Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the NYSE Arca Options Fee Schedule Relating to Electronic Executions of Posted Customer Liquidity in Penny Pilot Issues, 31050-31053 [2012-12618]
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31050
Federal Register / Vol. 77, No. 101 / Thursday, May 24, 2012 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67022; File No. SR–
NASDAQ–2012–043]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Designation of a Longer Period for
Commission Action on Proposed Rule
Change, as Modified by Amendment
No. 1 Thereto, To Establish the Market
Quality Program
May 18, 2012.
On March 23, 2012, The NASDAQ
Stock Market LLC (‘‘NASDAQ’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to establish the
Market Quality Program. On March 29,
2012, the Exchange submitted
Amendment No. 1 to the proposed rule
change.3 The proposed rule change, as
modified by Amendment No. 1, was
published for comment in the Federal
Register on April 12, 2012.4 The
Commission received fifteen comment
letters on the proposal.5
Section 19(b)(2) of the Act 6 provides
that, within 45 days of the publication
of notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day for this filing
is May 27, 2012. The Commission is
extending this 45-day time period.
The Commission finds that it is
appropriate to designate a longer period
within which to take action on the
proposed rule change so that it has
sufficient time to consider the proposed
rule change, the comments received,
and any response to the comments
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 In Amendment No. 1, the Exchange made a
technical amendment to Item I of Exhibit 1 to delete
an erroneous reference to the NASDAQ Options
Market and replace it with a reference to the
Exchange.
4 Securities Exchange Act Release No. 66765
(April 6, 2012), 77 FR 22042.
5 See Letter from Frank Choi, dated April 13,
2012; Letter from Christopher J. Csicsko, dated
April 14, 2012; Letter from Jeremiah O’Connor III,
dated April 14, 2012; Letter from Dezso J. Szalay,
dated April 15, 2012; Letter from Kathryn Keita,
dated April 18, 2012; Letter, Anonymous, dated
srobinson on DSK4SPTVN1PROD with NOTICES
2 17
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submitted by NASDAQ. The proposed
rule change would, among other things,
add new Rule 5950 to establish the
Market Quality Program and exempt the
Market Quality Program from NASDAQ
Rule 2460 (Payment for Market Making).
Accordingly, the Commission,
pursuant to Section 19(b)(2) of the Act,7
designates July 11, 2012, as the date by
which the Commission should either
approve or disapprove or institute
proceedings to determine whether to
disapprove the proposed rule change
(File Number SR–NASDAQ–2012–043).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–12584 Filed 5–23–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67020; File No. SR–
NYSEArca–2012–41]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending the NYSE Arca
Options Fee Schedule Relating to
Electronic Executions of Posted
Customer Liquidity in Penny Pilot
Issues
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE Arca Options Fee Schedule (‘‘Fee
Schedule’’) to restructure the threshold
qualifications and corresponding rates
applicable to Option Trading Permit
(‘‘OTP’’) Holder and OTP Firm
electronic executions of posted
Customer liquidity in Penny Pilot
issues. The text of the proposed rule
change is available at the Exchange, the
Commission’s Public Reference Room,
and 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
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 8,
2012, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) 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.
1. Purpose
The Exchange proposes to amend the
Fee Schedule to restructure the
threshold qualifications and
corresponding rates applicable to OTP
Holder and OTP Firm electronic
executions of posted Customer liquidity
in Penny Pilot issues. The Exchange
proposes to make the changes operative
on May 8, 2012.
