Notice2023-08141
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
April 18, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 74 (Tuesday, April 18, 2023)</title>
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[Federal Register Volume 88, Number 74 (Tuesday, April 18, 2023)]
[Notices]
[Pages 23707-23711]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-08141]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97287; File No. SR-NYSEARCA-2023-29]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule
April 12, 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 April 3, 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 the Limit of Fees on Options Strategy
Executions (the ``Strategy Cap''). The Exchange proposes to implement
the fee change effective April 3, 2023. 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 include
certain strategy executions which are the result of a QCC order \4\ in
the Strategy Cap. The Exchange proposes to implement the rule change on
April 3, 2023.
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\4\ 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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The Fee Schedule currently provides that the Strategy Cap is a
$1,000 cap on transaction fees for orders that are executed to achieve
certain investment strategies (``Strategy Executions'').\5\
Specifically, the Strategy Cap provides for a cap on Strategy
Executions
[[Page 23708]]
involving (a) reversals and conversions, (b) box spreads, (c) short
stock interest spreads, (d) merger spreads, and (e) jelly rolls.\6\ The
Strategy Cap applies to each Strategy Execution executed in standard
option contracts on the same trading. Currently, qualifying Strategy
Executions that are executed as QCC orders are not eligible for the
Strategy Cap, as QCC orders are subject to separate fees and credits
set forth in the Fee Schedule.\7\ All Royalty fees associated with
Strategy Executions on Index and Exchange Traded Funds will be passed
through to trading participants on the Strategy Executions on a pro-
rata basis. These Royalty fees will not be included in the calculation
of the $1,000 cap. Manual Broker Dealer and Firm Proprietary Strategy
trades that do not reach the $1,000 cap will be billed at $0.25 per
contract. The Strategy Cap is reduced to $200 on transactions fees for
qualifying strategies traded on the same trading day for those OTP
Holders that trade at least 25,000 monthly billable contract sides in
qualifying Strategy Executions.
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\5\ See Fee Schedule, LIMIT OF FEES ON OPTIONS STRATEGY
EXECUTIONS.
\6\ See Fee Schedule, Endnote 10 for definitions of the various
Strategy Executions.
\7\ See Fee Schedule, QUALIFIED CONTINGENT CROSS (``QCC'')
TRANSACTION FEES AND CREDITS.
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The Exchange now proposes to modify the Strategy Cap to provide
that fees associated with a reversal and conversion strategy \8\
executed as a QCC order (a ``Reversal/Conversion QCC'') would be
eligible for the Strategy Cap.\9\ The Exchange believes that including
Reversal/Conversion QCCs in the Strategy Cap, but not other types of
QCC transactions, would be appropriate because of the specific fee
sensitivity resulting from the arbitrage of components of a reversal
and conversion strategy (whereas the fee sensitivity is less
significant for other strategies executed as a QCC order). The proposed
change would extend the benefits of the Strategy Cap to an additional
type of Strategy Execution and is intended to encourage the submission
of additional Reversal/Conversion QCCs to the Exchange. The Exchange
notes that this proposed change would align its Strategy Cap with the
cap on Strategy Executions currently offered by its affiliated options
exchange, NYSE American Options.\10\
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\8\ A ``reversal'' is established by combining a short security
position with a short put and a long call position that shares the
same strike and expiration. A ``conversion'' is established by
combining a long position in the underlying security with a long put
and a short call position that shares the same strike and
expiration. See Fee Schedule, Endnote 10.
\9\ The Exchange also proposes a non-substantive change to add a
missing period to the end of the last sentence in the first
paragraph of the Fee Schedule text describing the Strategy Cap. See
proposed Fee Schedule, LIMIT OF FEES ON OPTIONS STRATEGY EXECUTIONS.
\10\ See NYSE American Options Fee Schedule, Strategy Execution
Fee Cap, available at <a href="https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf">https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf</a> (including
Reversal/Conversion QCCs in cap on Strategy Executions).
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The Exchange also proposes to modify Endnote 17, which currently
provides that Submitting Broker QCC credits and Floor Broker rebates
earned through the Manual Billable Rebate Program shall not combine to
exceed $2,000,000 per month per firm. The Exchange proposes to amend
Endnote 17 to add a sentence providing that Submitting Broker QCC
credits will not apply to any QCC trades that are included in the
Strategy Cap. The Exchange believes this proposed change is reasonable
because it is intended to clarify which incentives are applicable to
Reversal/Conversion QCCs once such transactions are eligible for the
Strategy Cap, as proposed.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\11\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\12\ 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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\11\ 15 U.S.C. 78f(b).
\12\ 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.'' \13\
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\13\ 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.\14\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity and ETF options order flow.
More specifically, in February 2023, the Exchange had less than 13%
market share of executed volume of multiply-listed equity and ETF
options trades.\15\
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\14\ 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>.
\15\ 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 13.99% for the month of February 2022 to 12.89% for
the month of February 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 modification of the
Strategy Cap to add Reversal/Conversion QCCs to the transactions
included in the Strategy Cap is reasonable because the proposed change
is designed to incent OTP Holders to increase the number of QCC
transactions sent to the Exchange. Specifically, the proposed change is
intended to encourage OTP Holders to direct additional QCC transactions
to the Exchange by limiting fees associated with Reversal/Conversion
QCCs. The Exchange believes that it is reasonable to include Reversal/
Conversion QCCs, but not other strategies executed as QCCs, in the
Strategy Cap because of the specific fee sensitivity related to
arbitrage of components of a reversal and conversion strategy.
