Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE Arca Options Fee Schedule, 4090-4095 [2022-01470]
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Federal Register / Vol. 87, No. 17 / Wednesday, January 26, 2022 / Notices
tailored reporting requirements. This
engagement will provide industry
participants the opportunity to provide
input into the reporting requirements.
10. Introducing and Clearing Firm
Issues
A commenter stated said that the
proposed rule change does not address
the role of the clearing broker or reflect
that FINRA has considered the actual
way in which introducing brokers clear
trades.150 Another commenter suggested
that FINRA should continue to facilitate
dialogue among introducing and
clearing firms to facilitate the
implementation of the proposed rule
change.151
FINRA responded by stating that it
has conducted extensive dialogue with
introducing and clearing firms regarding
the requirements of the current rule and
the proposed rule change in the context
of introducing and clearing
arrangements, and several of the
proposed rule change’s clarifying
changes to the original rulemaking were
informed by such dialogue.152 Further,
FINRA stated that it intends to continue
to discuss the proposed rule change and
its implementation with clearing and
introducing firms, and to facilitate
dialogue among them as the Covered
Agency Transaction margin
requirements are implemented.153
FINRA’s response regarding issues
involving clearing and introducing firms
appropriately addresses the
commenters’ concerns. Specifically,
FINRA has engaged in extensive
dialogue with introducing and clearing
firms regarding the requirements of the
original rulemaking and with respect to
the proposed rule change. Further,
FINRA has indicated it will continue to
facilitate dialogue with introducing and
clearing firms as the margin
requirements for Covered Agency
Transactions are implemented.
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11. Status of Published Frequently
Asked Questions (‘‘FAQs’’)
A commenter requested confirmation
as to whether the FAQs regarding
Covered Agency Transactions,
maintained on FINRA’s website,154 will
apply in the event the proposed rule
change is approved.155 FINRA stated
that if the Commission approves the
proposed rule change, FINRA will
150 See
Brean Capital Letter at 13.
SIFMA Letter at 3.
152 See Amendment No. 1 at 20.
153 Id.
154 After the original rulemaking was approved,
FINRA made available a set of FAQs and guidance
clarify certain of the requirements, available at:
www.finra.org.
155 See SIFMA Letter at 6–7.
151 See
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revisit the FAQs with Commission staff,
members, and industry participants as
appropriate.156 The Commission agrees
that FINRA’s response to the status of
the FAQs appropriately addresses the
commenter’s request for confirmation
with respect to the application of the
FAQs under the proposed rule change.
12. Implementation Period
In response to the proposed rule
change, several commenters requested
that FINRA provide an implementation
period of at least 18 months after
publication of a final rule text before
compliance is required, stating that a
constrained time period for
implementation could present market
access risk, and citing the need to build
operations and technology and to
negotiate necessary documentation.157
FINRA responded to these concerns as
part of Amendment No. 1 by stating
while it believes that the subject matter
is well understood by member firms and
industry participants, FINRA would
announce the effective date no later
than 60 days following approval, if the
Commission approves the proposed rule
change, and would provide an effective
date between nine and ten months
following such approval.158
In response to Amendment No. 1, a
commenter reiterated its previous
comments regarding the implementation
date, again requesting that FINRA
provide an implementation period of 18
months, or in the alternative an
implementation timeframe of at least
one year.159 FINRA responded to the
comment stating that in connection with
Amendment No. 1, it provided a longer
implementation timeframe than
originally proposed as part of the
proposed rule change. FINRA stated that
Covered Agency Transactions have been
under discussion for a considerable
time, both prior to and since approval
of the original rulemaking in 2016, and
that this subject matter is well
understood by members and industry
participants. As a result FINRA believes
that the public interest would not be
served by continuing delay and that the
timeframe set forth in Amendment No.
1 is appropriate.160
FINRA’s proposed implementation
schedule is appropriate and consistent
156 See
Amendment No. 1 at 20.
SIFMA AMG letter at 1–3; SIFMA Letter
at 2; BDA Letter at 5.
158 See Amendment No. 1 at 20.
159 See Letter from Chris Killian, Managing
Director, Securitization, Corporate Credit, Libor,
Securities Industry and Financial Markets
Association, to Secretary, Commission (Sep. 10,
2021). The comment letter was submitted jointly by
SIFMA and SIFMA AMG.
160 See FINRA Letter at 7–8.
157 See
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with the requirements of the Exchange
Act. The Covered Agency Transaction
margin requirements were approved in
2016 under the 2016 Approval Order.
FINRA member firms and industry
participants are aware of the
requirements of the Covered Agency
Transaction margin rule and have had
time to work toward implementation.
Consequently, the proposed
implementation timeframe of nine to ten
months from the approval date as
described in Amendment No. 1 should
provide sufficient time for FINRA firms
to comply with the rule’s requirements.
IV. Conclusion
It is therefore ordered pursuant to
Section 19(b)(2) of the Exchange Act 161
that the proposed rule change (SR–
FINRA–2021–010), as modified by
Amendment No. 1, be, and hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.162
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–01471 Filed 1–25–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94015; No. SR–NYSEArca–
2022–02]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the NYSE Arca
Options Fee Schedule
January 20, 2022.
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 January
12, 2022, 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.
161 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
162 17
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Federal Register / Vol. 87, No. 17 / Wednesday, January 26, 2022 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE Arca Options Fee Schedule (the
‘‘Fee Schedule’’) regarding the Floor
Broker Fixed Cost Prepayment Incentive
Program. The Exchange proposes to
implement the fee change effective
January 12, 2022.4 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
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1. Purpose
The purpose of this filing is to modify
the Floor Broker Fixed Cost Prepayment
Incentive Program (the ‘‘FB Prepay
Program’’), a prepayment incentive
program that allows Floor Broker
organizations (each, a ‘‘Floor Broker’’) to
prepay certain of their annual Eligible
Fixed Costs in exchange for volume
rebates, as set forth in the Fee
Schedule.5
Currently, the FB Prepay Program
offers participating Floor Brokers an
opportunity to qualify for rebates by
achieving growth in billable manual
volume by a certain percentage as
measured against one of two
benchmarks (the ‘‘Percentage Growth
4 The Exchange originally filed to amend the Fee
Schedule on December 29, 2021 (SR–NYSEArca–
2021–108) and withdrew such filing on January 12,
2022.
5 See Fee Schedule, FLOOR BROKER FIXED
COST PREPAYMENT INCENTIVE PROGRAM (the
‘‘FB Prepay Program’’), available here: https://
www.nyse.com/publicdocs/nyse/markets/arcaoptions/NYSE_Arca_Options_Fee_Schedule.pdf.
