
[Federal Register Volume 77, Number 222 (Friday, November 16, 2012)]
[Notices]
[Pages 68873-68876]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27872]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68206; File No. SR-NSX-2012-18]


Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend Its Fee and Rebate Schedule

November 9, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on October 31, 2012 National Stock 
Exchange, Inc. (``NSX'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the Exchange. 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\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend its Fee and Rebate Schedule (the 
``Fee Schedule'') issued pursuant to Exchange

[[Page 68874]]

Rule 16.1(a) to (i) create a separate definition of average daily 
volume (``ADV'') as it is used for Automatic Execution Mode (``Auto-Ex 
Mode'') versus Order Delivery Mode to include shares executed in NMS 
stocks with quoted prices at less than a dollar in the ADV calculation 
for Auto-Ex Mode, (ii) provide a fixed per share rebate for Midpoint 
Peg Zero Display Reserve Orders, and (iii) correct typographical 
inconsistencies within the Fee Schedule. The text of the proposed rule 
change is available on the Exchange's Web site at www.nsx.com, at the 
Exchange's principal office, 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 Exchange 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 these 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 is proposing to change its Fee Schedule to (i) create 
separate definitions of ADV for orders executed using Auto-Ex Mode 
versus Order Delivery Mode to include within the Auto-Ex Mode ADV 
calculation shares of NMS stocks with quoted prices less than one 
dollar, (ii) create a fixed per share rebate for Midpoint Peg Zero 
Display Reserve Orders,\3\ and (iii) correct typographical 
inconsistencies within the Fee Schedule. The proposed changes provide 
ETP Holders with greater clarity with regard to the application of 
rebates and fees as well as to provide additional incentives for ETP 
Holders to direct order flow that may provide investors with greater 
liquidity and potential price improvement to the Exchange.
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    \3\ NSX Rule 11.11(c)(2)(B).
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Auto-Ex Mode ADV Calculation
    The Exchange uses the ADV \4\ calculation to determine the level of 
monthly fees (rebates) an ETP Holder will pay (receive) when removing 
(adding) liquidity. The Exchange is proposing to create separate ADV 
definitions for Auto-Ex Mode and Order Delivery Mode to include within 
the Auto-Ex Mode ADV calculation shares of NMS stocks with quoted 
prices less than one dollar. This change means that the Auto-Ex ADV 
calculation will include all shares in NMS stocks executed by an ETP 
Holder using Auto-Ex Mode regardless of the price. The Exchange 
believes that the proposed change will provide ETP Holders with an 
incentive to direct additional order flow that may provide investors 
with price improvement to the Exchange. The Exchange will not change 
the current ADV calculation for orders executed in Order Delivery Mode 
because, unlike Auto-Ex mode, ETP Holders that execute orders in Order 
Delivery Mode are not charged execution fees; they simply receive 
rebates for their executions. In addition, Order Delivery Mode incurs 
the Exchange greater regulatory and operational costs than Auto-Ex 
Mode. The Exchange notes that from May 2009 to September 2012, it 
included executions in securities priced at less than one dollar in the 
calculation of volume thresholds used to determine rebates payable for 
orders executed at one dollar or above.\5\
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    \4\ As set forth in the current Explanatory Endnotes of the Fee 
Schedule, ``ADV'' means, with respect to an ETP Holder, the average 
number of shares the ETP Holder has executed on the Exchange in all 
NMS stocks quoted at prices equal to or greater than a dollar when 
the Exchange is open for trading (excluding partial trading days) in 
Auto-Ex Mode or in Order Delivery Mode during the calendar month (or 
partial month, as applicable).
    \5\ See Securities and Exchange Act Release No. 59974 (May 26, 
2009), 74 FR 26453 (June 2, 2009)(SR-NSX-2009-03) and Securities 
Exchange Act Release No. 67816 (September 10, 2012), 77 FR 56886 
(September 17, 2012).
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    In addition, the Exchange notes that both EDGX Exchange Inc. 
(``EDGX'') and BATS Exchange Inc. (``BATS'') have similar rebate 
structures and do not exclude securities priced below one dollar in the 
calculation of volume thresholds used to determine rebates payable for 
orders executed at one dollar or above.\6\
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    \6\ See Note 1 to EDGX's Fee Schedule available at http://www.directedge.com/Portals/0/docs/Fee%20Schedule/2012/EDGX/EDGX%20Fee%20Schedule%20-%20October.pdf (October 1, 2012). See also 
BATS Fee Schedule available at http://cdn.batstrading.com/resources/regulation/rule_book/BATS-Exchanges_Fee_Schedules.pdf (October 1, 
2012).
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    Midpoint Peg Zero Display Reserve Orders
    The Exchange also proposes a fixed per share rebate of $0.0017 for 
Midpoint Peg Zero Display Reserve Orders \7\ executed through both 
Order Delivery and Auto-Ex modes. The ADV calculations for both Auto-Ex 
Mode and Order Delivery Mode will include shares executed through the 
use of Midpoint Peg Zero Display Reserve Orders. The Exchange will use 
the ADV calculation to determine the tier applicable for fees ETP 
Holders will be charged for removing liquidity, and rebates for orders 
that add liquidity other than Midpoint Peg Zero Display Reserve Orders. 
Rebates for all other order types remain unchanged. By offering a fixed 
per share rebate for Midpoint Peg Zero Display Reserve Orders, the 
Exchange believes it will encourage the use of the order type, while 
maintaining consistency with the Exchange's overall pricing philosophy 
of encouraging displayed liquidity. In addition, the Exchange is 
setting the rebate at such level in order to incentivize liquidity by 
encouraging ETP Holders to use Midpoint Peg Zero Display Reserve Orders 
since this order type provides ETP Holders that enter them and other 
ETP Holders an additional way to offer/access liquidity inside the 
NBBO, respectively. Also, EDGX and BATS have similar rebate structures 
for non-displayed orders.\8\
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    \7\ NSX Rule 11.11(c)(2)(B).
    \8\ See supra note 4.
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Typographical Inconsistencies
    Finally, the Exchange is correcting typographical inconsistencies 
within the Fee Schedule by correcting endnote references, renumbering 
endnotes, and updating the heading in Section I.
Operative Date and Notice
    The Exchange intends to make the proposed modifications, which are 
effective upon filing, operative as of the commencement of trading on 
November 1, 2012. Pursuant to Exchange Rule 16.1(c), the Exchange will 
``provide ETP Holders with notice of all relevant dues, fees, 
assessments and charges of the Exchange'' through the issuance of a 
Regulatory Circular of the changes to the Fee Schedule and will post a 
copy of the rule filing on the Exchange's Web site (www.nsx.com).
2. Statutory Basis
    The Exchange believes that the proposed ADV definition changes are 
consistent with the provisions of Section 6(b) of the Act,\9\ in 
general, and Section 6(b)(4) of the Act,\10\ in particular in that each 
change is designed to provide for the equitable allocation of 
reasonable dues, fees and other charges among its members and other 
persons using the facilities of the Exchange. Moreover, the proposed 
ADV

