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[Federal Register Volume 90, Number 18 (Wednesday, January 29, 2025)]
[Notices]
[Pages 8413-8416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-01855]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102274; File No. SR-NYSEARCA-2024-90]

Self-Regulatory Organizations; NYSE Arca, Inc.; Suspension of and 
Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change To Waive the Options Regulatory Fee 
(ORF) for December 2024

January 23, 2025.

I. Introduction

    On November 25, 2024, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change (File No. SR-NYSEARCA-2024-90) to amend its 
Options Fee Schedule (``Fee Schedule'') regarding the Options 
Regulatory Fee (``ORF'').\3\ The proposed rule change was immediately 
effective upon filing with the Commission pursuant to Section 
19(b)(3)(A) of the Act.\4\ The proposed rule change was published for 
comment in the Federal Register on December 16, 2024.\5\ The Commission 
has not received any comments on the proposal. Pursuant to Section 
19(b)(3)(C) of the Act,\6\ the Commission is hereby: (1) temporarily 
suspending File No. SR-NYSEARCA-2024-90; and (2) instituting 
proceedings to determine whether to approve or disapprove File No. SR-
NYSEARCA-2024-90.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 101868 (Dec. 10, 
2024), 89 FR 101650 (Dec. 16, 2024) (``Notice'').
    \4\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take 
effect upon filing with the Commission if it is designated by the 
exchange as ``establishing or changing a due, fee, or other charge 
imposed by the self-regulatory organization on any person, whether 
or not the person is a member of the self-regulatory organization.'' 
15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ See Notice, supra note 3.
    \6\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Change

    The Exchange proposed to amend the Fee Schedule to temporarily 
waive the ORF for the period December 1, 2024 through December 31, 2024 
and resume assessment of the ORF at the same rate of $0.0038 per share 
on January 1, 2025.\7\ Noting that it adjusts the amount of ORF amount 
periodically to ensure that the revenue from its ORF does not exceed 
its regulatory costs, the Exchange proposed to waive assessment of 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.'' \8\ According to the Exchange, the proposed waiver 
was based on its ``analysis of recent options volumes and regulatory 
costs'' and its belief 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.'' \9\ The Exchange proposed to resume 
assessment of the ORF at the same rate on January 1, 2025, ``based on 
the Exchange's estimated projections for its regulatory costs, balanced 
with the observed increases in options volumes.'' \10\ The exchange 
previously waived its ORF for selected months in 2022 and 2023.\11\
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    \7\ See Notice, supra note 3, at 101651. The Exchange also 
proposed a ministerial change to delete outdated language relating 
to a prior ORF waiver and superseded ORF rate. Id. The Exchange 
assesses the ORF on Options Trading Permit (``OTP'') Holders and OTP 
Firms (collectively, ``OTP Holders'') for options transactions that 
are cleared by those firms through the Options Clearing Corporation 
(``OCC'') in the Customer range, regardless of the exchange on which 
the transaction occurs. See id. at 101650.
    \8\ See id. at 101651.
    \9\ Id.
    \10\ Id. at 101652.
    \11\ See Securities Exchange Act Release Nos. 96374 (Nov. 22, 
2022), 87 FR 73372 (Nov. 29, 2022) (SR-NYSEARCA-2022-78) and 98676 
(Oct. 3, 2023), 88 FR 69969 (Oct. 10, 2023) (SR-NYSEARCA-2023-68).

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[[Page 8414]]

