[Federal Register Volume 81, Number 156 (Friday, August 12, 2016)]
[Notices]
[Pages 53524-53527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19175]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78497; File No. SR-NYSEARCA-2016-110]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Section 3 
of NYSE Arca Equities Rule 8 To Extend the Effectiveness of the 
Exchange Traded Product Incentive Program

August 8, 2016.
    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 July 28, 2016, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the

[[Page 53525]]

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 Section 3 of NYSE Arca Equities Rule 
8 (Trading of Certain Equity Derivatives) to extend the effectiveness 
of the Exchange Traded Product (``ETP'') Incentive Program until July 
31, 2017. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Section 3 of NYSE Arca Equities Rule 
8 (Trading of Certain Equity Derivatives) to extend the effectiveness 
of the ETP Incentive Program \4\ until July 31, 2017.\5\
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    \4\ The Commission approved the ETP Incentive Program on a pilot 
basis in Securities Exchange Act Release No. 69706 (June 6, 2013), 
78 FR 35340 (June 12, 2013) (SR-NYSEArca-2013-34) (``ETP Incentive 
Program Release''). The Exchange subsequently filed to extend the 
original pilot program for the ETP Incentive Program until September 
4, 2015. See Securities Exchange Act Release No. 72963 (September 3, 
2014), 79 FR 53492 (September 9, 2014) (SR-NYSEArca-2014-99) (notice 
of filing and immediate effectiveness of proposed rule change 
extending effectiveness of the ETP Incentive Program until September 
4, 2015). Most recently, the Exchange filed to extend the pilot 
program for the ETP Incentive Program until September 4, 2016 (See 
Securities Exchange Act Release No. 75846 (September 4, 2015), 80 FR 
54646 (September 10, 2015) (SR-NYSEArca-2015-78) (notice of filing 
and immediate effectiveness of proposed rule change extending 
effectiveness of the ETP Incentive Program until September 4, 2016) 
(``2015 Extension Notice''). In addition, the Exchange filed a 
proposed rule change to amend Rules 7.25(c) and 8.800(b) to provide 
that exchange-traded products (``ETPs'') already listed on the 
Exchange can be admitted to the ETP Incentive Program on a monthly 
basis rather than at the beginning of each quarter. See Securities 
Exchange Act Release No. 75282 (June 24, 2015), 80 FR 37340 (June 
30, 2015) (SR-NYSEArca-2015-52) (notice of filing and immediate 
effectiveness of proposed rule change amending NYSE Arca Equities 
Rules 7.25 and 8.800 to allow an issuer to elect for its ETP to 
participate in the Crowd Participant Program or the ETP Incentive 
Program monthly rather than quarterly and to extend the 
effectiveness of the Crowd Participant Program until June 23, 2016). 
In SR-NYSEArca-2015-52, the Exchange stated that the Exchange 
anticipates that expanding the opportunity for issuers to enter the 
ETP Incentive Program will facilitate the provision of extra 
liquidity to lower-volume ETPs by incentivizing more Market Makers 
to take Lead Market Maker (``LMM'') assignments in certain lower-
volume ETPs.
    \5\ The ETP Incentive Program is scheduled to end on September 
4, 2016. For purposes of the ETP Incentive Program, ETPs include 
securities listed on the Exchange under the following rules: NYSE 
Arca Equities Rules 5.2(j)(3) (Investment Company Units), 5.2(j)(5) 
(Equity Gold Shares), 8.100 (Portfolio Depositary Receipts), 8.200 
(Trust Issued Receipts), 8.201 (Commodity-Based Trust Shares), 8.202 
(Currency Trust Shares), 8.203 (Commodity Index Trust Shares), 8.204 
(Commodity Futures Trust Shares), 8.300 (Partnership Units), 8.600 
(Managed Fund Shares), and 8.700 (Managed Trust Securities).
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    The ETP Incentive Program is a pilot program designed to 
