Document ID: SEC-2017-0032-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2017-01-10T05:00Z

[Federal Register Volume 82, Number 6 (Tuesday, January 10, 2017)]
[Notices]
[Pages 3052-3055]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00221]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79737; File No. SR-NYSEMKT-2016-127]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Change Modifying the NYSE Amex 
Options Fee Schedule

January 4, 2017.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on December 28, 2016, NYSE MKT LLC (``Exchange'' or ``NYSE MKT'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 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 Amex Options Fee Schedule. 
The proposed 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 purpose of this filing is to modify the Fee Schedule to: (1) 
Adjust the qualification thresholds and transaction fees for electronic 
transactions by NYSE Amex Options Marker Makers (``Sliding Scale''); 
\4\ and (2) modify the prepayment programs offered by the Exchange, 
including adding a new prepay option (the ``Prepayment Programs'').\5\
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    \4\ See Fee Schedule, Section I. C. (NYSE Amex Options Market 
Maker Sliding Scale--Electronic), available here, https://www.nyse.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf.
    \5\ See id., Section I. D. (Prepayment Program).
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Market Maker Sliding Scale
    Section I.C. of the Fee Schedule sets forth the Sliding Scale of 
transaction fees charged to NYSE Amex Options Marker Makers (referred 
to as Market Makers herein), which per contract fees decrease as Market 
Maker trades higher monthly volumes.\6\ Currently, Market Makers that 
have monthly volume on the Exchange of 0.10% or less of total ICADV are 
charged a base rate of $0.25 per contract and, these same market 
participants, upon reaching certain volume thresholds, or Tiers, 
receive a reduction of this per contract rate.\7\ In addition, the 
Exchange charges a lower per contract rate to Market Makers that 
participate in one of the Prepayment Programs or that post monthly 
volume greater than 0.85% of total ICADV.
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    \6\ See Fee Schedule, supra note 4. The volume thresholds are 
based on an NYSE Amex Options Market Maker's volume transacted 
Electronically as a percentage of total industry Customer equity and 
ETF options volumes (``ICADV'') as reported by the Options Clearing 
Corporation (the ``OCC''). Total ICADV is comprised of those equity 
and ETF contracts that clear in the Customer account type at OCC and 
does not include contracts that clear in either the Firm or Market 
Maker account type at OCC or contracts overlying security other than 
an equity or ETF security. See OCC Monthly Statistics Reports, 
available here, http://www.theocc.com/webapps/monthly-volume-reports.
    \7\ In calculating an NYSE Amex Options Market Maker Electronic 
volumes, the Exchange excludes any volumes attributable to Mini 
Options, QCC trades, CUBE Auctions, and Strategy Execution Fee Caps, 
as these transactions are subject to separate pricing described in 
Fee Schedule Sections I.B., I.F., I.G., and I.J, respectively. See 
Fee Schedule, Section I.C, supra note 4.
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    Effective January 3, 2017, the Exchange proposes to modify the 
qualification thresholds and associated transaction fees for all Marker 
Makers as follows (with new rates/thresholds underlined and deleted 
rates/thresholds in brackets):
* * * * *

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                                                                                           Rate per contract if
                                                                                           monthly volume from
                                                                                          posted volume is more
                                                                                            than .85% of total
                              Market maker electronic monthly volume                      ICADV or for any NYSE
            Tier                     as a percentage of ICADV         Rate per contract     Amex Market Maker
                                                                                            participating in a
                                                                                            prepayment program
                                                                                           pursuant to Section
                                                                                                   I.D.
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1...........................  0.00% to [0.10%]0.15%.................              $0.25             [$0.20]$0.23
2...........................  [>0.10%]0.15% to 0.60%.....              $0.22             [$0.17]$0.18
3...........................  >0.60% to [1.25%]1.10%................       [$0.12]$0.14             [$0.07]$0.08

[[Page 3053]]

