Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Modifying the NYSE Arca Options Fee Schedule To Establish Fees for Mini-Options Contracts, 19784-19790 [2013-07619]
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Federal Register / Vol. 78, No. 63 / Tuesday, April 2, 2013 / Notices
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEMKT–2013–24 and should be
submitted on or before April 23, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Kevin M. O’Neill,
Deputy Secretary.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to modify the
NYSE Arca Options Fee Schedule (the
‘‘Fee Schedule’’) to establish fees for
mini-options contracts (‘‘Minis’’). The
text of the proposed rule change is
available on the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
BILLING CODE 8011–01–P
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
1. Purpose
[FR Doc. 2013–07620 Filed 4–1–13; 8:45 am]
[Release No. 69246; File No. SR–NYSEArca–
2013–25]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Modifying the NYSE Arca
Options Fee Schedule To Establish
Fees for Mini-Options Contracts
srobinson on DSK4SPTVN1PROD with NOTICES
March 27, 2013.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on March
18, 2013, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
19 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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The Exchange proposes to modify the
Fee Schedule to establish fees for
Minis.4
The Exchange represented in its filing
with the Commission to establish Minis
that ‘‘the current schedule of Fees will
not apply to the trading of mini-options
contracts. The Exchange will not
commence trading of mini-option
contracts until specific fees for minioptions contracts trading have been
filed with the Commission.’’ 5 As the
Exchange intends to begin trading Minis
on March 18, 2013, it is submitting this
filing to describe the transaction fees
that will be applicable to the trading of
Minis.
Minis have a smaller exercise and
assignment value due to the reduced
number of shares they deliver as
compared to standard option contracts.
As such, the Exchange is proposing
generally lower per contract fees as
compared to standard option contracts,
with some exceptions to be fully
4 In addition to the changes discussed below, the
Exchange also proposes to make clarifying changes
to the endnotes to the Fee Schedule to describe the
impact, or lack thereof, of the introduction of Minis,
including within endnotes 2, 8, 9 and 12.
5 See Securities Exchange Act Release No. 67948
(September 28, 2012), 77 FR 60735 (October 4,
2012) (SR–NYSEArca–2012–64).
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described below. Despite the smaller
exercise and assignment value of a Mini,
the cost to the Exchange to process
quotes and orders in Minis, perform
regulatory surveillance and retain
quotes and orders for archival purposes
is the same as a for a standard contract.
This leaves the Exchange in a position
of trying to strike the right balance of
fees applicable to Minis—too low and
the costs of processing Mini quotes and
orders will necessarily cause the
Exchange to either raise fees for
everyone or just for participants trading
Minis; too high and participants may be
deterred from trading Minis, leaving the
Exchange less able to recoup costs
associated with development of the
product, which is designed to offer
investors a way to take less risk in high
dollar securities. The Exchange believes,
therefore, that adopting fees for Minis
that are in some cases lower than fees
for standard contracts, and in other
cases the same as for standard contracts,
is appropriate, not unreasonable, not
unfairly discriminatory and not
burdensome on competition between
participants, or between the Exchange
and other exchanges in the listed
options market place.
General Options and Trading Permit
(OTP) Fees
What follows is a discussion of the
existing Fee Schedule as it relates to the
treatment of Mini options as compared
to standard option contracts.
Trading Permit Fees: The number of
Trading Permits or OTPs required by
participants is unchanged by the
introduction of Mini options.
Lead Market Maker (‘‘LMM’’) Rights
Fees: The monthly rights fees charged to
LMMs will continue to apply to them
for transactions executed in Mini
options. For purposes of calculating the
Rights Fee, a transaction in a Mini
option shall be counted the same as a
transaction in a standard option contract
from a volume perspective (i.e., one
contract in a Mini will equal one
contract in a standard option contract).
Options Regulatory Fee: Presently the
Exchange charges an Options Regulatory
Fee (‘‘ORF’’) of $0.005 per contract. The
ORF is assessed on each OTP Holder for
all options transactions executed or
cleared by the OTP Holder that are
cleared by The Options Clearing
Corporation (‘‘OCC’’) in the customer
range, regardless of the exchange on
which the transaction occurs. The
Exchange is proposing to charge the
same rate for transactions in Mini
options, $0.005 per contract, since, as
noted, the costs to the Exchange to
process quotes, orders, trades and the
necessary regulatory surveillance
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programs and procedures in Minis are
the same as for standard option
contracts. As such, the Exchange
believes that it is appropriate to charge
the ORF at the same rate as the standard
option contract.
Per Contract Trade Related Charges,
Including Qualified Contingent Cross
(‘‘QCC’’) Orders
MINI OPTIONS TRANSACTION FEES—
PER CONTRACT
Manual
Executions
The Exchange discusses below the
newly proposed per contract transaction
charges applicable to Minis. The tables
below show the per contract charge
applicable to electronic, manual,
electronic complex orders, and QCC
executions in Minis for various
participants on the Exchange: 6
Order Type:
NYSE Arca Market Maker
Firm and Broker Dealer ....
Customer ...........................
$0.02
0.09
0.00
Electronic executions in penny
pilot issues
Electronic executions in nonpenny pilot issues
Post liquidity
Post liquidity
Order Type:
NYSE Arca Market Maker ........................................................................
Firm and Broker Dealer ............................................................................
Customer ..................................................................................................
Take liquidity
($0.04)
(0.01)
(0.03)
$0.07
0.09
0.06
($0.06)
0.00
(0.04)
Take liquidity
........................
$0.10
0.12
0.08
COMPLEX ORDERS—TRANSACTION FEE—PER CONTRACT
Order type
Complex Order to Complex Order .....................
Fees
Customer ...........................................................
Non Customer ...................................................
Complex Order against Consolidated Book ......
Customer ...........................................................
NYSE Arca Market Maker .................................
Firm and Broker Dealer .....................................
($0.03)
(0.04)
0.08
0.10
0.06
0.08
0.07
0.10
0.09
0.12
As with standard options, Customers
manually transacting Mini options on
the Exchange will trade for free. Mini
options contracts on the Exchange will
NOT count toward the Customer
Monthly Posting Credit Tiers or Super
Tier and Qualifications for Executions
in Penny Pilot Issues and SPY or
associated rebates paid to Order Flow
Providers (‘‘OFPs’’) described in
endnote 8 to the current Fee Schedule.7
As noted earlier, the cost to the
Exchange to process quotes, orders and
trades in Minis is the same as for
standard options. This, coupled with
the lower per contract transaction fees
charged to other participants, makes it
impractical to offer OFPs a rebate for
any Customer Mini options volume they
transact.
Customers electronically transacting
Mini options in Penny Pilot issues will
receive a rebate of $.03 when they post
liquidity and be charged $.06 when they
take liquidity. Customers electronically
transacting Mini options in non-Penny
Pilot issues will receive a rebate of $.04
when they post liquidity and be charged
$.08 when they take liquidity. For
Complex Order to Complex Order
executions, Customers electronically
transacting Mini options will receive a
rebate of $.03 in Penny Pilot issues and
will receive a rebate of $.04 in nonPenny Pilot issues. For Complex Orders
that execute against the Consolidated
Book, Customers electronically
transacting Mini options will be charged
$.06 in Penny Pilot issues and will be
charged $.08 in non-Penny Pilot issues.
For Mini option transactions, all
NYSE Arca Market Makers, including
Lead Market Makers, will have the same
rates and charges applied. NYSE Arca
Options Market Makers manually
trading Mini options will be charged
$.02 per contract. NYSE Arca Options
Market Makers electronically
transacting Mini options in Penny Pilot
issues will receive a rebate of $.04 when
they post liquidity and be charged $.07
when they take liquidity. NYSE Arca
Options Market Makers electronically
transacting Mini options in non-Penny
Pilot issues will receive a rebate of $.06
when they post liquidity and be charged
$.10 when they take liquidity. For
Complex Order to Complex Order
executions, NYSE Arca Options Market
Makers electronically transacting Mini
options will be charged $.08 in Penny
Pilot issues and will be charged $.10 in
non-Penny Pilot issues. For Complex
Orders that execute against the
Consolidated Book, NYSE Arca Options
Market Makers electronically
transacting Mini options will be charged
$.07 in Penny Pilot issues and will be
charged $.10 in non-Penny Pilot issues.
These NYSE Arca Options Market
Maker charges are generally anywhere
from slightly less than 1/10th to slightly
more than 1/10th of the charges
incurred by NYSE Arca Options Market
Makers today for standard option
contract transactions.
6 The Exchange proposes to create a duplicative
reference to Routing Fees under the section of fees
applicable to Minis.
7 See NYSE Arca Options fee schedule dated
March 1, 2013, available at https://
globalderivatives.nyx.com/sites/
globalderivatives.nyx.com/files/
nyse_arca_options_fee_schedule__eff_3_01_13.pdf.
However, the Exchange proposes to specify in
endnote 8 that Total Industry Customer equity and
ETF option average daily volume includes OCC
calculated Customer volume of all types, including
Complex Order Transactions, QCC transactions, and
mini options transactions, in equity and ETF
options.
QCC Fees ............
Floor Broker Rebate.
