[Federal Register Volume 85, Number 98 (Wednesday, May 20, 2020)]
[Notices]
[Pages 30763-30768]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10816]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88873; File No. SR-NYSEArca-2020-44]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Modifying the NYSE
Arca Options Fee Schedule Regarding Pricing Incentives for Certain
Posted Volume
May 14, 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 May 11, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to modify the NYSE Arca Options Fee Schedule
(``Fee Schedule'') regarding pricing incentives for certain posted
volume. The Exchange proposes to implement the fee change effective May
11, 2020.\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.
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\4\ The Exchange originally filed to amend the Fee Schedule on
May 1, 2020 (SR-NYSEArca-2020-41) and withdrew such filing on May
11, 2020.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to amend the Fee Schedule to
introduce a new incentive program, and to modify other credits to
encourage a variety of transactions to be executed on the Exchange.
Specifically, the Exchange proposes to adopt incentives designed to
increase Firm and Broker Dealer transactions on the Exchange, including
by offering credits based on posted Firm and Broker Dealer volume under
existing and proposed incentive programs, which would increase
available interest on the Exchange to the benefit of all market
participants.\5\ The proposed change would include a ``cross-asset
pricing'' component to incentivize OTP Holders and affiliates to
execute a certain amount of volume on both the Exchange's equities and
options platform.
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\5\ Firm and Broker Dealer transactions are included as ``Non-
Customer'' for purpose of fees and credits. See Fee Schedule, NYSE
Arca Options Trade Related Charges For Standard Options, available
here, https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf (providing that for fee/credit
purposes, Firms, Broker Dealers, and Market Makers are considered
``Non-Customers'' and, unless otherwise specified, Professional
Customers are considered ``Customers'').
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The Exchange proposes to implement the fee changes on May 11, 2020.
Background
The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system
[[Page 30764]]
``has been remarkably successful in promoting market competition in its
broader forms that are most important to investors and listed
companies.'' \6\
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\6\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS
Adopting Release'').
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There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than 16% of the market
share of executed volume of multiply-listed equity and ETF options
trades.\7\ Therefore, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity & ETF options
order flow. More specifically, in January 2020, the Exchange had less
than 10% market share of executed volume of multiply-listed equity &
ETF options trades.\8\ Similarly, the equities markets also face stark
competition, which is relevant because the Exchange may offer ``cross-
asset pricing,'' which is designed to incent participants to execute a
certain amount of volume on both the Exchange's equities and options
platform. As the Commission itself recognized, the market for trading
services in NMS stocks has become ``more fragmented and competitive.''
\9\ Indeed, equity trading is currently dispersed across 13
exchanges,\10\ 31 alternative trading systems,\11\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow.
Based on publicly-available information, no single exchange has more
than 18% market share (whether including or excluding auction
volume).\12\ Therefore, currently no single exchange possesses
significant pricing power in the execution of equity order flow. More
specifically, the Exchange's market share of trading in Tapes A, B and
C securities combined is less than 10%.
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\7\ 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.
\8\ Based on OCC data, see id., in 2019, the Exchange's market
share in equity-based options was 9.57% for the month of January
2019 and 9.59% for the month of January 2020.
\9\ See Securities Exchange Act Release No. 84875 (December 19,
2018), 84 FR 5202, 5253 (February 20, 2019) (File No. S7-05-18)
(Transaction Fee Pilot for NMS Stocks Final Rule).
\10\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, available here http://markets.cboe.com/us/equities/market_share/. See generally https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
\11\ See FINRA ATS Transparency Data, available here: https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of
alternative trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/atslist.htm.
\12\ See Cboe Global Markets U.S. Equities Market Volume
Summary, available here: http://markets.cboe.com/us/equities/market_share/.
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue or reduce use of certain categories of
products. To respond to this competitive marketplace, the Exchange has
established incentives--or posting credit tiers--designed to encourage
OTP Holders and OTP Firms (collectively, ``OTP Holders'') to direct
additional order flow to the Exchange to achieve more favorable pricing
and higher credits. The Exchange incentives also include ``cross-asset
pricing,'' which allows OTP Holders to aggregate their options and
equity volume with affiliated or appointed Order Flow Providers
(``OFPs'') (collectively referred to as affiliates herein), making the
NYSE Arca a more attractive trading venue.\13\
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\13\ See Fee Schedule, Endnote 15 (providing that an ``Appointed
MM'' is an NYSE Arca Market Maker designated as such by an Order
Flow Provider (``OFP'') (as defined in NYSE Arca Rule 6.1A-O(a)(21))
and ``Appointed OFP'' is an OFP been designated as such by an NYSE
Arca Market Maker).
