[Federal Register Volume 76, Number 90 (Tuesday, May 10, 2011)]
[Notices]
[Pages 27118-27121]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-11337]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64400; File No. SR-NYSEAmex-2011-27]
Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending its Fee
Schedule To Eliminate Registered Representative Fees for Amex Trading
Permit (``ATP'') Holders and To Institute a New Transaction-Based
``Options Regulatory Fee''
May 4, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on April 28, 2011, NYSE Amex LLC (``NYSE Amex'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its Fee Schedule to eliminate
registered representative fees for Amex Trading Permit (``ATP'')
Holders and institute a new transaction-based ``Options Regulatory
Fee.'' The text of the proposed rule change is available at the
Exchange, at the Commission's Public Reference Room, on the
Commission's Web site at http://www.sec.gov, and http://www.nyse.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received
[[Page 27119]]
on the proposed rule change. The text of those statements may be
examined at the places specified in Item IV below. The Exchange has
prepared summaries, set forth in sections A, B, and C below, of the
most significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
This proposed rule change is based on a rule change previously
submitted by NASDAQ OMX BX, Inc. on behalf of the Boston Options
Exchange Group, LLC (``BOX'') that was effective upon filing.\3\ The
Exchange proposes to amend the NYSE Amex Fee Schedule to institute a
new transaction-based ``Options Regulatory Fee'' and eliminate
registered representative fees. Each ATP Holder that registers an
options principal and/or representative who is conducting business on
NYSE Amex currently is assessed a registered representative fee (``RR
Fee'') based on the action(s) associated with the registration. There
are annual fees as well as initial, transfer and termination fees.\4\
RR Fees and other regulatory fees collected by the Exchange were
intended to cover only a portion of the cost of the Exchange's
regulatory programs. Prior to rule changes by other options exchanges,
such as the Chicago Board Options Exchange (``CBOE''), BOX, NASDAQ OMX
PHLX (``PHLX'') and the International Securities Exchange (``ISE''),
all options exchanges, regardless of size, charged registered
representative fees.
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\3\ See Securities Exchange Act Release No. 61388 (January 20,
2010), 75 FR 4431 (January 27, 2010) (SR-BX-2010-001) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating
to the Registered Representative Fee and Options Regulatory Fee).
\4\ In this regard, the Exchange proposes to eliminate from its
options fee schedule any reference to fees the Exchange no longer
asks FINRA to collect on its behalf relating to the processing of
registered representatives. In particular, the following
``Registration Fees'' will be eliminated from the options fee
schedule: The Initial Processing Fee, the Annual Renewal Processing
Fee, the Transfer Processing Fee, the Web CRD System Transition Fee,
and the Terminations Fee. Fees relating to the processing of
registered representatives that FINRA collects and retains will
remain in the Exchange's options fee schedule. In particular, the
following ``Registration Fees'' will remain in the options fee
schedule: the Disclosure Processing Fee, the Fingerprint Card
Processing Fee, and the fee for Fingerprint Results Processed thru
other SROs.
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The Exchange believes that the current RR Fee is no longer
equitable. The options industry has evolved to a structure with many
more Internet-based and discount brokerage firms. These firms have few
registered representatives and thus pay very little in RR Fees compared
to full service brokerage firms that have many registered
representatives. Further, due to the manner in which RR Fees are
charged, it is possible for an NYSE Amex ATP Holder to restructure its
business to avoid paying these fees altogether. For example, a firm can
avoid RR Fees by terminating its ATP status and sending its business to
NYSE Amex through another separate NYSE Amex ATP Holder, even an
affiliated firm that has many fewer registered representatives. If
firms terminated their ATP status to avoid RR Fees, the Exchange would
suffer the loss of a source of funding for its regulatory programs.
More importantly, the regulatory effort the Exchange expends to review
the transactions of each type of firm is not commensurate with the
number of registered representatives that each firm employs.
In order to address the inequity of the current regulatory fee
structure and to offset more fully the cost of the Exchange's
regulatory programs, the Exchange proposes to eliminate the current RR
Fee for NYSE Amex ATP Holders and adopt an Options Regulatory Fee
(``ORF'') of $0.004 per contract.\5\ As described below, this fee would
be assessed by the Exchange on each ATP Holder for all options
transactions executed or cleared by the ATP Holder that are cleared by
OCC in the customer range, regardless of the marketplace of execution.
