Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Change To Amend the NYSE American Options Fee Schedule Regarding the Floor Broker Prepayment Program, 1848-1853 [2020-00264]
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Federal Register / Vol. 85, No. 8 / Monday, January 13, 2020 / Notices
Transactions and Co-Investment
Transactions during the preceding
quarter, including those investments
that the Regulated Fund considered but
declined to participate in, comply with
the Conditions.
(b) All information presented to the
Regulated Fund’s Board pursuant to this
Condition will be kept for the life of the
Regulated Fund and at least two years
thereafter, and will be subject to
examination by the Commission and its
staff.
(c) Each Regulated Fund’s chief
compliance officer, as defined in rule
38a–1(a)(4), will prepare an annual
report for its Board each year that
evaluates (and documents the basis of
that evaluation) the Regulated Fund’s
compliance with the terms and
Conditions of the application and the
procedures established to achieve such
compliance. In the case of a BDC
Downstream Fund that does not have a
chief compliance officer, the chief
compliance officer of the BDC that
controls the BDC Downstream Fund will
prepare the report for the relevant
Independent Party.
(d) The Independent Directors
(including the non-interested members
of each Independent Party) will
consider at least annually whether
continued participation in new and
existing Co-Investment Transactions is
in the Regulated Fund’s best interests.
11. Record Keeping. Each Regulated
Fund will maintain the records required
by section 57(f)(3) of the Act as if each
of the Regulated Funds were a BDC and
each of the investments permitted under
these Conditions were approved by the
Required Majority under section 57(f).
12. Director Independence. No
Independent Director (including the
non-interested members of any
Independent Party) of a Regulated Fund
will also be a director, general partner,
managing member or principal, or
otherwise be an ‘‘affiliated person’’ (as
defined in the Act) of any Affiliated
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13. Expenses. The expenses, if any,
associated with acquiring, holding or
disposing of any securities acquired in
a Co-Investment Transaction (including,
without limitation, the expenses of the
distribution of any such securities
registered for sale under the Securities
Act) will, to the extent not payable by
the Advisers under their respective
advisory agreements with the Regulated
Funds and the Affiliated Funds, be
shared by the Regulated Funds and the
participating Affiliated Funds in
proportion to the relative amounts of the
securities held or being acquired or
disposed of, as the case may be.
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14. Transaction Fees.29 Any
transaction fee (including break-up,
structuring, monitoring or commitment
fees but excluding brokerage or
underwriting compensation permitted
by section 17(e) or 57(k)) received in
connection with any Co-Investment
Transaction will be distributed to the
participants on a pro rata basis based on
the amounts they invested or
committed, as the case may be, in such
Co-Investment Transaction. If any
transaction fee is to be held by an
Adviser pending consummation of the
transaction, the fee will be deposited
into an account maintained by the
Adviser at a bank or banks having the
qualifications prescribed in section
26(a)(1), and the account will earn a
competitive rate of interest that will also
be divided pro rata among the
participants. None of the Advisers, the
Affiliated Funds, the other Regulated
Funds or any affiliated person of the
Affiliated Funds or the Regulated Funds
will receive any additional
compensation or remuneration of any
kind as a result of or in connection with
a Co-Investment Transaction other than
(i) in the case of the Regulated Funds
and the Affiliated Funds, the pro rata
transaction fees described above and
fees or other compensation described in
Condition 2(c)(iii)(B)(z), (ii) brokerage or
underwriting compensation permitted
by section 17(e) or 57(k) or (iii) in the
case of the Advisers, investment
advisory compensation paid in
accordance with investment advisory
agreements between the applicable
Regulated Fund(s) or Affiliated Fund(s)
and its Adviser.
