Document ID: SEC-2015-0220-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2015-02-05T05:00Z

[Federal Register Volume 80, Number 24 (Thursday, February 5, 2015)]
[Notices]
[Pages 6563-6565]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-02252]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74180; File No. SR-NYSEMKT-2015-07]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending the NYSE Amex 
Options Fee Schedule To Make a Change to the Amex Customer Engagement 
Program in Section I.E. of the Fee Schedule

January 30, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 28, 2015, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') 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 Exchange. 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.
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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 Amex Options Fee Schedule 
(``Fee Schedule'') to make a change to the Amex Customer Engagement 
(``ACE'') Program in section I.E. of the Fee Schedule. The Exchange 
proposes to implement the change on February 2, 2015. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to make a change to the ACE Program in 
section I.E. of the Fee Schedule. The Exchange proposes to implement 
the change on February 2, 2015.
    Section I.E. of the Fee Schedule describes the ACE Program,\3\ 
which features four tiers expressed as a percentage of total industry 
Customer equity and ETF option average daily volume (``ADV'').\4\ 
Specifically, the ACE Program consists of a four-tiered schedule of per 
contract credits payable to an Order Flow Provider (``OFP'') solely for 
Electronic Customer volume that the OFP, as agent, submits to the 
Exchange.\5\ The ACE Program offers the following two methods for OFPs 
to receive credits:
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    \3\ See NYSE Amex Options Fee Schedule, dated January 14, 2015, 
available here, https://www.theice.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf.
    \4\ In calculating ADV, the Exchange will utilize monthly 
reports published by the OCC for equity options and ETF options that 
show cleared volume by account type. See OCC Monthly Statistics 
Reports, available here, http://www.theocc.com/webapps/monthly-volume-reports (including for equity options and ETF options volume, 
subtotaled by exchange, along with OCC total industry volume). The 
Exchange will calculate the total OCC volume for equity and ETF 
options that cleared in the Customer account type and divide this 
total by the number of trading days for that month (i.e., any day 
the Exchange is open for business). For example, in a month having 
21 trading days where there were 252,000,000 equity option and ETF 
option contracts that cleared in the Customer account type, the 
calculated ADV would be 12,000,000 (252,000,000/21 = 12,000,000).
    \5\ Electronic Customer volume is volume executed electronically 
through the Exchange System, on behalf of an individual or 
organization that is not a Broker-Dealer and who does not meet the 
definition of a Professional Customer.
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    1. By calculating, on a monthly basis, the average daily Customer 
contract volume an OFP executes Electronically on the Exchange as a 
percentage of total industry Customer equity and ETF options ADV; \6\ 
or
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    \6\ See supra n. 4.
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    2. By calculating, on a monthly basis, the average daily contract 
volume an OFP executes Electronically in all participant types (i.e., 
Customer, Firm, Broker-Dealer, NYSE Amex Options Market Maker, Non-NYSE 
Amex Options Market Maker, and Professional Customer) on the Exchange, 
as a percentage of total industry Customer equity and ETF options 
ADV,\7\ of which at least 20% must be Customer volume executed 
Electronically.
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    \7\ Id.
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    The Exchange has received questions regarding qualification for 
credits under

[[Page 6564]]

method 2 of the ACE Program and proposes changes to the level of 
Customer volume required to qualify for credits under method 2. 
Specifically, the Exchange proposes to revise method 2 by replacing the 
clause ``of which at least 20% must be Customer volume executed 
Electronically'' with the clause ``with the further requirement that a 
specified percentage of the minimum volume required to qualify for the 
Tier must be Customer volume.'' \8\ In addition, proposed language 
changes are shown in the table below, with underlining used to denote 
new language.
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    \8\ As proposed, an OFP qualifies for credits under method 2 
``[b]y calculating, on a monthly basis, the average daily contract 
volume an OFP executes Electronically in all participant types 
(i.e., Customer, Firm, Broker-Dealer, NYSE Amex Options Market 
Maker, Non-NYSE Amex Options Market Maker, and Professional 
Customer) on the Exchange, as a percentage of total average daily 
industry Customer equity and ETF option volume, with the further 
requirement that a specified percentage of the minimum volume 
required to qualify for the Tier must be Customer volume.''

