Document ID: SEC-2012-0824-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2012-05-24T04:00Z

[Federal Register Volume 77, Number 101 (Thursday, May 24, 2012)]
[Notices]
[Pages 31050-31053]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-12618]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67020; File No. SR-NYSEArca-2012-41]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE 
Arca Options Fee Schedule Relating to Electronic Executions of Posted 
Customer Liquidity in Penny Pilot Issues

May 18, 2012.
    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 May 8, 2012, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE Arca'') 
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.
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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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Options Fee Schedule 
(``Fee Schedule'') to restructure the threshold qualifications and 
corresponding rates applicable to Option Trading Permit (``OTP'') 
Holder and OTP Firm electronic executions of posted Customer liquidity 
in Penny Pilot issues. The text of the proposed rule change is 
available at the Exchange, the Commission's Public Reference Room, and 
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 Exchange proposes to amend the Fee Schedule to restructure the 
threshold qualifications and corresponding rates applicable to OTP 
Holder and OTP Firm electronic executions of posted Customer liquidity 
in Penny Pilot issues. The Exchange proposes to make the changes 
operative on May 8, 2012.
    OTP Holders and OTP Firms are currently provided with a credit of 
$0.25 per contract for electronic executions of posted Customer 
liquidity in Penny Pilot issues.\3\ However, the amount of this credit 
increases as an OTP Holder or OTP Firm electronically executes a 
certain monthly total number

[[Page 31051]]

of contracts of posted Customer liquidity in Penny Pilot issues. These 
current thresholds and rates are as follows:
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    \3\ As provided under NYSE Arca Options Rule 6.72, options on 
certain issues have been approved to trade with a minimum price 
variation of $0.01 as part of a pilot program that is currently 
scheduled to expire on June 30, 2012.

------------------------------------------------------------------------
                                   Monthly total       Per contract rate
                                 contracts executed      on all posted
                               from posted liquidity       liquidity
------------------------------------------------------------------------
Threshold 1..................  More than 350,000....              -$0.28
Threshold 2..................  More than 800,000....               -0.36
Threshold 3..................  More than 1,200,000..               -0.42
Threshold 4..................  More than 3,500,000..               -0.43
------------------------------------------------------------------------

    The volume thresholds and corresponding credits are intended to 
incent OTP Holders and OTP Firms to route additional Customer orders in 
Penny Pilot issues to the Exchange. In this regard, once a particular 
threshold is met, the per contract credit rate applies to all of the 
OTP Holder's or OTP Firm's electronic executions of posted Customer 
liquidity in Penny Pilot issues for the month.
    The Exchange proposes to restructure the threshold qualifications 
as follows: \4\
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    \4\ The current threshold qualifications and corresponding 
credit rates would apply to executions prior to May 8, 2012. In this 
regard, if an OTP Holder's or OTP Firm's electronic executions of 
posted customer liquidity in May 2012 satisfy one of the current 
thresholds, the current per contract credit rate would apply to all 
of the OTP Holder's or OTP Firm's electronic executions of posted 
Customer liquidity in Penny Pilot issues from May 1, 2012 through 
May 7, 2012.
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     First, the current thresholds are based on the total 
number of contracts of posted Customer liquidity in Penny Pilot issues 
that an OTP Holder or OTP Firm executes electronically during the 
course of a month. The Exchange will now calculate the qualification 
based on average daily volume (``ADV'') in various categories instead 
of total monthly volume. For purposes of this calculation, days when 
the market closes early are not included in the ADV.\5\ The credit 
applied to posted electronic customer orders in Penny Pilot issues will 
continue to be a base rate of $0.25 per executed contract.
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    \5\ For the month of May 2012, ADV would be calculated from May 
8, 2012, the effective and operative date of this proposed change, 
through the end of the month. In this regard, if an OTP Holder or 
OTP Firm qualifies for a particular proposed new tier during May 
2012, the proposed corresponding per contract credit rate would 
apply to all of the OTP Holder's or OTP Firm's electronic executions 
of posted Customer liquidity in Penny Pilot issues from May 8, 2012 
through the end of May 2012.
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     OTP Holders and OTP Firms who have an ADV of 15,000 
executed electronic posted Customer contracts in Penny Pilot issues 
will have a credit of $0.38 (``Tier 1'') applied to posted electronic 
Customer contracts executed in Penny Pilot issues.\6\
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    \6\ Qualified Contingent Cross (``QCC'') Orders are neither 
posted nor taken; thus QCC transactions are not included in any of 
the options volume calculations.
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     OTP Holders and OTP Firms will have two alternative 
methods to qualify for a credit of $0.40 (``Tier 2'') applied to posted 
electronic Customer contracts executed in Penny Pilot issues. An OTP 
Holder or OTP Firm may qualify for Tier 2 by:
    [cir] Having an ADV of 25,000 executed electronic posted Customer 
contracts in Penny Pilot issues, or
    [cir] Having an ADV of 75,000 executed electronic posted contracts 
in Penny Pilot issues, regardless of Clearing Account type, from all 
affiliated OTP Holders and OTP Firms.
     OTP Holders and OTP Firms who have an ADV of 50,000 
executed electronic posted Customer contracts in Penny Pilot issues 
will have a credit of $0.43 (``Tier 3'') applied to posted electronic 
Customer contracts executed in Penny Pilot issues.
     OTP Holders and OTP Firms will have three alternative 
methods to qualify for a credit of $0.44 (``Tier 4'') applied to posted 
electronic Customer contracts executed in Penny Pilot issues. An OTP 
Holder or OTP Firm may qualify by:
    [cir] Having a combination of an ADV of 65,000 executed electronic 
posted Customer contracts in Penny Pilot issues AND an average daily 
posted share volume on NYSE Arca Equities, executed electronically by 
an affiliated Equity Trading Permit (``ETP'') Holder, of 0.30% or more 
of U.S. Consolidated ADV for transactions reported to the Consolidated 
Tape, excluding volume on days when the market closes early, or
    [cir] Having an ADV of 100,000 executed electronic posted contracts 
in Penny Pilot issues, regardless of Clearing Account type, from all 
affiliated OTP Holders and OTP Firms, or
    [cir] Having an ADV of 100,000 executed electronic Customer 
contracts, either posted or removing, in Penny Pilot issues.
    Collectively, the proposed new tiers and corresponding rates would 
be as follows:

