Notice2022-13811
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE Arca Options Fee Schedule
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 29, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 124 (Wednesday, June 29, 2022)</title>
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[Federal Register Volume 87, Number 124 (Wednesday, June 29, 2022)]
[Notices]
[Pages 38786-38791]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-13811]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95142; No. SR-NYSEArca-2022-36]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE
Arca Options Fee Schedule
June 23, 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 June 22, 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 fees for Options Trading Permits
(``OTPs'') for NYSE Arca Market Makers.\4\ 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.
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\4\ The Exchange originally filed to amend the Fee Schedule on
May 31, 2022 (SR-NYSEArca-2022-33) and withdrew such filing on June
14, 2022.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
[[Page 38787]]
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 restructure fees relating to OTPs
for Market Makers. Specifically, the Exchange proposes to modify the
number of option issues a Market Maker may quote per OTP and modify the
fees applicable to Market Maker OTPs.
Currently, the number of option issues a Market Maker may quote in
their assignment is based on the number of OTPs the Market Maker holds
per month. A Market Maker may quote up to 175 issues under its first
OTP; up to 350 issues with a second OTP; up to 1,000 issues with a
third OTP; and, with a fourth OTP, a Market Maker may quote in all
option issues on the Exchange.\5\
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\5\ See Fee Schedule, NYSE Arca GENERAL OPTIONS and TRADING
PERMIT (OTP) FEES, available at: <a href="https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf">https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf</a>. A
Market Maker may trade any issue on the Exchange but may only submit
quotes in issues in its assignment. However, in accordance with NYSE
Arca Rule 6.35-O(i), at least 75% of a Market Maker's trading
activity must be in the Market Maker's appointment. The terms
``assignment'' and ``appointment,'' as used in this filing, have the
same meaning.
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The Exchange currently charges monthly fees for Market Maker OTPs
as set forth in the table below, and a Market Maker currently would pay
$18,000 in monthly OTP fees to quote in all option issues on the
Exchange: \6\
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\6\ See id.
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Number of option issues
Monthly fee per OTP permitted in market maker's
assignment
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$6,000 for 1st OTP..................... Up to 175 option issues.
$5,000 for the 2nd OTP................. Up to 350 option issues.
$4,000 for the 3rd OTP................. Up to 1,000 option issues.
$3,000 for the 4th OTP................. All option issues traded on the
Exchange.
$1,000 for the 5th and additional OTPs. All option issues traded on the
Exchange.
$175 for Reserve OTP................... N/A.
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The Exchange proposes to modify the number of option issues
``covered'' by a Market Maker OTP (i.e., the number of issues in which
a Market Maker may quote using a given OTP) and the monthly fee per
Market Maker OTP, as set forth in the table below. The Exchange notes
that its proposed fee structure is identical to the structure used by
its affiliated exchange, NYSE American LLC (``NYSE American''), for its
analogous Market Maker trading permit, the ATP, and the proposed
modifications to the Exchange's Market Maker OTP fees would provide
consistency between the permit fees on affiliated exchanges.\7\
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\7\ See NYSE American Options Fee Schedule, Section III.A.
Monthly ATP Fees, available at: <a href="https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf">https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf</a>.
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Monthly fee Number of issues permitted in a market maker's
Number of OTPs per OTP quoting assignment
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1st OTP.................................... $8,000 60 plus the Bottom 45%.
2nd OTP.................................... 6,000 150 plus the Bottom 45%.
3rd OTP.................................... 5,000 500 plus the Bottom 45%.
4th OTP.................................... 4,000 1,100 plus the Bottom 45%.
5th OTP.................................... 3,000 All issues.
6th to 9th OTP............................. 2,000 All issues.
10th or more OTPs.......................... 500 All issues.
Reserve Market Maker OTP................... 175 N/A.
