Document ID: SEC-2013-0633-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2013-04-02T04:00Z

[Federal Register Volume 78, Number 63 (Tuesday, April 2, 2013)]
[Notices]
[Pages 19784-19790]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07619]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 69246; File No. SR-NYSEArca-2013-25]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Modifying the NYSE 
Arca Options Fee Schedule To Establish Fees for Mini-Options Contracts

March 27, 2013.
    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 18, 2013, 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, 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 modify the NYSE Arca Options Fee Schedule 
(the ``Fee Schedule'') to establish fees for mini-options contracts 
(``Minis''). 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
    The Exchange proposes to modify the Fee Schedule to establish fees 
for Minis.\4\
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    \4\ In addition to the changes discussed below, the Exchange 
also proposes to make clarifying changes to the endnotes to the Fee 
Schedule to describe the impact, or lack thereof, of the 
introduction of Minis, including within endnotes 2, 8, 9 and 12.
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    The Exchange represented in its filing with the Commission to 
establish Minis that ``the current schedule of Fees will not apply to 
the trading of mini-options contracts. The Exchange will not commence 
trading of mini-option contracts until specific fees for mini-options 
contracts trading have been filed with the Commission.'' \5\ As the 
Exchange intends to begin trading Minis on March 18, 2013, it is 
submitting this filing to describe the transaction fees that will be 
applicable to the trading of Minis.
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    \5\ See Securities Exchange Act Release No. 67948 (September 28, 
2012), 77 FR 60735 (October 4, 2012) (SR-NYSEArca-2012-64).
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    Minis have a smaller exercise and assignment value due to the 
reduced number of shares they deliver as compared to standard option 
contracts. As such, the Exchange is proposing generally lower per 
contract fees as compared to standard option contracts, with some 
exceptions to be fully described below. Despite the smaller exercise 
and assignment value of a Mini, the cost to the Exchange to process 
quotes and orders in Minis, perform regulatory surveillance and retain 
quotes and orders for archival purposes is the same as a for a standard 
contract. This leaves the Exchange in a position of trying to strike 
the right balance of fees applicable to Minis--too low and the costs of 
processing Mini quotes and orders will necessarily cause the Exchange 
to either raise fees for everyone or just for participants trading 
Minis; too high and participants may be deterred from trading Minis, 
leaving the Exchange less able to recoup costs associated with 
development of the product, which is designed to offer investors a way 
to take less risk in high dollar securities. The Exchange believes, 
therefore, that adopting fees for Minis that are in some cases lower 
than fees for standard contracts, and in other cases the same as for 
standard contracts, is appropriate, not unreasonable, not unfairly 
discriminatory and not burdensome on competition between participants, 
or between the Exchange and other exchanges in the listed options 
market place.
General Options and Trading Permit (OTP) Fees
    What follows is a discussion of the existing Fee Schedule as it 
relates to the treatment of Mini options as compared to standard option 
contracts.
    Trading Permit Fees: The number of Trading Permits or OTPs required 
by participants is unchanged by the introduction of Mini options.
    Lead Market Maker (``LMM'') Rights Fees: The monthly rights fees 
charged to LMMs will continue to apply to them for transactions 
executed in Mini options. For purposes of calculating the Rights Fee, a 
transaction in a Mini option shall be counted the same as a transaction 
in a standard option contract from a volume perspective (i.e., one 
contract in a Mini will equal one contract in a standard option 
contract).
    Options Regulatory Fee: Presently the Exchange charges an Options 
Regulatory Fee (``ORF'') of $0.005 per contract. The ORF is assessed on 
each OTP Holder for all options transactions executed or cleared by the 
OTP Holder that are cleared by The Options Clearing Corporation 
(``OCC'') in the customer range, regardless of the exchange on which 
the transaction occurs. The Exchange is proposing to charge the same 
rate for transactions in Mini options, $0.005 per contract, since, as 
noted, the costs to the Exchange to process quotes, orders, trades and 
the necessary regulatory surveillance

[[Page 19785]]

programs and procedures in Minis are the same as for standard option 
contracts. As such, the Exchange believes that it is appropriate to 
charge the ORF at the same rate as the standard option contract.
Per Contract Trade Related Charges, Including Qualified Contingent 
Cross (``QCC'') Orders
    The Exchange discusses below the newly proposed per contract 
transaction charges applicable to Minis. The tables below show the per 
contract charge applicable to electronic, manual, electronic complex 
orders, and QCC executions in Minis for various participants on the 
Exchange: \6\
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    \6\ The Exchange proposes to create a duplicative reference to 
Routing Fees under the section of fees applicable to Minis.

