Document ID: SEC-2013-0202-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2013-02-04T05:00Z

[Federal Register Volume 78, Number 23 (Monday, February 4, 2013)]
[Notices]
[Pages 7828-7831]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02300]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68758; File No. SR-NYSEArca-2013-04]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE 
Arca Options Fee Schedule To Revise Qualification Thresholds for Tiered 
Customer Posting Credits

January 29, 2013.
    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 January 15, 2013, 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'') to revise the qualification thresholds for tiered 
Customer posting credits for electronic executions in Penny Pilot 
issues. The Exchange proposes to make the fee change operative on 
February 1, 2013. 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 revise the 
qualification thresholds for tiered Customer \4\ posting credits for 
electronic executions in Penny Pilot issues.\5\ The Exchange proposes 
to make the fee change operative on February 1, 2013.
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    \4\ Under NYSE Arca Options Rule 6.1(b)(29), the term 
``Customer'' has the same definition as Rule 15c3-1(c)(6) under the 
Act, which excludes certain broker-dealers.
    \5\ As provided 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 March 31, 2013. See Securities Exchange Act 
Release No. 68426, (December 13, 2012) 77 FR 75224 (December 19, 
2012) (SR-NYSEArca-2012-135).
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    Currently, the Exchange provides credits for posted electronic 
Customer executions in Penny Pilot issues for OTP Holders and OTP Firms 
that meet the following execution thresholds:

----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Tier                            Qualification basis (average electronic executions      Credit applied to posted
                                                     per day)                                electronic customer
                                                                                       executions in Penny Pilot
                                                                                                          issues
----------------------------------------------------------------------------------------------------------------
Base.........................  ................  ................  ...............                       ($0.25)
Tier 1.......................  15,000 Contracts  ................  ...............                       ($0.38)
                                from Customer
                                Posted Orders
                                in Penny Pilot
                                Issues.
Tier 2.......................  25,000 Contracts  75,000 Contracts  ...............                       ($0.40)
                                from Customer     from Posted
                                Posted Orders     Orders in Penny
                                in Penny Pilot    Pilot Issues,
                                Issues, or        all account
                                                  types.*
Tier 3.......................  50,000 Contracts  ................  ...............                       ($0.43)
                                from Customer
                                Posted Orders
                                in Penny Pilot
                                Issues.
Tier 4.......................  65,000 Contracts  100,000           100,000                               ($0.44)
                                from Customer     Contracts from    Contracts from
                                Posted Orders     Posted Orders     Customer
                                in Penny Pilot    in Penny Pilot    Posted and
                                Issues Plus       Issues, all       Removing
                                0.3% of U.S.      account types,*   Orders in
                                Equity Market     or                Penny Pilot
                                Share Posted                        Issues.
                                and Executed on
                                NYSE Arca
                                Equity Market,*
                                or
----------------------------------------------------------------------------------------------------------------
* Includes transaction volume from the OTP Holder's or OTP Firm's affiliates.

    The Exchange proposes to revise the qualification thresholds for 
tiered Customer posting credits for electronic executions in Penny 
Pilot issues so that the qualification thresholds for tiered Customer 
posting credits will be based not on a fixed number of contracts but 
instead on a percentage of average daily volume (``ADV'') of Customer 
electronic equity and ETF option contracts executed by an OTP Holder or 
OTP Firm on the Exchange relative to the overall Total Industry 
Customer equity and ETF option ADV.\6\ The Exchange

[[Page 7829]]

proposes the following qualification thresholds for tiered Customer 
posting credits for electronic executions in Penny Pilot issues:
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    \6\ The OCC provides volume information in two product 
categories: Equity and ETF volume and index volume, and the 
information can be filtered to show only Customer, firm, or market 
maker account type. Equity and ETF Customer volume numbers are 
available directly from the OCC each morning, or may be transmitted, 
upon request, free of charge from the Exchange. Equity and ETF 
Customer volume is a widely followed benchmark of industry volume 
and is indicative of industry market share. Total Industry Customer 
equity and ETF option ADV is comprised of those equity and ETF 
option contracts that clear in the customer account type at OCC, 
including Exchange-Traded Fund Shares, Trust Issued Receipts, 
Partnership Units, and Index-Linked Securities such as Exchange-
Traded Notes (see NYSE Arca Options Rule 5.3(g)-(j)), and does not 
include contracts that clear in either the firm or market maker 
account type at OCC or contracts overlying a security other than an 
equity or ETF security. The Exchange notes that there is one Penny 
Pilot issue, Mini NDX 100 Stock Index, that does not overlie an 
equity or ETF security that is eligible for the Customer posing 
[sic] credit. This Penny Pilot issue is not included in equity and 
ETF option ADV; however, the Exchange expects that the effect on the 
calculations for the qualification thresholds for tiered Customer 
posting credits to be negligible. Under the proposed rule change, 
Total Industry Customer equity and ETF option ADV will be that which 
is reported for the month by OCC in the month in which the credits 
may apply. For example, February 2013 Total Industry Customer equity 
and ETF option ADV will be used in determining what, if any, credit 
an OTP Holder or OTP Firm may be eligible for based on the Customer 
electronic equity and ETF option ADV it transacts on the Exchange in 
February 2013.

