[Federal Register Volume 78, Number 248 (Thursday, December 26, 2013)]
[Notices]
[Pages 78426-78435]
[FR Doc No: 2013-30767]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71146; File No. SR-NYSEArca-2013-141]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To Adopt New NYSE Arca Equities Rule 7.25 in
Order To Create a Crowd Participant Program To Incent Competitive
Quoting and Trading Volume in Exchange-Traded Products by Market Makers
Qualified With the Exchange as CPs

December 19, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on December 6, 2013, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to proposes to [sic] adopt new NYSE Arca
Equities Rule 7.25 (``Rule 7.25'') in order to create a Crowd
Participant (``CP'') program (the ``CP Program'') to incent competitive
quoting and trading volume in exchange-traded products (``ETPs'') by
Market Makers qualified with the Exchange as CPs. The text of the
proposed rule change is available on the Exchange's Web site at
www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below,

of the most significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt new Rule 7.25 in order to create the
CP Program to incent competitive quoting and trading volume in ETPs by
Market Makers \4\ qualified with the Exchange as CPs.
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    \4\ A Market Maker is an Equity Trading Permit Holder that acts
as a Market Maker pursuant to NYSE Arca Equities Rule 7. See NYSE
Arca Equities Rule 1.1(v). An Equity Trading Permit Holder is a sole
proprietorship, partnership, corporation, limited liability company,
or other organization in good standing that has been issued an
Equity Trading Permit. See NYSE Arca Equities Rule 1.1(n).
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Background
    By establishing this new class of market participant, the Exchange
is seeking to incentivize Market Makers on the Exchange to quote and
trade in certain low-volume ETPs by offering issuers an alternative fee
program funded by participating issuers and credited to CPs from the
Exchange's general revenues. At the same time, the Exchange is seeking
to add competition among existing qualified Market Makers on the
Exchange. By requiring CPs to quote at the National Best Bid (``NBB'')
or the National Best Offer (``NBO,'' and together with NBB, ``NBBO'')
for a percentage of the regular trading day, the Exchange proposes to
reward competitive liquidity-providing Market Makers. The Exchange
believes that this rebate program will encourage the additional
utilization of, and interaction with, the Exchange and further enhance
the Exchange's standing as a premier venue for price discovery,
liquidity, competitive quotes and price improvement, which will benefit
investors.
    The Exchange also believes that the voluntary CP Program will offer
an alternative to the existing Lead Market Maker (``LMM'') program on
the Exchange, as well as an alternative to the ETP Incentive Program
under NYSE Arca Equities Rule 8.800,\5\ for issuers to consider when
determining where to list their securities. While the LMM program, the
ETP Incentive Program and the proposed CP Program would share certain
similarities (e.g., each is designed to incentivize quoting and
trading), they are each fundamentally different. For example, the LMM
program is designed to incentivize firms to take on the LMM designation
and foster liquidity provision and stability in the market. In order to
accomplish this, the Exchange currently provides LMMs with an
opportunity to receive incrementally higher transaction credits and
incur incrementally lower transaction fees (``LMM Rates'') compared to
standard liquidity maker-taker rates (``Standard Rates'').\6\ LMM Rates
are intended to balance the increased risks and requirements assumed by
LMMs. The ETP Incentive Program, however, is designed to enhance the
market quality of, and incentivize Market Makers to take LMM
assignments in, certain lower-volume ETPs by offering an alternative
fee structure for such LMMs, which is funded from the Exchange's
general revenues. ETP Incentive Program costs are offset by charging
participating issuers non-refundable Optional Incentive Fees, which are
credited to the Exchange's general revenues. LMMs under the ETP
Incentive Program have additional, more stringent performance standards
as compared to the LMM program.
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    \5\ See Securities Exchange Act Release No. 69706 (June 6,
2013), 78 FR 35340 (June 12, 2013) (SR-NYSEArca-2013-34).
    \6\ The Exchange generally employs a maker-taker transactional
fee structure, whereby an Equity Trading Permit Holder that removes
liquidity is charged a fee (``Take Rate''), and an Equity Trading
Permit Holder that provides liquidity receives a credit (``Make
Rate''). See Trading Fee Schedule, available at https://usequities.nyx.com/sites/usequities.nyx.com/files/nyse_arca_marketplace_fees_for_12-3-13.pdf.
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    Both the CP Program, if approved, and the ETP Incentive Program
would be subject to one-year pilot periods. During these pilot periods,
the Exchange would provide the Securities and Exchange Commission
(``Commission'') with certain market quality reports each month, which
would also be posted on the Exchange's Web site. The analysis and
market quality data provided in the CP Program reports would be
identical to that of the ETP Incentive Program reports. The CP Program
pilot reports would also compare, to the extent practicable, the CP
Program against the ETP Incentive Program, including with respect to
the potential impact that one program may have on the other and how the
analysis included in the reports with respect to the CP Program, as
described further below, compares to the Exchange's similar analysis
with respect to the ETP Incentive Program. Other aspects of the CP
Program that would be the same as, or substantially similar to, the ETP
Incentive Program are (1) payment of an optional fee by a participating
issuer, which would be credited to the Exchange's general revenues
(although the fee amounts would differ between the CP Program and the
ETP Incentive Program); (2) issuer eligibility (although the CP Program
would permit an issuer's ETP to participate therein even if the issuer
had suspended the issuance of new shares of such ETP, whereas the ETP
Incentive Program does not); (3) the notifications provided by the
Exchange on its Web site related to the CP Program; (4) the press
releases, and the contents thereof, required of issuers whose ETPs are
participating in the CP Program; and (5) the consolidated average daily
volume (``CADV'') threshold related to an ETP's ``graduation'' from the
CP Program (although the threshold under the CP Program would be two
million shares, whereas the threshold under the ETP Incentive Program
is one million shares).
    The CP Program differs from the LMM program and the ETP Incentive
Program primarily by providing for competition among market
participants to earn incentive rebates (referred to as ``CP Payments'')
based on CP performance in an assigned ETP. In this regard, under the
LMM program and the ETP Incentive Program, only one Market Maker--the
LMM--is incentivized to be active with respect to the market for the
particular ETP. However, as proposed under the CP Program, multiple CPs
would compete for the daily CP Payments, which, like the ETP Incentive
Program, would be funded from the Exchange's general revenues and
offset by charging issuers an optional, non-refundable ``CP Program
Fee,'' which would be credited to the Exchange's general revenues. As
proposed, CPs would be subject to a daily quoting requirement in order
to be eligible to receive CP Payments. CPs would also be subject to a
monthly quoting requirement in order to remain qualified as CPs. The
Exchange believes that offering three programs with different
structures and incentives would allow issuers and Market Makers to
choose an alternative that makes the most sense for their business
models and allow the Exchange and the Commission to compare the
features of, participation in, and performance of the programs over
time before determining whether to convert the CP Program, the ETP
Incentive Program, or both to permanent status.
    The Exchange does not anticipate that offering the CP Program would
have any adverse impact on the ETP Incentive Program or the existing
LMM program. Rather, the Exchange believes that it is in the interest
of issuers, LMMs, Market Makers, and the investing public to have the
benefit of alternatives with respect

