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Notice2024-05739

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

March 19, 2024

Issuing agencies

Securities and Exchange Commission

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<title>Federal Register, Volume 89 Issue 54 (Tuesday, March 19, 2024)</title>
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[Federal Register Volume 89, Number 54 (Tuesday, March 19, 2024)]
[Notices]
[Pages 19613-19617]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-05739]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99729; File No. SR-NYSEARCA-2024-23]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule

March 13, 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 February 29, 2024, 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 introduce certain fees for Floor Market Makers.
The Exchange proposes to implement the fee change effective February
29, 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
February 1, 2024 (SR-NYSEARCA-2024-12), then withdrew such filing
and amended the Fee Schedule on February 15, 2024 (SR-NYSEARCA-2024-
18), which latter filing the Exchange withdrew on February 29, 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 is to amend the Fee Schedule to
establish fees relating to OTPs utilized by Floor Market Makers.\5\ The
Exchange proposes to implement the fee changes effective February 29,
2024.
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\5\ Per Rule 1.1, an OTP is an Options Trading Permit issued by
the Exchange for effecting approved securities transactions on the
Exchange.
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Currently, the number of option issues a Market Maker may quote in
their assignment is based on the number of OTPs the Market Maker holds
per month. The Exchange charges monthly fees for Market Maker OTPs as
set forth in the ``Market Maker OTP Table''

[[Page 19614]]

below, which fees are not being modified by this proposal: \6\
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\6\ See Fee Schedule, NYSE Arca GENERAL OPTIONS and TRADING
PERMIT (OTP) FEES, available at: <a href="https://www.nyse.com/publicdocs/nyse/markets/arcaoptions/NYSE_Arca_Options_Fee_Schedule.pdf">https://www.nyse.com/publicdocs/nyse/markets/arcaoptions/NYSE_Arca_Options_Fee_Schedule.pdf</a>.

