
[Federal Register Volume 79, Number 76 (Monday, April 21, 2014)]
[Notices]
[Pages 22172-22174]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-08973]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71946; File No. SR-NYSEArca-2014-35]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE 
Arca Options Fee Schedule Regarding Transaction Fees and Credits

April 15, 2014.
    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 April 1, 2014, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Options Fee Schedule 
(``Fee Schedule'') regarding transaction fees and credits. The Exchange 
proposes to implement the fee changes effective April 1, 2014. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule regarding 
transaction fees and credits. The Exchange proposes to implement the 
fee changes effective April 1, 2014. The purpose of this filing is to 
modify the Exchange's transaction fees to provide an incentive for more 
business to be executed on the Exchange.
    NYSE Arca is proposing to modify certain volume-based incentives to 
attract more business to the Exchange as well as a fee change to offset 
these incentives. The Exchange will offset the incentives by raising 
the Take Liquidity fee for Customer Electronic Executions in Penny 
Pilot issues \4\ to $0.47 per contract.
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    \4\ As provided under NYSE Arca Options Rule 6.72, options on 
certain issues have been approved to trade with a minimum price 
variation of $0.01 as part of a pilot program that is currently 
scheduled to expire on June 30, 2014. See Securities Exchange Act 
Release No. 71159 (December 20, 2013), 78 FR 79042 (December 27, 
2013) (SR-NYSEArca-2013-145).
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    First, NYSE Arca is proposing various modifications to its Customer 
Monthly Posting Credit Tiers and Qualifications For Executions in Penny 
Pilot Issues (``Penny Pilot Customer Tiers'') to make some tiers less 
strenuous to achieve; make other tiers more difficult to reach, and to 
adjust the associated credits for various tiers. Specifically, the 
Exchange is proposing that the qualifying market share of Total 
Industry Customer equity and ETF option Average Daily Volume (``ADV'') 
from executed Customer posted orders in all tiers of the Penny Pilot 
Customer Tiers be comprised of executed Customer posted orders in both 
Penny Pilot and non-Penny Pilot Issues (``Total Customer Posted Order 
Executions'').\5\
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    \5\ The Exchange notes that the alternative method of achieving 
Tiers 2 and 5 will remain at 0.70% and 0.85%, respectively, of Total 
Customer ADV from Posted Order executions only in Penny Pilot 
issues, although from all account types, including volume from the 
OTP Holder's or OTP Firm's affiliates.

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[[Page 22173]]