               Mini Options Transaction Fees--per Contract
------------------------------------------------------------------------
                                                              Manual
                                                            Executions
------------------------------------------------------------------------
Order Type:
  NYSE Arca Market Maker................................           $0.02
  Firm and Broker Dealer................................            0.09
  Customer..............................................            0.00
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----------------------------------------------------------------------------------------------------------------
                                                  Electronic executions in penny   Electronic executions in non-
                                                           pilot issues                 penny pilot issues
                                                 ---------------------------------------------------------------
                                                  Post liquidity  Take liquidity  Post liquidity  Take liquidity
----------------------------------------------------------------------------------------------------------------
Order Type:                                                                                       ..............
    NYSE Arca Market Maker......................         ($0.04)           $0.07         ($0.06)           $0.10
    Firm and Broker Dealer......................          (0.01)            0.09            0.00            0.12
    Customer....................................          (0.03)            0.06          (0.04)            0.08
----------------------------------------------------------------------------------------------------------------

                                  Complex Orders--Transaction Fee--Per Contract
----------------------------------------------------------------------------------------------------------------
                                                  Order type                                           Fees
----------------------------------------------------------------------------------------------------------------
Complex Order to Complex Order..........  Customer..................  Penny Pilot Issues........         ($0.03)
                                                                      Non-Penny Pilot Issues....          (0.04)
                                          Non Customer..............  Penny Pilot Issues........            0.08
                                                                      Non-Penny Pilot Issues....            0.10
Complex Order against Consolidated Book.  Customer..................  Penny Pilot Issues........            0.06
                                                                      Non-Penny Pilot Issues....            0.08
                                          NYSE Arca Market Maker....  Penny Pilot Issues........            0.07
                                                                      Non-Penny Pilot Issues....            0.10
                                          Firm and Broker Dealer....  Penny Pilot Issues........            0.09
                                                                      Non-Penny Pilot Issues....            0.12
----------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------
 
------------------------------------------------------------------------
QCC Fees.............................        $0.05  per side.
Floor Broker Rebate..................         0.01  per side.
------------------------------------------------------------------------

    As with standard options, Customers manually transacting Mini 
options on the Exchange will trade for free. Mini options contracts on 
the Exchange will NOT count toward the Customer Monthly Posting Credit 
Tiers or Super Tier and Qualifications for Executions in Penny Pilot 
Issues and SPY or associated rebates paid to Order Flow Providers 
(``OFPs'') described in endnote 8 to the current Fee Schedule.\7\ As 
noted earlier, the cost to the Exchange to process quotes, orders and 
trades in Minis is the same as for standard options. This, coupled with 
the lower per contract transaction fees charged to other participants, 
makes it impractical to offer OFPs a rebate for any Customer Mini 
options volume they transact.
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    \7\ See NYSE Arca Options fee schedule dated March 1, 2013, 
available at https://globalderivatives.nyx.com/sites/globalderivatives.nyx.com/files/nyse_arca_options_fee_schedule__eff_3_01_13.pdf. However, the Exchange proposes to specify in 
endnote 8 that Total Industry Customer equity and ETF option average 
daily volume includes OCC calculated Customer volume of all types, 
including Complex Order Transactions, QCC transactions, and mini 
options transactions, in equity and ETF options.
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    Customers electronically transacting Mini options in Penny Pilot 
issues will receive a rebate of $.03 when they post liquidity and be 
charged $.06 when they take liquidity. Customers electronically 
transacting Mini options in non-Penny Pilot issues will receive a 
rebate of $.04 when they post liquidity and be charged $.08 when they 
take liquidity. For Complex Order to Complex Order executions, 
Customers electronically transacting Mini options will receive a rebate 
of $.03 in Penny Pilot issues and will receive a rebate of $.04 in non-
Penny Pilot issues. For Complex Orders that execute against the 
Consolidated Book, Customers electronically transacting Mini options 
will be charged $.06 in Penny Pilot issues and will be charged $.08 in 
non-Penny Pilot issues.
    For Mini option transactions, all NYSE Arca Market Makers, 
including Lead Market Makers, will have the same rates and charges 
applied. NYSE Arca Options Market Makers manually trading Mini options 
will be charged $.02 per contract. NYSE Arca Options Market Makers 
electronically transacting Mini options in Penny Pilot issues will 
receive a rebate of $.04 when they post liquidity and be charged $.07 
when they take liquidity. NYSE Arca Options Market Makers 
electronically transacting Mini options in non-Penny Pilot issues will 
receive a rebate of $.06 when they post liquidity and be charged $.10 
when they take liquidity. For Complex Order to Complex Order 
executions, NYSE Arca Options Market Makers electronically transacting 
Mini options will be charged $.08 in Penny Pilot issues and will be 
charged $.10 in non-Penny Pilot issues. For Complex Orders that execute 
against the Consolidated Book, NYSE Arca Options Market Makers 
electronically transacting Mini options will be charged $.07 in Penny 
Pilot issues and will be charged $.10 in non-Penny Pilot issues. These 
NYSE Arca Options Market Maker charges are generally anywhere from 
slightly less than 1/10th to slightly more than 1/10th of the charges 
incurred by NYSE Arca Options Market Makers today for standard option 
contract transactions.

