Document ID: SEC-2012-1347-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2012-08-15T04:00Z

[Federal Register Volume 77, Number 158 (Wednesday, August 15, 2012)]
[Notices]
[Pages 49038-49040]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19985]

[[Page 49038]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67634; File No. SR-NYSEMKT-2012-33]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Implementing Changes to 
the NYSE Amex Options Fee Schedule Relating to the Monthly Cost for an 
Amex Trading Permit and Monthly Fees Relating to Trading in Premium 
Products

August 9, 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 August 1, 2012, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') 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 Amex Options Fee Schedule 
(``Fee Schedule'') to (i) change the monthly cost for an Amex Trading 
Permit (``ATP''), and (ii) introduce a group of 10 issues, to be known 
as Premium Products, that will carry a monthly fee for certain NYSE 
Amex Options Market Makers that trade them. 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, 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
    NYSE MKT proposes to amend the Fee Schedule to (i) change the 
monthly cost for an ATP, and (ii) introduce a group of 10 issues, to be 
known as Premium Products, that will carry a monthly fee for certain 
NYSE Amex Options Market Makers that trade them.
    Specifically, the Exchange proposes to amend the monthly cost for 
ATPs that are required by an NYSE Amex Options Market Maker in creating 
their appointment for those options for which they want to submit 
electronic quotations to the Exchange. Presently, each ATP that a NYSE 
Amex Options Market Maker has during a month carries a charge of $5,000 
per month. The Exchange will adopt a sliding scale for ATPs as follows:

1st ATP = $8,000
2nd ATP = $6,000
3rd ATP = $5,000
4th ATP = $4,000
5th ATP = $3,000

    For additional ATPs beyond five, the monthly fee will be $2,000 for 
each ATP.
    A Floor Market Maker \4\ will be permitted to purchase up to two 
ATPs at a lower rate of $5,000 for each such ATP (i.e., lower than the 
$8,000 or $6,000 monthly rate for the first and second ATP, 
respectively, set forth above) if certain requirements are met. 
Specifically, the lower fees will only be available if the Floor Market 
Maker has no more than two ATPs in any month and transacts at least 75% 
of its Market Maker volume manually, by public outcry (excluding 
Qualified Contingent Cross and Strategy Executions). Such a Floor 
Market Maker may continue to submit quotes electronically through an 
auto-quoting device, subject to the requirement to execute at least 75% 
of contract volume via public outcry.
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    \4\ A Floor Market Maker is a registered Market Maker who makes 
transactions as a dealer-specialist while on the Floor of the 
Exchange and provides quotations (A) manually, by public outcry, and 
(B) electronically through an auto-quoting device. See Rule 
900.2NY(29).
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    Concurrent with this change, the Exchange will introduce a list of 
10 Premium Products that will carry a monthly fee for any NYSE Amex 
Options Market Maker who transacts in them, except those Floor Market 
Makers subject to the lower ATP fees previously described. The proposed 
fee is $1,000 per product traded with a monthly cap of $7,000. The 10 
Premium Products are SPY, AAPL, IWM, QQQ, BAC, EEM, GLD, JPM, XLF, and 
VXX. Any change to the list of Premium Products would be done through a 
fee filing.
    The proposed changes will be operative on August 1, 2012.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) \5\ of the Act, in general, and 
Section 6(b)(4) \6\ 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.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4).
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    The proposed changes in NYSE Amex Options Market Maker ATP fees 
from a fixed fee of $5,000 per month per permit to a sliding scale that 
ranges from $8,000 per month for the first ATP to $2,000 per month for 
each additional ATP beyond five ATPs is reasonable, equitable, and not 
unfairly discriminatory for the following reasons. First, the proposed 
change is both reasonable and equitable when viewed in light of the 
cost for a market maker on at least two other exchanges to obtain a 
sufficient number of trading permits or rights to quote a similar 
number of names. For example, on the International Securities Exchange 
(``ISE''), a Competitive Market Maker (``CMM'') is required to have 
nine CMM Trading Rights in order to quote all issues on the ISE.\7\ CMM 
Trading Rights on the ISE are fixed in terms of the number that are 
available and must be bought or leased from someone who possesses them. 
The last sale for a CMM Trading Right on the ISE was for $1,550,000 on 
November 30, 2009.\8\ As of July 17, 2012, there appeared to be a total 
of seven CMM Trading Rights available for sale or lease, which are two 
fewer than the number required to quote all issues on the ISE.\9\ The 
Exchange estimates that the monthly lease cost is somewhere in the 
range of $7,000 to $11,000 per month.\10\ Assuming the

