81 FR 74842 - Self-Regulatory Organizations; NYSE MKT LLC; Order Disapproving 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 208 (October 27, 2016)
Federal Register Volume 81, Issue 208 (October 27, 2016)
| Page Range | 74842-74847 | |
| FR Document | 2016-25941 |
[Federal Register Volume 81, Number 208 (Thursday, October 27, 2016)] [Notices] [Pages 74842-74847] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-25941] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79135; File No. SR-NYSEMKT-2016-45] Self-Regulatory Organizations; NYSE MKT LLC; Order Disapproving 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 October 21, 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 [[Page 74843]] 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\ On June 9, 2016, the Commission temporarily suspended the Exchange's proposal and simultaneously instituted proceedings to determine whether to approve or disapprove the proposed rule change.\7\ The Commission thereafter received ten comment letters on the proposal, one of which was from the Exchange.\8\ This order disapproves the proposed rule change. --------------------------------------------------------------------------- \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\ See Securities Exchange Act Release No. 78029, 81 FR 39089 (June 15, 2016) (``Order Instituting Proceedings''). \8\ See Letters to Brent J. Fields, Secretary, Commission, from John C. Nagel, Managing Director and Sr. Deputy General Counsel, Citadel LLC, dated July 6, 2016 (``Citadel Letter''); Elizabeth K. King, General Counsel and Corporate Secretary, New York Stock Exchange, dated July 8, 2016 (``NYSE MKT Letter''); Eric Chern, Chief Executive Officer, CTC Trading Group, L.L.C., dated July 28, 2016 (``CTC Letter''); Sebastiaan Koeling, Chief Executive Officer, Optiver US LLC, dated August 3, 2016 (``Optiver Letter''); Gerald D. O'Connell, Susquehanna International Group, Andrew Stevens, IMC Financial Markets LLC, Edward Haravon, Spot Trading, Kurt Eckert, Wolverine Trading and Peter Schwarz, Integral Derivatives, dated August 5, 2016 (``Options Market Maker Firms Letter''); John Kinahan, Chief Executive Officer, Group One Trading, L.P., dated August 8, 2016 (``Group One Letter''); Joanna Mallers, Secretary, FIA Principal Traders Group, dated August 10, 2016 (``FIA PTG Letter''); John Russell, Chairman of the Board and James Toes, President and CEO, Security Traders Association, dated August 29, 2016 (``STA Letter''); and John A. McCarthy, General Counsel, KCG Holdings, Inc., dated September 16, 2016 (``KCG Letter''); and Letter to Robert W. Errett, Deputy Secretary, Commission, from Ellen Greene, Managing Director, Securities Industry and Financial Markets Association, dated July 12, 2016 (``SIFMA Letter''). --------------------------------------------------------------------------- II. Description 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).\9\ 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 \10\ (``Penny classes'') and from $0.12 to $1.05 for classes not subject to the Penny Pilot (``Non-Penny classes''). --------------------------------------------------------------------------- \9\ See supra note 3 and NYSE Amex Options Fee Schedule, Section I.G. \10\ 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). --------------------------------------------------------------------------- Further, the proposal increased a rebate available to Initiating Participants in CUBE Auctions (i.e., ATP Holders that initiate such auctions) \11\ 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.\12\ --------------------------------------------------------------------------- \11\ See supra note 3. \12\ See NYSE Amex Options Fee Schedule, Section I.G. --------------------------------------------------------------------------- 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.\13\ --------------------------------------------------------------------------- \13\ See id. In addition to 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. --------------------------------------------------------------------------- The amended fees resulted in a proposed difference between the fees charged to an Initiating Participant and those charged to Non-Customer auction responders that would be a minimum of $0.65 in Penny classes and $1.00 in Non-Penny classes.\14\ Taking into consideration that the ACE rebate available to an Initiating Participant submitting the agency order into the CUBE Auction was increased to $0.18, this proposed fee differential could be as high as $0.83 per executed contract for Penny classes, and $1.18 per contract for Non-Penny classes.\15\ --------------------------------------------------------------------------- \14\ See Order Instituting Proceedings, supra note 7, at 39090 n.20. \15\ See id. at 39091. --------------------------------------------------------------------------- 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 are not unfairly discriminatory.'' \16\ 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.'' \17\ The Exchange stated 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.\18\ The Exchange further stated that the proposal ``would improve the Exchange's overall competitiveness and strengthen its market quality for all market participants.'' \19\ Finally, the Exchange stated that it did 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.'' \20\ --------------------------------------------------------------------------- \16\ See Notice, supra note 6, at 24675. \17\ See id. at 24675-76. \18\ See id. at 24675 & n.10. \19\ 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. \20\ See id. at 24676. The Exchange also noted that it operates in a highly-competitive market. See id. --------------------------------------------------------------------------- [[Page 74844]] III. Order Instituting Proceedings and Comments Received In the Order Instituting Proceedings, the Commission stated that it would further assess 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) be designed to perfect the mechanism of a free and open market and a national market system and to 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\ --------------------------------------------------------------------------- \21\ 15 U.S.C. 78f(b)(4). \22\ 15 U.S.C. 78f(b)(5). \23\ 15 U.S.C. 78f(b)(8). --------------------------------------------------------------------------- In the Order Instituting Proceedings, the Commission expressed concern about the potential effect the proposal could have on the operation of the CUBE Auction and its potential to provide price improvement to customers, as well as about its effect upon competition among participants initiating CUBE Auctions and those responding to them.\24\ The Commission acknowledged that increasing the rebates and break-up credits provided to Initiating Participants likely would strengthen their incentive to bring customer orders to the Exchange.\25\ However, the Commission also noted that substantially increasing the fees paid by Non-Customer auction responders could deter them from participating in CUBE Auctions.\26\ The Commission observed that 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.\27\ --------------------------------------------------------------------------- \24\ See Order Instituting Proceedings, supra note 7, at 39090. \25\ See id. at 39091. \26\ See id. \27\ See id. See also supra text accompanying notes 14 and 15. --------------------------------------------------------------------------- Further, in the Order Instituting Proceedings, the Commission raised questions as to whether the proposal would in fact provide the additional trading opportunities for Non-Customer auction responders and other market quality benefits suggested by the Exchange.\28\ The Commission noted that the Exchange did not address the fact that the proposal would substantially increase the difference in the fees assessed by the Exchange on Initiating Participants and Non-Customer auction responders, and indicated that substantially exacerbating the differences in the fees assessed by the Exchange on Initiating Participants and those assessed on Non-Customer auction responders raises issues as to whether the proposal is equitable and not unfairly discriminatory among Exchange members.