[Federal Register Volume 77, Number 223 (Monday, November 19, 2012)]
[Notices]
[Pages 69522-69525]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28004]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68215; File No. SR-NSX-2012-20]
Self-Regulatory Organizations; National Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend Its Fee and Rebate Schedule
November 13, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\
notice is hereby given that on November 2, 2012 National Stock
Exchange, Inc. (``NSX'' or ``Exchange'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the Exchange. 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 is proposing to amend its Fee and Rebate Schedule (the
``Fee Schedule'') issued pursuant to Exchange Rule 16.1(a) to adopt
separate regulatory fees for Order Delivery participants to: (1) Charge
a flat fee per quotation update; (2) charge a separate flat fee per
quotation update during a new Order Delivery participant's first three
(3) months of participation; and (3) implement an Onboarding Fee for
new Order Delivery participants. The text of the proposed rule change
is available on the Exchange's Web site at www.nsx.com, at the
Exchange's principal office, and at the Commission's Public Reference
Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for
[[Page 69523]]
the proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Section IV of its Fee Schedule to
adopt a separate Regulatory Fee for Order Delivery participants to: (1)
Charge a flat fee per quotation update; (2) charge a separate flat fee
per quotation update during a new Order Delivery participant's first
three (3) months of participation; and (3) implement an Onboarding Fee
for new Order Delivery participants. Proceeds from the new regulatory
fees will be used to fund the NSX's regulatory oversight of Order
Delivery participants.
Quotation Update Fee for Existing Order Delivery Participants
The Exchange proposed to charge a flat fee of $0.000444 per each
Order Delivery participant's quotation update.\3\ The Exchange will
earmark and use all regulatory fees raised through the quotation update
fee to support the regulatory oversight of the Order Delivery function.
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\3\ A ``quotation update'' includes any change to the price,
size or side of a quotation or submission of an updated quote with
the same price, size or side. A quotation update does not include
posting of a new quote to replace a quote that was fully executed.
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The quotation update fee rate is reasonable since it is designed to
correlate with the total regulatory costs associated with overseeing
the Order Delivery trading program based on current Order Delivery
participants' historic quotation activities. The Exchange will
calculate, on a quarterly basis, the percentage of the Exchange's
quotation activity that is accounted for by Order Delivery
participants. The Exchange will consider any changes in the level of
Order Delivery activity as well as any changes in the market,
surveillance and system requirements required to effectively perform
the surveillance function in determining whether to adjust the
quotation update fee.
The Order Delivery functionality allows electronic communication
networks (``ECNs'') to make quotations available through the
consolidated quotation feed without the risk of double execution. The
Exchange is the only market center to provide this service. This market
structure has a higher cost structure than automated matching engines
due to its increased operational, technology and regulatory demands.
The Exchange currently does not charge execution fees for orders
executed using the Order Delivery Mode.
The Exchange also notes that this proposed fee is similar to a
quotation update fee imposed by FINRA on ADF Participants.\4\ The
Exchange's Order Delivery program is similar to the ADF offering.
Therefore, the Exchange believes that a separate regulatory fee based
on quotation updates is a reasonable manner in which to fund its
regulatory program.
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\4\ See Securities Exchange Act Release No. 47331 (February 10,
2003), 68 FR 7635 (February 14, 2003) (SR-NASD-2003-09), see also,
Securities Exchange Act Release No. 55379 (March 1, 2007), 72 FR
10283 (March 7, 2007) (SR-NASD-2007-017). While the Exchange
proposes a fixed quotation update fee for existing Order Delivery
participants and a separate quotation update fee for a new
applicant, FINRA's quotation update fee is tiered based on the ADF
Participant's trading volumes.
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Fees for New Order Delivery Participants
The Exchange also proposed to adopt the following separate fees for
new Order Delivery Participants: (1) A higher flat fee per quotation
update during a new Order Delivery participant's first three (3) months
of participation; and (2) a one-time Onboarding Fee of $5,000.00.
