Document ID: SEC-2008-1110-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2008-08-11T04:00Z

[Federal Register: August 11, 2008 (Volume 73, Number 155)]
[Notices]               
[Page 46681-46683]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11au08-124]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58295; File No. SR-NYSEArca-2008-75]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Its 
Schedule of Fees and Charges for Exchange Services In Order To Revise 
Certain Transaction Fees

August 4, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 14, 2008, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 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 Exchange. The Exchange filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal effective 
upon filing with the Commission. 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\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE Arca proposes to amend its Schedule of Fees and Charges for 
Exchange Services (``Schedule'') in order to revise certain Transaction 
Fees. The text of the proposed rule change is available at NYSE Arca, 
the Commission's Public Reference Room, and http://www.nyse.com.

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 Exchange 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 these 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 aspects 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 amend the existing Schedule in 
order to (i) make changes to Transaction Fees assessed on certain 
executions in issues that trade as part of the Penny Pilot,\5\ and (ii) 
eliminate the Market Maker Post Liquidity Incentive Credit. A 
description of the proposed change follows.
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    \5\ The Exchange may trade option contracts in one cent 
increments in certain approved issues as part of the Penny Pilot, 
through March 27, 2009. See Securities Exchange Act Release No. 
56568 (September 27, 2007), 72 FR 56422 (October 3, 2007) (Order 
approving SR-NYSEArca-2007-88).
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Post/Take Pricing

    NYSE Arca offers market participants a Post/Take pricing model for 
electronically executed transactions in issues that are included in the 
Penny Pilot. Under the present rate schedule, all electronic orders 
that ``take'' liquidity from the Consolidated Book (incoming electronic 
quotes and orders that are executed upon receipt) are charged a fee of 
$0.45 per contract. NYSE Arca now proposes to revise the Post/Take 
pricing it applies to transactions in selected Penny Pilot issues that 
the Exchange has designated as ``Tier 1'' issues. Specifically the 
Exchange will: (a) Raise the Take Liquidity fee, in certain highly 
active issues, from $0.45 to $0.55 per contract for all market 
participants; (b) raise the Post Liquidity credit, in certain highly 
active issues, from $0.30 to $.40 for Lead Market Makers and NYSE Arca 
Market Makers; and (c) raise the Post Liquidity credit, in certain 
highly active issues, from $0.25 to $0.35 for both electronic broker-
dealer and electronic customer transactions.
    The new fee will initially apply to transactions in the following 
ten (10) option issues that the Exchange has designated as Tier 1 Penny 
Pilot issues.

AAPL Apple Inc
CSCO Cisco Systems, Inc.
DIA Diamonds Trust
MSFT Microsoft Corporation
IWM iShares Russell 2000 Index
QQQQ PowerShares QQQ Trust
RIMM Research in Motion

[[Page 46682]]

XLF Financial Select Sector SPDR
SPY S&P 500 Depository Receipts
YHOO Yahoo! Inc.

    The Exchange may periodically review the list of securities 
included in the Penny Pilot and will make a determination as to the 
appropriateness of the Tier 1 designation for certain issues. NYSE Arca 
notes that the primary criteria for designating a Tier 1 is overall 
cleared national options volume, however, the Exchange notes that this 
list is not necessarily limited to, or inclusive of, the most active 
issues. The Exchange may take into consideration other factors, 
including but not limited to, transactions and options volume at NYSE 
Arca for a given issue (both electronic and manual), the implied 
volatility of the underlying issue and the per-share price of the 
underlying issue. Any future changes to the list of Tier 1 issues would 
only be effective pursuant to a subsequent Rule 19b-4 filing with the 
Commission.
Market Maker Post Liquidity Incentive Credit
    The Exchange offers Market Makers, who reach a certain level of 
trade activity in Penny Pilot issues, a reduced transaction rate by 
offering a fee credit on contracts executed over and above certain 
volume thresholds. The Exchange established the fee credit as a way to 
incentivize Market Making firms to transact a larger share of their 
overall options business on NYSE Arca.
    Since its inception, the fee credit has failed to meet the expected 
results that the Exchange was looking for. Therefore, NYSE Arca now 
proposes to eliminate the Market Maker Post Liquidity Incentive Credit.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) of the Act,\6\ in general, and 
Section 6(b)(4) of the Act,\7\ in particular, in that it is designed to 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its members and other persons using its facilities.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
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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.

