Document ID: SEC-2012-1170-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2012-07-18T04:00Z

[Federal Register Volume 77, Number 138 (Wednesday, July 18, 2012)]
[Notices]
[Pages 42343-42345]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17418]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67419; File No. SR-NYSEArca-2012-71]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to 
Amendments to the NYSE Arca Options Fee Schedule To Increase the Posted 
Liquidity Credit for Market Makers

July 12, 2012.
    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 June 29, 2012, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE Arca'') 
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 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\ 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 Arca Options Fee Schedule 
(``Fee Schedule'') to increase the posted liquidity credit for Market 
Makers who achieve certain average electronic execution thresholds per 
day in Penny Pilot issues, including an additional credit for posting 
liquidity in options on the SPDR S&P 500 ETF (``SPY''), and to amend 
the fees for certain broker-dealer transactions. The Exchange proposes 
to make the changes operative on July 1, 2012. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule to increase the 
posted liquidity credit for Market Makers who achieve certain average 
electronic execution thresholds per day in Penny Pilot issues,\3\ 
including an additional credit for posting liquidity in options on SPY, 
and to amend fees for certain broker-dealer transactions.
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    \3\ Under NYSE Arca Options Rule 6.72, options on certain issues 
have been approved to trade with a minimum price variation of $0.01 
as part of a pilot program that is currently scheduled to expire on 
December 31, 2012. See SR-NYSEArca-2012-65.
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Penny Pilot Issues
    Currently, Market Makers receive a $0.32 per contract credit for 
posted electronic executions in Penny Pilot issues, regardless of the 
number of electronic executions per day. The Exchange proposes to 
increase the credit for posted electronic executions based on certain 
volume thresholds in Penny Pilot issues, with an additional credit for 
posted electronic executions in SPY, as follows:

----------------------------------------------------------------------------------------------------------------
                                                                   Credit applied to
                                        Qualification basis        posted electronic        Credit applied to
               Tier                     (average electronic     market maker executions     posted electronic
                                        executions per day)      in penny pilot issues   market maker executions
                                                                      (except SPY)                in SPY
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Base..............................  ..........................                  ($0.32)                  ($0.34)
Tier 1............................  30,000 Contracts from                       ($0.34)                  ($0.36)
                                     Market Maker Posted
                                     Orders in Penny Pilot
                                     Issues.
Tier 2............................  80,000 Contracts from                       ($0.38)                  ($0.40)
                                     Market Maker Posted
                                     Orders in Penny Pilot
                                     Issues.
Tier 3............................  150,000 Contracts from                      ($0.40)                  ($0.42)
                                     Market Maker Posted
                                     Orders in Penny Pilot
                                     Issues.
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[[Page 42344]]

