Document ID: SEC-2022-0109-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2022-01-26T05:00Z

[Federal Register Volume 87, Number 17 (Wednesday, January 26, 2022)]
[Notices]
[Pages 4095-4097]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01459]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94017; No. SR-NYSEArca-2022-03]

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

January 20, 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 14, 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 cap certain port fees 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 cap 
certain port fees 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\
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    \4\ See NYSE Arca Rule 6.1A-O(a)(13).
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    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\ The Exchange proposes to adopt a cap on the monthly fees 
assessed for the use of certain ports connecting to the Exchange, which 
will go into effect on the day the Exchange commences its migration to 
the Pillar platform and remain in effect until the end of the month in 
which the migration is completed (the ``Migration Period'').
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    \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://w0ww.nyse.com/trader-update/history#110000387355. See also Securities Exchange Act 
Release No. 92304 (June 30, 2021), 86 FR 36440 (July 9, 2021) (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. 2 to SR-NYSEArca-2021-47, 
available here: https://www.sec.gov/comments/sr-nysearca-2021-47/srnysearca202147-20109876-264219.pdf.
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    Specifically, the Exchange proposes to cap the monthly fees charged 
to an OTP Holder or OTP Firm (collectively, ``OTP Holders'') for the 
use of Order/Quote Entry Ports, Quote Takedown Ports, and Drop Copy 
Ports (collectively, the ``Port Fees'') during the Migration Period 
(the ``Migration Cap''). The Migration Cap will be based on the number 
of ports an OTP Holder is billed for in the month preceding the 
beginning of the Exchange's migration to the Pillar platform, except 
that if an OTP Holder reduces the number of ports used during the 
Migration Period (i.e., incurs Port Fees below the Migration Cap), the 
OTP Holder would only be billed for the actual number of ports used.
    Without this proposed rule change, the Fee Schedule provides that 
OTP Holders would be charged for the use of both legacy OX platform 
ports and new Pillar platform ports, which could significantly increase 
costs to OTP Holders during the Migration Period. Thus, the proposed 
Migration Cap is intended to encourage OTP Holders to maintain the same 
levels of interaction with Exchange during the Migration Period, as 
well as promptly migrate to the more efficient Pillar technology 
platform, without incurring additional Port Fees as a result of the 
transition.\6\
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    \6\ The Exchange notes that the NYSE Arca Equities exchange 
adopted a similar fee cap in connection with its migration to the 
Pillar technology platform in 2017 so that its member organizations 
would not incur additional charges during the transition period. See 
Securities Exchange Act Release No. 81573 (September 11, 2017), 82 
FR 43430 (September 15, 2017) (SR-NYSEArca-2017-97) (providing for a 
temporary cap on monthly fees for use of ports during Pillar 
transition).
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    The Exchange proposes to implement this fee change on the day it 
commences its migration to the Pillar technology platform.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and furthers the 
objectives of Sections

[[Page 4096]]

6(b)(4) and (5) of the Act,\8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 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.'' \9\
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    \9\ 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.\10\ Therefore, currently no exchange possesses significant 
pricing power in the execution of multiply-listed equity and ETF 
options order flow. More specifically, in November 2021, the Exchange 
had less than 13% market share of executed volume of multiply-listed 
equity and ETF options trades.\11\
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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.
    \11\ 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 10.35% for the month of November 2020 to 12.99% for the month 
of November 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, including fees for connectivity.
    The Exchange believes that the proposed Migration Cap is reasonably 
designed to continue to incent OTP Holders to maintain sufficient 
active connections to the Exchange during its migration to a new 
trading platform. Without the proposed change, OTP Holders would be 
subject to fees for the use of both legacy ports and the new ports 
using Pillar technology during the Migration Period. Accordingly, the 
Exchange believes that the proposed Migration Cap is reasonably 
designed to lessen the impact of the migration on OTP Holders and will 
thus encourage OTP Holders to both promptly transition to the more 
efficient Pillar technology platform and maintain their current level 
of trading activity on the Exchange.
    To the extent the proposed rule change encourages OTP Holders to 
migrate to the new Pillar technology 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 change is an equitable 
allocation of its fees and credits because the Migration Cap, which 
would apply equally to all OTP Holders, would be calculated based on 
the number of ports each OTP Holder uses. OTP Holders can opt to adjust 
their port usage, if desired, in advance of the Migration Period, and 
to the extent OTP Holders choose to use fewer ports during the 
Migration Period (i.e., incur Port Fees below the Migration Cap), their 
Port Fees would be reduced accordingly. 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 Migration Cap is not unfairly 
discriminatory because it would be available to all similarly-situated 
market participants on an equal and non-discriminatory basis.
    The proposed Migration Cap would be based on an OTP Holder's Port 
Fees billed for the month preceding the beginning of the Exchange's 
migration to the Pillar technology platform and would be adjusted to 
the extent an OTP Holder chooses to utilize fewer such ports during the 
Migration Period. The Exchange believes that the Migration Cap will 
permit OTP Holders to maintain the same level of interaction with 
Exchange systems during the Migration Period without incurring 
additional Port Fees as a result of the transition from OX to the 
Pillar technology platform. The Exchange also believes that the 
Migration Cap would allow OTP Holders to maintain their existing level 
of connectivity to the Exchange at no additional cost during the 
Migration Period, thereby supporting continued trading opportunities 
for all market participants, which would promote just and equitable 
principles of trade, remove impediments to and perfect the mechanism of 
a free and open market and a national market system and, in general, 
protect investors and the public interest.
    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition.

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

    In accordance with Section 6(b)(8) of the Act, the Exchange does 
not believe that the proposed rule change would impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, as discussed above, the Exchange believes 
that the proposed 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.'' \12\
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    \12\ See Reg NMS Adopting Release, supra note 9, 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, regardless of the number of ports they 
utilize, will be eligible for the Migration Cap beginning on the day 
the Exchange commences its

[[Page 4097]]

migration to the Pillar technology platform through the end of the 
Migration Period.
    Intermarket Competition. The Exchange operates in a highly 
competitive market in which market participants can readily favor one 
of the 16 competing option exchanges if they deem fee levels at a 
particular venue to be excessive. In such an environment, the Exchange 
must continually adjust its fees to remain competitive with other 
exchanges and to attract order flow to the Exchange. Based on publicly-
available information, and excluding index-based options, no single 
exchange has more than 16% of the market share of executed volume of 
multiply-listed equity and ETF options trades.\13\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity & ETF options order flow. More specifically, in 
November 2021, the Exchange had less than 13% market share of executed 
volume of multiply-listed equity and ETF options trades.\14\
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    \13\ See supra note 10.
    \14\ 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 10.35% for the month of November 2020 to 12.99% for the month 
of November 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 for connectivity 
are constrained by the robust competition for order flow among 
exchanges. Accordingly, the Exchange believes that the proposed 
Migration Cap 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 during the Migration Period 
without incurring additional Port Fees and 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) \15\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \16\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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) \17\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \17\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2022-03 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-2022-03. 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-2022-03, and should be 
submitted on or before February 16, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01459 Filed 1-25-22; 8:45 am]
BILLING CODE 8011-01-P