Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE Arca Options Fee Schedule, 56653-56656 [2020-20131]

Download as PDF Federal Register / Vol. 85, No. 178 / Monday, September 14, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES rules that qualify as common rules.17 FINRA will then confirm in writing whether the rules listed in any updated list are common rules as defined in the Amended Plan. Under the Amended Plan, MIAX, MIAX PEARL, and MIAX Emerald also will provide FINRA with a current list of common members and shall update the list no less frequently than once each quarter.18 The Commission believes that these provisions are designed to provide for continuing communication between the parties to ensure the continued accuracy of the scope of the proposed allocation of regulatory responsibility. The Commission is hereby declaring effective an Amended Plan that, among other things, allocates regulatory responsibility to FINRA for the oversight and enforcement of all MIAX, MIAX PEARL, and MIAX Emerald rules that are substantially similar to the rules of FINRA for common members of FINRA and MIAX, FINRA and MIAX PEARL, and FINRA and MIAX Emerald. Therefore, modifications to the Certification need not be filed with the Commission as an amendment to the Amended Plan, provided that the parties are only adding to, deleting from, or confirming changes to MIAX, MIAX PEARL, or MIAX Emerald rules in the Certification in conformance with the definition of common rules provided in the Amended Plan. However, should the parties decide to add a MIAX, MIAX PEARL, or MIAX Emerald rule to the Certification that is not substantially similar to a FINRA rule; delete a MIAX, MIAX PEARL, or MIAX Emerald rule from the Certification that is substantially similar to a FINRA rule; or leave on the Certification a MIAX, MIAX PEARL, or MIAX Emerald rule that is no longer substantially similar to a FINRA rule, then such a change would constitute an amendment to the Amended Plan, which must be filed with the Commission pursuant to Rule 17d–2 under the Act.19 Under paragraph (c) of Rule 17d–2, the Commission may, after appropriate notice and comment, declare a plan, or any part of a plan, effective. In this instance, the Commission believes that appropriate notice and comment can take place after the proposed amendment is effective. In particular, 17 See paragraph 2 of the Amended Plan. paragraph 3 of the Amended Plan. 19 The addition to or deletion from the Certification of any federal securities laws, rules, and regulations for which FINRA would bear responsibility under the Amended Plan for examining, and enforcing compliance by, common members, also would constitute an amendment to the Amended Plan. 18 See VerDate Sep<11>2014 17:51 Sep 11, 2020 Jkt 250001 the purpose of the amendment is to add MIAX PEARL equities rules and certain federal securities laws to the Certification. The Commission notes that the most recent prior amendment to the Plan was published for comment and the Commission did not receive any comments thereon.20 The Commission believes that the current amendment to the Plan does not raise any new regulatory issues that the Commission has not previously considered, and therefore believes that the amended Plan should become effective without any undue delay. VI. Conclusion This order gives effect to the Amended Plan filed with the Commission in File No. 4–678. The parties shall notify all members affected by the Amended Plan of their rights and obligations under the Amended Plan. It is therefore ordered, pursuant to Section 17(d) of the Act, that the Amended Plan in File No. 4–678, between the FINRA, MIAX, MIAX PEARL, and MIAX Emerald, filed pursuant to Rule 17d–2 under the Act, hereby is approved and declared effective. It is further ordered that MIAX, MIAX PEARL, and MIAX Emerald are each relieved of those responsibilities allocated to FINRA under the Amended Plan in File No. 4–678. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–20132 Filed 9–11–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–89787; File No. SR– NYSEArca–2020–78] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE Arca Options Fee Schedule September 8, 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 September 1, 2020, NYSE Arca, Inc. 20 See Securities Exchange Act Release No. 85189 (February 25, 2019), 84 FR 7153 (March 1, 2019). 21 17 CFR 200.30–3(a)(34). 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 56653 (‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the 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 modify the NYSE Arca Options Fee Schedule (‘‘Fee Schedule’’) regarding pricing incentives for certain posted volume. The Exchange proposes to implement the fee change effective September 1, 2020. The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this filing is to amend the Fee Schedule regarding pricing incentives for certain posted volume. In particular, the Exchange proposes to adopt a new Customer Posting Tier for non-Penny Issues and to implement a cap on the maximum per contract credit for Professional Customer executions. The Exchange proposes to implement the fee change effective September 1, 2020. The Exchange has established various