
[Federal Register Volume 78, Number 69 (Wednesday, April 10, 2013)]
[Notices]
[Pages 21452-21455]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08331]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69311; File No. SR-NYSEArca-2013-36]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Standard 
Options Transaction Fees

April 4, 2013.
    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 March 27, 2013, 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Standard Options Transaction Fees. 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to modify the transaction charges for 
executing standard options trades on NYSE Arca. The Exchange proposes 
to raise the Take Liquidity Rate in both Penny Pilot Issues and non-
Penny Pilot issues, while reducing the Post Liquidity credit for NYSE 
Arca Market Makers in non-Penny Pilot issues. The Exchange also 
proposes to modify the Customer Monthly Posting Credit Tiers and 
Qualifications to provide additional tiers to incent an increased level 
of Customer activity, and create new Tiers for a similar increase in 
Customer activity by providing higher Post Liquidity credits in non-
Penny Pilot issues.
    First, the Exchange proposes to no longer differentiate the Take 
Liquidity rate by contra party, so that a participant will have a 
single fee for Taking Liquidity in Penny Pilot issues. The Exchange 
proposes to raise the Take Liquidity rate for all non-Customers trading 
in Penny Pilot issues to $0.47 per contract.
    Similarly, the Exchange proposes raising the Take Liquidity fee for 
Electronic Executions in non-Penny Pilot issues for all participants, 
with similar increases but differentiated fees by participant type. The 
Take Liquidity fee for LMMs trading in non-Penny Pilot issues will be 
increased from $0.78 to

[[Page 21453]]

