Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE Arca Options Fee Schedule, 36994-36998 [2019-16095]

Download as PDF 36994 Federal Register / Vol. 84, No. 146 / Tuesday, July 30, 2019 / Notices year (91,200 burden hours multiplied by approximately $358.51/hour). In addition, for hardware and software expenses, the Commission estimates that the average annual external cost would be approximately $20,500 per broker-dealer, or $11,685,000 in the aggregate ($20,500 per broker-dealer × 570 brokers and dealers = $11,685,000). Written comments are invited on (a) whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission’s estimates of the burden of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. Please direct your written comments to: Charles Riddle, Acting Director/Chief Information Officer, Securities and Exchange Commission, c/o Candace Kenner, 100 F Street NE, Washington, DC 20549, or send an email to: PRA_ Mailbox@sec.gov. 2019, 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, II, and III 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. Dated: July 24, 2019. Jill M. Peterson, Assistant Secretary. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2019–16089 Filed 7–29–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86458; File No. SR– NYSEARCA–2019–52] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE Arca Options Fee Schedule jspears on DSK3GMQ082PROD with NOTICES July 24, 2019. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on July 11, U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 16:42 Jul 29, 2019 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. 1. Purpose The purpose of this filing is to amend the Fee Schedule to modify the criteria for Market Makers to qualify for enhanced posting credits in Penny Pilot issues and SPY (the ‘‘Penny Credit Tiers’’). Specifically, to encourage Market Makers and Lead Market Makers (collectively, ‘‘Market Makers’’) to direct orders and quotes to the Exchange, this proposed rule change would lower the minimum volume threshold that Market Makers are required to trade in order to receive the credits in the highest of the Penny Credit Tiers (i.e., Super Tier II), thus making it easier to qualify for these credits. The associated per contract credit remains the same. The Exchange 4 The Exchange filed to amend the Fee Schedule for effectiveness on July 1, 2019, (SR–NYSEArca– 2019–48) and withdrew such filing on July 11, 2019. 1 15 VerDate Sep<11>2014 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’’). The Exchange proposes to implement the fee change effective July 11, 2019.4 The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. Jkt 247001 PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 proposes to implement the fee changes effective July 11, 2019. Background 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.’’ 5 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.6 Therefore, no exchange possesses significant pricing power in the execution of multiply-listed equity & ETF options order flow. More specifically, in the first quarter of 2019, the Exchange had less than 10% market share of executed volume of multiplylisted equity & ETF options trades.7 Similarly, the equities markets too face stark competition, which is relevant because the Exchange offers ‘‘cross-asset pricing,’’ which is designed to incentivize participants to execute a certain amount of volume on both the Exchange’s equities and options platform. As the Commission itself recognized, the market for trading services in NMS stocks has become ‘‘more fragmented and competitive.’’ Indeed, equity trading is currently dispersed across 13 exchanges, 32 alternative trading systems, and numerous broker-dealer internalizers and wholesalers, all competing for order flow. Based on publicly-available information, no single exchange has more than 18% market share (whether including or excluding auction volume). Therefore, no exchange possesses significant pricing power in the execution of equity order flow. More specifically, in the first quarter of 2019, the Exchange averaged less than 9% 5 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005). 6 The Options Clearing Corporation (‘‘OCC’’) publishes options and futures volume in a variety of formats, including daily and monthly volume by exchange, available here: https://www.theocc.com/ market-data/volume/default.jsp. 7 Based on OCC data, see id., the Exchange’s market share in equity-based options declined from 9.57% for the month of January to 9.52% for the month of April. E:\FR\FM\30JYN1.SGM 30JYN1 Federal Register / Vol. 84, No. 146 / Tuesday, July 30, 2019 / Notices jspears on DSK3GMQ082PROD with NOTICES market share of executed volume of equity trades (excluding auction volume). The Exchange believes that the evershifting 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. And, as such, the Exchange has employed cross-asset pricing to encourage Market Makers and their and their affiliated or Appointed OFP(s) (collectively, their OFP(s)) to direct volume to both NYSE Arca Options (‘‘Arca Options’’) and NYSE Arca Equity (‘‘Arca Equity’’).8 The Exchange notes that others Exchanges offer tiers with cross-asset criteria requirements.9 In response to this competitive environment, the Exchange has established incentives to encourage Market Makers to provide liquid and active markets on the Exchange, including the Penny Credit Tiers. Pursuant to the Penny Credit Tiers, Market Makers receive additional credits (beyond the base credit of $0.28 per contract) if their trading exceeds certain minimum volume thresholds on the Exchange.10 To receive these additional credits, Market Makers may aggregate their volume traded on Arca Options and Arca Equities with any of their OFP(s). By allowing Market Makers to include these other participants’ trading volume in calculating the Market Makers’ eligibility for additional credits, Market Makers may encourage an increased level of activity from these other participants. Super Tier II has the highest volume requirements, includes cross-asset pricing, and the largest associated credit ($0.42 per contract) of the Penny Credit 8 An OFP refers to any OTP that submits, as agent, orders to the Exchange, per Rule 6.1A–O(a)(21). See Fee Schedule, infra note 9, Endnote 15. An ‘‘affiliate’’ of an OTP is ‘‘a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified,’’ per Rule 1.1(a). See id., Endnote 8. An ‘‘Appointed OFP’’ is an OFP that has been designated by an NYSE Arca Market Maker. See id., Endnote 15. 9 See, e.g., Cboe BZX U.S. Equities Exchange Fee Schedule, Footnote 1 and Cboe EDGX Options Exchange Fee Schedule, Footnote 4. 