Notice2023-20520
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
September 22, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 183 (Friday, September 22, 2023)</title>
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[Federal Register Volume 88, Number 183 (Friday, September 22, 2023)]
[Notices]
[Pages 65415-65417]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-20520]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98422; File No. SR-NYSEARCA-2023-62]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule
September 18, 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 September 12, 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'') to add the Customer Take Fee Discount Tiers. The
Exchange proposes to implement the fee change effective September 12,
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
introduce a new pricing incentive, the Customer Take Fee Discount Tiers
(``Take Fee Discounts''). The Exchange proposes to implement the rule
change on September 12, 2023.\4\
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\4\ The Exchange previously filed to amend the Fee Schedule on
September 1, 2023 (SR-NYSEARCA-2023-60) and withdrew such filing on
September 12, 2023.
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If an OTP Holder or OTP Firm (collectively, ``OTP Holders'')
executes a transaction that removes or ``takes'' liquidity on the
Exchange, the OTP Holder is charged a ``Take Liquidity'' fee (referred
to herein as a ``Take Fee'') and such liquidity may be referred to as
``liquidity removing'' or ``liquidity taking.'' \5\ To offset such
costs and encourage market participants to direct order flow to the
Exchange, the Exchange offers Take Fee discounts to some market
participants for executions in Penny and non-Penny issues.\6\
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\5\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES
FOR STANDARD OPTIONS, TRANSACTION FEE FOR ELECTRONIC EXECUTIONS--PER
CONTRACT.
\6\ See, e.g., Fee Schedule, DISCOUNT IN TAKE LIQUIDITY FEES FOR
PROFESSIONAL CUSTOMER AND NON-CUSTOMER LIQUIDITY REMOVING INTEREST.
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Currently, Customer executions in Penny and non-Penny issues are
subject to Take Fees of $0.49 and $0.85, respectively.\7\ The Exchange
now proposes to offer tiered Take Fee discounts on Customer executions
in both Penny and non-Penny issues. Specifically, the Exchange proposes
tiered per contract discounts on Customer Take Fees based on an OTP
Holder's achievement of certain volume qualifications in average
electronic executions per day. As proposed, Tier 1 of the Take Fee
Discounts would offer a $0.01 discount on Customer Take Fees if an OTP
Holder achieves at least 0.20% of TCADV from Customer liquidity
removing interest in all issues; Tier 2 would offer a $0.02 discount on
Customer Take Fees to an OTP Holder that achieves at least 0.40% of
TCADV from Customer liquidity removing interest in all issues and 1% of
TCADV from Customer posting in all issues; and Tier 3 would offer a
$0.03 discount on Customer Take Fees to an OTP Holder that achieves at
least 0.60% of TCADV from Customer liquidity removing interest in all
issues and 1.50% of TCADV from Customer posting in all issues. The Take
Fee Discounts would only apply to Customer orders, and the
qualifications for the discounts are based only on activity in the
Customer range; activity in the Professional Customer range is not
included in the qualifications and is not eligible to receive any of
the proposed discounts, as Professional Customer orders are already
eligible for other discounts on Take Fees.\8\ OTP Holders may earn only
the highest discount for which they qualify.
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\7\ See note 5, supra.
\8\ See note 6, supra.
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Although the Exchange cannot predict with certainty whether any OTP
Holders would seek to qualify for the Take Fee Discounts, the Exchange
believes that the proposed change would encourage OTP Holders to direct
interest, and, in particular, Customer liquidity removing interest, to
the Exchange to earn the proposed discounts on Take Fees.