incentivize quoting and trading in ETPs and to add competition among 
existing qualified Market Makers.\6\ In addition, the ETP Incentive 
Program is designed to enhance the market quality for ETPs by 
incentivizing Market Makers to take LMM \7\ assignments in certain 
lower-volume ETPs by offering an alternative fee structure for such 
LMMs that would be funded from the Exchange's general revenues. The ETP 
Incentive Program is designed to improve the quality of market for 
lower-volume ETPs, thereby incentivizing issuers to list them on the 
Exchange. Moreover, as described in the ETP Incentive Program Release, 
the Exchange believes that the ETP Incentive Program, which is entirely 
voluntary, encourages competition among markets for issuers' listings 
and among Market Makers for LMM assignments.
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    \6\ A Market Maker is an Equity Trading Permit Holder that acts 
as a Market Maker pursuant to NYSE Arca Equities Rule 7. See NYSE 
Arca Equities Rule 1.1(v). An Equity Trading Permit Holder is a sole 
proprietorship, partnership, corporation, limited liability company, 
or other organization in good standing that has been issued an 
Equity Trading Permit. See NYSE Arca Equities Rule 1.1(n).
    \7\ The LMM program is designed to incentivize firms to take on 
the LMM designation and foster liquidity provision and stability in 
the market. In order to accomplish this, the Exchange currently 
provides LMMs with an opportunity to receive incrementally higher 
transaction credits and incur incrementally lower transaction fees 
(``LMM Rates'') compared to standard liquidity maker-taker rates 
(``Standard Rates''). The Exchange generally employs a maker-taker 
transactional fee structure, whereby an Equity Trading Permit Holder 
that removes liquidity is charged a fee (``Take Rate''), and an 
Equity Trading Permit Holder that provides liquidity receives a 
credit (``Make Rate''). See Trading Fee Schedule, available at 
https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf.
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    The Exchange proposes to extend the current operation of the ETP 
Incentive Program until July 31, 2017 to allow the Commission, the 
Exchange, LMMs, and issuers to further assess the impact of such 
program before proposing to make it available to other securities and 
implementing the program on a permanent basis.\8\ Issuers began 
participating in the ETP Incentive Program following the extension of 
the first pilot period. The Exchange believes that extending the ETP 
Incentive Program pilot period for an additional approximately eleven 
months will provide additional time to assess the impact of the program 
for these issuers and to provide time for additional issuers to 
participate in the ETP Incentive Program so that the Commission, the 
Exchange, LMMs, and issuers may assess the impact of the program before 
making it available to other securities or implementing it on a 
permanent basis.\9\
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    \8\ The Exchange notes that any proposed further continuance of 
the ETP Incentive Program, a proposal to make the ETP Incentive 
Program permanent, or a proposal to make such program available to 
other securities would require a rule filing with the Commission 
pursuant to Section 19(b) of the Act and Rule 19b-4 thereunder.
    \9\ The Exchange has provided to the Commission monthly market 
quality reports relating to the ETP Incentive Program for the period 
October 2014 through June 2016, which are posted to the Exchange's 
Web site at https://www.nyse.com/products/etp-incentive-program.
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    In accordance with the 2015 Extension Notice, the Exchange, on 
April 4, 2016, posted on its Web site an ``Assessment Report'' 
regarding the ETP

