Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE Arca Options Fee Schedule Regarding the Floor Broker Prepayment Program, 1835-1840 [2020-00262]
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Federal Register / Vol. 85, No. 8 / Monday, January 13, 2020 / Notices
U.S. code citation
Civil monetary penalty description
15 U.S.C. 80b–3(i) (Investment Advisers Act Sec. 203(i)).
15 U.S.C. 80b–9(e) (Investment Advisers Act Sec. 209(e)).
15 U.S.C. 7215(c)(4)(D)(i) (SarbanesOxley Act Sec. 105(c)(4)(D)(i)).
15 U.S.C. 7215(c)(4)(D)(ii) (SarbanesOxley Act Sec. 105(c)(4)(D)(ii)).
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of losses to others or gains to self.
For any other person/fraud/substantial losses or
risk of losses to others or gain to self.
For natural person ....................................................
94,713
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473,566
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1.01764
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For any other person/fraud .......................................
For natural person/fraud/substantial losses or risk
of losses to others.
For any other person/fraud/substantial losses or
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For natural person ....................................................
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[FR Doc. 2020–00306 Filed 1–10–20; 8:45 am]
BILLING CODE 8011–01–P
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2020 Adjusted
penalty
amounts
473,566
189,427
By the Commission.
Dated: January 8, 2020.
Vanessa A. Countryman,
Secretary.
15 The penalty amounts in this Notice are being
published in the Federal Register and will not be
added to the Code of Federal Regulations in
accordance with the 2015 Act and 17 CFR
201.1001(b). See 28 U.S.C. 2461 note Sec. 4(a)(2);
17 CFR 201.1001(b). In addition to being published
in the Federal Register, the penalty amounts in this
Notice will be made available on the Commission’s
website at https://www.sec.gov/enforce/civilpenalties-inflation-adjustments.htm, as detailed in
17 CFR 201.1001(b). This website also lists the
penalty amounts for violations that occurred on or
before November 2, 2015.
16 17 CFR 201.1001(a).
16:32 Jan 10, 2020
CPI–U
multiplier
For any other person/fraud .......................................
For natural person/fraud/substantial losses or risk
of losses to others.
For any other person/fraud/substantial losses or
risk of losses to others.
For natural person ....................................................
Pursuant to the 2015 Act and 17 CFR
201.1001, the adjusted penalty amounts
in this Notice (and all penalty
adjustments performed pursuant to the
2015 Act) apply to penalties imposed
after the date the adjustment is effective
for violations that occurred after
November 2, 2015, the 2015 Act’s
enactment date. These penalty amounts
supersede the amounts in the 2018
Adjustment.15 For violations that
occurred on or before November 2,
2015, the penalty amounts in Table I to
17 CFR 201.1001 continue to apply.16
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2019
Adjustment
penalty
amounts
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SECURITIES AND EXCHANGE
COMMISSION
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
[Release No. 34–87901; File No. SR–
NYSEArca–2020–04]
The Exchange proposes to amend the
NYSE Arca Options Fee Schedule (‘‘Fee
Schedule’’) regarding the Floor Broker
Prepayment Program. The Exchange
proposes to implement the fee change
effective January 2, 2020. 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.
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the NYSE Arca
Options Fee Schedule Regarding the
Floor Broker Prepayment Program
January 7, 2020.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on January 2,
2020, NYSE Arca, Inc. (‘‘NYSE Arca’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘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).
U.S.C. 78a.
3 17 CFR 240.19b–4.
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.
2 15
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Federal Register / Vol. 85, No. 8 / Monday, January 13, 2020 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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The purpose of this filing is to modify
and extend the prepayment incentive
program for Floor Broker organizations
(each a ‘‘Floor Broker’’) which allows
Floor Brokers to prepay certain annual
costs in exchange for volume rebates, as
set forth in the Fee Schedule (the ‘‘FB
Prepay Program’’ or ‘‘Program’’).4
Pursuant to the current FB Prepay
Program, the Exchange offers Floor
Brokers a 10% discount on their
‘‘Eligible Fixed Costs’’ if such costs are
prepaid in advance of the year (the
‘‘10% Discount’’) 5 and an opportunity
to qualify for the Percentage Growth
Incentive (the ‘‘Growth Incentive’’),
which is designed to encourage Floor
Brokers to increase their average daily
volume (‘‘ADV’’) in billable manual
contract sides by certain percentages
(correlated with Tiers) as measured
against (the greater of) one of two
benchmarks.6
The Exchange proposes to make
several changes to this Program,
including to make it renewable
annually, to remove the 10% Discount,
and to offer an alternative annual fixed
rebate amount if a participant qualifies
for the Growth Incentive. Currently, if a
Floor Broker qualifies for the Growth
Incentive, it would be eligible for
specified percentage reductions of its
pre-paid annual fixed costs. The
Exchange proposes to offer an
alternative to receive a specified annual
fixed rebate if a Floor Broker qualifies
for the Growth Incentive. Participants
that qualify would receive the greater of
the two rebates. The Exchange also
proposes to adjust the qualifying
baseline volumes and benchmarks.
The Exchange proposes to implement
the fee change effective January 2, 2020.
4 See Fee Schedule, FLOOR BROKER FIXED
COST PREPAYMENT INCENTIVE PROGRAM (the
‘‘FB Prepay Program’’), available here, https://
www.nyse.com/publicdocs/nyse/markets/arcaoptions/NYSE_Arca_Options_Fee_Schedule.pdf.
5 See id. (providing that Eligible Fixed Costs
include: OTP Trading Participant Rights—Floor
Broker; Floor Broker Order Capture Device- Market
Data Fees; Floor Booths; Options Floor Access Fee;
and Wire Services).
6 The Percentage Growth Incentive excludes
Customer volume, Firm Facilitation and Broker
Dealer facilitating a Customer trades, and QCCs.
Any volume calculated to achieve the Firm and
Broker Dealer Monthly Fee Cap and the Limit of
Fees on Options Strategy Executions, are likewise
excluded from the Percentage Growth Incentive
because fees on such volume is already capped and
therefore does not increase billable manual volume.
See id.
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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.’’ 7
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.8
Therefore, no exchange possesses
significant pricing power in the
execution of multiply-listed equity &
ETF options order flow. More
specifically, in the third quarter of 2019,
the Exchange had less than 10% market
share of executed volume of multiplylisted equity & ETF options trades.9
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. To respond to this competitive
marketplace, the Exchange has
established incentives for Floor Brokers,
as such participants serve an important
function in facilitating the execution of
orders via open outcry, which promotes
price discovery on the public markets.
