81 FR 39089 - Self-Regulatory Organizations; NYSE MKT LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Modify the NYSE Amex Options Fee Schedule With Respect to Fees, Rebates, and Credits for Transactions in the Customer Best Execution Auction

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 115 (June 15, 2016)

Page Range		39089-39092
FR Document		2016-14086

Federal Register, Volume 81 Issue 115 (Wednesday, June 15, 2016)

[Federal Register Volume 81, Number 115 (Wednesday, June 15, 2016)]
[Notices]
[Pages 39089-39092]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2016-14086]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78029; File No. SR-NYSEMKT-2016-45]

Self-Regulatory Organizations; NYSE MKT LLC; Suspension of and
Order Instituting Proceedings To Determine Whether To Approve or
Disapprove a Proposed Rule Change To Modify the NYSE Amex Options Fee
Schedule With Respect to Fees, Rebates, and Credits for Transactions in
the Customer Best Execution Auction

June 9, 2016.

I. Introduction

On April 11, 2016, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'')
filed with the Securities and Exchange Commission (the ``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change
(File No. SR-NYSEMKT-2016-45) to modify the NYSE Amex Options Fee
Schedule with respect to fees, rebates, and credits relating to the
Exchange's Customer Best Execution Auction (``CUBE Auction''),\3\ and
to increase credits available under the Exchange's Amex Customer
Engagement Program (``ACE Program'').\4\ The proposed rule change was
immediately effective upon filing with the Commission pursuant to
Section 19(b)(3)(A) of the Act.\5\ Notice of filing of the proposed
rule change was published in the Federal Register on April 26, 2016.\6\
Under Section 19(b)(3)(C) of the Act,\7\ the Commission is (1) hereby
temporarily suspending File No. SR-NYSEMKT-2016-45, and (2) instituting
proceedings to determine whether to approve or disapprove File No. SR-
NYSEMKT-2016-45.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The CUBE Auction is a mechanism in which an Exchange ATP
Holder submits an agency order on behalf of a customer for price
improvement, paired with a contra-side order guaranteeing execution
of the agency order at or better than the National Best Bid or Offer
(``NBBO'') depending on the circumstances. The contra-side order
could be for the account of the ATP Holder that initiated the CUBE
Auction (``Initiating Participant''), or an order solicited from
another participant. The agency order is exposed for a random period
of time between 500 and 750 milliseconds in which other ATP Holders
submit competing interest at the same price as the initial price or
better (``RFR Responses''). The Initiating Participant is guaranteed
at least 40% of any remainder of the order (after public customers
and better-priced RFR Responses) at the final price for the CUBE
order. See NYSE MKT Rule 971.1NY.
\4\ Under the ACE Program, credits are available to ATP Holders
that bring customer orders to the Exchange based on the percentage
(by tier) of national industry customer volume those customer orders
comprise. See NYSE Amex Options Fee Schedule Section I.E.
\5\ 15 U.S.C. 78s(b)(3)(A).
\6\ See Securities Exchange Act Release No. 77658 (April 20,
2016), 81 FR 24674 (``Notice'').
\7\ 15 U.S.C. 78s(b)(3)(C).
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II. Summary of the Proposed Rule Change

The Exchange's proposal amended certain fees, rebates, and credits
relating to executions through its CUBE Auction. First, the proposal
increased the fees assessed by the Exchange for RFR Responses (i.e.,
orders and quotes submitted during a CUBE Auction that are executed
against the agency order).\8\ Specifically, the Exchange increased RFR
Response fees for Non-Customers (including Market Makers) from $0.12 to
$0.70 for classes subject to the Penny Pilot \9\ (``Penny classes'')
and from $0.12 to $1.05 for classes not subject to the Penny Pilot
(``Non-Penny classes'').
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\8\ See supra note 3 and NYSE Amex Options Fee Schedule, Section
I.G.
\9\ See Commentary .02 to NYSE MKT Rule 960NY. See also
Securities Exchange Act Release No. 75281 (June 24, 2015), 80 FR
37338 (June 30, 2015) (SR-NYSEMKT-2015-43) (extending the Penny
Pilot through June 30, 2016).
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Further, the proposal increased a rebate available to Initiating
Participants in CUBE Auctions (i.e., ATP Holders that initiate such
auctions) \10\ under the Exchange's ACE Program. Specifically, the
proposal increased the rebate paid to Initiating Participants that meet
certain tiers of the ACE Program from $0.05 to $0.18 (the ``ACE
Initiating Participant Rebate'') for each of the first 5,000 Customer
contracts of an agency order executed in a CUBE Auction.\11\
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\10\ See supra note 3.
\11\ See NYSE Amex Options Fee Schedule, Section I.G.
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Finally, the proposal increased the credit paid by the Exchange to
Initiating Participants (the ``break-up credit'') for each contract in
the contra-side order that is paired with the agency order that does
not trade with the agency order because it is replaced in the auction.
Prior to the proposal, the credit granted was $0.05 per contract in all
classes. The proposal raised it to $0.35 for Penny classes and $0.70
for Non-Penny classes.\12\
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\12\ See id. Separate from its proposed changes to CUBE Auction
fees and credits, the Exchange's proposal also increased certain
credits available through its ACE Program with respect to non-CUBE
transactions. See Notice, supra note 6, at 24674-75. See also NYSE
Amex Options Fee Schedule, Section I.E.
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In its filing, the Exchange stated that the changes to the CUBE
Auction transaction fees are reasonable, equitable and not unfairly
discriminatory ``because they apply equally to all ATP Holders that
choose to participate in the CUBE, and access to the Exchange is
offered on terms that

