Document ID: SEC-2019-1351-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2019-09-19T04:00Z

[Federal Register Volume 84, Number 182 (Thursday, September 19, 2019)]
[Notices]
[Pages 49356-49359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20221]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86961; File No. SR-NYSEArca-2019-64]

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

September 13, 2019.
    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 August 30, 2019, 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 
(``Fee Schedule'') by revising the Options Regulatory Fee (``ORF'') and 
notice language related to the ORF, effective August 30, 2019. 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 revise the ORF 
charged solely for the August 30, 3019 trading day and to modify 
language regarding notice requirements for any changes to the ORF, 
effective August 30, 2019.
Background Regarding the ORF
    As a general matter, the Exchange may only use regulatory funds 
such as 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 
regulatory costs for the supervision and regulation of OTP Holders and 
OTP Firms (the ``OTP Regulatory Costs''). The majority of the OTP 
Regulatory Costs are direct expenses, such as the costs related to in-
house staff, third-party service providers, and technology. The direct 
expenses support the day-to-day regulatory work relating to the OTP 
Holders or OTP Firms, including surveillance, investigation, 
examinations and enforcement. Such direct expenses represent 
approximately 91% of the Exchange's total OTP Regulatory Costs. The 
indirect expenses include human resources and other administrative 
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. 2.06.
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    The ORF is assessed on OTP Holders or OTP Firms for options 
transactions that are cleared by the OTP Holder or OTP Firm through the 
Options Clearing Corporation (``OCC'') in the Customer range regardless 
of the exchange on which the transaction occurs.\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. Because the ORF is 
collected from OTP Holder or OTP Firm clearing firms by the OCC on 
behalf of NYSE Arca,\6\ the

[[Page 49357]]

Exchange believes that using options transactions in the Customer range 
serves as a proxy for how to apportion regulatory costs among such OTP 
Holders or OTP Firms. In addition, the Exchange notes that the 
regulatory costs relating to monitoring OTP Holders or OTP Firms with 
respect to Customer trading activity are generally higher than the 
regulatory costs associated with OTP Holders or OTP Firms that do not 
engage in Customer trading activity, which tends to be more automated 
and less labor-intensive. By contrast, regulating OTP Holders or OTP 
Firms 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 or OTP Firm's 
relationship with its Customers via more labor-intensive exam-based 
programs.\7\ 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 or OTP Firm 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.
    \6\ See id. The Exchange uses reports from OCC when assessing 
and collecting the ORF. The ORF is not assessed on outbound linkage 
trades. An OTP Holder or OTP Firm is not assessed the fee until it 
has satisfied applicable technological requirements necessary to 
commence operations on NYSE Arca. See id.
    \7\ 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. 61588 (February 25, 2010).
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ORF Revenue and Monitoring of ORF
    Exchange rules establish that the Exchange may only increase or 
decrease the ORF semi-annually, that any such fee change will be 
effective on the first business day of February or August, and that 
market participants must be notified of any such change via Trader 
Update at least 30 calendar days prior to the effective date of the 
change.\8\
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    \8\ See Fee Schedule, supra note 5.
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    Because the ORF is based on options transactions volume, ORF 
revenue to the Exchange is variable. For example, if options 
transactions reported to OCC in a given month increase, the ORF 
collected from OTP Holders or OTP Firms will increase as well. 
Similarly, if options transactions reported to OCC in a given month 
decrease, the ORF collected from OTP Holders or OTP Firms will decrease 
as well. Accordingly, the Exchange monitors the amount of revenue 
collected from the ORF to ensure that this revenue does not exceed 
regulatory costs. If the Exchange determines regulatory revenues exceed 
regulatory costs, the Exchange will adjust the ORF by submitting a fee 
change filing to the Securities and Exchange Commission (the 
``Commission'').
OIP and Current Proposal
    In July 2019, the Exchange filed to lower the ORF to $0.0054 (from 
$0.0055) per contract side for the remainder of 2019 in response to 
increased options transaction volumes in 2018, which reverted (in part) 
in the first half of 2019 (the ``July ORF Filing'').\9\ However, on 
August 30, 2019, the Commission issued the Suspension of and Order 
Instituting Proceedings to Determine Whether to Approve or Disapprove a 
Proposed Rule Change to Modify the Options Regulatory Fee (the 
``OIP'').\10\ As a result of the OIP, on August 30, 2019, the last 
trading day of the month, the ORF reverted back to $0.0055 (from 
$0.0054).
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    \9\ See Securities Exchange Act Release No. 86390 (July 16, 
2019), 84 FR 35169 (July 22, 2019) (SR-NYSEArca-2019-49).
    \10\ See Securities and Exchange Release No. 86832 (August 30, 
2019) (SR-NYSEArca-2019-49).
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    To ensure consistency of ORF assessments for the full month of 
August 2019, the Exchange proposes to modify the Fee Schedule to 
specify that the amount of ORF that will be collected by the Exchange 
for the trading day of August 30, 2019 will be $0.0054 per contract 
side (the ``August 30th ORF Rate'').\11\ The Exchange believes that 
revenue generated from the ORF, including the August 30th ORF Rate, 
will continue to cover a material portion, but not all, of the 
Exchange's regulatory costs.
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    \11\ See proposed Fee Schedule, NYSE Arca GENERAL OPTIONS and 
TRADING PERMIT (OTP) FEES, Regulatory Fees, Options Regulatory Fee. 
This proposal is not intended to be responsive to the issues raised 
in the OIP, but to instead address the immediate issue of billing 
for August 30th.
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    Per the current Fee Schedule, the Exchange is required to notify 
participants via a Trader Update of any change in the amount of the fee 
at least 30 calendar days prior to the effective date of the change; 
\12\ however, given the OIP, the Exchange proposes to modify this 
requirement with the following caveat: ``except in the case of the 
August 30th ORF rate change.'' \13\
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    \12\ See Fee Schedule, NYSE Arca GENERAL OPTIONS and TRADING 
PERMIT (OTP) FEES, Regulatory Fees, Options Regulatory Fee.
    \13\ See proposed Fee Schedule, NYSE Arca GENERAL OPTIONS and 
TRADING PERMIT (OTP) FEES, Regulatory Fees, Options Regulatory Fee.
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    For avoidance of doubt, the Exchange notes that the August 30th 
Rate applies for that day only and as a result of the OIP, the ORF 
effective September 3, 2019 will be $0.0055--the rate in place prior to 
the (now suspended) July ORF Filing.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) \14\ of the Act, in general, and 
Section 6(b)(4) and (5) \15\ 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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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable
    The Exchange believes the proposed August 30th ORF Rate is 
reasonable because it would help maintain fair and orderly markets and 
benefit investors and the public interest because it would ensure 
transparency and consistency of ORF for August 2019. Specifically, the 
proposal would ensure that the amount of ORF collected by the Exchange 
for the trading day of August 30, 2019 will be the same rate collected 
on every other trading day in August (i.e., $0.0054 per contract side). 
The Exchange believes this will avoid disruption to its OTP Holders and 
OTP Firms that are subject to the ORF. As noted above, the Exchange may 
only use regulatory funds such as ORF ``to fund the legal, regulatory, 
and surveillance operations'' of the Exchange.\16\
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    \16\ See supra note 4.
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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 August 30th ORF Rate 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. Because the ORF is collected from 
OTP Holder or OTP Firm clearing firms by the OCC on behalf of NYSE 
Arca, the Exchange believes that using options transactions in the 
Customer range serves as a proxy for how to apportion regulatory costs 
among such OTP Holders or OTP Firms. In addition, the

