Document ID: SEC-2012-1912-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2012-11-20T05:00Z

[Federal Register Volume 77, Number 224 (Tuesday, November 20, 2012)]
[Notices]
[Pages 69682-69685]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28148]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68231; File No. SR-NYSEMKT-2012-60]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Amend the Amex 
Options Fee Schedule To Introduce Fees for the Use of Ports

November 14, 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 November 1, 2012, 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Amex Options Fee Schedule 
(the ``Fee Schedule'') to introduce fees for the use of ports. 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 introduce 
monthly fees for the use of ports that provide connectivity to the 
Exchange's trading systems (i.e., ports for entry of orders and/or 
quotes (``order/quote entry ports'')) as well as for ports that allow 
for the receipt of ``drop copies'' of order or transaction information 
(``drop copy ports'' and, together with order/quote entry ports, 
``ports'').\4\ The Exchange proposes to implement the fee changes on 
November 1, 2012.
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    \4\ Firms receive confirmations of their orders and receive 
execution reports via the order/quote entry port that is used to 
enter the order or quote. A ``drop copy'' contains redundant 
information that a firm chooses to have ``dropped'' to another 
destination (e.g., to allow the firm's back office and/or compliance 
department, or another firm--typically the firm's clearing broker--
to have immediate access to the information). Such drop copies can 
only be sent via a drop copy port. Drop copy ports cannot be used to 
enter orders and/or quotes.
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    The Exchange currently makes order/quote entry ports available for 
connectivity to its trading systems, but does not currently charge for 
order/quote entry ports related to option activity on NYSE Amex 
Options. The Exchange proposes to implement fees for order/quote entry 
ports on a per port basis. More specifically, the Exchange proposes to 
charge $200 per port per month for order/quote entry ports; provided, 
however, that (i) the first five order/quote entry ports authorized for 
option activity on NYSE Amex Options would not be charged and the 
proposed $200 per port fee would be decreased to $100 per port per 
month for ports 101 or more,\5\ and (ii) unutilized order/quote entry 
ports that connect to the Exchange via its backup datacenter would be 
considered established for backup purposes and not charged port 
fees.\6\
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    \5\ For example, if five ports are authorized for order/quote 
activity, there would be no charge. However, a sixth order/quote 
entry port would be charged $200. 50 order/quote entry ports would 
be charged $9,000 total (i.e., 45 x $200) and 100 order/quote entry 
ports would be charged $19,000 total (i.e., 95 x $200). However, 120 
order/quote entry ports would be charged $21,000 total (i.e., 95 x 
$200 plus 20 x $100). For purposes of calculating the number of 
order/quote entry ports, the Exchange proposes to aggregate the 
ports of affiliates. An affiliate 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 firm. See 
NYSE Amex Options Rule 900.2NY(1).
    \6\ The Exchange's backup datacenter is currently located in 
Chicago, Illinois.

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[[Page 69683]]