[[Page 39090]]

are not unfairly discriminatory.'' \13\ The Exchange also took the
position, with regard specifically to the ACE Initiating Participant
Credit, that the change is reasonable, equitable, and not unfairly
discriminatory because it is ``designed to attract more volume and
liquidity to the Exchange generally, and to CUBE Auctions
specifically,'' which, according to the Exchange, ``would benefit all
market participants . . . through increased opportunities to trade at
potentially improved prices as well as enhancing price discovery.''
\14\ The Exchange believes that its proposal is reasonable because it
is similar to the fee and credit structures previously applied to the
CUBE Auction and to fees charged for similar auctions on other
exchanges.\15\ The Exchange further stated that the proposal ``would
improve the Exchange's overall competitiveness and strengthen its
market quality for all market participants.'' \16\ Finally, the
Exchange does not believe the proposal would impose any unnecessary or
inappropriate burden on competition because it is ``pro-competitive''
and ``designed to incent increases in the number of CUBE Auctions
brought to the Exchange,'' thereby ``benefit[ting] all Exchange
participants through increased opportunities to trade as well as
enhancing price discovery.'' \17\
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\13\ See Notice, supra note 6, at 24675.
\14\ See id. at 24675-76.
\15\ See id. at 24675 & n.10.
\16\ See id. at 24676. The Exchange stated that the CUBE fee and
credit adjustments established by the instant proposal are
consistent with the fees and credits that were in place for the same
items in its Fee Schedule prior to February 2016. See id. at 24675
n.6.
\17\ See id. at 24676. The Exchange also noted that it operates
in a highly-competitive market. See id.
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The Commission has received no comment letters on the Exchange's
proposed rule change.

III. Suspension of SR-NYSEMKT-2016-45

Pursuant to Section 19(b)(3)(C) of the Act,\18\ at any time within
60 days of the date of filing a proposed rule change pursuant to
Section 19(b)(1) of the Act,\19\ the Commission summarily may
temporarily suspend the change in the rules of a self-regulatory
organization 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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\18\ 15 U.S.C. 78s(b)(3)(C).
\19\ 15 U.S.C. 78s(b)(1).
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The Commission is concerned about the potential effect the proposal
may have on the operation of the CUBE Auction and its potential to
provide price improvement to customers, as well as on competition among
participants initiating CUBE Auctions and those responding to them. The
Commission notes that the proposal raised the RFR Response fee for Non-
Customer auction responders to $0.70 per executed contract in Penny
classes ($1.05 in Non-Penny classes) while leaving the fee for the
Initiating Participant at $0.05 per executed contract, the same as it
was prior to the proposed rule change.\20\ In temporarily suspending
the proposal, the Commission intends to further assess whether the new
RFR Response fees for Non-Customers are consistent with the statutory
requirements applicable to a national securities exchange under the
Act. In addition, the Commission intends to further assess whether the
differential between the new RFR Response fees and the net fees or
rebates applicable to Initiating Participants are consistent with the
statutory requirements applicable to a national securities exchange
under the Act. In particular, the Commission will assess, among other
things, whether the proposal satisfies the statutory provisions that
require exchange rules to: (1) Provide for the equitable allocation of
reasonable fees among members, issuers, and other persons using its
facilities; \21\ (2) perfect the mechanism of a free and open market
and a national market system, protect investors and the public
interest, and not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers; \22\ and (3) not impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.\23\
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\20\ See Notice, supra note 6, at 24675. The amended fees thus
create a fee differential between the Initiating Participant and
certain auction responders of $0.65 in Penny classes and $1.00 in
Non-Penny classes. Taking into consideration that the ACE rebate
that may be available to an Initiating Participant submitting the
agency order into the CUBE Auction is increased to $0.18 (see text
accompanying supra notes 10-11), this fee differential may be
widened further. For example, under the proposal, an Initiating
Participant that executes 100% of the agency order in a Penny class
is charged a $0.05 per contract transaction fee and, if applicable,
receives a $0.18 per contract rebate (subject to a 5,000 contract
cap). This results potentially in a net fee that awards a $0.13 per
contract rebate to an Initiating Participant that executes 100% of
its customer's order. In contrast, an auction responder in a Penny
class is charged a $0.70 per contract transaction fee, also its net
fee. Comparing the net fees charged to the Initiating Participant
and Non-Customer auction responders, the potential disparity in
Penny classes is $0.83 per contract.
\21\ 15 U.S.C. 78f(b)(4).
\22\ 15 U.S.C. 78f(b)(5).
\23\ 15 U.S.C. 78f(b)(8).
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Therefore, the Commission finds that it is appropriate in the
public interest, for the protection of investors, and otherwise in
furtherance of the purposes of the Act, to temporarily suspend the
proposed rule change.

IV. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEMKT-2016-45

The Commission is instituting proceedings pursuant to Sections
19(b)(3)(C) \24\ and 19(b)(2) of the Act \25\ to determine whether the
proposed rule change should be approved or disapproved. Institution of
proceedings is appropriate at this time in view of the significant
legal and policy issues raised by the proposal as discussed below.
Institution of proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
Rather, as described in greater detail below, the Commission seeks and
encourages interested persons to provide additional comment on the
proposed rule change to inform the Commission's analysis of whether to
disapprove the proposed rule change.
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\24\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily
suspends a proposed rule change, Section 19(b)(3)(C) of the Act
requires that the Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule change should be
approved or disapproved.
\25\ 15 U.S.C. 78s(b)(2).
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Pursuant to Section 19(b)(2)(B) of the Act,\26\ the Commission is
providing notice of the following grounds for disapproval that are
under consideration:
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\26\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also
provides that proceedings to determine whether to approve or
disapprove a proposed rule change must be concluded within 180 days
of the date of publication of notice of the filing of the proposed
rule change. Id. The time for conclusion of the proceedings may be
extended for up to 60 days if the Commission finds good cause for
such extension and publishes its reasons for so finding. Id.
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Section 6(b)(4) of the Act, which requires that the rules
of a national securities exchange ``provide for the equitable
allocation of reasonable dues, fees, and other charges among its
members and issuers and other persons using its facilities,'' \27\
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\27\ 15 U.S.C. 78f(b)(4).
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Section 6(b)(5) of the Act, which requires, among other
things, that the rules of a national securities exchange be ``designed
to perfect the operation of a free and open market and a national
market system'' and ``protect investors and the public interest,'' and
not be ``designed to permit unfair discrimination between customers,
issuers, brokers, or dealers,'' \28\ and
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\28\ 15 U.S.C. 78f(b)(5).
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Section 6(b)(8) of the Act, which requires that the rules
of a national securities exchange ``not impose any burden on
competition not necessary or

