[Federal Register Volume 84, Number 212 (Friday, November 1, 2019)]
[Notices]
[Pages 58772-58778]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23857]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87404; File No. SR-NYSEAMER-2019-43]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Change To Amend the NYSE
American Options Fee Schedule
October 28, 2019.
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 October 15, 2019, NYSE American LLC (``NYSE
[[Page 58773]]
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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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''). The Exchange proposes to implement the fee
change effective October 15, 2019. 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.
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 modify the Fee Schedule to introduce
two incentive programs that are designed to encourage increased Manual
and Electronic order flow to the Exchange to the benefit of all market
participants.
In brief, and as described further below, the first proposed change
is designed to encourage Manual transactions by NYSE American Options
Market Makers and Specialists/e-Specialists by offering these
participants discounted rates on any portion of their monthly Manual
volume (excluding Strategy Executions and QCC Transactions) that
exceeds, by a specified percentage of Total Industry Customer equity
and ETF option average daily volume (``TCADV''),\4\ either the
participants' August 2019 volume or, in the case of a new NYSE American
Options Market Makers or and Specialists/e-Specialists, a base level of
15,000 ADV. The second proposed change is designed to encourage ATP
Holders to increase their Electronic volume in the ``Professional''
range.\5\ Specifically, the Exchange proposes to offer discounted rates
on monthly Professional volume as well as certain credits on Customer
Electronic volume, including for initiating CUBE volume, to ATP Holders
that increase their Professional volume (excluding Strategy Executions,
CUBE Auctions, and QCC Transactions) by specified percentages of TCADV
over their August 2019 volume, or in the case of new ATP Holders, above
a base level of 10,000 ADV. The Exchange believes that the baselines of
15,000 ADV Manual volumes for new NYSE American Options Market Makers
and/or Specialists/e-Specialists and 10,000 ADV Professional volumes
for new ATP Holders are appropriate because these volumes are
comparable to trading volumes in August 2019 of active firms on the
Exchange in the respective categories.
---------------------------------------------------------------------------
\4\ The term ``TCADV'' is defined in the Key Terms and
Definitions Section of the Preface of the Fee Schedule, see infra
note 8 [sic]. TCADV includes Options Clearing Corporation (``OCC'')
calculated Customer volume of all types, including Complex Order
transactions and QCC transactions, in equity and ETF options.
\5\ For purposes of this filing, ``Professional'' Electronic
volume includes: Professional Customer, Broker Dealer, Non-NYSE
American Options Market Maker, and Firm.
---------------------------------------------------------------------------
The Exchange proposes to implement the rule changes on October 15,
2019.
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.'' \6\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS
Adopting Release'').
---------------------------------------------------------------------------
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.\7\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity & ETF options order flow.
More specifically, in the first quarter of 2019, the Exchange had less
than 10% market share of executed volume of multiply-listed equity &
ETF options trades.\8\
---------------------------------------------------------------------------
\7\ 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.
\8\ Based on OCC data, see id., the Exchange's market share in
equity-based options declined from 9.82% for the month of January to
8.84% for the month of April.
---------------------------------------------------------------------------
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.
In response to this competitive environment, the Exchange has
established various pricing incentives designed to encourage increased
Manual and Electronic volume executed on the Exchange, including (but
not limited to) the American Customer Engagement (``ACE'') Program.
While the ACE Program is limited to Electronic Customer volume, the
Exchange proposes two new pricing incentives that focus on encouraging
additional Manual volume and Professional Electronic volume. To the
extent that these incentives succeed, the increased liquidity on the
Exchange would result in enhanced market quality for all participants.
Proposed Rule Change
Manual Volume Incentive for MMs and Specialists
The Exchange proposes to offer NYSE American Options Market Makers
(``MMs'') and Specialists/e-Specialists (``Specialists) discounted
rates on Manual transactions that exceed a specified volume threshold.