10 The base credit is available for executions of Market Maker posted interest in Penny Pilot Issues and SPY and has no minimum volume threshold requirement. See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES FOR STANDARD OPTIONS, Market Maker Penny Pilot and SPY Posting Credit Tiers, available here, https://www.nyse.com/publicdocs/nyse/markets/ arca-options/NYSE_Arca_Options_Fee_ Schedule.pdf. VerDate Sep<11>2014 16:42 Jul 29, 2019 Jkt 247001 Tiers. The Exchange is proposing to modify the minimum options volume threshold for one of the Super Tier II qualification methods. Proposed Rule Change The Exchange proposes to modify one of the qualification volume thresholds for Super Tier II, and will not modify the $0.42 per contract credit associated with this Tier. Specifically, the Exchange proposes to change the method of qualifying for Super Tier II that currently requires: • A Market Maker to trade at least 0.20% of Total Customer Average Daily Volume (‘‘TCADV’’) 11 on the Exchange against such Market Maker’s posted interest in all issues (the ‘‘options threshold’’), and • A Market Maker and its OFP(s) 12 to post and trade in Tape B Securities at least 1.50% of US Tape B consolidated average daily volume (‘‘CADV’’) 13 for the billing month on the Arca Equity market (the ‘‘equities threshold’’).14 The Exchange proposes to reduce from 0.20% to 0.10% of TCADV for the options threshold requirement. The Exchange is not proposing to alter the equities threshold, which will remain 1.50% of US Tape B CADV. As noted above, the Exchange operates in a competitive environment. This proposed change is designed to incent Market Makers to increase their trading volume on the Arca Equities market to qualify for Super Tier II (while making it easier to meet the options volume threshold to qualify for 11 TCADV refers to Total Industry Customer equity and ETF option average daily volume. TCADV includes OCC calculated Customer volume of all types, including Complex Order transactions and QCC transactions, in equity and ETF options. 12 The Fee Schedule refers to ETP Holders and not OFPs, but the relationship between a Market Maker and an ETP must be by affiliation or appointment in order to allow volume to be aggregated. See Fee Schedule, supra note 10, Endnote 15. 13 CADV means Consolidated Average Daily Volume for transactions reported to the Consolidated Tape, excluding odd lots through January 31, 2014 (except for purposes of Lead Market Maker pricing), and excludes volume on days when the market closes early and on the date of the annual reconstitution of the Russell Investments Indexes. Transactions that are not reported to the Consolidated Tape are not included in CADV. 14 The Exchange is not modifying the other two bases for a Market Maker to receive the enhanced credit under Super Tier II, which require (1) a Market Maker to trade at least 0.10% of TCADV on the Exchange against such Market Maker’s posted interest in all issues, and the Market Maker and its OFP, collectively, post and trade at least 0.42% ADV of Retail Orders of U.S. Equity Market Share Posted on the Arca Equity market; or (2) a Market Maker to trade at least 1.60% of TCADV on the Exchange against such Market Maker’s interest in all issues, with at least 0.90% of TCADV from such Market Maker’s posted interest in all issues. PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 36995 the based on the lower minimum threshold). The Exchange believes Market Makers may, in turn, encourage their OFPs to direct additional order flow to both the Arca Equities and Arca Options platforms. The Exchange notes that Market Makers as well as nonMarket Makers stand to benefit from an increase in orders and quotes on the Exchange, which facilitates tighter spreads and enhances price discovery, and may lead to a corresponding increase in order flow from other market participants. This proposed fee change is targeted at Market Makers. Market Makers serve a crucial role in the options markets by providing liquidity to facilitate market efficiency and functioning. Market Makers add additional value beyond other market participants through continuous quoting and the commitment of capital. Because Market Makers have obligations and regulatory requirements that are not applicable to other market participants, the Exchange believes that the proposed change to make it easier for Market Makers to qualify for Super Tier II, is equitable and not unfairly discriminatory in light of their obligations and the costs associated therewith. The Exchange’s fees are constrained by intermarket competition, as Market Makers can register on any or all of the 16 options exchanges. Thus, Market Makers that are also members of other exchanges have a choice of where they post orders and quotes. The proposed rule change is designed to incentivize Market Makers to post liquidity to the Exchange, thereby promoting market depth, price discovery and transparency and enhancing order execution opportunities for market participants. Moreover, because Market Makers are able to aggregate qualifying volume of their OFPs, Market Makers may encourage their OFPs to direct order flow to the Exchange as well as to NYSE Arca Equities, which would likewise support the quality of price discovery and transparency on the Exchange. The Exchange cannot predict with certainty whether any Market Maker would avail themselves of this proposed fee change. Market Makers may be registered on other options exchanges and may choose to post their orders and quotes to those exchanges based on available incentives. That said, there is currently one firm that receives the Super Tier II credit under the current options (and equities) threshold(s). Assuming historical behavior can be predictive of future behavior, the Exchange believes that at least one additional firm may qualify for Super Tier II as proposed to be modified E:\FR\FM\30JYN1.SGM 30JYN1 36996 Federal Register / Vol. 84, No. 146 / Tuesday, July 30, 2019 / Notices herein. The Exchange believes the proposed lower options threshold (with the equity volume threshold unchanged and the same $0.42 per contract credit) would provide an incentive for Market Makers to provide additional liquidity to the exchange to qualify for the higher Super Tier II credit. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,15 in general, and furthers the objectives of Sections 6(b)(4) and (5) of the Act,16 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. jspears on DSK3GMQ082PROD with NOTICES 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.’’ 17 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.18 Therefore, no exchange possesses significant pricing power in the execution of multiply-listed equity & ETF options order flow. More specifically, in the first quarter of 2019, the Exchange had less than 10% market share of executed volume of multiplylisted equity & ETF options trades.19 In addition, give the cross-asset component of Super Tier II, it is important to note that the equities market is likewise subject to stark competition. As the 15 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 17 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005). 