------------------------------------------------------------------------
Number of issues
Monthly fee permitted in a
Number of OTPs per OTP Market Maker's
quoting assignment
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1st OTP........................... $8,000 60 plus the Bottom
45%.
2nd OTP........................... 6,000 150 plus the Bottom
45%.
3rd OTP........................... 5,000 500 plus the Bottom
45%.
4th OTP........................... 4,000 1,100 plus the
Bottom 45%.
5th OTP........................... 3,000 All issues.
6th to 9th OTP.................... 2,000 All issues.
10th or more OTPs................. 500 All issues.
Reserve Market Maker OTP.......... 175 N/A.
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As described herein, the Exchange proposes to adopt fees for
``Floor Market Maker OTPs,'' which fees would be discounted and
available to Floor Market Makers that satisfy certain criteria. As
proposed, a Floor Market Maker would be defined as a registered Market
Maker who makes transactions as a dealer-specialist while on the Floor
of the Exchange, which proposed definition is identical to the
definition recently adopted by the Exchange.\7\
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\7\ See proposed Fee Schedule, Endnote 1 (defining Floor Market
Maker) and Rule 1.1 (defining Floor Market Maker). Consistent with
this proposal, the Exchange submitted a separate rule filing to
adopt the new category of Market Maker called a Floor Market Maker,
which includes a definition of Floor Market Maker that is identical
to the definition proposed herein. See Securities Exchange Act
Release No. 99606 (February 26, 2024) (NYSEARCA-2024-16)
(immediately effective filing to modify Rule 1.1 to adopt a category
of Market Makers called Floor Market Makers and to make conforming
changes to various Exchange rules regarding Market Maker
obligations, including modifying Rule 6.32-O(a) (Market Maker
Defined) to include Floor Market Maker in the definition of Market
Maker).
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Proposed Fee Change
The proposed fee change described below is designed to further
increase open outcry trading by providing special fee treatment for OTP
fees to Floor Market Makers that execute a specified percentage of
trading in open outcry. As proposed, a Floor Market Maker would pay
$6,000 for the first OTP and $4,000 for the second OTP, for up to two
OTPs, provided that the Floor Market Maker transacts at least 75% of
its volume, excluding Qualified Contingent Transactions (``QCCs'') and
Strategy Executions, as Manual (open outcry) trades (the ``minimum 75%
Manual trading requirement'').\8\ This proposed minimum 75% Manual
trading requirement is distinct from a Market Maker's appointment
trading requirement as described in Rule 6.35-O(i), which includes both
electronic and Manual trading. In addition, the minimum 75% Manual
trading requirement is consistent with Commentary .01 to Rule 6.35-O
insofar as it would count a Floor Market Maker's trading in all option
issues (not just those in its appointment) towards the minimum 75%
Manual trading requirement.\9\
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\8\ See proposed Fee Schedule, NYSE Arca GENERAL OPTIONS and
TRADING PERMIT (OTP) FEES (setting forth the $6,000 and $4,000
monthly fee for the first and second Floor Market Maker OTP,
respectively) and Endnote 1 (describing minimum 75% Manual trading
requirement for Floor Market Maker OTPs). See also Fee Schedule,
QUALIFIED CONTINGENT CROSS (``QCC'') TRANSACTION FEES AND CREDITS
(describing fees and credits associated with QCC transactions) and
LIMIT OF FEES ON OPTIONS STRATEGY EXECUTIONS and Endnote 10
(describing Strategy Executions and limit of fees on such
executions).
\9\ Commentary .01 to Rule 6.35-O provides that a Market Maker's
trades effected on the Trading Floor to accommodate cross trades
(per Rule 6.47-O) will count toward the Market Maker's appointment
trading requirement, regardless of whether the trades are in issues
within the Market Maker's appointment.
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To effect this change, the Exchange proposes to add the following
fees to the bottom of the Market Maker OTP Table: \10\
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\10\ See proposed Fee Schedule. The ``bottom 45%'' of issues
traded on the Exchange means ``the least actively traded issues on
the Exchange, ranked by industry volume, as reported by the OCC for
each issue during the calendar quarter.'' The Exchange notes that
the proposed fees for Floor Market OTPs are similar to fees charges
on the Exchange's affiliated exchange, NYSE American, LLC (``NYSE
American''), insofar as the total for two Floor Market Maker trading
permits is $10,000, QCC and Strategy executions are excluded, and
the same number of option issues may be quoted with the first and
second permit; the proposed fees differ however in that NYSE
American charges the same amount for each trading permit--i.e.,
$5,000 for each. See NYSE American Fee Schedule, Section III.A.
(Monthly ATP Fees), n.1 (``An NYSE American Options Floor Market
Maker ATP is a Floor Market Maker that purchases no more than two
ATPs per month and transacts at least 75% of its volume, excluding
QCC and Strategy Executions, as Manual trades in open outcry on the
Trading Floor.'').

The proposed rates for each of the first and second OTP would allow
a Floor Market Maker that meets the minimum 75% Manual trading
requirement to quote in the same number of option issues as a Market
Maker with a 1st or 2nd OTP, but at a discounted rate (i.e., as
compared to the fees for the first and second OTP (for non-Floor Market
Maker), which are $8,000 and $6,000, respectively). This proposed
discount is designed to encourage Floor Market Makers to actively quote
and trade in a greater number of option issues and to ensure that each
Floor Market Maker OTP is being used to foster price discovery in
public outcry markets. The Exchange notes that this proposed fee
structure--i.e., tiered pricing--is consistent with how the Exchange
charges for non-Floor Market Maker OTPs as shown in the Market Maker
OTP Table above.
The Exchange proposes to charge a lower rate for the second Floor
Market Maker OTP than for the first Floor Market Maker OTP, even though
the second OTP offers the Floor Market Maker a higher number of issues
in its quoting assignment, to encourage additional Floor Market Maker
quoting

