Notice2023-16882
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
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Published
August 8, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 151 (Tuesday, August 8, 2023)</title>
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[Federal Register Volume 88, Number 151 (Tuesday, August 8, 2023)]
[Notices]
[Pages 53566-53569]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-16882]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98043; File No. SR-NYSEARCA-2023-51]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule
August 2, 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 July 31, 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 August 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.
[[Page 53567]]
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 add dividend strategies to the
list of strategy executions eligible for the Strategy Cap. The Exchange
proposes to implement the rule change on August 1, 2023.
Currently, the Strategy Cap provides for a $1,000 cap on
transaction fees for strategy executions involving (a) reversals and
conversions, (b) box spreads, (c) short stock interest spreads, (d)
merger spreads, and (e) jelly rolls.\4\ The Strategy Cap applies to
each strategy execution executed in standard option contracts on the
same trading day. In addition, the 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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\4\ See Fee Schedule, LIMIT OF FEES ON OPTIONS STRATEGY
EXECUTIONS and Endnote 10 (defining strategies eligible for the
Strategy Cap).
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The Exchange now proposes to modify the Strategy Cap to add
dividend strategies as item (f) in the list of strategy executions
eligible for the cap (and to make non-substantive conforming changes to
include an item (f) in such list). The Exchange also proposes that
dividend strategies would be included among the strategies that
contribute to an OTP Holder's qualification for the lower cap of $200.
Finally, the Exchange proposes to modify Endnote 10 of the Fee Schedule
to add subparagraph (f) defining a dividend strategy as transactions
done to achieve a dividend arbitrage involving the purchase, sale, and
exercise of in-the-money options of the same class, executed the first
business day prior to the date on which the underlying stock goes ex-
dividend.
The Exchange notes that other options exchanges currently offer
similar caps on strategy trades that include dividend strategies.\5\
Although the Exchange cannot predict with certainty whether the
proposed change would encourage OTP Holders to increase their dividend
strategy executions, the proposed change is intended to encourage
additional dividend strategy executions on the Exchange by including
them in the strategies eligible for the Strategy Cap (including the
lower cap for qualifying OTP Holders).
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\5\ See, e.g., BOX Options Fee Schedule, Section V.D. (Strategy
QOO Order Fee Cap and Rebate), available at: <a href="https://boxexchange.com/assets/BOX-Fee-Schedule-as-of-July-3-2023.pdf">https://boxexchange.com/assets/BOX-Fee-Schedule-as-of-July-3-2023.pdf</a>;
Nasdaq PHLX LLC Options 7, Section 4, available at: <a href="https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207">https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207</a>.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\6\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\7\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers and other persons
using its facilities and does not unfairly discriminate between
customers, issuers, brokers or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Rule Change Is Reasonable
The Exchange operates in a highly competitive market. The
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. In Regulation NMS, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues and, also, recognized that current regulation of the
market system ``has been remarkably successful in promoting market
competition in its broader forms that are most important to investors
and listed companies.'' \8\
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\8\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS
Adopting Release'').
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There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than 16% of the market
share of executed volume of multiply-listed equity and ETF options
trades.\9\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity and ETF options order flow.
More specifically, in June 2023, the Exchange had less than 13% market
share of executed volume of multiply-listed equity and ETF options
trades.\10\
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\9\ The OCC publishes options and futures volume in a variety of
formats, including daily and monthly volume by exchange, available
here: <a href="https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics">https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics</a>.
\10\ Based on 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
remained the same at 12.23% for the month of June 2022 and 12.23%
for the month of June 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 the proposed change is reasonable because it
is designed to encourage OTP Holders to increase their dividend
strategies executed on the Exchange by including dividend strategies
among the strategy executions eligible for the Strategy Cap. The
Exchange also believes the proposed change could incent OTP Holders to
execute and aggregate dividend strategy orders as well as other types
of strategy orders at NYSE Arca as a primary execution venue.
To the extent the proposed change attracts 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 with similar caps on strategy executions, including
dividend strategies.\11\ Thus, OTP Holders have a choice of where they
direct their order flow, including their strategy executions. The
proposed rule change is designed to incent OTP Holders to direct
liquidity, and specifically dividend strategies, to the Exchange,
thereby promoting market depth and enhancing order execution
opportunities for market participants.
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\11\ See note 5, supra.