[[Page 19786]]

    Firm and Broker Dealer manual transactions, in Mini options will be 
charged at the rate of $.09 per contract. Firms and Broker Dealers 
electronically transacting Mini options in Penny Pilot issues will 
receive a rebate of $.01 when they post liquidity and be charged $.09 
when they take liquidity. Firms and Broker Dealers electronically 
transacting Mini options in non-Penny Pilot issues will neither be 
charged nor receive a credit (i.e., free) when they post liquidity and 
will be charged $.12 when they take liquidity. For Complex Order to 
Complex Order executions, Firms and Broker Dealers electronically 
transacting Mini options will be charged $.08 in Penny Pilot issues and 
will be charged $.10 in non-Penny Pilot issues. For Complex Orders that 
execute against the Consolidated Book, Firms and Broker Dealers 
electronically transacting Mini options will be charged $.09 in Penny 
Pilot issues and will be charged $.12 in non-Penny Pilot issues. These 
Firms and Broker Dealer charges are generally anywhere from slightly 
less than 1/10th to slightly more than 1/10th of the charges incurred 
by NYSE Arca Options Market Makers today for standard option contract 
transactions.
    Additionally, the existing $75,000 cap per month of fees on Firm 
and Broker Dealer open outcry trades described in endnote 9 of the 
current Fee Schedule will NOT include Mini transactions. As noted 
earlier, the cost to the Exchange to process quotes, orders and trades 
in Minis is the same as for standard options, therefore the Exchange 
does not wish to include Firm and Broker Dealer trades in Mini options 
in the monthly fee cap. Further, the proposed charge is slightly higher 
than 1/10th of the current charges applicable to Firm Proprietary 
trades. This relatively higher rate is necessitated by the fact that 
the cost to the Exchange to process quotes, orders and trades in Minis 
is the same as for standard options.
    OTP Holders or OTP Firms that execute QCC transactions in Minis 
will be charged $0.05 per contract side. QCC transactions in Minis 
executed by a Floor Broker on the Floor of the Exchange will be 
eligible for a $0.01 rebate per contract side rebate.
    Routing Surcharge: In order to comply with the requirements of the 
Distributive Linkage Plan,\8\ the Exchange uses various means of 
accessing better priced interest located on other exchanges. Presently, 
the Exchange charges a Routing Surcharge of $.11 per contract plus a 
pass through of the fees associated with the execution of the routed 
order on the other exchanges. The $.11 is designed to recover the 
Exchange's costs in routing orders to the other exchanges. Those costs 
include clearance charges imposed by the OCC and per contract routing 
fees charged by the Broker Dealers who charge the Exchange for the use 
of their systems to route orders to other exchanges. The Exchange has 
spoken with both the OCC and the Broker Dealers who have informed the 
Exchange that their charges applicable to Mini options will be the same 
as for standard option contracts, as their cost to process a contract 
(i.e., routing or clearing) is the same irrespective of the exercise 
and assignment value of the contract. As such, the Exchange intends to 
charge the same Routing Surcharge for Mini options as it presently does 
for standard options. The Exchange notes that participants can avoid 
the Routing Surcharge in several ways. First, they can simply route to 
the exchange with the best priced interest. The Exchange, in 
recognition of the fact that markets can move while orders are in 
flight, also offers participants the ability to utilize order types 
that do not route to other exchanges. Specifically, the Post No 
Preference (``PNP'') order modifier is one such order that would never 
route to another exchange. In addition, there are others, such as PNP 
Blind and PNP Plus,\9\ which also would never route to another 
exchange. Given this ability to avoid the Routing Surcharge, coupled 
with the fixed third-party costs associated with routing, the Exchange 
believes it is reasonable to charge the same Routing Surcharge for Mini 
options that is charged for standard option contracts.
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    \8\ See Rule 6.92, Rule 6.94, Rule 6.95 and Rule 6.96.
    \9\ See Rule 6.62(p), Rule 6.62(u), and Rule 6.62(y).
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    Limit Of Fees On Options Strategy Executions: Presently, the 
Exchange has a $750 cap on transaction fees for Strategy Executions 
involving reversals and conversions, box spreads, short stock interest 
spreads, merger spreads and jelly rolls. The fees for these Strategy 
Executions are further capped at $25,000 per month per initiating firm. 
The Exchange will NOT include Mini option transactions as being 
eligible for any part of these per trade or per month Strategy 
Execution caps. As noted earlier, the cost to the Exchange to process 
quotes, orders and trades in Minis is the same as for standard options. 
Given that the per contract transaction fees are already substantially 
lower than the per contract fees for standard options, inclusion of 
Mini options in these fee caps is not warranted.

