Document ID: SEC-2014-0311-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-02-19T05:00Z

[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Notices]
[Pages 9569-9572]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03571]

[[Page 9569]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71542; File No. SR-NYSEArca-2014-17]

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

February 12, 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 February 3, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Options Fee Schedule 
(``Fee Schedule'') regarding transaction fees and credits. The Exchange 
proposes to implement the fee change effective February 3, 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 purpose of this filing is to modify the Exchange's transaction 
fees to provide an incentive for more business to be executed on the 
Exchange. The Exchange proposes to implement the fee change effective 
February 3, 2014.
    NYSE Arca is proposing to adopt volume based incentives to bring 
more business to the Exchange as well as fee changes to offset the 
incentives.
    The Exchange will offset the incentives by raising the Take 
Liquidity fees for Lead Market Makers (``LMMs''), NYSE Arca Market 
Makers, and Firms and Broker Dealers to $0.49 per contract in Penny 
Pilot issues.\4\ The Exchange is also proposing to raise the Take 
Liquidity fee in non-Penny Pilot issues to $0.87 per contract for LMMs 
and for NYSE Arca Market Makers; to $0.89 for Firms and Broker Dealers; 
and to $0.85 for Customers.\5\
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    \4\ As provided under NYSE Arca Options Rule 6.72, options on 
certain issues have been approved to trade with a minimum price 
variation of $0.01 as part of a pilot program that is currently 
scheduled to expire on June 30, 2014. See Securities Exchange Act 
Release No. 71159 (December 20, 2013), 78 FR 79042 (December 27, 
2013) (SR-NYSEArca-2013-145).
    \5\ Under NYSE Arca Options Rule 6.1(b)(29), the term 
``Customer'' has the same definition as Rule 15c3-1(c)(6) under the 
Act, which excludes certain broker-dealers.
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    NYSE Arca is proposing modifications to its Customer Monthly 
Posting Credit Tiers and Qualifications. The proposal will reduce the 
number of tiers from six to five; and will offer two alternatives to 
achieve the highest tier. The Exchange is proposing that to earn the 
highest posting credit of $0.47, the qualifying market share of Total 
Industry Customer equity and ETF option volume Average Daily Volume 
(``ADV'') from executed Customer Posted Orders in both Penny Pilot and 
non-Penny Pilot Issues be reduced from 0.95% to 0.75%. In addition, the 
Exchange proposes to increase the posting credit for achieving 0.85% of 
Total Industry Customer equity and ETF option ADV from Posted Orders in 
Penny Pilot issues from all account types from $0.44 to the highest 
posting credit of $0.47.
    The Exchange is also proposing to adopt a Customer Incentive 
Program to provide four alternative ways for an OTP Firm to achieve an 
additional posting credit on Customer Posting Credits. By doing so, an 
OTP Firm may use increased business directed to NYSE Arca to provide a 
greater benefit to Customers that post orders on the Exchange. An OTP 
Firm may receive an additional posting credit, but only one additional 
credit, in the following ways:
     If an OTP Firm achieves at least 0.75% of Total Industry 
Customer equity and ETF option ADV \6\ from executed Customer Posted 
Orders in both Penny Pilot and non-Penny Pilot Issues, of which at 
least 0.28% of Total Industry Customer equity and ETF option ADV is 
from executed Customer Posted Orders in non-Penny Pilot Issues, they 
will earn an additional $0.02 credit on all Customer Posting Credits.
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    \6\ Total Industry Customer equity and ETF option ADV includes 
Options Clearing Corporations calculated Customer volume of all 
types, including Complex Order Transactions, QCC transactions, and 
mini options transactions, in equity and ETF options.
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     If an OTP Firm achieves an ADV from executed Market Maker 
Posted Orders equal to 0.70% of Total Industry Customer equity and ETF 
option ADV they will earn an additional $0.01 credit on all executed 
Customer Posting Credits.
     If an OTP Firm achieves an ADV from executed Market Maker 
Posted Orders equal to 1.40% of Total Industry Customer equity and ETF 
option ADV they will earn an additional $0.02 credit on all executed 
Customer Posting Credits.
     If an OTP Firm achieves Executed ADV of Retail Orders of 
0.3% ADV of U.S. Equity Market Share Posted and Executed on NYSE Arca 
Equity Market they will earn an additional $0.02 credit on all Customer 
Posting Credits.
    The Exchange also proposes to add a Market Maker Incentive to 
encourage OTP Firms to augment an increase in executed Customer Posted 
Volume on NYSE Arca with increased ADV from executed Market Maker 
Posted orders. An OTP Firm that achieves both a level of at least 0.75% 
of Total Industry Customer equity and ETF option ADV from executed 
Customer Posted Orders in both Penny Pilot and non-Penny Pilot Issues 
and an ADV from executed Market Maker Posted Orders equal to 0.70% of 
Total Industry Customer equity and ETF option ADV will have a $0.41 
credit applied to posted electronic Market Maker executions in Penny 
Pilot Issues, rather than the standard $0.28 credit.
    The Exchange notes that the calculations for the qualification 
thresholds for tiered Customer posting credits only include electronic 
executions. Qualified Contingent Cross (``QCC'') orders are neither 
posted nor taken; thus QCC transactions are not included in the 
calculation of posted or

