Document ID: SEC-2018-0656-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2018-04-26T04:00Z

[Federal Register Volume 83, Number 81 (Thursday, April 26, 2018)]
[Notices]
[Pages 18374-18376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-08725]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83074; File No. SR-NYSEArca-2018-24]

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

April 20, 2018.
    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 April 12, 2018, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Options Fee Schedule 
(``Fee Schedule''). The Exchange proposes to implement the fee change 
effective April 12, 2018.\4\ 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.
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    \4\ The Exchange originally filed to amend the Fee Schedule on 
April 2, 2018 (SR-NYSEArca-2018-21) and withdrew and re-filed on 
April 3, 2018 (SR-NYSEArca-2018-22).
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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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to modify the Fee Schedule to adopt a 
prepayment incentive program for Floor Broker organizations (each a 
``Floor Broker'').
    Currently, Floor Brokers that operate on the Exchange incur certain 
monthly fixed costs that rarely change from month-to-month (and, in 
some cases, year-to-year). Floor Brokers receive an invoice from the 
Exchange each month for the fixed cost incurred the prior month. The 
Exchange proposes to offer Floor Brokers a 10% discount on their 
``Eligible Fixed Costs'' (described in the table below) if Floor 
Brokers prepay such costs for the remaining nine months of 2018 --i.e., 
April through December (the ``FB Prepay Program'' or ``Program'').\5\
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    \5\ To participate in the FB Prepay Program, Floor Broker 
organizations would have to notify the Exchange in writing by 
emailing [email protected], indicating a commitment to submit 
prepayment, by no later than April 13, 2018. The email to enroll in 
the Program would have to originate from an officer of the Floor 
Broker organization and, except as provided for below, represents a 
binding commitment through the end of 2018. To participate in the 
Program, pre-payment for the balance of the year must be received by 
the close of business on April 30, 2018. See proposed Fee Schedule, 
NYSE Arca OPTIONS: FLOOR and EQUIPMENT and CO-LOCATION FEES, FLOOR 
BROKER FIXED COST PREPAYMENT INCENTIVE PROGRAM.

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                         Eligible Fixed Costs
OTP trading participant rights.
Floor Broker order capture device--market data fees.
Floor booths.
Telephones.
Options floor access fee.
Wire services.
Vendor equipment room/cabinet fee.
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    A Floor Broker that commits to the proposed Program would be 
invoiced in April 2018 for its estimated Eligible

[[Page 18375]]

Fixed Costs, through the end of 2018, less 10%. The estimated Eligible 
Fixed Costs for April through December 2018 for each participating 
Floor Broker would be based on that Floor Broker's February 2018 
invoice for such costs. For example, if a participating Floor Broker 
incurred $6,000 in Eligible Fixed Costs in February 2018, that Floor 
Broker would be invoiced in April 2018 in the amount of $48,600 to 
prepay such costs for the balance of the year (i.e., $54,000 (to pre-
pay Eligible Fixed Costs for April through December) minus $5,400 (10% 
discount) equals $48,600).
    The Exchange also proposes to offer participants in the FB Prepay 
Program the opportunity to qualify for larger discounts (i.e., more 
than 10% of the remaining of 2018 Eligible Fixed Costs) through the 
Percentage Growth Incentive (the ``Incentive''), which is designed to 
encourage Floor Brokers to increase their average daily volume 
(``ADV'') in billable manual contract sides by certain percentages 
(correlated with Tiers) as measured against one of two benchmarks.\6\ 
Specifically, to qualify for the Incentive, a participating Floor 
Broker must increase its manual billable ADV in contract sides during 
the final nine months of 2018 (i.e., April through December) by 
percentages (set forth below) above the greater of:
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    \6\ The Percentage Growth Incentive would exclude Customer 
volume, Firm Facilitation and Broker Dealer facilitating a Customer 
trades, and QCCs. Any volume calculated to achieve the Firm and 
Broker Dealer Monthly Fee Cap and the Limit of Fees on Options 
Strategy Executions (``Strategy Cap''), regardless of whether either 
of these caps is achieved, will likewise be excluded from the 
Percentage Growth Incentive because fees on such volume are already 
capped and therefore such volume does not increase billable manual 
volume. See id.
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    i. 10,000 Contract sides in billable manual ADV; or
    ii. The Floor Broker's total billable manual ADV in contract sides 
during the second half of 2017--i.e., July through December 2017.
    As proposed, a participating Floor Broker would qualify for the 
proposed Incentive by executing, in the final nine months of 2018, ADV 
growth in manual billable contract sides that is 30%, 65%, or 100% over 
the greater of (i) 10,000 contract sides ADV; or (ii) their ADV during 
the second half of 2017 (i.e., June through December). For example, a 
Floor Broker that is new to the Exchange (or one that did not execute 
at least 10,000 contract sides in billable manual ADV in the second 
half of 2017) would have the ability to qualify for the Incentive by 
executing at least 10,000 contract sides in manual billable ADV 
increased by the specified percentages. Such a Floor Broker would 
qualify for each Tier, respectively, by executing billable manual ADV 
in contract sides of 13,000 (Tier 1), 16,500 (Tier 2), and 20,000 (Tier 
3) during April through December 2018.
    Similarly, a Floor Broker that executed 50,000 billable manual ADV 
in the second half of 2017, would qualify for each Tier, respectively, 
by executing ADV in contracts sides of 65,000 (Tier 1), 82,500 (Tier 
2), and 100,000 (Tier 3) during April through December 2018.
    The total rebate available for achieving each Tier is the same 
regardless of whether the Floor Broker relied on its second half of 
2017 volume or the minimum 10,000 ADV contract sides as the benchmark. 
As proposed, Floor Brokers that earn the Percentage Growth Incentive 
would receive their 2018 rebate in January 2019.\7\
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    \7\ The Exchange would not issue any refunds in the event that a 
Floor Broker's prepaid Eligible Fixed Costs exceeds such actual 
costs for the nine month period. See id.
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    The Exchange proposes to specify the proposed Incentive on the Fee 
Schedule with the following table:
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    \8\ Participants in the FB Prepay Program that qualify for Tier 
3 (i.e., increased 2018 volume (from April through December) by 100% 
over the Floor Broker's volume from the second half of 2017, or the 
10,0000 ADV in contract sides) would be rebated the greater of 100% 
of their pre-paid Eligible Fixed Costs, or $10,000/month for April 
through December 2018. See id.

