Notice2022-16882
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
August 8, 2022
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 87 Issue 151 (Monday, August 8, 2022)</title>
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[Federal Register Volume 87, Number 151 (Monday, August 8, 2022)]
[Notices]
[Pages 48212-48215]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-16882]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95411; No. SR-NYSEARCA-2022-45]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule
August 2, 2022.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on July 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 Posting Credit Tiers in Non-
Penny Issues. The Exchange proposes to implement the fee change
effective August 1, 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.
[[Page 48213]]
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 Posting Credit Tiers in Non-Penny Issues (the ``Non-Penny
Posting 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 non-Penny
issues by meeting specified increasing volume levels in Non-Penny
Posting Tiers A through F.\4\ Currently, an OTP Holder that achieves
0.80% of TCADV from Customer posted interest in all issues will qualify
for Non-Penny Posting Tier A (``Tier A'') and earn a credit of $0.85
per contract applied to electronic executions of Customer posted
interest in non-Penny issues.\5\ OTP Holders that achieve 0.80% of
TCADV from Customer posted interest in all issues, of which at least
0.10% of TCADV is from Customer posted interest in non-Penny Issues
will qualify for Non-Penny Posting Tier B (``Tier B'') and earn a
credit of $0.95 per contract applied to electronic executions of
Customer posted interest in non-Penny issues.
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\4\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES
FOR STANDARD OPTIONS, CUSTOMER POSTING CREDIT TIERS IN NON-PENNY
ISSUES.
\5\ An OTP Holder may also qualify for Tier A by achieving at
least 0.15% of TCADV of Firm and Broker Dealer posted interest in
all issues and at least 0.10% TCADV from Customer posted interest in
all issues. The Exchange does not propose any modifications to this
qualification basis for Tier A.
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The Exchange now proposes to modify the qualification bases for
Tiers A and B. Specifically, the Exchange proposes to modify the TCADV
component of the qualifying basis for each of Tiers A and B to require
an OTP Holder to execute at least 1.00% of TCADV (rather than 0.80% of
TCADV) from Customer posted interest in all issues. In addition, to
qualify for Tier B, the Exchange also proposes to modify the
qualification basis to provide that at least 0.20% of TCADV (rather
than 0.10% TCADV) must be from Customer posted interest in non-Penny
Issues. Although the proposed modifications to the qualifying criteria
for Tiers A and B would increase the volume requirement for those
Tiers, the Exchange believes that the proposed change would continue to
encourage OTP Holders to execute Customer posted interest on the
Exchange in order to earn the credits offered in Tiers A and B.
In addition, to maintain the incentive structure of the Non-Penny
Posting Tiers following the proposed changes to Tier B, the Exchange
also proposes to modify the Customer Incentive Program.\6\ Currently,
the Exchange offers an additional $0.03 credit on Customer Posting
Credits through the Customer Incentive Program. An OTP Holder may
qualify for the additional $0.03 credit in three ways, including by
achieving at least 0.80% of TCADV from Customer posted interest in all
issues, of which at least 0.20% of TCADV is from Customer posted
interest in non-Penny issues. The Exchange notes that an OTP Holder
that qualifies for Tier B, as proposed in this filing, would also meet
this qualification for the additional $0.03 credit offered in the
Customer Incentive Program, and such OTP Holder would receive a greater
credit on Customer non-Penny posting volume than if they qualified for
Non-Penny Posting Tier C. Thus, to preserve the tiered incentives
offered in the Non-Penny Posting Tiers, the Exchange proposes to
eliminate this qualifying option for the Customer Incentive Program.
Although this proposal would eliminate a method by which OTP Holders
could qualify for the Customer Incentive Program, the Exchange notes
that OTP Holders will continue to be able to earn the additional $0.03
credit on Customer Posting Credits via two other qualifying bases,
which remain unchanged, and believes that the Customer Incentive
Program would continue to incent OTP Holders to execute Customer posted
interest on the Exchange.
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\6\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES
FOR STANDARD OPTIONS, NON-CUSTOMER, NON-PENNY POSTING CREDIT TIERS.
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The Exchange proposes to implement the rule change on August 1,
2022.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\7\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\8\ 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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\7\ 15 U.S.C. 78f(b).
\8\ 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.'' \9\
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\9\ 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.\10\ Therefore, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity & ETF options
order flow. More specifically, in June 2022, the Exchange had less than
13% market share of executed volume of multiply-listed equity & ETF
options trades.\11\
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\10\ 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>.