[[Page 19615]]

in a wider range of option classes. Floor Market Makers would be
required to meet the 75% Manual trading requirement to qualify for the
reduced OTP fees, as proposed, but their OTPs would also entitle them
to quote and electronically trade names in their appointment.
Accordingly, the proposed discount afforded on the second OTP is
intended to enable Floor Market Makers to quote and electronically
trade a robust suite of symbols for which it could also reasonably be
actively engaged in providing liquidity in open outcry.
The Exchange notes that it does not limit the number of
participants who may act as Market Makers and would likewise not limit
the number of Market Makers acting as Floor Market Makers. The Exchange
notes that the primary role of a Floor Market Maker is to provide
liquidity for orders submitted for execution on the Floor of the
Exchange through open outcry. As such, the Exchange believes that
affording Floor Market Makers discounted rates would benefit all market
participants because doing so would continue to incent Floor Market
Makers to quote in a broad range of options, including especially
illiquid and inactive issues (i.e., the Bottom 45%), with a specific
focus on open outcry transactions.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\11\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\12\ 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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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4) and (5).
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As noted herein, the Exchange does not limit the number of
participants who may act as Market Makers and would likewise not limit
the number of Market Makers acting as Floor Market Makers. The primary
role of a Floor Market Maker is to provide liquidity for orders
submitted for execution on the Floor of the Exchange through open
outcry. The Exchange believes that the proposed rates (and obligations)
associated with Floor Market Maker OTPs are reasonably designed to
incentivize Market Makers to avail themselves of at least one (and up
to two) Floor Market Maker OTP(s) and to quote in a broad range of
options, including especially illiquid and inactive issues (i.e., the
Bottom 45%), with a specific focus on open outcry transactions. To the
extent that this proposal results in increased order flow being
directed to the Exchange (and the Trading Floor, in particular), this
increased liquidity would improve market quality to benefit all market
participants. Moreover, the proposal to exclude QCC and Strategy
Executions from the minimum 75% Manual trading requirement is
reasonable because these transaction types are subject to their own
fees and credits.
The Exchange believes that charging the less for the second Floor
Market Maker OTP is not only consistent with how the Exchange charges
Market Makers for non-Floor OTPs but is reasonable because the proposed
discount extended to the second OTP is intended to encourage Floor
Market Makers to actively quote and trade in open outcry, while also
affording them the ability to quote and electronically trade in a wider
range of symbols.
The Exchange believes the proposed rates (and obligations)
associated with Floor Market Maker OTPs are equitable and not unfairly
discriminatory. Specifically, the proposal would apply equally to all
Market Makers that choose to primarily transact business on the
Exchange's Trading Floor. The Exchange notes that transacting on the
Trading Floor, as well as utilizing the proposed Floor Market Maker
OTP(s), is entirely voluntary.
Regarding the proposed rates (and obligations) associated with
Floor Market Maker OTPs generally, the Exchange believes the proposal
is reasonable, equitable and not unfairly discriminatory because it
would benefit all market participants trading on the Exchange. In
addition, the proposed Floor Market Maker OTP would encourage Market
Makers that already have a presence on the Trading Floor (or that are
contemplating having a Floor presence) to utilize at least one Floor
Market Maker OTP and to satisfy the applicable quoting standards, which
may increase liquidity and provide more trading opportunities and
tighter spreads. Indeed, the Exchange notes that these Floor Market
Makers serve a role in providing quotes and the opportunity for market
participants to trade in a broad range of options, especially the less
actively-traded issues in the ``Bottom 45%,'' which can lead to
increased volume, providing for robust markets.
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.
Intramarket Competition. First, the Exchange does not believe that
the proposed rule change would impose an undue burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Particularly, the proposal would apply equally to
all Floor Market Makers in a uniform manner. The decision to utilize a
Floor Market Maker OTP (and to meet the requirements to qualify for the
discounted rates for a Floor Market Maker OTP) is entirely voluntary
and no Market Maker is required to undertake the obligation. As
discussed herein, the proposed fees for Floor Market Maker OTPs are
designed to encourage Floor Market Makers to quote in a broad range of
options, especially less liquid and less active issues (i.e., the
Bottom 45%), with a specific focus on open outcry transactions. Market
Makers play a crucial role in providing active and liquid markets in
their appointed products, thereby providing a robust market which
benefits all market participants. Such Market Makers also have
obligations and regulatory requirements that other participants do not
have. The Exchange also notes that the proposal is designed to attract
additional order flow to the Floor of the Exchange, wherein greater
liquidity benefits all market participants by providing more trading
opportunities, tighter spreads, and added market transparency and price
discovery, and signals to other market participants to direct their
order flow to those markets, thereby contributing to robust levels of
liquidity. As a result, the Exchange believes that the proposed change
furthers the Commission's goal in adopting Regulation NMS of fostering
competition among orders, which promotes ``more efficient pricing of
individual stocks for all types of orders, large and small.'' \13\
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\13\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37498-99 (June 29, 2005) (S7-10-04) (``Reg NMS
Adopting Release'').
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Intermarket Competition. Further, the Exchange does not believe
that the proposed rule change would impose an undue burden on
intermarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act as the proposal would apply
solely to Market Makers

