
[Federal Register Volume 77, Number 223 (Monday, November 19, 2012)]
[Notices]
[Pages 69522-69525]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28004]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68215; File No. SR-NSX-2012-20]


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 13, 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 November 2, 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 Rule 16.1(a) to adopt 
separate regulatory fees for Order Delivery participants to: (1) Charge 
a flat fee per quotation update; (2) charge a separate flat fee per 
quotation update during a new Order Delivery participant's first three 
(3) months of participation; and (3) implement an Onboarding Fee for 
new Order Delivery participants. 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

[[Page 69523]]

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 proposes to amend Section IV of its Fee Schedule to 
adopt a separate Regulatory Fee for Order Delivery participants to: (1) 
Charge a flat fee per quotation update; (2) charge a separate flat fee 
per quotation update during a new Order Delivery participant's first 
three (3) months of participation; and (3) implement an Onboarding Fee 
for new Order Delivery participants. Proceeds from the new regulatory 
fees will be used to fund the NSX's regulatory oversight of Order 
Delivery participants.
Quotation Update Fee for Existing Order Delivery Participants
    The Exchange proposed to charge a flat fee of $0.000444 per each 
Order Delivery participant's quotation update.\3\ The Exchange will 
earmark and use all regulatory fees raised through the quotation update 
fee to support the regulatory oversight of the Order Delivery function.
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    \3\ A ``quotation update'' includes any change to the price, 
size or side of a quotation or submission of an updated quote with 
the same price, size or side. A quotation update does not include 
posting of a new quote to replace a quote that was fully executed.
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    The quotation update fee rate is reasonable since it is designed to 
correlate with the total regulatory costs associated with overseeing 
the Order Delivery trading program based on current Order Delivery 
participants' historic quotation activities. The Exchange will 
calculate, on a quarterly basis, the percentage of the Exchange's 
quotation activity that is accounted for by Order Delivery 
participants. The Exchange will consider any changes in the level of 
Order Delivery activity as well as any changes in the market, 
surveillance and system requirements required to effectively perform 
the surveillance function in determining whether to adjust the 
quotation update fee.
    The Order Delivery functionality allows electronic communication 
networks (``ECNs'') to make quotations available through the 
consolidated quotation feed without the risk of double execution. The 
Exchange is the only market center to provide this service. This market 
structure has a higher cost structure than automated matching engines 
due to its increased operational, technology and regulatory demands. 
The Exchange currently does not charge execution fees for orders 
executed using the Order Delivery Mode.
    The Exchange also notes that this proposed fee is similar to a 
quotation update fee imposed by FINRA on ADF Participants.\4\ The 
Exchange's Order Delivery program is similar to the ADF offering. 
Therefore, the Exchange believes that a separate regulatory fee based 
on quotation updates is a reasonable manner in which to fund its 
regulatory program.
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    \4\ See Securities Exchange Act Release No. 47331 (February 10, 
2003), 68 FR 7635 (February 14, 2003) (SR-NASD-2003-09), see also, 
Securities Exchange Act Release No. 55379 (March 1, 2007), 72 FR 
10283 (March 7, 2007) (SR-NASD-2007-017). While the Exchange 
proposes a fixed quotation update fee for existing Order Delivery 
participants and a separate quotation update fee for a new 
applicant, FINRA's quotation update fee is tiered based on the ADF 
Participant's trading volumes.
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Fees for New Order Delivery Participants
    The Exchange also proposed to adopt the following separate fees for 
new Order Delivery Participants: (1) A higher flat fee per quotation 
update during a new Order Delivery participant's first three (3) months 
of participation; and (2) a one-time Onboarding Fee of $5,000.00.
    The Exchange proposes a separate flat fee per quotation update of 
$0.006667 during a new Order Delivery participant's first three (3) 
months of participation. This quotation update fee would be in lieu of 
the proposed standard quotation update fee of $0.000444 for existing 
Order Delivery participants. This is because the Exchange expends an 
increased regulatory focus over a new Order Delivery participant's 
activities to ensure compliance with Exchange Rule 11.13 and to gain 
familiarity with their quoting activities. The Exchange will earmark 
and use all regulatory fees raised through the quotation update fee to 
support the regulatory oversight of the Order Delivery function. The 
Exchange believes that charging a higher quotation update fee for new 
Order Delivery participants during their first three months of 
operation is reasonable, and is an equitable means to cover the 
increase regulatory oversight costs of their activities without being 
unfairly discriminatory among the ETP Holders.
    The Exchange proposes a one-time Onboarding Fee of $5,000.00. The 
Exchange incurs increased costs when onboarding a new Order Delivery 
participant. These costs include establishing connectivity and 
administering the application process. The Exchange also conducts 
enhanced due diligence of the Order Delivery participant's systems to 
ensure its ability to comply with Exchange Rule 11.13, including the 
Order Delivery applicant's ability to comply with the Exchange's 
eligibility requirements. The Onboarding Fees will also be used by the 
Exchange to support the regulatory oversight of the Order Delivery 
function. The Exchange believes that adopting a one-time fee is 
reasonable for new Order Delivery participants, and an equitable 
distribution of regulatory costs that does not unfairly discriminate 
against the Order Delivery applicant or existing ETP Holders.
Operative Date and Notice
    The Exchange currently intends to make the proposed modifications, 
which are effective on filing of this proposed rule, operative as of 
commencement of trading on November 2, 2012.\5\ 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).
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    \5\ Because the proposed changes are effective November 2, 2012, 
trading activity occurring on November 1, 2012 will be excluded from 
the proposed fees.
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2. Statutory Basis
    The Exchange believes that the proposed fixed quotation update fee 
for existing Order Delivery participants is consistent with the 
provisions of Section 6(b) of the Act,\6\ in general, and Section 
6(b)(4) of the Act,\7\ 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 the facilities of the 
Exchange. Order Delivery Mode imposes on the Exchange greater 
regulatory and operational costs than Auto-Ex Mode, because Order 
Delivery is a model that requires increased regulatory procedures to 
ensure effective oversight of compliance with applicable SEC and SRO 
rules. By imposing a quotation update fee based on each Order Delivery 
participant's quotation activity, this fee equitably