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The Exchange proposes to modify its existing posting credit tiers
and adopt a new posting credit tier program that would offer more
favorable rates for increased Firm and Broker Dealer volume beyond
certain minimum thresholds. The Exchange also proposes a related new
incentive program that incorporates cross-asset pricing for OTP Holders
that meet minimum Firm and Broker Dealer volume thresholds. The
proposed change should encourage OTP Holders to increase their
participation on the Exchange, thereby improving the quoted markets and
attracting more order flow to the Exchange. The Exchange notes that the
proposed change would be competitive with other options exchanges that
offer pricing incentive for Firm and Broker Dealer volume as well as
cross-asset pricing incentives.\14\
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\14\ See, e.g., Cboe BZX Options Exchange Fee Schedule,
available here, https://markets.cboe.com/us/options/membership/fee_schedule/bzx/ (setting forth posting volume tiers for Firm and
Broker Dealer volume in Penny Pilot Issues); Cboe BZX U.S. Equities
Exchange Fee Schedule, Footnote 1 and Cboe EDGX Options Exchange Fee
Schedule, Footnote 4 (regarding cross-asset pricing).
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Proposed Rule Change
Firm and Broker Dealer Incentives
The Exchange proposes to adopt a new incentive program that would
provide increasing levels of credit for posted Firm and Broker Dealer
interest in Penny Pilot issues (the ``FBD Posting Incentive'').\15\ The
Exchange currently provides a $0.10 per contract credit on electronic
executions of Firm and Broker Dealer posted interest in Penny Pilot
issues, and proposes to include this $0.10 credit in the FBD Posting
Incentive table for reference only.\16\ As proposed, OTP Holders that
execute at least 0.15% of Total Customer Average Daily Volume
(``TCADV'') \17\ from Firm and Broker Dealer posted interest in all
issues, which would qualify them for the Tier 1 level under the
proposed FBD Posting Incentive, would receive a per contract credit of
$0.25. OTP Holders that execute at least 0.30% of TCADV from Firm and
Broker Dealer posted interest in all issues, which would qualify them
for the Tier 2 level under the proposed FBD Posting Incentive, would
receive a per contract of $0.35. As is the case with current posting
credit tiers, OTP Holders may aggregate their volume with affiliated
OTPs to achieve the proposed credits.\18\
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\15\ See proposed Fee Schedule, FIRM AND BROKER DEALER PENNY
PILOT POSTING CREDIT TIERS (providing in the preamble that ``OTP
Holders and OTP Firms meeting the qualifications below will receive
the corresponding credit on all electronic executions of Firm and
Broker Dealer posted interest in Penny Pilot Issues'').
\16\ See Fee Schedule, id.; see also TRANSACTION FEE FOR
ELECTRONIC EXECUTIONS--PER CONTRACT (referring in both places to
same $0.10 credit on Firm Broker Dealer transactions).
\17\ TCADV includes OCC calculated Customer volume of all types,
including Complex Order Transactions and QCC transactions, in equity
and ETF options. See Fee Schedule, Endnote 8.
\18\ See proposed Fee Schedule, Endnotes 8 (providing that the
proposed incentives will include the activity of affiliates) and 15
(defining affiliates referenced in Endnote 8).
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The Exchange also proposes that OTP Holders that qualify for either
the Tier 1 or Tier 2 FBD Posting Incentive described above may earn the
greater of one of the following additional credits.\19\ The first
alternative of the proposed ``Firm and Broker Dealer Incentive
Program'' would be a cross-asset incentive that would provide an
additional $0.03 per contract credit to OTP Holders that execute at
least 0.30% ADV of U.S Equity Tape C Market Share Posted and Executed
on NYSE Arca Tape C Equity Market. The second alternative would provide
an additional $0.05 per contract credit to OTP Holders that execute at
least 0.85% of TCADV of posted interest in all issues across all
account types, of which at least 0.60% TCADV is from Firm and Broker
Dealer
[[Page 30765]]
posted interest. If an OTP Holder qualifies for both additional
credits, they would earn the greater of the two additional credits, not
both.
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\19\ See proposed Fee Schedule, Firm and Broker Dealer Incentive
Program (providing that OTP Holders ``that qualify for Tier 1 or
Tier 2 Firm and Broker-Dealer Penny Pilot Posting Credit Tiers may
earn the greater of the alternative additional credits listed
above'' and referencing Endnotes 8 and 15).