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The Exchange proposes to increase both the monthly fee per Market
Maker OTP and the number of issues covered by each additional OTP
because, among other reasons, the number of issues traded on the
Exchange has increased significantly in recent years. At the time of
the last revision to the number of issues covered by a Market Maker
OTP, the Exchange was trading approximately 2,372 issues. At the
beginning of 2019, the Exchange listed 2,450 issues for options
trading. As of October 1, 2021, the Exchange listed 3,846 issues for
options trading. Thus, a fourth OTP, which currently permits a Market
Maker to quote in all issues on the Exchange, now covers over 1,400
more issues than when the Exchange instituted the current fee structure
for Market Maker OTPs. Accordingly, the Exchange proposes to modify its
Market Maker OTP fee structure, as described in the above table, to
reflect the greater number of issues traded on the Exchange and the
resulting increase in trading opportunities available to Market Makers.
Specifically, for the first four OTPs held by a Market Maker, the
Exchange proposes to allow a Market Maker to quote a certain number of
option issues (as set forth in the table above) plus the ``Bottom
45%.'' The Exchange proposes to define the ``Bottom 45%'' in the Fee
Schedule as the least actively traded issues on the Exchange in each
calendar quarter, as ranked by industry volume reported by the OCC.
Each calendar quarter, with a one-month lag, the Exchange will publish
on its website a list of the Bottom 45% of issues traded. Any newly
listed issues will automatically become part of the Bottom 45% until
the next evaluation period, at which time such issues will be evaluated
for inclusion in the Bottom 45% based on their trading volumes and
resultant rank among all issues traded on the Exchange.\8\ As further
proposed, with a fifth OTP (or more), a Market Maker would be permitted
to quote in all issues on the Exchange. Thus, as proposed, a Market
Maker that wishes to quote in all issues on the Exchange would incur
monthly permit fees of $26,000.
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\8\ The Exchange notes that the NYSE American Options Fee
Schedule has adopted the same definition of ``Bottom 45%'' with
respect to issues traded on NYSE American. See id.
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The Exchange believes that the proposed fee structure would better
align its Market Maker OTP fees with
[[Page 38788]]
the significantly greater number of option issues traded on the
Exchange in recent years and the enhanced benefits Market Makers derive
from access to those issues. The Exchange also believes that the
proposal would continue to incent Market Makers to quote in a broad
range of options, including less liquid and active issues, by offering
Market Makers access to the Bottom 45% of issues (approximately 1,730
issues, as of the end of the third quarter of 2021) beginning with the
first OTP. By promoting increased Market Maker quoting, the proposed
change would, in turn, encourage more liquid markets and quote
competition, which benefits all market participants.
The Exchange also proposes to charge the same fee for each of the
sixth through ninth Market Maker OTPs ($2,000) and to decrease the fee
for the tenth Market Maker OTP or more from $1,000 to $500. Market
Maker firms that sponsor multiple individual Market Makers may choose
to purchase additional OTPs to allow those individual Market Makers to
each quote more issues (rather than purchasing one set of OTPs to be
shared across the firm).\9\ As a result, the Exchange believes that
these proposed changes could incent Market Maker firms to have more
individual Market Makers quoting on the Exchange if they so choose,
which would in turn encourage liquidity and depth of markets (including
in the less liquid issues that Market Makers would be able to quote in
with the first OTP and beyond). The Exchange also believes that the
proposed fees, to the extent they promote increased liquidity, could
make the Exchange a more attractive venue for trading and increase
trading opportunities for the benefit of all market participants.
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\9\ For example, a Market Maker firm that has three individual
Market Makers may, depending on its business preferences, choose to
separate those Market Makers into three distinct trading groups. In
that case, for each of those individual Market Makers to be able to
submit quotes in all issues traded on the Exchange, the Market Maker
firm would need to allot five OTPs to each such individual Market
Maker (and would thus need to hold 15 OTPs total).
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The Exchange does not propose any changes to the monthly fee for
Reserve Market Maker OTPs.
