[Federal Register Volume 85, Number 71 (Monday, April 13, 2020)]
[Notices]
[Pages 20543-20545]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07657]



[[Page 20543]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88576; File No. SR-NYSEARCA-2020-27]


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

April 7, 2020.
    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 March 31, 2020, 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 
(``Fee Schedule'') to modify the calculations for certain aspects of 
the Floor Broker Prepayment Program to account for the recent closure 
of the Trading Floor. The Exchange proposes to implement the fee change 
effective March 31, 2020.\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 
March 24, 2020 (SR-NYSEArca-2020-24) and withdrew such filing on 
March 31, 2020.
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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 modify the Fee Schedule to modify 
the calculations for certain aspects of the Floor Broker Prepayment 
Program to account for the recent closure of the Trading Floor. The 
Exchange proposes to implement the fee change effective March 31, 2020.
    On March 18, 2020, the Exchange announced that it would temporarily 
close the Trading Floor, effective Monday, March 23, 2020, as a 
precautionary measure to prevent the potential spread of COVID-19. 
Because the Trading Floor is closed, Floor Brokers cannot engage in 
open outcry trading, which impacts their ability to qualify for certain 
pricing incentives tied to manual volume.
    Specifically, participants in the Floor Broker Prepayment Program 
(the ``FB Prepay Program'' or ``Program'') \5\ may qualify for the 
Percentage Growth Incentive portion of that program (the ``Growth 
Incentive'') by increasing their average daily volume (``ADV'') in 
billable manual contract sides by certain percentages (correlated with 
Tiers) as measured against (the greater of) one of two benchmarks.\6\ 
Per the Fee Schedule, to qualify for the Growth Incentive, a 
participating Floor Broker organization must increase their ADV for the 
calendar year, above the greater of 20,000 contract sides in billable 
manual ADV; or 105% of the Floor Broker's total billable manual ADV in 
contract sides during the second half of 2017--i.e., July through 
December 2017.
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    \5\ See 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 (providing that participants may 
prepay their Eligible Fixed Costs for a 10% discount, which costs 
include: OTP Trading Participant Rights--Floor Broker; Floor Broker 
Order Capture Device- Market Data Fees; Floor Booths; Options Floor 
Access Fee; and Wire Services).
    \6\ The Percentage Growth Incentive excludes 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, are likewise excluded from the Percentage Growth 
Incentive because fees on such volume is already capped and 
therefore does not increase billable manual volume. See id.
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    Current Floor Broker participants have already prepaid into the 
Program as of the end of 2019 and could not have anticipated at that 
time that the Trading Floor would have been closed in 2020, which will 
impact their ability to increase their billable manual contract sides 
to qualify for the Growth Incentive. Thus, the Exchange proposes to 
modify the FB Prepay Program to provide that ``[w]hen calculating the 
increase in a Floor Broker organization's ADV, the Exchange may exclude 
any trading day when open outcry on the Trading Floor is unavailable 
for a full day.'' \7\ The Exchange believes this change would allow 
Exchange incentives to operate as intended and would also facilitate 
fair and orderly markets, particularly given that participants in the 
Program could not have foreseen that the Trading Floor would have been 
temporarily closed.
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    \7\ See proposed Fee Schedule, FLOOR BROKER FIXED COST 
PREPAYMENT INCENTIVE PROGRAM (the ``FB Prepay Program'').
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    Absent the proposed change, participating Floor Brokers could 
experience an unintended increase in the cost of trading on the 
Exchange, a result that is unintended and undesirable to the Exchange 
and its Floor Brokers participating in the Program. The Exchange 
believes that excluding trading days when the Trading Floor is 
unavailable would provide member organizations with greater certainty 
as to their monthly costs and diminish the likelihood of an effective 
increase in the cost of trading. Further, the Exchange's proposal is 
consistent with the provision in the Fee Schedule that allows the 
Exchange to exclude from its monthly calculations of contract volume 
any day that (1) the Exchange is not open for the entire trading day 
and/or (2) a disruption affects an Exchange system that lasts for more 
than 60 minutes during regular trading hours'' (i.e., the ``System 
Disruption exclusion'').\8\
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    \8\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES 
FOR STANDARD OPTIONS, TRANSACTION FEE FOR ELECTRONIC EXECUTIONS--PER 
CONTRACT and Endnote 8, supra note 5.
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    The Exchange cannot predict with certainty whether any Floor 
Brokers would qualify for a higher Growth Incentive tier (and this 
[sic] a higher credit) as a result of this proposed fee change. 
However, without this proposed change, all participants in the Program 
would be impacted as the Floor Closure prevents them from engaging in 
any open outcry trading.
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,

[[Page 20544]]