[[Page 68875]]

definitions are not unfairly discriminatory in that all ETP Holders are 
eligible to submit (or not submit) liquidity adding trades and quotes, 
and may do so at their discretion in the daily volumes they choose 
during the course of the measurement period.\11\ The volume adjustments 
are reasonable methods to incentivize the submission of such orders. 
All similarly situated ETP Holders are subject to the same fee 
structure, and access to the Exchange is offered on terms that are not 
unfairly-discriminatory.\12\ Volume-based rebates and discounts have 
been widely adopted in the equities markets, and are equitable because 
they are open to all members on an equal basis and provide rebates that 
are reasonably related to the value of an exchange's market quality 
associated with the requirements for the favorable pricing tier.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ The Exchange believes that not changing the current ADV 
calculation for orders executed in Order Delivery Mode is not 
unfairly discriminatory because, unlike Auto-Ex, ETP Holders that 
execute orders in Order Delivery Mode are not charged execution 
fees, they simply receive rebates for their executions. In addition, 
Order Delivery Mode incurs the Exchange greater regulatory and 
operational costs than Auto-Ex Mode.
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    In addition, the Exchange believes the fixed per share rebate for 
Midpoint Peg Zero Display Reserve Orders is consistent with Section 
6(b)(5) of the Act in that it is equitably allocated and not unfairly 
discriminatory because all ETP Holders are eligible to submit (or not 
submit) these types of orders, and may do so at their discretion during 
the course of the month.\13\ The fixed rebate is a reasonable method to 
incentivize the submission of such orders amongst all its ETP Holders 
regardless of which volume tier they are eligible for. The Exchange 
believes that by encouraging the use of the Midpoint Peg Zero Display 
Reserve Order, ETP Holders seeking to access liquidity inside the NBBO 
would be more motivated to direct their orders to NSX because they 
would have a heightened expectation of the availability of liquidity at 
the NBBO. The increased liquidity also benefits all investors by 
deepening NSX's liquidity pool, offering additional flexibility for all 
investors to enjoy cost savings, supporting the quality of price 
discovery, and improving investor protection. In addition, an ETP 
Holder whose order is executed against a Midpoint Peg Zero Display 
Reserve Order would be able to obtain an execution at the NBB or NBO 
while minimizing the risk that incremental latency associated with 
routing the order to an away destination may result in an inferior 
execution. Lastly, the Exchange believes that offering a fixed per 
share rebate for Midpoint Peg Zero Display Reserve Order is reasonable 
because the pricing is similar to analogous order types offered by 
other exchanges.\14\
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    \13\ 15 U.S.C. 78f(b)(5).
    \14\ See supra note 4.
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    Lastly, the Exchange believes correcting the typographical 
inconsistencies and updating the heading in Section I in the Fee 
Schedule are reasonable in that they provide clarity to ETP holders to 
how the Exchange's fee and rebate structure operates by clarifying 
important cross-references. The corrections are equitable and not 
unfairly discriminatory in that the Fee Schedule applies to all ETP 
Holders.\15\
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    \15\ 15 U.S.C. 78f(b)(5).
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    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues. In such an environment, the Exchange must continually 
review, and consider adjusting, its fees and rebates to remain 
competitive with other exchanges. For the reasons described above, the 
Exchange believes that the proposed rule change reflects this 
competitive environment.

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

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

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    The proposed rule change has taken effect upon filing pursuant to 
Section 19(b)(3)(A)(ii) of the Exchange Act \16\ and subparagraph 
(f)(2) of Rule 19b-4 \17\ thereunder, because, as provided in (f)(2), 
it changes ``a due, fee or other charge applicable only to a member'' 
(known on the Exchange as an ETP Holder). 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.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 17 CFR 240.19b-4.
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NSX-2012-18 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-NSX-2012-18. 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 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-NSX-2012-18 and should be 
submitted on or before December 7, 2012.


[[Page 68876]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27872 Filed 11-15-12; 8:45 am]
BILLING CODE 8011-01-P


