
[Federal Register Volume 77, Number 241 (Friday, December 14, 2012)]
[Notices]
[Pages 74536-74538]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-30166]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68391; File No. SR-NSX-2012-25]


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

December 10, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on December 3, 2012, National Stock Exchange, Inc. 
(``NSX[supreg]'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``SEC'' or ``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 comment 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 the 
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: (1) 
Modify the rebates provided to Equity Trading Permit (``ETP'') \3\ 
Holders that execute orders on the Exchange using Order Delivery mode 
(``Order Delivery Mode''); and (2) charge a fee for each Order Delivery 
Notification,\4\ which is capped on a monthly basis. 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.
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    \3\ Exchange Rule 1.5 defines the term ``ETP'' as an Equity 
Trading Permit issued by the Exchange for effecting approved 
securities transactions on the Exchange's Trading Facilities.
    \4\ An Order Delivery Notification refers to a message sent by 
the Exchange to the Order Delivery participant communicating the 
details of the full or partial quantity of an inbound contra-side 
order that potentially may be matched within the System for 
execution against an Order Delivery Order.
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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 amend its Fee Schedule issued pursuant 
to Exchange Rule 16.1(a) to: (1) Modify the rebates for orders executed 
by ETP Holders using the Exchange's Order Delivery Mode; and (2) charge 
a fee for each Order Delivery Notification, which is capped on a 
monthly basis.
Modification of Order Delivery Rebates for Securities Priced at $1.00 
or Above
    Under Section II of the Fee Schedule, the Exchange offers ETP 
Holders both a Primary and Alternate Fee Schedule with four (4) tiers 
of progressively greater rebates. An ETP Holder's monthly average daily 
trading volume (``ADV'') determines which rebate tier the ETP Holder 
meets. The Exchange proposes to replace these tiers and the Primary and 
Alternate Fee Schedules under Section II of the Fee Schedule with a 
single rebate for all shares executed by ETP Holders against displayed 
and undisplayed orders using the Order Delivery Mode (``Order Delivery 
Participants'').\5\ The Exchange also [sic] proposes a $0.0030 per 
share rebate and a 50% Market Data Rebate (``MDR'') for all 
transactions executed by Order Delivery Participants in securities 
priced at $1.00 or above.\6\ These rebates will replace the current 25% 
MDR paid to ETP Holders that meet the ADV requirements under the fourth 
tier of Section II of the Fee Schedule. The Exchange believes that 
Order Delivery Participants will post additional liquidity on the 
Exchange if it (i) increases the rebate to $0.0030 per share when the 
Order Deliver [sic] Participant adds liquidity in a security quoted at 
a price of $1.00 or greater, and (ii) provides Order Delivery 
Participants with 50% of the attributable MDR received by the Exchange.
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    \5\ As a result of consolidating the Primary and Alternate Fee 
Schedules, ETP Holders that are Order Delivery Participants will no 
longer automatically receive the Alternate Fee Schedule upon meeting 
a minimum ADV in both Auto-Ex Mode and Order Delivery Mode because a 
separate Alternate Fee Schedule will not be available.
    \6\ As part of the proposed rebate consolidation, Midpoint Peg 
Zero Display Reserve Orders will receive the proposed $0.0030 per 
share rebate described above rather than the existing fixed rebate 
of $0.0017 per executed share.
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Modification of Order Delivery Rebates for Securities Priced Below 
$1.00
    The Exchange is proposing to amend Section II of the Fee Schedule 
to no longer provide ETP Holders with a rebate for transactions 
executed using Order Delivery Mode for securities quoted at prices less 
than $1.00. The Fee Schedule currently provides ETP Holders with a 
rebate of the ``[l]esser of: 0.20% of trade value and 20% of the quote 
spread'' for securities quoted at prices less than $1.00.
Rationale for Revised Order Delivery Rebates
    The Exchange believes that the higher rebates \7\ will provide ETP 
Holders with an incentive to post additional liquidity on the Exchange 
via Order Delivery Mode. The Exchange also 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. The Exchange believes that the proposed rule change 
reflects this competitive environment.
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    \7\ The Commission notes that this rule filing increases rebates 
for transactions in stocks priced over $1, but actually eliminates 
rebates for transactions in stocks priced under $1.
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Order Delivery Notification Fee
    The Exchange proposes to introduce an Order Delivery Notification 
Fee. The Exchange proposes to charge ETP Holders $0.29 for each Order 
Delivery Notification delivered to each ETP Holder for potential 
execution against a posted displayed or undisplayed order. Currently, 
the Exchange provides this service to ETP Holders at no charge. The 
proposed Order Delivery Notification Fee will only apply to the first 
1.5 million Order Delivery Notifications from [sic] a single Order 
Delivery Participant in a given calendar month.
Rationale for Order Delivery Notification Fee
    The Exchange's Order Delivery Mode provides Electronic 
Communication Networks (``ECNs'') with an electronic trading platform 
to interact with the