pricing incentives—or posting credit tiers—designed to encourage OTP Holders and OTP Firms (collectively, ‘‘OTP Holders’’) to direct additional order flow to the Exchange to achieve more favorable pricing and higher credits. Currently, the Fee Schedule provides separate pricing programs for E:\FR\FM\14SEN1.SGM 14SEN1 56654 Federal Register / Vol. 85, No. 178 / Monday, September 14, 2020 / Notices executed Customer posted interest in Penny issues and non-Penny issues— namely Customer Posting Credit Tiers in Penny Issues and Customer Posting Credit Tiers in non-Penny Issues (collectively, the ‘‘Customer Posting Tiers’’). As such, OTP Holders receive a base per contract credit for executions of Customer posted interest, which credit increases if certain volume criteria and thresholds are met. OTP Holders may also qualify for the Customer Incentive Program, which offers one of five ways to earn an additional credit (to the Customer Posting Tiers) if certain volume criteria and thresholds are met. The Exchange notes that for purposes of these pricing programs, Professional Customer interest is currently treated the same as Customer interest.4 The Exchange proposes two changes to the current pricing incentives: To adopt a new Customer Posting Tier for non-Penny Issues (the ‘‘Non-Penny Posting Tiers’’) and to implement a cap on the maximum per contract credit for Professional Customer executions regardless of whether an OTP Holders qualifies for higher credits per the pricing incentive programs, which are described in more detail below. New Tier E to the Non-Penny Posting Tiers The Non-Penny Posting Tiers consist of a base tier per contract credit of ($0.75) on executions of Customer posted interest in non-Penny issues as five other tiers—Tiers A–E, which offer increased credits, ranging from ($0.85) to ($1.02), based on meeting increased posted volume requirements. The Exchange proposes to modify the Fee Schedule to add a new Tier E, and to rename current Tier E as Tier F.5 New Tier E would provide a ($1.01) per contract credit provided an OTP Holder executes at least 1.50% of Total Industry Customer equity and ETF option average daily volume (‘‘TCADV’’) from Customer posted interest in all issues.6 khammond on DSKJM1Z7X2PROD with NOTICES Proposed Cap on Available Credit for Professional Customer Volume The Exchange also proposes to modify the Customer Posting Tiers and the Customer Incentive Program, which programs currently treat Professional 4 See Fee Schedule, NYSE Arca OPTIONS: TRADE–RELATED CHARGES FOR STANDARD OPTIONS, Preamble (providing that ‘‘[u]nless Professional Customer executions are specifically delineated, such executions will be treated as ‘Customer’ executions for fee/credit purposes’’). 5 See proposed Fee Schedule, Customer Posting Tier for non-Penny Issues. 6 See Fee Schedule, Endnote 8 (providing that TCADV includes OCC calculated Customer volume of all types, including Complex Order Transactions and QCC transactions, in equity and ETF options). VerDate Sep<11>2014 17:51 Sep 11, 2020 Jkt 250001 Customer interest the same as Customer interest, by placing a limit or cap on the maximum available per contract credit on Professional Customer posted interest.7 Specifically, as proposed, the maximum per-contract credit for Professional Customer posted interest would be ($0.49) and ($1.00) in Penny and non-Penny issues, respectively.8 The proposed per-contract credit limits on Professional Customer posted volume would apply regardless of which Customer Posting Credit Tier an OTP Holder achieves or whether an OTP Holder qualified for an additional credit per the Customer Incentive Program. This proposed change would impact OTP Holders with Professional Customer order flow that have achieved the highest Customer Posting Tiers. Specifically, OTP Holders with Professional Customer order flow that would be impacted by the proposed change includes those that achieve Tier 6 of the Customer Posting Tiers in Penny issues, proposed new Tiers E and F of the Customer Posting Tiers in nonPenny issues, and OTP Holders that qualify for an additional credit per the Customer Incentive Program, if those OTP Holders qualified for Tier 5 or 6 of the Customer Posting Tiers in Penny issues or Tiers E–D of the Customer Posting Tiers in non-Penny issues. Despite capping the per-contract credit on Professional Customers, the Exchange believes that the existing Customer Posting Tiers and Customer Incentive Program would continue to attract order flow, including Professional Customer volume. The Exchange cannot predict with certainty whether any OTP Holders will avail themselves of new Tier E to the Non-Penny Posting Tiers or be impacted by the proposed limit on per-contract credits for Professional Customer volume under the Customer Posting Tiers or Customer Incentive Program. other charges among its members, issuers and other persons using its facilities and does not unfairly discriminate between customers, issuers, brokers or dealers. 7 See proposed Fee Schedule, Endnote 16. See also Customer Posting Credit Tiers in Penny Issues, Customer Posting Credit Tiers in non-Penny Issues and Customer Incentive Program (referencing new Endnote 16). 