‘‘Eligible Fixed Costs,’’ as set forth in the Fee
Schedule, include the OTP Trading Participant
Rights fee for a Floor Broker, Floor Broker Order
Capture Device—Market Data Fees, Floor Booth
fees, the Options Floor Access Fee, and Wire
Services fees.
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Incentive’’). Specifically, the Percentage
Growth Incentive is designed to
encourage Floor Brokers to increase
their average daily volume (‘‘ADV’’) in
billable manual contract sides to qualify
for a Tier; each Tier of the FB Prepay
Program corresponds to an annual
rebate equal to the greater of the ‘‘Total
Percentage Reduction of pre-paid
annual Eligible Fixed Costs’’ or the
annualization of the montly
‘‘Alternative Rebate.’’ 6 In either case,
participating Floor Brokers receive their
annual rebate amount in the following
January.7 Floor Brokers that wish to
participate in the FB Prepay Program for
the following calendar year must notify
the Exchange no later than the last
business day of December in the current
year.8
As further described below, the
Exchange proposes to modify the
qualifying benchmarks, growth
percentage requirements, and rebate
amounts for the FB Prepay Program, and
further proposes to adjust the basis for
the calculation of a participating Floor
Broker’s Eligible Fixed Costs for the
following calendar year.
The Exchange proposes to implement
the fee changes effective January 12,
2022.
Proposed Rule Change
The Exchange proposes to modify the
benchmarks that Floor Brokers that
participate in the FB Prepay Program
must meet to qualify for the Percentage
Growth Incentive. Currently, to qualify
for the Percentage Growth Incentive, a
Floor Broker must increase their ADV
for the calendar year above the greater
of (1) 20,000 contract sides in billable
manual ADV, or (2) 105% of the Floor
Broker’s total billable manual ADV in
contract sides during the second half of
2017.9 The Exchange proposes to
modify each of the minimum thresholds
to qualify for the Percentage Growth
Incentive. Specifically, the Exchange
proposes to (1) modify the first
benchmark to increase the requisite
minimum contract sides in billable
manual ADV from 20,000 to 30,000, and
6 See id. The Percentage Growth Incentive
excludes Customer volume, Firm Facilitation and
Broker Dealer facilitating a Customer trades, and
QCCs. Any volume calculated to achieve the Firm
and Broker Dealer Monthly Fee Cap and the Limit
of Fees on Options Strategy Executions, will
likewise be excluded from the Percentage Growth
Incentive because fees on such volume are already
capped and therefore do not increase billable
manual volume. See id.
7 See Fee Schedule, FLOOR BROKER FIXED
COST PREPAYMENT INCENTIVE PROGRAM (the
‘‘FB Prepay Program’’).
8 See id.
9 See Fee Schedule, FLOOR BROKER FIXED
COST PREPAYMENT INCENTIVE PROGRAM (the
‘‘FB Prepay Program’’).
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(2) modify the second benchmark from
105% of the Floor Broker’s total billable
manual ADV in contract sides during
the second half of 2017 (i.e., July
through December 2017) to the Floor
Broker’s total billable manual ADV in
contract sides during the second half of
2020 (i.e., July through December
2020).10
The Exchange believes that 30,000
ADV is a reasonable minimum
threshold above which a participating
Floor Broker would need to increase
volume to earn a rebate under the FB
Prepay Program, particularly in light of
the increased options volume executed
by Floor Brokers in the past year. The
Exchange notes that Floor Brokers that
are new to the Exchange would also be
eligible to qualify for the Percentage
Growth Incentive based on this
minimum threshold. For Floor Brokers
that exceed 30,000 ADV in growth, the
Exchange believes that it is reasonable
to continue to use each Floor Broker’s
historical volume as a benchmark
against which to measure growth and
also believes that updating the
benchmark to account for the Floor
Broker’s more recent activity on the
Exchange is reasonable. The Exchange
further believes that, in light of the
market volatility in the first half of 2020
and the unusually high volumes
observed in 2021, Floor Broker activity
in the second half of 2020 would be an
appropriate benchmark against which to
measure volume for purposes of the FB
Prepay Program. All Floor Brokers that
aim to achieve the rebate would still be
required to increase volume executed on
the Exchange, and the total annual
rebate available for achieving each Tier
would continue to be the same
regardless of whether the Floor Broker
qualifies based on growth over 30,000
ADV contract sides or its second half of
2020 volume, as proposed.
The Exchange also proposes a series
of modifications to the percentage
growth requirements for the Percentage
Growth Incentive, the percentage
reductions of annual fixed costs, and the
Alternative Rebate amounts. The
Exchange believes the proposed
modifications would continue to
incentivize Floor Brokers to participate
in the FB Prepay Program and would
generally make the rebates offered
pursuant to the FB Prepay Program
more achievable for participating Floor
Brokers. First, the Exchange proposes to
decrease certain of the percentage
growth requirements for the Percentage
Growth Incentive Tiers. Specifically, the
10 See proposed Fee Schedule, FLOOR BROKER
FIXED COST PREPAYMENT INCENTIVE
PROGRAM (the ‘‘FB Prepay Program’’).
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Federal Register / Vol. 87, No. 17 / Wednesday, January 26, 2022 / Notices
Exchange proposes to reduce the
requirement for Tier 2 from 25% to 15%
and for Tier 3 from 50% to 30%.
Second, the Exchange proposes to
modify the total percentage reduction of
pre-paid annual Eligible Fixed Costs
offered for certain Tiers. Specifically,
the Exchange proposes to modify the
percentage for Tier 1 from 25% to 10%
and for Tier 3 from 75% to 80%. Third,
the Exchange proposes to increase the
Alternative Rebate offered for Tiers 1
through 3, as set forth in the table
below. Finally, the Exchange proposes
to eliminate Tiers 4 and 5. The
Exchange believes eliminating these
Tiers is reasonable in light of the
proposed changes described above,
including because Tier 3, as modified,
would offer participating Floor Brokers
an Alternative Rebate amount greater
than the amount currently offered by
either Tier 4 or 5.
The following table reflects the
proposed changes (with deletions in
brackets and new text italicized):
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FB PREPAYMENT PROGRAM INCENTIVES
[Based on annual ADV in contract sides for the calendar year]
Tier
Percentage growth incentive
Total percentage reduction of
pre-paid annual Eligible Fixed
Costs
Tier 1 .......................
Tier 2 .......................
Tier 3 .......................
[Tier 4 ......................
[Tier 5 ......................
5% ...............................................
[25%] 15% ...................................
[50%] 30% ...................................
100% ...........................................
