[Federal Register Volume 85, Number 117 (Wednesday, June 17, 2020)]
[Notices]
[Pages 36644-36647]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12984]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89045; File No. SR-NYSEAMER-2020-45]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Amending
the NYSE American Options Fee Schedule To Adopt a New Incentive Program
for Floor Brokers
June 11, 2020.
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 June 5, 2020, NYSE American LLC (``NYSE American'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 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 amend the NYSE American Options Fee
Schedule (``Fee Schedule'') to adopt a new incentive program for Floor
Brokers. The Exchange proposes to implement the fee change effective
June 5, 2020.\4\ The proposed change is available on the Exchange's
website at www.nyse.com, at the principal office of the Exchange, and
at the Commission's Public Reference Room.
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\4\ The Exchange originally filed to amend the Fee Schedule on
June 1, 2020 (SR-NYSEAMER-2020-43) and withdrew such filing on June
5, 2020.
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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 purpose of this filing is to modify the Fee Schedule to
introduce a new incentive program for Floor Broker organizations (each
a ``Floor Broker'') to encourage Floor Brokers to increase their
billable volume on the Exchange.
Specifically, the Exchange proposes to offer a rebate of $35,000 to
Floor broker organizations for each month that a Floor Broker achieves
a certain minimum level of average daily volume (``ADV'') of billable
contracts, as specified below.
The Exchange proposes to implement the rule changes on June 5,
2020.
Background
The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \5\
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\5\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS
Adopting Release'').
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There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than 16% of the market
share of executed volume of multiply-listed equity and ETF options
trades.\6\ Therefore, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity & ETF options
order flow. More specifically, in January 2020, the Exchange had less
than 10% market share of executed volume of multiply-listed equity &
ETF options trades.\7\
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\6\ The OCC publishes options and futures volume in a variety of
formats, including daily and monthly volume by exchange, available
here: https://www.theocc.com/market-data/volume/default.jsp.
\7\ Based on OCC data, see id., the Exchange's market share in
equity-based options declined from 9.82% for the month of January
2019 to 8.08% for the month of January 2020.
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow, or discontinue or reduce use of certain categories of
[[Page 36645]]
products, in response to fee changes. Accordingly, competitive forces
constrain options exchange transaction fees. To respond to this
competitive marketplace, the Exchange has established incentives to
assist Floor Brokers in attracting more business to the Exchange--
including the Percentage Growth Incentive for certain Floor Brokers
\8\--as such participants serve an important function in facilitating
the execution of orders via open outcry, which promotes price discovery
on the public markets. To the extent that these incentives succeed, the
increased liquidity on the Exchange would result in enhanced market
quality for all participants.
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\8\ See Fee Schedule, Section III.E, Floor Broker Fixed Cost
Prepayment Incentive Program (the ``FB Prepay Program'').
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Proposed Rule Change
The Exchange proposes to adopt a Floor Broker Billable Volume
Rebate (``Rebate'').\9\ As proposed, a Floor Broker would earn a rebate
of $35,000 for each month that the Floor Broker achieves certain ADV in
billable ADV. The calculation for billable ADV applies to manual
executions and QCCs, but excludes any Customer volume and non-billable
Professional Customer QCC volume, Firm Facilitation trades, and any
volume calculated to achieve the Firm Monthly Fee Cap and the Strategy
Execution Fee Cap, regardless of whether either of these caps is
achieved.\10\ In short, any volume (or contract side) for which a Floor
Broker is (potentially) not billed, including because of monthly fee
caps, would not count towards achieving the Rebate. To qualify for the
proposed monthly Rebate, a Floor Broker must execute the greater of:
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\9\ See proposed Fee Schedule, Section III.E.2, Floor Broker
Billable Volume Rebate (the ``FB Billable Volume Rebate''). To
accommodate this change, the Exchange proposes (re)name Section
III.E of the Fee Schedule ``Floor Broker Incentive and Rebate
Programs,'' and to number the FB Prepay Program and the FB Billable
Volume Rebate as subsection 1 and 2. See proposed Fee Schedule,
Table of Contents (setting forth new Section III.E.1,2) and Section
III.E.1,2.
\10\ See proposed Fee Schedule, Section III.E.2.
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(I) 75,000 contract sides in billable ADV or
(ii) 150% of the Floor Broker's total billable ADV in contract
sides during the first half of 2019 (i.e., January-June 2019).\11\
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\11\ See id.
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The Exchange believes that 75,000 contract sides in billable ADV
(i.e., 150% of 50,000 contract sides) is a reasonable minimum threshold
for a Floor Broker, including one that is new to the Exchange, to
achieve given that numerous Floor brokers exceeded this volume
requirement in 2019, even though it was not required. Similarly, the
Exchange believes that the minimum alternative threshold of 150% of a
Floor Broker's total billable ADV in contract sides during the first
half of 2019 is reasonable for those Floor Brokers that achieve more
than 75,000 ADV billable contract sides, given the increased options
volume executed by Floor Brokers in the past year.
