[Federal Register Volume 88, Number 151 (Tuesday, August 8, 2023)]
[Notices]
[Pages 53566-53569]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-16882]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98043; File No. SR-NYSEARCA-2023-51]


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

August 2, 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 July 31, 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 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 Limit of Fees on Options Strategy 
Executions (the ``Strategy Cap''). The Exchange proposes to implement 
the fee change effective August 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.

[[Page 53567]]

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 add dividend strategies to the 
list of strategy executions eligible for the Strategy Cap. The Exchange 
proposes to implement the rule change on August 1, 2023.
    Currently, the Strategy Cap provides for a $1,000 cap on 
transaction fees for strategy executions involving (a) reversals and 
conversions, (b) box spreads, (c) short stock interest spreads, (d) 
merger spreads, and (e) jelly rolls.\4\ The Strategy Cap applies to 
each strategy execution executed in standard option contracts on the 
same trading day. In addition, the cap is reduced to $200 on 
transactions fees for qualifying strategies traded on the same trading 
day for those OTP Holders that trade at least 25,000 monthly billable 
contract sides in qualifying strategy executions.
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    \4\ See Fee Schedule, LIMIT OF FEES ON OPTIONS STRATEGY 
EXECUTIONS and Endnote 10 (defining strategies eligible for the 
Strategy Cap).
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    The Exchange now proposes to modify the Strategy Cap to add 
dividend strategies as item (f) in the list of strategy executions 
eligible for the cap (and to make non-substantive conforming changes to 
include an item (f) in such list). The Exchange also proposes that 
dividend strategies would be included among the strategies that 
contribute to an OTP Holder's qualification for the lower cap of $200. 
Finally, the Exchange proposes to modify Endnote 10 of the Fee Schedule 
to add subparagraph (f) defining a dividend strategy as transactions 
done to achieve a dividend arbitrage involving the purchase, sale, and 
exercise of in-the-money options of the same class, executed the first 
business day prior to the date on which the underlying stock goes ex-
dividend.
    The Exchange notes that other options exchanges currently offer 
similar caps on strategy trades that include dividend strategies.\5\ 
Although the Exchange cannot predict with certainty whether the 
proposed change would encourage OTP Holders to increase their dividend 
strategy executions, the proposed change is intended to encourage 
additional dividend strategy executions on the Exchange by including 
them in the strategies eligible for the Strategy Cap (including the 
lower cap for qualifying OTP Holders).
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    \5\ See, e.g., BOX Options Fee Schedule, Section V.D. (Strategy 
QOO Order Fee Cap and Rebate), available at: https://boxexchange.com/assets/BOX-Fee-Schedule-as-of-July-3-2023.pdf; 
Nasdaq PHLX LLC Options 7, Section 4, available at: https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\6\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\7\ 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 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.'' \8\
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    \8\ 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.\9\ Therefore, no exchange possesses significant pricing power 
in the execution of multiply-listed equity and ETF options order flow. 
More specifically, in June 2023, the Exchange had less than 13% market 
share of executed volume of multiply-listed equity and ETF options 
trades.\10\
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    \9\ 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.
    \10\ 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 
remained the same at 12.23% for the month of June 2022 and 12.23% 
for the month of June 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 the proposed change is reasonable because it 
is designed to encourage OTP Holders to increase their dividend 
strategies executed on the Exchange by including dividend strategies 
among the strategy executions eligible for the Strategy Cap. The 
Exchange also believes the proposed change could incent OTP Holders to 
execute and aggregate dividend strategy orders as well as other types 
of strategy orders at NYSE Arca as a primary execution venue.
    To the extent the proposed change attracts 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 OTP 
Holders may direct their order flow to any of the 16 options exchanges, 
including those with similar caps on strategy executions, including 
dividend strategies.\11\ Thus, OTP Holders have a choice of where they 
direct their order flow, including their strategy executions. The 
proposed rule change is designed to incent OTP Holders to direct 
liquidity, and specifically dividend strategies, to the Exchange, 
thereby promoting market depth and enhancing order execution 
opportunities for market participants.
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    \11\ See note 5, supra.
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The Proposed Change Is an Equitable Allocation of Fees and Credits
    The Exchange believes the proposed rule change is an equitable 
allocation of its fees and credits. The proposed change is based on the 
amount and type of business transacted on the Exchange, and OTP Holders 
can opt to avail themselves of the Strategy Cap or not. In addition, 
the modified Strategy Cap, as proposed, would continue to be available 
to all OTP Holders that direct strategy executions, including dividend 
strategies, to the Exchange. Moreover,

[[Page 53568]]

the proposal is designed to continue to encourage OTP Holders to 
aggregate strategy executions at the Exchange as a primary execution 
venue. To the extent that the proposed change attracts more dividend 
strategies 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 
marked-wide quality and price discovery.
The Proposed Change Is Not Unfairly Discriminatory
    The Exchange believes the proposed change is not unfairly 
discriminatory because the proposed modification of the Strategy Cap 
would apply to all similarly-situated market participants on an equal 
and non-discriminatory basis. The proposal is based on the amount and 
type of business transacted on the Exchange, and OTP Holders are not 
obligated to try to achieve the Strategy Cap, nor are they obligated to 
execute any dividend strategies. Rather, the proposal is designed to 
encourage OTP Holders to increase their dividend strategy executions 
and to utilize the Exchange as a primary trading venue for all strategy 
executions (if they have not done so previously). To the extent that 
the proposed change attracts more strategy executions (and, in 
particular, dividend strategy executions) 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 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 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 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.'' \12\
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    \12\ See Reg NMS Adopting Release, supra note 8, at 37499.
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Intramarket Competition
    The Exchange does not believe the proposed change would impose any 
burden on intramarket competition that is not necessary or appropriate. 
The proposed change is designed to incent OTP Holders to direct their 
dividend strategy orders to the Exchange and could also encourage OTP 
Holders to continue to aggregate all strategy executions on the 
Exchange to qualify for the Strategy Cap. Greater liquidity benefits 
all market participants on the Exchange, and order flow from increased 
strategy executions could improve market quality for all market 
participants on the Exchange. In addition, the Strategy Cap, modified 
as proposed to include dividend strategies, would continue to be 
available to all similarly situated market participants and thus would 
not impose a disparate burden on competition.
    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.\13\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. More specifically, 
in June 2023, the Exchange had less than 13% market share of executed 
volume of multiply-listed equity and 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/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics.
    \14\ 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 was 
12.23% for the month of June 2022 and 12.23% for the month of June 
2023.
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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 continue to incent OTP Holders to direct trading 
interest (in particular, dividend strategy executions) to the Exchange, 
to provide liquidity and to attract order flow. To the extent OTP 
Holders continue to be incentivized to aggregate strategy executions on 
the Exchange as a primary trading venue, all of the Exchange's market 
participants should benefit from the improved market quality and 
increased opportunities for order execution. The Exchange also believes 
that the proposed change could promote competition between the Exchange 
and other execution venues, as other competing options exchanges 
currently offer a similar fee cap for strategy orders, including 
dividend strategies.\15\
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    \15\ See note 5, supra.
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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) \16\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \17\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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

[[Page 53569]]

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) \18\ of the Act to determine whether the proposed rule 
change should be approved or disapproved.
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    \18\ 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-2023-51 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-2023-51. 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 (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 
a.m. and 3 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-2023-51 and should 
be submitted on or before August 29, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-16882 Filed 8-7-23; 8:45 am]
BILLING CODE 8011-01-P