150% ...........................................
[25%] 10% ...................................
50% .............................................
[75%] 80% ...................................
80% .............................................
100% ...........................................
Thus, as proposed, a participating
Floor Broker would qualify for the
Percentage Growth Incentive by
executing ADV growth in manual
billable contract sides that is 5%, 15%,
or 30% over the greater of (1) 30,000
contract sides ADV, or (2) their ADV
during the second half of 2020 (i.e., July
through December 2020). A Floor Broker
that participates in the FB Prepay
Program and achieves a Percentage
Growth Incentive Tier, as modified, will
continue to be eligible for an annual
rebate that is the greater of the ‘‘Total
Percentage Reduction of pre-paid
annual Eligible Fixed Costs’’ or the
‘‘Alternative Rebate’’ based on the Tier
achieved. A Floor Broker that is new to
the Exchange (or one that did not
execute at least 30,000 contract sides in
billable manual ADV in the second half
of 2020) would continue to have the
ability to qualify for the Percentage
Growth Incentive by executing at least
30,000 contract sides in manual billable
ADV, increased by the specified
percentages during the year. The total
rebate available for achieving each Tier
would be the same regardless of
whether the Floor Broker qualifies based
on 100% of its second half of 2020
volume or the minimum 30,000 ADV
contract sides benchmark.
The Exchange also proposes to modify
the date it will use for the calculation
of a Floor Broker’s Eligible Fixed Costs
for the following calendar year. The FB
Prepay Program currently specifies that
a Floor Broker that commits to the
program will be invoiced in January for
Eligible Fixed Costs, based on
annualizing their Eligible Fixed Costs
incurred in the previous November.11
11 The Fee Schedule also currently provides that
the ‘‘Exchange will not issue any refunds in the
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Alternative rebate
[$4,000] $8,000/month.
[$6,000] $18,000/month.
[$8,000] $24,000/month.
$14,000/month].
$18,000/month].
The Exchange proposes to modify the
Fee Schedule to specify that the
annualization of Eligible Fixed Costs
would be based on costs incurred in
November 2020. The Exchange believes
that Floor Brokers’ costs as of November
2020 would more accurately reflect
Eligible Fixed Costs for the coming
calendar year based on anticipated fixed
costs in 2022.
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
2. Statutory Basis
and SRO revenues and, also, recognized
that current regulation of the market
The Exchange believes that the
proposed rule change is consistent with system ‘‘has been remarkably successful
Section 6(b) of the Act,12 in general, and in promoting market competition in its
broader forms that are most important to
furthers the objectives of Sections
14
13
6(b)(4) and (5) of the Act, in particular, investors and listed companies.’’
There
are
currently
16
registered
because it provides for the equitable
options exchanges competing for order
allocation of reasonable dues, fees, and
flow. Based on publicly-available
other charges among its members,
information, and excluding index-based
issuers and other persons using its
options, no single exchange has more
facilities and does not unfairly
than 16% of the market share of
discriminate between customers,
executed volume of multiply-listed
issuers, brokers or dealers.
equity and ETF options trades.15
Therefore, currently no exchange
event that a Floor Broker organization’s prepaid
possesses significant pricing power in
Eligible Fixed Costs exceeds such actual costs,
the execution of multiply-listed equity
except that the Exchange will refund certain of the
and ETF options order flow. More
prepaid Eligible Fixed Costs that were waived for
Qualifying Firms as defined, and set forth in, NYSE
specifically, in November 2021, the
Arca OPTIONS: FLOOR and EQUIPMENT and CO–
Exchange had less than 13% market
LOCATION FEES.’’ See Fee Schedule, FLOOR
share of executed volume of multiplyBROKER FIXED COST PREPAYMENT INCENTIVE
listed equity and ETF options trades.16
PROGRAM (the ‘‘FB Prepay Program’’). The
Exchange proposes clarifying changes to (1) delete
the word ‘‘such’’ from the description of actual
Eligible Fixed Costs, and (2) delete the reference to
the circumstances under which the Exchange
would refund certain prepaid Eligible Fixed Costs,
as the Fee Schedule no longer provides for a waiver
to Qualifying Firms in connection with COVID–19
related considerations. See Securities Exchange Act
Release No. 92614 (August 9, 2021), 86 FR 44765
(August 13, 2021) (SR–NYSEArca–2021–69)
(removing language from the Fee Schedule
associated with COVID–19 related fee waivers).
12 15 U.S.C. 78f(b).
13 15 U.S.C. 78f(b)(4) and (5).
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14 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(S7–10–04) (‘‘Reg NMS Adopting Release’’).
15 The OCC publishes options and futures volume
in a variety of formats, including daily and monthly
volume by exchange, available here: https://
www.theocc.com/Market-Data/Market-DataReports/Volume-and-Open-Interest/MonthlyWeekly-Volume-Statistics.
16 Based on a compilation of OCC data for
monthly volume of equity-based options and
monthly volume of ETF-based options, see id., the
Exchange’s market share in equity-based options
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Federal Register / Vol. 87, No. 17 / Wednesday, January 26, 2022 / Notices
The Exchange believes that the evershifting market share among the
exchanges from month to month
demonstrates that market participants
can shift order flow, or discontinue or
reduce use of certain categories of
products, in response to fee changes.
Accordingly, competitive forces
constrain options exchange transaction
fees. Stated otherwise, changes to
exchange transaction fees can have a
direct effect on the ability of an
exchange to compete for order flow.
The Exchange believes the proposed
modifications to the FB Prepay Program
are reasonable because participation in
the program is optional, and Floor
Brokers can elect to participate and seek
to qualify for the Percentage Growth
Incentive as they see fit. The Exchange
also believes that the proposed change
is reasonably designed to encourage
Floor Brokers to provide liquidity on the
Exchange, to continue to incent Floor
Brokers to participate in the FB Prepay
Program, and to ensure that Floor
Brokers that are new to the Exchange (or
Floor Brokers that did not execute more
than 30,000 ADV in contract sides)
could also participate in the program,
including by continuing to offer two
alternative means to achieve the same
rebate at each Tier. The Exchange
believes that 30,000 ADV is a reasonable
minimum threshold above which a
participating Floor Broker would need
to increase volume in order to realize
the Percentage Growth Incentive (and is
on a similar playing field with Floor
Brokers that exceeded this volume
requirement in 2020). For Floor Brokers
that exceeded the 30,000 ADV in the
second half of 2020, the Exchange
believes it is reasonable to use each
Floor Broker’s historical volume as a
benchmark against which to measure
future growth to achieve the Percentage
Growth Incentive and further believes
that activity in the second half of 2020
would provide an appropriate updated
benchmark in light of the market
volatility in the first half of 2020 and the
unusually high volumes observed in
2021.
