Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the NYSE Arca Options Fee Schedule To Introduce Fees for the Use of Ports, 69670-69673 [2012-28137]

Download as PDF 69670 Federal Register / Vol. 77, No. 224 / Tuesday, November 20, 2012 / Notices OCC actually secures with clearing fund assets because OCC negotiates these credit facility agreements, including size and other terms, on an annual basis and the total size is therefore subject to change. (B) Clearing Agency’s Statement on Burden on Competition OCC does not believe that the proposed changes contained in the advance notice will have any impact or impose any burden on competition. wreier-aviles on DSK5TPTVN1PROD with (C) Clearing Agency’s Statement on Comments on the Advance Notice Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule changes contained in the advance notice. III. Date of Effectiveness of the Advance Notice and Timing for Commission Action The proposed changes contained in the advance notice may be implemented pursuant to Section 806(e)(1)(G) of Clearing Supervision Act 9 if the Commission does not object to the proposed changes within 60 days of the later of (i) the date that the advance notice was filed with the Commission or (ii) the date that any additional information requested by the Commission is received. The clearing agency shall not implement the proposed changes contained in the advance notice if the Commission objects to the proposed changes. The Commission may extend the period for review by an additional 60 days if the proposed changes raise novel or complex issues, subject to the Commission providing the clearing agency with prompt written notice of the extension. Proposed changes may be implemented in fewer than 60 days from the date the advance notice is filed, or the date further information requested by the Commission is received, if the Commission notifies the clearing agency in writing that it does not object to the proposed changes and authorizes the clearing agency to implement the proposed changes on an earlier date, subject to any conditions imposed by the Commission. The proposals contained in this advance notice shall not take effect until all regulatory actions required with respect to the proposals are completed.10 The clearing agency shall 9 12 U.S.C. 5465. also filed the proposals contained in this advance notice as a proposed rule change under Section 19(b)(1) of the Exchange Act and Rule 19b– 4 thereunder. 15 U.S.C. 78s(b)(1); 17 CFR 240.19b– 10 OCC VerDate Mar<15>2010 15:12 Nov 19, 2012 Jkt 229001 post notice on its Web site of proposed changes that are implemented. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing. 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 rulecomments@sec.gov. Please include File Number AN–OCC–2012–04 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 AN–OCC–2012–04. 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 advance notice that are filed with the Commission, and all written communications relating to the advance notice 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 filings also will be available for inspection and copying at the principal office of OCC and on OCC’s Web site at https://www.optionsclearing.com/ components/docs/legal/ rules_and_bylaws/sr_occ_12_19.pdf. 4. Pursuant to Section 19(b)(2) of the Exchange Act, within forty-five days of the date of publication of the proposed rule change in the Federal Register or within such longer period up to ninety days if the Commission designates or the self-regulatory organization consents the Commission will either: (i) By order approve or disapprove the proposed rule change or (ii) institute proceedings to determine whether the proposed rule change should be disapproved. 17 U.S.C. 78s(b)(2)(A). See Securities Exchange Act Release No. 34–68130 (November 1, 2012), 77 FR 66900 (November 7, 2012) (SR–OCC–2012–19). PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 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 AN–OCC–2012–04 and should be submitted on or before December 11, 2012. By the Commission. Kevin O’Neill, Deputy Secretary. [FR Doc. 2012–28143 Filed 11–19–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68230; File No. SR– NYSEArca–2012–122] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the NYSE Arca Options Fee Schedule To Introduce Fees for the Use of Ports November 14, 2012. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’),2 and Rule 19b–4 thereunder,3 notice is hereby given that on November 1, 2012, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSEArca’’) 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 selfregulatory organization. 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 amend the NYSE Arca Options Fee Schedule (the ‘‘Fee Schedule’’) to introduce fees for the use of ports. 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 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 E:\FR\FM\20NON1.SGM 20NON1 Federal Register / Vol. 77, No. 224 / Tuesday, November 20, 2012 / Notices 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 wreier-aviles on DSK5TPTVN1PROD with 1. Purpose The Exchange proposes to amend the Fee Schedule to introduce monthly fees for the use of ports that provide connectivity to the Exchange’s trading systems (i.e., ports for entry of orders and/or quotes (‘‘order/quote entry ports’’)) as well as for ports that allow for the receipt of ‘‘drop copies’’ of order or transaction information (‘‘drop copy ports’’ and, together with order/quote entry ports, ‘‘ports’’).4 The Exchange proposes to implement the fee changes on November 1, 2012. The Exchange currently makes order/ quote entry ports available for connectivity to its trading systems, but does not currently charge for order/ quote entry ports related to option activity on NYSE Arca Options. The Exchange proposes