Notice2023-22507
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
October 13, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 197 (Friday, October 13, 2023)</title>
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[Federal Register Volume 88, Number 197 (Friday, October 13, 2023)]
[Notices]
[Pages 71043-71046]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-22507]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98693; File No. SR-NYSEARCA-2023-69]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule
October 5, 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 29, 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 Customer Incentive Program and Market
Maker Penny and SPY Posting Credit Tiers. The Exchange proposes to
implement the fee change effective October 2, 2023.
[[Page 71044]]
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
certain qualifying bases for the Customer Incentive Program and the
Market Maker Penny and SPY Posting Credit Tiers (the ``Market Maker
Posting Credit Tiers''). The Exchange proposes to implement the rule
change on October 2, 2023.
Customer Incentive Program
The Customer Incentive Program offers OTP Holders and OTP Firms
(collectively, ``OTP Holders'') an additional ($0.03) credit on
Customer Posting Credits if they achieve one of two qualifying
criteria.\4\ Currently, an OTP Holder may earn this credit by achieving
either (1) an ADV from Market Maker total electronic volume of at least
0.60% of TCADV, plus at least 0.10% of TCADV from Customer posted
interest in non-Penny issues, or (2) at least 0.30% of TCADV from
Customer posted interest in all issues, not including Professional
Customer interest, plus executed ADV of 0.60% of U.S. equity market
share posted and executed on the NYSE Arca Equities [sic] market.
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\4\ See Fee Schedule, Customer Incentive Program.
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The Exchange proposes to modify the first of these qualifications
by increasing the required amount of Market Maker total electronic
volume to at least 1.00% of TCADV and eliminating any required volume
from Customer posted interest. The Exchange does not propose any
changes to the second qualifying basis for the Customer Incentive
Program or to the amount of the credit available to qualifying OTP
Holders, which will remain at ($0.03). In addition, OTP Holders would
continue to be eligible to earn only one ($0.03) credit through the
Customer Incentive Program.
The Exchange cannot predict with certainty whether any OTP Holders
would seek to qualify for the Customer Incentive Program, but believes
that the proposed change would continue to encourage OTP Holders to
direct Market Maker interest to the Exchange to earn an additional
credit on the Customer Posting Credits. Although the proposed change
would increase the level of Market Maker posted interest required to
qualify for the additional credit, it would also remove the Customer
posted interest component of the qualification, which could make
earning the credit more achievable for OTP Holders.
Market Maker Posting Credit Tiers
The Exchange currently offers qualifying OTP Holders tiered credits
on electronic executions of Market Maker posted interest in Penny
issues and SPY through the Market Maker Posting Credit Tiers.\5\
Currently, an OTP Holder may qualify for Super Tier II of the Market
Maker Posting Credit Tiers by achieving at least 0.10% of TCADV from
Market Maker posted interest in all issues, plus ETP Holder and Market
Maker posted volume in Tape B securities that is equal to at least
1.50% of US Tape B consolidated average daily volume (``CADV'') for the
billing month executed on NYSE Arca Equities [sic] market. The Exchange
proposes to modify this qualification for Super Tier II to require at
least 0.15% of TCADV from Market Maker posted interest in all issues,
plus ETP Holder and Market Maker Tape B adding ADV that is equal to at
least 1.40% of US Tape B CADV for the billing month executed on NYSE
Arca Equities [sic] market.
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\5\ See Fee Schedule, Market Maker Penny and Spy Posting Credit
Tiers.
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The Exchange does not propose any changes to the amounts of the
credits available to OTP Holders that qualify for Super Tier II or to
any of the other qualifications for or credits offered through the
Market Maker Posting Tiers.
Although the Exchange cannot predict with certainty whether any OTP
Holders would seek to qualify for the Market Maker Posting Credit
Tiers, the Exchange believes that the proposed change would continue to
encourage OTP Holders to direct Market Maker interest to the Exchange
to earn the credits offered in Super Tier II. In addition, although the
proposed change would increase the level of Market Maker posted
interest required to qualify for Super Tier II, it would also reduce
the requirement for posted volume in Tape B securities, which could
make the incentive more achievable for OTP Holders.
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 August 2023, the Exchange had less than 12%
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
increased slightly from 11.36% for the month of August 2022 to
11.37% for the month of August 2023.
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[[Page 71045]]
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 changes to the qualifying
criteria for the Customer Incentive Program and Market Maker Posting
Credit Tiers are reasonable because they are intended to continue to
incent OTP Holders to direct interest to the Exchange (and, in
particular, Customer and Market Maker posted interest) in order to
benefit from the credits offered through the Customer Incentive Program
and Market Maker Posting Credit Tiers. Although the proposed changes
would increase certain of the requirements to qualify for the credits
offered through these programs, the proposed changes would also reduce
or eliminate certain other requirements; accordingly, the Exchange
believes that the proposed changes would not discourage OTP Holders
from seeking to qualify for the credits and could instead make the
credits more attainable for OTP Holders.
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.
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 Customer Incentive Program and Market Maker
Posting Credit Tiers or not. Moreover, the proposal is designed to
incent OTP Holders to continue to direct Customer and Market Maker
interest to the Exchange and to aggregate such interest at the Exchange
as a primary execution venue. To the extent that the proposed change
attracts more opportunities for execution of Customer or Market Maker
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 the proposed changes to the Customer
Incentive Program and Market Maker Posting Credit Tiers are not
unfairly discriminatory because they 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
proposed qualifications to earn the credits, nor are they obligated to
execute posted interest. To the extent that the proposed changes
attract more interest, including Customer and Market Maker posting
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.'' \11\
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\11\ See Reg NMS Adopting Release, supra note 8, at 37499.
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Intramarket Competition. The proposed changes are designed to
attract additional order flow to the Exchange, including both Customer
and Market Maker posting interest. The Exchange believes that the
proposed changes would continue to incent OTP Holders to direct order
flow to the Exchange in order to qualify for the Customer Incentive
Program and Market Maker Posting Credit Tiers. Greater liquidity
benefits all market participants on the Exchange and increased order
flow would increase opportunities for execution of other trading
interest. The proposed changes to the qualifications for the Customer
Incentive Program and Market Maker Posting Credit Tiers would apply to
all similarly-situated market participants and, accordingly, 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.\12\ Therefore, currently
no exchange possesses significant pricing power in the execution of
multiply-listed equity and ETF options order flow. More specifically,
in August 2023, the
[[Page 71046]]
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 11.36% for the month of August 2022 to
11.37% for the month of August 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 Customer
and Market Maker posted interest 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.
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) \14\ of the Act and subparagraph (f)(2) of Rule
19b-4 \15\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 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) \16\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\16\ 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#fe8c8b929bd39d9193939b908a8dbe8d9b9dd0999188"><span class="__cf_email__" data-cfemail="c3b1b6afa6eea0acaeaea6adb7b083b0a6a0eda4acb5">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2023-69 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-2023-69.
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-2023-69 and
should be submitted on or before November 3, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22507 Filed 10-12-23; 8:45 am]
BILLING CODE 8011-01-P
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