III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\12\ at any time within 
60 days of the date of filing of an immediately effective proposed rule 
change pursuant to Section 19(b)(1) of the Act,\13\ the Commission 
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') 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. As discussed below, the Commission believes a temporary 
suspension of the proposed rule change is necessary and appropriate to 
allow for additional analysis of the proposed rule change's consistency 
with the Act and the rules thereunder.
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    \12\ 15 U.S.C. 78s(b)(3)(C).
    \13\ 15 U.S.C. 78s(b)(1).
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    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\14\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement ``should 
be sufficiently detailed and specific to support a finding that the 
proposed rule change is consistent with [those] requirements'' \15\
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    \14\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \15\ See id.
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    Section 6 of the Act, including Sections 6(b)(4), (5), and (8), 
require the rules of an exchange to: (1) provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \16\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \17\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\18\ In 
justifying its proposal, the Exchange stated that its proposed 
temporary waiver and subsequent resumption of the assessment of the ORF 
on January 1, 2025 at the same rate ``is reasonable because it would 
help ensure that collections from the ORF do not exceed a material 
portion of the Exchange's ORF Costs.'' \19\ The Exchange further stated 
that ``resumption of the ORF at the current rate on January 1, 2025 . . 
. 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'' and ``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.'' \20\ The Exchange also stated that the proposal is an equitable 
allocation of fees among its market participants and not unfairly 
discriminatory because the temporary waiver (and subsequent resumption 
of the assessment ORF on January 1, 2025 at the same rate) ``would 
apply equally to all OTP Holders on all their transactions that clear 
in the Customer range at the OCC.'' \21\ According to the Exchange, 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 the ORF collection, in 
combination with other regulatory fees and fines, does not exceed 
regulatory costs.'' \22\ Further, the Exchange stated that resumption 
of the assessment of the ORF on January 1, 2025 at the current rate is 
equitable ``because the ORF would resume applying equally to all OTP 
Holders . . . 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.'' \23\
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    \16\ 15 U.S.C. 78f(b)(4).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 15 U.S.C. 78f(b)(8).
    \19\ See Notice, supra note 3, at 101652. In its proposed rule 
change, the Exchange defined ``ORF Costs'' collectively to include 
``the Exchange's costs for the supervision and regulation of 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.'' Id. at 
101650. The Exchange further stated that ``ORF funds may also be 
used for indirect expenses such as human resources and other 
administrative costs.'' Id.
    \20\ See id. 101652.
    \21\ See id. at 101652.
    \22\ Id.
    \23\ Id.
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    In temporarily suspending the Exchange's proposed rule change, the 
Commission intends to further consider whether the proposal to 
temporarily waive assessment of the ORF for one month and resume 
assessment of the ORF at the same rate thereafter is consistent with 
the statutory requirements applicable to a national securities exchange 
under the Act. In particular, the Commission will consider whether the 
proposed rule change satisfies the standards under the Act and the 
rules thereunder requiring, among other things, that an exchange's 
rules provide for the equitable allocation of reasonable fees among 
members, issuers, and other persons using its facilities; not permit 
unfair discrimination between customers, issuers, brokers or dealers; 
and do not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\24\
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    \24\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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    Therefore, the Commission finds that it is necessary and 
appropriate in the public interest, for the protection of investors, 
and otherwise in furtherance of the purposes of the Act, to temporarily 
suspend the proposed rule change.\25\
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    \25\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    In addition to temporarily suspending the proposal, the Commission 
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 
\26\ and 19(b)(2)(B) of the Act \27\ to determine whether the 
Exchange's proposed rule change should be approved or disapproved. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, the Commission seeks and encourages interested persons to 
provide additional comment on the proposed rule change to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule change.
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    \26\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \27\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\28\ the Commission is 
providing

[[Page 8415]]