Currently, Manual transactions in both Penny and Non-Penny Pilot issues
are subject to a per contract rate of $0.25 for MMs and $0.18 for
Specialists.\9\ As proposed, MMs or Specialists that increase their
monthly Manual volumes by a specified percentage of TCADV over their
August 2019 volume or, for new MMs or Specialists, that increase Manual
[[Page 58774]]
volume by a specified percentage of TCADV above a base level of 15,000
ADV (``Increased Manual Volume'') are eligible to receive a discounted
rate solely on the Increased Manual Volume as set forth below. The
Exchange will exclude any volumes attributable to QCC trades or
Strategy Execution from monthly calculations of base level or Increased
Manual Volume, as these transactions are subject to separate pricing
described in Fee Schedule, Sections I.F., I.G. and I.J., respectively.
As proposed:
---------------------------------------------------------------------------
\9\ See Fee Schedule, Section I.A. (Options Transaction Fees and
Credits, Rates for Options transactions), available here: https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf.
---------------------------------------------------------------------------
MMs with Increased Manual Volume of at least 0.15% TCADV
will be charged $0.18 per contract for the Increased Manual Volume.
(Specialists currently pay $0.18 per contract for all Manual
transactions); and
MMs and Specialists with an Increased Manual Volume of at
least 0.30% TCADV will be charged $0.12 per contract for the Increased
Manual Volume.\10\
---------------------------------------------------------------------------
\10\ See proposed Fee Schedule, Section I.A. (Options
Transaction Fees and Credits, Rates for Options transactions), note
8 [sic].
---------------------------------------------------------------------------
For example, assume a MM executed 18,000 ADV Manual Volume in
August, 2019. In October, the TCADV is 17,200,000. An increase of 0.15%
of TCADV would be equal to 25,800 contracts. An increase of 0.30% of
TCADV would be equal to 51,600 contracts.
Thus, if the MM executed 44,500 ADV in October, the MM would
qualify for $0.18 per contract on the MM's volume above the 18,000 ADV
(i.e., the Increased Volume Amount of 26,500 contracts). The MM's
billing would reflect $0.25 per contract on the MM's base amount of
18,000 ADV, and $0.18 per contact on the Increased Manual Volume of
26,500 ADV.
If the same MM executed 74,000 ADV in October, the MM would qualify
for $0.12 per contract on the MM's volume above the 18,000 ADV (i.e.,
the Increased Volume Amount of 56,000 contracts). The MM's billing
would reflect $0.25 per contract on the MM's base amount of 18,000 ADV,
and $0.12 per contract on the Increased Manual Volume of 56,000 ADV.
The Exchange believes this proposed incentive pricing is
appropriate because Market Makers (Specialists) serve a crucial role in
the options markets by providing liquidity to facilitate market
efficiency and functioning. The Exchange's fees are constrained by
intermarket competition, as Market Makers can register on any or all of
the 16 options exchanges. Thus, ATP Holders that are also members of
other exchanges have a choice of where they register and operate as
Market Makers. The proposed pricing incentive for MMs and Specialists
is therefore designed to encourage these participants to (continue to)
conduct Manual (open outcry) trading on the Floor of the Exchange. The
Exchange notes that all market participants stand to benefit from
increased Manual transaction volume, which promotes market depth,
facilitates tighter spreads and enhances price discovery, and may lead
to a corresponding increase in (Manual or Electronic) order flow from
other market participants.
The Exchange cannot predict with certainty whether any ATP Holders
would avail themselves of this proposed fee change, particularly
because the proposed pricing incentive is new. Assuming historical
behavior can be predictive of future behavior, however, the Exchange
believes that at present participation rates, between two and four
firms may be able to qualify for discounted Manual rates.
