[Federal Register Volume 88, Number 183 (Friday, September 22, 2023)]
[Notices]
[Pages 65415-65417]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20520]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98422; File No. SR-NYSEARCA-2023-62]


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

September 18, 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 September 12, 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'') to add the Customer Take Fee Discount Tiers. The 
Exchange proposes to implement the fee change effective September 12, 
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 amend the Fee Schedule to 
introduce a new pricing incentive, the Customer Take Fee Discount Tiers 
(``Take Fee Discounts''). The Exchange proposes to implement the rule 
change on September 12, 2023.\4\
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    \4\ The Exchange previously filed to amend the Fee Schedule on 
September 1, 2023 (SR-NYSEARCA-2023-60) and withdrew such filing on 
September 12, 2023.
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    If an OTP Holder or OTP Firm (collectively, ``OTP Holders'') 
executes a transaction that removes or ``takes'' liquidity on the 
Exchange, the OTP Holder is charged a ``Take Liquidity'' fee (referred 
to herein as a ``Take Fee'') and such liquidity may be referred to as 
``liquidity removing'' or ``liquidity taking.'' \5\ To offset such 
costs and encourage market participants to direct order flow to the 
Exchange, the Exchange offers Take Fee discounts to some market 
participants for executions in Penny and non-Penny issues.\6\
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    \5\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES 
FOR STANDARD OPTIONS, TRANSACTION FEE FOR ELECTRONIC EXECUTIONS--PER 
CONTRACT.
    \6\ See, e.g., Fee Schedule, DISCOUNT IN TAKE LIQUIDITY FEES FOR 
PROFESSIONAL CUSTOMER AND NON-CUSTOMER LIQUIDITY REMOVING INTEREST.
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    Currently, Customer executions in Penny and non-Penny issues are 
subject to Take Fees of $0.49 and $0.85, respectively.\7\ The Exchange 
now proposes to offer tiered Take Fee discounts on Customer executions 
in both Penny and non-Penny issues. Specifically, the Exchange proposes 
tiered per contract discounts on Customer Take Fees based on an OTP 
Holder's achievement of certain volume qualifications in average 
electronic executions per day. As proposed, Tier 1 of the Take Fee 
Discounts would offer a $0.01 discount on Customer Take Fees if an OTP 
Holder achieves at least 0.20% of TCADV from Customer liquidity 
removing interest in all issues; Tier 2 would offer a $0.02 discount on 
Customer Take Fees to an OTP Holder that achieves at least 0.40% of 
TCADV from Customer liquidity removing interest in all issues and 1% of 
TCADV from Customer posting in all issues; and Tier 3 would offer a 
$0.03 discount on Customer Take Fees to an OTP Holder that achieves at 
least 0.60% of TCADV from Customer liquidity removing interest in all 
issues and 1.50% of TCADV from Customer posting in all issues. The Take 
Fee Discounts would only apply to Customer orders, and the 
qualifications for the discounts are based only on activity in the 
Customer range; activity in the Professional Customer range is not 
included in the qualifications and is not eligible to receive any of 
the proposed discounts, as Professional Customer orders are already 
eligible for other discounts on Take Fees.\8\ OTP Holders may earn only 
the highest discount for which they qualify.
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    \7\ See note 5, supra.
    \8\ See note 6, supra.
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    Although the Exchange cannot predict with certainty whether any OTP 
Holders would seek to qualify for the Take Fee Discounts, the Exchange 
believes that the proposed change would encourage OTP Holders to direct 
interest, and, in particular, Customer liquidity removing interest, to 
the Exchange to earn the proposed discounts on Take Fees.
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

[[Page 65416]]