[[Page 39091]]

appropriate in furtherance of the purposes of [the Act].'' \29\
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\29\ 15 U.S.C. 78f(b)(8).
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As discussed above, the proposal, among other things, increased the
RFR Response fee for Non-Customer auction responders from $0.12 to
$0.70 for Penny classes, and from $0.12 to $1.05 for Non-Penny classes,
while leaving the fee for Initiating Participants unchanged at $0.05
per executed contract. At the same time, the proposal increased the
rebate available to an Initiating Participant from $0.05 to $0.18 per
executed contract so that, when it qualifies for this rebate, the
Initiating Participant receives a net payment of $0.13 per contract to
participate in the CUBE Auction.\30\ Accordingly, the fee differential
between Non-Customer auction responders and Initiating Participants can
be $0.83 per executed contract for Penny classes, and $1.18 per
contract for Non-Penny classes. Further, the Exchange increased the
break-up credit payable to an Initiating Participant that does not
execute all of the agency order it brings to a CUBE Auction, due to the
participation of an auction responder, from $0.05 to $0.35 in Penny
classes, and from $0.05 to $0.70 in Non-Penny classes, for each
contract not executed.
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\30\ See supra note 20 and accompanying text.
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The Exchange justifies the proposal on the grounds that it would
create incentives for Initiating Participants to bring customer orders
to the Exchange, and thereby benefit all members by providing more
trading opportunities, potential price improvement, tighter spreads,
and enhanced market quality. The Commission acknowledges that
increasing the rebates and break-up credits provided to Initiating
Participants likely would strengthen their incentives to bring customer
orders to the Exchange. On the other hand, substantially increasing the
fees paid by Non-Customer auction responders would appear to deter them
from participating in CUBE Auctions. In Penny classes, for example, the
fee charged Non-Customer auction responders would exceed one-half the
minimum trading increment, and the economic differential between such
auction responders and the Initiating Participants with whom they are
competing would be even more. Accordingly, the Commission believes
questions are raised as to whether the proposal would in fact provide
the additional trading opportunities for non-Initiating Participants
and other market quality benefits suggested by the Exchange.
As to the specific statutory standards, the Exchange takes the
position that its proposed fee changes are reasonable, equitable, and
not unfairly discriminatory because they apply to all members that
choose to participate in the CUBE Auction, and that access to the
Exchange is offered on terms that are not unfairly discriminatory. The
Exchange's justification, however, does not address a key aspect of its
proposal, namely the fact that it would substantially exacerbate the
differences in the fees assessed by the Exchange on Initiating
Participants and non-Initiating Participants, raising issues, among
other things, as to whether the proposal is equitable and not unfairly
discriminatory among Exchange members. While the Exchange states that
the proposal also would provide all members additional trading
opportunities and other market quality benefits, as discussed above,
the reasoning behind this assertion is not clear and the Exchange has
offered no supporting data. Furthermore, the Exchange does not address
in any detail the increases in the break-up credit payable to
Initiating Participants for not executing transactions on the Exchange,
and why that payment is reasonable, equitable, and not unfairly
discriminatory.
With respect to the statutory requirement that the proposal not
impose any unnecessary or inappropriate burden on competition, the
Exchange makes similar arguments, asserting that its proposal is pro-
competitive because it would incent Initiating Participants to bring
customer orders to the Exchange, provide more trading opportunities,
and improve market quality, all within the competitive environment in
which the Exchange does business. The Exchange's justification,
however, does not address the potential burden on competition that its
proposed fee changes would have on competition between Initiating
Participants and non-Initiating Participants, and the prospect that, by
substantially increasing the auction response fees paid by non-
Initiating Participants, competition in CUBE Auctions could be
impaired.
The Commission believes that the concerns discussed herein raise
questions as to whether the proposed fees are consistent with the Act,
and specifically, with its requirements that exchange fees be
reasonable and equitably allocated; be designed to perfect the
mechanism of a free and open market and the national market system,
protect investors and the public interest, and not be unfairly
discriminatory; or not impose an unnecessary or inappropriate burden on
competition.\31\
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\31\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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V. Commission's Solicitation of Comments

The Commission requests written views, data, and arguments with
respect to the concerns identified above as well as any other relevant
concerns. Such comments should be submitted by July 5, 2016. Rebuttal
comments should be submitted by July 19, 2016. Although there do not
appear to be any issues relevant to approval or disapproval which would
be facilitated by an oral presentation of views, data, and arguments,
the Commission will consider, pursuant to Rule 19b-4, any request for
an opportunity to make an oral presentation.\32\
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\32\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Acts Amendments of 1975, Report of the
Senate Committee on Banking, Housing and Urban Affairs to Accompany
S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).
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The Commission asks that commenters address the sufficiency and
merit of the Exchange's statements in support of the proposal, in
addition to any other comments they may wish to submit about the
proposed rule change. In particular, the Commission seeks comment and
data on the following:
The impact of the proposed fee changes on incentives for
non-Initiating Participants to respond in the CUBE Auction;
The impact of the proposed fee changes on incentives for
non-Initiating Participants that respond in the CUBE Auction to offer
price improvement;
The impact of the proposed fee changes on incentives for
Initiating Participants to submit Customer orders in the CUBE Auction;
The impact of the proposed fee changes on the prices at
which Initiating Participants submit Customer orders in the CUBE
Auction;
The impact of the proposed fee changes on the quoting
behavior of market makers on the Exchange;
The impact of the proposed fee changes on Exchange market
quality;
Whether the Commission should undertake a broader review
of the fee structures applied by the options exchanges to their price
improvement auctions;
Whether the Commission should view a specific auction
response fee level for Penny classes, such as an amount exceeding half
the minimum trading increment, as presumptively

