Document ID: SEC-2012-2055-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Stock Exchange, Inc.
Posted Date: 2012-12-14T05:00Z

[Federal Register Volume 77, Number 241 (Friday, December 14, 2012)]
[Notices]
[Pages 74533-74536]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-30167]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68392; File No. SR-NSX-2012-24]

Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Its Fee and Rebate Schedule

December 10, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on December 3, 2012, National Stock Exchange, Inc. 
(``NSX[supreg]'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change, as described in Items I, II, and III below, which Items have 
been prepared by the Exchange. The Commission is publishing this notice 
to solicit comment on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 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 is proposing to amend its Fee and Rebate Schedule (the 
``Fee Schedule'') issued pursuant to Exchange Rule 16.1(a) to: (1) 
Modify the Quotation Update Fee charged for each quotation update \3\ 
transmitted to the Exchange by an Equity Trading Permit (``ETP'') \4\ 
Holder using the Exchange's Order Delivery mode (``Order Delivery 
Mode''); and (2) cap the Quotation Update Fee to the first 150 million 
quotation updates entered by each ETP Holder per month. The text of the 
proposed rule change is available on the Exchange's Web site at 
www.nsx.com, at the Exchange's principal office, and at the 
Commission's public reference room.
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    \3\ A ``quotation update'' includes any change to the price, 
size or side of a quotation or submission of an updated quote with 
the same price, size or side. A quotation update does not include 
posting of a new quote to replace a quote that was fully executed.
    \4\ Exchange Rule 1.5 defines the term ``ETP'' as an Equity 
Trading Permit issued by the Exchange for effecting approved 
securities transactions on the Exchange's Trading Facilities.
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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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed

[[Page 74534]]

any comments it received on the proposed rule change. The text of these 
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 its Fee Schedule issued pursuant to 
Exchange Rule 16.1(a) to: (1) Modify the Quotation Update Fee charged 
for each quotation update transmitted to the Exchange by an ETP Holder 
using the Exchange's Order Delivery mode; [sic] and (2) cap the 
Quotation Update Fee to the first 150 million quotation updates entered 
by each ETP Holder per month.
    Electronic Communication Networks (``ECNs'') can use Order Delivery 
Mode to provide quotations to the Exchange for publishing in the 
consolidated quotation feed as well as the Exchange's proprietary 
depth-of-book feed. The Exchange delivers Order Delivery Notifications 
\5\ to an ECN when it receives an incoming order from another trading 
center which can potentially execute against the published quote. 
Except for very limited circumstances, the ECN must immediately and 
automatically execute the Order Delivery Notification. Under Section 
6(b)(1) of the Securities Exchange Act of 1934 (the ``Exchange Act'' or 
``Act''), the Exchange must have effective surveillance mechanisms to 
ensure that Order Delivery participants comply with the Exchange's 
rules and regulations as well as those of the SEC.\6\
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    \5\ An ``Order Delivery Notification'' refers to a message sent 
by the Exchange to the Order Delivery participant communicating the 
details of the full or partial quantity of an inbound contra-side 
order that potentially may be matched within the System for 
execution against an Order Delivery Order.
    \6\ 15 U.S.C. 78f(b)(1).
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    On November 2, 2012, the Exchange amended Section IV of its Fee 
Schedule to adopt a separate Quotation Update Fee for existing and new 
Order Delivery participants.\7\ The Exchange adopted the Quotation 
Update Fee as a means of recouping costs associated with regulating the 
marketplace and the Order Delivery program. The Quotation Update Fee is 
$0.000444 for each quotation update by an existing Order Delivery 
participant, and $0.006667 for each quotation update from a new Order 
Delivery participant during the first three (3) months of 
participation.
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    \7\ See Securities Exchange Act Release No. 68215 (November 13, 
2012), 77 FR 69522 (November 19, 2012) (SR-NSX-2012-20).
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    The Exchange now proposes to (i) Increase the Quotation Update Fee 
for existing Order Delivery participants from $0.000444 to $0.000467, 
(ii) decrease the Quotation Update Fee for new Order Delivery 
participants from $0.006667 to $0.000667 during the first three (3) 
months of participation, and (iii) cap the Quotation Update Fee to the 
first 150 million quotation updates entered by each ETP Holder per 
month.
    The Exchange believes that this approach equitably allocates fees 
among its members and is not unfairly discriminatory because Order 
Delivery participants (i) constitute a substantial portion of the 
Exchange's processing activity including quotations, Order Delivery 
Notifications, and transactions, and (ii) require a heightened level of 
regulatory scrutiny and are utilizing significantly greater regulatory 
resources as compared to ETP Holders that post and execute orders on 
the Exchange using automatic execution. The Exchange also believes that 
a cap on the Quotation Update Fee is necessary to equitably allocate 
regulatory costs among Order Delivery participants. The Exchange will 
assess, on a quarterly basis, whether the Quotation Update Fee is 
equitably allocated among its members and to adjust the rate 
accordingly [sic]. The Exchange will consider any changes in the level 
of Order Delivery processing and other activity as well as any changes 
in the market, surveillance and system requirements required to 
effectively perform the regulatory, surveillance, investigative or 
enforcement functions.

