Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Modifying the NYSE Arca Options Fee Schedule Regarding the Criteria To Qualify for a Posting Credit on Certain Customer Volume, 73813-73815 [2020-25500]

Download as PDF Federal Register / Vol. 85, No. 224 / Thursday, November 19, 2020 / Notices 2020.3 The Commission has received no comment letters on the proposed rule change. Section 19(b)(2) of the Act 4 provides that within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding, or as to which the self-regulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day after publication of the notice for this proposed rule change is November 27, 2020. The Commission is extending this 45-day time period. The Commission finds it appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,5 designates January 11, 2021 as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change (File No. SR–NYSEArca–2020–84), as modified by Amendment No. 1. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–25499 Filed 11–18–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Modifying the NYSE Arca Options Fee Schedule Regarding the Criteria To Qualify for a Posting Credit on Certain Customer Volume November 13, 2020. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the 3 See Securities Exchange Act Release No. 90104 (October 7, 2020), 85 FR 64598. 4 15 U.S.C. 78s(b)(2). 5 Id. 6 17 CFR 200.30–3(a)(31). 1 15 U.S.C. 78s(b)(1). 19:40 Nov 18, 2020 Jkt 253001 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 the criteria to qualify for a posting credit on certain Customer volume. The Exchange proposes to implement the fee change effective November 2, 2020. The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change [Release No. 34–90414; File No. SR– NYSEArca–2020–96] VerDate Sep<11>2014 ‘‘Act’’) 2 and Rule 19b-4 thereunder,3 notice is hereby given that, on November 2, 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 selfregulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1. Purpose The purpose of this filing is to amend the Fee Schedule to modify the criteria to qualify for a posting credit on Customer volume in Penny Issues. The Exchange proposes to implement the rule change on November 2, 2020. The Exchange currently provides several incentives for OTP Holders and OTP Firms (collectively, ‘‘OTPs’’) designed to encourage OTPs to direct additional order flow to the Exchange to achieve more favorable pricing and higher credits. Among these incentives are enhanced posted liquidity credits 2 15 3 17 PO 00000 U.S.C. 78a. CFR 240.19b-4. Frm 00144 Fmt 4703 Sfmt 4703 73813 based on achieving certain percentages of Total Industry Customer equity and ETF option average daily volume (‘‘TCADV’’).4 Pursuant to the Customer Penny Posting Credit Tiers (the ‘‘Penny Credit Tiers’’), Customer and Professional Customer orders that post liquidity and are executed on the Exchange earn a base credit of ($0.25) per contract, and may be eligible for increased credits based on the participant’s activity. Currently, there are seven Penny Credit Tiers, with increasing minimum volume thresholds (as well as increasing credits) associated with each tier, ranging from per contract credits of ($0.27) to ($0.50) for OTP Holders that achieve Tiers 1–7, respectively. Currently, there are two alternative bases for an OTP Holder to qualify for Tier 2, one of which requires the OTP to execute at least 0.25% of TCADV from Customer posted interest in all issues to earn the associated ($0.43) per contract credit applied to electronic executions of Customer posted interest in Penny Issues.5 The Exchange proposes to increase the minimum volume threshold from 0.25% to 0.30% of TCADV from Customer posted interest in all issues for the same ($0.43) per contract credit.6 The Exchange believes this proposed change would still encourage OTP Holders to achieve Tier 2 albeit with increased Customer posted interest, which brings increased liquidity and order flow for the benefit of all market participants. The Exchange cannot predict with certainty whether any OTP Holders would qualify for Tier 2 under the modified criteria; however, the Exchange believes that OTP Holders would continue to be encouraged to increase Customer posted volume to qualify for this Tier. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,7 in general, and 4 TCADV includes OCC calculated Customer volume of all types, including Complex Order Transactions and QCC transactions, in equity and ETF options. See Endnote 8 to the Fee Schedule. 5 The alternative Tier 2 volume threshold requires an OTP Holder to achieve an ‘‘[i]ncrease of at least 0.15% of TCADV in posted interest in all issues, all account types other than Market Maker, over the OTP Holder’s or OTP Firm’s March 2020 level of posted interest in all issues, all account types other than Market Maker.’’ See Fee Schedule, NYSE Arca OPTIONS: TRADE–RELATED CHARGES FOR STANDARD OPTIONS, CUSTOMER PENNY POSTING CREDIT. 6 See proposed Fee Schedule, NYSE Arca OPTIONS: TRADE–RELATED CHARGES FOR STANDARD OPTIONS, CUSTOMER PENNY POSTING CREDIT. 7 15 U.S.C. 78f(b). E:\FR\FM\19NON1.SGM 19NON1 73814 Federal Register / Vol. 85, No. 224 / Thursday, November 19, 2020 / Notices furthers the objectives of Sections 6(b)(4) and (5) of the Act,8 in particular, because it provides for the equitable allocation of reasonable dues, fees, and other charges among its members, issuers and other persons using its facilities and does not unfairly discriminate between customers, issuers, brokers or dealers. The Proposed Rule Change Is Reasonable The Exchange operates in a highly competitive market. The Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system ‘‘has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.’’ 9 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.10 Therefore, currently no exchange possesses significant pricing power in the execution of multiply-listed equity & ETF options order flow. More specifically, in August 2020, the Exchange had slightly more than 10% market share of executed volume of multiply-listed equity & ETF options trades.11 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 an exchange to compete for order flow, including with options exchanges that 8 15 U.S.C. 78f(b)(4) and (5). Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (S7–10–04) (‘‘Reg NMS Adopting Release’’). 10 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. 11 Based on OCC data, see id., the Exchange’s market share in equity-based options was 9.59% for the month of August 2019 and 10.20% for the month of August 2020. 9 See VerDate Sep<11>2014 19:40 Nov 18, 2020 Jkt 253001 offer similar posting credits on Electronic Customer executions.12 The Exchange believes that the proposed modification to the criteria to qualify for Tier 2 of the Penny Credit Tiers is reasonably designed to continue to incent OTP Holders to increase the amount and type of Customer interest sent to the Exchange, especially posted interest. The Exchange notes that OTP Holders are still eligible to qualify for Penny Credit Tier 2 under the existing alternative (see supra note 5) based on an increase over a specified benchmark in posted interest in all issues, all account types other than Market Maker. By continuing to provide such alternative methods to qualify for a Penny Credit Tier, the Exchange believes the opportunities to qualify for credits is increased, which benefits all participants through increased volume to the Exchange. To the extent that the proposed change attracts to the Exchange more Customer posted interest in both Penny and non-Penny issues, 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 cannot predict with certainty whether any OTP Holders would qualify for Tier 2 under the modified criteria; however, the Exchange believes that OTP Holders would continue to be encouraged to increase Customer posted volume to qualify for this Tier. 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 can opt to avail themselves of the modified criteria to qualify for Tier 2 or not. 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 12 See e.g., MIAX Pearl Fee Schedule, available here: https://www.miaxoptions.com/sites/default/ files/fee_schedule-files/MIAX_PEARL_Fee_ Schedule_08252020.pdf (regarding Customer Posting Tiers). PO 00000 Frm 00145 Fmt 4703 Sfmt 4703 Exchange believes the proposed rule change would improve market quality for all market participants on the Exchange and, therefore, 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 criteria to qualify for Tier 2 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 Penny Credit Tier 2, as modified, nor are they obligated to execute posted 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 to the Exchange more Customer interest, including posted interest, this increased order flow would continue to make the Exchange a more competitive venue for order execution. Thus, the Exchange believes the proposed rule change would improve market quality for all market participants on the Exchange and, therefore, 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 furtherance of the purposes of the Act. Instead, as discussed above, the Exchange believes that the proposed change would encourage the submission of additional liquidity to a public E:\FR\FM\19NON1.SGM 19NON1 Federal Register / Vol. 85, No. 224 / Thursday, November 19, 2020 / Notices 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.’’ 13 Intramarket Competition. The proposed change is designed to attract additional order flow (particularly Customer posted interest) to the Exchange. The Exchange believes that the proposed modification to Penny Credit Tier 2 would continue to incent OTP Holders to direct their Customer order flow to the Exchange. Greater liquidity benefits all market participants on the Exchange and increased Customer order flow would increase opportunities for execution of other trading interest. The proposed modification would be available to all similarly-situated market participants that execute Customer posted interest, and, as such, the proposed change would not impose a disparate burden on competition among market participants 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 has more than 16% of the market share of executed volume of multiply-listed equity and ETF options trades.14 Therefore, currently no exchange possesses significant pricing power in the execution of multiply-listed equity & ETF options order flow. More specifically, in August 2020, the Exchange had slightly more than 10% market share of executed volume of multiply-listed equity & ETF options trades.15 13 See Reg NMS Adopting Release, supra note 9, at 37499. 14 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. 15 Based on OCC data, see id., the Exchange’s market share in equity-based options was 9.59% for the month of August 2019 and 10.20% for the month of August 2020. VerDate Sep<11>2014 19:40 Nov 18, 2020 Jkt 253001 The Exchange believes that the proposed modification to the criteria to qualify for Tier 2 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. 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) 16 of the Act and subparagraph (f)(2) of Rule 19b–4 17 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) 18 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. 16 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(2). 18 15 U.S.C. 78s(b)(2)(B). 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–2020–96 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–2020–96. 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–2020–96, and should be submitted on or before December 10, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–25500 Filed 11–18–20; 8:45 am] BILLING CODE 8011–01–P 17 17 PO 00000 Frm 00146 Fmt 4703 Sfmt 9990 73815 19 17 E:\FR\FM\19NON1.SGM CFR 200.30–3(a)(12). 19NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 224 (Thursday, November 19, 2020)]
[Notices]
[Pages 73813-73815]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25500]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90414; File No. SR-NYSEArca-2020-96]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Modifying the NYSE 
Arca Options Fee Schedule Regarding the Criteria To Qualify for a 
Posting Credit on Certain Customer Volume

