Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the NYSE Arca Options Fee Schedule, 18317-18320 [2017-07752]

Download as PDF Federal Register / Vol. 82, No. 73 / Tuesday, April 18, 2017 / Notices Christopher C. Mohr; Comments Due: April 20, 2017. This notice will be published in the Federal Register. Table of Contents I. Introduction II. Docketed Proceeding(s) sradovich on DSK3GMQ082PROD with NOTICES I. Introduction The Commission gives notice that the Postal Service filed request(s) for the Commission to consider matters related to negotiated service agreement(s). The request(s) may propose the addition or removal of a negotiated service agreement from the market dominant or the competitive product list, or the modification of an existing product currently appearing on the market dominant or the competitive product list. Section II identifies the docket number(s) associated with each Postal Service request, the title of each Postal Service request, the request’s acceptance date, and the authority cited by the Postal Service for each request. For each request, the Commission appoints an officer of the Commission to represent the interests of the general public in the proceeding, pursuant to 39 U.S.C. 505 (Public Representative). Section II also establishes comment deadline(s) pertaining to each request. The public portions of the Postal Service’s request(s) can be accessed via the Commission’s Web site (https:// www.prc.gov). Non-public portions of the Postal Service’s request(s), if any, can be accessed through compliance with the requirements of 39 CFR 3007.40. The Commission invites comments on whether the Postal Service’s request(s) in the captioned docket(s) are consistent with the policies of title 39. For request(s) that the Postal Service states concern market dominant product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3622, 39 U.S.C. 3642, 39 CFR part 3010, and 39 CFR part 3020, subpart B. For request(s) that the Postal Service states concern competitive product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3632, 39 U.S.C. 3633, 39 U.S.C. 3642, 39 CFR part 3015, and 39 CFR part 3020, subpart B. Comment deadline(s) for each request appear in section II. II. Docketed Proceeding(s) 1. Docket No(s).: CP2017–163; Filing Title: Notice of United States Postal Service of Filing a Functionally Equivalent Global Expedited Package Services 3 Negotiated Service Agreement and Application for NonPublic Treatment of Materials Filed Under Seal; Filing Acceptance Date: April 12, 2017; Filing Authority: 39 CFR 3015.5; Public Representative: VerDate Sep<11>2014 16:55 Apr 17, 2017 Jkt 241001 Stacy L. Ruble, Secretary. [FR Doc. 2017–07774 Filed 4–17–17; 8:45 am] BILLING CODE 7710–FW–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80440; File No. SR– NYSEArca–2017–38] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the NYSE Arca Options Fee Schedule April 12, 2017. 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 April 5, 2017, 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. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposes to amend the NYSE Arca Options Fee Schedule (‘‘Fee Schedule’’). The Exchange proposes to implement the fee change effective April 5, 2017. 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, 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 PO 00000 Frm 00041 Fmt 4703 Sfmt 4703 18317 set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to modify Lead Market Maker (‘‘LMM’’) Rights Fees (‘‘Rights Fee’’) to encourage OTP Firms acting as LMMs to add more issues to their allocation. The Exchange proposes to implement the fee change effective April 5, 2017. The LMM Rights Fee is charged ‘‘on a per issue basis to the OTP Firm acting as LMM in the issue.’’ 4 Currently, the Exchange charges a Rights Fee on each issue in a LMM’s allocation, with rates based on the Average National Daily Customer Contracts (‘‘CADV’’). The monthly Rights Fee ranges from $25 per month to $3,000 per month. Under the current Fee Schedule, the more active an issue is, the higher the Rights Fee, as set forth below: Average national daily customer contracts 0 to 100 ...................................... 101 to 1,000 ............................... 1,001 to 2,000 ............................ 2,001 to 5,000 ............................ 5,001 to 15,000 .......................... 