Document ID: SEC-2022-0190-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2022-02-07T05:00Z

[Federal Register Volume 87, Number 25 (Monday, February 7, 2022)]
[Notices]
[Pages 6910-6913]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-02428]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94125; No. SR-NYSEArca-2022-05]

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

February 1, 2022.
    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 January 25, 2022, 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 
(the ``Fee Schedule'') regarding eligibility for certain tiers, 
incentives, and discounts during the Exchange's migration to a new 
trading platform. The Exchange proposes to implement the fee change 
effective January 25, 2022. 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 provide 
OTP Holders and OTP Firms (collectively, ``OTP Holders'') with 
certainty regarding their eligibility for certain tiers, incentives, 
and discounts during the Exchange's migration to a new electronic 
trading platform, as an effort to mitigate fees during this transition 
period.
    Currently, the Exchange conducts options trading on an electronic 
platform known as ``OX.'' OX refers to the Exchange's electronic order 
delivery, execution, and reporting system for designated option issues 
through which orders and quotes of Users are consolidated for execution 
and/or display.\4\ On or about February 7, 2022, the Exchange 
anticipates beginning the migration of its options trading to a new 
technology platform known as Pillar.\5\
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    \4\ See NYSE Arca Rule 6.1A-O(a)(13).
    \5\ The Exchange has announced that, pending regulatory 
approval, it will begin migrating Exchange-listed options to Pillar 
on February 7, 2022, available here: https://www.nyse.com/trader-update/history#110000322291. See also Securities Exchange Act 
Release No. 92304 (June 30, 2021), 86 FR 36440 (July 9, 2021) (SR-
NYSEArca-2021-47) (Notice of Filing of Proposed Rule Change for New 
Rules 6.1P-O, 6.37AP-O, 6.40P-O, 6.41P-O, 6.62P-O, 6.64P-O, 6.76P-O, 
and 6.76AP-O and Amendments to Rules 1.1, 6.1-O, 6.1A-O, 6.37-O, 
6.65A-O and 6.96-O) and Amendment No. 4 to SR-NYSEArca-2021-47, 
available here: https://www.sec.gov/comments/sr-nysearca-2021-47/srnysearca202147-20112491-265389.pdf.
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    The Exchange currently offers various volume- and performance-based 
incentives and discounts to encourage OTP Holders to use the Exchange 
as their primary venue for order routing and execution and for market 
making activity. Many of these incentive and discount programs include 
multiple tiers, which are intended to encourage greater participation 
in the programs and to incent OTP Holders to continually grow their 
business on the Exchange in order to qualify for the benefits offered 
in a higher tier.
    In advance of the Exchange's migration to the Pillar platform, the 
Exchange has noted concern among OTP Holders regarding their ability to 
achieve various volume qualifications and thresholds during the 
migration. Specifically, because OTP Holders may choose to moderate 
their order flow and quotation sizes to reduce risk as they familiarize 
themselves with the new trading platform, they may not achieve the 
tier(s), incentive(s), and discount(s)

[[Page 6911]]

they qualified for pre-migration. Accordingly, the Exchange believes 
that providing OTP Holders with certainty with respect to certain 
pricing they would receive during the transition to Pillar would 
provide OTP Holders with an opportunity to adjust to new functionality 
and new order handling mechanisms without taking on an additional 
financial burden.
    To this end, the Exchange proposes to amend Endnote 8 of the Fee 
Schedule to provide that for the month during which the Exchange 
commences its migration to the Pillar platform (the ``Migration 
Month''), OTP Holders will receive the tier(s), incentive(s), and 
discount(s) they achieved in the month prior to the Migration Month or 
the tier(s), incentive(s), and discount(s) achieved during the 
Migration Month, whichever are better. Specifically, the Exchange will 
compare an OTP Holder's performance in each of the programs set forth 
below during the Migration Month and during the month prior (currently 
anticipated to be January 2022) and will bill the OTP Holder for the 
Migration Month at the most favorable rates based on each qualification 
level achieved.
    The following tiers, incentives, and discount programs would be 
covered by the proposed change:

 Customer Penny Posting Credit Tiers
 Firm and Broker Dealer Penny Posting Credit Tiers
 Firm and Broker Dealer Incentive Program
 Non-Customer, Non-Penny Posting Credit Tiers
 Customer Incentive Program
 Customer Posting Credit Tiers in Non-Penny Issues
 Discount in Take Liquidity Fees for Professional Customer and 
Non-Customer Liquidity Removing Interest
 Market Maker Incentive For Penny Issues
 Market Maker Incentive For Non-Penny Issues
 Market Maker Incentives for SPY
 Market Maker Penny and SPY Posting Credit Tiers
 LMM Rights Fee Discount

