[Federal Register Volume 81, Number 103 (Friday, May 27, 2016)]
[Notices]
[Pages 33716-33718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12512]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77885; File No. SR-NYSEArca-2016-75]


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

May 23, 2016.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on May 17, 2016, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``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''). The Exchange proposes to implement the fee change 
effective May 17, 2016. 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 purpose of this filing is to restructure the Lead Market Maker 
(``LMM'') Rights Fees (``Rights Fee'') and to provide new opportunities 
for LMMs to achieve a discounted Rights Fee based on volume executed on 
the Exchange. The Exchange proposes to implement the fee change 
effective May 17, 2016.
    Currently, the Exchange charges a Rights Fee on each issue in an 
LMM's allocation, with rates based on the Average National Daily 
Customer Contracts (``CADV''). The monthly Rights Fee ranges from $45 
per month to $1,500 per month. With one exception, under the current 
Fee Schedule the more active an issue, the higher the Rights Fee. The 
one exception to this general rule is that the Exchange currently 
charges a higher rate for the lowest-volume issues (i.e., less than 101 
CADV) to balance the Exchange's revenue with the cost of listing and 
maintaining these low-volume issues.
    The Exchange proposes to restructure the LMM Rights Fee to be more 
aligned with the economic benefit of being the LMM in a given issue, 
based on trading activity in an issue. The Exchange proposes that some 
rates would decrease (for lower-volume issues) and others would 
increase (for higher-volume issues). Using the same CADV levels 
currently in place, the Exchange proposes to modify the Rights Fee as 
follows:

                             LMM Rights Fee
------------------------------------------------------------------------
                                                    Current    Proposed
   Average national daily customer  contracts         fee         fee
------------------------------------------------------------------------
0-100...........................................        $125         $25
101-1,000.......................................          45          35
1,001-2,000.....................................          75          75
2,001-5,000.....................................         200         200
5,001-15,000....................................         375         750
15,001-100,000..................................         750       1,500
100,000+........................................       1,500       3,000
------------------------------------------------------------------------

    As shown in the chart above, the Exchange proposes to significantly 
decrease the Rights Fee for the lowest-volume issues (i.e., between 0-
100 contracts) to better account for the costs to each LMM, 
irrespective of costs and revenue to the Exchange associated with 
listing an issue.\4\ The Exchange also proposes to slightly decrease 
the Rights Fee for option issues trading between 101-1,000 CADV to 
similarly align with the cost to the Exchange associated with such 
issues. The Exchange believes the proposed reduction in the Rights Fee 
for issues trading under 1,001CADV [sic] would create an incentive for 
LMMs to request appointments in these lower-volume issues, which may 
result in increased liquidity to the benefit of market participants. In 
addition, the Exchange proposes to increase the Rights Fees associated 
with the three most active CADV categories of issues to better reflect 
the economic benefits of being an LMM in more actively-traded issues 
(i.e., option issues trading more than 5,000 CADV). The Exchange 
believes the proposed modifications to the Rights Fee are appropriate 
as an LMM would have an opportunity to interact with fewer than 101 
contracts per day to cover the proposed $25 per month Rights Fee and 
would have the opportunity to interact with more than 100,000 contracts 
per day to cover the proposed $3,000 per month Rights Fee.
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    \4\ In line with the proposed changes to the Rights Fee for the 
lowest-volume issues, the Exchange also proposes to delete from the 
Fee Schedule language regarding when the issues were listed and 
whether certain issues are ``grandfathered'' such that the LMM 
Rights Fee for the next highest tier applies, in addition to the 
related asterisk appearing after the 0-100 CADV level.
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    To potentially offset the proposed increase in Rights Fees for the 
most actively traded issues, the Exchange also proposes to adopt two 
additional discounts to the Rights Fee for the three most active CADV 
categories of issues. Specifically, the proposed discounts would be 
available to LMMs with issues in their appointment with a CADV above 
5,000 and would be based on the amount of monthly (i) total electronic 
volume and/or (ii) total posted volume executed by an LMM in the Market 
Maker range relative to other Marker [sic] Makers appointed in that 
issue.\5\ The Exchange notes that there is only one LMM per issue, and 
only LMMs are subject to the Rights Fee. Under the proposal, each month 
the LMM in an issue would be ranked against non-LMM Market Makers that 
quote and trade in that LMM's issue. For each issue, each month, if the 
LMM achieves the highest total electronic volume amongst all Market 
Makers, the LMM would receive a 50% discount to its Rights Fee. In 
addition, as proposed, for each issue, each month, if the LMM achieves 
the second highest total electronic volume amongst all Market

[[Page 33717]]

