Notice2023-07142
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
April 6, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 66 (Thursday, April 6, 2023)</title>
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[Federal Register Volume 88, Number 66 (Thursday, April 6, 2023)]
[Notices]
[Pages 20589-20594]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-07142]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97234; File No. SR-NYSEARCA-2023-28]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule
March 31, 2023.
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 March 24, 2023, 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 and II
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 (1) credits for Qualified Contingent Cross
(``QCC'') transactions, (2) fees applicable to routed orders, and (3)
certain Market Maker incentives. The Exchange proposes to implement the
fee changes effective March 24, 2023.\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
March 1, 2023 (SR-NYSEARCA-2023-22), then withdrew such filing and
amended the Fee Schedule on March 15, 2023 (SR-NYSEARCA-2023-25),
which latter filing the Exchange withdrew on March 24, 2023.
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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.
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 (1)
provide for additional credits to qualifying Submitting Brokers for QCC
transactions \5\ and clarify the cap applicable to QCC credits and
Floor Broker rebates earned through the Manual Billable Rebate Program
(``FB Rebates''), (2) modify the Routing Fees applicable to routed
orders, and (3) eliminate the Market Maker Incentive For Penny Issues
and the Market Maker Incentive For Non-Penny Issues (collectively, the
``Market Maker Incentives''). The Exchange proposes to implement the
rule change on March 24, 2023.
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\5\ A QCC Order is defined as an originating order to buy or
sell at least 1,000 contracts that is identified as being part of a
qualified contingent trade coupled with a contra-side order or
orders totaling an equal number of contracts. See Rule 6.62P-
O(g)(1)(A).
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QCC Transaction Credits
Currently, the Exchange offers Submitting Brokers a credit of
($0.22) per contract for Non-Customer vs. Non-Customer QCC transactions
or ($0.16) per contract for Customer vs. Non-Customer QCC
transactions.\6\ QCC executions in which a Customer is on both sides of
the QCC trade are not eligible for a credit.\7\
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\6\ See Fee Schedule, QUALIFIED CONTINGENT CROSS (``QCC'')
TRANSACTION FEES AND CREDITS.
\7\ See id.
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The Exchange proposes to offer additional credits on QCC
transactions to Submitting Brokers that meet certain monthly volume
thresholds. Submitting Brokers who achieve 1.5 million QCC contracts in
a month will receive an additional ($0.01) credit on Customer vs. Non-
Customer QCC transactions, and an additional ($0.03) credit on Non-
Customer vs. Non-Customer QCC transactions. Submitting Brokers who
achieve 3 million QCC contracts in a month will receive an additional
($0.02) credit on Customer vs. Non-Customer QCC transactions, and an
additional ($0.06) credit on Non-Customer vs. Non-Customer QCC
transactions. The proposed additional credits would be applicable back
to the first QCC contract executed by a Submitting Broker in a month,
but would not be cumulative across tiers (e.g., a Submitting Broker who
transacts 3.1 million QCC contracts in a month would be eligible for an
additional ($0.02) credit on Customer vs. Non-Customer QCC transactions
or an additional ($0.06) credit on Non-Customer vs. Non-Customer QCC
transactions, but would not also earn the additional credits offered to
Submitting Brokers that achieve 1.5 million QCC contracts in a month).
Although the Exchange cannot predict with certainty whether the
proposed change would encourage Submitting Brokers to increase their
QCC volume, the proposed change is intended to continue to incentivize
additional QCC executions by Submitting Brokers by increasing the
credits available on such orders.
Endnote 13 of the Fee Schedule currently provides that QCC
executions in which a Customer is on both sides of the QCC trade will
not be eligible for the Submitting Broker credit and that there is a
$375,000 maximum monthly credit per firm on QCC transactions by a
Submitting Broker.\8\ The Exchange recently modified the Fee Schedule
to
[[Page 20590]]
provide that Submitting Broker QCC credits and Floor Broker rebates
earned through the Manual Billable Rebate Program may not combine to
exceed $2,000,000 per month per firm (the ``Monthly Credit and Rebate
Cap'').\9\ To improve the clarity of the Fee Schedule and obviate
potential confusion regarding the applicability of the Monthly Credit
and Rebate Cap, the Exchange proposes to delete the second sentence of
Endnote 13 (which describes the $375,000 maximum monthly credit on QCC
transactions by a Submitting Broker), add new Endnote 17, and modify
the table setting forth Submitting Broker QCC credits to reference
Endnote 17. Endnote 17 would contain the same text already reflected in
the Fee Schedule describing the Monthly Credit and Rebate Cap.\10\ The
Exchange believes that Endnote 17 would add clarity to the Fee Schedule
regarding the maximum amount that a firm could earn per month from
Submitting Broker QCC credits and FB Rebates combined.