8 See supra note 4 (regarding Professional Customer executions being treated as ‘Customer’ executions for fee/credit purposes, unless otherwise specified in the Fee Schedule). 9 15 U.S.C. 78f(b). 10 15 U.S.C. 78f(b)(4) and (5). 11 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (S7–10–04) (‘‘Reg NMS Adopting Release’’). 12 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. 13 Based on OCC data, see id., the Exchange’s market share in equity-based options was 9.59% for the month of June 2019 and 10.69% for the month of June 2020. 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.’’ 11 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.12 Therefore, currently no exchange possesses significant pricing power in the execution of multiply-listed equity & ETF options order flow. More specifically, in June 2020, the Exchange had slightly over 10% market share of executed volume of multiply-listed equity & ETF options trades.13 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 and rebates can have a direct effect on the ability of 2.Statutory Basis an exchange to compete for order flow. The Exchange believes that proposed The Exchange believes that the proposed rule change is consistent with new Tier E to the Non-Penny Posting Tiers is reasonable as it is designed to Section 6(b) of the Act,9 in general, and incentivize OTP Holders to (continue to) furthers the objectives of Sections 6(b)(4) and (5) of the Act,10 in particular, direct order flow, particularly Customer flow, to the Exchange. An increase in because it provides for the equitable Customer volume would create more allocation of reasonable dues, fees, and PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 E:\FR\FM\14SEN1.SGM 14SEN1 Federal Register / Vol. 85, No. 178 / Monday, September 14, 2020 / Notices trading opportunities, which, in turn attracts Market-Makers. A resulting increase in Market-Maker activity may facilitate tighter spreads, which may lead to an additional increase of order flow from other market participants, further contributing to a deeper, more liquid market to the benefit of all market participants by creating a more robust and well-balanced market ecosystem. In addition, to the extent that proposed new Tier E attracts more Customer posted interest in non-Penny issues to the Exchange, this increased order flow would continue to make the Exchange a more competitive venue for order execution, which, in turn, promotes just and equitable principles of trade and removes impediments to and perfects the mechanism of a free and open market and a national market system. The Exchange believes the proposed limit on per contract credit for Professional Customer volume is reasonable as it is consistent with pricing on other options exchanges that likewise offer higher credits/rebates for Customer volume other than Professional Customer volume.14 In addition, the Exchange believes it is reasonable to continue to offer the highest rebates for Customer volume. Customer volume offers unique benefits to the market by providing more trading opportunities, which attracts market makers to the benefit of all market participants. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Customer volume is the most sought after liquidity among OTP Holders. With respect to Professional Customers, the Exchange believes that its Customer Posting Tiers and Customer Incentive Program would continue to encourage OTP Holders to post Professional Customer volume to the Exchange despite the new cap on per contract credit, which increased liquidity would promote market depth, price discovery and improvement and enhance order execution opportunities for market participants. The Proposed Rule Change Is an Equitable Allocation of Credits and Fees khammond on DSKJM1Z7X2PROD with NOTICES The Exchange believes the proposed rule change is an equitable allocation of 14 See e.g., NASDAQ Options Market LLC (‘‘NOM’’) Pricing Schedule, Options 7, Section 2, Nasdaq Options Market Fees and Rebates (paying Professionals a $0.48 per contract Rebate to Add Liquidity in Penny Symbols whereas Customers are paid $0.50 per contract; paying Professionals a $0.90 per contract Rebate to Add Liquidity in NonPenny Symbols whereas Customers are paid $1.00 per contract). VerDate Sep<11>2014 17:51 Sep 11, 2020 Jkt 250001 its fees and credits. The proposal is based on the amount and type of business transacted on the Exchange and OTP Holders are not obligated to try to achieve new Tier E. Moreover, the proposal is designed to incent OTP Holders to aggregate all Customer posting interest at the Exchange as a primary execution venue. To the extent that the proposed change attracts more Customer posting interest 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 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 Customer posting credits because the proposed modification would be available to all similarly-situated market participants on an equal and nondiscriminatory basis. The proposal is based on the amount and type of business transacted on the Exchange and OTP Holders are not obligated to try to achieve new Tier E, nor are they obligated to execute posted interest, particularly Professional Customer interest. Rather, the proposal is designed to encourage