To the extent that these incentives
succeed, the increased liquidity on the
Exchange would result in enhanced
market quality for all participants.
Proposed Rule Change
The Exchange proposes to modify the
Floor Broker Prepayment Program in
several ways. First, the Exchange
proposes to remove reference to specific
years and to add rule text making clear
7 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(S7–10–04) (‘‘Reg NMS Adopting Release’’).
8 The 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.
9 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 September.
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that the Program is renewable on an
annual basis.10 The Exchange also
proposes to remove language regarding
the 10% Discount, as that would no
longer be included in the Program.11 In
addition, the Exchange proposes to
expand the Growth Incentive to provide
an annual fixed-rebate option.
Currently, to qualify for the Growth
Incentive, the minimum threshold that
a participant needs to exceed is the
greater of: 11,000 contract sides in
billable manual ADV; or 110% of the
Floor Broker’s total billable manual
ADV in contract sides during the second
half of 2017—i.e., July through
December 2017.12
The Exchange proposes to revise the
minimum thresholds that a participant
needs to exceed to qualify for the
Growth Incentive as follows: 20,000
contract sides (up from 11,000) in
billable manual ADV; or 105% of the
Floor Broker’s total billable manual
ADV in contract sides (down from
110%) during the second half of 2017—
i.e., July through December 2017.13 The
Exchange believes that 20,000 ADV is a
reasonable minimum threshold above
which a participating Floor Broker
would need to increase volume in order
to qualify for the Growth Incentive
given the increased options volume
executed by Floor Brokers in the past
year. The Exchange also notes that Floor
Brokers that are new to the Exchange
would be able to qualify for the Growth
Incentive based on the minimum
threshold of 20,000 contract sides. In
addition, because Floor Broker volume
has increased, the Exchange believes
that Floor Brokers that previously
participated in the Program would be
able to achieve this proposed minimum
10 See proposed Fee Schedule, FLOOR BROKER
FIXED COST PREPAYMENT INCENTIVE
PROGRAM (the ‘‘FB Prepay Program’’) (including
removing reference to specific years and adding
references to Floor Brokers prepaying for the ‘‘the
following calendar year’’ after committing thereto
by ‘‘the last business day of December in the current
year’’; being invoiced in January for Eligible Fixed
Costs based on annualizing their Eligible Fixed
Costs incurred in the previous November;’’ and
participants receiving their rebate ‘‘in the following
January.’’ See id. For example, if a participating
Floor Broker incurred $6,000 in Eligible Fixed Costs
in November, that Floor Broker would be invoiced
in January of the following year in the amount of
$72,000 to prepay such costs for the entire year.
11 See proposed Fee Schedule, FLOOR BROKER
FIXED COST PREPAYMENT INCENTIVE
PROGRAM (the ‘‘FB Prepay Program’’). For
consistency, the Exchange would also remove
reference to ‘‘larger discounts’’ as it related to the
smaller 10% Discount and replace this reference
with the word ‘‘rebates.’’ See id.
12 See Fee Schedule, FLOOR BROKER FIXED
COST PREPAYMENT INCENTIVE PROGRAM (the
‘‘FB Prepay Program’’).
13 See proposed Fee Schedule, FLOOR BROKER
FIXED COST PREPAYMENT INCENTIVE
PROGRAM (the ‘‘FB Prepay Program’’).
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threshold. The Exchange likewise
believes it is appropriate to reduce the
requisite percentage to meet the 2017
benchmark because it would make this
alternative more achievable for Floor
Brokers that do not meet the billable
manual ADV threshold. The Exchange
notes that the changes to the Program
are designed to encourage those Floor
Brokers that have previously enrolled in
the Program to reenroll for the
upcoming year as well as to attract Floor
Brokers that have not yet participated.
Regardless of which benchmark a
Floor Broker’s growth is measured
against, all Floor Brokers that aim to
qualify for the Growth Incentive would
be required to increase volume executed
on the Exchange. The total annual
rebate available for achieving each Tier
would be the same regardless of
whether the Floor Broker relied on the
minimum (proposed) 20,000 ADV
contract sides as the benchmark or
105% of the second half of 2017
volume.
The Exchange also proposes to add an
option for a Floor broker to receive a
fixed rebate instead of a percentage
reduction of pre-paid annual fixed costs
if it qualifies for the Growth Incentive.
To reflect this new option, the Exchange
proposes to add rule text providing that
‘‘[e]ligible Floor Broker organizations
are entitled to an annual rebate that is
the greater of the ‘Total Percentage
Reduction of pre-paid annual Eligible
Fixed Costs’ or the ‘Alternative Rebate’
based upon the Percentage Growth
Incentive Tier achieved, as set forth in
the table below’’.
As in prior years, the Exchange is
proposing rebates based on the growth
in ADV in contract sides, but proposes
to modify (and make more achievable)
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the requisite Percentage Growth
requirements to as low as 5% to achieve
an annual rebate of 25% of prepaid
Eligible Fixed Costs or $4,000/month,
whichever is greater, to Growth
Incentive as high as 150% to achieve an
annual rebate of 100% Eligible Fixed
Costs or $18,000/month (under new Tier
5), whichever is greater.14 Just as the
total percentage reduction increases as
the Percentage Growth increases, the
Exchange proposes that the annual
Alternative Rebate, with fixed dollar
amounts tied to each Tier, would also
increase as the Percentage Growth
increases. Participants that qualify for
one of the Tiers would receive only the
higher of the two potential rebates, paid
annually.
The following table reflects the
proposed changes (with deletions in
brackets and new text italicized): 15
FB PREPAYMENT PROGRAM INCENTIVES
[Based on annual ADV in contract sides for the calendar year (in 2019)]
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Tier
Tier
Tier
Tier
Tier
1
2
3
4
5
Total percentage
reduction of pre-paid
annual eligible fixed
costs [for 2019]
Percentage growth
incentive
Tier
...................................................................
...................................................................
...................................................................
...................................................................
...................................................................
[30]5
[65]25
[100]50
100
150
[40]25
[75]50
[100*]75
80
100
all market participants by expanding
liquidity and providing more trading
opportunities, even to those market
participants that have not committed to
the Program. Regardless of which
benchmark a participating Floor
Broker’s growth is measured against, all
Floor Broker’s that opt to participate
would be required to increase volume
executed on the Exchange in order to
receive the enhanced discount. The
Exchange cannot predict with certainty
whether any Floor Brokers would avail
themselves of this proposed fee change.
