Notice2024-02160
Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify the NYSE American Options Fee Schedule
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 5, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 24 (Monday, February 5, 2024)</title>
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[Federal Register Volume 89, Number 24 (Monday, February 5, 2024)]
[Notices]
[Pages 7750-7756]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-02160]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99449; File No. SR-NYSEAMER-2024-06]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify
the NYSE American Options Fee Schedule
January 30, 2024.
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 January 25, 2024, NYSE American LLC (``NYSE American'' 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 American Options Fee
Schedule (``Fee Schedule''). The Exchange proposes to implement the fee
change effective January 25, 2024.\4\ 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.
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\4\ The Exchange originally filed to amend the Fee Schedule on
January 2, 2024 (NYSEAmer-2023-69) [sic] and withdrew such filing on
January 12, 2024 (SR-NYSEAmer-2024-05) [sic], which latter filing
the Exchange withdrew on January 25, 2024.
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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 [sic] to amend the Fee Schedule in a
number of ways as described herein. The Exchange proposes to implement
the rule change on January 25, 2024.
First, the Exchange proposes to modify the Fee Schedule to remove
reference to costs that are no longer charged and are therefore
inapplicable. Specifically, the Exchange proposes to modify the Fee
Schedule to remove ``Login'' costs from Sections III.E.1 and IV and to
remove ``Floor Broker Handheld'' costs from Section IV.
Next, the Exchange proposes to modify the Floor Broker Fixed Cost
Prepayment Incentive Program (the ``FB Prepay Program'' or
``Program''), a prepayment incentive program that allows Floor Brokers
to prepay certain of their annual Eligible Fixed Costs in exchange for
the opportunity to qualify for certain volume rebates.\5\ Specifically,
the Manual Billable Volume Rebate is designed to encourage Floor
Brokers to increase their monthly volume in billable manual contract
sides to qualify for a rebate; increasing volumes qualify the Floor
Broker for a higher level of rebate. Additional rebates may be earned
by meeting the qualification levels of the Floor Broker Manual Billable
Incentive Program.\6\ Participating Floor Brokers receive their rebates
payable on a monthly basis.\7\ Floor Brokers that wish to participate
in the FB Prepay Program for the following calendar year must notify
the Exchange no later than the last business day of December in the
current year.\8\
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\5\ See Fee Schedule, Section III.E.1., Floor Broker Fixed Cost
Prepayment Incentive Program (the ``FB Prepay Program''). ``Eligible
Fixed Costs'' include monthly ATP Fees, the Floor Access Fee, and
certain monthly Floor communication, connectivity, equipment and
booth or podia fees, as set forth in the table in Section III.E.1.
The Exchange notes that the FB Prepay Program is currently
structured similarly to the Floor Broker prepayment program offered
by its affiliated exchange, NYSE Arca, Inc. (``NYSE Arca''). See
NYSE Arca Options Fee Schedule, FLOOR BROKER FIXED COST PREPAYMENT
INCENTIVE PROGRAM (the ``FB Prepay Program'').
\6\ See Fee Schedule, Section III.E.2., Floor Broker Manual
Billable Incentive Program.
\7\ See Fee Schedule, Section III.E. The Exchange proposes to
remove the preamble to Section III.E., which relates to the
Exchange's already-completed migration to the Pillar trading
platform, because the text is no longer applicable and its removal
would add clarity to the Fee Schedule. See proposed Fee Schedule,
Section III.E.
\8\ See Fee Schedule, Section III.E (providing, in relevant
part, that the notification ``email to enroll in the Program must
originate from an officer of the Floor Broker organization and,
except as provided for below, represents a binding commitment
through the end of the following calendar year.''). The Exchange
proposes to modify Section III.E. of the Fee Schedule to remove the
now obsolete phrase ``except as provided for below,'' as there is no
exception to the notification requirement, which modification will
add clarity, transparency, and internal consistency to the Fee
Schedule. See proposed Fee Schedule, Section III.E.