Professional Step-Up Incentive
The Exchange also proposes to introduce an incentive for ATP
Holders to increase (or ``step up'') their Electronic Professional \11\
volume by offering lower rates and credits based on volume growth
(i.e., Tier A, Tier B, and Tier C). Specifically, an ATP Holder may
qualify for discounted rates on its monthly Electronic Professional
volume and receive credits on certain Electronic Customer volume,
including initiating CUBE volume, provided the ATP Holder increases its
monthly Electronic Professional volume by specified percentages of
TCADV over their August 2019 volume or, for new ATP Holders, that
increase Electronic Professional volume by a specified percentages of
TCADV above a base level of 10,000 contracts ADV (the ``Qualifying
Volume''), as set forth in the table below. The Exchange will exclude
any volumes attributable to QCC trades, CUBE Auctions, or Strategy
Execution from monthly calculations of base level or Qualifying Volume,
as these transactions are subject to separate pricing described in Fee
Schedule Sections I.F., I.G. and I.J., respectively.
---------------------------------------------------------------------------
\11\ See supra note 5 (defining Professional volume).
Professional Step-Up Incentive
----------------------------------------------------------------------------------------------------------------
Qualifying Per contract Per contract
volume as a % penny pilot non-penny ACE benefits
of TCADV rate pilot rate
----------------------------------------------------------------------------------------------------------------
Tier A............................ 0.04 $0.42 $0.65 N/A.
Tier B............................ 0.07 0.35 0.55 Tier 1 Customer Credits only
(per Section I.E.).
Tier C............................ 0.09 0.25 0.50 Tier 1 Customer Credits (per
Section I.E.), plus ACE
Initiating Participant
Rebate--All issues (per
Section I.G.).
----------------------------------------------------------------------------------------------------------------
[[Page 58775]]
As shown in the table above, the greater the increase in Qualifying
Volume, the more benefits that accrue to the ATP Holder. To put in
context, assume an ATP Holder executed Electronic Professional volume
in August 2019 totaling 9,000 ADV and, in October, the TCADV is
17,200,000. To qualify for the Professional Step-Up Incentive program,
that ATP Holder would need to execute Electronic Professional volume
above its August 2019 that is at least 6,880 (i.e., 0.04% of TCADV) for
Tier A; 12,040 (i.e., 0.07% of TCADV) for Tier B; or 15,480 (i.e.,
0.09% of TCADV) for Tier C. If that same ATP Holder did not have August
2019 volume, it would have to execute at least this much volume above
the 10,000 ADV base level.
ATP Holders that qualify for Tier A--the lowest Professional volume
growth threshold, would be charged reduced rates of $0.42 and $0.65 on
Professional Electronic executions on Penny and Non-Penny issues,
respectively.\12\ ATP Holders that qualify for Tier B would be charged
even further reduced rates--of $0.35 and $0.55 on Professional
Electronic executions on Penny and Non-Penny issues, respectively,\13\
and would also receive credits on Professional Electronic Customer
executions that are the same as those available to ATP Holders that
achieve Tier 1 of the ACE Program (the ``ACE Tier 1 Customer
Credits'').\14\ However, participants that qualify for Tier B of the
Professional Step-Up Incentive do not receive any other benefits that
inure to ATP Holders that qualify for ACE Tier 1. Finally, ATP Holders
that qualify for Tier C would be charged the most reduced rates--$0.25
and $0.50 on Electronic Professional executions on Penny and Non-Penny
issues, respectively; \15\ would receive the ACE Tier 1 Customer
Credits; and would receive the ``ACE Initiating Participant Rebate--All
Issues'' (or ``ACE Rebate''), which applies rebates to certain volume
that initiates a Customer Best Execution Auction or ``CUBE.\16\
---------------------------------------------------------------------------
\12\ See Fee Schedule, Section I. A., supra note 9 (setting
forth options transactions rates for Electronic Professional volume
of $0.50 and $0.75 for Penny and Non-Penny issues respectively;
except that Firm execution in Penny issues are charged $0.47 per
contract).
\13\ See proposed Fee Schedule, Section I.A. (Options
Transaction Fees and Credits, Rates for Options transactions), note
8 [sic].