Ratio Threshold Fee

    Order To Trade Ratio Fee: For purposes of calculating the Order To 
Trade Ratio Fee, an order and an execution in Mini options will be 
counted the same as an order and an execution in standard option 
contracts.
    The Exchange proposes to implement these changes on March 18, 2013.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
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General Options and Trading Permit (OTP) Fees
    For purposes of the Fee Schedule relating to OTP fees, LMM Rights 
Fees, and the regulatory fees, including the ORF, the Exchange is not 
proposing any changes as a result of the introduction of Minis. This is 
due to, in part, the fact that there will be no separate allocation for 
Minis--the existing LMMs and NYSE Arca Options Market Makers who trade 
AAPL, for example, will automatically be able, and obligated, to quote 
and trade AAPL Minis. Since this is the case, the Exchange believes it 
is entirely appropriate and, in fact, necessary, to treat Mini options 
the same as standard options with respect to the fees listed above. The 
fees listed above have not been deemed to be unreasonable, inequitable, 
or unfairly discriminatory, and the introduction of Mini options raises 
no new issues with respect to such fees. Therefore, the treatment of 
Minis in the same manner as standard option contracts for purposes of 
the OTP fees, LMM Rights Fees, and the regulatory fees, including the 
ORF, is reasonable, equitable and not unfairly discriminatory. Further, 
the Exchange notes, particularly in the context of the ORF, that the 
cost to perform surveillance to ensure compliance with various Exchange 
and industry-wide rules is no different for a Mini option than it is 
for a standard option contract. Reducing the ORF for Mini options could 
result in a higher ORF for standard options. Such an outcome would 
arguably be discriminatory towards investors in standard options for 
the benefit of

[[Page 19787]]

