Document ID: SEC-2023-0625-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2023-06-15T04:00Z

[Federal Register Volume 88, Number 115 (Thursday, June 15, 2023)]
[Notices]
[Pages 39314-39317]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12755]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97682; File No. SR-NYSEARCA-2023-41]

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

June 9, 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 June 1, 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 credits for Qualified Contingent Cross 
(``QCC'') transactions. The Exchange proposes to implement the fee 
change effective June 1, 2023. 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 a 
credit offered to qualifying Submitting Brokers for QCC 
transactions.\4\ The Exchange proposes to implement the rule change on 
June 1, 2023.
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    \4\ A QCC Order is defined as an originating order to buy or 
sell at least 1,000 contracts that is identified as being part of a 
qualified contingent trade coupled with a contra-side order or 
orders totaling an equal number of contracts. See Rule 6.62P-
O(g)(1)(A).
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    Currently, the Exchange offers Submitting Brokers a credit of 
($0.22) per contract for Non-Customer vs. Non-Customer QCC transactions 
or ($0.16) per contract for Customer vs. Non-Customer QCC 
transactions.\5\ QCC executions in which a Customer is on both sides of 
the QCC trade are not eligible for a credit.\6\ In addition, Submitting 
Brokers who achieve 3 million QCC contracts in a month currently 
receive an additional ($0.02) credit on Customer vs. Non-Customer QCC 
transactions, and an additional ($0.06) credit on Non-Customer vs. Non-
Customer QCC transactions.
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    \5\ See Fee Schedule, QUALIFIED CONTINGENT CROSS (``QCC'') 
TRANSACTION FEES AND CREDITS.
    \6\ See id.
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    The Exchange now proposes to increase the credit on Non-Customer 
vs. Non-Customer QCC transactions for those Submitting Brokers that 
achieve the 3 million monthly QCC contract requirement from ($0.06) to 
($0.08).\7\ The proposed ($0.08) credit will continue to be applicable 
back to the first QCC contract executed by a Submitting Broker in a 
month and will not be cumulative across tiers.\8\ Although the Exchange 
cannot predict with certainty whether the proposed change would 
encourage Submitting Brokers to increase their QCC volume, the proposed 
change is intended to continue to incentivize additional QCC executions 
by Submitting Brokers by increasing the credits available on certain 
such orders.
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    \7\ The Exchange notes that the proposed change does not impact 
the applicability of Endnote 17, which provides that Submitting 
Broker QCC credits and Floor Broker rebates earned through the 
Manual Billable Rebate Program may not combine to exceed $2,000,000 
per month per firm. See Fee Schedule, Endnote 17.
    \8\ The Exchange currently offers an additional ($0.01) credit 
on Customer vs. Non-Customer QCC transactions and an additional 
($0.03) credit on Non-Customer vs. Non-Customer QCC transactions to 
Submitting Brokers that achieve 1.5 million QCC contracts in a 
month. The Exchange does not propose any changes to these credits or 
qualifying requirements. As is currently the case, the additional 
QCC credits available to Submitting Brokers that achieve 1.5 million 
QCC contracts in a month and those available to Submitting Brokers 
that achieve 3 million QCC contracts in a month are not cumulative 
across qualifying tiers. For example, a Submitting Broker who 
transacts 3.1 million QCC contracts in a month would be eligible for 
an additional ($0.08) credit on Non-Customer vs. Non-Customer QCC 
transactions, as proposed, but would not also earn the additional 
credits offered to Submitting Brokers that achieve 1.5 million QCC 
contracts in a month.
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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 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.'' \11\
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    \11\ 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.\12\ Therefore, no exchange possesses

[[Page 39315]]