OTP Holders and OTP Firms are
currently provided with a credit of
$0.25 per contract for electronic
executions of posted Customer liquidity
in Penny Pilot issues.3 However, the
amount of this credit increases as an
OTP Holder or OTP Firm electronically
executes a certain monthly total number
April 18, 2012; Letter from Mark Connell, dated
April 19, 2012; Letter from Timothy Quast,
Managing Director, Modern Networks IR LLC, dated
April 26, 2012; Letter from Daniel G. Weaver, Ph.D.,
Professor of Finance, Rutgers Business School,
dated April 26, 2012; Letter from Amber Anand,
Associate Professor of Finance, Syracuse
University, dated April 29, 2012; Letter from Albert
J. Menkveld, Associate Professor of Finance, VU
University Amsterdam, dated May 2, 2012; Letter
from James J. Angel, Associate Professor of Finance,
Georgetown University, dated May 2, 2012; Letter
from Ari Burstein, Senior Counsel, Investment
Company Institute, dated May 3, 2012; Letter from
Gus Sauter, Managing Director and Chief
Investment Officer, Vanguard, dated May 3, 2012;
and Letter from Leonard J. Amoruso, General
Counsel, Knight Capital Group, Inc., dated May 4,
2012.
6 15 U.S.C. 78s(b)(2).
7 15 U.S.C. 78s(b)(2).
8 17 CFR 200.30–3(a)(31).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 As provided under NYSE Arca Options Rule
6.72, options on certain issues have been approved
to trade with a minimum price variation of $0.01
as part of a pilot program that is currently
scheduled to expire on June 30, 2012.
May 18, 2012.
PO 00000
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Federal Register / Vol. 77, No. 101 / Thursday, May 24, 2012 / Notices
of contracts of posted Customer
liquidity in Penny Pilot issues. These
current thresholds and rates are as
follows:
Per contract rate on
all posted liquidity
Monthly total contracts executed from posted liquidity
Threshold
Threshold
Threshold
Threshold
1
2
3
4
....................................................
....................................................
....................................................
....................................................
The volume thresholds and
corresponding credits are intended to
incent OTP Holders and OTP Firms to
route additional Customer orders in
Penny Pilot issues to the Exchange. In
this regard, once a particular threshold
is met, the per contract credit rate
applies to all of the OTP Holder’s or
OTP Firm’s electronic executions of
posted Customer liquidity in Penny
Pilot issues for the month.
The Exchange proposes to restructure
the threshold qualifications as follows: 4
• First, the current thresholds are
based on the total number of contracts
of posted Customer liquidity in Penny
Pilot issues that an OTP Holder or OTP
Firm executes electronically during the
course of a month. The Exchange will
now calculate the qualification based on
average daily volume (‘‘ADV’’) in
various categories instead of total
monthly volume. For purposes of this
calculation, days when the market
closes early are not included in the
ADV.5 The credit applied to posted
electronic customer orders in Penny
Pilot issues will continue to be a base
rate of $0.25 per executed contract.
Tier
Base ...................................
Tier 1 ..................................
Tier 2 ..................................
srobinson on DSK4SPTVN1PROD with NOTICES
Tier 3 ..................................
than
than
than
than
350,000 .........................................................................................
800,000 .........................................................................................
1,200,000 ......................................................................................
3,500,000 ......................................................................................
• OTP Holders and OTP Firms who
have an ADV of 15,000 executed
electronic posted Customer contracts in
Penny Pilot issues will have a credit of
$0.38 (‘‘Tier 1’’) applied to posted
electronic Customer contracts executed
in Penny Pilot issues.6
• OTP Holders and OTP Firms will
have two alternative methods to qualify
for a credit of $0.40 (‘‘Tier 2’’) applied
to posted electronic Customer contracts
executed in Penny Pilot issues. An OTP
Holder or OTP Firm may qualify for Tier
2 by:
Æ Having an ADV of 25,000 executed
electronic posted Customer contracts in
Penny Pilot issues, or
Æ Having an ADV of 75,000 executed
electronic posted contracts in Penny
Pilot issues, regardless of Clearing
Account type, from all affiliated OTP
Holders and OTP Firms.
• OTP Holders and OTP Firms who
have an ADV of 50,000 executed
electronic posted Customer contracts in
Penny Pilot issues will have a credit of
$0.43 (‘‘Tier 3’’) applied to posted
electronic Customer contracts executed
in Penny Pilot issues.
