Document ID: SEC-2022-1105-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2022-08-17T04:00Z

[Federal Register Volume 87, Number 158 (Wednesday, August 17, 2022)]
[Notices]
[Pages 50662-50665]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17671]

[[Page 50662]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95471; No. SR-NYSEARCA-2022-50]

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

August 11, 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 August 5, 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 credits for Floor Broker Qualified 
Contingent Cross (``QCC'') transactions. The Exchange proposes to 
implement the fee change effective August 5, 2022.\4\ The proposed rule 
change is available on the Exchange's website at www.nyse.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.
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    \4\ The Exchange originally filed to amend the Fee Schedule on 
August 1, 2022 (SR-NYSEArca-2022-48) and withdrew such filing on 
August 5, 2022.
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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 credits offered to Floor Brokers for QCC transactions.\5\ The 
Exchange proposes to implement the rule change on August 5, 2022.
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    \5\ 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, Floor Brokers earn a credit for executed QCC orders of 
($0.07) per contract for the first 300,000 contracts or ($0.10) per 
contract in excess of 300,000.\6\ QCC executions in which a Customer is 
on both sides of the QCC trade are not be eligible for a Floor Broker 
credit, and the maximum Floor Broker credit is $375,000 per month per 
Floor Broker firm.\7\ A Floor Broker that meets a certain minimum level 
of average daily volume (``ADV'') may also earn an additional ($0.02) 
per contract credit (the ``Enhanced Credit'') on the first 300,000 
eligible QCC contracts. Specifically, a Floor Broker is currently 
entitled to the Enhanced Credit if the Floor Broker executes the 
greater of (1) at least 150% of the Floor Broker's First Quarter 2019 
billable contract sides ADV; or (2) at least 30,000 billable contract 
sides ADV.\8\
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    \6\ See Fee Schedule, Qualified Contingent Cross (``QCC'') 
Transaction Fees and Credits, available at: https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf.
    \7\ See id. at Endnote 13.
    \8\ See id.
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    The Exchange now proposes to increase the amount of the credits 
available to Floor Brokers for executed QCC orders. Specifically, the 
Exchange proposes that Floor Brokers may earn a credit of ($0.22) on 
Non-Customer vs. Non-Customer QCC transactions and a credit of ($0.11) 
on Customer vs. Non-Customer QCC transactions.\9\ The Exchange also 
proposes to eliminate the Enhanced Credit, as the proposed increased 
credits of ($0.11) and ($0.22) would exceed the credit amount that 
Floors Brokers previously could have earned with the Enhanced 
Credit.\10\
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    \9\ The Exchange also proposes to delete text in Endnote 13 
providing that the Floor Broker credit is paid on volume within a 
given tier and is not retroactive to the first contract traded. This 
language relates to the current structure of the Floor Broker 
credits, which is based on the number of contracts executed, and 
would not be applicable to the proposed credits.
    \10\ To effect this change, the Exchange proposes to delete the 
text from Endnote 13 setting forth the qualifying criteria for the 
Enhanced Credit as well as accompanying text in Endnote 13 
describing the calculation of the Enhanced Credit.
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    Although the Exchange cannot predict with certainty whether the 
proposed change would encourage Floor Brokers to increase their QCC 
volume, the proposed change is intended to continue to incentivize 
additional QCC executions by Floor Brokers by increasing the credits 
available on such orders, and all Floor Brokers are eligible to qualify 
for the proposed credits.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\11\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\12\ 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 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.'' \13\
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    \13\ 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.\14\ Therefore, no exchange possesses significant pricing power 
in the execution of multiply-listed equity and ETF options order flow. 
More specifically, in June 2022, the Exchange had less than 13% market 
share of

[[Page 50663]]

