
[Federal Register Volume 78, Number 111 (Monday, June 10, 2013)]
[Notices]
[Pages 34681-34683]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-13638]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69690; File No. SR-NYSEArca-2013-55]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE 
Arca Options Fee Schedule to Change the Monthly Fees for Option Trading 
Permits and Raise the Fee Cap that Applies to Certain Firm and Broker 
Dealer Open Outcry Executions

June 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 May 21, 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 amending [sic] the NYSE Arca Options Fee 
Schedule (``Fee Schedule'') to change the monthly fees for Option 
Trading Permits (``OTPs'') and raise the fee cap that applies to 
certain Firm and Broker Dealer open outcry executions. The Exchange 
proposes to make the fee changes operative on June 1, 2013 [sic] 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 Exchange proposes to amend its Fee Schedule to change the 
monthly fees for OTPs and raise the fee cap that applies to certain 
Firm and Broker Dealer open outcry executions. The Exchange proposes to 
make the fee changes operative on June 1, 2013.
    The Exchange requires that a Market Maker have an OTP in order to 
operate on the Exchange. For electronic Market Making, a Market Maker 
must have four OTPs in order to submit electronic quotations in every 
class on the Exchange. These four Market Maker OTPs also permit the 
firm to have at least one trader on the Floor of the Exchange as a 
Floor-based open outcry Market Maker. However, the manner in which 
those OTPs are assigned to individual traders may reduce the 
permissible number of issues in which electronic quotes are assigned. 
For instance, two associated Market Makers may assign OTP 1, 2, and 3 
to trader A, while the fourth is assigned to trader B. Trader A may now 
only stream quotes electronically in 750 issues, while trader B may 
submit quotes electronically in 100 issues. To retain the appointment 
in more than 750 issues, all four OTPs must be in the same name, and to 
have an additional individual Market Maker on the Floor, a fifth OTP 
must be acquired.
    To tailor the recovery of costs more closely to the basic costs for 
administration of an OTP Holder or OTP Firm, the Exchange is proposing 
to introduce a new tiered pricing model for Market Maker OTPs. The 
Exchange currently charges $4,000 per OTP per month for a Market Maker 
firm that has between one and four Market Maker OTPs and $1,000 per 
month for each additional Market Maker OTP. The Exchange proposes to 
charge $6,000 per month for the first Market Maker OTP, $5,000 per 
month for the second Market Maker OTP, $4,000 per month for the third 
Market Maker OTP, and $3,000 per month for the fourth Market Maker OTP. 
The Exchange would continue to charge

[[Page 34682]]