The Exchange believes the proposed Rebate would encourage Floor
Brokers to seek out, and increase, diverse order flow for execution on
the Exchange. The Exchange's fees are constrained by intermarket
competition, as ATP Holders may direct their order flow to any of the
16 options exchanges, including those that may offer similar
incentives. Thus, ATP Holders have a choice of where they direct their
order flow. Fees and rebates for Floor Broker activity are designed to
encourage Floor Brokers to execute a variety of transaction types on
the Exchange, and the FB Billable Volume Rebate is intended to augment
those fees and rebates with an incentive to encourage executing
billable volume. The Exchange notes that all market participants stand
to benefit from any increase in billable volume by Floor Brokers, which
promotes market depth, facilitates tighter spreads and enhances price
discovery, and may lead to a corresponding increase in order flow from
other market participants.
The Exchange cannot predict with certainty whether any Floor
Brokers would avail themselves of this proposed fee change. However,
all Floor brokers are potentially eligible for this Rebate.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\12\ in general, and furthers the
objectives of Sections 6(b) (4) and (5) of the Act,\13\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers and other persons
using its facilities and does not unfairly discriminate between
customers, issuers, brokers or dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Rule Change Is Reasonable
The Exchange operates in a highly competitive market. The
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. In Regulation NMS, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues and, also, recognized that current regulation of the
market system ``has been remarkably successful in promoting market
competition in its broader forms that are most important to investors
and listed companies.'' \14\
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\14\ See Reg NMS Adopting Release, supra note 5, at 37499.
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There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than 16% of the market
share of executed volume of multiply-listed equity and ETF options
trades.\15\ Therefore, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity & ETF options
order flow. More specifically, in January 2020, the Exchange had less
than 10% market share of executed volume of multiply-listed equity &
ETF options trades.\16\
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\15\ The OCC publishes options and futures volume in a variety
of formats, including daily and monthly volume by exchange,
available here: https://www.theocc.com/market-data/volume/default.jsp.
\16\ Based on OCC data, see id., the Exchange's market share in
equity-based options declined from 9.82% for the month of January
2019 to 8.08% for the month of January 2020.
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue or reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
constrain options exchange transaction fees. Stated otherwise, changes
to exchange transaction fees can have a direct effect on the ability of
an exchange to compete for order flow.
The Exchange believes that the proposed FB Billable Volume Rebate,
which offers two alternative methods to achieve the Rebate, is
reasonable because it is designed to incent Floor Brokers to increase
the amount and variety of billable order flow directed to the Exchange.
The Exchange notes that all market participants stand to benefit from
any increase in billable volume by Floor Brokers, which promotes market
depth, facilitates tighter spreads and enhances price discovery, and
may lead to a corresponding increase in order flow from other market
participants.
The Exchange believes it is reasonable to only include transactions
for which a Floor Broker is billed in the calculation for the FB Volume
Rebate because Floor Brokers are already incented to execute
[[Page 36646]]
transactions for non-billable business (e.g., Customer volume and Firm
Facilitation trades or those on which monthly fees are capped per the
Firm Monthly Fee Cap and the Strategy Execution Fee Cap) because there
is no charge.
Finally, to the extent the proposed pricing incentives attract
greater volume and liquidity, the Exchange believes the proposed
changes would improve the Exchange's overall competitiveness and
strengthen its market quality for all market participants. In the
backdrop of the competitive environment in which the Exchange operates,
the proposed rule changes are a reasonable attempt by the Exchange to
increase the depth of its market and improve its market share relative
to its competitors. The proposed rule changes are designed to incent
ATP Holders to direct liquidity to the Exchange, thereby promoting
market depth, price discovery and improvement and enhancing order
execution opportunities for market participants.
The Exchange cannot predict with certainty whether any Floor
Brokers would avail themselves of this proposed fee change. However,
all Floor brokers are potentially eligible for this Rebate.
The Proposed Rule Change Is an Equitable Allocation of Credits and Fees
The Exchange believes the proposed rule change is an equitable
allocation of its fees and credits. The proposal is based on the amount
and type of business transacted on the Exchange and Floor Brokers can
opt to attempt to trade sufficient volume to achieve the Rebate or not.
All Floor Brokers have the ability to qualify for the same Rebate under
two alternatives means offered (i.e., the greater of at least 75,000
contract sides in billable ADV or 150% of the Floor Broker's total
billable ADV in contract sides during the first half of 2019).
In addition, the proposed change applies to qualifying Floor
Brokers equally and because Floor Brokers serve an important function
in facilitating the execution of orders via open outcry, which as a
price-improvement mechanism, the Exchange wishes to encourage and
support.
Moreover, the proposed Rebate is designed to incent Floor Brokers
to encourage ATP Holders to aggregate their executions--particularly
billable volumes--at the Exchange as a primary execution venue. To the
extent that the proposed changes attract more billable volume to the
Exchange, this increased order flow would continue to make the Exchange
a more competitive venue for, among other things, order execution.