OTP Holders to utilize the Exchange as a primary trading venue for Customer posted interest (if they have not done so previously) or increase volume sent to the Exchange. To the extent that the proposed change attracts more Customer interest, including posted interest, 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 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 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. PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 56655 Regarding the proposed limit of the per contract credit on Professional Customer volume, the Exchange notes that is equitable and not unfairly discriminatory to cap incentives for Professional Customers who, unlike Customers, have access to sophisticated trading systems that contain functionality not available to retail Customers, including continuously updated pricing models based on realtime streaming data, access to multiple markets simultaneously, and order and risk management tools. As such, the Exchange believes placing a cap on the credits available to Professional Customers (while imposing no such cap on Customer flow) is not unfairly discriminatory to these sophisticated actors. 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.’’ 15 Intramarket Competition. The proposed new Tier E as well as the cap on available credit for Professional Customer volume is designed to (continue to) attract additional order flow (particularly Customer posted interest) to the Exchange. Customer volume offers unique benefits to the market which benefits all market participants. Customer volume benefits all market participants by providing more trading opportunities, which attracts market makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding 15 See Reg NMS Adopting Release, supra note 11, at 37499. E:\FR\FM\14SEN1.SGM 14SEN1 56656 Federal Register / Vol. 85, No. 178 / Monday, September 14, 2020 / Notices increase in order flow from other market participants. The Exchange believes that the credits available via the Customer Posting Tiers and the Customer Incentive Program—despite the proposed credit cap on Professional Customer volume—would continue to encourage OTP Holders to direct their Professional Customer order flow to the Exchange, as the proposed limit is competitive with rates offers on other options exchanges.16 Moreover, the Exchange notes that Professional Customers, unlike Customers, have access to sophisticated trading systems that contain functionality not available to Customers and therefore the proposed disparate treatment of Professional Customer volume would not pose an undue burden on competition. 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 has more than 16% of the market share of executed volume of multiply-listed equity and ETF options trades.17 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 slightly more than 10% market share of executed volume of multiply-listed equity & ETF options trades.18 The Exchange believes that the proposed rule change reflects this competitive environment because it modifies the Exchange’s fees in a manner designed to incent OTP Holders to (continue to) direct trading interest (particularly Customer posted 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 khammond on DSKJM1Z7X2PROD with NOTICES 16 See supra note 14. 17 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. 18 Based on OCC data, see id., the Exchange’s market share in equity-based options was 9.59% for the month of June 2019 and 10.69% for the month of June 2020. VerDate Sep<11>2014 17:51 Sep 11, 2020 Jkt 250001 benefit from the improved market quality and increased opportunities for price improvement. The Exchange believes that the proposed change could promote competition between the Exchange and other execution venues, including those that currently offer similar Customer posting credits, by encouraging additional orders to be sent to the Exchange for execution. The Exchange also believes that the proposed change is designed to provide the public and investors with a Fee Schedule that is clear and consistent, thereby reducing burdens on the marketplace and facilitating investor protection. 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) 19 of the Act and subparagraph (f)(2) of Rule 19b–4 20 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) 21 of the Act to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEArca–2020–78 on the subject line. Paper Comments • Send paper comments in triplicate to: Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2020–78. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSEArca–2020–78 and should be submitted on or before October 5, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–20131 Filed 9–11–20; 8:45 am] 19 15 U.S.C. 78s(b)(3)(A). 20 17 CFR 240.19b–4(f)(2). 21 15 U.S.C. 78s(b)(2)(B). PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 BILLING CODE 8011–01–P 22 17 E:\FR\FM\14SEN1.SGM CFR 200.30–3(a)(12). 14SEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 178 (Monday, September 14, 2020)]
[Notices]
[Pages 56653-56656]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20131]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89787; File No. SR-NYSEArca-2020-78]