investors in Minis. As such, the appropriate approach is to treat both 
Minis and standard options the same with respect to the amount of the 
ORF that is being charged.
Per Contract Trade Related Charges, Including QCCs
    The Exchange noted earlier that, while Minis have a smaller 
exercise and assignment value due to the reduced number of shares to be 
delivered as compared to standard option contracts, and despite the 
smaller exercise and assignment value of a Mini, the cost to the 
Exchange to process quotes and orders in Minis, perform regulatory 
surveillance and retain quotes and orders for archival purposes is the 
same as for a standard contract. This leaves the Exchange in a position 
of trying to strike the right balance of fees applicable to Minis--too 
low and the costs of processing Mini quotes and orders will necessarily 
cause the Exchange to either raise fees for everyone or just for 
participants trading Minis; too high and participants may be deterred 
from trading Minis, leaving the Exchange less able to recoup costs 
associated with development of the product, which is designed to offer 
investors a way to take less risk in high dollar securities. The 
Exchange believes, therefore, that adopting fees for Minis that are in 
some cases lower than standard contracts, and in other cases the same 
as for standard contracts, is appropriate, not unreasonable, not 
unfairly discriminatory and not burdensome on competition between 
participants, or between the Exchange and other exchanges in the listed 
options market place.
    In the case of most trade related charges, the Exchange has decided 
to offer lower per contract fees to participants as part of trying to 
strike the right balance between recovering costs associated with 
trading Minis and encouraging use of the new Mini option contracts, 
which are designed to allow investors to reduce risk in high dollar 
underlying securities.
    The Exchange proposal to charge Customers $.00 per contract for 
manual orders is reasonable, as Customers have long traded manual 
orders for free on all options on the Exchange. The ability to trade 
manual orders for free attracts Customer order flow to the Exchange, 
which is beneficial to all other participants on the Exchange who 
generally seek to trade with Customer order flow. The proposed fee of 
$.00 per contract is the same fee charged to Customer manual orders in 
standard option contracts, which is an effective fee on the Exchange 
and has not been determined to be inequitable or unfairly 
discriminatory. Therefore, the proposed Customer pricing for Minis is 
equitable and not unfairly discriminatory. The Exchange feels that 
different rates for Customer manual transaction fees as compared to 
other market participants is equitable and not unfairly discriminatory 
because non-Customers wish to have Customer orders attracted to the 
Exchange by having lower fees, and is equitable and not unfairly 
discriminatory to Firms and Broker Dealers because Market Makers have 
obligations that are not required of Firms and Broker Dealers and 
because Market Makers have additional costs that are not applicable to 
Firms and Broker Dealers.
    The Exchange proposal to credit Customers electronically 
transacting Mini options in Penny Pilot and non-Penny Pilot issues $.03 
and $.04, respectively, per contract when they post liquidity and 
charging them $.06 and $.08, respectively, when they take liquidity is 
reasonable, as Customers are currently subject to the same pricing 
structure (albeit at higher rates) for standard options. The rates 
proposed for Customer Minis transactions for Complex Order to Complex 
Order executions (a rebate of $.03 in Penny Pilot issues and a rebate 
of $.04 in non-Penny Pilot issues) and Complex Orders that execute 
against the Consolidated Book (a charge of $.06 in Penny Pilot issues 
and a charge of $.08 in non-Penny Pilot issues) is also reasonable, as 
Customers are currently subject to the same pricing structure (albeit 
at higher rates) for standard options. The Exchange feels that 
different rates for Customer electronic transaction fees as compared to 
other market participants is equitable and not unfairly discriminatory 
because non-Customers wish to have Customer orders attracted to the 
Exchange by having lower fees, and is equitable and not unfairly 
discriminatory to Firms and Broker Dealers because Market Makers have 
obligations that are not required of Firms and Broker Dealers and 
because Market Makers have additional costs that are not applicable to 
Firms and Broker Dealers.
    The Exchange proposal to exclude Mini options from the Customer 
Monthly Posting Credit Tiers or Super Tier and Qualifications for 
Executions in Penny Pilot Issues and SPY and associated rebates paid to 
OFPs described in endnote 8 to the current Fee Schedule is reasonable, 
equitable and not unfairly discriminatory for the following reasons. 
First, as noted above, the Exchange's cost to process quotes, orders 
and trades in Minis is the same as for standard options. Given the 
overall lower expected revenues from Mini options, it is reasonable to 
exempt Mini option volumes from qualifying for the OFP rebates paid on 
standard option contracts. It is also equitable, since paying the 
rebate on Mini option volumes would likely necessitate either reducing 
the rebates paid to OFPs for all activity, or raising other participant 
fees. It is not unfairly discriminatory, as it will apply equally to 
all Customer executions in Mini options, regardless of the market 
participant submitting the order.
    The Exchange proposal to charge NYSE Arca Market Makers manually 
trading Mini options $.02 per contract is reasonable. Additionally, the 
Exchange proposal for NYSE Arca Market Makers electronically trading 
Mini options in Penny Pilot issues to receive a rebate of $.04 or $.06 
when they post liquidity in Penny Pilot and non-Penny Pilot classes, 
respectively, and to be charged $.07 or $.10 when they take liquidity 
in Penny Pilot and non-Penny Pilot classes, respectively, is also 
reasonable. The Complex Order rates proposed for NYSE Arca Options 
Market Makers electronically transacting Mini options are also 
reasonable. Generally, these fees range from slightly more than, to 
slightly less than, 10% of what the various NYSE Arca Options Market 
Maker participants pay today. Charging all types of NYSE Arca Options 
Market Makers, including Lead Market Makers, the same fees to trade 
Minis is certainly not unfairly discriminatory, as it applies to all of 
them equally. The fees are reasonable in light of the fact that the 
Minis do have a smaller exercise and assignment value, specifically \1/
10\th that of a standard contract, and, as such, levying fees that are 
approximately 10% of what an NYSE Arca Options Market Maker pays today 
is reasonable and equitable. The Exchange's cost to process quotes, 
orders and trades in Minis is the same as for standard options.
    The Exchange feels that different rates for Market Maker 
transaction fees as compared to other market participants is equitable 
and not unfairly discriminatory because non-Customers wish to have 
Customer orders attracted to the Exchange by having lower fees, and is 
equitable and not unfairly discriminatory to Firms and Broker Dealers 
because Market Makers have obligations that are not required of Firms 
and Broker Dealers and because Market Makers have additional costs that 
are not applicable to Firms and Broker Dealers. For example, NYSE Arca 
Options Market Makers are required to have trading permits in

