
[Federal Register Volume 76, Number 114 (Tuesday, June 14, 2011)]
[Notices]
[Pages 34788-34791]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-14660]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64627; File No. SR-NYSEArca-2011-35]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE 
Arca Equities Schedule of Fees and Charges for Exchange Services To 
Replace Numerical Thresholds With Percentage Thresholds for Tier Volume 
Requirements, Add a New Volume Tier and Increase the Credit That Lead 
Market Makers Receive for Execution of Orders That Provide Undisplayed 
Liquidity Using Post No Preference Blind Orders

June 8, 2011.
    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 June 1, 2011, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. NYSE Arca filed the proposal pursuant to Section 
19(b)(3)(A) \4\ of the Act and Rule 19b-4(f)(2) \5\ thereunder. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Equities Schedule of 
Fees and Charges for Exchange Services (the ``Schedule'') to: (i) 
Replace numerical thresholds with percentage thresholds for tier volume 
requirements (ii) add a new volume tier and (iii) increase the credit 
that Lead Market Makers (``LMMs'') receive for execution of orders that 
provide undisplayed liquidity using Post No Preference Blind (PNP B) 
orders. The text of the proposed rule change is available at the 
Exchange, the Commission's Public Reference Room, http://www.nyse.com, 
and the Commission's Web site at http://www.sec.gov.

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
    Effective June 1, 2011, NYSE Arca proposes to make several changes 
to the Schedule, which are discussed in greater detail below.
Tier Volume Requirements: Replacing Numerical Thresholds With 
Percentage Thresholds
    The Exchange proposes to change the Tier 1 and Tier 2 volume 
requirements from numerical thresholds (e.g., 50 Million shares) to 
percentage thresholds of average U.S. consolidated daily volumes (e.g., 
0.70% of the volumes). Volume requirements to reach the tiered pricing 
levels will adjust each calendar month based on U.S. average daily 
consolidated share volume in Tape A, Tape B, Tape C securities (``U.S. 
ADV'') for that given month. U.S. ADV is equal to the volume reported 
by all exchanges and trade reporting facilities to the Consolidated 
Tape Association (``CTA'') Plan for Tapes A, B and C securities, 
however, U.S. ADV does not include trades on days when the market 
closes early. The percentage approach is in line with those adopted by 
NASDAQ Stock Market LLC and EDGX for liquidity providers.\6\
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    \6\ See Securities Exchange Act Release No. 64453 (May 10, 
2011), 76 FR 28252 (May 16, 2011); and Securities Exchange Act 
Release No. 64452 (May 10, 2011), 76 FR 28252 (May 16, 2011). See 
Nasdaq Stock Market LLC Price List--Trading & Connectivity, ``Add 
and Remove Rates'' at http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2#rebates and EDGX Exchange Fee 
Schedule, n. 1 at http://www.directedge.com/Membership/FeeSchedule/EDGXFeeSchedule.asp.
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    Transactions that are not reported to the Consolidated Tape, such 
as odd-lots and Crossing Session 2 transactions, are not included in 
U.S. ADV. The Exchange currently makes this data publicly available on 
a T + 1 basis from a link at http://www.nyxdata.com/US-and-European-Volumes.
    Currently, a customer's eligibility for Tier 1 and Tier 2 is based 
on its achieving certain levels of liquidity provision that vary 
depending on overall trading volumes during the month. Thus, a customer 
qualifies for the Tier 1 or Tier 2 pricing based on the U.S. ADV for 
that given month as follows:
    (i) When U.S. ADV is 8 billion shares or less, the requirement for 
adding liquidity is 50 million shares (for Tier 1) and 20 million 
shares (for Tier 2) average daily volume in Tape A, Tape B, and Tape C 
combined;
    (ii) when U.S. ADV is greater than 8 billion up to 10 billion 
shares, the requirement for adding liquidity is 55 million shares (for 
Tier 1) and 25 million shares (for Tier 2) average daily volume in Tape 
A, Tape B, and Tape C combined;
    (iii) when U.S. ADV is greater than 10 billion up to 11 billion 
shares, the requirement for adding liquidity is 65 million shares (for 
Tier 1) and 30 million shares (for Tier 2) average daily volume in Tape 
A, Tape B, and Tape C combined;
    (iv) when U.S. ADV is greater than 11 billion up to 12 billion 
shares, the requirement for adding liquidity is 75 million shares (for 
Tier 1) and 35 million shares (for Tier 2) average daily volume in Tape 
A, Tape B, and Tape C combined;

[[Page 34789]]

    (v) when U.S. ADV is greater than 12 billion up to 13 billion 
shares, the requirement for adding liquidity is 85 million shares (for 
Tier 1) and 40 million shares (for Tier 2) average daily volume in Tape 
A, Tape B, and Tape C combined;
    (vi) when U.S. ADV is greater than 13 billion shares, the 
requirement for adding liquidity is 95 million shares (for Tier 1) and 
45 million shares (for Tier 2) average daily volume in Tape A, Tape B, 
and Tape C combined.
    NYSE Arca's current rate per share structure for customers 
(excluding Lead Market Makers) is provided in the table below.