to the particular program that an issuer's ETP participates in on the
Exchange. The Exchange believes that an issuer would select the program
that it believes is best suited for its ETP. In this regard, to the
extent an issuer's ETP is participating in, for example, the ETP
Incentive Program, but decides that the CP Program may actually be
better tailored for the ETP, the issuer could withdraw the ETP from the
ETP Incentive Program at the end of a calendar quarter and apply for
the ETP to participate in the CP Program. This would also be true for
issuers that choose to withdraw their ETPs from the CP Program and
instead have their ETPs participate in the ETP Incentive Program. After
participating in either the CP Program or the ETP Incentive Program, an
issuer could also decide that the traditional LMM program is the best
program for its ETP.
Proposed Rule
    Proposed NYSE Arca Equities Rule 7.25(a) would describe a CP, which
would be an Equity Trading Permit Holder that (1) would be qualified as
a Market Maker, and in good standing, on the Exchange; (2) would
electronically enter quotes and orders into the systems and facilities
of the Exchange; and (3) would be obligated to maintain a displayed bid
or offer at the NBB or the NBO, respectively, in each assigned ETP
consistent with paragraph (g) of proposed Rule 7.25.\7\
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    \7\ The Exchange's proposed description of a CP would be
substantially the same as a ``Competitive Liquidity Provider'' or
``CLP'' under Interpretation and Policy .02(a) of BATS Exchange,
Inc. (``BATS'') Rule 11.8 (the ``Competitive Liquidity Provider
Program'' or ``CLP Program'').
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    Proposed NYSE Arca Equities Rule 7.25(b) would describe the
products eligible for the CP Program.\8\ Specifically, an ETP would be
eligible to participate in the CP Program if:
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    \8\ The products that would be eligible to join the CP Program
would be substantially the same as the products eligible for the ETP
Incentive Program under Rule 8.800(a), except that proposed Rule
7.25(b)(3) would be added to describe that, to participate in the CP
Program, an ETP could neither participate in the ETP Incentive
Program under NYSE Arca Equities Rule 8.800 nor have an LMM assigned
to it.
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    (1) it is listed on the Exchange as of the commencement of the
pilot period or becomes listed during the pilot period;
    (2) the listing is under NYSE Arca Equities Rules 5.2(j)(3)
(Investment Company Units), 5.2(j)(5) (Equity Gold Shares), 8.100
(Portfolio Depositary Receipts), 8.200 (Trust Issued Receipts), 8.201
(Commodity-Based Trust Shares), 8.202 (Currency Trust Shares), 8.203
(Commodity Index Trust Shares), 8.204 (Commodity Futures Trust Shares),
8.300 (Partnership Units), 8.600 (Managed Fund Shares), or 8.700
(Managed Trust Securities);
    (3) it is neither participating in the ETP Incentive Program under
NYSE Arca Equities Rule 8.800 nor has an LMM assigned to it; \9\
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    \9\ If an issuer of an ETP with an LMM assigned to it chose to
have the ETP participate in the CP Program, the LMM would be
relieved of its status as such. The LMM would be permitted to apply
for CP status for the particular ETP. In this regard, the Exchange
believes that existing Market Maker identifiers could be utilized to
identify CP activity for purposes of the CP Program, since the same
Market Maker could not also act in the capacity as an LMM, either
pursuant to the LMM Program or the ETP Incentive Program.
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    (4) with respect to an ETP that was listed on the Exchange before
the commencement of the CP Program, the ETP has a CADV of two million
shares or less for at least the preceding three months; and
    (5) it is compliant with continuing listing standards, if the ETP
is added to the CP Program after listing on the Exchange.
    Proposed NYSE Arca Equities Rule 7.25(c) would describe the issuer
application process.\10\ Specifically, under proposed NYSE Arca
Equities Rule 7.25(c)(1), to be eligible for an ETP to participate in
the CP Program, the issuer must be current in all payments due to the
Exchange.
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    \10\ The issuer application process under proposed Rule 7.25(c)
would be substantially similar to the process under Rule 8.800(b)
for issuers whose ETPs participate in the ETP Incentive Program,
except that (i) proposed Rule 7.25(c)(2) would not include a
restriction with respect to the number of ETPs that an issuer could
designate to participate in the CP Program that were listed on the
Exchange prior to the pilot period, (ii) as described below, an
issuer whose ETP is participating in the CP Program would not be
able to determine the amount of the CP Program Fee, and (iii) the
process described under Rule 8.800(b)(4)-(5) for the ETP Incentive
Program related to issuer-LMM contact, LMM meetings/presentations
to/with the Exchange, and issuer indications of preference regarding
the specific LMM assigned to an ETP would not be applicable.
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    Proposed NYSE Arca Equities Rule 7.25(c)(2) would describe that an
issuer that wished to have an ETP participate in the CP Program and pay
the Exchange a CP Program Fee would be required to submit a written
application in a form prescribed by the Exchange for each ETP. An
issuer could elect for its ETP to participate at the time of listing or
thereafter at the beginning of each quarter. The Exchange notes that it
may, on a CP Program-wide basis, limit the number of ETPs that any one
issuer may have in the CP Program, and any such limitation would be
uniformly applied to all issuers.\11\
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    \11\ This would be similar to the manner in which the Nasdaq
Stock Market LLC (``NASDAQ'') may, in relation to its Market Quality
Program (``MQP''), on an MQP-wide basis limit the number of MQP
securities that any one ``MQP Company'' may have in the MQP. See
NASDAQ Rule 5950(a)(1)(A). See also note 50, infra [sic].
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    Proposed NYSE Arca Equities Rule 7.25(c)(3) would describe that the
Exchange would communicate the ETP(s) proposed for inclusion in the CP
Program on a written solicitation that would be sent to all qualified
CPs along with the CP Program Fee the issuer will pay the Exchange for
each ETP, which would be set forth in the Exchange's Listing Fee
Schedule.\12\
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    \12\ The Exchange notes that, whereas the Optional Incentive Fee
for the ETP Incentive Program is determined by the issuer within a
range of $10,000 to $40,000, the CP Program Fee would be fixed at
$50,000 for any issuers whose ETPs are participating.
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    Proposed NYSE Arca Equities Rules 7.25(c)(4) and (5) would describe
required public notices relating to the CP Program. Under proposed NYSE
Arca Equities Rule 7.25(c)(4), the Exchange would provide notification
on a dedicated page on its Web site regarding (i) the ETPs
participating in the CP Program, (ii) the date a particular ETP began
participating in the CP Program, (iii) the date the Exchange received
written notice of an issuer's intent to withdraw its ETP from the CP
Program, and the intended withdrawal date, if provided, (iv) the date a
particular ETP ceased participating in the CP Program, (v) the CPs
assigned to each ETP participating in the CP Program, (vi) the date the
Exchange received written notice of a CP's intent to withdraw from its
ETP assignment(s) in the CP Program, and the intended withdrawal date,
if provided, and (vii) the amount of the CP Program Fee for each ETP.
This page would also include a fair and balanced description of the CP
Program, including (a) a description of the CP Program's operation as a
pilot, including the effective date thereof, (b) the potential benefits
that may be realized by an ETP's participation in the CP Program, (c)
the potential risks that may be attendant with an ETP's participation
in the CP Program, (d) the potential impact resulting from an ETP's
entry into and exit from the CP Program, and (e) how interested parties
can request additional information regarding the CP Program and/or the
ETPs participating therein.
    Under proposed NYSE Arca Equities Rule 7.25(c)(5), an issuer of an
ETP that is approved to participate in the CP Program would be required
to issue a press release to the public when an ETP commences or ceases
participation in the CP Program. The press release would be in a form
and manner prescribed by the Exchange, and if practicable, would be
issued at least two

