[Federal Register Volume 89, Number 241 (Monday, December 16, 2024)]
[Notices]
[Pages 101674-101678]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29470]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101866; File No. SR-NYSEAMER-2024-63]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the
NYSE American Options Fee Schedule Concerning the Options Regulatory
Fee (ORF)
December 10, 2024.
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 25, 2024, 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
and II below, which Items have been prepared by the Exchange. 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 Options Regulatory Fee
(``ORF''). 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 Exchange proposes to amend the Fee Schedule to (1) temporarily
waive the ORF for the period December 1, 2024 through December 31, 2024
(the ``Waiver Period''), and (2) delete outdated language relating to a
prior ORF waiver and superseded ORF rate.
Background
As a general matter, the Exchange may only use regulatory funds
such as the ORF ``to fund the legal, regulatory, and surveillance
operations'' of the Exchange.\4\ More specifically, the ORF
[[Page 101675]]
is designed to recover a material portion, but not all, of the
Exchange's costs for the supervision and regulation of ATP Holders,
including the Exchange's regulatory program and legal expenses
associated with options regulation, such as the costs related to in-
house staff, third-party service providers, and technology that
facilitate regulatory functions such as surveillance, investigation,
examinations, and enforcement (collectively, the ``ORF Costs''). ORF
funds may also be used for indirect expenses such as human resources
and other administrative costs. The Exchange monitors the amount of
revenue collected from the ORF to ensure that this revenue, in
combination with other regulatory fees and fines, does not exceed
regulatory costs.
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\4\ The Exchange considers surveillance operations part of
regulatory operations. The limitation on the use of regulatory funds
also provides that they shall not be distributed. See Thirteenth
Amended and Restated Operating Agreement of NYSE American LLC,
Article IV, Section 4.05 and Securities Exchange Act Release No.
87993 (January 16, 2020), 85 FR 4050 (January 23, 2020) (SR-
NYSEAMER-2020-04).
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The ORF is assessed on ATP Holders for options transactions that
are cleared by the ATP Holder through the Options Clearing Corporation
(``OCC'') in the Customer range regardless of the exchange on which the
transaction occurs and is collected from ATP Holder clearing firms by
the OCC on behalf of NYSE American.\5\ All options transactions must
clear via a clearing firm and such clearing firms can then choose to
pass through all, a portion, or none of the cost of the ORF to its
customers, i.e., the entering firms. The Exchange notes that the costs
relating to monitoring ATP Holders with respect to Customer trading
activity are generally higher than the costs associated with monitoring
ATP Holders that do not engage in Customer trading activity, which
tends to be more automated and less labor-intensive. By contrast,
regulating ATP Holders that engage in Customer trading activity is
generally more labor intensive and requires a greater expenditure of
human and technical resources as the Exchange needs to review not only
the trading activity on behalf of Customers, but also the ATP Holder's
relationship with its Customers via more labor-intensive exam-based
programs.\6\ As a result, the costs associated with administering the
customer component of the Exchange's overall regulatory program are
materially higher than the costs associated with administering the non-
customer component (e.g., ATP Holder proprietary transactions) of its
regulatory program.
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\5\ See Fee Schedule, Section VII.A., Options Regulatory Fee
(``ORF''). The Exchange uses reports from OCC when assessing and
collecting the ORF. The ORF is not assessed on outbound linkage
trades. An ATP Holder is not assessed the fee until it has satisfied
applicable technological requirements necessary to commence
operations on NYSE American. See id.
\6\ The Exchange notes that many of the Exchange's market
surveillance programs require the Exchange to look at and evaluate
activity across all options markets, such as surveillance for
position limit violations, manipulation, front-running, and contrary
exercise advice violations/expiring exercise declarations. The
Exchange and other options SROs are parties to a 17d-2 agreement
allocating among the SROs regulatory responsibilities relating to
compliance by the common members with rules for expiring exercise
declarations, position limits, OCC trade adjustments, and Large
Option Position Report reviews. See, e.g., Securities Exchange Act
Release No. 85097 (February 11, 2019), 84 FR 4871 (February 19,
2019).