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

September 8, 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 September 1, 2020, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify the NYSE Arca Options Fee Schedule 
(``Fee Schedule'') regarding pricing incentives for certain posted 
volume. The Exchange proposes to implement the fee change effective 
September 1, 2020. The proposed rule change is available on the 
Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to amend the Fee Schedule regarding 
pricing incentives for certain posted volume. In particular, the 
Exchange proposes to adopt a new Customer Posting Tier for non-Penny 
Issues and to implement a cap on the maximum per contract credit for 
Professional Customer executions. The Exchange proposes to implement 
the fee change effective September 1, 2020.
    The Exchange has established various pricing incentives--or posting 
credit tiers--designed to encourage OTP Holders and OTP Firms 
(collectively, ``OTP Holders'') to direct additional order flow to the 
Exchange to achieve more favorable pricing and higher credits. 
Currently, the Fee Schedule provides separate pricing programs for

[[Page 56654]]

executed Customer posted interest in Penny issues and non-Penny 
issues--namely Customer Posting Credit Tiers in Penny Issues and 
Customer Posting Credit Tiers in non-Penny Issues (collectively, the 
``Customer Posting Tiers''). As such, OTP Holders receive a base per 
contract credit for executions of Customer posted interest, which 
credit increases if certain volume criteria and thresholds are met. OTP 
Holders may also qualify for the Customer Incentive Program, which 
offers one of five ways to earn an additional credit (to the Customer 
Posting Tiers) if certain volume criteria and thresholds are met. The 
Exchange notes that for purposes of these pricing programs, 
Professional Customer interest is currently treated the same as 
Customer interest.\4\
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    \4\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES 
FOR STANDARD OPTIONS, Preamble (providing that ``[u]nless 
Professional Customer executions are specifically delineated, such 
executions will be treated as `Customer' executions for fee/credit 
purposes'').
---------------------------------------------------------------------------

    The Exchange proposes two changes to the current pricing 
incentives: To adopt a new Customer Posting Tier for non-Penny Issues 
(the ``Non-Penny Posting Tiers'') and to implement a cap on the maximum 
per contract credit for Professional Customer executions regardless of 
whether an OTP Holders qualifies for higher credits per the pricing 
incentive programs, which are described in more detail below.
New Tier E to the Non-Penny Posting Tiers
    The Non-Penny Posting Tiers consist of a base tier per contract 
credit of ($0.75) on executions of Customer posted interest in non-
Penny issues as five other tiers--Tiers A-E, which offer increased 
credits, ranging from ($0.85) to ($1.02), based on meeting increased 
posted volume requirements. The Exchange proposes to modify the Fee 
Schedule to add a new Tier E, and to rename current Tier E as Tier 
F.\5\ New Tier E would provide a ($1.01) per contract credit provided 
an OTP Holder executes at least 1.50% of Total Industry Customer equity 
and ETF option average daily volume (``TCADV'') from Customer posted 
interest in all issues.\6\
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    \5\ See proposed Fee Schedule, Customer Posting Tier for non-
Penny Issues.
    \6\ See Fee Schedule, Endnote 8 (providing that TCADV includes 
OCC calculated Customer volume of all types, including Complex Order 
Transactions and QCC transactions, in equity and ETF options).
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Proposed Cap on Available Credit for Professional Customer Volume
    The Exchange also proposes to modify the Customer Posting Tiers and 
the Customer Incentive Program, which programs currently treat 
Professional Customer interest the same as Customer interest, by 
placing a limit or cap on the maximum available per contract credit on 
Professional Customer posted interest.\7\
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    \7\ See proposed Fee Schedule, Endnote 16. See also Customer 
Posting Credit Tiers in Penny Issues, Customer Posting Credit Tiers 
in non-Penny Issues and Customer Incentive Program (referencing new 
Endnote 16).
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    Specifically, as proposed, the maximum per-contract credit for 
Professional Customer posted interest would be ($0.49) and ($1.00) in 
Penny and non-Penny issues, respectively.\8\ The proposed per-contract 
credit limits on Professional Customer posted volume would apply 
regardless of which Customer Posting Credit Tier an OTP Holder achieves 
or whether an OTP Holder qualified for an additional credit per the 
Customer Incentive Program. This proposed change would impact OTP 
Holders with Professional Customer order flow that have achieved the 
highest Customer Posting Tiers. Specifically, OTP Holders with 
Professional Customer order flow that would be impacted by the proposed 
change includes those that achieve Tier 6 of the Customer Posting Tiers 
in Penny issues, proposed new Tiers E and F of the Customer Posting 
Tiers in non-Penny issues, and OTP Holders that qualify for an 
additional credit per the Customer Incentive Program, if those OTP 
Holders qualified for Tier 5 or 6 of the Customer Posting Tiers in 
Penny issues or Tiers E-D of the Customer Posting Tiers in non-Penny 
issues. Despite capping the per-contract credit on Professional 
Customers, the Exchange believes that the existing Customer Posting 
Tiers and Customer Incentive Program would continue to attract order 
flow, including Professional Customer volume.
---------------------------------------------------------------------------