However, all Floor brokers are eligible
for this Program.
Thus, as proposed, a participating
Floor Broker would qualify for the
proposed Growth Incentive by executing
ADV growth in manual billable contract
sides that is 5%, 25%, 50%, 100% or
150%, over the greater of (i) 20,000
contract sides ADV; or (ii) 105% of their
ADV during the second half of 2017
(i.e., July through December).
Participants that qualify for Tiers 1, 2,
3, 4 or 5 would be eligible for 25%,
50%, 75%, 80% or 100% of their prepaid annual Eligible Fixed costs,
respectively. However, if the amount of
the annual Alternative Rebate works out
to be greater than the rebate available
under the Growth Incentive program,
the Floor Broker would be entitled to
that amount.
Although this program relates to fixed
costs, the Exchange believes the
Program (as modified) would continue
to incent Floor Brokers to increase their
billable volume executed in open outcry
on the Exchange, which would benefit
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,16 in general, and
furthers the objectives of Sections
6(b)(4) and (5) of the Act,17 in particular,
because it provides for the equitable
allocation of reasonable dues, fees, and
14 See id. The Exchange notes that new Tier 4
effectively replacing current Tier 3 in terms of
growth requirement and potential rebate, as the
Exchange has lowered (and made more achievable)
proposed Tier 3. See id.
15 Given that the annual Alternative Rebate will
be available for all Tiers (and not just Tier 3 as is
currently the case), the Exchange also proposes to
delete the following language from the Fee
Schedule as obsolete: ‘‘*Participants in the FB
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2. Statutory Basis
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Alternative rebate
$4,000/month.
$6,000/month.
$8,000/month.
$14,000/month.
$18,000/month.
other charges among its members,
issuers and other persons using its
facilities and does not unfairly
discriminate between customers,
issuers, brokers or dealers.
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
Prepay Program that qualify for Tier 3 will be
rebated the greater of 100% of their pre-paid annual
Eligible Fixed Costs, or $10,000/month.’’ See id.
16 15 U.S.C. 78f(b).
17 15 U.S.C. 78f(b)(4) and (5).
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broader forms that are most important to
investors and listed companies.’’ 18
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.19
Therefore, no exchange possesses
significant pricing power in the
execution of multiply-listed equity &
ETF options order flow. More
specifically, in the third quarter of 2019,
the Exchange had less than 10% market
share of executed volume of multiplylisted equity & ETF options trades.20
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 the FB Prepay
Program, as modified, is reasonable
because the Program is optional and
Floor Brokers can elect to participate or
not. In addition, the Exchange is
continuing to offer two alternative
means to achieve the same enhanced
rebate to ensure that Floor Brokers that
are new to the Exchange (or Floor
Brokers that did not execute more than
20,000 ADV in contract sides) could
also participate in the Program. The
Exchange believes that increasing one of
the alternate requirements to 20,000
ADV is a reasonable minimum
threshold above which a participating
Floor Broker would need to increase
volume in order to realize the proposed
Growth Incentive because numerous
Floor brokers exceeded this volume
requirement in 2019, even though it was
not required. Because Floor Brokers are
already performing at this level, the
Exchange believes it is reasonable to
adjust the eligibility requirement for the
Growth Incentive to match current
performance levels. Having
demonstrated an ability to meet this
higher volume threshold, the Exchange
is seeking to encourage Floor Brokers to
sustain this volume threshold
18 See Reg NMS Adopting Release, supra note 7,
at 37499.
19 See supra note 8.
20 Based on OCC data, see supra note 9, in 2019,
the Exchange’s market share in equity-based
options declined from 9.57% for the month of
January to 9.23% for the month of September.
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throughout the year. The Exchange also
believes it is reasonable to use each
Floor Broker’s historical volume in the
second half of 2017 as a benchmark
against which to measure future growth
to achieve the proposed Growth
Incentive, and to lower from 110% to
105% the requisite increase over the
Floor Broker’s 2017 volume, because it
makes the Growth Incentive more
achievable and provides an opportunity
for more Floor Brokers to qualify for the
Growth Incentive Program.
The Exchange further believes that the
proposed changes to add more tiers to
the Growth Incentive is reasonable
because it will provide greater
opportunities to Floor Brokers to be
eligible for one of the two rebates by
providing lower thresholds to qualify.
Overall, the proposed changes to the
Growth Incentive program are designed
to make the existing Tiers more
achievable while adding new Tiers 4
and 5 to encourage increased executions
by Floor Brokers on the Exchange,
which activity (even with lower volume
thresholds) would benefit all market
participants.
The Exchange also believes it is
reasonable to provide an annual
alternative fixed rebate because it
provides an option for Floor brokers to
earn the higher of the percentage
reduction rebate, or the fixed-rebate
amount.
Moreover, the FB Prepay Program
provides Floor Brokers the opportunity
to receive rebates on its Eligible Fixed
Costs that they otherwise would not
receive, based on trading activity. Such
rebates may encourage Floor Brokers to
increase their billable volume executed
in open outcry on the Exchange, which
would benefit all market participants by
expanding liquidity and providing more
trading opportunities, even to non-Floor
Broker market participants (including
participating Floor Brokers who do not
hit the volume thresholds).
Finally, to the extent the proposed
change continues to attract greater
volume and liquidity to the Exchange
(including to the Floor), the Exchange
believes the proposed change would
improve the Exchange’s overall
competitiveness and strengthen its
market quality for all market
participants. In the backdrop of the
competitive environment in which the
Exchange operates, the proposed rule
change is a reasonable attempt by the
Exchange to increase the depth of its
market and improve its market share
relative to its competitors.
The Exchange cannot predict with
certainty whether any Floor Brokers
would avail themselves of this proposed
fee change. However, all Floor brokers
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are eligible to participate in the
Program.
