
[Federal Register Volume 77, Number 220 (Wednesday, November 14, 2012)]
[Notices]
[Pages 67845-67847]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27597]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68174; File No. SR-NYSEArca-2012-118]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Increase the 
Options Regulatory Fee and To Revise the Circumstances Under Which NYSE 
Arca, Inc. Will Collect the Options Regulatory Fee

November 7, 2012.
    Pursuant to Section 19(b)(1)\1\ of the Securities Exchange Act of 
1934 (the ``Act'')\2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on November 1, 2012, NYSE Arca, Inc. (the ``Exchange'' or 
``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.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to increase its Options Regulatory Fee 
(``ORF'') and to revise the circumstances under which the Exchange will 
collect the ORF. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to increase its ORF and to revise the 
circumstances under which the Exchange will collect the ORF.
Background
    The ORF, which is currently $0.004 per contract, is assessed by the 
Exchange on each OTP Holder or OTP Firm for all options transactions 
executed or cleared by the OTP Holder or OTP Firm that are cleared by 
The Options Clearing Corporation (``OCC'') in the customer range, i.e., 
transactions that clear in the customer account of the OTP Holder's or 
OTP Firm's clearing firm at OCC, regardless of the marketplace of 
execution.\4\ In other words, the Exchange imposes the ORF on all 
customer-range transactions executed by an OTP Holder or OTP Firm even 
if the transactions do not take place on the Exchange. In the case 
where an OTP Holder or OTP Firm executes a transaction and a different 
OTP Holder or OTP Firm clears the transaction, the ORF is assessed to 
the OTP Holder or OTP Firm who executes the transaction. In the case 
where a non-OTP Holder or non-OTP Firm executes a transaction and an 
OTP Holder or OTP Firm clears the transaction, the ORF is assessed to 
the OTP Holder or OTP Firm who clears the transaction.
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    \4\ See Securities Exchange Act Release No. 64399 (May 4, 2011), 
76 FR 27114 (May 10, 2011) (SR-NYSEArca-2011-20).
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    The dues and fees paid by OTP Holders and OTP Firms go into the 
general funds of the Exchange, a portion of which is used to help pay 
the costs of regulation. In particular, the ORF is designed to recover 
a material portion of the costs to the Exchange of the supervision and 
regulation of OTP Holder and OTP Firms, including performing routine 
surveillance and investigations, as well as policy, rulemaking, 
interpretive and enforcement activities. The Exchange monitors the 
amount of revenue collected from the ORF so that, in combination with 
other regulatory fees and fines, it does not exceed regulatory costs. 
The ORF is collected indirectly from OTP Holders and OTP Firms through 
their clearing firms by OCC on behalf of the Exchange.
Proposed Change
    The Exchange proposes to (1) increase the ORF from $0.004 per 
contract to

[[Page 67846]]