\29\ The Commission also noted in the Order Instituting Proceedings that the Exchange did not support with specific reasoning or data its statement that the proposal would provide all members additional trading opportunities and other market quality benefits. The Commission further stated that the Exchange did not sufficiently address the potential burden that its proposed fee changes would have on competition between Initiating Participants and Non-Customer auction responders, or the prospect that competition in CUBE Auctions could be impaired, by substantially increasing the auction response fees paid by Non-Customer auction responders. Moreover, the Commission noted that the Exchange did not address in any detail the increases in the break-up credit payable to an Initiating Participant for each contract in a CUBE Order that is executed by others, and why the proposed increase in this payment is reasonable, equitable, and not unfairly discriminatory.\30\ --------------------------------------------------------------------------- \28\ See Order Instituting Proceedings, supra note 7, at 39090. \29\ See id. at 39091. \30\ See id. --------------------------------------------------------------------------- The Commission received ten comment letters in response to the Order Instituting Proceedings, one of which was from the Exchange.\31\ The nine commenters other than the Exchange either specifically recommended that the Commission disapprove the Exchange's proposal or expressed concerns about the proposal in its current form.\32\ Broadly, these commenters echoed many of the concerns, summarized above, that were raised by the Commission in the Order Instituting Proceedings. Among other things, commenters focused on the potential impact of the proposed raising of fees for Non-Customer auction responders, increases in rebates to Initiating Participants, and heightened differential in the costs between Non-Customer auction responders and Initiating Participants, that would result from the proposal. They also questioned the level of auction response fees generally, the consequences of break-up credits, and the potential effect of the proposal on the quoting behavior of market makers. --------------------------------------------------------------------------- \31\ See supra note 8. \32\ See SIFMA Letter; FIA PTG Letter; Options Market Maker Firms Letter; Optiver Letter; Group One Letter; STA Letter; CTC Letter; Citadel Letter; KCG Letter. --------------------------------------------------------------------------- More specifically, many commenters believed that the fee differentials created by the Exchange's proposal would significantly favor Initiating Participants over Non-Customer auction responders.\33\ Some commenters highlighted the fact that the proposed increase in fees assessed on Non-Customer auction responders, without any change to the Initiating Participant fees, would widen the differential between these two groups of participants.\34\ Several commenters acknowledged that the Exchange's auction fee structure was not unique in providing for differentials, but emphasized their belief that the Exchange's proposal would further and unacceptably exacerbate a trend of raising auction response fees and widening differentials.\35\ To the extent that the proposal would further increase these fees and widen the disparity in fees assessed on the different participants, these commenters believed that the proposal was inequitable, unfairly discriminatory, and unreasonably burdensome on competition.\36\ --------------------------------------------------------------------------- \33\ See, e.g., Citadel Letter at 2-3; CTC Letter at 2-4; Group One Letter at 2; Options Market Maker Firms Letter at 3; Optiver Letter at 2; KCG Letter at 2, 6. \34\ See Citadel Letter at 2; KCG Letter at 2. \35\ See, e.g., Citadel Letter at 2-3 (stating that the Exchange's proposal would ``significantly'' increase the difference in net cost to Non-Customer auction responders as compared to Initiating Participants and would be ``starkly discriminatory''); Options Market Maker Firms Letter at 3-5; 8 (arguing that the fee differential for participating in CUBE is ``so punitive that [Non- Customer auction responders] cannot compete on price at anywhere near equal terms with [Initiating Participants]'' and objecting to fee differentials that would be ``significantly higher'' than any other options exchange auction); Optiver Letter at 2, 4 (noting a ``gross disparity in fees'' between Non-Customer auction responders and Initiating Participants under the proposal and finding such disparity to be the highest among competing exchanges). See also STA Letter at 1 (suggesting that the Exchange be permitted to adopt fees ``more aligned with other exchanges''). \36\ See id. --------------------------------------------------------------------------- A few commenters stated that an effect of the proposed fees would be to limit opportunities for price improvement in the CUBE mechanism by discouraging auction responders from effectively participating.\37\ One of these commenters further argued that the diminished competition would encourage Initiating Participants to submit less competitive prices to begin an auction.\38\ Two commenters took the [[Page 74845]] position that it was unfairly discriminatory to increase fees for Non- Customer auction responders while correspondingly increasing rebates to Initiating Participants.\39\ One of these commenters further suggested that the Commission impose a maximum fee differential of $0.02 between Initiating Participants and non-Initiating Participants.\40\ --------------------------------------------------------------------------- \37\ See, e.g., Citadel Letter at 2-3; CTC Letter at 4; Group One Letter at 2. \38\ See Group One Letter at 2. \39\ See CTC Letter at 2-4; KCG Letter at 2, 5-6. \40\ See CTC Letter at 2-4 (comparing this proposed limitation to transaction fee differentials between directed and unaffiliated market makers trading against a directed order). --------------------------------------------------------------------------- Commenters expressed other concerns as well. One commenter stated that high response fees generally disincentivize firms from responding to an auction and offering price improvement.\41\ Another commenter argued that auction response fees are comparable to access fees charged by exchanges and should be limited more generally.\42\ Two commenters supported limiting auction response fees in both Penny and Non-Penny classes to no more than half the minimum trading increment.\43\ Another commenter similarly supported a cap on auction response fees, but stated that the amount should be set at a much lower level than half the minimum increment in the Penny classes.\44\ Still another commenter stated that an absolute cap would not be necessary.\45\ Instead, this commenter maintained, the Commission should prohibit fee differentials between market participants, reasoning that, if exchanges were barred from discriminating between participant types, competitive market forces would lower the absolute fee levels to a reasonable amount.\46\ In addition, five commenters expressed specific concern about break-up credits,\47\ contending that they are per se unfairly discriminatory in that they provide a benefit solely to Initiating Participants and thereby discourage competition and limit price improvement.\48\ --------------------------------------------------------------------------- \41\ See SIFMA Letter at 2. \42\ See Citadel Letter at 4. \43\ See Citadel Letter at 7; CTC Letter at 3. Citadel supported limiting all transaction fees in Penny classes at $0.50, and stated that the minimum increment considered in setting auction fees should be the minimum increment of an auction response. Citadel Letter at 7. CTC stated that auction response fees should be limited at $0.50 for all series because all price improvement auctions allow responses in penny increments. CTC Letter at 3. \44\ See Options Market Maker Firms Letter at 9. \45\ See Optiver Letter at 5. \46\ Id. This commenter believes that, absent discriminatory fees, competition would lead to an amount that was much lower than half the minimum trading increment. Id. The commenter further stated that even if an absolute response fee limitation were to be imposed, an exchange could offer rebates sufficiently high to maintain a large differential in fees between market participants. Id. \47\ See supra text accompanying note 13. \48\ See CTC Letter at 4; Options Market Maker Firms Letter at 4; Optiver Letter at 3; Group One Trading Letter at 2-3; STA Letter at 2-3. --------------------------------------------------------------------------- Several commenters expressed concern that high transaction fees in auction mechanisms generally, not only the fees under the Exchange's proposal, could harm options market quality by negatively impacting market maker quoting behavior.