The Proposed Rule Change Is an
Equitable Allocation of Credits and Fees
The Exchange believes the proposed
rule change is an equitable allocation of
its fees and credits. The proposal is
based on the amount and type of
business transacted on the Exchange
and Floor Brokers can opt to avail
themselves of the Program or not, and
to attempt to trade sufficient volume to
achieve one of the Tiers, or not. All
participating Floor Brokers have the
ability to qualify for the same enhanced
rebate under two alternatives means
offered (i.e., the greater of at least 20,000
contract sides in billable ADV or 105%
of the Floor Broker’s total billable
manual ADV in the second half of
2017). The Exchange notes that the
changes to the Program are designed to
encourage those Floor Brokers that have
previously enrolled in the Program to
reenroll for the upcoming year as well
as to attract Floor Brokers that have not
yet participated.
Moreover, the proposed change
applies to qualifying Floor Brokers
equally and because Floor Brokers serve
an important function in facilitating the
execution of orders via open outcry,
which as a price-improvement
mechanism, the Exchange wishes to
encourage and support.
To the extent that the proposed
change continues to attract more
participation in the programs of the
Exchange, the increased order flow
would continue to make the Exchange a
more competitive venue for, among
other things, order execution. Thus, the
Exchange believes the proposed rule
change would improve market quality
for all market participants on the
Exchange and, as a consequence, attract
more order flow to the Exchange thereby
improving market-wide quality and
price discovery.
The Proposed Rule Change Is Not
Unfairly Discriminatory
The Exchange believes it is not
unfairly discriminatory to modify the
FB Prepayment program because the
proposed modification would be
available to all similarly-situated Floor
Brokers on an equal and nondiscriminatory basis.
The proposed modified Program is
not unfairly discriminatory to non-Floor
Brokers because Floor Brokers serve an
important function in facilitating the
execution of orders via open outcry,
which as a price-improvement
mechanism, the Exchange wishes to
encourage and support. To the extent
that the proposed change continues to
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attract more participation in the
programs of the Exchange, the increased
order flow would continue to make the
Exchange a more competitive venue for,
among other things, order execution.
Thus, the Exchange believes the
proposed rule change would improve
market quality for all market
participants on the Exchange and, as a
consequence, attract more order flow to
the Exchange thereby improving marketwide quality and price discovery.
Moreover, the proposal is based on
the amount and type of business
transacted on the Exchange and Floor
Broker organizations are not obligated to
participate in the Program and, if they
do, they are not obligated to try to
achieve any of the Tiers.
To the extent that the proposed
change attracts a variety of transactions
to the Exchange, this increased order
flow would continue to make the
Exchange a more competitive venue for
order execution. Thus, the Exchange
believes the proposed rule change
would improve market quality for all
market participants on the Exchange
and, as a consequence, attract more
order flow to (the Floor of) the Exchange
thereby improving market-wide quality
and price discovery. The resulting
increased volume and liquidity would
provide more trading opportunities and
tighter spreads to all market participants
and thus would promote just and
equitable principles of trade, remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
Finally, the Exchange believes that it
is subject to significant competitive
forces, as described below in the
Exchange’s statement regarding the
burden on competition.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act, the Exchange does not believe
that the proposed rule change would
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
Instead, as discussed above, the
Exchange believes that the proposed
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,
VerDate Sep<11>2014
16:32 Jan 10, 2020
Jkt 250001
which promotes ‘‘more efficient pricing
of individual stocks for all types of
orders, large and small.’’ 21
Intramarket Competition. The
Exchange believes the proposed
Program, as modified, should continue
to encourage order flow to be directed
to the (Floor of the) Exchange, which
would enhance the quality of quoting
and may increase the volumes of
contracts trade on the Exchange. To the
extent that there is an additional
competitive burden on non-Floor
Brokers, the Exchange believes that this
is appropriate because Floor Brokers
serve an important function in
facilitating the execution of orders via
open outcry, which as a priceimprovement mechanism, the Exchange
wishes to encourage and support.
To the extent that this function is
achieved, all of the Exchange’s market
participants should benefit from the
improved market liquidity. Enhanced
market quality and increased
transaction volume that results from the
anticipated increase in order flow
directed to the Exchange will benefit all
market participants and improve
competition on the Exchange.
Intermarket Competition. The
Exchange believes that the proposed
change could promote competition
between the Exchange and other
execution venues, by encouraging
additional orders to be sent to the (Floor
of the) Exchange for execution. The
proposed adjustments to the Program
are designed to make the incentives
more achievable and to continue to
encourage Floor Brokers to execute
orders on the Floor of the Exchange,
which would increase volume and
liquidity, to the benefit of all market
participants by providing more trading
opportunities and tighter spreads.
Given the robust competition for
volume among options markets, many of
which offer the same products,
implementing programs to attract order
flow, such as the proposed modification
to the FB Prepayment Program, are
consistent with the above-mentioned
goals of the Act.
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.
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
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:
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–2020–04 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–2020–04. 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/
22 15
21 See
Reg NMS Adopting Release, supra note 7,
at 37499.
PO 00000
Frm 00040
Fmt 4703
Sfmt 4703
1839
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
24 15 U.S.C. 78s(b)(2)(B).
23 17
E:\FR\FM\13JAN1.SGM
13JAN1
1840
Federal Register / Vol. 85, No. 8 / Monday, January 13, 2020 / Notices
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–2020–04, and
should be submitted on or before
February 3, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–00262 Filed 1–10–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
33742; File No. 812–14940]
Kayne Anderson MLP/Midstream
Investment Company, et al.
January 8, 2020.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
khammond on DSKJM1Z7X2PROD with NOTICES
AGENCY:
Notice of application for an order
under sections 17(d) and 57(i) of the
Investment Company Act of 1940 (the
‘‘Act’’) and rule 17d–1 under the Act to
permit certain joint transactions
otherwise prohibited by sections 17(d)
and 57(a)(4) of the Act and rule 17d–1
under the Act.
SUMMARY OF APPLICATION: Applicants
request an order to permit certain
business development companies
(‘‘BDCs’’) and closed-end management
25 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
16:32 Jan 10, 2020
Jkt 250001
investment companies to co-invest in
portfolio companies with each other and
with certain affiliated investment funds
and accounts.
APPLICANTS: Kayne Anderson MLP/
Midstream Investment Company
(‘‘KYN’’), Kayne Anderson Midstream/
Energy Fund, Inc. (‘‘KMF’’), Kayne
Anderson BDC, LLC (‘‘KA BDC’’), Kayne
Anderson Income Strategies Fund
(‘‘KIF’’), KA Credit Advisors, LLC (‘‘KA
Credit’’), KA Fund Advisors, LLC
(‘‘KAFA’’), Kayne Anderson Capital
Advisors, L.P. (‘‘KACALP’’), Kayne
Anderson Fund Advisors, LLC
(‘‘KAFAII’’), Kayne Solutions Manager,
L.P. (‘‘KSM’’), Kayne KS Credit GP, LLC
(‘‘KKSC’’), Kayne Anderson Real Estate
Debt Advisors III, LLC (‘‘KAREDA’’),
Kayne Senior Credit III Manager, L.P.
