Notice2022-10515
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE Arca Options Fee Schedule
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Published
May 17, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 95 (Tuesday, May 17, 2022)</title>
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[Federal Register Volume 87, Number 95 (Tuesday, May 17, 2022)]
[Notices]
[Pages 29911-29913]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-10515]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94895; No. SR-NYSEArca-2022-26]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule
May 11, 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 April 29, 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 modify the NYSE Arca Options Fee Schedule
(``Fee Schedule'') regarding the Customer Penny Posting Tiers. The
Exchange proposes to implement the fee change effective May 2, 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 modify
the Customer Penny Posting Credit Tiers.
Currently, the Fee Schedule provides that OTP Holders and OTP Firms
(collectively, ``OTP Holders'') can qualify for tiered credits applied
to electronic executions of Customer posted interest in Penny issues by
meeting specified increasing volume levels in Customer Penny Posting
Credit Tiers 1 through 6.\4\ Currently, an OTP Holder that achieves
0.10% of TCADV from Customer posted interest in all issues will qualify
for Customer Penny Posting Credit Tier 1 (``Tier 1'') and earn a credit
of $0.27 per contract applied to electronic executions of Customer
posted interest in Penny issues.
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\4\ See Fee Schedule, NYSE Arca Options: Trade-Related Charges
for Standard Options, Customer Penny Posting Credit Tiers.
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The Exchange now proposes to modify the qualification basis for
Tier 1 and increase the credit offered to OTP Holders that achieve Tier
1. Specifically, the Exchange proposes that an OTP Holder would qualify
for Tier 1 by executing at least 0.20% of TCADV from Customer posted
interest, plus executed ADV of 0.30% of U.S. equity market share posted
and executed on the NYSE Arca Equity Market,\5\ and such qualifying OTP
Holder would earn a $0.36 per contract credit applied to electronic
executions of Customer posted interest in Penny issues.
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\5\ For purposes of this filing, activity in the NYSE Arca
Equity Market is referred to as ``cross asset activity.''
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The Exchange notes that the credit currently offered in Tier 1 has
not sufficiently encouraged OTP Holders to increase their Customer
posting interest. Thus, although the proposed modifications to the
qualifying criteria for Tier 1 would increase the volume requirement
and add a cross asset activity component, the Exchange believes that
the proposed change would encourage OTP Holders to execute Customer
posted interest on the Exchange and also incent OTP Holders to use the
Exchange as a primary destination for both options and equity order
flow in order to earn the significantly increased credit that would be
available in Tier 1.
The Exchange proposes to implement the rule change on May 2, 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
[[Page 29912]]
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 March 2022, 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 10.16% for the month of March 2021 to 13.57% for the month of
March 2022.
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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.
While the Exchange cannot predict with certainty whether any OTP
Holders would seek to qualify for Tier 1, as modified, the Exchange
believes that the new qualifying criteria for Tier 1 are attainable and
that the increased credit that OTP Holders would earn in Tier 1 would
encourage OTP Holders to increase both Customer posted volume on the
Exchange and their activity on the NYSE Arca Equity Market. The
Exchange further believes that modifying the qualification basis for
Tier 1 to include both a Customer posted interest volume requirement
and a cross asset activity component would incent OTP Holders to direct
more Customer options order flow and equity order flow to the Exchange,
which would bring increased liquidity and order flow for the benefit of
all market participants.
Finally, to the extent the proposed change continues to attract
greater volume and liquidity to the Exchange, and, in particular,
encourages OTP Holders to increase Customer volume and cross asset
activity to qualify for the increased credit available in Tier 1, the
Exchange believes the proposed change 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 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's fees are constrained by intermarket competition, as
OTP Holders may direct their order flow to any of the 16 options
exchanges, including an exchange with a similarly structured customer
posting credit program.\11\ Thus, OTP Holders have a choice of where
they direct their order flow, including their Customer posting interest
and equity posted interest. The proposed rule change is designed to
incent OTP Holders to direct liquidity to the Exchange and, in
particular, to increase their Customer posting interest and cross asset
activity, thereby promoting market depth, price discovery and
improvement, and enhanced order execution opportunities for market
participants.
