Document ID: SEC-2012-1261-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2012-08-03T04:00Z

[Federal Register Volume 77, Number 150 (Friday, August 3, 2012)]
[Notices]
[Pages 46539-46541]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19030]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67540; File No. SR-NYSEArca-2012-77]

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

July 30, 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 July 18, 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''). 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,

[[Page 46540]]

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, as described 
below, and implement the fee changes on August 1, 2012.
    The Exchange proposes to introduce a new Tier and corresponding 
credit in the Fee Schedule for ETP Holders, including Market Makers 
that execute an average daily volume (``ADV'') of ``Retail Orders'' 
during the particular month that is 0.40% or more of the U.S. 
Consolidated ADV (``CADV'').\4\ For purposes of this proposed new 
``Retail Order Tier'' and credit, a Retail Order would be an agency 
order that originates from a natural person and is submitted to the 
Exchange by an ETP Holder, provided that no change is made to the terms 
of the order with respect to price or side of market and the order does 
not originate from a trading algorithm or any other computerized 
methodology. An ETP Holder that qualifies for the proposed Retail Order 
Tier would receive a credit of $0.0032 per share for its Retail Orders 
that provide liquidity on the Exchange in Tape A, B and C securities. 
For all other fees and credits, Tiered or Basic Rates would apply based 
on the ETP Holder's qualifying levels.
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    \4\ 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.
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    The Exchange also proposes to specify in the Fee Schedule that an 
ETP Holder that qualifies for the Retail Order Tier will not be 
eligible to qualify for the Tape A, Tape B or Tape C Step Up Tier rates 
or the Tape C Step Up Tier 2 rate because these ETP Holders that 
qualify for the proposed Retail Order Tier would already receive a 
higher credit for Retail Orders that provide liquidity on the Exchange.
    An ETP Holder would be required to designate certain of its order 
entry ports at the Exchange as ``Retail Order Ports'' and attest, in a 
form and/or manner prescribed by the Exchange, that all orders 
submitted to the Exchange via such Retail Order Ports are Retail 
Orders. An ETP Holder would be required to designate its Retail Order 
Ports, including adding new Retail Order Ports or removing existing 
Retail Order Ports that would no longer be used to submit Retail 
Orders, no later than the fifth trading day of the month in which the 
desired change is to become effective. The proposed Retail Order Tier 
would be optional for ETP Holders. Accordingly, an ETP Holder that does 
not opt to identify qualified orders as Retail Orders would choose not 
to (i) designate any of its ports as Retail Order Ports, (ii) make an 
attestation to the Exchange, or (iii) maintain the policies and 
procedures described below.
    Additionally, an ETP Holder would be required to have written 
policies and procedures reasonably designed to assure that it will only 
designate orders as Retail Orders if all requirements of a Retail Order 
are met. Such written policies and procedures must require the ETP 
Holder to (i) exercise due diligence before entering a Retail Order to 
assure that entry as a Retail Order is in compliance with the 
requirements specified by the Exchange, and (ii) monitor whether orders 
entered as Retail Orders meet the applicable requirements. If the ETP 
Holder represents Retail Orders from another broker-dealer customer, 
the ETP Holder's supervisory procedures must be reasonably designed to 
assure that the orders it receives from such broker-dealer customer 
that it designates as Retail Orders meet the definition of a Retail 
Order. The ETP Holder must (i) obtain an annual written representation, 
in a form acceptable to the Exchange, from each broker-dealer customer 
that sends it orders to be designated as Retail Orders that entry of 
such orders as Retail Orders will be in compliance with the 
requirements specified by the Exchange, and (ii) monitor whether its 
broker-dealer customer's Retail Order flow continues to meet the 
applicable requirements.\5\
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    \5\ The Financial Industry Regulatory Authority, Inc. 
(``FINRA''), on behalf of the Exchange, will review an ETP Holder's 
compliance with these requirements through an exam-based review of 
the ETP Holder's internal controls.
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    The Exchange further proposes that it may disqualify an ETP Holder 
from qualifying for the Retail Order Tier if the Exchange determines, 
in its sole discretion, that an ETP Holder has failed to abide by the 
requirements proposed herein, including, for example, if an ETP Holder 
designates orders submitted to the Exchange as Retail Orders but those 
orders fail to meet any of the requirements of Retail Orders. Tiered or 
Basic Rates would apply based on the ETP Holder's qualifying levels for 
an ETP Holder that is disqualified from qualifying for the Retail Order 
Tier.
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''), 
in general, and furthers the objectives of Section 6(b)(4) of the Act, 
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.
    The Exchange believes that the proposed rule change is reasonable, 
equitable and not unfairly discriminatory because it would encourage 
ETP Holders to send additional Retail Orders to the Exchange for 
execution in order to qualify for an incrementally higher credit for 
such executions that add liquidity on the Exchange. In this regard, the 
Exchange believes that maintaining or increasing the proportion of 
Retail Orders in exchange-listed securities that are executed on a 
registered national securities exchange (rather than relying on certain 
available off-exchange execution methods) would contribute to 
investors' confidence in the fairness of their transactions and would 
benefit all investors by deepening the Exchange's liquidity pool, 
supporting the quality of price discovery, promoting market 
transparency and improving investor protection.
    The Exchange believes that the rate proposed for the Retail Order 
Tier credit is reasonable because it is directly related to an ETP 
Holder's level of Retail Order executions during the month. The 
Exchange also believes that the proposed rate is reasonable because it 
is consistent with certain other credits, such as the Investor Tier 2 
credit of $0.0032, available to ETP Holders that satisfy certain 
criteria that is related to the ETP Holder's level of trading activity 
on the Exchange. In this regard, the Exchange also believes that the 
proposed Retail Order Tier credit is equitable and not unfairly 
discriminatory because it would not be the only manner of qualifying 
for a credit of $0.0032 per share. Additionally, the Exchange believes 
that the proposed Retail Order Tier credit is equitable and not 
unfairly discriminatory because it would incentivize ETP Holders to 
submit Retail Orders to the Exchange and would result in a credit that 
is reasonably related to an exchange's market quality that is 
associated with higher volumes.
    The Exchange believes that requiring an ETP Holder to submit an ADV 
of Retail Orders during a month of 0.40% or more of CADV is reasonable, 
equitable and not unfairly discriminatory because this percentage is 
within a range that the Exchange