[[Page 19616]]

that opted to act as Floor Market Makers and to utilize at least one
Floor Market OTP. As noted above, the proposal is designed to attract
additional order flow to the Exchange (and to the Trading Floor in
particular), wherein greater liquidity benefits all market participants
by providing more trading opportunities, tighter spreads, and added
market transparency and price discovery, and signals to other market
participants to direct their order flow to those markets, thereby
contributing to robust levels of liquidity.
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.\14\ Therefore, currently no exchange possesses
significant pricing power in the execution of multiply-listed equity
and ETF options order flow. More specifically, in December 2023, the
Exchange had less than 13% market share of executed volume of multiply-
listed equity and ETF options trades.\15\
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\14\ 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>.
\15\ Based on a compilation of OCC data for monthly volume of
equity-based options and monthly volume of equity-based ETF options,
see id., the Exchange's market share in equity-based options
decreased from 12.31% for the month of November 2022 to 11.67% for
the month of November 2023.
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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. Therefore,
no exchange possesses significant pricing power in the execution of
option order flow. Indeed, participants can readily choose to send
their orders to other exchange, and, additionally off-exchange venues,
if they deem fee levels at those other venues to be more favorable.
Moreover, the Commission has repeatedly expressed its preference
for competition over regulatory intervention in determining prices,
products, and services in the securities markets. Specifically, 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.'' \16\ The fact
that this market is competitive has also long been recognized by the
courts. In NetCoalition v. Securities and Exchange Commission, the D.C.
Circuit stated as follows: ``[n]o one disputes that competition for
order flow is `fierce.' . . . As the SEC explained, `[i]n the U.S.
national market system, buyers and sellers of securities, and the
broker-dealers that act as their order-routing agents, have a wide
range of choices of where to route orders for execution'; [and] `no
exchange can afford to take its market share percentages for granted'
because `no exchange possesses a monopoly, regulatory or otherwise, in
the execution of order flow from broker dealers'. . . .''.\17\
Accordingly, the Exchange does not believe its proposed fee change
imposes any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
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\16\ See Reg NMS Adopting Release, 70 FR 37496, 37499.
\17\ See NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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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) \18\ of the Act and subparagraph (f)(2) of Rule
19b-4 \19\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 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) \20\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\20\ 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#a3d1d6cfc68ec0cccecec6cdd7d0e3d0c6c08dc4ccd5"><span class="__cf_email__" data-cfemail="1062657c753d737f7d7d757e6463506375733e777f66">[email&#160;protected]</span></a>. Please include
file number SR-NYSEARCA-2024-23 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-2024-23. 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

[[Page 19617]]

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-2024-23 and should
be submitted on or before April 9, 2024.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-05739 Filed 3-18-24; 8:45 am]
BILLING CODE 8011-01-P

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