executed volume of multiply-listed equity and ETF options trades.\15\
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    \14\ 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.
    \15\ 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 
increased from 9.07% for the month of June 2021 to 12.23% for the 
month of June 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. Stated otherwise, 
modifications to exchange transaction fees can have a direct effect on 
the ability of an exchange to compete for order flow.
    To respond to this competitive marketplace, the Exchange has 
established incentives to assist Floor Brokers in attracting more 
business to the Exchange--including credits on QCC transactions--as 
such participants serve an important function in facilitating the 
execution of orders on the Exchange (including via open outcry), 
thereby promoting price discovery on the public markets.
    The Exchange believes that the proposed modification of the credits 
offered to Floor Brokers on QCC transactions is reasonable because it 
is designed to continue to incent Floor Brokers to increase the number 
of QCC transactions sent to the Exchange and would offer Floor Brokers 
incentives on QCC transactions similar to those provided by other 
options exchanges.\16\ The Exchange further believes that it is 
reasonable to offer a ($0.22) credit for QCC transactions involving a 
Non-Customer vs. Non-Customer and a ($0.11) credit on QCC transactions 
involving a Customer vs. Non-Customer because Non-Customer vs. Non-
Customer QCC transactions are billable on both sides of the 
transaction, whereas Customer vs. Non-Customer QCC transactions are 
billable on one side. 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 by Floor 
Brokers, which could promote market depth, facilitate tighter spreads 
and enhance price discovery to the extent the proposed change 
encourages Floor Brokers to utilize the Exchange as a primary trading 
venue, and may lead to a corresponding increase in order flow from 
other market participants. In addition, any increased liquidity on the 
Exchange would result in enhanced market quality for all participants.
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    \16\ See, e.g., EDGX Options Exchange Fee Schedule, QCC 
Initiator/Solicitation Rebate Tiers (applying ($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 ($0.22) per contract rebate up 
to 1,499,999 contracts for QCC transactions when both parties are a 
broker-dealer or market maker); see also Nasdaq ISE, Options 7, 
Section 6.A. (QCC and Solicitation Rebate) (offering rebates on QCC 
transactions of up to ($0.11) on 1,000,000 or more contract sides in 
a month).
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    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 Floor Brokers may direct their order flow to any of the 
16 options exchanges, including those offering rebates on QCC 
orders.\17\ Thus, Floor Brokers have a choice of where they direct 
their order flow, including their QCC transactions. The proposed rule 
change is designed to continue to incent Floor Brokers to direct 
liquidity to the Exchange and, in particular, QCC orders, thereby 
promoting market depth, price discovery and improvement, and enhanced 
order execution opportunities for market participants, particularly to 
the extent Floor Brokers are incentivized to aggregate their trading 
activity at the Exchange.
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    \17\ See id.
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    The Exchange cannot predict with certainty whether the proposed 
change would encourage Floor Brokers to increase their QCC order flow 
to the Exchange, but believes that the proposed increased credits would 
continue to incent Floor Brokers to do so.
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 Floor Brokers can 
attempt to trade QCC orders to earn the increased credits or not. In 
addition, the proposed credits are available to all Floor Brokers 
equally. The Exchange further believes that the proposed change, which 
would provide a ($0.22) credit for Non-Customer vs. Non-Customer QCC 
transactions and a ($0.11) credit on Customer vs. Non-Customer QCC 
transactions, represents an equitable allocation of credits because 
Non-Customer vs. Non-Customer QCC transactions are billable on both 
sides of the transaction, whereas Customer vs. Non-Customer QCC 
transactions are billable on one side. The Exchange also believes that 
the proposed credits are an equitable allocation of fees and credits 
because they would encourage and support Floor Brokers' role in 
facilitating the execution of orders on the Exchange, and to the extent 
the proposed credits incent Floor 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 credits are designed to incent Floor Brokers 
to encourage OTP Holders to aggregate their executions--particularly 
QCC transactions--at the Exchange as a primary execution venue. To the 
extent that the proposed changes attract more QCC 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 it is not unfairly discriminatory to modify 
the credits offered to Floor Brokers on QCC orders because the proposed 
credits would be available to all similarly-situated Floor Brokers on 
an equal and non-discriminatory basis. The proposed credits are also 
not unfairly discriminatory to non-Floor Brokers because Floor Brokers 
serve an important function in facilitating the execution of orders on 
the Exchange (including via open outcry), which the Exchange wishes to 
encourage and support to promote price improvement opportunities for 
all market participants.

[[Page 50664]]

    The proposal is based on the amount and type of business transacted 
on the Exchange, and Floor Brokers are not obligated to execute QCC 
orders. Rather, the proposal is designed to encourage Floor Brokers to 
utilize the Exchange as a primary trading venue for all transactions 
(if they have not done so previously) and increase QCC volume sent to 
the Exchange. To the extent that the proposed change attracts more QCC 
orders 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 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.'' \18\
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    \18\ See Reg NMS Adopting Release, supra note 13, at 37499.
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    Intramarket Competition. The proposed increased credits are 
designed to attract additional order flow to the Exchange (particularly 
in Floor Brokers' QCC transactions), which may increase the volumes of 
contracts traded on the Exchange. Greater liquidity benefits all market 
participants on the Exchange, and increased QCC transactions would 
increase opportunities for execution of other trading interest. The 
proposed credits would be available to all similarly-situated Floor 
Brokers that execute QCC trades, and to the extent that there is an 
additional competitive burden on non-Floor Brokers, the Exchange 
believes that any such burden would be appropriate because Floor 
Brokers serve an important function in facilitating the execution of 
orders (including via open outcry) and price discovery for all market 
participants.
    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.\19\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. More specifically, 
in June 2022, the Exchange had less than 13% market share of executed 
volume of multiply-listed equity and ETF options trades.\20\
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    \19\ 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.
    \20\ 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 
increased from 9.07% for the month of June 2021 to 12.23% for the 
month of June 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 Floor Brokers to direct trading interest 
(particularly QCC transactions) to the Exchange, to provide liquidity 
and to attract order flow. To the extent that Floor 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 change could promote 
competition between the Exchange and other execution venues, including 
those that currently offer rebates on QCC transactions, by encouraging 
additional orders (and, in particular, QCC orders) to be sent to the 
Exchange for execution.\21\
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    \21\ See note 16, 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) \22\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \23\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 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) \24\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \24\ 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 50665]]

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-2022-50 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-2022-50. 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-2022-50, and should be 
submitted on or before September 7, 2022.
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    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17671 Filed 8-16-22; 8:45 am]
BILLING CODE 8011-01-P