                    FB Prepayment Program Incentives
   [based on ADV in contract sides between April 1--December 31, 2018]
------------------------------------------------------------------------
                                                        Total percentage
                                                          reduction of
                                    Percentage growth    eligible fixed
               Tier                     incentive       costs for April-
                                                         December 2018
 
------------------------------------------------------------------------
Tier 1............................                 30                 40
Tier 2............................                 65                 75
Tier 3............................                100            \8\ 100
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    The Exchange is not proposing any other changes to the Fee Schedule 
at this time.
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 proposal to introduce the FB Prepayment Program is reasonable, 
equitable and not unfairly discriminatory for the following reasons. 
First, the Program is optional and Floor Brokers can elect to 
participate (or elect not to participate). In addition, the Exchange is 
offering two alternative means to achieve the same enhanced discount to 
ensure that Floor Brokers that are new to the Exchange (or Floor 
Brokers that did not execute more than 10,000 ADV in contract sides) 
could nonetheless participate in the Program. The Exchange believes 
that 10,000 ADV is a reasonable minimum threshold above which a 
participating Floor Broker would need to increase volume in order to 
realize the proposed Incentive (on a similar playing field with Floor 
Brokers that exceeded this volume requirement in 2017). For Floor 
Brokers that exceeded the 10,000 ADV in the second half of 2017, the 
Exchange believes it is reasonable to use each Floor Broker's 
historical volume as a benchmark against which to measure future growth 
to achieve the proposed Incentive.
    Moreover, the Exchange notes that prepayment programs such as the 
FB Prepay Program are not new or novel as other options exchanges 
provide incentives to other specific market participants for prepayment 
of certain Exchange fees/costs--including the

[[Page 18376]]

prepayment programs offered to market makers on NYSE American and the 
Chicago Board of Options Exchange (Cboe).\11\ Although these market 
maker prepay programs apply to transaction costs as opposed to fixed 
costs, the Exchange believes the proposed program would similarly 
incent Floor Brokers to increase their billable volume executed in open 
outcry on the Exchange, which would benefit all market participants by 
expanding liquidity and providing more trading opportunities, even to 
those market participants that have not committed to the Program. 
Regardless of which benchmark a participating Floor Broker's growth is 
measured against, all Floor Broker's [sic] that opt to participate 
would be required to increase volume executed on the Exchange in order 
to receive the enhanced discount. Thus, the Exchange believes the 
proposed Program, is reasonable, equitable and not unfairly 
discriminatory to others.
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    \11\ See NYSE American Fee Schedule, Section I.D. (Prepayment 
Program), available here, https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf; 
Cboe fee schedule, Liquidity Provider Sliding Scale, available here, 
http://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf.
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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. The Exchange believes that the proposed FB 
Prepayment Program may increase both inter-market and intra-market 
competition by incenting participants to direct their orders to the 
Exchange, which would enhance the quality of quoting and may increase 
the volume of contracts traded on the Exchange. To the extent that 
there is an additional competitive burden on non-Exchange participants, 
the Exchange believes that this is appropriate because the proposal 
should incent market participants to direct additional order flow to 
the Exchange, and thus provide additional liquidity that enhances the 
quality of its markets and increases the volume of contracts traded 
here. To the extent that this purpose is achieved, all of the 
Exchange's market participants should benefit from the improved market 
liquidity. Enhanced market quality and increased transaction volume 
that results from the anticipated increase in order flow directed to 
the Exchange would benefit all market participants and improve 
competition on the Exchange.
    Given the robust competition for volume among options markets, many 
of which offer the same products, implementing programs to attract 
order flow, such as the proposed FB Prepayment Program, are consistent 
with the above-mentioned goals of the Act.
    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues. In 
such an environment, the Exchange must continually review, and consider 
adjusting, its fees and credits to remain competitive with other 
exchanges. For the reasons described above, the Exchange believes that 
the proposed rule change reflects this competitive environment.

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) \12\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \13\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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) \14\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \14\ 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-2018-24 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca2018-24. 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 such 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-2018-24, and should be 
submitted on or before May 17, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-08725 Filed 4-25-18; 8:45 am]
BILLING CODE 8011-01-P