[[Page 9570]]

taken execution volumes. The calculations do not include volume from 
mini-option transactions, nor do they include volume from Complex Order 
transactions. Orders routed to another market for execution are not 
included in the calculation of taking volume.
    The Exchange notes that the proposed change is not otherwise 
intended to address any other issues, and the Exchange is not aware of 
any problems that OTP Holders and OTP Firms, including Market Makers, 
would have in complying with the proposed change.
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 increase in the Take 
Liquidity fee for LMMs, Market Makers, and Firm and Broker Dealer 
orders in Penny Pilot issues is reasonable because it will result in 
the Exchange's fees remaining comparable to the Take Liquidity fees 
charged in Penny Pilot issues by other exchanges.\9\ In addition, the 
proposed fee change is reasonable because it will generate revenue that 
will help to support the credits offered for posting liquidity, which 
are available to all market participants.
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    \9\ For example, BATS BZX Exchange Fee Schedule charges a fee of 
$0.48 per contract for Firm or Market maker orders that access 
liquidity in Penny Pilot issues; NASDAQ Options Market (``NOM''), 
Options Rules Chapter XV, Options Pricing, Section 2, charges Firms, 
non-NOM Market Makers and Broker Dealers, a fee of $0.49 for 
Removing Liquidity in Penny Pilot issues.
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    The Exchange believes that the proposed increase in the Take 
Liquidity fee for LMMs, Market Makers, and Firm and Broker Dealers and 
Customer orders in non-Penny Pilot issues is reasonable because it will 
result in the Exchange's fees remaining comparable to the Take 
Liquidity fees charged in non-Penny Pilot issues by other 
exchanges.\10\ In addition, the proposed fee change is reasonable 
because it will generate revenue that will help to support the credits 
offered for posting liquidity, which are available to all market 
participants.
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    \10\ For example, BATS BZX Exchange Fee Schedule charges a fee 
of $0.89 per contract for Firm or Market Maker orders that access 
liquidity in non-Penny Pilot issues; NOM Options Rules Chapter XV, 
Options Pricing, Section 2, charges Firms, non-NOM Market Makers and 
Broker Dealers a fee of $0.89 for Removing Liquidity in non-Penny 
Pilot issues, and charges Customers a fee of $0.85 for removing 
liquidity in non-Penny Pilot issues.
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    Similarly, the Exchange believes that the proposed changes in Take 
Liquidity fees in Penny Pilot issues are equitable and not unfairly 
discriminatory because the Exchange would uniformly assess all market 
participants, except Customers, the same fee. Customer order flow 
benefits the market by increasing liquidity, which benefits all market 
participants, thus Customers are assessed lower fees.
    The Exchange believes that the proposed changes in Take Liquidity 
fees in non-Penny Pilot issues are equitable and not unfairly 
discriminatory because the increases are being applied in a similar 
manner to both non-Customers and Customers. It is equitable and not 
unfairly discriminatory to charge a lower fee for Market Makers and 
LMMs than for Firms or Broker Dealers because LMMs and Market Makers 
carry obligations to quote and commit capital that are not imposed on 
Firms or Broker Dealers. It is also not unfairly discriminatory to 
charge a lower fee for Customer transactions, as Customers do not have 
direct access to the market as do Market Makers, Firms, and Broker 
Dealers.
    The Exchange believes the modifications to the Customer Monthly 
Posting Credit Tiers are reasonable because they are designed to 
attract additional Customer electronic equity and ETF option volume to 
the Exchange, and provide alternative methods of achieving the highest 
tier, which would benefit all participants by offering greater price 
discovery, increased transparency, and an increased opportunity to 
trade on the Exchange. The changes are also reasonable in that they 
make it less difficult for an OTP Holder or OTP Firm to achieve the 
qualifications. Additionally, the exchange believes the proposed 
credits are reasonable because they would incent OTP Holders and OTP 
Firms to submit Customer electronic equity and ETF option orders to the 
Exchange and would result in credits that are reasonably related to the 
Exchange's market quality that is associated with higher volumes.
    The Exchange believes that the proposed changes in the credits are 
equitable and not unfairly discriminatory because they will be 
available to all OTP Holders and OTP Firms that execute posted 
electronic Customer orders on the Exchange on an equal and non-
discriminatory basis, in particular because they provide alternative 
means of achieving the same credit. The Exchange believes that 
providing methods for achieving the credits not based solely on posted 
electronic Customer Executions in Penny Pilot issues is equitable and 
not unfairly discriminatory because it would continue to result in more 
OTP Holders and OTP Firms qualifying for the credits and therefore 
reducing their overall transaction costs on the Exchange.
    The Exchange believes the proposed Customer Incentive Program is 
reasonable because it is designed to attract both additional Customer 
electronic equity and ETF option volume to the Exchange, and also 
attract additional Market Maker volume to the Exchange, which would 
benefit all participants by offering greater price discovery, increased 
transparency, and an increased opportunity to trade on the Exchange. 
Additionally, the Exchange believes the proposed credits are reasonable 
because they would incent OTP Holders and OTP Firms to submit Customer 
electronic equity and ETF option orders to the Exchange and would 
result in credits that are reasonably related to the Exchange's market 
quality that is associated with higher volumes.
    The Exchange also believes that the proposed qualifications for the 
Customer Incentive Program are equitable and not unfairly 
discriminatory because the Exchange is continuing to provide more than 
one method of qualifying for an incentive.\11\ For example, an OTP Firm 
may achieve an additional credit by posting a certain volume of orders, 
or they may achieve the same incentive by posting a certain volume of 
Market Maker orders. The Exchange also believes that the aspect of the 
proposed change related to the activity of an affiliated ETP Holder on 
NYSE Arca Equities is equitable and not unfairly discriminatory because 
it is designed to continue to bring additional posted order flow to 
NYSE Arca Equities, so as to provide additional opportunities for all 
ETP Holders to trade on NYSE Arca Equities.
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    \11\ Offering multiple ways to achieve a rebate has been deemed 
acceptable based on past and existing practice in the industry. For 
example see NOM Options Rules Chapter XV, Options Pricing, Section 
2, which offers multiple methods of achieving the same rebate.
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    The proposed Market Maker incentive is also reasonable because it 
is designed to attract higher volumes of Market Maker posted orders to 
the Exchange, which would benefit all market participants by offering 
greater price discovery, increased transparency, and