18 See supra note 6. 19 Based on OCC data, see supra note 7, in 2019, the Exchange’s market share in equity-based options declined from 9.57% for the month of January to 9.52% for the month of April. 16 15 VerDate Sep<11>2014 16:42 Jul 29, 2019 Jkt 247001 Commission itself recognized, the market for trading services in NMS stocks has become ‘‘more fragmented and competitive.’’ Indeed, equity trading is currently dispersed across 13 exchanges, 32 alternative trading systems, and numerous broker-dealer internalizers and wholesalers, all competing for order flow. Based on publicly-available information, no single exchange has more than 18% market share (whether including or excluding auction volume). Therefore, no exchange possesses significant pricing power in the execution of equity order flow. More specifically, in the first quarter of 2019, the Exchange averaged less than 9% market share of executed volume of equity trades (excluding auction volume). The Exchange believes that the evershifting 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 modification to Super Tier II is reasonable because reducing the options threshold makes it easier for Market Makers to qualify for the Tier, which in turn, should attract more liquidity to the Exchange (as well as to the Arca Equities market), which benefits all market participants. In addition, the Exchange believes the proposed modification would encourage participants to increase their order flow to interact with Market Maker orders and quotes, which potential increase in order flow would benefit all market participants by improving order execution and price discovery, 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 cannot predict with certainty whether any Market Maker would avail themselves of this proposed fee change. Market Makers may be registered on other options exchanges and may choose to post orders and quotes to those exchanges based on available incentives. That said, there is currently one firm that receives the Super Tier II credit under the current options (and equities) threshold(s). Assuming historical behavior can be predictive of future behavior, the Exchange believes that at least one PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 additional firm may qualify for Super Tier II as modified herein. The Exchange believes the proposed lower options threshold (with the equity volume threshold unchanged and the same $0.42 per contract credit) would provide an incentive for Market Makers to post their orders and quotes to the Exchange to qualify for the higher Super Tier II credit. On 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 Exchange is constrained by intermarket competition, as Market Makers are free to register on any one of the 16 option exchanges. Market Makers serve a crucial role in financial markets by providing liquidity to facilitate market efficiency and price discovery. Market Makers, unlike other market participants, add additional value through continuous quoting and the commitment of capital and have specified obligations and regulatory requirements that are not required of other participants. As noted above, the Exchange is subject to competitive forces such that Market Makers may post their orders and quotes to any of the other 15 option exchanges of which they are a member. The proposed change, which is targeted at Market Makers, is designed to encourage Market Makers to post their orders and quotes to the Exchange, thereby promoting market quality, price discovery and transparency and enhancing order execution opportunities for all market participants—Marker Maker and nonMarket Maker alike. Further, encouraging Market Maker activity on the Exchange would also contribute to the Exchange’s depth of book as well as to the top of book liquidity to the benefit of all market participants. The Exchange believes the proposed rule change would improve market quality for all market participants on the Exchange and, as a consequence, attract more Market Maker orders and quotes to the Exchange thereby improving marketwide quality and price discovery. The Proposed Rule Change Is Not Unfairly Discriminatory The Exchange believes it is not unfairly discriminatory to reduce the minimum options volume trading activity associated with Super Tier II as E:\FR\FM\30JYN1.SGM 30JYN1 Federal Register / Vol. 84, No. 146 / Tuesday, July 30, 2019 / Notices jspears on DSK3GMQ082PROD with NOTICES discussed herein because the proposed modification would be available to all similarly-situated market participants on an equal and non-discriminatory basis. Further the proposal should incent Market Makers to qualify for Super Tier II, including by increasing trading on the equities market. The Exchange notes that Market Makers are still eligible to qualify for Super Tier II under the other two existing qualification methods (see supra note 14). By continuing to provide such alternative (unchanged) methods to qualify for a Tier, and reducing the options threshold for one of the methods to qualify for Super Tier II, the Exchange believes the opportunities to qualify for credits is increased, which benefits all participants through increased Market Maker activity. Further, encouraging Market Maker activity on the Exchange would also contribute to the Exchange’s depth of book as well as to the top of book liquidity. To the extent that Market Maker activity is increased by the proposal, market participants will increasingly compete for the opportunity to trade on the Exchange. 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. For the foregoing reasons, the Exchange believes that the proposal is consistent with the Act. B. Self-Regulatory Organization’s Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act,20 the Exchange believes that the proposed rule change would not 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 20 15 U.S.C. 78f(b)(8). VerDate Sep<11>2014 16:42 Jul 29, 2019 Jkt 247001 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.’’ 21 Intramarket Competition. The proposed change is designed to attract additional order flow to the Exchange. The Exchange believes that the proposed reduced options threshold to meet one of the qualifying bases of Super Tier II would continue to incentivize market participants, Market Makers in particular, to direct their orders and quotes to the Exchange. Greater liquidity benefits all market participants on the Exchange by encouraging OFPs to send orders to the Exchange which results in providing more trading opportunities for all market participants on the Exchange. The proposed reduced options threshold (and Super Tier II credit) would be available to all similarlysituated market participants, and, as such, the proposed change would not impose a disparate burden on competition among market participants on the Exchange. The Exchange further notes that Market Makers, unlike other market participants, add additional value through continuous quoting and the commitment of capital and are subject to unique regulatory obligations. Because other market participants do not need to occur the same costs to begin trading on the Exchange, the Exchange believes that offering the proposed fee change to Market Makers would not create an undue burden on non-Market Makers. 