[[Page 39092]]

unreasonable, unfairly discriminatory, imposing an unnecessary or
inappropriate burden on competition, or otherwise inconsistent with the
Act;
Whether transaction fees that exceed half of the minimum
trading increment in Penny classes make participation uneconomical for
potential auction responders, given that they may not be able to
compete with the Initiating Participant at the same trading increment
due to the impact of such fees;
Whether there should be a specific auction response fee
level that, for Non-Penny classes, should be viewed as presumptively
inconsistent with the Act and, if so, what that fee level should be;
Whether the Commission should view a specific differential
in the net fees imposed by an exchange on Initiating Participants and
potential auction responders as presumptively inconsistent with the Act
and, if so, what that differential should be; and
Whether the Commission should view break-up credits, which
are paid to Initiating Participants for not executing a transaction, as
presumptively inconsistent with the Act.
Interested persons are invited to submit written data, views, and
arguments concerning the proposed rule change, 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 [email protected]. Please include
File Number SR-NYSEMKT-2016-45 on the subject line.

Paper Comments

Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEMKT-2016-45. 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-NYSEMKT-2016-45 and should
be submitted on or before July 5, 2016. Rebuttal comments should be
submitted by July 19, 2016.

VI. Conclusion

It is therefore ordered, pursuant to Section 19(b)(3)(C) of the
Act,\33\ that File No. SR-NYSEMKT-2016-45 be and hereby is, temporarily
suspended. In addition, the Commission is instituting proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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\33\ 15 U.S.C. 78s(b)(3)(C).
\34\ 17 CFR 200.30-3(a)(57) and (58).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-14086 Filed 6-14-16; 8:45 am]
BILLING CODE 8011-01-P

Federal Register / Vol. 81, No. 115 / Wednesday, June 15, 2016 / Notices 39089

Commission, 100 F Street NE., SECURITIES AND EXCHANGE File No. SR–NYSEMKT–2016–45, and
Washington, DC 20549–1090. COMMISSION (2) instituting proceedings to determine
whether to approve or disapprove File
All submissions should refer to File [Release No. 34–78029; File No. SR–
No. SR–NYSEMKT–2016–45.
Number SR–FINRA–2016–018. This file NYSEMKT–2016–45]
number should be included on the II. Summary of the Proposed Rule
Self-Regulatory Organizations; NYSE Change
subject line if email is used. To help the
MKT LLC; Suspension of and Order
Commission process and review your Instituting Proceedings To Determine The Exchange’s proposal amended
comments more efficiently, please use Whether To Approve or Disapprove a certain fees, rebates, and credits relating
only one method. The Commission will Proposed Rule Change To Modify the to executions through its CUBE Auction.
post all comments on the Commission’s NYSE Amex Options Fee Schedule First, the proposal increased the fees
Internet Web site (http://www.sec.gov/ With Respect to Fees, Rebates, and assessed by the Exchange for RFR
rules/sro.shtml). Copies of the Credits for Transactions in the Responses (i.e., orders and quotes
submission, all subsequent Customer Best Execution Auction submitted during a CUBE Auction that
amendments, all written statements are executed against the agency order).8
with respect to the proposed rule June 9, 2016. Specifically, the Exchange increased
change that are filed with the RFR Response fees for Non-Customers
I. Introduction
(including Market Makers) from $0.12 to
Commission, and all written On April 11, 2016, NYSE MKT LLC $0.70 for classes subject to the Penny
communications relating to the (the ‘‘Exchange’’ or ‘‘NYSE MKT’’) filed Pilot 9 (‘‘Penny classes’’) and from $0.12
proposed rule change between the with the Securities and Exchange to $1.05 for classes not subject to the
Commission and any person, other than Commission (the ‘‘Commission’’), Penny Pilot (‘‘Non-Penny classes’’).
those that may be withheld from the pursuant to Section 19(b)(1) of the Further, the proposal increased a
public in accordance with the Securities Exchange Act of 1934 (the rebate available to Initiating Participants
provisions of 5 U.S.C. 552, will be ‘‘Act’’),1 and Rule 19b–4 thereunder,2 a in CUBE Auctions (i.e., ATP Holders
available for Web site viewing and proposed rule change (File No. SR– that initiate such auctions) 10 under the
printing in the Commission’s Public NYSEMKT–2016–45) to modify the Exchange’s ACE Program. Specifically,
Reference Room, 100 F Street NE., NYSE Amex Options Fee Schedule with the proposal increased the rebate paid to
Washington, DC 20549, on official respect to fees, rebates, and credits Initiating Participants that meet certain
business days between the hours of relating to the Exchange’s Customer Best tiers of the ACE Program from $0.05 to
10:00 a.m. and 3:00 p.m. Copies of such Execution Auction (‘‘CUBE Auction’’),3 $0.18 (the ‘‘ACE Initiating Participant
filing also will be available for and to increase credits available under Rebate’’) for each of the first 5,000
inspection and copying at the principal the Exchange’s Amex Customer Customer contracts of an agency order
office of FINRA. All comments received Engagement Program (‘‘ACE Program’’).4 executed in a CUBE Auction.11
will be posted without change; the The proposed rule change was Finally, the proposal increased the
immediately effective upon filing with credit paid by the Exchange to Initiating
Commission does not edit personal
the Commission pursuant to Section Participants (the ‘‘break-up credit’’) for
identifying information from
19(b)(3)(A) of the Act.5 Notice of filing each contract in the contra-side order
submissions. You should submit only that is paired with the agency order that
of the proposed rule change was
information that you wish to make does not trade with the agency order
published in the Federal Register on
available publicly. All submissions because it is replaced in the auction.
April 26, 2016.6 Under Section
should refer to File Number SR–FINRA– Prior to the proposal, the credit granted
19(b)(3)(C) of the Act,7 the Commission
2016–018 and should be submitted on is (1) hereby temporarily suspending was $0.05 per contract in all classes.
or before July 6, 2016. The proposal raised it to $0.35 for
For the Commission, by the Division of 1 15 U.S.C. 78s(b)(1). Penny classes and $0.70 for Non-Penny
Trading and Markets, pursuant to delegated 2 17 CFR 240.19b–4. classes.12
authority.40
3 The CUBE Auction is a mechanism in which an In its filing, the Exchange stated that
Exchange ATP Holder submits an agency order on the changes to the CUBE Auction
Robert W. Errett, behalf of a customer for price improvement, paired transaction fees are reasonable,
Deputy Secretary. with a contra-side order guaranteeing execution of
the agency order at or better than the National Best equitable and not unfairly
[FR Doc. 2016–14084 Filed 6–14–16; 8:45 am] Bid or Offer (‘‘NBBO’’) depending on the discriminatory ‘‘because they apply
BILLING CODE 8011–01–P circumstances. The contra-side order could be for equally to all ATP Holders that choose
the account of the ATP Holder that initiated the to participate in the CUBE, and access
CUBE Auction (‘‘Initiating Participant’’), or an order
solicited from another participant. The agency order to the Exchange is offered on terms that
is exposed for a random period of time between 500
and 750 milliseconds in which other ATP Holders 8 See supra note 3 and NYSE Amex Options Fee

