[Federal Register Volume 85, Number 223 (Wednesday, November 18, 2020)]
[Notices]
[Pages 73567-73570]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25392]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90410; File No. SR-NYSEAMER-2020-80]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Change To Amend the NYSE 
American Options Fee Schedule Regarding the Amount of Rebates for 
Initiating a Complex Customer Best Execution Auction

November 12, 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 November 2, 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'') regarding the amount of rebates for 
initiating a Complex Customer Best Execution Auction. The Exchange 
proposes to implement the fee change effective November 2, 2020. 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.

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.

[[Page 73568]]

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 regarding 
certain of the credits available to Initiating Participants in a 
Complex Customer Best Execution (``CUBE'') auctions.\4\ The Exchange 
proposes to implement the rule changes on November 2, 2020.
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    \4\ See generally Rule 971.2NY (regarding Complex CUBE 
Auctions). Unless otherwise specified, capitalized terms have the 
same meaning as the defined terms in Rule 971.2NY.
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    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.\5\ To encourage participants to utilize Complex 
CUBE Auctions, the Exchange offers rebates and credits on certain 
initiating Complex CUBE volume. Currently, the Exchange offers credit 
to the Initiating Participant for each contract in a Complex Contra 
Order paired with a Complex CUBE Order that does not trade with the 
Complex CUBE Order because it is replaced in the auction.\6\ The 
Exchange offers an alternative enhanced Initiating Participant credit 
to ATP Holders that qualify for Tier 5 of the American Customer 
Engagement (``ACE'') Program \7\ and also execute more than 1% TCADV in 
monthly Initiating Complex CUBE Orders--($0.45) per contract for Penny 
issues and ($0.90) per contract for Non-Penny issues (the ``Enhanced 
Initiating Credit'').\8\
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    \5\ See Fee Schedule, Section I.G., CUBE Auction Fees & Credits.
    \6\ See id., Complex CUBE Auction, note 1 (setting forth the 
available credit for ATP Holders that achieve one of the five ACE 
Tiers). The Exchange proposes to correct a typographical error in 
the last sentence of note 1 to the Complex CUBE Auction table to 
change the reference to ``an alternative Initiating Participant 
Credits'' from plural to singular, which would add clarity and 
transparency to the Fee Schedule. See proposed Fee Schedule, Section 
I.G., CUBE Auction Fees & Credits Complex CUBE Auction, note 1.
    \7\ See Fee Schedule Section I.E., American Customer Engagement 
(``ACE'') Program.
    \8\ See Fee Schedule, Section I.G., Complex CUBE Auction, note 
1. ATP Holders that achieve ACE Tier 5 but do not satisfy the 
monthly Initiating Complex CUBE Order volume requirement receive a 
($0.35) per contract for Penny issues and ($0.75) per contract for 
Non-Penny issues. See Fee Schedule, Section I.G., Complex CUBE 
Auction, Initiating Participant Credit table (setting forth credit 
for Tier 5).
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    The Exchange proposes to modify (reduce) the Enhanced Initiating 
Credit to ($0.38) per contract for Penny issues and ($0.80) per 
contract for Non-Penny issues and to amend the Fee Schedule to reflect 
this change.\9\ As noted above, volume executed in Electronic auction 
mechanisms, such as the Complex CUBE, has increased across the 
industry. As such, the Exchange believes that, even with the proposed 
reduction, the Enhanced Initiating Credit would still encourage 
participants to try to achieve this Credit by directing more auction-
eligible Complex order flow to the Exchange.\10\
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    \9\ See proposed Fee Schedule, Section I.G., CUBE Auction Fees & 
Credits Complex CUBE Auction, note 1.
    \10\ A daily analysis of OPRA trade codes indicates that auction 
volume has increased from 19.2% of all options industry volume at 
the end of 2019 to 23.4% at the end of June 2020. See, e.g., https://www.nyse.com/data-insights/q2-2020-options-review.
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    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 with similar incentive programs for auction 
participants.\11\ Thus, ATP Holders have a choice of where they direct 
their order flow, including auction volume which, as noted above, has 
increased in the last year.
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    \11\ See e.g., Cboe Exchange Inc. (``Cboe''), Fee Schedule, 
Break-Up Credits, available here, https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf (providing per contract credits for 
Agency volume executed against noncustomer, non-Market Maker AIM 
response in Cboe's complex price improvement auction).
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    To the extent that the proposed modification continues to encourage 
the submission of Complex CUBE Orders, all market participants stand to 
benefit from increased liquidity and opportunities for price 
improvement. Because the Enhanced Initiating Credit is tied to Customer 
(ACE) order flow--in addition to initiating Complex CUBE volume, the 
Exchange believes all market participants stand to benefit from 
increased order flow, which promotes market depth, facilitates tighter 
spreads and enhances price discovery.
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 August 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 and ETF-based options increased from 7.73% for the month of 
August 2019 to 8.18% for the month of August 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 and rebates can have a direct effect on 
the ability of an exchange to compete for order flow including auction 
volume which, as noted above, has increased in the last year.
    The proposed rule change is designed to continue 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