days before the ETP commences or ceases participation in the CP
Program.\13\ For example, there could be instances in which it would
not be known two days in advance that an ETP would be ceasing
participation in the CP Program, in which case the Exchange would
request that the issuer distribute the press release as soon as
possible under the particular circumstances. The issuer would also be
required to dedicate space on its Web site, or, if it does not have a
Web site, on the Web site of the adviser or sponsor of the ETP, that
(i) includes any such press releases and (ii) provides a hyperlink to
the dedicated page on the Exchange's Web site that describes the CP
Program.\14\
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    \13\ The issuer's press release would be required to include
language describing, for example, that while the impact of
participation in or exit from the CP Program, which is optional,
cannot be fully understood until objective observations can be made
in the context of the CP Program, potential impacts on the market
quality of the issuer's ETP may result, including with respect to
the average spread and average quoted size for the ETP.
    \14\ These disclosure requirements would be in addition to, and
would not supersede, the prospectus disclosure requirements under
the Securities Act of 1933 or the Investment Company Act of 1940.
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    Proposed NYSE Arca Equities Rule 7.25(d) would describe the CP
application process.\15\ To qualify as a CP, as described in proposed
NYSE Arca Equities Rule 7.25(d)(1), an Equity Trading Permit Holder
must: \16\
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    \15\ The proposed CP application process would be substantially
similar to the BATS CLP Program application process under
Interpretation and Policy .02(e) of BATS Rule 11.8.
    \16\ The proposed qualifications would be, in the Exchange's
opinion, more straightforward as compared to the BATS CLP Program
qualifications under Interpretation and Policy .02(c) of BATS Rule
11.8. For example, proposed Rule 7.25(d)(1) would not require unique
identifiers, since an ETP could participate only in one of either
the LMM program, the ETP Incentive Program or the proposed CP
Program, such that unique identifiers to distinguish Market Maker
activity on the Exchange would not be necessary. Several other BATS
CLP requirements (e.g., regarding trading infrastructure) are
overarching for Market Makers on the Exchange, generally, and
therefore are not specifically included in Rule 7.25.
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    (A) be qualified as a Market Maker, and in good standing, on the
Exchange; and
    (B) have adequate information barriers between the business unit of
the Equity Trading Permit Holder acting as a CP in a proprietary
capacity and the Equity Trading Permit Holder's customer, research and
investment banking business, if any.
    To become a CP, an Equity Trading Permit Holder must submit a CP
application form with all supporting documentation to the Exchange.
Exchange staff would determine whether an applicant was qualified to
become a CP based on the qualifications described in proposed Rule
7.25(d)(1). After an applicant submits a CP application to the
Exchange, with supporting documentation, the Exchange would notify the
applicant of its decision. If an applicant were approved by the
Exchange to receive CP status, such applicant would be required to have
connectivity with relevant Exchange systems before such applicant would
be permitted to quote and trade as a CP on the Exchange.\17\ In the
event that an applicant were disapproved by the Exchange, such
applicant could seek review under existing NYSE Arca Equities Rule
10.13 and/or reapply for CP status at least three calendar months
following the month in which the applicant received the disapproval
notice from the Exchange.\18\ The Exchange does not anticipate placing
a limit on the number of CPs assigned to a particular ETP or on the
number of ETPs that a particular CP would be assigned to. This is
consistent with the goal of the CP Program, which is to promote quoting
and trading and to add competition on the Exchange.\19\
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    \17\ If approved to receive CP status, a CP would be assigned to
participating ETPs in the same manner that Market Makers are
currently assigned to securities listed on the Exchange.
    \18\ NYSE Arca Equities Rule 10.13 provides the procedure for
persons aggrieved by certain actions taken by the Exchange to apply
for an opportunity to be heard and to have the action reviewed.
    \19\ This would be unlike securities traded on the Exchange for
which a single LMM is assigned as well as for securities
participating in the ETP Incentive Program.
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    Proposed NYSE Arca Equities Rule 7.25(e) would describe an issuer's
payment of the CP Program Fee. An issuer of an ETP that is
participating in the CP Program would be required to pay the Exchange a
CP Program Fee in accordance with the Exchange's Listing Fee Schedule,
which would be credited to the Exchange's general revenues. In this
regard, the Exchange proposes to amend its Listing Fee Schedule to
provide that the CP Program Fee under Rule 7.25 would be $50,000.\20\
Specifically, the Listing Fee Schedule would specify that the CP
Program Fee for each ETP would be paid by the issuer to the Exchange in
quarterly installments at the beginning of each quarter and prorated if
the issuer commenced participation for an ETP in the CP Program after
the beginning of a quarter.\21\ The CP Program Fee paid by an issuer
would be credited to the Exchange's general revenues. The issuer would
not receive a credit from the Exchange following the end of the quarter
if a CP were assigned to the ETP during such quarter, even if the
assigned CPs did not satisfy their daily or monthly quoting
requirements in any given month in such quarter for the ETP.\22\ If the
ETP had a sponsor, the sponsor could pay the CP Program Fee to the
Exchange.\23\
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    \20\ As noted above, whereas the Optional Incentive Fee for the
ETP Incentive Program is determined by the issuer within a range of
$10,000 to $40,000 per ETP, the CP Program Fee would be fixed at
$50,000 per ETP for any issuers whose ETPs are participating. Like
the ETP Incentive Program, the issuer would still be required to pay
applicable Listing Fees and Annual Fees. Under the current Listing
Fee Schedule, an issuer of an ETP is required to pay a Listing Fee
that ranges from $5,000 to $45,000. An ETP issuer also pays a
graduated Annual Fee based on the number of shares of the ETP that
are outstanding. The Annual Fee ranges from $5,000 to $55,000.
    \21\ The description of payment of the CP Program Fee by issuers
would be substantially similar to that of the Optional Incentive Fee
under the ETP Incentive Program, including by describing the
circumstance under which the issuer would not receive a credit from
the Exchange.
    \22\ As described in proposed NYSE Arca Equities Rule
7.25(e)(1), an ETP would not be permitted to begin participation in
the CP Program unless there were eligible CPs assigned to such ETP.
    \23\ This is identical to the ETP Incentive Program, including
that the term ``sponsor'' means the registered investment adviser
that provides investment management services to an ETP or any of
such investment adviser's parents or subsidiaries.
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    Proposed NYSE Arca Equities Rule 7.25(f) would describe Size Event
Tests (``SETs'').\24\ The Exchange would measure the performance of a
CP in an assigned ETP by calculating SETs during Core Trading Hours on
every day on which the Exchange is open for business. The Exchange
would measure the quoted displayed size at the NBB (NBO) of each CP at
least once per second to determine bid (offer) SETs (a ``Bid (Offer)
SET''). A CP would be considered to have a winning Bid (Offer) SET (a
``Winning Bid (Offer) SET'') for a particular ETP if, at the time of
the SET, the CP:
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    \24\ The Exchange notes that the ETP Incentive Program only
contemplates one LMM for each participating ETP. The concept of SETs
is substantially similar to that of the BATS CLP Program under
Interpretation and Policy .02(g)(1) and (4) (5) of BATS Rule 11.8.
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    (A) was quoting at least 500 shares of the ETP at the NBB (NBO);
    (B) had the greatest aggregate displayed size at the NBB (NBO); and
    (C) was quoting an offer (bid) of at least 100 shares at a price at
or within 1.2% of the CP's best bid (offer).
    Proposed NYSE Arca Equities Rule 7.25(g) would describe the CP
quoting requirements.\25\ Under the general