----------------------------------------------------------------------------------------------------------------
                                  Current tier                                Tape A
                                requirements and ---------------------------------------------------------------
                                     pricing
                               ------------------
             Tier                   Arca daily
                                     adding          Rebate for       Fee for       Routing to      Routing to
                                 requirement (1)      adding         removing        NYSE (2)      other venues
                                  in shares in
                                   excess of:
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Tier 1........................  50-95 Million          $(0.0030)         $0.0030          $0.21/         $0.0030
                                 shares.                                                   $0.23
Tier 2........................  20-45 Million           (0.0029)          0.0030           0.21/          0.0030
                                 shares.                                                    0.23
All Others....................  Below 20 Million        (0.0021)          0.0030           0.21/          0.0030
                                 shares.                                                    0.25
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----------------------------------------------------------------------------------------------------------------
                                              Current tier                            Tape C
                                        requirements and pricing -----------------------------------------------
                                       --------------------------
                 Tier                       Arca daily adding        Rebate for       Fee for       Routing to
                                           requirement (1) in         adding         removing      other venues
                                          shares in excess of:
----------------------------------------------------------------------------------------------------------------
Tier 1................................  Arca daily adding
                                         requirement (1) in
                                         shares in excess of:.
Tier 1................................  50-95 Million shares....       $(0.0030)         $0.0030         $0.0030
Tier 2................................  20-45 Million shares....        (0.0029)          0.0030          0.0030
All Others............................  Below 20 Million shares.        (0.0021)          0.0030          0.0035
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----------------------------------------------------------------------------------------------------------------
                                              Current tier                            Tape B
                                        requirements and pricing -----------------------------------------------
                                       --------------------------
                 Tier                       Arca daily adding        Rebate for       Fee for       Routing to
                                           requirement (1) in         adding         removing      other venues
                                          shares in excess of:
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Tier 1................................  50-95 Million shares....       $(0.0023)         $0.0028         $0.0029
Tier 2................................  20-45 Million shares....        (0.0022)          0.0028          0.0029
All Others............................  Below 20 Million shares.        (0.0022)          0.0030          0.0035
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1. Depending on U.S. Consolidated ADV as described in the previous text.
2. In Tape A securities, the routing fee to the NYSE using NYSE Arca's Primary Sweep Order is $0.21 per 100
  shares, otherwise the standard routing fee applies as noted in the table. The Primary Sweep Order (PSO) is a
  market or limit order that sweeps the NYSE Arca Book and routes any remaining balance to the primary listing
  market. All orders with a PSO designation should be marketable. Non-marketable orders will function as regular
  limit orders.

    In order to adopt a requirement that is consistent from month to 
month, NYSE Arca is modifying the requirement so that it is directly 
tied to a customer's percentage of total U.S. ADV, with any customer 
providing liquidity that represents 0.70% or more of the total U.S. ADV 
becoming eligible for Tier 1 and 0.30% or more, but less than 0.70% of 
the total U.S. ADV becoming eligible for Tier 2. NYSE Arca is also 
introducing a new Tier 3 based on a customer providing liquidity that 
represents 0.20% or more, but less than 0.30% of total consolidated 
volume (which is discussed in greater detail below).
    NYSE Arca is moving to the percentage approach for several reasons. 
The Exchange believes that it is a more straightforward way to 
communicate floating volume tiers and, as noted above, other exchanges 
have adopted a similar approach. The Exchange notes that the percentage 
approach allows tiers to move in sync with consolidated volume, whereas 
the current approach has distinct break points and is set at varying 
percentages of consolidated volume. For example, under the current 
approach the Tier 1 level is set at 50 million shares of U.S. ADV when 
the consolidated volume level is below 8 billion U.S. ADV, whereas the 
proposed percentage approach will allow the Tier 1 level to move below 
50 million shares of U.S. ADV to better accommodate customers in a 
lower volume environment, such as the industry has been recently 
experiencing. The Exchange also believes that the percentage approach 
will make the amount of liquidity provision required to achieve a given 
tier more manageable for customers and less prone to month-to-month 
changes than under the current approach. For example, under the current 
approach, if U.S. ADV increased from 7.95 billion to 8.05 billion, an 
increase of 1.25%, the Tier 1 provider requirement increases from 50 
million ADV to 55 million ADV, an increase of 10%. In this case, the 
percentage change in customer tier requirement is much greater than 
that of the market volumes. Moreover, under the percentage approach, to 
qualify for Tier 1, for example, the customer would be required to 
provide 0.70% of the total U.S. ADV, regardless of the volume during 
that month. The proposed change will ensure that a customer providing 
that level of liquidity will consistently receive the Tier 1 credits, 
whereas a customer providing that level of liquidity under the current 
schedule might receive the Tier 1 credits in some months but not in 
others as overall market volumes fluctuated.
New Volume Tier
    As noted previously, the Exchange is proposing a new pricing tier, 
Tier 3, with respect to volumes representing 0.20% or more, but less 
than 0.30% of the total U.S. ADV, in order to create a tier for 
customers that provide a specified minimum level of liquidity less than 
currently contemplated by Tier 1 and Tier 2. Customers who qualify for 
Tier 3 will receive a credit of $0.0025

