Document ID: SEC-2013-1429-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT, LLC
Posted Date: 2013-08-12T04:00Z

[Federal Register Volume 78, Number 155 (Monday, August 12, 2013)]
[Notices]
[Pages 48922-48925]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-19404]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70123; File No. SR-NYSEMKT-2013-63]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending the Message To 
Contracts Traded Ratio Fee in the NYSE Amex Options Fee Schedule

August 6, 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 August 1, 2013, 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, 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 Message To Contracts Traded 
Ratio Fee in the NYSE Amex Options Fee Schedule (``Fee Schedule''). The 
Exchange proposes to implement the fee change effective August 1, 2013. 
The text of the proposed rule change is available on the Exchange's Web 
site at

[[Page 48923]]

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 Messages To Contracts Traded 
Ratio Fee in the Fee Schedule. The Exchange proposes to implement the 
fee change effective August 1, 2013.
    Under the current fee, which was first adopted in 2011,\4\ an ATP 
Firm pays $0.01 per 1,000 messages in excess of one billion messages in 
a calendar month if the ATP Firm does not execute at least one contract 
for every 1,500-3,000 messages entered, as determined by the Exchange. 
The Exchange notifies ATP Firms of any change to the ratio to be used 
to calculate the fee at least one business day in advance of such 
change via an Information Memo. Such number is applicable in the 
following calendar month and thereafter until changed.
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    \4\ See Securities Exchange Act Release No. 64655 (June 13, 
2011), 76 FR 35495 (June 17, 2011) (SR-NYSEAmex-2011-37).
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    The Messages To Contracts Traded Ratio Fee is designed to encourage 
efficient usage of systems capacity by all ATP Firms by taking into 
consideration quotes as well as orders entered and looking at the 
number of contracts traded as a result. ATP Firms that enter excessive 
amounts of orders and quotes that produce little or no volume are 
assessed this fee based on the ratio of quotes and orders to contracts 
traded. The Exchange recognizes that there can be problems at the level 
of either an ATP Firm or its vendor or at the Exchange that can cause 
inadvertent bursts of quotes and/or orders. For that reason, the 
Exchange initially proposed to consider only those ATP Firms that 
exceed one billion quotes and/or orders in a given month in determining 
whether inefficient utilization of systems capacity has occurred. In 
doing so, the Exchange intended to maintain its existing, well-
understood incentives for order-sending firms to use bandwidth 
efficiently, while ensuring that NYSE Amex Options Market Makers 
(``Market Makers'') also have such incentives but with a higher level 
of traffic permitted before the fee takes effect. The Exchange believes 
that this higher level of free message traffic for Market Makers is 
appropriate due to the quoting obligations incurred by Market Makers 
and their importance as liquidity providers in the options market. In 
the last six months, about 10% of ATP Firms have exceeded the one 
billion messages threshold, and all of these ATP Firms were Market 
Makers quoting over 250 issues. As such, generally only larger firms 
are potentially subject to the fee.
    The Exchange proposes to make three changes to the current fee 
calculation. First, the Exchange proposes to increase the baseline 
number of messages that each ATP Firm may send each month before 
becoming potentially liable for fees from one billion messages to 1.5 
billion messages. Overall message traffic has risen since June 2011 due 
to additional products, series, and exchanges entering the marketplace. 
For example, the peak rate of traffic experienced by The Options Price 
Reporting Authority (``OPRA'') in May 2011 was 2.8 million messages per 
second. In May 2013, the peak rate was 5.8 million messages per second. 
Due to this increase in message traffic generally, the Exchange 
believes that it is appropriate to raise the baseline number of 
messages permitted before the fee applies. Most of the ATP Firms that 
have met the one billion messages threshold in the last six months 
would also have exceeded the proposed 1.5 billion messages threshold in 
that period, which the Exchange believes is reflective not of any 
inefficient use of its systems but rather of the overall message 
traffic increase since June 2011 as a result of additional products, 
series, and exchanges.
    Second, the Exchange proposes to expand the range of ratios 
permitted from 1,500:1 to 5,000:1. Presently the range of the ratios 
permitted is 1,500:1 to 3,000:1. This expansion will give the Exchange 
greater flexibility in responding to market conditions that cause 
heightened levels of message traffic. Thus, if appropriate, the 
Exchange could increase the ratio during times of market stress so that 
ATP Firms could continue to foster price discovery and transparency 
without having to be concerned about incurring the Messages To 
Contracts Traded Ratio Fee.
    Third, the Exchange proposes to grant each ATP Firm acting as 
Market Maker an additional one million messages per month (above and 
beyond the 1.5 billion per month that will be applicable to all ATP 
Firms) for each issue in its primary market making appointment if it 
executes in the aggregate across all options issues in its assignment 
at least 20,000 contracts average daily volume (``ADV'') electronically 
as a Market Maker.\5\ For example, if a Market Maker has an appointment 
in 500 issues and executes electronically at least 20,000 contracts ADV 
as a Market Maker in the aggregate across all 500 issues, then the 
Market Maker will receive another 500 million messages for a total of 
two billion messages that it can send in that month before it 
potentially becomes liable for the Messages To Contracts Traded Ratio 
Fee (and then only if it fails to maintain an acceptable ratio of 
messages sent to contracts executed).
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    \5\ The Market Maker is not required to execute at least 20,000 
contracts ADV as Market Maker in each of the assigned issues; 
rather, execution volume in the aggregate across all issues is 
considered.
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    The Exchange notes that the ATP Firms that would have exceeded a 
1.5 billion messages threshold in the last six months each acted as 
Market Maker for between approximately 800 to 2,100 issues, with an 
average of 1,436 issues quoted. If an execution requirement of at least 
20,000 contracts ADV as Market Maker had applied to such ATP Firms, the 
average ATP Firm could have obtained the additional one million 
messages by executing just 14 contracts per day (20,000 contracts 
divided by 1,436 issues). Based on this historical analysis, the 
Exchange believes that most Market Makers that exceed the 1.5 billion 
messages threshold will be capable of reaching the 20,000 contracts ADV 
threshold to obtain the additional one million messages per month for 
each issue they quote.
    The proposed change is not intended to address any other issues, 
and the Exchange is not aware of any problems that ATP 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,\6\ in general, and furthers the 
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\7\ in 
particular, because it provides for the equitable allocation of 
reasonable dues, fees, and other charges among its members, issuers and 
other persons