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. Market Maker have the option of registering on more than one exchange, including NYSE Arca, and may post their orders and quotes to the most attractive venue. 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. And with regard to the cross-asset component of Super Tier II, the Arca Equities exchange similarly operates in a competitive environment. Based on publicly-available information, no single exchange has more than 18% 21 Securities Exchange Act Release No. 51808, 70 FR 37495, 37498–99 (June 29, 2005) (S7–10–04) (Final Rule). PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 36997 market share (whether including or excluding auction volume). Therefore, no exchange possesses significant pricing power in the execution of equity order flow. More specifically, in the first quarter of 2019, the Exchange averaged less than 9% market share of executed volume of equity trades (excluding auction volume). The Exchange believes that the proposed rule change reflects this competitive environment because it modifies the Exchange’s fees in a manner designed to encourage Market Makers to direct trading 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. The Exchange further believes that the proposed pricing changes would increase both intermarket and intramarket competition by attracting new entrants to the Exchange at a lower fee for a limited time. By offering the reduced Covered Fees, the Exchange believes that it would retain and attract Market Makers, which participants are an integral component of the option industry marketplace. Further, the incentive would be available to all similarly-situated participants, and, as such, the proposed change would not impose a disparate burden on competition either among or between classes of market participants and may, in fact, encourage intermarket competition. 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) 22 of the Act and subparagraph (f)(2) of Rule 19b–4 23 thereunder, because it establishes a due, fee, or other charge imposed by the Exchange. 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 22 15 23 17 E:\FR\FM\30JYN1.SGM U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(2). 30JYN1 36998 Federal Register / Vol. 84, No. 146 / Tuesday, July 30, 2019 / Notices Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 24 of the Act to determine whether the proposed rule change should be approved or disapproved. 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: jspears on DSK3GMQ082PROD with NOTICES Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEARCA–2019–52 on the subject line. Paper Comments • 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–2019–52. 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 (https://www.sec.gov/ rules/sro.shtml). 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 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All 24 15 submissions should refer to File Number SR–NYSEARCA–2019–52 and should be submitted on or before August 20, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–16095 Filed 7–29–19; 8:45 am] BILLING CODE 8011–01–P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #16047 and #16048; PENNSYLVANIA Disaster Number PA– 00098 Administrative] Declaration of a Disaster for the State of PENNSYLVANIA U.S. Small Business Administration. ACTION: Notice. AGENCY: This is a notice of an Administrative declaration of a disaster for the State of PENNSYLVANIA dated 07/22/2019. Incident: Flash Flooding. Incident Period: 06/20/2019 through 06/21/2019. DATES: Issued on 07/22/2019. Physical Loan Application Deadline Date: 09/20/2019. Economic Injury (EIDL) Loan Application Deadline Date: 04/22/2020. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing And Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205–6734. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the Administrator’s disaster declaration, applications for disaster loans may be filed at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: Primary Counties: Berks Contiguous Counties: Pennsylvania: Chester, Lancaster, Lebanon, Lehigh, Montgomery, Schuylkill The Interest Rates are: SUMMARY: Percent For Physical Damage: U.S.C. 78s(b)(2)(B). VerDate Sep<11>2014 16:42 Jul 29, 2019 25 17 Jkt 247001 PO 00000 CFR 200.30–3(a)(12). Frm 00115 Fmt 4703 Sfmt 4703 Percent Homeowners with Credit Available Elsewhere ...................... Homeowners Without Credit Available Elsewhere .............. Businesses with Credit Available Elsewhere ...................... Businesses Without Credit Available Elsewhere .............. Non-Profit Organizations with Credit Available Elsewhere ... Non-Profit Organizations Without Credit Available Elsewhere ..................................... For Economic Injury: Businesses & Small Agricultural Cooperatives Without Credit Available Elsewhere .............. Non-Profit Organizations Without Credit Available Elsewhere ..................................... 3.875 1.938 8.000 4.000 2.750 2.750 4.000 2.750 The number assigned to this disaster for physical damage is 16047 6 and for economic injury is 16048 0. The States which received an EIDL Declaration # are Pennsylvania. (Catalog of Federal Domestic Assistance Number 59008.) Christopher Pilkerton, Acting Administrator. [FR Doc. 2019–16139 Filed 7–29–19; 8:45 am] BILLING CODE 8026–03–P DEPARTMENT OF STATE [Public Notice: 10828] 30-Day Notice of Proposed Information Collection: Office of Language Services Contractor Application; Correction Notice of request for public comment and submission to OMB of proposed collection of information; correction. ACTION: The Department of State published a Federal Register Notice on July 17, 2019 that incorrectly identified this collection request. The Notice type of request was an ‘‘Extension of a Currently Approved Collection’’. This document corrects the ‘‘Type of Request’’ to a ‘‘Revision of a Currently Approved Collection’’. FOR FURTHER INFORMATION CONTACT: Direct requests for additional information regarding the collection listed in this notice, including requests for copies of the proposed collection instrument and supporting documents, to Wanda Lyles Howell, who may be reached on 202–261–8791 or at lyleswm2@state.gov. SUMMARY: E:\FR\FM\30JYN1.SGM 30JYN1