• OTP Holders and OTP Firms will
have three alternative methods to
............................................
15,000 Customer Posted
Contracts in Penny Pilot
Issues.
25,000 Customer Posted
Contracts in Penny Pilot
Issues, or.
50,000 Customer Posted
Contracts in Penny Pilot
Issues.
16:31 May 23, 2012
Jkt 226001
Credit applied to posted
electronic customer
executions in penny
pilot issues
............................................
............................................
............................................
............................................
($0.25)
($0.38)
75,000 Posted Contracts in
Penny Pilot Issues, any
Account Type *.
............................................
............................................
($0.40)
............................................
($0.43)
executions of posted Customer liquidity in Penny
Pilot issues from May 1, 2012 through May 7, 2012.
5 For the month of May 2012, ADV would be
calculated from May 8, 2012, the effective and
operative date of this proposed change, through the
end of the month. In this regard, if an OTP Holder
or OTP Firm qualifies for a particular proposed new
tier during May 2012, the proposed corresponding
PO 00000
¥$0.28
¥0.36
¥0.42
¥0.43
qualify for a credit of $0.44 (‘‘Tier 4’’)
applied to posted electronic Customer
contracts executed in Penny Pilot
issues. An OTP Holder or OTP Firm
may qualify by:
Æ Having a combination of an ADV of
65,000 executed electronic posted
Customer contracts in Penny Pilot
issues AND an average daily posted
share volume on NYSE Arca Equities,
executed electronically by an affiliated
Equity Trading Permit (‘‘ETP’’) Holder,
of 0.30% or more of U.S. Consolidated
ADV for transactions reported to the
Consolidated Tape, excluding volume
on days when the market closes early,
or
Æ Having an ADV of 100,000
executed electronic posted contracts in
Penny Pilot issues, regardless of
Clearing Account type, from all
affiliated OTP Holders and OTP Firms,
or
Æ Having an ADV of 100,000
executed electronic Customer contracts,
either posted or removing, in Penny
Pilot issues.
Collectively, the proposed new tiers
and corresponding rates would be as
follows:
Qualification basis (average electronic executions per day) **
4 The current threshold qualifications and
corresponding credit rates would apply to
executions prior to May 8, 2012. In this regard, if
an OTP Holder’s or OTP Firm’s electronic
executions of posted customer liquidity in May
2012 satisfy one of the current thresholds, the
current per contract credit rate would apply to all
of the OTP Holder’s or OTP Firm’s electronic
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per contract credit rate would apply to all of the
OTP Holder’s or OTP Firm’s electronic executions
of posted Customer liquidity in Penny Pilot issues
from May 8, 2012 through the end of May 2012.
6 Qualified Contingent Cross (‘‘QCC’’) Orders are
neither posted nor taken; thus QCC transactions are
not included in any of the options volume
calculations.
E:\FR\FM\24MYN1.SGM
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Federal Register / Vol. 77, No. 101 / Thursday, May 24, 2012 / Notices
Tier
Tier 4 ..................................
65,000 Customer Posted
Contracts in Penny Pilot
Issues, Plus 0.3% of
U.S. Equity Market Share
Posted and Executed on
NYSE Arca Equity Market,* or.
100,000 Posted Contracts
in Penny Pilot Issues,
any Account type,* or.
100,000 Customer Posted
and Removing Contracts
in Penny Pilot Issues.
($0.44)
* Includes transaction volume from the OTP Holder’s or OTP Firm’s affiliates.
** For the month of May 2012, calculation of average electronic executions per day shall begin on May 8, 2012.
The Exchange proposes to retain the
current table in the Fee Schedule for the
remainder of May 2012, but thereafter to
remove it completely, along with any
other text within the current and
proposed new tables that has been
included to differentiate between the
current thresholds and rates and newly
proposed tiers and rates.7 The proposed
new table would represent the
restructuring of the qualifications, with
new rows and headers. The Exchange
also proposes to streamline the
introductory language for the proposed
new tier and rate table in the Fee
Schedule, as compared to the current
table, by specifying that, as is the case
today, OTP Holders and OTP Firms that
satisfy the applicable tiers will receive
the corresponding posting credits on all
posted Customer electronic executions
in Penny Pilot issues. This would
include language specifying that, as is
the case today, the credit rate applies to
all posted Customer electronic
executions by the OTP Holder or OTP
Firm in Penny Pilot issues for the
month.