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Penny Pilot Issues ..............
Non-Penny Pilot Issues ......
Penny Pilot Issues ..............
Non-Penny Pilot Issues ......
Penny Pilot Issues ..............
Non-Penny Pilot Issues ......
Penny Pilot Issues ..............
Non-Penny Pilot Issues ......
Penny Pilot Issues ..............
Non-Penny Pilot Issues ......
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0.01
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per side.
per side.
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Firm and Broker Dealer manual
transactions, in Mini options will be
charged at the rate of $.09 per contract.
Firms and Broker Dealers electronically
transacting Mini options in Penny Pilot
issues will receive a rebate of $.01 when
they post liquidity and be charged $.09
when they take liquidity. Firms and
Broker Dealers electronically transacting
Mini options in non-Penny Pilot issues
will neither be charged nor receive a
credit (i.e., free) when they post
liquidity and will be charged $.12 when
they take liquidity. For Complex Order
to Complex Order executions, Firms and
Broker Dealers electronically transacting
Mini options will be charged $.08 in
Penny Pilot issues and will be charged
$.10 in non-Penny Pilot issues. For
Complex Orders that execute against the
Consolidated Book, Firms and Broker
Dealers electronically transacting Mini
options will be charged $.09 in Penny
Pilot issues and will be charged $.12 in
non-Penny Pilot issues. These Firms
and Broker Dealer charges are generally
anywhere from slightly less than 1/10th
to slightly more than 1/10th of the
charges incurred by NYSE Arca Options
Market Makers today for standard
option contract transactions.
Additionally, the existing $75,000 cap
per month of fees on Firm and Broker
Dealer open outcry trades described in
endnote 9 of the current Fee Schedule
will NOT include Mini transactions. As
noted earlier, the cost to the Exchange
to process quotes, orders and trades in
Minis is the same as for standard
options, therefore the Exchange does not
wish to include Firm and Broker Dealer
trades in Mini options in the monthly
fee cap. Further, the proposed charge is
slightly higher than 1/10th of the
current charges applicable to Firm
Proprietary trades. This relatively higher
rate is necessitated by the fact that the
cost to the Exchange to process quotes,
orders and trades in Minis is the same
as for standard options.
OTP Holders or OTP Firms that
execute QCC transactions in Minis will
be charged $0.05 per contract side. QCC
transactions in Minis executed by a
Floor Broker on the Floor of the
Exchange will be eligible for a $0.01
rebate per contract side rebate.
Routing Surcharge: In order to comply
with the requirements of the
Distributive Linkage Plan,8 the
Exchange uses various means of
accessing better priced interest located
on other exchanges. Presently, the
Exchange charges a Routing Surcharge
of $.11 per contract plus a pass through
of the fees associated with the execution
8 See Rule 6.92, Rule 6.94, Rule 6.95 and Rule
6.96.
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of the routed order on the other
exchanges. The $.11 is designed to
recover the Exchange’s costs in routing
orders to the other exchanges. Those
costs include clearance charges imposed
by the OCC and per contract routing fees
charged by the Broker Dealers who
charge the Exchange for the use of their
systems to route orders to other
exchanges. The Exchange has spoken
with both the OCC and the Broker
Dealers who have informed the
Exchange that their charges applicable
to Mini options will be the same as for
standard option contracts, as their cost
to process a contract (i.e., routing or
clearing) is the same irrespective of the
exercise and assignment value of the
contract. As such, the Exchange intends
to charge the same Routing Surcharge
for Mini options as it presently does for
standard options. The Exchange notes
that participants can avoid the Routing
Surcharge in several ways. First, they
can simply route to the exchange with
the best priced interest. The Exchange,
in recognition of the fact that markets
can move while orders are in flight, also
offers participants the ability to utilize
order types that do not route to other
exchanges. Specifically, the Post No
Preference (‘‘PNP’’) order modifier is
one such order that would never route
to another exchange. In addition, there
are others, such as PNP Blind and PNP
Plus,9 which also would never route to
another exchange. Given this ability to
avoid the Routing Surcharge, coupled
with the fixed third-party costs
associated with routing, the Exchange
believes it is reasonable to charge the
same Routing Surcharge for Mini
options that is charged for standard
option contracts.
Limit Of Fees On Options Strategy
Executions: Presently, the Exchange has
a $750 cap on transaction fees for
Strategy Executions involving reversals
and conversions, box spreads, short
stock interest spreads, merger spreads
and jelly rolls. The fees for these
Strategy Executions are further capped
at $25,000 per month per initiating firm.
The Exchange will NOT include Mini
option transactions as being eligible for
any part of these per trade or per month
Strategy Execution caps. As noted
earlier, the cost to the Exchange to
process quotes, orders and trades in
Minis is the same as for standard
options. Given that the per contract
transaction fees are already substantially
lower than the per contract fees for
standard options, inclusion of Mini
options in these fee caps is not
warranted.
Ratio Threshold Fee
Order To Trade Ratio Fee: For
purposes of calculating the Order To
Trade Ratio Fee, an order and an
execution in Mini options will be
counted the same as an order and an
execution in standard option contracts.
The Exchange proposes to implement
these changes on March 18, 2013.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,10 in general, and
furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,11 in
particular, because it provides for the
equitable allocation of reasonable dues,
fees, and other charges among its
members, issuers and other persons
using its facilities and does not unfairly
discriminate between customers,
issuers, brokers or dealers.
General Options and Trading Permit
(OTP) Fees
For purposes of the Fee Schedule
relating to OTP fees, LMM Rights Fees,
and the regulatory fees, including the
ORF, the Exchange is not proposing any
changes as a result of the introduction
of Minis. This is due to, in part, the fact
that there will be no separate allocation
for Minis—the existing LMMs and
NYSE Arca Options Market Makers who
trade AAPL, for example, will
automatically be able, and obligated, to
quote and trade AAPL Minis. Since this
is the case, the Exchange believes it is
entirely appropriate and, in fact,
necessary, to treat Mini options the
same as standard options with respect to
the fees listed above. The fees listed
above have not been deemed to be
unreasonable, inequitable, or unfairly
discriminatory, and the introduction of
Mini options raises no new issues with
respect to such fees. Therefore, the
treatment of Minis in the same manner
as standard option contracts for
purposes of the OTP fees, LMM Rights
Fees, and the regulatory fees, including
the ORF, is reasonable, equitable and
not unfairly discriminatory. Further, the
Exchange notes, particularly in the
context of the ORF, that the cost to
perform surveillance to ensure
compliance with various Exchange and
industry-wide rules is no different for a
Mini option than it is for a standard
option contract. Reducing the ORF for
Mini options could result in a higher
ORF for standard options. Such an
outcome would arguably be
discriminatory towards investors in
standard options for the benefit of
10 15
9 See
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U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
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investors in Minis. As such, the
appropriate approach is to treat both
Minis and standard options the same
with respect to the amount of the ORF
that is being charged.
Per Contract Trade Related Charges,
Including QCCs
The Exchange noted earlier that,
while Minis have a smaller exercise and
assignment value due to the reduced
number of shares to be delivered as
compared to standard option contracts,
and despite the smaller exercise and
assignment value of a Mini, the cost to
the Exchange to process quotes and
orders in Minis, perform regulatory
surveillance and retain quotes and
orders for archival purposes is the same
as for a standard contract. This leaves
the Exchange in a position of trying to
strike the right balance of fees
applicable to Minis—too low and the
costs of processing Mini quotes and
orders will necessarily cause the
Exchange to either raise fees for
everyone or just for participants trading
Minis; too high and participants may be
deterred from trading Minis, leaving the
Exchange less able to recoup costs
associated with development of the
product, which is designed to offer
investors a way to take less risk in high
dollar securities. The Exchange believes,
therefore, that adopting fees for Minis
that are in some cases lower than
standard contracts, and in other cases
the same as for standard contracts, is
appropriate, not unreasonable, not
unfairly discriminatory and not
burdensome on competition between
participants, or between the Exchange
and other exchanges in the listed
options market place.
In the case of most trade related
charges, the Exchange has decided to
offer lower per contract fees to
participants as part of trying to strike
the right balance between recovering
costs associated with trading Minis and
encouraging use of the new Mini option
contracts, which are designed to allow
investors to reduce risk in high dollar
underlying securities.
The Exchange proposal to charge
Customers $.00 per contract for manual
orders is reasonable, as Customers have
long traded manual orders for free on all
options on the Exchange. The ability to
trade manual orders for free attracts
Customer order flow to the Exchange,
which is beneficial to all other
participants on the Exchange who
generally seek to trade with Customer
order flow. The proposed fee of $.00 per
contract is the same fee charged to
Customer manual orders in standard
option contracts, which is an effective
fee on the Exchange and has not been
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determined to be inequitable or unfairly
discriminatory. Therefore, the proposed
Customer pricing for Minis is equitable
and not unfairly discriminatory. The
Exchange feels that different rates for
Customer manual transaction fees as
compared to other market participants is
equitable and not unfairly
discriminatory because non-Customers
wish to have Customer orders attracted
to the Exchange by having lower fees,
and is equitable and not unfairly
discriminatory to Firms and Broker
Dealers because Market Makers have
obligations that are not required of
Firms and Broker Dealers and because
Market Makers have additional costs
that are not applicable to Firms and
Broker Dealers.