[[Page 48924]]

using its facilities and does not unfairly discriminate between 
customers, issuers, brokers or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed increase in the total 
number of monthly messages from one billion to 1.5 billion per month is 
reasonable in light of the additional products, series, and exchanges 
that have entered the marketplace since the fee was first adopted; 
message traffic has nearly doubled since that time. Thus, the Exchange 
believes that it must adjust the fee ratio to reflect current market 
conditions that can lead to increased message traffic and are not 
necessarily reflective of any inefficient use of the Exchange's 
systems. The increase is also equitable and not unfairly discriminatory 
because it will apply to all ATP Firms.
    The proposal to increase the range of ratios of messages per 
contracts traded is reasonable because it will give the Exchange 
greater flexibility in responding to market conditions, including 
volatility, that cause heightened levels of message traffic. The 
proposed change is equitable and not unfairly discriminatory because it 
will apply to all ATP Firms.
    The proposed change to grant ATP Firms acting as Market Makers an 
additional one million messages per month (above and beyond the 1.5 
billion per month that will be applicable to all ATP Firms) for each 
issue in its primary market making appointment if the Market Maker 
executes electronically at least 20,000 contracts ADV as a Market Maker 
is reasonable because Market Makers have quoting obligations that 
require them to submit quotes to the Exchange for each issue, thereby 
increasing their message traffic. The Exchange believes that the 
threshold of requiring executions of at least 20,000 contracts ADV as 
Market Maker is reasonable because it is consistent with the Exchange's 
practice of tying the permitted number of messages to actual executions 
on the Exchange, thereby encouraging efficient use of the Exchange's 
systems capacity. As described above, the Exchange believes that most 
Market Makers potentially subject to the fee will be able to meet the 
requirement for the additional messages because on average they quote 
1,436 issues, which would require them to execute on average 14 
contracts per day in each issue to qualify for the additional messages.
    The Exchange believes that the proposed change with respect to 
raising to [sic] message threshold level to 1.5 billion messages and 
adjusting the range of ratios permitted is equitable and not unfairly 
discriminatory because Market Makers' quoting activity fosters price 
discovery and transparency and is an important source of liquidity for 
all market participants. Thus, all market participants may benefit from 
the change. The proposed change is not inequitable or unfairly 
discriminatory to non-Market Makers because such firms generally have 
not reached the initial threshold of one billion messages under the 
current fee and similarly are not expected to reach the new threshold 
of 1.5 billion messages that would potentially trigger the new fee. The 
Exchange also believes that the proposed change is equitable and not 
unfairly discriminatory among Market Makers because the number of 
additional messages granted if the 20,000 share ADV threshold is met is 
tied directly to the number of issues quoted. Market Makers that quote 
more issues should be expected to have a higher volume of messages, 
which in no way reflects inefficient use of the Exchange's systems and 
thus is fair to Market Makers. For the reasons stated above, the 
Exchange believes that it will not be difficult for a Market Maker 
subject to the fee to reach that threshold given the small number of 
contracts it must execute per appointment. A requirement to achieve a 
minimal level of electronic Market Maker volume as evidence of the 
price discovery fostered in exchange for the additional messages is 
necessary to ensure the allocation of extra messages is done equitably 
and in a manner that is not unfairly discriminatory.
    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. Rather, the proposed fee is designed to discourage 
inefficient use of the Exchange's systems capacity by the Exchange's 
market participants. The Exchange believes that the 20,000 contract ADV 
threshold will not burden competition among Market Makers on the 
Exchange based on the analysis of historical data described above; 
specifically, the Exchange expects that Market Makers should be able to 
meet the threshold because on average they will need to execute a 
relatively small number of contracts per issue per day. The Exchange 
does not anticipate that non-Market Makers will be subject to the fee 
for the reasons described above.
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    \8\ 15 U.S.C. 78f(b)(8).
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    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 or credits 
available at other venues to be more favorable. In such an environment, 
the Exchange must continually adjust its fees and credits to remain 
competitive with other exchanges and with alternative trading systems 
that have been exempted from compliance with the statutory standards 
applicable to exchanges. Because competitors are free to modify their 
own fees and credits in response, and because market participants may 
readily adjust their trading practices, the Exchange believes that the 
degree to which fee or credit changes in this market may impose any 
burden on competition is extremely limited. As a result of all of these 
considerations, the Exchange does not believe that the proposed change 
will impair the ability of ATP Firms or competing order execution 
venues to maintain their competitive standing in the financial markets.

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) \9\ of the Act and subparagraph (f)(2) of Rule 19b-
4 \10\ thereunder, because it establishes a due, fee, or other charge 
imposed by the Exchange.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 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

[[Page 48925]]

under Section 19(b)(2)(B) \11\ of the Act to determine whether the 
proposed rule change should be approved or disapproved.
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    \11\ 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-NYSEMKT-2013-63 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-2013-63. 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 at 100 F Street NE., 
Washington, DC 20549-1090 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-
NYSEMKT-2013-63, and should be submitted on or before September 3, 
2013.

    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. 2013-19404 Filed 8-9-13; 8:45 am]
BILLING CODE 8011-01-P