Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Amending the NYSE American Options Fee Schedule To Adopt a New Incentive Program for Floor Brokers, 36644-36647 [2020-12984]
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Federal Register / Vol. 85, No. 117 / Wednesday, June 17, 2020 / Notices
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSE–2020–49 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
[Release No. 34–89045; File No. SR–
NYSEAMER–2020–45]
• 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–NYSE–2020–49. 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–NYSE–2020–49 and should
be submitted on or before July 8, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–12989 Filed 6–16–20; 8:45 am]
khammond on DSKJM1Z7X2PROD with NOTICES
BILLING CODE 8011–01–P
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Amending the NYSE
American Options Fee Schedule To
Adopt a New Incentive Program for
Floor Brokers
June 11, 2020.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on June 5,
2020, NYSE American LLC (‘‘NYSE
American’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, 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’’) to adopt a new
incentive program for Floor Brokers.
The Exchange proposes to implement
the fee change effective June 5, 2020.4
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.
4 The Exchange originally filed to amend the Fee
Schedule on June 1, 2020 (SR–NYSEAMER–2020–
43) and withdrew such filing on June 5, 2020.
2 15
26 17
CFR 200.30–3(a)(12).
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this filing is to modify
the Fee Schedule to introduce a new
incentive program for Floor Broker
organizations (each a ‘‘Floor Broker’’) to
encourage Floor Brokers to increase
their billable volume on the Exchange.
Specifically, the Exchange proposes to
offer a rebate of $35,000 to Floor broker
organizations for each month that a
Floor Broker achieves a certain
minimum level of average daily volume
(‘‘ADV’’) of billable contracts, as
specified below.
The Exchange proposes to implement
the rule changes on June 5, 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.’’ 5
There are currently 16 registered
options exchanges competing for order
flow. Based on publicly-available
information, and excluding index-based
options, no single exchange has more
than 16% of the market share of
executed volume of multiply-listed
equity and ETF options trades.6
Therefore, currently no exchange
possesses significant pricing power in
the execution of multiply-listed equity &
ETF options order flow. More
specifically, in January 2020, the
Exchange had less than 10% market
share of executed volume of multiplylisted equity & ETF options trades.7
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
5 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(S7–10–04) (‘‘Reg NMS Adopting Release’’).
6 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.
7 Based on OCC data, see id., the Exchange’s
market share in equity-based options declined from
9.82% for the month of January 2019 to 8.08% for
the month of January 2020.
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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 to assist Floor
Brokers in attracting more business to
the Exchange—including the Percentage
Growth Incentive for certain Floor
Brokers 8—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
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The Exchange proposes to adopt a
Floor Broker Billable Volume Rebate
(‘‘Rebate’’).9 As proposed, a Floor
Broker would earn a rebate of $35,000
for each month that the Floor Broker
achieves certain ADV in billable ADV.
The calculation for billable ADV applies
to manual executions and QCCs, but
excludes any Customer volume and
non-billable Professional Customer QCC
volume, Firm Facilitation trades, and
any volume calculated to achieve the
Firm Monthly Fee Cap and the Strategy
Execution Fee Cap, regardless of
whether either of these caps is
achieved.10 In short, any volume (or
contract side) for which a Floor Broker
is (potentially) not billed, including
because of monthly fee caps, would not
count towards achieving the Rebate. To
qualify for the proposed monthly
Rebate, a Floor Broker must execute the
greater of:
(I) 75,000 contract sides in billable
ADV or
(ii) 150% of the Floor Broker’s total
billable ADV in contract sides during
the first half of 2019 (i.e., January–June
2019).11
The Exchange believes that 75,000
contract sides in billable ADV (i.e.,
150% of 50,000 contract sides) is a
reasonable minimum threshold for a
Floor Broker, including one that is new
to the Exchange, to achieve given that
8 See Fee Schedule, Section III.E, Floor Broker
Fixed Cost Prepayment Incentive Program (the ‘‘FB
Prepay Program’’).
