Document ID: SEC-2022-1329-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2022-10-11T04:00Z

[Federal Register Volume 87, Number 195 (Tuesday, October 11, 2022)]
[Notices]
[Pages 61376-61379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-21985]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95976; No. SR-NYSEARCA-2022-66]

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

October 4, 2022.
    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 September 30, 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 modify the NYSE Arca Options Fee Schedule 
(``Fee Schedule'') regarding the discount in take liquidity fees. The 
Exchange proposes to implement the fee change effective October 3, 
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.

[[Page 61377]]

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 amount of one of the alternatives offered as a Discount in Take 
Liquidity Fees for Professional Customer and Non-Customer Liquidity 
Removing Interest (``Take Fee Discount'').
    If an OTP Holder or OTP Firm (collectively, ``OTP Holders'') 
executes a transaction that removes or ``takes'' liquidity on the 
Exchange, the OTP Holder is charged a ``Take Liquidity'' fee (referred 
to herein as a ``Take Fee'') and such liquidity may be referred to as 
``Liquidity Removing'' or liquidity taking.\4\ To offset such costs and 
to encourage market participants to direct order flow to the Exchange, 
the Exchange offers, among other incentives, the Take Fee Discounts for 
executions in Penny Issues.
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    \4\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES 
FOR STANDARD OPTIONS, TRANSACTION FEE FOR ELECTRONIC EXECUTIONS--PER 
CONTRACT (setting forth a per contract Take Fee of $0.50 for such 
Penny executions in Professional Customer, Firm, Broker Dealer, and 
Market Maker range as compared to a per contract take fee of $0.49 
for such Penny executions in the Customer range).
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    The Exchange currently offers OTP Holders three alternative Take 
Fee Discounts, with varying qualifying bases and amounts, and an OTP 
Holder may only earn one such discount. One of the Take Fee Discount 
alternatives is available to an OTP Holder that executes at least 0.80% 
of TCADV from Customer posted interest in all issues, plus executed ADV 
of 0.30% ADV of U.S. equity market share posted and executed on the 
NYSE Arca Equity market. The amount of the Take Fee Discount would be 
$0.04 when the executing buyer and seller are the same OTP Holder or an 
Affiliate or Appointed OFP or Appointed MM of such firm; otherwise, the 
Take Fee Discount is $0.03.\5\
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    \5\ For example, when an OTP Holder or its Affiliate trades 
against itself (e.g., Firm 1 MM trades against Firm 1 Customer or 
Firm 1 MM trades against Customer of an Affiliate of Firm 1), the 
$0.04 Take Fee discount applies. If, however, the OTP Holder trades 
against another OTP Holder (e.g., Firm 1 MM trades against Firm 2 
Customer), the $0.03 Take Fee discount applies.
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    The Exchange proposes to modify the Take Fee Discount amounts for 
this alternative to be $0.03 when the executing buyer and seller are 
the same OTP Holder or an Affiliate or Appointed OFP or Appointed MM of 
such firm, or $0.02 otherwise.
    The Exchange cannot predict with certainty whether any OTP Holders 
will seek to qualify for this Take Fee Discount alternative, as 
modified. Although the Exchange proposes to decrease the amount of the 
discount OTP Holders could earn through this alternative, the Exchange 
believes that OTP Holders would continue to be encouraged to direct 
liquidity-taking interest to the Exchange to take advantage of the 
available credits and discounts on Take Fees.
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 and ETF 
options order flow. More specifically, in August of 2022, the Exchange 
had less than 12% market share of executed volume of multiply-listed 
equity and 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 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 decreased from 
12.32% for the month of August 2021 to 11.36% for the month of 
August 2022.
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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. In response to this 
competitive environment, the Exchange has established incentives, such 
as the Take Fee Discount.
    The Exchange believes that the proposed modification to the Take 
Fee Discount is reasonably designed to continue to offer OTP Holders 
discounts on Take Fees and to incent OTP Holders to increase the amount 
and type of Professional Customer and Non-Customer interest sent to the 
Exchange, especially posted and liquidity-taking interest, which 
benefits all market participants by providing more trading 
opportunities, thereby making the Exchange a more attractive execution 
venue.
    To the extent the proposed rule change continues to attract greater 
volume and liquidity by encouraging OTP Holders (and their affiliates) 
to increase their options volume on the Exchange, 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, including another exchange 
that offers similar incentives on liquidity-taking interest.\11\
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    \11\ See, e.g., Nasdaq Options 7 Pricing Schedule, Section 2 
Nasdaq Options Market--Fees and Rebates, available at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-options-7 
(providing that Nasdaq participants that add 1.30% of Customer, 
Professional, Firm, Broker-Dealer or Non-NOM Market Maker liquidity 
in Penny Symbols and/or Non-Penny Symbols of TCADV per day in a 
month will pay ``a $0.48 per contract Penny Symbols Fee for Removing 
Liquidity when the Participant is (i) both the buyer and the seller 
or (ii) the Participant removes liquidity from another Participant 
under Common Ownership,'' otherwise such participants pay $0.50 per 
contract on such interest).

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[[Page 61378]]

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 OTP Holders can 
seek to qualify for this discount or not. Moreover, although the 
Exchange proposes to decrease the amount of the discount OTP Holders 
could qualify for via one of the alternative Take Fee Discounts, the 
Exchange believes that the proposal is designed to continue to incent 
OTP Holders to aggregate all liquidity-taking interest at the Exchange 
as a primary execution venue. To the extent that the proposed change 
attracts more liquidity 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 Proposed Rule Change Is not Unfairly Discriminatory
    The Exchange believes the proposed change is not unfairly 
discriminatory because it would apply 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 OTP Holders are not obligated to try to earn the discount, nor are 
they obligated to execute liquidity-taking interest. To the extent that 
the proposed change attracts more Professional Customer and Non-
Customer interest to the Exchange, especially posted and liquidity-
taking interest, 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, 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.

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.'' \12\
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    \12\ See Reg NMS Adopting Release, supra note 8, at 37499.
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    Intramarket Competition. The proposed change is designed to attract 
additional order flow to the Exchange, particularly take-liquidity 
interest. The Exchange believes that the proposed modifications, 
although they would reduce the amount of the discount offered by one of 
the Take Fee Discount alternatives, would continue to incent OTP 
Holders to direct their liquidity-taking order flow to the Exchange. 
Greater liquidity benefits all market participants on the Exchange and 
increased liquidity-taking order flow and posted Market Maker interest 
would increase opportunities for execution of other trading interest. 
The proposed change would apply to all similarly-situated market 
participants and thus 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.\13\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity & ETF options order flow. More specifically, in 
August 2022, the Exchange had less than 12% market share of executed 
volume of multiply-listed equity & ETF options trades.\14\
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    \13\ See supra note 9.
    \14\ Based on 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 decreased from 
12.32% for the month of August 2021 to 11.36% for the month of 
August 2022.
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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 incent OTP Holders to direct trading interest 
(particularly Customer posted interest and Professional Customer and 
Non-Customer liquidity-taking interest) to the Exchange. 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 also believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
one that currently offers similar incentives relating to Take Fees,\15\ 
by encouraging additional orders to be sent to the Exchange for 
execution.
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    \15\ See supra note 11.
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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) \16\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \17\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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

[[Page 61379]]

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) \18\ of the Act to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \18\ 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-2022-66 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-2022-66. 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-2022-66, and should be 
submitted on or before November 1, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-21985 Filed 10-7-22; 8:45 am]
BILLING CODE 8011-01-P