 
 
----------------------------------------------------------------------------------------------------------------
Tier                             Qualification basis (average electronic executions per        Credit applied to
                                                         day) **                               posted electronic
                                                                                                        customer
                                                                                             executions in penny
                                                                                                    pilot issues
----------------------------------------------------------------------------------------------------------------
Base..........................  .................  .................  .................                  ($0.25)
Tier 1........................  15,000 Customer    .................  .................                  ($0.38)
                                 Posted Contracts
                                 in Penny Pilot
                                 Issues.
Tier 2........................  25,000 Customer    75,000 Posted      .................                  ($0.40)
                                 Posted Contracts   Contracts in
                                 in Penny Pilot     Penny Pilot
                                 Issues, or.        Issues, any
                                                    Account Type *.
Tier 3........................  50,000 Customer    .................  .................                  ($0.43)
                                 Posted Contracts
                                 in Penny Pilot
                                 Issues.

[[Page 31052]]

 
Tier 4........................  65,000 Customer    100,000 Posted     100,000 Customer                   ($0.44)
                                 Posted Contracts   Contracts in       Posted and
                                 in Penny Pilot     Penny Pilot        Removing
                                 Issues, Plus       Issues, any        Contracts in
                                 0.3% of U.S.       Account type,*     Penny Pilot
                                 Equity Market      or.                Issues.
                                 Share Posted and
                                 Executed on NYSE
                                 Arca Equity
                                 Market,* or.
----------------------------------------------------------------------------------------------------------------
* Includes transaction volume from the OTP Holder's or OTP Firm's affiliates.
** For the month of May 2012, calculation of average electronic executions per day shall begin on May 8, 2012.