15. Independence. If the Holders own
in the aggregate more than 25 percent of
the Shares of a Regulated Fund, then the
Holders will vote such Shares as
directed by an independent third party
when voting on (1) the election of
directors; (2) the removal of one or more
directors; or (3) any other matter under
either the Act or applicable State law
affecting the Board’s composition, size
or manner of election.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020–00312 Filed 1–10–20; 8:45 am]
BILLING CODE 8011–01–P
29 Applicants are not requesting and the
Commission is not providing any relief for
transaction fees received in connection with any
Co-Investment Transaction.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87903; File No. SR–
NYSEAMER–2020–02]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Change To Amend the NYSE American
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 American LLC (‘‘NYSE
American’’ 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 selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE American 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 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.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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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 The
Exchange also plans to eliminate the
Floor Broker Volume Rebate Program
(the ‘‘FB Volume Rebate’’) as
duplicative and superfluous in light of
the proposed changes to the FB Prepay
Program.5
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’’) 6 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.7
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
4 See Fee Schedule, Section I.E.1, Floor Broker
Fixed Cost Prepayment Incentive Program (the ‘‘FB
Prepay Program’’), available here, https://
www.nyse.com/publicdocs/nyse/markets/americanoptions/NYSE_American_Options_Fee_
Schedule.pdf.
5 See id., Fee Schedule, Section I.E.2 Floor Broker
Volume Rebate Program (the ‘‘FB Volume Rebate’’).
Given the plans to remove the FB Volume Rebate,
the Exchange proposes a technical change to
remove reference to ‘‘Floor Broker Programs’’ in the
Table of Contents, as well as in the body of the Fee
Schedule to re-number the FB Prepay Program as
Section I.E., which would add clarity and
transparency to the Fee Schedule.
6 See id. (providing that Eligible Fixed Costs
include: Section III.A. Monthly ATP Fees; Section
III.B. Floor Access Fee; and Section IV. Monthly
Floor Communication, Connectivity, Equipment
and Booth or Podia Fees, specifically: Login,
Transport Charges, Booth Premises, Telephone
Service, Cellular Phones, Booth Telephone
System—Line Charge, Booth Telephone System—
Single line phone jack and data jack, and Wire
Services).
7 The Percentage Growth Incentive excludes
Customer volume, Firm Facilitation 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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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.
In addition, the FB Volume Rebate
offers Floor Brokers the opportunity to
qualify for a $5,000 rebate each month
that the Floor Broker increases its ADV
by a certain percentage over one of two
benchmarks. Given the proposed
changes to the FB Prepay Program, the
Exchange proposes to eliminate (as
duplicative) the FB Volume Rebate
Program as discussed further herein.
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.’’ 8
There are currently 16 registered
options exchanges competing for order
flow. Based on publicly-available
information, and excluding index-based
options, no single exchange has more
than 16% of the market share of
executed volume of multiply-listed
equity and ETF options trades.9
Therefore, no exchange possesses
significant pricing power in the
execution of multiply-listed equity &
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.10
8 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(S7–10–04) (‘‘Reg NMS Adopting Release’’).
9 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.
10 Based on OCC data, see id., the Exchange’s
market share in equity-based options declined from
9.82% for the month of January to 7.86% for the
month of September.
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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
that the Program is renewable on an
annual basis.11 The Exchange also
proposes to remove language regarding
the 10% Discount, as that would no
longer be included in the Program.12 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 2017.13
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
11 See proposed Fee Schedule, Section I.E., 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.
12 See id. 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.
13 See Fee Schedule, Section I.E.2 Floor Broker
Volume Rebate Program (the ‘‘FB Volume Rebate’’).
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Floor Broker’s total billable manual
ADV in contract sides (down from
110%) during the second half of 2017—
i.e., July through December 2017.14 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
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)
the requisite Percentage Growth
requirements to as low as 5% to achieve
an annual rebate of 10% of prepaid
Eligible Fixed Costs or $2,000/month,
whichever is greater, to Growth
Incentive as high as 100% to achieve an
annual rebate of 100% Eligible Fixed
Costs or $16,000/month (under new Tier
4), whichever is greater.15 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):16
FB PREPAYMENT PROGRAM INCENTIVES
[Based on annual ADV in contract sides for the calendar year (in 2019)]
Tier
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Tier
Tier
Tier
Tier
1
2
3
4
Total Percentage
Reduction of prepaid annual Eligible
Fixed Costs
[for 2019]
Percentage growth
incentive
..................................................