The Exchange proposes to implement this fee change on the first day
of the month following the completion of its migration to the Pillar
technology platform.\10\
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\10\ The Exchange has announced that it will begin migrating
Exchange-listed options to the Pillar technology platform on July
11, 2022, available here: <a href="https://www.nyse.com/trader-update/history#110000421498">https://www.nyse.com/trader-update/history#110000421498</a>. See also Securities Exchange Act Release Nos.
93193 (September 29, 2021), 86 FR 55926 (October 7, 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); 94637 (April 7, 2022), 87 FR 21959 (April 13,
2022) (SR-NYSEArca-2021-68) (Notice of Filing of Amendment Nos. 1
and 2 and Order Granting Accelerated Approval of a Proposed Rule
Change, as Modified by Amendment Nos. 1 and 2, to Adopt New Exchange
Rule 6.91P-O).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\11\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\12\ 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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\11\ 15 U.S.C. 78f(b).
\12\ 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.'' \13\
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\13\ 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.\14\ Therefore, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity and ETF
options order flow. More specifically, in March 2022, the Exchange had
less than 14% market share of executed volume of multiply-listed equity
and ETF options trades.\15\
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\14\ 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>.
\15\ 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 was 10.16%
for the month of March 2021 and 13.57% for the month of March 2022.
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Accordingly, the Exchange believes that competitive forces
constrain options exchange fees, including Market Maker permit fees.
Market Makers serve a unique and important function on the Exchange
(and other options exchanges) given the quote-driven nature of options
markets. Because options exchanges rely on actively quoting Market
Makers to facilitate a robust marketplace that attracts order flow,
options exchanges must attract and retain Market Makers, including by
setting competitive Market Maker permit fees. Stated otherwise, changes
to Market Maker permit fees can have a direct effect on the ability of
an exchange to compete for order flow. The Exchange also believes that
the number of options exchanges on which Market Makers can effect
option transactions also ensures competition in the marketplace and
constrains the ability of exchanges to charge supracompetitive fees for
access to its market by Market Makers.
Accordingly, the Exchange believes the proposed fees for Market
Maker OTPs are reasonably designed to enable the Exchange to remain
competitive with other options exchanges because they are based on the
Market Maker trading permit fees assessed by another options exchange
and are significantly lower than the Market Maker trading permit fees
assessed by at least one other options exchange for the ability to
quote in all issues.\16\ As noted above, a
[[Page 38789]]
Market Maker would pay monthly OTP fees of $26,000 to quote in all
issues under the Exchange's proposal, which is the same amount charged
by NYSE American for a Market Maker on the NYSE American Options
exchange to quote in all issues.\17\
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\16\ See NYSE American Options Fee Schedule, note 7, supra; Cboe
Exchange, Inc. (``Cboe'') Options Fee Schedule, Electronic Trading
Permit Fees & Market-Maker EAP Appointments Sliding Scale, available
at: <a href="https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf">https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf</a>.
It is the Exchange's understanding that a Market Maker on Cboe would
incur monthly fees of approximately $128,400 to quote in all issues.
Based on the Exchange's interpretation of Cboe's fee structure and
rules governing Market Maker appointments, a Cboe Market Maker would
be subject to a $5,000 fee to secure a trading permit and additional
fees based on the Appointment Units corresponding to the symbol(s)
in which the Market Maker wishes to quote. See Cboe Rule 5.50,
Market-Maker Appointments, available at: <a href="https://cdn.cboe.com/resources/regulation/rule_book/C1_Exchange_Rule_Book.pdf">https://cdn.cboe.com/resources/regulation/rule_book/C1_Exchange_Rule_Book.pdf</a> (providing
that a Market Maker may select for each of its Trading Permits any
combination of class appointments, and that all classes are placed
within a specific tier according to trading volume statistics
(except for the AA tier) and assigned an ``appointment weight''
depending upon its tier location, and setting forth the appointment
weights applicable to each of its Appointment Tiers). Thus, by the
Exchange's calculation based on Cboe's published Class Appointment
Units effective as of February 1, 2022 (available at: <a href="https://www.cboe.com/us/options/market_statistics/class_appointment/">https://www.cboe.com/us/options/market_statistics/class_appointment/</a>), a
Market Maker that wishes to quote in all issues on Cboe would
require 39 Appointment Units, which would result in fees of $123,400
in addition to the $5,000 trading permit fee.
