Document ID: SEC-2023-1185-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2023-10-13T04:00Z

[Federal Register Volume 88, Number 197 (Friday, October 13, 2023)]
[Notices]
[Pages 71043-71046]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22507]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98693; File No. SR-NYSEARCA-2023-69]

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

October 5, 2023.
    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 September 29, 2023, 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 the Customer Incentive Program and Market 
Maker Penny and SPY Posting Credit Tiers. The Exchange proposes to 
implement the fee change effective October 2, 2023.

[[Page 71044]]

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 qualifying bases for the Customer Incentive Program and the 
Market Maker Penny and SPY Posting Credit Tiers (the ``Market Maker 
Posting Credit Tiers''). The Exchange proposes to implement the rule 
change on October 2, 2023.
Customer Incentive Program
    The Customer Incentive Program offers OTP Holders and OTP Firms 
(collectively, ``OTP Holders'') an additional ($0.03) credit on 
Customer Posting Credits if they achieve one of two qualifying 
criteria.\4\ Currently, an OTP Holder may earn this credit by achieving 
either (1) an ADV from Market Maker total electronic volume of at least 
0.60% of TCADV, plus at least 0.10% of TCADV from Customer posted 
interest in non-Penny issues, or (2) at least 0.30% of TCADV from 
Customer posted interest in all issues, not including Professional 
Customer interest, plus executed ADV of 0.60% of U.S. equity market 
share posted and executed on the NYSE Arca Equities [sic] market.
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    \4\ See Fee Schedule, Customer Incentive Program.
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    The Exchange proposes to modify the first of these qualifications 
by increasing the required amount of Market Maker total electronic 
volume to at least 1.00% of TCADV and eliminating any required volume 
from Customer posted interest. The Exchange does not propose any 
changes to the second qualifying basis for the Customer Incentive 
Program or to the amount of the credit available to qualifying OTP 
Holders, which will remain at ($0.03). In addition, OTP Holders would 
continue to be eligible to earn only one ($0.03) credit through the 
Customer Incentive Program.
    The Exchange cannot predict with certainty whether any OTP Holders 
would seek to qualify for the Customer Incentive Program, but believes 
that the proposed change would continue to encourage OTP Holders to 
direct Market Maker interest to the Exchange to earn an additional 
credit on the Customer Posting Credits. Although the proposed change 
would increase the level of Market Maker posted interest required to 
qualify for the additional credit, it would also remove the Customer 
posted interest component of the qualification, which could make 
earning the credit more achievable for OTP Holders.
Market Maker Posting Credit Tiers
    The Exchange currently offers qualifying OTP Holders tiered credits 
on electronic executions of Market Maker posted interest in Penny 
issues and SPY through the Market Maker Posting Credit Tiers.\5\ 
Currently, an OTP Holder may qualify for Super Tier II of the Market 
Maker Posting Credit Tiers by achieving at least 0.10% of TCADV from 
Market Maker posted interest in all issues, plus ETP Holder and Market 
Maker posted volume in Tape B securities that is equal to at least 
1.50% of US Tape B consolidated average daily volume (``CADV'') for the 
billing month executed on NYSE Arca Equities [sic] market. The Exchange 
proposes to modify this qualification for Super Tier II to require at 
least 0.15% of TCADV from Market Maker posted interest in all issues, 
plus ETP Holder and Market Maker Tape B adding ADV that is equal to at 
least 1.40% of US Tape B CADV for the billing month executed on NYSE 
Arca Equities [sic] market.
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    \5\ See Fee Schedule, Market Maker Penny and Spy Posting Credit 
Tiers.
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    The Exchange does not propose any changes to the amounts of the 
credits available to OTP Holders that qualify for Super Tier II or to 
any of the other qualifications for or credits offered through the 
Market Maker Posting Tiers.
    Although the Exchange cannot predict with certainty whether any OTP 
Holders would seek to qualify for the Market Maker Posting Credit 
Tiers, the Exchange believes that the proposed change would continue to 
encourage OTP Holders to direct Market Maker interest to the Exchange 
to earn the credits offered in Super Tier II. In addition, although the 
proposed change would increase the level of Market Maker posted 
interest required to qualify for Super Tier II, it would also reduce 
the requirement for posted volume in Tape B securities, which could 
make the incentive more achievable for OTP Holders.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\6\ in general, and furthers the 
objectives of sections 6(b)(4) and (5) of the Act,\7\ 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 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.'' \8\
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    \8\ 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.\9\ Therefore, no exchange possesses significant pricing power 
in the execution of multiply-listed equity and ETF options order flow. 
More specifically, in August 2023, the Exchange had less than 12% 
market share of executed volume of multiply-listed equity and ETF 
options trades.\10\
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    \9\ 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.
    \10\ 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 Exchange's market share in equity-based options 
increased slightly from 11.36% for the month of August 2022 to 
11.37% for the month of August 2023.