9 See proposed Fee Schedule, Section III.E.2,
Floor Broker Billable Volume Rebate (the ‘‘FB
Billable Volume Rebate’’). To accommodate this
change, the Exchange proposes (re)name Section
III.E of the Fee Schedule ‘‘Floor Broker Incentive
and Rebate Programs,’’ and to number the FB
Prepay Program and the FB Billable Volume Rebate
as subsection 1 and 2. See proposed Fee Schedule,
Table of Contents (setting forth new Section
III.E.1,2) and Section III.E.1,2.
10 See proposed Fee Schedule, Section III.E.2.
11 See id.
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numerous Floor brokers exceeded this
volume requirement in 2019, even
though it was not required. Similarly,
the Exchange believes that the
minimum alternative threshold of 150%
of a Floor Broker’s total billable ADV in
contract sides during the first half of
2019 is reasonable for those Floor
Brokers that achieve more than 75,000
ADV billable contract sides, given the
increased options volume executed by
Floor Brokers in the past year.
The Exchange believes the proposed
Rebate would encourage Floor Brokers
to seek out, and increase, diverse order
flow for execution on the Exchange. The
Exchange’s fees are constrained by
intermarket competition, as ATP
Holders may direct their order flow to
any of the 16 options exchanges,
including those that may offer similar
incentives. Thus, ATP Holders have a
choice of where they direct their order
flow. Fees and rebates for Floor Broker
activity are designed to encourage Floor
Brokers to execute a variety of
transaction types on the Exchange, and
the FB Billable Volume Rebate is
intended to augment those fees and
rebates with an incentive to encourage
executing billable volume. The
Exchange notes that all market
participants stand to benefit from any
increase in billable volume by Floor
Brokers, which promotes market depth,
facilitates tighter spreads and enhances
price discovery, and may lead to a
corresponding increase in order flow
from other market participants.
The Exchange cannot predict with
certainty whether any Floor Brokers
would avail themselves of this proposed
fee change. However, all Floor brokers
are potentially eligible for this Rebate.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,12 in general, and
furthers the objectives of Sections 6(b)
(4) and (5) of the Act,13 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,
12 15
13 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
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36645
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.’’ 14
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.15
Therefore, currently no exchange
possesses significant pricing power in
the execution of multiply-listed equity &
ETF options order flow. More
specifically, in January 2020, the
Exchange had less than 10% market
share of executed volume of multiplylisted equity & ETF options trades.16
The Exchange believes that the evershifting market share among the
exchanges from month to month
demonstrates that market participants
can shift order flow or discontinue or
reduce use of certain categories of
products, in response to fee changes.
Accordingly, competitive forces
constrain options exchange transaction
fees. Stated otherwise, changes to
exchange transaction fees can have a
direct effect on the ability of an
exchange to compete for order flow.
The Exchange believes that the
proposed FB Billable Volume Rebate,
which offers two alternative methods to
achieve the Rebate, is reasonable
because it is designed to incent Floor
Brokers to increase the amount and
variety of billable order flow directed to
the Exchange. The Exchange notes that
all market participants stand to benefit
from any increase in billable volume by
Floor Brokers, which promotes market
depth, facilitates tighter spreads and
enhances price discovery, and may lead
to a corresponding increase in order
flow from other market participants.
The Exchange believes it is reasonable
to only include transactions for which a
Floor Broker is billed in the calculation
for the FB Volume Rebate because Floor
Brokers are already incented to execute
14 See Reg NMS Adopting Release, supra note 5,
at 37499.
15 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.
16 Based on OCC data, see id., the Exchange’s
market share in equity-based options declined from
9.82% for the month of January 2019 to 8.08% for
the month of January 2020.
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transactions for non-billable business
(e.g., Customer volume and Firm
Facilitation trades or those on which
monthly fees are capped per the Firm
Monthly Fee Cap and the Strategy
Execution Fee Cap) because there is no
charge.
Finally, to the extent the proposed
pricing incentives attract greater volume
and liquidity, the Exchange believes the
proposed changes would improve the
Exchange’s overall competitiveness and
strengthen its market quality for all
market participants. In the backdrop of
the competitive environment in which
the Exchange operates, the proposed
rule changes are a reasonable attempt by
the Exchange to increase the depth of its
market and improve its market share
relative to its competitors. The proposed
rule changes are designed to incent ATP
Holders to direct liquidity to the
Exchange, thereby promoting market
depth, price discovery and
improvement and enhancing order
execution opportunities for market
participants.