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The Exchange proposes to eliminate the Floor Broker Manual Billable
Incentive Program and accompanying monthly rebates \9\ and instead
provide Floor Brokers participating in the FB Prepay Program with
enhanced opportunities for monthly rebates based on manual billable
transaction volume (the ``Manual Billable Rebate Program'') and the QCC
Billable Bonus Rebate. The calculation of volume on which rebates
earned through the Manual Billable Rebate Program would be paid is
based on transactions for which at least one side is subject to manual
transaction fees and excludes volume from QCC transactions, unless
otherwise specified.\10\ The Exchange proposes to
[[Page 7751]]
continue to exclude any volume calculated to achieve the Strategy
Execution Fee Cap, regardless of whether the cap is achieved, from the
Manual Billable Rebate Program because fees on such volume are already
capped and therefore such volume does not increase billable manual
volume. The Exchange will not issue any refunds in the event that a
Floor Broker organization's prepaid Eligible Fixed Costs exceeds actual
annual costs.\11\
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\9\ To effect the proposed change to eliminate the Floor Broker
Manual Billable Incentive Program and related rebates, the Exchange
proposes to delete in its entirety Section III.E.2. of the Fee
Schedule. In addition, for consistency, the Exchange proposes to
delete from the Table of Contents reference to this Section
III.E.2., which is currently (and erroneously) listed as
``Reserved''. See proposed Fee Schedule, Table of Contents.
\10\ See proposed Fee Schedule, Section III.E.1 (excluding QCC
transactions from volume calculation ``unless otherwise
specified''), which would add clarity, transparency, and internal
consistency to the Fee Schedule. For certain volume thresholds
(i.e., those based solely on ``manual billable sides''), the
Exchange proposes to continue to exclude QCC volume from the
calculation of eligible volume for rebates paid through the Manual
Billable Rebate Program because Floor Brokers would continue to be
eligible for separate credits and rebates for QCC transactions
through the QCC Billable Bonus Rebate.
\11\ As discussed infra, the Exchange proposes to expand entry
to the FB Prepay Program to mid-year and therefore will remove
reference to actual ``annual'' costs. See proposed Schedule, Section
III.E.1.
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The Exchange proposes to modify the qualification levels and
corresponding rebates in the Manual Billable Rebate Program as follows.
<bullet> First, the Exchange proposes to add a new qualification
level that would provide for a ($0.05) rebate per billable side for
Floor Brokers that execute a minimum of 500,000 manual billable sides.
This proposed new qualification threshold provides for a lower volume
threshold than is currently required to achieve a rebate, with the
distinction that it does not include ``combined'' QCC transactions--
only manual executions. The Exchange believes that this proposed
qualification threshold may make the rebate more achievable for Floor
Brokers, especially Floor Brokers that conduct more manual transactions
than QCC transactions.
<bullet> Second, the Exchange proposes to modify the next-highest
qualification level from 1 million ``combined manual and QCC billable
contracts'' for a rebate of ($0.05) per billable side to 1.1 million
``manual billable sides,'' which are no longer ``combined'' with QCC
transactions and to raise the corresponding rebate to ($0.07) per
billable side. This proposed change raises the potential rebate along
with the number of required manual executions while at the same time
removing QCC executions from eligibility.
<bullet> Third, the Exchange proposes to remove the existing
qualification level that offers an ($0.08) rebate per billable side for
Floor Brokers that execute 3 million combined manual and QCC billable
contracts.
<bullet> Finally, the Exchange proposes to offer two new
``Additional'' rebates as described below.
[cir] As proposed, a Floor Broker that executes at least 7 million
``combined manual billable and QCC billable contracts'' is eligible to
receive an additional rebate of one cent ($0.01) per billable side.
However, a Floor Broker that executes at least 11 million ``combined
manual billable and QCC billable contracts'' is eligible to instead
receive an additional rebate of two cents ($0.02).
The Exchange notes that it is not modifying the existing
qualification level the requires a Floor Broker to execute 5 million
``combined manual billable and QCC billable contracts'' to achieve a
($0.10) rebate per billable side.