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 July 2023, the 
Exchange had less than 12% 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 
increased slightly from 11.30% for the month of July 2022 to 11.50% 
for the month of July 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 Take Fee Discounts would 
incent OTP Holders to increase the amount of Customer interest sent to 
the Exchange, especially liquidity removing interest, which benefits 
all market participants by providing more trading opportunities, 
thereby making the Exchange a more attractive execution venue. The 
Exchange further believes that the proposed qualifications for the Take 
Fee Discounts are attainable for OTP Holders based on recent volumes 
and that the proposed amounts of the discounts are reasonable, as the 
Exchange's rates for Customer liquidity removing interest would remain 
in range of and competitive with the rates assessed by at least one 
other options exchange.\14\
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    \14\ See, e.g., Cboe BZX Options Fee Schedule, Standard Rates, 
available at: https://www.cboe.com/us/options/membership/fee_schedule/bzx/ (providing for rates of $0.46 to $0.48 for 
Customer liquidity removing interest in Penny issues and rate of 
$0.85 for Customer liquidity removing interest in non-Penny issues).
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    To the extent the proposed rule change attracts greater volume and 
liquidity by encouraging OTP Holders to increase their options volume 
on the Exchange, 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, including another options exchange that offers tiered 
rates for certain Customer liquidity removing interest.\15\
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    \15\ See, e.g., Cboe BZX Options Fee Schedule, Customer, Firm, 
Broker Dealer and Joint Back Office Penny Take Volume Tiers, 
available at: https://www.cboe.com/us/options/membership/fee_schedule/bzx/ (providing tiered rates for Customer liquidity 
removing volume in Penny issues based on volume qualifications, 
which, similar to the Exchange's proposal, represent $0.01 or $0.02 
discounts on standard fee for take volume).
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The Proposed Rule Change Is an Equitable Allocation of Credits and Fees
    The Exchange believes the proposed rule change is an equitable 
allocation of its fees and credits. The proposal is based on the amount 
and type of business transacted on the Exchange, and OTP Holders can 
attempt to qualify for the discounts or not. Moreover, the proposal is 
designed to incent OTP Holders to continue to direct Customer liquidity 
removing interest to the Exchange and to aggregate all liquidity 
removing interest at the Exchange as a primary execution venue. To the 
extent that the proposed change attracts more opportunities for 
execution of Customer interest on 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 market-wide quality and price discovery.
The Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes is the proposed Take Fee Discounts are not 
unfairly discriminatory because they would be available to all 
similarly-situated market participants on an equal and non-
discriminatory basis. The Exchange also believes that the proposed 
change is not unfairly discriminatory to Professional Customers and 
non-Customers, as those market participants are already afforded 
discounts on Take Fees under the current Fee Schedule.\16\
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    \16\ See note 6, supra.
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    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 proposed qualifications to earn the Take Fee Discounts, nor are 
they obligated to direct liquidity removing interest or posted interest 
to the Exchange. To the extent that the proposed change attracts more 
interest, including liquidity removing interest, 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 market-wide quality and price 
discovery. The resulting increased volume and liquidity would provide 
more trading opportunities and tighter spreads to all market 
participants and thus would promote just and equitable principles of 
trade, remove impediments to and perfect the mechanism of a free and 
open market and a national market system and, in general, to protect 
investors and the public interest.
    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act, the Exchange does 
not believe that the proposed rule change would impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, as discussed above, the Exchange believes 
that the proposed 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.'' \17\
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    \17\ See Reg NMS Adopting Release, supra note 11, at 37499.
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    Intramarket Competition. The proposed change is designed to attract 
additional order flow to the Exchange, including both liquidity 
removing interest and posting interest. The Exchange believes that the 
proposed change would incent OTP Holders to continue to direct their 
liquidity removing order flow to the Exchange. Greater liquidity 
benefits all market participants on the Exchange and

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increased liquidity removing order flow would increase opportunities 
for execution of other trading interest. The proposed modifications 
would be available to all similarly-situated market participants and, 
as such, the proposed change would not impose a disparate burden on 
competition among market participants on the Exchange.
    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.\18\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. More specifically, 
in July 2023, the Exchange had less than 12% market share of executed 
volume of multiply-listed equity and ETF options trades.\19\
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    \18\ 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.
    \19\ 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 
increased slightly from 11.30% for the month of July 2022 to 11.50% 
for the month of July 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 incent OTP Holders to direct trading to the 
Exchange, to provide liquidity and to attract order flow. To the extent 
that this purpose is achieved, all the Exchange's market participants 
should benefit from the improved market quality and increased 
opportunities for price improvement.
    The Exchange believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
another options exchange that currently also offers tiered rates for 
some Customer liquidity removing interest,\20\ by encouraging 
additional orders to be sent to the Exchange for execution.
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    \20\ See note 14, 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) \21\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \22\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 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) \23\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \23\ 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

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#4b393e272e66282426262e253f380b382e28652c243d"><span class="__cf_email__" data-cfemail="3d4f485158105e5250505853494e7d4e585e135a524b">[email protected]</span></a>. Please include 
file number SR-NYSEARCA-2023-62 on the subject line.

Paper Comments

    <bullet> 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-2023-62. 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-2023-62 and should 
be submitted on or before October 13, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20520 Filed 9-21-23; 8:45 am]
BILLING CODE 8011-01-P


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