\17\ See NYSE American Options Fee Schedule, note 7, supra. The
Exchange notes that NYSE American Options' ATP fees have been in
effect since 2012, and, presumably, are reasonable as required by
the Act. See Securities Exchange Act Release No. 67764 (August 31,
2012), 77 FR 55254 (September 7, 2012).
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Although the Exchange's proposed restructuring of Market Maker OTP
fees would increase the monthly fee for the first through third OTPs,
the Exchange believes that the increased cost to Market Makers is
reasonable given that a greater number of issues would be covered by an
OTP, as proposed. The Exchange also believes the proposal is reasonable
in that it offers Market Makers the ability to quote issues in the
Bottom 45% with just one OTP, which the Exchange believes would
encourage increased quoting in those issues, thereby promoting
increased quote competition and liquidity in a greater number of issues
(and, in particular, less active issues).
The Exchange also believes that, although the proposal would
increase the fee for the fourth OTP while reducing the number of issues
that a Market Maker would be permitted to quote with four OTPs, the
increased fees are reasonable in the context of the proposed
restructuring of OTP fees, as well as in light of the overall increase
in issues listed on the Exchange as compared to when the Exchange
implemented the current fee structure for OTPs. Similarly, while the
proposed fees for the fifth through ninth OTPs would increase while
still affording Market Makers the ability to quote in all issues on the
Exchange, the Exchange believes that the increase is likewise
reasonable in the context of the proposed restructuring of OTP fees and
reflects the increased number of issues traded on the Exchange and
corresponding enhanced opportunities for trading, as discussed above.
Thus, although the fees for certain of the monthly Market Maker
OTPs would increase in relation to the number of issues ``covered'' by
such OTP, the Exchange believes that, on balance, the proposed
restructuring is reasonably and equitably designed to align its Market
Maker OTP fees with the current level of activity on the Exchange,
while continuing to incent Market Makers to quote in a broad range of
options, thereby promoting more liquid markets and quote competition
for the benefit of all market participants. Specifically, the Exchange
believes that, to the extent the proposed change increases the monthly
fees per Market Maker OTP, such increases reasonably reflect the
significantly greater number of issues traded on the Exchange since its
last revision of the Market Maker OTP fee structure and the resulting
enhancement in trading opportunities for Market Makers, even with the
same number of OTPs. Moreover, with respect to the proposed increase in
fees for the first through third Market Maker OTPs, the Exchange
believes the proposed change is reasonable in light of the
significantly increased number of issues that would be covered by those
OTPs, which would allow a Market Maker to quote a greater number of
issues with the same number of OTPs. The Exchange further believes that
the proposed change would continue to incent Market Makers to quote in
a broad range of options, including the less active issues in the
Bottom 45%, thereby improving market quality for all market
participants.
The Exchange also believes that the proposed fees have been
reasonably designed in response to significant competitive forces in
the market for order flow, which constrain the Exchange's pricing
determinations, including with respect to Market Maker permit fees.
Courts have long recognized that the market for order flow is
competitive; for example, in NetCoalition v. SEC, the United States
Court of Appeals for the D.C. Circuit noted that market participants
``have a wide range of choices of where to route orders for execution''
and that because ``no exchange possesses a monopoly, regulatory or
otherwise, in the execution of order flow . . . [exchanges] must
compete vigorously for order flow to maintain [their] share of trading
volume.'' \18\ The Commission has historically examined competitive
forces to evaluate whether proposed fees are reasonable, equitable, and
not unfairly discriminatory, based on the underlying belief that ``the
operation of competitive forces `will work powerfully to constrain
unreasonable or unfair pricing behavior, including the level of any
fees.' '' \19\
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\18\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(internal citations omitted).