quoting requirement of proposed Rule 7.25(g)(1), each CP assigned to
one or more ETPs in the CP Program would be required to maintain
continuous, two-sided displayed quotes or orders in accordance with
existing NYSE Arca Equities Rule 7.23(a)(1) for each such ETP. Under
the daily quoting requirement of proposed Rule 7.25(g)(2), a CP would
be required to have Winning Bid (Offer) SETs equal to at least 10% of
the total Bid (Offer) SETs on any trading day in order to meet its
daily quoting requirement and to be eligible for the daily CP Payments
for an ETP, as described in the Exchange's Trading Fee Schedule.
Furthermore, under the monthly quoting requirement of proposed Rule
7.25(g)(3), a CP must have displayed quotes or orders of at least 100
shares at the NBB (NBO) at least 10% of the time that the Exchange
calculates Bid (Offer) SETs to meet its monthly quoting requirement.
Finally, proposed Rule 7.25(g)(4) would provide that, for purposes of
meeting the daily and monthly quoting requirements, CP quotes may be
for the account of the CP in either a proprietary capacity or a
principal capacity on behalf of an affiliated or unaffiliated
person.\26\ For purposes of measuring CP quoting, the Exchange would
include all Market Maker quotes and orders in assigned ETPs of an
Equity Trading Permit Holder that is a CP.
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    \25\ The proposed CP quoting requirements would be substantially
similar to the quoting requirements of the BATS CLP Program under
Interpretation and Policy .02(g)(1)(A) and (B) and (g)(2)-(4) of
BATS Rule 11.8, except that, as described in proposed Rule
7.25(g)(4), for purposes of meeting the daily and monthly quoting
requirements, CP quotes may be for the account of the CP in either a
proprietary capacity or a principal capacity on behalf of an
affiliated or unaffiliated person. The Exchange notes that the
proposed quoting requirements under the CP Program would differ
significantly from the LMM Performance Standards under the ETP
Incentive Program because only one LMM is assigned to each ETP
participating in the ETP Incentive Program, whereas several CPs may
be assigned to each ETP participating in the CP Program.
    \26\ A CP's quotes in a principal capacity could include quotes
submitted to the Exchange on behalf of customers or other
unaffiliated or affiliated persons.
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    By way of comparison, although CPs and LMMs share certain quoting
requirements, the additional CP requirements to receive a payment under
the CP Program differ from those of LMMs. All CPs, LMMs in the LMM
program, and LMMs in the ETP Incentive Program must meet the general
Market Maker quoting requirements under Rule 7.23. Under this rule,
they must maintain continuous, two-sided trading interest where the
price of the bid (offer) interest is not more than a designated
percentage away from the then current NBBO. LMMs in the LMM program are
also subject to the heightened performance standards of Rule 7.24,
which relate to (i) percentage of time at the NBBO; (ii) percentage of
executions better than the NBBO; (iii) average displayed size; and (iv)
average quoted spread. Rule 7.24 does not apply, however, to LMMs in
the ETP Incentive Program or CPs. Instead, ETP Incentive Program LMMs
are subject to the specific performance standards under Rule 8.800(c),
which relate only to quoting.\27\
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    \27\ ETP Incentive Program LMMs must meet a ``Market Wide
Requirement,'' under which an LMM must maintain quotes or orders at
the NBBO or better (the ``Inside'') during the month during Core
Trading Hours in accordance with certain maximum width and minimum
depth thresholds based on daily share volume and share price, as set
forth in Commentary .01 to Rule 8.800, unless the thresholds are
otherwise met by quotes or orders of all market participants across
all markets trading the security. ETP Incentive Program LMMs must
also meet an ``NYSE Arca-Specific Requirement'' under which the LMM
must maintain quotes or orders on NYSE Arca at the NBBO that meet
either a time-at-the-Inside requirement or a size-setting NBBO
requirement. Finally, for at least 90% of the time when quotes may
be entered during Core Trading Hours each trading day, as averaged
over the course of a month, an LMM must maintain (A) at least 2,500
shares of attributable, displayed posted buy liquidity on the
Exchange that is priced no more than 2% away from the NBB for the
particular ETP; and (B) at least 2,500 shares of attributable,
displayed posted offer liquidity on the Exchange that is priced no
more than 2% away from the NBO for the particular ETP.
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    Proposed NYSE Arca Equities Rule 7.25(h) would describe the CP
Payment by the Exchange. Specifically, the Exchange would credit a CP
for a CP Payment from its general revenues in accordance with the
Exchange's Trading Fee Schedule. In this regard, the Exchange proposes
to amend its Trading Fee Schedule to provide for the CP Payment.
Specifically, the Trading Fee Schedule would specify the amount of the
total daily rebate, which would not exceed an amount equal to the CP
Program Fee paid to the Exchange by an issuer, less a 5% Exchange
administration fee, divided by the number of trading days in the
calendar year.\28\ Half of this amount would be for bid SETs and half
would be for offer SETs. Additionally, 70% of the bid (offer) SET
amount would be credited to the CP with the highest number of Winning
Bid (Offer) SETs and 30% of the bid (offer) SET amount would be
credited to the CP with the second-highest number of Winning Bid
(Offer) SETs.\29\ If only one CP were eligible for the bid (offer) SET
amount, 100% of such rebate would be provided to such CP. If more than
two CPs had an equal number of Winning Bid (Offer) SETs, the CP with
the higher executed volume in the ETP on the Exchange on the particular
trading day would be awarded the applicable daily rebate. A rebate
would not be provided if no eligible CPs existed (e.g., if CPs were
assigned to the ETP but did not satisfy the requirements to have a
Winning Bid or Winning Offer).
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    \28\ BATS similarly provides a daily payment pursuant to its CLP
Program, which is also based on size event tests. For example, for
``Tier I'' securities, BATS pays $500 per day to CLPs, which is
split between bid and offer size event tests. BATS allocates the
payment to CLPs on a pro rata basis based on the combined sum of
their winning bid/offer size event tests. See Interpretation and
Policy .02(k)(1) of BATS Rule 11.8.
    \29\ The Trading Fee Schedule would include a cross-reference to
the definition of Winning Bid (Offer) SET, as described above and as
proposed within paragraph (f) of Rule 7.25.
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    The Exchange would credit a CP for the CP Payment at the end of
each month. If the ETP were withdrawn from the CP Program pursuant to
proposed paragraph (i) of Rule 7.25 during the month, then the CP would
not be eligible for a CP Payment after the date of such withdrawal.
Additionally, if an issuer did not pay its quarterly installments to
the Exchange on time and the ETP continued to be included in the CP
Program, the Exchange would continue to credit CPs in accordance with
the Exchange's Fee Schedule.
    Proposed NYSE Arca Equities Rule 7.25(i) would describe the
withdrawal of an ETP.\30\ Specifically, if an ETP liquidated or
suspended the redemption of shares it would be automatically withdrawn
from the CP Program as of the ETP liquidation or suspension date.\31\
Also, the Exchange would withdraw an ETP from the CP Program upon
request from the issuer. Additionally, if the issuer was not current in
all payments due to the Exchange after two consecutive quarters, such
ETP would be automatically removed from the CP Program.\32\ Finally, if
an ETP maintained a CADV of two million shares or more for three
consecutive months, it would be automatically withdrawn from the CP
Program within

