[Federal Register Volume 89, Number 54 (Tuesday, March 19, 2024)]
[Notices]
[Pages 19613-19617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05739]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99729; File No. SR-NYSEARCA-2024-23]


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

March 13, 2024.
    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 February 29, 2024, 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'') to introduce certain fees for Floor Market Makers. 
The Exchange proposes to implement the fee change effective February 
29, 2024.\4\ 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.
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    \4\ The Exchange originally filed to amend the Fee Schedule on 
February 1, 2024 (SR-NYSEARCA-2024-12), then withdrew such filing 
and amended the Fee Schedule on February 15, 2024 (SR-NYSEARCA-2024-
18), which latter filing the Exchange withdrew on February 29, 2024.
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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 amend the Fee Schedule to 
establish fees relating to OTPs utilized by Floor Market Makers.\5\ The 
Exchange proposes to implement the fee changes effective February 29, 
2024.
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    \5\ Per Rule 1.1, an OTP is an Options Trading Permit issued by 
the Exchange for effecting approved securities transactions on the 
Exchange.
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    Currently, the number of option issues a Market Maker may quote in 
their assignment is based on the number of OTPs the Market Maker holds 
per month. The Exchange charges monthly fees for Market Maker OTPs as 
set forth in the ``Market Maker OTP Table''

[[Page 19614]]

below, which fees are not being modified by this proposal: \6\
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    \6\ See Fee Schedule, NYSE Arca GENERAL OPTIONS and TRADING 
PERMIT (OTP) FEES, available at: https://www.nyse.com/publicdocs/nyse/markets/arcaoptions/NYSE_Arca_Options_Fee_Schedule.pdf.

------------------------------------------------------------------------
                                                      Number of issues
                                      Monthly fee      permitted in a
          Number of OTPs                per OTP        Market Maker's
                                                     quoting assignment
------------------------------------------------------------------------
1st OTP...........................          $8,000  60 plus the Bottom
                                                     45%.
2nd OTP...........................           6,000  150 plus the Bottom
                                                     45%.
3rd OTP...........................           5,000  500 plus the Bottom
                                                     45%.
4th OTP...........................           4,000  1,100 plus the
                                                     Bottom 45%.
5th OTP...........................           3,000  All issues.
6th to 9th OTP....................           2,000  All issues.
10th or more OTPs.................             500  All issues.
Reserve Market Maker OTP..........             175  N/A.
------------------------------------------------------------------------

