Document ID: SEC-2019-0048-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2019-01-31T05:00Z

[Federal Register Volume 84, Number 21 (Thursday, January 31, 2019)]
[Notices]
[Pages 873-875]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-00478]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84971; File No. SR-NYSEArca-2018-95]

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

December 26, 2018.
    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 December 21, 2018, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Options Fee Schedule 
(``Fee Schedule''). The Exchange proposes to implement the fee change 
effective January 1, 2019. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to modify the Fee Schedule to extend 
for another year the prepayment incentive program for Floor Broker 
organizations (each a ``Floor Broker'') that the Exchange introduced in 
April 2018 (the ``FB Prepay Program'' or ``Program'').\4\
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    \4\ See Exchange Act Release No. 83074 (April 20, 2018), 83 FR 
18374 (April 26, 2018) (SR-NYSEArca-2018-24). See also Fee Schedule, 
FLOOR BROKER FIXED COST PREPAYMENT INCENTIVE PROGRAM (the ``FB 
Prepay Program''), available here, https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf.
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    Pursuant to the FB Prepay Program, the Exchange offered Floor 
Brokers that operate on the Exchange a 10% discount on their ``Eligible 
Fixed Costs'' (described in the table below) if Floor Brokers prepaid 
such costs for April through December 2018.

                          Eligible Fixed Costs
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OTP trading participant rights.

[[Page 874]]

 
Floor broker order capture device--market data fees.
Floor booths.
Telephones.
Options floor access fee.
Wire services.
Vendor equipment room/cabinet fee.
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    The Exchange proposes to extend the FB Prepay Program and offer 
Floor Brokers the opportunity to prepay their annual Eligible Fixed 
Costs for 2019, with certain modifications. First, the Exchange 
proposes to eliminate Telephone charges and the Vendor Equipment Room/
Cabinet Fee (``Cabinet Fee'') from the list of Eligible Fixed Costs in 
the 2019 Program. As noted in a recent filing, the Exchange plans to 
modify the Fee Schedule in connection with the relocation of the 
Trading Floor early next year, including changing the way Floor Brokers 
pay for telephone service and eliminating the Cabinet Fee.\5\ Thus, the 
Exchange proposes to remove these items from the list of Eligible Fixed 
Costs in an effort to prevent Floor Brokers from overpaying for 2019 
based on November 2018 costs that would include these items. Second, 
the Exchange proposes to modify the benchmarks utilized to assess 
eligibility for the Percentage Growth Incentive.\6\ The Exchange 
proposes to continue to offer participants in the FB Prepay Program the 
opportunity to qualify for larger discounts (i.e., more than 10% of the 
2019 Eligible Fixed Costs) through the Percentage Growth Incentive (the 
``Incentive''), which is designed to encourage Floor Brokers to 
increase their average daily volume (``ADV'') in billable manual 
contract sides by certain percentages (correlated with Tiers) as 
measured against one of two benchmarks.\7\
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    \5\ See SR-NYSEArca-2018-80 (filed on December 13, 2018).
    \6\ To participate in the 2019 FB Prepay Program, Floor Brokers 
would have to notify the Exchange in writing by emailing 
optionsbilling@nyse.com, indicating a commitment to submit 
prepayment, by no later than December 31, 2018. The email to enroll 
in the Program would have to originate from an officer of the Floor 
Broker organization and, except as provided for below, represents a 
binding commitment through the end of 2019. To participate in the 
Program, prepayment for the balance of the year must be received by 
the close of business on January 31, 2019. See proposed Fee 
Schedule, FLOOR BROKER FIXED COST PREPAYMENT INCENTIVE PROGRAM (the 
``FB Prepay Program''). ``Participating Floor Broker organizations 
that qualify for the Percentage Growth Incentive will receive their 
2019 rebate in January 2020.'' See id.
    \7\ The Percentage Growth Incentive would continue to exclude 
Customer volume, Firm Facilitation and Broker Dealer facilitating a 
Customer trades, and QCCs. Any volume calculated to achieve the Firm 
and Broker Dealer Monthly Fee Cap and the Limit of Fees on Options 
Strategy Executions, will likewise be excluded from the Percentage 
Growth Incentive because fees on such volume is already capped and 
therefore does not increase billable manual volume. See Fee 
Schedule, FLOOR BROKER FIXED COST PREPAYMENT INCENTIVE PROGRAM, 
supra note 4.
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    For the 2019 FB Prepay Program, the Exchange proposes to modify the 
first benchmark by requiring a minimum 11,000 contract sides (up from 
10,000) in billable ADV and proposes to modify the second benchmark by 
requiring 110% of the Floor Broker's total billable manual ADV in 
contract sides (up from 100%) during the second half of 2017--i.e., 
July through December 2017. The Exchange is not modifying the 
percentages (correlated with Tiers 1-3) against which the benchmarks 
are measured.\8\ The Exchange notes that Equity Option Industry ADV for 
2018 is up 24% as compared to Equity Option Industry ADV for the last 
six months of 2017 (and the three years prior). Thus, in this climate, 
the Exchange believes it is appropriate to apply a nominal increase in 
the first benchmark--from a minimum of 10,000 ADV to 11,000 ADV. 
Similarly, given that 2018 options industry volume has been elevated 
and the Exchange cannot predict whether volumes for 2019 will continue 
at the same pace, the Exchange believes it is appropriate to continue 
to use ADV from the latter half of 2017 as the alternative benchmark, 
with a nominal increase of 10% over the current requirement. The 
Exchange notes that the changes to the Program are designed to 
encourage those Floor Brokers that enrolled in the Program for 2018 to 
reenroll for 2019 as well as to attract Floor Brokers that have not yet 
participated.
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    \8\ See id.
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    As proposed, a Floor Broker that commits to the Program for 2019 
would be invoiced in January 2019 for its estimated Eligible Fixed 
Costs, through the end of 2019, less 10%. The estimated annual Eligible 
Fixed Costs (i.e., for January through December 2019) for each 
participating Floor Broker would be based on that Floor Broker's 
November, 2018 invoice for such costs.
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 proposal to extend the FB Prepayment Program as modified is 
reasonable, equitable and not unfairly discriminatory for the following 
reasons. First, the Program is optional and Floor Brokers can elect to 
participate (or elect not to participate). In addition, the Exchange is 
continuing to offer two alternative means to achieve the same enhanced 
discount to ensure that Floor Brokers that are new to the Exchange (and 
therefore have no historical ADV from 2017) could nonetheless 
participate in the Program. The Exchange notes that Equity Option 
Industry ADV for 2018 is up 24% as compared to Equity Option Industry 
ADV for the last six months of 2017 (and the three years prior). Thus, 
in this climate, the Exchange believes it is appropriate to apply a 
nominal increase in the first benchmark--from a minimum of 10,000 ADV 
to 11,000 ADV. Similarly, given that 2018 options industry volume has 
been elevated and the Exchange cannot predict whether volumes for 2019 
will continue at the same pace, the Exchange believes it is appropriate 
to continue to use ADV from the latter half of 2017 as the alternative 
benchmark, with a nominal increase of 10% over the current requirement. 
The Exchange notes that the changes to the Program are designed to 
encourage those Floor Brokers that enrolled in the Program for 2018 to 
reenroll for 2019 as well as to attract Floor Brokers that have not yet 
participated.
    The Exchange believes the proposed changes to the FB Program would 
continue to incent Floor Brokers to increase their billable volume 
executed in open outcry on the Exchange in an effort to achieve the 
Incentive (the percentages for which remain unchanged), which would 
benefit all market participants by expanding liquidity and providing 
more trading opportunities, even to those market participants that have 
not committed to the Program. Regardless of which benchmark a 
participating Floor Broker's growth is measured against, all Floor 
Broker's that opt to participate and seek to achieve the Incentive 
would be required to increase volume executed on the Exchange in order 
to receive the enhanced discount. Thus, the Exchange believes the 
proposed Program, is reasonable, equitable and not unfairly 
discriminatory to others.
    The Exchange believes the proposal to continue to offer the 
Percentage Growth Incentive for 2019 based on ADV in