The Exchange cannot predict with
certainty whether any Floor Brokers
would avail themselves of this proposed
fee change. However, all Floor brokers
are potentially eligible for this Rebate.
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 attempt to
trade sufficient volume to achieve the
Rebate or not. All Floor Brokers have
the ability to qualify for the same Rebate
under two alternatives means offered
(i.e., the greater of at least 75,000
contract sides in billable ADV or 150%
of the Floor Broker’s total billable ADV
in contract sides during the first half of
2019).
In addition, 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.
Moreover, the proposed Rebate is
designed to incent Floor Brokers to
encourage ATP Holders to aggregate
their executions—particularly billable
volumes—at the Exchange as a primary
execution venue. To the extent that the
proposed changes attract more billable
volume to the Exchange, this increased
order flow would continue to make the
Exchange a more competitive venue for,
among other things, order execution.
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Thus, the Exchange believes the
proposed rule changes would improve
market quality for all market
participants on the Exchange and, as a
consequence, attract more order flow to
the Exchange thereby improving marketwide quality and price discovery.
The Proposed Rule Change Is not
Unfairly Discriminatory
The Exchange believes that the
proposed Rebate is not unfairly
discriminatory because the proposed
modifications would be available to all
similarly-situated market participants
on an equal and non-discriminatory
basis. The proposed Rebate 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.
The proposed Rebate is based on the
amount and type of business transacted
on the Exchange and Floor Brokers are
not obligated to try to achieve the
Rebate. Rather, the proposed Rebate is
designed to encourage these participants
to utilize the Exchange as a primary
trading venue (if they have not done so
previously) or increase billable volume
sent to the Exchange. To the extent that
the proposed changes attract more order
flow to the Exchange (including to the
Floor), this increased order flow would
continue to make the Exchange a more
competitive venue for order execution.
Thus, the Exchange believes the
proposed rule changes would improve
market quality for all market
participants on the Exchange and, as a
consequence, attract more order flow to
the Exchange thereby improving marketwide 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
PO 00000
Frm 00120
Fmt 4703
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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.’’ 17
Intramarket Competition. The
proposed Rebate is designed to assist
Floor Brokers in (continuing to) attract
additional order flow to the Exchange,
including to the Floor, 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 operates in a highly
competitive market in which market
participants can readily favor one of the
16 competing option exchanges if they
deem fee levels at a particular venue to
be excessive. In such an environment,
the Exchange must continually adjust its
fees to remain competitive with other
exchanges and to attract order flow to
the Exchange Based on publiclyavailable information, and excluding
index-based options, no single exchange
currently has more than 16% of the
market share of executed volume of
multiply-listed equity and ETF options
trades.18 Therefore, no exchange
currently possesses significant pricing
power in the execution of multiplylisted equity & ETF options order flow.
More specifically, in January 2020, the
17 See Reg NMS Adopting Release, supra note 5,
at 37499.
18 See supra note 6.
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Exchange had less than 10% market
share of executed volume of multiplylisted equity & ETF options trades.19
The Exchange believes that the
proposed Rebate change reflects this
competitive environment because it
modifies the Exchange’s fees in a
manner designed to incent Floor
Brokers to direct trading interest to the
Exchange, to provide liquidity and to
attract order flow. To the extent that this
purpose is achieved, all the Exchange’s
market participants should benefit from
the improved market quality and
increased opportunities for price
improvement.
The Exchange notes that it operates in
a highly competitive market in which
market participants can readily favor
competing venues. In such an
environment, the Exchange must
continually review, and consider
adjusting, its fees and credits to remain
competitive with other exchanges. For
the reasons described above, the
Exchange believes that the proposed
rule change reflects this competitive
environment. And, in fact, 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 Exchange for execution,
including to the Floor.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 20 of the Act and
subparagraph (f)(2) of Rule 19b–4 21
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
19 Based on OCC data, supra note 7, the
Exchange’s market share in equity-based options
was 9.82% for the month of January 2019 and
8.08% for the month of January 2020.
20 15 U.S.C. 78s(b)(3)(A).
21 17 CFR 240.19b–4(f)(2).
