Document ID: SEC-2013-0604-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Stock Exchange, Inc.
Posted Date: 2013-03-28T04:00Z

[Federal Register Volume 78, Number 60 (Thursday, March 28, 2013)]
[Notices]
[Pages 19034-19037]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07182]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69213; File No. SR-NSX-2013-11]

Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Its Fee and Rebate Schedule

March 22, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act '' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on March 13, 2013, National Stock Exchange, 
Inc. (``NSX[supreg]'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change, as described in Items I, II, and III below, which Items have 
been prepared by the Exchange. The Commission is publishing this notice 
to solicit comment 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend its Fee and Rebate Schedule (the 
``Fee Schedule'') issued pursuant to Exchange Rule 16.1(a) to provide 
Equity Trading Permit (``ETP'') \3\ Holders the choice between two 
pricing options which can be applied to their use of the Exchange's 
Order Delivery mode (``Order Delivery Mode'').
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    \3\ Exchange Rule 1.5 defines the term ``ETP'' as an Equity 
Trading Permit issued by the Exchange for effecting approved 
securities transactions on the Exchange's Trading Facilities.
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    The text of the proposed rule change is available on the Exchange's 
Web site at www.nsx.com, at the Exchange's principal office, 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 Exchange included statements 
concerning the purpose of, and basis for,

[[Page 19035]]

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 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 amend its Fee Schedule to provide ETP 
Holders the choice between two pricing options which can be applied to 
their use of the Exchange's Order Delivery Mode. As explained in more 
detail below, the Exchange proposes to allow Order Delivery 
participants (``Order Delivery Participants'') the choice between two 
pricing options, ``A'' and ``B'' under Section II of the Fee Schedule 
for their use of Order Delivery Mode. ``Pricing Option A'' would 
consist of the Exchange's current fee structure for Order Delivery 
Mode, which is comprised of transaction-based rebates, an Order Deliver 
Notification Fee, and a Quotation Update Fee. Under ``Pricing Option 
B,'' Order Delivery Participants would not be subject to either the 
Order Delivery Notification Fee or Quotation Update Fee; however, they 
will not be eligible to receive any transaction-based rebates or market 
data rebates (``MDR'') under Section II of the Fee Schedule. Under both 
pricing options, new Order Delivery Participants would continue to be 
subject to the one-time $5,000 onboarding fee.
    ETP Holders are to elect Pricing Option A or B by sending an email 
indicating their preference to NSXTrading@NSX.com prior to the first 
trading day of the calendar month. New Order Delivery Participants must 
email NSXTrading@NSX.com prior to the end of the first month they 
commence trading.
Pricing Option A
    Currently, under Section II of the Fee Schedule, Order Delivery 
Participants are eligible to receive two rebates for transaction s 
executed in securities priced above $1.00: (i) a $0.0030 per share 
rebate; and (2) a 50% MDR.\4\ ETP Holders using Order Delivery Mode are 
also subject to two fixed fees: (1) an Order Delivery Notification Fee 
of $0.35 per Order Delivery Notification,\5\ which is capped at 1.5 
million Order Delivery Notifications per month; and (2) a Quotation 
Update Fee for each quotation update \6\ transmitted to the Exchange by 
the ETP Holder using Order Delivery Mode. The Quotation Update Fee is: 
(1) $0.000467 per quotation update for existing Order Delivery 
Participants; and (ii) $0.000667 per quotation update for new Order 
Delivery Participants during the first three (3) months of 
participation. The Quotation Update Fee is capped to the first 150 
million quotation updates entered by each Order Delivery Participant 
per month. Order Delivery Participants that select Pricing Option A 
would continue to receive the $0.0030 per share rebate and a 50% MDR 
for transactions executed in securities priced at $1.00 or above and be 
charged both the Order Delivery Notification Fee and Quotation Update 
Fee. Revenue obtained from the Quotation Update Fee will continue to be 
earmarked to support the regulatory oversight of Order Delivery Mode.
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    \4\ The Exchange does not provide ETP Holders with a rebate for 
