Document ID: SEC-2011-1538-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Amex LLC
Posted Date: 2011-10-11T04:00Z

[Federal Register Volume 76, Number 196 (Tuesday, October 11, 2011)]
[Notices]
[Pages 62887-62890]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-26102]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65472; File No. SR-NYSEAmex-2011-72]

Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to Fees 
Applicable to Qualified Contingent Cross Orders in the Options Fee 
Schedule

October 3, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 26, 2011, NYSE Amex LLC (the ``Exchange'' or ``NYSE 
Amex'') filed with the Securities and Exchange Commission 
(``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 
(``Fee Schedule'') to establish fees relating to Qualified Contingent 
Cross

[[Page 62888]]

(``QCC'') orders that are entered and executed through the Exchange 
systems. The proposed change will be operative on September 26, 2011. 
The text of the proposed rule change is available at the Exchange, the 
Commission's Public Reference Room, and http://www.nyse.com.

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 the proposal is to establish fees for executions of 
a new order type known as QCC.\3\ The Exchange intends to charge 
Customer orders that comprise all or part of a QCC order a rate of $.00 
per contract. This rate is consistent with the fees charged to Customer 
orders generally. All other participants \4\ will be charged a rate of 
$.20 per contract for QCC orders in which they participate. The 
Exchange does not intend to allow QCC orders to be treated as Strategy 
Trades for billing purposes. Participants engaged in trades that would 
qualify for the fee caps on Strategy Executions can choose to either 
pay the proposed QCC fees or avail themselves of the Strategy Trade fee 
cap by not executing such orders utilizing the QCC order type.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 65047 (August 5, 
2011), 76 FR 49812 (August 11, 2011) (SR-NYSEAmex-2011-56). The QCC 
permits an NYSE Amex ATP Holder to effect a qualified contingent 
trade (``QCT'') in a Regulation NMS stock and cross the options leg 
of the trade on the Exchange immediately upon entry and without 
order exposure if the order is for at least 1,000 contracts, is part 
of a QCT, and is executed at a price at least equal to the national 
best bid and offer, as long as there are no Customer orders in the 
Exchange's Consolidated Book at the same price.
    \4\ This includes Specialists, e-Specialists, NYSE Amex Options 
Market Makers, Non-NYSE Amex Options Market Makers, Broker Dealers, 
Professional Customers, and Firms.
---------------------------------------------------------------------------

    Along with this change, the Exchange proposes to introduce an 
incremental service fee of $.05 or $.10 per contract for a QCC order 
executed on behalf of a Specialist, e-Specialist, Market Maker (both 
Directed and non-Directed), or Firm that has reached its respective fee 
cap for the month under endnotes 5 or 6 of the Fee Schedule.\5\ When a 
capped participant trades with a non-Customer, the service fee will be 
$.05 per contract. When a capped participant trades with a Customer, 
the service fee will be $.10 per contract. Additionally, the 
incremental service fee of $.10 per contract will apply to all Firm 
Facilitation trades that would otherwise be charged a rate of $.00 per 
contract. All QCC trades will count towards the monthly fee caps and 
volume thresholds in endnotes 5 and 6 of the Fee Schedule.
---------------------------------------------------------------------------

    \5\ Under endnote 5, Specialist, e-Specialist, and Market Maker 
(both Directed and non-Directed) fees are aggregated and capped at 
$350,000 per month plus an incremental service fee of $.01 per 
contract for all Specialist, e-Specialist and Market Maker volume 
executed in excess of 3,500,000 contracts per month. Under endnote 
6, fees for Firm Proprietary manual trades are aggregated and capped 
at $100,000 per month for member firms plus an incremental service 
fee of $.01 per contract for all Firm Proprietary manual trading 
volume in excess of that cap.
---------------------------------------------------------------------------