The Exchange proposal to credit
Customers electronically transacting
Mini options in Penny Pilot and nonPenny Pilot issues $.03 and $.04,
respectively, per contract when they
post liquidity and charging them $.06
and $.08, respectively, when they take
liquidity is reasonable, as Customers are
currently subject to the same pricing
structure (albeit at higher rates) for
standard options. The rates proposed for
Customer Minis transactions for
Complex Order to Complex Order
executions (a rebate of $.03 in Penny
Pilot issues and a rebate of $.04 in nonPenny Pilot issues) and Complex Orders
that execute against the Consolidated
Book (a charge of $.06 in Penny Pilot
issues and a charge of $.08 in nonPenny Pilot issues) is also reasonable, as
Customers are currently subject to the
same pricing structure (albeit at higher
rates) for standard options. The
Exchange feels that different rates for
Customer electronic transaction fees as
compared to other market participants is
equitable and not unfairly
discriminatory because non-Customers
wish to have Customer orders attracted
to the Exchange by having lower fees,
and is equitable and not unfairly
discriminatory to Firms and Broker
Dealers because Market Makers have
obligations that are not required of
Firms and Broker Dealers and because
Market Makers have additional costs
that are not applicable to Firms and
Broker Dealers.
The Exchange proposal to exclude
Mini options from the Customer
Monthly Posting Credit Tiers or Super
Tier and Qualifications for Executions
in Penny Pilot Issues and SPY and
associated rebates paid to OFPs
described in endnote 8 to the current
Fee Schedule is reasonable, equitable
and not unfairly discriminatory for the
following reasons. First, as noted above,
the Exchange’s cost to process quotes,
orders and trades in Minis is the same
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19787
as for standard options. Given the
overall lower expected revenues from
Mini options, it is reasonable to exempt
Mini option volumes from qualifying for
the OFP rebates paid on standard option
contracts. It is also equitable, since
paying the rebate on Mini option
volumes would likely necessitate either
reducing the rebates paid to OFPs for all
activity, or raising other participant fees.
It is not unfairly discriminatory, as it
will apply equally to all Customer
executions in Mini options, regardless
of the market participant submitting the
order.
The Exchange proposal to charge
NYSE Arca Market Makers manually
trading Mini options $.02 per contract is
reasonable. Additionally, the Exchange
proposal for NYSE Arca Market Makers
electronically trading Mini options in
Penny Pilot issues to receive a rebate of
$.04 or $.06 when they post liquidity in
Penny Pilot and non-Penny Pilot
classes, respectively, and to be charged
$.07 or $.10 when they take liquidity in
Penny Pilot and non-Penny Pilot
classes, respectively, is also reasonable.
The Complex Order rates proposed for
NYSE Arca Options Market Makers
electronically transacting Mini options
are also reasonable. Generally, these fees
range from slightly more than, to
slightly less than, 10% of what the
various NYSE Arca Options Market
Maker participants pay today. Charging
all types of NYSE Arca Options Market
Makers, including Lead Market Makers,
the same fees to trade Minis is certainly
not unfairly discriminatory, as it applies
to all of them equally. The fees are
reasonable in light of the fact that the
Minis do have a smaller exercise and
assignment value, specifically 1⁄10th that
of a standard contract, and, as such,
levying fees that are approximately 10%
of what an NYSE Arca Options Market
Maker pays today is reasonable and
equitable. The Exchange’s cost to
process quotes, orders and trades in
Minis is the same as for standard
options.
The Exchange feels that different rates
for Market Maker transaction fees as
compared to other market participants is
equitable and not unfairly
discriminatory because non-Customers
wish to have Customer orders attracted
to the Exchange by having lower fees,
and is equitable and not unfairly
discriminatory to Firms and Broker
Dealers because Market Makers have
obligations that are not required of
Firms and Broker Dealers and because
Market Makers have additional costs
that are not applicable to Firms and
Broker Dealers. For example, NYSE
Arca Options Market Makers are
required to have trading permits in
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order to stream quotes. The number of
permits is variable based on the number
of options traded, and can cost as much
as $16,000 per month to quote all issues
on the Exchange as an NYSE Arca
Options Market Maker. Conversely,
Firms pay a monthly permit fee of
$1,000 per month and Broker Dealers,
typically access the facilities of the
Exchange through either a Firm or Order
Flow Provider who may or may not pass
along the $1,000 per month permit fee
cost. Consequently, when all fees are
taken together, the difference charged to
NYSE Arca Options Market Makers as
compared to Broker Dealers, and Firms
is reasonable, equitable and not unfairly
discriminatory. The Exchange further
notes that there are no limits on the
number of NYSE Arca Options Market
Makers that are permitted to quote in a
given option and that any of the other
participant types are free to apply to the
Exchange to become a NYSE Arca
Options Market Maker to avail
themselves of the transaction charges
applicable to NYSE Arca Options
Market Makers presuming they are
willing to accept the quoting obligations
applicable to NYSE Arca Options
Market Makers, which serve to foster
price discovery and transparency.
The Exchange proposal to charge
Firms and Broker Dealers,, the rates
proposed herein for their transactions in
Minis and to exclude Mini options from
the $75,000 cap per month of fees on
Firm and Broker Dealer open outcry
executions described in endnote 9 of the
current Fee Schedule is reasonable,
equitable and not unfairly
discriminatory. First, the per contract
charges proposed are lower than what
Firms and Broker Dealers pay for a
standard contract in acknowledgement
of the smaller exercise and assignment
value. Although some of these proposed
rates are more than 10% of the rate paid
by a Firm or Broker Dealer for a
standard contract, this is warranted by
the fact that the Exchange’s cost to
process quotes, orders and trades in
Minis is the same as for standard
options. In this regard the proposal is
reasonable and it is also equitable, as it
allows the Exchange to offer this
innovative product to investors without
raising fees for other investors who may
have no interest in trading Minis.
Likewise, excluding Mini option
volumes from the monthly fee cap for
Firm and Broker Dealer open outcry
executions is reasonable and equitable
in light of the Exchange’s desire to fund
the costs associated with Minis with
revenues from only those participants
who trade them. Offering a fee cap for
a product with reduced fees might
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19:35 Apr 01, 2013
Jkt 229001
necessitate raising costs for other
participants; therefore, the Exchange
believes that the exclusion from the
monthly fee cap for Firm and Broker
Dealer open outcry executions is both
reasonable and equitable. As the per
contract Mini pricing for all Firms and
Broker Dealers is the same, the proposal
is also not unfairly discriminatory.
The Exchange feels that different rates
for Firm and Broker Dealer transaction
fees as compared to other market
participants is equitable and not
unfairly discriminatory because nonCustomers wish to have Customer
orders attracted to the Exchange by
having lower fees, and is equitable and
not unfairly discriminatory to Firms and
Broker Dealers because Market Makers
have obligations that are not required of
Firms and Broker Dealers and because
Market Makers have additional costs
that are not applicable to Firms and
Broker Dealers. For example, NYSE
Arca Options Market Makers are
required to have trading permits in
order to stream quotes. The number of
permits is variable based on the number
of options traded, and can cost as much
as $16,000 per month to quote all issues
on the Exchange as an NYSE Arca
Options Market Maker. Conversely,
Firms pay a monthly permit fee of
$1,000 per month and Broker Dealers,
typically access the facilities of the
Exchange through either a Firm or Order
Flow Provider who may or may not pass
along the $1,000 per month permit fee
cost. Consequently, when all fees are
taken together, the difference charged to
NYSE Arca Options Market Makers as
compared to Broker Dealers, and Firms
is reasonable, equitable and not unfairly
discriminatory. The Exchange further
notes that there are no limits on the
number of NYSE Arca Options Market
Makers that are permitted to quote in a
given option and that any of the other
participant types are free to apply to the
Exchange to become a NYSE Arca
Options Market Maker to avail
themselves of the transaction charges
applicable to NYSE Arca Options
Market Makers presuming they are
willing to accept the quoting obligations
applicable to NYSE Arca Options
Market Makers, which serve to foster
price discovery and transparency.
The Exchange proposal for QCC
pricing for Minis is to charge Customers
and non-Customers $.10 per contract
($.05 charge per contract side), as
compared with $.20 per contract for
standard options ($.10 charge per
contract side). The Exchange will also
offer NYSE Arca Floor Brokers a rebate
of $.02 per contract ($.01 rebate per
contract side) for all Mini options they
execute as a QCC trade, as compared to
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Fmt 4703
Sfmt 4703
$.07 per contract rebate for standard
options ($.035 rebate per contract side).
The Exchange believes that this pricing
is reasonable, equitable and not unfairly
discriminatory. First, the Exchange has
always charged for QCC trades in
standard options due to the fact that
qualifying QCC trades are executed
immediately, upon entry, without
exposure or any opportunity for other
participants to participate on the trade.
