Notice2022-21985
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify 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
October 11, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 195 (Tuesday, October 11, 2022)</title>
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[Federal Register Volume 87, Number 195 (Tuesday, October 11, 2022)]
[Notices]
[Pages 61376-61379]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-21985]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95976; No. SR-NYSEARCA-2022-66]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule
October 4, 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 September 30, 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 discount in take liquidity fees. The
Exchange proposes to implement the fee change effective October 3,
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.
[[Page 61377]]
The Exchange has prepared summaries, set forth in sections A, B, and C
below, of the most significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to amend the Fee Schedule to modify
the amount of one of the alternatives offered as a Discount in Take
Liquidity Fees for Professional Customer and Non-Customer Liquidity
Removing Interest (``Take Fee Discount'').
If an OTP Holder or OTP Firm (collectively, ``OTP Holders'')
executes a transaction that removes or ``takes'' liquidity on the
Exchange, the OTP Holder is charged a ``Take Liquidity'' fee (referred
to herein as a ``Take Fee'') and such liquidity may be referred to as
``Liquidity Removing'' or liquidity taking.\4\ To offset such costs and
to encourage market participants to direct order flow to the Exchange,
the Exchange offers, among other incentives, the Take Fee Discounts for
executions in Penny Issues.
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\4\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES
FOR STANDARD OPTIONS, TRANSACTION FEE FOR ELECTRONIC EXECUTIONS--PER
CONTRACT (setting forth a per contract Take Fee of $0.50 for such
Penny executions in Professional Customer, Firm, Broker Dealer, and
Market Maker range as compared to a per contract take fee of $0.49
for such Penny executions in the Customer range).
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The Exchange currently offers OTP Holders three alternative Take
Fee Discounts, with varying qualifying bases and amounts, and an OTP
Holder may only earn one such discount. One of the Take Fee Discount
alternatives is available to an OTP Holder that executes at least 0.80%
of TCADV from Customer posted interest in all issues, plus executed ADV
of 0.30% ADV of U.S. equity market share posted and executed on the
NYSE Arca Equity market. The amount of the Take Fee Discount would be
$0.04 when the executing buyer and seller are the same OTP Holder or an
Affiliate or Appointed OFP or Appointed MM of such firm; otherwise, the
Take Fee Discount is $0.03.\5\
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\5\ For example, when an OTP Holder or its Affiliate trades
against itself (e.g., Firm 1 MM trades against Firm 1 Customer or
Firm 1 MM trades against Customer of an Affiliate of Firm 1), the
$0.04 Take Fee discount applies. If, however, the OTP Holder trades
against another OTP Holder (e.g., Firm 1 MM trades against Firm 2
Customer), the $0.03 Take Fee discount applies.
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The Exchange proposes to modify the Take Fee Discount amounts for
this alternative to be $0.03 when the executing buyer and seller are
the same OTP Holder or an Affiliate or Appointed OFP or Appointed MM of
such firm, or $0.02 otherwise.
The Exchange cannot predict with certainty whether any OTP Holders
will seek to qualify for this Take Fee Discount alternative, as
modified. Although the Exchange proposes to decrease the amount of the
discount OTP Holders could earn through this alternative, the Exchange
believes that OTP Holders would continue to be encouraged to direct
liquidity-taking interest to the Exchange to take advantage of the
available credits and discounts on Take Fees.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\6\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\7\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers and other persons
using its facilities and does not unfairly discriminate between
customers, issuers, brokers, or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Rule Change Is Reasonable
The Exchange operates in a highly competitive market. The
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. In Regulation NMS, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues and, also, recognized that current regulation of the
market system ``has been remarkably successful in promoting market
competition in its broader forms that are most important to investors
and listed companies.'' \8\
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\8\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS
Adopting Release'').
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There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than 16% of the market
share of executed volume of multiply-listed equity and ETF options
trades.\9\ Therefore, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity and ETF
options order flow. More specifically, in August of 2022, the Exchange
had less than 12% market share of executed volume of multiply-listed
equity and ETF options trades.\10\
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\9\ The OCC publishes options and futures volume in a variety of
formats, including daily and monthly volume by exchange, available
here: <a href="https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics">https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics</a>.
\10\ Based on 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 decreased from
12.32% for the month of August 2021 to 11.36% for the month of
August 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. In response to this
competitive environment, the Exchange has established incentives, such
as the Take Fee Discount.
The Exchange believes that the proposed modification to the Take
Fee Discount is reasonably designed to continue to offer OTP Holders
discounts on Take Fees and to incent OTP Holders to increase the amount
and type of Professional Customer and Non-Customer interest sent to the
Exchange, especially posted and liquidity-taking interest, which
benefits all market participants by providing more trading
opportunities, thereby making the Exchange a more attractive execution
venue.