\49\ A few commenters believed that high auction response fees, such as those proposed by the Exchange, would discourage quoting in the options markets because they would encourage increased internalization in the auctions.\50\ One of these commenters stated that market makers would respond to the proposed fees by reducing the number, size, and quality of their displayed quotations.\51\ Another commenter believed that this would diminish the degree of actual price improvement provided by the auctions, because, while auction executions will occur at or better than the NBBO, this NBBO may have been better at the outset if not for the negative effects of the high auction fees.\52\ One commenter contended that increased transaction fees in general, and especially disproportionate fees among various market participants, will lead to overall decreased competition and liquidity in the options market.\53\ In addition, several commenters expressed concerns that break-up fees, break-up credits, auto-match functionality, and the ability to initiate an auction at the NBBO are all among features of auctions that may incentivize internalization, decrease competition, and impair market quality.\54\ Finally, commenters broadly suggested that the Commission conduct a holistic review of options exchange electronic auction mechanisms.\55\ --------------------------------------------------------------------------- \49\ See, e.g., Citadel Letter at 6; FIA PTG Letter at 1; NYSE MKT Letter at 2; Options Market Maker Firms Letter at 2-3, 6; SIFMA Letter at 2; KCG Letter at 2. \50\ See, e.g., Citadel Letter at 6; Options Market Maker Firms Letter at 6; SIFMA Letter at 2. In response, the Exchange acknowledged that price improvement auctions encourage internalization to the detriment of displayed market maker quotations, but argued that this was the result of a lack of guaranteed price improvement in most exchanges' auctions. See NYSE MKT Letter at 2. \51\ See Citadel Letter at 6. \52\ See Options Market Maker Firms Letter at 2-3. \53\ See FIA PTG Letter at 1. \54\ See, e.g., FIA PTG Letter at 2, Options Market Maker Firms Letter at 3, CTC Letter at 3. \55\ See Citadel Letter at 7; CTC Letter at 1; FIA PTG Letter at 2; Group One Trading Letter at 1, 3; NYSE MKT Letter at 4-5; Options Market Maker Firms Letter at 2; Optiver Letter at 1, 4; SIFMA Letter at 3; STA Letter at 3; KCG Letter at 5-6. The Commission notes that while the Exchange supported such a review in its letter, the Exchange requested that the Commission end the suspension of the instant filing while undertaking this review. See NYSE MKT Letter at 5. --------------------------------------------------------------------------- In its comment letter, the Exchange broadly expressed concerns with options exchange electronic auction mechanisms, and stated its belief that such mechanisms should guarantee price improvement.\56\ However, the Exchange did not provide additional justification for the proposal, or respond specifically to the concerns expressed in the Order Instituting Proceedings. Rather, the Exchange stated that its proposal was developed in response to competitive concerns and that the suspension placed it at a competitive disadvantage compared to other exchanges with comparable fees that were unaffected by the Order Instituting Proceedings.\57\ The Exchange requested that the Commission end its temporary suspension of the proposal while the Commission undertakes a broad review of the fee structures applied by the options exchanges to their price improvement auctions.\58\ --------------------------------------------------------------------------- \56\ See NYSE MKT Letter at 4. \57\ See id. at 3-4 In particular, the Exchange stated that it was aware of two other options exchanges that, like the Exchange, were charging auction response fees in Penny classes of more than $0.50 per contract. See id. at 4. \58\ See id. at 1, 4. --------------------------------------------------------------------------- IV. Discussion and Commission Findings Under Section 19(b)(2)(C) of the Act,\59\ the Commission shall approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to such organization.\60\ The Commission shall disapprove a proposed rule change if it does not make such a finding.\61\ Rule 700(b)(3) of the Commission's Rules of Practice states that the ``burden to demonstrate that a proposed rule change is consistent with the Exchange Act and the rules and regulations issued thereunder . . . is on the self-regulatory organization that proposed the rule change'' and that a ``mere assertion that the proposed rule change is consistent with those requirements . . . is not sufficient.'' \62\ --------------------------------------------------------------------------- \59\ 15 U.S.C. 78s(b)(2)(C). \60\ 15 U.S.C. 78s(b)(2)(C)(i). \61\ 15 U.S.C. 78s(b)(2)(C)(ii); see also 17 CFR 201.700(b)(3). \62\ 17 CFR 201.700(b)(3). The description of a proposed rule change, its purpose and operation, its effect, and a legal analysis of its consistency with applicable requirements must all be sufficiently detailed and specific to support an affirmative Commission finding. See id. Any failure of a self-regulatory organization to provide the information elicited by Form 19b-4 may result in the Commission not having a sufficient basis to make an affirmative finding that a proposed rule change is consistent with the Exchange Act and the rules and regulations issued thereunder that are applicable to the self-regulatory organization. Id. --------------------------------------------------------------------------- [[Page 74846]] In the Order Instituting Proceedings, the Commission raised concerns about the effect the proposal could have on the operation of the CUBE Auction and its ability to provide price improvement to customers, as well as the impact it could have on competition among participants initiating CUBE Auctions and those responding to them.\63\ The Commission pointed to several specific elements of the proposal for which, in its view, the Exchange had not provided sufficient justification to enable the Commission to find that the proposal was consistent with the Act.\64\ In particular, the Commission noted that the Exchange justified 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.\65\ The Commission acknowledged that increasing the rebates and break-up credits provided to Initiating Participants likely would strengthen their incentives to bring customer orders to the Exchange, but expressed concern that substantially increasing the fees paid by Non-Customer auction responders could deter them from participating in CUBE Auctions.\66\ The Commission further noted that the proposal would substantially exacerbate the differences in the fees assessed by the Exchange on Non-Customer auction responders as compared to those for Initiating Participants.\67\ The Commission stated that 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 Non-Customer auction responders and the Initiating Participants with whom they are competing would be even more.\68\ Accordingly, the Commission believed that questions were 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.\69\ --------------------------------------------------------------------------- \63\ See Order Instituting Proceedings, supra note 7, at 39090. \64\ See id. \65\ See id. at 39091. \66\ See id. \67\ See id. \68\ See id. \69\ See id. --------------------------------------------------------------------------- As discussed above, most commenters broadly echoed the Commission's concerns, and several expressed the view that the proposal would not provide the additional trading opportunities for non-Initiating Participants and other market quality benefits suggested by the Exchange. Specifically, several commenters stated that an effect of the proposed fees would be to limit opportunities for price improvement in the CUBE mechanism by discouraging auction responders from effectively participating,\70\ and expressed concern that the fee structure in auction mechanisms could harm options market quality by negatively impacting market maker quoting behavior.\71\ In addition, commenters were concerned that the proposed fees would widen the cost differential between Non-Customer auction responders and Initiating Participants such that the differential would be excessive as compared with those of other options exchanges.