    For example, if a Market Maker has average electronic executions 
per day of 40,000 contracts from posted orders in Penny Pilot issues, 
the Market Maker would receive a credit of $0.34 per contract for 
posted electronic executions in non-SPY Penny Pilot issues, and a 
credit of $0.36 per contract for posted electronic executions in SPY.
Manual Broker-Dealer Fees
    Currently, broker-dealers are charged a fee of $0.25 per contract 
for manual standard executions. There is no charge for Customer \4\ 
electronic executions in non-Penny Pilot issues or Customer manual 
executions or a manual Firm facilitation \5\ of a Customer order. The 
Exchange believes that a transaction in which a broker-dealer clearing 
in the customer range facilitates a Customer order should be treated in 
the same manner as a manual Firm Facilitation transaction, and 
therefore proposes that there be no charge for such transactions under 
the Fee Schedule. On occasion, broker-dealers will facilitate orders on 
behalf of Customers. The broker-dealer may or may not be an Options 
Trading Permit (``OTP'') Holder or OTP Firm, but places both the 
Customer order and the broker-dealer's order with a Floor Brokerage 
firm for execution in open outcry. If, for instance, the broker-dealer 
is executing on behalf of its foreign subsidiary, the order will be 
marked as broker-dealer but must clear in the customer range at OCC. To 
qualify for the free execution, the broker-dealer's proprietary trade 
must be handled by an OTP Holder or an OTP Firm on an agency basis and 
the broker-dealer and the Customer must both clear through the same 
clearing firm.
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    \4\ The term ``Customer'' excludes a broker-dealer. See NYSE 
Arca Rule 6.1A(a)(4).
    \5\ The term ``Firm'' means a broker-dealer that is not 
registered as a dealer-specialist or market maker on a registered 
national securities exchange or association. See NYSE Arca Rule 
6.1(b)(36). The fee for a manual Firm Facilitation transaction 
applies to any transaction involving a Firm proprietary trading 
account that has a customer of that same Firm on the contra side of 
the transaction. See endnote 7 of the Fee Schedule.
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Fee Cap
    Currently, there is a $75,000 per month fee cap on Firm manual 
executions, which excludes Strategy Executions, Royalty Fees, and firm 
trades executed via a Joint Back Office agreement.\6\ The Exchange 
proposes also to apply the same $75,000 cap (with the same exclusions) 
on broker-dealer fees for manual executions clearing in the customer 
range. For example a broker-dealer who trades in the customer range and 
does not have a Customer on the contra side of the manual transaction 
would continue to be subject to a $0.25 manual broker-dealer charge. In 
said instances, those trades would continue to get billed at the $0.25 
rate but would benefit from the new $75,000 cap.
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    \6\ The Fee Schedule currently does not specify that such cap is 
applied monthly; the Exchange proposes to specify that in the Fee 
Schedule.
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    The Exchange proposes to make all of the changes described above 
operative on July 1, 2012.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act,\8\ in particular, because it 
provides 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the increase in credits for Market 
Makers' posted electronic executions in Penny Pilot issues and SPY is 
reasonable because it would incent Market Makers to post higher volumes 
on the Exchange, which will promote liquidity. In addition, the 
increased credit for electronic executions in SPY is reasonable because 
it is comparable to rate differentials applied to certain symbols 
offered on at least one other exchange,\9\ and it will attract 
additional order flow in SPY to the Exchange. Moreover, the Exchange 
believes that it is reasonable, equitable, and not unfairly 
discriminatory to pay Market Makers a higher credit because Market 
Makers have higher obligations than other market participants, and the 
Exchange would allocate the higher credit to Market Makers that make 
significant contributions to market quality by providing more liquidity 
at the National Best Bid and Offer.
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    \9\ See NASDAQ OMX PHLX LLC Pricing Schedule as of June 1, 2012, 
Rebates and Fees for Adding and Removing Liquidity in Select 
Symbols, available at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLXTools/PlatformViewer.asp?selectednode=chp%5F1%5F4%5F1&manual=%2Fnasdaqomxphlx%2Fphlx%2Fphlx%2Drulesbrd%2F.
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    The Exchange believes that not charging a broker-dealer that clears 
in the customer range for facilitating a Customer order is reasonable 
because it will encourage this type of broker-dealer to facilitate 
Customer orders and increase participation in open outcry, which will 
in turn promote liquidity on the Exchange. In addition, the proposed 
rule change is reasonable, equitable, and not unfairly discriminatory 
because broker-dealers facilitating Customer orders that clear in the 
customer range are performing essentially the same business as Firm 
facilitation orders, in addition to maintaining Customer margin on the 
account, and it is open to all broker-dealers on an equal basis.
    The Exchange also believes that including broker-dealer 
transactions that clear in the customer range in the $75,000 limit on 
fees for open outcry transactions for both Firms and broker-dealers is 
reasonable, equitable, and not unfairly discriminatory because broker-
dealers entering orders that clear in the customer range are performing 
essentially the same business as Firm proprietary orders, in addition 
to maintaining Customer margin on the account.
    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues if they 
deem fee levels at a particular venue to be excessive. In such an 
environment, the Exchange must continually adjust its fees to remain 
competitive with other exchanges.

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 rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \10\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \11\ thereunder, because it establishes a due, fee, or other 
charge imposed by the NYSE Arca.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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.

[[Page 42345]]

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-NYSEArca-2012-71 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-NYSEArca-2012-71. 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 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 Number SR-NYSEArca-2012-71 and should 
be submitted on or before August 8, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17418 Filed 7-17-12; 8:45 am]
BILLING CODE 8011-01-P