The table below illustrates the monthly qualification levels and
the related rebates that the Exchange proposes to make available
through the Manual Billable Rebate Program, payable on a monthly basis:
------------------------------------------------------------------------
Manual billable rebate qualification Rebate per billable side
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Execute 500,000 manual billable sides.... ($0.05).
Execute 1.1 million manual billable sides ($0.07).
Execute 5 million combined manual ($0.10).
billable and QCC billable contracts.
Execute 7 million combined manual Additional ($0.01).
billable and QCC billable contracts.
Execute 11 million combined manual Additional ($0.02).
billable and QCC billable contracts.
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Consistent with the current Manual Billable Rebate Program, Floor
Brokers who achieve a Rebate Qualification level will earn the
associated rebate back to the first contract and, as noted above,
Participants that qualify for both ``Additional'' rebates are eligible
to receive only one such rebate.\12\
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\12\ See proposed Fee Schedule, Section III.E.1 (providing that
``[t]he Manual Billable Rebate (including the ``Additional''
rebates) is payable back to the first billable side. Qualifying
Participants are eligible to receive only one ``Additional''
rebate'')
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The FB Prepay Program also currently offers participating Floor
Brokers to be eligible to qualify for rebates on QCC transactions,
payable on a monthly basis, in addition to the credits set forth in
Section I.F (QCC Fees & Credits). The Exchange proposes to modify the
volume thresholds required to achieve the ``QCC Billable Bonus Rebate.
Specifically, the Exchange proposes to reduce the qualification
threshold for the ``Prepay Bonus Level'' from 2 million to 500,000
``QCC billable contracts.'' The Exchange also proposes to modify the
``Additional Bonus Level,'' which is currently only achievable if a
Floor Broker that conduct volume that is ``100% above Prepay Bonus
Level,'' to instead require ``4 million QCC billable contracts.'' The
proposed changes are designed to make the Prepay Bonus Level more
achievable and the Additional Bonus Level more difficult to achieve.
The Exchange is not proposing to modify the rebates available to Floor
Brokers that achieve the new volume thresholds.
The table below illustrates the proposed requirements to achieve
the QCC Billable Bonus Rebate--both the Prepay Bonus Level and the
Additional Bonus Level.
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Additional rebate on Additional rebate on
QCC billable bonus rebate qualification single billable side two billable side QCC
QCC contract contract
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Prepay Bonus Level--achieved with 500,000 QCC billable ($0.02) ($0.04)
contracts....................................................
Additional Bonus Level--achieved with 4 million QCC billable ($0.04) ($0.06)
contracts....................................................
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As with other rebates, the QCC Billable Bonus Rebate would be
payable back to the first side and Participants that qualify for more
than one ``Additional'' rebate are eligible to receive only one such
rebate.\13\
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\13\ See proposed Fee Schedule, Section III.E.1 (providing that
``Qualifying Participants are eligible to receive only one
``Additional'' rebate'').
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The Exchange further proposes to modify Section III.E.1. and
Section I.F. to increase the maximum Floor Broker credits paid for QCC
trades and rebates paid through the Manual Billable Rebate Program to
$2,500,000 per month per
[[Page 7752]]
Floor Broker firm, an increase from the current monthly amount of
2,000,000 (the ``Maximum Combined Rebate/Credit'').\14\ The proposed
increase is designed to encourage Floor Broker firms to continue to
direct transactions to the Exchange, despite increasing industry
volumes making it less difficult to attain the maximum rebate.
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\14\ See proposed Fee Schedule, Sections III.E.1 and I.F.
(providing, in relevant, part that Floor Broker credits paid for QCC
trades and rebates paid through the Manual Billable Rebate Program
shall not combine to exceed $2,500,000 per month per Floor Broker
firm).
