Notice2022-17009
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 9, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 152 (Tuesday, August 9, 2022)</title>
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[Federal Register Volume 87, Number 152 (Tuesday, August 9, 2022)]
[Notices]
[Pages 48523-48527]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-17009]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95412; File No. SR-NYSEARCA-2022-47]
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 3, 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 August 1, 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
[[Page 48524]]
Schedule'') to waive fees for manual executions by Professional
Customers. 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.
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 modify the Fee Schedule to provide
for the waiver of fees for manually executed Professional Customer
orders (``Professional Customer Manual Fees''). Specifically, the
Exchange proposes to waive Professional Customer Manual Fees for the
period of August 1, 2022 through December 31, 2022.
The Exchange also proposes to add clarifying language to the Fee
Schedule's description of the Floor Broker Fixed Cost Prepayment
Incentive Program (the ``FB Prepay Program''), to provide that manually
executed Professional Customer orders will continue to be included in
the calculation of ``billable volume'' for purposes of the FB Prepay
Program while Professional Customer Manual Fees are waived.
The Exchange proposes to implement the rule change on August 1,
2022.
Background
In connection with the Exchange's migration to the new Pillar
trading platform (the ``Pillar Migration''), the Exchange has
introduced a new Electronic Order Capture System (``EOC'') device for
order systemization and execution reporting for manual orders on the
Trading Floor. The Exchange believes the improved workflow offered by
the EOC device will enhance Floor Brokers' processing of manual orders,
especially those submitted by Professional Customers, and allow Floor
Brokers to provide improved service to Professional Customers. To
attract more manually executed Professional Customer orders with
enhanced order handling by Floor Brokers via the EOC device, the
Exchange proposes to waive Professional Customer Manual Fees for the
balance of the year (i.e., until December 31, 2022).
The Exchange believes the proposed waiver would encourage
additional Professional Customer volume executed by Floor Brokers on
the Exchange, with the enhanced workflow offered by the EOC device as
market participants continue to adapt to trading post-Pillar Migration,
and that all market participants stand to benefit from such increase,
which would promote market depth, facilitate tighter spreads and
enhance price discovery, and may lead to a corresponding increase in
order flow from other market participants as well.
The Exchange believes that the proposed change relating to the FB
Prepay Program would obviate any confusion about the impact of the
proposed waiver of Professional Customer Manual Fees on participating
Floor Brokers' ability to qualify for incentives offered through the FB
Prepay Program. The Exchange believes that the proposed change would
make clear that volume from manually executed Professional Customer
orders would continue to count towards billable volume relevant to the
FB Prepay Program when Professional Customer Manual Fees are waived.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\4\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\5\ 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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\4\ 15 U.S.C. 78f(b).
\5\ 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.'' \6\
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\6\ 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.\7\ 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.\8\
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\7\ 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>.
\8\ Based on a compilation of OCC data for monthly volume of
equity-based options and monthly volume of equity-based ETF 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.
The Exchange believes that the proposed waiver of Professional
Customer Manual Fees is reasonable because it is designed to incent
Professional Customers to submit orders to Floor Brokers and increase
familiarity with the improved workflow offered via the new EOC device
on the Pillar platform, thereby encouraging increased manually executed
Professional Customer orders on the Exchange. The Exchange notes that
all market participants stand to benefit from any increase in
Professional Customer volume executed by Floor Brokers, which promotes
market depth, facilitates tighter spreads and enhances
[[Page 48525]]
price discovery, and may lead to a corresponding increase in order flow
from other market participants.
To the extent the proposed waiver attracts greater volume and
liquidity, 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
proposed rule change is designed to incent Professional Customers to
direct liquidity to the Exchange, thereby promoting market depth, price
discovery and improvement and enhancing order execution opportunities
for market participants.
The Exchange believes the proposed change relating to the FB Prepay
Program is reasonable because it would provide clarity in the Fee
Schedule relating to volume that is counted towards the billable volume
relevant to the FB Prepay Program when Professional Customer Manual
Fees are waived, as proposed.
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 type
of business transacted on the Exchange, and Professional Customers can
opt to submit orders for trading electronically or for manual execution
on the Trading Floor. The proposed waiver of Professional Customer
Manual Fees is intended to encourage Professional Customers to submit
orders to be manually executed by Floor Brokers and, in addition, in
connection with the Pillar Migration, the Exchange believes that the
improved order handling that Floor Brokers can provide through the use
of the EOC device will demonstrate to Professional Customers the value
of submitting orders for manual execution on the Trading Floor.
The proposed waiver is also designed to incent Professional
Customers to direct orders to the Exchange as a primary execution
venue. To the extent that the proposed change attracts more manual
Professional Customer volume 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.
With respect to the proposed change relating to the FB Prepay
Program, the Exchange believes that the proposed clarification would
support an equitable allocation of fees and credits because it would
make clear that volume from Professional Customer manual executions
would still count towards a Floor Broker's qualification for the
incentives offered through the FB Prepay Program when Professional
Customer Manual Fees are waived, as proposed, thereby promoting the
continued equitable allocation of fees and credits set forth in the Fee
Schedule.