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Commission shall institute proceedings
under Section 19(b)(2)(B) 22 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–
NYSEAMER–2020–45 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–2020–45. 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
22 15
PO 00000
U.S.C. 78s(b)(2)(B).
Frm 00121
Fmt 4703
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36647
Number SR–NYSEAMER–2020–45, and
should be submitted on or before July 8,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–12984 Filed 6–16–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89043; File No. SR–BOX–
2020–18]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Section II of
the Fee Schedule (Manual Transaction
Fees) on the BOX Options Market LLC
Facility
June 11, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 1,
2020, BOX Exchange LLC (‘‘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 Exchange.
The Exchange filed the proposed rule
change pursuant to Section
19(b)(3)(A)(ii) of the Act,3 and Rule
19b–4(f)(2) thereunder,4 which renders
the proposal effective upon filing with
the Commission. 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 the Substance
of the Proposed Rule Change
The Exchange is filing with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
to amend the Fee Schedule to the BOX
Options Market LLC (‘‘BOX’’) facility.
The text of the proposed rule change is
available from the principal office of the
Exchange, at the Commission’s Public
Reference Room and also on the
Exchange’s internet website at https://
boxexchange.com.
23 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
1 15
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]]>Agencies
[Federal Register Volume 85, Number 117 (Wednesday, June 17, 2020)]
[Notices]
[Pages 36644-36647]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12984]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89045; File No. SR-NYSEAMER-2020-45]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Amending
the NYSE American Options Fee Schedule To Adopt a New Incentive Program
for Floor Brokers
June 11, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on June 5, 2020, NYSE American LLC (``NYSE American'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the NYSE American Options Fee
Schedule (``Fee Schedule'') to adopt a new incentive program for Floor
Brokers. The Exchange proposes to implement the fee change effective
June 5, 2020.\4\ 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.
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\4\ The Exchange originally filed to amend the Fee Schedule on
June 1, 2020 (SR-NYSEAMER-2020-43) and withdrew such filing on June
5, 2020.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to modify the Fee Schedule to
introduce a new incentive program for Floor Broker organizations (each
a ``Floor Broker'') to encourage Floor Brokers to increase their
billable volume on the Exchange.
Specifically, the Exchange proposes to offer a rebate of $35,000 to
Floor broker organizations for each month that a Floor Broker achieves
a certain minimum level of average daily volume (``ADV'') of billable
contracts, as specified below.
The Exchange proposes to implement the rule changes on June 5,
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.'' \5\
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\5\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS
Adopting Release'').
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There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than 16% of the market
share of executed volume of multiply-listed equity and ETF options
trades.\6\ Therefore, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity & ETF options
order flow. More specifically, in January 2020, the Exchange had less
than 10% market share of executed volume of multiply-listed equity &
ETF options trades.\7\
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\6\ 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.
\7\ Based on OCC data, see id., the Exchange's market share in
equity-based options declined from 9.82% for the month of January
2019 to 8.08% for the month of January 2020.
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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
[[Page 36645]]
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 to
assist Floor Brokers in attracting more business to the Exchange--
including the Percentage Growth Incentive for certain Floor Brokers
\8\--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.
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\8\ See Fee Schedule, Section III.E, Floor Broker Fixed Cost
Prepayment Incentive Program (the ``FB Prepay Program'').
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Proposed Rule Change
The Exchange proposes to adopt a Floor Broker Billable Volume
Rebate (``Rebate'').\9\ As proposed, a Floor Broker would earn a rebate
of $35,000 for each month that the Floor Broker achieves certain ADV in
billable ADV. The calculation for billable ADV applies to manual
executions and QCCs, but excludes any Customer volume and non-billable
Professional Customer QCC volume, Firm Facilitation trades, and any
volume calculated to achieve the Firm Monthly Fee Cap and the Strategy
Execution Fee Cap, regardless of whether either of these caps is
achieved.\10\ In short, any volume (or contract side) for which a Floor
Broker is (potentially) not billed, including because of monthly fee
caps, would not count towards achieving the Rebate. To qualify for the
proposed monthly Rebate, a Floor Broker must execute the greater of:
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\9\ See proposed Fee Schedule, Section III.E.2, Floor Broker
Billable Volume Rebate (the ``FB Billable Volume Rebate''). To
accommodate this change, the Exchange proposes (re)name Section
III.E of the Fee Schedule ``Floor Broker Incentive and Rebate
Programs,'' and to number the FB Prepay Program and the FB Billable
Volume Rebate as subsection 1 and 2. See proposed Fee Schedule,
Table of Contents (setting forth new Section III.E.1,2) and Section
III.E.1,2.