\72\ --------------------------------------------------------------------------- \70\ See supra note 37. \71\ See supra notes 50-52 and accompanying text. \72\ See supra notes 33-36 and accompanying text. --------------------------------------------------------------------------- In its comment letter, the Exchange did not respond specifically to the concerns articulated in the Order Instituting Proceedings or in the comments, or otherwise offer any additional information to support its view that the proposal would provide additional trading opportunities for non-Initiating Participants and other market quality benefits.\73\ The Exchange simply characterized its proposal as a competitive response to certain other options exchanges, two of which had been charging auction response fees in Penny classes in excess of $0.50 per contract. The Commission notes that, in the interim, both such exchanges have reduced their auction response fees (inclusive of marketing fees) so that they no longer exceed half the minimum trading increment in Penny classes.\74\ --------------------------------------------------------------------------- \73\ In particular, the Exchange did not address the fact that the proposal would substantially increase the difference in the fees assessed by the Exchange on Initiating Participants and Non-Customer auction responders; did not support with specific reasoning or data its statement that the proposal would provide all members additional trading opportunities and other market quality benefits; did not sufficiently address the potential burden that its proposed fee changes would have on competition between Initiating Participants and Non-Customer auction responders, or the prospect that, by substantially increasing the auction response fees paid by Non- Customer auction responders, competition in CUBE Auctions could be impaired; and did not address in any detail the increases in the break-up credit payable to Initiating Participants for each contract that they are not able to execute in CUBE, and why this payment is reasonable, equitable, and not unfairly discriminatory. \74\ See Securities Exchange Act Release Nos. 78117 (June 21, 2016), 81 FR 41634 (June 27, 2016) (SR-NYSEMKT-2016-60); 78394 (July 22, 2016), 81 FR 49709 (July 28, 2016) (SR-Phlx-2016-77); 78427 (July 27, 2016), 81 FR 50777 (August 2, 2016) (SR-BOX-2016-34). --------------------------------------------------------------------------- As noted, Rule 700(b)(3) of the Commission's Rules of Practice states that the ``burden to demonstrate that a proposed rule change is consistent with the Exchange Act and the rules and regulations issued thereunder . . . is on the self-regulatory organization that proposed the rule change'' and that a ``mere assertion that the proposed rule change is consistent with those requirements . . . is not sufficient.'' \75\ The Exchange has taken the position that its proposal meets applicable Exchange Act standards, including that fees be reasonable, equitably allocated, and not unfairly discriminatory, and that they not impose any unnecessary or inappropriate burden on competition, on the grounds that the proposed fee changes would benefit all market participants through increased trading opportunities and improved market quality. Although the Commission expressed concern, in the Order Instituting Proceedings, that the reasoning behind this assertion was not clear and no supporting data had been provided, the Exchange has offered no additional justification or evidence to support this key aspect of its statutory basis. --------------------------------------------------------------------------- \75\ 17 CFR 201.700(b)(3). The description of a proposed rule change, its purpose and operation, its effect, and a legal analysis of its consistency with applicable requirements must all be sufficiently detailed and specific to support an affirmative Commission finding. See id. Any failure of a self-regulatory organization to provide the information elicited by Form 19b-4 may result in the Commission not having a sufficient basis to make an affirmative finding that a proposed rule change is consistent with the Exchange Act and the rules and regulations issued thereunder that are applicable to the self-regulatory organization. Id. --------------------------------------------------------------------------- Accordingly, after careful consideration, the Commission does not find that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.\76\ In particular, the Commission does not find that the proposed rule change is consistent with: (1) Section 6(b)(4) of the Act,\77\ 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 [[Page 74847]] using its facilities; (2) Section 6(b)(5) of the Act,\78\ which requires that the rules of a national securities exchange be designed, among other things, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers; and (3) Section 6(b)(8) of the Act,\79\ which requires that the rules of a national securities exchange do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. Because any of these determinations under the Act independently necessitates disapproving the proposal, the Commission does so. --------------------------------------------------------------------------- \76\ In disapproving the proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \77\ 15 U.S.C. 78f(b)(4). \78\ 15 U.S.C. 78f(b)(5). \79\ 15 U.S.C. 78f(b)(8). --------------------------------------------------------------------------- V. Conclusion For the reasons set forth above, the Commission does not find that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange, and in particular, Sections 6(b)(4), 6(b)(5), and 6(b)(8) of the Act. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\80\ that the proposed rule change (SR-NYSEMKT-2016-45) be, and hereby is, disapproved. --------------------------------------------------------------------------- \80\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\81\ Brent J. Fields, Secretary. --------------------------------------------------------------------------- \81\ 17 CFR 200.30-3(a)(57) and (58). --------------------------------------------------------------------------- [FR Doc. 2016-25941 Filed 10-26-16; 8:45 am] BILLING CODE 8011-01-P
![74842 Federal Register / Vol. 81, No. 208 / Thursday, October 27, 2016 / Notices
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national securities exchange be disapproval that would be facilitated by available for Web site viewing and
‘‘designed to prevent fraudulent and an oral presentation of views, data, and printing in the Commission’s Public
manipulative acts and practices, to arguments, the Commission will Reference Room, 100 F Street NE.,
promote just and equitable principles of consider, pursuant to Rule 19b-4, any Washington, DC 20549, on official
trade,’’ and ‘‘to protect investors and the request for an opportunity to make an business days between the hours of
public interest.’’ 14 oral presentation.15 10:00 a.m. and 3:00 p.m. Copies of the
Under the proposal, BNYM will Interested persons are invited to filing also will be available for
calculate the Fund’s NAV at 12:00 p.m., submit written data, views, and inspection and copying at the principal
Eastern time, every day the New York arguments regarding whether the office of the Exchange. All comments
Stock Exchange is open. In addition, to proposal should be approved or received will be posted without change;
initiate an order for a creation unit, the disapproved by November 17, 2016. the Commission does not edit personal
Distributor or its agent must receive an Any person who wishes to file a rebuttal identifying information from
irrevocable order from an authorized to any other person’s submission must submissions. You should submit only
participant, in proper form, no later file that rebuttal by December 1, 2016. information that you wish to make
than 12:00 p.m., Eastern time, in each The Commission asks that commenters available publicly. All submissions
case on the date such order is placed in address the sufficiency of the should refer to File Number SR–
order to receive that day’s NAV. Exchange’s statements in support of the NYSEArca–2016–97 and should be
Likewise, with respect to redemptions, proposal, which are set forth in the submitted on or before November 17,
an authorized participant must submit Notice,16 in addition to any other 2016. Rebuttal comments should be
an irrevocable request to redeem shares comments they may wish to submit submitted by December 1, 2016.