Makers, the LMM would receive a 25% discount to its Rights Fee. The 
Exchange believes the proposed discounts would incentivize an LMM to 
compete against non-LMMs in that issue to more aggressively quote in 
order to reduce the LMM's Rights Fee.
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    \5\ Total posted volume executed by an LMM refers to the total 
volume executed from posted liquidity.
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    Similarly, for each issue, each month, if the LMM that [sic] 
achieves the highest total posted volume amongst all Market Makers, the 
LMM would receive a 50% discount to [sic] Rights Fee. And, for each 
issue, each month, if the LMM achieves the second highest posted volume 
amongst all Market Makers, the LMM would receive a 25% discount to 
[sic] Rights Fee. Again, the Exchange believes the proposed discounts 
would incentivize [sic] to compete against non-LMM Market Makers to 
reduce its own Rights Fee. For example, if one or more non-LMM Market 
Makers were ranked first and second in (i) total electronic volume and 
(ii) total posted volume, the LMM would not receive a discount to its 
Rights Fee. However, when the LMM achieves one or both of the top 
volume rankings, the LMM would be eligible for a reduction.
    The Exchange notes that the proposed discounts would be cumulative 
and the same LMM would be eligible to achieve the discount for each 
monthly volume category. For example, if in a given month an LMM ranked 
1st in Total Electronic Volume in the issue and also ranked 2nd in 
Total Posting Volume in the issue, that LMM would achieve a combined 
75% discount in that issue. The Exchange believes that the proposed 
discounts may incent LMMs that already transact a significant amount of 
business on the Exchange to quote and trade competitively in their 
issues to achieve the highest (or second highest) monthly ranking in 
total electronic volume and total posted volume. The Exchange also 
believes the proposed changes may generate interest in LMMs to apply 
for new issue allocations, which would increase not only an LMM's 
volume, but would encourage liquidity on the Exchange to the benefit of 
all market participants.
    The Exchange currently provides a 50% discount to an LMM's 
aggregate Rights Fees across all issues. This 50% discount is applied 
to an LMM that trades at least 50,000 contracts CADV, of which 10,000 
such contracts are in its LMM appointment (the ``Existing LMM 
Discount''), which discount is not being altered by this proposal.\6\ 
The Exchange would first determine whether an LMM qualified for the 
proposed per issue discounts and would apply any such discounts. Next, 
the Exchange would determine whether the LMM had qualified for the 
Existing LMM Discount. The 50% discount under the Existing LMM Discount 
would be applied only after any discount under the proposal is applied. 
Consider, for example, that an LMM has 10 issues in its allocation each 
of which are subject to a $500 per month Rights Fee (totaling $5,000). 
If the LMM achieved the proposed 50% discount for posted volume in two 
issues in its allocation, the LMM's Rights Fee for these issues would 
be reduced by $250 (reducing the LMM's overall Rights Fee to $4,500). 
If the LMM also qualified for the Existing LMM Discount, the Exchange 
would reduce the total Rights Fee of $4,500 by 50% to $2,250.
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    \6\ See Fee Schedule, Endnote 2, available here, https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf. The Exchange is not making any 
changes to this discount.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\7\ in general, and furthers the 
objectives of sections 6(b)(4) and (5) 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) and (5).
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    The Exchange believes that the proposed modifications to the LMM 
Rights Fees are reasonable, equitable and not unfairly discriminatory 
as the proposed Rights Fees are more closely aligned with the economic 
benefit of being LMM in a given issues. For example, an LMM would have 
an opportunity to interact with fewer than 101 contracts per day to 
cover the proposed $25 per month Rights Fee and would have the 
opportunity to interact with more than 100,000 contracts per day to 
cover the proposed $3,000 per month Rights Fee. The Exchange also 
believes that proposed Rights Fees are not unfairly discriminatory 
because they apply solely to LMMs (non-LMMs are not subject to this 
Fee) and LMMs trading issues with similar activity levels would be 
subject to the same Rights Fees. Moreover, the Exchange notes that an 
LMM can opt to relinquish any issue in its allocation to reduce its 
Rights Fee, so the proposed Rights Fees are completely voluntary.
    The Exchange also believes the proposed discounts on the Rights 
Fees available to LMMs with issues in their appointment with a CADV of 
5,001 or above are reasonable, equitable and not unfairly 
discriminatory for a number of reasons. First, all LMMs trading issues 
with similar activity levels would be eligible to achieve the discount 
(e.g., those LMMs trading issues with a CADV of 5,001 or above). The 
Exchange notes that there is only one LMM per issue, and only LMMs are 
subject to the Rights Fee. Under the proposal, each month the LMM in an 
issue would be ranked against non-LMM Market Makers that quote and 
trade in that LMM's issue. Because the non-LMM Market Makers are not 
subject to the Rights Fee, the proposed discount would not disadvantage 
Market Makers. Instead, the proposed volume-based discounts would 
operate to incentivize each LMM to achieve first or second ranking in 
monthly volume for each issue, relative to non-LMM Market Makers to 
reduce its own Rights Fee. In addition, such discounts would reduce the 
overhead costs of LMM firms that are most actively trading in the 
issues, which reduced costs would enhance the ability of LMMs to 
provide liquidity to the benefit of all market participants.
    Finally, the Exchange is subject to significant competitive forces, 
as described below in the Exchange's statement regarding the burden on 
competition.
    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,\9\ 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 that the proposed 
modifications on the LMM Rights Fees would not impose an unfair burden 
on competition because the proposed Rights Fees would more closely 
align with the economic benefit of being LMM in a given issue. Because 
the non-LMM Market Makers are not subject to the Rights Fee, the 
proposed discount would not disadvantage Market Makers. Instead, the 
proposed volume-based discounts would operate to incentivize each LMM 
to achieve first or second ranking in monthly volume for each issue, 
relative to non-LMM Market Makers to reduce its own Rights Fee. The 
Exchange believes that the proposed discounts would encourage LMMs to 
quote and trade competitively in their issues and would reduce the 
burden on competition among LMMs in

[[Page 33718]]

the most actively-traded issues because LMMs that achieve the discounts 
would have reduced overhead.
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    \9\ 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 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 the Exchange.
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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. If the Commission 
takes such action, the Commission shall institute proceedings under 
section 19(b)(2)(B) \12\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \12\ 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-2016-75 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-2016-75. 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 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-2016-75 and should 
be submitted on or before June 17, 2016.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-12512 Filed 5-26-16; 8:45 am]
 BILLING CODE 8011-01-P