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
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equity and ETF options trades.\12\ Therefore, no exchange possesses
significant pricing power in the execution of multiply-listed equity
and ETF options order flow. More specifically, in July 2023, the
Exchange had less than 12% 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
increased slightly from 11.30% for the month of July 2022 to 11.50%
for the month of July 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 Take Fee Discounts would
incent OTP Holders to increase the amount of Customer interest sent to
the Exchange, especially liquidity removing interest, which benefits
all market participants by providing more trading opportunities,
thereby making the Exchange a more attractive execution venue. The
Exchange further believes that the proposed qualifications for the Take
Fee Discounts are attainable for OTP Holders based on recent volumes
and that the proposed amounts of the discounts are reasonable, as the
Exchange's rates for Customer liquidity removing interest would remain
in range of and competitive with the rates assessed by at least one
other options exchange.\14\
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\14\ See, e.g., Cboe BZX Options Fee Schedule, Standard Rates,
available at: <a href="https://www.cboe.com/us/options/membership/fee_schedule/bzx/">https://www.cboe.com/us/options/membership/fee_schedule/bzx/</a> (providing for rates of $0.46 to $0.48 for
Customer liquidity removing interest in Penny issues and rate of
$0.85 for Customer liquidity removing interest in non-Penny issues).
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To the extent the proposed rule change attracts greater volume and
liquidity by encouraging OTP Holders to increase their options volume
on the Exchange, 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, including another options exchange that offers tiered
rates for certain Customer liquidity removing interest.\15\
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\15\ See, e.g., Cboe BZX Options Fee Schedule, Customer, Firm,
Broker Dealer and Joint Back Office Penny Take Volume Tiers,
available at: <a href="https://www.cboe.com/us/options/membership/fee_schedule/bzx/">https://www.cboe.com/us/options/membership/fee_schedule/bzx/</a> (providing tiered rates for Customer liquidity
removing volume in Penny issues based on volume qualifications,
which, similar to the Exchange's proposal, represent $0.01 or $0.02
discounts on standard fee for take volume).
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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 proposal is based on the amount
and type of business transacted on the Exchange, and OTP Holders can
attempt to qualify for the discounts or not. Moreover, the proposal is
designed to incent OTP Holders to continue to direct Customer liquidity
removing interest to the Exchange and to aggregate all liquidity
removing interest at the Exchange as a primary execution venue. To the
extent that the proposed change attracts more opportunities for
execution of Customer interest on 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 Proposed Rule Change Is Not Unfairly Discriminatory
The Exchange believes is the proposed Take Fee Discounts are not
unfairly discriminatory because they would be available to all
similarly-situated market participants on an equal and non-
discriminatory basis. The Exchange also believes that the proposed
change is not unfairly discriminatory to Professional Customers and
non-Customers, as those market participants are already afforded
discounts on Take Fees under the current Fee Schedule.\16\
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\16\ See note 6, supra.
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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 proposed qualifications to earn the Take Fee Discounts, nor are
they obligated to direct liquidity removing interest or posted interest
to the Exchange. To the extent that the proposed change attracts more
interest, including liquidity removing interest, 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, 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.'' \17\
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\17\ See Reg NMS Adopting Release, supra note 11, at 37499.
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Intramarket Competition. The proposed change is designed to attract
additional order flow to the Exchange, including both liquidity
removing interest and posting interest. The Exchange believes that the
proposed change would incent OTP Holders to continue to direct their
liquidity removing order flow to the Exchange. Greater liquidity
benefits all market participants on the Exchange and
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increased liquidity removing order flow would increase opportunities
for execution of other trading interest. The proposed modifications
would be available to all similarly-situated market participants and,
as such, the proposed change would not impose a disparate burden on
competition among market participants on the Exchange.
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 July 2023, the Exchange had less than 12% 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
increased slightly from 11.30% for the month of July 2022 to 11.50%
for the month of July 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 incent OTP Holders to direct trading to the
Exchange, to provide liquidity and to attract order flow. To the extent
that this purpose is achieved, all the Exchange's market participants
should benefit from the improved market quality and increased
opportunities for price improvement.
The Exchange believes that the proposed change could promote
competition between the Exchange and other execution venues, including
another options exchange that currently also offers tiered rates for
some Customer liquidity removing interest,\20\ by encouraging
additional orders to be sent to the Exchange for execution.
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\20\ 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) \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="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#4b393e272e66282426262e253f380b382e28652c243d"><span class="__cf_email__" data-cfemail="3d4f485158105e5250505853494e7d4e585e135a524b">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2023-62 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-2023-62. 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-2023-62 and should
be submitted on or before October 13, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20520 Filed 9-21-23; 8:45 am]
BILLING CODE 8011-01-P
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