Document ID: SEC-2011-0800-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2011-06-09T04:00Z

[Federal Register Volume 76, Number 111 (Thursday, June 9, 2011)]
[Notices]
[Pages 33795-33797]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-14232]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64595; File No. SR-NYSEArca-2011-32]

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 To 
Establish a Gross FOCUS Revenue Fee

June 3, 2011.
    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 31, 2011, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') 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 Exchange. 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 through its wholly-owned subsidiary NYSE Arca 
Equities, Inc. (``NYSE Arca Equities'') proposes to amend the NYSE Arca 
Equities Schedule of Fees and Charges for Exchange Services (the 
``Schedule'') to establish a new regulatory fee. While changes to the 
Schedule pursuant to this proposal will be effective on filing, the 
changes will become operative on June 1, 2011. The text of the proposed 
rule change is available at the Exchange, at the Commission's Public 
Reference

[[Page 33796]]

Room, on the Commission's Web site at http://www.sec.gov, and at http://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
    Effective June 1, 2011, the Exchange proposes to amend the Schedule 
to establish a regulatory fee (``Gross FOCUS Revenue Fee'') to be 
charged to ETP Holders, the purpose of which is to recover the 
regulatory expenses of the Exchange with respect to ETP Holders, 
including expenses associated with the regulatory functions performed 
both by NYSE Regulation, Inc. (``NYSE Regulation'') and by the 
Financial Industry Regulatory Authority (``FINRA'') pursuant to a 
regulatory services agreement, for which FINRA is paid by NYSE 
Regulation. The Exchange is proposing to set this regulatory fee at a 
rate of $0.07 per $1,000 of gross revenues as reported by each ETP 
Holder in its FOCUS report.\3\ The fee would be similar to the gross 
revenue FOCUS Report fee that the New York Stock Exchange (``NYSE'') 
charges its member organizations to partially recover its expenses for 
performance of regulatory functions.\4\ However, the rate will be lower 
than the $0.105 per $1,000 of FOCUS gross revenues charged by the NYSE, 
reflecting the fact that the costs of regulating the electronic NYSE 
Arca market are less than the costs of regulating the NYSE with its 
trading floor. Moving to a regulatory fee based on FOCUS gross revenues 
would align the Exchange's equity regulatory fee structure more closely 
with that of the NYSE. The Exchange believes that the revenue generated 
from this new regulatory fee, when combined with the Exchange's other 
regulatory fees with respect to ETP Holders, will be less than or equal 
to the Exchange's related regulatory costs.
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    \3\ FOCUS (Securities Exchange Act Form X-17A-5) is an acronym 
for Financial and Operational Combined Uniform Single Report. The 
report is filed periodically with the Commission pursuant to 
Securities Exchange Act Rule 17a-5.
    \4\ See NYSE Rule 129 (Oversight Services).
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    Prior to the initiation of the new Gross FOCUS Revenue Fee on June 
1, the Exchange has eliminated, by means of a separate rule filing,\5\ 
the fees assessed on ETP Holders, OTP Holders and OTP Firms \6\ that 
conduct equities and/or options business on the Exchange and that 
register financial advisors (or registered representatives) (``RR 
Fees''). Each RR Fee was a fixed amount of money that an ETP Holder, 
OTP Holder or OTP Firm paid to the Exchange for each registered 
representative that it registered, and it was based on the action 
associated with the registration. The Exchange has eliminated the RR 
Fees because it believes that such fees are no longer the most 
equitable manner in which to assess regulatory fees. Among other 
things, sales practice regulation has been allocated to FINRA pursuant 
to a 17d-2 plan, so tying the Exchange's regulatory fees to the number 
of registered representatives does not match regulatory revenues to 
regulatory expenses. The Exchange's regulatory costs are primarily 
driven by market regulation. Consequently, a fee based on trading 
activity, such as the proposed Gross FOCUS Revenue Fee, will better 
match such revenues and expenses.\7\ The Exchange believes that the 
proposed Gross FOCUS Revenue Fee represents the best alternative for 
replacing the revenue dedicated to covering the costs of the Exchange's 
regulatory programs with respect to ETP Holders and the equities 
business of the Exchange that was lost with the elimination of the RR 
Fees.
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    \5\ See Securities Exchange Act Release No. 64399 (May 4, 2011), 
76 FR 27114 (May 10, 2011) (File No. SR-NYSEArca-2011-20) (the 
``Options Regulatory Fee Filing'').
    \6\ The term ``ETP Holder'' refers to a sole proprietorship, 