one month thereafter.\33\ If after such automatic withdrawal the ETP
failed to maintain a CADV of two million shares or more for three
consecutive months, the issuer of the ETP could reapply for the CP
Program one month thereafter. The Exchange believes that setting a two-
million-share threshold would provide an objective measurement for
evaluating the effectiveness of the CP Program, such that the Exchange
and the Commission could compare the quality of the market for ETPs,
both during their participation in the CP Program and after their
``graduation'' from the CP Program.
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    \30\ Inherent in the withdrawal of an ETP is that any CPs
assigned to such ETP would be relieved of such assignment.
    \31\ The Exchange notes that under Rule 8.800(e)(1) of the ETP
Incentive Program, an ETP would also be automatically withdrawn if
it suspended the creation of shares. The Exchange believes that an
ETP would benefit from having CPs assigned during a period when the
issuer has suspended the issuance of new shares, in that the added
liquidity that CPs would provide would contribute to the quality of
the market for such an ETP, especially during such a time when
liquidity in the ETP might otherwise be limited. The Exchange
further notes that the BATS CLP Program does not require withdrawal
in relation to suspension of creation of shares for participating
securities.
    \32\ This would be identical to the process under Rule
8.800(e)(5) of the ETP Incentive Program. Only the ETP for which an
issuer is not current in payments would be subject to withdrawal.
For example, if an issuer listed two ETPs on the Exchange that
participated in the CP Program, and was current in payments for one
but not for the other, only the latter ETP would be subject to
withdrawal from the CP Program.
    \33\ Except for the difference in thresholds, this would be
identical to the process under Rule 8.800(e)(4) of the ETP Incentive
Program.
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    Finally, proposed NYSE Arca Equities Rule 7.25(j) would describe
the withdrawal of CP status. Specifically, a CP that did not satisfy
the monthly quoting requirement of proposed paragraph (g)(3) of Rule
7.25 for three consecutive months would be subject to the potential
withdrawal of its CP status.\34\ Any such withdrawal determinations
would be for a specific ETP.\35\ A CP could also initiate withdrawal
from an ETP assignment in the CP Program by giving notice to the
Exchange. The Exchange would effect such withdrawal as soon as
practicable, but no later than 30 days after the date the notice is
received by the Exchange. Such withdrawal could be for a specific ETP
or for all ETPs to which the CP is assigned.
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    \34\ This would be substantially similar to the potential loss
of CLP status under the BATS CLP Program under Interpretation and
Policy .02(j)(1)(B) and (j)(2) of BATS Rule 11.8.
    \35\ For example, if a CP satisfied its monthly quoting
requirement for one ETP but not for another ETP that it was assigned
to, the CP would be subject to withdrawal for the latter ETP, but
not the former.
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Implementation of CP Program
    The CP Program would be offered to issuers from the date of
implementation, which would occur no later than 90 days after
Commission approval of this filing, until one calendar year after
implementation. During the pilot period, the Exchange would assess the
CP Program and could expand the criteria for ETPs that are eligible to
participate, which would be accomplished pursuant to a proposed rule
change with the Commission. At the end of the pilot period, the
Exchange would determine whether to continue or discontinue the CP
Program or make it permanent and submit a rule filing as necessary. If
the Exchange determined to change the terms of the CP Program while it
was ongoing, it would submit a proposed rule change with the
Commission.
    During the CP Program, the Exchange would provide the Commission
with certain market quality reports each month, which would also be
posted on the Exchange's Web site. Such reports would include the
Exchange's analysis regarding the CP Program and whether it is
achieving its goals,\36\ as well as market quality data such as, for
all ETPs listed as of the date of implementation of the CP Program and
listed during the pilot period (for comparative purposes, including
comparable ETPs that are listed on the Exchange but not participating
in the CP Program), volume (CADV and NYSE Arca ADV), NBBO bid/ask
spread differentials, CP participation rates, NYSE Arca market share,
CP time spent at the Inside, CP time spent within $0.03 of the Inside,
percentage of time NYSE Arca had the best price with the best size, CP
quoted spread, CP quoted depth, and Rule 605 statistics (one-month
delay) as agreed upon by the Exchange and the Commission staff. These
reports would also compare, to the extent practicable, ETPs before and
after they are in the CP Program, and would further provide data and
analysis about the market quality of ETPs that exceed the two-million-
share CADV threshold and ``graduate,'' or are otherwise withdrawn or
terminated from, the CP Program. These reports would also compare, to
the extent practicable, the CP Program against the ETP Incentive
Program, including with respect to the potential impact that one
program may have on the other and how the analysis described above with
respect to the CP Program compares to the Exchange's similar analysis
with respect to the ETP Incentive Program. In connection with this
proposal, the Exchange would provide other data and information related
to the CP Program as may be periodically requested by the Commission.
In addition, and as described further below, issuers could utilize
ArcaVision to analyze and replicate data on their own.\37\ The Exchange
believes that this information will help the Commission, the Exchange,
and other interested persons to evaluate whether the CP Program has
resulted in the intended benefits it is designed to achieve, any
unintended consequences resulting from the CP Program, and the extent
to which the CP Program alleviates or aggravates any potential concerns
related to the CP Program, including relating to issuer payments to
market makers.
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    \36\ The Exchange believes that an initial indicator of the
success of the CP Program will be the extent to which issuers elect
to have their ETPs participate therein, as well as the number of
Market Makers that choose to act as CPs.
    \37\ NYSE Arca provides ArcaVision free of charge to the public
via the Web site www.ArcaVision.com. ArcaVision offers a significant
amount of trading data and market quality statistics for every
Regulation NMS equity security traded in the United States,
including all ETPs. Publicly available reports within ArcaVision,
which include relevant comparative data, are the Symbol Summary,
Symbol Analytics, Volume Comparison and Quotation Comparison
reports, among others. In addition, users can create the reports on
a per-symbol basis over a flexible time frame. They can also take
advantage of predefined, accurate and up-to-date symbol sets based
on type of ETP or issuer. Users can also create their own symbol
lists. ArcaVision will allow an ETP issuer to see additional
information specific to its CPs and other Market Makers in each ETP
via the ``ArcaVision Market Maker Summary'' reporting mechanism.
---------------------------------------------------------------------------

Benefits and Risks of the CP Program
    The proposed CP Payment is designed to encourage Market Makers to
pursue assignments as CPs and thereby support the provision of
consistent liquidity in ETPs listed on the Exchange. The Exchange
believes that providing a CP Payment would create an equitable system
of incentives for Market Makers. The Exchange would administer all
aspects of the CP Payments, which, as noted above, would be paid by the
Exchange to CPs out of the Exchange's general revenues. The Exchange
believes that the CP Program would increase the supply of Market Makers
seeking to take on ETP assignments, ultimately leading to improved
market quality for long-term investors in ETPs, which would lead to
multiple benefits.
    Despite such anticipated benefits that the CP Program may bring to
the market for ETPs, there are also potential risks that may be
attendant with an ETP's participation in the CP Program, including with
respect to the potential impact on price and liquidity of an ETP
resulting from an ETP's entry into and exit from the CP Program. For
example, while the impact of participation in or exit from the CP
Program, which is optional, could not be fully understood until
objective observations could be made in the context of the CP Program,
potential impacts on the market quality of the issuer's ETP may result,
including with respect to the average spread and average quoted size
for the ETP.
Relief From FINRA Rule 5250
    FINRA has filed an immediately effective rule change with the
Commission indicating FINRA's view that, where a market maker payment
is provided for under the rules of an exchange that are effective after
being filed with, or filed with and approved by, the Commission
pursuant to the requirements of the Act, comity should be afforded to
such exchange rulemaking and the payment should not

be prohibited under FINRA Rule 5250.\38\ Accordingly, the Exchange
believes that the CP Program would be within the scope of the carveout
from the prohibitions of Rule 5250 that is provided therein.\39\
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    \38\ See Securities Exchange Act Release No. 69398 (April 18,
2013), 78 FR 24261 (April 24, 2013) (SR-FINRA-2013-020).
    \39\ The Exchange also notes that FINRA surveils trading on the
Exchange, including ETP trading, pursuant to a Regulatory Services
Agreement (``RSA''). The Exchange is responsible for FINRA's
performance under this RSA.
---------------------------------------------------------------------------