 
4...........................  [>1.25% to 1.40%]1.10% to                $0.10                    $0.05
                               1.45%.
5...........................  [>1.40% to 1.75%]1.45% to                $0.07             [$0.02]$0.04
                               1.80%.
6...........................  [>1.75%]1.80%..............              $0.05             [$0.00]$0.02
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    The proposed changes are designed to incent Market Makers to 
electronically trade a more meaningful percentage of ICADV by 
increasing the percentage of ICADV required for Tiers 2, 5 and 6, and 
to make Tier 4 more achievable by lowering the percentage of ICADV 
required.\8\ In connection with the adjustment to the qualification 
thresholds for the various tiers, the Exchange proposes to increase the 
per contract rate for Tier 3, which is designed to both offset the 
lower threshold to Tier 4 and to encourage participants to achieve Tier 
4. For those participants that achieve Tier 4, as modified, the per 
contract rate differential remains the same (i.e., $0.05 per contract 
for those who achieve 0.85% of IADV from Posted Volume, or participate 
in a Prepayment Program; as compared to $0.10 per contract for anyone 
else that achieves Tier 4), which is designed to encourage Market 
Makers to qualify for the more easily achievable Tier 4 and to qualify 
for the enhanced rates by enrolling in a prepayment program or meeting 
the Posted Volume criterion. In addition, the Exchange proposes to 
increase the discounted per contract rates to Market Makers that 
participate in one of the Prepayment Programs or that trade more than 
0.85% of total ICADV based on posted volume. The Exchange believes the 
proposed modifications would encourage Market Makers to execute more 
volume on the Exchange and provide additional incentive to enroll in 
one of the Prepayment Programs, including as modified herein.
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    \8\ See proposed Fee Schedule, Section I.C.
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Prepayment Program
    In January 2015, the Exchange introduced a two Prepayment 
Programs--for a 1- or 3-year term--to allow Market Makers to prepay a 
portion of the charges incurred for transactions executed on the 
Exchange.\9\ Although the 3-Year Prepayment Program, now in its final 
year, is closed to new entrants, the Exchange proposes to modify the 
terms of the 1 Year Prepayment Program, as well as to offer a new 
prepay option to be available throughout 2017.\10\ The proposed 
modifications to the Prepayment Program are designed to encourage 
broader participation by Market Maker firms.
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    \9\ See Exchange Act Release No. 74086 (January 16, 2015) 80 FR 
3701 (January 23, 2015) (SR-NYSEMKT-2015-4). See also Fee Schedule, 
Section I.D (Prepayment Programs), supra at note 4 (describing the 
1- and 3-Year Prepayment Programs, including requisite timelines for 
committing and prepaying as well as various conditions to opt out of 
the 3-Year Prepayment Program).
    \10\ See proposed Fee Schedule, Section I.D (Prepayment 
Programs) (modifying the description of the 3 Year Prepayment 
Program to make clear that it is closed to new participants, that 
one year remains for any Market Maker that enrolled in 2015, that 
participants retain the ability to opt out by the specified date, 
including because there are fewer than 4 participants in the 1- or 
3-Year programs as of January 3, 2017, as well as to update the 
description of the program to reflect the current and upcoming 
calendar year). The Exchange does not propose to modify the ($3 
million) amount of, or deadline (of January 31, 2017) for, the final 
payment in connection with the 3 Year Prepayment Program.
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    The Exchange proposes to reduce the prepayment amount for the 1 
Year Prepayment Program from $4 million to $3 million, which would 
align with the final prepayment for participants in the 3 Year 
Prepayment Program. The Exchange does not propose to alter any other 
aspects of the 1 Year Prepayment Program.\11\ Participants in the 1 
Year Prepayment Program would continue to qualify its Affiliated (or 
Appointed) OFP to be eligible to receive the enhanced credit(s) under 
the Amex Customer Engagement Program.\12\ To enroll in the modified 1 
Year Prepayment Program, a Market Maker would have until December 30, 
2016 to notify the Exchange, and until January 31, 2017 to remit the $3 
million prepayment.\13\
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    \11\ See proposed Fee Schedule, Section I.C. (providing that the 
Exchange will apply the prepayment as a credit against charges 
incurred under Section I.C., I.G., or III.A. of the Fee Schedule 
and, once the prepayment credit has been exhausted, the Exchange 
will invoice the NYSE Amex Options Market Maker at the appropriate 
rates, and noting that if the NYSE Amex Options Market Maker does 
not conduct sufficient activity to exhaust the entirety of their 
prepayment credit within the calendar year, there will be no refunds 
issued for any unused portion of their prepayment credit).
    \12\ See Fee Schedule, Section I.E. (Amex Customer Engagement 
(``ACE'') Program--Standard Options).
    \13\ See proposed Fee Schedule, Section I.D (Prepayment 
Programs) (modifying the description of the 1Year Prepayment 
Programs, including reducing the prepayment amount and updating the 
deadlines to reflect the current and upcoming calendar year). As is 
the case today, Market Makers would have until the last business day 
of 2016 to notify the Exchange of their commitment to the Program by 
sending an email the Exchange at optionsbilling@nyse.com.
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    The Exchange is also proposing to offer a new option, the ``Balance 
of the Year'' program, which would allow Market Makers to commit to 
prepay a portion of their transaction charges for some portion of the 
calendar year, for a maximum of three-quarters of the year. The 
prepayment amount and payment schedule for the proposed Balance of the 
Year Program would be based on the quarter in which the Market Maker 
joins, as set forth below:

----------------------------------------------------------------------------------------------------------------
                                             2nd Quarter              3rd Quarter              4th Quarter
----------------------------------------------------------------------------------------------------------------
Prepayment Amount and Payment          $2,475,000, due by       $1,800,000, due by July  $975,000, due by
 Schedule.                              April 28.                31.                      October 31.
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    Similar to the current 1- and 3-Year Prepayment Programs, a Market 
Maker that participates in the Balance of the Year Program would 
receive a credit equal to its prepayment amount (i.e., $2,475,000; 
$1,800,000; or $975,000, respectively) toward fees it incurs under

[[Page 3054]]

Section I.C., I.G., and III.A.\14\ As proposed, Marker Makers that 
enroll in the Balance of the Year Program would be required to notify 
the Exchange by the last business day before the start of the new 
(following) quarter.\15\ Thus, to participate for the last three-
quarters of 2017, notice would have to be given by March 31, 2017--the 
last business day of the first quarter.
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    \14\ See proposed Fee Schedule, Section I.D (Prepayment 
Programs). Similarly, just as with the 1- and 3-Year Prepayment 
Programs, the Exchange would apply the prepayment as a credit 
against charges incurred under Section I.C., I.G., or III.A. of the 
Fee Schedule. Once the prepayment credit has been exhausted, the 
Exchange would invoice the NYSE Amex Options Market Maker at the 
appropriate rates. In the event that a NYSE Amex Options Market 
Maker does not conduct sufficient activity to exhaust the entirety 
of their prepayment credit within the calendar year, there would be 
no refunds issued for any unused portion of their prepayment credit. 
See id.
    \15\ See id. (providing that Market Makers would be required to 
notify the Exchange of their commitment to the Program by sending an 
email the Exchange at optionsbilling@nyse.com).
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    The Exchange believes the proposed Balance of the Year Program 
would allow a Market Maker that had not committed to the 1- or 3-Year 
Prepayment Program the option to enroll at a later date, for a shorter 
duration, and to nonetheless receive the benefits of participating in 
the Prepayment Program for the duration of their commitment. 
Specifically, during the period of their participation, Market Makers 
enrolled in the Balance of the Year Program would be entitled to 
qualify for the reduced per contract Sliding Scale rates (see supra 
note 8), and a discount on Rights Fees.\16\ The Exchange likewise 
proposes to offer participants in the Balance of the Year Program 
enhanced ACE credits in the same amount as those available to 
participants in the 1 Year Prepayment Program, and to modify the Fee 
Schedule accordingly.\17\ Although the prepay commitment rates for 
partial Balance of the Year participation is not proportional to the 
time left in the year (i.e., the later in the year a Market Maker 
joins, the higher his prepayment amount relative to the annual cost), 
the Exchange believes this cost structure would incentivize interested 
Market Makers to commit to the Program earlier in the year.
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    \16\ See Fee Schedule, Section III.C (e-Specialist, DOMM and 
Specialist Monthly Rights Fees) (describing Rights Fee Discount 
based on ACE tier achieved). See also infra, note 17.
    \17\ See proposed Fee Schedule, Section I.E. (modifying ACE 
Program to provide for ``1 Year/Balance of the Year Program Enhanced 
Customer Volume Credits'' in the same amount).
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    The Exchange is not proposing any other fee changes at this time.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\18\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\19\ 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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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed modifications to the 
Sliding Scale are reasonable, equitable and not unfairly discriminatory 
for a number of reasons. First, the Sliding Scale is available to all 
NYSE Amex Options Market Makers and is based on the amount of business 
transacted on--and is designed to attract greater volume to--the 
Exchange. The proposed adjustments are designed to encourage Market 
Makers to commit to directing their order flow to the Exchange, which 
would increase volume and liquidity, to the benefit of all market 
participants by providing more trading opportunities and tighter 
spreads. Further, the proposed Sliding Scale thresholds and rates are 
competitive with fees charged by other exchanges and are designed to 
attract (and compete for) order flow to the Exchange, which provides a 