submit competing interest at the same price as the Schedule, Section I.G.
initial price or better (‘‘RFR Responses’’). The 9 See Commentary .02 to NYSE MKT Rule 960NY.
Initiating Participant is guaranteed at least 40% of See also Securities Exchange Act Release No. 75281
any remainder of the order (after public customers (June 24, 2015), 80 FR 37338 (June 30, 2015) (SR–
and better-priced RFR Responses) at the final price NYSEMKT–2015–43) (extending the Penny Pilot
for the CUBE order. See NYSE MKT Rule 971.1NY. through June 30, 2016).
4 Under the ACE Program, credits are available to 10 See supra note 3.
ATP Holders that bring customer orders to the 11 See NYSE Amex Options Fee Schedule,
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Exchange based on the percentage (by tier) of Section I.G.
national industry customer volume those customer 12 See id. Separate from its proposed changes to
orders comprise. See NYSE Amex Options Fee CUBE Auction fees and credits, the Exchange’s
Schedule Section I.E. proposal also increased certain credits available
5 15 U.S.C. 78s(b)(3)(A).
through its ACE Program with respect to non-CUBE
6 See Securities Exchange Act Release No. 77658
transactions. See Notice, supra note 6, at 24674–75.
(April 20, 2016), 81 FR 24674 (‘‘Notice’’). See also NYSE Amex Options Fee Schedule,
40 17 CFR 200.30–3(a)(12). 7 15 U.S.C. 78s(b)(3)(C). Section I.E.

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39090 Federal Register / Vol. 81, No. 115 / Wednesday, June 15, 2016 / Notices