In particular, the Exchange would impose the ORF on all options
transactions executed in the customer range by an ATP Holder,\6\ even
if the transactions do not take place on NYSE Amex. The ORF would also
be charged for transactions that are not executed by an ATP Holder but
are ultimately cleared by an ATP Holder. In the case where an ATP
Holder executes a transaction and a different ATP Holder clears the
transaction, the ORF would be assessed to the ATP Holder who executes
the transaction. In the case where a non-ATP Holder executes a
transaction and an ATP Holder clears the transaction, the ORF would be
assessed to the ATP Holder who clears the transaction.
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\5\ Because the annual component of the RR Fee has already been
assessed for 2011, the Exchange will make a pro rata refund for the
remaining portion of the year following elimination of the RR Fee.
In addition, the Exchange notes that permit holders who conduct only
equities business will no longer be subject to the RR Fee as a
result of the elimination of this fee. Consequently, the Exchange
proposes to eliminate from its NYSE Amex Equities Price List any
reference to fees the Exchange no longer asks FINRA to collect on
its behalf relating to the processing of registered representatives.
In particular, the following ``Registration Fees'' will be
eliminated from the equities fee schedule: the Initial Processing
Fee, the Annual Renewal Processing Fee, the Transfer Processing Fee,
the Web CRD System Transition Fee, and the Terminations Fee. Fees
relating to the processing of registered representatives that FINRA
collects and retains will remain in the Exchange's equities fee
schedule. In particular, the following ``Registration Fees'' will
remain in the equities fee schedule: the Disclosure Processing Fee,
the Fingerprint Card Processing Fee, and the fee for Fingerprint
Results Processed thru other SROs. The Exchange will separately
submit a rule filing to address funding for equities regulation.
\6\ Such transactions must be cleared by an ATP Holder in the
customer range for the ORF to apply. Subject to the foregoing, the
ORF would apply to all customer orders executed by an ATP Holder on
NYSE Amex. Exchange rules require each ATP Holder to submit trade
information in order to allow the Exchange to properly prioritize
and match orders and quotations and report resulting transactions to
the OCC. See NYSE Amex Rule 956NY. The Exchange represents that it
has surveillances in place to verify that ATP Holders comply with
the rule.
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As noted, the ORF would replace RR Fees, which relate to an ATP
Holder's options customer business. Further, RR Fees constituted the
single-largest fee assessed that is related to regulation of customer
trading activity, and the Exchange believes it is appropriate to charge
the ORF only to transactions that clear as customer at the OCC. The
Exchange believes that its broad regulatory responsibilities with
respect to an ATP Holders' activities supports applying the ORF to
transactions cleared but not executed by an ATP Holder. The Exchange's
regulatory responsibilities are the same regardless of whether an ATP
Holder executes a transaction or clears a transaction executed on its
behalf. The Exchange regularly reviews all such activities, including
performing surveillance for position limit violations, manipulation,
front-running, contrary exercise advice violations and insider
trading.\7\ These activities span across multiple exchanges.
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\7\ The Exchange also participates in The Options Regulatory
Surveillance Authority (``ORSA'') national market system plan and in
doing so shares information and coordinates with other exchanges
designed to detect the unlawful use of undisclosed material
information in the trading of securities options. ORSA is a national
market system comprised of several self-regulatory organizations
whose functions and objectives include the joint development,
administration, operation and maintenance of systems and facilities
utilized in the regulation, surveillance, investigation and
detection of the unlawful use of undisclosed material information in
the trading of securities options. The Exchange compensates ORSA for
the Exchange's portion of the cost to perform insider trading
surveillance on behalf of the Exchange. The ORF will cover the costs
associated with the Exchange's arrangement with ORSA.
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The Exchange believes the initial level of the fee is reasonable
because it relates to the recovery of the costs of supervising and
regulating an ATP
[[Page 27120]]
Holder's customer options business. The Exchange believes the amount of
the ORF is fair and reasonably allocated because it is a closer
approximation to the Exchange's actual costs in administering its
regulatory program with respect to customer options activity.
The ORF would be collected indirectly from ATP Holders through
their clearing firms by OCC on behalf of the Exchange. The Exchange
expects that ATP Holders will pass-through the ORF to their customers
in the same manner that firms pass-through to their customers the fees
charged by Self Regulatory Organizations (``SROs'') to help the SROs
meet their obligations under Section 31 of the Exchange Act.