Agencies

[Federal Register Volume 84, Number 146 (Tuesday, July 30, 2019)]
[Notices]
[Pages 36994-36998]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-16095]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86458; File No. SR-NYSEARCA-2019-52]


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

July 24, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 11, 2019, 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, II, 
and III 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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''). The Exchange proposes to implement the fee change 
effective July 11, 2019.\4\ The proposed rule change is available on 
the Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.
---------------------------------------------------------------------------

    \4\ The Exchange filed to amend the Fee Schedule for 
effectiveness on July 1, 2019, (SR-NYSEArca-2019-48) and withdrew 
such filing on July 11, 2019.
---------------------------------------------------------------------------

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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to amend the Fee Schedule to modify 
the criteria for Market Makers to qualify for enhanced posting credits 
in Penny Pilot issues and SPY (the ``Penny Credit Tiers''). 
Specifically, to encourage Market Makers and Lead Market Makers 
(collectively, ``Market Makers'') to direct orders and quotes to the 
Exchange, this proposed rule change would lower the minimum volume 
threshold that Market Makers are required to trade in order to receive 
the credits in the highest of the Penny Credit Tiers (i.e., Super Tier 
II), thus making it easier to qualify for these credits. The associated 
per contract credit remains the same. The Exchange proposes to 
implement the fee changes effective July 11, 2019.
Background
    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.'' \5\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------

    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.\6\ Therefore, no exchange possesses significant pricing power 
in the execution of multiply-listed equity & ETF options order flow. 
More specifically, in the first quarter of 2019, the Exchange had less 
than 10% market share of executed volume of multiply-listed equity & 
ETF options trades.\7\ Similarly, the equities markets too face stark 
competition, which is relevant because the Exchange offers ``cross-
asset pricing,'' which is designed to incentivize participants to 
execute a certain amount of volume on both the Exchange's equities and 
options platform. As the Commission itself recognized, the market for 
trading services in NMS stocks has become ``more fragmented and 
competitive.'' Indeed, equity trading is currently dispersed across 13 
exchanges, 32 alternative trading systems, and numerous broker-dealer 
internalizers and wholesalers, all competing for order flow. Based on 
publicly-available information, no single exchange has more than 18% 
market share (whether including or excluding auction volume). 
Therefore, no exchange possesses significant pricing power in the 
execution of equity order flow. More specifically, in the first quarter 
of 2019, the Exchange averaged less than 9%

[[Page 36995]]

market share of executed volume of equity trades (excluding auction 
volume).
---------------------------------------------------------------------------

    \6\ The Options Clearing Corporation (``OCC'') publishes options 
and futures volume in a variety of formats, including daily and 
monthly volume by exchange, available here: https://www.theocc.com/market-data/volume/default.jsp.
    \7\ Based on OCC data, see id., the Exchange's market share in 
equity-based options declined from 9.57% for the month of January to 
9.52% for the month of April.
---------------------------------------------------------------------------

    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. And, as such, the Exchange 
has employed cross-asset pricing to encourage Market Makers and their 
and their affiliated or Appointed OFP(s) (collectively, their OFP(s)) 
to direct volume to both NYSE Arca Options (``Arca Options'') and NYSE 
Arca Equity (``Arca Equity'').\8\ The Exchange notes that others 
Exchanges offer tiers with cross-asset criteria requirements.\9\
---------------------------------------------------------------------------