The Exchange proposes a separate flat fee per quotation update of
$0.006667 during a new Order Delivery participant's first three (3)
months of participation. This quotation update fee would be in lieu of
the proposed standard quotation update fee of $0.000444 for existing
Order Delivery participants. This is because the Exchange expends an
increased regulatory focus over a new Order Delivery participant's
activities to ensure compliance with Exchange Rule 11.13 and to gain
familiarity with their quoting activities. The Exchange will earmark
and use all regulatory fees raised through the quotation update fee to
support the regulatory oversight of the Order Delivery function. The
Exchange believes that charging a higher quotation update fee for new
Order Delivery participants during their first three months of
operation is reasonable, and is an equitable means to cover the
increase regulatory oversight costs of their activities without being
unfairly discriminatory among the ETP Holders.
The Exchange proposes a one-time Onboarding Fee of $5,000.00. The
Exchange incurs increased costs when onboarding a new Order Delivery
participant. These costs include establishing connectivity and
administering the application process. The Exchange also conducts
enhanced due diligence of the Order Delivery participant's systems to
ensure its ability to comply with Exchange Rule 11.13, including the
Order Delivery applicant's ability to comply with the Exchange's
eligibility requirements. The Onboarding Fees will also be used by the
Exchange to support the regulatory oversight of the Order Delivery
function. The Exchange believes that adopting a one-time fee is
reasonable for new Order Delivery participants, and an equitable
distribution of regulatory costs that does not unfairly discriminate
against the Order Delivery applicant or existing ETP Holders.
Operative Date and Notice
The Exchange currently intends to make the proposed modifications,
which are effective on filing of this proposed rule, operative as of
commencement of trading on November 2, 2012.\5\ Pursuant to Exchange
Rule 16.1(c), the Exchange will ``provide ETP Holders with notice of
all relevant dues, fees, assessments and charges of the Exchange''
through the issuance of a Regulatory Circular of the changes to the Fee
Schedule and will post a copy of the rule filing on the Exchange's Web
site (www.nsx.com).
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\5\ Because the proposed changes are effective November 2, 2012,
trading activity occurring on November 1, 2012 will be excluded from
the proposed fees.
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2. Statutory Basis
The Exchange believes that the proposed fixed quotation update fee
for existing Order Delivery participants is consistent with the
provisions of Section 6(b) of the Act,\6\ in general, and Section
6(b)(4) of the Act,\7\ in particular in that it is designed to provide
for the equitable allocation of reasonable dues, fees and other charges
among its members and other persons using the facilities of the
Exchange. Order Delivery Mode imposes on the Exchange greater
regulatory and operational costs than Auto-Ex Mode, because Order
Delivery is a model that requires increased regulatory procedures to
ensure effective oversight of compliance with applicable SEC and SRO
rules. By imposing a quotation update fee based on each Order Delivery
participant's quotation activity, this fee equitably
[[Page 69524]]
allocates costs based on their overall quotation activity. The Exchange
is the only market center to offer Order Delivery to market
participants, which allows ECNs to make quotations available through
the consolidated quotation feed without the risk of double execution.
This market structure has a higher cost structure than automated
matching engines due to its increased operational, technology and
regulatory demands. The Exchange currently does not charge execution
fees for orders executed using the Order Delivery Mode. Therefore, the
Exchange believes this fee structure is a reasonable means for the NSX
to recover the regulatory costs of Order Delivery. Moreover, the
Exchange believes that the proposed fixed quotation update fee for
existing Order Delivery participants is consistent with the provisions
of Section 6(b)(5) of the Act,\8\ in that the proposed regulatory fee
is not unfairly discriminatory because it is based on an ETP Holder's
quotation activity in Order Delivery. Order Delivery participants are
eligible to submit (or not submit) liquidity adding and quotes, and may
do so at their discretion in the daily volumes they choose during any
given trading day.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4).
\8\ 15 U.S.C. 78f(b)(5).
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Furthermore, the Exchange also believes that the proposed fixed
quotation update fee for new Order Delivery participants during their
first three (3) months of operation is consistent with the provisions
of Section 6(b) of the Act,\9\ in general, and Section 6(b)(4) of the
Act,\10\ in particular in that it is designed to provide for the
equitable allocation of reasonable dues, fees and other charges among
its members and other persons using the facilities of the Exchange.