$0.005 per contract in order to recoup increased regulatory expenses 
while also monitoring the revenue collected so that the ORF will not 
exceed such expenses, and (2) revise the circumstances in which the 
Exchange will collect the ORF from OTP Holders and OTP Firms. 
Transaction volumes across the industry have declined, thereby reducing 
ORF revenue, but the Exchange's regulatory expenses have not declined. 
The Exchange believes that revenue generated from the proposed ORF, 
when combined with all of the Exchange's other regulatory fees, will 
cover a material portion, but not all, of the Exchange's regulatory 
costs. The Exchange will continue to monitor the amount of revenue 
collected from the ORF so that, in combination with the Exchange's 
other regulatory fees and fines, it does not exceed regulatory costs. 
If the Exchange determines that regulatory revenues exceed regulatory 
costs, the Exchange will adjust the ORF by submitting a proposed rule 
change to the Commission.\5\
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    \5\ The Exchange notes that its regulatory responsibilities with 
respect to member compliance with options sales practice rules have 
been allocated to the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') under an SEC Rule 17d-2 agreement. The ORF is not 
designed to cover the cost of options sales practice regulation. See 
supra note 4.
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    Additionally, the Exchange proposes to revise the manner in which 
it assesses the ORF. Currently, upon becoming an OTP Holder or OTP 
Firm, a participant immediately becomes liable for the ORF. In certain 
instances, particularly at the outset of becoming an OTP Holder or OTP 
Firm, a participant may be registered with the Exchange prior to 
obtaining the requisite technological certification needed to act as a 
Floor Broker, Market Maker, Clearing Member or Order Flow Provider. The 
Exchange believes that it is not equitable to assess the ORF on an OTP 
Holder or OTP Firm that, prior to initially satisfying certain 
technology requirements, is not capable of availing itself of the 
benefits of its status as an OTP Holder or OTP Firm.\6\ The Exchange 
does not desire to assess the ORF on such OTP Holders or OTP Firms 
until they have satisfied applicable technological requirements 
necessary to commence operations on the Exchange. The proposed change 
will have no effect on the assessment of fees for current OTP Holders 
or OTP Firms that are fully certified to transact business on the 
Exchange, as described above. The Exchange notes that at least one 
other exchange has such a provision for assessing the options 
regulatory fee after satisfaction of applicable technology 
requirements.\7\
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    \6\ The Exchange anticipates that any delay in satisfying 
applicable technological requirements necessary to commence 
operations on the Exchange would be brief.
    \7\ See Securities Exchange Act Release No. 62804 (August 31, 
2010), 75 FR 54688 (September 8, 2010) (SR-BX-2010-060).
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    The Exchange notes that the proposed change is not otherwise 
intended to address any other issues surrounding the ORF and that the 
Exchange is not aware of any problems that OTP Holders and OTP Firms 
would have in complying with the proposed change. The Exchange proposes 
to implement these changes on December 1, 2012.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the 
``Act''),\8\ in general, and furthers the objectives of Section 6(b)(4) 
of the Act,\9\ in particular, because it provides for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and issuers and other persons using its facilities.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposal is reasonable because the 
Exchange's revenue from the collection of the ORF has declined due to a 
decrease in industry volume, but the Exchange's regulatory expenses 
have not declined. As described above, through the ORF the Exchange 
seeks to recover the costs of supervising and regulating OTP Holders 
and OTP Firms, including performing routine surveillance and 
investigations, as well as policy, rulemaking, interpretive and 
enforcement activities. The proposed ORF increase will help to maintain 
the total revenue collected to offset these regulatory expenses, but 
would not exceed those regulatory costs. The Exchange further notes 
that another options exchange has raised its options regulatory fee to 
$0.0065 per contract, so the Exchange's proposed ORF of $0.005 per 
contract will still be below that level.\10\
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    \10\ See Securities Exchange Act Release No. 67597 (August 6, 
2012), 77 FR 47887 (August 10, 2012) (SR-CBOE-2012-065).
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    The Exchange believes that the proposed ORF increase is equitable 
and not unfairly discriminatory because it is objectively allocated to 
all OTP Holder and OTP Firms on all of their transactions that clear in 
the customer range at OCC. Moreover, the Exchange believes that the ORF 
is equitable and not unfairly discriminatory because it results in fees 
being charged to those OTP Holder and OTP Firms that require more 
Exchange regulatory services based on the amount of customer options 
business they conduct. In this regard, regulating customer trading 
activity is more labor intensive and requires greater expenditure of 
human and technical resources than regulating non-customer trading 
activity. Surveillance and regulation of non-customer trading activity 
generally tends to be more automated and less labor intensive. As a 
result, the costs associated with administering the customer component 
of the Exchange's overall regulatory program are anticipated to be 
higher than the costs associated with administering the non-customer 
component of its regulatory program. As such, the Exchange proposes to 
continue to assess the ORF to those OTP Holder and OTP Firms that will 
require more Exchange regulatory services based on the amount of 
customer options business they conduct.\11\
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    \11\ The ORF is not charged for orders that clear in categories 
other than the customer range (e.g., market maker orders) because 
OTP Holders or OTP Firms incur the costs of acquiring trading 
permits and through these permits are charged transaction fees, dues 
and other fees that go into the general funds of the Exchange, a 
portion of which is used to help pay the costs of regulation.
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    The Exchange believes that the ORF will continue to be equitable 
and not unfairly discriminatory because the fee increase is objectively 
allocated to all OTP Holders and OTP Firms. The only OTP Holders or OTP 
Firms that would not pay the fee will be those that have not yet 
achieved the technical certifications that are needed to actually begin 
acting as a Floor Broker, Market Maker, Clearing Member or Order Flow 
Provider on the Exchange. The Exchange believes that this exception is 
reasonable, equitable and not unfairly discriminatory. Not assessing 
the ORF on an OTP Holder or OTP Firm that is not yet able to act in the 
capacity for which it is attempting to obtain certification is 
reasonable because the OTP Holder or OTP Firm is not yet able to 
generate the revenue associated with serving in that capacity. In this 
respect, it is equitable and not unfairly discriminatory to not begin 
charging the ORF until the OTP Holder or OTP Firm can generate the 
revenue to pay the fee. It is also equitable and not unfairly 
discriminatory because it will apply in an objective manner to all 
similarly situated OTP Holders and OTP Firms.
    As noted above, the Exchange will continue to monitor the amount of 
revenue collected from the ORF so that, in combination with its other 
regulatory fees and fines, it does not exceed regulatory costs. If the 
Exchange determines that regulatory revenues

[[Page 67847]]

exceed regulatory costs, the Exchange will adjust the ORF by submitting 
a proposed rule change to the Commission.

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)\12\ of the Act and subparagraph (f)(2) of Rule 19b-
4 \13\ thereunder, because it establishes a due, fee, or other charge 
imposed by the NYSE Arca.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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 email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2012-118 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2012-118. 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 (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 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2012-118, and 
should be submitted on or before December 5, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Kevin M. O'Neill,
Deputy Secretary.
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    \14\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2012-27597 Filed 11-13-12; 8:45 am]
BILLING CODE 8011-01-P