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Next, the Exchange proposes to modify the FB Prepay Program to
remove reference to a specific year (i.e., November 2022) and to
instead reference ``November of the current year'' as the date that the
Exchange will use for the calculation of a Floor Broker's Eligible
Fixed Costs for the following calendar year. The FB Prepay Program
currently specifies that a Floor Broker that commits to the program
will be invoiced in January for Eligible Fixed Costs, based on
annualizing their Eligible Fixed Costs incurred in November 2022. The
Exchange believes that this proposed change would prevent the Exchange
from relying on a stale date and would add flexibility to the program
(insofar as it would not need to be revised each year).
Finally, the Exchange proposes to allow a Floor Broker to join the
Program after the first of the year. To do so, similar to the protocol
required of existing Program participants, such Floor Broker
organizations would notify the Exchange in writing by emailing
<a href="/cdn-cgi/l/email-protection#721d02061b1d1c01101b1e1e1b1c15321c0b01175c111d1f"><span class="__cf_email__" data-cfemail="ed829d998482839e8f84818184838aad83949e88c38e8280">[email protected]</span></a> and indicating their commitment to submit
prepayment for the balance of the calendar year; the email notification
would have to originate from an officer of the Floor Broker
organization and would represent a binding commitment through the
balance of the calendar year.\15\ As further proposed, the Floor Broker
organization would be enrolled in the Program beginning on the first
day of the next full month and would be invoiced for that first full
month for Eligible Fixed Costs and the balance of the year, based on
annualizing for the remainder of the calendar year their Eligible Fixed
Costs incurred in its first full month in the Program.\16\ The Exchange
notes that both the current and proposed methodology rely on recently
incurred Eligible Fixed Costs to predict anticipated Eligible Fixed
Costs. For current program Participants the Exchange relies on November
costs; whereas, for later-joining Program participants, the Exchange
would rely on costs incurred in the Floor Broker's first full month in
the Program. The Exchange believes that this approach allows the
Exchange the flexibility to offer the FB Prepay Program to Floor
Brokers that did not enroll before the end of the prior calendar year,
including/especially Floor Brokers new to the Exchange, without putting
these Floor Brokers at a competitive disadvantage. Finally, consistent
with the current Program, the Exchange will not issue refunds if a
Floor Broker organization's prepaid Eligible Fixed Costs exceeds its
actual costs; however, the Exchange proposes to remove reference to
``annual'' costs in the current Fee Schedule because this phrase would
not apply to Floor Brokers that join the Program after the first of the
year.\17\
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\15\ See proposed Fee Schedule, FB Prepay Program (providing, in
relevant part, that ``[t]o participate in the FB Prepay Program
after the first of the year, Floor Broker organizations must notify
the Exchange in writing by emailing <a href="/cdn-cgi/l/email-protection#8ee1fefae7e1e0fdece7e2e2e7e0e9cee0f7fdeba0ede1e3"><span class="__cf_email__" data-cfemail="7b140b0f121415081912171712151c3b1502081e55181416">[email protected]</span></a>,
indicating a commitment to submit prepayment for the balance of the
calendar year'' and that the notification ``email to enroll in the
Program must originate from an officer of the Floor Broker
organization and represents a binding commitment through the balance
of the calendar year.'').
\16\ See proposed Fee Schedule, FB Prepay Program.
\17\ See proposed Fee Schedule, Section III.E (providing, in
relevant part, that ``[t]he Exchange will not issue any refunds in
the event that a Floor Broker organization's prepaid Eligible Fixed
Costs exceeds actual costs.''). The Exchange believes this proposed
change would add clarity, transparency, and internal consistency to
the Fee Schedule.
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Finally, as noted above, the Exchange proposes to eliminate the
Floor Broker Manual Billable Incentive Program. The Exchange determined
that this program was duplicative of the FB Prepay Program, which made
it difficult for Floor Brokers to ascertain the total rebates earned.
The Exchange believes that the proposed adjustments to the Prepay
Program (including changes to the QCC Billable Bonus Rebate
Qualification) would reduce potential confusion and would add clarity
and transparency to the Fee Schedule.