to implement fees for order/quote entry ports on a per port basis. More specifically, the Exchange proposes to charge $200 per port per month for order/quote entry ports; 5 provided, however, that (i) the first five order/quote entry ports authorized for option activity on NYSE Arca Options would not be charged and the proposed $200 per port fee would be decreased to $100 per port per month for ports 101 or more,6 and (ii) unutilized order/quote 4 Firms receive confirmations of their orders and receive execution reports via the order/quote entry port that is used to enter the order or quote. A ‘‘drop copy’’ contains redundant information that a firm chooses to have ‘‘dropped’’ to another destination (e.g., to allow the firm’s back office and/or compliance department, or another firm—typically the firm’s clearing broker—to have immediate access to the information). Such drop copies can only be sent via a drop copy port. Drop copy ports cannot be used to enter orders and/or quotes. 5 The Exchange currently charges for order/quote entry ports related to equity activity on NYSE Arca Equities. Via a separate proposed rule change, the Exchange is proposing changes to the port fees applicable to equity activity on NYSE Arca Equities. See SR–NYSEArca–2012–123. In this regard, separate port fees would be charged for an order/ quote entry port that is authorized for both equity and option order/quote entry. 6 For example, if five ports are authorized for order/quote activity, there would be no charge. However, a sixth order/quote entry port would be charged $200. 50 order/quote entry ports would be charged $9,000 total (i.e., 45 × $200) and 100 order/ VerDate Mar<15>2010 15:12 Nov 19, 2012 Jkt 229001 entry ports that connect to the Exchange via its backup datacenter would be considered established for backup purposes and not charged port fees.7 The Exchange proposes that unutilized order/quote entry ports that connect to the Exchange via its backup datacenter and are not utilized be considered established for backup purposes and not charged port fees. However, if activity were conducted through one of these order/quote entry ports, whether for backup or any other purposes, port fees would apply for the relevant month or months. In this regard, the Exchange notes that it monitors usage of these particular ports. Accordingly, if an order/quote were sent to the Exchange via one of these ports, then the port would be charged the applicable monthly port fee. The Exchange proposes to implement a fee of $500 for drop copy ports.8 Additionally, the Exchange proposes to specify that only one fee per drop copy port would apply, even if the port receives drop copies from multiple order/quote entry ports and/or drop copies for activity on both NYSE Arca Options and NYSE Arca Equities. The Exchange also proposes that drop copy ports that connect to the Exchange via its backup datacenter not be charged if the drop copy port is configured such that it is duplicative of another drop copy port of the same user, regardless of whether the drop copy port is utilized or not. The Exchange is proposing to treat drop copy ports in this manner because a firm would not derive any value or utility from a drop copy port in the datacenter that is duplicative of another drop copy port that it already has outside of the datacenter, in that, because drop copy ports are used to send duplicative information, a second drop copy port carrying the same information would not be a useful resource, except for a backup purpose. Overall, the Exchange believes that the changes proposed herein will result in a method of billing for ports that is closely aligned with the needs of firms with ports and permit the Exchange to remain competitive with other exchanges with respect to fees charged quote entry ports would be charged $19,000 total (i.e., 95 × $200). However, 120 order/quote entry ports would be charged $21,000 total (i.e., 95 × $200 plus 20 × $100). For purposes of calculating the number of order/quote entry ports, the Exchange proposes to aggregate the ports of affiliates. An affiliate would be a person or firm that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the firm. See NYSE Arca Rule 1.1(a). 7 The Exchange’s backup datacenter is currently located in Chicago, Illinois. 8 See supra note 4. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 69671 for ports.9 The Exchange notes that the proposed changes are not otherwise intended to address any other issues surrounding ports or port fees and that the Exchange is not aware of any problems that port users would have in complying with the proposed change. The Exchange proposes to implement these changes on November 1, 2012. In this regard, the Exchange notes that billing for ports would be based on the number of ports on the third business day prior to the end of the month. In addition, the level of activity with respect to a particular port would not affect the assessment of monthly fees, such that, except for ports that are not charged and ports considered established for backup purposes, even if a particular port is not used, a port fee would still apply. 