Notice2022-24653
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
November 14, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 218 (Monday, November 14, 2022)</title>
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[Federal Register Volume 87, Number 218 (Monday, November 14, 2022)]
[Notices]
[Pages 68210-68212]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-24653]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96252; File No. SR-NYSEARCA-2022-74]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule
November 7, 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 October 31, 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 Ratio Threshold Fee. The Exchange
proposes to implement the fee change effective November 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 amend the Fee Schedule to extend
the waiver of the Ratio Threshold Fee that was implemented in
connection with the Exchange's migration to the Pillar platform.\4\ The
Exchange proposes to implement the rule change on November 1, 2022.
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\4\ See Securities Exchange Act Release No. 94095 (January 28,
2022), 87 FR 6216 (February 3, 2022) (SR-NYSEArca-2022-04) (Notice
of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the NYSE Arca Options Fee Schedule).
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The Ratio Threshold Fee is based on the number of orders entered as
compared to the number of executions received in a calendar month and
is intended to deter OTP Holders from submitting an excessive number of
orders that are not executed.\5\ Because order to execution ratios of
10,000 to 1 or greater have the potential residual effect of exhausting
system resources, bandwidth, and capacity, such ratios may create
latency and impact other OTP Holders' ability to receive timely
executions.\6\ In connection with the Exchange's migration to the
Pillar platform, the Exchange implemented a waiver of the Ratio
Threshold Fee (the ``Waiver'') that took effect beginning in the month
in which the Exchange began its migration to the Pillar platform and
would remain in effect for the three months following the month during
which the Exchange completed its migration to the Pillar platform. As
the Exchange completed the migration in July 2022, the Waiver is
currently due to expire on October 31, 2022.
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\5\ See Fee Schedule, RATIO THRESHOLD FEE; see also Securities
Exchange Act Release No. 60102 (June 11, 2009), 74 FR 29251 (June
19, 2009) (SR-NYSEArca-2009-50).
\6\ See id.
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The Exchange now proposes to extend the Waiver for an additional
three months. The Exchange believes that extending the Waiver would
allow the Exchange additional time to continue to work with OTP Holders
to monitor traffic rates and order to execution ratios, without
imposing a financial burden on OTP Holders based on their order to
execution ratios. The extension of the Waiver would also allow the
Exchange to continue to evaluate system performance as OTP Holders
continue to adapt to trading on the Pillar platform. The Exchange thus
proposes to modify the Fee Schedule to provide that the Waiver would
extend for the six months following the month in which the Exchange
completed its migration to the Pillar platform (i.e., until January 31,
2023).\7\
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\7\ See proposed Fee Schedule, RATIO THRESHOLD FEE.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\8\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\9\ 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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\8\ 15 U.S.C. 78f(b).
\9\ 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
[[Page 68211]]
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.'' \10\
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\10\ 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.\11\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity and ETF options order flow.
More specifically, in September 2022, the Exchange had less than 11%
market share of executed volume of multiply-listed equity and ETF
options trades.\12\
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\11\ 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>.
\12\ 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
decreased from 12.43% for the month of September 2021 to 10.84% for
the month of September 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 fees. In response to this competitive
environment and to adapt to extenuating circumstances, the Exchange has
previously waived fees on a temporary basis.\13\
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\13\ See, e.g., Securities Exchange Act Release No. 88596 (April
8, 2020), 85 FR 20796 (April 14, 2020) (SR-NYSEArca-2020-29)
(waiving Floor related fees in connection with COVID-19
precautionary measures).
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The Exchange believes that the proposed extension of the Waiver is
reasonable because it is designed to lessen the impact of the migration
on OTP Holders and would allow OTP Holders to continue to adjust to
trading on the Pillar platform without incurring excess Ratio Threshold
Fees while the Exchange continues to evaluate Pillar system
performance. To the extent the proposed rule change encourages OTP
Holders to maintain their trading activity on the Exchange, the
Exchange believes the proposed change would sustain the Exchange's
overall competitiveness and 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 mitigate the impacts of the Pillar migration without
affecting its competitiveness.
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 proposed extension of the
Waiver is an equitable allocation of fees and credits because the
Waiver would continue to apply to all OTP Holders. All OTP Holders
would thus have the opportunity to continue adjusting to the Pillar
platform without incurring Ratio Threshold Fees, while the Exchange
continues to evaluate post-migration system performance. Thus, the
Exchange believes the proposed rule change would continue to mitigate
the impact of the migration process for all market participants on the
Exchange, thereby sustaining market-wide quality.
The Proposed Rule Change Is Not Unfairly Discriminatory
The Exchange believes the proposed extension of the Waiver is not
unfairly discriminatory because it would apply to all OTP Holders on an
equal and non-discriminatory basis. The Waiver, as proposed, would
permit all OTP Holders to continue adapting to the Pillar platform,
without incurring additional fees based on their monthly order to
execution ratios, while the Exchange continues to evaluate post-
migration system performance. The Exchange thus believes that the
proposed change would support continued trading opportunities for all
market participants, thereby promoting just and equitable principles of
trade, removing impediments to and perfecting the mechanism of a free
and open market and a national market system and, in general,
protecting 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 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 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.'' \14\
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\14\ See Reg NMS Adopting Release, supra note 10, at 37499.
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Intramarket Competition. The Exchange does not believe the proposed
extension of the Waiver would impose any burden on intramarket
competition that is not necessary or appropriate because it would apply
equally to all OTP Holders. All OTP Holders would continue to be
eligible for the Waiver for an additional three months while the
Exchange continues to assess system performance following the migration
to Pillar.
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.\15\ Therefore, currently
no exchange possesses significant pricing power in the execution of
multiply-listed equity and ETF options order flow. More specifically,
in September 2022, the Exchange had less than 11% market share of
executed volume of multiply-listed equity and ETF options trades.\16\
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\15\ 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>.
\16\ 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 decreased from 12.43% for the month of September 2021 to
10.84% for the month of September 2022.
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[[Page 68212]]
The Exchange does not believe the proposed rule change would impose
any burden on intermarket competition that is not necessary or
appropriate because the Exchange operates in a highly competitive
market in which market participants can readily choose to send their
orders to other exchanges if they deem fee levels at those other venues
to be more favorable. The Exchange believes that fees to prevent
excessive use of Exchange systems are constrained by the robust
competition for order flow among exchanges. The Exchange believes that
the proposed extension of the Waiver would continue to make the
Exchange a competitive venue for order execution by enabling OTP
Holders to maintain trading activity without incurring fees based on
their monthly order to execution ratios, thus facilitating OTP Holders'
continued adjustment to the Pillar platform and permitting the Exchange
additional time to evaluate post-migration system performance.
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#e795928b82ca84888a8a82899394a7948284c9808891"><span class="__cf_email__" data-cfemail="fa888f969fd7999597979f948e89ba899f99d49d958c">[email protected]</span></a>. Please include
File Number SR-NYSEARCA-2022-74 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-2022-74. 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-2022-74, and should be
submitted on or before December 5, 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. 2022-24653 Filed 11-10-22; 8:45 am]
BILLING CODE 8011-01-P
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