15,001 to 100,000 ...................... Over 100,000 .............................. Monthly issue fee $25 35 75 200 750 1,500 3,000 LMM Rights Fee Discount Currently, the Exchange provides an LMM Rights Fee Discount applicable to each issue in an LMM’s appointment with a CADV above 5, 000 based on the amount of monthly (i) total electronic volume and/or (ii) total posted volume executed by an LMM in the Market Maker range relative to other Marker Makers appointed in that issue (the ‘‘Discount’’).5 This Discount was designed to incent LMMs that already transact a significant amount of business on the Exchange and trade competitively in their issues to achieve one of the Discounts as well as to incent LMMs to apply for new issue allocation. The Exchange proposes to modify and expand the Discount. First, the 4 See Fee Schedule, Endnote 2, available here, https://www.nyse.com/publicdocs/nyse/markets/ arca-options/NYSE_Arca_Options_Fee_ Schedule.pdf. 5 See Securities and Exchange Act Release No. 77885 (May 23, 2016), 81FR 33716 (May 27, 2016) (SR–NYSEArca–2016–75) (immediately effective filing that provides how the Discount is applied). The Exchange notes that total posted volume executed by an LMM refers to the total volume executed from posted liquidity. E:\FR\FM\18APN1.SGM 18APN1 18318 Federal Register / Vol. 82, No. 73 / Tuesday, April 18, 2017 / Notices Exchange proposes to make the Discount available to LMMs with issues in their appointment with a CADV above 2,000. The Exchange also proposes to modify the amount of the Discount available as set forth in the table below (with new text underlined and existing text to be deleted in brackets): * * * * * LMM ranking sradovich on DSK3GMQ082PROD with NOTICES 1st in total electronic volume ... 2nd in total electronic volume .. 3rd [or lower ranking] in total electronic volume. 4th or lower ranking in total electronic volume. 1st in total posted volume ....... 2nd in total posted volume ...... 3rd [or lower ranking] in total posted volume. 4th or lower ranking in total posted volume. Discount to LMM rights fee 50%. [25%] 40%. [N/A] 30%. N/A. 50%. [25%] 40%. [N/A] 30%. N/A. Under the proposal, as with the current Discount, each month the LMM in an issue would be ranked against non-LMM Market Makers that quote and trade in that LMM’s issue. For each issue, each month, if the LMM achieves the highest total electronic volume (or total posted volume) amongst all Market Makers, the LMM would continue to receive a 50% discount to its Rights Fee. In addition, as proposed, for each issue, each month, if the LMM achieves the second highest total electronic volume (or total posted volume) amongst all Market Makers, the LMM would receive a 40% discount to its Rights Fee (raised from 25%). The Exchange also proposes to introduce an additional discount of 30% for an LMM that achieves the third highest total electronic volume (or total posted volume) amongst all Market Makers. An LMM that achieves the fourth highest or lower total electronic volume (or total posted volume) would not be eligible for a Discount. The Exchange believes the proposed discounts would incent LMMs [sic] to compete against non-LMM Market Makers to reduce its own Rights Fee. For example, if one or more non-LMM Market Makers were ranked first, second, and third in (i) total electronic volume and (ii) total posted volume, the LMM would not receive a discount to its Rights Fee. However, when the LMM achieves one or both of the top volume rankings, the LMM would be eligible for a reduction. As is the case today, the Discounts would be cumulative and the same LMM would be eligible to achieve the discount for each monthly volume VerDate Sep<11>2014 16:55 Apr 17, 2017 Jkt 241001 category.6 To illustrate how the cumulative discount applies, the Fee Schedule currently provides that ‘‘if an LMM was 1st in Total Electronic Volume, and 2nd in Total Posting Volume, the LMM would achieve a 75% discount in that issue.’’ To reflect the proposed rule change, the Exchange proposes to amend the current text in the Fee Schedule by replacing the LMM’s ranking from 2nd to 3rd in Total Posting Volume and replacing the percentage of discount that the LMM would achieve from 75% to 80%. As proposed, the resulting text on the Fee Schedule would provide that ‘‘For example, if an LMM was 1st in Total Electronic Volume, and 3rd in Total Posting Volume, the LMM would achieve an 80% discount in that issue.’’ The Exchange believes that the proposed discounts may incent LMMs that already transact a significant amount of business on the Exchange to quote and trade competitively in their issues to achieve the highest (or second or third highest) monthly ranking in total electronic volume and total posted volume. The Exchange also believes the proposed changes may generate interest in LMMs to apply for new issue allocations, which would increase not only an LMM’s volume, but would also encourage liquidity on the Exchange to the benefit of all market participants. Cap on LMM Rights Fees The Exchange also currently offers a cap on the LMM Rights Fee (the ‘‘Cap’’). Specifically, the Exchange caps at 50 issues the Rights Fee it charges OTP Firms for issues with a CADV of 0 to 100 contracts (‘‘First Tier’’). The Exchange does not charge for any First Tier issues in the LMM’s allocation that exceed 50 issues. The Exchange also caps at 100 issues the Rights Fee it charges for issues with a CADV of 101 to 1000 (‘‘Second Tier’’). The Exchange does not charge for any Second Tier issues in the LMM’s allocation that exceed 100 issues. The Exchange proposes to modify the Cap to encourage LMMs to add issues to their appointments. Specifically, the Exchange proposes to reduce the Cap from 100 issues to 50 issues on the Rights Fee it charges OTP Firms for issues in the Second Tier. The Exchange would not charge for any Second Tier 6 As is the case today Discount would be applied before the Exchange considered whether the LMM was eligible for the 50% discount on its aggregate Rights Fees across all issues (i.e., if the LMM traded at least 50,000 contracts CADV, of which 10,000 such contracts are in its LMM appointment). See id. See also Fee Schedule, Endnote 2, available here, https://www.nyse.com/publicdocs/nyse/markets/ arca-options/NYSE_Arca_Options_Fee_ Schedule.pdf. PO 00000 Frm 00042 Fmt 4703 Sfmt 4703 issues in the LMM’s allocation that exceed 50 issues. The Exchange also proposes to cap at 50 issues the Rights Fee it charges for issues with a CADV of 1,001 to 2000 (‘‘Third Tier’’). The Exchange would not charge for any Third Tier issues in the LMM’s allocation that exceed 50 issues. The practical impact of this Cap would be that the maximum LMM Rights Fee charged to an OTP Firm for issues trading in the Second Tier would be $1,750 (i.e., $35 × 50) and the maximum Rights Fee charged to an OTP Firm for issues trading in the Third Tier would be $3,750 (i.e., $75 × 50). For example, an OTP Firm acting as an LMM with 55 issues that trade in the Second Tier, and another 130 that trade in the Third Tier, would be charged an LMM Rights fee of $5,500 ($1,750 (the max charged for Second Tier issues) plus $3,750 (the max charged for Third Tier issues). The Exchange is proposing to set the Cap the [sic] Second and Third Tiers at the same amount (i.e., at 50 issues) as the First Tier, which the Exchange believes would reduce confusion and provide a commensurate benefit across the three lowest Tiers. The Exchange believes that the proposed modification to the Cap would increase interest of OTP Firms acting as LMMs in adding to their allocation issues in the First, Second, and Third Tiers. The Exchange does not believe that the proposed modification to the Cap would hinder an LMM’s ability to achieve any of the existing discounts applicable to the Rights Fees; rather, to the extent that the Cap encourages an OTP Firm acting as an LMM to increase the number of issues in its allocation, the proposal may increase an LMM’s chances of achieving existing discounts (i.e., to achieve the 50% discount on the Rights Fee an LMM needs to trade 10,000 electronic contracts ADV in its appointment).7 The Exchange is not proposing any other changes to the Rights Fee at this time. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,8 in general, and furthers the objectives of Sections 6(b)(4) and (5) of the Act,9 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 7 See supra note 6. U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(4) and (5). 8 15 E:\FR\FM\18APN1.SGM 18APN1 sradovich on DSK3GMQ082PROD with NOTICES Federal Register / Vol. 82, No. 73 / Tuesday, April 18, 2017 / Notices discriminate between customers, issuers, brokers or dealers. The Exchange believes the proposed modification to the Discount is reasonable, equitable and not unfairly discriminatory for a number of reasons. First, all LMMs trading issues with similar activity levels would be eligible to achieve the discount (e.g., those LMMs trading issues with a CADV of 2,001 or above). The Exchange notes that there is only one LMM per issue, and only LMMs are subject to the Rights Fee. Under the proposal, each month the LMM in an issue would be ranked against non-LMM Market Makers that quote and trade in that LMM’s issue. Because the non-LMM Market Makers are not subject to the Rights Fee, the modified Discount would not disadvantage Market Makers. Instead, the proposal would operate to incent each LMM to achieve First, Second, or Third ranking in monthly volume—both total electronic and total posted—for each issue, relative to non-LMM Market