This pricing proposal preserves this,
and, as such, is reasonable. It is
equitable since, as noted, the Exchange’s
cost to process quotes, orders and trades
in Minis is the same as for standard
options, so charging a relatively small
premium for the opportunity to trade
without exposure is warranted, given
the Exchange’s need to cover the costs
of participants trading Minis so as to
avoid sharing those costs with other
participants who are not trading Minis.
The proposal is also not unfairly
discriminatory as it applies equally to
all Customers and non-Customers. The
Floor Broker rebate of $.02 ($.01 rebate
per contract side) is reasonable and
equitable as it is designed to allow Floor
Brokers to compete for QCC volumes
that might otherwise execute on an
exchange that offers a front end order
entry system, like ISE PrecISE Trade
application 12 or CBOE’s HyTS,13 which
would allow participants to potentially
avoid paying a brokerage fee. The Floor
Broker rebate is not unfairly
discriminatory as it applies equally to
all NYSE Arca Floor Brokers who
execute Mini options as QCC trades.
The Exchange proposal to treat Mini
options the same as standard options for
purposes of the Routing Surcharge is
reasonable, equitable and not unfairly
discriminatory for the following
reasons. Presently, the Exchange charges
a Routing Surcharge of $.11 per contract
plus a pass through of the fees
associated with the execution of the
routed order on the other exchanges.
The $.11 is designed to recover the
Exchange’s costs in routing orders to the
other exchanges. Those costs include
clearance charges imposed by The OCC
and per contract routing fees charged by
the Broker Dealers who charge the
Exchange for the use of their systems to
route orders to other exchanges. The
Exchange has spoken with both The
OCC and the Broker Dealers, who have
informed the Exchange that their
charges applicable to Mini options will
be the same as for standard option
contracts, as their cost to process a
contract (i.e., routing or clearing) is the
12 See https://www.ise.com/WebForm/
viewPage.aspx?categoryId=129.
13 See https://www.cboe.org/hybrid/HyTs.aspx.
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Federal Register / Vol. 78, No. 63 / Tuesday, April 2, 2013 / Notices
same irrespective of the exercise and
assignment value of the contract. As
such, the Exchange intends to charge
the same Routing Surcharge for Mini
options as it presently does for standard
options. The Exchange notes that
participants can avoid the Routing
Surcharge in several ways. First they
can simply route to the exchange with
the best priced interest. The Exchange,
in recognition of the fact that markets
can move while orders are in flight, also
offers participants the ability to utilize
order types that do not route to other
exchanges. Specifically, the PNP order
modifier is one such order that would
never route to another exchange. In
addition, there are others, such as PNP
Blind and PNP Plus,14 which also
would never route to another exchange.
Given this ability to avoid the Routing
Surcharge, coupled with the fixed third
party costs associated with routing, the
Exchange believes it is reasonable and
equitable to charge the same Routing
Surcharge for Mini options that is
charged for standard option contracts.
Because the Routing Surcharge will
apply to all participants in Minis as it
is applied for standard options, and
because such surcharge has not
previously been found to be
unreasonable, inequitable or unfairly
discriminatory, the Exchange believes
such surcharge is reasonable and
equitable with respect to Minis as well.
The Exchange is proposing to exclude
Mini option volumes from being eligible
for the Limit Of Fees On Options
Strategy Executions. Presently the
Exchange has a $750 cap on transaction
fees for Strategy Executions involving
reversals and conversions, box spreads,
short stock interest spreads, merger
spreads and jelly rolls. The fees for
these Strategy Executions are further
capped at $25,000 per month per
initiating firm. The Exchange will NOT
include Mini option transactions as
being eligible for any part of these per
trade or per month Strategy Execution
caps. As noted earlier, the cost to the
Exchange to process quotes, orders and
trades in Minis is the same as for
standard options. Given that the per
contract transaction fees for Minis are
already substantially lower than the per
contract fees for standard options,
inclusion of Mini options in these fee
caps is not warranted, and is reasonable
and equitable. Further, it is not unfairly
discriminatory as the exclusion of Mini
volumes from the cap on fees for
Strategy Executions applies equally to
all participants on the Exchange.
14 See Rule 6.62(p), Rule 6.62(u), and Rule
6.62(y).
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19:35 Apr 01, 2013
Jkt 229001
Ratio Threshold Fee
The Exchange proposes to treat Mini
options the same as standard options for
purposes of the Ratio Threshold Fee. As
noted, the cost to the Exchange to
process quotes, orders and trades in
Minis is the same as for standard
options and, as such, treating Minis the
same as standard option contracts for
the purposes of calculating the Ratio
Threshold Fee is reasonable and
equitable. It is also not unfairly
discriminatory, as such treatment will
apply to all participants equally.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed change designed to provide
greater specificity and precision within
the Fee Schedule with respect to the
fees that will be applicable to Minis
when they begin trading on the
Exchange on March 18, 2013.
The Exchange believes that adopting
fees for Minis that are in some cases
lower than for standard contracts, but in
other cases the same as for standard
contracts, strikes the appropriate
balance between fees applicable to
standard contracts versus fees
applicable to Mini’s, and will not
impose a burden on competition among
various market participants on the
Exchange, or between the Exchange and
other exchanges in the listed options
market place, that is not necessary or
appropriate in furtherance of the
purposes of the Act.
The Exchange feels that different rates
for different market participants will not
impose a burden on competition
because non-Customers wish to have
Customer orders attracted to the
Exchange by having lower fees, and will
not impose a burden on competition to
Firms and Broker Dealers because
Market Makers have obligations that are
not required of Firms and Broker
Dealers and because Market Makers
have additional costs that are not
applicable to Firms and Broker Dealers.
Further the Exchange notes that for
standard options a greater difference in
fees for various participants already
exists than that which is being proposed
for Minis. For example, Customers
already trade for lower Take Liquidity
fees than an NYSE Arca Options Market
Maker. An NYSE Arca Market Maker
who trades with a Customer
electronically in a non-Penny name can
pay as much as $0.80 per contract.
Similarly, Firms and Broker Dealers pay
PO 00000
Frm 00153
Fmt 4703
Sfmt 4703
19789
$0.85 per contract when they Take
Liquidity in non-Penny Pilot names
opposed to Customers, who pay a lower
Take Liquidity rate in the same issues
of $0.79 per contract in standard
options. For Minis, the greatest
differential being proposed is in Manual
Trades in mini-options, where
Customers will trade for free, and Firms
and Broker Dealers will pay $0.09 per
contract. Firms and Broker Dealers pay
$.25 per contract versus $.00 per
contract for Customers, in standard
options. The differential for minioptions is de minimus as compared to
the differential for standard options.
The Exchange notes that the
difference in fees for various
participants in standard options has not
proven to be a burden on competition.
Therefore, the fee differential for Minis,
being quite a bit smaller, should not
prove to be a burden on competition at
all. In this regard, as Minis are a new
product being introduced into the listed
options marketplace, the Exchange is
unable at this time to absolutely
determine the impact that the fees and
rebates proposed herein will have on
trading in Minis. That said, however,
the Exchange believes that the rates
proposed for Minis, on their face, would
not impose any burden on competition
that is not necessary or appropriate in
furtherance of the purposes of the Act.
Finally, the Exchange notes that it
operates in a highly competitive market
in which market participants can
readily favor competing venues. In such
an environment, the Exchange must
continually review, and consider
adjusting, its fees and credits to remain
competitive with other exchanges. For
the reasons described above, the
Exchange believes that the proposed
rule change reflects this competitive
environment.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received from
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 15 of the Act and
subparagraph (f)(2) of Rule 19b–4 16
thereunder, because it establishes a due,
15 15
16 17
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U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
02APN1
19790
Federal Register / Vol. 78, No. 63 / Tuesday, April 2, 2013 / Notices
fee, or other charge imposed by 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. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 17 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
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:
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–2013–25 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2013–25. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (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
17 15
U.S.C. 78s(b)(2)(B).
VerDate Mar<15>2010
19:35 Apr 01, 2013
Jkt 229001
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2013–25 and should be
submitted on or before April 23, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–07619 Filed 4–1–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69243; File No. SR–ICC–
2013–01]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Order Approving
Proposed Rule Change, as Modified by
Amendments No. 1 and 2 Thereto, To
Update Chapter 26 and Remove
Schedule 502 of the ICE Clear Credit
Rules
March 27, 2013.
I. Introduction
On January 31, 2013, ICE Clear Credit
LLC (‘‘ICC’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change SR–ICC–2013–01 pursuant to
Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder.2 The proposed rule
change was published for comment in
the Federal Register on February 21,
2013.3 On March 7, 2013, ICC filed
Amendment No. 1 to the proposed rule
change.4 On March 14, 2013, ICC filed
Amendment No. 2 to the proposed rule
change.5 The Commission did not
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 68928 (Feb.
14, 2013), 78 FR 12125 (Feb. 21, 2013).
4 In Amendment No. 1, ICC amended the filing to
remove European index CDS and European singlename CDS from Schedule 502 of the ICC Rulebook
(‘‘ICC Rules’’), which were added to the ICC Rules
subsequent to ICC filing this proposed rule change.
The amendment also included conforming changes
to the chapters of the ICC Rules referencing iTraxx
Europe index CDS and European single-name CDS
to reflect the removal of Schedule 502.