Although the Exchange cannot predict with certainty whether the
proposed changes to the FB Prepay Program would encourage Floor Brokers
to participate in the program or to increase either their manual
billable volume or QCC volume, the Exchange believes that the proposed
changes would continue to incent Floor Brokers to participate in the FB
Prepay Program by adding flexibility to the structure of the Program,
including by allowing Floor Brokers to join the Program after the first
of the year and increasing the Maximum Combined Rebate/Credit. All
Floor Brokers are eligible to participate in the FB Prepay Program and
qualify for the proposed credits and rebates, and the credits and
rebates are achievable in any given month without regard to volumes
from any other month. The Exchange notes that the proposed
restructuring of the FB Prepay Program (including by eliminating the
Floor Broker Manual Billable Incentive Program) would more closely
align the qualifications for and incentives offered through the Program
with order flow executed by Floor Broker firms operating on the
Exchange and with other fees and credits set forth in the Fee Schedule.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with section 6(b) of the Act,\18\ in general, and furthers the
objectives of sections 6(b)(4) and (5) of the Act,\19\ 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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\18\ 15 U.S.C. 78f(b).
\19\ 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.'' \20\
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\20\ 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 17 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.\21\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity and
[[Page 7753]]
ETF options order flow. More specifically, in November 2023, the
Exchange had less than 8% market share of executed volume of multiply-
listed equity and ETF options trades.\22\
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\21\ 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>.
\22\ Based on a compilation of OCC data for monthly volume of
equity-based options and monthly volume of ETF-based options, see
id., the Exchange's market share in equity-based options was 6.98%
for the month of November 2022 and 7.60% for the month of November
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, changes
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 credits offered to Floor
Brokers on QCC transactions and manual billable volume offered through
the FB Prepay Program, as proposed, are reasonable because they are
designed to continue to incent Floor Brokers to increase the number of
QCC transactions and manual billable orders executed on the Exchange.
The Exchange also believes that the proposed increase in the maximum
monthly amount that a Floor Broker firm could earn from Floor Broker
QCC credits or from rebates via the proposed changes to the Manual
Billable Rebate Program (i.e., the Maximum Combined Rebate/Credit) is
reasonable because it is likewise intended to encourage Floor Brokers
to direct QCC transactions and manual billable volume to the Exchange.
With respect to the FB Prepay Program, the Exchange also believes
that the proposed changes are reasonable because participation in the
program is optional, and Floor Brokers can elect to participate in the
program to be eligible to earn the proposed rebates on manual billable
transactions and QCC transactions or not. The Exchange also believes
that the proposed modification of the FB Prepay Program (including the
proposal to eliminate the Floor Broker Manual Billable Incentive
Program) is reasonable because it is designed to simplify the
incentives offered through the program, to continue to encourage Floor
Brokers to participate in the FB Prepay Program, and to provide
liquidity on the Exchange. Specifically, the Exchange believes that the
proposed qualifying thresholds for the Manual Billable Rebate Program
and QCC Bonus Rebate are achievable by Floor Broker firms based on
recent Floor Broker activity and in consideration of the proposed
changes in this filing, and that the rebate amounts are designed to
encourage Floor Brokers to continue to direct manual billable volume
and QCC transactions to the Exchange. The Exchange further believes
that the amounts of the proposed rebates are reasonable and comparable
to rebate amounts offered by another options exchange to Floor Brokers
on manual transactions.
To the extent that the proposed changes attract 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 by Floor Brokers, which could
promote market depth, facilitate tighter spreads and enhance price
discovery, to the extent the proposed change encourages Floor Brokers
to utilize the Exchange as a primary trading venue, and may lead to a
corresponding increase in order flow from other market participants. In
addition, any increased liquidity on the Exchange would result in
enhanced market quality for all participants.
