Document ID: SEC-2006-1073-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NYSE Arca, Inc.
Posted Date: 2006-08-21T04:00Z

[Federal Register: August 21, 2006 (Volume 71, Number 161)]
[Notices]               
[Page 48571-48573]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21au06-85]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54309; File No. SR-NYSEArca-2006-25]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to the 
NYSE Arca Schedule of Fees and Charges for Exchange Services

August 11, 2006.
    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 August 1, 2006, 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. NYSE Arca filed the proposed 
rule change pursuant to Section 19(b)(3)(A)(ii) 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)(ii).
    \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

    The Exchange is proposing to amend its Schedule of Fees and Charges 
for Exchange Services (``Schedule'') in order make changes to 
transaction charges, dues, and fees. The Exchange also proposes the 
elimination of certain obsolete fees and the implementation of certain 
new fees. The changes to the Schedule pursuant to this proposal became 
effective on August 1, 2006. The text of the proposed rule change is 
available on NYSE Arca's Web site at http://www.nysearca.com, at the 

principal office of NYSE Arca, and at the Commission's Public Reference 
Room.\5\
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    \5\ The Exchange effected certain technical changes to the 
proposed Schedule via telephone. Conversation between Janet 
Angstadt, Acting General Counsel, NYSE Arca and Tim Fox, Special 
Counsel, Commission, on August 9, 2006.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NYSE Arca 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. NYSE Arca 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
    As part of its ongoing effort to improve competitiveness through 
technology and new rules, NYSE Arca is proposing changes to its 
Schedule in conjunction with the implementation of its new OX trading 
platform.\6\ The new rate Schedule will eliminate all application fees, 
enhance Option Trading Permit (``OTP'') fees and cut transaction 
charges. A new per issue fee conveying Lead Market Maker (``LMM'') 
rights will also be implemented that assesses monthly fees based on the 
average daily trading volume of an LMM's allocations. Under the 
proposal, the Cancellation fee will be phased out, as it will only 
apply to issues trading on PCX Plus. The 5% invoice surcharge that the 
Exchange presently assesses will be terminated. NYSE Arca also proposes 
to update any reference to the name of the Exchange contained in the 
Schedule to reflect its recent name change.\7\ In order to offer a more 
user-friendly format, the Schedule has also been reformatted with all 
footnotes being replaced, as needed, with endnotes contained in an easy 
to read summary at the end of the Schedule. What follows details the 
exact nature of the changes in the Schedule.
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    \6\ OX, the Exchange's new electronic trading platform for 
options will be replacing PCX Plus, the Exchange's existing 
electronic trading system. OX is being introduced as a part of a 
phased-in rollout in August 2006. See Securities Exchange Act 
Release No. 54238 (July 28, 2006), 71 FR 44758 (August 7, 2006) (SR-
NYSEArca-2006-13).
    \7\ The Exchange recently amended its rules to reflect these 
name changes: from Pacific Exchange, Inc. to NYSE Arca, Inc.; from 
PCX Equities, Inc. to NYSE Arca Equities, Inc.; from PCX Holdings, 
Inc., to NYSE Arca Holdings, Inc.; and from the Archipelago 
Exchange, L.L.C. to NYSE Arca, L.L.C. See Securities and Exchange 
Act Release No. 53615 (April 7, 2006), 71 FR 19226 (April 13, 2006) 
(SR-PCX-2006-24).
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Application Fees
    All application fees will be eliminated. These include the 
Application fee, Reapplication fee, OTP Activation fees and the Joint 
Account Application fee. The OTP Intra Firm Transfer fees are also 
being eliminated.
OTP Fees
    OTP Trading Participant Rights will replace the existing OTP Fee of 
$750 per month, which has been applicable to Floor Brokers, Market 
Makers and off floor firms. OTP Trading Participation Rights for Floor 
Brokers and Office Firms will now be $1,000 per month per OTP. Under 
the proposal, neither group will pay for an access fee. The existing 
Access fee of $130 will only be assessed on registered floor personnel 
that do not pay an OTP fee. The $5,000 per month fee cap on Access fees 
will be eliminated. The existing $500 per month Floor Broker fee will 
no longer apply.
    OTP Trading Participant Rights for NYSE Arca Market Makers will be 
$4,000 fee per OTP. Participation Rights for NYSE Arca Market Makers 
will be subject to a monthly cap of $16,000 per Market Maker. Under the 
proposed changes, Market Makers will no longer pay the existing $1,500 
Market Maker fee or the $130 Access fee. Although the direct expense 
associated with a single OTP will increase, the Exchange believes that 
restructuring of fixed fees relative to transaction fees will encourage 
trading on the Exchange by market makers. In addition, the maximum cost 
for a market making firm to stream quotes and transact business in all 
issues on the Exchange has been significantly reduced, from $33,280 per 
month to $16,000 per month.
Lead Market Maker Rights
    OTP Firms acting as LMMs will be assessed a fee for LMM Rights on a 
per issue basis in addition to the OTP Trade Participant Rights. The 
LMM Rights, assessed on every issue that an LMM