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’’),10 in general, and furthers the objectives of Section 6(b)(4) 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. Overall, the Exchange believes that the proposed changes, including the rates proposed, are reasonable because the fees charged for order/quote entry ports and drop copy ports are expected to permit the exchange to offset, in part, its connectivity costs associated with making such ports available, including costs based on gateway software and hardware enhancements and resources dedicated to gateway development, quality assurance, and support. In this regard, the Exchange believes that its fees are competitive with those charged by other venues, and that in some cases its port fees are less expensive than many of its primary competitors.12 The Exchange believes that the changes proposed herein will result in a method 9 For example, the charge for connectivity to the NASDAQ Stock Market LLC (‘‘NASDAQ’’) NYMetro and Mid-Atlantic Datacenters is $500 and a separate charge for Pre-Trade Risk Management ports is applicable, which ranges from $400 to $600 and is capped at $25,000 per firm per month. Also, the BATS Exchange, Inc. (‘‘BZX’’) charges $400 per month per pair (primary and secondary data center) for logical ports. Additionally, EDGA Exchange, Inc. (‘‘EDGA’’) and EDGX Exchange, Inc. (‘‘EDGX’’) each charge $500 per port. EDGA and EDGX also provide the first five ports for free. 10 15 U.S.C. 78f(b). 11 15 U.S.C. 78f(b)(4). 12 See supra note 9. E:\FR\FM\20NON1.SGM 20NON1 69672 Federal Register / Vol. 77, No. 224 / Tuesday, November 20, 2012 / Notices wreier-aviles on DSK5TPTVN1PROD with of billing for ports that is closely aligned with the needs of firms with ports. The Exchange believes that the proposed methodology for billing for order/quote entry ports is reasonable because it will allow a firm to request, and pay for, the specific number of ports that it requires. This aspect of the proposed change is also equitable and not unfairly discriminatory because it will result in charges for order/entry ports being based on the number of ports utilized. This aspect of the proposed change is also equitable and not unfairly discriminatory because it will apply on an equal basis for all ports on the Exchange, except for order/quote entry ports in the backup datacenter that are not utilized.13 The Exchange believes that it is reasonable to charge $200 per port per month for order/quote entry ports because it is comparable to the rates of other exchanges.14 The Exchange also believes that the fees are equitable and not unfairly discriminatory because they would apply to all users of order/quote entry ports on the Exchange, subject to the exception noted above. The Exchange also believes that it is equitable and not unfairly discriminatory to provide the first five option order/quote entry ports for free and to decrease the rate to $100 for ports 101 and greater. Specifically, providing the first five option ports without charge would allow firms to adapt to the introduction of the fees for ports. Additionally, decreasing the fee to $100 per port for more than 100 ports would permit those firms that have multiple order/quote entry ports to maintain connections to the Exchange, despite the port fees that would apply as a result of this proposed change. Further, the Exchange notes that option Market Makers would, generally, be the type of market participant that would have more than 100 ports. This is due in large part to the significant number of series that exist for any particular option class 15 and the corresponding obligations that NYSE Arca Option Market Makers have to maintain a bid or offer in assigned classes. Furthermore, Market Makers that quote across a significant number, if not all, of the 2652 classes traded on the Exchange 16 have responsibility for upwards of 433,000 individual option series. Accordingly, the level of activity 13 The Exchange describes below how the proposed changes regarding the backup datacenter are consistent with the Act. 14 See supra note 9. 15 For example, as of October 18, 2012, there were more than 1800 individual option series overlying Google, Inc. 16 As of October 18, 2012. VerDate Mar<15>2010 15:12 Nov 19, 2012 Jkt 229001 that is required to satisfy the quoting obligations, which directly relates to the number of ports needed, is such that the Exchange believes it is equitable and not unfairly discriminatory to provide the first five option order/quote entry ports for free and to decrease the per port charge for firms that have more than 100 order/quote entry ports on the Exchange.17 The Exchange believes that the proposed new fee for drop copy ports is reasonable because it will result in a fee being charged for the use of technology and infrastructure provided by the Exchange. In this regard, the Exchange believes that the rate is reasonable because it is comparable to the rate charged by other exchanges for drop copy ports.18 Furthermore, the Exchange believes that the proposed rate for a drop copy port is reasonable because, when compared to the proposed rate for order/quote entry ports, it reflects the level of resources required of the Exchange to establish and maintain the port, including the various sources from which data comes (i.e., establishing connections to order/ quote entry ports as well as, in certain circumstances, to order/quote entry ports on both NYSE Arca Options and NYSE Arca Equities). The proposed rate is also reasonable in light of the functional/operational differences between a drop copy port and an order/ quote entry port (e.g., that configuration and monitoring of the drop copy port is more substantial and because drop copy ports capture cumulative activity). The Exchange also believes that it is reasonable that only one fee per drop copy port would apply, even if the port receives drop copies from multiple order/quote entry ports and/or from both NYSE Arca Options and NYSE Arca Equities, because the purpose of drop copies is such that a trading unit’s or a firm’s entire order and execution activity is captured, including with respect to both equities and options. This is also reflected in the rate of $500 that is proposed for drop copy ports, which is higher than the rate proposed for order/quote entry ports. The Exchange believes that the proposed new fee for drop copy ports is equitable and not unfairly discriminatory because it will apply on an equal basis to all users of drop copy ports and to all drop copy ports on the Exchange, except for ports in the backup datacenter.19 In this regard, all firms are able to request drop 17 See supra note 6. supra note 9. 