[Federal Register Volume 87, Number 23 (Thursday, February 3, 2022)]
[Notices]
[Pages 6216-6218]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-02184]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94095; No. SR-NYSEArca-2022-04]


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

January 28, 2022.
    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 January 25, 2022, 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, II, 
and III 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 amend the NYSE Arca Options Fee Schedule 
(the ``Fee Schedule'') to provide for a waiver of the Ratio Threshold 
Fee in connection with the Exchange's migration to a new trading 
platform. 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 waive 
the Ratio Threshold Fee during the Exchange's migration of options 
trading to a new electronic trading platform.
    Currently, the Exchange conducts options trading on an electronic 
platform known as ``OX.'' OX refers to the Exchange's electronic order 
delivery, execution, and reporting system for designated option issues 
through which orders and quotes of Users are consolidated for execution 
and/or display.\4\ On or about February 7, 2022, the Exchange 
anticipates beginning the migration of its options trading to a new 
technology platform known as Pillar.\5\
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    \4\ See NYSE Arca Rule 6.1A-O(a)(13).
    \5\ The Exchange has announced that, pending regulatory 
approval, it will begin migrating Exchange-listed options to Pillar 
on February 7, 2022, available here: https://www.nyse.com/trader-update/history#110000322291. See also Securities Exchange Act 
Release No. 92304 (June 30, 2021), 86 FR 36440 (July 9, 2021) (SR-
NYSEArca-2021-47) (SR-NYSEArca-2021-47) (Notice of Filing of 
Proposed Rule Change for New Rules 6.1P-O, 6.37AP-O, 6.40P-O, 6.41P-
O, 6.62P-O, 6.64P-O, 6.76P-O, and 6.76AP-O and Amendments to Rules 
1.1, 6.1-O, 6.1A-O, 6.37-O, 6.65A-O and 6.96-O) and Amendment No. 4 
to SR-NYSEArca-2021-47, available here: https://www.sec.gov/comments/sr-nysearca-2021-47/srnysearca202147-20112491-265389.pdf.
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    The Ratio Threshold Fee is based on the number of orders entered as 
compared to the number of executions received in a calendar month and 
is intended to deter OTP Holders and OTP Firms (collectively, ``OTP 
Holders'') from submitting an excessive number of orders that are not 
executed.\6\ Because order to execution ratios of 10,000 to 1 or 
greater have the potential residual effect of exhausting system 
resources, bandwidth, and capacity, such ratios may create latency and 
impact other OTP Holders' ability to receive timely executions.\7\
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    \6\ See Fee Schedule, RATIO THRESHOLD FEE, available here: 
https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf; see also Securities Exchange Act 
Release No. 60102 (June 11, 2009), 74 FR 29251 (June 19, 2009) (SR-
NYSEArca-2009-50).
    \7\ See id.
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    The Exchange proposes to modify the Fee Schedule to specify that 
the monthly Ratio Threshold Fee assessed to OTP Holders will be waived 
for the duration of the migration and for three calendar months after 
the migration. Specifically, the Exchange proposes that the waiver of 
the Ratio Threshold Fee take effect for the month during which the 
migration begins and remain in effect for three months following the 
month in which the migration is completed (the ``Waiver Period''). The 
Exchange believes that waiving Ratio Threshold Fees during the Waiver 
Period will give both OTP Holders and the Exchange an opportunity to 
adjust to new functionality and new order handling mechanisms without 
imposing a financial burden on OTP Holders based on their order to 
execution ratios during the Pillar transition. In addition, during the 
Waiver Period, the Exchange intends to work closely with OTP Holders to 
monitor traffic rates and their order to execution ratio as they adapt 
to trading on the Pillar platform.
    The Exchange proposes to implement this change beginning in the 
month during which it commences its migration to the Pillar platform.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\8\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\9\ in particular,

[[Page 6217]]

