Document ID: SEC-2020-1684-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE American, LLC
Posted Date: 2020-10-21T04:00Z

[Federal Register Volume 85, Number 204 (Wednesday, October 21, 2020)]
[Notices]
[Pages 67069-67072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23254]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90193; File No. SR-NYSEAMER-2020-76]

Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Change To Amend the NYSE 
American Options Fee Schedule

October 15, 2020.
    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 October 9, 2020, NYSE American LLC (``NYSE American'' 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 American Options Fee 
Schedule (``Fee Schedule'') regarding the Strategy Execution Fee Cap. 
The Exchange proposes to implement the fee change effective October 9, 
2020.\4\ The proposed 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 
October 1, 2020. (SR-NYSEAMER-2020-72) and withdrew such filing on 
October 9, 2020.
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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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to amend the Fee Schedule to modify 
the Strategy Execution Fee Cap (``Strategy Cap''), effective October 9, 
2020.
    Currently, the Fee Schedule provides that transaction fees for ATP 
Holders are limited or capped at $1,000 for certain options strategy 
executions ``on the same trading day,'' meaning it is a daily fee 
cap.\5\ Strategy executions that qualify for the Strategy Cap are (a) 
reversals and conversions, (b) box spreads, (c) short stock interest 
spreads, (d) merger spreads, and (e) jelly rolls, which are described 
in detail in the Fee Schedule (the ``Strategy Executions'').\6\
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    \5\ See Fee Schedule, Section I.J., Strategy Execution Fee Cap, 
available here: https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf. Any 
reversal and conversion strategy executed as a QCC order is eligible 
for this cap; however, any other strategy executed as a QCC order is 
excluded from this fee cap. See id.
    \6\ See id.
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    The Exchange proposes to modify the Strategy Cap to offer a lower 
cap of $200 for those ATP Holders that trade at least 25,000 monthly 
billable contract sides in Strategy Executions.\7\ Thus, at the end of 
the month, qualifying ATP Holders would have transaction fees for their 
Strategy Executions for each day of the month capped at $200 (as 
opposed to $1,000 for non-qualifying ATP Holders).\8\
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    \7\ See proposed Fee Schedule, Section I.J., Strategy Execution 
Fee Cap.
    \8\ See id.
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    For example, assume an ATP Holder executes the following Strategy 
Executions against interest in the Trading Crowd on the third business 
day of the month on behalf of a non-Customer that is not a Specialist 
or e-Specialist, which participants are subject to a $0.25 per Manual 
transaction fee. Under the current Fee Schedule an ATP Holder would be 
charged a total of $1,000 in options fees, per the daily fee cap:
     Trade 1: A Reversal Conversion in DEF comprised of 3,000 
call options against 3,000 put options would be $1,500 (at $0.25 per 
execution), absent the $1,000 Strategy Cap.
     Trade 2: A Reversal Conversion in ABC comprised of 1,000 
call options against 1,000 put options would be $500 (at $0.25 per 
execution), absent the Strategy Cap. However, because the ATP Holder 
reached the daily cap (with Trade 1), the ATP Holder would not be 
charged for these transactions.
    However, if, in addition to the two trades above, the ATP Holder 
executes a ``jelly roll'' consisting of 5,000 October puts and 5,000 
October calls against 5,000 November calls and 5,000 November puts on 
the fifteenth business day of the month, the total fees for these 
qualifying Strategy Executions under the proposed Fee Schedule would be 
capped at $200 for this trading day, given that the total number of 
contracts on day three and day fifteen is above minimum 25,000 billable 
contract sides threshold. Similarly, having met this threshold, the 
fees charged on Trades 1 and 2 that were executed on the third business 
day would likewise be capped at $200. Thus, the fees for each of the 
third and fifteenth trading day would be capped at $200 each, for a 
monthly total of $400 for Strategy Executions.
    The Exchange's fees are constrained by intermarket competition, as 
ATP Holders may direct their order flow to any of the 16 options 
exchanges, including those with similar Strategy Fee Caps.\9\ Thus, ATP 
Holders have a choice of where they direct their order flow. This 
proposed change is designed to incent ATP Holders to increase their 
Strategy Execution volumes by executing (often smaller) strategies that 
are not necessarily economically viable on a per symbol basis, but 
which may be profitable when fees on Strategy Executions--regardless of 
symbol--are

[[Page 67070]]