19 See supra note 13. 18 See PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 copy ports, as is the case with order/ quote entry ports. The Exchange believes that it is reasonable to not charge for order/quote entry ports in its backup datacenter that are not utilized. However, the exchange does not restrict firms from using order/ quote entry ports from the backup datacenter and, as described above, if one of these ports is utilized for order/ quote entry, then port fees would apply. The Exchange believes that this is equitable and not unfairly discriminatory because it would permit firms to have ports established for backup purposes, should they ever be needed, without the burden of paying for such ports when they are not utilized. The Exchange believes this is equitable and not unfairly discriminatory because firms will not be disincentivized from requesting backup ports because of a fee that may otherwise apply. This would contribute to the efficiency of a backup process if primary order/quote entry ports ever became unavailable. The Exchange also believes that it is reasonable to not charge for drop copy ports in its backup datacenter if configured such that it is duplicative of another drop copy port of the same user, regardless of whether the drop copy port is utilized or not. The Exchange believes that it is reasonable to treat drop copy ports in this manner because a firm would not derive any value/use from a drop copy port in the datacenter that is duplicative of another drop copy port that it already has outside of the datacenter (i.e., because drop copy ports are used to send duplicative information anyways, a second drop copy port carrying the same information would not be a useful resource), except for a backup purpose. The Exchange believes that this is equitable and not unfairly discriminatory because it would permit firms to have ports established for drop copy purposes in the backup datacenter, should they ever be needed, without the burden of paying for such ports. Because the drop copy port would not be providing any information that the firm did not already have, since the port would be configured such that it is duplicative of another drop copy port of the same user, the Exchange believes that it is equitable and not unfairly discriminatory to treat order/quote entry ports and drop copy ports differently in this manner. The Exchange believes this is also equitable and not unfairly discriminatory because firms will not be disincentivized from requesting backup drop copy ports because of a fee that may otherwise apply. This would contribute to the efficiency of a backup E:\FR\FM\20NON1.SGM 20NON1 Federal Register / Vol. 77, No. 224 / Tuesday, November 20, 2012 / Notices process if primary drop copy ports ever became unavailable. 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. 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) 20 of the Act and subparagraph (f)(2) of Rule 19b–4 21 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: wreier-aviles on DSK5TPTVN1PROD with Number SR–NYSEArca–2012–122 on the subject line. SECURITIES AND EXCHANGE COMMISSION Paper Comments [Release No. 34–68219; File No. SR–CHX– 2012–15] • 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–2012–122. 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 20549–1090, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing will also be available for inspection and copying at the NYSE’s principal office and on its Internet Web site at www.nyse.com. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEArca–2012–122 and should be submitted on or before December 11, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–28137 Filed 11–19–12; 8:45 am] 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 BILLING CODE 8011–01–P Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Order Cancellation Fee November 13, 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 November 2, 2012, the Chicago Stock Exchange, Inc. (‘‘CHX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. CHX has filed the proposal pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(2) thereunder,4 which renders the proposal effective upon filing with the Commission. 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 the Substance of the Proposed Rule Change The CHX proposes to amend its Schedule of Fees and Assessments (the ‘‘Fee Schedule’’), effective November 2, 2012, relating to its order cancellation fee for Participants entering and subsequently cancelling order under certain circumstances. The text of this proposed rule change is available on the Exchange’s Web site at https:// www.chx.com/rules/proposed_rules.htm and in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549. 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 CHX included statements concerning the purpose of and basis for the proposed rule changes and discussed any comments it received regarding the proposal. The text of these statements may be examined at the places specified in Item IV below. The CHX has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(2). 2 17 20 15 21 17 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(2). VerDate Mar<15>2010 15:12 Nov 19, 2012 22 17 Jkt 229001 69673 PO 00000 CFR 200.30–3(a)(12). Frm 00084 Fmt 4703 Sfmt 4703 E:\FR\FM\20NON1.SGM 20NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 224 (Tuesday, November 20, 2012)]
[Notices]
[Pages 69670-69673]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28137]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68230; File No. SR-NYSEArca-2012-122]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the NYSE
Arca Options Fee Schedule To Introduce Fees for the Use of Ports