Finally, the Exchange will add
explanatory endnote 8 noting that
executions of QCC orders and routed
orders are not included in the volume
calculation, that the definition of
‘‘Affiliate’’ is provided in NYSE Arca
Rule 1.1(a),8 and that only electronic
executions are included in the volume
calculation. The insertion of a new
endnote will result in the renumbering
of all subsequent existing endnotes.
srobinson on DSK4SPTVN1PROD with NOTICES
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
7 The Exchange would submit a proposed rule
change with the Commission to effect the removal
of this language.
8 Affiliated firms are those that control, or are
controlled by, or are under common control with
an OTP Holder or OTP Firm. OTP Holders and OTP
Firms must report their Affiliates, including ETP
Holders, to the Exchange’s Client Relations Services
(‘‘CRS’’) Department. CRS will inform the
Exchange’s billing department of changes in
affiliate status that would affect the qualification of
trading volumes with respect to these fees.
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16:31 May 23, 2012
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Section 6(b) of the Securities Exchange
Act of 1934 (the ‘‘Act’’),9 in general, and
furthers the objectives of Section 6(b)(4)
of the Act,10 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.
The Exchange believes that the
proposed restructuring of the current
thresholds and credits is reasonable,
equitable and not unfairly
discriminatory because the resulting
tiers and credits would preserve an
existing program on the Exchange that
encourages OTP Holders and OTP Firms
to send additional Customer orders to
the Exchange. In this regard, the
Exchange believes that the proposed
tiers and corresponding credits would
continue to incentivize OTP Holders
and OTP Firms to increase the level of
Customer order flow sent to, and
liquidity added on, the Exchange,
thereby potentially improving the
quality and efficiency of order
interaction and executions on the
Exchange.
The Exchange believes that the
proposed increase in the applicable
credits would further incentivize OTP
Holders and OTP Firms to send
Customer orders to the Exchange. The
Exchange believes that this aspect of the
proposed change is reasonable,
equitable and not unfairly
discriminatory because the higher
credits would create an incrementally
higher incentive for OTP Holders and
OTP Firms to bring additional liquidity
to the Exchange, which may contribute
to price discovery and may benefit
investors, generally. The Exchange notes
that it has proposed these higher credits
without proposing any increase in the
fees charged to OTP Holders and OTP
Firms for executions of Customer orders
that remove liquidity from the
Exchange. Accordingly, the proposed
9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4).
10 15
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Fmt 4703
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change may have the effect of reducing
overall Customer execution costs, to the
extent that OTP Holders and OTP Firms
pass this savings on to Customers.
The Exchange further believes that the
proposed tiers are reasonable, equitable
and not unfairly discriminatory because
they are set at levels that would be more
achievable for OTP Holders and OTP
Firms. In this regard, the Exchange has
proposed that the volume levels for the
tiers be decreased as compared to the
current thresholds. Additionally, the
Exchange has proposed more than one
method of qualifying for certain of the
tiers. Overall, the Exchange believes that
this will result in more OTP Holders
and OTP Firms qualifying for the tiers,
receiving the increased credits, and
therefore reducing their overall
transaction costs on the Exchange. The
Exchange also believes that the
proposed change is reasonable,
equitable and not unfairly
discriminatory because the rates for the
proposed credits are set at levels that are
directly related to the level of liquidity
required under the proposed
corresponding tiers.
