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[Federal Register Volume 89, Number 247 (Thursday, December 26, 2024)]
[Notices]
[Pages 105140-105142]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30682]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101962; File No. SR-NYSEARCA-2024-114]

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

December 18, 2024.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on December 17, 2024, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify the NYSE Arca Options Fee Schedule 
(``Fee Schedule'') regarding certain transaction fees. The Exchange 
proposes to implement the fee change effective December 17, 2024. 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 modify 
certain transaction fees. Specifically, the Exchange proposes to adopt 
pricing incentives to encourage trading in options on Exchange Traded 
Funds that hold digital assets (``digital asset ETFs'') that are listed 
on NYSE Arca Equities. The Exchange proposes to implement the fee 
change effective December 17, 2024.\4\
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    \4\ On December 2, 2024, the Exchange filed to amend the Fee 
Schedule (NYSEARCA-2024-107) and withdrew such filing on December 3, 
2024 (SR-NYSEARCA-2024-109), which latter filing the Exchange 
withdrew on December 17, 2024.
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    On November 22, 2024, the Exchange began trading options on the 
following digital asset ETFs, each of which is listed on NYSE Arca 
Equities: Grayscale Bitcoin Trust ETF (GBTC); Grayscale Bitcoin Mini 
Trust ETF (BTC); and Bitwise Bitcoin ETF Trust (BITB).\5\ To 
incentivize trading in these newly available options on digital asset 
ETFs (as well as in other options series in digital asset ETFs that may 
be listed on NYSE Arca Equities in the future), the Exchange proposes 
to offer a per contract discount or credit, which may be combined with 
other discounts or credits unless otherwise specified.
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    \5\ See Trader Update, November 21, 2024 (announcing that on 
November 22, 2024, the Exchange would begin listing and trading 
options on GBTC, BTC, and BITB), available here, https://www.nyse.com/trader-update/history#110000945911.
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    Specifically, the Exchange proposes that executions in options on 
NYSE Arca Equities-listed digital asset ETFs (excluding QCC 
transactions) will

[[Page 105141]]