In addition, the Exchange believes
that the proposed changes to the
Percentage Growth Incentive are
reasonable because they are designed to
continue to incent Floor Broker
participation in the FB Prepay Program
by making the rebates offered under the
FB Prepay Program generally more
achievable and by offering increased
rebate amounts and are therefore
designed to encourage increased
executions by Floor Brokers on the
was 10.35% for the month of November 2020 and
12.99% for the month of November 2021.
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Exchange, which activity would benefit
all market participants.
The Exchange also believes that the
proposed change with respect to the
date used for the calculation of Eligible
Fixed Costs is reasonable because it
expects Floor Broker organizations’
November 2020 costs to provide a more
accurate basis for annualizing Eligible
Fixed Costs for the coming calendar
year based on anticipated fixed costs in
2022.
Finally, to the extent the proposed
change continues to attract greater
volume and liquidity to the Exchange
Floor, the Exchange believes the
proposed change would improve the
Exchange’s overall competitiveness and
strengthen its market quality for all
market participants. In the backdrop of
the competitive environment in which
the Exchange operates, the proposed
rule change is a reasonable attempt by
the Exchange to increase the depth of its
market and improve its market share
relative to its competitors.
The 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 that Floor Brokers transact on
the Exchange, and Floor Brokers are not
obligated to participate in the FB Prepay
Program or attempt to trade sufficient
volume to qualify for one of the
Percentage Growth Incentive Tiers. In
addition, all participating Floor Brokers
have the opportunity to qualify for the
same rebate at each Tier through two
alternatives means (i.e., growth over the
greater of at least 30,000 contract sides
in billable ADV or the Floor Broker’s
total billable manual ADV in the second
half of 2020). The Exchange also notes
that the proposed changes are designed
to encourage Floor Brokers that have
previously enrolled in the FB Prepay
Program to reenroll for the upcoming
year, as well as to attract Floor Brokers
that have not yet participated in the
program.
Moreover, the Exchange believes that
the proposed modifications to the FB
Prepay Program are an equitable
allocation of fees and credits because
they would apply to participating Floor
Brokers equally and are intended to
encourage the important role performed
by Floor Brokers in facilitating the
execution of orders via open outcry and
providing opportunities to obtain price
improvement, a function which the
Exchange wishes to support for the
benefit of all market participants. The
Exchange further believes that the
proposed change with respect to the
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4093
calculation of Eligible Fixed Costs is
equitable because it would continue to
be based on each Floor Broker
organization’s annualized costs and
because the November 2020 basis for
annualizing costs would provide a more
accurate reflection of Eligible Fixed
Costs for the coming calendar year
based on anticipated fixed costs in 2022.
To the extent that the proposed
change continues to incent Floor
Brokers to participate in the FB Prepay
Program and achieve the volume
required to qualify for the Percentage
Growth Incentive, the increased order
flow would continue to make the
Exchange a more competitive venue for,
among other things, order execution.
Similarly, to the extent the proposed
change encourages Floor Brokers to
participate in a greater variety of
transactions on the Exchange, the
resulting increased order flow would
likewise continue to make the Exchange
a more competitive venue for order
execution. Thus, the Exchange believes
the proposed rule change would
improve market quality for all market
participants on the Exchange and, as a
consequence, attract more order flow to
the Exchange, thereby improving
market-wide quality and price
discovery.
The Proposed Rule Change Is Not
Unfairly Discriminatory
The Exchange believes the proposed
modifications to the FB Prepay Program
are not unfairly discriminatory because
they would apply to all similarlysituated Floor Brokers. The proposal is
based on the amount and type of
business transacted on the Exchange,
and Floor Brokers are not obligated to
participate in the FB Prepay Program or
try to achieve any of the Percentage
Growth Incentive Tiers.
The Exchange also believes that the
proposed change is not unfairly
discriminatory to non-Floor Brokers
because it is intended to encourage
Floor Brokers to continue facilitating the
execution of orders via open outcry and
providing opportunities to obtain price
improvement, a function that benefits
all market participants.
To the extent that the proposed
change continues to attract participation
in the FB Prepay Program and incent
Floor Brokers to increase volume to
qualify for the Percentage Growth
Incentive, the increased order flow
would continue to make the Exchange a
more competitive venue for, among
other things, order execution. Thus, the
Exchange believes the proposed rule
change would improve market quality
for all market participants on the
Exchange and, as a consequence, attract
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more order flow to the Exchange thereby
improving market-wide quality and
price discovery.
In addition, to the extent that the
proposed change attracts a variety of
transactions to the Exchange, this
increased order flow would continue to
make the Exchange a more competitive
venue for order execution. Thus, the
Exchange believes the proposed rule
change would improve market quality
for all market participants on the
Exchange and, as a consequence, attract
more order flow to the Exchange Floor,
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, protect investors and the public
interest.
Finally, the Exchange believes that it
is subject to significant competitive
forces, as described below in the
Exchange’s statement regarding the
burden on competition.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act, the Exchange does not believe
that the proposed rule change would
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
Instead, as discussed above, the
Exchange believes that the proposed
changes would encourage the
submission of additional liquidity to a
public exchange, thereby promoting
market depth, price discovery and
transparency and enhancing order
execution opportunities for all market
participants. As a result, the Exchange
believes that the proposed change
furthers the Commission’s goal in
adopting Regulation NMS of fostering
integrated competition among orders,
which promotes ‘‘more efficient pricing
of individual stocks for all types of
orders, large and small.’’ 17
Intramarket Competition. The
Exchange believes the proposed change
will continue to incent Floor Brokers to
participate in the FB Prepay Program
and encourage order flow to be directed
to the Exchange Floor, which would
enhance the quality of quoting and may
increase the volumes of contracts traded
on the Exchange. To the extent that the
proposed change imposes an additional
competitive burden on non-Floor
Brokers, the Exchange believes that any
such burden would be appropriate
because of Floor Brokers’ important role
in facilitating the execution of orders via
open outcry and providing
opportunities for price improvement,
and the Exchange believes the proposed
change is designed to encourage and
support that function.
In addition, to the extent that the
proposed change in fact encourages
Floor Broker volume, all market
participants should benefit from the
improved market liquidity. Enhanced
market quality and increased
transaction volume that results from the
anticipated increase in order flow
directed to the Exchange will benefit all
market participants and improve
competition on the Exchange.