[[Page 49358]]

Exchange notes that the regulatory costs relating to monitoring OTP 
Holders or OTP Firms with respect to Customer trading activity are 
generally higher than the regulatory costs associated with OTP Holders 
or OTP Firms that do not engage in Customer trading activity, which 
tends to be more automated and less labor-intensive. By contrast, 
regulating OTP Holders or OTP Firms 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 or OTP Firm's relationship with its Customers via more 
labor-intensive exam-based programs. 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 or OTP Firm 
proprietary transactions) of its regulatory program. Thus, the Exchange 
believes the August 30th ORF (like the rate assessed for every other 
trading day in August 2019) would be equitably allocated in that it is 
charged to all OTP Holders or OTP Firms on all their transactions that 
clear in the Customer range at the OCC.
The Proposed Fee Is Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory. The Exchange believes that the proposed August 30th ORF 
Rate 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. Because the ORF is collected from OTP Holder or OTP 
Firm clearing firms by the OCC on behalf of NYSE Arca, the Exchange 
believes that using options transactions in the Customer range serves 
as a proxy for how to apportion regulatory costs among such OTP Holders 
or OTP Firms. In addition, the Exchange notes that the regulatory costs 
relating to monitoring OTP Holders or OTP Firms with respect to 
Customer trading activity are generally higher than the regulatory 
costs associated with OTP Holders or OTP Firms that do not engage in 
Customer trading activity, which tends to be more automated and less 
labor-intensive. By contrast, regulating OTP Holders or OTP Firms 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 or OTP Firm's relationship with 
its Customers via more labor-intensive exam-based programs. 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 or OTP Firm proprietary transactions) of its 
regulatory program. Thus, the Exchange believes the August 30th ORF 
Rate (like the rate assessed for every other trading day in August 
2019), is not unfairly discriminatory because it is charged to all OTP 
Holders or OTP Firms on all their transactions that clear in the 
Customer range at the OCC.

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. 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 fee 
change would not impose an undue burden on competition as it is charged 
to all OTP Holders or OTP Firms 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 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. In addition, because the ORF is collected from OTP 
Holder or OTP Firm clearing firms by the OCC on behalf of NYSE Arca, 
the Exchange believes that using options transactions in the Customer 
range serves as a proxy for how to apportion regulatory costs among 
such OTP Holders or OTP Firms.
    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 regulatory revenues do not exceed total 
regulatory costs.

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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-NYSEArca-2019-64 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 No. SR-NYSEArca-2019-64. 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

[[Page 49359]]

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 No. SR-NYSEArca-2019-64, and should be submitted 
on or before October 10, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-20221 Filed 9-18-19; 8:45 am]
 BILLING CODE 8011-01-P