The Exchange further believes that the
proposed change is reasonable,
equitable and not unfairly
discriminatory because the tiers, and the
corresponding credits, will apply
uniformly to all OTP Holders and OTP
Firms. Additionally, the Exchange
believes that the aspect of the proposed
change related to the activity of an
affiliated ETP Holder on NYSE Arca
Equities is reasonable, equitable and not
unfairly discriminatory because it
would encourage increased trading
activity on both the NYSE Arca equity
and option markets. In this regard, the
proposal is designed to bring additional
posted order flow to NYSE Arca
Equities, so as to provide additional
opportunities for all ETP Holders to
trade on NYSE Arca Equities.
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
E:\FR\FM\24MYN1.SGM
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Federal Register / Vol. 77, No. 101 / Thursday, May 24, 2012 / Notices
continually review, and consider
adjusting, its fees and credits to remain
competitive with other exchanges. The
Exchange believes that the proposed
rule change reflects this competitive
environment because it would broaden
the conditions under which OTP
Holders and OTP Firms may qualify for
the tiers and because it would result in
an increase in the corresponding credit
rates.
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) 11 of the Act and
subparagraph (f)(2) of Rule 19b–4 12
thereunder, because it establishes a due,
fee, or other charge imposed by the
NYSE Arca.
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:
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–2012–41. 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 (https://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 such
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–2012–41 and should be
submitted on or before June 14, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–12618 Filed 5–23–12; 8:45 am]
BILLING CODE 8011–01–P
srobinson on DSK4SPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2012–41 on the
subject line.
11 15
12 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
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16:31 May 23, 2012
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67026; File No. SR–Phlx–
2012–68]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing of Proposed Rule Change, as
Modified by Amendment No. 1, by
NASDAQ OMX PHLX LLC To Accept
Inbound Orders From NASDAQ OMX
BX’s New Options Market
May 18, 2012.
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 15,
2012, NASDAQ OMX PHLX LLC
(‘‘Exchange’’ or ‘‘PHLX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Item I below,
which Item has been prepared by the
Exchange. On May 17, 2012, the
Exchange submitted Amendment No. 1
to the proposed rule change.3 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to file with
the Commission a proposal for PHLX to
accept inbound orders routed by
NASDAQ Options Services LLC
(‘‘NOS’’) from NASDAQ OMX BX’s new
options market (with the attendant
obligations and conditions), as
described further below, on a one year
pilot basis.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.nasdaqtrader.com/
micro.aspx?id=PHLXRulefilings, 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
Exchange 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 these
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 In Amendment No. 1, the Exchange made a
technical amendment to the Item 3.a of the Form
19b–4 and Item II of Exhibit 1 in the third bullet
point, which begins with the word ‘‘Third’’ to add
the words ‘‘the Exchange or’’ in front of the word
‘‘FINRA’’ in the second parenthetical.
2 17
13 17
PO 00000
CFR 200.30–3(a)(12).
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31053
E:\FR\FM\24MYN1.SGM
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]]>Agencies
[Federal Register Volume 77, Number 101 (Thursday, May 24, 2012)]
[Notices]
[Pages 31050-31053]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-12618]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67020; File No. SR-NYSEArca-2012-41]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE
Arca Options Fee Schedule Relating to Electronic Executions of Posted
Customer Liquidity in Penny Pilot Issues
May 18, 2012.
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 8, 2012, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE Arca'')
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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the NYSE Arca Options Fee Schedule
(``Fee Schedule'') to restructure the threshold qualifications and
corresponding rates applicable to Option Trading Permit (``OTP'')
Holder and OTP Firm electronic executions of posted Customer liquidity
in Penny Pilot issues. The text of the proposed rule change is
available at the Exchange, the Commission's Public Reference Room, and
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
The Exchange proposes to amend the Fee Schedule to restructure the
threshold qualifications and corresponding rates applicable to OTP
Holder and OTP Firm electronic executions of posted Customer liquidity
in Penny Pilot issues. The Exchange proposes to make the changes
operative on May 8, 2012.