Intermarket Competition. The
Exchange believes that the proposed
change would promote competition
between the Exchange and other
execution venues by encouraging
additional orders to be sent to the
Exchange Floor for execution. The
proposed modifications to the FB
Prepay Program are designed to
continue to incent Floor Broker
participation in the program, including
by making the incentives more
achievable and increasing the amounts
of the rebates available. The Exchange
thus believes that the proposed change
would continue to encourage Floor
Brokers to execute orders on the Floor
of the Exchange, which would increase
volume and liquidity, to the benefit of
all market participants by providing
more trading opportunities and tighter
spreads.
Given the robust competition for
volume among options markets,
implementing programs to attract order
flow, such as the proposed
modifications to the FB Prepay Program,
are consistent with the above-mentioned
goals of the Act.
The Exchange notes that it operates in
a highly competitive market in which
market participants can readily favor
competing venues. In such an
environment, the Exchange must
continually review, and consider
adjusting, its fees and credits to remain
competitive with other exchanges. For
the reasons described above, the
Exchange believes that the proposed
rule change reflects this competitive
environment.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 18 of the Act and
subparagraph (f)(2) of Rule 19b–4 19
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) 20 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–2022–02 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2022–02. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
18 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
20 15 U.S.C. 78s(b)(2)(B).
19 17
17 See
Reg NMS Adopting Release, supra note 14,
at 37499.
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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–2022–02, and
should be submitted on or before
February 16, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–01470 Filed 1–25–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94017; No. SR–NYSEArca–
2022–03]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the NYSE Arca
Options Fee Schedule To Cap Certain
Port Fees
khammond on DSKJM1Z7X2PROD with NOTICES
January 20, 2022.
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 January
14, 2022, 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
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
17:34 Jan 25, 2022
Jkt 256001
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE Arca Options Fee Schedule (the
‘‘Fee Schedule’’) to cap certain port fees
in connection with the Exchange’s
migration to a new trading platform.
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 cap certain port fees
during the Exchange’s migration of
options trading to a new electronic
trading platform.
Currently, the Exchange conducts
options trading on an electronic
platform known as ‘‘OX.’’ OX refers to
the Exchange’s electronic order
delivery, execution, and reporting
system for designated option issues
through which orders and quotes of
Users are consolidated for execution
and/or display.4
On or about February 7, 2022, the
Exchange anticipates beginning the
migration of its options trading to a new
technology platform known as Pillar.5
4 See
NYSE Arca Rule 6.1A–O(a)(13).
Exchange has announced that, pending
regulatory approval, it will begin migrating
Exchange-listed options to Pillar on February 7,
2022, available here: https://w0ww.nyse.com/
trader-update/history#110000387355. See also
Securities Exchange Act Release No. 92304 (June
30, 2021), 86 FR 36440 (July 9, 2021) (SR–
NYSEArca–2021–47) (Notice of Filing of Proposed
5 The
PO 00000
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4095
The Exchange proposes to adopt a cap
on the monthly fees assessed for the use
of certain ports connecting to the
Exchange, which will go into effect on
the day the Exchange commences its
migration to the Pillar platform and
remain in effect until the end of the
month in which the migration is
completed (the ‘‘Migration Period’’).
Specifically, the Exchange proposes to
cap the monthly fees charged to an OTP
Holder or OTP Firm (collectively, ‘‘OTP
Holders’’) for the use of Order/Quote
Entry Ports, Quote Takedown Ports, and
Drop Copy Ports (collectively, the ‘‘Port
Fees’’) during the Migration Period (the
‘‘Migration Cap’’). The Migration Cap
will be based on the number of ports an
OTP Holder is billed for in the month
preceding the beginning of the
Exchange’s migration to the Pillar
platform, except that if an OTP Holder
reduces the number of ports used during
the Migration Period (i.e., incurs Port
Fees below the Migration Cap), the OTP
Holder would only be billed for the
actual number of ports used.
Without this proposed rule change,
the Fee Schedule provides that OTP
Holders would be charged for the use of
both legacy OX platform ports and new
Pillar platform ports, which could
significantly increase costs to OTP
Holders during the Migration Period.
Thus, the proposed Migration Cap is
intended to encourage OTP Holders to
maintain the same levels of interaction
with Exchange during the Migration
Period, as well as promptly migrate to
the more efficient Pillar technology
platform, without incurring additional
Port Fees as a result of the transition.6
The Exchange proposes to implement
this fee change on the day it commences
its migration to the Pillar technology
platform.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,7 in general, and
furthers the objectives of Sections
Rule Change for New Rules 6.1P–O, 6.37AP–O,
6.40P–O, 6.41P–O, 6.62P–O, 6.64P–O, 6.76P–O, and
6.76AP–O and Amendments to Rules 1.1, 6.1–O,
6.1A–O, 6.37–O, 6.65A–O and 6.96–O) and
Amendment No. 2 to SR–NYSEArca–2021–47,
available here: https://www.sec.gov/comments/srnysearca-2021-47/srnysearca202147-20109876264219.pdf.
6 The Exchange notes that the NYSE Arca Equities
exchange adopted a similar fee cap in connection
with its migration to the Pillar technology platform
in 2017 so that its member organizations would not
incur additional charges during the transition
period. See Securities Exchange Act Release No.
81573 (September 11, 2017), 82 FR 43430
(September 15, 2017) (SR–NYSEArca–2017–97)
(providing for a temporary cap on monthly fees for
use of ports during Pillar transition).
7 15 U.S.C. 78f(b).
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]]>Agencies
[Federal Register Volume 87, Number 17 (Wednesday, January 26, 2022)]
[Notices]
[Pages 4090-4095]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01470]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94015; No. SR-NYSEArca-2022-02]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE
Arca Options Fee Schedule
January 20, 2022.
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 January 12, 2022, 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.
---------------------------------------------------------------------------
[[Page 4091]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the NYSE Arca Options Fee Schedule
(the ``Fee Schedule'') regarding the Floor Broker Fixed Cost Prepayment
Incentive Program. The Exchange proposes to implement the fee change
effective January 12, 2022.\4\ 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.
---------------------------------------------------------------------------
\4\ The Exchange originally filed to amend the Fee Schedule on
December 29, 2021 (SR-NYSEArca-2021-108) and withdrew such filing on
January 12, 2022.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to modify the Floor Broker Fixed Cost
Prepayment Incentive Program (the ``FB Prepay Program''), a prepayment
incentive program that allows Floor Broker organizations (each, a
``Floor Broker'') to prepay certain of their annual Eligible Fixed
Costs in exchange for volume rebates, as set forth in the Fee
Schedule.\5\
---------------------------------------------------------------------------
\5\ See Fee Schedule, FLOOR BROKER FIXED COST PREPAYMENT
INCENTIVE PROGRAM (the ``FB Prepay Program''), available here:
https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf. ``Eligible Fixed Costs,'' as set
forth in the Fee Schedule, include the OTP Trading Participant
Rights fee for a Floor Broker, Floor Broker Order Capture Device--
Market Data Fees, Floor Booth fees, the Options Floor Access Fee,
and Wire Services fees.
