Notice2022-02428
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE Arca Options Fee Schedule
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Published
February 7, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 25 (Monday, February 7, 2022)</title>
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[Federal Register Volume 87, Number 25 (Monday, February 7, 2022)]
[Notices]
[Pages 6910-6913]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-02428]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94125; No. SR-NYSEArca-2022-05]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE
Arca Options Fee Schedule
February 1, 2022.
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 January 25, 2022, 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 amend the NYSE Arca Options Fee Schedule
(the ``Fee Schedule'') regarding eligibility for certain tiers,
incentives, and discounts during the Exchange's migration to a new
trading platform. The Exchange proposes to implement the fee change
effective January 25, 2022. The proposed rule change is available on
the Exchange's website at <a href="http://www.nyse.com">www.nyse.com</a>, 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 provide
OTP Holders and OTP Firms (collectively, ``OTP Holders'') with
certainty regarding their eligibility for certain tiers, incentives,
and discounts during the Exchange's migration to a new electronic
trading platform, as an effort to mitigate fees during this transition
period.
Currently, the Exchange conducts options trading on an electronic
platform known as ``OX.'' OX refers to the Exchange's electronic order
delivery, execution, and reporting system for designated option issues
through which orders and quotes of Users are consolidated for execution
and/or display.\4\ On or about February 7, 2022, the Exchange
anticipates beginning the migration of its options trading to a new
technology platform known as Pillar.\5\
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\4\ See NYSE Arca Rule 6.1A-O(a)(13).
\5\ The Exchange has announced that, pending regulatory
approval, it will begin migrating Exchange-listed options to Pillar
on February 7, 2022, available here: <a href="https://www.nyse.com/trader-update/history#110000322291">https://www.nyse.com/trader-update/history#110000322291</a>. See also Securities Exchange Act
Release No. 92304 (June 30, 2021), 86 FR 36440 (July 9, 2021) (SR-
NYSEArca-2021-47) (Notice of Filing of Proposed Rule Change for New
Rules 6.1P-O, 6.37AP-O, 6.40P-O, 6.41P-O, 6.62P-O, 6.64P-O, 6.76P-O,
and 6.76AP-O and Amendments to Rules 1.1, 6.1-O, 6.1A-O, 6.37-O,
6.65A-O and 6.96-O) and Amendment No. 4 to SR-NYSEArca-2021-47,
available here: <a href="https://www.sec.gov/comments/sr-nysearca-2021-47/srnysearca202147-20112491-265389.pdf">https://www.sec.gov/comments/sr-nysearca-2021-47/srnysearca202147-20112491-265389.pdf</a>.
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The Exchange currently offers various volume- and performance-based
incentives and discounts to encourage OTP Holders to use the Exchange
as their primary venue for order routing and execution and for market
making activity. Many of these incentive and discount programs include
multiple tiers, which are intended to encourage greater participation
in the programs and to incent OTP Holders to continually grow their
business on the Exchange in order to qualify for the benefits offered
in a higher tier.
In advance of the Exchange's migration to the Pillar platform, the
Exchange has noted concern among OTP Holders regarding their ability to
achieve various volume qualifications and thresholds during the
migration. Specifically, because OTP Holders may choose to moderate
their order flow and quotation sizes to reduce risk as they familiarize
themselves with the new trading platform, they may not achieve the
tier(s), incentive(s), and discount(s)
[[Page 6911]]
they qualified for pre-migration. Accordingly, the Exchange believes
that providing OTP Holders with certainty with respect to certain
pricing they would receive during the transition to Pillar would
provide OTP Holders with an opportunity to adjust to new functionality
and new order handling mechanisms without taking on an additional
financial burden.
