[Federal Register Volume 85, Number 174 (Tuesday, September 8, 2020)]
[Notices]
[Pages 55540-55544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19842]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89741; File No. SR-NYSEArca-2020-79]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE 
Arca Options Fee Schedule

September 2, 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 September 1, 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

[[Page 55541]]

have been prepared by the self-regulatory organization. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify the NYSE Arca Options Fee Schedule 
(``Fee Schedule'') regarding credits for certain Qualified Contingent 
Cross (``QCC'') transactions. The Exchange proposes to implement the 
fee change effective September 1, 2020. The proposed rule change is 
available on the Exchange's website at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to amend the Fee Schedule to adopt 
new credits for certain QCC transactions, which are designed to 
encourage an increase in billable manual volume executed on the 
Exchange, including QCC transactions.\4\ The Exchange proposes to 
implement the rule change on September 1, 2020.
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    \4\ A QCC is defined as an originating order to buy or sell at 
least 1,000 contracts that is identified as being part of a 
qualified contingent trade, coupled with a contraside order or 
orders totaling an equal number of contracts. See Rule 6.62-O(bb).
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    Currently, Floor Brokers earn a credit for executed QCC orders of 
($0.07) per contract for the first 300,000 contracts or ($0.10) per 
contract in excess of 300,000.\5\ The Exchange currently limits the 
maximum Floor Broker credit to $375,000 per month per Floor Broker 
firm.\6\
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    \5\ See Fee Schedule, Qualified Contingent Cross (``QCC'') 
Transactions Fees and Credits, available here, https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf.
    \6\ See id., Endnote 13. The Floor Broker credit is paid only on 
volume within the applicable tier and is not retroactive to the 
first contract traded. QCC executions in which a Customer is on both 
sides of the QCC trade will not be eligible for the Floor Broker 
credit. See id.
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    The Exchange proposes to amend the Fee Schedule to provide an 
additional ($0.02) per contract credit on the first 300,000 eligible 
QCC contracts to Floor Brokers that meet a certain minimum level of 
average daily volume (``ADV'').\7\ Specifically, the Exchange proposes 
that a Floor Broker would be entitled to the enhanced credit provided 
the Floor Broker executes the greater of:
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    \7\ See proposed Endnote 13 to Fee Schedule.
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     At least 150% of the Floor Broker's First Quarter (``Q1'') 
2019 billable contract sides ADV; or
     at least 30,000 billable contract sides ADV.\8\
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    \8\ See id.
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    As proposed, the calculation for billable contract sides ADV 
applies to manual executions and QCCs, but excludes Customer volume, 
Professional Customer QCC volume, Firm Facilitation and Broker Dealer 
facilitating a Customer trades, and any volume calculated to achieve 
the Firm and Broker Dealer Monthly Fee Cap and the Strategy Execution 
Fee Cap, regardless of whether either of these caps is achieved.\9\ 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 enhanced credit. The proposed enhanced 
credit would not impact the maximum allowable monthly Floor Broker 
credit, which would continue to be limited to $375,000 per month per 
Floor Broker firm.
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    \9\ See id.
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    The Exchange believes that 30,000 contract sides in billable ADV 
(i.e., 150% of 20,000 contract sides) is a reasonable minimum threshold 
for a Floor Broker, including one that is new to the Exchange, to 
achieve given that most Floor Brokers exceeded this volume requirement 
during several months of 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 Q1 2019 is reasonable for those Floor Brokers that achieve more 
than 30,000 ADV billable contract sides, given the increased options 
volume executed by Floor Brokers in 2020--pre-COVID-19, which manual 
volume levels the Exchange believes will rise again post-COVID-19, as 
market participants return to their normal capacity and workflow.
    The Exchange cannot predict with certainty whether any Floor 
Brokers would avail themselves of the proposed fee change. However, all 
Floor Brokers are eligible for this enhanced credit.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 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.'' \12\
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    \12\ 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.\13\ Therefore, 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 slightly more than 
10% market share of executed volume of multiply-listed equity & ETF 
options trades.\14\
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    \13\ 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.
    \14\ Based on OCC data, see id., the Exchange's market share in 
equity-based options was 9.59% for the month of June 2019 and 10.69% 
for the month of June 2020.
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    The Exchange believes that the ever-shifting market share among the

[[Page 55542]]