November 14, 2012.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on November 1, 2012, NYSE Arca, Inc. (the ``Exchange'' or
``NYSEArca'') 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.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 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
(the ``Fee Schedule'') to introduce fees for the use of ports. 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

[[Page 69671]]

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 amend the Fee Schedule to introduce
monthly fees for the use of ports that provide connectivity to the
Exchange's trading systems (i.e., ports for entry of orders and/or
quotes (``order/quote entry ports'')) as well as for ports that allow
for the receipt of ``drop copies'' of order or transaction information
(``drop copy ports'' and, together with order/quote entry ports,
``ports'').\4\ The Exchange proposes to implement the fee changes on
November 1, 2012.
---------------------------------------------------------------------------

\4\ Firms receive confirmations of their orders and receive
execution reports via the order/quote entry port that is used to
enter the order or quote. A ``drop copy'' contains redundant
information that a firm chooses to have ``dropped'' to another
destination (e.g., to allow the firm's back office and/or compliance
department, or another firm--typically the firm's clearing broker--
to have immediate access to the information). Such drop copies can
only be sent via a drop copy port. Drop copy ports cannot be used to
enter orders and/or quotes.
---------------------------------------------------------------------------

The Exchange currently makes order/quote entry ports available for
connectivity to its trading systems, but does not currently charge for
order/quote entry ports related to option activity on NYSE Arca
Options. The Exchange proposes to implement fees for order/quote entry
ports on a per port basis. More specifically, the Exchange proposes to
charge $200 per port per month for order/quote entry ports; \5\
provided, however, that (i) the first five order/quote entry ports
authorized for option activity on NYSE Arca Options would not be
charged and the proposed $200 per port fee would be decreased to $100
per port per month for ports 101 or more,\6\ and (ii) unutilized order/
quote entry ports that connect to the Exchange via its backup
datacenter would be considered established for backup purposes and not
charged port fees.\7\
---------------------------------------------------------------------------