Accordingly, the proposed change is intended to encourage additional
Reversal/Conversion QCCs by making fees for such transactions eligible
for the Strategy Cap. As noted above, NYSE American Options already
includes Reversal/Conversion QCCs in its cap on fees for Strategy
Executions, and the proposed change would thus also provide consistency
between the Exchange's fees and those of its affiliated options market.
The Exchange also believes that the proposed change to Endnote 17 of
the Fee Schedule is reasonable considering the proposed
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change to make Reversal/Conversion QCCs eligible for the Strategy Cap
and would add clarity to the Fee Schedule that such transactions would
only be eligible for the benefits of the Strategy Cap and would not
also entitle OTP Holders to Submitting Broker QCC credits. 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, 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.
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 at least one other exchange that limits
fees for QCC Strategy Executions.\16\ Thus, OTP Holders have a choice
of where they direct their order flow, including their QCC transactions
and Strategy Executions. The proposed rule change is designed to
continue to incent OTP Holders to direct liquidity and, in particular,
Reversal/Conversion QCCs 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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\16\ See, e.g., BOX Options Exchange Fee Schedule, Section
IV.D.2., available at: <a href="https://boxoptions.com/fee-schedule/">https://boxoptions.com/fee-schedule/</a>
(providing for no fee on QCC Strategy Executions). See also note 10,
supra.
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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 inclusion of Reversal/
Conversion QCCs under the Strategy Cap and an OTP Holder's ability to
qualify for the Strategy Cap are based on the type and amount of
business transacted on the Exchange, and OTP Holders can attempt to
submit such transactions or not to achieve the Strategy Cap. The
Exchange also believes that the proposed change to Endnote 17 is
equitable because it would promote clarity in the Fee Schedule as to
which fees and credits are applicable to QCC transactions, in light of
the proposed change to include Reversal/Conversion QCCs in the
transactions eligible for limited fees pursuant to the Strategy Cap. In
addition, the proposed changes to make Reversal/Conversion QCCs
eligible for the Strategy Cap and to clarify Endnote 17 are equally
applicable to all OTP Holders. To the extent the proposed changes
continue to incent OTP Holders to direct increased liquidity to the
Exchange, all market participants would benefit from enhanced
opportunities for price improvement and order execution. Moreover, the
proposed fee limitations are designed to encourage OTP Holders to
aggregate their executions--including Reversal/Conversion 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 Proposed Rule Change Is Not Unfairly Discriminatory
The Exchange believes the proposed change is not unfairly
discriminatory because the proposed change to the Strategy Cap to
include Reversal/Conversion QCC transactions and the proposed
modification of Endnote 17 would apply to all qualifying OTP Holders on
an equal and non-discriminatory basis. The proposed change is based on
the amount and type of business transacted on the Exchange, and OTP
Holders are not obligated to execute QCC transactions or Strategy
Executions. Rather, the proposal is designed to expand the benefits
offered by the Strategy Cap and to encourage OTP Holders to increase
Reversal/Conversion 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 Reversal/Conversion 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.
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 and attract more order flow to the
Exchange, 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
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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.'' \17\
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\17\ See Reg NMS Adopting Release, supra note 13, at 37499.
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Intramarket Competition. The proposed change is designed to attract
additional order flow--and, in particular, Reversal/Conversion QCC
transactions--to the Exchange, which could increase the volumes of
contracts traded on the Exchange. Greater liquidity benefits all market
participants on the Exchange, and the proposed change could also
increase opportunities for execution of other trading interest, to the
extent it encourages OTP Holders to aggregate executions at the
Exchange. The Exchange also does not believe that the proposed change
would impose any burden on competition not necessary or appropriate, as
the proposed change would be applicable to all similarly-situated OTP
Holders equally.
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.\18\ Therefore, currently
no exchange possesses significant pricing power in the execution of
multiply-listed equity and ETF options order flow. More specifically,
in February 2023, the Exchange had less than 13% market share of
executed volume of multiply-listed equity and ETF options trades.\19\
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\18\ 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>.
\19\ 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 13.99% for the month of February 2022 to 12.89% for
the month of February 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 Reversal/Conversion QCC transactions) to the
Exchange, to provide liquidity and to attract order flow. To the extent
that OTP Holders 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 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 change could promote
competition between the Exchange and other execution venues, including
another options exchange that currently limits fees for QCC Strategy
Executions, by encouraging additional orders to be sent to the Exchange
for execution.\20\
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\20\ See note 16, 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) \21\ of the Act and subparagraph (f)(2) of Rule
19b-4 \22\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 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) \23\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\23\ 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="146661787139777b7979717a6067546771773a737b62">[email protected]</span></a>. Please include
File Number SR-NYSEARCA-2023-29 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-2023-29. 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
[[Page 23711]]
submissions should refer to File Number SR-NYSEARCA-2023-29, and should
be submitted on or before May 9, 2023.
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\24\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08141 Filed 4-17-23; 8:45 am]
BILLING CODE 8011-01-P
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