[[Page 48572]]

has been allocated, will be based on the average daily volume (``ADV'') 
of customer contracts traded in that issue. The ADV will be calculated 
using customer volume figures as reported by the Options Clearing 
Corporation.\8\
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    \8\ The Exchange notes that a number of institutional and large 
size transactions sometimes skew average daily volumes. These trades 
usually clear under firm and market maker clearance accounts. To 
ensure that LMMs are not disadvantaged by these levels of activity, 
customer volumes are therefore being used in the calculation of the 
LMM Rights Fee. For the purposes of calculating this fee, the ADV 
will be based on a trailing 3-month average.
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    For issues with an ADV of between 0-2,000 contracts, the LMM Rights 
fee will be $150 per stock. For issues with an ADV of between 2,001 and 
5,000 contracts, the LMM Rights fee will be $400 per stock. For issues 
with an ADV of between 5,001-15,000 contracts, the LMM Rights fee will 
be $750 per stock. For issues with an ADV of between 15,001 and 100,000 
contracts, the LMM Rights fee will be $1,500 per stock and for issues 
that trade with an ADV in excess of 100,000 contracts per month the LMM 
Rights fee will be $3,000 per stock. This fee will help offset the 
costs incurred to provide technology and other infrastructure to 
support firms operating on the trading platform of the Exchange. This 
fee will be assessed at the end of each month on each issue that an LMM 
holds in its LMM appointment. In the event that an LMM has voluntarily 
delisted an issue prior to the end of the month, the full monthly rate 
will still apply. LMMs will not incur LMM fees on issues that they 
trade that are not included in their LMM appointment. An Interim 
LMM,\9\ that is temporarily allocated an issue(s) by the Exchange will 
not be assessed an LMM rights fee for those issues. This fee will not 
apply in the event an issue has been designated for ``closing 
transactions only'' and is subject to delisting by the Exchange.
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    \9\ If an LMM has been relieved of an appointment or resigns or 
if the allocation otherwise becomes vacant, the Exchange may 
designate an interim LMM or a Market Maker trading crowd pending the 
conclusion of a new LMM selection process. The designation of an 
interim LMM is not a prejudgment of the new LMM selection process. 
See NYSE Arca Rule 6.82(b)(4) (Interim LMMs).
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Per Contract Charges
    Options per contract transaction charges will reflect the following 
rate schedule:

------------------------------------------------------------------------
                                                               Rate per
                         Order type                            contract
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LMM.........................................................       $0.09
NYSE Arca Market Maker......................................        0.16
Broker Dealer Electronic....................................        0.50
Broker Dealer Manual........................................        0.26
Customer Electronic.........................................        0.00
Customer Manual.............................................        0.00
Firm........................................................        0.15
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    NYSE Arca Market Maker charges will be reduced from $0.26 per 
contact to $0.16 per contract. A new $0.09 per contract fee will now 
apply to LMMs on all trades that they transact in issues in which they 
are the appointed LMM. Previously, LMMs were charged the $0.26 Market 
Maker rate on all transactions. Certain LMM transactions previously 
qualified for the Firm transaction fee. Going forward, in the event of 
the LMM fee conflicts with the Firm transaction fee, the lower rate 
will always apply. The Exchange will continue to rebate LMM transaction 
fees for executions that result from the LMM sending Linkage Orders 
\10\ executed on other exchanges. In addition to the aforementioned 
rebate, the Exchange will continue to credit Market Makers $0.26 per 
contract for executions that result from the LMM sending Linkage Orders 
to other exchanges.
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    \10\ ``Linkage Orders'' are Immediate or Cancel orders routed 
through the Intermarket Option Linkage containing certain 
information prescribed in the Plan for the Purpose of Creating and 
Operating an Intermarket Option Linkage (``Linkage Plan''). See 
Section 2(16) of the Linkage Plan. See also NYSE Arca Rule 
6.92(a)(12).
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    Manual broker dealer (``BD'') executions, presently $0.26 per 
contract, will remain unchanged. Electronic BD executions will now be 
assessed a transaction fee of $0.50 per contract (instead of $0.51 
total charge that was comprised of the $0.26 transaction fee and $0.25 
surcharge). BD fees are not assessed on NYSE Arca Market Makers. The BD 
Surcharge is being eliminated to provide for simplification of rates. 
Specifically, the old rate schedule required the addition of the 
Transaction charge and the Surcharge to come up with the total cost; 
the new rate schedule rolls it up into one category.
    In the descriptive language associated with Limit of Fees on 
Strategy Executions under the Trade Related Charges section of the 
Schedule, a reference to the ``on line comparison fee'' has been 
deleted. The on line comparison fee as it applied to these trades was 
eliminated from the Schedule in a recent filing with the 
Commission.\11\ A reference to the fee was inadvertently left in this 
section. This change is for housekeeping purposes and makes no 
substantive change.
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    \11\ The Exchange amended the Schedule in order to combine a 
$0.21 transaction fee and a $0.05 comparison fees into one $0.26 
transaction fee for Market Maker, Firm and Broker Dealer executions. 
See Securities Exchange Act Release No. 53485 (March 14, 2006), 71 
FR 14564 (March 22, 2006) (SR-PCX-2006-15).
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Cancellation Fees
    The order cancellation fee will be phased out, as it will only be 
assessed on issues trading on PCX Plus. This fee has been typically 
assessed by most options exchanges to help mitigate congestion caused 
by trading participants that have excessive cancellations. NYSE Arca 
believes its new OX trading platform will be robust enough to handle 
this traffic, and therefore a fee designed to mitigate incoming order 
flow is no longer necessary.
The 5% Surcharge Fee
    NYSE Arca will no longer assess a 5% Surcharge Fee on an OTP 
Holder's and OTP Firm's monthly invoice. Eliminating this fee will 
assist NYSE Arca in being more price competitive with other Exchanges.
Other Changes
    Booth Fees on the Options Floor will be consolidated into one rate: 
$350 per month per booth, regardless of the size or location of the 
booth. The ACTANT server fee of $100 per month will be eliminated. A 
$175 Electronic Order Capture (``EOC'') fee will replace the Floor 
Broker Hand Held device fee. The EOC system will now encompass all 
order handling functions previously done on the Floor Brokers Hand 
Held. The $175 fee will apply to each EOC device.
    NYSE Arca Equities Regulatory Fees are being removed from the NYSE 
Arca Options Schedule. These fees were incorporated into the NYSE Arca 
Equities Fee Schedule as part of a separate filing.\12\
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    \12\ SR-NYSEArca-06-43, filed with the Commission on June 30, 
2006, was effective upon filing.
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    Various other charges that have become obsolete over time will be 
eliminated. Trade Match tables are no longer used; therefore, the fee 
associated with them will be deleted. The Exchange will no longer have 
an Agency Stock Execution Fee nor assess a Market Maker give-up charge, 
as these fees are no longer applicable in today's marketplace. POETS 
Workstations, which are used in OTP floor booths, will now include 
other applications, and will now be called ``Booth Workstations.'' The 
Standard Report Package is a printed report that the Exchange 
previously produced for OTP Holders. The information contained in the 
report is now available

[[Page 48573]]

electronically and can be accessed free of charge. Therefore, the fee 
will be eliminated.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) of the Act,\13\ in general, and 
with Section 6(b)(4) of the Act,\14\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees and other charges 
among OTP Holders, OTP Firms.\15\
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4).
    \15\ The Exchange removed a reference in the Statutory Basis 
Section of the filing relating to the applicability of the fees to 
``other market participants trading options contracts on certain 
ETFs'' via telephone. Conversation between Pete Armstrong, NYSE Arca 
and Tim Fox, Special Counsel, Commission, on August 10, 2006.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NYSE Arca does not believe that the proposed rule change will 
result in 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

    Written comments were neither solicited nor received.

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

    The foregoing rule change is subject to Section 19(b)(3)(A)(ii) of 
the Act \16\ and subparagraph (f)(2) of Rule 19b-4 thereunder \17\ 
because it establishes or changes a due, fee, or other charge 
applicable only to a member imposed by the self-regulatory 
organization. Accordingly, the proposal is effective upon Commission 
receipt of the filing. 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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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 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. 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 No. SR-NYSEArca-2006-25 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.
    All submissions should refer to File No. SR-NYSEArca-2006-25. 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. Copies of such 
filing will also be available for inspection and copying at the 
principal office of the NYSE Arca. 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-2006-25 and 
should be submitted on or before September 11, 2006.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
Nancy M. Morris,
Secretary.
[FR Doc. E6-13729 Filed 8-18-06; 8:45 am]

BILLING CODE 8010-01-P