    The Exchange believes that, to the extent OTP Holders choose to 
modify their trading activity during the Migration Month, the proposed 
change would mitigate the impact of potential pricing disruption by 
providing OTP Holders with certainty regarding the tier(s), 
incentive(s), and discount(s) they would be eligible for in the 
Migration Month, which would in turn encourage OTP Holders to continue 
to send orders and quotes to the Exchange during the transition to 
Pillar.
    In addition, by offering OTP Holders the better pricing of the 
month before the Migration Month or the Migration Month, the Exchange 
believes OTP Holders will be incented to take full advantage of new 
Pillar functionality and possibly even increase their volume and 
participation during the migration.
    The Exchange is not proposing any changes to the underlying tiers, 
incentives, or discounts covered by the proposed change described 
above.
    The Exchange proposes to implement this change effective January 
25, 2022.
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, currently no exchange possesses significant 
pricing power in the execution of multiply-listed equity & ETF options 
order flow. More specifically, in December 2021, the Exchange had less 
than 14% market share of executed volume of multiply-listed equity & 
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 ETF-based options, see 
id., the Exchange's market share in equity-based options increased 
from 9.65% for the month of December 2020 to 13.21% for the month of 
December 2021.
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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.
    The Exchange believes that the proposed change is reasonably 
designed to continue to incent OTP Holders to maintain active 
participation on the Exchange during the Pillar migration by offering 
OTP Holders pricing at each of the tier(s), incentive(s), and 
discount(s) they qualify for during either the Migration Month or in 
the month prior to the Migration Month, whichever is more favorable to 
the OTP Holder. The Exchange further believes that the proposed change 
would lessen the impact of the migration on OTP Holders by enabling 
them to adapt their trading activity as needed to transition to Pillar 
functionality during the Migration Month and would thus encourage OTP 
Holders to promptly transition to the more efficient Pillar platform.
    To the extent the proposed rule change encourages OTP Holders to 
migrate to the new platform while maintaining their level of trading 
activity, the Exchange believes the proposed change would sustain the 
Exchange's overall competitiveness and 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 mitigate the expense of the migration 
without affecting its competitiveness.
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 because it would be available to all 
OTP Holders. In addition, the proposal is based on each OTP Holder's 
activity levels before and during the Migration Month and would afford 
OTP Holders the flexibility to moderate their activity as needed during 
the Migration Month and still receive the more favorable rates between 
the tier(s), incentive(s), and discount(s) they achieve in the 
Migration Month or in

[[Page 6912]]

the month prior. Thus, the Exchange believes the proposed rule change 
would facilitate a smooth transition to the Pillar technology platform 
for all market participants on the Exchange by encouraging OTP Holders 
to send orders and quotes to the Exchange during the transition period, 
thereby improving market-wide quality.
The Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes the proposed rule change is not unfairly 
discriminatory because it would be available to all similarly-situated 
market participants on an equal and non-discriminatory basis.
    The proposal is based on an OTP Holder's achievement of tiers, 
incentives, and discounts prior to and during the Migration Month and 
would provide all OTP Holders with certainty that they would at least 
qualify for the same tier(s), incentive(s), and discount(s) as in the 
month prior to the Migration Month. The proposed change would thus 
allow OTP Holders to adjust their interactions with Exchange systems 
during the Migration Month as needed and take advantage of the new 
functionality offered by Pillar by mitigating the impact of potential 
pricing disruptions. Thus, to the extent the proposal encourages OTP 
Holders to maintain or increase their current level of activity on the 
Exchange, such activity would result in trading opportunities for 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 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.'' \11\
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    \11\ See Reg NMS Adopting Release, supra note 8, at 37499.
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    Intramarket Competition. The Exchange does not believe the proposed 
rule change would impose any burden on intramarket competition that is 
not necessary or appropriate because it would apply equally to all OTP 
Holders that submit orders and quotes electronically to the Exchange. 
All OTP Holders would be eligible to receive the rates under each of 
the tier(s), incentive(s), and discount(s) they achieved in the 
Migration Month or in the month prior to the Migration Month, whichever 
are better.
    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 & ETF options order flow. More specifically, in 
December 2021, the Exchange had less than 14% market share of executed 
volume of multiply-listed equity & ETF options trades.\13\
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    \12\ See supra note 9.
    \13\ Based on a compilation of OCC data for monthly volume of 
equity-based options and monthly volume of ETF-based options, see 
id., the Exchange's market share in equity-based options increased 
from 9.65% for the month of December 2020 to 13.21% for the month of 
December 2021.
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    The Exchange does not believe the proposed rule change would impose 
any burden on intermarket competition that is not necessary or 
appropriate because the Exchange operates in a highly competitive 
market in which market participants can readily choose to send their 
orders to other exchanges if they deem fee levels at those other venues 
to be more favorable. The Exchange believes that its fees are 
constrained by the robust competition for order flow among exchanges 
and thus believes that the proposed change is reasonably designed to 
encourage OTP Holders to transition to the Pillar platform while 
mitigating the risk of a significant change to the fees they would be 
subject to during the Migration Month. Accordingly, the Exchange 
believes that the proposed change would continue to make the Exchange a 
competitive venue for order execution by enabling OTP Holders to 
maintain their current levels of interaction with the Exchange (or make 
adjustments as needed) during the Migration Month, thus encouraging 
prompt migration to the newer, more efficient Pillar technology 
platform and sustained activity on the Exchange during the Pillar 
transition.

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 (http://www.sec.gov/rules/sro.shtml); or

[[Page 6913]]

     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2022-05 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-2022-05. 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-NYSEArca-2022-05, and should be 
submitted on or before February 28, 2022.

    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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-02428 Filed 2-4-22; 8:45 am]
BILLING CODE 8011-01-P