partnership, corporation, limited liability company or other 
organization in good standing that has been issued an Equity Trading 
Permit (``ETP'') by NYSE Arca Equities for effecting approved 
securities transactions on the trading facilities of NYSE Arca 
Equities. See NYSE Arca Equities Rule 1.1(n).
    The term ``OTP Holder'' refers to a natural person, in good 
standing, who has been issued an Options Trading Permit (``OTP'') by 
the Exchange for effecting approved securities transactions on the 
trading facilities of the Exchange, or has been named as a nominee. 
See Exchange Rule 1.1(q).
    The term ``OTP Firm'' refers to a sole proprietorship, 
partnership, corporation, limited liability company or other 
organization in good standing that holds an OTP or upon whom an 
individual OTP Holder has conferred trading privileges on the 
Exchange's trading facilities pursuant to and in compliance with the 
rules of the Exchange. See Exchange Rule 1.1(r).
    Each ETP Holder, OTP Holder and OTP Firm has status as a 
``member'' of the Exchange as that term is defined in Section 3 of 
the Act. An ETP Holder or an OTP Firm must be a registered broker or 
dealer pursuant to Section 15 of the Securities Exchange Act of 
1934, as amended (the ``Act''). An OTP Holder must be a registered 
broker or dealer pursuant to Section 15 of the Act, or a nominee or 
an associated person of a registered broker or dealer that has been 
approved by the Exchange to conduct business on the trading 
facilities of the Exchange.
    \7\ See the Options Regulatory Fee Filing for a more complete 
analysis of the rationale for eliminating RR Fees.
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    The Exchange believes that the realigned regulatory fee structure 
as proposed herein will allow the Exchange to continue to adequately 
fund the expenses associated with the performance of its regulatory 
functions with respect to ETP Holders and the equities business of the 
Exchange. The Exchange will monitor the amount of revenue collected 
from the Gross FOCUS Revenue Fee to ensure that it, in combination with 
its other regulatory fees and fines, does not exceed regulatory costs. 
The Exchange expects to monitor regulatory costs and revenues on an 
annual basis, at a minimum. If the Exchange determines that regulatory 
revenues exceed regulatory costs, the Exchange would adjust the Gross 
FOCUS Revenue Fee downward by submitting a fee change filing to the 
Commission.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\8\ in general, and Section 
6(b)(4) of the Act,\9\ 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. The 
Exchange believes that the proposal does not constitute an inequitable 
allocation of fees, as all similarly situated member organizations will 
be subject to the same fee structure, and access to the Exchange's 
market is offered on fair and non-discriminatory terms. More 
specifically, the Exchange believes that the proposed Gross FOCUS 
Revenue Fee represents a fairer and more equitable allocation of fees 
than the current fee structure because it would be charged to all 
members on revenues generated by their equity business instead of how 
many registered persons a particular ETP Holder employs. The latter 
standard has become increasingly irrelevant as a measure of regulatory 
services required due, among other reasons, to the rise of Internet and 
discount brokerage firms in comparison

[[Page 33797]]

to traditional brokerage firms. The Exchange believes the proposed 
Gross FOCUS Revenue Fee is reasonable because it will raise revenue 
related to the amount of equity business conducted, which correlates 
more closely with the amount of Exchange regulatory services required.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
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    The Exchange further believes that the initial level of the Gross 
FOCUS Revenue Fee is reasonable because it is expected to generate 
revenues that, when combined with the Exchange's other regulatory fees 
with respect to ETP Holders, will be less than or equal to the 
Exchange's costs related to the regulation of its equities business. 
This is consistent with the Commission's previously stated view that 
regulatory fees be used for regulatory purposes and not to support the 
Exchange's business side.

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) \10\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \11\ thereunder, because it establishes a due, fee, or other 
charge imposed by NYSE Arca.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2011-32 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-2011-32. This 
file number should be included on the subject line if e-mail 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 a.m. and 3 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-2011-32 and should be submitted on or before June 30, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-14232 Filed 6-8-11; 8:45 am]
BILLING CODE 8011-01-P