The Exchange also believes that the proposed change to modify the
Program to remove reference to a specific year is reasonable because it
would prevent the Exchange from using a benchmark based on a stale date
and would add flexibility to the Program (insofar as it would not need
to be revised each year). In addition, the proposed change to allow
Floor Brokers to join the Program after the first of the year--by
prepaying an amount (to cover the balance of the year) based on their
Eligible Fixed Costs incurred in their first month in the Program--is
reasonable for several reasons. First, the proposed method used to
determine the prepayment amount for any later-joining Floor Brokers is
analogous to the Exchange's current method of determining the
prepayment amount for Program participants (i.e., prepayment amount is
based on the Eligible Fixed Costs recently-incurred). Second, the
Exchange believes that the proposed method of determining a (later-
joining) Floor Broker's prepayment amount would provide the most
accurate basis for anticipating that Floor Broker's future Eligible
Fixed Costs. Moreover, the Exchange believes that this approach would
allow the Exchange the flexibility to offer the FB Prepay Program to
later-joining Floor Brokers, including/especially Floor Brokers new to
the Exchange, without putting these Floor Brokers at a competitive
disadvantage.
Further, the proposal to eliminate the Floor Broker Manual Billable
Incentive Program and accompanying monthly rebates is reasonable
because it is rendered redundant by the proposed enhanced opportunities
for Floor Brokers participating in the FB Prepay Program to achieve
rebates through the Manual Billable Rebate Program and the QCC Billable
Bonus Rebate. The Exchange believes that this proposed restructuring is
reasonable because it may encourage more Floor Brokers to sign up for
the Program, which may result in increased liquidity on the Exchange to
the benefit of all market participants.
To the extent the proposed changes continue to attract greater
volume and liquidity, the Exchange believes the proposed changes 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 Floor Brokers may direct their order flow to any of the
17 options exchanges, including those offering rebates on QCC orders
\23\ and Floor Broker rebates on manual billable orders. Thus, Floor
Brokers have a choice of where they direct their order flow, including
their QCC transactions and manual billable orders. The proposed rule
changes are designed to continue to incent Floor Brokers to direct
liquidity (and, in particular, QCC orders and manual billable orders)
to the Exchange; to the extent Floor Brokers are incented to
[[Page 7754]]
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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\23\ See, e.g., EDGX Options Exchange Fee Schedule, QCC
Initiator/Solicitation Rebate Tiers (applying ($0.16) per contract
rebate up to 999,999 contracts for QCC transactions when only one
side of the transaction is a non-customer or ($0.24) 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 999,999 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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Finally, the proposed changes to remove reference to inapplicable
fees (i.e., costs for Login and Floor Broker Hand Held), to remove now
obsolete language related to the migration to Pillar, as well as the to
make conforming changes to the Table of Contents (in connection with
the deletion of Floor Broker Incentive Program), and to remove
superfluous or obsolete text from the FB Prepay Program, are reasonable
because they would add clarity, transparency, and internal consistency
to the Fee Schedule to the benefit of all market participants.
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; Floor Brokers are not
obligated to participate in the FB Prepay Program and can choose to
execute QCC transactions or manual billable transactions to earn the
various proposed credits and rebates or not. In addition, the proposed
credits and rebates are available to all Floor Brokers equally, and the
proposed monthly limit on the amount that Floor Brokers could earn from
credits and rebates on QCC transactions and manual billable
transactions would apply to all Floor Brokers equally.
The Exchange also notes that the proposed changes are designed to
encourage Floor Brokers that have previously enrolled in the FB Prepay
Program to reenroll for the upcoming year, as well as to attract Floor
Brokers that have not yet participated in the program. Moreover, the
Exchange believes that the proposed modifications to the FB Prepay
Program are an equitable allocation of fees and credits because they
would apply to participating Floor Brokers equally and are intended to
encourage the role performed by Floor Brokers in facilitating the
execution of orders via open outcry, a function which the Exchange
wishes to support for the benefit of all market participants.