capped for the trading day. The Exchange notes that all market 
participants stand to benefit from increased volume, which promotes 
market depth, facilitates tighter spreads and enhances price discovery, 
and may lead to a corresponding increase in order flow from other 
market participants.
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    \9\ See e.g., Cboe fee schedule, footnote 13. Cboe caps fees for 
each participant at $0.00 for the following strategies executed on 
the same trading day: Short stock interest, reversal, conversion, 
jelly roll, and merger strategies.
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    The Exchange cannot predict with certainty whether any, or how 
many, ATP Holders would avail themselves of this proposed fee change. 
The Exchange believes that ATP Holders that execute Strategy Executions 
on the Exchange can achieve the proposed 25,000 minimum contract sides 
threshold to qualify for the proposed (reduced) Strategy Cap and this 
proposal may encourage ATP Holders to execute (and aggregate) Strategy 
Executions on the Exchange, which order flow would enhance price 
discovery.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 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.'' \12\
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    \12\ 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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    The Exchange is only one of 16 options venues to which market 
participants may direct their order flow. Based on publicly available 
information, no single options exchange has more than 16% of the market 
share of executed volume of multiply-listed equity and ETF options 
trades.\13\ Therefore, no exchange possesses significant pricing power 
in the execution of multiply-listed equity & ETF options order flow. 
More specifically, since August 2019, the Exchange has had less than 9% 
market share of executed volume of multiply-listed equity & ETF options 
trades.\14\
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    \13\ 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/volume/default.jsp.
    \14\ Based on OCC data, see id., the Exchange's market share in 
equity-based options increased from 7.73% for the month of August 
2019 to 8.18% for the month of August 2020.
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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 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 modification to the 
Strategy Cap is reasonable because it is designed to incent ATP Holders 
to increase their Strategy Executions submitted to and executed on the 
Exchange's Trading Floor. The Exchange offers a hybrid market system 
and aims to balance incentives for its ATP Holders to continue to 
contribute to deep liquid markets for investors on both its electronic 
and open outcry platforms. The Exchange notes that all market 
participants stand to benefit from any increase in volume transacted on 
the Trading Floor, which promotes market depth, facilitates tighter 
spreads and enhances price discovery, and may lead to a corresponding 
increase in order flow from other market participants.
    To the extent that the proposed change attracts more Strategy 
Executions to the Exchange, this increased (open outcry) order flow 
would continue to make the Exchange a more competitive venue for order 
execution, which, in turn, promotes just and equitable principles of 
trade and removes impediments to and perfects the mechanism of a free 
and open market and a national market system.
    Finally, to the extent the proposed change continues to attract 
greater volume and liquidity, 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 Exchange's fees are constrained by intermarket 
competition, as ATP Holders may direct their order flow to any of the 
16 options exchanges, including those with similar Strategy Fee 
Caps.\15\ Thus, ATP Holders have a choice of where they direct their 
order flow--including their Strategy Executions. The proposed rule 
change is designed to incent ATP Holders to direct liquidity, and 
specifically Strategy Executions, to the Exchange, thereby promoting 
market depth, price discovery and improvement and enhancing order 
execution opportunities for market participants.
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    \15\ See supra note 9 (regarding Cboe Strategy Cap).
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    The Exchange cannot predict with certainty whether any, or how 
many, ATP Holders would avail themselves of this proposed fee change. 
The Exchange cannot predict with certainty whether any, or how many, 
ATP Holders would avail themselves of this proposed fee change. [sic] 
The Exchange believes that ATP Holders that execute Strategy Executions 
on the Exchange can achieve the proposed 25,000 minimum contract sides 
threshold to qualify for the proposed (reduced) Strategy Cap and this 
proposal may encourage ATP Holders to execute (and aggregate) Strategy 
Executions on the Exchange, which order flow would enhance price 
discovery.
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 ATP Holders can opt 
to avail themselves of the Strategy Cap or not. The proposed Strategy 
Cap, as modified. [sic] applies to all qualifying Strategy Executions 
transacted on the Trading Floor. The Exchange believes that the 
proposed change would facilitate the execution of orders via open 
outcry, thus enhancing price discovery as a result of increased 
liquidity. Moreover, the proposal is designed to encourage ATP Holders 
to aggregate all Strategy Executions at the Exchange as a primary 
execution venue. To the extent that the proposed change attracts more 
Strategy Executions to the Exchange, this increased order flow would 
continue to make the Exchange a more competitive venue for order 
execution. Thus, the

[[Page 67071]]

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 it is not unfairly discriminatory to modify 
the Strategy Cap because the proposed modification would be available 
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 ATP Holders are not obligated to try to achieve the 
modified Strategy Cap, nor are they obligated to execute any Strategy 
Executions. Rather, the proposal is designed to encourage ATP Holders 
to utilize the Exchange as a primary trading venue for Strategy 
Executions (if they have not done so previously) or increase volume 
sent to the Exchange. To the extent that the proposed change attracts 
more Strategy Executions to the Exchange, this increased order flow 
would continue to make the Exchange a more competitive venue for, among 
other things, 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.
    For the foregoing reasons, the Exchange believes that the proposal 
is consistent with the Act.

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.'' \16\
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    \16\ See Reg NMS Adopting Release, supra note 12, at 37499.
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    Intramarket Competition. The proposed change is designed to attract 
additional order flow (particularly Strategy Executions) to the 
Exchange. The Exchange believes that the proposed modification to the 
Strategy Cap would incent market participants to direct their Strategy 
Execution volume to the Exchange. Greater liquidity benefits all market 
participants on the Exchange and increased Strategy Executions would 
increase opportunities for execution of other trading interest. The 
proposed reduced Strategy Cap would be available to all similarly-
situated market participants that incur transaction fees on Strategy 
Executions, and, as such, 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.\17\ Therefore, no 
exchange possesses significant pricing power in the execution of 
multiply-listed equity & ETF options order flow. More specifically, in 
the second quarter of 2020, the Exchange had less than 9% market share 
of executed volume of multiply-listed equity & ETF options trades.\18\
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    \17\ See supra note 13.
    \18\ Based on OCC data, see supra note 14, the Exchange's market 
share increased from 7.73% for the month of August 2019 to 8.18% for 
the month of August 2020.
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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 encourage ATP Holders to direct trading interest 
(particularly Strategy Executions) 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.
    The Exchange believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
those that currently offer similar Strategy Caps, by encouraging 
additional orders to be sent to the Exchange for execution.

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) \19\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \20\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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) \21\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \21\ 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:

[[Page 67072]]

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 Number SR-NYSEAMER-2020-76 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-NYSEAMER-2020-76. 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-NYSEAMER-2020-76, and should be 
submitted on or before November 12, 2020.
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    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-23254 Filed 10-20-20; 8:45 am]
BILLING CODE 8011-01-P