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\8\ See Fee Schedule, Endnote 13.
\9\ See Fee Schedule, FLOOR BROKER FIXED COST PREPAYMENT
INCENTIVE PROGRAM (the ``FB Prepay Program'').
\10\ The Exchange also proposes a conforming change to delete
the text describing the Monthly Credit and Rebate Cap in the section
of the Fee Schedule setting forth the Floor Broker Fixed Cost
Prepayment Incentive Program and add a reference to Endnote 17, as
proposed.
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Routing Fees
The Exchange currently charges an $0.11 per contract fee on orders
routed and executed on another exchange, plus (i) any transaction fees
assessed by the away exchange (calculated on an order-by-order basis
since different away exchanges charge different amounts) or (ii) if the
actual transaction fees assessed by the away exchange(s) cannot be
determined prior to the execution, the highest per contract charge
assessed by the away exchange(s) for the relevant option class and type
of market participant (e.g., Customer, Firm, Broker/Dealer,
Professional Customer or Market Maker).\11\ The Exchange applies the
Routing Fees in addition to any customary execution fees applicable to
the order.
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\11\ See Fee Schedule, ROUTING FEES.
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The Exchange now proposes to modify the Routing Fees to be based on
whether the routed order is in a Penny or non-Penny issue and to
establish a single fee that would be applicable to all routed orders in
Penny issues, and a single fee for routed orders in non-Penny issues.
Specifically, the Exchange proposes that the fee for routed orders
would be set at a fixed amount intended to counterbalance the internal
resources required to support the handling of orders routed away from
the Exchange. The Exchange proposes to implement a flat fee structure
for routing fees, which the Exchange believes would streamline the
process of calculating fees applied to orders routed away from the
Exchange because it would, among other things, reduce the
administrative burden of recalibrating routing fees each time an away
exchange modifies its relevant transaction fees. Accordingly, the
Exchange proposes a Routing Fee of $0.61 in Penny issues, and $1.21 in
non-Penny issues. The Exchange believes that having a single published
rate for all routed orders in Penny issues and single published rate
for all routed orders in non-Penny issues would also reduce potential
confusion relating to the amount of the Routing Fee for a given order
(particularly in light of the variability in transaction fees across
other options markets) and would permit market participants to
determine execution costs at the time of order entry, thereby promoting
clarity and transparency in the Fee Schedule. The Exchange believes the
proposed routing fee structure is not novel, as at least one other
options exchange similarly applies fixed routing fees based on whether
the routed order is in a Penny or non-Penny issue, and that the
proposed amounts of the fees are within the range of fees applied by
other markets to routed orders.\12\
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\12\ See, e.g., BOX Options Exchange Fee Schedule, available at:
<a href="https://boxexchange.com/assets/BOX-Fee-Schedule-as-of-March-6-2023.pdf">https://boxexchange.com/assets/BOX-Fee-Schedule-as-of-March-6-2023.pdf</a> (providing for fixed routing fees of $0.60 per contract fee
for customer orders in Penny classes and $0.85 per contract fee for
customer orders in non-Penny class); Cboe Exchange, Inc. Options Fee
Schedule, available at: <a href="https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf">https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf</a> (providing, for example, Customer routing fees
of $0.75 for orders in Penny issues or $1.25 for orders in non-Penny
issues routed to certain away markets and Non-Customer routing fees
of $1.17 for all orders in Penny issues or $1.45 for all orders in
non-Penny issues routed away).
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Market Maker Incentives
The Exchange currently offers a Market Maker Incentive For Penny
Issues, which provides an enhanced posting credit of $0.41 applied to
electronic executions of Market Maker posted interest in Penny issues
to Market Makers that achieve the volume requirement of at least 0.75%
TCADV from Customer posted interest in all issues and an ADV from
Market Maker posted interest in all issues other than SPY equal to
0.40% of TCADV.