Makers, to reduce its own Rights Fee. In addition, the Discount, as modified, would reduce the overhead costs of LMM firms that are most actively trading in the issues, which reduced costs would enhance the ability of LMMs to provide liquidity to the benefit of all market participants. The Exchange believes that the proposed modification to the Cap is reasonable, equitable and not unfairly discriminatory for a number of reasons. First, all LMMs trading in the First, Second and Third Tier issues would have the same incentive to add the affected issues to their allocation and would, in turn, be eligible to realize the same benefit. Second, the proposal would encourage OTP Firms acting as LMMs to add lower-volume issues to their appointments, which would provide greater opportunities for OTP Firms to achieve volume incentives on the Exchange without adding to their Rights Fees. In turn, the Cap, as modified, would reduce the overhead costs of OTP Firms that are most actively trading in the affected issues, which reduced costs would enhance the ability of LMMs to provide liquidity to the benefit of all market participants. Further, the Exchange believes that having a broader range of products available on the Exchange would benefit all market participants by increasing liquidity on the Exchange and offering more opportunities to trade. The changes to the Rights Fee Discounts and the changes to the LMM Rights Fee caps are reasonable, equitable and not unfairly discriminatory as they apply to all similarly situated LMMs. The Exchange VerDate Sep<11>2014 16:55 Apr 17, 2017 Jkt 241001 18319 believes it is reasonable, equitable and not unfairly discriminatory to put a cap on lower tier issues, as it is designed to encourage LMMs to apply for lower volume issues in their LMM appointment. Application of volume based discounts to rights fees in the lower tier issues would not encourage increased business on the Exchange, as there is much less competition amongst Market Makers because of the lower volumes. By providing a cap on fees as an alternative method of reducing the overhead cost of being an LMM in the lower volume issues, the Exchange has proposed an equitable and appropriate method to encourage LMMs to select lower volume issues. Additionally, applying volume based incentives for higher volume tier issues is reasonable, equitable, and not unfairly discriminatory, because it applies to issues where there is more overall competition, and encourages tighter markets and greater liquidity in the more active issues, which benefits all market participants by attracting more order flow to the Exchange. The Exchange also believes that the proposed modification [sic] to the Cap are not unfairly discriminatory because they apply solely to LMMs (non-LMMs are not subject to this Fee) and would not disadvantage Market Makers. Finally, the Exchange is subject to significant competitive forces, as described below in the Exchange’s statement regarding the burden on competition. For these reasons, the Exchange believes that the proposal is consistent with the Act. Exchange believes that this proposal would encourage LMMs to quote and trade competitively in their issues and would reduce the burden on competition among LMMs in the most actively-traded issues because LMMs that achieve the discounts would have reduced overhead. The Exchange also believes that the Cap, as modified, would not impose an unfair burden on competition because it would encourage more OTP Firms acting as LMMs to add the lowervolume issues to their allocation, which would increase liquidity and offer more trading opportunities to market participants. The Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues. In such an environment, the Exchange must continually review, and consider adjusting, its fees and credits to remain competitive with other exchanges. For the reasons described above, the Exchange believes that the proposed rule change reflects this competitive environment. B. Self-Regulatory Organization’s Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act,10 the Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposal would not impose an unfair burden on competition because the proposed Rights Fees would more closely align with the economic benefit of being LMM in a given issue. Because the non-LMM Market Makers are not subject to the Rights Fee, the proposed Discount and Cap would not disadvantage Market Makers. Instead, the Discount, as modified, would operate to incentivize each LMM to achieve first, second or third ranking in monthly volume for each issue, relative to non-LMM Market Makers [sic] to reduce its own Rights Fee. The The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A) 11 of the Act and subparagraph (f)(2) of Rule 19b–4 12 thereunder, because it establishes a due, fee, or other charge imposed by the Exchange. 