To the extent the proposed rule change continues to attract greater
volume and liquidity by encouraging OTP Holders (and their affiliates)
to increase their options volume on the Exchange, 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, including another exchange
that offers similar incentives on liquidity-taking interest.\11\
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\11\ See, e.g., Nasdaq Options 7 Pricing Schedule, Section 2
Nasdaq Options Market--Fees and Rebates, available at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-options-7">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-options-7</a>
(providing that Nasdaq participants that add 1.30% of Customer,
Professional, Firm, Broker-Dealer or Non-NOM Market Maker liquidity
in Penny Symbols and/or Non-Penny Symbols of TCADV per day in a
month will pay ``a $0.48 per contract Penny Symbols Fee for Removing
Liquidity when the Participant is (i) both the buyer and the seller
or (ii) the Participant removes liquidity from another Participant
under Common Ownership,'' otherwise such participants pay $0.50 per
contract on such interest).
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[[Page 61378]]
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
seek to qualify for this discount or not. Moreover, although the
Exchange proposes to decrease the amount of the discount OTP Holders
could qualify for via one of the alternative Take Fee Discounts, the
Exchange believes that the proposal is designed to continue to incent
OTP Holders to aggregate all liquidity-taking interest at the Exchange
as a primary execution venue. To the extent that the proposed change
attracts more liquidity to the Exchange, 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 Proposed Rule Change Is not Unfairly Discriminatory
The Exchange believes the proposed change is not unfairly
discriminatory because it would apply to all similarly-situated market
participants on an equal and non-discriminatory basis. The proposal is
based on the amount and type of business transacted on the Exchange,
and OTP Holders are not obligated to try to earn the discount, nor are
they obligated to execute liquidity-taking interest. To the extent that
the proposed change attracts more Professional Customer and Non-
Customer interest to the Exchange, especially posted and liquidity-
taking interest, 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.
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.'' \12\
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\12\ See Reg NMS Adopting Release, supra note 8, at 37499.
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Intramarket Competition. The proposed change is designed to attract
additional order flow to the Exchange, particularly take-liquidity
interest. The Exchange believes that the proposed modifications,
although they would reduce the amount of the discount offered by one of
the Take Fee Discount alternatives, would continue to incent OTP
Holders to direct their liquidity-taking order flow to the Exchange.
Greater liquidity benefits all market participants on the Exchange and
increased liquidity-taking order flow and posted Market Maker interest
would increase opportunities for execution of other trading interest.
The proposed change would apply to all similarly-situated market
participants and thus would not impose a disparate burden on
competition among market participants on the Exchange.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily favor one
of the 16 competing option exchanges if they deem fee levels at a
particular venue to be excessive. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
exchanges and to attract order flow to the Exchange. Based on publicly-
available information, and excluding index-based options, no single
exchange has more than 16% of the market share of executed volume of
multiply-listed equity and ETF options trades.\13\ Therefore, currently
no exchange possesses significant pricing power in the execution of
multiply-listed equity & ETF options order flow. More specifically, in
August 2022, the Exchange had less than 12% market share of executed
volume of multiply-listed equity & ETF options trades.\14\
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\13\ See supra note 9.
\14\ Based on OCC data for monthly volume of equity-based
options and monthly volume of ETF-based options, see id., the
Exchange's market share in equity-based options decreased from
12.32% for the month of August 2021 to 11.36% for the month of
August 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 incent OTP Holders to direct trading interest
(particularly Customer posted interest and Professional Customer and
Non-Customer liquidity-taking interest) 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
one that currently offers similar incentives relating to Take Fees,\15\
by encouraging additional orders to be sent to the Exchange for
execution.
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\15\ See supra note 11.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \16\ of the Act and subparagraph (f)(2) of Rule
19b-4 \17\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such
[[Page 61379]]
action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Act. If the Commission takes such action, the Commission shall
institute proceedings under Section 19(b)(2)(B) \18\ of the Act to
determine whether the proposed rule change should be approved or
disapproved.
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\18\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#86f4f3eae3abe5e9ebebe3e8f2f5c6f5e3e5a8e1e9f0"><span class="__cf_email__" data-cfemail="295b5c454c044a4644444c475d5a695a4c4a074e465f">[email protected]</span></a>. Please include
File Number SR-NYSEARCA-2022-66 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-2022-66. 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-2022-66, and should be
submitted on or before November 1, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-21985 Filed 10-7-22; 8:45 am]
BILLING CODE 8011-01-P
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