\19\ See U.S. Securities and Exchange Commission, ``Staff
Guidance on SRO Rule Filings Relating to Fees'' (May 21, 2019),
available at: <a href="https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees">https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees</a>.
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Market Makers are free to choose to access any of the other
available options exchanges instead of, or in addition to, the
Exchange. A Market Maker's decision to access an exchange or not could
be based on several criteria, including, but not limited to, the level
of permit fees, and Market Makers may take into consideration
transaction fees and other costs and benefits associated with doing
business on a given exchange when determining whether to access such
market. For example, although Market Makers on the Exchange are subject
to OTP fees that other market participants are not assessed, the
Exchange's Fee Schedule also offers various incentives to Market Makers
based on the important function they serve on the Exchange.\20\
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\20\ See, e.g., Market Maker Incentive for Penny Issues; Market
Maker Incentive for Non-Penny Issues; Market Maker Incentives for
SPY.
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Competitive forces thus constrain the Exchange's ability to set
Market Maker OTP fees and militate against any exchange's ability to
charge supracompetitive fees for access to its market by Market Makers.
Specifically, the Exchange believes that its Market Maker OTP fees are
constrained by competitive considerations because unreasonable permit
fees could discourage prospective Market Makers from choosing to access
the Exchange or cause existing Market Makers to reevaluate their
participation on the Exchange. If the Exchange were to set Market Maker
OTP fees at a level that would disincentivize Market Makers from
quoting and trading on the Exchange or cause Market Makers to
disconnect from the Exchange altogether, such attrition would impact
the Exchange's ability to compete with other options exchanges for
order flow and make the Exchange a less attractive venue for trading.
As noted above, there are currently 16 registered options exchanges
that trade options; one such exchange has Market Maker permit fees
identical to those proposed by the Exchange, and at least one other has
Market Maker permit fees much higher than those proposed by the
Exchange.\21\ Furthermore, relatively low barriers to entry mean that
new exchanges may rapidly and inexpensively enter the market and offer
additional substitute platforms that would also compete with the
Exchange for Market Maker order flow. For example, four exchanges have
been added in the U.S. options markets in the last five years (Cboe
EDGX, Inc.; Nasdaq MRX, LLC; MIAX Pearl, LLC; and MIAX Emerald, LLC).
Based on publicly
[[Page 38790]]
available information, no single options exchange currently has more
than 16% of the market share. The Exchange is also not aware of any
evidence that has been offered or demonstrated that a market share of
less than 14% provides the Exchange with anti-competitive pricing
power. Moreover, the Exchange believes that the fact that its market
share changes from month to month demonstrates that the competitive
forces to which it is subject. As noted above, while the Exchange's
market share as of March 2022 was 13.57%, its market share was 10.16%
in March 2021 and fluctuated between 9.07% and 13.99% in the
intervening period.\22\
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\21\ See note 16, supra.
\22\ See note 15, supra.
