
[Federal Register Volume 82, Number 73 (Tuesday, April 18, 2017)]
[Notices]
[Pages 18317-18320]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07752]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80440; File No. SR-NYSEArca-2017-38]


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

April 12, 2017.
    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 April 5, 2017, 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 April 5, 2017. The proposed rule change is available on the 
Exchange's Web site 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 Exchange proposes to modify Lead Market Maker (``LMM'') Rights 
Fees (``Rights Fee'') to encourage OTP Firms acting as LMMs to add more 
issues to their allocation. The Exchange proposes to implement the fee 
change effective April 5, 2017.
    The LMM Rights Fee is charged ``on a per issue basis to the OTP 
Firm acting as LMM in the issue.'' \4\ Currently, the Exchange charges 
a Rights Fee on each issue in a LMM's allocation, with rates based on 
the Average National Daily Customer Contracts (``CADV''). The monthly 
Rights Fee ranges from $25 per month to $3,000 per month. Under the 
current Fee Schedule, the more active an issue is, the higher the 
Rights Fee, as set forth below:
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    \4\ See Fee Schedule, Endnote 2, available here, https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf.

------------------------------------------------------------------------
                                                                Monthly
          Average national daily customer contracts            issue fee
------------------------------------------------------------------------
0 to 100....................................................         $25
101 to 1,000................................................          35
1,001 to 2,000..............................................          75
2,001 to 5,000..............................................         200
5,001 to 15,000.............................................         750
15,001 to 100,000...........................................       1,500
Over 100,000................................................       3,000
------------------------------------------------------------------------

LMM Rights Fee Discount
    Currently, the Exchange provides an LMM Rights Fee Discount 
applicable to each issue in an LMM's appointment with a CADV above 5, 
000 based on the amount of monthly (i) total electronic volume and/or 
(ii) total posted volume executed by an LMM in the Market Maker range 
relative to other Marker Makers appointed in that issue (the 
``Discount'').\5\ This Discount was designed to incent LMMs that 
already transact a significant amount of business on the Exchange and 
trade competitively in their issues to achieve one of the Discounts as 
well as to incent LMMs to apply for new issue allocation.
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    \5\ See Securities and Exchange Act Release No. 77885 (May 23, 
2016), 81FR 33716 (May 27, 2016) (SR-NYSEArca-2016-75) (immediately 
effective filing that provides how the Discount is applied). The 
Exchange notes that total posted volume executed by an LMM refers to 
the total volume executed from posted liquidity.
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    The Exchange proposes to modify and expand the Discount. First, the

[[Page 18318]]

Exchange proposes to make the Discount available to LMMs with issues in 
their appointment with a CADV above 2,000. The Exchange also proposes 
to modify the amount of the Discount available as set forth in the 
table below (with new text underlined and existing text to be deleted 
in brackets):
* * * * *

------------------------------------------------------------------------
                LMM ranking                  Discount to LMM rights fee
------------------------------------------------------------------------
1st in total electronic volume............  50%.
2nd in total electronic volume............  [25%] 40%.
3rd [or lower ranking] in total electronic  [N/A] 30%.
 volume.
4th or lower ranking in total electronic     N/A.
 volume.
1st in total posted volume................  50%.
2nd in total posted volume................  [25%] 40%.
3rd [or lower ranking] in total posted      [N/A] 30%.
 volume.
4th or lower ranking in total posted        N/A.
 volume.
------------------------------------------------------------------------