OTP Holders and OTP Firms are currently provided with a credit of
$0.25 per contract for electronic executions of posted Customer
liquidity in Penny Pilot issues.\3\ However, the amount of this credit
increases as an OTP Holder or OTP Firm electronically executes a
certain monthly total number
[[Page 31051]]
of contracts of posted Customer liquidity in Penny Pilot issues. These
current thresholds and rates are as follows:
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\3\ As provided under NYSE Arca Options Rule 6.72, options on
certain issues have been approved to trade with a minimum price
variation of $0.01 as part of a pilot program that is currently
scheduled to expire on June 30, 2012.
------------------------------------------------------------------------
Monthly total Per contract rate
contracts executed on all posted
from posted liquidity liquidity
------------------------------------------------------------------------
Threshold 1.................. More than 350,000.... -$0.28
Threshold 2.................. More than 800,000.... -0.36
Threshold 3.................. More than 1,200,000.. -0.42
Threshold 4.................. More than 3,500,000.. -0.43
------------------------------------------------------------------------
The volume thresholds and corresponding credits are intended to
incent OTP Holders and OTP Firms to route additional Customer orders in
Penny Pilot issues to the Exchange. In this regard, once a particular
threshold is met, the per contract credit rate applies to all of the
OTP Holder's or OTP Firm's electronic executions of posted Customer
liquidity in Penny Pilot issues for the month.
The Exchange proposes to restructure the threshold qualifications
as follows: \4\
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\4\ The current threshold qualifications and corresponding
credit rates would apply to executions prior to May 8, 2012. In this
regard, if an OTP Holder's or OTP Firm's electronic executions of
posted customer liquidity in May 2012 satisfy one of the current
thresholds, the current per contract credit rate would apply to all
of the OTP Holder's or OTP Firm's electronic executions of posted
Customer liquidity in Penny Pilot issues from May 1, 2012 through
May 7, 2012.
---------------------------------------------------------------------------
First, the current thresholds are based on the total
number of contracts of posted Customer liquidity in Penny Pilot issues
that an OTP Holder or OTP Firm executes electronically during the
course of a month. The Exchange will now calculate the qualification
based on average daily volume (``ADV'') in various categories instead
of total monthly volume. For purposes of this calculation, days when
the market closes early are not included in the ADV.\5\ The credit
applied to posted electronic customer orders in Penny Pilot issues will
continue to be a base rate of $0.25 per executed contract.
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\5\ For the month of May 2012, ADV would be calculated from May
8, 2012, the effective and operative date of this proposed change,
through the end of the month. In this regard, if an OTP Holder or
OTP Firm qualifies for a particular proposed new tier during May
2012, the proposed corresponding per contract credit rate would
apply to all of the OTP Holder's or OTP Firm's electronic executions
of posted Customer liquidity in Penny Pilot issues from May 8, 2012
through the end of May 2012.
---------------------------------------------------------------------------
OTP Holders and OTP Firms who have an ADV of 15,000
executed electronic posted Customer contracts in Penny Pilot issues
will have a credit of $0.38 (``Tier 1'') applied to posted electronic
Customer contracts executed in Penny Pilot issues.\6\
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\6\ Qualified Contingent Cross (``QCC'') Orders are neither
posted nor taken; thus QCC transactions are not included in any of
the options volume calculations.
---------------------------------------------------------------------------
OTP Holders and OTP Firms will have two alternative
methods to qualify for a credit of $0.40 (``Tier 2'') applied to posted
electronic Customer contracts executed in Penny Pilot issues. An OTP
Holder or OTP Firm may qualify for Tier 2 by:
[cir] Having an ADV of 25,000 executed electronic posted Customer
contracts in Penny Pilot issues, or
[cir] Having an ADV of 75,000 executed electronic posted contracts
in Penny Pilot issues, regardless of Clearing Account type, from all
affiliated OTP Holders and OTP Firms.