\11\ 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 9.07% for the month of June 2021 to 12.23% for the month of
June 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 A or B, as modified, the
Exchange believes that the new qualifying criteria for Tiers A and B
are attainable and that the credits offered in Tiers A and B would
continue to encourage OTP Holders to increase Customer posted volume on
the Exchange and incent OTP Holders to direct more Customer order flow
to the Exchange, which would bring increased liquidity for the benefit
of all market
[[Page 48214]]
participants. The Exchange also believes that the proposed elimination
of one of the qualifying options for the Customer Incentive Program,
which, as described above, would preserve the incentive structure of
the Non-Penny Posting Tiers, is reasonable because OTP Holders will
continue to be able to earn the additional credit on Customer Posting
Credits via two other qualifying bases. The Exchange also believes that
the additional credit available through the Customer Incentive Program
(the amount of which remains unchanged) would continue to incent OTP
Holders to execute Customer posted interest on the Exchange.
Finally, to the extent the proposed change continues to attract
greater volume and liquidity to the Exchange, and, in particular,
continues to encourage OTP Holders to increase Customer volume to
qualify for the credits available in Tiers A and B or the Customer
Incentive Program, 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 for non-Penny issues.\12\ Thus, OTP Holders have
a choice of where they direct their order flow, including their
Customer posting 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, thereby
promoting market depth, price discovery and improvement, and enhanced
order execution opportunities for market participants.
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\12\ 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 Non-
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 credits available in Tiers A and B and
the Customer Incentive Program or not. The proposal is designed to
continue to incent OTP Holders to aggregate Customer posting interest
at the Exchange as a primary execution venue. To the extent that this
purpose is achieved, this increased order flow would continue to make
the Exchange a more competitive venue for, among other things, order
execution on options. 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 credits offered in Tiers A and B and through
the Customer Incentive Program would be available to all similarly-
situated market participants on an equal and non-discriminatory basis.
The Exchange also believes that the proposed elimination of a
qualifying basis for the credit offered through the Customer Incentive
Program is not unfairly discriminatory because OTP Holders will still
be able to earn such credit by meeting either of the two remaining
qualifying bases.
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 modified qualifications for Tiers A or B or to qualify for the
Customer Incentive Program, nor are they obligated to execute Customer
posted interest. Rather, the proposal is designed to continue 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 all OTP Holders that meet the qualifications for Tiers
A or B or the remaining qualifications for the Customer Incentive
Program would be eligible for the corresponding credit on electronic
executions of Customer posted interest.
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.
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.'' \13\
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\13\ See Reg NMS Adopting Release, supra note 9, at 37499.
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Intramarket Competition. The proposed change is designed to attract
additional order flow (particularly Customer posted interest) to the
Exchange. The Exchange believes that the proposed modifications to
Tiers A and B and to the Customer Incentive Program would continue to
incent OTP Holders to direct their Customer order flow to the Exchange.
Greater liquidity benefits all market participants on the Exchange, and
increased Customer order flow would increase opportunities for
execution of other trading interest. The proposed modifications to
Tiers A and B and to the Customer Incentive Program would apply to all
similarly-situated market participants that execute Customer posted
interest, and, as such, the Exchange does not believe that the proposed
change would impose a disparate burden on competition among market
participants on the Exchange.
Intermarket Competition. The Exchange operates in a highly
[[Page 48215]]
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.\14\ Therefore, currently
no exchange possesses significant pricing power in the execution of
multiply-listed equity & ETF options order flow. More specifically, in
June 2022, the Exchange had less than 13% market share of executed
volume of multiply-listed equity & ETF options trades.\15\
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\14\ See note 10, supra.
\15\ 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 9.07%
for the month of June 2021 to 12.23% for the month of June 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) 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,\16\ by encouraging additional orders to be sent to the
Exchange for execution.
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\16\ See note 12, 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) \17\ of the Act and subparagraph (f)(2) of Rule
19b-4 \18\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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) \19\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\19\ 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#5a282f363f77393537373f342e291a293f39743d352c"><span class="__cf_email__" data-cfemail="c1b3b4ada4eca2aeacaca4afb5b281b2a4a2efa6aeb7">[email protected]</span></a>. Please include
File Number SR-NYSEARCA-2022-45 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-2022-45. 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-2022-45, and should be
submitted on or before August 29, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-16882 Filed 8-5-22; 8:45 am]
BILLING CODE 8011-01-P
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