    This proposal includes adjusting the qualifying activity level and 
the corresponding credit of all but the top tier (i.e., Tier 5) of the 
Penny Pilot Customer Tiers. To qualify for Tier 1 will only require 
.10% of Total Industry Customer equity and ETF ADV (``Total Customer 
ADV''); in return, the credit to be applied to Posted Electronic 
Customer Executions in Penny Pilot issues (``Penny Pilot Credit'') will 
be reduced from $0.38 to $0.27. Penny Pilot Customer Tier 2 will be 
calculated based on Total Customer ADV, and the Penny Pilot Credit will 
be increased to $0.43. The qualification for Penny Pilot Customer Tier 
3 will be reduced to 0.40% of Total Customer ADV, and the Penny Pilot 
Credit will be increased to $0.45. Penny Pilot Customer Tier 4 will be 
adjusted to increase the Total Customer Posted Executions to 0.60% of 
Total Customer ADV, while reducing the added qualification to executed 
ADV of Retail Orders to 0.1% ADV of U.S. Equity Market Share Posted and 
Executed on NYSE Arca Equity Market. The Penny Pilot Credit for Tier 4 
will be increased to $0.46.
    The Exchange is also proposing to modify the Qualification Basis in 
one of the Customer Posting Credit Tiers in Non Penny Pilot Issues. 
Tier A will be modified to require 0.60% of Total Customer ADV Posted 
Order Executions, while reducing the added qualification of Retail 
Orders to 0.1% ADV of U.S. Equity Market Share Posted and Executed on 
NYSE Arca Equity Market.
    Lastly, the Exchange proposes a modification to one of the 
alternatives to achieve an additional posting credit under the Customer 
Incentive Program. As proposed, the fourth alternative, arising from 
participation on the NYSE Arca Equity Market, will require a lower 
threshold of Executed ADV of Retail Orders of 0.10% (reduced from 0.3%) 
ADV of U.S. Equity Market Share Posted and Executed on NYSE Arca Equity 
Market.
    The Exchange notes that the calculations for the qualification 
thresholds for tiered Customer posting credits only include electronic 
executions. Qualified Contingent Cross (``QCC'') orders are neither 
posted nor taken; thus QCC transactions are not included in the 
calculation of posted or taken execution volumes. The calculations do 
not include volume from mini-option transactions, nor do they include 
volume from Complex Order transactions. Orders routed to another market 
for execution are not included in the calculation of taking volume.
    The Exchange notes that the proposed changes are not otherwise 
intended to address any other issues, and the Exchange is not aware of 
any problems that OTP Holders and OTP Firms, including Market Makers, 
would have in complying with the proposed change.
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 (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 increase in the Take 
Liquidity fee for Customer orders in Penny Pilot issues is reasonable 
because it will result in the Exchange's fees remaining comparable to 
the Take Liquidity fees charged for other market participants. The 
proposed increase is also reasonable because it is similar to the fee 
charged by another market for Customers who remove liquidity in Penny 
Pilot issues.\8\ In addition, the proposed fee change is reasonable 
because it will generate revenue that will help to support the credits 
offered for posting liquidity, which are available to all market 
participants. Customers are assessed a slightly lower fee because 
Customer order flow benefits the market by increasing liquidity, which 
benefits all market participants.
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    \8\ See NASDAQ Options Market (``NOM'')--Fees and Rebates, 
available at http://www.nasdaqtrader.com/Micro.aspx?id=PHLXPricing 
[sic].
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    It is also not unfairly discriminatory to charge a lower fee for 
Customer transactions, as Customers do not have direct access to the 
market as do Market Makers, Firms, and Broker Dealers.
    The Exchange believes the modifications to the Customer Monthly 
Posting Credit Tiers are reasonable because they are designed to 
attract additional Customer electronic equity and ETF option volume to 
the Exchange, which would benefit all participants by offering greater 
price discovery, increased transparency, and an increased opportunity 
to trade on the Exchange. The changes are also reasonable in that they 
make it less difficult for an OTP Holder or OTP Firm to achieve the 
qualifications. Additionally, the Exchange believes the proposed 
credits are reasonable because they would incent OTP Holders and OTP 
Firms to submit Customer electronic equity and ETF option orders to the 
Exchange and would result in credits that are reasonably related to the 
Exchange's market quality that is associated with higher volumes.
    The Exchange believes that the proposed changes in the credits are 
equitable and not unfairly discriminatory because they will be 
available to all OTP Holders and OTP Firms that execute posted 
electronic Customer orders on the Exchange on an equal and non-
discriminatory basis, in particular because they provide alternative 
means of achieving the same credit. The Exchange believes that 
providing methods for achieving the credits based on posted electronic 
Customer Executions in both Penny Pilot and non-Penny Pilot issues is 
equitable and not unfairly discriminatory because it would continue to 
result in more OTP Holders and OTP Firms qualifying for the credits and 
therefore reducing their overall transaction costs on the Exchange.
    The Exchange believes the proposed change to the Customer Incentive 
Program is reasonable because it is designed is designed [sic] to 
continue to bring additional posted order flow to NYSE Arca Equities, 
so as to provide additional opportunities for all ETP Holders to trade 
on NYSE Arca Equities.
    The Exchange also believes that the proposed modification to the 
Customer Incentive Program is equitable and not unfairly discriminatory 
because the Exchange is continuing to provide more than one method of 
qualifying for an incentive.\9\
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    \9\ Offering multiple ways to achieve a rebate has been deemed 
acceptable based on past and existing practice in the industry. See, 
e.g., NOM--Options Rules Chapter XV, Options Pricing, Section 2, 
which offers multiple methods of achieving the same rebate, 
available at http://www.nasdaqtrader.com/Micro.aspx?id=PHLXPricing 
[sic].
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    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition.
    For the foregoing reasons, the Exchange believes that the proposal 
is consistent with the Act.

[[Page 22174]]

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

    In accordance with Section 6(b)(8) of the Act,\10\ 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 proposed fee 
change reduces the burden on competition because it takes into account 
the value that various market participants add to the marketplace, as 
discussed above.
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    \10\ 15 U.S.C. 78f(b)(8).
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    The increases in Take Liquidity fees will impact all Customer 
transactions in Penny Pilot issues at the same rate. The proposed 
changes to the Customer Monthly Posting Credit Tiers, and the proposed 
modification to the Customer Incentives are designed to attract 
additional volume, in particular posted electronic Customer executions, 
to the Exchange, which would promote price discovery and transparency 
in the securities markets thereby benefitting competition in the 
industry. As stated above, the Exchange believes that the proposed 
change would impact all similarly situated OTP Holders and OTP Firms 
that post electronic Customer executions on the Exchange equally, and 
as such, the proposed change would not impose a disparate burden on 
competition either among or between classes of market participants. In 
addition, providing and modifying an alternative qualification basis 
for certain tiers by including volume from affiliates allows a firm 
with a diverse business structure, but not a concentration on Customer 
orders only, to earn a higher credit for their Customers by posting 
order flow that improves the overall market quality, and encourages 
posting competitive prices, which result in better available markets 
for Customer orders.
    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive. 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) \11\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \12\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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) \13\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \13\ 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-2014-35 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2014-35. 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 20549-1090, 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 
available publicly. All submissions should refer to File Number SR-
NYSEArca-2014-35, and should be submitted on or before May 12, 2014.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-08973 Filed 4-18-14; 8:45 am]
BILLING CODE 8011-01-P