    QCC orders where a Customer trades against a Market Maker will not 
result in the collection of Marketing Charges.
    Along with the proposed QCC fees, the Exchange intends to adopt a 
rebate of $.03 per contract for executed QCC orders. The rebate will be 
credited to the executing Floor Broker. The Exchange notes that the 
terms of a QCC order are negotiated and agreed to prior to being 
brought to an exchange for possible execution. In bringing a QCC order 
to the Exchange for execution, permit holders have two primary means of 
doing so. They can configure their systems to deliver the QCC order to 
the Exchange matching engines for validation and execution. 
Alternatively they can utilize the services of another ATP Holder 
acting as a Floor Broker. In turn, the Floor Broker who is in receipt 
of such an order can enter the order through an Exchange-provided 
system \6\ to be delivered to the Exchange matching engine for 
validation and potential execution. In light of the fact that the 
Exchange does not offer a front-end for order entry, unlike some of the 
competing exchanges,\7\ the Exchange believes it is necessary from a 
competitive standpoint to offer this rebate to the executing Floor 
Broker on a QCC order. The Exchange expects that the rebate offered to 
executing Floor Brokers will allow them to price their services at a 
level that will enable them to attract QCC order flow from participants 
who would otherwise utilize an existing front-end order entry mechanism 
offered by the Exchange's competitors instead of incurring the cost in 
time and money to develop their own internal systems to be able to 
deliver QCC orders directly to the Exchange systems. To the extent that 
Floor Brokers are able to attract these QCC orders, they will gain 
important information that will allow them to solicit the parties to 
the QCC orders for participation in other trades, which will in turn 
benefit all other Exchange participants through the additional 
liquidity and price discovery that may occur as a result. The Exchange 
notes that at least one other exchange offers a similar rebate.\8\
---------------------------------------------------------------------------

    \6\ Floor Brokers are required by NYSE Amex Rule 955NY to have 
systematized orders prior to representing them in open outcry. Using 
the same Electronic Order Capture System, Floor Brokers will be able 
to enter QCC orders for validation by the Exchange matching engines 
and potential execution.
    \7\ The International Securities Exchange (``ISE'') offers 
PRECISE TRADE as a means for users to enter orders and Chicago Board 
Options Exchange (``CBOE'') has a similar front-end order entry 
system called PULSE. Such systems do not require users to develop 
their own internal front-end order entry systems and may provide 
savings to users in terms of development time and costs.
    \8\ See NASDAQ OMX PHLX fee schedule dated September 12, 2011, 
page 22 (describing a Floor Broker Subsidy that can range as high as 
$.09 per contract), available at http://www.nasdaqtrader.com/content/marketregulation/membership/phlx/feesched.pdf.
---------------------------------------------------------------------------

    The proposed changes will be operative on September 26, 2011.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) \9\ of the Securities Exchange Act 
of 1934 (the ``Act''), in general, and Section 6(b)(4) \10\ of the Act, 
in particular, in that it is designed to provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and other persons using its facilities.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that adopting the proposed new fees for QCC 
orders where Customers pay $.00 and other participants pay $.20 per 
contract is reasonable, particularly since Customers have come to 
expect that they are able to trade for free. Also, Customers will 
likely have no way of knowing in advance whether or not their order 
might be executed as a QCC order or through some other means. 
Conversely, other parties to a QCC order will know in advance that they 
are being solicited to take part in a QCC order and can therefore 
factor in the expected charges in making their trading decision. 
Furthermore, the level of QCC fees for non-Customer participants is

[[Page 62889]]

comparable to the existing fees such participants currently pay to 
participate in trades on the Exchange. For these reasons the Exchange 
believes that the proposed fees are reasonable.
    The Exchange believes that the proposed new QCC order fees are not 
unfairly discriminatory because non-Customer participants generally are 
being charged the same rate. In addition, those participants who may 
benefit from a monthly fee cap and/or reduced or zero rates \11\ for 
certain trades will be subject to service fees of either $.05 or $.10 
per contract that will serve to ameliorate the per contract difference 
for a capped participant and a non-capped participant that is party to 
a QCC order.
---------------------------------------------------------------------------

    \11\ See supra note 5.
---------------------------------------------------------------------------

    The Exchange notes that the inclusion of QCC order fees and 
subsequent capping of such fees is consistent with what has been filed 
for and is effective on multiple exchanges, particularly with respect 
to the fee cap available to Firms.\12\ Additionally, the Exchange notes 
that, in seeking approval for the Firm monthly fee cap, the Exchange 
stated that it:
---------------------------------------------------------------------------

    \12\ CBOE, ISE and NASDAQ OMX PHLX, all include QCC fees in the 
fee caps that they have adopted on behalf of Firms. See CBOE fee 
schedule dated September 1, 2011, page 5, footnote 11, available at 
http://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf; ISE fee 
schedule dated August 1, 2011, page 16, endnote 1, available at 
http://www.ise.com/assets/documents/OptionsExchange/legal/fee/fee_schedule.pdf; and NASDAQ OMX PHLX fee schedule, supra note 8, pages 
8-9.