The Exchange also offers a similar Market Maker Incentive For Non-
Penny Issues. Market Makers that meet the volume requirement of either
(1) at least 0.55% of TCADV from Market Maker posted interest in all
issues, or (2) at least 1.60% of TCADV from all interest in all issues,
all account types, with at least 0.15% of TCADV from Market Maker
posted interest in all issues qualify for a $0.55 credit applied to
electronic executions of Market Maker posted interest in non-Penny
issues.
The Exchange now proposes to eliminate the Market Maker Incentives
because they have not been as effective in encouraging Market Maker
posted interest as other similar incentive programs. Market Makers are
entitled to the highest credit on posted interest they achieve, and
because the Market Maker Incentives have similar qualifying criteria
but offer lower credit amounts than other volume incentive programs
available to Market Makers (such as the Market Maker Penny and SPY
Posting Credit Tiers or the Non-Customer, Non-Penny Posting Credit
Tiers),\13\ Market Makers have availed themselves of the Market Maker
Incentives less frequently. Accordingly, the Exchange believes that
Market Markers would not be significantly impacted by the elimination
of the Market Maker Incentives, as the programs generally provided
benefits that were superseded by the incentives available through
other, more utilized volume incentive programs (which would continue to
be available to Market Makers).
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\13\ See Fee Schedule, MARKET MAKER PENNY AND SPY POSTING CREDIT
TIERS & NON-CUSTOMER, NON-PENNY POSTING CREDIT TIERS.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\14\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\15\ 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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\14\ 15 U.S.C. 78f(b).
\15\ 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
[[Page 20591]]
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.'' \16\
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\16\ 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.\17\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity and ETF options order flow.
More specifically, in January 2023, the Exchange had less than 13%
market share of executed volume of multiply-listed equity and ETF
options trades.\18\
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\17\ 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>.
\18\ 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 13.06% for the month of January 2022 to 12.58% for
the month of January 2023.
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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,
modifications 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 additional QCC credits are
reasonable because they are designed to incent OTP Holders to increase
the number of QCC transactions sent to the Exchange by offering
increased credits on QCC transactions for Submitting Brokers that meet
the qualifying volume thresholds. In addition, the Exchange believes it
is reasonable to offer a higher additional credit on Non-Customer vs.
Non-Customer QCC transactions than on Customer vs. Non-Customer QCC
transactions because Non-Customer vs. Non-Customer QCC transactions are
billable on both sides, whereas Customer vs. Non-Customer QCC
transactions are billable on one side only. The Exchange also believes
that modifying the Fee Schedule regarding the Monthly Credit and Rebate
Cap is reasonable because it would add clarity to the Fee Schedule
regarding the maximum monthly amount that firms may earn from
Submitting Broker QCC credits and FB Rebates combined. To the extent
that the proposed change attracts more volume to the Exchange, this
increased order flow would continue to make the Exchange a more
competitive venue for order execution, which, in turn, promotes just
and equitable principles of trade and removes impediments to and
perfects the mechanism of a free and open market and a national market
system. The Exchange notes that all market participants stand to
benefit from any increase in volume entered by Submitting Brokers,
which could promote market depth, facilitate tighter spreads and
enhance price discovery, to the extent the proposed change encourages
OTP Holders to utilize the Exchange as a primary trading venue, and may
lead to a corresponding increase in order flow from other market
participants. In addition, any increased liquidity on the Exchange
would result in enhanced market quality for all participants.
The Exchange believes the proposed change to Routing Fees is
reasonable because it would establish a single fee that would be
applicable to all routed orders in Penny issues and a single fee that
would be applicable to all routed orders in non-Penny issues, and such
fees would be applicable to all market participants equally. In
addition, the Exchange believes the proposed change is reasonable
because it would provide for routing fees that would counterbalance the
internal resources required to support the handling of orders routed
away from the Exchange and would streamline the process of calculating
routing fees by obviating the need to recalibrate fees based on
individual away market fees (which are variable and subject to frequent
change) and eliminating any potential confusion as to routing fees
applicable to a given order. The Exchange also notes that a fixed fee
structure for routing fees is not novel and that the amounts of the
proposed Routing Fees are within the range of routing fees currently
charged by other options exchanges.\19\
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\19\ See note 12, supra.