of the Fund generally before 12:00 p.m., about the proposed rule change. For the Commission, by the Division of
Eastern time on any business day in Comments may be submitted by any Trading and Markets, pursuant to delegated
order to receive that day’s NAV. The of the following methods: authority.17
Commission notes the proposal does not Brent J. Fields,
provide any explanation for the early Electronic Comments
Secretary.
NAV calculation time and creation and • Use the Commission’s Internet
[FR Doc. 2016–25938 Filed 10–26–16; 8:45 am]
redemption cut-off time. The proposal comment form (http://www.sec.gov/
BILLING CODE 8011–01–P
also does not explain whether the early rules/sro.shtml); or
NAV calculation time and creation and • Send an email to rule-comments@
redemption cut-off time would have any sec.gov. Please include File Number SR–
SECURITIES AND EXCHANGE
impact on the trading of the Shares, NYSEArca–2016–97 on the subject line.
COMMISSION
including any impact on arbitrage. Paper Comments
Accordingly, the Commission seeks [Release No. 34–79135; File No. SR–
commenters’ views on the 12:00 p.m. • Send paper comments in triplicate NYSEMKT–2016–45]
NAV calculation time and creation and to Secretary, Securities and Exchange
Commission, 100 F Street NE., Self-Regulatory Organizations; NYSE
redemption cut-off time, and on
Washington, DC 20549–1090. MKT LLC; Order Disapproving a
whether the Exchange’s statements
All submissions should refer to File Proposed Rule Change To Modify the
relating to the NAV calculation and the
Number SR–NYSEArca–2016–97. This NYSE Amex Options Fee Schedule
creation and redemption process
file number should be included on the With Respect to Fees, Rebates, and
support a determination that the listing
subject line if email is used. To help the Credits for Transactions in the
and trading of the Shares would be
Commission process and review your Customer Best Execution Auction
consistent with Section 6(b)(5) of the
Act, which, among other things, comments more efficiently, please use October 21, 2016.
requires that the rules of an exchange be only one method. The Commission will
designed to prevent fraudulent and post all comments on the Commission’s I. Introduction
manipulative acts and practices, to Internet Web site (http://www.sec.gov/ On April 11, 2016, NYSE MKT LLC
promote just and equitable principles of rules/sro.shtml). Copies of the (the ‘‘Exchange’’ or ‘‘NYSE MKT’’) filed
trade, and to protect investors and the with the Securities and Exchange
15 Section 19(b)(2) of the Act, as amended by the
public interest. Commission (the ‘‘Commission’’),
Securities Acts Amendments of 1975, Public Law
pursuant to Section 19(b)(1) of the
IV. Procedure: Request for Written 94–29 (June 4, 1975), grants the Commission
sradovich on DSK3GMQ082PROD with NOTICES
flexibility to determine what type of proceeding— Securities Exchange Act of 1934 (the
Comments ‘‘Act’’),1 and Rule 19b–4 thereunder,2 a
either oral or notice and opportunity for written
The Commission requests that comments—is appropriate for consideration of a proposed rule change (File No. SR–
interested persons provide written particular proposal by a self-regulatory
organization. See Securities Acts Amendments of
NYSEMKT–2016–45) to modify the
submissions of their views, data, and 1975, Senate Comm. on Banking, Housing & Urban
17 17 CFR 200.30–3(a)(57).
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
13 Id. (1975). 1 15 U.S.C. 78s(b)(1).
14 15 U.S.C. 78f(b)(5). 16 See supra note 3. 2 17 CFR 240.19b–4.
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![Federal Register / Vol. 81, No. 208 / Thursday, October 27, 2016 / Notices 74843
NYSE Amex Options Fee Schedule with order disapproves the proposed rule Non-Penny classes.14 Taking into
respect to fees, rebates, and credits change. consideration that the ACE rebate
relating to the Exchange’s Customer Best available to an Initiating Participant
II. Description of the Proposed Rule
Execution Auction (‘‘CUBE Auction’’),3 submitting the agency order into the
Change
and to increase credits available under CUBE Auction was increased to $0.18,
the Exchange’s Amex Customer The Exchange’s proposal amended this proposed fee differential could be
Engagement Program (‘‘ACE Program’’).4 certain fees, rebates, and credits relating as high as $0.83 per executed contract
The proposed rule change was to executions through its CUBE Auction. for Penny classes, and $1.18 per
immediately effective upon filing with First, the proposal increased the fees
contract for Non-Penny classes.15
the Commission pursuant to Section assessed by the Exchange for RFR
19(b)(3)(A) of the Act.5 Notice of filing Responses (i.e., orders and quotes In its filing, the Exchange stated that
of the proposed rule change was submitted during a CUBE Auction that the changes to the CUBE Auction
published in the Federal Register on are executed against the agency order).9 transaction fees are reasonable,
April 26, 2016.6 On June 9, 2016, the Specifically, the Exchange increased equitable and not unfairly
Commission temporarily suspended the RFR Response fees for Non-Customers discriminatory ‘‘because they apply
Exchange’s proposal and (including market makers) from $0.12 to equally to all ATP Holders that choose
simultaneously instituted proceedings $0.70 for classes subject to the Penny to participate in the CUBE, and access
to determine whether to approve or Pilot 10 (‘‘Penny classes’’) and from to the Exchange is offered on terms that
disapprove the proposed rule change.7 $0.12 to $1.05 for classes not subject to are not unfairly discriminatory.’’ 16 The
The Commission thereafter received ten the Penny Pilot (‘‘Non-Penny classes’’). Exchange also took the position, with
comment letters on the proposal, one of Further, the proposal increased a regard specifically to the ACE Initiating
which was from the Exchange.8 This rebate available to Initiating Participants Participant Credit, that the change is
in CUBE Auctions (i.e., ATP Holders reasonable, equitable, and not unfairly
3 The CUBE Auction is a mechanism in which an
that initiate such auctions) 11 under the discriminatory because it is ‘‘designed
Exchange ATP Holder submits an agency order on Exchange’s ACE Program. Specifically,
behalf of a customer for price improvement, paired to attract more volume and liquidity to
with a contra-side order guaranteeing execution of the proposal increased the rebate paid to the Exchange generally, and to CUBE
the agency order at or better than the National Best Initiating Participants that meet certain
Auctions specifically,’’ which,
Bid or Offer (‘‘NBBO’’) depending on the tiers of the ACE Program from $0.05 to
circumstances. The contra-side order could be for according to the Exchange, ‘‘would
$0.18 (the ‘‘ACE Initiating Participant
the account of the ATP Holder that initiated the benefit all market participants . . .
