Document ID: SEC-2014-1363-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-08-13T04:00Z

[Federal Register Volume 79, Number 156 (Wednesday, August 13, 2014)]
[Notices]
[Pages 47502-47504]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-19097]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72789; File No. SR-NYSEArca-2014-84]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE 
Arca Options Fee Schedule Relating to Lead Market Maker Rights Fees

August 7, 2014.
    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 1, 2014, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Options Fee Schedule 
(``Fee Schedule'') relating to Lead Market Maker (``LMM'') Rights Fees. 
The Exchange proposes to implement the fee change effective August 1, 
2014. 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 purpose of this filing is to reduce the Lead Market Maker 
Rights Fees for all Lead Market Makers (``LMMs'') that transact a 
significant daily volume.
    Currently, LMMs pay a Lead Market Maker Rights Fee (``LMM Rights 
Fee'') on each issue in their allocation, ranging from $45 per month to 
$1,500 per month, depending on the activity level in the issue. The 
monthly LMM Rights Fee is based on the Average National Daily Customer 
Contracts. The applicable LMM Rights Fee is directly related to the 
number of allocations in an LMM's appointment; the more allocations in 
an appointment, the higher the LMM Rights Fee. This is particularly the 
case for issues that have higher Average National Daily Customer 
Contracts, which have higher LMM Rights Fees associated with them. 
Because of the LMM Rights Fees, LMMs that transact a significant amount 
of business on the Exchange have been reluctant to take on additional 
allocations. At the present time, there are approximately 2,600 
different underlying issues listed on NYSE Arca Options. The Exchange 
regularly receives five to 10 requests to list new issues each week. 
The Exchange then surveys the LMM community to invite applications for 
allocation. At present, most surveys only receive one or two responses 
per issue, and a key factor in applying for allocation is the 
profitability of trading in an issue given the anticipated Rights Fee.
    In order to generate more LMM interest in applying for new issue 
allocations, the Exchange is implementing a volume-based metric that 
will apply to all LMMs on the Exchange. Any LMM that meets certain 
volume criteria will be eligible for a reduced LMM Rights Fee.
    Specifically, the Exchange is proposing that LMMs with daily 
contract volume traded electronically of at least 50,000 contracts, of 
which 10,000 such contracts are in its LMM appointment, will qualify 
for a reduced LMM Rights Fee. LMMs that qualify will be charged a 50% 
reduction in total LMM Rights Fees. As proposed, whether an LMM will be 
charged 50% of the LMM Rights Fee will be determined based on an 
average of the daily contract volume traded electronically each trading 
day by that LMM in a calendar month.
    The Exchange believes that providing a means for LMMs that achieve 
certain volume levels to be eligible for a reduced monthly LMM Rights 
Fees will encourage LMMs that already transact a significant amount of 
business on the Exchange, but may be reluctant to apply for additional 
allocations, to apply for additional allocations. NYSE Arca proposes 
that the volume be in overall electronic Market Maker volume with a 
static, specified subset of that contract volume (i.e., 10,000 
contracts) from names in the LMM appointment, which the Exchange 
believes will enable LMMs that have a smaller number of issues in their 
appointment or have a preponderance of low volume issues to achieve 
this rate modification along with their larger LMM counterparts.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\4\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\5\ 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed modification to LMM Rights 
Fees is reasonable, equitable and not unfairly discriminatory because 
by reducing the overhead costs of LMMs that transact a significant 
amount of business on the Exchange, the Exchange

[[Page 47503]]