[[Page 74537]]

National Market System. ECNs can use Order Delivery Mode to fulfill 
certain regulatory obligations such as qualifying as an ECN Display 
Alternative \8\ or publishing quotations in the consolidated quotation 
system when the five (5) percent order display requirement is 
triggered.\9\ Order Delivery Mode provides ECNs with the ability to (i) 
Publish quotations into the consolidated quotation system, (ii) receive 
``protected quotation'' status under Rule 611 of Regulation NMS,\10\ 
(iii) receive an Order Delivery Notification when there is a potential 
match against a published quotation, and (iv) distribute attributed 
quotations through the Exchange's Depth-of Book market data product. 
Order Delivery Mode is a unique market structure that costs more to 
operate and regulate than if the Exchange offered only automatic 
executions. Instead of moving to a less expensive market model and 
technology, the Exchange maintains this high cost structure to foster 
competition between markets, to encourage the display of limit orders 
by alternative trading systems, and to provide ECNs with a mechanism to 
grow within the National Market System. However, maintaining the Order 
Delivery program inhibits the Exchange's ability to gain additional 
liquidity through automatic executions.
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    \8\ 17 CFR 242.602(b)(5)(i).
    \9\ 17 CFR 242.301(b)(3)(B).
    \10\ 17 CFR 611.
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    The Exchange's Order Delivery Mode currently provides ECN's with 
``free advertising'' through attributed quotations, which facilitates 
an increasing rate of executions away from the Exchange. Over the past 
several months, the overall messaging activity for Order Delivery 
Participants has increased rapidly without a corresponding increase in 
executions or an increase in net transaction revenue. During the month 
of November 2012, Order Delivery Mode accounted for approximate [sic] 
seventy-four (74) percent of the Exchange's overall messaging activity 
with one Order Delivery Participant accounting for approximately fifty-
five (55) percent of that activity, while only accounting for nine (9) 
percent of the Exchange's overall trading volume. The disproportionate 
trade-to-quote ratio in Order Delivery Mode is a result of ECNs 
successfully leveraging the Exchange's infrastructure to develop their 
businesses away from the Exchange, even as the majority of the 
Exchange's operational costs are fixed. Consequently, the Exchange 
strongly believes that continuing to rely on transaction-based revenues 
to support Order Delivery Mode is not feasible. The Exchange believes 
that it is reasonable to charge for the services provided to Order 
Delivery Participants, and recover the development and ongoing 
operational costs, excluding the costs of regulation, of Order Delivery 
Mode. The Exchange will evaluate on a quarterly basis the level of 
quotations, Order Delivery Notifications and executions as a percentage 
of overall operations in order to ensure that the Order Delivery 
Notification Fee is reasonable, equitable and not unfairly 
discriminatory among ETP Holders.
Operative Date and Notice
    The Exchange will make the proposed modifications, which are 
effective on filing of this proposed rule, operative as of commencement 
of trading on December 3, 2012.\11\ 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 an Information 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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    \11\ While the Exchange proposes to amend the date of its Fee 
Schedule to December 1, 2012, it will not implement the proposed fee 
changes until Monday, December 3, 2012, the first day of trading. 
The Exchange proposes to amend the Fee Schedule's date to December 1 
as it contains non-transaction based fees that are charged on a 
monthly basis.
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2. Statutory Basis
    The Exchange believes that the proposed changes to Section II of 
the Fee Schedule are consistent with the provisions of Section 6(b) of 
the Securities Exchange Act of 1934 \12\ (the ``Act''), in general, and 
Section 6(b)(4) of the Act,\13\ in particular in that they are 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 rebate structure under Section 
II of the Fee Schedule is not discriminatory in that all ETP Holders 
are eligible to submit (or not submit) liquidity adding trades [sic] 
and quotes, and may do so at their discretion in the daily volumes they 
choose during the course of the billing period. 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. 
Rebates and discounts have been widely adopted in the equities markets, 
and are equitable because they are open to all ETP Holders on an equal 
basis and provide rebates that are reasonably related to the value of 
an exchange's market quality associated with its Order Delivery Mode. 
Lastly, the Exchange believes offering different rebates for executions 
in securities with prices quoted above and below $1.00 is reasonable 
because it is designed to encourage ETP Holders to improve liquidity in 
securities with quoted prices at or above $1.00.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed Order Delivery Notification 
Fee is consistent with the provisions of Section 6(b) of the Act,\14\ 
in general, and Section 6(b)(4) of the Act,\15\ 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. As stated above, Order Delivery 
Participants utilize a substantial portion of the Exchange's 
infrastructure, operational and processing resources. The Order 
Delivery Notification Fee is a mechanism under which the Exchange can 
recoup the costs associated with Order Delivery Mode, as it did by 
capturing the difference between the rebate provided to the Order 
Delivery Participant and the fee charged to the liquidity taker. The 
Exchange believes that is [sic] fair and equitable to charge a [sic] 
Order Delivery Participant a fee which covers the proportionate cost of 
a unique technology that offers Order Delivery Mode. The Order Delivery 
Notification Fee is reasonable since it will only recoup the costs 
associated with Order Delivery Mode. The Exchange will evaluate the 
Order Delivery Notification Fee on a quarterly basis to ensure that it 
remains reasonable and equitable among all ETP Holders. In addition, 
the Exchange proposes to cap the Order Delivery Notification Fee to the 
first 1.5 million Order Delivery Notifications transmitted to each 
Order Delivery Participant.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4).
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    The Exchange also believes the Order Delivery Notification Fee and 
cap is a reasonable means for the Exchange to recover the development 
costs of Order Delivery Mode, as well as the ongoing operating costs. 
During the month of November 2012, Order Delivery Mode accounted for 
approximate [sic] seventy-four (74) percent of the Exchange's overall 
messaging activity with one Order Delivery Participant accounting for 
approximately fifty-five (55) percent of that activity, while only 
accounting for nine (9) percent of the Exchange's overall trading 
volume. The disproportionate trade-to-quote ratio in