CUBE Auction (‘‘Initiating Participant’’), or an order Rebate’’) for each of the first 5,000
Customer contracts of an agency order through increased opportunities to trade
solicited from another participant. The agency order
is exposed for a random period of time between 500 executed in a CUBE Auction.12 at potentially improved prices as well as
and 750 milliseconds in which other ATP Holders Finally, the proposal increased the enhancing price discovery.’’ 17 The
submit competing interest at the same price as the Exchange stated that its proposal is
initial price or better (‘‘RFR Responses’’). The credit paid by the Exchange to Initiating
Initiating Participant is guaranteed at least 40% of Participants (the ‘‘break-up credit’’) for reasonable because it is similar to the
any remainder of the order (after public customers each contract in the contra-side order fee and credit structures previously
and better-priced RFR Responses) at the final price that is paired with the agency order that applied to the CUBE Auction and to fees
for the CUBE order. See NYSE MKT Rule 971.1NY.
4 Under the ACE Program, credits are available to
does not trade with the agency order charged for similar auctions on other
ATP Holders that bring customer orders to the because it is replaced in the auction. exchanges.18 The Exchange further
Exchange based on the percentage (by tier) of Prior to the proposal, the credit granted stated that the proposal ‘‘would improve
national industry customer volume those customer was $0.05 per contract in all classes. the Exchange’s overall competitiveness
orders comprise. See NYSE Amex Options Fee
Schedule Section I.E.
The proposal raised it to $0.35 for and strengthen its market quality for all
5 15 U.S.C. 78s(b)(3)(A). Penny classes and $0.70 for Non-Penny market participants.’’ 19 Finally, the
6 See Securities Exchange Act Release No. 77658 classes.13 Exchange stated that it did not believe
(April 20, 2016), 81 FR 24674 (‘‘Notice’’). The amended fees resulted in a the proposal would impose any
7 See Securities Exchange Act Release No. 78029,
proposed difference between the fees unnecessary or inappropriate burden on
81 FR 39089 (June 15, 2016) (‘‘Order Instituting charged to an Initiating Participant and
Proceedings’’). competition because it is ‘‘pro-
8 See Letters to Brent J. Fields, Secretary,
those charged to Non-Customer auction competitive’’ and ‘‘designed to incent
Commission, from John C. Nagel, Managing Director responders that would be a minimum of increases in the number of CUBE
and Sr. Deputy General Counsel, Citadel LLC, dated $0.65 in Penny classes and $1.00 in Auctions brought to the Exchange,’’
July 6, 2016 (‘‘Citadel Letter’’); Elizabeth K. King,
General Counsel and Corporate Secretary, New thereby ‘‘benefit[ting] all Exchange
Secretary, Commission, from Ellen Greene,
York Stock Exchange, dated July 8, 2016 (‘‘NYSE Managing Director, Securities Industry and participants through increased
MKT Letter’’); Eric Chern, Chief Executive Officer, Financial Markets Association, dated July 12, 2016 opportunities to trade as well as
CTC Trading Group, L.L.C., dated July 28, 2016 (‘‘SIFMA Letter’’).
(‘‘CTC Letter’’); Sebastiaan Koeling, Chief Executive enhancing price discovery.’’ 20
9 See supra note 3 and NYSE Amex Options Fee
Officer, Optiver US LLC, dated August 3, 2016
Schedule, Section I.G.
(‘‘Optiver Letter’’); Gerald D. O’Connell, 10 See Commentary .02 to NYSE MKT Rule
14 See Order Instituting Proceedings, supra note 7,
Susquehanna International Group, Andrew Stevens, at 39090 n.20.
IMC Financial Markets LLC, Edward Haravon, Spot 960NY. See also Securities Exchange Act Release
15 See id. at 39091.
Trading, Kurt Eckert, Wolverine Trading and Peter No. 75281 (June 24, 2015), 80 FR 37338 (June 30,
Schwarz, Integral Derivatives, dated August 5, 2016 2015) (SR–NYSEMKT–2015–43) (extending the 16 See Notice, supra note 6, at 24675.
(‘‘Options Market Maker Firms Letter’’); John Penny Pilot through June 30, 2016). 17 See id. at 24675–76.
11 See supra note 3.
Kinahan, Chief Executive Officer, Group One
sradovich on DSK3GMQ082PROD with NOTICES
18 See id. at 24675 & n.10.
12 See NYSE Amex Options Fee Schedule,
Trading, L.P., dated August 8, 2016 (‘‘Group One 19 See id. at 24676. The Exchange stated that the
Letter’’); Joanna Mallers, Secretary, FIA Principal Section I.G.
13 See id. In addition to its proposed changes to
CUBE fee and credit adjustments established by the
Traders Group, dated August 10, 2016 (‘‘FIA PTG
instant proposal are consistent with the fees and
Letter’’); John Russell, Chairman of the Board and CUBE Auction fees and credits, the Exchange’s
James Toes, President and CEO, Security Traders proposal also increased certain credits available credits that were in place for the same items in its
Association, dated August 29, 2016 (‘‘STA Letter’’); through its ACE Program with respect to non-CUBE Fee Schedule prior to February 2016. See id. at
and John A. McCarthy, General Counsel, KCG transactions. See Notice, supra note 6, at 24674–75. 24675 n.6.
20 See id. at 24676. The Exchange also noted that
Holdings, Inc., dated September 16, 2016 (‘‘KCG See also NYSE Amex Options Fee Schedule,
Letter’’); and Letter to Robert W. Errett, Deputy Section I.E. it operates in a highly-competitive market. See id.