..................................................
..................................................
..................................................
[30]5
[65]30
[100]50
100
Alternative Rebate
[40%]10 ..............................................
[75]50 .................................................
[100*]80 ..............................................
100 .....................................................
$2,000/month.
$4,000/month.
$8,000/month.
$16,000/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%, 30%, 50%, or 100%,
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, or 4 would be
eligible for 10%, 50%, 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.
The Exchange also proposes to
eliminate the Floor Broker Volume
Rebate, as it is now duplicative
following the modifications to the FB
Prepayment Program.17 In particular,
proposed Tier 3 of the FB Prepay
Program requires the same level of
growth as the FB Volume Rebate and a
greater potential rebate. Both programs
require the greater of 20,000 contract
sides or a level of trading as compared
to a prior period that is the same or
greater than volume during that period.
The Exchange notes, however, that the
FB Volume Rebate uses the second half
of 2018 volume as the prior volume
benchmark whereas the proposed FB
Prepay Program uses the second half of
2017 volume. The Exchange believes the
similarities in the program—both in
terms of incentives and potential
rebates—obviate the need to keep both
programs. Thus, the Exchange proposes
to delete as superfluous (and
duplicative) the FB Volume Rebate.
Although the FB Prepay 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
14 See proposed Fee Schedule, Section I.E., Floor
Broker Fixed Cost Prepayment Incentive Program
(the ‘‘FB Prepay Program’’).
15 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.
16 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.
17 See id.
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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.
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2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,18 in general, and
furthers the objectives of Sections
6(b)(4) and (5) of the Act,19 in particular,
because it provides for the equitable
allocation of reasonable dues, fees, and
other charges among its members,
issuers and other persons using its
facilities and does not unfairly
discriminate between customers,
issuers, brokers or dealers.
The Proposed Rule Change Is
Reasonable
The Exchange operates in a highly
competitive market. The Commission
has repeatedly expressed its preference
for competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. In Regulation NMS, the
Commission highlighted the importance
of market forces in determining prices
and SRO revenues and, also, recognized
that current regulation of the market
system ‘‘has been remarkably successful
in promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 20
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.21
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.22
18 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
20 See Reg NMS Adopting Release, supra note 8,
at 37499.
21 See supra note 9.
22 Based on OCC data, see supra note 10, in 2019,
the Exchange’s market share in equity-based
19 15
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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
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 an additional
tier 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
options declined from 9.82% for the month of
January to 7.86% for the month of September.
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to make the existing Tiers more
achievable while adding new Tier 4
(which has same threshold percentage
as existing Tier 3) 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 technical change to renumber the Table of Contents as well as
the body of the Fee Schedule in light of
the removal of the FB Volume Rebate
program is reasonable as it would add
clarity and transparency to the Fee
Schedule.
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
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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.
khammond on DSKJM1Z7X2PROD with NOTICES
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
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.
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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.’’ 23
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
23 See Reg NMS Adopting Release, supra note 8,
at 37499.
PO 00000
Frm 00053
Fmt 4703
Sfmt 4703
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.
The proposed technical change to renumber the Table of Contents as well as
the body of the Fee Schedule in light of
the removal of the FB Volume Rebate
program is not designed to impact
competition but instead should add
clarity and transparency to the Fee
Schedule.
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.
E:\FR\FM\13JAN1.SGM
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Federal Register / Vol. 85, No. 8 / Monday, January 13, 2020 / Notices
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) 24 of the Act and
subparagraph (f)(2) of Rule 19b–4 25
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) 26 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:
khammond on DSKJM1Z7X2PROD 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–
NYSEAMER–2020–02 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–NYSEAMER–2020–02. 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–NYSEAMER–2020–02, and
should be submitted on or before
February 3, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–00264 Filed 1–10–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87902; File No. SR–
NYSEAMER–2020–01]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Change To Amend the NYSE American
Options Fee Schedule Regarding Fees
Charged Under the Market Maker
Sliding Scale
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 American LLC (‘‘NYSE
American’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
27 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
24 15
U.S.C. 78s(b)(3)(A).