5 In Amendment No. 2, ICC amended the filing to
remove certain index series listings scheduled to
1 15
PO 00000
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Fmt 4703
Sfmt 4703
receive comments regarding the
proposal. For the reasons discussed
below, the Commission is granting
approval of the proposed rule change.
II. Description
The purpose of the proposed rule
change is to update Chapter 26 (Cleared
CDS Products) of the ICC Rules and
remove Schedule 502 (List of PreApproved Products) from the ICC Rules.
The proposed rule change also includes
a conforming edit within Chapter 5
(Risk Committee) of the ICC Rules. This
update will provide direct reference
within the ICC Rules to the cleared
products list always available on the
ICC Web site (‘‘Approved Products
List’’) and add additional standards for
certain ICC cleared products. ICC agrees
that rule submissions for updates to
ICC’s cleared product offering will be
required under certain circumstances
(e.g., certain financial single names,
additional single-name constituents of
the Emerging Markets Index, and High
Yield single names).
ICC proposes to amend Chapter 26 of
its rules to update the definitions of
Eligible CDX.NA Untranched Index
(Rule 26A–102), Eligible SNAC
Reference Entities (Rule 26B–102),
Eligible SNAC Reference Obligations
(Rule 26B–102), Eligible CDX.EM
Untranched Index (Rule 26C–102),
Eligible SES Reference Entities (Rule
26D–102), Eligible SES Reference
Obligations (Rule 26D–102), Eligible
iTraxx Europe Untranched Index (Rule
26F–102), Eligible SDEC Reference
Entities (Rule 26G–102) and Eligible
SDEC Reference Obligations (Rule 26G–
102) to include the requirement that the
products must be determined by ICC to
be eligible.
ICC proposes to amend Chapter 26 of
its rules to update the definitions of List
of Eligible CDX.NA Untranched Indexes
(Rule 26A–102), List of Eligible SNAC
Reference Entities (Rule 26B–102), List
of Eligible CDX.EM Untranched Indexes
(Rule 26C–102), List of Eligible SES
Reference Entities (Rule 26D–102), List
of Eligible iTraxx Europe Untranched
Indexes (Rule 26F–102) and List of
Eligible SDEC Reference Entities (Rule
26G–102) to include the reference that
the Approved Products List will be
maintained, updated and published on
the ICC Web site.
ICC proposes to amend Chapter 26 of
its rules to add the definition of Eligible
SNAC Sector in Rule 26B–102 of the
occur on March 20, 2013, and March 27, 2013,
which were added to Schedule 502 subsequent to
ICC filing this proposed rule change. ICC also
amended Chapter 26G of the ICC Rules to change
the abbreviation for ‘‘Standard European Corporate’’
from ‘‘SNEC’’ to ‘‘SDEC’’.
E:\FR\FM\02APN1.SGM
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]]>Agencies
[Federal Register Volume 78, Number 63 (Tuesday, April 2, 2013)]
[Notices]
[Pages 19784-19790]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07619]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 69246; File No. SR-NYSEArca-2013-25]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Modifying the NYSE
Arca Options Fee Schedule To Establish Fees for Mini-Options Contracts
March 27, 2013.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on March 18, 2013, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\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 modify the NYSE Arca Options Fee Schedule
(the ``Fee Schedule'') to establish fees for mini-options contracts
(``Minis''). The text of the proposed rule change is available on the
Exchange's Web site at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to modify the Fee Schedule to establish fees
for Minis.\4\
---------------------------------------------------------------------------
\4\ In addition to the changes discussed below, the Exchange
also proposes to make clarifying changes to the endnotes to the Fee
Schedule to describe the impact, or lack thereof, of the
introduction of Minis, including within endnotes 2, 8, 9 and 12.
---------------------------------------------------------------------------
The Exchange represented in its filing with the Commission to
establish Minis that ``the current schedule of Fees will not apply to
the trading of mini-options contracts. The Exchange will not commence
trading of mini-option contracts until specific fees for mini-options
contracts trading have been filed with the Commission.'' \5\ As the
Exchange intends to begin trading Minis on March 18, 2013, it is
submitting this filing to describe the transaction fees that will be
applicable to the trading of Minis.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 67948 (September 28,
2012), 77 FR 60735 (October 4, 2012) (SR-NYSEArca-2012-64).
---------------------------------------------------------------------------
Minis have a smaller exercise and assignment value due to the
reduced number of shares they deliver as compared to standard option
contracts. As such, the Exchange is proposing generally lower per
contract fees as compared to standard option contracts, with some
exceptions to be fully described below. Despite the smaller exercise
and assignment value of a Mini, the cost to the Exchange to process
quotes and orders in Minis, perform regulatory surveillance and retain
quotes and orders for archival purposes is the same as a for a standard
contract. This leaves the Exchange in a position of trying to strike
the right balance of fees applicable to Minis--too low and the costs of
processing Mini quotes and orders will necessarily cause the Exchange
to either raise fees for everyone or just for participants trading
Minis; too high and participants may be deterred from trading Minis,
leaving the Exchange less able to recoup costs associated with
development of the product, which is designed to offer investors a way
to take less risk in high dollar securities. The Exchange believes,
therefore, that adopting fees for Minis that are in some cases lower
than fees for standard contracts, and in other cases the same as for
standard contracts, is appropriate, not unreasonable, not unfairly
discriminatory and not burdensome on competition between participants,
or between the Exchange and other exchanges in the listed options
market place.
General Options and Trading Permit (OTP) Fees
What follows is a discussion of the existing Fee Schedule as it
relates to the treatment of Mini options as compared to standard option
contracts.
Trading Permit Fees: The number of Trading Permits or OTPs required
by participants is unchanged by the introduction of Mini options.
Lead Market Maker (``LMM'') Rights Fees: The monthly rights fees
charged to LMMs will continue to apply to them for transactions
executed in Mini options. For purposes of calculating the Rights Fee, a
transaction in a Mini option shall be counted the same as a transaction
in a standard option contract from a volume perspective (i.e., one
contract in a Mini will equal one contract in a standard option
contract).
Options Regulatory Fee: Presently the Exchange charges an Options
Regulatory Fee (``ORF'') of $0.005 per contract. The ORF is assessed on
each OTP Holder for all options transactions executed or cleared by the
OTP Holder that are cleared by The Options Clearing Corporation
(``OCC'') in the customer range, regardless of the exchange on which
the transaction occurs. The Exchange is proposing to charge the same
rate for transactions in Mini options, $0.005 per contract, since, as
noted, the costs to the Exchange to process quotes, orders, trades and
the necessary regulatory surveillance
[[Page 19785]]
programs and procedures in Minis are the same as for standard option
contracts. As such, the Exchange believes that it is appropriate to
charge the ORF at the same rate as the standard option contract.
Per Contract Trade Related Charges, Including Qualified Contingent
Cross (``QCC'') Orders
The Exchange discusses below the newly proposed per contract
transaction charges applicable to Minis. The tables below show the per
contract charge applicable to electronic, manual, electronic complex
orders, and QCC executions in Minis for various participants on the
Exchange: \6\
---------------------------------------------------------------------------
\6\ The Exchange proposes to create a duplicative reference to
Routing Fees under the section of fees applicable to Minis.
Mini Options Transaction Fees--per Contract
------------------------------------------------------------------------
Manual
Executions
------------------------------------------------------------------------
Order Type:
NYSE Arca Market Maker................................ $0.02
Firm and Broker Dealer................................ 0.09
Customer.............................................. 0.00
------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Electronic executions in penny Electronic executions in non-
pilot issues penny pilot issues
---------------------------------------------------------------
Post liquidity Take liquidity Post liquidity Take liquidity
----------------------------------------------------------------------------------------------------------------
Order Type: ..............
NYSE Arca Market Maker...................... ($0.04) $0.07 ($0.06) $0.10
Firm and Broker Dealer...................... (0.01) 0.09 0.00 0.12
Customer.................................... (0.03) 0.06 (0.04) 0.08
----------------------------------------------------------------------------------------------------------------
Complex Orders--Transaction Fee--Per Contract
----------------------------------------------------------------------------------------------------------------
Order type Fees
----------------------------------------------------------------------------------------------------------------
Complex Order to Complex Order.......... Customer.................. Penny Pilot Issues........ ($0.03)
Non-Penny Pilot Issues.... (0.04)
Non Customer.............. Penny Pilot Issues........ 0.08
Non-Penny Pilot Issues.... 0.10
Complex Order against Consolidated Book. Customer.................. Penny Pilot Issues........ 0.06
Non-Penny Pilot Issues.... 0.08
NYSE Arca Market Maker.... Penny Pilot Issues........ 0.07
Non-Penny Pilot Issues.... 0.10
Firm and Broker Dealer.... Penny Pilot Issues........ 0.09
Non-Penny Pilot Issues.... 0.12
----------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
QCC Fees............................. $0.05 per side.
Floor Broker Rebate.................. 0.01 per side.