\14\ See id.; see also Fee Schedule, Section I.E. (describing
ACE Program).
\15\ See id.
\16\ See Fee Schedule, Section I.G. (describing CUBE Auctions
Fees & Credits, for Single-Leg and Complex CUBE Auctions). In the
case of a Single-Leg CUBE Auction, the pricing table (at note 2),
states that the ACE Rebate ``is applied to each of the first 5,000
Customer contracts of a CUBE Order executed in a [Single-Leg] CUBE
Auction,'' and is available to participants that qualify for ACE
Tier 1. See id. In the case of a Complex CUBE Auction, the pricing
table (at note 2), ACE ``is applied to each of the first 1,000
Customer contracts per leg of a Complex CUBE Order executed in a
Complex CUBE Auction,'' and is available to participants that
qualify for ACE Tier 1. See id.
---------------------------------------------------------------------------
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 with similar incentive programs.\17\ Thus,
ATP Holders have a choice of where they direct their order flow. This
proposed Professional Step-Up Incentive program is designed to
encourage ATP Holders to increase the amount of Electronic Professional
volume directed to and executed on the Exchange. The Exchange notes
that all market participants stand to benefit from increased Electronic
Professional volume, 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.
---------------------------------------------------------------------------
\17\ See e.g., MIAX Options fee schedule, Section 1.a.iv,
Professional Rebate Program, available here, https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Options_Fee_Schedule_04012019.pdf (setting forth per contract
credits on volume submitted for the account of Public Customers that
are not Priority Customers, Non-MIAX Market Makers, Non-Member
Broker Dealers, and Firms (collectively, Professional for purposes
of MIAX program), provided the Member achieves certain Professional
volume increase percentage thresholds (set forth in the schedule) in
the month relative to the fourth quarter of 2015).
---------------------------------------------------------------------------
The Exchange cannot predict with certainty whether any ATP Holders
would avail themselves of this proposed fee change, particularly
because the proposed Professional Step-Up Incentive program is new.
Assuming historical behavior can be predictive of future behavior,
however, the Exchange believes that at present participation rates,
between two and four firms may be able to qualify for Professional
Step-Up Incentive program.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\18\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\19\ 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.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
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.'' \20\
---------------------------------------------------------------------------
\20\ See Reg NMS Adopting Release, supra note 6, at 37499.
---------------------------------------------------------------------------
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.\21\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity & ETF options order flow.
More specifically, in the first quarter of 2019, the Exchange had less
than 10% market share of executed volume of multiply-listed equity &
ETF options trades.\22\
---------------------------------------------------------------------------
\21\ See supra note 7.
\22\ Based on OCC data, see supra note 8, in 2019, the
Exchange's market share in equity-based options declined from 9.82%
for the month of January to 7.86% for the month of September.
---------------------------------------------------------------------------
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.
Manual Volume Incentive for MMs and Specialists
The Exchange believes that the proposal to offer reduced rates for
MMs and Specialists on Increased Manual Volume is reasonable because it
is designed to incent these participants to increase the number and
type of Manual executions sent to the Floor of the Exchange. Market
Makers (and Specialists) serve a crucial role in the options markets by
providing liquidity to facilitate market efficiency and functioning.
The Exchange's fees are
[[Page 58776]]
constrained by intermarket competition, as Market Makers can register
on any or all of the 16 options exchanges. ATP Holders that are also
members of other exchanges have a choice of where they register as
Market Makers. Thus, the Exchange believes that this proposed rule
change will provide an incentive for MMs and Specialists to (continue
to) conduct (open outcry) Manual trading on the Exchange with increased
volume. The Exchange notes that all market participants stand to
benefit from increased Manual transaction volume, 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.