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![74844 Federal Register / Vol. 81, No. 208 / Thursday, October 27, 2016 / Notices
III. Order Instituting Proceedings and that the proposal would substantially the level of auction response fees
Comments Received increase the difference in the fees generally, the consequences of break-up
In the Order Instituting Proceedings, assessed by the Exchange on Initiating credits, and the potential effect of the
the Commission stated that it would Participants and Non-Customer auction proposal on the quoting behavior of
further assess whether the proposal responders, and indicated that market makers.
satisfies the statutory provisions that substantially exacerbating the More specifically, many commenters
require exchange rules to: (1) provide differences in the fees assessed by the believed that the fee differentials
for the equitable allocation of reasonable Exchange on Initiating Participants and created by the Exchange’s proposal
fees among members, issuers, and other those assessed on Non-Customer would significantly favor Initiating
persons using its facilities; 21 (2) be auction responders raises issues as to Participants over Non-Customer auction
designed to perfect the mechanism of a whether the proposal is equitable and responders.33 Some commenters
free and open market and a national not unfairly discriminatory among highlighted the fact that the proposed
market system and to protect investors Exchange members.29 The Commission increase in fees assessed on Non-
and the public interest, and not be also noted in the Order Instituting Customer auction responders, without
designed to permit unfair Proceedings that the Exchange did not any change to the Initiating Participant
discrimination between customers, support with specific reasoning or data fees, would widen the differential
issuers, brokers, or dealers; 22 and (3) its statement that the proposal would between these two groups of
not impose any burden on competition provide all members additional trading participants.34 Several commenters
not necessary or appropriate in opportunities and other market quality acknowledged that the Exchange’s
furtherance of the purposes of the Act.23 benefits. The Commission further stated auction fee structure was not unique in
In the Order Instituting Proceedings, that the Exchange did not sufficiently providing for differentials, but
the Commission expressed concern address the potential burden that its emphasized their belief that the
about the potential effect the proposal proposed fee changes would have on Exchange’s proposal would further and
could have on the operation of the competition between Initiating unacceptably exacerbate a trend of
CUBE Auction and its potential to Participants and Non-Customer auction raising auction response fees and
provide price improvement to responders, or the prospect that widening differentials.35 To the extent
customers, as well as about its effect competition in CUBE Auctions could be that the proposal would further increase
upon competition among participants impaired, by substantially increasing these fees and widen the disparity in
initiating CUBE Auctions and those the auction response fees paid by Non- fees assessed on the different
responding to them.24 The Commission Customer auction responders. Moreover, participants, these commenters believed
acknowledged that increasing the the Commission noted that the that the proposal was inequitable,
rebates and break-up credits provided to Exchange did not address in any detail unfairly discriminatory, and
Initiating Participants likely would the increases in the break-up credit unreasonably burdensome on
strengthen their incentive to bring payable to an Initiating Participant for competition.36
customer orders to the Exchange.25 each contract in a CUBE Order that is A few commenters stated that an
However, the Commission also noted executed by others, and why the effect of the proposed fees would be to
that substantially increasing the fees proposed increase in this payment is limit opportunities for price
paid by Non-Customer auction reasonable, equitable, and not unfairly improvement in the CUBE mechanism
responders could deter them from discriminatory.30 by discouraging auction responders
participating in CUBE Auctions.26 The The Commission received ten from effectively participating.37 One of
Commission observed that in Penny comment letters in response to the these commenters further argued that
classes, for example, the fee charged Order Instituting Proceedings, one of the diminished competition would
Non-Customer auction responders which was from the Exchange.31 The encourage Initiating Participants to
would exceed one-half the minimum nine commenters other than the submit less competitive prices to begin
trading increment, and the economic Exchange either specifically an auction.38 Two commenters took the
differential between such auction recommended that the Commission
responders and the Initiating disapprove the Exchange’s proposal or 33 See, e.g., Citadel Letter at 2–3; CTC Letter at 2–
expressed concerns about the proposal 4; Group One Letter at 2; Options Market Maker
Participants with whom they are Firms Letter at 3; Optiver Letter at 2; KCG Letter
competing would be even more.27 in its current form.32 Broadly, these at 2, 6.
Further, in the Order Instituting commenters echoed many of the 34 See Citadel Letter at 2; KCG Letter at 2.
Proceedings, the Commission raised concerns, summarized above, that were 35 See, e.g., Citadel Letter at 2–3 (stating that the
questions as to whether the proposal raised by the Commission in the Order Exchange’s proposal would ‘‘significantly’’ increase
Instituting Proceedings. Among other the difference in net cost to Non-Customer auction
would in fact provide the additional responders as compared to Initiating Participants
trading opportunities for Non-Customer things, commenters focused on the and would be ‘‘starkly discriminatory’’); Options
auction responders and other market potential impact of the proposed raising Market Maker Firms Letter at 3–5; 8 (arguing that
quality benefits suggested by the of fees for Non-Customer auction the fee differential for participating in CUBE is ‘‘so
responders, increases in rebates to punitive that [Non-Customer auction responders]
Exchange.28 The Commission noted that cannot compete on price at anywhere near equal
the Exchange did not address the fact Initiating Participants, and heightened terms with [Initiating Participants]’’ and objecting
differential in the costs between Non- to fee differentials that would be ‘‘significantly
21 15 U.S.C. 78f(b)(4). Customer auction responders and higher’’ than any other options exchange auction);
22 15 Initiating Participants, that would result Optiver Letter at 2, 4 (noting a ‘‘gross disparity in
U.S.C. 78f(b)(5). fees’’ between Non-Customer auction responders
sradovich on DSK3GMQ082PROD with NOTICES
23 15 U.S.C. 78f(b)(8). from the proposal. They also questioned and Initiating Participants under the proposal and
24 See Order Instituting Proceedings, supra note 7,
finding such disparity to be the highest among
at 39090. 29 Seeid. at 39091. competing exchanges). See also STA Letter at 1
25 See id. at 39091. 30 See (suggesting that the Exchange be permitted to adopt
id.
26 See id. 31 See supra note 8. fees ‘‘more aligned with other exchanges’’).
27 See id. See also supra text accompanying notes 36 See id.
32 See SIFMA Letter; FIA PTG Letter; Options
14 and 15. Market Maker Firms Letter; Optiver Letter; Group 37 See, e.g., Citadel Letter at 2–3; CTC Letter at 4;
28 See Order Instituting Proceedings, supra note 7, One Letter; STA Letter; CTC Letter; Citadel Letter; Group One Letter at 2.
at 39090. KCG Letter. 38 See Group One Letter at 2.