[[Page 73569]]

participants. In particular, the Exchange believes it is reasonable to 
adjust the Enhanced Initiating Credit for Complex CUBE orders downward 
as such credits remain consistent with credits offered by competing 
options exchanges for initiating auction participants and account for 
the increase in auction volume since late 2019.\17\
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    \17\ See, e.g., supra notes 10 and 11 (regarding increase in 
industry-wide auction volumes and Cboe's Break-Up Credits, 
respectively).
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    The proposed change is reasonably designed to continue to encourage 
ATP Holders to participate in the Complex CUBE Auctions and to further 
increase their initiating Complex CUBE Orders or maintain their ACE 
Tier level (i.e., Tier 5) to qualify for the Credit. The Exchange 
believes that maintaining the qualification bases to achieve the 
Complex CUBE Enhanced Initiating Credit should continue to encourage 
greater use of the CUBE Auctions by all ATP Holders, which may lead to 
greater opportunities to trade--and for price improvement--for all 
participants. In addition, ATP Holders that qualify for the proposed 
Enhanced Initiating Credit must achieve ACE Tier 5--the highest ACE 
Tier. Because the ACE Program is based on the amount of Customer 
business transacted on the Exchange, the Exchange believes the proposed 
change would continue to incentivize providers of Customer order flow 
to direct that order flow to the Exchange to receive greater Complex 
CUBE credits in a manner that enables the Exchange to improve its 
overall competitiveness and strengthen its market quality for all 
market participants.
    Further, the Exchange believes that even with the proposed 
reduction, the Credit would continue to attract more volume and 
liquidity to the Exchange generally, and to Complex CUBE Auctions 
specifically, and would therefore benefit all market participants 
(including those that do not participate in the ACE Program) through 
increased opportunities to trade at potentially improved prices as well 
as enhancing price discovery. In addition, the proposed change would 
continue to encourage ATP Holders to direct Complex Order volume to the 
Exchange, specifically via the Complex CUBE mechanism, which benefits 
all markets participants, particularly those that receive price 
improvement on their Complex Orders.
    Finally, to the extent the proposed changes maintain greater volume 
and liquidity, the Exchange believes the proposed changes would 
continue to 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 
maintain its market share relative to its competitors.
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 credits. 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 proposal 
is designed to encourage ATP Holders to aggregate their executions at 
the Exchange as a primary execution venue. To the extent that the 
proposed change continues to attract more Complex CUBE (and Customer) 
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 change would improve market 
quality for all market participants on the Exchange and, therefore, 
continue to 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. The Exchange's proposed modification to the 
Enhanced Initiating Credit is designed to continue to encourage greater 
use of the Complex CUBE Auctions, which may lead to greater 
opportunities to trade--and for price improvement--for all 
participants.
    The 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 continue 
to encourage participants to utilize the Exchange as a primary trading 
venue (if they have not done so previously) or increase Electronic 
volume sent to the Exchange. To the extent that the proposed change 
continues to 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 continue to improve market quality for all market 
participants on the Exchange and, therefore, attract more order flow to 
the Exchange thereby improving market-wide quality and price discovery. 
The resulting volume and liquidity would continue to 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 continue to 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 changes further 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.'' \18\
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    \18\ 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 credits (via the Complex CUBE Enhanced Initiating Credit) 
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 Exchange 
market participants should benefit from the continued market liquidity. 
Enhanced market quality and increased transaction volume that results 
from the 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

[[Page 73570]]

participants can readily favor one of the 16 competing option exchanges 
if they deem fee levels at a 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.\19\ Therefore, no exchange currently possesses 
significant pricing power in the execution of multiply-listed equity & 
ETF options order flow. More specifically, in August 2020, the Exchange 
had less than 10% market share of executed volume of multiply-listed 
equity & ETF options trades.\20\
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    \19\ See supra note 15.
    \20\ Based on OCC data, supra note 16, the Exchange's market 
share in equity-based options increased from 7.73% for the month of 
August 2019 to 8.18% for the month of August 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 changes 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.\21\
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    \21\ See, e.g., supra note 11 (regarding Cboe's Break-Up 
Credits).
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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) \22\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \23\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 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) \24\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \24\ 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-2020-80 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-2020-80. 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-2020-80, and should be 
submitted on or before December 9, 2020.
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    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-25392 Filed 11-17-20; 8:45 am]
BILLING CODE 8011-01-P