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[[Page 71045]]

    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 transaction fees. Stated otherwise, 
modifications to exchange transaction fees can have a direct effect on 
the ability of an exchange to compete for order flow.
    The Exchange believes that the proposed changes to the qualifying 
criteria for the Customer Incentive Program and Market Maker Posting 
Credit Tiers are reasonable because they are intended to continue to 
incent OTP Holders to direct interest to the Exchange (and, in 
particular, Customer and Market Maker posted interest) in order to 
benefit from the credits offered through the Customer Incentive Program 
and Market Maker Posting Credit Tiers. Although the proposed changes 
would increase certain of the requirements to qualify for the credits 
offered through these programs, the proposed changes would also reduce 
or eliminate certain other requirements; accordingly, the Exchange 
believes that the proposed changes would not discourage OTP Holders 
from seeking to qualify for the credits and could instead make the 
credits more attainable for OTP Holders.
    To the extent the proposed rule change attracts greater volume and 
liquidity by encouraging OTP Holders to increase their options volume 
on the Exchange, 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 Proposed Rule Change Is an Equitable Allocation of Credits and Fees
    The Exchange believes the proposed rule change is an equitable 
allocation of its fees and credits. The proposal is based on the amount 
and type of business transacted on the Exchange, and OTP Holders can 
attempt to qualify for the Customer Incentive Program and Market Maker 
Posting Credit Tiers or not. Moreover, the proposal is designed to 
incent OTP Holders to continue to direct Customer and Market Maker 
interest to the Exchange and to aggregate such interest at the Exchange 
as a primary execution venue. To the extent that the proposed change 
attracts more opportunities for execution of Customer or Market Maker 
interest on the Exchange, this increased order flow would continue to 
make the Exchange a more competitive venue for order execution. Thus, 
the Exchange believes the proposed rule change would improve market 
quality for all market participants on the Exchange and, as a 
consequence, attract more order flow to the Exchange thereby improving 
market-wide quality and price discovery.
The Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes the proposed changes to the Customer 
Incentive Program and Market Maker Posting Credit Tiers are not 
unfairly discriminatory because they would apply to all similarly-
situated market participants on an equal and non-discriminatory basis. 
The proposal is based on the amount and type of business transacted on 
the Exchange, and OTP Holders are not obligated to try to achieve the 
proposed qualifications to earn the credits, nor are they obligated to 
execute posted interest. To the extent that the proposed changes 
attract more interest, including Customer and Market Maker posting 
interest, to the Exchange, this increased order flow would continue to 
make the Exchange a more competitive venue for order execution. Thus, 
the Exchange believes the proposed rule change would improve market 
quality for all market participants on the Exchange and, as a 
consequence, attract more order flow to the Exchange thereby improving 
market-wide quality and price discovery. The resulting increased volume 
and liquidity would provide more trading opportunities and tighter 
spreads to all market participants and thus 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, to 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 change 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.'' \11\
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    \11\ See Reg NMS Adopting Release, supra note 8, at 37499.
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    Intramarket Competition. The proposed changes are designed to 
attract additional order flow to the Exchange, including both Customer 
and Market Maker posting interest. The Exchange believes that the 
proposed changes would continue to incent OTP Holders to direct order 
flow to the Exchange in order to qualify for the Customer Incentive 
Program and Market Maker Posting Credit Tiers. Greater liquidity 
benefits all market participants on the Exchange and increased order 
flow would increase opportunities for execution of other trading 
interest. The proposed changes to the qualifications for the Customer 
Incentive Program and Market Maker Posting Credit Tiers would apply to 
all similarly-situated market participants and, accordingly, 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 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.\12\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. More specifically, 
in August 2023, the

[[Page 71046]]

Exchange had less than 12% market share of executed volume of multiply-
listed equity and ETF options trades.\13\
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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 Exchange's market share in equity-based options 
increased slightly from 11.36% for the month of August 2022 to 
11.37% for the month of August 2023.
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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 continue to incent OTP Holders to direct Customer 
and Market Maker posted interest to the Exchange, to provide liquidity 
and to attract order flow. 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.

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) \14\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \15\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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) \16\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \16\ 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-2023-69 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-2023-69. 
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-2023-69 and 
should be submitted on or before November 3, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22507 Filed 10-12-23; 8:45 am]
BILLING CODE 8011-01-P