To this end, the Exchange proposes to amend Endnote 8 of the Fee
Schedule to provide that for the month during which the Exchange
commences its migration to the Pillar platform (the ``Migration
Month''), OTP Holders will receive the tier(s), incentive(s), and
discount(s) they achieved in the month prior to the Migration Month or
the tier(s), incentive(s), and discount(s) achieved during the
Migration Month, whichever are better. Specifically, the Exchange will
compare an OTP Holder's performance in each of the programs set forth
below during the Migration Month and during the month prior (currently
anticipated to be January 2022) and will bill the OTP Holder for the
Migration Month at the most favorable rates based on each qualification
level achieved.
The following tiers, incentives, and discount programs would be
covered by the proposed change:
<bullet> Customer Penny Posting Credit Tiers
<bullet> Firm and Broker Dealer Penny Posting Credit Tiers
<bullet> Firm and Broker Dealer Incentive Program
<bullet> Non-Customer, Non-Penny Posting Credit Tiers
<bullet> Customer Incentive Program
<bullet> Customer Posting Credit Tiers in Non-Penny Issues
<bullet> Discount in Take Liquidity Fees for Professional Customer and
Non-Customer Liquidity Removing Interest
<bullet> Market Maker Incentive For Penny Issues
<bullet> Market Maker Incentive For Non-Penny Issues
<bullet> Market Maker Incentives for SPY
<bullet> Market Maker Penny and SPY Posting Credit Tiers
<bullet> LMM Rights Fee Discount
The Exchange believes that, to the extent OTP Holders choose to
modify their trading activity during the Migration Month, the proposed
change would mitigate the impact of potential pricing disruption by
providing OTP Holders with certainty regarding the tier(s),
incentive(s), and discount(s) they would be eligible for in the
Migration Month, which would in turn encourage OTP Holders to continue
to send orders and quotes to the Exchange during the transition to
Pillar.
In addition, by offering OTP Holders the better pricing of the
month before the Migration Month or the Migration Month, the Exchange
believes OTP Holders will be incented to take full advantage of new
Pillar functionality and possibly even increase their volume and
participation during the migration.
The Exchange is not proposing any changes to the underlying tiers,
incentives, or discounts covered by the proposed change described
above.
The Exchange proposes to implement this change effective January
25, 2022.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\6\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\7\ 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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\6\ 15 U.S.C. 78f(b).
\7\ 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.'' \8\
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\8\ 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.\9\ Therefore, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity & ETF options
order flow. More specifically, in December 2021, the Exchange had less
than 14% market share of executed volume of multiply-listed equity &
ETF options trades.\10\
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\9\ The OCC publishes options and futures volume in a variety of
formats, including daily and monthly volume by exchange, available
here: <a href="https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics">https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics</a>.
\10\ Based on a compilation of OCC data for monthly volume of
equity-based options and monthly volume of ETF-based options, see
id., the Exchange's market share in equity-based options increased
from 9.65% for the month of December 2020 to 13.21% for the month of
December 2021.
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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.
The Exchange believes that the proposed change is reasonably
designed to continue to incent OTP Holders to maintain active
participation on the Exchange during the Pillar migration by offering
OTP Holders pricing at each of the tier(s), incentive(s), and
discount(s) they qualify for during either the Migration Month or in
the month prior to the Migration Month, whichever is more favorable to
the OTP Holder. The Exchange further believes that the proposed change
would lessen the impact of the migration on OTP Holders by enabling
them to adapt their trading activity as needed to transition to Pillar
functionality during the Migration Month and would thus encourage OTP
Holders to promptly transition to the more efficient Pillar platform.
To the extent the proposed rule change encourages OTP Holders to
migrate to the new platform while maintaining their level of trading
activity, the Exchange believes the proposed change would sustain the
Exchange's overall competitiveness and its market quality for all
market participants. In the backdrop of the competitive environment in
which the Exchange operates, the proposed rule change is a reasonable
attempt by the Exchange to mitigate the expense of the migration
without affecting its competitiveness.