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 proposed rule change is effective upon filing 
pursuant to Section 19(b)(3)(A)(ii) of the Act \8\ and Rule 19b-4(f)(2) 
thereunder,\9\ because it establishes or changes a due, fee, or other 
charge applicable only to a member imposed by the Exchange. At any time 
within 60 days of the filing of the proposed rule change, the 
Commission may summarily abrogate 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.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \9\ 17 CFR 240.19b-4(f)(2).
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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. In addition, the Commission seeks 
comment on the following:
    1. The Commission requests comment generally on the impact, if any, 
of the increased Take Liquidity fee on the ability of members and other 
market participants to obtain fair and efficient access to NYSE Arca 
quotations in the Tier 1 classes.
    2. Broker-dealers have a duty of best execution when executing 
customer orders.\10\ In addition, the options exchanges are required 
under the Plan for the Purpose of Creating and Operating an Intermarket 
Option Linkage (``Linkage Plan'') to have in place rules that require 
their members to avoid trade-throughs.\11\ The Commission requests 
comment on the impact of exchange fees on the ability of members to 
satisfy these regulatory obligations. More specifically, the Commission 
requests comment on the impact of NYSE Arca's increase to the Take 
Liquidity fee, if any, on the ability of broker-dealers and other 
market participants to fulfill these responsibilities.
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    \10\ See, e.g., Newton v. Merrill, Lynch, Pierce, Fenner & 
Smith, Inc., 135 F.3d 266, 269-70, 274 (3d Cir.), cert. denied, 525 
U.S. 811 (1998); Certain Market Making Activities on Nasdaq, 
Securities Exchange Act Release No. 40900 (Jan. 11, 1999) (settled 
case) (citing Sinclair v. SEC, 444 F.2d 399 (2d Cir. 1971); Arleen 
Hughes, 27 SEC 629, 636 (1948), aff'd sub nom. Hughes v. SEC, 174 
F.2d 969 (D.C. Cir. 1949)). See also Order Execution Obligations, 
Securities Exchange Act Release No. 37619A (Sept. 6, 1996), 61 FR 
48290 (Sept. 12, 1996) (``Order Handling Rules Release'').
    \11\ Linkage Plan Section 8(c) and NYSE Arca Rule 6.94.
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    3. The Commission notes that, in addition to direct or indirect 
access to NYSE Arca systems by or through its members, market 
participants are able to access NYSE Arca quotations through the 
Intermarket Option Linkage (``Linkage'').\12\ The Commission requests 
comment on whether market participants currently are able to access 
NYSE Arca quotations in a reasonable and efficient manner through the 
Linkage. Would this analysis change if the fees charged for orders 
electronically executed through the Linkage (``Linkage Fees'') were 
increased? \13\
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    \12\ Linkage is governed by the Options Linkage Authority under 
the conditions set forth under the Linkage Plan. The registered U.S. 
options markets are linked together on a real-time basis through a 
network capable of transporting orders and messages to and from each 
market.
    \13\ See infra note 14.
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    4. As noted above, this proposal increases the Take Liquidity fee 
charged to members of NYSE Arca for the Tier 1 classes. The Exchange 
also has filed a companion proposed rule change to increase the Linkage 
Fee in Tier 1 classes to $0.55.\14\ That proposal will not be effective 
unless approved by the Commission. Thus, the Linkage Fee currently 
remains at $0.45. The Commission requests comment on whether the 
analysis as to the impact of the increased Take Liquidity fee for 
members on the ability of broker-dealers and other market participants 
to satisfy their regulatory obligations would change if the Linkage Fee 
for executing orders in the Tier 1 classes also increased.
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    \14\ See SR-NYSEArca-2008-76 (submitted July 14, 2008).
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    5. The Commission requests comment on the impact, if any, of the 
increased Take Liquidity fee on the usefulness and accuracy of 
displayed quotations in the Tier 1 classes. Do high fees for accessing 
quotations, as well as wide disparity in the level of fees for 
accessing quotations, detract from the usefulness and accuracy of the 
prices of the displayed quotations?
    6. The Commission requests comment on whether there should be a 
limit on the maximum fee that NYSE Arca, or any other options exchange, 
can charge for access to is quotations.\15\
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    \15\ The Commission notes that Citadel has filed a Petition for 
Rulemaking to Address Excessive Access Fees in the Options Markets 
addressing this issue. See Letter from John C. Nagel, Managing 
Director & Deputy General Counsel, Citadel, to Nancy M. Morris, 
Secretary, Commission, dated July 15, 2008 (``Petition'').

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[[Page 46683]]

    7. The Commission further requests comment on whether, if a 
commenter believes that a fee cap should be imposed, such fee cap 
should apply only to transactions effected by non-members through 
Linkage, or whether a fee cap should apply to member access as well. 
Would capping the maximum transaction fee that options exchanges charge 
non-members prevent or mitigate the negative consequences of 
unreasonably high access fees for members?
    8. If a commenter believes that a fee cap should be imposed, the 
Commission specifically requests comment as to what level would be 
appropriate. For example, the Petition proposes an access fee limit of 
20%, or $0.20 per contract ($0.002 per underlying share). Are there 
other fee cap structures that would be more appropriate for the options 
markets then the percentage of the minimum quoting increment model?
    9. Further, the Commission requests comment as to whether such a 
fee cap should apply only to the best bid and offer of each exchange, 
or also to access to ``depth of book'' quotations.
    10. The Commission requests comment as to whether the use of 
``maker-taker'' pricing by options exchanges has led, or is likely to 
lead, to an increase in locked and crossed markets.
    11. The Commission requests comment as to the impact, if any, on 
the use of the ``maker-taker'' pricing model on the quoted spread 
widths and sizes of registered options market makers in the classes 
subject to such pricing model. If a commenter believes that the 
``maker-taker'' model has had an impact on the quality of quoted 
prices, the Commission requests comment as to whether there is 
sufficient liquidity in the classes subject to the model from market 
participants other than registered market makers. Would the analysis 
change if a similar pricing model were proposed for all options?
    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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2008-75 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-2008-75. This 
file number should be included on the subject line if e-mail 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 inspection 
and copying in the Commission's Public Reference Room, on official 
business days between the hours of 10 a.m. and 3 p.m. Copies of such 
filing will also 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 No. SR-NYSEArca-2008-75 and should be submitted on or before 
September 2, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-18386 Filed 8-8-08; 8:45 am]

BILLING CODE 8010-01-P