Operative Date and Notice

    The Exchange will make the proposed modifications, which are 
effective on filing of this proposed rule, operative as of commencement 
of trading on December 3, 2012.\8\ Pursuant to Exchange Rule 16.1(c), 
the Exchange will ``provide ETP Holders with notice of all relevant 
dues, fees, assessments and charges of the Exchange'' through the 
issuance of an Information Circular of the changes to the Fee Schedule 
and will post a copy of the rule filing on the Exchange's Web site 
(www.nsx.com).
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    \8\ While the Exchange proposes to amend the date of its Fee 
Schedule to December 1, 2012, it will not implement the proposed fee 
changes until Monday, December 3, 2012, the first day of trading. 
The Exchange proposes to amend the Fee Schedule's date to December 1 
as it contains non-transaction based fees that are charged on a 
monthly basis.
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2. Statutory Basis
    The Exchange believes that the amended Quotation Update Fee for 
existing Order Delivery participants is consistent with the provisions 
of Section 6(b) of the Act,\9\ in general, and Section 6(b)(4) of the 
Act,\10\ 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 the facilities of the Exchange. 
Order Delivery Mode imposes on the Exchange greater regulatory and 
operational costs than should the Exchange offer only automatic 
execution mode of interaction (``Auto-Ex Mode''),\11\ [sic] because 
Order Delivery is a model that requires increased regulatory procedures 
and resources to ensure effective oversight of compliance with the 
rules and regulations of the Exchange and the Commission. The Exchange 
believes that the amended Quotation Update Fee for existing Order 
Delivery participants is consistent with the provisions of Section 
6(b)(5) of the Act,\12\ is equitable and not unfairly discriminatory 
because Order Delivery participants constitute a substantial portion of 
the Exchange's processing activity including quotations, order delivery 
notifications, and transactions, and require a heightened level of 
regulatory scrutiny and resources as compared to ETP Holders that post 
and execute orders on the Exchange using Auto-Ex Mode. The Exchange 
believes that capping the Quotation Update Fee is necessary to 
equitably allocate regulatory costs among Order Delivery participants. 
Order Delivery participants are eligible to submit (or not submit) 
liquidity adding and quotes, and may do so at their discretion in the 
daily volumes they choose during any given trading day.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
    \11\ Under Auto-Ex Mode, the Exchange matches and executes like-
priced orders (including against Order Delivery orders resting on 
the NSX book). Auto-Ex orders resting in the NSX book execute 
immediately when matched against a marketable incoming contra-side 
Auto-Ex order.
    \12\ 15 U.S.C. 78f(b)(5).
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    Therefore, the Exchange believes the revised fee structure is a 
reasonable means for the NSX to recover the regulatory costs of the 
marketplace and Order Delivery. The Quotation Update Fee is reasonable 
given that it is directly related to the Exchange's cost of regulation. 
The Exchange will review the rate of the Quotation Update Fee on a 
quarterly basis, and will consider any changes in the level of Order 
Delivery processing and other activity as well as any changes in the 
market, surveillance and system requirements required to effectively 
perform the surveillance, investigative or enforcement functions.