are not unfairly discriminatory.’’ 13 The as on competition among participants of the Act, to temporarily suspend the
Exchange also took the position, with initiating CUBE Auctions and those proposed rule change.
regard specifically to the ACE Initiating responding to them. The Commission
IV. Proceedings To Determine Whether
Participant Credit, that the change is notes that the proposal raised the RFR
To Approve or Disapprove SR–
reasonable, equitable, and not unfairly Response fee for Non-Customer auction
NYSEMKT–2016–45
discriminatory because it is ‘‘designed responders to $0.70 per executed
to attract more volume and liquidity to contract in Penny classes ($1.05 in Non- The Commission is instituting
the Exchange generally, and to CUBE Penny classes) while leaving the fee for proceedings pursuant to Sections
Auctions specifically,’’ which, the Initiating Participant at $0.05 per 19(b)(3)(C) 24 and 19(b)(2) of the Act 25
according to the Exchange, ‘‘would executed contract, the same as it was to determine whether the proposed rule
benefit all market participants . . . prior to the proposed rule change.20 In change should be approved or
through increased opportunities to trade temporarily suspending the proposal, disapproved. Institution of proceedings
at potentially improved prices as well as the Commission intends to further is appropriate at this time in view of the
enhancing price discovery.’’ 14 The assess whether the new RFR Response significant legal and policy issues raised
Exchange believes that its proposal is fees for Non-Customers are consistent by the proposal as discussed below.
reasonable because it is similar to the with the statutory requirements Institution of proceedings does not
fee and credit structures previously applicable to a national securities indicate that the Commission has
applied to the CUBE Auction and to fees exchange under the Act. In addition, the reached any conclusions with respect to
charged for similar auctions on other Commission intends to further assess any of the issues involved. Rather, as
exchanges.15 The Exchange further whether the differential between the described in greater detail below, the
stated that the proposal ‘‘would improve new RFR Response fees and the net fees Commission seeks and encourages
the Exchange’s overall competitiveness or rebates applicable to Initiating interested persons to provide additional
and strengthen its market quality for all Participants are consistent with the comment on the proposed rule change
market participants.’’ 16 Finally, the statutory requirements applicable to a to inform the Commission’s analysis of
Exchange does not believe the proposal national securities exchange under the whether to disapprove the proposed
would impose any unnecessary or Act. In particular, the Commission will rule change.
inappropriate burden on competition assess, among other things, whether the Pursuant to Section 19(b)(2)(B) of the
because it is ‘‘pro-competitive’’ and proposal satisfies the statutory Act,26 the Commission is providing
‘‘designed to incent increases in the provisions that require exchange rules notice of the following grounds for
number of CUBE Auctions brought to to: (1) Provide for the equitable disapproval that are under
the Exchange,’’ thereby ‘‘benefit[ting] all allocation of reasonable fees among consideration:
Exchange participants through members, issuers, and other persons • Section 6(b)(4) of the Act, which
increased opportunities to trade as well using its facilities; 21 (2) perfect the requires that the rules of a national
as enhancing price discovery.’’ 17 mechanism of a free and open market securities exchange ‘‘provide for the
The Commission has received no and a national market system, protect equitable allocation of reasonable dues,
comment letters on the Exchange’s investors and the public interest, and fees, and other charges among its
proposed rule change. not be designed to permit unfair members and issuers and other persons
III. Suspension of SR–NYSEMKT–2016– discrimination between customers, using its facilities,’’ 27
issuers, brokers, or dealers; 22 and (3) • Section 6(b)(5) of the Act, which
45
not impose any burden on competition requires, among other things, that the
Pursuant to Section 19(b)(3)(C) of the not necessary or appropriate in rules of a national securities exchange
Act,18 at any time within 60 days of the furtherance of the purposes of the Act.23 be ‘‘designed to perfect the operation of
date of filing a proposed rule change Therefore, the Commission finds that a free and open market and a national
pursuant to Section 19(b)(1) of the it is appropriate in the public interest, market system’’ and ‘‘protect investors
Act,19 the Commission summarily may for the protection of investors, and and the public interest,’’ and not be
temporarily suspend the change in the otherwise in furtherance of the purposes ‘‘designed to permit unfair
rules of a self-regulatory organization if discrimination between customers,
it appears to the Commission that such 20 See Notice, supra note 6, at 24675. The
issuers, brokers, or dealers,’’ 28 and
action is necessary or appropriate in the amended fees thus create a fee differential between • Section 6(b)(8) of the Act, which
public interest, for the protection of the Initiating Participant and certain auction
responders of $0.65 in Penny classes and $1.00 in requires that the rules of a national
investors, or otherwise in furtherance of Non-Penny classes. Taking into consideration that securities exchange ‘‘not impose any
the purposes of the Act. the ACE rebate that may be available to an Initiating burden on competition not necessary or
The Commission is concerned about Participant submitting the agency order into the
the potential effect the proposal may CUBE Auction is increased to $0.18 (see text 24 15 U.S.C. 78s(b)(3)(C). Once the Commission
accompanying supra notes 10–11), this fee
have on the operation of the CUBE differential may be widened further. For example, temporarily suspends a proposed rule change,
Auction and its potential to provide under the proposal, an Initiating Participant that Section 19(b)(3)(C) of the Act requires that the
price improvement to customers, as well executes 100% of the agency order in a Penny class Commission institute proceedings under Section
is charged a $0.05 per contract transaction fee and, 19(b)(2)(B) to determine whether a proposed rule
if applicable, receives a $0.18 per contract rebate change should be approved or disapproved.
13 See Notice, supra note 6, at 24675. 25 15 U.S.C. 78s(b)(2).
(subject to a 5,000 contract cap). This results
14 See id. at 24675–76. potentially in a net fee that awards a $0.13 per 26 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the
15 See id. at 24675 & n.10.
contract rebate to an Initiating Participant that Act also provides that proceedings to determine
16 See id. at 24676. The Exchange stated that the executes 100% of its customer’s order. In contrast, whether to approve or disapprove a proposed rule
CUBE fee and credit adjustments established by the an auction responder in a Penny class is charged change must be concluded within 180 days of the
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instant proposal are consistent with the fees and a $0.70 per contract transaction fee, also its net fee. date of publication of notice of the filing of the
credits that were in place for the same items in its Comparing the net fees charged to the Initiating proposed rule change. Id. The time for conclusion
Fee Schedule prior to February 2016. See id. at Participant and Non-Customer auction responders, of the proceedings may be extended for up to 60
24675 n.6. the potential disparity in Penny classes is $0.83 per days if the Commission finds good cause for such
17 See id. at 24676. The Exchange also noted that contract. extension and publishes its reasons for so finding.
it operates in a highly-competitive market. See id. 21 15 U.S.C. 78f(b)(4). Id.
18 15 U.S.C. 78s(b)(3)(C). 22 15 U.S.C. 78f(b)(5). 27 15 U.S.C. 78f(b)(4).
19 15 U.S.C. 78s(b)(1). 23 15 U.S.C. 78f(b)(8). 28 15 U.S.C. 78f(b)(5).