[[Page 49039]]

best-case scenario of being able to obtain a lease at the most 
favorable price for each of the nine CMM Trading Rights needed to quote 
every name on ISE, the Exchange estimates that it would cost a market 
maker approximately $63,000 per month in rights fees. By comparison, 
under the proposal, a NYSE Amex Options Market Maker will pay $23,000 
per month in rights fees to quote the entire universe of names on the 
Exchange.
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    \7\ See ISE Rule 802(c) and http://www.ise.com/WebForm/viewPage.aspx?categoryId=563.
    \8\ See Secondary Market Sales after May 1, 2002, available at 
http://www.ise.com/WebForm/viewPage.aspx?categoryId=222.
    \9\ See http://www.ise.com/WebForm/viewPage.aspx?categoryId=563.
    \10\ Based on the last reported sale of $1,550,000, if one uses 
five-year straight-line depreciation, the monthly cost of a single 
CMM Trading Right is $25,833. In light of this, coupled with 
decreased volumes in the industry, the Exchange believes that a 
lease rate of between $7,000 and $11,000 per month per CMM Trading 
Right is a reasonable estimate and has confirmed that estimate 
informally with market participants.
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    A further comparison may be made with the Chicago Board Options 
Exchange (``CBOE'') and the trading permit costs for a market maker to 
create an assignment there. CBOE has a sliding scale for Trading Permit 
Holders (``TPHs'') who are acting as market makers. The sliding scale 
is $5,500 per month for permits one to 10, $4,000 per month for permits 
11 to 22 [sic], and $2,500 for permits 21 and higher. The discounted 
permit rates of $4,000 and $2,500 are only available to TPHs who commit 
to a full year of that number of permits. In configuring an appointment 
on CBOE, a market maker incurs an appointment cost for each option in 
its appointment based on various tiers.\11\ The appointment cost can be 
calculated using an ``appointment calculator'' provided to TPHs.\12\ 
The Exchange used the appointment calculator dated July 10, 2012 to 
calculate the cost to construct a market maker appointment consisting 
of all 2,196 options traded on the Exchange as of June 30, 2012. The 
result shows that a total of 28 trading permits would be required to 
create a market maker appointment on CBOE that consisted of all options 
traded on the Exchange.\13\ Assuming the best-case scenario in which a 
market maker committed to a full year of utilizing 28 permits, a market 
maker on CBOE would pay $115,000 per month in permit costs or $92,000 
more per month than an NYSE Amex Options Market Maker would pay under 
the proposal.
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    \11\ See CBOE Rule 8.3.
    \12\ The appointment calculator is available at https://www.cboe.org/publish/SeatCalculator/SeatCalcUpdated071012.xlt.
    \13\ Of the 2,196 options traded on the Exchange as of June 30, 
2012, 2,000 were trading on the CBOE, and it would require 28 TPHs 
to create an appointment in those names.
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    The Exchange further notes that by virtue of the limited number of 
CMM Trading Rights available for sale or lease on ISE and the Class 
Quoting Limit (``CQL'') \14\ on CBOE, the barriers to entry on both 
exchanges for a market maker are quite high in that it may not be 
possible to create a market maker appointment of one's choosing due to 
either a lack of available CMM Trading Rights on ISE or a CQL on CBOE 
that has been reached. Under the Exchange's proposal, no such 
artificial barrier to entry will be created, and coupled with the 
relatively lower monthly cost to acquire ATPs, the proposal is both 
reasonable and equitable.
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    \14\ See CBOE Rule 8.3A.
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    A second aspect of the proposed change in the monthly ATP cost that 
needs to be considered is that while a total of four ATPs are required 
under the proposal to quote all options on the Exchange, in practice 
some participants have more than the maximum number of ATPs required. 
Typically this is done for accounting or risk management purposes 
within an ATP Holder's organization. Under the proposal, the fifth ATP 
is reduced in cost from $5,000 per month to $3,000 per month, and ATPs 
beyond the fifth ATP are reduced in cost from $5,000 per month to 
$2,000 per month. This is both reasonable and equitable given that 
acquiring additional ATPs beyond the four required to quote all options 
on the Exchange is likely to be for purely accounting or risk 
management purposes. As this aspect of the proposal applies to all NYSE 
Amex Options Market Maker ATPs equally, it is not unfairly 
discriminatory.
    The Exchange's proposal to adopt lower fees for certain Floor 
Market Makers who purchase an ATP is reasonable, equitable, and not 
unfairly discriminatory for the following reasons. First, the Exchange 
believes that open or public outcry markets serve an important role in 
the price discovery process that benefits all participants on the 
Exchange and in the marketplace. Presently, there are 41 entities that 
have 109 market making ATPs on the Exchange, ranging from one ATP to 10 
ATPs per entity. Of these 41 entities, 10 have Floor Market Makers, 
with six of the 10 having one Floor Market Maker each. In light of its 
desire to foster the price discovery process via public outcry markets, 
the Exchange believes that it is reasonable and equitable to establish 
a slightly discounted ATP fee for Floor Market Makers, which will be 
$5,000 per month for each ATP, with a maximum of two such ATPs (or 
$10,000 in that case). By contrast under the proposal, an NYSE Amex 
Options Market Maker will pay $8,000 for the first ATP and $6,000 for 
the second ATP, for a total of $14,000. To ensure the Floor Market 
Maker ATP is being used to foster price discovery in public outcry 
markets, the Exchange has proposed to limit the availability of the 
lower fees to those Floor Market Makers who conduct at least 75% of 
their contract volume manually, by public outcry, and who do not 
utilize more than two ATPs for market making in a given month. The 
latter restriction is designed to encourage participation in public 
outcry from smaller broker-dealers looking to begin market making, 
which will encourage competition. The proposal is not unfairly 
discriminatory as it is available to any NYSE Amex Options Market Maker 
who wishes to contribute to public outcry markets such that at least 
75% of its contract volumes are executed in public outcry. Those NYSE 
Amex Options Market Makers who have no desire to engage in public 
outcry trading are not being disadvantaged, as public outcry trading 
cannot take place at prices that are inferior to the electronic 
quotations submitted by an NYSE Amex Options Market Maker.
    The Exchange's proposal to adopt a Premium Product Issues List and 
the associated monthly NYSE Amex Options Market Maker Fee of $1,000 per 
issue with a $7,000 per month cap is reasonable, equitable, and not 
unfairly discriminatory for the following reasons. The Exchange does 
not limit the number of participants who may act as market makers, 
either electronically or in public outcry. This is in direct contrast 
to, for example, the ISE and CBOE, which have a limited number of CMM 
Trading Rights and a CQL, respectively. The result is that the Exchange 
has more than sufficient liquidity in the most active options on the 
Exchange as evidenced by its market share in those options. By adopting 
a Premium Product Issues List, which is comprised of many of the most 
active issues on the Exchange, and a corresponding monthly fee 
applicable to NYSE Amex Options Market Makers who transact in any of 
those names, the Exchange intends to encourage meaningful market maker 
participation in these names.
    For example, presently it would be permissible within Exchange 
rules for an NYSE Amex Options Market Maker to send in a quote that is 
$1 bid for one contract, offered at $6 for one contract in the at-the-
money series in SPY. Such a quote, while permitted under Exchange 
rules, has an extremely low probability of ever being executed against, 
although if it were to happen, it quite likely would be viewed as 
somewhat of a ``windfall'' from the market maker's profitability 
perspective. Such a quote, however, is also required to be processed by 
the Exchange, despite the low probability of the quote ever being 
executed against. By adopting the Premium Product Issues List and the 
associated monthly fee applicable to NYSE Amex Options