[[Page 34790]]

per share for orders that provide liquidity to the Book for Tape A and 
Tape C Securities and $0.0022 per share for orders that provide 
liquidity to the Book for Tape B Securities. Additionally, such 
customers will be charged a fee of $0.0030 per share for orders that 
take liquidity from the Book for Tape A and Tape C Securities and 
$0.0028 per share for orders that take liquidity from the Book for Tape 
B Securities. Finally, such customers also will be charged a fee of 
$0.0030 per share for orders routed outside the Book to any away market 
centers other than the NYSE for Tape A and Tape C Securities and 
$0.0029 per share for orders routed outside the Book to any away market 
centers other than the NYSE for Tape B Securities. For all other fees 
and credits, basic rates apply. Tier 3 would be expected to benefit 
customers whose order flow provides added levels of liquidity, but are 
currently not eligible for Tier 1 and Tier 2, thereby contributing to 
the depth and market quality of the Book.
    The new NYSE Arca rates per share for each Tier for customers 
(excluding Lead Market Makers) are provided in the table below.

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                                                  Current tier requirements and                               Tape A                                                   Tape C
                                                             pricing             ---------------------------------------------------------------------------------------------------------------
                     Tier                      ----------------------------------
                                                Arca daily adding requirement as    Rebate for        Fee for       Routing to      Routing to      Rebate for        Fee for       Routing to
                                                        % of U.S. ADV of:             adding         removing        NYSE (1)      other venues       adding         removing      other venues
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Tier 1........................................  0.70% or more...................       $(0.0030)         $0.0030     $0.21/$0.23         $0.0030       $(0.0030)         $0.0030         $0.0030
Tier 2........................................  0.30% or more, but less than            (0.0029)          0.0030       0.21/0.23          0.0030        (0.0029)          0.0030          0.0030
                                                 0.70%.
Tier 3........................................  0.20% or more, but less than            (0.0025)          0.0030       0.21/0.23          0.0030        (0.0025)          0.0030          0.0030
                                                 0.30%.
All Others....................................  Below 0.20%.                            (0.0021)          0.0030       0.21/0.25          0.0030        (0.0021)          0.0030          0.0035
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                      Current tier requirements                       Tape B
                                             and pricing         -----------------------------------------------
                                    -----------------------------
                Tier                      Arca daily adding         Rebate for        Fee for       Routing to
                                       requirement as % of U.S.       adding         removing      other venues
                                               ADV of:
----------------------------------------------------------------------------------------------------------------
Tier 1.............................  0.70% or more..............      $ (0.0023)         $0.0028         $0.0029
Tier 2.............................  0.30% or more, but less            (0.0022)          0.0028          0.0029
                                      than 0.70%.
Tier 3.............................  0.20% or more, but less            (0.0022)          0.0028          0.0029
                                      than 0.30%.
All Others.........................  Below 0.20%................        (0.0022)          0.0030          0.0035
----------------------------------------------------------------------------------------------------------------
1. In Tape A securities, the routing fee to the NYSE using NYSE Arca's Primary Sweep Order is $0.21 per 100
  shares, otherwise the standard routing fee applies as noted in the table. The Primary Sweep Order (PSO) is a
  market or limit order that sweeps the NYSE Arca Book and routes any remaining balance to the primary listing
  market. All orders with a PSO designation should be marketable. Non-marketable orders will function as regular
  limit orders.