OTP Holders and OTP Firms who have an ADV of 50,000
executed electronic posted Customer contracts in Penny Pilot issues
will have a credit of $0.43 (``Tier 3'') applied to posted electronic
Customer contracts executed in Penny Pilot issues.
OTP Holders and OTP Firms will have three alternative
methods to qualify for a credit of $0.44 (``Tier 4'') applied to posted
electronic Customer contracts executed in Penny Pilot issues. An OTP
Holder or OTP Firm may qualify by:
[cir] Having a combination of an ADV of 65,000 executed electronic
posted Customer contracts in Penny Pilot issues AND an average daily
posted share volume on NYSE Arca Equities, executed electronically by
an affiliated Equity Trading Permit (``ETP'') Holder, of 0.30% or more
of U.S. Consolidated ADV for transactions reported to the Consolidated
Tape, excluding volume on days when the market closes early, or
[cir] Having an ADV of 100,000 executed electronic posted contracts
in Penny Pilot issues, regardless of Clearing Account type, from all
affiliated OTP Holders and OTP Firms, or
[cir] Having an ADV of 100,000 executed electronic Customer
contracts, either posted or removing, in Penny Pilot issues.
Collectively, the proposed new tiers and corresponding rates would
be as follows:
----------------------------------------------------------------------------------------------------------------
Tier Qualification basis (average electronic executions per Credit applied to
day) ** posted electronic
customer
executions in penny
pilot issues
----------------------------------------------------------------------------------------------------------------
Base.......................... ................. ................. ................. ($0.25)
Tier 1........................ 15,000 Customer ................. ................. ($0.38)
Posted Contracts
in Penny Pilot
Issues.
Tier 2........................ 25,000 Customer 75,000 Posted ................. ($0.40)
Posted Contracts Contracts in
in Penny Pilot Penny Pilot
Issues, or. Issues, any
Account Type *.
Tier 3........................ 50,000 Customer ................. ................. ($0.43)
Posted Contracts
in Penny Pilot
Issues.
[[Page 31052]]
Tier 4........................ 65,000 Customer 100,000 Posted 100,000 Customer ($0.44)
Posted Contracts Contracts in Posted and
in Penny Pilot Penny Pilot Removing
Issues, Plus Issues, any Contracts in
0.3% of U.S. Account type,* Penny Pilot
Equity Market or. Issues.
Share Posted and
Executed on NYSE
Arca Equity
Market,* or.
----------------------------------------------------------------------------------------------------------------
* Includes transaction volume from the OTP Holder's or OTP Firm's affiliates.
** For the month of May 2012, calculation of average electronic executions per day shall begin on May 8, 2012.
The Exchange proposes to retain the current table in the Fee
Schedule for the remainder of May 2012, but thereafter to remove it
completely, along with any other text within the current and proposed
new tables that has been included to differentiate between the current
thresholds and rates and newly proposed tiers and rates.\7\ The
proposed new table would represent the restructuring of the
qualifications, with new rows and headers. The Exchange also proposes
to streamline the introductory language for the proposed new tier and
rate table in the Fee Schedule, as compared to the current table, by
specifying that, as is the case today, OTP Holders and OTP Firms that
satisfy the applicable tiers will receive the corresponding posting
credits on all posted Customer electronic executions in Penny Pilot
issues. This would include language specifying that, as is the case
today, the credit rate applies to all posted Customer electronic
executions by the OTP Holder or OTP Firm in Penny Pilot issues for the
month.
---------------------------------------------------------------------------
\7\ The Exchange would submit a proposed rule change with the
Commission to effect the removal of this language.
---------------------------------------------------------------------------
Finally, the Exchange will add explanatory endnote 8 noting that
executions of QCC orders and routed orders are not included in the
volume calculation, that the definition of ``Affiliate'' is provided in
NYSE Arca Rule 1.1(a),\8\ and that only electronic executions are
included in the volume calculation. The insertion of a new endnote will
result in the renumbering of all subsequent existing endnotes.