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 because it would be available to all
OTP Holders. In addition, the proposal is based on each OTP Holder's
activity levels before and during the Migration Month and would afford
OTP Holders the flexibility to moderate their activity as needed during
the Migration Month and still receive the more favorable rates between
the tier(s), incentive(s), and discount(s) they achieve in the
Migration Month or in
[[Page 6912]]
the month prior. Thus, the Exchange believes the proposed rule change
would facilitate a smooth transition to the Pillar technology platform
for all market participants on the Exchange by encouraging OTP Holders
to send orders and quotes to the Exchange during the transition period,
thereby improving market-wide quality.
The Proposed Rule Change Is Not Unfairly Discriminatory
The Exchange believes the proposed rule change is not unfairly
discriminatory because it would be available to all similarly-situated
market participants on an equal and non-discriminatory basis.
The proposal is based on an OTP Holder's achievement of tiers,
incentives, and discounts prior to and during the Migration Month and
would provide all OTP Holders with certainty that they would at least
qualify for the same tier(s), incentive(s), and discount(s) as in the
month prior to the Migration Month. The proposed change would thus
allow OTP Holders to adjust their interactions with Exchange systems
during the Migration Month as needed and take advantage of the new
functionality offered by Pillar by mitigating the impact of potential
pricing disruptions. Thus, to the extent the proposal encourages OTP
Holders to maintain or increase their current level of activity on the
Exchange, such activity would result in trading opportunities for 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,
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.'' \11\
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\11\ See Reg NMS Adopting Release, supra note 8, at 37499.
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Intramarket Competition. The Exchange does not believe the proposed
rule change would impose any burden on intramarket competition that is
not necessary or appropriate because it would apply equally to all OTP
Holders that submit orders and quotes electronically to the Exchange.
All OTP Holders would be eligible to receive the rates under each of
the tier(s), incentive(s), and discount(s) they achieved in the
Migration Month or in the month prior to the Migration Month, whichever
are better.
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.\12\ Therefore, currently
no exchange possesses significant pricing power in the execution of
multiply-listed equity & ETF options order flow. More specifically, in
December 2021, the Exchange had less than 14% market share of executed
volume of multiply-listed equity & ETF options trades.\13\
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\12\ See supra note 9.
\13\ Based on a compilation of OCC data for monthly volume of
equity-based options and monthly volume of ETF-based options, see
id., the Exchange's market share in equity-based options increased
from 9.65% for the month of December 2020 to 13.21% for the month of
December 2021.
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The Exchange does not believe the proposed rule change would impose
any burden on intermarket competition that is not necessary or
appropriate because the Exchange operates in a highly competitive
market in which market participants can readily choose to send their
orders to other exchanges if they deem fee levels at those other venues
to be more favorable. The Exchange believes that its fees are
constrained by the robust competition for order flow among exchanges
and thus believes that the proposed change is reasonably designed to
encourage OTP Holders to transition to the Pillar platform while
mitigating the risk of a significant change to the fees they would be
subject to during the Migration Month. Accordingly, the Exchange
believes that the proposed change would continue to make the Exchange a
competitive venue for order execution by enabling OTP Holders to
maintain their current levels of interaction with the Exchange (or make
adjustments as needed) during the Migration Month, thus encouraging
prompt migration to the newer, more efficient Pillar technology
platform and sustained activity on the Exchange during the Pillar
transition.
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) \14\ of the Act and subparagraph (f)(2) of Rule
19b-4 \15\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 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) \16\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\16\ 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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
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<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#3b494e575e16585456565e554f487b485e58155c544d"><span class="__cf_email__" data-cfemail="780a0d141d551b1715151d160c0b380b1d1b561f170e">[email protected]</span></a>. Please include
File Number SR-NYSEArca-2022-05 on the subject line.
Paper Comments
<bullet> 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-2022-05. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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-NYSEArca-2022-05, and should be
submitted on or before February 28, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-02428 Filed 2-4-22; 8:45 am]
BILLING CODE 8011-01-P
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