[[Page 74535]]

Furthermore, the Exchange also believes that the amended Quotation 
Update Fee for new Order Delivery participants during their first three 
(3) months of operation is consistent with the provisions of Section 
6(b) of the Act,\13\ in general, and Section 6(b)(4) of the Act,\14\ 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 the facilities of the Exchange. Oversight of a 
new Order Delivery participant's activities imposes on the Exchange 
additional regulatory and operational costs because the Exchange 
expends an increased regulatory focus over a new Order Delivery 
participant's activities to ensure compliance with Exchange Rule 11.13 
and to gain familiarity with their quoting activities. The Exchange 
believes that continuing to charge a higher quotation update fee for 
new Order Delivery participants during their first three (3) months of 
operation is a reasonable means to cover the regulatory oversight 
costs. Moreover, the Exchange believes that the amended Quotation 
Update Fee for new Order Delivery participants during their first three 
(3) months of operation is consistent with the provisions of Section 
6(b)(5) of the Act,\15\ in that the proposed regulatory fee is not 
unfairly discriminatory. New participants may not quote with as much 
frequency as established Order Delivery participants. For example, a 
new Order Delivery participant may submit quotations in a few 
securities, and ramp up quotation activity with experience. However, 
the Exchange will need to expend additional resources to ensure that 
the new Order Delivery participant is complying with all regulations. 
In addition, new Order Delivery participants require increased 
regulatory oversight due to the Exchange's focus on their trading 
activity as well as Exchange staff developing familiarity with the new 
participant's [sic] trading behavior. Also, Order Delivery participants 
are eligible to submit (or not submit) liquidity adding and [sic] 
quotes, and may do so at their discretion in the daily volumes they 
choose during any given trading day.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
    \15\ 15 U.S.C. 78f(b)(5).
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    Lastly, the Exchange believes that proposing to limit the Quotation 
Update Fee to an Order Delivery participant's first 150 million 
quotation updates each month is also consistent with the provisions of 
Section 6(b) of the Act,\16\ in general, and Section 6(b)(4) of the 
Act,\17\ in particular in that it is designed to provide for the 
equitable allocation of reasonable dues, fees and other charges among 
Order Delivery participants, its members and other persons using the 
facilities of the Exchange. The Exchange found that capping the 
Quotation Update Fee was necessary to equitably allocate regulatory 
costs among Order Delivery participants. Moreover, the Exchange 
believes that the proposed cap on the Quotation Update fee is 
consistent with the provisions of Section 6(b)(5) of the Act,\18\ in 
that the proposed regulatory fee is not unfairly discriminatory because 
it applies to all Order Delivery participants equally. Nonetheless, the 
Exchange understands that new participants may not quote with as much 
frequency as established Order Delivery participants, thereby not 
reaching the cap. As stated above, a new Order Delivery participant may 
submit quotations in a few securities, and ramp up quotation activity 
with experience. However, the Exchange will need to expend additional 
resources to ensure that the new Order Delivery participant is 
complying with all regulations. In addition, new Order Delivery 
participants require increased regulatory oversight due to the 
Exchange's focus on their trading activity as well as Exchange staff 
developing familiarity with the new participant's trading behavior.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4).
    \18\ 15 U.S.C. 78f(b)(5).
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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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change has taken effect upon filing pursuant to 
Section 19(b)(3)(A)(ii) of the Exchange Act \19\ and subparagraph 
(f)(2) of Rule 19b-4.\20\ 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.
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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \20\ 17 CFR 240.19b-4.
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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-NSX-2012-24 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-NSX-2012-24. 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 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 offices 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-NSX-2012-24, and should be submitted on or before 
January 4, 2013.

[[Page 74536]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30167 Filed 12-13-12; 8:45 am]
BILLING CODE 8011-01-P