[[Page 9571]]

an increased opportunity to trade on the Exchange. Encouraging Market 
Makers to send higher volumes of orders to the Exchange would also 
contribute to the Exchange's depth of book as well as to the top of 
book liquidity. The Exchange also believes that the proposed credits 
are reasonable because they are within a range of similar credits 
available on other option exchanges.\12\
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    \12\ For example, NOM Options Rules Chapter XV, Options Pricing, 
Section 2, offers a Market Maker credit of $0.40 per contract in 
Penny Pilot options for achieving a combination of Market Maker ADV 
and also qualifying for higher Tiered Customer and/or Professional 
Rebates.
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    The Exchange believes that the proposed Market Maker Incentive is 
equitable and not unfairly discriminatory because it would apply to all 
Market Makers on an equal and non-discriminatory basis. The Exchange 
further believes that the proposed change is equitable and not unfairly 
discriminatory because it is reasonably related to the value to the 
Exchange's market quality associated with higher volumes in Market 
Maker posted orders, including both Penny Pilot issues and non-Penny 
Pilot issues.
    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.
    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,\13\ 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 Exchange believes that the proposed fee 
change reduces the burden on competition because it takes into account 
the value that various market participants add to the marketplace, as 
discussed above.
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    \13\ 15 U.S.C. 78f(b)(8).
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    The increases in Take Liquidity fees will impact all non-Customer 
transactions in Penny Pilot issues at the same rate, and will impact 
all market participants, including Customers, in non-Penny Pilot issues 
with a similar increase across all account types. The proposed changes 
to the Customer Monthly Posting Credit Tiers, and the proposed Customer 
Incentives and the Market Maker incentive are designed to attract 
additional volume, in particular posted electronic Customer executions 
and posted electronic Market Maker executions, to the Exchange, which 
would promote price discovery and transparency in the securities 
markets thereby benefitting competition in the industry. As stated 
above, the Exchange believes that the proposed change would impact all 
similarly situated OTP Holders and OTP Firms that post electronic 
Customer executions on the Exchange equally, and as such, the proposed 
change would not impose a disparate burden on competition either among 
or between classes of market participants. In addition, providing an 
alternative qualification basis for certain tiers by including volume 
from affiliates allows a firm with a diverse business structure, but 
not a concentration on Customer orders only, to earn a higher credit 
for their Customers by posting order flow that improves the overall 
market quality, and encourages posting competitive prices, which result 
in better available markets for Customer orders.
    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive. 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) \14\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \15\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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) \16\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \16\ 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 rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2014-17 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2014-17. 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 20549-1090, 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-

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NYSEArca-2014-17, and should be submitted on or before March 12, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03571 Filed 2-18-14; 8:45 am]
BILLING CODE 8011-01-P