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 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.'' \11\
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    \11\ 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 currently has more than 16% of 
the market share of executed volume of multiply-listed equity and ETF 
options trades.\12\ Therefore, no exchange possesses significant 
pricing power in the execution of multiply-listed equity & ETF options 
order flow. More specifically, the Exchange had less than 10% market 
share of executed volume of multiply-listed equity & ETF options trades 
in January 2020.\13\
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    \12\ 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/volume/default.jsp.
    \13\ Based on OCC data, see id, the Exchange's market share in 
equity-based options increase slightly from 9.57% for the month of 
January 2019 to 9.59% for the month of January 2020.
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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, changes 
to exchange transaction fees can have a direct effect on the ability of 
an exchange to compete for order flow.
    The Exchange believes that it is reasonable to permit the Exchange 
to exclude trading days when the Trading Floor is closed from the 
calculation of a Floor Broker organization's ADV for purposes of the 
Program because it preserves the Exchange's intent behind adopting 
volume-based pricing and allows the Growth Inventive to operate as 
intended. Similarly, the Exchange believes that its proposal is 
reasonable because it would provide participating Floor Brokers with a 
greater level of certainty as to their level of rebates and costs for 
trading in any month where open outcry trading in unavailable, 
including the current period while the Trading Floor is temporarily 
closed. The Exchange is not proposing to amend the thresholds that 
Floor Brokers must achieve to become eligible for, or the dollar value 
associated with, the tiered rebates or fees. By eliminating the 
inclusion of a trading day on which open outcry trading was 
unavailable, the Exchange would be making it more likely for Floor 
Brokers to meet the minimum or higher tier thresholds and thus 
incentivizing them to increase their participation on the Exchange in 
order to meet the next highest tier on days when the Trading Floor is 
open.
    The Exchange further believes that the proposal is reasonable 
because the proposed exclusion seeks to avoid penalizing Floor Brokers 
that might otherwise qualify for certain tiered pricing associated with 
the Growth Incentive but that, because of the unavailability of open 
outcry trading during the period when the Trading Floor is temporarily 
closed, would not participate to the extent that they might have 
otherwise participate [sic]
    The Exchange cannot predict with certainty whether any Floor 
Brokers would qualify for a higher Growth Incentive tier (and this 
[sic] a higher credit) as a result of this proposed fee change. 
However, without this proposed change, all participants in the Program 
would be impacted as the Floor Closure prevents them from engaging in 
any open outcry trading.
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 designed to account 
for trading days when open outcry trading is unavailable so as not to 
penalize Floor Brokers participating in the Program who may opt to 
avail themselves of the Growth Incentive. Absent the proposed change, 
participating Floor Brokers could experience an unintended increase in 
the cost of trading on the Exchange, a result that is unintended and 
undesirable to the Exchange and its Floor Brokers participating in the 
Program. Moreover, the proposals are designed to encourage Floor 
Brokers to continue to aggregate their executions at the Exchange as a 
primary execution venue. To the extent that the proposed changes 
attract more Manual volume to the Exchange once the Trading Floor 
reopens, this increased order flow would continue to make the Exchange 
a more competitive venue for order execution. Thus, the Exchange 
believes the proposed rule changes 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 that the proposal is not unfairly 
discriminatory because the proposed modifications would affect all 
similarly-situated market participants on an equal and non-
discriminatory basis. The Exchange is not proposing any changes to the 
Program, but rather, is proposing to amend the Fee Schedule to reflect 
that Floor Brokers would be uniquely impacted by the temporary closing 
of the Trading Floor because they are not able to engage in open outcry 
trading during this period. In addition, the methodology for the 
monthly ADV calculations for billable manual contract sides would apply 
equally to all Floor Brokers participating in the Program.
    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.'' \14\
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    \14\ See Reg NMS Adopting Release, supra note 11, at 37499.

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    Intramarket Competition. The proposed change is designed to 
continue to attract Floor Broker order flow to the Exchange by 
eliminating days when open outcry trading is unavailable for purposes 
of the Growth Incentive. 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 will benefit all market participants and 
improve competition on the Exchange. The Exchange notes that the 
proposed change is likewise consistent with the Exchange's System 
Disruption exclusion.
    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 currently has more than 16% of the market share of executed 
volume of multiply-listed equity and ETF options trades.\15\ Therefore, 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity & ETF options order flow. More specifically, in 
January 2020, the Exchange had less than 10% market share of executed 
volume of multiply-listed equity & ETF options trades.\16\
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    \15\ See supra note 12.
    \16\ Based on OCC data, supra note 13, the Exchange's market 
share in equity-based options increase slightly from 9.57% for the 
month of January 2019 to 9.59% for the month of January 2020.
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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 continue to encourage Floor Brokers to direct (open 
outcry) trading interest to the Exchange, to provide liquidity and to 
attract order flow. 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.

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) \17\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \18\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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) \19\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \19\ 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-2020-27 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-2020-27. 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-2020-27 and should be submitted 
on or before May 4, 2020.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07657 Filed 4-10-20; 8:45 am]
 BILLING CODE 8011-01-P