------------------------------------------------------------------------
As with standard options, Customers manually transacting Mini
options on the Exchange will trade for free. Mini options contracts on
the Exchange will NOT count toward the Customer Monthly Posting Credit
Tiers or Super Tier and Qualifications for Executions in Penny Pilot
Issues and SPY or associated rebates paid to Order Flow Providers
(``OFPs'') described in endnote 8 to the current Fee Schedule.\7\ As
noted earlier, the cost to the Exchange to process quotes, orders and
trades in Minis is the same as for standard options. This, coupled with
the lower per contract transaction fees charged to other participants,
makes it impractical to offer OFPs a rebate for any Customer Mini
options volume they transact.
---------------------------------------------------------------------------
\7\ See NYSE Arca Options fee schedule dated March 1, 2013,
available at https://globalderivatives.nyx.com/sites/globalderivatives.nyx.com/files/nyse_arca_options_fee_schedule__eff_3_01_13.pdf. However, the Exchange proposes to specify in
endnote 8 that Total Industry Customer equity and ETF option average
daily volume includes OCC calculated Customer volume of all types,
including Complex Order Transactions, QCC transactions, and mini
options transactions, in equity and ETF options.
---------------------------------------------------------------------------
Customers electronically transacting Mini options in Penny Pilot
issues will receive a rebate of $.03 when they post liquidity and be
charged $.06 when they take liquidity. Customers electronically
transacting Mini options in non-Penny Pilot issues will receive a
rebate of $.04 when they post liquidity and be charged $.08 when they
take liquidity. For Complex Order to Complex Order executions,
Customers electronically transacting Mini options will receive a rebate
of $.03 in Penny Pilot issues and will receive a rebate of $.04 in non-
Penny Pilot issues. For Complex Orders that execute against the
Consolidated Book, Customers electronically transacting Mini options
will be charged $.06 in Penny Pilot issues and will be charged $.08 in
non-Penny Pilot issues.
For Mini option transactions, all NYSE Arca Market Makers,
including Lead Market Makers, will have the same rates and charges
applied. NYSE Arca Options Market Makers manually trading Mini options
will be charged $.02 per contract. NYSE Arca Options Market Makers
electronically transacting Mini options in Penny Pilot issues will
receive a rebate of $.04 when they post liquidity and be charged $.07
when they take liquidity. NYSE Arca Options Market Makers
electronically transacting Mini options in non-Penny Pilot issues will
receive a rebate of $.06 when they post liquidity and be charged $.10
when they take liquidity. For Complex Order to Complex Order
executions, NYSE Arca Options Market Makers electronically transacting
Mini options will be charged $.08 in Penny Pilot issues and will be
charged $.10 in non-Penny Pilot issues. For Complex Orders that execute
against the Consolidated Book, NYSE Arca Options Market Makers
electronically transacting Mini options will be charged $.07 in Penny
Pilot issues and will be charged $.10 in non-Penny Pilot issues. These
NYSE Arca Options Market Maker charges are generally anywhere from
slightly less than 1/10th to slightly more than 1/10th of the charges
incurred by NYSE Arca Options Market Makers today for standard option
contract transactions.
[[Page 19786]]
Firm and Broker Dealer manual transactions, in Mini options will be
charged at the rate of $.09 per contract. Firms and Broker Dealers
electronically transacting Mini options in Penny Pilot issues will
receive a rebate of $.01 when they post liquidity and be charged $.09
when they take liquidity. Firms and Broker Dealers electronically
transacting Mini options in non-Penny Pilot issues will neither be
charged nor receive a credit (i.e., free) when they post liquidity and
will be charged $.12 when they take liquidity. For Complex Order to
Complex Order executions, Firms and Broker Dealers electronically
transacting Mini options will be charged $.08 in Penny Pilot issues and
will be charged $.10 in non-Penny Pilot issues. For Complex Orders that
execute against the Consolidated Book, Firms and Broker Dealers
electronically transacting Mini options will be charged $.09 in Penny
Pilot issues and will be charged $.12 in non-Penny Pilot issues. These
Firms and Broker Dealer charges are generally anywhere from slightly
less than 1/10th to slightly more than 1/10th of the charges incurred
by NYSE Arca Options Market Makers today for standard option contract
transactions.
Additionally, the existing $75,000 cap per month of fees on Firm
and Broker Dealer open outcry trades described in endnote 9 of the
current Fee Schedule will NOT include Mini transactions. As noted
earlier, the cost to the Exchange to process quotes, orders and trades
in Minis is the same as for standard options, therefore the Exchange
does not wish to include Firm and Broker Dealer trades in Mini options
in the monthly fee cap. Further, the proposed charge is slightly higher
than 1/10th of the current charges applicable to Firm Proprietary
trades. This relatively higher rate is necessitated by the fact that
the cost to the Exchange to process quotes, orders and trades in Minis
is the same as for standard options.
OTP Holders or OTP Firms that execute QCC transactions in Minis
will be charged $0.05 per contract side. QCC transactions in Minis
executed by a Floor Broker on the Floor of the Exchange will be
eligible for a $0.01 rebate per contract side rebate.
Routing Surcharge: In order to comply with the requirements of the
Distributive Linkage Plan,\8\ the Exchange uses various means of
accessing better priced interest located on other exchanges. Presently,
the Exchange charges a Routing Surcharge of $.11 per contract plus a
pass through of the fees associated with the execution of the routed
order on the other exchanges. The $.11 is designed to recover the
Exchange's costs in routing orders to the other exchanges. Those costs
include clearance charges imposed by the OCC and per contract routing
fees charged by the Broker Dealers who charge the Exchange for the use
of their systems to route orders to other exchanges. The Exchange has
spoken with both the OCC and the Broker Dealers who have informed the
Exchange that their charges applicable to Mini options will be the same
as for standard option contracts, as their cost to process a contract
(i.e., routing or clearing) is the same irrespective of the exercise
and assignment value of the contract. As such, the Exchange intends to
charge the same Routing Surcharge for Mini options as it presently does
for standard options. The Exchange notes that participants can avoid
the Routing Surcharge in several ways. First, they can simply route to
the exchange with the best priced interest. The Exchange, in
recognition of the fact that markets can move while orders are in
flight, also offers participants the ability to utilize order types
that do not route to other exchanges. Specifically, the Post No
Preference (``PNP'') order modifier is one such order that would never
route to another exchange. In addition, there are others, such as PNP
Blind and PNP Plus,\9\ which also would never route to another
exchange. Given this ability to avoid the Routing Surcharge, coupled
with the fixed third-party costs associated with routing, the Exchange
believes it is reasonable to charge the same Routing Surcharge for Mini
options that is charged for standard option contracts.
---------------------------------------------------------------------------
\8\ See Rule 6.92, Rule 6.94, Rule 6.95 and Rule 6.96.
\9\ See Rule 6.62(p), Rule 6.62(u), and Rule 6.62(y).
---------------------------------------------------------------------------
Limit Of Fees On Options Strategy Executions: Presently, the
Exchange has a $750 cap on transaction fees for Strategy Executions
involving reversals and conversions, box spreads, short stock interest
spreads, merger spreads and jelly rolls. The fees for these Strategy
Executions are further capped at $25,000 per month per initiating firm.
The Exchange will NOT include Mini option transactions as being
eligible for any part of these per trade or per month Strategy
Execution caps. As noted earlier, the cost to the Exchange to process
quotes, orders and trades in Minis is the same as for standard options.
Given that the per contract transaction fees are already substantially
lower than the per contract fees for standard options, inclusion of
Mini options in these fee caps is not warranted.
Ratio Threshold Fee
Order To Trade Ratio Fee: For purposes of calculating the Order To
Trade Ratio Fee, an order and an execution in Mini options will be
counted the same as an order and an execution in standard option
contracts.
The Exchange proposes to implement these changes on March 18, 2013.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\10\ in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\11\ in
particular, because it provides for the equitable allocation of
reasonable dues, fees, and other charges among its members, issuers and
other persons using its facilities and does not unfairly discriminate
between customers, issuers, brokers or dealers.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
General Options and Trading Permit (OTP) Fees
For purposes of the Fee Schedule relating to OTP fees, LMM Rights
Fees, and the regulatory fees, including the ORF, the Exchange is not
proposing any changes as a result of the introduction of Minis. This is
due to, in part, the fact that there will be no separate allocation for
Minis--the existing LMMs and NYSE Arca Options Market Makers who trade
AAPL, for example, will automatically be able, and obligated, to quote
and trade AAPL Minis. Since this is the case, the Exchange believes it
is entirely appropriate and, in fact, necessary, to treat Mini options
the same as standard options with respect to the fees listed above. The
fees listed above have not been deemed to be unreasonable, inequitable,
or unfairly discriminatory, and the introduction of Mini options raises
no new issues with respect to such fees. Therefore, the treatment of
Minis in the same manner as standard option contracts for purposes of
the OTP fees, LMM Rights Fees, and the regulatory fees, including the
ORF, is reasonable, equitable and not unfairly discriminatory. Further,
the Exchange notes, particularly in the context of the ORF, that the
cost to perform surveillance to ensure compliance with various Exchange
and industry-wide rules is no different for a Mini option than it is
for a standard option contract. Reducing the ORF for Mini options could
result in a higher ORF for standard options. Such an outcome would
arguably be discriminatory towards investors in standard options for
the benefit of
[[Page 19787]]
investors in Minis. As such, the appropriate approach is to treat both
Minis and standard options the same with respect to the amount of the
ORF that is being charged.
