[Federal Register Volume 85, Number 141 (Wednesday, July 22, 2020)]
[Notices]
[Pages 44349-44352]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15793]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89335; File No. SR-NYSEAMER-2020-54]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Change To Amend the NYSE
American Options Fee Schedule
July 16, 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 July 10, 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 offer a new rebate for initiating a
Complex Customer Best Execution Auction. The Exchange proposes to
implement the fee change effective July 10, 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
July 1, 2020 (SR-NYSEAMER-2020-51) and withdrew such filing on July
10, 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 offer a
new rebate for initiating a Complex Customer Best Execution (``CUBE'')
auction, provided the ATP Holder meets the minimum volume requirements
as discussed below.
The Exchange proposes to implement the rule changes on July 10,
2020.
Background
The Exchange has established various pricing incentives designed to
encourage increased Electronic volume executed on the Exchange,
including (but not limited to) the American Customer Engagement
(``ACE'') Program and the Professional Step-Up Incentive Program. The
Exchange also offers an ACE Initiating Participant Rebate to
participants in the ACE Program that initiate Single-Leg or Complex
CUBE Auctions as well as an alternative to the ACE Initiating
Participant Rebate--the Alternative Initiating Participant Rebate--that
enables non-ACE Program participants to qualify for a rebate on
[[Page 44350]]
certain initiating Single-Leg CUBE Orders provided they meet certain
Professional volume requirements and increase their initiating CUBE
volume. The Exchange is proposing to similarly offer an Alternative
Initiating Rebate for certain initiating Complex CUBE transactions to
encourage ATP Holders to submit initiating Complex CUBE Orders and to
increase their initiating Single-Leg CUBE Orders and Electronic volume
in the ``Professional'' range.\5\ To the extent that this incentive
succeeds, the increased liquidity on the Exchange would result in
enhanced market quality for all participants.
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\5\ For purposes of this filing, ``Professional'' Electronic
volume includes: Professional Customer, Broker Dealer, Non-NYSE
American Options Market Maker, and Firm (the ``Professional
volume'').
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Proposed Rule Change
CUBE Auction Fees & Credits: Alternative Initiating Participant Rebate
Section I.G. of the Fee Schedule sets forth the rates for per
contract fees and credits for executions associated with Single-Leg and
Complex CUBE Auctions.\6\ To encourage participants to utilize CUBE
Auctions, the Exchange offers rebates on certain initiating CUBE
volume, including an Alternative Initiating Participant Rebate, which
applies to the each of the first 5,000 contracts per Singe-Leg CUBE
Order for those participants that do not qualify for the ACE Initiating
Participant Rebate.\7\
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\6\ See Section I.G. of the Fee Schedule, CUBE Auction Fees &
Credits.
\7\ See id., Singe-Leg CUBE Auction, note 2 (providing that an
ATP Holder may qualify for the ($0.10) per contract Alternative
Initiating Participant Rebate provided an ATP Holder executes a
minimum of 10,000 contracts ADV in the Professional range and
increase their Initiating CUBE Orders by the greater of 20% over
their August 2019 volume or 10,000 contracts ADV).
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The Exchange proposes to similarly offer an Alternative Initiating
Participant Rebate to Complex CUBE transactions. As proposed, a ($0.10)
per contract Alternative Initiating Participant Rebate may be applied
to each of the first 1,000 contracts per leg of a Complex CUBE Order
executed in a Complex CUBE Auction, provided an ATP Holder executes a
minimum of 10,000 contracts ADV in the Professional range and increases
their Initiating CUBE Orders by the greater of 20% over their August
2019 volume or 10,000 contracts ADV.\8\ An ATP Holder that qualifies
for both the ACE Initiating Participant Rebate and the Alternative
Initiating Participant Rebate is entitled only to the greater of the
two rebates,\9\ however both of these Initiating Participant Rebates
are available in addition to other CUBE Auction-related credits set
forth in the Fee Schedule.\10\
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\8\ See proposed Section I.G. of the Fee Schedule, CUBE Auction
Fees & Credits, Complex CUBE Auction, note 2. For additional
clarity, the Exchange proposes to specify that the qualifying
Initiating CUBE Order volume applies to Single-Leg CUBE Auctions
(see id.), but notes that, by definition, a ``CUBE Order'' is ``an
agency order that is guaranteed an execution in the Single-Leg CUBE
Auction by a Contra Order.'' See Fee Schedule, KEY TERMS and
DEFINITIONS.