Professional Step-Up Incentive
The Exchange believes that the proposed Professional Step-Up
Incentive is reasonable because it is designed to incent ATP Holders to
increase the amount of Electronic Professional order flow directed to
the Exchange. In addition, because the top two tiers (B and C) of this
program allow qualifying ATP Holders to also receive credits on
Electronic Customer volume (per Tier 1 of the ACE program) and, for
Tier C only, to achieve rebates on certain initiating CUBE Auction
order flow, the proposed program may encourage ATP Holders to direct
both Professional and Customer Electronic order flow, including
initiating CUBE volume to the Exchange. The Exchange notes that all
market participants stand to benefit from increased Electronic
transaction volume--whether Professional or Customer, as such increase
promotes market depth, facilitates tighter spreads and enhances price
discovery, and may lead to a corresponding increase in order flow from
other market participants that do not participant in (or qualify for)
the Professional Step-Up Incentive program.
The Exchange believes that the baselines of 15,000 ADV Manual
volumes for new NYSE American Options Market Makers and/or Specialists/
e-Specialists and 10,000 ADV Professional volumes for new ATP Holders
are reasonable because these volumes are comparable to trading volumes
in August 2019 of active firms on the Exchange in the respective
categories.
Regarding both proposed pricing changes, the Exchange cannot
predict with certainty whether any participants would avail themselves
of the proposed fee changes, particularly because both of the proposed
incentives are new. Assuming historical behavior can be predictive of
future behavior, however, the Exchange believes that at present
participation rates, between two and four firms may be able to qualify
for the discounted Manual rates and between two and four firms may be
able to qualify for the Professional Step-Up Inventive.\23\
---------------------------------------------------------------------------
\23\ The Exchange notes that the ``two and four'' firms that may
qualify for the different incentives proposed herein are not the
same ``two and four'' firms.
---------------------------------------------------------------------------
Finally, to the extent the proposed pricing incentives attract
greater volume and liquidity (to the Floor or otherwise), 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,
in both Manual and Electronic executions, similar to other exchange
programs with competitive pricing programs,\24\ thereby promoting
market depth, price discovery and improvement and enhancing order
execution opportunities for market participants.
---------------------------------------------------------------------------
\24\ See, e.g., supra note 17 (regarding MIAX Professional
Rebate Program).
---------------------------------------------------------------------------
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 proposals--both for discounted
rates on Increased Manual Volume for MMs and Specialists and the
Professional Step-Up Incentive program--are based on the amount and
type of business transacted on the Exchange and ATP Holders can opt to
avail themselves of these incentive or not. Moreover, the proposals are
designed to encourage MMs, Specialists, and ATP Holders to aggregate
their executions--particularly Manual and Electronic Professional--at
the Exchange as a primary execution venue. To the extent that the
proposed changes attract more Manual and (Professional) Electronic
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 Exchange believes that the baselines of 15,000 ADV Manual
volumes for new NYSE American Options Market Makers and/or Specialists/
e-Specialists and 10,000 ADV Professional volumes for new ATP Holders
are appropriate because these volumes are comparable to trading volumes
in August 2019 of active firms on the Exchange in the respective
categories.
The Proposed Rule Change is not Unfairly Discriminatory
The Exchange believes that the proposals--both for discounted rates
on Increased Manual Volume for MMs and Specialists and the Professional
Step-Up Incentive program--are not unfairly discriminatory because the
proposed modifications would be available to all similarly-situated
market participants on an equal and non-discriminatory basis.
The Exchange believes that the baselines of 15,000 ADV Manual
volumes for new NYSE American Options Market Makers and/or Specialists/
e-Specialists and 10,000 ADV Professional volumes for new ATP Holders
are not unfairly discriminatory because these volumes are comparable to
trading volumes in August 2019 of active firms on the Exchange in the
respective categories.
The proposals are based on the amount and type of business
transacted on the Exchange and MMs, Specialists, and ATP Holders are
not obligated to try to achieve either of the incentive pricing
options. Rather, the proposals are designed to encourage these
participants to utilize the Exchange as a primary trading venue (if
they have not done so previously) or increase (both Manual and
Electronic) volume sent to the Exchange. To the extent that the
proposed changes attract more executions 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 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
[[Page 58777]]
system and, in general, to protect investors and the public interest.
