[Federal Register Volume 85, Number 117 (Wednesday, June 17, 2020)]
[Notices]
[Pages 36644-36647]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12984]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89045; File No. SR-NYSEAMER-2020-45]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Amending 
the NYSE American Options Fee Schedule To Adopt a New Incentive Program 
for Floor Brokers

June 11, 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 June 5, 2020, NYSE American LLC (``NYSE American'' 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 amend the NYSE American Options Fee 
Schedule (``Fee Schedule'') to adopt a new incentive program for Floor 
Brokers. The Exchange proposes to implement the fee change effective 
June 5, 2020.\4\ The proposed 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 
June 1, 2020 (SR-NYSEAMER-2020-43) and withdrew such filing on June 
5, 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 modify the Fee Schedule to 
introduce a new incentive program for Floor Broker organizations (each 
a ``Floor Broker'') to encourage Floor Brokers to increase their 
billable volume on the Exchange.
    Specifically, the Exchange proposes to offer a rebate of $35,000 to 
Floor broker organizations for each month that a Floor Broker achieves 
a certain minimum level of average daily volume (``ADV'') of billable 
contracts, as specified below.
    The Exchange proposes to implement the rule changes on June 5, 
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 ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \5\
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    \5\ 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.\6\ 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.\7\
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    \6\ 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.
    \7\ Based on OCC data, see id., the Exchange's market share in 
equity-based options declined from 9.82% for the month of January 
2019 to 8.08% for the month of January 2020.
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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

[[Page 36645]]

products, in response to fee changes. Accordingly, competitive forces 
constrain options exchange transaction fees. To respond to this 
competitive marketplace, the Exchange has established incentives to 
assist Floor Brokers in attracting more business to the Exchange--
including the Percentage Growth Incentive for certain Floor Brokers 
\8\--as such participants serve an important function in facilitating 
the execution of orders via open outcry, which promotes price discovery 
on the public markets. To the extent that these incentives succeed, the 
increased liquidity on the Exchange would result in enhanced market 
quality for all participants.
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    \8\ See Fee Schedule, Section III.E, Floor Broker Fixed Cost 
Prepayment Incentive Program (the ``FB Prepay Program'').
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Proposed Rule Change
    The Exchange proposes to adopt a Floor Broker Billable Volume 
Rebate (``Rebate'').\9\ As proposed, a Floor Broker would earn a rebate 
of $35,000 for each month that the Floor Broker achieves certain ADV in 
billable ADV. The calculation for billable ADV applies to manual 
executions and QCCs, but excludes any Customer volume and non-billable 
Professional Customer QCC volume, Firm Facilitation trades, and any 
volume calculated to achieve the Firm Monthly Fee Cap and the Strategy 
Execution Fee Cap, regardless of whether either of these caps is 
achieved.\10\ In short, any volume (or contract side) for which a Floor 
Broker is (potentially) not billed, including because of monthly fee 
caps, would not count towards achieving the Rebate. To qualify for the 
proposed monthly Rebate, a Floor Broker must execute the greater of:
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    \9\ See proposed Fee Schedule, Section III.E.2, Floor Broker 
Billable Volume Rebate (the ``FB Billable Volume Rebate''). To 
accommodate this change, the Exchange proposes (re)name Section 
III.E of the Fee Schedule ``Floor Broker Incentive and Rebate 
Programs,'' and to number the FB Prepay Program and the FB Billable 
Volume Rebate as subsection 1 and 2. See proposed Fee Schedule, 
Table of Contents (setting forth new Section III.E.1,2) and Section 
III.E.1,2.
    \10\ See proposed Fee Schedule, Section III.E.2.
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    (I) 75,000 contract sides in billable ADV or
    (ii) 150% of the Floor Broker's total billable ADV in contract 
sides during the first half of 2019 (i.e., January-June 2019).\11\
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    \11\ See id.
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    The Exchange believes that 75,000 contract sides in billable ADV 
(i.e., 150% of 50,000 contract sides) is a reasonable minimum threshold 
for a Floor Broker, including one that is new to the Exchange, to 
achieve given that numerous Floor brokers exceeded this volume 
requirement in 2019, even though it was not required. Similarly, the 
Exchange believes that the minimum alternative threshold of 150% of a 
Floor Broker's total billable ADV in contract sides during the first 
half of 2019 is reasonable for those Floor Brokers that achieve more 
than 75,000 ADV billable contract sides, given the increased options 
volume executed by Floor Brokers in the past year.
    The Exchange believes the proposed Rebate would encourage Floor 
Brokers to seek out, and increase, diverse order flow for execution on 
the Exchange. The Exchange's fees are constrained by intermarket 
competition, as ATP Holders may direct their order flow to any of the 
16 options exchanges, including those that may offer similar 
incentives. Thus, ATP Holders have a choice of where they direct their 
order flow. Fees and rebates for Floor Broker activity are designed to 
encourage Floor Brokers to execute a variety of transaction types on 
the Exchange, and the FB Billable Volume Rebate is intended to augment 
those fees and rebates with an incentive to encourage executing 
billable volume. The Exchange notes that all market participants stand 
to benefit from any increase in billable volume by Floor Brokers, 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.
    The Exchange cannot predict with certainty whether any Floor 
Brokers would avail themselves of this proposed fee change. However, 
all Floor brokers are potentially eligible for this Rebate.
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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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 broader forms that are most important to investors 
and listed companies.'' \14\
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    \14\ See Reg NMS Adopting Release, supra note 5, 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.\15\ 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.\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/volume/default.jsp.
    \16\ Based on OCC data, see id., the Exchange's market share in 
equity-based options declined from 9.82% for the month of January 
2019 to 8.08% for the month of January 2020.
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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 Exchange believes that the proposed FB Billable Volume Rebate, 
which offers two alternative methods to achieve the Rebate, is 
reasonable because it is designed to incent Floor Brokers to increase 
the amount and variety of billable order flow directed to the Exchange. 
The Exchange notes that all market participants stand to benefit from 
any increase in billable volume by Floor Brokers, 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.
    The Exchange believes it is reasonable to only include transactions 
for which a Floor Broker is billed in the calculation for the FB Volume 
Rebate because Floor Brokers are already incented to execute