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Federal Register / Vol. 81, No. 115 / Wednesday, June 15, 2016 / Notices 39091

appropriate in furtherance of the As to the specific statutory standards, unnecessary or inappropriate burden on
purposes of [the Act].’’ 29 the Exchange takes the position that its competition.31
As discussed above, the proposal, proposed fee changes are reasonable,
V. Commission’s Solicitation of
among other things, increased the RFR equitable, and not unfairly
Comments
Response fee for Non-Customer auction discriminatory because they apply to all
responders from $0.12 to $0.70 for members that choose to participate in The Commission requests written
Penny classes, and from $0.12 to $1.05 the CUBE Auction, and that access to views, data, and arguments with respect
for Non-Penny classes, while leaving the the Exchange is offered on terms that are to the concerns identified above as well
fee for Initiating Participants unchanged not unfairly discriminatory. The as any other relevant concerns. Such
at $0.05 per executed contract. At the Exchange’s justification, however, does comments should be submitted by July
same time, the proposal increased the not address a key aspect of its proposal, 5, 2016. Rebuttal comments should be
rebate available to an Initiating namely the fact that it would submitted by July 19, 2016. Although
Participant from $0.05 to $0.18 per substantially exacerbate the differences there do not appear to be any issues
executed contract so that, when it in the fees assessed by the Exchange on relevant to approval or disapproval
qualifies for this rebate, the Initiating Initiating Participants and non-Initiating which would be facilitated by an oral
Participant receives a net payment of Participants, raising issues, among other presentation of views, data, and
$0.13 per contract to participate in the things, as to whether the proposal is arguments, the Commission will
CUBE Auction.30 Accordingly, the fee equitable and not unfairly consider, pursuant to Rule 19b–4, any
differential between Non-Customer discriminatory among Exchange request for an opportunity to make an
auction responders and Initiating members. While the Exchange states oral presentation.32
Participants can be $0.83 per executed that the proposal also would provide all The Commission asks that
contract for Penny classes, and $1.18 members additional trading commenters address the sufficiency and
per contract for Non-Penny classes. opportunities and other market quality merit of the Exchange’s statements in
Further, the Exchange increased the benefits, as discussed above, the support of the proposal, in addition to
break-up credit payable to an Initiating reasoning behind this assertion is not any other comments they may wish to
Participant that does not execute all of clear and the Exchange has offered no submit about the proposed rule change.
the agency order it brings to a CUBE supporting data. Furthermore, the In particular, the Commission seeks
Auction, due to the participation of an Exchange does not address in any detail comment and data on the following:
auction responder, from $0.05 to $0.35 the increases in the break-up credit • The impact of the proposed fee
in Penny classes, and from $0.05 to payable to Initiating Participants for not changes on incentives for non-Initiating
$0.70 in Non-Penny classes, for each executing transactions on the Exchange, Participants to respond in the CUBE
contract not executed. and why that payment is reasonable, Auction;
equitable, and not unfairly • The impact of the proposed fee
The Exchange justifies the proposal changes on incentives for non-Initiating
discriminatory.
on the grounds that it would create With respect to the statutory Participants that respond in the CUBE
incentives for Initiating Participants to requirement that the proposal not Auction to offer price improvement;
bring customer orders to the Exchange, impose any unnecessary or • The impact of the proposed fee
and thereby benefit all members by inappropriate burden on competition, changes on incentives for Initiating
providing more trading opportunities, the Exchange makes similar arguments, Participants to submit Customer orders
potential price improvement, tighter asserting that its proposal is pro- in the CUBE Auction;
spreads, and enhanced market quality. competitive because it would incent • The impact of the proposed fee
The Commission acknowledges that Initiating Participants to bring customer changes on the prices at which Initiating
increasing the rebates and break-up orders to the Exchange, provide more Participants submit Customer orders in
credits provided to Initiating trading opportunities, and improve the CUBE Auction;
Participants likely would strengthen market quality, all within the • The impact of the proposed fee
their incentives to bring customer orders competitive environment in which the changes on the quoting behavior of
to the Exchange. On the other hand, Exchange does business. The market makers on the Exchange;
substantially increasing the fees paid by Exchange’s justification, however, does • The impact of the proposed fee
Non-Customer auction responders not address the potential burden on changes on Exchange market quality;
would appear to deter them from competition that its proposed fee • Whether the Commission should
participating in CUBE Auctions. In changes would have on competition undertake a broader review of the fee
Penny classes, for example, the fee between Initiating Participants and non- structures applied by the options
charged Non-Customer auction Initiating Participants, and the prospect exchanges to their price improvement
responders would exceed one-half the that, by substantially increasing the auctions;
minimum trading increment, and the auction response fees paid by non- • Whether the Commission should
economic differential between such Initiating Participants, competition in view a specific auction response fee
auction responders and the Initiating CUBE Auctions could be impaired. level for Penny classes, such as an
Participants with whom they are The Commission believes that the amount exceeding half the minimum
competing would be even more. concerns discussed herein raise trading increment, as presumptively
Accordingly, the Commission believes questions as to whether the proposed
questions are raised as to whether the fees are consistent with the Act, and 31 See 15 U.S.C. 78f(b)(4), (5), and (8).
32 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act
proposal would in fact provide the specifically, with its requirements that
grants the Commission flexibility to determine what
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additional trading opportunities for exchange fees be reasonable and type of proceeding—either oral or notice and
non-Initiating Participants and other equitably allocated; be designed to opportunity for written comments—is appropriate
market quality benefits suggested by the perfect the mechanism of a free and for consideration of a particular proposal by a self-
Exchange. open market and the national market regulatory organization. See Securities Acts
Amendments of 1975, Report of the Senate
system, protect investors and the public Committee on Banking, Housing and Urban Affairs
29 15 U.S.C. 78f(b)(8). interest, and not be unfairly to Accompany S. 249, S. Rep. No. 75, 94th Cong.,
30 See supra note 20 and accompanying text. discriminatory; or not impose an 1st Sess. 30 (1975).