[[Page 69524]]

allocates costs based on their overall quotation activity. The Exchange 
is the only market center to offer Order Delivery to market 
participants, which allows ECNs to make quotations available through 
the consolidated quotation feed without the risk of double execution. 
This market structure has a higher cost structure than automated 
matching engines due to its increased operational, technology and 
regulatory demands. The Exchange currently does not charge execution 
fees for orders executed using the Order Delivery Mode. Therefore, the 
Exchange believes this fee structure is a reasonable means for the NSX 
to recover the regulatory costs of Order Delivery. Moreover, the 
Exchange believes that the proposed fixed quotation update fee for 
existing Order Delivery participants is consistent with the provisions 
of Section 6(b)(5) of the Act,\8\ in that the proposed regulatory fee 
is not unfairly discriminatory because it is based on an ETP Holder's 
quotation activity in Order Delivery. Order Delivery participants are 
eligible to submit (or not submit) liquidity adding and quotes, and may 
do so at their discretion in the daily volumes they choose during any 
given trading day.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
    \8\ 15 U.S.C. 78f(b)(5).
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    Furthermore, the Exchange also believes that the proposed fixed 
quotation update fee for new Order Delivery participants during their 
first three (3) months of operation is 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 it 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. 
Oversight of a new Order Delivery participant's activities imposes on 
the Exchange greater regulatory and operational costs than it does for 
existing Order Delivery participants, because the Exchange expends an 
increased regulatory focus over a new Order Delivery participant's 
activities to ensure compliance with Exchange Rule 11.13 and to gain 
familiarity with their quoting activities. The Exchange believes that 
charging a higher quotation update fee for new Order Delivery 
participants during their first three (3) months of operation is a 
reasonable means to cover the increase regulatory oversight costs of 
their activities require. By imposing a quotation update fee based on 
each Order Delivery participant's quotation activity, this fee 
equitably allocates costs based on their overall quotation activity. 
Again, the Exchange is the only market center to offer Order Delivery 
to market participants which allows ECNs to make quotations available 
through the consolidated quotation feed without the risk of double 
execution. This market structure has a higher cost structure than 
automated matching engines due to its increased operational, technology 
and regulatory demands. The Exchange currently does not charge 
execution fees for orders executed using the Order Delivery Mode. 
Therefore, the Exchange believes this fee structure is a reasonable 
means for the NSX to recover the regulatory costs of Order Delivery. 
Moreover, the Exchange believes that the proposed fixed quotation 
update fee for new Order Delivery participants during their first three 
(3) months of operation is consistent with the provisions of Section 
6(b)(5) of the Act,\11\ in that the proposed regulatory fee is not 
unfairly discriminatory because it is based on an ETP Holder's 
quotation activity in Order Delivery. New Order Delivery participants 
require increased regulatory oversight relative to existing 
participants due to the Exchange's focus on their trading activity, 
ensuring compliance with SEC and SRO rules as well as Exchange staff 
developing familiarity with the new participant's trading behavior. 
Also, Order Delivery participants are eligible to submit (or not 
submit) liquidity adding and quotes, and may do so at their discretion 
in the daily volumes they choose during any given trading day.
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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).
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    Lastly, the Exchange believes that the proposed one-time Onboarding 
Fee for new Order Delivery participants is also consistent with the 
provisions of Section 6(b) of the Act,\12\ in general, and Section 
6(b)(4) of the Act,\13\ 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 the facilities of the 
Exchange. Onboarding a new Order Delivery participant imposes on the 
Exchange increased regulatory and operational costs. These costs 
include establishing connectivity and administering the application 
process. The Exchange also conducts extensive due diligence and 
increased regulatory procedures to ensure effective oversight of 
compliance with applicable SEC and SRO rules, including review of an 
Order Delivery participant's systems to ensure their ability to comply 
with Exchange Rule 11.13's automated response time requirements. By 
imposing a one-time Onboarding Fee for new Order Delivery participants, 
this fee equitably allocates costs based on the increased regulatory 
review of the new participant's ability to comply with SEC and SRO 
rules relating to Order Delivery. The Exchange currently does not 
charge execution fees for orders executed using the Order Delivery 
Mode. Therefore, the Exchange believes this one-time Onboarding Fee is 
a reasonable means for the NSX to recover the regulatory costs 
associated with onboarding new Order Delivery participants. Moreover, 
the Exchange believes that the proposed one-time Onboarding Fee for new 
Order Delivery participants is consistent with the provisions of 
Section 6(b)(5) of the Act,\14\ in that the proposed regulatory fee is 
not unfairly discriminatory because it applies to all new Order 
Delivery participant's equally and all ETP Holders who meet the 
criteria of Exchange Rule 11.13 are eligible to become Order Delivery 
participants.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
    \14\ 15 U.S.C. 78f(b)(5).
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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 \15\ and subparagraph 
(f)(2) of Rule 19b-4 \16\ 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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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 240.19b-4.

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[[Page 69525]]

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-2012-20 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-2012-20. 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-2012-20 and should be 
submitted on or before December 10, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28004 Filed 11-16-12; 8:45 am]
BILLING CODE 8011-01-P