$1,000 per month for each additional Market Maker OTP. Thus, under the 
proposed change, a firm would pay $2,000 more for the first OTP, $1,000 
more for the second OTP, the same for the third OTP, $1,000 less for 
the fourth OTP, and the same for each additional OTP thereafter. In 
order to have the ability to make electronic markets in every class on 
the Exchange, a Market Maker firm would pay $18,000 per month for four 
Market Maker OTPs and $1,000 per month for each additional trader on 
the Floor of the Exchange operating as an open outcry Market Maker. 
This would be an increase of $2,000 over the current Fee Schedule. The 
Exchange is proposing the tiered pricing model because the level of 
support the Exchange must provide each Market Maker firm per Market 
Maker OTP decreases as the number of Market Maker OTPs increases (i.e., 
the first Market Maker OTP requires the most support from the 
Exchange), and the tiered model is consistent with the pricing 
practices of other exchanges, as described below.
    The Exchange also proposes to raise the fee cap that applies to 
certain Firm and Broker Dealer open outcry executions. Currently, the 
Exchange imposes a $75,000 cap per month on Firm Proprietary fees and 
Broker Dealer fees for transactions in standard option contracts 
cleared in the customer range for open outcry executions, exclusive of 
strategy executions, royalty fees and Firm trades executed via a joint 
back office agreement. The Exchange has made recent changes to its Fee 
Schedule to encourage Customer order flow.\4\ As a result, Firm and 
Broker Dealer open outcry executions subject to this fee cap have 
increased, and the Exchange believes that the current fee cap is too 
low. As such, the Exchange proposes to raise the fee cap to $100,000, 
which the Exchange believes is in line with current market activity and 
would continue to encourage Firms and Broker Dealers to engage in a 
high level of open outcry executions. The Exchange notes that it has 
not raised the fee cap since it was introduced in 2010.\5\ The Exchange 
also proposes to make a conforming change to endnote 9.
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    \4\ See e.g., Securities Exchange Act Release No. 68898 (Feb. 
11, 2013), 78 FR 11261 (Feb. 15, 2013) (SR-NYSEArca-2013-11).
    \5\ See Securities Exchange Act Release Nos. 63471 (Dec. 8, 
2010), 75 FR 77928 (Dec. 14, 2010) (SR-NYSEArca-2010-108) (adopting 
$75,000 fee cap); 67419 (July 12, 2012), 77 FR 42343 (July 18, 2012) 
(SR-NYSEArca-2012-71) (extending fee cap to Broker Dealers).
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    The proposed changes are not otherwise intended to address any 
other problem, and the Exchange is not aware of any significant problem 
that the affected market participants would have in complying with the 
proposed changes.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\6\ in general, and furthers the 
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\7\ 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed Market Maker OTP pricing 
tiers are reasonable because the level of support the Exchange must 
provide each Market Maker firm per Market Maker OTP decreases as the 
number of Market Maker OTPs increases. The Exchange's administrative 
costs are higher to set up and maintain a Market Maker Firm, such as 
the paperwork relating to having a Market Maker operation. There is a 
marginal decrease in administrative costs as the number of Market Maker 
OTPs increases. The Exchange also believes that a decreasing price 
structure for successive OTPs may encourage Market Maker firms to 
purchase additional OTPs and quote more issues, thereby enhancing 
liquidity on the Exchange. At least two other exchanges also offer 
similar tiered pricing models for their trading permits where the price 
decreases with each successive permit. For example, the Exchange's 
affiliate, NYSE Amex Options, has a sliding scale for market maker Amex 
Trading Permits (``ATPs''). NYSE Amex Options charges $8,000 per month 
for the first ATP, $6,000 per month for the second ATP, $5,000 per 
month for the third ATP, $4,000 for the fourth ATP, $3,000 per month 
for the fifth ATP, and $2,000 per month for each additional ATP.\8\ A 
market maker must have five ATPs in order to trade all issues on NYSE 
Amex Options, which cost $26,000. Chicago Board Options Exchange, Inc. 
(``CBOE'') also has a sliding scale for Trading Permit Holders 
(``TPHs'') who are acting as market makers. The sliding scale is $5,500 
per month for permits one to 10, $4,000 per month for permits 11 to 20, 
and $2,500 per month for permits 21 and higher.\9\ The Exchange has 
estimated that a CBOE market maker would need 34 permits to trade all 
issues on CBOE, which cost $130,000, assuming the market maker 
qualifies for the sliding scale permit rates. The Exchange notes that 
its proposed fees of $18,000 for four Market Maker OTPs to cover all 
issues on the Exchange will still be less than these other two 
exchanges.
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    \8\ See NYSE Amex Options Fee Schedule, dated as of May 1, 2013, 
available at https://globalderivatives.nyx.com/sites/globalderivatives.nyx.com/files/nyse_amex_options_fee_schedule_050113.pdf.
    \9\ The discounted permit rates of $4,000 and $2,500 are only 
available to TPHs who commit to a full year of that number of 
permits. See CBOE Fee Schedule, dated as of May 8, 2013, available 
at http://www.cboe.com/framed/PDFframed.aspx?content=/publish/feeschedule/CBOEFeeSchedule.pdf§ion=SEC_RESOURCES&title=CBOE%20-%20CBOE.
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    As stated above, it is equitable and not unfairly discriminatory 
for the Exchange to charge more for the first two OTPs and the same or 
less for the successive OTPs because the level of support the Exchange 
must provide for the initial OTPs decreases as the number of Market 
Maker OTPs increases. The Exchange believes that it is equitable and 
not unfairly discriminatory to offer favorable pricing to Market Maker 
firms that quote more issues on the Exchange because that activity 
promotes liquidity on the Exchange, which benefits all market 
participants.
    The Exchange believes that raising the fee cap for Firm and Broker 
Dealer open outcry executions is reasonable because it will strike a 
more appropriate balance between encouraging such executions and 
generating adequate revenues in light of the Exchange's costs 
associated with such trading activity. As noted above, the Exchange has 
not increased the fee cap since it was introduced in 2010. In addition, 
the proposed fee cap is similar to the fee cap imposed on at least one 
other exchange.\10\ The Exchange further believes that the proposed 
$100,000 fee cap is equitable and not unfairly discriminatory because 
even at such increased level, it would continue to encourage Firms and 
Broker Dealers to engage in a high level of open outcry executions, 
which would increase liquidity on the Exchange and benefit all market 
participants. The Exchange believes that it is equitable and not 
unfairly discriminatory to continue to offer the fee cap to Firms and 
Broker Dealers, and not other market participants, because its purpose 
is to attract large block order flow to the floor of the Exchange, 
where such orders can be better handled in

[[Page 34683]]

comparison with electronic orders that are not negotiable.
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    \10\ Under the NYSE Amex Options Fee Schedule, fees for Firm 
Proprietary manual trades are aggregated and capped at $100,000 per 
month for member firms, with certain exceptions. See n.6 of the NYSE 
Amex Options Fee Schedule, supra n.8.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\11\ 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 proposed Market Maker OTP fees will allow 
the Exchange to remain competitive with other exchanges by offering a 
sliding scale of OTP fees while keeping its fees less than certain of 
its competitors. The Exchange believes that raising the fee cap for 
Firm and Broker Dealers will promote competition because [sic] would 
continue to encourage liquidity on the Exchange via open outcry 
executions, which would benefit all market participants. 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 promotes a competitive environment.
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    \11\ 15 U.S.C. 78f(b)(8).
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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 Exchange.
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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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \14\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \14\ 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-2013-55 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-2013-55. 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 publicly available. All 
submissions should refer to File Number SR-NYSEArca-2013-55 and should 
be submitted on or before July 1, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-13638 Filed 6-7-13; 8:45 am]
BILLING CODE 8011-01-P