[[Page 19788]]

order to stream quotes. The number of permits is variable based on the 
number of options traded, and can cost as much as $16,000 per month to 
quote all issues on the Exchange as an NYSE Arca Options Market Maker. 
Conversely, Firms pay a monthly permit fee of $1,000 per month and 
Broker Dealers, typically access the facilities of the Exchange through 
either a Firm or Order Flow Provider who may or may not pass along the 
$1,000 per month permit fee cost. Consequently, when all fees are taken 
together, the difference charged to NYSE Arca Options Market Makers as 
compared to Broker Dealers, and Firms is reasonable, equitable and not 
unfairly discriminatory. The Exchange further notes that there are no 
limits on the number of NYSE Arca Options Market Makers that are 
permitted to quote in a given option and that any of the other 
participant types are free to apply to the Exchange to become a NYSE 
Arca Options Market Maker to avail themselves of the transaction 
charges applicable to NYSE Arca Options Market Makers presuming they 
are willing to accept the quoting obligations applicable to NYSE Arca 
Options Market Makers, which serve to foster price discovery and 
transparency.
    The Exchange proposal to charge Firms and Broker Dealers,, the 
rates proposed herein for their transactions in Minis and to exclude 
Mini options from the $75,000 cap per month of fees on Firm and Broker 
Dealer open outcry executions described in endnote 9 of the current Fee 
Schedule is reasonable, equitable and not unfairly discriminatory. 
First, the per contract charges proposed are lower than what Firms and 
Broker Dealers pay for a standard contract in acknowledgement of the 
smaller exercise and assignment value. Although some of these proposed 
rates are more than 10% of the rate paid by a Firm or Broker Dealer for 
a standard contract, this is warranted by the fact that the Exchange's 
cost to process quotes, orders and trades in Minis is the same as for 
standard options. In this regard the proposal is reasonable and it is 
also equitable, as it allows the Exchange to offer this innovative 
product to investors without raising fees for other investors who may 
have no interest in trading Minis. Likewise, excluding Mini option 
volumes from the monthly fee cap for Firm and Broker Dealer open outcry 
executions is reasonable and equitable in light of the Exchange's 
desire to fund the costs associated with Minis with revenues from only 
those participants who trade them. Offering a fee cap for a product 
with reduced fees might necessitate raising costs for other 
participants; therefore, the Exchange believes that the exclusion from 
the monthly fee cap for Firm and Broker Dealer open outcry executions 
is both reasonable and equitable. As the per contract Mini pricing for 
all Firms and Broker Dealers is the same, the proposal is also not 
unfairly discriminatory.
    The Exchange feels that different rates for Firm and Broker Dealer 
transaction fees as compared to other market participants is equitable 
and not unfairly discriminatory because non-Customers wish to have 
Customer orders attracted to the Exchange by having lower fees, and is 
equitable and not unfairly discriminatory to Firms and Broker Dealers 
because Market Makers have obligations that are not required of Firms 
and Broker Dealers and because Market Makers have additional costs that 
are not applicable to Firms and Broker Dealers. For example, NYSE Arca 
Options Market Makers are required to have trading permits in order to 
stream quotes. The number of permits is variable based on the number of 
options traded, and can cost as much as $16,000 per month to quote all 
issues on the Exchange as an NYSE Arca Options Market Maker. 
Conversely, Firms pay a monthly permit fee of $1,000 per month and 
Broker Dealers, typically access the facilities of the Exchange through 
either a Firm or Order Flow Provider who may or may not pass along the 
$1,000 per month permit fee cost. Consequently, when all fees are taken 
together, the difference charged to NYSE Arca Options Market Makers as 
compared to Broker Dealers, and Firms is reasonable, equitable and not 
unfairly discriminatory. The Exchange further notes that there are no 
limits on the number of NYSE Arca Options Market Makers that are 
permitted to quote in a given option and that any of the other 
participant types are free to apply to the Exchange to become a NYSE 
Arca Options Market Maker to avail themselves of the transaction 
charges applicable to NYSE Arca Options Market Makers presuming they 
are willing to accept the quoting obligations applicable to NYSE Arca 
Options Market Makers, which serve to foster price discovery and 
transparency.
    The Exchange proposal for QCC pricing for Minis is to charge 
Customers and non-Customers $.10 per contract ($.05 charge per contract 
side), as compared with $.20 per contract for standard options ($.10 
charge per contract side). The Exchange will also offer NYSE Arca Floor 
Brokers a rebate of $.02 per contract ($.01 rebate per contract side) 
for all Mini options they execute as a QCC trade, as compared to $.07 
per contract rebate for standard options ($.035 rebate per contract 
side). The Exchange believes that this pricing is reasonable, equitable 
and not unfairly discriminatory. First, the Exchange has always charged 
for QCC trades in standard options due to the fact that qualifying QCC 
trades are executed immediately, upon entry, without exposure or any 
opportunity for other participants to participate on the trade. This 
pricing proposal preserves this, and, as such, is reasonable. It is 
equitable since, as noted, the Exchange's cost to process quotes, 
orders and trades in Minis is the same as for standard options, so 
charging a relatively small premium for the opportunity to trade 
without exposure is warranted, given the Exchange's need to cover the 
costs of participants trading Minis so as to avoid sharing those costs 
with other participants who are not trading Minis. The proposal is also 
not unfairly discriminatory as it applies equally to all Customers and 
non-Customers. The Floor Broker rebate of $.02 ($.01 rebate per 
contract side) is reasonable and equitable as it is designed to allow 
Floor Brokers to compete for QCC volumes that might otherwise execute 
on an exchange that offers a front end order entry system, like ISE 
PrecISE Trade application \12\ or CBOE's HyTS,\13\ which would allow 
participants to potentially avoid paying a brokerage fee. The Floor 
Broker rebate is not unfairly discriminatory as it applies equally to 
all NYSE Arca Floor Brokers who execute Mini options as QCC trades.
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    \12\ See http://www.ise.com/WebForm/viewPage.aspx?categoryId=129.
    \13\ See https://www.cboe.org/hybrid/HyTs.aspx.
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    The Exchange proposal to treat Mini options the same as standard 
options for purposes of the Routing Surcharge is reasonable, equitable 
and not unfairly discriminatory for the following reasons. Presently, 
the Exchange charges a Routing Surcharge of $.11 per contract plus a 
pass through of the fees associated with the execution of the routed 
order on the other exchanges. The $.11 is designed to recover the 
Exchange's costs in routing orders to the other exchanges. Those costs 
include clearance charges imposed by The OCC and per contract routing 
fees charged by the Broker Dealers who charge the Exchange for the use 
of their systems to route orders to other exchanges. The Exchange has 
spoken with both The OCC and the Broker Dealers, who have informed the 
Exchange that their charges applicable to Mini options will be the same 
as for standard option contracts, as their cost to process a contract 
(i.e., routing or clearing) is the