$0.84. The Take Liquidity fee for all NYSE Arca Market Makers will also 
increase to $0.84, from the current $0.80. The Take Liquidity fee for 
Firm and Broker Dealer transactions in non-Penny Pilot issues will 
increase from $0.85 to $0.87, while the Take Liquidity fee in non-Penny 
Pilot issues for Customers will increase from $0.79 to $0.82.
    The Exchange proposes to modify the Post Liquidity rate for NYSE 
Arca Market Makers in non-Penny Pilot issues by reducing it to a credit 
of $0.05.
    The increases in various Take Liquidity rates and the reduction of 
the Post Liquidity credit for NYSE Arca Market Makers in non-Penny 
Pilot issues is to provide sufficient funding for various Customer Post 
Liquidity credits.
    NYSE Arca proposes to modify the Customer Monthly Posting Credit 
Tiers and Qualifications for Executions in Penny Pilot Issues. First, 
the Exchange proposes to eliminate the first and third qualification 
requirements for Tier 4. Secondly, the Exchange proposes to reduce the 
level of activity needed to meet the current second qualification for 
Tier 4 from 0.95% to 0.85% of Total Industry Customer equity and ETF 
option Average Daily Volume (ADV) from Posted Orders in Penny Pilot 
Issues, all account types. Thirdly, the Exchange proposes to add Tier 5 
with a credit of $0.45 to be applied to posted electronic Customer 
executions in Penny Pilot issues. To earn the new Tier 5 credit, a firm 
must qualify by providing ``At least 0.50% of Total Industry Customer 
equity and ETF option ADV from Customer Posted Orders in both Penny 
Pilot and non-Penny Pilot Issues, plus executed ADV of Retail Orders of 
0.3% of U.S. Equity Market Share Posted and Executed on NYSE Arca 
Equity Market''. The Exchange also proposes an additional Tier, Tier 6, 
with a qualification of ``At least 0.95% of Total Industry Customer 
equity and ETF option ADV from Customer Posted Orders in both Penny 
Pilot and non-Penny Pilot Issues'', with a credit for meeting the 
qualification of $0.47 per contract applied to posted electronic 
executions in Penny Pilot issues.
    The Exchange also proposes the creation of Customer Posting Credit 
Tiers in Non-Penny Pilot Issues with two Tiers to receive a higher 
credit to be applied to posted electronic Customer executions in non-
Penny Pilot issues. To qualify for the first tier, Tier A, an Order 
Flow Provider would need to provide ``At least 0.50% of Total Industry 
Customer equity and ETF option ADV from Customer Posted Orders in both 
Penny Pilot and Non-Penny Pilot Issues Plus executed ADV of Retail 
Orders of 0.3% ADV of U.S. Equity Market Share Posted and Executed on 
NYSE Arca Equity Market'', the same criterion as Tier 5 in the Customer 
Posted Liquidity Credits for Penny Pilot issues. Meeting the 
qualifications for Tier A will provide a credit applied to posted 
electronic Customer executions in non-Penny Pilot issues of $0.80.
    The qualification basis for Tier B would be the same as for the new 
Tier 6 in the Customer Tiers for Posting Credits in Penny Pilot Issues: 
at least 0.95% of Total Industry Customer equity and ETF option ADV 
from Customer posted orders in both Penny Pilot and non-Penny Pilot 
issues. Order Flow Provider (``OFP'') firms that meet the qualification 
would, in addition to the higher tier in Penny Pilot issues, also 
receive a credit of $0.81 applied to posted electronic executions in 
non-Penny Pilot names.
    The changes to various Customer Post Liquidity credit tiers, and 
the creation of the new Customer Posting Credit Tiers in Non-Penny 
Pilot Issues, are to encourage additional Customer order flow to be 
sent to the Exchange.
    NYSE Arca also proposes additional language in endnote 8, to define 
Retail Orders. A Retail Order must qualify for the Retail Order Tier 
set forth in the Schedule of Fees and Charges for NYSE Arca Equities, 
Inc.
    NYSE Arca intends for the new fees to be in effect on April 1, 
2013.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\4\ in general, and furthers the 
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\5\ in 
particular, because it provides for the equitable allocation of 
reasonable dues, fees, and other charges among its members, issuers and 
other persons using its facilities and does not unfairly discriminate 
between customers, issuers, brokers or dealers.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange proposal to raise certain Take Liquidity fees in Penny 
Pilot issues is reasonable in that all of the non-Customer rates are 
being raised to a rate that is already applied to certain transactions 
in Penny Pilot issues. While the rate for Customers will remain at a 
slightly lower level, this is not unfairly discriminatory, as non-
Customers want to attract Customer order flow, and Customers have other 
costs, such as commissions, which are not charged to non-Customers.
    The Exchange proposal to raise the Take Liquidity fees in non-Penny 
Pilot names is reasonable because they are within the established range 
of similar fees charged by other markets. One exchange charges a Take 
Liquidity fee of as much as $0.89 per contract. In addition, the 
increase in Take Liquidity fees is also non- discriminatory because the 
Exchange is making a similar increase for all participant types. While 
the fees are not identical, they are equitable in that the increases 
are by similar amounts, and the resultant fees are differentiated by 
the overall costs and obligations of the different participants. The 
Exchange will now be charging the same Take Liquidity rate to both 
Market Makers and LMMs. While the rate for Firms and Broker Dealers is 
slightly higher, it is not unreasonably discriminatory because Market 
Makers have higher fees for Trading Permits and have market maker 
obligations which require them to pay for equipment and connectivity. 
Customers will pay a slightly lower Take Liquidity rate because 
Customers have other costs not borne by non-Customers, and a lower fee 
for Customers is not discriminatory because non-Customers wish to have 
Customer orders attracted to the Exchange by having lower fees.
    The Exchange proposal to reduce the Post Liquidity credit in non-
Penny Pilot issues for NYSE Market Makers is reasonable in that the 
range of fees for Market Maker transactions in non-Penny Pilot issues 
varies across all market centers from a credit of $0.70 to a fee of 
$0.85. It is not unfairly discriminatory as different market 
participants have different costs and obligations. It is not unfairly 
discriminatory to have a higher Post Liquidity credit for Lead Market 
Makers as compared to other NYSE Arca Market Makers because LMMs have a 
higher quoting obligation and higher costs and there are barriers to 
entry and exit of appointment as an LMM that are not imposed on other 
Market Makers.
    The NYSE Arca proposal to modify the Customer Monthly Posting 
Credit Tiers and Qualifications in Penny Pilot issues is reasonable in 
that it sets credits within the range of credits offered for similar 
Customer activity on other markets, which range as high as $0.48. It is 
not unreasonably discriminatory to set credit tiers to incent higher 
amounts of Customer volume, as non-Customers wish to have Customer 
orders attracted to the Exchange by having more attractive fees. The 
differing Credit Tiers are not unreasonably discriminatory amongst 
various OFPs because, while