significant pricing power in the execution of multiply-listed equity 
and ETF options order flow. More specifically, in April 2023, the 
Exchange had less than 13% 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 
decreased from 12.94% for the month of April 2022 to 12.54% for the 
month of April 2023.
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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 change is reasonable 
because it is designed to incent OTP Holders to increase the number of 
QCC transactions sent to the Exchange by offering an increased credit 
on QCC transactions for Submitting Brokers that meet a requisite volume 
threshold. In addition, the Exchange believes it is reasonable to offer 
a higher additional credit on Non-Customer vs. Non-Customer QCC 
transactions than on Customer vs. Non-Customer QCC transactions because 
Non-Customer vs. Non-Customer QCC transactions are billable on both 
sides, whereas Customer vs. Non-Customer QCC transactions are billable 
on one side only. To the extent that the proposed change attracts more 
volume to the Exchange, this increased 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. The Exchange notes that all market 
participants stand to benefit from any increase in volume entered by 
Submitting Brokers, which could promote market depth, facilitate 
tighter spreads and enhance price discovery, to the extent the proposed 
change encourages OTP Holders to utilize the Exchange as a primary 
trading venue, and may lead to a corresponding increase in order flow 
from other market participants.
    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 OTP Holders may direct their order flow to any of the 
16 options exchanges, including those offering rebates on QCC 
transactions.\14\ The proposed rule change is designed to continue to 
incent OTP Holders to direct liquidity and, in particular, QCC 
transactions to the Exchange. In addition, to the extent OTP Holders 
are incentivized to aggregate their trading activity at the Exchange, 
that increased liquidity could promote market depth, price discovery 
and improvement, and enhanced order execution opportunities for market 
participants.
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    \14\ See, e.g., EDGX Options Exchange Fee Schedule, QCC 
Initiator/Solicitation Rebate Tiers (applying ($0.14) per contract 
rebate up to 999,999 contracts for QCC transactions when only one 
side of the transaction is a non-customer or ($0.22) per contract 
rebate up to 999,999 contracts for QCC transactions with non-
customers on both sides); BOX Options Fee Schedule at Section 
IV.D.1. (QCC Rebate) (providing for ($0.14) per contract rebate up 
to 1,499,999 contracts for QCC transactions when only one side of 
the QCC transaction is a broker-dealer or market maker or ($0.22) 
per contract rebate up to 1,499,999 contracts for QCC transactions 
when both parties are a broker-dealer or market maker); Nasdaq ISE, 
Options 7, Section 6.B. (QCC Rebate) (offering rebates on QCC 
transactions of ($0.14) per contract when only one side of the QCC 
transaction is a non-customer or ($0.22) per contract when both 
sides of the QCC transaction are non-customers).
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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 proposed change is based on the 
amount and type of business transacted on the Exchange, and Submitting 
Brokers can attempt to submit QCC transactions to earn the additional 
credit or not. In addition, the proposed credit is equally available to 
all qualifying Submitting Brokers. To the extent the proposed change 
continues to incent Submitting Brokers to direct increased liquidity to 
the Exchange, all market participants would benefit from enhanced 
opportunities for price improvement and order execution. Moreover, the 
proposed credit is designed to incent Submitting Brokers to encourage 
OTP Holders to aggregate their executions--including QCC transactions--
at the Exchange as a primary execution venue. To the extent that the 
proposed change achieves its purpose in attracting more volume 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 Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes the proposed change is not unfairly 
discriminatory because the proposed credit on QCC transactions would be 
available to all qualifying Submitting Brokers on an equal and non-
discriminatory basis. The proposed change is based on the amount and 
type of business transacted on the Exchange, and Submitting Brokers are 
not obligated to execute QCC transactions. Rather, the proposal is 
designed to encourage Submitting Brokers to increase QCC volume sent to 
the Exchange and to utilize the Exchange as a primary trading venue for 
all transactions (if they have not done so previously). To the extent 
that the proposed change attracts more QCC transactions 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, 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

[[Page 39316]]

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.'' \15\
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    \15\ See Reg NMS Adopting Release, supra note 11, at 37499.
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    Intramarket Competition. The proposed change is designed to attract 
additional QCC transactions to the Exchange, which could increase the 
volumes of contracts traded on the Exchange. Greater liquidity benefits 
all market participants on the Exchange, and increased QCC transactions 
could increase opportunities for execution of other trading interest. 
The proposed credit would be available to all similarly-situated 
Submitting Brokers that execute QCC trades and achieve the applicable 
volume threshold.
    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.\16\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. More specifically, 
in April 2023, the Exchange had less than 13% market share of executed 
volume of multiply-listed equity and ETF options trades.\17\
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    \16\ 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.
    \17\ 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 
decreased from 12.94% for the month of April 2022 to 12.54% for the 
month of April 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 trading 
interest (particularly QCC transactions) to the Exchange, to provide 
liquidity and to attract order flow. To the extent that Submitting 
Brokers are incentivized to utilize the Exchange as a primary trading 
venue for all transactions, all of the Exchange's market participants 
should benefit from the improved market quality and increased 
opportunities for price improvement.
    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. The 
Exchange further believes that the proposed changes could promote 
competition between the Exchange and other execution venues, including 
those that currently offer credits on QCC transactions, by encouraging 
additional orders (and, in particular, QCC transactions) to be sent to 
the Exchange for execution.\18\
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    \18\ See note 14, supra.
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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:

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-2023-41 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-2023-41. 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

[[Page 39317]]

SR-NYSEARCA-2023-41 and should be submitted on or before July 6, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12755 Filed 6-14-23; 8:45 am]
BILLING CODE 8011-01-P