Document ID: SEC-2012-1504-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2012-09-13T04:00Z

[Federal Register Volume 77, Number 178 (Thursday, September 13, 2012)]
[Notices]
[Pages 56683-56685]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-22523]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67806; File No. SR-NYSEArca-2012-97]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE 
Arca Equities Schedule of Fees and Charges for Exchange Services to 
Eliminate the Tape A Step Up Tier, Modify the Remaining Tape Step Up 
Tiers and Introduce an Alternative Method of Qualifying for Tier 1

September 7, 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 27, 2012, 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Equities Schedule of 
Fees and Charges for Exchange Services (``Fee Schedule'') to (i) 
eliminate the Tape A Step Up Tier; (ii) modify the remaining Tape Step 
Up Tiers to exclude ETP Holders that qualify for the Cross-Asset Tier 
or Investor Tier 4; and (iii) introduce an alternative method of 
qualifying for Tier 1. The Exchange proposes to implement the fee 
changes on September 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule to (i) eliminate 
the Tape A Step Up Tier; (ii) modify the remaining Tape Step Up Tiers 
to exclude ETP Holders that qualify for the Cross-Asset Tier or 
Investor Tier 4; and (iii) introduce an alternative method of 
qualifying for Tier 1. The Exchange proposes to implement the fee 
changes on September 1, 2012.
    The Exchange proposes to eliminate the Tape A Step Up Tier, which 
currently provides for a $0.0029 per share fee for orders of qualifying 
ETP Holders that take liquidity from the Book in Tape A Securities.\4\ 
The Exchange has determined to eliminate the Tape A Step Up Tier 
because it has generally not incentivized ETP Holders to submit 
additional liquidity in Tape A Securities.
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    \4\ Because the first instance of footnote 4 in the Fee 
Schedule, which describes average daily volume (``ADV''), is 
currently included within the Tape A Step Up Tier, the Exchange 
proposes to instead make the first instance of footnote 4 in the Fee 
Schedule appear with the proposed new footnote 4 reference in Tier 
1.
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    The Exchange also proposes to specify in the Fee Schedule that ETP 
Holders that qualify for the Cross-Asset Tier or Investor Tier 4 would 
not be eligible to qualify for the Tape B and Tape C Step Up Tiers and 
the Tape C Step Up Tier 2.\5\ Currently, Investor Tier 1-3 ETP Holders 
are ineligible to qualify for the reduced fees provided under the Tape 
B and Tape C Step Up Tiers and the Tape C Step Up Tier 2. The Exchange 
believes that the credit per share of $0.0030 is sufficient enough that 
an ETP Holder

[[Page 56684]]