    \8\ An OFP refers to any OTP that submits, as agent, orders to 
the Exchange, per Rule 6.1A-O(a)(21). See Fee Schedule, infra note 
9, Endnote 15. An ``affiliate'' of an OTP is ``a person that 
directly, or indirectly through one or more intermediaries, controls 
or is controlled by, or is under common control with, the person 
specified,'' per Rule 1.1(a). See id., Endnote 8. An ``Appointed 
OFP'' is an OFP that has been designated by an NYSE Arca Market 
Maker. See id., Endnote 15.
    \9\ See, e.g., Cboe BZX U.S. Equities Exchange Fee Schedule, 
Footnote 1 and Cboe EDGX Options Exchange Fee Schedule, Footnote 4.
---------------------------------------------------------------------------

    In response to this competitive environment, the Exchange has 
established incentives to encourage Market Makers to provide liquid and 
active markets on the Exchange, including the Penny Credit Tiers. 
Pursuant to the Penny Credit Tiers, Market Makers receive additional 
credits (beyond the base credit of $0.28 per contract) if their trading 
exceeds certain minimum volume thresholds on the Exchange.\10\ To 
receive these additional credits, Market Makers may aggregate their 
volume traded on Arca Options and Arca Equities with any of their 
OFP(s). By allowing Market Makers to include these other participants' 
trading volume in calculating the Market Makers' eligibility for 
additional credits, Market Makers may encourage an increased level of 
activity from these other participants.
---------------------------------------------------------------------------

    \10\ The base credit is available for executions of Market Maker 
posted interest in Penny Pilot Issues and SPY and has no minimum 
volume threshold requirement. See Fee Schedule, NYSE Arca OPTIONS: 
TRADE-RELATED CHARGES FOR STANDARD OPTIONS, Market Maker Penny Pilot 
and SPY Posting Credit Tiers, available here, https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf.
---------------------------------------------------------------------------

    Super Tier II has the highest volume requirements, includes cross-
asset pricing, and the largest associated credit ($0.42 per contract) 
of the Penny Credit Tiers. The Exchange is proposing to modify the 
minimum options volume threshold for one of the Super Tier II 
qualification methods.
Proposed Rule Change
    The Exchange proposes to modify one of the qualification volume 
thresholds for Super Tier II, and will not modify the $0.42 per 
contract credit associated with this Tier. Specifically, the Exchange 
proposes to change the method of qualifying for Super Tier II that 
currently requires:
     A Market Maker to trade at least 0.20% of Total Customer 
Average Daily Volume (``TCADV'') \11\ on the Exchange against such 
Market Maker's posted interest in all issues (the ``options 
threshold''), and
---------------------------------------------------------------------------

    \11\ TCADV refers to Total Industry Customer equity and ETF 
option average daily volume. TCADV includes OCC calculated Customer 
volume of all types, including Complex Order transactions and QCC 
transactions, in equity and ETF options.
---------------------------------------------------------------------------

     A Market Maker and its OFP(s) \12\ to post and trade in 
Tape B Securities at least 1.50% of US Tape B consolidated average 
daily volume (``CADV'') \13\ for the billing month on the Arca Equity 
market (the ``equities threshold'').\14\
---------------------------------------------------------------------------

    \12\ The Fee Schedule refers to ETP Holders and not OFPs, but 
the relationship between a Market Maker and an ETP must be by 
affiliation or appointment in order to allow volume to be 
aggregated. See Fee Schedule, supra note 10, Endnote 15.
    \13\ CADV means Consolidated Average Daily Volume for 
transactions reported to the Consolidated Tape, excluding odd lots 
through January 31, 2014 (except for purposes of Lead Market Maker 
pricing), and excludes volume on days when the market closes early 
and on the date of the annual reconstitution of the Russell 
Investments Indexes. Transactions that are not reported to the 
Consolidated Tape are not included in CADV.
    \14\ The Exchange is not modifying the other two bases for a 
Market Maker to receive the enhanced credit under Super Tier II, 
which require (1) a Market Maker to trade at least 0.10% of TCADV on 
the Exchange against such Market Maker's posted interest in all 
issues, and the Market Maker and its OFP, collectively, post and 
trade at least 0.42% ADV of Retail Orders of U.S. Equity Market 
Share Posted on the Arca Equity market; or (2) a Market Maker to 
trade at least 1.60% of TCADV on the Exchange against such Market 
Maker's interest in all issues, with at least 0.90% of TCADV from 
such Market Maker's posted interest in all issues.
---------------------------------------------------------------------------