[[Page 49040]]

Market Makers who transact in a Premium Product issue, ``less 
meaningful'' quoting activity as described above should become less 
common given the economics of the proposal. Furthermore, the notion of 
``premium'' or ``select'' pricing for a subset of issues traded on an 
Exchange is not novel. For example, both the ISE and Nasdaq OMX PHLX 
exchanges feature ``select'' symbol lists on their respective fee 
schedules.\15\
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    \15\ See ISE Fee Schedule dated July 6, 2012, available at 
http://www.ise.com/assets/documents/OptionsExchange/legal/fee/fee_schedule.pdf, and the Nasdaq OMX PHLX Fee Schedule dated July 2, 
2012, available at http://www.nasdaqtrader.com/Micro.aspx?id=PHLXPricing.
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    The Premium Product Issues List will apply to all NYSE Amex Options 
Market Makers equally, except for those market makers who are eligible 
for the newly proposed reduced Floor Market Maker ATP fees, one of the 
requirements of which is that they achieve 75% or more of their volumes 
in public outcry. Excluding market makers who are subject to these 
lower fees is in keeping with the Exchange's stated goals of continuing 
to foster price discovery through public outcry while at the same time 
reducing the instances of ``less meaningful'' electronic quotes in the 
more liquid names that comprise the Premium Product Issues List. For 
these reasons, the Exchange believes that the proposal is reasonable, 
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) \16\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \17\ thereunder, because it establishes a due, fee, or other 
charge imposed by the NYSE MKT.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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-NYSEMKT-2012-33 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--NYSEMKT-2012-33. 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 Section, 100 F Street 
NE., Washington, DC 20549-1090 on official business days between the 
hours of 10 a.m. and 3 p.m. Copies of the filing will also be available 
for inspection and copying at the Exchange's principal office and on 
its Internet Web site at www.nyse.com. 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-NYSEMKT-2012-33 and should be submitted 
on or before September 5, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19985 Filed 8-14-12; 8:45 am]
BILLING CODE 8011-01-P