    As described herein, the Exchange proposes to adopt fees for 
``Floor Market Maker OTPs,'' which fees would be discounted and 
available to Floor Market Makers that satisfy certain criteria. As 
proposed, a Floor Market Maker would be defined as a registered Market 
Maker who makes transactions as a dealer-specialist while on the Floor 
of the Exchange, which proposed definition is identical to the 
definition recently adopted by the Exchange.\7\
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    \7\ See proposed Fee Schedule, Endnote 1 (defining Floor Market 
Maker) and Rule 1.1 (defining Floor Market Maker). Consistent with 
this proposal, the Exchange submitted a separate rule filing to 
adopt the new category of Market Maker called a Floor Market Maker, 
which includes a definition of Floor Market Maker that is identical 
to the definition proposed herein. See Securities Exchange Act 
Release No. 99606 (February 26, 2024) (NYSEARCA-2024-16) 
(immediately effective filing to modify Rule 1.1 to adopt a category 
of Market Makers called Floor Market Makers and to make conforming 
changes to various Exchange rules regarding Market Maker 
obligations, including modifying Rule 6.32-O(a) (Market Maker 
Defined) to include Floor Market Maker in the definition of Market 
Maker).
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Proposed Fee Change
    The proposed fee change described below is designed to further 
increase open outcry trading by providing special fee treatment for OTP 
fees to Floor Market Makers that execute a specified percentage of 
trading in open outcry. As proposed, a Floor Market Maker would pay 
$6,000 for the first OTP and $4,000 for the second OTP, for up to two 
OTPs, provided that the Floor Market Maker transacts at least 75% of 
its volume, excluding Qualified Contingent Transactions (``QCCs'') and 
Strategy Executions, as Manual (open outcry) trades (the ``minimum 75% 
Manual trading requirement'').\8\ This proposed minimum 75% Manual 
trading requirement is distinct from a Market Maker's appointment 
trading requirement as described in Rule 6.35-O(i), which includes both 
electronic and Manual trading. In addition, the minimum 75% Manual 
trading requirement is consistent with Commentary .01 to Rule 6.35-O 
insofar as it would count a Floor Market Maker's trading in all option 
issues (not just those in its appointment) towards the minimum 75% 
Manual trading requirement.\9\
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    \8\ See proposed Fee Schedule, NYSE Arca GENERAL OPTIONS and 
TRADING PERMIT (OTP) FEES (setting forth the $6,000 and $4,000 
monthly fee for the first and second Floor Market Maker OTP, 
respectively) and Endnote 1 (describing minimum 75% Manual trading 
requirement for Floor Market Maker OTPs). See also Fee Schedule, 
QUALIFIED CONTINGENT CROSS (``QCC'') TRANSACTION FEES AND CREDITS 
(describing fees and credits associated with QCC transactions) and 
LIMIT OF FEES ON OPTIONS STRATEGY EXECUTIONS and Endnote 10 
(describing Strategy Executions and limit of fees on such 
executions).
    \9\ Commentary .01 to Rule 6.35-O provides that a Market Maker's 
trades effected on the Trading Floor to accommodate cross trades 
(per Rule 6.47-O) will count toward the Market Maker's appointment 
trading requirement, regardless of whether the trades are in issues 
within the Market Maker's appointment.
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    To effect this change, the Exchange proposes to add the following 
fees to the bottom of the Market Maker OTP Table: \10\
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    \10\ See proposed Fee Schedule. The ``bottom 45%'' of issues 
traded on the Exchange means ``the least actively traded issues on 
the Exchange, ranked by industry volume, as reported by the OCC for 
each issue during the calendar quarter.'' The Exchange notes that 
the proposed fees for Floor Market OTPs are similar to fees charges 
on the Exchange's affiliated exchange, NYSE American, LLC (``NYSE 
American''), insofar as the total for two Floor Market Maker trading 
permits is $10,000, QCC and Strategy executions are excluded, and 
the same number of option issues may be quoted with the first and 
second permit; the proposed fees differ however in that NYSE 
American charges the same amount for each trading permit--i.e., 
$5,000 for each. See NYSE American Fee Schedule, Section III.A. 
(Monthly ATP Fees), n.1 (``An NYSE American Options Floor Market 
Maker ATP is a Floor Market Maker that purchases no more than two 
ATPs per month and transacts at least 75% of its volume, excluding 
QCC and Strategy Executions, as Manual trades in open outcry on the 
Trading Floor.'').

------------------------------------------------------------------------
                                                      Number of issues
                                      Monthly fee      permitted in a
          Number of OTPs                per OTP        Market Maker's
                                                     quoting assignment
------------------------------------------------------------------------
1st Floor Market Maker OTP........          $6,000  60 plus the Bottom
                                                     45%.
2nd Floor Market Maker OTP........           4,000  150 plus the Bottom
                                                     45%.
------------------------------------------------------------------------

    The proposed rates for each of the first and second OTP would allow 
a Floor Market Maker that meets the minimum 75% Manual trading 
requirement to quote in the same number of option issues as a Market 
Maker with a 1st or 2nd OTP, but at a discounted rate (i.e., as 
compared to the fees for the first and second OTP (for non-Floor Market 
Maker), which are $8,000 and $6,000, respectively). This proposed 
discount is designed to encourage Floor Market Makers to actively quote 
and trade in a greater number of option issues and to ensure that each 
Floor Market Maker OTP is being used to foster price discovery in 
public outcry markets. The Exchange notes that this proposed fee 
structure--i.e., tiered pricing--is consistent with how the Exchange 
charges for non-Floor Market Maker OTPs as shown in the Market Maker 
OTP Table above.
    The Exchange proposes to charge a lower rate for the second Floor 
Market Maker OTP than for the first Floor Market Maker OTP, even though 
the second OTP offers the Floor Market Maker a higher number of issues 
in its quoting assignment, to encourage additional Floor Market Maker 
quoting

