[Federal Register Volume 85, Number 135 (Tuesday, July 14, 2020)]
[Notices]
[Pages 42455-42459]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15111]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89255; File No. SR-NYSEArca-2020-64]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule
July 8, 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 July 1, 2020, NYSE Arca, Inc. (``NYSE Arca'' 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 modify the NYSE Arca Options Fee Schedule
(``Fee Schedule'') to amend a threshold to qualify for an existing
discount for removing liquidity and to add an alternative basis to
qualify for such discount. The Exchange proposes to implement the fee
change effective July 1, 2020. The proposed rule 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 to amend the Fee Schedule to modify a
threshold to qualify for an existing discount for removing liquidity
and to add an alternative basis for OTP Holders and OTP Firms
(collectively, ``OTP Holders'') to qualify for such discount. The
Exchange is not modifying the amount of the discount.
Specifically, the Exchange proposes to modify the qualification
thresholds required to receive the ``Take Fee Discount Qualification
for Non-Penny Issues'' to expand and increase the current qualification
basis and to add an alternative qualification basis.
The Exchange proposes to implement the fee changes on July 1, 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.'' \4\
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\4\ 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.\5\ 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.\6\
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\5\ 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.
\6\ Based on OCC data, see id., in 2019, the Exchange's market
share in equity-based options was 9.57% for the month of January
2019 and 9.59% 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
[[Page 42456]]
demonstrates that market participants can shift order flow or
discontinue or reduce use of certain categories of products. To respond
to this competitive marketplace, the Exchange has established
incentives, including discounts, designed to encourage OTP Holders to
direct additional order flow to the Exchange to achieve more favorable
pricing and higher credits. The Exchange incentives also encourage
order flow from all account types, which allows OTP Holders to
aggregate their options volume with affiliated or appointed Market
Makers (collectively referred to as affiliates herein), making NYSE
Arca a more attractive trading venue.\7\
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\7\ See Fee Schedule, Endnote 15 (providing that an ``Appointed
MM'' is an NYSE Arca Market Maker designated as such by an Order
Flow Provider (``OFP'') (as defined in NYSE Arca Rule 6.1A-O(a)(21))
and ``Appointed OFP'' is an OFP been designated as such by an NYSE
Arca Market Maker).
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The Exchange proposes to modify an incentive program designed to
attract order flow to the Exchange.
Proposed Rule Change
If an OTP Holder executes a transaction that removes or ``takes''
liquidity on the Exchange, the OTP Holder is charged a Take Fee and
such liquidity may be referred to as ``Liquidity Removing'' or
liquidity taking.\8\ To offset such costs and to encourage market
participants to direct order flow to the Exchange, the Exchange offers,
among other incentives, a ``Take Fee Discount Qualification for Non-
Penny Issues'' (the ``Take Fee Discount''). The Exchange is not
modifying the amount of the Take Fee Discount.
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\8\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES
FOR STANDARD OPTIONS, TRANSACTION FEE FOR ELECTRONIC EXECUTIONS--PER
CONTRACT (setting forth a per contract take fee of $1.10 for such
Non-Penny executions in Professional Customer, Firm, Broker Dealer,
and Market Maker range as compared to a per contract take fee of
$0.85 for such Non-Penny executions in the Customer range).
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Currently, an OTP Holder may earn the ($0.02) per contract Take Fee
Discount on executions in non-Penny issues if the OTP Holder executes
at least 0.65% of Total Industry Customer equity and ETF option average
daily volume (``TCADV'') \9\ from Professional Customer and Non-
Customer Liquidity Removing interest in all issues (the ``existing Take
Fee threshold'').\10\ The Exchange proposes to modify the existing Take
Fee threshold such that, to qualify for the Take Fee Discount, an OTP
Holder would also have to execute ``at least 0.15% of TCADV from posted
interest in all issues and all account types.'' \11\ In addition to
maintaining the same level of Liquidity Removing volume, the Exchange
believes this change would incent OTP Holders to increase the variety
of account types and volume of posted interest executed on the
Exchange, which activity may result in tighter spreads making the
Exchange a more attractive trading venue to the benefit of all
participants.
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\9\ See Fee Schedule, Endnote 8 (providing that TCADV ``includes
OCC calculated Customer volume of all types, including Complex Order
Transactions and QCC transactions, in equity and ETF options'').
\10\ See Fee Schedule, Take Fee Discount. For fee/credit
purposes, ``Professional Customer'' executions are treated as
``Customer'' executions unless such executions are specifically
delineated and ``Non-Customers'' executions include those of Firms,
Broker Dealers, and Market Makers. See Fee Schedule, NYSE Arca
OPTIONS: TRADE-RELATED CHARGES FOR STANDARD OPTIONS (preamble).