\9\ See id. The Exchange acknowledges that the two rebates are
currently the same amount--i.e., ($0.10) per contract, but the ATP
Holder would nonetheless only be entitled to one of the rebates.
\10\ See proposed Section I.G. of the Fee Schedule, CUBE Auction
Fees & Credits, Complex CUBE Auction, note 2.
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This proposed change is designed to encourage ATP Holders to submit
initiating Complex CUBE Orders and to increase their initiating Single-
Leg CUBE Orders and Electronic volume in the Professional range. The
proposed Alternative Initiating Participant Rebate would provide ATP
Holders that initiate Complex CUBE Auctions another means of achieving
a rebate based on Single-Leg CUBE and Professional volume, which should
provide additional incentive to direct such order flow to the
Exchange.\11\ The Exchange cannot predict with certainty whether any
ATP Holders would attempt to qualify for the proposed Complex CUBE
Alternative Initiating Participant Rebate.
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\11\ See, e.g., Fee Schedule, Section I. H, Professional Step-up
Incentive (offering discounted rates on monthly Professional volume
for ATP Holders that achieve Tier A, B or C as a result of
increasing their Professional volume by specified percentages of
TCADV over their August 2019 volume--or, for new ATP Holders that
increase such volume by a specified percentages of TCADV above
10,000 contracts ADV).
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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 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.\15\ Therefore, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity & ETF options
order flow. More specifically, in June 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 increased slightly from 8.20% for the month of
June 2019 to 8.32% for the month of June 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--particularly to other exchanges offering similar
incentives, or discontinue or reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
constrain options exchange transaction fees.\17\ Stated otherwise,
changes to exchange transaction fees and rebates can have a direct
effect on the ability of an exchange to compete for order flow.
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\17\ See e.g., Cboe Exchange Inc. (``Cboe''), Fee Schedule,
Volume Incentive Program (VIP), available here, https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf (providing
per contract credits for volume executed in Cboe's complex price
improvement auction). See also MIAX Options fee schedule, Section
1.a.iv, Professional Rebate Program, available here, https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Options_Fee_Schedule_04012019.pdf (setting forth per contract
credits on volume submitted for the account of Public Customers that
are not Priority Customers, Non-MIAX Market Makers, Non-Member
Broker Dealers, and Firms (collectively, Professional for purposes
of MIAX program), provided the Member achieves certain Professional
volume increase percentage thresholds (set forth in the schedule) in
the month relative to the fourth quarter of 2015).
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The Exchange believes that the proposed Alternative Initiating
Participant Rebate for initiating Complex CUBE volume is reasonable
because it may encourage ATP Holders
[[Page 44351]]
that choose to participate in the CUBE to direct order flow, including
initiating Complex CUBE volume and Professional volume, to the
Exchange. The proposed Rebate may encourage greater use of Single-Leg
and Complex CUBE Auctions, which may lead to greater opportunities to
trade--and for price improvement--for all participants. In addition,
the proposed Rebate, which is based on Professional order flow would
provide ATP Holders an additional incentive (to the Professional Step-
Up Incentive Program) to direct such order flow to the Exchange.\18\
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\18\ See supra note 11 (regarding discounted rates offered via
the Professional Step-up Incentive).
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The Exchange notes that all market participants stand to benefit
from increased transaction volume, as such increase promotes market
depth, facilitates tighter spreads and enhances price discovery, and
may lead to a corresponding increase in order flow from other market
participants that do not participate in (or qualify for) the
Professional Step-Up Incentive Program. As with the Single-Leg
Alternative Initiating Participant Rebate, the Exchange believes that
the baseline of 10,000 ADV Professional volumes for ATP Holders is
reasonable because these volumes are comparable to trading volumes in
August 2019 for those firms that were active on the Exchange and
eligible to increase their Single-Leg CUBE initiating volume by 20% to
qualify for the proposed Alternative Initiating Participant Rebate.