[[Page 19615]]

in a wider range of option classes. Floor Market Makers would be 
required to meet the 75% Manual trading requirement to qualify for the 
reduced OTP fees, as proposed, but their OTPs would also entitle them 
to quote and electronically trade names in their appointment. 
Accordingly, the proposed discount afforded on the second OTP is 
intended to enable Floor Market Makers to quote and electronically 
trade a robust suite of symbols for which it could also reasonably be 
actively engaged in providing liquidity in open outcry.
    The Exchange notes that it does not limit the number of 
participants who may act as Market Makers and would likewise not limit 
the number of Market Makers acting as Floor Market Makers. The Exchange 
notes that the primary role of a Floor Market Maker is to provide 
liquidity for orders submitted for execution on the Floor of the 
Exchange through open outcry. As such, the Exchange believes that 
affording Floor Market Makers discounted rates would benefit all market 
participants because doing so would continue to incent Floor Market 
Makers to quote in a broad range of options, including especially 
illiquid and inactive issues (i.e., the Bottom 45%), with a specific 
focus on open outcry transactions.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\11\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\12\ 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4) and (5).
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    As noted herein, the Exchange does not limit the number of 
participants who may act as Market Makers and would likewise not limit 
the number of Market Makers acting as Floor Market Makers. The primary 
role of a Floor Market Maker is to provide liquidity for orders 
submitted for execution on the Floor of the Exchange through open 
outcry. The Exchange believes that the proposed rates (and obligations) 
associated with Floor Market Maker OTPs are reasonably designed to 
incentivize Market Makers to avail themselves of at least one (and up 
to two) Floor Market Maker OTP(s) and to quote in a broad range of 
options, including especially illiquid and inactive issues (i.e., the 
Bottom 45%), with a specific focus on open outcry transactions. To the 
extent that this proposal results in increased order flow being 
directed to the Exchange (and the Trading Floor, in particular), this 
increased liquidity would improve market quality to benefit all market 
participants. Moreover, the proposal to exclude QCC and Strategy 
Executions from the minimum 75% Manual trading requirement is 
reasonable because these transaction types are subject to their own 
fees and credits.
    The Exchange believes that charging the less for the second Floor 
Market Maker OTP is not only consistent with how the Exchange charges 
Market Makers for non-Floor OTPs but is reasonable because the proposed 
discount extended to the second OTP is intended to encourage Floor 
Market Makers to actively quote and trade in open outcry, while also 
affording them the ability to quote and electronically trade in a wider 
range of symbols.
    The Exchange believes the proposed rates (and obligations) 
associated with Floor Market Maker OTPs are equitable and not unfairly 
discriminatory. Specifically, the proposal would apply equally to all 
Market Makers that choose to primarily transact business on the 
Exchange's Trading Floor. The Exchange notes that transacting on the 
Trading Floor, as well as utilizing the proposed Floor Market Maker 
OTP(s), is entirely voluntary.
    Regarding the proposed rates (and obligations) associated with 
Floor Market Maker OTPs generally, the Exchange believes the proposal 
is reasonable, equitable and not unfairly discriminatory because it 
would benefit all market participants trading on the Exchange. In 
addition, the proposed Floor Market Maker OTP would encourage Market 
Makers that already have a presence on the Trading Floor (or that are 
contemplating having a Floor presence) to utilize at least one Floor 
Market Maker OTP and to satisfy the applicable quoting standards, which 
may increase liquidity and provide more trading opportunities and 
tighter spreads. Indeed, the Exchange notes that these Floor Market 
Makers serve a role in providing quotes and the opportunity for market 
participants to trade in a broad range of options, especially the less 
actively-traded issues in the ``Bottom 45%,'' which can lead to 
increased volume, providing for robust markets.
    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.
    Intramarket Competition. First, the Exchange does not believe that 
the proposed rule change would impose an undue burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Particularly, the proposal would apply equally to 
all Floor Market Makers in a uniform manner. The decision to utilize a 
Floor Market Maker OTP (and to meet the requirements to qualify for the 
discounted rates for a Floor Market Maker OTP) is entirely voluntary 
and no Market Maker is required to undertake the obligation. As 
discussed herein, the proposed fees for Floor Market Maker OTPs are 
designed to encourage Floor Market Makers to quote in a broad range of 
options, especially less liquid and less active issues (i.e., the 
Bottom 45%), with a specific focus on open outcry transactions. Market 
Makers play a crucial role in providing active and liquid markets in 
their appointed products, thereby providing a robust market which 
benefits all market participants. Such Market Makers also have 
obligations and regulatory requirements that other participants do not 
have. The Exchange also notes that the proposal is designed to attract 
additional order flow to the Floor of the Exchange, wherein greater 
liquidity benefits all market participants by providing more trading 
opportunities, tighter spreads, and added market transparency and price 
discovery, and signals to other market participants to direct their 
order flow to those markets, thereby contributing to robust levels of 
liquidity. As a result, the Exchange believes that the proposed change 
furthers the Commission's goal in adopting Regulation NMS of fostering 
competition among orders, which promotes ``more efficient pricing of 
individual stocks for all types of orders, large and small.'' \13\
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    \13\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37498-99 (June 29, 2005) (S7-10-04) (``Reg NMS 
Adopting Release'').
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    Intermarket Competition. Further, the Exchange does not believe 
that the proposed rule change would impose an undue burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act as the proposal would apply 
solely to Market Makers