Per Contract Trade Related Charges, Including QCCs
The Exchange noted earlier that, while Minis have a smaller
exercise and assignment value due to the reduced number of shares to be
delivered as compared to standard option contracts, and despite the
smaller exercise and assignment value of a Mini, the cost to the
Exchange to process quotes and orders in Minis, perform regulatory
surveillance and retain quotes and orders for archival purposes is the
same as for a standard contract. This leaves the Exchange in a position
of trying to strike the right balance of fees applicable to Minis--too
low and the costs of processing Mini quotes and orders will necessarily
cause the Exchange to either raise fees for everyone or just for
participants trading Minis; too high and participants may be deterred
from trading Minis, leaving the Exchange less able to recoup costs
associated with development of the product, which is designed to offer
investors a way to take less risk in high dollar securities. The
Exchange believes, therefore, that adopting fees for Minis that are in
some cases lower than standard contracts, and in other cases the same
as for standard contracts, is appropriate, not unreasonable, not
unfairly discriminatory and not burdensome on competition between
participants, or between the Exchange and other exchanges in the listed
options market place.
In the case of most trade related charges, the Exchange has decided
to offer lower per contract fees to participants as part of trying to
strike the right balance between recovering costs associated with
trading Minis and encouraging use of the new Mini option contracts,
which are designed to allow investors to reduce risk in high dollar
underlying securities.
The Exchange proposal to charge Customers $.00 per contract for
manual orders is reasonable, as Customers have long traded manual
orders for free on all options on the Exchange. The ability to trade
manual orders for free attracts Customer order flow to the Exchange,
which is beneficial to all other participants on the Exchange who
generally seek to trade with Customer order flow. The proposed fee of
$.00 per contract is the same fee charged to Customer manual orders in
standard option contracts, which is an effective fee on the Exchange
and has not been determined to be inequitable or unfairly
discriminatory. Therefore, the proposed Customer pricing for Minis is
equitable and not unfairly discriminatory. The Exchange feels that
different rates for Customer manual transaction fees as compared to
other market participants is equitable and not unfairly discriminatory
because non-Customers wish to have Customer orders attracted to the
Exchange by having lower fees, and is equitable and not unfairly
discriminatory to Firms and Broker Dealers because Market Makers have
obligations that are not required of Firms and Broker Dealers and
because Market Makers have additional costs that are not applicable to
Firms and Broker Dealers.
The Exchange proposal to credit Customers electronically
transacting Mini options in Penny Pilot and non-Penny Pilot issues $.03
and $.04, respectively, per contract when they post liquidity and
charging them $.06 and $.08, respectively, when they take liquidity is
reasonable, as Customers are currently subject to the same pricing
structure (albeit at higher rates) for standard options. The rates
proposed for Customer Minis transactions for Complex Order to Complex
Order executions (a rebate of $.03 in Penny Pilot issues and a rebate
of $.04 in non-Penny Pilot issues) and Complex Orders that execute
against the Consolidated Book (a charge of $.06 in Penny Pilot issues
and a charge of $.08 in non-Penny Pilot issues) is also reasonable, as
Customers are currently subject to the same pricing structure (albeit
at higher rates) for standard options. The Exchange feels that
different rates for Customer electronic transaction fees as compared to
other market participants is equitable and not unfairly discriminatory
because non-Customers wish to have Customer orders attracted to the
Exchange by having lower fees, and is equitable and not unfairly
discriminatory to Firms and Broker Dealers because Market Makers have
obligations that are not required of Firms and Broker Dealers and
because Market Makers have additional costs that are not applicable to
Firms and Broker Dealers.
The Exchange proposal to exclude Mini options from the Customer
Monthly Posting Credit Tiers or Super Tier and Qualifications for
Executions in Penny Pilot Issues and SPY and associated rebates paid to
OFPs described in endnote 8 to the current Fee Schedule is reasonable,
equitable and not unfairly discriminatory for the following reasons.
First, as noted above, the Exchange's cost to process quotes, orders
and trades in Minis is the same as for standard options. Given the
overall lower expected revenues from Mini options, it is reasonable to
exempt Mini option volumes from qualifying for the OFP rebates paid on
standard option contracts. It is also equitable, since paying the
rebate on Mini option volumes would likely necessitate either reducing
the rebates paid to OFPs for all activity, or raising other participant
fees. It is not unfairly discriminatory, as it will apply equally to
all Customer executions in Mini options, regardless of the market
participant submitting the order.
The Exchange proposal to charge NYSE Arca Market Makers manually
trading Mini options $.02 per contract is reasonable. Additionally, the
Exchange proposal for NYSE Arca Market Makers electronically trading
Mini options in Penny Pilot issues to receive a rebate of $.04 or $.06
when they post liquidity in Penny Pilot and non-Penny Pilot classes,
respectively, and to be charged $.07 or $.10 when they take liquidity
in Penny Pilot and non-Penny Pilot classes, respectively, is also
reasonable. The Complex Order rates proposed for NYSE Arca Options
Market Makers electronically transacting Mini options are also
reasonable. Generally, these fees range from slightly more than, to
slightly less than, 10% of what the various NYSE Arca Options Market
Maker participants pay today. Charging all types of NYSE Arca Options
Market Makers, including Lead Market Makers, the same fees to trade
Minis is certainly not unfairly discriminatory, as it applies to all of
them equally. The fees are reasonable in light of the fact that the
Minis do have a smaller exercise and assignment value, specifically \1/
10\th that of a standard contract, and, as such, levying fees that are
approximately 10% of what an NYSE Arca Options Market Maker pays today
is reasonable and equitable. The Exchange's cost to process quotes,
orders and trades in Minis is the same as for standard options.
The Exchange feels that different rates for Market Maker
transaction fees as compared to other market participants is equitable
and not unfairly discriminatory because non-Customers wish to have
Customer orders attracted to the Exchange by having lower fees, and is
equitable and not unfairly discriminatory to Firms and Broker Dealers
because Market Makers have obligations that are not required of Firms
and Broker Dealers and because Market Makers have additional costs that
are not applicable to Firms and Broker Dealers. For example, NYSE Arca
Options Market Makers are required to have trading permits in
[[Page 19788]]
order to stream quotes. The number of permits is variable based on the
number of options traded, and can cost as much as $16,000 per month to
quote all issues on the Exchange as an NYSE Arca Options Market Maker.
Conversely, Firms pay a monthly permit fee of $1,000 per month and
Broker Dealers, typically access the facilities of the Exchange through
either a Firm or Order Flow Provider who may or may not pass along the
$1,000 per month permit fee cost. Consequently, when all fees are taken
together, the difference charged to NYSE Arca Options Market Makers as
compared to Broker Dealers, and Firms is reasonable, equitable and not
unfairly discriminatory. The Exchange further notes that there are no
limits on the number of NYSE Arca Options Market Makers that are
permitted to quote in a given option and that any of the other
participant types are free to apply to the Exchange to become a NYSE
Arca Options Market Maker to avail themselves of the transaction
charges applicable to NYSE Arca Options Market Makers presuming they
are willing to accept the quoting obligations applicable to NYSE Arca
Options Market Makers, which serve to foster price discovery and
transparency.
The Exchange proposal to charge Firms and Broker Dealers,, the
rates proposed herein for their transactions in Minis and to exclude
Mini options from the $75,000 cap per month of fees on Firm and Broker
Dealer open outcry executions described in endnote 9 of the current Fee
Schedule is reasonable, equitable and not unfairly discriminatory.
First, the per contract charges proposed are lower than what Firms and
Broker Dealers pay for a standard contract in acknowledgement of the
smaller exercise and assignment value. Although some of these proposed
rates are more than 10% of the rate paid by a Firm or Broker Dealer for
a standard contract, this is warranted by the fact that the Exchange's
cost to process quotes, orders and trades in Minis is the same as for
standard options. In this regard the proposal is reasonable and it is
also equitable, as it allows the Exchange to offer this innovative
product to investors without raising fees for other investors who may
have no interest in trading Minis. Likewise, excluding Mini option
volumes from the monthly fee cap for Firm and Broker Dealer open outcry
executions is reasonable and equitable in light of the Exchange's
desire to fund the costs associated with Minis with revenues from only
those participants who trade them. Offering a fee cap for a product
with reduced fees might necessitate raising costs for other
participants; therefore, the Exchange believes that the exclusion from
the monthly fee cap for Firm and Broker Dealer open outcry executions
is both reasonable and equitable. As the per contract Mini pricing for
all Firms and Broker Dealers is the same, the proposal is also not
unfairly discriminatory.
The Exchange feels that different rates for Firm and Broker Dealer
transaction fees as compared to other market participants is equitable
and not unfairly discriminatory because non-Customers wish to have
Customer orders attracted to the Exchange by having lower fees, and is
equitable and not unfairly discriminatory to Firms and Broker Dealers
because Market Makers have obligations that are not required of Firms
and Broker Dealers and because Market Makers have additional costs that
are not applicable to Firms and Broker Dealers. For example, NYSE Arca
Options Market Makers are required to have trading permits in order to
stream quotes. The number of permits is variable based on the number of
options traded, and can cost as much as $16,000 per month to quote all
issues on the Exchange as an NYSE Arca Options Market Maker.
