[Federal Register Volume 88, Number 93 (Monday, May 15, 2023)]
[Notices]
[Pages 31087-31090]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-10243]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97460; File No. SR-NYSEARCA-2023-35]


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

May 9, 2023.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on May 1, 2023, 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 and II 
below, which Items have been prepared by the self-regulatory 
organization. The

[[Page 31088]]

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 the Ratio Threshold Fee. The Exchange 
proposes to implement the fee change effective May 1, 2023. 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 further extend the waiver of the 
Ratio Threshold Fee that was originally implemented in connection with 
the Exchange's migration to the Pillar platform.\4\ The Exchange 
proposes to implement the rule change on May 1, 2023.
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    \4\ See Securities Exchange Act Release No. 94095 (January 28, 
2022), 87 FR 6216 (February 3, 2022) (SR-NYSEArca-2022-04) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the NYSE Arca Options Fee Schedule).
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    The Ratio Threshold Fee is based on the number of orders entered as 
compared to the number of executions received in a calendar month and 
is intended to deter OTP Holders from submitting an excessive number of 
orders that are not executed.\5\ Because order to execution ratios of 
10,000 to 1 or greater have the potential residual effect of exhausting 
system resources, bandwidth, and capacity, such ratios may create 
latency and impact other OTP Holders' ability to receive timely 
executions.\6\ In connection with the Exchange's migration to the 
Pillar platform, the Exchange implemented a waiver of the Ratio 
Threshold Fee (the ``Waiver'') that took effect beginning in the month 
in which the Exchange began its migration to the Pillar platform and 
would remain in effect for the three months following the month during 
which the Exchange completed its migration to the Pillar platform. As 
the Exchange completed the migration in July 2022, the Waiver was 
originally due to expire on October 31, 2022. The Exchange previously 
filed to extend the Waiver until January 31, 2023 and, subsequently, to 
extend the Waiver until April 30, 2023.\7\
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    \5\ See Fee Schedule, RATIO THRESHOLD FEE; see also Securities 
Exchange Act Release No. 60102 (June 11, 2009), 74 FR 29251 (June 
19, 2009) (SR-NYSEArca-2009-50).
    \6\ See id.
    \7\ See Securities Exchange Act Release Nos. 96252 (November 7, 
2022), 87 FR 68210 (November 14, 2022) (SR-NYSEARCA-2022-74) 
(extension of Waiver until January 31, 2023); 96878 (February 10, 
2023), 88 FR 10156 (February 16, 2023) (SR-NYSEARCA-2023-14) 
(extension of Waiver until April 30, 2023).
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    The Exchange believes that extending the Waiver would allow the 
Exchange additional time to continue to monitor and to further analyze 
traffic rates and order to execution ratios, without imposing a 
financial burden on OTP Holders based on their order to execution 
ratios. The Exchange thus proposes to modify the Fee Schedule to 
provide that the Waiver would extend through June 30, 2023.\8\
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    \8\ See proposed Fee Schedule, RATIO THRESHOLD FEE.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\9\ in general, and furthers the 
objectives of sections 6(b)(4) and (5) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 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.'' \11\
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    \11\ 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.\12\ Therefore, no exchange possesses significant pricing power 
in the execution of multiply-listed equity and ETF options order flow. 
More specifically, in March 2023, the Exchange had less than 13% market 
share of executed volume of multiply-listed equity and ETF options 
trades.\13\
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    \12\ 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/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics.
    \13\ Based on a compilation of OCC data for monthly volume of 
equity-based options and monthly volume of equity-based ETF options, 
see id., the Exchange's market share in equity-based options 
decreased from 13.57% for the month of March 2022 to 12.83% for the 
month of March 2023.
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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, 
modifications 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 extension of the Waiver is 
reasonable because it is designed to lessen the impact of the migration 
on OTP Holders and would allow OTP Holders to continue trading on the 
Pillar platform without incurring excess Ratio Threshold Fees while the 
Exchange continues to evaluate and conduct further analysis on traffic 
rates and order to execution ratios. To the extent the proposed rule 
change encourages OTP Holders to maintain their trading activity on the 
Exchange, the Exchange believes the proposed change would sustain the 
Exchange's overall competitiveness and 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

[[Page 31089]]

mitigate the impacts of the Pillar migration without affecting its 
competitiveness.
The Proposed Rule Change Is an Equitable Allocation of Credits and Fees
    The proposed extension of the Waiver is an equitable allocation of 
fees and credits because the Waiver would continue to apply to all OTP 
Holders. All OTP Holders would have the opportunity to continue trading 
on the Pillar platform without incurring Ratio Threshold Fees, while 
the Exchange continues to evaluate post-migration traffic rates and 
order to execution ratios. Thus, the Exchange believes the proposed 
rule change would continue to mitigate the impact of the migration 
process for all market participants on the Exchange, thereby sustaining 
market-wide quality.
The Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes the proposed extension of the Waiver is not 
unfairly discriminatory because it would apply to all OTP Holders on an 
equal and non-discriminatory basis. The Waiver, as proposed, would 
permit all OTP Holders to continue trading on the Pillar platform, 
without incurring additional fees based on their monthly order to 
execution ratios, while the Exchange continues to evaluate post-
migration traffic rates and order to execution ratios. The Exchange 
thus believes that the proposed change would support continued trading 
opportunities for all market participants, thereby promoting just and 
equitable principles of trade, removing impediments to and perfecting 
the mechanism of a free and open market and a national market system 
and, in general, protecting 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 change 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.'' \14\
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    \14\ See Reg NMS Adopting Release, supra note 11, at 37499.
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    Intramarket Competition. The Exchange does not believe the proposed 
extension of the Waiver would impose any burden on intramarket 
competition that is not necessary or appropriate because it would apply 
equally to all OTP Holders. All OTP Holders would continue to be 
eligible for the Waiver for an additional two months while the Exchange 
continues to assess traffic rates and order to execution ratios 
following the migration to Pillar.
    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.\15\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. More specifically, 
in March 2023, the Exchange had less than 13% market share of executed 
volume of multiply-listed equity and 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/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics.
    \16\ Based on a compilation of OCC data for monthly volume of 
equity-based options and monthly volume of equity-based ETF options, 
see id., the Exchange's market share in equity-based options 
decreased from 13.57% for the month of March 2022 to 12.83% for the 
month of March 2023.
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    The Exchange does not believe the proposed extension of the Waiver 
would impose any burden on intramarket competition that is not 
necessary or appropriate because it would apply equally to all OTP 
Holders. All OTP Holders would continue to be eligible for the Waiver 
for an additional two months while the Exchange continues to assess 
traffic rates and order to execution ratios following the migration to 
Pillar.

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) \17\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \18\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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) \19\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \19\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEARCA-2023-35 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-2023-35. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your

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comments more efficiently, please use only one method. The Commission 
will post all comments on the Commission's internet website (https://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. Do not include personal identifiable 
information in submissions; you should submit only information that you 
wish to make available publicly. We may redact in part or withhold 
entirely from publication submitted material that is obscene or subject 
to copyright protection. All submissions should refer to File Number 
SR-NYSEARCA-2023-35, and should be submitted on or before June 5, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-10243 Filed 5-12-23; 8:45 am]
BILLING CODE 8011-01-P