    Under the proposal, as with the current Discount, each month the 
LMM in an issue would be ranked against non-LMM Market Makers that 
quote and trade in that LMM's issue. For each issue, each month, if the 
LMM achieves the highest total electronic volume (or total posted 
volume) amongst all Market Makers, the LMM would continue to receive a 
50% discount to its Rights Fee. In addition, as proposed, for each 
issue, each month, if the LMM achieves the second highest total 
electronic volume (or total posted volume) amongst all Market Makers, 
the LMM would receive a 40% discount to its Rights Fee (raised from 
25%). The Exchange also proposes to introduce an additional discount of 
30% for an LMM that achieves the third highest total electronic volume 
(or total posted volume) amongst all Market Makers. An LMM that 
achieves the fourth highest or lower total electronic volume (or total 
posted volume) would not be eligible for a Discount. The Exchange 
believes the proposed discounts would incent LMMs [sic] to compete 
against non-LMM Market Makers to reduce its own Rights Fee. For 
example, if one or more non-LMM Market Makers were ranked first, 
second, and third in (i) total electronic volume and (ii) total posted 
volume, the LMM would not receive a discount to its Rights Fee. 
However, when the LMM achieves one or both of the top volume rankings, 
the LMM would be eligible for a reduction. As is the case today, the 
Discounts would be cumulative and the same LMM would be eligible to 
achieve the discount for each monthly volume category.\6\ To illustrate 
how the cumulative discount applies, the Fee Schedule currently 
provides that ``if an LMM was 1st in Total Electronic Volume, and 2nd 
in Total Posting Volume, the LMM would achieve a 75% discount in that 
issue.'' To reflect the proposed rule change, the Exchange proposes to 
amend the current text in the Fee Schedule by replacing the LMM's 
ranking from 2nd to 3rd in Total Posting Volume and replacing the 
percentage of discount that the LMM would achieve from 75% to 80%. As 
proposed, the resulting text on the Fee Schedule would provide that 
``For example, if an LMM was 1st in Total Electronic Volume, and 3rd in 
Total Posting Volume, the LMM would achieve an 80% discount in that 
issue.''
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    \6\ As is the case today Discount would be applied before the 
Exchange considered whether the LMM was eligible for the 50% 
discount on its aggregate Rights Fees across all issues (i.e., if 
the LMM traded at least 50,000 contracts CADV, of which 10,000 such 
contracts are in its LMM appointment). See id. See also Fee 
Schedule, Endnote 2, available here, https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf.
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    The Exchange believes that the proposed discounts may incent LMMs 
that already transact a significant amount of business on the Exchange 
to quote and trade competitively in their issues to achieve the highest 
(or second or third highest) monthly ranking in total electronic volume 
and total posted volume. The Exchange also believes the proposed 
changes may generate interest in LMMs to apply for new issue 
allocations, which would increase not only an LMM's volume, but would 
also encourage liquidity on the Exchange to the benefit of all market 
participants.
Cap on LMM Rights Fees
    The Exchange also currently offers a cap on the LMM Rights Fee (the 
``Cap''). Specifically, the Exchange caps at 50 issues the Rights Fee 
it charges OTP Firms for issues with a CADV of 0 to 100 contracts 
(``First Tier''). The Exchange does not charge for any First Tier 
issues in the LMM's allocation that exceed 50 issues. The Exchange also 
caps at 100 issues the Rights Fee it charges for issues with a CADV of 
101 to 1000 (``Second Tier''). The Exchange does not charge for any 
Second Tier issues in the LMM's allocation that exceed 100 issues.
    The Exchange proposes to modify the Cap to encourage LMMs to add 
issues to their appointments. Specifically, the Exchange proposes to 
reduce the Cap from 100 issues to 50 issues on the Rights Fee it 
charges OTP Firms for issues in the Second Tier. The Exchange would not 
charge for any Second Tier issues in the LMM's allocation that exceed 
50 issues. The Exchange also proposes to cap at 50 issues the Rights 
Fee it charges for issues with a CADV of 1,001 to 2000 (``Third 
Tier''). The Exchange would not charge for any Third Tier issues in the 
LMM's allocation that exceed 50 issues. The practical impact of this 
Cap would be that the maximum LMM Rights Fee charged to an OTP Firm for 
issues trading in the Second Tier would be $1,750 (i.e., $35 x 50) and 
the maximum Rights Fee charged to an OTP Firm for issues trading in the 
Third Tier would be $3,750 (i.e., $75 x 50). For example, an OTP Firm 
acting as an LMM with 55 issues that trade in the Second Tier, and 
another 130 that trade in the Third Tier, would be charged an LMM 
Rights fee of $5,500 ($1,750 (the max charged for Second Tier issues) 
plus $3,750 (the max charged for Third Tier issues).
    The Exchange is proposing to set the Cap the [sic] Second and Third 
Tiers at the same amount (i.e., at 50 issues) as the First Tier, which 
the Exchange believes would reduce confusion and provide a commensurate 
benefit across the three lowest Tiers. The Exchange believes that the 
proposed modification to the Cap would increase interest of OTP Firms 
acting as LMMs in adding to their allocation issues in the First, 
Second, and Third Tiers.
    The Exchange does not believe that the proposed modification to the 
Cap would hinder an LMM's ability to achieve any of the existing 
discounts applicable to the Rights Fees; rather, to the extent that the 
Cap encourages an OTP Firm acting as an LMM to increase the number of 
issues in its allocation, the proposal may increase an LMM's chances of 
achieving existing discounts (i.e., to achieve the 50% discount on the 
Rights Fee an LMM needs to trade 10,000 electronic contracts ADV in its 
appointment).\7\
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    \7\ See supra note 6.
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    The Exchange is not proposing any other changes to the Rights Fee 
at this time.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\8\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\9\ 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