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The Exchange believes that eliminating the Market Maker Incentives
is reasonable because the programs have been underutilized in favor of
incentive programs offering higher credits on posted interest, and the
Exchange will continue to offer alternative incentives for Market
Makers with similar qualifying bases and credits (including the Market
Maker Penny and SPY Posting Credit Tiers or the Non-Customer, Non-Penny
Posting Credit Tiers). Accordingly, although Market Makers would no
longer be able to qualify for credits through the Market Maker
Incentives, they would still benefit from the availability of other
similar incentive programs that have, to date, more successfully
incentivized Market Maker posted interest.
Finally, to the extent the proposed change continues to attract
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 Exchange's fees are constrained by intermarket
competition, as OTP Holders may direct their order flow to any of the
16 options exchanges, including those offering rebates on QCC
transactions.\20\ Thus, OTP Holders have a choice of where they direct
their order flow, including their QCC transactions. The proposed rule
change is designed to continue to incent OTP Holders to direct
liquidity and, in particular, QCC transactions to the Exchange. In
addition, to the extent OTP Holders are incentivized to aggregate their
trading activity at the Exchange, that increased liquidity could
promote market depth, price discovery and improvement, and enhanced
order execution opportunities for market participants.
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\20\ See, e.g., EDGX Options Exchange Fee Schedule, QCC
Initiator/Solicitation Rebate Tiers (applying ($0.14) per contract
rebate up to 999,999 contracts for QCC transactions when only one
side of the transaction is a non-customer or ($0.22) per contract
rebate up to 999,999 contracts for QCC transactions with non-
customers on both sides); BOX Options Fee Schedule at Section
IV.D.1. (QCC Rebate) (providing for ($0.14) per contract rebate up
to 1,499,999 contracts for QCC transactions when only one side of
the QCC transaction is a broker-dealer or market maker or ($0.22)
per contract rebate up to 1,499,999 contracts for QCC transactions
when both parties are a broker-dealer or market maker); Nasdaq ISE,
Options 7, Section 6.B. (QCC Rebate) (offering rebates on QCC
transactions of ($0.14) per contract when only one side of the QCC
transaction is a non-customer or ($0.22) per contract when both
sides of the QCC transaction are non-customers).
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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 proposed QCC credits are based
on the amount and type of business transacted on the
[[Page 20592]]
Exchange, and Submitting Brokers can attempt to submit QCC transactions
to earn the credits or not. In addition, the proposed credits are
equally available to all qualifying Submitting Brokers. The Exchange
also believes the proposed changes regarding the Monthly Credit and
Rebate Cap are equitable because they would add clarity and
transparency to the Fee Schedule regarding the current maximum monthly
amount that a firm could earn from combined Submitting Broker QCC
credits and FB Rebates, thereby obviating potential confusion regarding
the applicability of the Monthly Credit and Rebate Cap. To the extent
the proposed changes continue to incent Submitting Brokers to direct
increased liquidity to the Exchange, all market participants would
benefit from enhanced opportunities for price improvement and order
execution. Moreover, the proposed credits are designed to incent
Submitting Brokers to encourage OTP Holders to aggregate their
executions--including QCC transactions--at the Exchange as a primary
execution venue. To the extent that the proposed change achieves its
purpose in attracting more 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.
The Exchange also believes the proposed change to the Routing Fees
is equitable because the proposed single fee for all routed orders in
Penny issues and single fee for all routed orders in non-Penny issues
would apply to all market participants equally and the proposed amounts
are designed to offset internal resources necessary to support the
handling of orders routed away from the Exchange. The proposed change
would also streamline the process of calculating routing fees for all
market participants and provide increased clarity regarding execution
costs at the time of order entry.
The Exchange believes that the elimination of the Market Maker
Incentives is equitable because these incentives, which did not achieve
their intended purpose of encouraging Market Maker posted interest,
would no longer be available to any Market Makers, and, moreover, the
Exchange offers Market Makers alternative methods to achieve credits of
an equal or higher amount.
The Proposed Rule Change Is Not Unfairly Discriminatory
The Exchange believes the proposed change is not unfairly
discriminatory because the proposed credits on QCC transactions would
be available to all qualifying Submitting Brokers on an equal and non-
discriminatory basis. The proposed change is based on the amount and
type of business transacted on the Exchange, and Submitting Brokers are
not obligated to execute QCC transactions. Rather, the proposal is
designed to encourage Submitting Brokers to increase QCC volume sent to
the Exchange and to utilize the Exchange as a primary trading venue for
all transactions (if they have not done so previously). To the extent
that the proposed change attracts more QCC transactions 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 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.