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Because the ORF is based on options transactions volume, the amount
of ORF collected is variable. For example, if options transactions
reported to OCC in a given month increase, the ORF collected from ATP
Holders will likely increase as well. Similarly, if options
transactions reported to OCC in a given month decrease, the ORF
collected from ATP Holders will likely decrease as well. Accordingly,
the Exchange monitors the amount of ORF collected to ensure that it
does not exceed [sic] the ORF Costs. If the Exchange determines the
amount of ORF collected exceeds [sic] or may exceed [sic] ORF Costs,
the Exchange will, as appropriate, adjust the ORF by submitting a fee
change filing to the Securities and Exchange Commission (the
``Commission''). Exchange rules establish that market participants must
be notified of any change in the ORF via Trader Update at least 30
calendar days prior to the effective date of the change.\7\
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\7\ See Fee Schedule, supra note 5.
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Proposed Rule Change
Based on the Exchange's recent review of regulatory costs, ORF
collections, and options transaction volume, the Exchange proposes to
waive the ORF from December 1 through December 31, 2024 in order to
help ensure that the amount collected from the ORF, in combination with
other regulatory fees and fines, does not exceed the Exchange's total
regulatory costs. The Exchange proposes to resume assessing the ORF on
January 1, 2025 at the current rate of $0.0038 per contract. The
Exchange notified ATP Holders of the proposed change to the ORF via
Trader Update on October 30, 2024 \8\ (which was at least 30 calendar
days prior to the proposed operative date of the waiver, December 1,
2024) so that market participants have sufficient opportunity to
configure their systems to account properly for the waiver of the ORF.
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\8\ See https://www.nyse.com/trader-update/history#110000945374.
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The proposed waiver is based on the Exchange's analysis of recent
options volumes and its regulatory costs. The Exchange believes that,
if the ORF is not adjusted, the ORF revenue to the Exchange year over
year could exceed a material portion of the Exchange's ORF Costs. The
options industry has continued to experience very high options trading
volumes and volatility, and although the Exchange recently reduced the
ORF as of January 1, 2024,\9\ the persisting increased options volumes
have impacted the Exchange's ORF collection.
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\9\ See Securities Exchange Act Release No. 98678 (October 3,
2023), 88 FR 69973 (October 10, 2023) (SR-NYSEAMER-2023-48) (Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the NYSE American Options Fee Schedule To Modify the Options
Regulatory Fee). The Exchange also previously filed to waive the ORF
from October 1, 2023 through December 31, 2023. See id.
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The options industry has continued to experience high options
trading volumes, as illustrated in the table below reflecting industry
data from OCC for 2022, 2023, and 2024: \10\
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\10\ 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.
The volume discussed in this filing is based on a compilation of OCC
data for monthly volume of equity-based options and monthly volume
of ETF-based options, in contract sides.
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2022 2023 2024
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Customer ADV.................................................... 34,091,409 35,957,560 38,412,142
Total ADV....................................................... 76,488,459 81,483,685 86,706,482
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Both total average daily volume and customer average daily volume
in 2024 increased over the already elevated levels in 2022 and 2023. In
addition, the below industry data from OCC demonstrates the high
options trading
[[Page 101676]]
volumes and volatility that the industry has continued to experience in
2024:
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May 2024 June 2024 July 2024 August 2024 September 2024 October 2024
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Customer ADV............................................ 36,231,012 39,784,756 40,657,739 38,558,587 39,214,407 39,920,560
Total ADV............................................... 72,462,024 79,569,512 81,315,478 77,117,174 78,428,814 79,841,120
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Because of the sustained impact of the trading volumes that have
persisted through 2024, along with the difficulty of predicting if and
when volumes may return to historical levels, the Exchange proposes to
waive the ORF from December 1 through December 31, 2024 to help ensure
that ORF collection will not exceed [sic] ORF Costs for 2024. The
Exchange cannot predict whether options volumes will remain at these
levels going forward and projections for future regulatory costs are
estimated, preliminary, and may change. However, the Exchange believes
that the proposed waiver of the ORF would allow the Exchange to
continue to monitor the amount collected from the ORF to help ensure
that ORF collection, in combination with other regulatory fees and
fines, does not exceed regulatory costs without the need to account for
any ORF collection during the Waiver Period.