\5\ The Exchange currently charges for order/quote entry ports
related to equity activity on NYSE Arca Equities. Via a separate
proposed rule change, the Exchange is proposing changes to the port
fees applicable to equity activity on NYSE Arca Equities. See SR-
NYSEArca-2012-123. In this regard, separate port fees would be
charged for an order/quote entry port that is authorized for both
equity and option order/quote entry.
\6\ For example, if five ports are authorized for order/quote
activity, there would be no charge. However, a sixth order/quote
entry port would be charged $200. 50 order/quote entry ports would
be charged $9,000 total (i.e., 45 x $200) and 100 order/quote entry
ports would be charged $19,000 total (i.e., 95 x $200). However, 120
order/quote entry ports would be charged $21,000 total (i.e., 95 x
$200 plus 20 x $100). For purposes of calculating the number of
order/quote entry ports, the Exchange proposes to aggregate the
ports of affiliates. An affiliate would be a person or firm that
directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, the firm. See
NYSE Arca Rule 1.1(a).
\7\ The Exchange's backup datacenter is currently located in
Chicago, Illinois.
---------------------------------------------------------------------------

The Exchange proposes that unutilized order/quote entry ports that
connect to the Exchange via its backup datacenter and are not utilized
be considered established for backup purposes and not charged port
fees. However, if activity were conducted through one of these order/
quote entry ports, whether for backup or any other purposes, port fees
would apply for the relevant month or months. In this regard, the
Exchange notes that it monitors usage of these particular ports.
Accordingly, if an order/quote were sent to the Exchange via one of
these ports, then the port would be charged the applicable monthly port
fee.
The Exchange proposes to implement a fee of $500 for drop copy
ports.\8\ Additionally, the Exchange proposes to specify that only one
fee per drop copy port would apply, even if the port receives drop
copies from multiple order/quote entry ports and/or drop copies for
activity on both NYSE Arca Options and NYSE Arca Equities.
---------------------------------------------------------------------------

\8\ See supra note 4.
---------------------------------------------------------------------------

The Exchange also proposes that drop copy ports that connect to the
Exchange via its backup datacenter not be charged if the drop copy port
is configured such that it is duplicative of another drop copy port of
the same user, regardless of whether the drop copy port is utilized or
not. The Exchange is proposing to treat drop copy ports in this manner
because a firm would not derive any value or utility from a drop copy
port in the datacenter that is duplicative of another drop copy port
that it already has outside of the datacenter, in that, because drop
copy ports are used to send duplicative information, a second drop copy
port carrying the same information would not be a useful resource,
except for a backup purpose.
Overall, the Exchange believes that the changes proposed herein
will result in a method of billing for ports that is closely aligned
with the needs of firms with ports and permit the Exchange to remain
competitive with other exchanges with respect to fees charged for
ports.\9\ The Exchange notes that the proposed changes are not
otherwise intended to address any other issues surrounding ports or
port fees and that the Exchange is not aware of any problems that port
users would have in complying with the proposed change.
---------------------------------------------------------------------------

\9\ For example, the charge for connectivity to the NASDAQ Stock
Market LLC (``NASDAQ'') NY-Metro and Mid-Atlantic Datacenters is
$500 and a separate charge for Pre-Trade Risk Management ports is
applicable, which ranges from $400 to $600 and is capped at $25,000
per firm per month. Also, the BATS Exchange, Inc. (``BZX'') charges
$400 per month per pair (primary and secondary data center) for
logical ports. Additionally, EDGA Exchange, Inc. (``EDGA'') and EDGX
Exchange, Inc. (``EDGX'') each charge $500 per port. EDGA and EDGX
also provide the first five ports for free.
---------------------------------------------------------------------------