---------------------------------------------------------------------------
\8\ Affiliated firms are those that control, or are controlled
by, or are under common control with an OTP Holder or OTP Firm. OTP
Holders and OTP Firms must report their Affiliates, including ETP
Holders, to the Exchange's Client Relations Services (``CRS'')
Department. CRS will inform the Exchange's billing department of
changes in affiliate status that would affect the qualification of
trading volumes with respect to these fees.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Securities Exchange Act of 1934 (the
``Act''),\9\ in general, and furthers the objectives of Section 6(b)(4)
of the Act,\10\ 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.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange believes that the proposed restructuring of the
current thresholds and credits is reasonable, equitable and not
unfairly discriminatory because the resulting tiers and credits would
preserve an existing program on the Exchange that encourages OTP
Holders and OTP Firms to send additional Customer orders to the
Exchange. In this regard, the Exchange believes that the proposed tiers
and corresponding credits would continue to incentivize OTP Holders and
OTP Firms to increase the level of Customer order flow sent to, and
liquidity added on, the Exchange, thereby potentially improving the
quality and efficiency of order interaction and executions on the
Exchange.
The Exchange believes that the proposed increase in the applicable
credits would further incentivize OTP Holders and OTP Firms to send
Customer orders to the Exchange. The Exchange believes that this aspect
of the proposed change is reasonable, equitable and not unfairly
discriminatory because the higher credits would create an incrementally
higher incentive for OTP Holders and OTP Firms to bring additional
liquidity to the Exchange, which may contribute to price discovery and
may benefit investors, generally. The Exchange notes that it has
proposed these higher credits without proposing any increase in the
fees charged to OTP Holders and OTP Firms for executions of Customer
orders that remove liquidity from the Exchange. Accordingly, the
proposed change may have the effect of reducing overall Customer
execution costs, to the extent that OTP Holders and OTP Firms pass this
savings on to Customers.
The Exchange further believes that the proposed tiers are
reasonable, equitable and not unfairly discriminatory because they are
set at levels that would be more achievable for OTP Holders and OTP
Firms. In this regard, the Exchange has proposed that the volume levels
for the tiers be decreased as compared to the current thresholds.
Additionally, the Exchange has proposed more than one method of
qualifying for certain of the tiers. Overall, the Exchange believes
that this will result in more OTP Holders and OTP Firms qualifying for
the tiers, receiving the increased credits, and therefore reducing
their overall transaction costs on the Exchange. The Exchange also
believes that the proposed change is reasonable, equitable and not
unfairly discriminatory because the rates for the proposed credits are
set at levels that are directly related to the level of liquidity
required under the proposed corresponding tiers.
The Exchange further believes that the proposed change is
reasonable, equitable and not unfairly discriminatory because the
tiers, and the corresponding credits, will apply uniformly to all OTP
Holders and OTP Firms. Additionally, the Exchange believes that the
aspect of the proposed change related to the activity of an affiliated
ETP Holder on NYSE Arca Equities is reasonable, equitable and not
unfairly discriminatory because it would encourage increased trading
activity on both the NYSE Arca equity and option markets. In this
regard, the proposal is designed to bring additional posted order flow
to NYSE Arca Equities, so as to provide additional opportunities for
all ETP Holders to trade on NYSE Arca Equities.
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
[[Page 31053]]
continually review, and consider adjusting, its fees and credits to
remain competitive with other exchanges. The Exchange believes that the
proposed rule change reflects this competitive environment because it
would broaden the conditions under which OTP Holders and OTP Firms may
qualify for the tiers and because it would result in an increase in the
corresponding credit rates.
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) \11\ of the Act and subparagraph (f)(2) of Rule
19b-4 \12\ thereunder, because it establishes a due, fee, or other
charge imposed by the NYSE Arca.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2012-41 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-2012-41. 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 (https://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 such 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-2012-41 and should
be submitted on or before June 14, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-12618 Filed 5-23-12; 8:45 am]
BILLING CODE 8011-01-P
