Document ID: SEC-2016-0546-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2016-03-30T04:00Z

[Federal Register Volume 81, Number 61 (Wednesday, March 30, 2016)]
[Notices]
[Pages 17746-17749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07099]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77440; File No. SR-NYSEArca-2016-50]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 6.2 
To Create a Reserve Market Maker Options Trading Permit

March 24, 2016.
    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 March 22, 2016, 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 and II 
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 Rule 6.2 to create a Reserve Market 
Maker Options Trading Permit (``Reserve OTP''). 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.

[[Page 17747]]

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 Rule 6.2 to create a Reserve OTP.
    Under the current NYSE Arca Fee Schedule (Fee Schedule),\4\ an OTP 
Holder or OTP Firm \5\ acting as a Market Maker must pay a monthly fee 
for each Options Trading Permit (``OTP'') it utilizes.\6\ In order to 
act as a Market Maker \7\ on the Exchange Floor, an individual must be 
specifically named on the relevant Market Maker's OTP. On some 
occasions, a Market Maker operating on the Floor may be absent from the 
Floor either briefly or for an entire trading day due to illness or 
planned absence. When such absences occur, the OTP Holder or OTP Firm 
may wish to have a Market Maker Authorized Trader \8\ (``MMAT'') 
employee engage in open outcry trading to cover for the absent Market 
Maker. However, an MMAT may only step in to cover for the absent Market 
Maker if it is specifically named on the relevant OTP, and it may not 
be economical for the OTP Holder or OTP Firm to maintain an additional 
OTP--or there may not be enough time to complete the approval process 
for an additional OTP--to address the such [sic] short-term absences. 
In such cases, the OTP Holder or OTP Firm must carry out its 
responsibilities with fewer than the optimal number of Market Makers on 
the Trading Floor. For example, under the Fee Schedule, a total of four 
OTPs are required to stream quotes electronically into all option 
issues traded on the Exchange. Additionally, each OTP can have an 
individual named to act as a Market Maker in open outcry trading on the 
Floor of the Exchange. Thus, an OTP Holder or OTP Firm with four OTPs 
may stream quotes in every option issue on the Exchange and have four 
individuals conduct trading in open outcry on the trading Floor as 
Market Makers. If one of those four individuals is unavailable due to 
sickness, vacation or other reason, the OTP Holder or OTP Firm is 
required to pay for an additional OTP (presently $1,000) in order to 
have a fifth individual trade in open outcry as a Market Maker. If the 
OTP Holder or OTP Firm activates an individual on an OTP for any 
portion of a month, even as little as one day, the OTP Holder or OTP 
Firm is charged the full monthly OTP fee.\9\
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    \4\ See Fee Schedule, available here, https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf.
    \5\ An OTP Holder is a natural person, in good standing, that 
has been issued an OTP. See Rule 1.1.(q). An OTP Firm is a sole 
proprietorship, partnership, corporation, limited liability company 
or other organization in good standing, who has been issued an OTP 
or upon whom an OTP Holder has conferred trading privileges on the 
Exchange. See Rule 1.1.(r).
    \6\ OTPs are issued by the Exchange for effecting approved 
securities transactions on the Exchange's Trading Facilities. See 
Rule 1.1.(p). The cost of each OTP ranges from $6,000, for the first 
OTP, to $1,000 for the fifth or greater OTP, as the cost decreases 
as the number of OTPs utilized per month increases. See supra n. 4. 
The first OTP allows a Market Maker to quote in up to 175 issues; a 
Market Maker is required to have four OTPs to quote all issues on 
the Exchange. See id.
    \7\ A Market Maker is an individual who is registered with the 
Exchange for the purpose of making transactions as a dealer-
specialist on the Floor of the Exchange or for the purpose of 
submitting quotes electronically and making transactions as a 
dealer-specialist through the NYSE Arca OX electronic trading 
system. See Rule 6.32(a).
    \8\ A Market Maker Authorized Trader is an authorized trader who 
performs market making activities pursuant to Rule 6 on behalf of an 
OTP Holder or OTP Firm registered as a Market Maker. See Rule 
6.1A(a)(9). A Market Maker Authorized Trader must meet the same 
registration requirements as a Market Maker before they can be 
designated as a Market Maker Authorized Trader. See Rule 6.33.
    \9\ The Monthly OTP fee is based on the maximum number of OTPs 
held by an OTP Firm or OTP Holder during a calendar month. See supra 
n. 4, endnote 1.
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    The Exchange believes that an option should be available to Market 
Maker firms to address the short-term absence of an employee in a more 
economical way, which also would assist the Exchange in maintaining 
fair and orderly markets. Accordingly, the Exchange proposes new 
paragraph (i) to Rule 6.2 (Admission to and Conduct on the Options 
Trading Floor) to create a Reserve OTP. A Reserve OTP would permit an 
OTP Holder or OTP Firm to have a qualified MMAT employee cover for the 
absent Market Maker under the firm's OTP, effectively empowering the 
individual acting as a qualified MMAT to act as a Market Maker in lieu 
of the absent individual until such time as the absent Market Maker 
returns.
    As proposed, when a Market Maker is or will be absent, an OTP 
Holder or OTP Firm that maintains a Reserve OTP would be required to 
provide written notice to the Exchange--at least one day in advance--
that it will utilize such Reserve OTP (the ``Notice''). The Notice 
would identify both the absent Market Maker (who will not be utilizing 
the Reserve OTP) and the MMAT who will be acting as the substitute 
Market Maker. While the Notice is in effect, only the specifically 
named MMAT acting as a substitute Market Maker will be authorized to 
utilize the OTP. When the original Market Maker returns, the OTP Holder 
or OTP Firm would provide written notice to the Exchange--at least one 
day in advance, and, as of the date specified in the notice, the 
original Market Maker may resume reliance on the OTP and the MMAT would 
no longer be able to utilize the OTP. In this manner, an OTP Holder or 
OTP Firm that has purchased the four OTPs required to quote every issue 
on the Exchange would have the ability to ensure it has sufficient 
Market Maker coverage in the event of an absence, without having to 
incur the full OTP fee, by instead paying a Reserve OTP fee of $175 per 
month, which would be established by a separate fee filing with the 
Commission.\10\ The proposed fee would be assessed to an OTP Holder for 
each MMAT in its employ whom the OTP Holder or OTP Firm wishes to be 
eligible to be named to the OTP to act as a Market Maker to cover for 
another Market Maker who is otherwise unable to be at work that day.
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    \10\ The Exchange will not implement the proposed change until 
it has filed to modify its fee schedule to address the addition of a 
Reserve OTP. The Exchange also notes this $175 fee is consistent 
with fees on other option exchanges. See NYSE Amex Options Fee 
Schedule, Section III.A. (charging $175 monthly fee for Reserve 
Floor Market Maker), available here, https://www.nyse.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf.
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    Any natural person to whom a Reserve OTP is issued would be 
required, as of the date of notice, to (a) be fully qualified and 
approved by the Exchange to be an OTP Holder or OTP Firm authorized as 
an MMAT; and (b) meet all of the requirements of an OTP Holder or OTP 
Firm under the Exchange's rules.
Implementation
    The Exchange proposes to announce the implementation of the 
proposed rule change via Trader Update.
2. Statutory Basis
    The Exchange believes that the proposed change is consistent with 
Section 6(b) of the Act,\11\ in general, and furthers the objectives of 
Section 6(b)(5),\12\ in particular, in that it is designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitation transactions 
in securities, to remove impediments to, and perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest. Additionally, the Exchange believes the proposed rule 
change is consistent with

