A. (``For purpose of 
calculating the number of order/quote entry ports and quote takedown 
ports, the Exchange will aggregate the ports of Affiliates.'').
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    The Exchange believes the proposal to offer Quote Takedown Ports 
would ensure a fair and reasonable use of resources by eliminating 
charges to Market Makers for certain Quote Takedown Ports (described 
above), which are used to control and manage risk exposure to the 
benefit of all marker participants.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \7\ of the 
Securities Exchange Act of 1934 (the ``Act''), in general, and furthers 
the objectives of Section 6(b)(5),\8\ in particular, in that 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 facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change would promote 
just and equitable principles of trade and remove impediments to and 
perfect the mechanism of a free and open market because offering ATP 
Holders registered as Market Makers designated Quote Takedown Ports 
would enhance Market Makers' ability to manage quotes, quote traffic, 
and their quoting obligations, which would, in turn, improve their risk 
controls to the benefit of all participants. The Exchange believes that 
the Quote Takedown Ports would foster cooperation and coordination with 
persons engaged in facilitating transactions in securities because 
Quote Takedown Ports minimize latency for quote takedown, which would 
enable the fair and reasonable use of Market Makers' resources. Because 
Quote Takedown Ports, as the name suggests, are only available for 
quote takedowns and not order or quote entry (or order cancellation), 
the Quote Takedown Ports are not designed to permit unfair 
discrimination but rather are designed to enable Market Makers, that 
are subject to heightened obligations that other market participants 
are not, to meet their quoting obligations, which, in turn, benefits 
all market participants.

[[Page 25757]]

    The Exchange also believes that the proposed rule change is 
consistent with Section 6(b) of the Act,\9\ in general, and furthers 
the objectives of Sections 6(b)(4) and (5) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes the proposed change is reasonable, equitable 
and not unfairly discriminatory for the following reasons. First, all 
ATP Holders would be subject to the same schedule of Port Fees and ATP 
Holders would continue to be able to request, and pay for only those 
ports that they require, with no impact to other ATP Holders. As noted 
above, because Quote Takedown Ports are uniquely designed to address 
quotes and only Market Makers are obliged to quote, the proposed fee 
structure for Quote Takedown Ports would not disadvantage non-Market 
Makers trading on the Exchange. Second, the proposal to enable Market 
Makers to utilize certain Quote Takedown Ports free of charge would 
result in the fair and reasonable use of resources by Market Makers, 
and would encourage trading on the Exchange, thus improving liquidity 
and price discovery, to the benefit of all market participants. In 
addition, providing Market Makers a free Quote Takedown Port for each 
order/quote entry port may increase use of Quote Takedown Ports as a 
cost effective means of improving risk controls. The increased use of 
Quote Takedown Ports by Market Makers would improve Market Makers' 
ability to manage quotes, quote traffic, and their quoting obligations, 
which would, in turn, improve their risk controls to the benefit of all 
participants.
    The Exchange likewise believes that not including those Quote 
Takedown Ports that meet the 1-to-1 ratio (order/quote entry ports-to-
Quote Takedown Ports) in the count against a Market Maker's total 
number of ports utilized for purposes of calculating the monthly Port 
Fees is reasonable, equitable and not unfairly discriminatory. The 
Exchange notes that 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 \11\ and the corresponding obligations 
that Market Makers have to maintain continuous quotations in all series 
in their appointed classes. Furthermore, Market Makers that quote 
across a significant number, if not all, of the 2,520 classes traded on 
the Exchange could have responsibility for upwards of 620,000 
individual option series.\12\ Accordingly, the level of activity that 
is required to satisfy the quoting obligations, which directly relates 
to the number of ports needed, is such that the Exchange believes it is 
equitable and not unfairly discriminatory to only include the number of 
order/quote entry and Quote Takedown Ports in excess of the 1-to-1 
ratio in determining the per port charge for Market Makers.
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    \11\ For example, as of February 24, 2015, there were more than 
1,952 individual option series overlying Chipotle Mexican Grill, 
Inc.
    \12\ As of February 24, 2015.
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    Finally, the Exchange believes that the proposed change is 
reasonable, because the Quote Takedown Ports are used for purposes 
distinct from order/quote entry ports, for which the Exchange 
charges.\13\ In this regard, the Exchange believes that its Port 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. For example, the Chicago Board Options Exchange (``CBOE'') 
charges $750 per port per month for a Network Access Port.\14\ The 
NASDAQ Options Market (``NOM'') charges $650 per port per month.\15\
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    \13\ The Exchange also charges for use of drop copy ports, which 
are not discussed in this filing. See supra n. 4.
    \14\ See CBOE fee schedule, Command Connectivity Charges, at p 
11, available at, http://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf (charging $750 per month for each Network Access 
Port (1 Gbps) and $3,500 per month for each Network Access Port 
(10Gbps)).
    \15\ See NOM Price List, Section 3, NASDAQ Options Market, 
Access Services, available at, http://nasdaq.cchwallstreet.com/NASDAQTools/bookmark.asp?id=nasdaq-rule-options_XVS3&manual=/nasdaq/main/nasdaq-optionsrules/.
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    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

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. Because the proposed change results in the 
fair and reasonable use of resources by ATP Holders, particularly 
Market Makers, in that the Exchange allows ATP Holders to utilize one 
Quote Takedown Port per one order/quote entry port free of charge, the 
Exchange believes this change would benefit all market participants. In 
addition, because Quote Takedown Ports enhance Market Makers' risk 
controls for transactions executed on the Exchange, the Exchange 
believes the proposal is pro-competitive.
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    \16\ 15 U.S.C. 78f(b)(8).
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    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.

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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \17\ and Rule 19b-4(f)(6) thereunder.\18\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \17\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \18\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\20\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay so that 
the proposal may become

[[Page 25758]]

operative immediately upon filing and thereby enable Market Makers to 
enhance their risk controls and risk management processes without 
delay. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the 30-day operative delay and 
designates the proposal effective upon filing.\21\
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    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ For purposes of waiving the 30-day operative delay, 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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    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) \22\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \22\ 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-NYSEMKT-2015-31 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-NYSEMKT-2015-31. 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 will also be 
available for inspection and copying at the NYSE's principal office and 
on its Internet Web site at www.nyse.com. 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-2015-31, and should be submitted 
on or before May 26, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-10410 Filed 5-4-15; 8:45 am]
 BILLING CODE 8011-01-P