Oversight of a new Order Delivery participant's activities imposes on
the Exchange greater regulatory and operational costs than it does for
existing Order Delivery participants, because the Exchange expends an
increased regulatory focus over a new Order Delivery participant's
activities to ensure compliance with Exchange Rule 11.13 and to gain
familiarity with their quoting activities. The Exchange believes that
charging a higher quotation update fee for new Order Delivery
participants during their first three (3) months of operation is a
reasonable means to cover the increase regulatory oversight costs of
their activities require. By imposing a quotation update fee based on
each Order Delivery participant's quotation activity, this fee
equitably allocates costs based on their overall quotation activity.
Again, the Exchange is the only market center to offer Order Delivery
to market participants which allows ECNs to make quotations available
through the consolidated quotation feed without the risk of double
execution. This market structure has a higher cost structure than
automated matching engines due to its increased operational, technology
and regulatory demands. The Exchange currently does not charge
execution fees for orders executed using the Order Delivery Mode.
Therefore, the Exchange believes this fee structure is a reasonable
means for the NSX to recover the regulatory costs of Order Delivery.
Moreover, the Exchange believes that the proposed fixed quotation
update fee for new Order Delivery participants during their first three
(3) months of operation is consistent with the provisions of Section
6(b)(5) of the Act,\11\ in that the proposed regulatory fee is not
unfairly discriminatory because it is based on an ETP Holder's
quotation activity in Order Delivery. New Order Delivery participants
require increased regulatory oversight relative to existing
participants due to the Exchange's focus on their trading activity,
ensuring compliance with SEC and SRO rules as well as Exchange staff
developing familiarity with the new participant's trading behavior.
Also, Order Delivery participants are eligible to submit (or not
submit) liquidity adding and quotes, and may do so at their discretion
in the daily volumes they choose during any given trading day.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4).
\11\ 15 U.S.C. 78f(b)(5).
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Lastly, the Exchange believes that the proposed one-time Onboarding
Fee for new Order Delivery participants is also consistent with the
provisions of Section 6(b) of the Act,\12\ in general, and Section
6(b)(4) of the Act,\13\ in particular in that it is designed to provide
for the equitable allocation of reasonable dues, fees and other charges
among its members and other persons using the facilities of the
Exchange. Onboarding a new Order Delivery participant imposes on the
Exchange increased regulatory and operational costs. These costs
include establishing connectivity and administering the application
process. The Exchange also conducts extensive due diligence and
increased regulatory procedures to ensure effective oversight of
compliance with applicable SEC and SRO rules, including review of an
Order Delivery participant's systems to ensure their ability to comply
with Exchange Rule 11.13's automated response time requirements. By
imposing a one-time Onboarding Fee for new Order Delivery participants,
this fee equitably allocates costs based on the increased regulatory
review of the new participant's ability to comply with SEC and SRO
rules relating to Order Delivery. The Exchange currently does not
charge execution fees for orders executed using the Order Delivery
Mode. Therefore, the Exchange believes this one-time Onboarding Fee is
a reasonable means for the NSX to recover the regulatory costs
associated with onboarding new Order Delivery participants. Moreover,
the Exchange believes that the proposed one-time Onboarding Fee for new
Order Delivery participants is consistent with the provisions of
Section 6(b)(5) of the Act,\14\ in that the proposed regulatory fee is
not unfairly discriminatory because it applies to all new Order
Delivery participant's equally and all ETP Holders who meet the
criteria of Exchange Rule 11.13 are eligible to become Order Delivery
participants.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4).
\14\ 15 U.S.C. 78f(b)(5).
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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
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The proposed rule change has taken effect upon filing pursuant to
Section 19(b)(3)(A)(ii) of the Exchange Act \15\ and subparagraph
(f)(2) of Rule 19b-4 \16\ thereunder, because, as provided in (f)(2),
it changes ``a due, fee or other charge applicable only to a member''
(known on the Exchange as an ETP Holder). 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.
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\15\ 15 U.S.C. 78s(b)(3)(A)(ii).
\16\ 17 CFR 240.19b-4.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NSX-2012-20 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-NSX-2012-20. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NSX-2012-20 and should be
submitted on or before December 10, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28004 Filed 11-16-12; 8:45 am]
BILLING CODE 8011-01-P