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) 13 of the Act to determine whether the proposed rule change should be approved or disapproved. 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 11 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(2). 13 15 U.S.C. 78s(b)(2)(B). 12 17 10 15 PO 00000 U.S.C. 78f(b)(8). Frm 00043 Fmt 4703 Sfmt 4703 E:\FR\FM\18APN1.SGM 18APN1 18320 Federal Register / Vol. 82, No. 73 / Tuesday, April 18, 2017 / Notices 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: • 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–2017–38 on the subject line. Paper Comments sradovich on DSK3GMQ082PROD with NOTICES • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2017–38. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEArca–2017–38, and should be submitted on or before May 9, 2017. 16:55 Apr 17, 2017 [FR Doc. 2017–07752 Filed 4–17–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments VerDate Sep<11>2014 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Eduardo A. Aleman, Assistant Secretary. Jkt 241001 [Release No. 34–80439; File No. SR–CBOE– 2017–031] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Complex Order Price Protections April 12, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 5, 2017, Chicago Board Options Exchange, Incorporated (the ‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange filed the proposal pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend current price protections related to complex orders. The text of the proposed rule change is provided below (additions are italicized; deletions are [bracketed]). * * * * * Chicago Board Options Exchange, Incorporated Rules * * * * * Rule 6.53C. Complex Orders on the Hybrid System (a)–(d) No change. . . . Interpretations and Policies: .01–.07 No change. .08 Price Check Parameters: On a class-by-class basis, the Exchange may 14 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). 1 15 PO 00000 Frm 00044 Fmt 4703 Sfmt 4703 determine (and announce to the Trading Permit Holders via Regulatory Circular) which of the following price check parameters will apply to eligible complex orders. Paragraph (b) will not be applicable to stock-option orders. For purposes of this Interpretation and Policy .08: Vertical Spread. A ‘‘vertical’’ spread is a two-legged complex order with one leg to buy a number of calls (puts) and one leg to sell the same number of calls (puts) with the same expiration date but different exercise prices. Butterfly Spread. A ‘‘butterfly’’ spread is a three-legged complex order with two legs to buy (sell) the same number of calls (puts) and one leg to sell (buy) twice as many calls (puts), all with the same expiration date but different exercise prices, and the exercise price of the middle leg is between the exercise prices of the other legs. If the exercise price of the middle leg is halfway between the exercise prices of the other legs, it is a ‘‘true’’ butterfly; otherwise, it is a ‘‘skewed’’ butterfly. Box Spread. A ‘‘box’’ spread is a fourlegged complex order with one leg to buy calls and one leg to sell puts with one strike price, and one leg to sell calls and one leg to buy puts with another strike price, all of which have the same expiration date and are for the same number of contracts. To the extent a price check parameter is applicable, the Exchange will not automatically execute an eligible complex order that is: (a)–(b) No change. (c) Debit/Credit Price Reasonability Checks: (1)–(5) No change. (6) This check does not apply to multi-class spreads or to orders routed from a PAR workstation or order management terminal. (d) No change. (e) Acceptable Percentage Range Parameter: (i) An incoming complex order (including a stock-option order) after the series for all legs of the complex order are open for trading that is marketable and would execute immediately upon submission to the COB or following a COA if the execution would be at a price outside an acceptable percentage range. The ‘‘acceptable percentage range’’ is the national spread market (or Exchange spread market if the NBBO in any leg is locked, crossed or unavailable and for pairs of orders submitted to AIM or SAM) that existed when the System received the order or at the start of the COA, as applicable, plus/minus: (A) the amount equal to a percentage (which may not be less than %) of the national spread market (the ‘‘percentage E:\FR\FM\18APN1.SGM 18APN1