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![Federal Register / Vol. 81, No. 208 / Thursday, October 27, 2016 / Notices 74847
using its facilities; (2) Section 6(b)(5) of ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 changes to Rule 497: (i) Expand the
the Act,78 which requires that the rules notice is hereby given that on October definition of Affiliate Security under
of a national securities exchange be 13, 2016, New York Stock Exchange Rule 497(a)(2); (ii) require that the
designed, among other things, to LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed annual review required under Rule
prevent fraudulent and manipulative with the Securities and Exchange 497(c)(2) be forwarded to the Exchange’s
acts and practices, to promote just and Commission (the ‘‘Commission’’) the Regulatory Oversight Committee
equitable principles of trade, to remove proposed rule change as described in (‘‘ROC’’); and (iii) make non-substantive
impediments to and perfect the Items I and II below, which Items have typographical changes.
mechanism of a free and open market been prepared by the self-regulatory Rule 497(a)(2) currently defines
and a national market system, and, in organization. The Commission is ‘‘Affiliate Security’’ as ‘‘any security
general, to protect investors and the publishing this notice to solicit issued by an ICE Affiliate, with the
public interest, and not be designed to comments on the proposed rule change exception of Investment Company Units
permit unfair discrimination between from interested persons. as defined in Para. 703.16 of the Listed
customers, issuers, brokers, or dealers; I. Self-Regulatory Organization’s Company Manual.’’ 4 The Exchange
and (3) Section 6(b)(8) of the Act,79 Statement of the Terms of Substance of proposes to expand the definition of
which requires that the rules of a the Proposed Rule Change Affiliate Security to include any
national securities exchange do not Exchange-listed option on any security
impose any burden on competition not The Exchange proposes to amend issued by an ICE Affiliate. As a
necessary or appropriate in furtherance Rule 497 regarding the requirements for consequence, under Rule 497(b), prior
of the purposes of the Act. Because any the listing of securities that are issued to listing any new class of options on a
of these determinations under the Act by the Exchange or any of its affiliates. security issued by an ICE Affiliate,
independently necessitates The proposed rule change is available Exchange regulatory staff would be
disapproving the proposal, the on the Exchange’s Web site at required to make a finding that the
Commission does so. www.nyse.com, at the principal office of option class satisfies the Exchange’s
the Exchange, and at the Commission’s rules for listing, and the ROC would be
V. Conclusion Public Reference Room. required to approve such finding.
For the reasons set forth above, the II. Self-Regulatory Organization’s Likewise, throughout the continued
Commission does not find that the Statement of the Purpose of, and listing of such option class on the
proposed rule change is consistent with Statutory Basis for, the Proposed Rule Exchange, it would be covered by the
the Act and the rules and regulations Change reporting requirements of Rule 497(c).
thereunder applicable to a national In a non-substantive grammatical
In its filing with the Commission, the
securities exchange, and in particular, self-regulatory organization included change to Rule 497(a)(2), the Exchange
Sections 6(b)(4), 6(b)(5), and 6(b)(8) of statements concerning the purpose of, also proposes to replace the ‘‘a’’ before
the Act. and basis for, the proposed rule change ‘‘ICE Affiliate’’ with ‘‘an.’’
It is therefore ordered, pursuant to and discussed any comments it received In the event that an ICE Affiliate lists
Section 19(b)(2) of the Act,80 that the on the proposed rule change. The text an Affiliate Security, Rule 497(c)(2)
proposed rule change (SR–NYSEMKT– of those statements may be examined at requires that, throughout the continued
2016–45) be, and hereby is, the places specified in Item IV below. listing of the Affiliate Security on the
disapproved. The Exchange has prepared summaries, Exchange, an independent accounting
For the Commission, by the Division of set forth in sections A, B, and C below, firm will review the listing standards for
Trading and Markets, pursuant to delegated of the most significant parts of such the Affiliate Security and a copy of the
authority.81 statements. report shall be forwarded promptly to
Brent J. Fields, the Securities and Exchange
A. Self-Regulatory Organization’s Commission (‘‘Commission’’). The
Secretary.
Statement of the Purpose of, and the Exchange proposes to expand Rule
[FR Doc. 2016–25941 Filed 10–26–16; 8:45 am]
Statutory Basis for, the Proposed Rule 497(c)(2) to require that such report also
BILLING CODE 8011–01–P Change be forwarded to the ROC.
1. Purpose The Exchange proposes to make the
SECURITIES AND EXCHANGE following additional, non-substantive
The Exchange proposes to amend
COMMISSION changes to Rule 497(c):
Rule 497 (Additional Requirements for
• It proposes to move ‘‘the Exchange
Listed Securities Issued by
[Release No. 34–79130; File No. SR–NYSE– shall’’ from the end of Rule 497(c) to the
Intercontinental Exchange, Inc. or its
2016–67] start of Rule 497(c)(1), as the text only
Affiliates) regarding the requirements
for the listing of securities that are applies to Rule 497(c)(1), and not sub-
Self-Regulatory Organizations; New paragraphs (2) or (3), and change ‘‘shall’’
York Stock Exchange LLC; Notice of issued by the Exchange or any of its
affiliates. Rule 497 sets forth certain to ‘‘will.’’
Filing and Immediate Effectiveness of
requirements that securities issued by • It proposes to add ‘‘and trading’’
Proposed Rule Change Amending Rule after ‘‘Throughout the continued
497 the Exchange’s ultimate parent,
Intercontinental Exchange, Inc. (‘‘ICE’’), listing’’ in Rule 497(c), as Rule 497 (c)(1)
October 21, 2016. or its affiliates, must meet before they 4 For purposes of Rule 497, an ‘‘ICE Affiliate’’ is
sradovich on DSK3GMQ082PROD with NOTICES
Pursuant to Section 19(b)(1) 1 of the can be listed on the Exchange, including ‘‘ICE and any entity that directly or indirectly,
Securities Exchange Act of 1934 (the certain pre-listing approvals and post- through one or more intermediaries, controls, is
listing monitoring requirements. controlled by, or is under common control with
78 15 Specifically, the Exchange is ICE, where ‘control’ means that one entity
U.S.C. 78f(b)(5).
possesses, directly or indirectly, voting control of
79 15 U.S.C. 78f(b)(8). proposing to make the following the other entity either through ownership of capital
80 15 U.S.C. 78s(b)(2).
stock or other equity securities or through majority
81 17 CFR 200.30–3(a)(57) and (58). 2 15 U.S.C. 78a. representation on the board of directors or other
1 15 U.S.C.78s(b)(1). 3 17 CFR 240.19b–4. management body of such entity.’’ Rule 497(a)(1).
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Document Created: 2016-10-27 01:52:35
Document Modified: 2016-10-27 01:52:35
| 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 74842 |
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