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To further encourage Firm and Broker dealer volume, the Exchange
also proposes to add alternative qualification bases to the existing
posting tiers set forth in both the Non-Customer, Non-Penny Pilot
Posting Credit Tiers and the Customer and Professional Customer Posting
Credit Tiers in Non-Penny Pilot Issues. As noted above, an OTP Holder
that executes at least 0.15% of TCADV from Firm and Broker Dealer
posted interest in all issues (the ``FirmBD Threshold'') qualifies for
Tier 1 of the proposed Firm and Broker Dealer Posting Credit Tiers. The
Exchange proposes to add a new Tier to the Non-Customer, Non-Penny
Pilot Posting Credit Tiers, and amend existing Tier A to the Customer
and Professional Customer Posting Credit Tiers in Non-Penny Pilot
Issues, to provide that if an OTP Holder that meets the FirmBD
Threshold and also executes at least 0.10% TCADV from Customer posted
interest in all issues, that OTP Holder would qualify for the following
per contract credits on electronic executions (the ``CustFirmBD
Threshold''):
A $0.62 per contract credit from non-Customer posted
interest in non-Penny Pilot issues, as proposed alternative
qualification to new Tier 3 of the Non-Customer, Non-Penny Pilot
Posting Credit Tiers; and
A $0.85 per contract credit from Customer posted interest
in non-Penny Pilot issues, as proposed alternative qualification to
Tier A of Customer and Professional Customer Posting Credit Tiers in
Non-Penny Issues.\20\
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\20\ The Exchange notes that the $0.85 per contract credit would
be an increase (from $0.83) to the existing Tier A qualification
basis that an OTP Holder execute ``[a]t least 0.80% of TCADV from
Customer posted interest in all issues.'' See Fee Schedule, Customer
Posting Credit Tiers in Non-Penny Issues. The Exchange proposes to
remove reference to Professional Customer from the column heading
given that such transactions are treated the same as Customer, which
change would add clarity, transparency and internal consistency to
the Fee Schedule making it easier to navigate. See proposed Fee
Schedule, CUSTOMER POSTING CREDIT TIERS IN NON-PENNY PILOT ISSUES
(with updated column title ``Customer Posting Credit Tiers In Non-
Penny Pilot Issues'').
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Customer Penny and Non-Customer Non-Penny Volume Incentives
The Exchange also proposes additional modifications to the existing
posting credit tier qualification thresholds and credits to encourage
diverse order flow.
First, the Exchange proposes to modify the existing qualifications
for Tier 2 under the Customer Penny Pilot Posting Credit Tiers by
replacing the existing alternative qualification, which requires an OTP
Holder to have at least 0.70% of TCADV from posted interest in Penny
Pilot Issues in all account types, with a new proposed Tier 2
alternative that would require an OTP Holder to increase or step-up
posted interest in all issues, all account types other than Market
Maker by at least 0.15% of TCADV over its March 2020 level of posted
interest in all issues, all account types other than Market Maker.\21\
The amount of the contract credit for Tier 2 would not change. The
Exchange notes that although it has deleted the existing Tier 2
alternative qualification basis, an OTP Holder can still aim to achieve
credits based on posted interest in Penny Pilot Issues under Tier 4,
which has a slightly higher (0.85%) minimum qualification basis.\22\
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\21\ See proposed Fee Schedule, CUSTOMER PENNY PILOT POSTING
CREDIT TIERS. As an example: If TCADV for the month of May 2020 is
1,500,000 contracts, then 0.15% of the TCADV would be 2,250
contracts. Assume an OTP Holder had an ADV in March 2020 of 11,000
contracts from posted Customer and Non-Customer interest (excluding
Market Maker interest). To qualify for Tier 2 under this
alternative, the OTP Holder would have to increase its posted
Customer and Non Customer volumes (exclusive of Market Maker
interest) by at least 2,250 contracts ADV, to a minimum level of
13,250 contracts ADV.
\22\ See Fee Schedule, CUSTOMER PENNY PILOT POSTING CREDIT
TIERS, Tier 4.
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The Exchange also proposes to modify the Non-Customer, Non-Penny
Pilot Posting Credit Tiers by introducing a new Tier 3 with two
alternatives to qualify for the proposed credit. As described above,
OTP Holders can qualify for a $0.62 per contract credit in proposed
Tier 3 by achieving the CustFirmBD Threshold. As an alternative, OTP
Holders can qualify for the same Tier 3 credit by executing at least
0.15% of TCADV from non-Customer posted interest in all non-Penny
issues. In addition, current Tier 3 would become new Tier 4, and the
qualification threshold for that tier would be increased to require at
least 0.25% of TCADV (up from 0.20%) from Non-Customer posted interest
in all non-Penny Issues and the per contract credit of $0.82 would
remain unchanged.\23\
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\23\ See proposed Fee Schedule, NON-CUSTOMER, NON-PENNY PILOT
POSTING CREDIT TIERS.
