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[Federal Register Volume 89, Number 241 (Monday, December 16, 2024)]
[Notices]
[Pages 101650-101654]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29471]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101868; File No. SR-NYSEARCA-2024-90]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE 
Arca 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 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 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 Arca 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 is designed 
to recover a material portion, but not all, of the Exchange's costs for 
the supervision and regulation of OTP Holders and OTP Firms 
(collectively, ``OTP 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 Bylaws of NYSE 
Arca, Inc., Art. II, Sec. 2.03.
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    The ORF is assessed on OTP Holders for options transactions that 
are cleared

[[Page 101651]]

by the OTP Holder through the Options Clearing Corporation (``OCC'') in 
the Customer range regardless of the exchange on which the transaction 
occurs and is collected from OTP Holder clearing firms by the OCC on 
behalf of NYSE Arca.\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 OTP Holders with respect to Customer trading activity are 
generally higher than the costs associated with monitoring OTP Holders 
that do not engage in Customer trading activity, which tends to be more 
automated and less labor-intensive. By contrast, regulating OTP 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 OTP 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., 
OTP Holder proprietary transactions) of its regulatory program.
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    \5\ See Fee Schedule, NYSE Arca GENERAL OPTIONS and TRADING 
PERMIT (OTP) FEES, Regulatory Fees, Options Regulatory Fee 
(``ORF''), available here, https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf. The 
Exchange uses reports from OCC when assessing and collecting the 
ORF. The ORF is not assessed on outbound linkage trades. An OTP 
Holder is not assessed the fee until it has satisfied applicable 
technological requirements necessary to commence operations on NYSE 
Arca. 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 OTP 
Holders will likely increase as well. Similarly, if options 
transactions reported to OCC in a given month decrease, the ORF 
collected from OTP 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 OTP 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. 98676 (October 3, 
2023), 88 FR 69969 (October 10, 2023) (SR-NYSEARCA-2023-68) (Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend the NYSE Arca 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 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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[[Page 101652]]

    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 OTP 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 OTP 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.
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 OTP 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 OTP 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

[[Page 101653]]

because it would eliminate language from the Fee Schedule that is no 
longer applicable to any OTP 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 OTP 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 OTP 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 OTP 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 OTP 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 OTP 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 OTP Holder clearing firms by the OCC on behalf of NYSE 
Arca 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 OTP 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-NYSEARCA-2024-90 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-2024-90. 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

[[Page 101654]]

withhold entirely from publication submitted material that is obscene 
or subject to copyright protection. All submissions should refer to 
file number SR-NYSEARCA-2024-90 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. 2024-29471 Filed 12-13-24; 8:45 am]
BILLING CODE 8011-01-P
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