November 13, 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 November 2, 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 the criteria to qualify for a posting 
credit on certain Customer volume. The Exchange proposes to implement 
the fee change effective November 2, 2020. The proposed rule change is 
available on the Exchange's website at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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 to modify 
the criteria to qualify for a posting credit on Customer volume in 
Penny Issues. The Exchange proposes to implement the rule change on 
November 2, 2020.
    The Exchange currently provides several incentives for OTP Holders 
and OTP Firms (collectively, ``OTPs'') designed to encourage OTPs to 
direct additional order flow to the Exchange to achieve more favorable 
pricing and higher credits. Among these incentives are enhanced posted 
liquidity credits based on achieving certain percentages of Total 
Industry Customer equity and ETF option average daily volume 
(``TCADV'').\4\
---------------------------------------------------------------------------

    \4\ TCADV includes OCC calculated Customer volume of all types, 
including Complex Order Transactions and QCC transactions, in equity 
and ETF options. See Endnote 8 to the Fee Schedule.
---------------------------------------------------------------------------

    Pursuant to the Customer Penny Posting Credit Tiers (the ``Penny 
Credit Tiers''), Customer and Professional Customer orders that post 
liquidity and are executed on the Exchange earn a base credit of 
($0.25) per contract, and may be eligible for increased credits based 
on the participant's activity. Currently, there are seven Penny Credit 
Tiers, with increasing minimum volume thresholds (as well as increasing 
credits) associated with each tier, ranging from per contract credits 
of ($0.27) to ($0.50) for OTP Holders that achieve Tiers 1-7, 
respectively.
    Currently, there are two alternative bases for an OTP Holder to 
qualify for Tier 2, one of which requires the OTP to execute at least 
0.25% of TCADV from Customer posted interest in all issues to earn the 
associated ($0.43) per contract credit applied to electronic executions 
of Customer posted interest in Penny Issues.\5\ The Exchange proposes 
to increase the minimum volume threshold from 0.25% to 0.30% of TCADV 
from Customer posted interest in all issues for the same ($0.43) per 
contract credit.\6\ The Exchange believes this proposed change would 
still encourage OTP Holders to achieve Tier 2 albeit with increased 
Customer posted interest, which brings increased liquidity and order 
flow for the benefit of all market participants.
---------------------------------------------------------------------------

    \5\ The alternative Tier 2 volume threshold requires an OTP 
Holder to achieve an ``[i]ncrease of at least 0.15% of TCADV in 
posted interest in all issues, all account types other than Market 
Maker, over the OTP Holder's or OTP Firm's March 2020 level of 
posted interest in all issues, all account types other than Market 
Maker.'' See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES 
FOR STANDARD OPTIONS, CUSTOMER PENNY POSTING CREDIT.
    \6\ See proposed Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED 
CHARGES FOR STANDARD OPTIONS, CUSTOMER PENNY POSTING CREDIT.
---------------------------------------------------------------------------