would create an incentive for LMMs that meet certain volume standards 
to apply for additional allocations. Because of the overhead costs 
associated with the LMM Rights Fees, LMMs that meet the proposed volume 
standards have expressed that they are unwilling to apply for 
additional appointments in new issues. The Exchange believes that the 
proposed fee change would promote a fair and orderly market and protect 
investors and the public interest because it would encourage LMMs that 
engage in significant trading on the Exchange to apply for additional 
appointments, thus assuring the availability of an LMM for all new 
appointments. The Exchange believes it is also reasonable, equitable 
and not unfairly discriminatory to provide a reduced fee to LMMs 
because the reduced overhead costs will enhance the ability to provide 
liquidity, which will benefit all market participants.
    In addition, the Exchange believes that the proposed rate is 
reasonable, equitable and not unfairly discriminatory because it will 
recognize those LMMs that meet their obligation to provide liquidity, 
as evidenced by achieving a significant yet reasonable electronic 
transaction volume. The Exchange believes that the requisite volume 
level (i.e., 50,000 contracts) to qualify for the reduced fee is 
reasonable, equitable and not unfairly discriminatory because it is 
lower than the current average volume traded by LMMs, and therefore it 
is a standard well within reach of the preponderance of LMMs, 
regardless of whether they have a physical presence on the Floor. In 
addition, the static, specific portion to be executed in the LMM's 
appointment (i.e., 10,000 contracts) is moderately above the average 
traded by LMMs in their appointment. The Exchange therefore believes 
that the static portion of the volume requirement is reasonably 
tailored to encourage LMMs to actively engage in their LMM appointments 
in order to qualify for the proposed LMM Right Fees change. The 
Exchange further believes that this requirement is reasonable, 
equitable and not unfairly discriminatory because it only requires a 
moderate proportion of the volume requirement in the LMM appointment, 
which encourages LMMs with fewer names or with a preponderance of low 
volume names in their appointments, to be eligible for the proposed fee 
change. Further, the proposed reduced rate is reasonable, equitable and 
not unfairly discriminatory among LMMs because it is based on an 
achievable volume level (i.e., 50,000 contracts is below the average 
volume traded by LMMs) with a meaningful volume--10,000 contracts--in 
the LMM appointment, which allows the LMM to apply the breath of its 
market making business so that the mix of issues in an LMM's 
appointment does not become a barrier to achievement. In addition, 
because the proposed fee change would be based only on prospective 
electronic volume executed on the Exchange, and therefore all LMMs 
could attain the volume threshold, the Exchange believes the fee is 
reasonable, equitable and not unfairly discriminatory.
    The proposed fee is also reasonable, equitable and not unfairly 
discriminatory because the Exchange believes it may indirectly benefit 
non-LMM market participants. Specifically, while the LMM Rights Fee is 
charged only to LMMs and therefore arguably has no direct impact on 
non-LMMs, the Exchange notes that, absent this proposal, LMMs seeking 
to avoid large monthly Rights Fees could either decline to apply for 
new option allocations and/or choose to relinquish their LMM role in 
any number of option issues. The Exchange believes that having LMMs 
resign from acting as a LMM in an option issue to reduce the amount of 
the LMM Rights Fee they incur would be detrimental to the Exchange and 
its participants. Because LMMs have heightened quoting obligations as 
compared to Market Makers,\6\ LMMs that may choose to relinquish issues 
to reduce their LMM Rights Fees, would result in reduced displayed 
liquidity in those issues, thereby harming investors and the public. 
Thus, the Exchange believes the proposal is reasonable, equitable and 
not unfairly discriminatory to non-LMMs and, in fact, may benefit other 
market participants.
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    \6\ See Rule 6.37B(b) and (c) (requiring that LMMs provide 
``continuous two-sided quotations throughout the trading day in its 
appointed issues for 90% of the time the Exchange is open for 
trading in each issue'' while requiring that Marker Makers provide 
``continuous two-sided quotations throughout the trading day in its 
appointed issues for 60% of the time the Exchange is open for 
trading in each issue'').
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    The Exchange notes that the notion of a volume-based metric is not 
new or novel in the context of a monthly fee, such as the LMM Rights 
Fee. For example, on NYSE MKT LLC, a Floor Market Maker may qualify for 
a ``reduced'' options trading permit (``ATP'') fee, which is calculated 
on a monthly basis, if, among other things, the Market Maker transacts 
most of its volume in open outcry.\7\ Thus, the proposed reduced 
monthly LMM Rights Fee is reasonable, equitable and not unfairly 
discriminatory as other options exchanges impose similar rate 
structures.
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    \7\ See NYSE Amex Options Fee Schedule, dated August 1, 2014, 
available here: https://www.theice.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf (providing that ``[a] 
Floor Market Maker that purchases no more than two ATPs per month 
may purchase them for $5,000 each (`Floor Market Maker ATP Fee') if 
the Floor Market Maker transacts at least 75% of its volume, 
excluding Qualified Contingent Cross and Strategy Executions, 
manually, by public outcry.'')
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    The timing of the calculation of the LMM Rights Fee is reasonable 
as it is calculated on the issues in an LMM's appointment on the last 
trading day of the month, which gives all LMMs a fixed date to 
anticipate what the fees will be and time to meet the volume standards 
for the proposed fee.
    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition.
    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

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

    In accordance with Section 6(b)(8) of the Act,\8\ 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 that the proposed rate 
reduces the burden on competition because it will enhance the ability 
for LMMs to quote competitively in more issues. The Exchange believes 
the reduced rate will reduce the burden on competition among LMMs as 
the reduced overhead costs will enhance the ability of firms to provide 
liquidity, which will benefit all market participants. The Exchange 
also believes that the proposed fee reduction will have a positive 
impact on competition and may indirectly benefit non-LMM market 
participants. Specifically, while the LMM Rights Fee is charged only to 
LMMs and therefore arguably has no direct impact on non-LMMs, the 
Exchange notes that absent this proposal LMMs seeking to avoid large 
monthly Rights Fees could decline to apply for new option allocations 
and/or choose to relinquish their LMM role in any number of option 
issues. The Exchange believes that having LMMs resign from acting as a 
LMM in an option issue to reduce the amount of the LMM Rights Fee they 
incur would be detrimental to the Exchange and its participants. 
Because LMMs have heightened quoting

[[Page 47504]]

obligations as compared to Market Makers,\9\ LMMs that may choose to 
relinquish issues to reduce their LMM Rights Fees, would result in 
reduced displayed liquidity in those issues, thereby harming investors 
and the public. In this regard, the Exchange believes the proposal does 
have a meaningful positive impact on competition.
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    \8\ 15 U.S.C. 78f(b)(8).
    \9\ See supra n. 6.
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    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues, and 
providing a reduced LMM Rights Fees will allow LMMs to both expand the 
number of issues allocated to them and to reduce the overhead which in 
turn encourages liquidity to compete for business. The Exchange 
believes that basing the qualification for the LMM Rights Fee on 
electronic transaction volume will encourage competition that is in 
furtherance of the Act by attracting business with enhanced liquidity 
and reduced market spread.
    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) \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 Exchange.
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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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \12\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \12\ 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-NYSEArca-2014-84 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-NYSEArca-2014-84. 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-2014-84, and should 
be submitted on or before September 3, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-19097 Filed 8-12-14; 8:45 am]
BILLING CODE 8011-01-P