    The Exchange proposes that unutilized order/quote entry ports that 
connect to the Exchange via its backup datacenter and are not utilized 
be considered established for backup purposes and not charged port 
fees. However, if activity were conducted through one of these order/
quote entry ports, whether for backup or any other purposes, port fees 
would apply for the relevant month or months. In this regard, the 
Exchange notes that it monitors usage of these particular ports. 
Accordingly, if an order/quote were sent to the Exchange via one of 
these ports, then the port would be charged the applicable monthly port 
fee.
    The Exchange proposes to implement a fee of $500 for drop copy 
ports.\7\ Additionally, the Exchange proposes to specify that only one 
fee per drop copy port would apply, even if the port receives drop 
copies from multiple order/quote entry ports.
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    \7\ See supra note 4.
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    The Exchange also proposes that drop copy ports that connect to the 
Exchange via its backup datacenter not be charged if the drop copy port 
is configured such that it is duplicative of another drop copy port of 
the same user, regardless of whether the drop copy port is utilized or 
not. The Exchange is proposing to treat drop copy ports in this manner 
because a firm would not derive any value or utility from a drop copy 
port in the datacenter that is duplicative of another drop copy port 
that it already has outside of the datacenter, in that, because drop 
copy ports are used to send duplicative information, a second drop copy 
port carrying the same information would not be a useful resource, 
except for a backup purpose.
    Overall, the Exchange believes that the changes proposed herein 
will result in a method of billing for ports that is closely aligned 
with the needs of firms with ports and permit the Exchange to remain 
competitive with other exchanges with respect to fees charged for 
ports.\8\ The Exchange notes that the proposed changes are not 
otherwise intended to address any other issues surrounding ports or 
port fees and that the Exchange is not aware of any problems that port 
users would have in complying with the proposed change.
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    \8\ For example, the charge for connectivity to the NASDAQ Stock 
Market LLC (``NASDAQ'') NY-Metro and Mid-Atlantic Datacenters is 
$500 and a separate charge for Pre-Trade Risk Management ports is 
applicable, which ranges from $400 to $600 and is capped at $25,000 
per firm per month. Also, the BATS Exchange, Inc. (``BZX'') charges 
$400 per month per pair (primary and secondary data center) for 
logical ports. Additionally, EDGA Exchange, Inc. (``EDGA'') and EDGX 
Exchange, Inc. (``EDGX'') each charge $500 per port. EDGA and EDGX 
also provide the first five ports for free.
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    The Exchange proposes to implement these changes on November 1, 
2012. In this regard, the Exchange notes that billing for ports would 
be based on the number of ports on the third business day prior to the 
end of the month. In addition, the level of activity with respect to a 
particular port would not affect the assessment of monthly fees, such 
that, except for ports that are not charged and ports considered 
established for backup purposes, even if a particular port is not used, 
a port fee would still apply.
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''),\9\ in general, and furthers the objectives of Section 6(b)(4) 
of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
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    Overall, the Exchange believes that the proposed changes, including 
the rates proposed, are reasonable because the fees charged for order/
quote entry ports and drop copy ports are expected to permit the 
exchange to offset, in part, its connectivity costs associated with 
making such ports available, including costs based on gateway software 
and hardware enhancements and resources dedicated to gateway 
development, quality assurance, and support. In this regard, the 
Exchange believes that its fees are competitive with those charged by 
other venues, and that in some cases its port fees are less expensive 
than many of its primary competitors.\11\ The Exchange believes that 
the changes proposed herein will result in a method of billing for 
ports that is closely aligned with the needs of firms with ports.
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    \11\ See supra note 8.
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    The Exchange believes that the proposed methodology for billing for 
order/quote entry ports is reasonable because it will allow a firm to 
request, and pay for, the specific number of ports that it requires. 
This aspect of the proposed change is also equitable and not unfairly 
discriminatory because it will result in charges for order/entry ports 
being based on the number of ports utilized. This aspect of the 
proposed change is also equitable and not unfairly discriminatory 
because it will apply on an equal basis for all ports on the Exchange, 
except for order/quote entry ports in the backup datacenter that are 
not utilized.\12\
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    \12\ The Exchange describes below how the proposed changes 
regarding the backup datacenter are consistent with the Act.
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    The Exchange believes that it is reasonable to charge $200 per port 
per month for order/quote entry ports because it is comparable to the 
rates of other exchanges.\13\ The Exchange also believes that the fees 
are equitable and not unfairly discriminatory because they would apply 
to all users of order/quote entry ports on the Exchange, subject to the 
exception noted above.
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    \13\ See supra note 8.
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    The Exchange also believes that it is equitable and not unfairly 
discriminatory to provide the first five option order/quote entry ports 
for free and to decrease the rate to $100 for ports 101 and greater. 
Specifically, providing the first five option ports without charge 
would allow firms to adapt to the introduction of the fees for ports. 
Additionally, decreasing the fee to $100 per port for more than 100 
ports would permit those firms that have multiple order/quote entry 
ports to maintain connections to the Exchange, despite the port fees 
that would apply as a result of this proposed change. Further, the 
Exchange notes that option Market Makers would, generally, be the type 
of market participant that would have more than 100 ports. This is due 
in large part to the significant number of series that exist for any 
particular option class \14\ and the corresponding obligations that 
NYSE Amex Option Market Makers have to maintain a bid or offer in 
assigned classes. Furthermore, Market Makers that quote across a 
significant number, if not all, of the 2207 classes traded on the 
Exchange \15\ have responsibility for upwards of 400,000 individual 
option series. Accordingly, the level of activity that is required to 
satisfy the quoting obligations, which directly relates to the number 
of ports needed, is such that the Exchange believes it is equitable and 
not unfairly discriminatory to provide the first five option order/
quote entry ports for free and to decrease the per port charge for 
firms that have more than 100 order/quote entry ports on the 
Exchange.\16\
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    \14\ For example, as of October 18, 2012, there were more than 
1800 individual option series overlying Google, Inc.
    \15\ As of October 18, 2012.
    \16\ See supra note 5.
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    The Exchange believes that the proposed new fee for drop copy ports 
is reasonable because it will result in a fee being charged for the use 
of technology and infrastructure provided by the