---------------------------------------------------------------------------
Currently, the FB Prepay Program offers participating Floor Brokers
an opportunity to qualify for rebates by achieving growth in billable
manual volume by a certain percentage as measured against one of two
benchmarks (the ``Percentage Growth Incentive''). Specifically, the
Percentage Growth Incentive is designed to encourage Floor Brokers to
increase their average daily volume (``ADV'') in billable manual
contract sides to qualify for a Tier; each Tier of the FB Prepay
Program corresponds to an annual rebate equal to the greater of the
``Total Percentage Reduction of pre-paid annual Eligible Fixed Costs''
or the annualization of the montly ``Alternative Rebate.'' \6\ In
either case, participating Floor Brokers receive their annual rebate
amount in the following January.\7\ Floor Brokers that wish to
participate in the FB Prepay Program for the following calendar year
must notify the Exchange no later than the last business day of
December in the current year.\8\
---------------------------------------------------------------------------
\6\ See id. The Percentage Growth Incentive excludes Customer
volume, Firm Facilitation and Broker Dealer facilitating a Customer
trades, and QCCs. Any volume calculated to achieve the Firm and
Broker Dealer Monthly Fee Cap and the Limit of Fees on Options
Strategy Executions, will likewise be excluded from the Percentage
Growth Incentive because fees on such volume are already capped and
therefore do not increase billable manual volume. See id.
\7\ See Fee Schedule, FLOOR BROKER FIXED COST PREPAYMENT
INCENTIVE PROGRAM (the ``FB Prepay Program'').
\8\ See id.
---------------------------------------------------------------------------
As further described below, the Exchange proposes to modify the
qualifying benchmarks, growth percentage requirements, and rebate
amounts for the FB Prepay Program, and further proposes to adjust the
basis for the calculation of a participating Floor Broker's Eligible
Fixed Costs for the following calendar year.
The Exchange proposes to implement the fee changes effective
January 12, 2022.
Proposed Rule Change
The Exchange proposes to modify the benchmarks that Floor Brokers
that participate in the FB Prepay Program must meet to qualify for the
Percentage Growth Incentive. Currently, to qualify for the Percentage
Growth Incentive, a Floor Broker must increase their ADV for the
calendar year above the greater of (1) 20,000 contract sides in
billable manual ADV, or (2) 105% of the Floor Broker's total billable
manual ADV in contract sides during the second half of 2017.\9\ The
Exchange proposes to modify each of the minimum thresholds to qualify
for the Percentage Growth Incentive. Specifically, the Exchange
proposes to (1) modify the first benchmark to increase the requisite
minimum contract sides in billable manual ADV from 20,000 to 30,000,
and (2) modify the second benchmark from 105% of the Floor Broker's
total billable manual ADV in contract sides during the second half of
2017 (i.e., July through December 2017) to the Floor Broker's total
billable manual ADV in contract sides during the second half of 2020
(i.e., July through December 2020).\10\
---------------------------------------------------------------------------
\9\ See Fee Schedule, FLOOR BROKER FIXED COST PREPAYMENT
INCENTIVE PROGRAM (the ``FB Prepay Program'').
\10\ See proposed Fee Schedule, FLOOR BROKER FIXED COST
PREPAYMENT INCENTIVE PROGRAM (the ``FB Prepay Program'').
---------------------------------------------------------------------------
The Exchange believes that 30,000 ADV is a reasonable minimum
threshold above which a participating Floor Broker would need to
increase volume to earn a rebate under the FB Prepay Program,
particularly in light of the increased options volume executed by Floor
Brokers in the past year. The Exchange notes that Floor Brokers that
are new to the Exchange would also be eligible to qualify for the
Percentage Growth Incentive based on this minimum threshold. For Floor
Brokers that exceed 30,000 ADV in growth, the Exchange believes that it
is reasonable to continue to use each Floor Broker's historical volume
as a benchmark against which to measure growth and also believes that
updating the benchmark to account for the Floor Broker's more recent
activity on the Exchange is reasonable. The Exchange further believes
that, in light of the market volatility in the first half of 2020 and
the unusually high volumes observed in 2021, Floor Broker activity in
the second half of 2020 would be an appropriate benchmark against which
to measure volume for purposes of the FB Prepay Program. All Floor
Brokers that aim to achieve the rebate would still be required to
increase volume executed on the Exchange, and the total annual rebate
available for achieving each Tier would continue to be the same
regardless of whether the Floor Broker qualifies based on growth over
30,000 ADV contract sides or its second half of 2020 volume, as
proposed.
The Exchange also proposes a series of modifications to the
percentage growth requirements for the Percentage Growth Incentive, the
percentage reductions of annual fixed costs, and the Alternative Rebate
amounts. The Exchange believes the proposed modifications would
continue to incentivize Floor Brokers to participate in the FB Prepay
Program and would generally make the rebates offered pursuant to the FB
Prepay Program more achievable for participating Floor Brokers. First,
the Exchange proposes to decrease certain of the percentage growth
requirements for the Percentage Growth Incentive Tiers. Specifically,
the
[[Page 4092]]
Exchange proposes to reduce the requirement for Tier 2 from 25% to 15%
and for Tier 3 from 50% to 30%. Second, the Exchange proposes to modify
the total percentage reduction of pre-paid annual Eligible Fixed Costs
offered for certain Tiers. Specifically, the Exchange proposes to
modify the percentage for Tier 1 from 25% to 10% and for Tier 3 from
75% to 80%. Third, the Exchange proposes to increase the Alternative
Rebate offered for Tiers 1 through 3, as set forth in the table below.
Finally, the Exchange proposes to eliminate Tiers 4 and 5. The Exchange
believes eliminating these Tiers is reasonable in light of the proposed
changes described above, including because Tier 3, as modified, would
offer participating Floor Brokers an Alternative Rebate amount greater
than the amount currently offered by either Tier 4 or 5.
The following table reflects the proposed changes (with deletions
in brackets and new text italicized):
FB Prepayment Program Incentives
[Based on annual ADV in contract sides for the calendar year]
----------------------------------------------------------------------------------------------------------------
Total percentage
Percentage growth reduction of pre-paid
Tier incentive annual Eligible Fixed Alternative rebate
Costs
----------------------------------------------------------------------------------------------------------------
Tier 1............................ 5%...................... [25%] 10%............... [$4,000] $8,000/month.