The Exchange proposes to implement these changes on November 1,
2012. In this regard, the Exchange notes that billing for ports would
be based on the number of ports on the third business day prior to the
end of the month. In addition, the level of activity with respect to a
particular port would not affect the assessment of monthly fees, such
that, except for ports that are not charged and ports considered
established for backup purposes, even if a particular port is not used,
a port fee would still apply.
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''),\10\ in general, and furthers the objectives of Section
6(b)(4) 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.
---------------------------------------------------------------------------

\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

Overall, the Exchange believes that the proposed changes, including
the rates proposed, are reasonable because the fees charged for order/
quote entry ports and drop copy ports are expected to permit the
exchange to offset, in part, its connectivity costs associated with
making such ports available, including costs based on gateway software
and hardware enhancements and resources dedicated to gateway
development, quality assurance, and support. In this regard, the
Exchange believes that its fees are competitive with those charged by
other venues, and that in some cases its port fees are less expensive
than many of its primary competitors.\12\ The Exchange believes that
the changes proposed herein will result in a method

[[Page 69672]]

of billing for ports that is closely aligned with the needs of firms
with ports.
---------------------------------------------------------------------------

\12\ See supra note 9.
---------------------------------------------------------------------------

The Exchange believes that the proposed methodology for billing for
order/quote entry ports is reasonable because it will allow a firm to
request, and pay for, the specific number of ports that it requires.
This aspect of the proposed change is also equitable and not unfairly
discriminatory because it will result in charges for order/entry ports
being based on the number of ports utilized. This aspect of the
proposed change is also equitable and not unfairly discriminatory
because it will apply on an equal basis for all ports on the Exchange,
except for order/quote entry ports in the backup datacenter that are
not utilized.\13\
---------------------------------------------------------------------------

\13\ The Exchange describes below how the proposed changes
regarding the backup datacenter are consistent with the Act.
---------------------------------------------------------------------------

The Exchange believes that it is reasonable to charge $200 per port
per month for order/quote entry ports because it is comparable to the
rates of other exchanges.\14\ The Exchange also believes that the fees
are equitable and not unfairly discriminatory because they would apply
to all users of order/quote entry ports on the Exchange, subject to the
exception noted above.
---------------------------------------------------------------------------

\14\ See supra note 9.
---------------------------------------------------------------------------

The Exchange also believes that it is equitable and not unfairly
discriminatory to provide the first five option order/quote entry ports
for free and to decrease the rate to $100 for ports 101 and greater.
Specifically, providing the first five option ports without charge
would allow firms to adapt to the introduction of the fees for ports.
Additionally, decreasing the fee to $100 per port for more than 100
ports would permit those firms that have multiple order/quote entry
ports to maintain connections to the Exchange, despite the port fees
that would apply as a result of this proposed change. Further, the
Exchange notes that option Market Makers would, generally, be the type
of market participant that would have more than 100 ports. This is due
in large part to the significant number of series that exist for any
particular option class \15\ and the corresponding obligations that
NYSE Arca Option Market Makers have to maintain a bid or offer in
assigned classes. Furthermore, Market Makers that quote across a
significant number, if not all, of the 2652 classes traded on the
Exchange \16\ have responsibility for upwards of 433,000 individual
option series. Accordingly, the level of activity that is required to
satisfy the quoting obligations, which directly relates to the number
of ports needed, is such that the Exchange believes it is equitable and
not unfairly discriminatory to provide the first five option order/
quote entry ports for free and to decrease the per port charge for
firms that have more than 100 order/quote entry ports on the
Exchange.\17\
---------------------------------------------------------------------------

\15\ For example, as of October 18, 2012, there were more than
1800 individual option series overlying Google, Inc.
\16\ As of October 18, 2012.
\17\ See supra note 6.
---------------------------------------------------------------------------

The Exchange believes that the proposed new fee for drop copy ports
is reasonable because it will result in a fee being charged for the use
of technology and infrastructure provided by the Exchange. In this
regard, the Exchange believes that the rate is reasonable because it is
comparable to the rate charged by other exchanges for drop copy
ports.\18\ Furthermore, the Exchange believes that the proposed rate
for a drop copy port is reasonable because, when compared to the
proposed rate for order/quote entry ports, it reflects the level of
resources required of the Exchange to establish and maintain the port,
including the various sources from which data comes (i.e., establishing
connections to order/quote entry ports as well as, in certain
circumstances, to order/quote entry ports on both NYSE Arca Options and
NYSE Arca Equities). The proposed rate is also reasonable in light of
the functional/operational differences between a drop copy port and an
order/quote entry port (e.g., that configuration and monitoring of the
drop copy port is more substantial and because drop copy ports capture
cumulative activity).
---------------------------------------------------------------------------