25 17 CFR 240.19b–4(f)(2).
26 15 U.S.C. 78s(b)(2)(B).
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1 15
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PO 00000
Frm 00054
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1853
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE American Options Fee Schedule
(‘‘Fee Schedule’’) regarding fees charged
under the Market Maker Sliding Scale.
The Exchange proposes to implement
the fee change effective January 2, 2020.
The proposed 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.
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
certain of the fees charged under the
Market Maker Sliding Scale program, as
described in more detail below.
Section I.C. of the Fee Schedule sets
forth the Sliding Scale of transaction
fees charged to NYSE American Options
Market Makers (referred to as Market
Makers herein), which fees decrease
upon the Market Maker trading certain
minimum (increasing) monthly volume
thresholds as expressed in five tiers (the
‘‘MM Sliding Scale’’).4 The MM Sliding
4 See Fee Schedule, Section I.C., NYSE American
Options Market Maker Sliding Scale—Electronic,
available here, https://www.nyse.com/publicdocs/
nyse/markets/american-options/NYSE_American_
Options_Fee_Schedule.pdf (excluding any volumes
attributable to QCC trades, CUBE Auctions, and
Strategy Execution Fee Caps, as these transactions
are subject to separate pricing described in Fee
Schedule Sections I.F., I.G., and I.J., respectively).
The thresholds are based on a Market Makers’
volume transacted Electronically as a percentage of
Continued
E:\FR\FM\13JAN1.SGM
13JAN1
]]>Agencies
[Federal Register Volume 85, Number 8 (Monday, January 13, 2020)]
[Notices]
[Pages 1848-1853]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00264]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87903; File No. SR-NYSEAMER-2020-02]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Change To Amend the NYSE
American 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 American LLC (``NYSE American'' 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 American 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 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 1849]]
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\ The Exchange also plans to
eliminate the Floor Broker Volume Rebate Program (the ``FB Volume
Rebate'') as duplicative and superfluous in light of the proposed
changes to the FB Prepay Program.\5\
---------------------------------------------------------------------------
\4\ See Fee Schedule, Section I.E.1, Floor Broker Fixed Cost
Prepayment Incentive Program (the ``FB Prepay Program''), available
here, https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf.
\5\ See id., Fee Schedule, Section I.E.2 Floor Broker Volume
Rebate Program (the ``FB Volume Rebate''). Given the plans to remove
the FB Volume Rebate, the Exchange proposes a technical change to
remove reference to ``Floor Broker Programs'' in the Table of
Contents, as well as in the body of the Fee Schedule to re-number
the FB Prepay Program as Section I.E., which would add clarity and
transparency to the Fee Schedule.
---------------------------------------------------------------------------
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'') \6\ 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.\7\
---------------------------------------------------------------------------
\6\ See id. (providing that Eligible Fixed Costs include:
Section III.A. Monthly ATP Fees; Section III.B. Floor Access Fee;
and Section IV. Monthly Floor Communication, Connectivity, Equipment
and Booth or Podia Fees, specifically: Login, Transport Charges,
Booth Premises, Telephone Service, Cellular Phones, Booth Telephone
System--Line Charge, Booth Telephone System--Single line phone jack
and data jack, and Wire Services).
\7\ The Percentage Growth Incentive excludes Customer volume,
Firm Facilitation 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.
In addition, the FB Volume Rebate offers Floor Brokers the
opportunity to qualify for a $5,000 rebate each month that the Floor
Broker increases its ADV by a certain percentage over one of two
benchmarks. Given the proposed changes to the FB Prepay Program, the
Exchange proposes to eliminate (as duplicative) the FB Volume Rebate
Program as discussed further herein.
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.'' \8\
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS
Adopting Release'').
---------------------------------------------------------------------------
There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than 16% of the market
share of executed volume of multiply-listed equity and ETF options
trades.\9\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity & 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.\10\
---------------------------------------------------------------------------
\9\ 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.