Relief From Regulation M
    Rule 102 of Regulation M prohibits an issuer from directly or
indirectly attempting ``to induce any person to bid for or purchase, a
covered security during the applicable restricted period'' unless an
exemption is available.\40\ The payment of the optional CP Program Fee
by the issuer (or sponsor on behalf of the issuer) for the purpose of
incentivizing Market Makers to become CPs in an issuer's security could
constitute an attempt by the issuer to induce a bid for a purchase of a
``covered security'' during a restricted period.\41\ As a result,
absent exemptive relief, participation in the CP Program by an issuer
(or sponsor on behalf of the issuer) could violate Rule 102 of
Regulation M. For the reasons discussed below, the Exchange believes
that exemptive relief from Rule 102 should be granted for the CP
Program.
---------------------------------------------------------------------------

    \40\ Rule 102 provides that ``[i]n connection with a
distribution of securities effected by or on behalf of an issuer or
selling security holder, it shall be unlawful for such person, or
any affiliated purchaser of such person, directly or indirectly, to
bid for, purchase, or attempt to induce any person to bid for or
purchase, a covered security during the applicable restricted
period'' unless an exception is available. See 17 CFR 242.102.
    \41\ The Commission previously granted a limited exemption from
Rule 102 of Regulation M solely to permit the payment of the ETP
Incentive Program Optional Incentive Fee during its pilot period,
subject to certain conditions. See Securities Exchange Act Release
No. 69707 (June 6, 2013), 78 FR 35330 (June 12, 2013) (Order
Granting a Limited Exemption from Rule 102 of Regulation M
Concerning the NYSE Arca, Inc.'s Exchange Traded Product Incentive
Program Pilot Pursuant to Regulation M Rule 102(e)). The Commission
previously stated its belief that the payment of the ETP Incentive
Program Optional Incentive Fee by an issuer (or a sponsor on behalf
of the issuer) for the purpose of incentivizing market makers to
become LMMs in the issuer's securities would constitute an indirect
attempt by the issuer to induce a bid for or a purchase of a covered
security during a restricted period, which would violate Rule 102.
See id. at 35331.
---------------------------------------------------------------------------

    First, the Exchange notes that the Commission and its staff have
previously granted relief from Rule 102 to a number of ETPs (``Existing
Relief'') in order to permit the ordinary operation of such ETPs.\42\
In granting the Existing Relief, the Commission has relied in part on
the exclusion from the provisions of Rule 102 provided by paragraph
(d)(4) of Rule 102 for securities issued by an open-end management
investment company or unit investment trust. In granting the Existing
Relief from Rule 102 to other types of ETPs, for which the (d)(4)
exception is not available, the staff has relied on (i) representations
that the fund in question would continuously redeem ETP shares in
basket-size aggregations at their net asset value (``NAV'') and that
there should be little disparity between the market price of an ETP
share and the NAV per share and (ii) a finding that ``[t]he creation,
redemption, and secondary market transactions in [shares] do not appear
to result in the abuses that . . . Rules 101 and 102 of Regulation M .
. . were designed to prevent.'' \43\ The crux of the Commission's
findings in granting the Existing Relief rests on the premise that the
prices of ETP shares closely track their per-share NAVs. Given that the
CP Program neither alters the derivative pricing nature of ETPs nor
impacts the arbitrage opportunities inherent therein, the conclusion on
which the Existing Relief is based remains unaffected by the CP
Program. In this regard, most ETPs that would be eligible to
participate in the CP Program would have previously been granted relief
from Rule 102. Moreover, and as noted above, an ETP that liquidated or
suspended the redemption of shares would be automatically withdrawn
from the CP Program as of the ETP liquidation or suspension date.
---------------------------------------------------------------------------

    \42\ See, e.g., Letter from James A. Brigagliano, Acting
Associate Director, Division of Market Regulation, to Stuart M.
Strauss, Esq., Clifford Chance US LLP (Oct. 24, 2006) (regarding
class relief for exchange traded index funds).
    \43\ See Rydex Specialized Products LLC, SEC No-Action Letter
(June 21, 2006).
---------------------------------------------------------------------------

    Second, the CP Program requires, among other things, that a CP make
two-sided quotes and not just bids. It is not intended to raise ETP
prices but rather to improve market quality. In light of the derivative
nature of ETPs described above, the Exchange does not expect that CPs
would quote outside of the normal quoting ranges for these products as
a result of the CP Payment, but rather would quote within their normal
ranges as determined by market factors. Indeed, the CP Program would
not create any incentive for a CP to quote outside such ranges. In this
regard, the Exchange believes that the secondary market price for
shares of the ETPs participating in the CP Program would not vary
substantially from the NAV of such ETP shares during the duration of
the ETP's participation in the CP Program because participating ETPs
would likely have a pricing mechanism that would be expected to keep
the price of the ETP shares tracking the NAV of the ETP shares, which
should make the shares less susceptible to price manipulation.\44\ The
Exchange anticipates monitoring the secondary market price for shares
of an ETP during its participation in the CP Program compared to the
NAV of such ETP. If the Exchange were to identify any unusual movements
in share prices or variances between secondary market prices and NAVs,
and it was determined that such unusual movements or variances resulted
from the ETP's participation in the CP Program, the Exchange would
consider amending the CP Program in a manner designed to contribute to
preventing such unusual movements or variances from occurring in the
future.
---------------------------------------------------------------------------

    \44\ The transparent nature of an ETP's portfolio composition,
as well as its accessibility and the elasticity of shares
outstanding, contributes to an arbitrage process that will lead to
executions of orders priced at or near NAVs. The typical unit size
is 50,000 shares to 100,000 shares and each share represents
fractional ownership of the portfolio, allowing low minimum
investments to access the exposure of a large notional portfolio.
ETP supply (i.e., shares outstanding) can be increased or decreased
through the creation and redemption process. Clearing firms that are
authorized participants will have the opportunity to deliver, or
take delivery of, unit-sized amounts of the underlying securities.
Proprietary traders engaging in arbitrage are able to calculate an
estimated intraday NAV. Such traders understand what the intrinsic
per-share price is, hedge themselves using the underlying securities
or correlated equivalents, and manage their positions by either
creating or redeeming units. If and when the quote is priced beyond
the intrinsic value of an ETP, an arbitrage opportunity can arise,
and market participants will arbitrage such spread until price
equilibrium is restored.
---------------------------------------------------------------------------