[[Page 53526]]

Incentive Program.\10\ The Assessment Report examined the performance 
of the ETPs in the Incentive Program during the entire period in which 
they were in the program, and provided statistical analyses with 
respect to the following factors: volume (consolidated average daily 
volume (``CADV'') and NYSE Arca average daily volume); national best 
bid and offer (``NBBO'') bid/ask spread differential; LMM participation 
rates; NYSE Arca market share; LMM time spent at the inside; LMM time 
spent within $0.03 of the inside; percentage of time NYSE Arca had the 
best price with the best size; LMM quoted spread; and LMM quoted depth. 
The Assessment Report assessed whether the ETP Incentive Program has 
met its proposed goals to incentivize market makers to take LMM 
assignments in certain lower-volume ETPs. The Assessment Report 
concluded that, while the results in certain cases show strong evidence 
of higher market quality in some ETPs based on participation in the ETP 
Incentive Program, the data is less conclusive for other ETPs due, in 
large part to the limited data available. In addition, a number of 
variables impact the ability to assess the limited data described in 
the Assessment Report, including market conditions, product 
variability, and product inception date. Therefore, the Assessment 
Report concluded that it is difficult to state conclusively whether the 
Incentive Program has met its objectives. Consistent with the 
conclusions of the Assessment Report, the Exchange believes that the 
Incentive Program should continue as a pilot program for an additional 
approximately eleven months in order to provide more time for 
participation so that the Exchange, the Commission, and market 
participants can meaningfully assess whether the Incentive Program will 
meet its proposed goals.
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    \10\ The Assessment Report is available at https://www.nyse.com/publicdocs/nyse/products/etp-funds/ETP_Incentive_Program_Assessment_Report.pdf.
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    Prior to the end of the pilot period ending July 31, 2017, the 
Exchange will post a report relating to the ETP Incentive Program (the 
``Assessment Report'') on its Web site three months before the end of 
the pilot period or at the time it files to terminate the pilot, 
whichever comes first. The proposed Assessment Report would list the 
program objectives that are the focus of the pilot and, for each, 
provide (a) a statistical analysis that includes evidence that is 
sufficient to inform a reader about whether the program has met those 
objectives during the pilot period, along with (b) a narrative 
explanation of whether and how the evidence indicates the pilot has met 
the objective, including both strengths and weaknesses of the evidence 
in this regard. The Assessment Report also would include a discussion 
of (a) the procedures used in selecting any samples that are used in 
constructing tables or statistics for inclusion in the Assessment 
Report, (b) the definitions of any variables and statistics reported in 
the tables, including test statistics, (c) the statistical significance 
levels of any test statistics and (d) other statistical or qualitative 
information that may enhance the usefulness of the Assessment Report as 
a basis for evaluating the performance of the program. The Assessment 
Report would present statistics on product performance relative to the 
performance of comparable or other suitable benchmark products 
(including test statistics that permit the reader to evaluate the 
statistical significance of any differences reported or discussed in 
the report), along with information on the procedures that were used to 
identify those comparable or benchmark products, the characteristics of 
each comparable or benchmark products, the characteristics of each 
product that is the focus of the pilot, the procedures used in 
selecting the time horizon of the sample and the sensitivity of 
reported statistics to changes in the time horizon of the sample.
    This filing is not otherwise intended to address any other issues 
and the Exchange is not aware of any problems that Equity Trading 
Permit Holders or issuers would have in complying with the monthly 
selection provision or the proposed extension of the pilot program.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\11\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act,\12\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to 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.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the ETP Incentive Program is designed to 
enhance the market quality for ETPs by incentivizing Market Makers to 
take LMM assignments in certain lower volume ETPs by offering an 
alternative fee structure for such LMMs that would be funded from the 
Exchange's general revenues. The ETP Incentive Program is designed to 
improve the quality of market for lower-volume ETPs, thereby 
incentivizing them to list on the Exchange. Moreover, as described in 
the ETP Incentive Program Release, the Exchange believes that the ETP 
Incentive Program, which is entirely voluntary, encourages competition 
among markets for issuers' listings and among Market Makers for LMM 
assignments.
    The Exchange believes that, by providing additional time for 
issuers to participate in the ETP Incentive Program, through an 
extension of the pilot period until July 31, 2017, the ETP Incentive 
Program would continue to provide an opportunity for rewarding 
competitive liquidity-providing LMMs, with associated requirements for 
quoting by LMMs at the National Best Bid or National Best Offer. The 
ETP Incentive Program, therefore, has the potential to enhance 
competition among liquidity providers and thereby improve execution 
quality on the Exchange. An extension of such pilot period will permit 
additional time to collect data on the ETP Incentive Program so that 
the Commission, the Exchange, LMMs, and issuers may assess the impact 
of the ETP Incentive Program before making it available to other 
securities. The Exchange will continue to monitor the efficacy of the 
ETP Incentive Program during the extended pilot period. Prior to the 
end of the pilot period ending July 31, 2017, the Exchange proposes to 
post an Assessment Report on its Web site three months before the end 
of the pilot period or at the time it files to terminate the pilot, 
whichever comes first. The proposed Assessment Report would list the 
program objectives that are the focus of the pilot as well as 
additional information described above.

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.
    The proposed extension to the pilot period for the ETP Incentive 
Program is not designed to address any competitive issues but rather to 
program additional time for the Commission, the Exchange, LMMs and 
issuers to assess the impact of such program.

[[Page 53527]]

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 \13\ and Rule 19b-4(f)(6) thereunder.\14\ 
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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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\16\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
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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) \17\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \17\ 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-2016-110 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 20549-1090.

All submissions should refer to File Number SR-NYSEARCA-2016-110. 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-2016-110 and should 
be submitted on or before September 2, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-19175 Filed 8-11-16; 8:45 am]
 BILLING CODE 8011-01-P