\10\ See proposed Fee Schedule, Section III.E.2.
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(I) 75,000 contract sides in billable ADV or
(ii) 150% of the Floor Broker's total billable ADV in contract
sides during the first half of 2019 (i.e., January-June 2019).\11\
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\11\ See id.
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The Exchange believes that 75,000 contract sides in billable ADV
(i.e., 150% of 50,000 contract sides) is a reasonable minimum threshold
for a Floor Broker, including one that is new to the Exchange, to
achieve given that numerous Floor brokers exceeded this volume
requirement in 2019, even though it was not required. Similarly, the
Exchange believes that the minimum alternative threshold of 150% of a
Floor Broker's total billable ADV in contract sides during the first
half of 2019 is reasonable for those Floor Brokers that achieve more
than 75,000 ADV billable contract sides, given the increased options
volume executed by Floor Brokers in the past year.
The Exchange believes the proposed Rebate would encourage Floor
Brokers to seek out, and increase, diverse order flow for execution on
the Exchange. The Exchange's fees are constrained by intermarket
competition, as ATP Holders may direct their order flow to any of the
16 options exchanges, including those that may offer similar
incentives. Thus, ATP Holders have a choice of where they direct their
order flow. Fees and rebates for Floor Broker activity are designed to
encourage Floor Brokers to execute a variety of transaction types on
the Exchange, and the FB Billable Volume Rebate is intended to augment
those fees and rebates with an incentive to encourage executing
billable volume. The Exchange notes that all market participants stand
to benefit from any increase in billable volume by Floor Brokers, which
promotes market depth, facilitates tighter spreads and enhances price
discovery, and may lead to a corresponding increase in order flow from
other market participants.
The Exchange cannot predict with certainty whether any Floor
Brokers would avail themselves of this proposed fee change. However,
all Floor brokers are potentially eligible for this Rebate.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\12\ in general, and furthers the
objectives of Sections 6(b) (4) and (5) of the Act,\13\ 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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\12\ 15 U.S.C. 78f(b).
\13\ 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.'' \14\
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\14\ See Reg NMS Adopting Release, supra note 5, 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.\15\ Therefore, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity & ETF options
order flow. More specifically, in January 2020, the Exchange had less
than 10% market share of executed volume of multiply-listed equity &
ETF options trades.\16\
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\15\ 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.
\16\ Based on OCC data, see id., the Exchange's market share in
equity-based options declined from 9.82% for the month of January
2019 to 8.08% for the month of January 2020.
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue or reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
constrain options exchange transaction fees. Stated otherwise, changes
to exchange transaction fees can have a direct effect on the ability of
an exchange to compete for order flow.
The Exchange believes that the proposed FB Billable Volume Rebate,
which offers two alternative methods to achieve the Rebate, is
reasonable because it is designed to incent Floor Brokers to increase
the amount and variety of billable order flow directed to the Exchange.
The Exchange notes that all market participants stand to benefit from
any increase in billable volume by Floor Brokers, which promotes market
depth, facilitates tighter spreads and enhances price discovery, and
may lead to a corresponding increase in order flow from other market
participants.
The Exchange believes it is reasonable to only include transactions
for which a Floor Broker is billed in the calculation for the FB Volume
Rebate because Floor Brokers are already incented to execute
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transactions for non-billable business (e.g., Customer volume and Firm
Facilitation trades or those on which monthly fees are capped per the
Firm Monthly Fee Cap and the Strategy Execution Fee Cap) because there
is no charge.
Finally, to the extent the proposed pricing incentives attract
greater volume and liquidity, the Exchange believes the proposed
changes would improve the Exchange's overall competitiveness and
strengthen its market quality for all market participants. In the
backdrop of the competitive environment in which the Exchange operates,
the proposed rule changes are a reasonable attempt by the Exchange to
increase the depth of its market and improve its market share relative
to its competitors. The proposed rule changes are designed to incent
ATP Holders to direct liquidity to the Exchange, thereby promoting
market depth, price discovery and improvement and enhancing order
execution opportunities for market participants.