    The Exchange cannot predict with certainty whether any OTP Holders 
would qualify for Tier 2 under the modified criteria; however, the 
Exchange believes that OTP Holders would continue to be encouraged to 
increase Customer posted volume to qualify for this Tier.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and

[[Page 73814]]

furthers the objectives of Sections 6(b)(4) and (5) of the Act,\8\ 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 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.'' \9\
---------------------------------------------------------------------------

    \9\ 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.\10\ Therefore, currently no exchange possesses significant 
pricing power in the execution of multiply-listed equity & ETF options 
order flow. More specifically, in August 2020, the Exchange had 
slightly more than 10% market share of executed volume of multiply-
listed equity & ETF options trades.\11\
---------------------------------------------------------------------------

    \10\ 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.
    \11\ Based on OCC data, see id., the Exchange's market share in 
equity-based options was 9.59% for the month of August 2019 and 
10.20% for the month of August 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, including with 
options exchanges that offer similar posting credits on Electronic 
Customer executions.\12\
---------------------------------------------------------------------------

    \12\ See e.g., MIAX Pearl Fee Schedule, available here: https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_PEARL_Fee_Schedule_08252020.pdf (regarding Customer Posting 
Tiers).
---------------------------------------------------------------------------

    The Exchange believes that the proposed modification to the 
criteria to qualify for Tier 2 of the Penny Credit Tiers is reasonably 
designed to continue to incent OTP Holders to increase the amount and 
type of Customer interest sent to the Exchange, especially posted 
interest. The Exchange notes that OTP Holders are still eligible to 
qualify for Penny Credit Tier 2 under the existing alternative (see 
supra note 5) based on an increase over a specified benchmark in posted 
interest in all issues, all account types other than Market Maker. By 
continuing to provide such alternative methods to qualify for a Penny 
Credit Tier, the Exchange believes the opportunities to qualify for 
credits is increased, which benefits all participants through increased 
volume to the Exchange.
    To the extent that the proposed change attracts to the Exchange 
more Customer posted interest in both Penny and non-Penny issues, 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 cannot predict with certainty whether any OTP Holders 
would qualify for Tier 2 under the modified criteria; however, the 
Exchange believes that OTP Holders would continue to be encouraged to 
increase Customer posted volume to qualify for this Tier.
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 can opt 
to avail themselves of the modified criteria to qualify for Tier 2 or 
not. 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, therefore, 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 criteria to qualify for Tier 2 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 
Penny Credit Tier 2, as modified, nor are they obligated to execute 
posted 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 to the Exchange more Customer interest, including posted 
interest, this increased order flow would continue to make the Exchange 
a more competitive venue for order execution. Thus, the Exchange 
believes the proposed rule change would improve market quality for all 
market participants on the Exchange and, therefore, 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 change would encourage the submission of additional 
liquidity to a public

[[Page 73815]]

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.'' \13\
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    \13\ See Reg NMS Adopting Release, supra note 9, at 37499.
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    Intramarket Competition. The proposed change is designed to attract 
additional order flow (particularly Customer posted interest) to the 
Exchange. The Exchange believes that the proposed modification to Penny 
Credit Tier 2 would continue to incent OTP Holders to direct their 
Customer order flow to the Exchange. Greater liquidity benefits all 
market participants on the Exchange and increased Customer order flow 
would increase opportunities for execution of other trading interest. 
The proposed modification would be available to all similarly-situated 
market participants that execute Customer posted interest, and, as 
such, the proposed change would not impose a disparate burden on 
competition among market participants 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 has more than 16% of the market share of executed volume of 
multiply-listed equity and ETF options trades.\14\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity & ETF options order flow. More specifically, in 
August 2020, the Exchange had slightly more than 10% market share of 
executed volume of multiply-listed equity & ETF options trades.\15\
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    \14\ 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.
    \15\ Based on OCC data, see id., the Exchange's market share in 
equity-based options was 9.59% for the month of August 2019 and 
10.20% for the month of August 2020.
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    The Exchange believes that the proposed modification to the 
criteria to qualify for Tier 2 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.

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) \16\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \17\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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) \18\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \18\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2020-96 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-2020-96. 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-2020-96, and should be 
submitted on or before December 10, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-25500 Filed 11-18-20; 8:45 am]
BILLING CODE 8011-01-P

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