(‘‘KSCIIIM’’), Kayne Senior Credit IV
Manager, L.P. (‘‘KSCIVM’’ and together
with KA Credit, KAFA, KACALP,
KAFAII, KSM, KKSC, KAREDA and
KSCIIIM, the ‘‘Existing Advisers’’),
Kayne Anderson Capital Income
Partners (QP), L.P., Kayne Anderson
Income Partners, L.P., Kayne Anderson
Infrastructure Income Fund, L.P., Kayne
Anderson Midstream Institutional Fund,
L.P., Kayne Anderson MLP Fund, L.P.,
Kayne Anderson Real Assets Fund, L.P.,
Kayne Equity Yield Strategies, L.P.,
Kayne Global Infrastructure Fund, L.P.,
Kayne Renewable Energy Income Fund,
L.P., KA Special K, L.P., Kayne
Simplified Midstream, L.P., Kayne
Anderson Real Estate Debt III, L.P.,
Kayne Senior Credit Fund III, L.P.,
Kayne Senior Credit III Offshore Fund,
L.P., Kayne KS Credit Fund, L.P., Kayne
Solutions Fund, L.P., Kayne Solutions
Offshore Fund, L.P., Kayne Multiple
Strategy Fund, L.P., KANTI (QP), L.P.,
Kayne Anderson Non-Traditional
Investments, L.P., KARBO, L.P., Kayne
Liquid Credit Fund, L.P., Kayne
Solutions Mini-Master Fund, L.P.,
Kayne Senior Credit Funding III, LLC,
Kayne Senior Credit Funding III
Offshore, LLC, Kayne Senior Credit III
Mini-Master Fund, L.P., Kayne Senior
Credit Fund IV, L.P., Kayne Senior
Credit IV Mini-Master Fund, L.P. and
Kayne Senior Credit IV Offshore Fund,
L.P. (together, ‘‘Applicants’’).
FILING DATES: The application was filed
on August 15, 2018, and amended on
April 3, 2019, July 1, 2019, September
6, 2019, November 15, 2019, and
January 7, 2020.
HEARING OR NOTIFICATION OF HEARING:
An order granting the requested relief
will be issued unless the Commission
orders a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
PO 00000
Frm 00041
Fmt 4703
Sfmt 4703
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on February 3, 2020, and
should be accompanied by proof of
service on applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Pursuant to rule 0–5 under the
Act, hearing requests should state the
nature of the writer’s interest, any facts
bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F St.
NE, Washington, DC 20549–1090.
Applicants: 1800 Avenue of the Stars,
Third Floor, Los Angeles, CA 90067.
FOR FURTHER INFORMATION CONTACT:
Laura L. Solomon, Senior Counsel, at
(202) 551–6915 or Kaitlin C. Bottock,
Branch Chief, at (202) 551–6825 (Chief
Counsel’s Office, Division of Investment
Management).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
website by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Introduction
1. The applicants request an order of
the Commission under sections 17(d)
and 57(i) and rule 17d–1 thereunder
(the ‘‘Order’’) to permit, subject to the
terms and conditions set forth in the
application (the ‘‘Conditions’’), a
Regulated Fund 1 and one or more other
Regulated Funds and/or one or more
Affiliated Funds 2 to enter into Co1 ‘‘Regulated Funds’’ means KYN, KMF, KA BDC,
KIF, the Future Regulated Funds and the BDC
Downstream Funds (defined below). ‘‘Future
Regulated Fund’’ means a closed-end management
investment company (a) that is registered under the
Act or has elected to be regulated as a BDC, (b)
whose investment adviser is an Adviser, and (c)
intends to participate in the Co-investment
Program.
‘‘Adviser’’ means the Existing Advisers, including
the Existing Relying Advisers (identified in
Schedule B to the application), together with any
future investment adviser that (i) controls, is
controlled by or is under common control with KA
Credit, KAFA, KACALP, or KAFAII, as applicable,
(ii)(a) is registered as an investment adviser under
the Investment Advisers Act of 1940 (‘‘Advisers
Act’’), or (b) is a relying adviser of an investment
adviser that is registered under the Advisers Act
and that controls, is controlled by or is under
common control with KA Credit, KAFA, KACALP
or KAFAII, and (iii) is not a Regulated Fund or a
subsidiary of a Regulated Fund.
2 ‘‘Affiliated Fund’’ means any Existing Affiliated
Fund (identified in Schedule A to the application),
any Future Affiliated Fund, Existing KA Proprietary
E:\FR\FM\13JAN1.SGM
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]]>Agencies
[Federal Register Volume 85, Number 8 (Monday, January 13, 2020)]
[Notices]
[Pages 1835-1840]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00262]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87901; File No. SR-NYSEArca-2020-04]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE
Arca Options Fee Schedule Regarding the Floor Broker Prepayment Program
January 7, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on January 2, 2020, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``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 amend the NYSE Arca Options Fee Schedule
(``Fee Schedule'') regarding the Floor Broker Prepayment Program. The
Exchange proposes to implement the fee change effective January 2,
2020. 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.
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.
[[Page 1836]]
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 modify and extend the prepayment
incentive program for Floor Broker organizations (each a ``Floor
Broker'') which allows Floor Brokers to prepay certain annual costs in
exchange for volume rebates, as set forth in the Fee Schedule (the ``FB
Prepay Program'' or ``Program'').\4\
---------------------------------------------------------------------------
\4\ See Fee Schedule, FLOOR BROKER FIXED COST PREPAYMENT
INCENTIVE PROGRAM (the ``FB Prepay Program''), available here,
https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf.
---------------------------------------------------------------------------
Pursuant to the current FB Prepay Program, the Exchange offers
Floor Brokers a 10% discount on their ``Eligible Fixed Costs'' if such
costs are prepaid in advance of the year (the ``10% Discount'') \5\ and
an opportunity to qualify for the Percentage Growth Incentive (the
``Growth Incentive''), which is designed to encourage Floor Brokers to
increase their average daily volume (``ADV'') in billable manual
contract sides by certain percentages (correlated with Tiers) as
measured against (the greater of) one of two benchmarks.\6\
---------------------------------------------------------------------------
\5\ See id. (providing that Eligible Fixed Costs include: OTP
Trading Participant Rights--Floor Broker; Floor Broker Order Capture
Device- Market Data Fees; Floor Booths; Options Floor Access Fee;
and Wire Services).