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The Exchange further believes that its ability to set Market Maker
permit fees is constrained by competitive forces based on the fact that
Market Makers can, and have, chosen to terminate their status as a
Market Maker if they deem Market Maker permit fees to be unreasonable
or excessive. Specifically, the Exchange notes that a BOX participant
modified its access to BOX in connection with the implementation of a
proposed change to BOX's Market Maker permit fees.\23\ The Exchange has
also observed that another options exchange group experienced decreases
in market share following its proposed modifications of its access fees
(including Market Maker trading permit fees), suggesting that market
participants (including Market Makers) are sensitive to changes in
exchanges' access fees and may respond by shifting their order flow
elsewhere if they deem the fees to be unreasonable or excessive.\24\
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\23\ According to BOX, a Market Maker on BOX terminated its
status as a Market Maker in response to BOX's proposed modification
of Market Maker trading permit fees. See Securities Exchange Act
Release No. 94894 (May 11, 2022), 87 FR 29987 (May 17, 2022) (SR-
BOX-2022-17) (Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend the Fee Schedule on the BOX Options
Market LLC Facility to Adopt Electronic Market Maker Trading Permit
Fees). BOX noted, and the Exchange agrees, that this Market Maker's
decision demonstrates that Market Makers can, and do, alter their
membership status if they deem permit fees at an exchange to be
unsuitable for their business needs, thus demonstrating the
competitive environment for Market Maker permit fees and the
constraints on options exchanges when setting Market Maker permit
fees.
\24\ The Exchange observed that exchanges in the MIAX Group
introduced multiple access fee increases in July and August 2021. In
June 2021, prior to these fee increases, the aggregate MIAX Group
share of multi-list options volume was 15.45%. In the months after
the introduction of higher access fees, MIAX Group's market share
declined: by September 2021, the aggregate MIAX Group market share
was 14.50%, and as of March 2022, market share was 13.75%.
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There is no requirement, regulatory or otherwise, that any Market
Maker connect to and access any (or all of) the available options
exchanges.\25\ The Exchange also is not aware of any reason why a
Market Maker could not cease being a permit holder in response to
unreasonable price increases. The Exchange does not assess any
termination fee for a Market Maker to drop its OTP, nor is the Exchange
aware of any other costs that would be incurred by a Market Maker to do
so.
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\25\ The Exchange notes that, according to BOX, of the 62 market
making firms that are registered as Market Makers across Cboe, Miami
International Securities Exchange, LLC, and BOX, 42 firms access
only one of the three exchanges. See Securities Exchange Act Release
No. 94894 (May 11, 2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-
17) (Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change to Amend the Fee Schedule on the BOX Options Market LLC
Facility To Adopt Electronic Market Maker Trading Permit Fees). The
Exchange believes that BOX's observation demonstrates that market
making firms can, and do, select which exchanges they wish to
access, and, accordingly, options exchanges must take competitive
considerations into account when setting fees for such access.
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For the reasons described above, the Exchange believes that its
ability to modify Market Maker OTP fees is constrained by competitive
forces and that its proposed modifications to the Market Maker OTP fee
structure are reasonably designed in consideration of the competitive
environment in which the Exchange operates, by balancing the value of
the enhanced benefits available to Market Makers due to the current
level of activity on the Exchange with a fee structure that will
continue to incent Market Makers to support increased liquidity, quote
competition, and trading opportunities on the Exchange, for the benefit
of all market participants.
The Proposed Rule Change Is an Equitable Allocation of Credits and Fees
and Is Not Unfairly Discriminatory
The proposed change is equitable and not unfairly discriminatory
because it applies to all Market Makers, all of whom are required to
have at least one OTP to correlate to the options issues in their
assignments. The Exchange further believes that the proposed change is
not unfairly discriminatory to Market Makers because only Market Makers
are required to submit quotes as part of their obligations to operate
on the Exchange. The Exchange also believes that, to the extent the
proposal increases fees that only apply to Market Makers, the proposed
change is equitable and not unfairly discriminatory given both the
benefits to Market Makers derived from the increased number of issues
on the Exchange and the function that Market Makers fulfill on the
Exchange (which requires the Exchange to allocate more supporting
bandwidth and resources, particularly in light of the greater number of
issues in which Market Makers can quote).\26\
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\26\ The Exchange also notes that the Fee Schedule provides for
various incentives to Market Makers (that are not available to other
market participants). See note 20, supra.