greater opportunity for trading by all market participants.\20\
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    \20\ See e.g., CBOE fee schedule, available here, http://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf (the 
``Liquidity Provider Sliding Scale''); and MIAX fee schedule, 
available here, http://www.miaxoptions.com/sites/default/files/MIAX_Options_Fee_Schedule_11012016B.pdf (``Market Maker Sliding 
Scale'').
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    The Exchange proposal to modify the Prepayment Programs, including 
by reducing the prepay commitment for the 1 Year Prepayment Program and 
adding the Balance of the Year Program, are also reasonable, equitable 
and not unfairly discriminatory for the following reasons. First, all 
of the Prepayment Programs offered on the Exchange are optional and 
Market Makers can elect to participate (or elect not to participate). 
In addition, the Exchange believes that reducing the prepay commitment 
for all participants in the 1 Year Prepayment Program, as well as 
offering Market Makers the flexibility to join at various points in the 
year, may encourage broader participation in the Prepayment Programs, 
which anticipated greater capital commitment and resulting liquidity on 
the Exchange would benefit all market participants (including non-
Market Makers). Moreover, the Exchange notes that other options 
exchanges likewise offer Prepayment Programs to market makers that may 
be joined after the start of the year. For example, under CBOE's 
Liquidity Provider Sliding Scale, a CBOE market maker may be eligible 
for the lower rates associated with certain tiers by prepaying $2.4 
million in fees on an annual basis, or prepaying $200,000 in fees on a 
monthly basis.\21\ The Exchange also notes that, similar to the Sliding 
Scale, the Prepayment Program is designed to incent Market Makers to 
commit to directing their order flow to the Exchange, which would 
benefit all market participants by expanding liquidity, providing more 
trading opportunities and tighter spreads, even to those market 
participants that are not eligible for the Programs. Thus, the Exchange 
believes the Prepayment Program, as modified, is reasonable, equitable 
and not unfairly discriminatory to others.
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    \21\ CBOE fee schedule, at fn 10 (providing that a market maker 
may be permitted to pay a pro-rated amount of the $2.4 million if, 
for example, they join the program mid-year), supra note 20.
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    Finally, the Exchange is subject to significant competitive forces, 
as described below in the Exchange's statement regarding the burden on 
competition.
    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\22\ the Exchange 
does not believe that the proposed rule change would impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Act. The Exchange believes that the proposed 
changes relating to the Sliding Scale and the Prepayment Program may 
increase both intermarket and intramarket competition by incenting 
participants to direct their orders to the Exchange, which would 
enhance the quality of quoting and may increase the volume of contracts 
traded on the Exchange. To the extent that there is an additional 
competitive burden on non-NYSE Amex Market Makers, the Exchange 
believes that this is appropriate because the proposal should incent 
market participants to direct additional order flow to the Exchange, 
and thus provide additional liquidity that enhances the quality of its 
markets and increases the volume of contracts traded here. To the 
extent that this purpose is achieved, all of the Exchange's market 
participants should

[[Page 3055]]

benefit from the improved market liquidity. Enhanced market quality and 
increased transaction volume that results from the anticipated increase 
in order flow directed to the Exchange will benefit all market 
participants and improve competition on the Exchange.
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    \22\ 15 U.S.C. 78f(b)(8).
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    Given the robust competition for volume among options markets, many 
of which offer the same products, implementing programs to attract 
order flow similar to the ones being proposed in this filing, are 
consistent with the above-mentioned goals of the Act. 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) \23\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \24\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 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) \25\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \25\ 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-NYSEMKT-2016-127 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-NYSEMKT-2016-127. 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-NYSEMKT-2016-127 and should 
be submitted on or before January 31, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-00221 Filed 1-9-17; 8:45 am]
 BILLING CODE 8011-01-P