Notice2023-12755
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
June 15, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 115 (Thursday, June 15, 2023)</title>
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[Federal Register Volume 88, Number 115 (Thursday, June 15, 2023)]
[Notices]
[Pages 39314-39317]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-12755]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97682; File No. SR-NYSEARCA-2023-41]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule
June 9, 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 June 1, 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 credits for Qualified Contingent Cross
(``QCC'') transactions. The Exchange proposes to implement the fee
change effective June 1, 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 modify a
credit offered to qualifying Submitting Brokers for QCC
transactions.\4\ The Exchange proposes to implement the rule change on
June 1, 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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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.\5\ QCC executions in which a Customer is on both sides of
the QCC trade are not eligible for a credit.\6\ In addition, Submitting
Brokers who achieve 3 million QCC contracts in a month currently
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.
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\5\ See Fee Schedule, QUALIFIED CONTINGENT CROSS (``QCC'')
TRANSACTION FEES AND CREDITS.
\6\ See id.
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The Exchange now proposes to increase the credit on Non-Customer
vs. Non-Customer QCC transactions for those Submitting Brokers that
achieve the 3 million monthly QCC contract requirement from ($0.06) to
($0.08).\7\ The proposed ($0.08) credit will continue to be applicable
back to the first QCC contract executed by a Submitting Broker in a
month and will not be cumulative across tiers.\8\ 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 certain
such orders.
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\7\ The Exchange notes that the proposed change does not impact
the applicability of Endnote 17, which provides 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. See Fee Schedule, Endnote 17.
\8\ The Exchange currently offers 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 to
Submitting Brokers that achieve 1.5 million QCC contracts in a
month. The Exchange does not propose any changes to these credits or
qualifying requirements. As is currently the case, the additional
QCC credits available to Submitting Brokers that achieve 1.5 million
QCC contracts in a month and those available to Submitting Brokers
that achieve 3 million QCC contracts in a month are not cumulative
across qualifying tiers. For example, a Submitting Broker who
transacts 3.1 million QCC contracts in a month would be eligible for
an additional ($0.08) credit on Non-Customer vs. Non-Customer QCC
transactions, as proposed, but would not also earn the additional
credits offered to Submitting Brokers that achieve 1.5 million QCC
contracts in a month.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with section 6(b) of the Act,\9\ in general, and furthers the
objectives of sections 6(b)(4) and (5) of the Act,\10\ 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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\9\ 15 U.S.C. 78f(b).
\10\ 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.'' \11\
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\11\ 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.\12\ Therefore, no exchange possesses
[[Page 39315]]
significant pricing power in the execution of multiply-listed equity
and ETF options order flow. More specifically, in April 2023, the
Exchange had less than 13% market share of executed volume of multiply-
listed equity and ETF options trades.\13\
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\12\ 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>.
\13\ 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 12.94% for the month of April 2022 to 12.54% for the
month of April 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 change is reasonable
because it is designed to incent OTP Holders to increase the number of
QCC transactions sent to the Exchange by offering an increased credit
on QCC transactions for Submitting Brokers that meet a requisite volume
threshold. 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. 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.
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.\14\ 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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\14\ 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 change is based on the
amount and type of business transacted on the Exchange, and Submitting
Brokers can attempt to submit QCC transactions to earn the additional
credit or not. In addition, the proposed credit is equally available to
all qualifying Submitting Brokers. To the extent the proposed change
continues 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 credit is 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 Proposed Rule Change Is Not Unfairly Discriminatory
The Exchange believes the proposed change is not unfairly
discriminatory because the proposed credit 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.
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
[[Page 39316]]
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.'' \15\
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\15\ See Reg NMS Adopting Release, supra note 11, at 37499.
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Intramarket Competition. The proposed change is designed to attract
additional 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 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 QCC trades and achieve the applicable
volume threshold.
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.\16\ Therefore, currently
no exchange possesses significant pricing power in the execution of
multiply-listed equity and ETF options order flow. More specifically,
in April 2023, the Exchange had less than 13% market share of executed
volume of multiply-listed equity and ETF options trades.\17\
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\16\ 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>.
\17\ 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 12.94% for the month of April 2022 to 12.54% for the
month of April 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 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 credits on QCC transactions, by encouraging
additional orders (and, in particular, QCC transactions) to be sent to
the Exchange for execution.\18\
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\18\ See note 14, 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) \19\ of the Act and subparagraph (f)(2) of Rule
19b-4 \20\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 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) \21\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\21\ 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#ccbeb9a0a9e1afa3a1a1a9a2b8bf8cbfa9afe2aba3ba"><span class="__cf_email__" data-cfemail="5220273e377f313d3f3f373c2621122137317c353d24">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2023-41 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-2023-41. 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 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number
[[Page 39317]]
SR-NYSEARCA-2023-41 and should be submitted on or before July 6, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12755 Filed 6-14-23; 8:45 am]
BILLING CODE 8011-01-P
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