[[Page 46541]]

believes would incentivize ETP Holders to submit Retail Orders to the 
Exchange in order to qualify for the applicable credit of $0.0032 per 
share. The Exchange notes that certain other existing pricing Tiers 
within the Fee Schedule make credits available to ETP Holders that are 
also based on the ETP Holder's level of activity as a percentage of 
CADV. These existing percentage thresholds, depending on other related 
factors and the level of the corresponding credits, are both higher and 
lower than the 0.40% proposed herein.\6\ Moreover, like existing 
pricing on the Exchange that is tied to ETP Holder volume levels as a 
percentage of CADV, the proposed Retail Order Tier credit is equitable 
and not unfairly discriminatory because it would be available for all 
ETP Holders, including Market Makers, on an equal and non-
discriminatory basis. Furthermore, the Exchange notes that the proposed 
Retail Order Tier would be optional for ETP holders.
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    \6\ For example, Investor Tier 1 requires, in part, that an ETP 
Holder provide liquidity of 0.45% or more of CADV in order to 
qualify for a credit of $0.0033 per share for orders that provide 
liquidity on the Exchange. Similarly, Investor Tier 2 requires, in 
part, that an ETP Holder provide liquidity of 0.60% or more of CADV 
in order to qualify for a credit of $0.0032 per share for orders 
that provide liquidity on the Exchange. Additionally, Investor Tier 
3 requires, in part, that an ETP Holder provide liquidity of between 
0.30% and 0.45% of CADV in order to qualify for a credit of $0.0030 
per share for orders that provide liquidity on the Exchange.
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    The Exchange believes that excluding an ETP Holder that qualifies 
for the Retail Order Tier from the Tape A, Tape B and Tape C Step Up 
Tier rates and the Tape C Step Up Tier 2 rate is reasonable, equitable 
and not unfairly discriminatory because such orders would already 
receive a higher credit for such executions that provide liquidity on 
the Exchange.
    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) \7\ of the Act and subparagraph (f)(2) of Rule 19b-
4 \8\ thereunder, because it establishes a due, fee, or other charge 
imposed by the NYSE Arca.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 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-2012-77 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-2012-77. 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 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-2012-77 and should 
be submitted on or before August 24, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19030 Filed 8-2-12; 8:45 am]
BILLING CODE 8011-01-P