    \8\ See supra note 4 (regarding Professional Customer executions 
being treated as `Customer' executions for fee/credit purposes, 
unless otherwise specified in the Fee Schedule).
---------------------------------------------------------------------------

    The Exchange cannot predict with certainty whether any OTP Holders 
will avail themselves of new Tier E to the Non-Penny Posting Tiers or 
be impacted by the proposed limit on per-contract credits for 
Professional Customer volume under the Customer Posting Tiers or 
Customer Incentive Program.
2.Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\10\ 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.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

The Proposed Rule Change Is Reasonable
    The Exchange operates in a highly competitive market. The 
Commission has repeatedly expressed its preference for competition over 
regulatory intervention in determining prices, products, and services 
in the securities markets. In Regulation NMS, the Commission 
highlighted the importance of market forces in determining prices and 
SRO revenues and, also, recognized that current regulation of the 
market system ``has been remarkably successful in promoting market 
competition in its broader forms that are most important to investors 
and listed companies.'' \11\
---------------------------------------------------------------------------

    \11\ 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.\12\ Therefore, currently no exchange possesses significant 
pricing power in the execution of multiply-listed equity & ETF options 
order flow. More specifically, in June 2020, the Exchange had slightly 
over 10% market share of executed volume of multiply-listed equity & 
ETF options trades.\13\
---------------------------------------------------------------------------

    \12\ 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.
    \13\ Based on OCC data, see id., the Exchange's market share in 
equity-based options was 9.59% for the month of June 2019 and 10.69% 
for the month of June 2020.
---------------------------------------------------------------------------

    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 and rebates can have a direct effect on 
the ability of an exchange to compete for order flow.
    The Exchange believes that proposed new Tier E to the Non-Penny 
Posting Tiers is reasonable as it is designed to incentivize OTP 
Holders to (continue to) direct order flow, particularly Customer flow, 
to the Exchange. An increase in Customer volume would create more

[[Page 56655]]

trading opportunities, which, in turn attracts Market-Makers. A 
resulting increase in Market-Maker activity may facilitate tighter 
spreads, which may lead to an additional increase of order flow from 
other market participants, further contributing to a deeper, more 
liquid market to the benefit of all market participants by creating a 
more robust and well-balanced market ecosystem. In addition, to the 
extent that proposed new Tier E attracts more Customer posted interest 
in non-Penny issues to the Exchange, this increased order flow would 
continue to make the Exchange a more competitive venue for order 
execution, which, in turn, promotes just and equitable principles of 
trade and removes impediments to and perfects the mechanism of a free 
and open market and a national market system.
    The Exchange believes the proposed limit on per contract credit for 
Professional Customer volume is reasonable as it is consistent with 
pricing on other options exchanges that likewise offer higher credits/
rebates for Customer volume other than Professional Customer 
volume.\14\ In addition, the Exchange believes it is reasonable to 
continue to offer the highest rebates for Customer volume. Customer 
volume offers unique benefits to the market by providing more trading 
opportunities, which attracts market makers to the benefit of all 
market participants. An increase in the activity of these market 
participants in turn facilitates tighter spreads, which may cause an 
additional corresponding increase in order flow from other market 
participants. Customer volume is the most sought after liquidity among 
OTP Holders. With respect to Professional Customers, the Exchange 
believes that its Customer Posting Tiers and Customer Incentive Program 
would continue to encourage OTP Holders to post Professional Customer 
volume to the Exchange despite the new cap on per contract credit, 
which increased liquidity would promote market depth, price discovery 
and improvement and enhance order execution opportunities for market 
participants.
---------------------------------------------------------------------------