                                                   Amex Customer Engagement Program--Standard Options
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                                                       ACE program--Standard options                       Credits payable on customer volume only
                                        ----------------------------------------------------------------------------------------------------------------
                                                                          Total electronic ADV (of
                                                                          which 20% or greater of
                  Tier                    Customer electronic ADV          the minimum volume for                      1 year enhanced   3 year enhanced
                                             as a % of industry      OR      each tier must be       Customer volume   customer volume   customer volume
                                          customer equity and ETF           customer) as a % of          credits           credits           credits
                                                options ADV               industry customer equity
                                                                            and ETF options ADV
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1......................................  0.00% to 0.75%...........  ...  N/A......................           $0.00             $0.00             $0.00
2......................................  >0.75% to 1.00%..........  ...  N/A......................          ($0.13)           ($0.13)           ($0.13)
3......................................  >1.00% to 2.00%..........  ...  1.50% to 3.50% of which            ($0.14)           ($0.16)           ($0.18)
                                                                          20% or greater of 1.50%
                                                                          must be Customer.
4......................................  >2.00%...................  ...  >3.50% of which 20% or             ($0.14)           ($0.16)           ($0.20)
                                                                          greater of 3.5% must be
                                                                          Customer.
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    The Exchange's current Fee Schedule requires, under method 2 for 
qualifying for the credits under the ACE Program, that at least 20% of 
an OFP's Electronic volume \9\ be comprised of Customer volume. 
However, because method 2 does not fix the 20% Customer volume 
requirement at a specified, minimum level, the more volume that an OFP 
executes, the more Customer volume required to qualify for credits 
under method 2. This condition to receiving ACE Program credits under 
method 2 could create the unintended incentive for an OFP that has a 
proportional reduction in its Customer volume (i.e., if its overall 
volume of Non-Customer increases, but its Customer volume does not) to 
reduce its trading of Non-Customer Electronic volume on the Exchange in 
order to satisfy the 20% Customer volume condition and receive the 
credits available under method 2.
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    \9\ The Fee Schedule describes how the Exchange calculates an 
OFP's Electronic volume for purposes of the ACE Program. See Section 
I.E of the Fee Schedule. In particular, ``the Exchange will exclude 
volume resulting from Mini Options and QCC trades;'' and will 
likewise exclude ``any volume attributable to orders routed to 
another exchange in connection with the Options Order Protection and 
Locked/Crossed Market Plan referenced in Rule 991NY.'' The Exchange 
will include in its calculation of an OFP's Electronic volume for 
purposes of the ACE Program, ``[v]olume resulting from CUBE Auction 
executions'' and ``will include the activity of Affiliates [i.e., 
entities with 70% common ownership] of the OFP, such as when an OFP 
has an Affiliated NYSE Amex Options Market Making firm.'' Id. The 
Exchange notes that any day the Exchange is open, regardless of 
length, will count as a full day when calculating ADV.
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    To avoid the potential that the 20% Customer volume requirement 
could induce OFPs to reduce their activity on the Exchange to avoid 
disqualifying themselves for potential credits under method 2 of the 
ACE Program, the Exchange proposes to modify method 2 to specify that 
the Customer volume component for each Tier is 20% of the minimum 
volume for that Tier. Specifically, as proposed, to qualify for credits 
under Tier 3, an OFP's Customer volume would have to be at least 20% of 
volume required to satisfy the 1.50% of total average daily industry 
Customer equity and ETF option volume that an OFP must execute 
Electronically on the Exchange.\10\ Similarly, as proposed, to qualify 
for Tier 4, an OFP's Customer volume would have to be 20% of volume 
required to satisfy the 3.50% of total average daily industry Customer 
equity and ETF option volume that an OFP must execute Electronically on 
the Exchange.\11\
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    \10\ An OFP's Customer volume would need to be 0.3% (i.e., 1.50% 
x 20%) of the total average daily industry Customer equity and ETF 
option volume.
    \11\ An OFP's Customer volume would need to be 0.7% (i.e., 3.50% 
x 20%) of the total average daily industry Customer equity and ETF 
option volume.
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    For example, as noted above,\12\ in a month having 21 trading days 
where the OCC reported 252,000,000 equity and ETF option contracts 
clearing in the Customer range, the calculated ADV is 12,000,000 
(252,000,000/21 = 12,000,000). The ACE Program tiers are based on the 
ADV an OFP executes Electronically on the Exchange. Under method 2, the 
ADV associated with Tier 3 credits ranges from 1.5% to 3.5% of industry 
Customer equity option and ETF option ADV (1.5% of 12,000,000 = 180,000 
and 3.5% of 12,000,000 = 420,000). Under the current Fee Schedule, to 
qualify for the Tier 3 credits, an OFP with total Electronic ADV of 
180,000 contracts would be required to have at least 20% of that 
volume, or 36,000 contracts (20% of 180,000 = 36,000) conducted as 
Customer. However, an OFP that has total electronic ADV of 420,000 
contracts would be required to have at least 84,000 contracts (20% of 
420,000 = 84,000) as Customer volume to qualify for Tier 3 credits.
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    \12\ See supra n. 4.
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    As proposed, to qualify for Tier 3 credits, both OFPs in the above 
example would be required to have 36,000 contracts as Customer volume. 
In other words, Tier 3 credits would be available to any OFP with total 
Electronic ADV of between 1.50% and 3.50% of Industry Customer Equity 
and ETF Options ADV, provided that the OFP conducted at least 0.3% of 
industry Customer equity and ETF option ADV as Customer volume (1.50% 
of 12,000,000 = 180,000 and 20% of 180,000 = 36,000, which is the same 
as 0.3% of 12,000,000 = 36,000). Continuing the example, under the 
proposed change, an OFP with total electronic ADV greater than 3.5% of 
industry Customer equity option and