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The Exchange also believes that the proposed change is equitable
and not unfairly discriminatory because it is designed to encourage
Market Makers to quote additional issues, including less active issues,
which would promote more liquid markets and quote competition, to the
benefit all market participants. The Exchange further believes that, to
the extent the proposed change results in increased monthly fees, such
increases represent an equitable allocation of fees in the context of
the proposed restructuring of Market Maker OTP fees, as well as in
consideration of the increased number of issues traded on the Exchange
since its last revision of the Market Maker OTP fee structure, which in
turn has increased trading opportunities for Market Makers on the
Exchange.
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,\27\ the Exchange
does not believe that the proposed rule change will 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.'' \28\
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\27\ 15 U.S.C. 78f(b)(8).
\28\ See Reg NMS Adopting Release, supra note 13, at 37499.
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Intramarket Competition. The Exchange does not believe that the
proposed rule change would impose an undue burden on competition
because it impacts all Market Makers, all of whom require at least one
OTP to satisfy their quoting obligations on the Exchange. The Exchange
also does not believe that the proposed change would impose any burden
on competition that is not
[[Page 38791]]
necessary or appropriate, as Market Makers fulfill a unique role on the
Exchange; only Market Makers are required to submit quotes as part of
their obligations to operate on the Exchange, and, in light of that
role, are eligible for certain incentives that are not offered to other
market participants.\29\ While the proposed change generally increases
fees for Market Maker OTPs, the Exchange does not believe that it
imposes any burden on competition that is not necessary or appropriate
because it would align Market Maker OTP fees with the current level of
activity and benefits available to Market Makers on the Exchange and,
by continuing to incent Market Makers to quote in a broad range of
options, would promote quote competition and trading opportunities on
the Exchange. In addition, the Exchange believes that the proposed
change, to the extent it expands the number of covered issues per
Market Maker OTP, would encourage increased liquidity, quote
competition, and trading opportunities on the Exchange, which in turn
would benefit all market participants.
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\29\ See note 20, supra.
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Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily favor one
of the 16 competing options exchanges if they deem fee levels at a
particular venue to be excessive. 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. Therefore, the Exchange believes that no
exchange currently possesses significant pricing power in the execution
of multiply-listed equity and ETF options order flow. The Exchange also
believes that the number of options exchanges on which a Market Maker
can transact also ensures competition in the marketplace and constrains
the ability of exchanges to charge supracompetitive fees to Market
Makers for access to its market. In such an environment, the Exchange
must continually review, and consider adjusting, its fees and credits
to remain competitive with other exchanges.
The Exchange does not believe the proposed rule change would impose
any undue burden on intermarket competition and instead believes that
the proposal would promote competition among options exchanges.
Specifically, the Exchange believes that its proposed fee structure for
Market Maker OTPs would promote competition because, as discussed
above, it would be identical to the Market Maker permit fees assessed
by another options exchange and remains significantly lower than the
Market Maker permit fees assessed by another options exchange for the
ability to quote in all issues.\30\ Thus, the Exchange believes that
the proposed change would not discourage Market Makers from continuing
to quote in a broad range of options, thereby supporting increased
liquidity, quote competition, and trading opportunities on the
Exchange, which in turn could make the Exchange a more attractive venue
for market participants.
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\30\ See note 16, 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) \31\ of the Act and subparagraph (f)(2) of Rule
19b-4 \32\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\31\ 15 U.S.C. 78s(b)(3)(A).
\32\ 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) \33\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\33\ 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#0d7f786168206e6260606863797e4d7e686e236a627b"><span class="__cf_email__" data-cfemail="deacabb2bbf3bdb1b3b3bbb0aaad9eadbbbdf0b9b1a8">[email protected]</span></a>. Please include
File Number SR-NYSEArca-2022-36 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-2022-36.
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-2022-36, and should
be submitted on or before July 20, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-13811 Filed 6-28-22; 8:45 am]
BILLING CODE 8011-01-P
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