[[Page 18319]]

discriminate between customers, issuers, brokers or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes the proposed modification to the Discount is 
reasonable, equitable and not unfairly discriminatory for a number of 
reasons. First, all LMMs trading issues with similar activity levels 
would be eligible to achieve the discount (e.g., those LMMs trading 
issues with a CADV of 2,001 or above). The Exchange notes that there is 
only one LMM per issue, and only LMMs are subject to the Rights Fee. 
Under the proposal, each month the LMM in an issue would be ranked 
against non-LMM Market Makers that quote and trade in that LMM's issue. 
Because the non-LMM Market Makers are not subject to the Rights Fee, 
the modified Discount would not disadvantage Market Makers. Instead, 
the proposal would operate to incent each LMM to achieve First, Second, 
or Third ranking in monthly volume--both total electronic and total 
posted--for each issue, relative to non-LMM Market Makers, to reduce 
its own Rights Fee. In addition, the Discount, as modified, would 
reduce the overhead costs of LMM firms that are most actively trading 
in the issues, which reduced costs would enhance the ability of LMMs to 
provide liquidity to the benefit of all market participants.
    The Exchange believes that the proposed modification to the Cap is 
reasonable, equitable and not unfairly discriminatory for a number of 
reasons. First, all LMMs trading in the First, Second and Third Tier 
issues would have the same incentive to add the affected issues to 
their allocation and would, in turn, be eligible to realize the same 
benefit. Second, the proposal would encourage OTP Firms acting as LMMs 
to add lower-volume issues to their appointments, which would provide 
greater opportunities for OTP Firms to achieve volume incentives on the 
Exchange without adding to their Rights Fees. In turn, the Cap, as 
modified, would reduce the overhead costs of OTP Firms that are most 
actively trading in the affected issues, which reduced costs would 
enhance the ability of LMMs to provide liquidity to the benefit of all 
market participants. Further, the Exchange believes that having a 
broader range of products available on the Exchange would benefit all 
market participants by increasing liquidity on the Exchange and 
offering more opportunities to trade.
    The changes to the Rights Fee Discounts and the changes to the LMM 
Rights Fee caps are reasonable, equitable and not unfairly 
discriminatory as they apply to all similarly situated LMMs. The 
Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to put a cap on lower tier issues, as it is designed to 
encourage LMMs to apply for lower volume issues in their LMM 
appointment. Application of volume based discounts to rights fees in 
the lower tier issues would not encourage increased business on the 
Exchange, as there is much less competition amongst Market Makers 
because of the lower volumes. By providing a cap on fees as an 
alternative method of reducing the overhead cost of being an LMM in the 
lower volume issues, the Exchange has proposed an equitable and 
appropriate method to encourage LMMs to select lower volume issues.
    Additionally, applying volume based incentives for higher volume 
tier issues is reasonable, equitable, and not unfairly discriminatory, 
because it applies to issues where there is more overall competition, 
and encourages tighter markets and greater liquidity in the more active 
issues, which benefits all market participants by attracting more order 
flow to the Exchange.
    The Exchange also believes that the proposed modification [sic] to 
the Cap are not unfairly discriminatory because they apply solely to 
LMMs (non-LMMs are not subject to this Fee) and would not disadvantage 
Market Makers.
    Finally, the Exchange is subject to significant competitive forces, 
as described below in the Exchange's statement regarding the burden on 
competition.
    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\10\ 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.
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    \10\ 15 U.S.C. 78f(b)(8).
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    The Exchange believes that the proposal would not impose an unfair 
burden on competition because the proposed Rights Fees would more 
closely align with the economic benefit of being LMM in a given issue. 
Because the non-LMM Market Makers are not subject to the Rights Fee, 
the proposed Discount and Cap would not disadvantage Market Makers. 
Instead, the Discount, as modified, would operate to incentivize each 
LMM to achieve first, second or third ranking in monthly volume for 
each issue, relative to non-LMM Market Makers [sic] to reduce its own 
Rights Fee. The Exchange believes that this proposal would encourage 
LMMs to quote and trade competitively in their issues and would reduce 
the burden on competition among LMMs in the most actively-traded issues 
because LMMs that achieve the discounts would have reduced overhead.
    The Exchange also believes that the Cap, as modified, would not 
impose an unfair burden on competition because it would encourage more 
OTP Firms acting as LMMs to add the lower-volume issues to their 
allocation, which would increase liquidity and offer more trading 
opportunities to market participants.
    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-2017-38 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2017-38. 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 Web site (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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2017-38, and should 
be submitted on or before May 9, 2017.

    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,
Assistant Secretary.
[FR Doc. 2017-07752 Filed 4-17-17; 8:45 am]
 BILLING CODE 8011-01-P