Tier 2............................ [25%] 15%............... 50%..................... [$6,000] $18,000/month.
Tier 3............................ [50%] 30%............... [75%] 80%............... [$8,000] $24,000/month.
[Tier 4........................... 100%.................... 80%..................... $14,000/month].
[Tier 5........................... 150%.................... 100%.................... $18,000/month].
----------------------------------------------------------------------------------------------------------------
Thus, as proposed, a participating Floor Broker would qualify for
the Percentage Growth Incentive by executing ADV growth in manual
billable contract sides that is 5%, 15%, or 30% over the greater of (1)
30,000 contract sides ADV, or (2) their ADV during the second half of
2020 (i.e., July through December 2020). A Floor Broker that
participates in the FB Prepay Program and achieves a Percentage Growth
Incentive Tier, as modified, will continue to be eligible for an annual
rebate that is the greater of the ``Total Percentage Reduction of pre-
paid annual Eligible Fixed Costs'' or the ``Alternative Rebate'' based
on the Tier achieved. A Floor Broker that is new to the Exchange (or
one that did not execute at least 30,000 contract sides in billable
manual ADV in the second half of 2020) would continue to have the
ability to qualify for the Percentage Growth Incentive by executing at
least 30,000 contract sides in manual billable ADV, increased by the
specified percentages during the year. The total rebate available for
achieving each Tier would be the same regardless of whether the Floor
Broker qualifies based on 100% of its second half of 2020 volume or the
minimum 30,000 ADV contract sides benchmark.
The Exchange also proposes to modify the date it will use for the
calculation of a Floor Broker's Eligible Fixed Costs for the following
calendar year. The FB Prepay Program currently specifies that a Floor
Broker that commits to the program will be invoiced in January for
Eligible Fixed Costs, based on annualizing their Eligible Fixed Costs
incurred in the previous November.\11\ The Exchange proposes to modify
the Fee Schedule to specify that the annualization of Eligible Fixed
Costs would be based on costs incurred in November 2020. The Exchange
believes that Floor Brokers' costs as of November 2020 would more
accurately reflect Eligible Fixed Costs for the coming calendar year
based on anticipated fixed costs in 2022.
---------------------------------------------------------------------------
\11\ The Fee Schedule also currently provides that the
``Exchange will not issue any refunds in the event that a Floor
Broker organization's prepaid Eligible Fixed Costs exceeds such
actual costs, except that the Exchange will refund certain of the
prepaid Eligible Fixed Costs that were waived for Qualifying Firms
as defined, and set forth in, NYSE Arca OPTIONS: FLOOR and EQUIPMENT
and CO-LOCATION FEES.'' See Fee Schedule, FLOOR BROKER FIXED COST
PREPAYMENT INCENTIVE PROGRAM (the ``FB Prepay Program''). The
Exchange proposes clarifying changes to (1) delete the word ``such''
from the description of actual Eligible Fixed Costs, and (2) delete
the reference to the circumstances under which the Exchange would
refund certain prepaid Eligible Fixed Costs, as the Fee Schedule no
longer provides for a waiver to Qualifying Firms in connection with
COVID-19 related considerations. See Securities Exchange Act Release
No. 92614 (August 9, 2021), 86 FR 44765 (August 13, 2021) (SR-
NYSEArca-2021-69) (removing language from the Fee Schedule
associated with COVID-19 related fee waivers).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\12\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\13\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers and other persons
using its facilities and does not unfairly discriminate between
customers, issuers, brokers or dealers.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b).
\13\ 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.'' \14\
---------------------------------------------------------------------------
\14\ 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.\15\ Therefore, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity and ETF
options order flow. More specifically, in November 2021, the Exchange
had less than 13% market share of executed volume of multiply-listed
equity and ETF options trades.\16\
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\15\ The OCC publishes options and futures volume in a variety
of formats, including daily and monthly volume by exchange,
available here: https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics.
\16\ Based on a compilation of OCC data for monthly volume of
equity-based options and monthly volume of ETF-based options, see
id., the Exchange's market share in equity-based options was 10.35%
for the month of November 2020 and 12.99% for the month of November
2021.
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[[Page 4093]]
The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow, or discontinue or reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
constrain options exchange transaction fees. Stated otherwise, changes
to exchange transaction fees can have a direct effect on the ability of
an exchange to compete for order flow.
The Exchange believes the proposed modifications to the FB Prepay
Program are reasonable because participation in the program is
optional, and Floor Brokers can elect to participate and seek to
qualify for the Percentage Growth Incentive as they see fit. The
Exchange also believes that the proposed change is reasonably designed
to encourage Floor Brokers to provide liquidity on the Exchange, to
continue to incent Floor Brokers to participate in the FB Prepay
Program, and to ensure that Floor Brokers that are new to the Exchange
(or Floor Brokers that did not execute more than 30,000 ADV in contract
sides) could also participate in the program, including by continuing
to offer two alternative means to achieve the same rebate at each Tier.
The Exchange believes that 30,000 ADV is a reasonable minimum threshold
above which a participating Floor Broker would need to increase volume
in order to realize the Percentage Growth Incentive (and is on a
similar playing field with Floor Brokers that exceeded this volume
requirement in 2020). For Floor Brokers that exceeded the 30,000 ADV in
the second half of 2020, the Exchange believes it is reasonable to use
each Floor Broker's historical volume as a benchmark against which to
measure future growth to achieve the Percentage Growth Incentive and
further believes that activity in the second half of 2020 would provide
an appropriate updated benchmark in light of the market volatility in
the first half of 2020 and the unusually high volumes observed in 2021.
In addition, the Exchange believes that the proposed changes to the
Percentage Growth Incentive are reasonable because they are designed to
continue to incent Floor Broker participation in the FB Prepay Program
by making the rebates offered under the FB Prepay Program generally
more achievable and by offering increased rebate amounts and are
therefore designed to encourage increased executions by Floor Brokers
on the Exchange, which activity would benefit all market participants.
The Exchange also believes that the proposed change with respect to
the date used for the calculation of Eligible Fixed Costs is reasonable
because it expects Floor Broker organizations' November 2020 costs to
provide a more accurate basis for annualizing Eligible Fixed Costs for
the coming calendar year based on anticipated fixed costs in 2022.
Finally, to the extent the proposed change continues to attract
greater volume and liquidity to the Exchange Floor, the Exchange
believes the proposed change would improve the Exchange's overall
competitiveness and strengthen its market quality for all market
participants. In the backdrop of the competitive environment in which
the Exchange operates, the proposed rule change is a reasonable attempt
by the Exchange to increase the depth of its market and improve its
market share relative to its competitors.