    \14\ See e.g., NASDAQ Options Market LLC (``NOM'') Pricing 
Schedule, Options 7, Section 2, Nasdaq Options Market Fees and 
Rebates (paying Professionals a $0.48 per contract Rebate to Add 
Liquidity in Penny Symbols whereas Customers are paid $0.50 per 
contract; paying Professionals a $0.90 per contract Rebate to Add 
Liquidity in Non-Penny Symbols whereas Customers are paid $1.00 per 
contract).
---------------------------------------------------------------------------

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 OTP Holders are not 
obligated to try to achieve new Tier E. Moreover, the proposal is 
designed to incent OTP Holders to aggregate all Customer posting 
interest at the Exchange as a primary execution venue. To the extent 
that the proposed change attracts more Customer posting interest 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 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 Customer posting credits because the proposed modification would be 
available to all similarly-situated market participants on an equal and 
non-discriminatory basis.
    The proposal is based on the amount and type of business transacted 
on the Exchange and OTP Holders are not obligated to try to achieve new 
Tier E, nor are they obligated to execute posted interest, particularly 
Professional Customer interest. Rather, the proposal is designed to 
encourage OTP Holders to utilize the Exchange as a primary trading 
venue for Customer posted interest (if they have not done so 
previously) or increase volume sent to the Exchange. To the extent that 
the proposed change attracts more Customer interest, including posted 
interest, 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 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 
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.
    Regarding the proposed limit of the per contract credit on 
Professional Customer volume, the Exchange notes that is equitable and 
not unfairly discriminatory to cap incentives for Professional 
Customers who, unlike Customers, have access to sophisticated trading 
systems that contain functionality not available to retail Customers, 
including continuously updated pricing models based on real-time 
streaming data, access to multiple markets simultaneously, and order 
and risk management tools. As such, the Exchange believes placing a cap 
on the credits available to Professional Customers (while imposing no 
such cap on Customer flow) is not unfairly discriminatory to these 
sophisticated actors.
    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.'' \15\
---------------------------------------------------------------------------

    \15\ See Reg NMS Adopting Release, supra note 11, at 37499.
---------------------------------------------------------------------------

    Intramarket Competition. The proposed new Tier E as well as the cap 
on available credit for Professional Customer volume is designed to 
(continue to) attract additional order flow (particularly Customer 
posted interest) to the Exchange. Customer volume offers unique 
benefits to the market which benefits all market participants. Customer 
volume benefits all market participants by providing more trading 
opportunities, which attracts market makers. An increase in the 
activity of these market participants in turn facilitates tighter 
spreads, which may cause an additional corresponding

[[Page 56656]]

increase in order flow from other market participants. The Exchange 
believes that the credits available via the Customer Posting Tiers and 
the Customer Incentive Program--despite the proposed credit cap on 
Professional Customer volume--would continue to encourage OTP Holders 
to direct their Professional Customer order flow to the Exchange, as 
the proposed limit is competitive with rates offers on other options 
exchanges.\16\ Moreover, the Exchange notes that Professional 
Customers, unlike Customers, have access to sophisticated trading 
systems that contain functionality not available to Customers and 
therefore the proposed disparate treatment of Professional Customer 
volume would not pose an undue burden on competition.
---------------------------------------------------------------------------

    \16\ See supra note 14.
---------------------------------------------------------------------------

    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 has more than 16% of the market share of executed volume of 
multiply-listed equity and ETF options trades.\17\ 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 slightly more than 10% market share of 
executed volume of multiply-listed equity & ETF options trades.\18\
---------------------------------------------------------------------------

    \17\ 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.
    \18\ Based on OCC data, see id., the Exchange's market share in 
equity-based options was 9.59% for the month of June 2019 and 10.69% 
for the month of June 2020.
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change reflects this 
competitive environment because it modifies the Exchange's fees in a 
manner designed to incent OTP Holders to (continue to) direct trading 
interest (particularly Customer posted 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 believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
those that currently offer similar Customer posting credits, by 
encouraging additional orders to be sent to the Exchange for execution. 
The Exchange also believes that the proposed change is designed to 
provide the public and investors with a Fee Schedule that is clear and 
consistent, thereby reducing burdens on the marketplace and 
facilitating investor protection.

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) \19\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \20\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \21\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2020-78 on the subject line.

Paper Comments

     Send paper comments in triplicate to: Secretary, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-1090.

All submissions should refer to File Number SR-NYSEArca-2020-78. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEArca-2020-78 and should be submitted 
on or before October 5, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-20131 Filed 9-11-20; 8:45 am]
BILLING CODE 8011-01-P

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