The Exchange also believes that the proposed change to modify the
Program to remove reference to a specific year is equitable because it
would prevent the Exchange from using a benchmark based on a stale
date. In addition, the proposed change to allow Floor Brokers to join
the Program after the first of the year--by prepaying an amount (to
cover the balance of the year) based on their Eligible Fixed Costs
incurred in their first month in the Program--is equitable for several
reasons. First, the proposed method used to determine the prepayment
amount for any later-joining Floor Brokers is analogous to the
Exchange's current method of determining the prepayment amount for
Program participants (i.e., prepayment amount is based on the Eligible
Fixed Costs recently-incurred). Second, the Exchange believes that the
proposed method of determining a (later-joining) Floor Broker's
prepayment amount would provide the most accurate basis for
anticipating that Floor Broker's future Eligible Fixed Costs. Moreover,
the Exchange believes that this approach would allow the Exchange the
flexibility to offer the FB Prepay Program to later-joining Floor
Brokers, including/especially Floor Brokers new to the Exchange,
without putting these Floor Brokers at a competitive disadvantage.
Further, the proposal to eliminate the Floor Broker Manual Billable
Incentive Program and accompanying monthly rebates is equitable because
it is rendered redundant by the proposed enhanced opportunities for
Floor Brokers participating in the FB Prepay Program to achieve rebates
through the Manual Billable Rebate Program and the QCC Billable Bonus
Rebate. The Exchange believes that this proposed restructuring is
reasonable because it may encourage more Floor Brokers to sign up for
the Program, which may result in increased liquidity on the Exchange to
the benefit of all market participants
Moreover, the proposed changes are designed to continue to incent
Floor Brokers to encourage ATP Holders to aggregate their executions--
including QCC transactions and manual orders--at the Exchange as a
primary execution venue. To the extent that the proposed change
achieves its purpose in attracting more Floor Broker 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 changes 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 fees, credits, and rebates
applicable to Floor Brokers on QCC transactions and manual billable
transactions are not unfairly discriminatory because they are based on
the amount and type of business transacted on the Exchange, and Floor
Brokers are not obligated to execute QCC or manual billable volume, or
to participate in the FB Prepay Program. Further, the proposal to
eliminate the Floor Broker Manual Billable Incentive Program and
accompanying monthly rebates is not unfairly discriminatory because it
is rendered redundant by the proposed enhanced opportunities for Floor
Brokers participating in the FB Prepay Program to achieve rebates
through the Manual Billable Rebate Program and the QCC Billable Bonus
Rebate. The Exchange believes that this proposed restructuring is
reasonable because it may encourage more Floor Brokers to sign up for
the Program, which may result in increased liquidity on the Exchange to
the benefit of all market participants. In addition, the proposed
changes, including the increase of the Maximum Combined Rebate/Credit,
would apply to all similarly-situated Floor Brokers on an equal and
non-discriminatory basis. The proposed credits and rebates are also not
unfairly discriminatory to non-Floor Brokers because Floor Brokers
serve an important function in facilitating the execution of orders on
the Exchange, which the Exchange wishes to encourage and support to
promote price improvement opportunities for all market participants.
The Exchange also believes that the proposed change to modify the
Program to remove reference to a specific year is not unfairly
discriminatory because it would apply equally to all Program
participants and would prevent the Exchange from using a benchmark
based on a stale date In addition, the proposed change to allow Floor
Brokers to join the Program after the first of the year--by prepaying
an amount (to cover the balance of the year) based on their Eligible
Fixed Costs incurred in their first month in the Program--is not
unfairly discriminatory for several reasons. First, the proposed method
used to determine the prepayment amount for any later-joining Floor
Brokers is analogous to the Exchange's current method of determining
the prepayment amount for Program participants (i.e., prepayment amount
is based on the Eligible Fixed Costs recently-incurred). Second, the
[[Page 7755]]
Exchange believes that the proposed method of determining a (later-
joining) Floor Broker's prepayment amount would provide the most
accurate basis for anticipating that Floor Broker's future Eligible
Fixed Costs. Moreover, the Exchange believes that this approach would
allow the Exchange the flexibility to offer the FB Prepay Program to
later-joining Floor Brokers, including/especially Floor Brokers new to
the Exchange, without putting these Floor Brokers at a competitive
disadvantage.