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The Proposed Change Is an Equitable Allocation of Fees and Credits
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 OTP Holders
can opt to avail themselves of the Strategy Cap or not. In addition,
the modified Strategy Cap, as proposed, would continue to be available
to all OTP Holders that direct strategy executions, including dividend
strategies, to the Exchange. Moreover,
[[Page 53568]]
the proposal is designed to continue to encourage OTP Holders to
aggregate strategy executions at the Exchange as a primary execution
venue. To the extent that the proposed change attracts more dividend
strategies 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
marked-wide quality and price discovery.
The Proposed Change Is Not Unfairly Discriminatory
The Exchange believes the proposed change is not unfairly
discriminatory because the proposed modification of the Strategy Cap
would apply to all similarly-situated market participants on an equal
and non-discriminatory basis. The proposal is based on the amount and
type of business transacted on the Exchange, and OTP Holders are not
obligated to try to achieve the Strategy Cap, nor are they obligated to
execute any dividend strategies. Rather, the proposal is designed to
encourage OTP Holders to increase their dividend strategy executions
and to utilize the Exchange as a primary trading venue for all strategy
executions (if they have not done so previously). To the extent that
the proposed change attracts more strategy executions (and, in
particular, dividend strategy executions) 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 resulting increased volume and
liquidity would provide more trading opportunities to all market
participants and thus would promote just and equitable principles of
trade, remove impediments to and perfect the mechanism of a free and
open market and a national market system and, in general, to protect
investors and the public interest.
Finally, the Exchange believes that it is subject to significant
competitive forces, as described below in the Exchange's statement
regarding the burden on competition.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act, the Exchange does
not believe that the proposed rule change would impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Instead, as discussed above, the Exchange believes
that the proposed 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.'' \12\
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\12\ See Reg NMS Adopting Release, supra note 8, at 37499.
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Intramarket Competition
The Exchange does not believe the proposed change would impose any
burden on intramarket competition that is not necessary or appropriate.
The proposed change is designed to incent OTP Holders to direct their
dividend strategy orders to the Exchange and could also encourage OTP
Holders to continue to aggregate all strategy executions on the
Exchange to qualify for the Strategy Cap. Greater liquidity benefits
all market participants on the Exchange, and order flow from increased
strategy executions could improve market quality for all market
participants on the Exchange. In addition, the Strategy Cap, modified
as proposed to include dividend strategies, would continue to be
available to all similarly situated market participants and thus would
not impose a disparate burden on competition.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily favor one
of the 16 competing option exchanges if they deem fee levels at a
particular venue to be excessive. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
exchanges and to attract order flow to the Exchange. Based on publicly-
available information, and excluding index-based options, no single
exchange has more than 16% of the market share of executed volume of
multiply-listed equity and ETF options trades.\13\ Therefore, currently
no exchange possesses significant pricing power in the execution of
multiply-listed equity and ETF options order flow. More specifically,
in June 2023, the Exchange had less than 13% market share of executed
volume of multiply-listed equity and ETF options trades.\14\
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\13\ 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>.
\14\ 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 was
12.23% for the month of June 2022 and 12.23% for the month of June
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 (in particular, dividend strategy executions) to the Exchange,
to provide liquidity and to attract order flow. To the extent OTP
Holders continue to be incentivized to aggregate strategy executions on
the Exchange as a primary trading venue, all of the Exchange's market
participants should benefit from the improved market quality and
increased opportunities for order execution. The Exchange also believes
that the proposed change could promote competition between the Exchange
and other execution venues, as other competing options exchanges
currently offer a similar fee cap for strategy orders, including
dividend strategies.\15\
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\15\ See note 5, 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) \16\ of the Act and subparagraph (f)(2) of Rule
19b-4 \17\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the
[[Page 53569]]
public interest, for the protection of investors, or otherwise in
furtherance of the purposes of the Act. If the Commission takes such
action, the Commission shall institute proceedings under Section
19(b)(2)(B) \18\ of the Act to determine whether the proposed rule
change should be approved or disapproved.
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\18\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="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#7e0c0b121b531d1113131b100a0d3e0d1b1d50191108"><span class="__cf_email__" data-cfemail="bac8cfd6df97d9d5d7d7dfd4cec9fac9dfd994ddd5cc">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2023-51 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-2023-51. 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 SR-NYSEARCA-2023-51 and should
be submitted on or before August 29, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-16882 Filed 8-7-23; 8:45 am]
BILLING CODE 8011-01-P
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