[[Page 21454]]

firms may be allowed to meet some tiers with a variety of sources, most 
of the incentive levels can still be met by an Order Flow Provider 
whose business consists only of Customer order flow. And while the new 
Tier 5 is available for Order Flow Firms who also have an Equity 
Trading Permit (``ETP''), those firms who only have an Options Trading 
Permit may still achieve the highest tier and greatest Customer Posting 
Credit by meeting a reasonable level of market share and including all 
options volume, from both Penny Pilot and non-Penny Pilot issues, to 
meet that market share level.
    Additionally, the NYSE Arca creation of new Customer Posting Credit 
Tiers in non-Penny Pilot issues is reasonable and non-discriminatory in 
that it extends upon the common and reasonable concept of rewarding 
higher Customer volume with higher Post Liquidity credits by applying 
it to non-Penny Pilot issues. As stated before, it is not unreasonably 
discriminatory to set credit tiers to incent higher amounts of Customer 
volume, as non-Customers wish to have Customer orders attracted to the 
Exchange by having more attractive fees. As with Customer Tier 6 in the 
Customer Monthly Posting Credit Tiers and Qualifications in Penny Pilot 
issues, those firms who only have an Options Trading Permit may still 
achieve Tier B and the greatest Customer Posting Credit by meeting a 
reasonable level of market share and including all options volume, from 
both Penny Pilot and non-Penny Pilot issues, to meet that market share 
level.
    In addition, the Exchange believes that the addition of the 
proposed language in end note 8 to define Retail Orders, which refers 
to qualification for the Retail Order Tier set forth in the Schedule of 
Fees and Charges for NYSE Arca Equities, Inc., will provide clarifying 
language to investors regarding calculation of ADV executed on NYSE 
Arca Equity Market, for purposes of the proposed charges.

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.
    The Exchange believes that the new Take Liquidity rates in Penny 
Pilot issues does not impose a burden on competition because it sets 
the same rate for all non-Customer participants, regardless of contra 
party.
    Similarly, by raising all of the Take Liquidity rates for non-Penny 
Pilot issues by similar amounts, the new Take Liquidity fees for non-
Penny Pilot issues do not impose a burden on competition because all 
participants are affected to the same extent.
    In addition, the adjustment of the NYSE Arca Market Maker Post 
Liquidity rate in non-Penny Pilot issues reduces the burden on 
competition because it aligns the NYSE Market Maker rate to an 
equitable balance that reflects both the higher costs of being a Lead 
Market Maker and the lower overall costs of other non-Customers.
    The Exchange notes that the modifications to the Customer Monthly 
Credit Tiers and Qualifications reduces the burden on competition by 
providing additional incentives for Customers to bring orders to the 
Exchange. This incents competition because non-Customers wish to have 
Customer orders attracted to the Exchange by having attractive fees and 
incentives.
    Similarly, the creation of new Customer Posting Credit Tiers for 
higher Customer credits in non-Penny Pilot issues does not impose a 
burden on competition but incents additional order flow to come to NYSE 
Arca and will increase competition amongst non-Customers to trade 
against Customer orders.
    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 credits to remain 
competitive with other exchanges. For the reasons described above, the 
Exchange believes that the proposed rule change reflects this 
competitive environment.

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) \6\ of the Act and subparagraph (f)(2) of Rule 19b-
4 \7\ thereunder, because it establishes a due, fee, or other charge 
imposed by the Exchange.
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \8\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \8\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSEArca-2013-36 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-2013-36. 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

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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-2013-36 and should 
be submitted on or before May 1, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08331 Filed 4-9-13; 8:45 am]
BILLING CODE 8011-01-P