transactions executed using Order Delivery Mode for securities 
quoted at prices less than $1.00. See Securities Exchange Act 
Release No. 68391 (December 10, 2012), 77 FR 74536 (December 14, 
2012) (SR-NSX-2012-25).
    \5\ An Order Delivery Notification refers to a message sent by 
the Exchange to the Order Delivery participant communicating the 
details of the full or partial quantity of an inbound contra-side 
order that potentially may be matched within the System for 
execution against an Order Delivery Order.
    \6\ A ``quotation update'' includes any change to the price, 
size or side of a quotation or submission of an updated quote with 
the same price, size or side. A quotation update does not include 
posting of a new quote to replace a quote that was fully executed.
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    Lastly, under Pricing Option A, the Exchange proposes to include 
the word ``Transaction'' in the title of the rebate to clearly 
distinguish the transaction-based rebate from the MDR rebate.
Pricing Option B
    Under proposed Pricing Option B, Order Delivery Participants would 
not be subject to either the Order Delivery Notification Fee or 
Quotation Update Fee; however, they will also not be eligible to 
receive the $0.0030 per share rebate and a 50% MDR for all transactions 
executed by Order Delivery Participants in securities priced at $1.00 
or above. Not providing transaction-based and MDR rebates is designed 
to allow the Exchange to recoup the expense of supporting the 
regulatory oversight of Order Delivery Mode as well as the development 
and ongoing operational costs that are otherwise covered by the Order 
Delivery Notification Fee and Quotation Update Fee.
Rationale and Background
    The Exchange's Order Delivery Mode provides Electronic 
Communication Networks (``ECNs'') with an electronic trading platform 
to interact with the National Market System. Order Delivery Mode 
provides ECNs with the ability to (i) publish quotations into the 
consolidated quotation system, (ii) receive ``protected quotation'' 
status under Rule 611 of Regulation NMS,\7\ (iii) receive an Order 
Delivery Notification when there is a potential match against a 
published quotation, and (iv) distribute attributed quotations through 
the Exchange's Depth-of-Book market data product.\8\
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    \7\ 17 CFR 611.
    \8\ ECNs can also use Order Delivery Mode to fulfill certain 
regulatory obligations such as qualifying as an ECN Display 
Alternative (17 CFR 242.602(b)(5)(i)) or publishing quotations in 
the consolidated quotation system when the five (5) percent order 
display requirement is triggered (17 CFR 242.301(b)(3)(B)).
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    The Exchange amended its Fee Schedule on November 2, 2012 to adopt 
the Quotation Update Fee \9\ and on December 3, 2012 to adopt the Order 
Delivery Notification Fee for Order Delivery Participants.\10\ When 
adopting the Order Delivery Notification Fee, the Exchange also 
increased the rebate to its current level at $0.0030 per share for 
securities quoted at a price of $1.00 or greater, and provided Order 
Delivery Participants with 50% of the attributable MDR received by the 
Exchange as a means to increase the liquidity posted to the Exchange.
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    \9\ See Securities Exchange Act Release No. 68215 (November 13, 
2012), 77 FR 69522 (November 19, 2012) (SR-NSX-2012-20) (adopting 
the Quotation Update Fee). See also Securities Exchange Act Release 
No. 68392 (December 10, 2012), 77 FR 74533 (December 14, 2012) (SR-
NSX-2012-24) (amending the Quotation Update Fee).
    \10\ See Securities Exchange Act Release No. 68391 (December 10, 
2012), 77 FR 74536 (December 14, 2012) (SR-NSX-2012-25) (adopting 
the Order Delivery Notification Fee); see also Securities Exchange 
Act Release No. 68612 (January 9, 2013), 78 FR 3058 (January 15, 
2013) (SR-NSX-2012-27) (amending the Order Delivery Notification 
Fee).
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    The Order Delivery Notification is designed to recover Order 
Delivery Mode's development and ongoing operational costs, while all 
revenue raised through the Quotation Update Fee is earmarked to support 
its regulatory oversight. At the time it adopted these fees, the 
Exchange experienced a disproportionate trade-to-quote ratio in Order 
Delivery Mode which resulted from ECNs successfully leveraging the 
Exchange's infrastructure to develop their businesses away from the 
Exchange, even as the majority of the Exchange's operational costs were 
fixed. Consequently, the Exchange believed that relying on transaction-