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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    \8\ 15 U.S.C. 78f(b).
    \9\ 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.'' \10\
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    \10\ 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.\11\ Therefore, currently no exchange possesses significant 
pricing power in the execution of multiply-listed equity & ETF options 
order flow. More specifically, in December 2021, the Exchange had less 
than 14% market share of executed volume of multiply-listed equity & 
ETF options trades.\12\
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    \11\ 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.
    \12\ Based on a compilation of OCC data for monthly volume of 
equity-based options and monthly volume of ETF-based options, see 
id., the Exchange's market share in equity-based options increased 
from 9.65% for the month of December 2020 to 13.21% for the month of 
December 2021.
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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 fees. In response to this competitive 
environment and to adapt to extenuating circumstances, the Exchange has 
previously waived fees on a temporary basis.\13\
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    \13\ See, e.g., Securities Exchange Act Release No. 88596 (April 
8, 2020), 85 FR 20796 (April 14, 2020) (SR-NYSEArca-2020-29) 
(waiving Floor related fees in connection with COVID-19 
precautionary measures).
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    The Exchange believes that the proposed waiver of Ratio Threshold 
Fees is reasonably designed to continue to incent OTP Holders to 
maintain active participation on the Exchange during and after its 
migration to a new trading platform. The Exchange further believes that 
the proposed waiver is reasonably designed to lessen the impact of the 
migration on OTP Holders and would thus encourage OTP Holders to 
promptly transition to the more efficient Pillar technology platform, 
while enabling them to adjust their trading activity on the Exchange as 
needed to transition to Pillar without incurring excess Ratio Threshold 
Fees during the Waiver Period.
    To the extent the proposed rule change encourages OTP Holders to 
migrate to the new platform while maintaining their level of trading 
activity, the Exchange believes the proposed change would sustain the 
Exchange's overall competitiveness and its market quality for all 
market participants. In the backdrop of the competitive environment in 
which the Exchange operates, the proposed rule change is a reasonable 
attempt by the Exchange to mitigate the expense of the migration 
without affecting its competitiveness.
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 because the waiver would be offered 
to all OTP Holders. All OTP Holders would thus have the opportunity to 
moderate their order flow as needed and familiarize themselves with the 
new system during the Waiver Period without incurring Ratio Threshold 
Fees. Thus, the Exchange believes the proposed rule change would 
facilitate a smooth transition to the Pillar technology platform for 
OTP Holders and mitigate the impact of the migration process for all 
market participants on the Exchange, thereby sustaining market-wide 
quality.
The Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes the proposed waiver of Ratio Threshold Fees 
is not unfairly discriminatory because it would be available to all 
similarly-situated market participants on an equal and non-
discriminatory basis.
    The proposed waiver would permit all OTP Holders to maintain the 
same level of interaction or adjust their proprietary systems and order 
submission to the Exchange as needed during the Waiver Period without 
incurring additional fees based on their monthly order to execution 
ratios, which could fluctuate as they adapt to the Pillar platform. The 
Exchange thus believes that the proposed change would support continued 
trading opportunities for all market participants, thereby promoting 
just and equitable principles of trade, removing impediments to and 
perfecting the mechanism of a free and open market and a national 
market system and, in general, protecting investors and the public 
interest.
    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition.

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

    In accordance with Section 6(b)(8) of the Act, the Exchange does 
not believe that the proposed rule change would impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, as discussed above, the Exchange believes 
that the proposed changes would encourage the submission of additional 
liquidity to a public exchange, thereby promoting market depth, price 
discovery and transparency and enhancing order execution opportunities 
for all market participants. As a result, the Exchange believes that 
the proposed change furthers the Commission's goal in adopting 
Regulation NMS of fostering integrated competition among orders, which 
promotes ``more efficient pricing of individual stocks for all types of 
orders, large and small.'' \14\
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    \14\ See Reg NMS Adopting Release, supra note 10, at 37499.
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    Intramarket Competition. The Exchange does not believe the proposed 
rule change would impose any burden on intramarket competition that is 
not necessary or appropriate because it would apply equally to all OTP 
Holders. All OTP Holders would be eligible for the waiver of their 
Ratio Threshold Fees beginning in the month during which the Exchange 
begins the Pillar migration, and the waiver would remain in effect for 
three full months after the month during which the migration to Pillar 
is completed.
    Intermarket Competition. The Exchange operates in a highly

[[Page 6218]]

competitive market in which market participants can readily favor one 
of the 16 competing option exchanges if they deem fee levels at a 
particular venue to be excessive. In such an environment, the Exchange 
must continually adjust its fees to remain competitive with other 
exchanges and to attract order flow to the Exchange. Based on publicly-
available information, and excluding index-based options, no single 
exchange has more than 16% of the market share of executed volume of 
multiply-listed equity and ETF options trades.\15\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity & ETF options order flow. More specifically, in 
December 2021, the Exchange had less than 14% market share of executed 
volume of multiply-listed equity & ETF options trades.\16\
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    \15\ See supra note 11.
    \16\ Based on a compilation of OCC data for monthly volume of 
equity-based options and monthly volume of ETF-based options, see 
id., the Exchange's market share in equity-based options increased 
from 9.65% for the month of December 2020 to 13.21% for the month of 
December 2021.
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    The Exchange does not believe the proposed rule change would impose 
any burden on intermarket competition that is not necessary or 
appropriate because the Exchange operates in a highly competitive 
market in which market participants can readily choose to send their 
orders to other exchanges if they deem fee levels at those other venues 
to be more favorable. The Exchange believes that fees to prevent 
excessive use of Exchange systems are constrained by the robust 
competition for order flow among exchanges. Accordingly, the Exchange 
believes that the proposed change would continue to make the Exchange a 
competitive venue for order execution by enabling OTP Holders to 
maintain their current levels of interaction with the Exchange or make 
adjustments as needed during the transition to Pillar platform, without 
incurring fees based on their monthly order to execution ratios during 
the Waiver Period, thus facilitating OTP Holders' migration to the 
newer, more efficient Pillar technology platform.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \17\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \18\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \19\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \19\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#1664637a733b75797b7b737862655665737538717960"><span class="__cf_email__" data-cfemail="c6b4b3aaa3eba5a9ababa3a8b2b586b5a3a5e8a1a9b0">[email protected]</span></a>. Please include 
File Number SR-NYSEArca-2022-04 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-2022-04. 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 (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEArca-2022-04, and should be 
submitted on or before February 24, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-02184 Filed 2-2-22; 8:45 am]
BILLING CODE 8011-01-P


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