----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Tier                            Qualification basis (average electronic executions      Credit applied to posted
                                                     per day)                                electronic customer
                                                                                       executions in Penny Pilot
                                                                                                          issues
----------------------------------------------------------------------------------------------------------------
Base.........................  ................  ................  ...............                       ($0.25)
Tier 1.......................  At least 0.15%    ................  ...............                       ($0.38)
                                of Total
                                Industry
                                Customer equity
                                and ETF option
                                ADV from
                                Customer Posted
                                Orders in Penny
                                Pilot Issues.
Tier 2.......................  At least 0.25%    At least 0.70%    ...............                       ($0.40)
                                of Total          of Total
                                Industry          Industry
                                Customer equity   Customer equity
                                and ETF option    and ETF option
                                ADV from          ADV from Posted
                                Customer Posted   Orders in Penny
                                Orders in Penny   Pilot Issues,
                                Pilot Issues,     all account
                                or                types.*
Tier 3.......................  At least 0.50%    ................  ...............                       ($0.43)
                                of Total
                                Industry
                                Customer equity
                                and ETF option
                                ADV from
                                Customer Posted
                                Orders in Penny
                                Pilot Issues.
Tier 4.......................  At least 0.65%    At least 0.95%    At least 0.95%                        ($0.44)
                                of Total          of Total          of Total
                                Industry          Industry          Industry
                                Customer equity   Customer equity   Customer
                                and ETF option    and ETF option    equity and ETF
                                ADV from          ADV from Posted   option ADV
                                Customer Posted   Orders in Penny   from Customer
                                Orders in Penny   Pilot Issues,     Posted and
                                Pilot Issues      all account       Removing
                                Plus 0.3% of      types,* or        Orders in
                                U.S. Equity                         Penny Pilot
                                Market Share                        Issues.
                                Posted and
                                Executed on
                                NYSE Arca
                                Equity Market,*
                                or
----------------------------------------------------------------------------------------------------------------
* Includes transaction volume from the OTP Holder's or OTP Firm's affiliates.

    The Exchange notes that the calculations for the qualification 
thresholds for tiered Customer posting credits only include electronic 
executions. Qualified Contingent Cross (``QCC'') orders are neither 
posted nor taken; thus QCC transactions are not included in the 
calculation of posted or taken execution volumes. Orders routed to 
another market for execution are not included in the calculation of 
taking volume. In addition, Customer equity and ETF option ADV will not 
include executions from Electronic Complex Order Executions.\7\
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    \7\ The Exchange previously amended its Fee Schedule to exclude 
Electronic Complex Order volume from counting toward the 
qualification thresholds for tiered Customer posting credits for 
electronic executions in Penny Pilot issues. See Securities Exchange 
Act Release No. 68405, (December 11, 2012) 77 FR 74719 (December 17, 
2012) (SR-NYSEArca-2012-137). The Exchange proposes to amend endnote 
8 to explicitly exclude Electronic Complex Order Executions from the 
qualification thresholds for tiered Customer posting credits.
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    The Exchange notes that the proposed percentages are generally 
equivalent to the current fixed thresholds at current volume levels, 
but will have the advantage of fluctuating with industry volume. The 
Exchange does not propose to amend the credits associated with these 
tiers or other requirements for the tiers.
    The Exchange notes that the proposed changes are not otherwise 
intended to address any other issues, and the Exchange is not aware of 
any problems that OTP Holders and OTP Firms would have in complying 
with the proposed change.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\8\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act,\9\ 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. The Exchange also believes that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\10\ in particular, because 
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 regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, 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 
and because it is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
    \10\ 15 U.S.C. 78f(b)(5).
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    The proposal to revise the qualification thresholds for tiered 
Customer posting credits for electronic executions in Penny Pilot 
issues so that they are based on the ADV of Total Industry Customer 
electronic equity and ETF option contracts on the Exchange is

