Document ID: SEC-2012-1477-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2012-09-07T04:00Z

[Federal Register Volume 77, Number 174 (Friday, September 7, 2012)]
[Notices]
[Pages 55254-55257]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-22058]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67764; File No. SR-NYSEMKT-2012-44]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending the NYSE Amex 
Options Fee Schedule To Change the Number of Amex Trading Permits 
Required by NYSE Amex Market Makers Based on the Number of Options in 
Their Appointment

August 31, 2012.
    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 August 24, 2012, 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 and II 
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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Amex Options Fee Schedule 
(``Fee Schedule'') to change the number of Amex Trading Permits 
(``ATP'') required by NYSE Amex Market Makers based on the number of 
options in their appointment. 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
    NYSE MKT proposes to amend the Fee Schedule to change the number of 
Amex Trading Permits (``ATP'') required by NYSE Amex Market Makers 
based on the number of options in their electronic appointment.
    Currently, NYSE Amex Options Market Makers are free to apply to 
have any number of option classes in their trading appointment, subject 
to the following schedule:
    (1) Market Makers with one ATP may have up to 100 option issues 
included in their electronic appointment;
    (2) Market Makers with two ATPs may have up to 250 option issues 
included in their electronic appointment;

[[Page 55255]]

    (3) Market Makers with three ATPs may have up to 750 option issues 
included in their electronic appointment; and
    (4) Market Makers with four ATPs may have all option issues traded 
on the Exchange included in their electronic appointment.
    Under the proposal, NYSE Amex Options Market Makers (which include 
Floor Market Makers) will be free to apply to have any number of option 
classes in their electronic trading appointment, subject to the 
following schedule:
    One ATP = 60 issues, plus the bottom 45% of issues traded on the 
Exchange by volume;
    Two ATPs = 150 issues, plus the bottom 45% of issues traded on the 
Exchange by volume;
    Three ATPs = 500 issues, plus the bottom 45% of issues traded on 
the Exchange by volume;
    Four ATPs = 1,100 issues, plus the bottom 45% of issues traded on 
the Exchange by volume; and
    Five ATPs = All issues traded on the Exchange.
    The ``bottom 45%'' of issues traded on the Exchange refers to the 
least actively traded issues on the Exchange, ranked by industry 
volume, as reported by the OCC for each issue during the calendar 
quarter. Each calendar quarter, with a one-month lag, the Exchange will 
publish on its Web site a list of the bottom 45% of issues traded by 
industry volume. For example, based on industry volume for April, May, 
and June 2012, the Exchange will rank all options traded on the 
Exchange as of the last day of that period, which will then become the 
bottom 45% of issues for the period beginning August 1, 2012. As of 
June 30, 2012, there were 2,196 options traded on the Exchange, so the 
bottom 45% would total 988 options for that period. The Exchange will 
recalculate this list using industry volumes for July, August, and 
September 2012 for the period beginning November 1, 2012, and so on. 
Any newly listed issues will automatically become part of the bottom 
45% until the next evaluation period, at which time they may or may not 
remain part of the bottom 45% list depending upon their trading volumes 
and resultant rank among all issues traded on the Exchange.
    The proposed rule change is effective upon filing and will not 
become operative until 30 days after the date of this filing, or such 
shorter time as the Commission may designate. The Exchange has 
requested that the Commission waive all or a portion of the 30-day 
operative delay period so that it may implement the proposed change on 
September 1, 2012. If the Commission does not waive all or a portion of 
the 30-day operative delay period, the proposed changes will be 
implemented on October 1, 2012.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) \4\ of the Securities Exchange Act 
of 1934 (the ``Act''), in general, and furthers the objectives of 
Section 6(b)(5) \5\ in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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    In making the proposed changes, the Exchange's objective is to 
better align the Fee Schedule with the level of activity on the 
Exchange while properly incenting Market Makers to quote in a broad 
range of options, including less liquid and active names, to promote 
transparency and price discovery in those names, which will benefit all 
Exchange participants and the public interest.\6\
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    \6\ The Exchange notes that it has adequate systems capacity to 
accommodate any increase in quoting.
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    The proposal to change the number of ATPs required for a certain 
number of appointments will promote just and equitable principles of 
trade and will remove impediments to and perfect the mechanisms of a 
free and open market for the following reasons. First, the proposed 
rule change allows Market Makers affordable access to all issues traded 
on the Exchange when viewed in light of the cost for a market maker on 
at least two other exchanges to obtain a sufficient number of trading 
permits or rights to quote a similar number of names. For example, on 
the International Securities Exchange (``ISE''), a Competitive Market 
Maker (``CMM'') is required to have nine CMM Trading Rights in order to 
quote all issues on the ISE.\7\ CMM Trading Rights on the ISE are fixed 
in terms of the number that are available and must be bought or leased 
from someone who possesses them. The last sale for a CMM Trading Right 
on the ISE was for $1,550,000 on November 30, 2009.\8\ As of July 17, 
2012, there appeared to be a total of seven CMM Trading Rights 
available for sale or lease, which are two fewer than the number 
required to quote all issues on the ISE.\9\ The Exchange estimates that 
the monthly lease cost is somewhere in the range of $7,000 to $11,000 
per month.\10\ Assuming the best-case scenario of being able to obtain 
a lease at the most favorable price for each of the nine CMM Trading 
Rights needed to quote every name on ISE, the Exchange estimates that 
it would cost a market maker approximately $63,000 per month in rights 
fees. By comparison, under the proposal, a NYSE Amex Options Market 
Maker will pay $26,000 per month in rights fees to quote the entire 
universe of names on the Exchange.
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    \7\ See ISE Rule 802(c) and http://www.ise.com/WebForm/viewPage.aspx?categoryId=563.
    \8\ See Secondary Market Sales after May 1, 2002, available at 
http://www.ise.com/WebForm/viewPage.aspx?categoryId=222.
    \9\ See http://www.ise.com/WebForm/viewPage.aspx?categoryId=563.
    \10\ Based on the last reported sale of $1,550,000, if one uses 
five-year straight-line depreciation, the monthly cost of a single 
CMM Trading Right is $25,833. In light of this, coupled with 
decreased volumes in the industry, the Exchange believes that a 
lease rate of between $7,000 and $11,000 per month per CMM Trading 
Right is a reasonable estimate and has confirmed that estimate 
informally with market participants.
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    A further comparison may be made with the Chicago Board Options 
Exchange (``CBOE'') and the trading permit costs for a market maker to 
create an assignment there. CBOE has a sliding scale for Trading Permit 
Holders (``TPHs'') who are acting as market makers. The sliding scale 
is $5,500 per month for permits one to 10, $4,000 per month for permits 
11 to 20, and $2,500 for permits 21 and higher. The discounted permit 
rates of $4,000 and $2,500 are only available to TPHs who commit to a 
full year of that number of permits. In configuring an appointment on 
CBOE, a market maker incurs an appointment cost for each option in its 
appointment based on various tiers.\11\ The appointment cost can be 
calculated using an ``appointment calculator'' provided to TPHs.\12\ 
The Exchange used the appointment calculator dated July 10, 2012 to 
calculate the cost to construct a market maker appointment consisting 
of all 2,196 options traded on the Exchange as of June 30, 2012. The 
result shows that a total of 28 trading permits would be required to 
create a market maker appointment on CBOE that consisted of all options 
traded on