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, 
modifications to exchange transaction fees can have a direct effect on 
the ability of an exchange to compete for order flow.
    To respond to this competitive marketplace, the Exchange has 
established incentives to assist Floor Brokers in attracting more 
business to the Exchange--including credits on QCC transactions--as 
such participants serve an important function in facilitating the 
execution of orders via open outcry, which promotes price discovery on 
the public markets.
    The Exchange believes that the proposed enhanced credit is 
reasonable because it is designed to incent Floor Brokers to increase 
the number and type of manual billable transactions sent to the 
Exchange, including QCC transactions. To the extent that the proposed 
change attracts more volume 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. The Exchange notes that 
all market participants stand to benefit from any increase in 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. In addition, any 
increased liquidity on the Exchange would result in enhanced market 
quality for all participants.
    Floor Brokers have the option of attempting to trade sufficient 
volume to achieve the proposed credit and those Floor Brokers that do 
not meet the minimum volume thresholds would still be eligible for the 
current ($0.07) per contract credit on the first 300,000 QCC 
transactions executed on the Exchange.
    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's fees are constrained by intermarket 
competition, as Floor Brokers may direct their order flow to any of the 
16 options exchanges, including those with similar QCC credits.\15\ 
Thus, Floor Brokers have a choice of where they direct their order 
flow--including their QCC transactions. The proposed rule change is 
designed to incent Floor Brokers to direct liquidity to the Exchange--
in particular billable manual volume and QCC orders, thereby promoting 
market depth, price discovery and improvement and enhancing order 
execution opportunities for market participants.
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    \15\ See e.g., Nasdaq ISE fee schedule, Section 6 A. (QCC and 
Solicitation Rebate). Nasdaq ISE offers rebates on QCC and 
Solicitation mechanism transactions from ($0.05) on 100,000 to 
199,000 contracts, up to ($0.11) per contract beyond 1,000,000 
contracts in a month.
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    The Exchange cannot predict with certainty whether any Floor 
Brokers would avail themselves of the proposed fee change.
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 enhanced 
credit or not. All Floor Brokers have the ability to qualify for the 
same enhanced credit under two alternatives offered (i.e., the greater 
of at least 30,000 contract sides in billable ADV or 150% of the Floor 
Broker's total billable ADV in contract sides during the Q1 2019).
    In addition, the proposed change applies to qualifying Floor 
Brokers equally and would encourage and support Floor Brokers 
facilitating the execution of orders via open outcry.
    Moreover, the proposed enhanced credit is designed to incent Floor 
Brokers to encourage OTP 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 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 it is not unfairly discriminatory to add an 
enhanced Floor Broker credit because the proposed modification would be 
available to all similarly-situated Floor Brokers on an equal and non-
discriminatory basis. The proposed enhanced credit 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 proposal is based on the amount and type of business transacted 
on the Exchange and Floor Brokers are not obligated to try to achieve 
the enhanced credit, nor are they obligated to execute QCC orders. 
Rather, the proposal is designed to encourage Floor Brokers to utilize 
the Exchange as a primary trading venue for manual transactions (if 
they have not done so previously) or increase volume sent to the 
Exchange. To the extent that the proposed change attracts more billable 
manual volume, including QCC 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 
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

[[Page 55543]]

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.'' \16\
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    \16\ See Reg NMS Adopting Release, supra note 12, at 37499.
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    Intramarket Competition. The proposed enhanced credit is designed 
attract additional order flow to the Exchange (particularly in Floor 
Brokers' billable manual volume, including QCC transactions), which 
would enhance the quality of quoting and may increase the volumes of 
contracts traded on the Exchange. Greater liquidity benefits all market 
participants on the Exchange and increased billable manual volume would 
increase opportunities for execution of other trading interest. The 
proposed enhanced credit would be available to all similarly-situated 
Floor Brokers that executed manual trades, and, as such, the proposed 
change would not impose a disparate burden on competition among market 
participants 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.
    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.\17\ 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 slightly more than 10% market share of 
executed volume of multiply-listed equity & ETF options trades.\18\
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    \17\ 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.
    \18\ Based on OCC data, see id., the Exchange's market share in 
equity-based options was 9.51% for the month of June 2019 and 10.65% 
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 in a 
manner designed to incent Floor Brokers to direct trading interest 
(particularly billable manual volume and QCC transactions) 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, including 
those that currently offer similar QCC credits, by encouraging 
additional orders to be sent to the Exchange for execution.\19\
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    \19\ See supra note 15 (regarding Nasdaq ISE QCC and 
Solicitation Rebate).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \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-NYSEArca-2020-79 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2020-79. 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

[[Page 55544]]

submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2020-79, and should 
be submitted on or before September 29, 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. 2020-19842 Filed 9-4-20; 8:45 am]
BILLING CODE 8011-01-P