[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]


-----------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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'').
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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'').
---------------------------------------------------------------------------

    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%.
---------------------------------------------------------------------------

    \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/.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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'').
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \23\ See proposed Fee Schedule, NON-CUSTOMER, NON-PENNY PILOT 
POSTING CREDIT TIERS.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \24\ See supra note 14.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f(b).
    \26\ 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

[[Page 30766]]

broader forms that are most important to investors and listed 
companies.'' \27\
---------------------------------------------------------------------------

    \27\ See Reg NMS Adopting Release, supra note 6, at 37499.
---------------------------------------------------------------------------

    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%.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \31\ See supra note 14.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \32\ See Reg NMS Adopting Release, supra note 6, at 37499.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \35\ See supra note 14.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78s(b)(3)(A).
    \37\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \38\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (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\
---------------------------------------------------------------------------

    \39\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10816 Filed 5-19-20; 8:45 am]
 BILLING CODE 8011-01-P