[[Page 69684]]

Exchange. In this regard, the Exchange believes that the rate is 
reasonable because it is comparable to the rate charged by other 
exchanges for drop copy ports.\17\ Furthermore, the Exchange believes 
that the proposed rate for a drop copy port is reasonable because, when 
compared to the proposed rate for order/quote entry ports, it reflects 
the level of resources required of the Exchange to establish and 
maintain the port, including the various sources from which data comes 
(i.e., establishing connections to order/quote entry ports). The 
proposed rate is also reasonable in light of the functional/operational 
differences between a drop copy port and an order/quote entry port 
(e.g., that configuration and monitoring of the drop copy port is more 
substantial and because drop copy ports capture cumulative activity).
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    \17\ See supra note 8.
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    The Exchange also believes that it is reasonable that only one fee 
per drop copy port would apply, even if the port receives drop copies 
from multiple order/quote entry ports, because the purpose of drop 
copies is such that a trading unit's or a firm's entire order and 
execution activity is captured, including with respect to both equities 
and options [sic]. This is also reflected in the rate of $500 that is 
proposed for drop copy ports, which is higher than the rate proposed 
for order/quote entry ports. The Exchange believes that the proposed 
new fee for drop copy ports is equitable and not unfairly 
discriminatory because it will apply on an equal basis to all users of 
drop copy ports and to all drop copy ports on the Exchange, except for 
ports in the backup datacenter.\18\ In this regard, all firms are able 
to request drop copy ports, as is the case with order/quote entry 
ports.
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    \18\ See supra note 12.
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    The Exchange believes that it is reasonable to not charge for 
order/quote entry ports in its backup datacenter that are not utilized. 
However, the exchange does not restrict firms from using order/quote 
entry ports from the backup datacenter and, as described above, if one 
of these ports is utilized for order/quote entry, then port fees would 
apply. The Exchange believes that this is equitable and not unfairly 
discriminatory because it would permit firms to have ports established 
for backup purposes, should they ever be needed, without the burden of 
paying for such ports when they are not utilized. The Exchange believes 
this is equitable and not unfairly discriminatory because firms will 
not be disincentivized from requesting backup ports because of a fee 
that may otherwise apply. This would contribute to the efficiency of a 
backup process if primary order/quote entry ports ever became 
unavailable.
    The Exchange also believes that it is reasonable to not charge for 
drop copy ports in its backup datacenter if configured such that it is 
duplicative of another drop copy port of the same user, regardless of 
whether the drop copy port is utilized or not. The Exchange believes 
that it is reasonable to treat drop copy ports in this manner because a 
firm would not derive any value/use from a drop copy port in the 
datacenter that is duplicative of another drop copy port that it 
already has outside of the datacenter (i.e., because drop copy ports 
are used to send duplicative information anyways, a second drop copy 
port carrying the same information would not be a useful resource), 
except for a backup purpose. The Exchange believes that this is 
equitable and not unfairly discriminatory because it would permit firms 
to have ports established for drop copy purposes in the backup 
datacenter, should they ever be needed, without the burden of paying 
for such ports. Because the drop copy port would not be providing any 
information that the firm did not already have, since the port would be 
configured such that it is duplicative of another drop copy port of the 
same user, the Exchange believes that it is equitable and not unfairly 
discriminatory to treat order/quote entry ports and drop copy ports 
differently in this manner. The Exchange believes this is also 
equitable and not unfairly discriminatory because firms will not be 
disincentivized from requesting backup drop copy ports because of a fee 
that may otherwise apply. This would contribute to the efficiency of a 
backup process if primary drop copy ports ever became unavailable.
    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 rule 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) \19\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \20\ thereunder, because it establishes a due, fee, or other 
charge imposed by the NYSE MKT.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(2).6
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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-NYSEMKT-2012-60 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-2012-60. 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

[[Page 69685]]

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 20549-1090, on official business days between the hours of 10:00 
a.m. and 3:00 p.m. Copies of the filing will also be available for 
inspection and copying at the NYSE's principal office and on its 
Internet Web site at www.nyse.com. 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-2012-60 and should be submitted on or before 
December 11, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Kevin M. O'Neill,
Deputy Secretary.
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    \21\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2012-28148 Filed 11-19-12; 8:45 am]
BILLING CODE 8011-01-P