    The Exchange proposes to reduce from 0.20% to 0.10% of TCADV for 
the options threshold requirement. The Exchange is not proposing to 
alter the equities threshold, which will remain 1.50% of US Tape B 
CADV.
    As noted above, the Exchange operates in a competitive environment. 
This proposed change is designed to incent Market Makers to increase 
their trading volume on the Arca Equities market to qualify for Super 
Tier II (while making it easier to meet the options volume threshold to 
qualify for the based on the lower minimum threshold). The Exchange 
believes Market Makers may, in turn, encourage their OFPs to direct 
additional order flow to both the Arca Equities and Arca Options 
platforms. The Exchange notes that Market Makers as well as non-Market 
Makers stand to benefit from an increase in orders and quotes on the 
Exchange, which facilitates tighter spreads and enhances price 
discovery, and may lead to a corresponding increase in order flow from 
other market participants.
    This proposed fee change is targeted at Market Makers. Market 
Makers serve a crucial role in the options markets by providing 
liquidity to facilitate market efficiency and functioning. Market 
Makers add additional value beyond other market participants through 
continuous quoting and the commitment of capital. Because Market Makers 
have obligations and regulatory requirements that are not applicable to 
other market participants, the Exchange believes that the proposed 
change to make it easier for Market Makers to qualify for Super Tier 
II, is equitable and not unfairly discriminatory in light of their 
obligations and the costs associated therewith. The Exchange's fees are 
constrained by intermarket competition, as Market Makers can register 
on any or all of the 16 options exchanges. Thus, Market Makers that are 
also members of other exchanges have a choice of where they post orders 
and quotes. The proposed rule change is designed to incentivize Market 
Makers to post liquidity to the Exchange, thereby promoting market 
depth, price discovery and transparency and enhancing order execution 
opportunities for market participants. Moreover, because Market Makers 
are able to aggregate qualifying volume of their OFPs, Market Makers 
may encourage their OFPs to direct order flow to the Exchange as well 
as to NYSE Arca Equities, which would likewise support the quality of 
price discovery and transparency on the Exchange.
    The Exchange cannot predict with certainty whether any Market Maker 
would avail themselves of this proposed fee change. Market Makers may 
be registered on other options exchanges and may choose to post their 
orders and quotes to those exchanges based on available incentives. 
That said, there is currently one firm that receives the Super Tier II 
credit under the current options (and equities) threshold(s). Assuming 
historical behavior can be predictive of future behavior, the Exchange 
believes that at least one additional firm may qualify for Super Tier 
II as proposed to be modified

[[Page 36996]]

herein. The Exchange believes the proposed lower options threshold 
(with the equity volume threshold unchanged and the same $0.42 per 
contract credit) would provide an incentive for Market Makers to 
provide additional liquidity to the exchange to qualify for the higher 
Super Tier II credit.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\15\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\16\ 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.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

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.'' \17\
---------------------------------------------------------------------------

    \17\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------

    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.\18\ Therefore, no exchange possesses significant pricing power 
in the execution of multiply-listed equity & ETF options order flow. 
More specifically, in the first quarter of 2019, the Exchange had less 
than 10% market share of executed volume of multiply-listed equity & 
ETF options trades.\19\ In addition, give the cross-asset component of 
Super Tier II, it is important to note that the equities market is 
likewise subject to stark competition. As the Commission itself 
recognized, the market for trading services in NMS stocks has become 
``more fragmented and competitive.'' Indeed, equity trading is 
currently dispersed across 13 exchanges, 32 alternative trading 
systems, and numerous broker-dealer internalizers and wholesalers, all 
competing for order flow. Based on publicly-available information, no 
single exchange has more than 18% market share (whether including or 
excluding auction volume). Therefore, no exchange possesses significant 
pricing power in the execution of equity order flow. More specifically, 
in the first quarter of 2019, the Exchange averaged less than 9% market 
share of executed volume of equity trades (excluding auction volume).
---------------------------------------------------------------------------

    \18\ See supra note 6.
    \19\ Based on OCC data, see supra note 7, in 2019, the 
Exchange's market share in equity-based options declined from 9.57% 
for the month of January to 9.52% for the month of April.
---------------------------------------------------------------------------

    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 modification to Super Tier 
II is reasonable because reducing the options threshold makes it easier 
for Market Makers to qualify for the Tier, which in turn, should 
attract more liquidity to the Exchange (as well as to the Arca Equities 
market), which benefits all market participants. In addition, the 
Exchange believes the proposed modification would encourage 
participants to increase their order flow to interact with Market Maker 
orders and quotes, which potential increase in order flow would benefit 
all market participants by improving order execution and price 
discovery, 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 cannot predict with certainty whether any Market Maker 
would avail themselves of this proposed fee change. Market Makers may 
be registered on other options exchanges and may choose to post orders 
and quotes to those exchanges based on available incentives. That said, 
there is currently one firm that receives the Super Tier II credit 
under the current options (and equities) threshold(s). Assuming 
historical behavior can be predictive of future behavior, the Exchange 
believes that at least one additional firm may qualify for Super Tier 
II as modified herein. The Exchange believes the proposed lower options 
threshold (with the equity volume threshold unchanged and the same 
$0.42 per contract credit) would provide an incentive for Market Makers 
to post their orders and quotes to the Exchange to qualify for the 
higher Super Tier II credit.
    On 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 Exchange is constrained by 
intermarket competition, as Market Makers are free to register on any 
one of the 16 option exchanges. Market Makers serve a crucial role in 
financial markets by providing liquidity to facilitate market 
efficiency and price discovery. Market Makers, unlike other market 
participants, add additional value through continuous quoting and the 
commitment of capital and have specified obligations and regulatory 
requirements that are not required of other participants. As noted 
above, the Exchange is subject to competitive forces such that Market 
Makers may post their orders and quotes to any of the other 15 option 
exchanges of which they are a member. The proposed change, which is 
targeted at Market Makers, is designed to encourage Market Makers to 
post their orders and quotes to the Exchange, thereby promoting market 
quality, price discovery and transparency and enhancing order execution 
opportunities for all market participants--Marker Maker and non-Market 
Maker alike. Further, encouraging Market Maker activity on the Exchange 
would also contribute to the Exchange's depth of book as well as to the 
top of book liquidity to the benefit of all market participants.
    The Exchange believes the proposed rule change would improve market 
quality for all market participants on the Exchange and, as a 
consequence, attract more Market Maker orders and quotes to the 
Exchange thereby improving market-wide quality and price discovery.
The Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes it is not unfairly discriminatory to reduce 
the minimum options volume trading activity associated with Super Tier 
II as