[[Page 55256]]

the Exchange.\13\ Assuming the best-case scenario in which a market 
maker committed to a full year of utilizing 28 permits, a market maker 
on CBOE would pay $115,000 per month in permit costs or $89,000 more 
per month than an NYSE Amex Options Market Maker would pay under the 
proposal.
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    \11\ See CBOE Rule 8.3.
    \12\ The appointment calculator is available at https://www.cboe.org/publish/SeatCalculator/SeatCalcUpdated071012.xlt.
    \13\ Of the 2,196 options traded on the Exchange as of June 30, 
2012, 2,000 were trading on the CBOE, and it would require 28 TPHs 
to create an appointment in those names.
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    The Exchange further notes that by virtue of the limited number of 
CMM Trading Rights available for sale or lease on ISE and the Class 
Quoting Limit (``CQL'') \14\ on CBOE, the barriers to entry on both 
exchanges for a market maker are quite high in that it may not be 
possible to create a market maker appointment of one's choosing due to 
either a lack of available CMM Trading Rights on ISE or a CQL on CBOE 
that has been reached. Under the Exchange's proposal, no such 
artificial barrier to entry will be created, and coupled with the 
relatively lower monthly cost to acquire ATPs, the proposal will remove 
certain impediments to trade on the options markets.
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    \14\ See CBOE Rule 8.3A.
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    In designing the proposal, the Exchange wanted to encourage market 
making in less liquid and active option issues. This is beneficial to 
all Exchange participants and market participants generally. Under the 
proposal, the first ATP permits an NYSE Amex Options Market Maker to 
create an appointment for submitting quotes electronically that will 
consist of 60 options of its choosing, plus the bottom 45% of options 
traded on the Exchange. As of June 30, 2012, there were 2,196 options 
on the Exchange, which means that the bottom 45% consists of 988 
options. Under the proposal, this means that a NYSE Amex Options Market 
Maker with one ATP will be able to create an assignment consisting of 
1,048 options, far greater than the 100 options permitted under the 
current Fee Schedule. The proposal increases the total number of ATPs 
required to quote all options on the Exchange from four to five and 
increases the monthly cost for an NYSE Amex Options Market Maker from 
$23,000 to $26,000 per month. Again, viewed in light of the costs to 
establish a similar assignment on at least two other exchanges, the 
proposed rule change is just, equitable, and removes impediments to a 
free and open market, particularly since the proposal is designed to 
encourage greater quoting in less liquid names that will benefit the 
marketplace through increased price discovery. The proposal is 
consistent with just and equitable principles of trade since it will 
apply to all NYSE Amex Options Market Makers equally.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, if consistent with 
the protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\15\ and Rule 19b-4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of the filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative on September 1, 2012. The Exchange has indicated 
that the proposal is designed to better align the Fee Schedule with the 
level of activity on the Exchange. The Exchange further stated that it 
believes the proposal will incent Market Makers to quote in a broad 
range of options, including less liquid and active names, and therefore 
will promote transparency and price discovery in those names. 
Therefore, the Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest \19\ and designates the proposed rule change to be operative 
on September 1, 2012.
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the 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 to 
determine whether the proposed rule should be approved or disapproved.

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-2012-44 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-NYSEMKT-2012-44. 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

[[Page 55257]]

provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Section, 100 F Street 
NE., Washington, DC 20549-1090 on official business days between the 
hours of 10 a.m. and 3 p.m. Copies of the filing will also be available 
for inspection and copying at the Exchange's principal office and on 
its Internet Web site at www.nyse.com. 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-2012-44 and should be submitted 
on or before September 28, 2012.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-22058 Filed 9-6-12; 8:45 am]
BILLING CODE 8011-01-P