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39092 Federal Register / Vol. 81, No. 115 / Wednesday, June 15, 2016 / Notices

unreasonable, unfairly discriminatory, those that may be withheld from the III below, which Items have been
imposing an unnecessary or public in accordance with the prepared by the Exchange. The
inappropriate burden on competition, or provisions of 5 U.S.C. 552, will be Exchange filed the proposed rule change
otherwise inconsistent with the Act; available for Web site viewing and pursuant to Section 19(b)(3)(A)(ii) of the
• Whether transaction fees that printing in the Commission’s Public Act,3 and Rule 19b–4(f)(2) thereunder,4
exceed half of the minimum trading Reference Room, 100 F Street NE., which renders the proposal effective
increment in Penny classes make Washington, DC 20549 on official upon filing with the Commission. The
participation uneconomical for potential business days between the hours of Commission is publishing this notice to
auction responders, given that they may 10:00 a.m. and 3:00 p.m. Copies of the solicit comments on the proposed rule
not be able to compete with the filing also will be available for change from interested persons.
Initiating Participant at the same trading inspection and copying at the principal
increment due to the impact of such office of the Exchange. All comments I. Self-Regulatory Organization’s
fees; received will be posted without change; Statement of the Terms of the Substance
• Whether there should be a specific the Commission does not edit personal of the Proposed Rule Change
auction response fee level that, for Non- identifying information from The Exchange is filing with the
Penny classes, should be viewed as submissions. You should submit only Securities and Exchange Commission
presumptively inconsistent with the Act information that you wish to make (‘‘Commission’’) a proposed rule change
and, if so, what that fee level should be; available publicly. All submissions to amend the Fee Schedule to make
• Whether the Commission should should refer to File Number SR– non-substantive clerical amendments.
view a specific differential in the net NYSEMKT–2016–45 and should be While changes to the fee schedule
fees imposed by an exchange on submitted on or before July 5, 2016. pursuant to this proposal will be
Initiating Participants and potential Rebuttal comments should be submitted effective upon filing, the changes will
auction responders as presumptively by July 19, 2016. become operative on June 1, 2016. The
inconsistent with the Act and, if so, text of the proposed rule change is
what that differential should be; and VI. Conclusion
available from the principal office of the
• Whether the Commission should It is therefore ordered, pursuant to Exchange, at the Commission’s Public
view break-up credits, which are paid to Section 19(b)(3)(C) of the Act,33 that File Reference Room and also on the
Initiating Participants for not executing No. SR–NYSEMKT–2016–45 be and Exchange’s Internet Web site at http://
a transaction, as presumptively hereby is, temporarily suspended. In boxexchange.com.
inconsistent with the Act. addition, the Commission is instituting
Interested persons are invited to proceedings to determine whether the II. Self-Regulatory Organization’s
submit written data, views, and proposed rule change should be Statement of the Purpose of, and
arguments concerning the proposed rule approved or disapproved. Statutory Basis for, the Proposed Rule
change, including whether the proposed Change
For the Commission, by the Division of
rule change is consistent with the Act. Trading and Markets, pursuant to delegated In its filing with the Commission, the
Comments may be submitted by any of authority.34 Exchange included statements
the following methods: Robert W. Errett, concerning the purpose of and basis for
Electronic Comments Deputy Secretary. the proposed rule change and discussed
[FR Doc. 2016–14086 Filed 6–14–16; 8:45 am] any comments it received on the
• Use the Commission’s Internet proposed rule change. The text of these
BILLING CODE 8011–01–P
comment form (http://www.sec.gov/ statements may be examined at the
rules/sro.shtml); or places specified in Item IV below. The
• Send an email to rule-comments@ Exchange has prepared summaries, set
sec.gov. Please include File Number SR– SECURITIES AND EXCHANGE
COMMISSION forth in Sections A, B, and C below, of
NYSEMKT–2016–45 on the subject line. the most significant aspects of such
[Release No. 34–78024; File No. SR–BOX– statements.
Paper Comments 2016–23]
• Send paper comments in triplicate A. Self-Regulatory Organization’s
to Brent J. Fields, Secretary, Securities Self-Regulatory Organizations; BOX Statement of the Purpose of, and
and Exchange Commission, 100 F Street Options Exchange LLC; Notice of Statutory Basis for, the Proposed Rule
NE., Washington, DC 20549–1090. Filing and Immediate Effectiveness of Change
All submissions should refer to File a Proposed Rule Change To Amend
the Fee Schedule To Make Non- 1. Purpose
Number SR–NYSEMKT–2016–45. This
file number should be included on the Substantive Clerical Amendments Non-Auction Transactions
subject line if email is used. To help the June 9, 2016. The Exchange proposes to amend
Commission process and review your Pursuant to Section 19(b)(1) of the Section I (Non-Auction Transactions) of
comments more efficiently, please use Securities Exchange Act of 1934 (the the BOX Fee Schedule to clarify what
only one method. The Commission will ‘‘Act’’),1 and Rule 19b–4 thereunder,2 volume on BOX will count towards the
post all comments on the Commission’s notice is hereby given that on May 31, monthly volume tier in Section I.A.1 of
Internet Web site (http://www.sec.gov/ 2016, BOX Options Exchange LLC (the the Box Fee Schedule. The Exchange
rules/sro.shtml). Copies of the ‘‘Exchange’’) filed with the Securities proposes to add language to the first
submission, all subsequent and Exchange Commission paragraph of Section I.A.1 to clarify that
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amendments, all written statements (‘‘Commission’’) the proposed rule percentage thresholds will be calculated
with respect to the proposed rule change as described in Items I, II, and on a monthly basis by totaling the
change that are filed with the Market Maker or Public Customer’s
Commission, and all written 33 15 U.S.C. 78s(b)(3)(C). executed Auction and Non-Auction
communications relating to the 34 17 CFR 200.30–3(a)(57) and (58).
proposed rule change between the 1 15 U.S.C. 78s(b)(1). 3 15 U.S.C. 78s(b)(3)(A)(ii).
Commission and any person, other than 2 17 CFR 240.19b–4. 4 17 CFR 240.19b–4(f)(2).

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Document Created: 2016-06-15 02:21:25
Document Modified: 2016-06-15 02:21:25

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		81 FR 39089