\10\ Based on OCC data, see id., the Exchange's market share in
equity-based options declined from 9.82% for the month of January to
7.86% 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.\11\ The Exchange also proposes to remove
language regarding the 10% Discount, as that would no longer be
included in the Program.\12\ In addition, the Exchange proposes to
expand the Growth Incentive to provide an annual fixed-rebate option.
---------------------------------------------------------------------------
\11\ See proposed Fee Schedule, Section I.E., 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.
\12\ See id. 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.\13\
---------------------------------------------------------------------------
\13\ See Fee Schedule, Section I.E.2 Floor Broker Volume Rebate
Program (the ``FB Volume Rebate'').
---------------------------------------------------------------------------
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
[[Page 1850]]
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.\14\ 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 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.
---------------------------------------------------------------------------
\14\ See proposed Fee Schedule, Section I.E., 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 10% of prepaid Eligible Fixed Costs
or $2,000/month, whichever is greater, to Growth Incentive as high as
100% to achieve an annual rebate of 100% Eligible Fixed Costs or
$16,000/month (under new Tier 4), whichever is greater.\15\ 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.
---------------------------------------------------------------------------
\15\ 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):\16\
---------------------------------------------------------------------------
\16\ 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%]10................ $2,000/month.
Tier 2............................... [65]30 [75]50................. $4,000/month.
Tier 3............................... [100]50 [100*]80............... $8,000/month.
Tier 4............................... 100 100.................... $16,000/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%, 30%, 50%, or 100%, 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, or 4 would be eligible for 10%, 50%, 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.
The Exchange also proposes to eliminate the Floor Broker Volume
Rebate, as it is now duplicative following the modifications to the FB
Prepayment Program.\17\ In particular, proposed Tier 3 of the FB Prepay
Program requires the same level of growth as the FB Volume Rebate and a
greater potential rebate. Both programs require the greater of 20,000
contract sides or a level of trading as compared to a prior period that
is the same or greater than volume during that period. The Exchange
notes, however, that the FB Volume Rebate uses the second half of 2018
volume as the prior volume benchmark whereas the proposed FB Prepay
Program uses the second half of 2017 volume. The Exchange believes the
similarities in the program--both in terms of incentives and potential
rebates--obviate the need to keep both programs. Thus, the Exchange
proposes to delete as superfluous (and duplicative) the FB Volume
Rebate.
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\17\ See id.
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Although the FB Prepay 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
[[Page 1851]]
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,\18\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\19\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers and other persons
using its facilities and does not unfairly discriminate between
customers, issuers, brokers or dealers.
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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Rule Change Is Reasonable
The Exchange operates in a highly competitive market. The
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. In Regulation NMS, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues and, also, recognized that current regulation of the
market system ``has been remarkably successful in promoting market
competition in its broader forms that are most important to investors
and listed companies.'' \20\
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\20\ See Reg NMS Adopting Release, supra note 8, 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.\21\ 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.\22\
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\21\ See supra note 9.
\22\ Based on OCC data, see supra note 10, in 2019, the
Exchange's market share in equity-based options declined from 9.82%
for the month of January to 7.86% 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 an
additional tier 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 Tier 4 (which
has same threshold percentage as existing Tier 3) 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 technical change to re-number the Table of Contents as
well as the body of the Fee Schedule in light of the removal of the FB
Volume Rebate program is reasonable as it would add clarity and
transparency to the Fee Schedule.
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
[[Page 1852]]
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 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.'' \23\
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\23\ See Reg NMS Adopting Release, supra note 8, 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.
The proposed technical change to re-number the Table of Contents as
well as the body of the Fee Schedule in light of the removal of the FB
Volume Rebate program is not designed to impact competition but instead
should add clarity and transparency to the Fee Schedule.
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.
[[Page 1853]]
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) \24\ of the Act and subparagraph (f)(2) of Rule
19b-4 \25\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 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) \26\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\26\ 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-NYSEAMER-2020-02 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-NYSEAMER-2020-02. 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-NYSEAMER-2020-02, and should be
submitted on or before February 3, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00264 Filed 1-10-20; 8:45 am]
BILLING CODE 8011-01-P