[[Page 19789]]

same irrespective of the exercise and assignment value of the contract. 
As such, the Exchange intends to charge the same Routing Surcharge for 
Mini options as it presently does for standard options. The Exchange 
notes that participants can avoid the Routing Surcharge in several 
ways. First they can simply route to the exchange with the best priced 
interest. The Exchange, in recognition of the fact that markets can 
move while orders are in flight, also offers participants the ability 
to utilize order types that do not route to other exchanges. 
Specifically, the PNP order modifier is one such order that would never 
route to another exchange. In addition, there are others, such as PNP 
Blind and PNP Plus,\14\ which also would never route to another 
exchange. Given this ability to avoid the Routing Surcharge, coupled 
with the fixed third party costs associated with routing, the Exchange 
believes it is reasonable and equitable to charge the same Routing 
Surcharge for Mini options that is charged for standard option 
contracts. Because the Routing Surcharge will apply to all participants 
in Minis as it is applied for standard options, and because such 
surcharge has not previously been found to be unreasonable, inequitable 
or unfairly discriminatory, the Exchange believes such surcharge is 
reasonable and equitable with respect to Minis as well.
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    \14\ See Rule 6.62(p), Rule 6.62(u), and Rule 6.62(y).
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    The Exchange is proposing to exclude Mini option volumes from being 
eligible for the Limit Of Fees On Options Strategy Executions. 
Presently the Exchange has a $750 cap on transaction fees for Strategy 
Executions involving reversals and conversions, box spreads, short 
stock interest spreads, merger spreads and jelly rolls. The fees for 
these Strategy Executions are further capped at $25,000 per month per 
initiating firm. The Exchange will NOT include Mini option transactions 
as being eligible for any part of these per trade or per month Strategy 
Execution caps. As noted earlier, the cost to the Exchange to process 
quotes, orders and trades in Minis is the same as for standard options. 
Given that the per contract transaction fees for Minis are already 
substantially lower than the per contract fees for standard options, 
inclusion of Mini options in these fee caps is not warranted, and is 
reasonable and equitable. Further, it is not unfairly discriminatory as 
the exclusion of Mini volumes from the cap on fees for Strategy 
Executions applies equally to all participants on the Exchange.