[[Page 875]]

contract sides in 2019 is reasonable, equitable and not unfairly 
discriminatory because, just as under the existing program, this 
Incentive is designed to encourage Floor Brokers to increase their ADV 
in billable manual contract sides by certain percentages (correlated 
with Tiers) as measured against the two available benchmarks.

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. The Exchange believes that the proposed changes to 
the FB Prepayment Program may increase both inter-market and intra-
market competition by incenting participants to direct their orders to 
the Exchange, which would enhance the quality of quoting and may 
increase the volume of contracts traded on the Exchange. To the extent 
that there is an additional competitive burden on non-Exchange 
participants, the Exchange believes that this is appropriate because 
the proposal should incent market participants to direct additional 
order flow to the Exchange, and thus provide additional liquidity that 
enhances the quality of its markets and increases the volume of 
contracts traded here. To the extent that this purpose is achieved, all 
of the Exchange's market participants should benefit from the improved 
market liquidity. Enhanced market quality and increased transaction 
volume that results from the anticipated increase in order flow 
directed to the Exchange would benefit all market participants and 
improve competition on the Exchange.
    Given the robust competition for volume among options markets, many 
of which offer the same products, implementing programs to attract 
order flow, such as the proposed changes to the FB Prepayment Program, 
are consistent with the above-mentioned goals of the Act.
    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.

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) \11\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \12\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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) \13\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \13\ 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 rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2018-95 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-2018-95. 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 such 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-2018-95, and should be 
submitted on or before February 21, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-00478 Filed 1-30-19; 8:45 am]
 BILLING CODE 8011-01-P