    Third, the CP Program includes significant disclosure provisions,
which the Exchange believes will help to alert and educate potential
and existing investors in the ETPs participating in the CP Program, as
well as other market participants, about the CP Program, including
regarding which ETPs are participating in the CP Program, which CPs are
assigned to each ETP, the amount of CP Program Fee an issuer will incur
as a result of participating in the CP Program, the maximum amount of
CP Payments a CP could potentially receive from the Exchange under the
CP Program, and the potential benefits and risks of the CP Program. The
Exchange believes that the disclosures that are built into the CP
Program would contribute to minimizing concerns regarding a particular
ETP's participation in the CP Program.
    Finally, the staff of the Exchange, which is a self-regulatory
organization, would be interposed between the issuer

and the CPs, administering a rules-based program with numerous
structural safeguards described in the previous section. Specifically,
both CPs and issuers would be required to apply to participate in the
program and to meet certain standards. The Exchange would collect the
CP Program Fees from issuers and credit them to the Exchange's general
revenues. A CP would be eligible to receive a CP Payment, again from
the Exchange's general revenues, only after it met the proposed CP
quoting requirements set and monitored by the Exchange. Application to,
continuation in, and withdrawal from the CP Program would be governed
by published Exchange rules and policies, and there would be extensive
public notice regarding the CP Program and payments thereunder on both
the Exchange's and the issuers' Web sites. Given these structural
safeguards, the Exchange believes that payments under the CP Program
are appropriate for exemptive relief from Rule 102.
    In summary, the Exchange believes that exemptive relief from Rule
102 should be granted for the CP Program because, for example, (1) the
CP Program would not create any incentive for a CP to quote outside of
the normal quoting ranges for the ETPs included therein and the
secondary market price for shares of the ETPs participating in the CP
Program would not vary substantially from the NAV of such ETP shares
during the duration of the ETP's participation in the CP Program; (2)
the CP Program has numerous structural safeguards, such as the
application process for issuers and CPs, the interpositioning of the
Exchange between issuers and CPs, and significant public disclosure
surrounding the CP Program, which in general is designed to help inform
investors about the potential impact of the CP Program; (3) the CP
Program includes significant disclosure provisions, which the Exchange
believes will help to alert and educate potential and existing
investors in the ETPs participating in the CP Program; and (4) the CP
Program does not alter the basis on which Existing Relief is based and,
furthermore, most ETPs that would be eligible to participate in the CP
Program would have previously been granted relief from Rule 102.\45\
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    \45\ The Exchange notes that the Commission granted a limited
exemption from Rule 102 of Regulation M to the Exchange related to
the ETP Incentive Program as well as to NASDAQ related to its MQP,
which is similar to the Exchange's ETP Incentive Program. See
Securities Exchange Act Release No. 69707 (June 6, 2013) (Order
Granting a Limited Exemption from Rule 102 of Regulation M
Concerning the NYSE Arca, Inc.'s Exchange-Traded Product Incentive
Program Pilot Pursuant to Regulation M Rule 102(e)). See also
Securities Exchange Act Release No. 69196 (March 20, 2013), 78 FR
18410 (March 26, 2013) (Order Granting a Limited Exemption From Rule
102 of Regulation M Concerning the NASDAQ Market Quality Program
Pilot Pursuant to Regulation M Rule 102(e)). These exemptions
include certain conditions related to, among other things, notices
to the public. The Exchange notes that if the Commission were to
provide exemptive relief from Rule 102 of Regulation M for the CP
Program it may include similar conditions.
---------------------------------------------------------------------------

Surveillance
    The Exchange believes that its surveillance procedures would be
adequate to properly monitor the trading of CP Program ETPs on the
Exchange during all trading sessions and to detect and deter violations
of Exchange rules and applicable federal securities laws. Trading of
the ETPs through the Exchange would be subject to FINRA's surveillance
procedures for derivative products including ETFs.\46\ The Exchange may
obtain information via the Intermarket Surveillance Group (``ISG'')
from other exchanges that are members or affiliates of the ISG,\47\ and
from issuers and public and non-public data sources such as, for
example, Bloomberg.
---------------------------------------------------------------------------

    \46\ See supra note 38 [sic].
    \47\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
---------------------------------------------------------------------------

    The Exchange notes that the proposed change is not otherwise
intended to address any other issues and that the Exchange is not aware
of any problems that Equity Trading Permit Holders or issuers would
have in complying with the proposed change.
    The Exchange believes that it is subject to significant competitive
forces in setting the proposed fees, as described below in the
Exchange's statement regarding the burden on competition.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\48\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\49\ in particular. The
proposed rule change is consistent with Section 6(b)(5) of the Act in
that it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, and to remove impediments to and perfect
the mechanism of a free and open market and a national market system.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78f(b).
    \49\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange believes that the CP Program would enhance quote
competition, improve liquidity, support the quality of price discovery,
promote market transparency, and increase competition for listings and
trade executions while reducing spreads and transaction costs. The
Exchange further believes that enhancing liquidity in CP Program ETPs
would help raise investors' confidence in the fairness of the market
generally and their transactions in particular. As such, the CP Program
would foster cooperation and coordination with persons engaged in
facilitating securities transactions, enhance the mechanism of a free
and open market, and promote fair and orderly markets in ETPs on the
Exchange. The Exchange also believes that the CP Program would offer an
alternative to the existing LMM program on the Exchange, as well as an
alternative to the ETP Incentive Program, for issuers to consider when
determining where to list their securities, which would contribute to
removing impediments to and perfecting the mechanism of a free and open
market and a national market system.
    The Exchange believes that these three programs can exist
concurrently. The Exchange believes that an initial indicator of the
success of the CP Program will be the extent to which issuers elect to
have their ETPs participate therein, as well as the number of Market
Makers that choose to act as CPs. The Exchange believes that offering
three programs with different structures and incentives will allow
issuers and Market Makers to choose an alternative that makes the most
sense for their business models and allow the Exchange and Commission
to compare the features of, participation in, and performance of the
programs over time before determining whether to convert either of the
pilot programs to permanent status. Additionally, and as described
above, to the extent an issuer's ETP is participating in, for example,
the ETP Incentive Program, but decides that the CP Program may actually
be better tailored for the ETP, the issuer would be able to withdraw
the ETP from the ETP Incentive Program at the end of a calendar quarter
and apply for the ETP to participate in the CP Program. This would also
be true for issuers that choose to withdraw their ETPs from the CP
Program and instead have their ETPs participate in the ETP Incentive
Program. After participating in either the CP Program or the ETP
Incentive Program, an issuer could also decide that the traditional LMM
program is the best program under which to list its ETP.