Based on the Exchange's estimated projections for its regulatory
costs, balanced with the observed increase in options volumes, the
Exchange proposes to resume assessing the current ORF rate of $0.0038
per contract as of January 1, 2025. As noted above, although the
options industry has experienced high options trading volumes in recent
years, the Exchange cannot predict with certainty whether options
volumes will remain at these levels going forward. The Exchange
believes that maintaining the current rate when ORF collection resumes
following the Waiver Period would allow the Exchange to continue
assessing an ORF designed to recover a material portion, but not all,
of the Exchange's ORF Costs, based on current projections that the
Exchange's ORF Costs will increase in 2025. The Exchange will continue
monitoring ORF Costs in advance of the resumption of the ORF and when
it resumes assessing ORF on January 1, 2025, and, if the Exchange
determines that, in light of projected volumes and ORF Costs, the ORF
rate should be modified to help ensure that ORF collections would not
exceed a material portion of ORF Costs, adjust the ORF by submitting a
proposed rule change and notifying ATP Holders of such change by Trader
Update.
The Exchange also proposes to delete language in the Fee Schedule
pertaining to the ORF waiver that was in effect from October 1, 2023 to
December 31, 2023, as well as the old ORF rate of $0.0058 per contract,
which was superseded by the current ORF rate of $0.0038 as of January
1, 2024. The Exchange believes this change would improve the clarity of
the Fee Schedule by removing obsolete language.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b) \11\ of the Act, in general, and
Section 6(b)(4) and (5) \12\ of the Act, in particular, in that it is
designed to provide for the equitable allocation of reasonable dues,
fees, and other charges among its members 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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The Proposal Is Reasonable
The Exchange believes the proposed temporary waiver of the ORF is
reasonable because it would help ensure that collections from the ORF
do not exceed a material portion of the Exchange's ORF Costs. As noted
above, the ORF is designed to recover a material portion, but not all,
of the Exchange's ORF Costs.
Although there can be no assurance that the Exchange's final costs
for 2024 will not differ materially from its expectations and prior
practice, nor can the Exchange predict with certainty whether options
volume will remain at current or similar levels going forward, the
Exchange believes that the amount collected based on the current ORF
rate, when combined with regulatory fees and fines, may result in
collections in excess of the estimated ORF Costs for the year.
Particularly, as noted above, the options market has continued to
experience elevated volumes and volatility in 2024, thereby resulting
in higher ORF collections than projected despite the reduced ORF rate
in effect as of January 1, 2024. The Exchange therefore believes that
it would be reasonable to waive ORF from December 1 through December
31, 2024 to help ensure that ORF collection does not exceed [sic] the
ORF Costs for 2024. Particularly, the Exchange believes that waiving
the ORF from December 1 through December 31, 2024 and taking into
account all of the Exchange's other regulatory fees and fines would
allow the Exchange to continue covering a material portion of ORF
Costs, while lessening the potential for generating excess funds that
may otherwise occur using the current rate. The Exchange proposes to
resume assessing its current ORF ($0.0038 per contract) following the
Waiver Period. The Exchange believes that resumption of the ORF at the
current rate on January 1, 2025 (unless the Exchange determines it
necessary to adjust the ORF rate to help ensure that ORF collections do
not exceed [sic] ORF Costs) is reasonable because it would permit the
Exchange to resume collecting an ORF that is designed to recover a
material portion, but not all, of the Exchange's projected ORF Costs.
The Exchange's proposal to resume ORF collection following the Waiver
Period at the current ORF rate is based on the Exchange's estimated
projections for its regulatory costs, which are currently projected to
increase in 2025, balanced with the increase in options volumes that
has persisted into 2024 and that may continue into 2025. The Exchange
will continue monitoring ORF Costs in advance of the resumption of the
ORF and when it resumes assessing ORF on January 1, 2025, and, if the
Exchange determines that, in light of projected volumes and ORF Costs,
the ORF rate should be modified to help ensure that ORF collections
would not exceed a material portion of ORF Costs, adjust the ORF by
submitting a proposed rule change and notifying ATP Holders of such
change by Trader Update.
The Exchange also believes that the proposed deletion of language
relating to an ORF waiver period that has now elapsed and a superseded
ORF rate is reasonable because it would remove obsolete language and
thus improve the clarity of the Fee Schedule.