[[Page 74538]]

Order Delivery Mode is a result of ECNs successfully leveraging the 
Exchange's infrastructure to develop their businesses away from the 
Exchange, even as the majority of the Exchange's operational costs are 
fixed. While the Exchange could modify its transaction-based fee 
structure to charge Order Delivery participants a fee for posting Order 
Delivery liquidity, the Exchange believes that utilizing an [sic] 
capped Order Delivery Fee structure provides Order Delivery 
participants a greater incentive to post liquidity on the Exchange. 
Consequently, the Exchange strongly believes that continuing to rely on 
transaction-based revenues to support Order Delivery Mode is not 
feasible. The Exchange believes that it is reasonable to charge for the 
services provided to Order Delivery Participants, and recover the 
development and ongoing operational costs, excluding the costs of 
regulation, of Order Delivery Mode. The Exchange will evaluate on a 
quarterly basis the level of quotations, Order Delivery notifications 
and executions as a percentage of overall operations in order to ensure 
that the Order Delivery Notification Fee is reasonable, equitable and 
not unfairly discriminatory among ETP Holders.
    Moreover, the Exchange believes that the proposed Order Delivery 
Notification Fee and cap is consistent with the provisions of Section 
6(b)(5) of the Act,\16\ in that the proposed fee is not unfairly 
discriminatory amongst Order Delivery Participants. Order Delivery 
Participants are eligible to submit (or not submit) liquidity adding 
quotes, and may do so at their discretion in the daily volumes they 
choose during any given trading day. As stated earlier, Order Delivery 
Mode currently accounts for approximately 74% of the Exchange's overall 
incoming messaging activity. Due to the low level of executions 
resulting from the quotation activity, the Exchange does not believe 
that a transaction-based fee is a reasonable means for the Exchange to 
recover the development and the ongoing operational costs of the Order 
Delivery program. The Exchange does not believe that the Order Delivery 
Fee is unfairly discriminatory since it directly correlates to the 
amount of Exchange infrastructure, operations and processing required 
to maintain the Order Delivery program. The Exchange will evaluate the 
Order Delivery Notification Fee on a quarterly basis to ensure that 
changes in Order Delivery activity or volume compared to the Exchange's 
other operations which causes the fee to become unfair or 
discriminatory among Order Delivery Participants.
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    \16\ 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 \17\ and subparagraph 
(f)(2) of Rule 19b-4.\18\ 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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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 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-2012-25 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-2012-25. 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 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 offices 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-2012-25, and should be submitted on or before 
January 4, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30166 Filed 12-13-12; 8:45 am]
BILLING CODE 8011-01-P