\6\ The Percentage Growth Incentive excludes Customer volume,
Firm Facilitation and Broker Dealer facilitating a Customer trades,
and QCCs. Any volume calculated to achieve the Firm and Broker
Dealer Monthly Fee Cap and the Limit of Fees on Options Strategy
Executions, are likewise excluded from the Percentage Growth
Incentive because fees on such volume is already capped and
therefore does not increase billable manual volume. See id.
---------------------------------------------------------------------------
The Exchange proposes to make several changes to this Program,
including to make it renewable annually, to remove the 10% Discount,
and to offer an alternative annual fixed rebate amount if a participant
qualifies for the Growth Incentive. Currently, if a Floor Broker
qualifies for the Growth Incentive, it would be eligible for specified
percentage reductions of its pre-paid annual fixed costs. The Exchange
proposes to offer an alternative to receive a specified annual fixed
rebate if a Floor Broker qualifies for the Growth Incentive.
Participants that qualify would receive the greater of the two rebates.
The Exchange also proposes to adjust the qualifying baseline volumes
and benchmarks.
The Exchange proposes to implement the fee change effective January
2, 2020.
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.'' \7\
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS
Adopting Release'').
---------------------------------------------------------------------------
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.\8\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity & ETF options order flow.
More specifically, in the third quarter of 2019, the Exchange had less
than 10% market share of executed volume of multiply-listed equity &
ETF options trades.\9\
---------------------------------------------------------------------------
\8\ The 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.
\9\ 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 September.
---------------------------------------------------------------------------
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. To respond to this
competitive marketplace, the Exchange has established incentives for
Floor Brokers, as such participants serve an important function in
facilitating the execution of orders via open outcry, which promotes
price discovery on the public markets. To the extent that these
incentives succeed, the increased liquidity on the Exchange would
result in enhanced market quality for all participants.
Proposed Rule Change
The Exchange proposes to modify the Floor Broker Prepayment Program
in several ways. First, the Exchange proposes to remove reference to
specific years and to add rule text making clear that the Program is
renewable on an annual basis.\10\ The Exchange also proposes to remove
language regarding the 10% Discount, as that would no longer be
included in the Program.\11\ In addition, the Exchange proposes to
expand the Growth Incentive to provide an annual fixed-rebate option.
---------------------------------------------------------------------------
\10\ See proposed Fee Schedule, FLOOR BROKER FIXED COST
PREPAYMENT INCENTIVE PROGRAM (the ``FB Prepay Program'') (including
removing reference to specific years and adding references to Floor
Brokers prepaying for the ``the following calendar year'' after
committing thereto by ``the last business day of December in the
current year''; being invoiced in January for Eligible Fixed Costs
based on annualizing their Eligible Fixed Costs incurred in the
previous November;'' and participants receiving their rebate ``in
the following January.'' See id. For example, if a participating
Floor Broker incurred $6,000 in Eligible Fixed Costs in November,
that Floor Broker would be invoiced in January of the following year
in the amount of $72,000 to prepay such costs for the entire year.
\11\ See proposed Fee Schedule, FLOOR BROKER FIXED COST
PREPAYMENT INCENTIVE PROGRAM (the ``FB Prepay Program''). For
consistency, the Exchange would also remove reference to ``larger
discounts'' as it related to the smaller 10% Discount and replace
this reference with the word ``rebates.'' See id.
---------------------------------------------------------------------------
Currently, to qualify for the Growth Incentive, the minimum
threshold that a participant needs to exceed is the greater of: 11,000
contract sides in billable manual ADV; or 110% of the Floor Broker's
total billable manual ADV in contract sides during the second half of
2017--i.e., July through December 2017.\12\
---------------------------------------------------------------------------
\12\ See Fee Schedule, FLOOR BROKER FIXED COST PREPAYMENT
INCENTIVE PROGRAM (the ``FB Prepay Program'').
---------------------------------------------------------------------------
The Exchange proposes to revise the minimum thresholds that a
participant needs to exceed to qualify for the Growth Incentive as
follows: 20,000 contract sides (up from 11,000) in billable manual ADV;
or 105% of the Floor Broker's total billable manual ADV in contract
sides (down from 110%) during the second half of 2017--i.e., July
through December 2017.\13\ The Exchange believes that 20,000 ADV is a
reasonable minimum threshold above which a participating Floor Broker
would need to increase volume in order to qualify for the Growth
Incentive given the increased options volume executed by Floor Brokers
in the past year. The Exchange also notes that Floor Brokers that are
new to the Exchange would be able to qualify for the Growth Incentive
based on the minimum threshold of 20,000 contract sides. In addition,
because Floor Broker volume has increased, the Exchange believes that
Floor Brokers that previously participated in the Program would be able
to achieve this proposed minimum
[[Page 1837]]
threshold. The Exchange likewise believes it is appropriate to reduce
the requisite percentage to meet the 2017 benchmark because it would
make this alternative more achievable for Floor Brokers that do not
meet the billable manual ADV threshold. The Exchange notes that the
changes to the Program are designed to encourage those Floor Brokers
that have previously enrolled in the Program to reenroll for the
upcoming year as well as to attract Floor Brokers that have not yet
participated.
---------------------------------------------------------------------------
\13\ See proposed Fee Schedule, FLOOR BROKER FIXED COST
PREPAYMENT INCENTIVE PROGRAM (the ``FB Prepay Program'').
---------------------------------------------------------------------------
Regardless of which benchmark a Floor Broker's growth is measured
against, all Floor Brokers that aim to qualify for the Growth Incentive
would be required to increase volume executed on the Exchange. The
total annual rebate available for achieving each Tier would be the same
regardless of whether the Floor Broker relied on the minimum (proposed)
20,000 ADV contract sides as the benchmark or 105% of the second half
of 2017 volume.