\11\ See proposed Fee Schedule, Take Fee Discount (requiring
``[a[t least 0.65% of TCADV from Professional Customer and Non-
Customer Liquidity Removing interest in all issues, plus at least
0.15% of TCADV from posted interest in all issues and all account
types'').
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The Exchange also proposes to offer a new, alternative basis, to
qualify for the Take Fee Discount. Specifically, as proposed, an OTP
Holder may earn the ($0.02) per contract Take Fee Discount on
executions in non-Penny issues if the OTP Holder executes ``[a]t least
1.50% of TCADV from Professional Customer and Non-Customer Liquidity
Removing interest in all issues.'' \12\ This new alternative basis
essentially increases the minimum volume required under the existing
Take Fee threshold from 0.65% to 1.50%, which should encourage OTP
Holders to direct more volume to the Exchange. The Exchange believes
the alternative basis would incent OTP Holders to increase trading
activity in all issues and a variety of account types on the Exchange,
which increased liquidity benefits all market participants because of
increased trading opportunities and price discovery.
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\12\ See id.
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As is the case with other incentives, OTP Holders may aggregate
their volume with affiliated OTP Holders to achieve the Take Fee
Discount, as modified herein.\13\ As such, the Exchange believes the
proposed modification to the existing Take Fee threshold and additional
qualification basis for the Take Fee Discount would provide additional
incentives for OTP Holders (and their affiliates) to execute large
volumes of orders on the Exchange to qualify for the Discount on
executions in non-Penny issues. The Exchange's fees are constrained by
intermarket competition, as OTP Holders (and their affiliates) may
direct their order flow to any of the 16 options exchanges, including
those with similar pricing incentives.
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\13\ See Fee Schedule, Endnotes 8 (providing that the
alternative volume threshold, like the existing Take Fee Discount
threshold, will include the activity of affiliates) and 15 (defining
affiliates referenced in Endnote 8).
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The Exchange cannot predict with certainty whether any OTP Holder
would benefit from the proposed change to the existing Take Fee
threshold or the additional qualification basis. At present, whether or
when an OTP Holder qualifies for the discount in a given month is
dependent on market activity and the OTP Holder's mix of order flow.
Thus, the Exchange cannot predict with any certainty the number of OTP
Holders that may qualify for the discount based on the proposed
modifications.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\14\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\15\ 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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\14\ 15 U.S.C. 78f(b).
\15\ 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.'' \16\
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\16\ See Reg NMS Adopting Release, supra note 4, 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.\17\
[[Page 42457]]
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.\18\
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\17\ 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.
\18\ Based on OCC data, see id., in 2019, the Exchange's market
share in equity-based options was 9.57% for the month of January
2019 and 9.59% 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.
Regarding the change to the existing Take Fee threshold, the
Exchange believes this change would incent OTP Holders to increase the
variety of account types and volume of posted interest executed on the
Exchange (while maintaining the same level of Liquidity Removing
volume), which activity may result in tighter spreads and more trading
making the Exchange a more attractive trading venue to the benefit of
all participants.
The Exchange believes the proposed alternative basis would incent
OTP Holders to increase trading activity in all issues and a variety of
account types on the Exchange, which increased liquidity benefits all
market participants because of increased trading opportunities and
price discovery.
The Exchange believes the proposed modification to the existing
Take Fee threshold and additional qualification basis for the Take Fee
Discount would provide additional incentives for OTP Holders (and their
affiliates) to execute large volumes of orders on the Exchange to
qualify for the Discount on executions in non-Penny issues. To the
extent that OTP Holder activity in all issues is increased by the
proposal, market participants will increasingly compete for the
opportunity to trade on the Exchange, 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.
To the extent that the proposed rule change attracts more interest
in all issues, this increased order flow would continue to make the
Exchange a more competitive venue for order execution, which, in turn,
promotes just and equitable principles of trade and removes impediments
to and perfects the mechanism of a free and open market and a national
market system. In the backdrop of the competitive environment in which
the Exchange operates, the proposed rule change is a reasonable attempt
by the Exchange to increase the depth of its market and improve its
market share relative to its competitors.
The Exchange cannot predict with certainty whether any OTP Holder
would benefit from the proposed change to existing the Take Fee
threshold or the additional qualification basis. At present, whether or
when an OTP Holder qualifies for the discount in a given month is
dependent on market activity and the OTP Holder's mix of order flow.
Thus, the Exchange cannot predict with any certainty the number of OTP
Holders that may qualify for the discount based on the proposed
modifications.