Agencies

[Federal Register Volume 82, Number 73 (Tuesday, April 18, 2017)]
[Notices]
[Pages 18317-18320]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07752]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80440; File No. SR-NYSEArca-2017-38]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE 
Arca Options Fee Schedule

April 12, 2017.
    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 April 5, 2017, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Options Fee Schedule 
(``Fee Schedule''). The Exchange proposes to implement the fee change 
effective April 5, 2017. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to modify Lead Market Maker (``LMM'') Rights 
Fees (``Rights Fee'') to encourage OTP Firms acting as LMMs to add more 
issues to their allocation. The Exchange proposes to implement the fee 
change effective April 5, 2017.
    The LMM Rights Fee is charged ``on a per issue basis to the OTP 
Firm acting as LMM in the issue.'' \4\ Currently, the Exchange charges 
a Rights Fee on each issue in a LMM's allocation, with rates based on 
the Average National Daily Customer Contracts (``CADV''). The monthly 
Rights Fee ranges from $25 per month to $3,000 per month. Under the 
current Fee Schedule, the more active an issue is, the higher the 
Rights Fee, as set forth below:
---------------------------------------------------------------------------

    \4\ See Fee Schedule, Endnote 2, available here, https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf.

------------------------------------------------------------------------
                                                                Monthly
          Average national daily customer contracts            issue fee
------------------------------------------------------------------------
0 to 100....................................................         $25
101 to 1,000................................................          35
1,001 to 2,000..............................................          75
2,001 to 5,000..............................................         200
5,001 to 15,000.............................................         750
15,001 to 100,000...........................................       1,500
Over 100,000................................................       3,000
------------------------------------------------------------------------

LMM Rights Fee Discount
    Currently, the Exchange provides an LMM Rights Fee Discount 
applicable to each issue in an LMM's appointment with a CADV above 5, 
000 based on the amount of monthly (i) total electronic volume and/or 
(ii) total posted volume executed by an LMM in the Market Maker range 
relative to other Marker Makers appointed in that issue (the 
``Discount'').\5\ This Discount was designed to incent LMMs that 
already transact a significant amount of business on the Exchange and 
trade competitively in their issues to achieve one of the Discounts as 
well as to incent LMMs to apply for new issue allocation.
---------------------------------------------------------------------------

    \5\ See Securities and Exchange Act Release No. 77885 (May 23, 
2016), 81FR 33716 (May 27, 2016) (SR-NYSEArca-2016-75) (immediately 
effective filing that provides how the Discount is applied). The 
Exchange notes that total posted volume executed by an LMM refers to 
the total volume executed from posted liquidity.
---------------------------------------------------------------------------

    The Exchange proposes to modify and expand the Discount. First, the

[[Page 18318]]

Exchange proposes to make the Discount available to LMMs with issues in 
their appointment with a CADV above 2,000. The Exchange also proposes 
to modify the amount of the Discount available as set forth in the 
table below (with new text underlined and existing text to be deleted 
in brackets):
* * * * *

------------------------------------------------------------------------
                LMM ranking                  Discount to LMM rights fee
------------------------------------------------------------------------
1st in total electronic volume............  50%.
2nd in total electronic volume............  [25%] 40%.
3rd [or lower ranking] in total electronic  [N/A] 30%.
 volume.
4th or lower ranking in total electronic     N/A.
 volume.
1st in total posted volume................  50%.
2nd in total posted volume................  [25%] 40%.
3rd [or lower ranking] in total posted      [N/A] 30%.
 volume.
4th or lower ranking in total posted        N/A.
 volume.
------------------------------------------------------------------------

    Under the proposal, as with the current Discount, each month the 
LMM in an issue would be ranked against non-LMM Market Makers that 
quote and trade in that LMM's issue. For each issue, each month, if the 
LMM achieves the highest total electronic volume (or total posted 
volume) amongst all Market Makers, the LMM would continue to receive a 
50% discount to its Rights Fee. In addition, as proposed, for each 
issue, each month, if the LMM achieves the second highest total 
electronic volume (or total posted volume) amongst all Market Makers, 
the LMM would receive a 40% discount to its Rights Fee (raised from 
25%). The Exchange also proposes to introduce an additional discount of 
30% for an LMM that achieves the third highest total electronic volume 
(or total posted volume) amongst all Market Makers. An LMM that 
achieves the fourth highest or lower total electronic volume (or total 
posted volume) would not be eligible for a Discount. The Exchange 
believes the proposed discounts would incent LMMs [sic] to compete 
against non-LMM Market Makers to reduce its own Rights Fee. For 
example, if one or more non-LMM Market Makers were ranked first, 
second, and third in (i) total electronic volume and (ii) total posted 
volume, the LMM would not receive a discount to its Rights Fee. 
However, when the LMM achieves one or both of the top volume rankings, 
the LMM would be eligible for a reduction. As is the case today, the 
Discounts would be cumulative and the same LMM would be eligible to 
achieve the discount for each monthly volume category.\6\ To illustrate 
how the cumulative discount applies, the Fee Schedule currently 
provides that ``if an LMM was 1st in Total Electronic Volume, and 2nd 
in Total Posting Volume, the LMM would achieve a 75% discount in that 
issue.'' To reflect the proposed rule change, the Exchange proposes to 
amend the current text in the Fee Schedule by replacing the LMM's 
ranking from 2nd to 3rd in Total Posting Volume and replacing the 
percentage of discount that the LMM would achieve from 75% to 80%. As 
proposed, the resulting text on the Fee Schedule would provide that 
``For example, if an LMM was 1st in Total Electronic Volume, and 3rd in 
Total Posting Volume, the LMM would achieve an 80% discount in that 
issue.''
---------------------------------------------------------------------------