The Proposed Rule Change Is Not Unfairly Discriminatory
The Exchange believes that the proposed waiver is not unfairly
discriminatory because the waiver would apply to manually executed
Professional Customer orders on an equal and non-discriminatory basis.
The proposed waiver is not unfairly discriminatory to other market
participants because Professional Customers are an important source of
order flow to the Exchange for execution via open outcry, which
promotes price discovery, and the Exchange thus believes that it is
appropriate to incentivize manually executed Professional Customer
orders and encourage Professional Customers to experience the improved
order handling offered via the new EOC device in connection with the
Pillar Migration.
The proposed change is also designed to encourage Professional
Customers to utilize the Exchange as a primary trading venue (if they
have not done so previously) and to increase manually executed
Professional Customer orders sent to the Exchange. To the extent that
the proposed change attracts more order flow to the Exchange (and, in
particular, to the Floor), this increased order flow would continue to
make the Exchange a more competitive venue for order execution. Thus,
the Exchange believes the proposed rule change would improve market
quality for all market participants on the Exchange and, as a
consequence, attract more order flow to the Exchange, thereby improving
market-wide quality and price discovery. The 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, to protect investors and the public interest.
The Exchange also believes that the proposed change to clarify that
volume from manually executed Professional Customer orders would
continue to count towards billable volume for purposes of the FB Prepay
Program is not unfairly discriminatory. The proposed change, which
specifies that such volume will continue to be accounted for in
determining participating Floor Brokers' eligibility for incentives
available pursuant to the FB Prepay Program, would instead permit the
program to continue to be administered in a non-discriminatory manner.
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 change 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 changes further 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.'' \9\
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\9\ See Reg NMS Adopting Release, supra note 6, at 37499.
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Intramarket Competition. The proposed waiver is designed to attract
additional manually executed Professional Customer orders to the
Exchange (and, in particular, to the Floor, with the enhanced workflow
offered by the EOC tool introduced in the Pillar Migration), which may
increase the volume of contracts traded on the Exchange. To the extent
that the proposed change imposes an additional competitive burden on
other market participants, the Exchange believes that any such burden
would be appropriate because, to the extent the proposed change
encourages Professional
[[Page 48526]]
Customers to submit additional orders to the Exchange to be executed
via open outcry, such increase in manually executed Professional
Customer orders would benefit all market participants by promoting
opportunities for price discovery.
To the extent that this purpose is achieved, all of the Exchange's
market participants should benefit from the improved market liquidity.
Enhanced market quality and increased transaction volume that results
from the anticipated increase in order flow directed to the Exchange
will benefit all market participants and improve competition on the
Exchange.
The Exchange does not believe that the proposed change relating to
the FB Prepay Program would impact intramarket competition, as it
merely clarifies that the proposed waiver of Professional Customer
Manual Fees would not affect the current operation of the FB Prepay
Program.
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 currently has more than 16% of the market share of executed
volume of multiply-listed equity and ETF options trades.\10\ Therefore,
no exchange currently 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\ See supra note 8.
\11\ Based on a compilation of OCC data for monthly volume of
equity-based options and monthly volume of equity-based ETF options,
supra note 7, 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 change reflects this
competitive environment because the proposed waiver of Professional
Customer Manual Fees is intended to encourage Professional Customers to
direct manual orders to the Exchange and experience the benefits of the
enhanced technology provided by the Pillar Migration, which in turn
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 trading opportunities.
The Exchange notes that it operates in a highly competitive market
in which market participants can readily favor competing venues. In
such an environment, the Exchange must continually review, and consider
adjusting, its fees and credits to remain competitive with other
exchanges. For the reasons described above, the Exchange believes that
the proposed rule change reflects this competitive environment. The
Exchange also believes that the proposed change could promote
competition between the Exchange and other execution venues, by
encouraging additional orders to be sent to the Exchange for execution,
including to the Floor in particular, and encouraging the use of
technology introduced in connection with the Pillar Migration.
The Exchange does not believe that the proposed change relating to
the FB Prepay Program would have any effect on intermarket competition,
as it merely clarifies that the proposed waiver of Professional
Customer Manual Fees would not impact the current operation of the FB
Prepay Program.
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) \12\ of the Act and subparagraph (f)(2) of Rule
19b-4 \13\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 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) \14\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\14\ 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#fa888f969fd7999597979f948e89ba899f99d49d958c"><span class="__cf_email__" data-cfemail="d8aaadb4bdf5bbb7b5b5bdb6acab98abbdbbf6bfb7ae">[email protected]</span></a>. Please include
File Number SR-NYSEARCA-2022-47 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-2022-47. 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-2022-47, and should be
submitted on or before August 30, 2022.
[[Page 48527]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17009 Filed 8-8-22; 8:45 am]
BILLING CODE 8011-01-P
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