[[Page 7830]]

reasonable because it is designed to attract additional Customer 
electronic equity and ETF option volume to the Exchange, which would 
benefit all participants by offering greater price discovery, increased 
transparency and an increased opportunity to trade on the Exchange. 
Additionally, the Exchange believes that the proposed credits are 
reasonable because they would incentivize OTP Holders and OTP Firms to 
submit Customer electronic equity and ETF option orders to the Exchange 
and would result in credits that are reasonably related to the 
Exchange's market quality that is associated with higher volumes.
    The Exchange also believes that the proposed qualification 
thresholds for tiered Customer posting credits are reasonable because 
the Exchange has continued to provide more than one method of 
qualifying for certain of the tiers. For example, in addition to 
posting Customer orders in Penny Pilot issues, the Tier 2 credit can 
alternatively be reached by posting a certain volume of orders in all 
account types, and the Tier 4 credit can be reached by posting a 
certain volume of orders on the NYSE Arca Equity Market, posting a 
certain volume of orders in all account types, or posting or removing a 
certain volume of orders in Penny Pilot issues. The Exchange believes 
that the aspect of the proposed change related to the activity of an 
affiliated ETP Holder on NYSE Arca Equities is reasonable because it 
would encourage increased trading activity on both the NYSE Arca equity 
and option markets.
    The Exchange believes that using a percentage based threshold 
rather than a fixed threshold is reasonable because it would allow the 
threshold to account for fluctuating industry volume. The Exchange also 
believes that the proposed qualification thresholds for tiered Customer 
posting credits are reasonable because they will reward OTP Holders and 
OTP Firms with a greater credit for posted electronic Customer 
executions in Penny Pilot issues when they bring a larger number of 
orders to the Exchange.
    The Exchange believes that the proposed credits are equitable and 
not unfairly discriminatory because they will be available to all OTP 
Holders and OTP Firms that execute posted electronic Customer orders on 
the Exchange on an equal and non-discriminatory basis, in particular 
because they would be based on a variable rather than a fixed 
threshold. The Exchange believes that providing methods for achieving 
the credits not based solely on posted electronic Customer Executions 
in Penny Pilot issues is equitable and not unfairly discriminatory 
because it would continue to result in more OTP Holders and OTP Firms 
qualifying for the credits and therefore reducing their overall 
transaction costs on the Exchange. The Exchange also believes that the 
proposed credits are not new or novel because at least one other 
exchange has a customer tier based on Total Industry Customer equity 
and ETF option volume.\11\ The Exchange believes that the aspect of the 
proposed change related to the activity of an affiliated ETP Holder on 
NYSE Arca Equities is equitable and not unfairly discriminatory because 
it is designed to continue to bring additional posted order flow to 
NYSE Arca Equities, so as to provide additional opportunities for all 
ETP Holders to trade on NYSE Arca Equities.\12\
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    \11\ See NYSE Amex Options Fee Schedule, dated December 1, 2012, 
available at https://globalderivatives.nyx.com/sites/globalderivatives.nyx.com/files/nyse_amex_options_fee_schedule_12_01_12__.pdf. See also Securities Exchange Act Release No. 
68036 (October 11, 2012), 77 FR 63900 (October 17, 2012) (SR-
NYSEMKT-2012-50).
    \12\ The Exchange notes that this aspect of the proposed change 
related to the activity of an affiliated ETP Holder on NYSE Arca 
Equities has been previously included in an immediately effective 
filing. See Securities Exchange Act Release No. 67020, (May 18, 
2012) 77 FR 31050 (May 24, 2012) (SR-NYSEArca-2012-41).
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    The Exchange believes that the proposed changes are designed to 
incent all market participants, thereby removing impediments to and 
perfecting the mechanism of a free and open market system. In addition, 
for the reasons stated above, the proposed changes are not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.

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 because it is designed to 
attracted [sic] additional volume, in particular posted electronic 
Customer executions, to the Exchange, which would promote price 
discovery and transparency in the securities markets thereby 
benefitting competition in the industry. As stated above, the Exchange 
believes that the proposed change would impact all similarly situated 
OTP Holders and OTP Firms that post electronic Customer executions on 
the Exchange equally, and as such, the proposed change would not impose 
a disparate burden on competition either among or between classes of 
market participants. In addition, providing an alternative 
qualification basis for certain tiers by including volume from 
affiliates allows a firm with a diverse business structure, but not a 
concentration on Customers orders only, to earn a higher credit for 
their Customers by posting order flow that improves the overall market 
quality, and encourages posting competitive prices, which result in 
better available markets for Customer orders.\13\ 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 promotes a competitive environment.
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    \13\ The Exchange notes that the Commission has not previously 
determined that this aspect of the proposed change related to the 
activity of an affiliated ETP Holder on NYSE Arca Equities would 
impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. See id.
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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) \14\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \15\ thereunder, because it establishes a due, fee, or other 
charge imposed by the NYSE Arca.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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) \16\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \16\ 15 U.S.C. 78s(b)(2)(B).

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[[Page 7831]]

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-2013-04 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-2013-04. 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-2013-04, and should 
be submitted on or before February 25, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02300 Filed 2-1-13; 8:45 am]
BILLING CODE 8011-01-P