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The Exchange believes the proposed changes to the posting tiers are
reasonable because OTP Holders (and their affiliates) can bring a
variety of order flow to the Exchange, which may result in an increase
volume and liquidity on both its options and equites platforms. The
Exchange's fees are constrained by intermarket competition, as OTP
Holders may direct their order flow to any of the 16 options exchanges,
including those with similar posting incentives.\24\ The proposed
cross-asset pricing is designed to encourage participants to (continue
to) conduct trading in both options and equities on the Exchange. The
Exchange notes that all market participants stand to benefit from
increased transaction volume, which promotes market depth, facilitates
tighter spreads and enhances price discovery, and may lead to a
corresponding increase in order flow from other market participants.
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\24\ See supra note 14.
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The Exchange cannot predict with certainty whether any OTP Holders
would avail themselves of this proposed fee change by achieving any of
the qualifications. At present, whether or when an OTP Holder qualifies
for the various incentive Tiers in a given month is dependent on market
activity and an OTP Holder's mix of order flow. Thus, the Exchange
cannot predict with any certainty the number of OTP Holders that may
qualify for the various proposed tiers--especially because the proposed
credits for Firm and Broker Dealer volume would be new. However, the
Exchange believes that OTP Holders would be encouraged to take
advantage of the newly adopted and modified credits.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\25\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\26\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers and other persons
using its facilities and does not unfairly discriminate between
customers, issuers, brokers or dealers.
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\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Rule Change Is Reasonable
The Exchange operates in a highly competitive market. The
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. In Regulation NMS, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues and, also, recognized that current regulation of the
market system ``has been remarkably successful in promoting market
competition in its
[[Page 30766]]
broader forms that are most important to investors and listed
companies.'' \27\
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\27\ See Reg NMS Adopting Release, supra note 6, at 37499.
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There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than 16% of the market
share of executed volume of multiply-listed equity and ETF options
trades.\28\ Therefore, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity & ETF options
order flow. More specifically, in January 2020, the Exchange had less
than 10% market share of executed volume of multiply-listed equity &
ETF options trades.\29\ In addition, by including the cross-asset
pricing in the Firm and Broker Dealer Incentive Program, it is
important to note that the equities market is likewise subject to stark
competition. As the Commission itself recognized, the market for
trading services in NMS stocks has become ``more fragmented and
competitive.'' \30\ Indeed, equity trading is currently dispersed
across 13 exchanges, 32 alternative trading systems, and numerous
broker-dealer internalizers and wholesalers, all competing for order
flow. Based on publicly-available information, no single exchange has
more than 18% market share (whether including or excluding auction
volume). Therefore, no exchange possesses significant pricing power in
the execution of equity order flow. More specifically, the Exchange's
market share of trading in Tapes A, B, and C securities combined is
less than 1%.
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\28\ 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.
\29\ Based on OCC data, see id., in 2019, the Exchange's market
share in equity-based options was 9.57% for the month of January
2019 and 9.59% for the month of January 2020.
\30\ See supra note 9.
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow, or discontinue or reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
constrain options exchange transaction fees. Stated otherwise, changes
to exchange transaction fees can have a direct effect on the ability of
an exchange to compete for order flow.
The proposed changes are designed to incent OTP Holders to transact
more options (and equities) volume on the Exchange. The FBD Posting
Incentive is designed to encourage OTP Holders to increase the Firm and
Broker dealer volume sent to the Exchange for execution. The Firm and
Broker Dealer Incentive Program, which will be available to
participants that qualify for the FBD Posting Incentive, would
encourage increased equity market participation by OTP Holders and
their affiliates. The Exchange believes this should increase volume and
liquidity--on both its options and equites platforms--to the benefit of
all market participants by providing more trading opportunities and
tighter spreads, and may lead to a corresponding increase in order flow
from other market participants.
Further, the proposed FBD Posting Incentive and related cross-asset
pricing incentive are similar to and competitive with posting credit
tiers for Firm and Broker Dealer volume and cross-asset pricing offered
by other exchanges and is designed to attract (and compete for) order
flow to the Exchange, which provides a greater opportunity for trading
by all market participants.\31\
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\31\ See supra note 14.