Moreover, the proposed Rebate provides another avenue (outside of the
ACE Program) for participants to avail themselves of a rebate for
initiating CUBE Auctions. The Exchange cannot predict with certainty
whether any ATP Holders would attempt to qualify for the Complex CUBE
Alternative Initiating Participant Rebate.
Finally, to the extent the proposal attracts greater volume and
liquidity, the Exchange believes this would, in turn, 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 in Electronic executions, similar to other
exchange programs with competitive pricing programs, thereby promoting
market depth, price discovery and improvement and enhancing order
execution opportunities for market participants.\19\
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\19\ See, e.g., supra note 17 (regarding Cboe rebate on VIP and
MIAX Professional Rebate Program).
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The Proposed Rule Change Is an Equitable Allocation of Fees and Rebates
The Exchange believes the proposed rule change is an equitable
allocation of its fees and rebates. The proposal is based on the amount
and type of business transacted on the Exchange and ATP Holders can opt
to avail themselves of these incentives or not. Moreover, the proposals
are designed to encourage ATP Holders to aggregate their executions at
the Exchange as a primary execution venue. To the extent that the
proposed changes attract more initiating CUBE Auction (and
Professional) volume 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 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 proposal is not unfairly
discriminatory because the proposed modifications would be available to
all similarly-situated market participants on an equal and non-
discriminatory basis. ATP Holders would have increased opportunity to
qualify for rebates based on their Professional volume with the
Alternative Initiating Participant Rebate. The Alternative Initiating
Participant Rebate also offers participants that choose to participate
in the Complex CUBE, but do not qualify for the ACE Initiating
Participant Rebate to be eligible to receive a rebate on initiating
Complex CUBE volume. The Exchange believes that this proposal should
incent ATP Holders to direct Electronic volume to the Exchange, which
would increase liquidity on the Exchange to the benefit of all market
participants, which may lead to greater opportunities to trade.
This proposal is based on the amount and type of business
transacted on the Exchange and ATP Holders are not obligated to try to
achieve the incentive pricing option. Rather, the proposal is designed
to encourage participants to utilize the Exchange as a primary trading
venue (if they have not done so previously) or increase volume sent to
the Exchange. To the extent that the proposed changes attract more
executions 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 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.'' \20\
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\20\ See Reg NMS Adopting Release, supra note 14, at 37499.
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Intramarket Competition. The proposed change is designed to
continue to attract order flow to the Exchange by offering competitive
rates and rebates (via the Complex CUBE Alternative Initiating Rebate)
based on increased volumes on the Exchange, which would enhance the
quality of quoting and may increase the volumes of contracts traded on
the Exchange. To the extent that this purpose is achieved, all of the
Exchange's market participants should benefit from the improved
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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.\21\ Therefore,
no exchange currently possesses significant pricing power in the
execution of multiply-listed equity & ETF options order flow. More
specifically, in June 2020, the Exchange had less than 10% market share
of executed volume of multiply-listed equity & ETF options trades.\22\
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\21\ See supra note 15.
\22\ Based on OCC data, supra note 16, the Exchange's market
share in equity-based options was 8.20% for the month of June 2019
and 8.32% for the month of June 2020.
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The Exchange believes that the proposed rule change reflects this
competitive environment because it modifies the Exchange's fees and
rebates in a manner designed to encourage ATP Holders 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 believes that the proposed change could promote
competition between the Exchange and other execution venues, including
those that currently offer similar pricing incentives, by encouraging
additional orders to be sent to the Exchange for execution.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \23\ of the Act and subparagraph (f)(2) of Rule
19b-4 \24\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 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) \25\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\25\ 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-2020-54 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-2020-54. 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-2020-54, and should be
submitted on or before August 12, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15793 Filed 7-21-20; 8:45 am]
BILLING CODE 8011-01-P