\18\ See supra note 9.
---------------------------------------------------------------------------

The Exchange also believes that it is reasonable that only one fee
per drop copy port would apply, even if the port receives drop copies
from multiple order/quote entry ports and/or from both NYSE Arca
Options and NYSE Arca Equities, because the purpose of drop copies is
such that a trading unit's or a firm's entire order and execution
activity is captured, including with respect to both equities and
options. This is also reflected in the rate of $500 that is proposed
for drop copy ports, which is higher than the rate proposed for order/
quote entry ports. The Exchange believes that the proposed new fee for
drop copy ports is equitable and not unfairly discriminatory because it
will apply on an equal basis to all users of drop copy ports and to all
drop copy ports on the Exchange, except for ports in the backup
datacenter.\19\ In this regard, all firms are able to request drop copy
ports, as is the case with order/quote entry ports.
---------------------------------------------------------------------------

\19\ See supra note 13.
---------------------------------------------------------------------------

The Exchange believes that it is reasonable to not charge for
order/quote entry ports in its backup datacenter that are not utilized.
However, the exchange does not restrict firms from using order/quote
entry ports from the backup datacenter and, as described above, if one
of these ports is utilized for order/quote entry, then port fees would
apply. The Exchange believes that this is equitable and not unfairly
discriminatory because it would permit firms to have ports established
for backup purposes, should they ever be needed, without the burden of
paying for such ports when they are not utilized. The Exchange believes
this is equitable and not unfairly discriminatory because firms will
not be disincentivized from requesting backup ports because of a fee
that may otherwise apply. This would contribute to the efficiency of a
backup process if primary order/quote entry ports ever became
unavailable.
The Exchange also believes that it is reasonable to not charge for
drop copy ports in its backup datacenter if configured such that it is
duplicative of another drop copy port of the same user, regardless of
whether the drop copy port is utilized or not. The Exchange believes
that it is reasonable to treat drop copy ports in this manner because a
firm would not derive any value/use from a drop copy port in the
datacenter that is duplicative of another drop copy port that it
already has outside of the datacenter (i.e., because drop copy ports
are used to send duplicative information anyways, a second drop copy
port carrying the same information would not be a useful resource),
except for a backup purpose. The Exchange believes that this is
equitable and not unfairly discriminatory because it would permit firms
to have ports established for drop copy purposes in the backup
datacenter, should they ever be needed, without the burden of paying
for such ports. Because the drop copy port would not be providing any
information that the firm did not already have, since the port would be
configured such that it is duplicative of another drop copy port of the
same user, the Exchange believes that it is equitable and not unfairly
discriminatory to treat order/quote entry ports and drop copy ports
differently in this manner. The Exchange believes this is also
equitable and not unfairly discriminatory because firms will not be
disincentivized from requesting backup drop copy ports because of a fee
that may otherwise apply. This would contribute to the efficiency of a
backup

[[Page 69673]]

process if primary drop copy ports ever became unavailable.
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.

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) \20\ of the Act and subparagraph (f)(2) of Rule
19b-4 \21\ thereunder, because it establishes a due, fee, or other
charge imposed by the NYSE Arca.
---------------------------------------------------------------------------

\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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-2012-122 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-2012-122. 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 20549-1090, on official business days between the hours
of 10:00 a.m. and 3:00 p.m. Copies of the filing will also be available
for inspection and copying at the NYSE's principal office and on its
Internet Web site at www.nyse.com. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-NYSEArca-2012-122 and should be submitted on or before
December 11, 2012.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

\22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28137 Filed 11-19-12; 8:45 am]
BILLING CODE 8011-01-P

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