The Exchange also proposes to add an option for a Floor broker to
receive a fixed rebate instead of a percentage reduction of pre-paid
annual fixed costs if it qualifies for the Growth Incentive. To reflect
this new option, the Exchange proposes to add rule text providing that
``[e]ligible Floor Broker organizations are entitled to an annual
rebate that is the greater of the `Total Percentage Reduction of pre-
paid annual Eligible Fixed Costs' or the `Alternative Rebate' based
upon the Percentage Growth Incentive Tier achieved, as set forth in the
table below''.
As in prior years, the Exchange is proposing rebates based on the
growth in ADV in contract sides, but proposes to modify (and make more
achievable) the requisite Percentage Growth requirements to as low as
5% to achieve an annual rebate of 25% of prepaid Eligible Fixed Costs
or $4,000/month, whichever is greater, to Growth Incentive as high as
150% to achieve an annual rebate of 100% Eligible Fixed Costs or
$18,000/month (under new Tier 5), whichever is greater.\14\ Just as the
total percentage reduction increases as the Percentage Growth
increases, the Exchange proposes that the annual Alternative Rebate,
with fixed dollar amounts tied to each Tier, would also increase as the
Percentage Growth increases. Participants that qualify for one of the
Tiers would receive only the higher of the two potential rebates, paid
annually.
---------------------------------------------------------------------------
\14\ See id. The Exchange notes that new Tier 4 effectively
replacing current Tier 3 in terms of growth requirement and
potential rebate, as the Exchange has lowered (and made more
achievable) proposed Tier 3. See id.
---------------------------------------------------------------------------
The following table reflects the proposed changes (with deletions
in brackets and new text italicized): \15\
---------------------------------------------------------------------------
\15\ Given that the annual Alternative Rebate will be available
for all Tiers (and not just Tier 3 as is currently the case), the
Exchange also proposes to delete the following language from the Fee
Schedule as obsolete: ``*Participants in the FB Prepay Program that
qualify for Tier 3 will be rebated the greater of 100% of their pre-
paid annual Eligible Fixed Costs, or $10,000/month.'' See id.
FB Prepayment Program Incentives
[Based on annual ADV in contract sides for the calendar year (in 2019)]
----------------------------------------------------------------------------------------------------------------
Total percentage
Percentage growth reduction of pre-paid
Tier incentive annual eligible fixed Alternative rebate
costs [for 2019]
----------------------------------------------------------------------------------------------------------------
Tier 1............................... [30]5 [40]25 $4,000/month.
Tier 2............................... [65]25 [75]50 $6,000/month.
Tier 3............................... [100]50 [100*]75 $8,000/month.
Tier 4............................... 100 80 $14,000/month.
Tier 5............................... 150 100 $18,000/month.
----------------------------------------------------------------------------------------------------------------
Thus, as proposed, a participating Floor Broker would qualify for
the proposed Growth Incentive by executing ADV growth in manual
billable contract sides that is 5%, 25%, 50%, 100% or 150%, over the
greater of (i) 20,000 contract sides ADV; or (ii) 105% of their ADV
during the second half of 2017 (i.e., July through December).
Participants that qualify for Tiers 1, 2, 3, 4 or 5 would be eligible
for 25%, 50%, 75%, 80% or 100% of their pre-paid annual Eligible Fixed
costs, respectively. However, if the amount of the annual Alternative
Rebate works out to be greater than the rebate available under the
Growth Incentive program, the Floor Broker would be entitled to that
amount.
Although this program relates to fixed costs, the Exchange believes
the Program (as modified) would continue to incent Floor Brokers to
increase their billable volume executed in open outcry on the Exchange,
which would benefit all market participants by expanding liquidity and
providing more trading opportunities, even to those market participants
that have not committed to the Program. Regardless of which benchmark a
participating Floor Broker's growth is measured against, all Floor
Broker's that opt to participate would be required to increase volume
executed on the Exchange in order to receive the enhanced discount. The
Exchange cannot predict with certainty whether any Floor Brokers would
avail themselves of this proposed fee change. However, all Floor
brokers are eligible for this Program.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\16\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\17\ 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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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Rule Change Is Reasonable
The Exchange operates in a highly competitive market. The
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. In Regulation NMS, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues and, also, recognized that current regulation of the
market system ``has been remarkably successful in promoting market
competition in its
[[Page 1838]]
broader forms that are most important to investors and listed
companies.'' \18\
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\18\ See Reg NMS Adopting Release, supra note 7, at 37499.
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There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than 16% of the market
share of executed volume of multiply-listed equity and ETF options
trades.\19\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity & ETF options order flow.
More specifically, in the third quarter of 2019, the Exchange had less
than 10% market share of executed volume of multiply-listed equity &
ETF options trades.\20\
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\19\ See supra note 8.
\20\ Based on OCC data, see supra note 9, in 2019, the
Exchange's market share in equity-based options declined from 9.57%
for the month of January to 9.23% for the month of September.
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow, or discontinue or reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
constrain options exchange transaction fees. Stated otherwise, changes
to exchange transaction fees can have a direct effect on the ability of
an exchange to compete for order flow.
The Exchange believes the FB Prepay Program, as modified, is
reasonable because the Program is optional and Floor Brokers can elect
to participate or not. In addition, the Exchange is continuing to offer
two alternative means to achieve the same enhanced rebate to ensure
that Floor Brokers that are new to the Exchange (or Floor Brokers that
did not execute more than 20,000 ADV in contract sides) could also
participate in the Program. The Exchange believes that increasing one
of the alternate requirements to 20,000 ADV is a reasonable minimum
threshold above which a participating Floor Broker would need to
increase volume in order to realize the proposed Growth Incentive
because numerous Floor brokers exceeded this volume requirement in
2019, even though it was not required. Because Floor Brokers are
already performing at this level, the Exchange believes it is
reasonable to adjust the eligibility requirement for the Growth
Incentive to match current performance levels. Having demonstrated an
ability to meet this higher volume threshold, the Exchange is seeking
to encourage Floor Brokers to sustain this volume threshold throughout
the year. The Exchange also believes it is reasonable to use each Floor
Broker's historical volume in the second half of 2017 as a benchmark
against which to measure future growth to achieve the proposed Growth
Incentive, and to lower from 110% to 105% the requisite increase over
the Floor Broker's 2017 volume, because it makes the Growth Incentive
more achievable and provides an opportunity for more Floor Brokers to
qualify for the Growth Incentive Program.