notice of the grounds for possible disapproval under consideration:
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    \28\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also 
provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
See id. The time for conclusion of the proceedings may be extended 
for up to 60 days if the Commission finds good cause for such 
extension and publishes its reasons for so finding, or if the 
exchange consents to the longer period. See id.
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     Whether the Exchange has demonstrated how its proposed 
temporary ORF waiver (and subsequent recommencement of the assessment 
of the ORF on January 1, 2025 at the same rate) is consistent with 
Section 6(b)(4) of the Act, which requires that the rules of a national 
securities exchange ``provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and issuers 
and other persons using its facilities;'' \29\ (emphasis added);
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    \29\ 15 U.S.C. 78f(b)(4).
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     Whether the Exchange has demonstrated how its proposed 
temporary ORF waiver (and subsequent recommencement of the assessment 
of the ORF on January 1, 2025 at the same rate) is consistent with 
Section 6(b)(5) of the Act, which requires, among other things, that 
the rules of a national securities exchange not be ``designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers'' 
\30\ (emphasis added); and
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    \30\ 15 U.S.C. 78f(b)(5).
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     Whether the Exchange has demonstrated how its proposed 
temporary ORF waiver (and subsequent recommencement of the assessment 
of the ORF on January 1, 2025 at the same rate) is consistent with 
Section 6(b)(8) of the Act, which requires that the rules of a national 
securities exchange ``not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of [the Act].'' 
\31\
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    \31\ 15 U.S.C. 78f(b)(8).
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    As noted above, the Exchange proposes to waive the assessment of 
ORF for the month of December 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.'' \32\ The Exchange further proposes to resume assessing the ORF 
at the same rate of $0.0038 on January 1, 2025 because the Exchange 
``cannot predict whether options volumes will remain at [elevated] 
levels going forward and projections for future regulatory costs are 
estimated, preliminary, and may change.'' \33\ However, the Exchange's 
statements in support of the proposed rule change are general in nature 
and lack detail and specificity. For example, the proposal states that 
the proposed temporary wavier of the assessment of the ORF is equitable 
and not unfairly discriminatory because it would not place certain 
market participants at an unfair disadvantage and would apply equally 
to all OTP Holders on all their transactions that clear in the Customer 
range at the OCC. However, the proposal lacks specificity regarding how 
assessing the ORF to participants that execute transactions from 
January 1-November 30, 2024, but waiving the assessment of the ORF for 
participants that execute transactions in December 2024 constitutes a 
reasonable, equitable, and not unfairly discriminatory fee when such 
ORF revenue is used to offset the Exchange's 2024 regulatory expenses, 
including those incurred in connection with transactions occurring in 
December 2024. In addition, as noted above, this is the third time that 
the Exchange has proposed an end-of-year fee waiver for ORF to avoid 
over-collection in excess of ORF Costs.\34\ In light of that emerging 
patten, the Exchange has not demonstrated with specificity how 
reimposing the unreduced ORF in January 2025 would not result in over-
collection once again in 2025 beyond a general reference to potentially 
increased regulatory costs for 2025, and thus a question is presented 
as to whether reimposing the ORF at the unreduced former rate in 2025 
would constitute a reasonable, equitable, and not unfairly 
discriminatory fee.
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    \32\ See Notice, supra note 3, at 101651.
    \33\ Id. at 101652.
    \34\ See supra note 11.
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    Further, the Exchange provides only broad information on options 
transaction volume trends, and generalized statements regarding the 
Exchange's anticipated regulatory costs for 2025 to justify its 
proposal. Without more information in the filing on the Exchange's 
regulatory revenues attributable to ORF as well as regulatory revenue 
from other sources, and more information on the Exchange's regulatory 
costs to supervise and regulate OTP Holders, including, e.g., Customer 
versus non-Customer activity and on-exchange versus off-exchange 
activity, the proposal lacks information that can speak to whether the 
proposed one-month ORF waiver and subsequent resumption at the same 
rate is reasonable, equitably allocated, and not unfairly 
discriminatory, particularly given that the ORF is assessed only on 
transactions that clear in the Customer range and regardless of the 
exchange on which the transaction occurs, and that the ORF is designed 
to recover a material portion, but not all, of the Exchange's 
regulatory costs for the supervision and regulation of activity across 
all OTP Holders.
    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the [SRO] 
that proposed the rule change.'' \35\ The description of a proposed 
rule change, its purpose and operation, its effect, and a legal 
analysis of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative Commission 
finding,\36\ and any failure of an SRO to provide this information may 
result in the Commission not having a sufficient basis to make an 
affirmative finding that a proposed rule change is consistent with the 
Act and the applicable rules and regulations.\37\
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    \35\ 17 CFR 201.700(b)(3).
    \36\ See id.
    \37\ See id.
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    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposed fees are consistent with the Act, and 
specifically, with its requirements that exchange fees be reasonable 
and equitably allocated and not be unfairly discriminatory.\38\
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    \38\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by February 19, 2025. 
Rebuttal comments should be submitted by March 5, 2025. Although there 
do not appear to be any issues relevant to approval or disapproval that 
would be facilitated by an oral presentation of views, data, and 
arguments, the Commission will consider, pursuant to Rule 19b-4, any 
request for an opportunity to make an oral presentation.\39\
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    \39\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by an SRO. See Securities 
Acts Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th 
Cong., 1st Sess. 30 (1975).
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    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the Proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing,

[[Page 8416]]

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 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 February 19, 2025. Rebuttal comments should 
be submitted by March 5, 2025.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\40\ that File No. SR-NYSEARCA-2024-90, be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
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    \40\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(57) and (58).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-01855 Filed 1-28-25; 8:45 am]
BILLING CODE 8011-01-P
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