[[Page 36646]]

transactions for non-billable business (e.g., Customer volume and Firm 
Facilitation trades or those on which monthly fees are capped per the 
Firm Monthly Fee Cap and the Strategy Execution Fee Cap) because there 
is no charge.
    Finally, to the extent the proposed pricing incentives attract 
greater volume and liquidity, the Exchange believes the proposed 
changes 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 changes are 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 changes are designed to incent 
ATP Holders to direct liquidity to the Exchange, thereby promoting 
market depth, price discovery and improvement and enhancing order 
execution opportunities for market participants.
    The Exchange cannot predict with certainty whether any Floor 
Brokers would avail themselves of this proposed fee change. However, 
all Floor brokers are potentially eligible for this Rebate.
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 Floor Brokers can 
opt to attempt to trade sufficient volume to achieve the Rebate or not. 
All Floor Brokers have the ability to qualify for the same Rebate under 
two alternatives means offered (i.e., the greater of at least 75,000 
contract sides in billable ADV or 150% of the Floor Broker's total 
billable ADV in contract sides during the first half of 2019).
    In addition, the proposed change applies to qualifying Floor 
Brokers equally and because Floor Brokers serve an important function 
in facilitating the execution of orders via open outcry, which as a 
price-improvement mechanism, the Exchange wishes to encourage and 
support.
    Moreover, the proposed Rebate is designed to incent Floor Brokers 
to encourage ATP Holders to aggregate their executions--particularly 
billable volumes--at the Exchange as a primary execution venue. To the 
extent that the proposed changes attract more billable volume 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 changes 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 that the proposed Rebate is not unfairly 
discriminatory because the proposed modifications would be available to 
all similarly-situated market participants on an equal and non-
discriminatory basis. The proposed Rebate is not unfairly 
discriminatory to non-Floor Brokers because Floor Brokers serve an 
important function in facilitating the execution of orders via open 
outcry, which as a price-improvement mechanism, the Exchange wishes to 
encourage and support.
    The proposed Rebate is based on the amount and type of business 
transacted on the Exchange and Floor Brokers are not obligated to try 
to achieve the Rebate. Rather, the proposed Rebate is designed to 
encourage these participants to utilize the Exchange as a primary 
trading venue (if they have not done so previously) or increase 
billable volume sent to the Exchange. To the extent that the proposed 
changes attract more order flow to the Exchange (including to the 
Floor), this increased order flow would continue to make the Exchange a 
more competitive venue for order execution. Thus, the Exchange believes 
the proposed rule changes 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.'' \17\
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    \17\ See Reg NMS Adopting Release, supra note 5, at 37499.
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    Intramarket Competition. The proposed Rebate is designed to assist 
Floor Brokers in (continuing to) attract additional order flow to the 
Exchange, including to the Floor, which would enhance the quality of 
quoting and may increase the volumes of contracts trade on the 
Exchange. To the extent that there is an additional competitive burden 
on non-Floor Brokers, the Exchange believes that this is appropriate 
because Floor Brokers serve an important function in facilitating the 
execution of orders via open outcry, which as a price-improvement 
mechanism, the Exchange wishes to encourage and support.
    To the extent that this function is achieved, all of the Exchange's 
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 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 currently has more than 16% of the market share of executed 
volume of multiply-listed equity and ETF options trades.\18\ Therefore, 
no exchange currently possesses significant pricing power in the 
execution of multiply-listed equity & ETF options order flow. More 
specifically, in January 2020, the

[[Page 36647]]

Exchange had less than 10% market share of executed volume of multiply-
listed equity & ETF options trades.\19\
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    \18\ See supra note 6.
    \19\ Based on OCC data, supra note 7, the Exchange's market 
share in equity-based options was 9.82% for the month of January 
2019 and 8.08% for the month of January 2020.
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    The Exchange believes that the proposed Rebate change reflects this 
competitive environment because it modifies the Exchange's fees in a 
manner designed to incent Floor Brokers to direct trading interest to 
the Exchange, to provide liquidity and to attract order flow. To the 
extent that this purpose is achieved, all the Exchange's market 
participants should benefit from the improved market quality and 
increased opportunities for price improvement.
    The Exchange 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. And, in 
fact, the Exchange believes that the proposed change could promote 
competition between the Exchange and other execution venues, by 
encouraging additional orders to be sent to the Exchange for execution, 
including to the Floor.

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) \20\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \21\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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) \22\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \22\ 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 Number SR-NYSEAMER-2020-45 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-NYSEAMER-2020-45. 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/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-NYSEAMER-2020-45, and should be 
submitted on or before July 8, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12984 Filed 6-16-20; 8:45 am]
BILLING CODE 8011-01-P