Thus, the Exchange believes the proposed rule changes would improve
market quality for all market participants on the Exchange and, as a
consequence, attract more order flow to the Exchange thereby improving
market-wide quality and price discovery.
The Proposed Rule Change Is not Unfairly Discriminatory
The Exchange believes that the proposed Rebate is not unfairly
discriminatory because the proposed modifications would be available to
all similarly-situated market participants on an equal and non-
discriminatory basis. The proposed Rebate is not unfairly
discriminatory to non-Floor Brokers because Floor Brokers serve an
important function in facilitating the execution of orders via open
outcry, which as a price-improvement mechanism, the Exchange wishes to
encourage and support.
The proposed Rebate is based on the amount and type of business
transacted on the Exchange and Floor Brokers are not obligated to try
to achieve the Rebate. Rather, the proposed Rebate is designed to
encourage these participants to utilize the Exchange as a primary
trading venue (if they have not done so previously) or increase
billable volume sent to the Exchange. To the extent that the proposed
changes attract more order flow to the Exchange (including to the
Floor), this increased order flow would continue to make the Exchange a
more competitive venue for order execution. Thus, the Exchange believes
the proposed rule changes would improve market quality for all market
participants on the Exchange and, as a consequence, attract more order
flow to the Exchange thereby improving market-wide quality and price
discovery. The resulting increased volume and liquidity would provide
more trading opportunities and tighter spreads to all market
participants and thus would promote just and equitable principles of
trade, remove impediments to and perfect the mechanism of a free and
open market and a national market system and, in general, to protect
investors and the public interest.
Finally, the Exchange believes that it is subject to significant
competitive forces, as described below in the Exchange's statement
regarding the burden on competition.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act, the Exchange does
not believe that the proposed rule change would impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Instead, as discussed above, the Exchange believes
that the proposed changes would encourage the submission of additional
liquidity to a public exchange, thereby promoting market depth, price
discovery and transparency and enhancing order execution opportunities
for all market participants. As a result, the Exchange believes that
the proposed change furthers the Commission's goal in adopting
Regulation NMS of fostering integrated competition among orders, which
promotes ``more efficient pricing of individual stocks for all types of
orders, large and small.'' \17\
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\17\ See Reg NMS Adopting Release, supra note 5, at 37499.
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Intramarket Competition. The proposed Rebate is designed to assist
Floor Brokers in (continuing to) attract additional order flow to the
Exchange, including to the Floor, which would enhance the quality of
quoting and may increase the volumes of contracts trade on the
Exchange. To the extent that there is an additional competitive burden
on non-Floor Brokers, the Exchange believes that this is appropriate
because Floor Brokers serve an important function in facilitating the
execution of orders via open outcry, which as a price-improvement
mechanism, the Exchange wishes to encourage and support.
To the extent that this function is achieved, all of the Exchange's
market participants should benefit from the improved market liquidity.
Enhanced market quality and increased transaction volume that results
from the anticipated increase in order flow directed to the Exchange
will benefit all market participants and improve competition on the
Exchange.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily favor one
of the 16 competing option exchanges if they deem fee levels at a
particular venue to be excessive. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
exchanges and to attract order flow to the Exchange Based on publicly-
available information, and excluding index-based options, no single
exchange currently has more than 16% of the market share of executed
volume of multiply-listed equity and ETF options trades.\18\ Therefore,
no exchange currently possesses significant pricing power in the
execution of multiply-listed equity & ETF options order flow. More
specifically, in January 2020, the
[[Page 36647]]
Exchange had less than 10% market share of executed volume of multiply-
listed equity & ETF options trades.\19\
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\18\ See supra note 6.
\19\ Based on OCC data, supra note 7, the Exchange's market
share in equity-based options was 9.82% for the month of January
2019 and 8.08% for the month of January 2020.
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The Exchange believes that the proposed Rebate change reflects this
competitive environment because it modifies the Exchange's fees in a
manner designed to incent Floor Brokers to direct trading interest to
the Exchange, to provide liquidity and to attract order flow. To the
extent that this purpose is achieved, all the Exchange's market
participants should benefit from the improved market quality and
increased opportunities for price improvement.
The Exchange notes that it operates in a highly competitive market
in which market participants can readily favor competing venues. In
such an environment, the Exchange must continually review, and consider
adjusting, its fees and credits to remain competitive with other
exchanges. For the reasons described above, the Exchange believes that
the proposed rule change reflects this competitive environment. And, in
fact, the Exchange believes that the proposed change could promote
competition between the Exchange and other execution venues, by
encouraging additional orders to be sent to the Exchange for execution,
including to the Floor.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \20\ of the Act and subparagraph (f)(2) of Rule
19b-4 \21\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \22\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\22\ 15 U.S.C. 78s(b)(2)(B).
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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 [email protected]. Please include
File Number SR-NYSEAMER-2020-45 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEAMER-2020-45. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEAMER-2020-45, and should be
submitted on or before July 8, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12984 Filed 6-16-20; 8:45 am]
BILLING CODE 8011-01-P