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The Exchange believes that the proposed change to add new posting
tiers as well as to modify thresholds and credits available under
existing posting credit tiers would incent OTP Holders to increase the
number and variety orders sent to the Exchange for execution. Further,
the Exchange notes that it continues to provide OTP Holders alternative
methods (and thus increased opportunities) to qualify for posting
credits and pricing incentives, resulting in favorable rates for a
variety of order types. As such, OTP Holders would be encouraged to
increase their participation on the Exchange, thereby improving the
quoted markets and attracting more order flow to the Exchange. To the
extent that the proposed change attracts more order flow to the
Exchange, this increased order flow would continue to make the Exchange
a more competitive venue for order execution, which, in turn, promotes
just and equitable principles of trade and removes impediments to and
perfects the mechanism of a free and open market and a national market
system.
Finally, to the extent the proposed change continues to attract
greater volume and liquidity, the Exchange believes the proposed change
would improve the Exchange's overall competitiveness and strengthen its
market quality for all market participants. In the backdrop of the
competitive environment in which the Exchange operates, the proposed
rule change is a reasonable attempt by the Exchange to increase the
depth of its market and improve its market share relative to its
competitors.
The Exchange cannot predict with certainty whether any OTP Holders
would avail themselves of this proposed fee change. At present, whether
or when an OTP Holder qualifies for the various incentive Tiers in a
given month is dependent on market activity and an OTP Holders mix of
order flow. Thus, the Exchange cannot predict with any certainty the
number of OTP Holders that may qualify for the various proposed tiers--
especially because the credits for Firm and Broker Dealer volume is
brand new. However, the Exchange believes that OTP Holders would be
encouraged to take advantage of the newly adopted and modified credits.
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 incentives or not. Moreover, the proposal is
designed to encourage OTP Holders to submit orders from all account
types to the Exchange as a primary execution venue. To the extent that
the proposed change attracts more Firm and Broker Dealer orders 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 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
introduce the various Tiers because the proposed modifications 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 the
qualifications for any of the tiers, nor are they obligated to execute
Firm and Broker Dealer orders. Rather, the proposal is designed
encourage OTP Holders to utilize the Exchange as a primary trading
venue for Firm and
[[Page 30767]]
Broker Dealer Executions (if they have not done so previously) or
increase volume sent to the Exchange. To the extent that the proposed
change attracts more Firm and Broker Dealer orders to the Exchange,
this increased order flow would continue to make the Exchange a more
competitive venue for, among other things, order execution. Thus, the
Exchange believes the proposed rule change would improve market quality
for all market participants on the Exchange and, as a consequence,
attract more order flow to the Exchange thereby improving market-wide
quality and price discovery. The resulting increased volume and
liquidity would provide more trading opportunities and tighter spreads
to all market participants and thus would promote just and equitable
principles of trade, remove impediments to and perfect the mechanism of
a free and open market and a national market system and, in general, to
protect investors and the public interest.
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.'' \32\
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\32\ See Reg NMS Adopting Release, supra note 6, at 37499.
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Intramarket Competition. The proposed change is designed to attract
additional order flow (particularly Firm and Broker Dealer orders) to
the Exchange. The Exchange believes that the proposed FBD Posting
Incentive, and related cross-asset pricing, would encourage market
participants to direct a variety of order flow to the Exchange,
including Firm and Broker Dealer execution volume to the Exchange.
Greater liquidity benefits all market participants on the Exchange and
increased Firm and Broker Dealer transactions would increase
opportunities for execution of other trading interest. The proposed
change would be available to all similarly-situated market participants
(including those that handle Firm and Broker Dealer order flow), 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.\33\ Therefore, currently
no exchange possesses significant pricing power in the execution of
multiply-listed equity & ETF options order flow. More specifically, in
January 2020, the Exchange had less than 10% market share of executed
volume of multiply-listed equity & ETF options trades.\34\
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\33\ 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.
\34\ Based on OCC data, see id., in 2019, the Exchange's market
share in equity-based options was 9.57% for the month of January
2019 and 9.59% for the month of January 2020.
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The Exchange believes that the proposed rule change reflects this
competitive environment because it modifies the Exchange's fees in a
manner designed to encourage OTP Holders (and affiliates) to direct
trading interest (particularly Firm and Broker Dealer order flow) 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 incentives, by encouraging
additional orders to be sent to the Exchange for execution.\35\
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\35\ See supra note 14.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \36\ of the Act and subparagraph (f)(2) of Rule
19b-4 \37\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\36\ 15 U.S.C. 78s(b)(3)(A).
\37\ 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) \38\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\38\ 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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File No. SR-NYSEArca-2020-44 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 No. SR-NYSEArca-2020-44. 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 (http://www.sec.gov/
[[Page 30768]]
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 No. SR-NYSEArca-2020-44, and should be
submitted on or before June 10, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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\39\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10816 Filed 5-19-20; 8:45 am]
BILLING CODE 8011-01-P