With regard to the proposed discount rates on certain increases in
Manual volume by MMs and Specialists, the Exchange notes that the
Manual rates charged to these participants are already lower than the
rates charged to other participants.\25\ MMs (and Specialists) serve a
crucial role in financial markets by providing liquidity to facilitate
market efficiency and functioning. Market Makers, unlike other market
participants, add value through continuous quoting and the commitment
of capital. Because Market Makers have these obligations and regulatory
requirements that normally do not apply to other market participants,
the Exchange believes that offering the proposed reduced Manual rates
is equitable and not unfairly discriminatory in light of their
obligations and the costs associated therewith.
---------------------------------------------------------------------------
\25\ See Fee Schedule, Section I.A., supra note 9 (setting forth
rates for Manual options transactions: MMs and Specialists are
charged $0.18 per contract, while all other non-Customer participant
(save for DOMMs) is charged $0.25 per contract).
---------------------------------------------------------------------------
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.
For the foregoing reasons, the Exchange believes that the proposal
is consistent with the Act.
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.'' \26\
---------------------------------------------------------------------------
\26\ See Reg NMS Adopting Release, supra note 6, at 37499.
---------------------------------------------------------------------------
Intramarket Competition. The proposed changes are designed to
attract additional order flow (both Manual and Electronic, particularly
Professional volume) to the Exchange. The Exchange believes that the
proposed pricing incentives would incent market participants to direct
additional volume to the Exchange. Greater liquidity benefits all
market participants on the Exchange and increased Manual and Electronic
Professional volume would increase opportunities for execution of other
trading interest. The proposed pricing incentives would be available to
all similarly-situated market participants that incur transaction fees
on Manual and Electronic executions, and, as such, the proposed change
would not impose a disparate burden on competition among market
participants on the Exchange.
Market Makers, unlike other market participants, add value through
continuous quoting and the commitment of capital. Because Market Makers
have these obligations and regulatory requirements that normally do not
apply to other market participants, the Exchange believes that offering
the proposed reduced rates, in light of their obligations and the costs
associated therewith, does not create an undue burden on non-Market
Makers.
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 has more than 16% of the market share of executed volume of
multiply-listed equity and ETF options trades.\27\ Therefore, no
exchange possesses significant pricing power in the execution of
multiply-listed equity & ETF options order flow. More specifically, in
the first quarter of 2019, the Exchange had less than 10% market share
of executed volume of multiply-listed equity & ETF options trades.\28\
---------------------------------------------------------------------------
\27\ See supra note 7.
\28\ Based on OCC data, supra note 8, the Exchange's market
share in equity-based options declined from 9.82% for the month of
January to 8.84% for the month of April.
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change reflects this
competitive environment because it modifies the Exchange's fees in a
manner designed to encourage ATP Holders to direct trading interest
(both Manual and Electronic) 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 believes that the proposed change could promote
competition between the Exchange and other execution venues, including
those that currently offer similar pricing incentives, by encouraging
additional orders to be sent to the Exchange for execution. The
Exchange also believes that the proposed change is designed to provide
the public and investors with a Fee Schedule that is clear and
consistent, thereby reducing burdens on the marketplace and
facilitating investor protection.
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) \29\ of the Act and subparagraph (f)(2) of Rule
19b-4 \30\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78s(b)(3)(A).
\30\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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) \31\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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
[[Page 58778]]
Send an email to [email protected]. Please include
File No. SR-NYSEAMER-2019-43 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 No. SR-NYSEAMER-2019-43. 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 No. SR-NYSEAMER-2019-43, and should be submitted
on or before November 22, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
---------------------------------------------------------------------------
\32\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-23857 Filed 10-31-19; 8:45 am]
BILLING CODE 8011-01-P