Ratio Threshold Fee

    The Exchange proposes to treat Mini options the same as standard 
options for purposes of the Ratio Threshold Fee. As noted, the cost to 
the Exchange to process quotes, orders and trades in Minis is the same 
as for standard options and, as such, treating Minis the same as 
standard option contracts for the purposes of calculating the Ratio 
Threshold Fee is reasonable and equitable. It is also not unfairly 
discriminatory, as such treatment will apply to all participants 
equally.

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. The proposed change designed 
to provide greater specificity and precision within the Fee Schedule 
with respect to the fees that will be applicable to Minis when they 
begin trading on the Exchange on March 18, 2013.
    The Exchange believes that adopting fees for Minis that are in some 
cases lower than for standard contracts, but in other cases the same as 
for standard contracts, strikes the appropriate balance between fees 
applicable to standard contracts versus fees applicable to Mini's, and 
will not impose a burden on competition among various market 
participants on the Exchange, or between the Exchange and other 
exchanges in the listed options market place, that is not necessary or 
appropriate in furtherance of the purposes of the Act.
    The Exchange feels that different rates for different market 
participants will not impose a burden on competition because non-
Customers wish to have Customer orders attracted to the Exchange by 
having lower fees, and will not impose a burden on competition to Firms 
and Broker Dealers because Market Makers have obligations that are not 
required of Firms and Broker Dealers and because Market Makers have 
additional costs that are not applicable to Firms and Broker Dealers. 
Further the Exchange notes that for standard options a greater 
difference in fees for various participants already exists than that 
which is being proposed for Minis. For example, Customers already trade 
for lower Take Liquidity fees than an NYSE Arca Options Market Maker. 
An NYSE Arca Market Maker who trades with a Customer electronically in 
a non-Penny name can pay as much as $0.80 per contract. Similarly, 
Firms and Broker Dealers pay $0.85 per contract when they Take 
Liquidity in non-Penny Pilot names opposed to Customers, who pay a 
lower Take Liquidity rate in the same issues of $0.79 per contract in 
standard options. For Minis, the greatest differential being proposed 
is in Manual Trades in mini-options, where Customers will trade for 
free, and Firms and Broker Dealers will pay $0.09 per contract. Firms 
and Broker Dealers pay $.25 per contract versus $.00 per contract for 
Customers, in standard options. The differential for mini-options is de 
minimus as compared to the differential for standard options.
    The Exchange notes that the difference in fees for various 
participants in standard options has not proven to be a burden on 
competition. Therefore, the fee differential for Minis, being quite a 
bit smaller, should not prove to be a burden on competition at all. In 
this regard, as Minis are a new product being introduced into the 
listed options marketplace, the Exchange is unable at this time to 
absolutely determine the impact that the fees and rebates proposed 
herein will have on trading in Minis. That said, however, the Exchange 
believes that the rates proposed for Minis, on their face, would not 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    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 continually 
review, and consider adjusting, its fees and credits to remain 
competitive with other exchanges. For the reasons described above, the 
Exchange believes that the proposed rule change reflects this 
competitive environment.

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) \15\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \16\ thereunder, because it establishes a due,

[[Page 19790]]

fee, or other charge imposed by NYSE Arca.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \17\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \17\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSEArca-2013-25 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-2013-25. 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-2013-25 and should 
be submitted on or before April 23, 2013.

    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. 2013-07619 Filed 4-1-13; 8:45 am]
BILLING CODE 8011-01-P