The ORF is designed to recover a material portion of the costs to
the Exchange of the supervision and regulation of ATP Holders,
including performing routine surveillances, investigations, as well as
policy, rulemaking, interpretive and enforcement activities.\8\ The
Exchange believes that revenue generated from the ORF will cover the
substantial majority of the Exchange's regulatory costs related to the
NYSE Amex options market. At present, RR Fees make up the largest part
of the Exchange's total options regulatory fee revenue, however, the
total amount of NYSE Amex specific regulatory fees collected by the
Exchange is significantly less than the regulatory costs incurred by
NYSE Amex on an annual basis. The Exchange notes that its regulatory
responsibilities with respect to an ATP Holder's compliance with
options sales practice rules have been allocated to FINRA under a 17d-2
agreement. The ORF is not designed to cover the cost of options sales
practice regulation.
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\8\ As stated above, the RR Fees collected by the Exchange were
originally intended to cover only a portion of the cost of the
Exchange's regulatory programs.
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The Exchange would monitor the amount of revenue collected from the
ORF to ensure that it, in combination with its other NYSE Amex
regulatory fees and fines, does not exceed the Exchange's total
regulatory costs. The Exchange expects to monitor NYSE Amex regulatory
costs and revenues at a minimum on an annual basis. If the Exchange
determines NYSE Amex regulatory revenues exceed regulatory costs, the
Exchange would adjust the ORF by submitting a fee change filing to the
Commission. The Exchange would notify ATP Holders of adjustments to the
ORF via a Regulatory Bulletin.
The Exchange believes the proposed ORF is equitably allocated
because it would be charged to all ATP Holders on all their customer
options business. The Exchange believes the proposed ORF is reasonable
because it will raise revenue related to the amount of customer options
business conducted by an ATP Holder, and thus the amount of Exchange
regulatory services those ATP Holders will require with respect to that
activity, instead of how many registered representatives a particular
ATP Holder employs.\9\
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\9\ The Exchange expects that implementation of the proposed ORF
will result generally in many traditional brokerage firms paying
less regulatory fees while Internet and discount brokerage firms
will pay more.
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With almost all transactions on the Exchange conducted
electronically, the amount of resources required by the Exchange to
surveil non-customer trading activity is significantly less than the
amount of resources the Exchange must dedicate to surveil customer
trading activity. This is because surveilling customer trading activity
is much more labor-intensive and requires greater expenditure of human
and technical resources than surveilling non-customer trading activity,
which tends to be more automated and less labor-intensive. As a result,
the costs associated with administering the customer component of the
Exchange's overall regulatory program are materially higher than the
costs associated with administering the non-customer component (e.g.,
market maker) of its regulatory program.
The Exchange believes it is reasonable and appropriate for the
Exchange to charge the ORF for options transactions regardless of the
exchange on which the transactions occur. The Exchange has a statutory
obligation to enforce compliance by ATP Holders and their associated
persons under the Exchange Act and the rules of the Exchange and to
surveil for other manipulative conduct by market participants
(including non-ATP Holders) trading on the Exchange. The Exchange
cannot effectively surveil for such conduct without looking at and
evaluating activity across all options markets. Many of the Exchange's
market surveillance programs require the Exchange to look at and
evaluate activity across all options markets, such as surveillance for
position limit violations, manipulation, front-running and contrary
exercise advice violations/expiring exercise declarations.\10\ Also,
the Exchange and the other options exchanges are required to populate a
consolidated options audit trail (``COATS'') system in order to surveil
an ATP Holder's activities across markets.\11\
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\10\ The Exchange and other options SROs are parties to a 17d-2
agreement allocating among the SROs regulatory responsibilities
relating to compliance by the common members with rules for expiring
exercise declarations, position limits, OCC trade adjustments, and
Large Option Position Report reviews. See, e.g., Securities Exchange
Act Release No. 61588 (February 25, 2010).
\11\ COATS effectively enhances intermarket options surveillance
by enabling the options exchanges to reconstruct the market promptly
to effectively surveil certain rules.
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In addition to its own surveillance programs, the Exchange works
with other SROs and exchanges on intermarket surveillance related
issues. Through its participation in the Intermarket Surveillance Group
(``ISG''),\12\ the Exchange shares information and coordinates
inquiries and investigations with other exchanges designed to address
potential intermarket manipulation and trading abuses. The Exchange's
participation in ISG helps it to satisfy the Exchange Act requirement
that it have coordinated surveillance with markets on which security
futures are traded and markets on which any security underlying
security futures are traded to detect manipulation and insider
trading.\13\
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\12\ ISG is an industry organization formed in 1983 to
coordinate intermarket surveillance among the SROs by cooperatively
sharing regulatory information pursuant to a written agreement
between the parties. The goal of the ISG's information sharing is to
coordinate regulatory efforts to address potential intermarket
trading abuses and manipulations.