[[Page 19036]]

based revenues to support Order Delivery Mode was not feasible and 
moved to the current pricing structure as a means to charge for the 
actual services provided by Order Delivery Mode.
    The Exchange has continued to reassess its Fee Schedule for Order 
Delivery Mode and considered adjusting its fees and rebates to remain 
competitive with other exchanges. Also, since the adoption of the Order 
Delivery Notification Fee and Quotation Update Fee, certain Order 
Delivery Participants have altered their activity in Order Delivery 
Mode in order to minimize the amount of fees paid to the Exchange. 
Therefore, the Exchange proposes to allow Order Delivery Participants 
the choice between two pricing options, ``A'' and ``B'' under Section 
II of the Fee Schedule for their use of Order Delivery Mode.
    The Exchange believes the availability of Pricing Option B would 
allow Order Delivery Participants with lower trading volumes and lower 
rebate or fee driven models to increase their activity on the Exchange. 
By not providing transaction-based and MDR rebates, the Exchange 
believes it will recoup the expense of supporting its regulatory 
programs and operation. Specifically, under Section I of the Fee 
Schedule, the Exchange currently charges ETP Holders that enter orders 
via the Exchange's automatic execution mode of interaction (``Auto-Ex 
Mode'') \11\ a per share fee for orders that remove liquidity. The 
Exchange, in turn, shares that fee in the form of a rebate with the ETP 
Holder that posted the contra-side order to the NSX Book (including 
those that execute against an order posted via Order Delivery Mode). 
Where an Order Delivery Participant elected Pricing Option B, the 
Exchange will retain the entire fee it collected under Section I of the 
Fee Schedule and not rebate a portion of it to the Order Delivery 
Participant. The Exchange will also retain all the attributable MDR 
received on that transaction. The Exchange believes the retention of 
these fees and MDR will continue to allow it to recoup the cost of 
regulating, operating and maintaining Order Delivery Mode.
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    \11\ Under Auto-Ex Mode, the Exchange matches and executes like-
priced orders (including against Order Delivery orders resting on 
the NSX book). Auto-Ex orders resting in the NSX book execute 
immediately when matched against a marketable incoming contra-side 
Auto-Ex order.
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    The Exchange anticipates the availability of Pricing Option B will 
encourage ETP Holders considering whether to offer a ``lit'' ECN to 
participate in Order Delivery Mode while encouraging existing Order 
Delivery Participants to increase their execution rates on the Exchange 
by not being subject to the Order Delivery Notification Fee and 
Quotation Update Fee. The Exchange will continue to earmark the fees 
and MDR it collects from executions against orders posted via Order 
Delivery Mode to support the regulatory oversight of Order Delivery 
Mode.
    The Exchange anticipates that Order Delivery Participants with 
higher trading volumes or rebate driven business models would continue 
to operate under the current pricing structure, which is available 
under Pricing Option A, because they are able to exceed the cap limits 
of both the Order Delivery Notification and Quotation Update Fee. 
Revenue obtained from the Quotation Update Fee will also continue to be 
earmarked to support the regulatory oversight of Order Delivery Mode.
Operative Date and Notice
    The Exchange will make the proposed modifications, which are 
effective on filing of this proposed rule, operative as of commencement 
of trading on March 15, 2013. Pursuant to Exchange Rule 16.1(c), the 
Exchange will ``provide ETP Holders with notice of all relevant dues, 
fees, assessments and charges of the Exchange'' through the issuance of 
an Information Circular of the changes to the Fee Schedule and will 
post a copy of the rule filing on the Exchange's Web site 
(www.nsx.com).
2. Statutory Basis
    The Exchange believes that the amended Order Delivery Notification 
Fee for Order Delivery participants is consistent with the provisions 
of Section 6(b) of the Securities Exchange Act of 1934 (the 
``Act''),\12\ in general, and furthers the objectives of Section 
6(b)(4) of the Act,\13\ in particular, because it provides for the 
equitable allocation of reasonable dues, fees and other charges among 
its ETP Holders and other persons using the facilities of the Exchange.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes providing Order Delivery Participants the 
choice between two pricing options is reasonable and will allow Order 
Delivery Participants to select a pricing structure that is appropriate 
to its business model. For example, the Exchange believes Pricing 
Option B will encourage ETP Holders, considering whether to offer a 
``lit'' ECN, to participate in Order Delivery Mode while also 
encouraging existing Order Delivery Participants to increase their 
execution rates on the Exchange by not being subject to the Order 
Delivery Notification and Quotation Update Fees. The Exchange will 
continue to earmark the fees and MDR it collects from transactions 
against orders posted via Order Delivery Mode to support the regulatory 
oversight of Order Delivery Mode as well as its development and ongoing 
operational expenses. The Exchange also anticipates that Order Delivery 
Participants with higher trading volumes or high rebate business models 
would continue to operate under the current pricing structure, which is 
available under Pricing Option A, because they are able to exceed the 
cap for both the Order Delivery Notification and Quotation Update Fee 
or due to their rebate sensitive business model. Once they exceed these 
caps, these Order Delivery Participants will share in the transaction 
and MDR rebates without being subject to the Order Delivery 
Notification and Quotation Update Fees. Furthermore, the Exchange 
believes providing the choice between two pricing options is not 
unfairly discriminatory because it will allow Order Delivery 
Participants to select a pricing structure that is appropriate to its 
business model.
    Finally, 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 rebates to remain 
competitive with other exchanges. For the reasons described above, the 
Exchange believes that the proposed rule change reflects this 
competitive environment.

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 Exchange believes 
providing Order Delivery Participants the choice between two pricing 
options is reasonable because it will allow Order Delivery Participants 
to select a pricing structure that is appropriate to its business 
model. The Exchange anticipates the availability of Pricing Option B 
will enhance competition by encouraging ETP Holders who are considering 
whether to offer a ``lit'' ECN to participate in Order Delivery Mode 
while encouraging existing Order Delivery Participants to increase 
their execution rates on the Exchange by not being subject to the Order 
Delivery and

[[Page 19037]]

Quotation Update fees. Therefore, the Exchange does not believe the 
modified Order Delivery Notification Fee imposes any burden on 
completion that is not necessary or appropriate in furtherance of the 
Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change has taken effect upon filing pursuant to 
Section 19(b)(3)(A)(ii) of the Exchange Act \14\ and subparagraph 
(f)(2) of Rule 19b-4.\15\ 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.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4.
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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-NSX-2013-11 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-NSX-2013-11. 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 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 offices 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-NSX-2013-11, and should be submitted on or before April 
18, 2013.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-07182 Filed 3-27-13; 8:45 am]
BILLING CODE 8011-01-P