[[Page 17748]]

the Section 6(b)(5) \13\ requirement that the rules of an exchange not 
be designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ Id.
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    Specifically, the Exchange believes that the proposed rule change 
would remove impediments to, and perfect the mechanism of a free and 
open market and, in general, to protect investors and the public 
interest because it would provide a more cost-effective method for OTP 
Holders or OTP Firms to have fully qualified personnel step in to 
handle other employees' absences. As such, the proposed change would 
enable OTP Holders and OTP Firms to better utilize their personnel and 
resources, thereby contributing to fair and orderly markets.
    The Exchange notes that the concept of a Reserve OTP is not new or 
novel and has been in place at other option exchanges for several 
years. For example, NYSE Amex Options implemented the concept in 
January 2012.\14\
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    \14\ See Securities Exchange Act Release No. 66237 (January 25, 
2012), 77 FR 4848 (January 31, 2012) (SR-NYSEAmex-2012-02) (amending 
Rule 902NY to create a Reserve Floor Market Maker Amex Trading 
Permit (``Reserve ATP'')).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that this proposed rule change would 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change would 
relieve the burden on OTP Holders or OTP Firms when they have employees 
absent from the trading floor and would, in turn, improve the 
competitiveness of Exchange Market Makers and also promote competition 
for order flow among market participants and the options exchanges.

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 
proposed rule change.

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

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-4(f)(6) 
thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The Exchange 
states that such waiver would allow the Exchange to begin 
implementation of the proposed rule without delay, which the Exchange 
believes would promote the efficient use of resources and promote 
competition among the option exchanges. The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest. As stated in the filing, the 
Exchange believes that the proposed rule change will enable OTP Holders 
and OTP Firms to better utilize their personnel and resources, thereby 
contributing to fair and orderly markets. The Exchange states that it 
will not implement the proposed rule change until it submits a filing 
to adopt a fee related to the Reserve OTP. Accordingly, the Commission 
designates the proposed rule change to be operative upon filing.\19\
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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-2016-50 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2016-50. 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-2016-50, and should 
be submitted on or before April 20, 2016.

[[Page 17749]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-07099 Filed 3-29-16; 8:45 am]
BILLING CODE 8011-01-P