that qualifies for the Cross-Asset Tier or Investor Tier 4 should not 
also be eligible for the reduced fees applicable to the Tape B and Tape 
C Step Up Tiers and the Tape C Step Up Tier 2.
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    \5\ As described above, the Exchange has proposed to eliminate 
the Tape A Step Up Tier.
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    Finally, the Exchange proposes to introduce an alternative method 
of qualifying for Tier 1. Currently, an ETP Holder must provide 
liquidity an average daily share volume per month of 0.70% or more of 
the U.S. consolidated ADV (``CADV'') \6\ to qualify for Tier 1 and the 
applicable rates thereunder. As proposed, an ETP Holder, including a 
Market Maker, could alternatively qualify for Tier 1 by (a) providing 
liquidity an average daily share volume per month of 0.15% or more of 
the U.S. CADV and (b) being affiliated with an NYSE Arca Options 
Trading Permit (``OTP'') Holder or OTP Firm that provides an ADV of 
electronic posted executions (including all account types, e.g., Firm, 
Customer, Broker Dealer or Market Maker) in Penny Pilot issues on NYSE 
Arca Options of at least 100,000 contracts during the month, of which 
at least 25,000 contracts must be for the account of a Market Maker.\7\ 
The Exchange believes that, by providing for an additional method of 
qualifying for Tier 1, this proposed change will provide a greater 
incentive to attract additional equity and option liquidity so as to 
qualify for the Tier 1 rates.
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    \6\ U.S. CADV means United States Consolidated Average Daily 
Volume for transactions reported to the Consolidated Tape and 
excludes volume on days when the market closes early.
    \7\ The Exchange notes that the Fee Schedule currently includes 
a Cross-Asset Tier for which qualification is similarly determined 
based on an ETP Holder's equity activity on the Exchange as well as 
the option activity of an affiliated OTP Holder or OTP Firm on NYSE 
Arca Options. For purposes of the proposed alternative Tier 1 
qualifying method, and as is the case for the existing Cross-Asset 
Tier, an affiliate of an ETP Holder would be a person or firm that 
directly, or indirectly through one or more intermediaries, controls 
or is controlled by, or is under common control with, the ETP 
Holder. See NYSE Arca Rule 1.1(b). Also, 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 December 31, 2012.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (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 and does not 
unfairly discriminate 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).
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    The Exchange believes that the proposed rule change is reasonable 
because eliminating the Tape A Step Up Tier would remove a pricing tier 
from the Fee Schedule that has generally not incentivized ETP Holders 
to submit additional liquidity in Tape A Securities. Removal of the 
Tape A Step Up Tier is also equitable and not unfairly discriminatory 
because it would be eliminated for all ETP Holders.
    The Exchange believes that making ETP Holders that qualify for the 
Cross-Asset Tier or Investor Tier 4 ineligible to qualify for the Tape 
B and Tape C Step Up Tiers and the Tape C Step Up Tier 2 is reasonable 
because the ETP Holders that qualify for the Cross-Asset Tier or 
Investor Tier 4 would already receive a higher credit for such 
executions and would therefore not require the added economic incentive 
of decreased execution fees in order to encourage greater amounts of 
liquidity. Furthermore, the Exchange believes that this is equitable 
and not unfairly discriminatory because all ETP Holders that qualify 
for the Cross-Asset Tier or Investor Tier 4 would be ineligible to 
qualify for the Tape B and Tape C Step Up Tiers and the Tape C Step Up 
Tier 2.
    The Exchange also believes that the proposed rule change is 
reasonable because the proposed new method of qualifying for Tier 1 
would provide ETP Holders, including Market Makers, with an additional 
method of qualifying for the applicable rates thereunder. In this 
regard, the Exchange believes that the Tier 1 rates are reasonable 
because they would directly relate to the activity of an ETP Holder and 
an affiliated OTP Holder or OTP Firm on NYSE Arca Options, thereby 
encouraging increased trading activity on both the NYSE Arca equity and 
option markets. Additionally, the Exchange believes that the proposed 
change is reasonable because the opportunity to qualify for the Tier 1 
rates would incentivize ETP Holders to provide liquidity on the 
Exchange and would result in rates that are reasonably related to an 
exchange's market quality that is associated with higher volumes. In 
this regard, the proposal is also designed to bring additional posted 
order flow to NYSE Arca Options, so as to provide additional 
opportunities for all OTP Holders and OTP Firms to trade on NYSE Arca 
Options. Accordingly, the Exchange believes that this may incentivize 
ETP Holders and their affiliates to increase the orders sent directly 
to the Exchange's equity and option markets and therefore provide 
liquidity that supports the quality of price discovery and promotes 
market transparency.
    The Exchange also believes that the proposed thresholds for the new 
method of qualifying for Tier 1 are reasonable because they are 
designed to encourage increased trading activity on both the NYSE Arca 
equity and option markets. The Exchange also believes that the proposed 
thresholds are reasonable because they are comparable to thresholds 
that are already in place on the Exchange. For example, while the 
proposed equities threshold of 0.15% is lower than that of the Cross-
Asset Tier (i.e., 0.45%), it is balanced by the proposed options 
threshold of 100,000 contracts, which is higher than that of the Cross-
Asset Tier (i.e., 90,000 contracts). Furthermore, while the options 
threshold for the Cross-Asset Tier considers only Customer executions, 
the proposed options threshold considers executions for all account 
types (e.g., Firm, Customer, Broker Dealer and Market Maker). The 
Exchange also believes that the proposed thresholds are reasonable 
because they are comparable to the thresholds that are already in place 
on at least one other exchange. Specifically, the NASDAQ Stock Market 
provides a credit of $0.0029 per share when a member adds displayed 
liquidity that is greater than 0.15% of U.S. CADV and greater than 
100,000 total contracts (added and removed) on the NASDAQ Options 
Market. Additionally, requiring that at least 25,000 of the 100,000 
contract threshold be for the account of a Market Maker on NYSE Arca 
Options is reasonable because it would reasonably ensure that an ETP 
Holder that qualifies for Tier 1 according to this newly proposed 
method is affiliated with an OTP Holder or OTP Firm that submits option 
volume that is not exclusively for Customers.\10\
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    \10\ The Cross-Asset Tier is designed to incentivize additional 
liquidity from ETP Holders that are affiliated with OTP Holders or 
OTP Firms that submit Customer flow on NYSE Arca Options.
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    The proposed new method of qualifying for Tier 1 is also equitable 
and not unfairly discriminatory because it would be available to all 
ETP Holders on an equal and non-discriminatory basis. In this regard, 
the Exchange notes that ETP Holders that are not affiliated with an OTP 
Holder or OTP Firm on NYSE Arca Options would continue to have the 
opportunity to qualify for Tier 1 by satisfying the existing 
requirements, which would not change as a result of this proposal.

[[Page 56685]]

    Finally, 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 change reflects this competitive 
environment.

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) \11\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \12\ thereunder, because it establishes a due, fee, or other 
charge imposed by NYSE Arca.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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.

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-2012-97 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-2012-97. 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 
a.m. and 3 p.m. Copies of the 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-2012-97 and should 
be submitted on or before October 4, 2012.

    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. 2012-22523 Filed 9-12-12; 8:45 am]
BILLING CODE 8011-01-P