[[Page 19616]]

that opted to act as Floor Market Makers and to utilize at least one 
Floor Market OTP. As noted above, the proposal is designed to attract 
additional order flow to the Exchange (and to the Trading Floor in 
particular), wherein greater liquidity benefits all market participants 
by providing more trading opportunities, tighter spreads, and added 
market transparency and price discovery, and signals to other market 
participants to direct their order flow to those markets, thereby 
contributing to robust levels of liquidity.
    The Exchange operates in a highly competitive market in which 
market participants can readily favor one of the 17 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.\14\ Therefore, currently no exchange possesses 
significant pricing power in the execution of multiply-listed equity 
and ETF options order flow. More specifically, in December 2023, the 
Exchange had less than 13% market share of executed volume of multiply-
listed equity and ETF options trades.\15\
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    \14\ 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.
    \15\ 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 12.31% for the month of November 2022 to 11.67% for 
the month of November 2023.
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    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. The 
Exchange further believes that the proposed change could promote 
competition between the Exchange and other execution venues. Therefore, 
no exchange possesses significant pricing power in the execution of 
option order flow. Indeed, participants can readily choose to send 
their orders to other exchange, and, additionally off-exchange venues, 
if they deem fee levels at those other venues to be more favorable.
    Moreover, the Commission has repeatedly expressed its preference 
for competition over regulatory intervention in determining prices, 
products, and services in the securities markets. Specifically, 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.'' \16\ The fact 
that this market is competitive has also long been recognized by the 
courts. In NetCoalition v. Securities and Exchange Commission, the D.C. 
Circuit stated as follows: ``[n]o one disputes that competition for 
order flow is `fierce.' . . . As the SEC explained, `[i]n the U.S. 
national market system, buyers and sellers of securities, and the 
broker-dealers that act as their order-routing agents, have a wide 
range of choices of where to route orders for execution'; [and] `no 
exchange can afford to take its market share percentages for granted' 
because `no exchange possesses a monopoly, regulatory or otherwise, in 
the execution of order flow from broker dealers'. . . .''.\17\ 
Accordingly, the Exchange does not believe its proposed fee change 
imposes any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
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    \16\ See Reg NMS Adopting Release, 70 FR 37496, 37499.
    \17\ See NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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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) \18\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \19\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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) \20\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \20\ 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-2024-23 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-2024-23. 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

[[Page 19617]]

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-2024-23 and should 
be submitted on or before April 9, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-05739 Filed 3-18-24; 8:45 am]
BILLING CODE 8011-01-P