[[Page 36997]]

discussed herein because the proposed modification would be available 
to all similarly-situated market participants on an equal and non-
discriminatory basis. Further the proposal should incent Market Makers 
to qualify for Super Tier II, including by increasing trading on the 
equities market. The Exchange notes that Market Makers are still 
eligible to qualify for Super Tier II under the other two existing 
qualification methods (see supra note 14). By continuing to provide 
such alternative (unchanged) methods to qualify for a Tier, and 
reducing the options threshold for one of the methods to qualify for 
Super Tier II, the Exchange believes the opportunities to qualify for 
credits is increased, which benefits all participants through increased 
Market Maker activity. Further, encouraging Market Maker activity on 
the Exchange would also contribute to the Exchange's depth of book as 
well as to the top of book liquidity.
    To the extent that Market Maker activity is increased by the 
proposal, market participants will increasingly compete for the 
opportunity to trade on the Exchange. 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.
    For the foregoing reasons, the Exchange believes that the proposal 
is consistent with the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\20\ the Exchange 
believes that the proposed rule change would not 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.'' \21\
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f(b)(8).
    \21\ Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
---------------------------------------------------------------------------

    Intramarket Competition. The proposed change is designed to attract 
additional order flow to the Exchange. The Exchange believes that the 
proposed reduced options threshold to meet one of the qualifying bases 
of Super Tier II would continue to incentivize market participants, 
Market Makers in particular, to direct their orders and quotes to the 
Exchange. Greater liquidity benefits all market participants on the 
Exchange by encouraging OFPs to send orders to the Exchange which 
results in providing more trading opportunities for all market 
participants on the Exchange. The proposed reduced options threshold 
(and Super Tier II credit) would be available to all similarly-situated 
market participants, and, as such, the proposed change would not impose 
a disparate burden on competition among market participants on the 
Exchange.
    The Exchange further notes that Market Makers, unlike other market 
participants, add additional value through continuous quoting and the 
commitment of capital and are subject to unique regulatory obligations. 
Because other market participants do not need to occur the same costs 
to begin trading on the Exchange, the Exchange believes that offering 
the proposed fee change to Market Makers would not create an undue 
burden on non-Market Makers.
    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. Market Maker have the option of 
registering on more than one exchange, including NYSE Arca, and may 
post their orders and quotes to the most attractive venue. 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. And with regard to the cross-asset component of Super Tier 
II, the Arca Equities exchange similarly operates in a competitive 
environment. Based on publicly-available information, no single 
exchange has more than 18% market share (whether including or excluding 
auction volume). Therefore, no exchange possesses significant pricing 
power in the execution of equity order flow. More specifically, in the 
first quarter of 2019, the Exchange averaged less than 9% market share 
of executed volume of equity trades (excluding auction volume). The 
Exchange believes that the proposed rule change reflects this 
competitive environment because it modifies the Exchange's fees in a 
manner designed to encourage Market Makers to direct trading 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.
    The Exchange further believes that the proposed pricing changes 
would increase both intermarket and intramarket competition by 
attracting new entrants to the Exchange at a lower fee for a limited 
time. By offering the reduced Covered Fees, the Exchange believes that 
it would retain and attract Market Makers, which participants are an 
integral component of the option industry marketplace. Further, the 
incentive would be available to all similarly-situated participants, 
and, as such, the proposed change would not impose a disparate burden 
on competition either among or between classes of market participants 
and may, in fact, encourage intermarket competition.

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) \22\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \23\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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

[[Page 36998]]

Commission takes such action, the Commission shall institute 
proceedings under Section 19(b)(2)(B) \24\ of the Act to determine 
whether the proposed rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEARCA-2019-52 on the subject line.

Paper Comments

     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-2019-52. 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 (https://www.sec.gov/rules/sro.shtml). 
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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEARCA-2019-52 and should be submitted 
on or before August 20, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-16095 Filed 7-29-19; 8:45 am]
 BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.