Further, the proposal to eliminate the Floor Broker Manual Billable
Incentive Program and accompanying monthly rebates is not unfairly
discriminatory because it is rendered redundant by the proposed
enhanced opportunities for Floor Brokers participating in the FB Prepay
Program to achieve rebates through the Manual Billable Rebate Program
and the QCC Billable Bonus Rebate. The Exchange believes that this
proposed restructuring is reasonable because it may encourage more
Floor Brokers to sign up for the Program, which may result in increased
liquidity on the Exchange to the benefit of all market participants.
To the extent that the proposed changes attract more QCC orders and
manual orders 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 furtherance of the
purposes of the Act. Instead, as discussed above, the Exchange believes
that the proposed changes 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.'' \24\
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\24\ See Reg NMS Adopting Release, supra note 20, at 37499.
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Intramarket Competition. The proposed modification of the FB Prepay
Program and the proposed credits and rebates offered to Floor Brokers
manual billable orders are designed to incent participation in the FB
Prepay Program and to attract additional order flow 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 and manual billable transactions could increase
opportunities for execution of other trading interest. The proposed
rebates available through the Manual Billable Rebate Program and QCC
Billable Bonus Rebate would be available to all Floor Brokers that
choose to participate in the FB Prepay Program and meet the qualifying
criteria for such rebates. The proposed increase of the Maximum
Combined Rebate/Credit would likewise apply equally to all similarly-
situated Floor Brokers. To the extent that there is an additional
competitive burden on non-Floor Brokers, the Exchange believes that any
such burden would be appropriate because Floor Brokers serve an
important function in facilitating the execution of orders and price
discovery for all market participants.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily favor one
of the 17 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.\25\ Therefore, no
exchange possesses significant pricing power in the execution of
multiply-listed equity and ETF options order flow. More specifically,
in November 2023, the Exchange had less than 8% market share of
executed volume of multiply-listed equity and ETF options trades.\26\
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\25\ See note 21, supra.
\26\ See note 22, supra.
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The Exchange believes that the proposed changes reflect this
competitive environment because they modify the Exchange's fees and
credits in a manner designed to continue to incent Floor Brokers to
direct trading interest (particularly QCC transactions and manual
orders) to the Exchange, to provide liquidity and to attract order
flow. To the extent that Floor Brokers are encouraged to participate in
the FB Prepay Program and/or incentivized to utilize the Exchange as a
primary trading venue for all transactions, all of the Exchange's
market participants should benefit from the improved market quality and
increased opportunities for price improvement. The Exchange notes that
it operates in a highly competitive market in which market participants
can readily favor competing venues. In such an environment, the
Exchange must continually review, and consider adjusting, its fees and
credits to remain competitive with other exchanges. For the reasons
described above, the Exchange believes that the proposed rule change
reflects this competitive environment.
The Exchange further believes that the proposed change could
promote competition between the Exchange and other execution venues,
including those that currently offer rebates on QCC transactions and
manual billable volume,\27\ by encouraging additional orders to be sent
to the Exchange for execution.
---------------------------------------------------------------------------
\27\ See note 23, supra.
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Finally, the proposed changes to remove reference to inapplicable
fees (i.e., costs for Login and Floor Broker Hand Held) and to make
conforming changes to the Table of Contents (to reflect deletion of
Floor Broker Incentive Program), and to remove superfluous or obsolete
text from the FB Prepay Program are not designed to address any
competitive issue but are instead designed to add clarity,
transparency, and internal consistency to the Fee Schedule.
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.
[[Page 7756]]
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) \28\ of the Act and subparagraph (f)(2) of Rule
19b-4 \29\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\28\ 15 U.S.C. 78s(b)(3)(A).
\29\ 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) \30\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\30\ 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#483a3d242d652b2725252d263c3b083b2d2b662f273e"><span class="__cf_email__" data-cfemail="5a282f363f77393537373f342e291a293f39743d352c">[email protected]</span></a>. Please include
file number SR-NYSEAMER-2024-06 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-NYSEAMER-2024-06. 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-NYSEAMER-2024-06 and should
be submitted on or before February 26, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-02160 Filed 2-2-24; 8:45 am]
BILLING CODE 8011-01-P
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