The Exchange cannot predict with certainty whether any Floor
Brokers would avail themselves of this proposed fee change. However,
all Floor brokers are potentially eligible for this Rebate.
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 attempt to trade sufficient volume to achieve the Rebate or not.
All Floor Brokers have the ability to qualify for the same Rebate under
two alternatives means offered (i.e., the greater of at least 75,000
contract sides in billable ADV or 150% of the Floor Broker's total
billable ADV in contract sides during the first half of 2019).
In addition, 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.
Moreover, the proposed Rebate is designed to incent Floor Brokers
to encourage ATP Holders to aggregate their executions--particularly
billable volumes--at the Exchange as a primary execution venue. To the
extent that the proposed changes attract more billable volume to the
Exchange, this increased order flow would continue to make the Exchange
a more competitive venue for, among other things, order execution.
Thus, the Exchange believes the proposed rule changes would improve
market quality for all market participants on the Exchange and, as a
consequence, attract more order flow to the Exchange thereby improving
market-wide quality and price discovery.
The Proposed Rule Change Is not Unfairly Discriminatory
The Exchange believes that the proposed Rebate is not unfairly
discriminatory because the proposed modifications would be available to
all similarly-situated market participants on an equal and non-
discriminatory basis. The proposed Rebate 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.
The proposed Rebate is based on the amount and type of business
transacted on the Exchange and Floor Brokers are not obligated to try
to achieve the Rebate. Rather, the proposed Rebate is designed to
encourage these participants to utilize the Exchange as a primary
trading venue (if they have not done so previously) or increase
billable volume sent to the Exchange. To the extent that the proposed
changes attract more order flow to the Exchange (including to the
Floor), this increased order flow would continue to make the Exchange a
more competitive venue for order execution. Thus, the Exchange believes
the proposed rule changes would improve market quality for all market
participants on the Exchange and, as a consequence, attract more order
flow to the Exchange thereby improving market-wide quality and price
discovery. The 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.'' \17\
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\17\ See Reg NMS Adopting Release, supra note 5, at 37499.
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Intramarket Competition. The proposed Rebate is designed to assist
Floor Brokers in (continuing to) attract additional order flow to the
Exchange, including to the Floor, 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 operates in a highly
competitive market in which market participants can readily favor one
of the 16 competing option exchanges if they deem fee levels at a
particular venue to be excessive. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
exchanges and to attract order flow to the Exchange Based on publicly-
available information, and excluding index-based options, no single
exchange currently has more than 16% of the market share of executed
volume of multiply-listed equity and ETF options trades.\18\ Therefore,
no exchange currently possesses significant pricing power in the
execution of multiply-listed equity & ETF options order flow. More
specifically, in January 2020, the
[[Page 36647]]
Exchange had less than 10% market share of executed volume of multiply-
listed equity & ETF options trades.\19\
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\18\ See supra note 6.
\19\ Based on OCC data, supra note 7, the Exchange's market
share in equity-based options was 9.82% for the month of January
2019 and 8.08% for the month of January 2020.
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The Exchange believes that the proposed Rebate change reflects this
competitive environment because it modifies the Exchange's fees in a
manner designed to incent Floor Brokers to direct trading interest to
the Exchange, to provide liquidity and to attract order flow. To the
extent that this purpose is achieved, all the Exchange's market
participants should benefit from the improved market quality and
increased opportunities for price improvement.
The Exchange notes that it operates in a highly competitive market
in which market participants can readily favor competing venues. In
such an environment, the Exchange must continually review, and consider
adjusting, its fees and credits to remain competitive with other
exchanges. For the reasons described above, the Exchange believes that
the proposed rule change reflects this competitive environment. And, in
fact, 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 Exchange for execution,
including to the Floor.
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) \20\ of the Act and subparagraph (f)(2) of Rule
19b-4 \21\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 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) \22\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\22\ 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-2020-45 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-2020-45. 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-2020-45, and should be
submitted on or before July 8, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12984 Filed 6-16-20; 8:45 am]
BILLING CODE 8011-01-P