    Believes that the proposed monthly fee cap, which applies only 
to manual firm proprietary trades, is not unfairly discriminatory to 
other market participants because its purpose is to attract large 
block order flow to the floor of the Exchange, where such orders can 
be better handled in comparison with electronic orders that are not 
negotiable. To the extent that this purpose is achieved, all of the 
Exchange's market participants should benefit from the improved 
market liquidity.\13\
---------------------------------------------------------------------------

    \13\ See Securities Exchange Act Release No. 64656 (June 13, 
2011), 76 FR 35493, 35494 (June 17, 2011) (SR-NYSEAmex-2011-36).

    Including QCC orders in the Firm monthly fee cap is not 
inconsistent with that statement for several reasons. First, the 
Exchange expects that most Firms will chose to utilize a Floor Broker 
to handle their QCC orders. As explained previously, entering a QCC 
order requires either modifying proprietary front-end order entry 
systems, utilizing a Floor Broker, or utilizing an exchange sponsored 
front-end order entry system.\14\ Given the cost in both time and money 
associated with modifying proprietary front-end order entry systems and 
the fact that the Exchange does not offer an exchange sponsored front-
end order entry system, it is the Exchange's expectation that the 
majority of QCC orders will be entered by a Floor Broker on behalf of 
Firms. Firms will utilize existing infrastructure, such as telephones, 
to communicate QCC orders to Floor Brokers for entry and execution in 
the same manner in which they communicate other orders to Floor Brokers 
for manual execution. In short, from a Firm's perspective, QCC orders 
will be handled by a Floor Broker just like their other orders that are 
subject to the Firm monthly fee cap.\15\ By utilizing a Floor Broker, 
as opposed to an exchange-sponsored front-end order entry system 
available on other exchanges, Floor Brokers will gain important 
information that will allow them to solicit the parties to the QCC 
orders for participation in other trades, which will in turn benefit 
all other Exchange participants through the additional liquidity and 
price discovery that may occur as a result. For these reasons, the 
Exchange believes that the inclusion of QCC orders in the Firm monthly 
fee cap is not inconsistent with the statement made when the Firm 
monthly fee cap was implemented. Further, the adoption of these fees is 
expected to attract additional order flow to the Exchange and thereby 
benefit all market participants.
---------------------------------------------------------------------------

    \14\ See supra note 7.
    \15\ The Floor Broker's handling of orders will vary depending 
on whether the order is a solicitation, facilitation, or QCC order.
---------------------------------------------------------------------------

    The Exchange also notes that even capped market participants will 
still pay at least $0.10 per contract for QCC executions, as opposed to 
$0.00 for open-outcry facilitation trades, so the proposed pricing will 
continue to provide a strong incentive to expose customer orders for 
possible price improvement, as is described further below.
    The Exchange believes that adopting the service fee of $.05 or $.10 
per contract for participants whose trading is subject to a fee cap and 
or reduced/zero rates is reasonable because it will allow those 
participants who reach their fee cap during a month to pay the service 
fee instead of the regular transaction fees and thus will be able to 
lower their monthly fees. The Exchange believes that charging a service 
fee is also reasonable because it will allow the Exchange to recoup the 
costs incurred in providing certain services, which include trade 
matching and processing, post-trade allocation, submission for clearing 
and customer service activities related to trading activity on the 
Exchange. The Exchange notes that charging a service fee to certain 
participants for trades is not new or novel and that the relative level 
of the service fee is consistent with that found on other exchanges 
like the ISE and NASDAQ OMX PHLX.\16\
---------------------------------------------------------------------------

    \16\ See ISE and NASDAQ OMX PHLX fee schedules, supra notes 8 
and 12.
---------------------------------------------------------------------------