    The Exchange believes that the proposal is designed to prevent
fraudulent and manipulative acts and practices because it imposes
objective criteria that CPs must satisfy in order to qualify for the
proposed CP Payment and to remain qualified as CPs. The Exchange
further believes that the proposal will promote just and equitable
principles of trade because it will impose the same requirements on all
CPs. Additionally, the Exchange believes that the proposal will remove
impediments to, and perfect the mechanisms of, a free and open market
and a national market system because it will incentivize competitive
quoting and trading by Market Makers qualified with the Exchange as
CPs. Accordingly, this will contribute to the protection of investors
and the public interest because it may provide a better trading
environment for investors in ETPs included in the CP Program and,
generally, encourage greater competition between markets. The Exchange
believes that the proposal is not unfairly discriminatory due to the
fact that qualification as an Exchange Market Maker, and, in turn, as a
CP, is equally available to all Equity Trading Permit Holders that
satisfy the requirements of proposed Rule 7.25. The Exchange further
believes that the proposal is not unfairly discriminatory because of
the quoting requirements applicable to CPs in order to become eligible
for the CP Payment.
    The Exchange believes that designating ETPs as the products
eligible for inclusion in the CP Program is reasonable because it would
incentivize Market Makers to undertake CP assignments in ETPs. The
Exchange also believes that it is reasonable for an ETP that is
participating in the ETP Incentive Program under NYSE Arca Equities
Rule 8.800 or has an LMM assigned, to not be eligible to participate in
the CP Program. This is because there are existing incentives provided
by these other programs (i.e., the ``LMM Payment'' under Rule 8.800
and, under the LMM program, the incrementally higher transaction
credits and incrementally lower transaction fees for LMMs as compared
to standard liquidity maker-taker rates for non-LMMs) to incent
competitive quoting and trading volume in ETPs listed on the Exchange.
This is also equitable and not unfairly discriminatory because it would
apply to each ETP that is participating in the CP Program.
    The Exchange believes that the proposed rule change will not
significantly affect the protection of investors or the public interest
because the CP Program will incentivize competitive quoting by Market
Makers qualified with the Exchange, provide a better trading
environment for investors and, generally, encourage greater competition
between markets. Additionally, the Exchange believes that the proposed
change will not impose any significant burden on competition because
the CP Program is designed to encourage the additional utilization of,
and interaction with, the Exchange and provide customers with a premier
venue for price discovery, liquidity, competitive quotes and price
improvement. Additionally, permitting CP orders and quotes to be for
the account of the CP in either a proprietary capacity or a principal
capacity on behalf of an affiliated or unaffiliated person is identical
to the manner in which Supplemental Liquidity Providers (``SLPs'') on
the New York Stock Exchange (``NYSE'') that are also qualified as
Market Makers are able to enter orders for their own accounts, in
either a proprietary capacity or a principal capacity on behalf of an
affiliated or unaffiliated person.
    The Exchange believes that the proposed rule change is consistent
with the Act, including with respect to the proposed two-million-share
CADV threshold. The Exchange does not believe that this would unfairly
discriminate between issuers of ETPs with a CADV of two million shares
or more, as compared to issuers of ETPs with a CADV of less than two
million shares, because the process for ETPs to ``graduate'' from the
CP Program would provide an objective measurement for evaluating the
effectiveness of the CP Program, such that the Exchange and the
Commission could compare the quality of the market for ETPs, both
during their participation in the CP Program and after their
``graduation'' from the CP Program. The Exchange believes that this is
consistent with its proposal to operate the CP Program as a one-year
pilot program, which would allow for the assessment of whether the CP
Program is achieving its intended goal. Additionally, the two-million-
share CADV ``graduation,'' combined with the operation of the CP
Program on a pilot basis, would allow for the assessment, prior to any
proposal or determination to make the CP Program permanent, of whether
the CP Program has any unintended impact on the participating ETPs,
securities not participating in the program, or the market or market
participants generally.
    With respect to the proposed fees, the Exchange believes that the
proposed rule change is consistent with Sections 6(b)(4) and 6(b)(5) of
the Act, in that it is designed to provide for the equitable allocation
of reasonable dues, fees, and other charges among its members and
issuers and other persons using its facilities and that it is not
unfairly discriminatory. The Exchange believes that the proposed CP
Program Fee for ETPs is reasonable, given the additional costs to the
Exchange of providing the CP Payments, which are paid by the Exchange
out of the Exchange's general revenues. The Exchange also believes that
the proposed fees are reasonable because they would be used by the
Exchange to offset the cost that the Exchange would incur related to
the CP Program. These costs would include, but not be limited to,
administration of the proposed CP Payments, including new technology
processes and infrastructure surrounding such payments and the
monitoring related thereto. As such, the Exchange believes that it is
reasonable for it to retain an administration fee to recover the costs
of administering the CP Program.
    The Exchange believes that the CP Program Fee is reasonable,
equitably allocated, and not unreasonably discriminatory because it is
entirely voluntary on an issuer's part to join the CP Program. The fee
of $50,000 would be the same for all issuers participating in the CP
Program and credited to the Exchange's general revenues. Only issuers
that voluntarily join the CP Program would be required to pay the fees.
The Exchange believes that this is fairer than requiring all issuers to
pay higher fees to fund the CP Program. Additionally, it is reasonable
for an issuer to receive a credit from the Exchange following the end
of a quarter if no CPs were assigned to the ETP during the entire such
quarter because the ETP would not have had any CP quoting and trading
activity during such quarter.
    The Exchange believes that the CP Payment is equitable and not
unfairly discriminatory in that any Market Maker could seek to
participate in the CP Program as a CP. The Exchange further believes
that the CP Payment, which would be paid from the Exchange's general
revenues, is fair and equitable in light of the CP's quoting
requirements, which would be higher than the standards for Market
Makers not participating in the CP Program.

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

    In accordance with Section 6(b)(8) of the Act,\50\ 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. To the contrary, the Exchange
believes that the CP Program, which is entirely voluntary, would
encourage competition among markets for issuers' listings and among
Market Makers for CP assignments.
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    \50\ 15 U.S.C. 78f(b)(8).
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    The CP Program is designed to improve the quality of market for
ETPs, thereby incentivizing them to list on the Exchange. The
competition for listings among the exchanges is fierce. The Exchange
notes that, in addition to the similarities described above between the
proposed CP Program and the Exchange's ETP Incentive Program, BATS and
NASDAQ have already implemented and received approval for,
respectively, programs similar to the Exchange's proposed CP
Program.\51\ Additionally, the aspect of the proposed CP Program
related to the capacity in which CPs may enter orders and quotes (i.e.,
permitting CP orders and quotes to be for the account of the CP in
either a proprietary capacity or a principal capacity on behalf of an
affiliated or unaffiliated person) is also substantially similar to the
NYSE SLP program.\52\
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    \51\ See Interpretation and Policy .02 of BATS Rule 11.8 and
Securities Exchange Act Release Nos. 66307 (February 2, 2012), 77 FR
6608 (February 8, 2012) (SR-BATS-2011-051) and 66427 (February 21,
2012), 77 FR 11608 (February 27, 2012) (SR-BATS-2012-011). See also
NASDAQ Rule 5950 and Securities Exchange Act Release No. 69195
(March 20, 2013), 78 FR 18393 (March 26, 2013) (SR-NASDAQ-2012-137).
    \52\ See Securities Exchange Act Release No. 58877 (October 29,
2008), 73 FR 65904 (November 5, 2008) (SR-NYSE-2008-108). See also
Securities Exchange Act Release No. 67154 (June 7, 2012), 77 FR
35455 (June 13, 2012) (SR-NYSE-2012-10).
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    In addition, the Exchange believes that the CP Program will
properly promote competition among Market Makers to seek assignment as
CPs for eligible ETPs. The Exchange believes that market quality would
be significantly enhanced for ETPs with CPs assigned as compared to
ETPs without a CP or LMM. The Exchange believes that market quality
would be even further enhanced as a result of the quoting requirements
that the Exchange would impose on CPs in the CP Program. The Exchange
anticipates that the increased activity of these CPs would attract
other market participants to the Exchange, and could thereby lead to
increased liquidity on the Exchange in such ETPs. For these reasons,
the Exchange does not believe that the proposed rule change would
impose any unnecessary or inappropriate burden on competition.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days after
publication (i) as the Commission may designate if it finds such longer
period to be appropriate and publishes its reasons for so finding or
(ii) as to which the self-regulatory organization consents, the
Commission will:
    (A) by order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

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<EMAIL_ADDRESS>Please
include File Number SR-NYSEArca-2013-141 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-NYSEArca-2013-141. 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-NYSEArca-2013-141 and should
be submitted on or before January 16, 2014.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\53\
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    \53\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30767 Filed 12-24-13; 8:45 am]
BILLING CODE 8011-01-P