The 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 that Floor Brokers transact on the Exchange, and
Floor Brokers are not obligated to participate in the FB Prepay Program
or attempt to trade sufficient volume to qualify for one of the
Percentage Growth Incentive Tiers. In addition, all participating Floor
Brokers have the opportunity to qualify for the same rebate at each
Tier through two alternatives means (i.e., growth over the greater of
at least 30,000 contract sides in billable ADV or the Floor Broker's
total billable manual ADV in the second half of 2020). The Exchange
also notes that the proposed changes are designed to encourage Floor
Brokers that have previously enrolled in the FB Prepay Program to
reenroll for the upcoming year, as well as to attract Floor Brokers
that have not yet participated in the program.
Moreover, the Exchange believes that the proposed modifications to
the FB Prepay Program are an equitable allocation of fees and credits
because they would apply to participating Floor Brokers equally and are
intended to encourage the important role performed by Floor Brokers in
facilitating the execution of orders via open outcry and providing
opportunities to obtain price improvement, a function which the
Exchange wishes to support for the benefit of all market participants.
The Exchange further believes that the proposed change with respect to
the calculation of Eligible Fixed Costs is equitable because it would
continue to be based on each Floor Broker organization's annualized
costs and because the November 2020 basis for annualizing costs would
provide a more accurate reflection of Eligible Fixed Costs for the
coming calendar year based on anticipated fixed costs in 2022.
To the extent that the proposed change continues to incent Floor
Brokers to participate in the FB Prepay Program and achieve the volume
required to qualify for the Percentage Growth Incentive, the increased
order flow would continue to make the Exchange a more competitive venue
for, among other things, order execution. Similarly, to the extent the
proposed change encourages Floor Brokers to participate in a greater
variety of transactions on the Exchange, the resulting increased order
flow would likewise continue to make the Exchange a more competitive
venue for order execution. Thus, the Exchange believes the proposed
rule change would improve market quality for all market participants on
the Exchange and, as a consequence, attract more order flow to the
Exchange, thereby improving market-wide quality and price discovery.
The Proposed Rule Change Is Not Unfairly Discriminatory
The Exchange believes the proposed modifications to the FB Prepay
Program are not unfairly discriminatory because they would apply to all
similarly-situated Floor Brokers. The proposal is based on the amount
and type of business transacted on the Exchange, and Floor Brokers are
not obligated to participate in the FB Prepay Program or try to achieve
any of the Percentage Growth Incentive Tiers.
The Exchange also believes that the proposed change is not unfairly
discriminatory to non-Floor Brokers because it is intended to encourage
Floor Brokers to continue facilitating the execution of orders via open
outcry and providing opportunities to obtain price improvement, a
function that benefits all market participants.
To the extent that the proposed change continues to attract
participation in the FB Prepay Program and incent Floor Brokers to
increase volume to qualify for the Percentage Growth Incentive, the
increased order flow would continue to make the Exchange a more
competitive venue for, among other things, order execution. Thus, the
Exchange believes the proposed rule change would improve market quality
for all market participants on the Exchange and, as a consequence,
attract
[[Page 4094]]
more order flow to the Exchange thereby improving market-wide quality
and price discovery.
In addition, to the extent that the proposed change attracts a
variety of transactions to the Exchange, this increased order flow
would continue to make the Exchange a more competitive venue for order
execution. Thus, the Exchange believes the proposed rule change would
improve market quality for all market participants on the Exchange and,
as a consequence, attract more order flow to the Exchange Floor,
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, protect investors and the
public interest.
Finally, the Exchange believes that it is subject to significant
competitive forces, as described below in the Exchange's statement
regarding the burden on competition.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act, the Exchange does
not believe that the proposed rule change would impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Instead, as discussed above, the Exchange believes
that the proposed changes would encourage the submission of additional
liquidity to a public exchange, thereby promoting market depth, price
discovery and transparency and enhancing order execution opportunities
for all market participants. As a result, the Exchange believes that
the proposed change furthers the Commission's goal in adopting
Regulation NMS of fostering integrated competition among orders, which
promotes ``more efficient pricing of individual stocks for all types of
orders, large and small.'' \17\
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\17\ See Reg NMS Adopting Release, supra note 14, at 37499.
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Intramarket Competition. The Exchange believes the proposed change
will continue to incent Floor Brokers to participate in the FB Prepay
Program and encourage order flow to be directed to the Exchange Floor,
which would enhance the quality of quoting and may increase the volumes
of contracts traded on the Exchange. To the extent that the proposed
change imposes an additional competitive burden on non-Floor Brokers,
the Exchange believes that any such burden would be appropriate because
of Floor Brokers' important role in facilitating the execution of
orders via open outcry and providing opportunities for price
improvement, and the Exchange believes the proposed change is designed
to encourage and support that function.
In addition, to the extent that the proposed change in fact
encourages Floor Broker volume, all market participants should benefit
from the improved market liquidity. Enhanced market quality and
increased transaction volume that results from the anticipated increase
in order flow directed to the Exchange will benefit all market
participants and improve competition on the Exchange.
Intermarket Competition. The Exchange believes that the proposed
change would promote competition between the Exchange and other
execution venues by encouraging additional orders to be sent to the
Exchange Floor for execution. The proposed modifications to the FB
Prepay Program are designed to continue to incent Floor Broker
participation in the program, including by making the incentives more
achievable and increasing the amounts of the rebates available. The
Exchange thus believes that the proposed change would continue to
encourage Floor Brokers to execute orders on the Floor of the Exchange,
which would increase volume and liquidity, to the benefit of all market
participants by providing more trading opportunities and tighter
spreads.
Given the robust competition for volume among options markets,
implementing programs to attract order flow, such as the proposed
modifications to the FB Prepay Program, are consistent with the above-
mentioned goals of the Act.
The Exchange notes that it operates in a highly competitive market
in which market participants can readily favor competing venues. In
such an environment, the Exchange must continually review, and consider
adjusting, its fees and credits to remain competitive with other
exchanges. For the reasons described above, the Exchange believes that
the proposed rule change reflects this competitive environment.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \18\ of the Act and subparagraph (f)(2) of Rule
19b-4 \19\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 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) \20\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\20\ 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-2022-02 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2022-02. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/
[[Page 4095]]
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-2022-02, and should
be submitted on or before February 16, 2022.
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\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01470 Filed 1-25-22; 8:45 am]
BILLING CODE 8011-01-P