    The Exchange believes that charging a higher service fee of $.10 
per contract when capped participants trade with a Customer is 
reasonable due to the nature of the order type. QCC orders will cross 
cleanly without exposure upon the entry of a qualifying QCC order. When 
a capped participant trades with a non-Customer, the total charge is 
either $.10 (when a capped participant, who is charged the $.05 
services fee, trades with another capped participant, who is also 
charged the $.05 service fee) or $.25 (when a capped participant, who 
is charged the $.05 service fee, trades with a non-capped, non-
Customer, who is charged $.20). By contrast, when a capped participant 
trades with a Customer, the total charge is $.10 (the capped 
participant is charged the $.10 service fee and the Customer is charged 
$.00). Therefore, the Exchange believes the higher service fee for 
capped participants trading with a Customer is warranted given the all-
in (considering both sides of the trade) economic costs of executing a 
clean cross using QCC.
    Additionally, the Exchange notes that Firms are still able to 
utilize Firm Facilitation trading procedures in attempting to 
facilitate their own Customer orders. Such Firm Facilitation trades are 
charged at the rate of $.00 per contract as an alternative to QCC. By 
charging capped Firms $.10 when they facilitate Customer orders using 
QCC, the Exchange is intentionally providing an economic incentive to 
encourage Firms to expose such orders in open outcry, instead of 
utilizing the clean cross afforded by a QCC order. The Exchange 
believes the proposed fee change will attract additional order flow to 
the Exchange and thereby will benefit all market participants.
    The Exchange believes the proposal to adopt the service fee is 
equitable and not unfairly discriminatory because it would uniformly 
apply to participants who benefit from a monthly fee cap. The proposed 
fee is designed to give those capped participants that trade frequently 
on the Exchange a benefit by way of a lower transaction fee, while 
enabling the Exchange to recoup some of its costs in providing the 
services associated with validation, execution, submission for 
clearing, and customer service activities related to trading activity 
on the Exchange.

[[Page 62890]]

    The Exchange believes that the proposal to exclude QCC orders from 
the Marketing Charges program is reasonable given the nature of a QCC 
order. QCC orders by design are not subject to competitive bidding or 
offering, instead a qualifying QCC order is printed to the tape 
allowing for a clean cross. Therefore, it is the Exchange's expectation 
that inducements such as payment for order flow will not factor into 
attracting QCC orders since a market maker being solicited to be a 
party to such a trade will simply ask for the order to be sent to a 
venue that does not collect marketing charges for QCC orders. One such 
exchange, the CBOE, already explicitly excludes QCC orders from its 
payment for order flow program.\17\ The Exchange believes therefore 
that it is reasonable to exclude QCC orders from the Marketing Charges 
program.
---------------------------------------------------------------------------

    \17\ See CBOE fee schedule, supra note 12, at page 4, footnote 
6.
---------------------------------------------------------------------------

    The Exchange believes the proposed $.03 per contract rebate for 
Floor Brokers who enter QCC orders that execute is reasonable because 
it will allow Floor Brokers the opportunity to compete for QCC orders 
that would otherwise be entered into front-end order entry systems of 
competing exchanges.\18\ The proposed rebate is comparable to that 
found on NASDAQ OMX PHLX \19\ in that it is being offered to Floor 
Brokers as an inducement that may allow them to competitively price 
their services offered to all participants. To the extent that the 
rebate is successful in attracting additional order flow to the 
Exchange, all participants should benefit. As such, the Exchange 
believes that the rebate is appropriate and reasonable.
---------------------------------------------------------------------------

    \18\ See supra note 7.
    \19\ See supra note 8.
---------------------------------------------------------------------------

    The Exchange believes the proposal to adopt a $.03 per contract 
rebate is equitable and not unfairly discriminatory because it would 
uniformly apply to all QCC orders entered by a Floor Broker for 
validation by the system and potential execution. Any participant will 
be able to engage a rebate-receiving Floor Broker in a discussion 
surrounding the appropriate level of fees that they may be charged for 
entrusting the entry of the QCC order to the Floor Broker into the 
Exchange systems for validation and execution. The additional order 
flow attracted by this rebate should benefit all participants. For this 
reason, the Exchange believes the adoption of the proposed rebate is 
both equitable and not unfairly discriminatory.
    For the reasons noted above, the Exchange believes that the 
proposed fees are fair, equitable and not unfairly discriminatory.

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) \20\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \21\ thereunder, because it establishes a due, fee, or other 
charge imposed by the NYSE Amex.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEAmex-2011-72 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-NYSEAmex-2011-72. This 
file number should be included on the subject line if e-mail 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, NW., Washington, DC 20549, on official business days between 
the hours of 10 a.m. and 3 p.m. The text of the proposed rule change is 
available on the Commission's Web site at http://www.sec.gov. 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-NYSEAmex-2011-72 and should be submitted on or before 
November 1, 2011.
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
---------------------------------------------------------------------------
pursuant to delegated authority.\22\

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-26102 Filed 10-7-11; 8:45 am]
BILLING CODE 8011-01-P