Lead Market Maker Rebates
    The Exchange also proposes to amend the Schedule to modify the 
structure of the transaction credits that it provides Lead Market 
Makers (``LMMs'') for supplying undisplayed liquidity in the NYSE Arca 
marketplace primary listed securities in which they are registered as a 
LMM.
    Currently, a LMM receives a rebate of $0.0023 per share for 
executions made using the Post No Preference Blind (PNP B) order type 
when its interest is undisplayed. In return for LMMs meeting unique 
quoting obligations, NYSE Arca is proposing that LMMs receive a rebate 
of $0.0030 per share for execution of orders that provide undisplayed 
liquidity using PNP B orders types in such a security.
    PNP B Orders are undisplayed limit orders priced at or through the 
Protected Best Bid and Offer (PBBO), with a tradable price set at the 
contra side of the PBBO. When the PBBO moves away from the price of the 
PNP B and the prices continue to overlap, the limit price of the PNP B 
will remain undisplayed and its tradable price will be adjusted to the 
contra side of the PBBO. When the PBBO moves away from the price of the 
PNP B and the prices no longer overlap, the PNP B shall convert to a 
displayed PNP limit order.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Securities Exchange Act of 1934 
(the ``Act''),\7\ in general, and Section 6(b)(4) of the Act,\8\ in 
particular, in that it is designed to provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and other persons using its facilities. The Exchange believes 
that the proposal does not constitute an inequitable allocation of 
fees, as all similarly situated member organizations and other market 
participants will be subject to the same fee structure, and access to 
the Exchange's market is offered on fair and non-discriminatory terms.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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    With respect to the replacement of share thresholds with percentage 
thresholds for certain of NYSE Arca's existing pricing tiers, NYSE Arca 
believes that the change is reasonable, because it will result in more 
predictability from month to month

[[Page 34791]]

with respect to the levels of liquidity provision required to receive 
the applicable pricing levels. Although the changes will make it easier 
to achieve applicable pricing tiers in some months and more difficult 
in other months, depending on overall market volumes, NYSE Arca 
believes the levels of activity required to achieve higher tiers are 
generally consistent with existing requirements for these tiers. 
Moreover, like existing pricing tiers tied to volume levels, as in 
effect at NYSE Arca and other markets, the proposed pricing tiers are 
equitable and non-discriminatory because they are open to all customers 
on an equal basis and provide discounts that are reasonably related to 
the value to an exchange's market quality associated with higher 
volumes. NYSE Arca believes that the overall effect of the changes may 
make it easier for customers to receive higher rebates in months with 
lower trading volumes, thereby reducing prices for those customers that 
were previously unable to qualify for an enhanced credit, but that are 
able to do so under the revised pricing schedule.
    Similarly, Tier 3, the proposed new pricing tier for customers 
providing liquidity that represents 0.20% or more, but less than 0.30% 
of the total U.S. ADV will provide customers with greater opportunities 
to receive a higher rebate. Accordingly, the proposed Tier 3 is 
equitable and non-discriminatory because it is open to all customers on 
an equal basis and provides discounts that are reasonably related to 
the value to an exchange's market quality associated with higher 
volumes.
    With respect to the increase of the LMM rebate for undisplayed PNP 
B liquidity, NYSE Arca believes that the change is reasonable, because 
it will provide the LMM with incentives to increase liquidity in a 
security. Moreover, LMMs have unique quoting obligations including 
maintaining continuous two-sided quotes, NBBO requirements, minimum 
displayed size requirements, minimum quoted spread requirements and 
participation requirements for opening and closing auctions. The 
undisplayed PNP B orders add liquidity to the Book and enhance the 
possibility of price improvement; however, their undisplayed status 
does not contribute to the BBO. To the contrary, the rebate LMMs 
receive for displayed liquidity executions is much larger, which is 
consistent with the added transparency created through decreased quoted 
spreads and increased quoted sizes of the BBO.
    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. The Exchange 
believes that the proposed rule change reflects this competitive 
environment because it will broaden the conditions under which 
customers may qualify for higher liquidity provider credits.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \9\ of the Act and subparagraph (f)(2) of Rule 19b-
4 \10\ thereunder, because it establishes a due, fee, or other charge 
imposed by the NYSE Arca.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2011-35 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-2011-35. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street, NE., Washington, DC 20549, on official business days between 
the hours of 10 a.m. and 3 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-2011-35 and should be submitted on or before July 5, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-14660 Filed 6-13-11; 8:45 am]
BILLING CODE 8011-01-P