[[Page 6565]]

ETF option ADV would qualify for the Tier 4 credits provided the OFP 
also had Customer ADV of at least 0.7% of Industry Customer equity and 
ETF option ADV (3.50% of 12,000,000 = 420,000 and 20% of 420,000 = 
84,000, which is the same as 0.7% of 12,000,000 = 84,000).
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the 
``Act''),\13\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\14\ in particular, because it would 
provide 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4) and 78f(b)(5).
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    The Exchange believes that specifying a minimum volume amount to 
meet the 20% Customer volume component for each Tier under method 2 of 
the ACE Program is reasonable, equitable and not unfairly 
discriminatory because it is designed to reduce the potential that OFPs 
divert Non-Customer order flow away from the Exchange, which may 
increase volume and liquidity on the Exchange to the benefit of all 
market participants by providing tighter quoting and better prices, all 
of which perfects the mechanism for a free and open market and national 
market system. The Exchange believes that the proposal is not unfairly 
discriminatory as it applies equally to all OFPs, enabling each OFP to 
qualify under method 2 of the ACE Program upon achieving a set minimum 
threshold for Customer volume based on ADV. The Exchange also believes 
that the proposal is reasonable, equitable and not unfairly 
discriminatory because specifying a minimum volume amount to meet the 
20% Customer volume component for each Tier under method 2 of the ACE 
Program would add clarity to the Fee Schedule and aid in market 
participants' comprehension as to how to qualify for the credits under 
the ACE Program.

B. Self-Regulatory Organization's Statement on Burden on Competition

    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 ACE Program will continue to encourage Customer order flow to be 
directed to the Exchange. By incentivizing OFPs to route Customer 
orders, the Exchange desires to attract liquidity to the Exchange, 
which in turn benefits all market participants.
    Given the robust competition for volume among options markets, many 
of which offer the same products, implementing programs to attract 
order flow similar to the one being proposed in this filing, are 
consistent with the above-mentioned goals of the Act. 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) \15\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \16\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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) \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 rule-comments@sec.gov. Please include 
File Number SR-NYSEMKT-2015-07 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-NYSEMKT-2015-07. 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 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-NYSEMKT-2015-
07, and should be submitted on or before February 26, 2015.

    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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-02252 Filed 2-4-15; 8:45 am]
BILLING CODE 8011-01-P