    The Exchange proposes to retain the current table in the Fee 
Schedule for the remainder of May 2012, but thereafter to remove it 
completely, along with any other text within the current and proposed 
new tables that has been included to differentiate between the current 
thresholds and rates and newly proposed tiers and rates.\7\ The 
proposed new table would represent the restructuring of the 
qualifications, with new rows and headers. The Exchange also proposes 
to streamline the introductory language for the proposed new tier and 
rate table in the Fee Schedule, as compared to the current table, by 
specifying that, as is the case today, OTP Holders and OTP Firms that 
satisfy the applicable tiers will receive the corresponding posting 
credits on all posted Customer electronic executions in Penny Pilot 
issues. This would include language specifying that, as is the case 
today, the credit rate applies to all posted Customer electronic 
executions by the OTP Holder or OTP Firm in Penny Pilot issues for the 
month.
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    \7\ The Exchange would submit a proposed rule change with the 
Commission to effect the removal of this language.
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    Finally, the Exchange will add explanatory endnote 8 noting that 
executions of QCC orders and routed orders are not included in the 
volume calculation, that the definition of ``Affiliate'' is provided in 
NYSE Arca Rule 1.1(a),\8\ and that only electronic executions are 
included in the volume calculation. The insertion of a new endnote will 
result in the renumbering of all subsequent existing endnotes.
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    \8\ Affiliated firms are those that control, or are controlled 
by, or are under common control with an OTP Holder or OTP Firm. OTP 
Holders and OTP Firms must report their Affiliates, including ETP 
Holders, to the Exchange's Client Relations Services (``CRS'') 
Department. CRS will inform the Exchange's billing department of 
changes in affiliate status that would affect the qualification of 
trading volumes with respect to these fees.
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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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    The Exchange believes that the proposed restructuring of the 
current thresholds and credits is reasonable, equitable and not 
unfairly discriminatory because the resulting tiers and credits would 
preserve an existing program on the Exchange that encourages OTP 
Holders and OTP Firms to send additional Customer orders to the 
Exchange. In this regard, the Exchange believes that the proposed tiers 
and corresponding credits would continue to incentivize OTP Holders and 
OTP Firms to increase the level of Customer order flow sent to, and 
liquidity added on, the Exchange, thereby potentially improving the 
quality and efficiency of order interaction and executions on the 
Exchange.
    The Exchange believes that the proposed increase in the applicable 
credits would further incentivize OTP Holders and OTP Firms to send 
Customer orders to the Exchange. The Exchange believes that this aspect 
of the proposed change is reasonable, equitable and not unfairly 
discriminatory because the higher credits would create an incrementally 
higher incentive for OTP Holders and OTP Firms to bring additional 
liquidity to the Exchange, which may contribute to price discovery and 
may benefit investors, generally. The Exchange notes that it has 
proposed these higher credits without proposing any increase in the 
fees charged to OTP Holders and OTP Firms for executions of Customer 
orders that remove liquidity from the Exchange. Accordingly, the 
proposed change may have the effect of reducing overall Customer 
execution costs, to the extent that OTP Holders and OTP Firms pass this 
savings on to Customers.
    The Exchange further believes that the proposed tiers are 
reasonable, equitable and not unfairly discriminatory because they are 
set at levels that would be more achievable for OTP Holders and OTP 
Firms. In this regard, the Exchange has proposed that the volume levels 
for the tiers be decreased as compared to the current thresholds. 
Additionally, the Exchange has proposed more than one method of 
qualifying for certain of the tiers. Overall, the Exchange believes 
that this will result in more OTP Holders and OTP Firms qualifying for 
the tiers, receiving the increased credits, and therefore reducing 
their overall transaction costs on the Exchange. The Exchange also 
believes that the proposed change is reasonable, equitable and not 
unfairly discriminatory because the rates for the proposed credits are 
set at levels that are directly related to the level of liquidity 
required under the proposed corresponding tiers.
    The Exchange further believes that the proposed change is 
reasonable, equitable and not unfairly discriminatory because the 
tiers, and the corresponding credits, will apply uniformly to all OTP 
Holders and OTP Firms. Additionally, the Exchange believes that the 
aspect of the proposed change related to the activity of an affiliated 
ETP Holder on NYSE Arca Equities is reasonable, equitable and not 
unfairly discriminatory because it would encourage increased trading 
activity on both the NYSE Arca equity and option markets. In this 
regard, the proposal is designed to bring additional posted order flow 
to NYSE Arca Equities, so as to provide additional opportunities for 
all ETP Holders to trade on NYSE Arca Equities.
    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

[[Page 31053]]

continually review, and consider adjusting, its fees and credits to 
remain competitive with other exchanges. The Exchange believes that the 
proposed rule change reflects this competitive environment because it 
would broaden the conditions under which OTP Holders and OTP Firms may 
qualify for the tiers and because it would result in an increase in the 
corresponding credit rates.

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) \11\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \12\ thereunder, because it establishes a due, fee, or other 
charge imposed by the NYSE Arca.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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-2012-41 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-2012-41. 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 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-NYSEArca-2012-41 and should 
be submitted on or before June 14, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-12618 Filed 5-23-12; 8:45 am]
BILLING CODE 8011-01-P