\13\ See Exchange Act Section 6(h)(3)(I).
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The Exchange believes that charging the ORF across markets will
avoid having ATP Holders direct their trades to other markets in order
to avoid the fee and to thereby avoid paying for their fair share of
regulation. If the ORF did not apply to activity across markets then an
ATP Holder would send their orders to the least cost, least regulated
exchange. Other exchanges do impose a similar fee on their member's
activity, including the activity of those members on NYSE Amex.\14\
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\14\ The Exchange notes that CBOE currently assesses an options
regulatory fee similar to the one proposed herein, which fee is also
assessed on the trading activity of a CBOE member on NYSE Amex. See
Securities Exchange Act Release No. 58817 (October 20, 2008), 73 FR
63744 (October 27, 2008). Similar regulatory fees have also been
instituted by PHLX (See Securities Exchange Act Release No. 61133
(December 9, 2009), 74 FR 66715 (December 16, 2009) (SR-Phlx-2009-
100)); and ISE (See Securities Exchange Act Release No. 61154
(December 11, 2009), 74 FR 67278 (December 18, 2009) (SR-ISE-2009-
105)).
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The Exchange notes that there is established precedent for an SRO
charging a fee across markets, namely, FINRA's Trading Activity Fee
\15\ and the CBOE's, PHLX's, ISE's and BOX's ORF.
[[Page 27121]]
While the Exchange does not have all the same regulatory
responsibilities as FINRA, the Exchange believes that, like other
exchanges that have adopted an ORF, its broad regulatory
responsibilities with respect to an ATP Holders' activities,
irrespective of where their transactions take place, supports a
regulatory fee applicable to transactions on other markets. Unlike
FINRA's Trading Activity Fee, the ORF would apply only to a an ATP
Holder's customer options transactions.
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\15\ See Securities Exchange Act Release No. 47946 (May 30,
2003), 68 FR 3402 (June 6, 2003).
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The Exchange has designated this proposal to be operative on May 1,
2011.
2. Statutory Basis
Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act \16\ in general, and furthers the objectives of
Section6(b)(4) \17\ of the Act in particular, in that it is designed to
provide for the equitable allocation of reasonable dues, fees, and
other charges among its ATP Holders and other persons using its
facilities. The Exchange believes that the ORF is objectively allocated
because it would be charged to all ATP Holders for all their
transactions that clear as customer at the OCC through an ATP Holder.
Moreover, the Exchange believes the ORF ensures fairness by assessing
higher fees to those participants that require more Exchange regulatory
services based on the amount of customer options business they conduct.
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\16\ 15 U.S.C. 78f (b).
\17\ 15 U.S.C. 78f (b)(4).
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The Exchange notes that the Commission has addressed the funding of
an SRO's regulatory operations in the Concept Release Concerning Self-
Regulation\18\ and the release on the Fair Administration and
Governance of Self-Regulatory Organizations.\19\ In the Concept
Release, the Commission states that: ``Given the inherent tension
between an SRO's role as a business and as a regulator, there
undoubtedly is a temptation for an SRO to fund the business side of its
operations at the expense of regulation.''\20\ In order to address this
potential conflict, the Commission proposed in the Governance Release
rules that would require an SRO to direct monies collected from
regulatory fees, fines, or penalties exclusively to fund the regulatory
operations and other programs of the SRO related to its regulatory
responsibilities.\21\ The Exchange has designed the ORF to generate
revenues that, when combined with all of the Exchange's other
regulatory fees, will be less than or equal to the Exchange's
regulatory costs, which is consistent with the Commission's view that
regulatory fees be used for regulatory purposes and not to support the
Exchange's business side. In this regard, the Exchange believes that
the initial level of the fee is reasonable.
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\18\ See Securities Exchange Act Release No. 50700 (November 18,
2004), 69 FR 71256 (December 8, 2004) (``Concept Release'').
\19\ See Securities Exchange Act Release No. 50699 (November 18,
2004), 69 FR 71126 (December 8, 2004) (``Governance Release'').
\20\ Concept Release at 71268.
\21\ Governance Release at 71142.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \22\ of the Act and subparagraph (f)(2) of Rule
19b-4 \23\ thereunder, because it establishes a due, fee, or other
charge imposed by the NYSE Amex.
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-NYSEAmex-2011-27 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEAmex-2011-27. This
file number should be included on the subject line if e-mail 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 a.m. and 3 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-
NYSEAmex-2011-27 and should be submitted on or before May 31, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11337 Filed 5-9-11; 8:45 am]
BILLING CODE 8011-01-P