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 OTP Holders (and
their affiliates) can opt to avail themselves of the incentives or not.
The Take Fee Discount, as modified, continues to apply to all
participants other than Customers, who pay a much lower take fee.\19\
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\19\ See supra note 8 (setting forth take fee charged to Non-
Customer versus Customer).
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To the extent that the proposed change continues to attract more
trading activity, the increased order flow would continue to make the
Exchange a more competitive venue for order execution. Thus, the
Exchange believes the proposed rule change 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 it is not unfairly discriminatory to
introduce the alternative methods of qualifying for a discount because
the proposed modifications would be available to all similarly situated
market participants on an equal and non-discriminatory basis. The Take
Fee Discount, as modified, continues to apply to all participants other
than Customers, who pay a much lower take fee.\20\ In addition, the
proposal is based on the amount and type of business transacted on the
Exchange and OTP Holders are not obligated to try to achieve either of
the qualifications for the discount. The Exchange believes the proposed
incentive is reasonable, equitable and not unfairly discriminatory
because encouraging OTP Holders to direct more volume to the Exchange
would also contribute to the Exchange's depth of book as well as to the
top of book liquidity.
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\20\ See id.
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To the extent that the proposed change attracts more OTP Holder
trading activity, this increased order flow would continue to make the
Exchange a more competitive venue for order execution, which, in turn,
promotes just and equitable principles of trade and removes impediments
to and perfects the mechanism of a free and open market and a national
market system.
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.'' \21\
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\21\ See Reg NMS Adopting Release, supra note 4, at 37499.
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Intramarket Competition. The proposal is designed to attract
additional order flow to the Exchange by offering a discount based on
increased volumes on the Exchange (from a variety of issues and account
types), which would enhance the quality of quoting and may increase the
[[Page 42458]]
volumes of contracts traded on the Exchange. In particular, the change
to the existing Take Fee threshold is designed to incent OTP Holders to
increase the variety of account types and volume of posted interest
executed on the Exchange (while maintaining the same level of Liquidity
Removing volume), which activity may result in tighter spreads and more
trading making the Exchange a more attractive trading venue to the
benefit of all participants. The proposed alternative basis to qualify
for the Discount is designed to incent OTP Holders to increase trading
activity in all issues and a variety of account types on the Exchange,
which increased liquidity benefits all market participants because of
increased trading opportunities and price discovery.
Furthermore, the Exchange believes that incenting additional
activity by OTP Holders (and their affiliates) benefits all
participants as it contributes to the Exchange's depth of book as well
as to the top of book liquidity. To the extent that the proposal
attracts more liquidity, this increased order flow would continue to
make the Exchange a more competitive venue for order execution and all
of the Exchange's market participants should benefit from the improved
market quality. Enhanced market quality and increased transaction
volume that results from the anticipated increase in order flow
directed to the Exchange would benefit all market participants and
improve competition on the Exchange.
The proposal would be available to all similarly-situated market
participants, and, as such, the proposed change would not impose a
disparate burden on competition among market participants on the
Exchange. The Exchange also believes the proposed incentive is not
unfairly discriminatory to Customers, because such market participants
are not subject to the same fee structure that applies to Professional
Customers and Non-Customers.
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.\22\ 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.\23\
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\22\ 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.
\23\ Based on OCC data, see id., in 2019, the Exchange's market
share in equity-based options was 9.57% for the month of January
2019 and 9.59% for the month of January 2020.
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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 OTP Holders (and their affiliates) to
direct trading interest to the Exchange. In particular, the change to
the existing Take Fee threshold is designed to incent OTP Holders to
increase the variety of account types and volume of posted interest
executed on the Exchange (while maintaining the same level of Liquidity
Removing volume), which activity may result in tighter spreads and more
trading making the Exchange a more attractive trading venue to the
benefit of all participants. The proposed alternative basis to qualify
for the Discount is designed to incent OTP Holders to increase trading
activity in all issues and a variety of account types on the Exchange,
which increased liquidity benefits all market participants because of
increased trading opportunities and price discovery. To the extent that
the proposal increases trading on the Exchange, all the Exchange's
market participants should benefit from the improved market quality and
increased opportunities for price improvement.
Finally, the Exchange believes that the proposal could promote
competition between the Exchange and other execution venues, including
those that currently offer similar incentives.
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) \24\ of the Act and subparagraph (f)(2) of Rule
19b-4 \25\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 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) \26\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\26\ 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-NYSEArca-2020-64 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-NYSEArca-2020-64. 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
[[Page 42459]]
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-NYSEArca-2020-64 and should
be submitted on or before August 4, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15111 Filed 7-13-20; 8:45 am]
BILLING CODE 8011-01-P