receive an additional discount of $0.05 per contract on electronic take 
liquidity, manual, and electronic complex-to-complex executions or an 
additional credit of $0.05 per contract on electronic post liquidity 
executions.\6\ The Exchange proposes to exclude QCC transactions from 
this proposal because QCC transactions are subject to separate fees and 
credits.\7\ Similarly, the Exchange proposes that the already-
discounted executions in options on NYSE Arca Equities-listed digital 
asset ETFs will not be included in the daily fee cap on strategy 
executions (i.e., the Limit of Fee [sic] on Options Strategy 
Executions) nor will they be included in calculations for or rebates 
available through the Manual Billable Rebate Program.\8\
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    \6\ See proposed Fee Schedule, Endnote 12, currently held as 
``Reserved.'' The Exchange proposes to add reference to new Endnote 
12 to reflect the transaction fee change in the applicable sections 
of the Fee Schedule Fee. See, e.g., proposed Fee Schedule, 
ELECTRONIC COMPLEX ORDER EXECUTIONS, TRANSACTION FEE--PER CONTRACT.
    \7\ See Fee Schedule, QUALIFIED CONTINGENT CROSS (``QCC'') 
TRANSACTION FEES AND CREDITS.
    \8\ See proposed Endnote 12. The Exchange also proposes to 
specify these exclusions in the applicable sections of the Fee 
Schedule. See proposed Fee Schedule, LIMIT OF FEES ON OPTIONS 
STRATEGY EXECUTIONS and FLOOR BROKER FIXED COST PREPAYMENT INCENTIVE 
PROGRAM (the ``FB Prepay Program''). Consistent with the Fee 
Schedule, manual executions of options on digital asset ETFs would 
be subject to the Firm and Broker Dealer Monthly Fee Cap, including 
the assessment of the incremental service fee of $0.01 per contract 
once that Cap has been reached. See FIRM AND BROKER DEALER MONTHLY 
FEE CAP (providing that, ``[o]nce a Firm or Broker Dealer has 
reached the Firm and Broker Dealer Monthly Fee Cap, an incremental 
service fee of $0.01 per contract for Firm or Broker Dealer Manual 
transactions will apply . . . .'').
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    Although the Exchange cannot predict with certainty whether any OTP 
Holders would seek to trade digital asset ETF options, the Exchange 
believes that the proposed change would incentivize OTP Holders to 
submit these types of orders to the Exchange, which brings increased 
liquidity and order flow for the benefit of all market participants.
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 change to the Fee Schedule are reasonable, equitable, 
and not unfairly discriminatory. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for options 
securities transaction services that constrain its pricing 
determinations in that 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 18 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.\12\ Therefore, currently no exchange possesses significant 
pricing power in the execution of multiply-listed equity & ETF options 
order flow. More specifically, in October of 2024, the Exchange had 
12.55% market share of executed volume of multiply-listed equity & ETF 
options trades.\13\ In such a low-concentrated and highly competitive 
market, no single options exchange possesses significant pricing power 
in the execution of option order flow. Within this environment, market 
participants can freely and often do shift their order flow among the 
Exchange and competing venues in response to changes in their 
respective pricing schedules.
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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 Exchanges market share in equity-based options 
increased slightly from 12.19% for the month of October 2023 to 
12.55% for the month of October 2024.
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    The Exchange believes that the proposed discount/credit of five 
cents per contract is reasonable because it is designed to encourage 
liquidity in options classes on digital asset ETFs newly listed and 
traded on the Exchange, thereby promoting market depth, price discovery 
and improvement, and enhanced order execution opportunities to the 
benefit of all market participants. Moreover, the proposal is designed 
to encourage OTP Holders to utilize the Exchange as a primary trading 
venue for options on digital asset ETFs.
    The Exchange believes the proposed rule change is an equitable 
allocation of its fees and credits and is not unfairly discriminatory 
as it available equally to all similarly-situated market participants 
on an equal and non-discriminatory basis.
    To the extent the proposed change continues to attract greater 
volume and liquidity, 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. The Exchange's fees are constrained by intermarket 
competition, as OTP Holders may direct their order flow to any of the 
competing options exchanges that list and trade options on digital 
asset ETFs.
    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

[[Page 105142]]

of individual stocks for all types of orders, large and small.'' \14\
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    \14\ See Reg NMS Adopting Release, supra note 11, at 37499.
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    Intramarket Competition. The proposed change is designed to 
encourage market participants to execute options on digital asset ETFs 
(and, in particular, those listed on NYSE Arca Equities) and to direct 
such executions to the Exchange. The proposed pricing incentive will be 
available equally to all similarly-situated market participants. 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 17 competing option exchanges if they deem fee levels at a 
particular venue to be excessive. In such an environment, the Exchange 
must continually adjust its fees to remain competitive with other 
exchanges and to attract order flow to the Exchange. Based on publicly-
available information, and excluding index-based options, no single 
exchange has more than 16% of the market share of executed volume of 
multiply-listed equity and ETF options trades.\15\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity & ETF options order flow. More specifically, in 
October 2024, the Exchange had 12.55% market share of executed volume 
of multiply-listed equity and ETF options trades.\16\
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    \15\ 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.
    \16\ Based on OCC data for monthly volume of equity-based 
options and monthly volume of ETF-based options, see id., the 
Exchanges market share in equity-based options increased slightly 
from 12.19% for the month of October 2023 to 12.55% for the month of 
October 2024.
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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 encourage market participants to direct trading 
interest (particularly for options on digital assets ETFs) to the 
Exchange. 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 
those that list and trade options on digital asset ETFs, by encouraging 
additional orders to be sent to the Exchange for execution.

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

     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-2024-114 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-2024-114. 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-2024-114 and should 
be submitted on or before January 16, 2025.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-30682 Filed 12-23-24; 8:45 am]
BILLING CODE 8011-01-P
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