[[Page 101677]]
The Proposal Is an Equitable Allocation of Fees
The Exchange believes its proposal is an equitable allocation of
fees among its market participants. The Exchange believes that the
proposed waiver would not place certain market participants at an
unfair disadvantage because it would apply equally to all ATP Holders
on all their transactions that clear in the Customer range at the OCC
and would allow the Exchange to continue to monitor the amount
collected from the ORF to help ensure that ORF collection, in
combination with other regulatory fees and fines, does not exceed
regulatory costs. The Exchange also believes that recommencing the ORF
on January 1, 2025 at the current rate, unless the Exchange determines
it necessary to adjust the ORF to ensure that ORF collections do not
exceed a material portion of ORF Costs, is equitable because the ORF
would resume applying equally to all ATP Holders on options
transactions in the Customer range, at a rate designed to recover a
material portion, but not all, of the Exchange's projected ORF Costs,
based on current projections that such costs will increase in 2025.
The proposed change to remove language relating to an ORF waiver
period that has now elapsed and a superseded ORF rate is also equitable
because it would eliminate language from the Fee Schedule that is no
longer applicable to any ATP Holders.
The Proposed Fee Is Not Unfairly Discriminatory
The Exchange believes that the proposal is not unfairly
discriminatory. The Exchange believes that the proposed waiver of the
ORF would not place certain market participants at an unfair
disadvantage because the change would apply to all ATP Holders subject
to the ORF and would allow the Exchange to continue to monitor the
amount collected from the ORF to help ensure that ORF collection, in
combination with other regulatory fees and fines, does not exceed
regulatory costs. The Exchange also has provided all such ATP Holders
with 30 days' advance notice of the planned change to the ORF. The
Exchange also believes that recommencing the ORF on January 1, 2025 at
the current rate, unless the Exchange determines it necessary to adjust
the ORF to ensure that ORF collections do not exceed a material portion
of ORF Costs, is not unfairly discriminatory because the Exchange would
resume assessing an ORF designed to recover a material portion, but not
all, of the Exchange's projected ORF Costs, based on current
projections that such costs will increase in 2025. In addition, the ORF
would resume applying equally to all ATP Holders based on their
transactions that clear in the Customer range at the OCC.
The proposed change to remove language relating to an ORF waiver
period that has now elapsed and a superseded ORF rate is also not
unfairly discriminatory because it would eliminate outdated language
from the Fee Schedule that no longer impacts any ATP Holders.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
Intramarket Competition. The Exchange believes the proposed change
would not impose an undue burden on intramarket competition because the
ORF is charged to all ATP Holders on all their transactions that clear
in the Customer range at the OCC; thus, the amount of ORF imposed is
based on the amount of Customer volume transacted. The Exchange
believes that the proposed temporary waiver of the ORF would not place
certain market participants at an unfair disadvantage because all
options transactions must clear via a clearing firm. Such clearing
firms can then choose to pass through all, a portion, or none of the
cost of the ORF to its customers, i.e., the entering firms. The ORF is
collected from ATP Holder clearing firms by the OCC on behalf of NYSE
American and is assessed on all options transactions cleared at the OCC
in the Customer range. The Exchange also believes recommencing the ORF
on January 1, 2025 at the current rate (unless the Exchange determines
it necessary at that time to adjust the ORF to ensure that ORF
collections do not exceed a material portion of ORF Costs) would not
impose an undue burden on competition because it would permit the
Exchange to resume assessing an ORF that is designed to recover a
material portion, but not all, of the Exchange's projected ORF Costs,
based on current projections that such costs will increase in 2025. The
ORF would, as currently, apply to all ATP Holders on their options
transactions that clear in the Customer range at the OCC when ORF
collection resumes on January 1, 2025. The Exchange also believes that
the proposed change to eliminate language relating to an ORF waiver
period that has now elapsed and a superseded ORF rate would not impact
intramarket competition because it is intended only to add clarity to
the Fee Schedule by removing obsolete text.
Intermarket Competition. The proposed fee change is not designed to
address any competitive issues. Rather, the proposed change is designed
to help the Exchange adequately fund its regulatory activities while
seeking to ensure that total collections from regulatory fees do not
exceed [sic] total regulatory costs and to promote clarity in the Fee
Schedule by deleting obsolete text.
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 has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \13\ and Rule 19b-4(f)(2) \14\ thereunder.
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\13\ 15 U.S.C. 78s(b)(3)(A)(ii).
\14\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of the 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 to
determine whether the proposed rule change should be approved or
disapproved.
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-NYSEAMER-2024-63 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 101678]]
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NYSEAMER-2024-63. 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-NYSEAMER-2024-63 and should
be submitted on or before January 6, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-29470 Filed 12-13-24; 8:45 am]
BILLING CODE 8011-01-P