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\11\ See Cboe BZX Options Exchange Fee Schedule, available at:
<a href="https://www.cboe.com/us/options/membership/fee_schedule/bzx/">https://www.cboe.com/us/options/membership/fee_schedule/bzx/</a>
(offering similarly structured credits on customer volume in Penny
issues, based on qualifying volume).
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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 can
opt to try to qualify for the credit or not. The proposal is designed
to incent OTP Holders to aggregate Customer posting interest at the
Exchange as a primary execution venue and to attract more posting
interest on the NYSE Arca Equity Market. To the extent that these
purposes are achieved, this increased order flow would continue to make
the Exchange a more competitive venue for, among other things, order
execution on both options and equities. 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 the proposed rule change is not unfairly
discriminatory because the credit offered in Tier 1, as modified, would
be available to all similarly-situated market participants on an equal
and non-discriminatory basis.
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
the enhanced qualifications for Tier 1, nor are they obligated to
execute Customer posted interest or cross asset activity. Rather, the
proposal is designed to encourage OTP Holders to utilize the Exchange
as a primary trading venue for Customer posted interest (if they have
not done so previously) and to increase cross asset activity, and all
OTP Holders that meet the qualifications for Tier 1 would be eligible
for the corresponding credit on electronic executions of Customer
posted interest in Penny issues. To the extent that the proposed change
attracts more Customer interest, including posted interest, 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 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 resulting increased volume
and liquidity would provide more trading opportunities and tighter
spreads to all market participants and thus would promote just and
equitable principles of trade, remove impediments to and perfect the
mechanism of a free and open market and a national market system and,
in general, 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.
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
[[Page 29913]]
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.'' \12\
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\12\ See Reg NMS Adopting Release, supra note 8, at 37499.
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Intramarket Competition. The proposed change is designed to attract
additional order flow (particularly Customer posted interest and cross
asset activity) to the Exchange. The Exchange believes that the
proposed modification to Tier 1 would incent OTP Holders to direct
their Customer order flow and cross asset activity to the Exchange.
Greater liquidity benefits all market participants on the Exchange, and
increased Customer order flow and posted equity order flow would
increase opportunities for execution of other trading interest. The
proposed modification to Tier 1 would be available to all similarly-
situated market participants that execute Customer posted interest,
and, as such, the Exchange does not believe that the proposed change
would not impose a disparate burden on competition among market
participants on the Exchange.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily favor one
of the 16 competing option exchanges if they deem fee levels at a
particular venue to be excessive. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
exchanges and to attract order flow to the Exchange. Based on publicly-
available information, and excluding index-based options, no single
exchange has more than 16% of the market share of executed volume of
multiply-listed equity and ETF options trades.\13\ Therefore, currently
no exchange possesses significant pricing power in the execution of
multiply-listed equity & ETF options order flow. More specifically, in
March 2022, the Exchange had less than 14% market share of executed
volume of multiply-listed equity & ETF options trades.\14\
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\13\ See note 9, supra.
\14\ Based on 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
10.16% for the month of March 2021 to 13.57% for the month of March
2022.
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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 continue to incent OTP Holders to direct trading
interest (particularly Customer posted interest and cross asset
activity) to the Exchange, which would provide liquidity and attract
order flow to the Exchange. 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 also believes that the proposed change could promote
competition between the Exchange and other execution venues, including
an exchange that currently offers similarly structured customer posting
credits,\15\ by encouraging additional orders to be sent to the
Exchange for execution.
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\15\ See note 11, supra.
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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) \16\ of the Act and subparagraph (f)(2) of Rule
19b-4 \17\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 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) \18\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\18\ 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
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#0775726b622a64686a6a626973744774626429606871"><span class="__cf_email__" data-cfemail="e092958c85cd838f8d8d858e9493a0938583ce878f96">[email protected]</span></a>. Please include
File Number SR-NYSEArca-2022-26 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-2022-26. 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-2022-26, and should be
submitted on or before June 7, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10515 Filed 5-16-22; 8:45 am]
BILLING CODE 8011-01-P
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