The Exchange further believes that the proposed changes to add more
tiers to the Growth Incentive is reasonable because it will provide
greater opportunities to Floor Brokers to be eligible for one of the
two rebates by providing lower thresholds to qualify. Overall, the
proposed changes to the Growth Incentive program are designed to make
the existing Tiers more achievable while adding new Tiers 4 and 5 to
encourage increased executions by Floor Brokers on the Exchange, which
activity (even with lower volume thresholds) would benefit all market
participants.
The Exchange also believes it is reasonable to provide an annual
alternative fixed rebate because it provides an option for Floor
brokers to earn the higher of the percentage reduction rebate, or the
fixed-rebate amount.
Moreover, the FB Prepay Program provides Floor Brokers the
opportunity to receive rebates on its Eligible Fixed Costs that they
otherwise would not receive, based on trading activity. Such rebates
may encourage Floor Brokers to increase their billable volume executed
in open outcry on the Exchange, which would benefit all market
participants by expanding liquidity and providing more trading
opportunities, even to non-Floor Broker market participants (including
participating Floor Brokers who do not hit the volume thresholds).
Finally, to the extent the proposed change continues to attract
greater volume and liquidity to the Exchange (including to the Floor),
the Exchange believes the proposed change would improve the Exchange's
overall competitiveness and strengthen its market quality for all
market participants. In the backdrop of the competitive environment in
which the Exchange operates, the proposed rule change is a reasonable
attempt by the Exchange to increase the depth of its market and improve
its market share relative to its competitors.
The Exchange cannot predict with certainty whether any Floor
Brokers would avail themselves of this proposed fee change. However,
all Floor brokers are eligible to participate in the Program.
The Proposed Rule Change Is an Equitable Allocation of Credits and Fees
The Exchange believes the proposed rule change is an equitable
allocation of its fees and credits. The proposal is based on the amount
and type of business transacted on the Exchange and Floor Brokers can
opt to avail themselves of the Program or not, and to attempt to trade
sufficient volume to achieve one of the Tiers, or not. All
participating Floor Brokers have the ability to qualify for the same
enhanced rebate under two alternatives means offered (i.e., the greater
of at least 20,000 contract sides in billable ADV or 105% of the Floor
Broker's total billable manual ADV in the second half of 2017). The
Exchange notes that the changes to the Program are designed to
encourage those Floor Brokers that have previously enrolled in the
Program to reenroll for the upcoming year as well as to attract Floor
Brokers that have not yet participated.
Moreover, the proposed change applies to qualifying Floor Brokers
equally and because Floor Brokers serve an important function in
facilitating the execution of orders via open outcry, which as a price-
improvement mechanism, the Exchange wishes to encourage and support.
To the extent that the proposed change continues to attract more
participation in the programs of the Exchange, the increased order flow
would continue to make the Exchange a more competitive venue for, among
other things, order execution. Thus, the Exchange believes the proposed
rule change would improve market quality for all market participants on
the Exchange and, as a consequence, attract more order flow to the
Exchange thereby improving market-wide quality and price discovery.
The Proposed Rule Change Is Not Unfairly Discriminatory
The Exchange believes it is not unfairly discriminatory to modify
the FB Prepayment program because the proposed modification would be
available to all similarly-situated Floor Brokers on an equal and non-
discriminatory basis.
The proposed modified Program is not unfairly discriminatory to
non-Floor Brokers because Floor Brokers serve an important function in
facilitating the execution of orders via open outcry, which as a price-
improvement mechanism, the Exchange wishes to encourage and support. To
the extent that the proposed change continues to
[[Page 1839]]
attract more participation in the programs of the Exchange, the
increased order flow would continue to make the Exchange a more
competitive venue for, among other things, order execution. Thus, the
Exchange believes the proposed rule change would improve market quality
for all market participants on the Exchange and, as a consequence,
attract more order flow to the Exchange thereby improving market-wide
quality and price discovery.
Moreover, the proposal is based on the amount and type of business
transacted on the Exchange and Floor Broker organizations are not
obligated to participate in the Program and, if they do, they are not
obligated to try to achieve any of the Tiers.
To the extent that the proposed change attracts a variety of
transactions to the Exchange, this increased order flow would continue
to make the Exchange a more competitive venue for order execution.
Thus, the Exchange believes the proposed rule change would improve
market quality for all market participants on the Exchange and, as a
consequence, attract more order flow to (the Floor of) the Exchange
thereby improving market-wide quality and price discovery. The
resulting increased volume and liquidity would provide more trading
opportunities and tighter spreads to all market participants and thus
would promote just and equitable principles of trade, remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
Finally, the Exchange believes that it is subject to significant
competitive forces, as described below in the Exchange's statement
regarding the burden on competition.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act, the Exchange does
not believe that the proposed rule change would impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Instead, as discussed above, the Exchange believes
that the proposed 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\
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\21\ See Reg NMS Adopting Release, supra note 7, at 37499.
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Intramarket Competition. The Exchange believes the proposed
Program, as modified, should continue to encourage order flow to be
directed to the (Floor of the) Exchange, which would enhance the
quality of quoting and may increase the volumes of contracts trade on
the Exchange. To the extent that there is an additional competitive
burden on non-Floor Brokers, the Exchange believes that this is
appropriate because Floor Brokers serve an important function in
facilitating the execution of orders via open outcry, which as a price-
improvement mechanism, the Exchange wishes to encourage and support.
To the extent that this function is achieved, all of the Exchange's
market participants should benefit from the improved market liquidity.
Enhanced market quality and increased transaction volume that results
from the anticipated increase in order flow directed to the Exchange
will benefit all market participants and improve competition on the
Exchange.
Intermarket Competition. The Exchange believes that the proposed
change could promote competition between the Exchange and other
execution venues, by encouraging additional orders to be sent to the
(Floor of the) Exchange for execution. The proposed adjustments to the
Program are designed to make the incentives more achievable and to
continue to encourage Floor Brokers to execute orders on the Floor of
the Exchange, which would increase volume and liquidity, to the benefit
of all market participants by providing more trading opportunities and
tighter spreads.
Given the robust competition for volume among options markets, many
of which offer the same products, implementing programs to attract
order flow, such as the proposed modification to the FB Prepayment
Program, are consistent with the above-mentioned goals of the Act.
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.
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.
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 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) \24\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\24\ 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
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-2020-04 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-2020-04. 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/
[[Page 1840]]
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-2020-04, and should
be submitted on or before February 3, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00262 Filed 1-10-20; 8:45 am]
BILLING CODE 8011-01-P