    \6\ As is the case today Discount would be applied before the 
Exchange considered whether the LMM was eligible for the 50% 
discount on its aggregate Rights Fees across all issues (i.e., if 
the LMM traded at least 50,000 contracts CADV, of which 10,000 such 
contracts are in its LMM appointment). See id. See also Fee 
Schedule, Endnote 2, available here, https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf.
---------------------------------------------------------------------------

    The Exchange believes that the proposed discounts may incent LMMs 
that already transact a significant amount of business on the Exchange 
to quote and trade competitively in their issues to achieve the highest 
(or second or third highest) monthly ranking in total electronic volume 
and total posted volume. The Exchange also believes the proposed 
changes may generate interest in LMMs to apply for new issue 
allocations, which would increase not only an LMM's volume, but would 
also encourage liquidity on the Exchange to the benefit of all market 
participants.
Cap on LMM Rights Fees
    The Exchange also currently offers a cap on the LMM Rights Fee (the 
``Cap''). Specifically, the Exchange caps at 50 issues the Rights Fee 
it charges OTP Firms for issues with a CADV of 0 to 100 contracts 
(``First Tier''). The Exchange does not charge for any First Tier 
issues in the LMM's allocation that exceed 50 issues. The Exchange also 
caps at 100 issues the Rights Fee it charges for issues with a CADV of 
101 to 1000 (``Second Tier''). The Exchange does not charge for any 
Second Tier issues in the LMM's allocation that exceed 100 issues.
    The Exchange proposes to modify the Cap to encourage LMMs to add 
issues to their appointments. Specifically, the Exchange proposes to 
reduce the Cap from 100 issues to 50 issues on the Rights Fee it 
charges OTP Firms for issues in the Second Tier. The Exchange would not 
charge for any Second Tier issues in the LMM's allocation that exceed 
50 issues. The Exchange also proposes to cap at 50 issues the Rights 
Fee it charges for issues with a CADV of 1,001 to 2000 (``Third 
Tier''). The Exchange would not charge for any Third Tier issues in the 
LMM's allocation that exceed 50 issues. The practical impact of this 
Cap would be that the maximum LMM Rights Fee charged to an OTP Firm for 
issues trading in the Second Tier would be $1,750 (i.e., $35 x 50) and 
the maximum Rights Fee charged to an OTP Firm for issues trading in the 
Third Tier would be $3,750 (i.e., $75 x 50). For example, an OTP Firm 
acting as an LMM with 55 issues that trade in the Second Tier, and 
another 130 that trade in the Third Tier, would be charged an LMM 
Rights fee of $5,500 ($1,750 (the max charged for Second Tier issues) 
plus $3,750 (the max charged for Third Tier issues).
    The Exchange is proposing to set the Cap the [sic] Second and Third 
Tiers at the same amount (i.e., at 50 issues) as the First Tier, which 
the Exchange believes would reduce confusion and provide a commensurate 
benefit across the three lowest Tiers. The Exchange believes that the 
proposed modification to the Cap would increase interest of OTP Firms 
acting as LMMs in adding to their allocation issues in the First, 
Second, and Third Tiers.
    The Exchange does not believe that the proposed modification to the 
Cap would hinder an LMM's ability to achieve any of the existing 
discounts applicable to the Rights Fees; rather, to the extent that the 
Cap encourages an OTP Firm acting as an LMM to increase the number of 
issues in its allocation, the proposal may increase an LMM's chances of 
achieving existing discounts (i.e., to achieve the 50% discount on the 
Rights Fee an LMM needs to trade 10,000 electronic contracts ADV in its 
appointment).\7\
---------------------------------------------------------------------------

    \7\ See supra note 6.
---------------------------------------------------------------------------

    The Exchange is not proposing any other changes to the Rights Fee 
at this time.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\8\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\9\ 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