Conversely, Firms pay a monthly permit fee of $1,000 per month and
Broker Dealers, typically access the facilities of the Exchange through
either a Firm or Order Flow Provider who may or may not pass along the
$1,000 per month permit fee cost. Consequently, when all fees are taken
together, the difference charged to NYSE Arca Options Market Makers as
compared to Broker Dealers, and Firms is reasonable, equitable and not
unfairly discriminatory. The Exchange further notes that there are no
limits on the number of NYSE Arca Options Market Makers that are
permitted to quote in a given option and that any of the other
participant types are free to apply to the Exchange to become a NYSE
Arca Options Market Maker to avail themselves of the transaction
charges applicable to NYSE Arca Options Market Makers presuming they
are willing to accept the quoting obligations applicable to NYSE Arca
Options Market Makers, which serve to foster price discovery and
transparency.
The Exchange proposal for QCC pricing for Minis is to charge
Customers and non-Customers $.10 per contract ($.05 charge per contract
side), as compared with $.20 per contract for standard options ($.10
charge per contract side). The Exchange will also offer NYSE Arca Floor
Brokers a rebate of $.02 per contract ($.01 rebate per contract side)
for all Mini options they execute as a QCC trade, as compared to $.07
per contract rebate for standard options ($.035 rebate per contract
side). The Exchange believes that this pricing is reasonable, equitable
and not unfairly discriminatory. First, the Exchange has always charged
for QCC trades in standard options due to the fact that qualifying QCC
trades are executed immediately, upon entry, without exposure or any
opportunity for other participants to participate on the trade. This
pricing proposal preserves this, and, as such, is reasonable. It is
equitable since, as noted, the Exchange's cost to process quotes,
orders and trades in Minis is the same as for standard options, so
charging a relatively small premium for the opportunity to trade
without exposure is warranted, given the Exchange's need to cover the
costs of participants trading Minis so as to avoid sharing those costs
with other participants who are not trading Minis. The proposal is also
not unfairly discriminatory as it applies equally to all Customers and
non-Customers. The Floor Broker rebate of $.02 ($.01 rebate per
contract side) is reasonable and equitable as it is designed to allow
Floor Brokers to compete for QCC volumes that might otherwise execute
on an exchange that offers a front end order entry system, like ISE
PrecISE Trade application \12\ or CBOE's HyTS,\13\ which would allow
participants to potentially avoid paying a brokerage fee. The Floor
Broker rebate is not unfairly discriminatory as it applies equally to
all NYSE Arca Floor Brokers who execute Mini options as QCC trades.
---------------------------------------------------------------------------
\12\ See https://www.ise.com/WebForm/viewPage.aspx?categoryId=129.
\13\ See https://www.cboe.org/hybrid/HyTs.aspx.
---------------------------------------------------------------------------
The Exchange proposal to treat Mini options the same as standard
options for purposes of the Routing Surcharge is reasonable, equitable
and not unfairly discriminatory for the following reasons. Presently,
the Exchange charges a Routing Surcharge of $.11 per contract plus a
pass through of the fees associated with the execution of the routed
order on the other exchanges. The $.11 is designed to recover the
Exchange's costs in routing orders to the other exchanges. Those costs
include clearance charges imposed by The OCC and per contract routing
fees charged by the Broker Dealers who charge the Exchange for the use
of their systems to route orders to other exchanges. The Exchange has
spoken with both The OCC and the Broker Dealers, who have informed the
Exchange that their charges applicable to Mini options will be the same
as for standard option contracts, as their cost to process a contract
(i.e., routing or clearing) is the
[[Page 19789]]
same irrespective of the exercise and assignment value of the contract.
As such, the Exchange intends to charge the same Routing Surcharge for
Mini options as it presently does for standard options. The Exchange
notes that participants can avoid the Routing Surcharge in several
ways. First they can simply route to the exchange with the best priced
interest. The Exchange, in recognition of the fact that markets can
move while orders are in flight, also offers participants the ability
to utilize order types that do not route to other exchanges.
Specifically, the PNP order modifier is one such order that would never
route to another exchange. In addition, there are others, such as PNP
Blind and PNP Plus,\14\ which also would never route to another
exchange. Given this ability to avoid the Routing Surcharge, coupled
with the fixed third party costs associated with routing, the Exchange
believes it is reasonable and equitable to charge the same Routing
Surcharge for Mini options that is charged for standard option
contracts. Because the Routing Surcharge will apply to all participants
in Minis as it is applied for standard options, and because such
surcharge has not previously been found to be unreasonable, inequitable
or unfairly discriminatory, the Exchange believes such surcharge is
reasonable and equitable with respect to Minis as well.
---------------------------------------------------------------------------
\14\ See Rule 6.62(p), Rule 6.62(u), and Rule 6.62(y).
---------------------------------------------------------------------------
The Exchange is proposing to exclude Mini option volumes from being
eligible for the Limit Of Fees On Options Strategy Executions.
Presently the Exchange has a $750 cap on transaction fees for Strategy
Executions involving reversals and conversions, box spreads, short
stock interest spreads, merger spreads and jelly rolls. The fees for
these Strategy Executions are further capped at $25,000 per month per
initiating firm. The Exchange will NOT include Mini option transactions
as being eligible for any part of these per trade or per month Strategy
Execution caps. As noted earlier, the cost to the Exchange to process
quotes, orders and trades in Minis is the same as for standard options.
Given that the per contract transaction fees for Minis are already
substantially lower than the per contract fees for standard options,
inclusion of Mini options in these fee caps is not warranted, and is
reasonable and equitable. Further, it is not unfairly discriminatory as
the exclusion of Mini volumes from the cap on fees for Strategy
Executions applies equally to all participants on the Exchange.
Ratio Threshold Fee
The Exchange proposes to treat Mini options the same as standard
options for purposes of the Ratio Threshold Fee. As noted, the cost to
the Exchange to process quotes, orders and trades in Minis is the same
as for standard options and, as such, treating Minis the same as
standard option contracts for the purposes of calculating the Ratio
Threshold Fee is reasonable and equitable. It is also not unfairly
discriminatory, as such treatment will apply to all participants
equally.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed change designed
to provide greater specificity and precision within the Fee Schedule
with respect to the fees that will be applicable to Minis when they
begin trading on the Exchange on March 18, 2013.
The Exchange believes that adopting fees for Minis that are in some
cases lower than for standard contracts, but in other cases the same as
for standard contracts, strikes the appropriate balance between fees
applicable to standard contracts versus fees applicable to Mini's, and
will not impose a burden on competition among various market
participants on the Exchange, or between the Exchange and other
exchanges in the listed options market place, that is not necessary or
appropriate in furtherance of the purposes of the Act.
The Exchange feels that different rates for different market
participants will not impose a burden on competition because non-
Customers wish to have Customer orders attracted to the Exchange by
having lower fees, and will not impose a burden on competition to Firms
and Broker Dealers because Market Makers have obligations that are not
required of Firms and Broker Dealers and because Market Makers have
additional costs that are not applicable to Firms and Broker Dealers.
Further the Exchange notes that for standard options a greater
difference in fees for various participants already exists than that
which is being proposed for Minis. For example, Customers already trade
for lower Take Liquidity fees than an NYSE Arca Options Market Maker.
An NYSE Arca Market Maker who trades with a Customer electronically in
a non-Penny name can pay as much as $0.80 per contract. Similarly,
Firms and Broker Dealers pay $0.85 per contract when they Take
Liquidity in non-Penny Pilot names opposed to Customers, who pay a
lower Take Liquidity rate in the same issues of $0.79 per contract in
standard options. For Minis, the greatest differential being proposed
is in Manual Trades in mini-options, where Customers will trade for
free, and Firms and Broker Dealers will pay $0.09 per contract. Firms
and Broker Dealers pay $.25 per contract versus $.00 per contract for
Customers, in standard options. The differential for mini-options is de
minimus as compared to the differential for standard options.
The Exchange notes that the difference in fees for various
participants in standard options has not proven to be a burden on
competition. Therefore, the fee differential for Minis, being quite a
bit smaller, should not prove to be a burden on competition at all. In
this regard, as Minis are a new product being introduced into the
listed options marketplace, the Exchange is unable at this time to
absolutely determine the impact that the fees and rebates proposed
herein will have on trading in Minis. That said, however, the Exchange
believes that the rates proposed for Minis, on their face, would not
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
Finally, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues. In such an environment, the Exchange must continually
review, and consider adjusting, its fees and credits to remain
competitive with other exchanges. For the reasons described above, the
Exchange believes that the proposed rule change reflects this
competitive environment.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \15\ of the Act and subparagraph (f)(2) of Rule
19b-4 \16\ thereunder, because it establishes a due,
[[Page 19790]]
fee, or other charge imposed by NYSE Arca.
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \17\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\17\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2013-25 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2013-25. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (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 the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2013-25 and should
be submitted on or before April 23, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-07619 Filed 4-1-13; 8:45 am]
BILLING CODE 8011-01-P