The Exchange also believes that the proposed change to eliminate
the Market Maker Incentives is also not unfairly discriminatory because
the incentives, which were underutilized by Market Makers, would be
eliminated in their entirety and would no longer be available to any
Market Makers. In addition, Market Makers would continue to be eligible
for alternative incentives currently available to them with similar
credits and qualifying criteria. The Exchange also believes that the
proposed changes to the Routing Fees are not unfairly discriminatory
because the proposed fees are intended to assess streamlined routing
fees in amounts that would appropriately account for the internal
resources necessary to support orders routed away from the Exchange and
would apply equally to all market participants' routed orders, based on
whether such order is in a Penny or non-Penny issue. The proposed
change would simplify the calculation of routing fees for all market
participants and add clarity and transparency to the Fee Schedule
regarding the fees applicable to routed orders.
Thus, the Exchange believes that, to the extent the proposed rule
change would continue to improve market quality for all market
participants on the Exchange by promoting clarity and transparency in
the Fee Schedule and 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 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.'' \21\
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\21\ See Reg NMS Adopting Release, supra note 16, at 37499.
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Intramarket Competition. The proposed change with respect to QCC
credits is designed to attract additional order flow to the Exchange
(particularly in QCC transactions), which could increase the volumes of
contracts traded on the Exchange. Greater liquidity benefits all market
participants on the Exchange, and increased QCC transactions could
increase opportunities for execution of other trading interest. The
proposed credit would be available to all similarly-situated Submitting
Brokers that execute
[[Page 20593]]
QCC trades and achieve the volume thresholds for the additional
credits. The Exchange does not believe that the proposed changes
regarding Routing Fees or the Monthly Credit and Rebate Cap would
impose any burden on competition that is not necessary or appropriate,
as they are intended to add clarity and transparency to the Fee
Schedule with respect to fees for orders routed away from the Exchange
and the monthly cap on combined Submitting Broker QCC credits and FB
Rebates earned by a firm. The Exchange also does not believe that the
proposed changes to the Market Maker Incentives would impose any burden
on intramarket competition that is not necessary or appropriate because
the incentives would be eliminated for all Market Makers.
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.\22\ Therefore, currently
no exchange possesses significant pricing power in the execution of
multiply-listed equity and ETF options order flow. More specifically,
in January 2023, the Exchange had less than 13% market share of
executed volume of multiply-listed equity and ETF options trades.\23\
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\22\ 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>.
\23\ 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 13.06% for the month of January 2022 to 12.58% for
the month of January 2023.
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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 QCC transactions) to the Exchange, to provide
liquidity and to attract order flow. To the extent that Submitting
Brokers are incentivized to utilize the Exchange as a primary trading
venue for all transactions, all of the Exchange's market participants
should benefit from the improved market quality and increased
opportunities for price improvement.
The Exchange does not believe that the proposed changes regarding
Routing Fees or the Monthly Credit and Rebate Cap would impose any
burden on competition that is not necessary or appropriate, as they are
intended to improve the clarity and transparency of the Fee Schedule
with respect to fees for orders routed away from the Exchange and the
maximum monthly amount that a firm could earn from Submitting Broker
QCC credits and FB Rebates combined. The Exchange also does not believe
that the proposed elimination of the Market Maker Incentives would
impose any burden on competition that is not necessary or appropriate
because the incentives would no longer be available to any Market
Makers, and the Exchange would continue to offer Market Makers similar,
alternative incentives.
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 further believes that the proposed changes could promote
competition between the Exchange and other execution venues, including
those that currently offer similarly structured routing charges or that
currently offer credits on QCC transactions, by encouraging additional
orders (and, in particular, QCC transactions) to be sent to the
Exchange for execution.\24\
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\24\ See notes 12 & 20, 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) \25\ of the Act and subparagraph (f)(2) of Rule
19b-4 \26\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 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) \27\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\27\ 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#b2c0c7ded79fd1dddfdfd7dcc6c1f2c1d7d19cd5ddc4"><span class="__cf_email__" data-cfemail="eb999e878ec6888486868e859f98ab988e88c58c849d">[email protected]</span></a>. Please include
File Number SR-NYSEARCA-2023-28 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-2023-28. 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="https://www.sec.gov/rules/sro.shtml">https://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
[[Page 20594]]
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-2023-28, and should
be submitted on or before April 27, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-07142 Filed 4-5-23; 8:45 am]
BILLING CODE 8011-01-P
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