[[Page 18319]]

discriminate between customers, issuers, brokers or dealers.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange believes the proposed modification to the Discount is 
reasonable, equitable and not unfairly discriminatory for a number of 
reasons. First, all LMMs trading issues with similar activity levels 
would be eligible to achieve the discount (e.g., those LMMs trading 
issues with a CADV of 2,001 or above). The Exchange notes that there is 
only one LMM per issue, and only LMMs are subject to the Rights Fee. 
Under the proposal, each month the LMM in an issue would be ranked 
against non-LMM Market Makers that quote and trade in that LMM's issue. 
Because the non-LMM Market Makers are not subject to the Rights Fee, 
the modified Discount would not disadvantage Market Makers. Instead, 
the proposal would operate to incent each LMM to achieve First, Second, 
or Third ranking in monthly volume--both total electronic and total 
posted--for each issue, relative to non-LMM Market Makers, to reduce 
its own Rights Fee. In addition, the Discount, as modified, would 
reduce the overhead costs of LMM firms that are most actively trading 
in the issues, which reduced costs would enhance the ability of LMMs to 
provide liquidity to the benefit of all market participants.
    The Exchange believes that the proposed modification to the Cap is 
reasonable, equitable and not unfairly discriminatory for a number of 
reasons. First, all LMMs trading in the First, Second and Third Tier 
issues would have the same incentive to add the affected issues to 
their allocation and would, in turn, be eligible to realize the same 
benefit. Second, the proposal would encourage OTP Firms acting as LMMs 
to add lower-volume issues to their appointments, which would provide 
greater opportunities for OTP Firms to achieve volume incentives on the 
Exchange without adding to their Rights Fees. In turn, the Cap, as 
modified, would reduce the overhead costs of OTP Firms that are most 
actively trading in the affected issues, which reduced costs would 
enhance the ability of LMMs to provide liquidity to the benefit of all 
market participants. Further, the Exchange believes that having a 
broader range of products available on the Exchange would benefit all 
market participants by increasing liquidity on the Exchange and 
offering more opportunities to trade.
    The changes to the Rights Fee Discounts and the changes to the LMM 
Rights Fee caps are reasonable, equitable and not unfairly 
discriminatory as they apply to all similarly situated LMMs. The 
Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to put a cap on lower tier issues, as it is designed to 
encourage LMMs to apply for lower volume issues in their LMM 
appointment. Application of volume based discounts to rights fees in 
the lower tier issues would not encourage increased business on the 
Exchange, as there is much less competition amongst Market Makers 
because of the lower volumes. By providing a cap on fees as an 
alternative method of reducing the overhead cost of being an LMM in the 
lower volume issues, the Exchange has proposed an equitable and 
appropriate method to encourage LMMs to select lower volume issues.
    Additionally, applying volume based incentives for higher volume 
tier issues is reasonable, equitable, and not unfairly discriminatory, 
because it applies to issues where there is more overall competition, 
and encourages tighter markets and greater liquidity in the more active 
issues, which benefits all market participants by attracting more order 
flow to the Exchange.
    The Exchange also believes that the proposed modification [sic] to 
the Cap are not unfairly discriminatory because they apply solely to 
LMMs (non-LMMs are not subject to this Fee) and would not disadvantage 
Market Makers.
    Finally, the Exchange is subject to significant competitive forces, 
as described below in the Exchange's statement regarding the burden on 
competition.
    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

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

    In accordance with Section 6(b)(8) of the Act,\10\ the Exchange 
does not believe that the proposed rule change would impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Act.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Exchange believes that the proposal would not impose an unfair 
burden on competition because the proposed Rights Fees would more 
closely align with the economic benefit of being LMM in a given issue. 
Because the non-LMM Market Makers are not subject to the Rights Fee, 
the proposed Discount and Cap would not disadvantage Market Makers. 
Instead, the Discount, as modified, would operate to incentivize each 
LMM to achieve first, second or third ranking in monthly volume for 
each issue, relative to non-LMM Market Makers [sic] to reduce its own 
Rights Fee. The Exchange believes that this proposal would encourage 
LMMs to quote and trade competitively in their issues and would reduce 
the burden on competition among LMMs in the most actively-traded issues 
because LMMs that achieve the discounts would have reduced overhead.
    The Exchange also believes that the Cap, as modified, would not 
impose an unfair burden on competition because it would encourage more 
OTP Firms acting as LMMs to add the lower-volume issues to their 
allocation, which would increase liquidity and offer more trading 
opportunities to market participants.
    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) \11\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \12\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \13\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2)(B).

---------------------------------------------------------------------------

[[Page 18320]]

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-2017-38 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2017-38. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2017-38, and should 
be submitted on or before May 9, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-07752 Filed 4-17-17; 8:45 am]
 BILLING CODE 8011-01-P
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