[Federal Register Volume 85, Number 242 (Wednesday, December 16, 2020)]
[Notices]
[Pages 81534-81537]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27598]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90629; File No. SR-NYSEArca-2020-109]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Modifying the NYSE 
Arca Options Fee Schedule Regarding the Criteria To Qualify for the 
Market Maker Incentive for Penny Issues

December 10, 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 December 7, 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 modify the NYSE Arca Options Fee Schedule 
(``Fee Schedule'') regarding the criteria to qualify for a Market Maker 
Incentive for Penny Issues. The Exchange proposes to implement the fee 
change effective December 7, 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

[[Page 81535]]

the Commission's Public Reference Room.
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    \4\ The Exchange originally filed to amend the Fee Schedule on 
December 1, 2020 (SR-NYSEArca-2020-106) and withdrew such filing on 
December 7, 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 amend the Fee Schedule to modify 
the criteria to qualify for a Market Maker Incentive For Penny Issues. 
The Exchange proposes to implement the rule change on December 7, 2020.
    The Exchange currently provides several incentives for OTP Holders 
and OTP Firms (collectively, ``OTPs'') designed to encourage OTPs to 
direct additional order flow to the Exchange to achieve more favorable 
pricing and higher credits. Among these incentives are enhanced posted 
liquidity credits based on achieving certain percentages of Total 
Industry Customer equity and ETF option average daily volume 
(``TCADV'').\5\
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    \5\ TCADV includes OCC calculated Customer volume of all types, 
including Complex Order Transactions and QCC transactions, in equity 
and ETF options. See Endnote 8 to the Fee Schedule.
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    Currently, Market Maker orders in Penny Issues that post liquidity 
and are executed on the Exchange earn a base credit of ($0.28) per 
contract, and may be eligible for increased credits based on the 
participant's activity. The Fee Schedule provides for three Penny 
Credit Tiers for Market Makers, with increasing minimum volume 
thresholds (as well as increasing credits) associated with each tier, 
ranging from per contract credits of ($0.32) to ($0.42) for Market 
Makers that achieve the Select Tier up to Super Tier II, 
respectively.\6\ The Exchange also offers various incentives that 
increase the possible posting credit applied to a Market Maker's 
orders, such as cross asset incentives for activity on the NYSE Arca 
Equity Market. One such incentive is the Market Maker Incentive For 
Penny Issues (the ``Incentive'').
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    \6\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES 
FOR STANDARD OPTIONS, MARKET MAKER PENNY AND SPY POSTING CREDIT 
TIERS.
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    Currently, there are two components to the qualification for the 
Incentive, the first being at least 0.75% of TCADV from affiliated or 
appointed Order Flow Provider Customer posted interest in all issues. 
The second component of the qualification currently is an ADV from 
Market Maker posted interest equal to 0.70% of TCADV.
    The Exchange proposes to modify the qualifying criteria for the 
Incentive to (1) lower the minimum volume threshold of the Market Maker 
posted interest component from 0.70% to 0.40% of TCADV, and (2) specify 
that volume from SPY \7\ would be excluded from the qualifying volume 
for the credit.\8\ The amount of the credit will remain the same, 
($0.41) per contract. The Exchange believes that the proposed change to 
exclude volume from SPY but lower the minimum volume threshold to 
qualify for the Incentive would still encourage OTPs to achieve the 
Incentive with increased Market Maker posted interest in issues other 
than SPY,\9\ which would bring increased liquidity and order flow to 
the Exchange for the benefit of all market participants.
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    \7\ SPY is the trading acronym for SPDR S&P 500 ETF Trust.
    \8\ See proposed Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED 
CHARGES FOR STANDARD OPTIONS, Market Maker Incentive For Penny 
Issues.
    \9\ The Exchange notes that there are separate incentives 
specifically related to Market Maker posted interest in SPY.
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    The Exchange cannot predict with certainty whether any OTPs would 
qualify for the incentive under the modified criteria; however, the 
Exchange believes that the proposed Incentive would continue to 
encourage OTPs to increase Market Maker posted volume in issues other 
than SPY to qualify for this Incentive.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 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.'' \12\
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    \12\ 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.\13\ Therefore, currently no exchange possesses significant 
pricing power in the execution of multiply-listed equity and ETF 
options order flow. More specifically, in August 2020, the Exchange had 
slightly more than 10% market share of executed volume of multiply-
listed equity and ETF options trades.\14\
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    \13\ The OCC publishes options and futures volume in a variety 
of formats, including daily and monthly volume by exchange, 
available at: https://www.theocc.com/market-data/volume/default.jsp.
    \14\ Based on OCC data, the Exchange's market share in equity-
based options was 9.59% for the month of August 2019 and 10.20% for 
the month of August 2020. See id.
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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 and rebates can have a direct effect on 
the ability of an exchange to compete for order flow, including with 
options exchanges that offer similar posting credits on Market Maker 
executions.\15\
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    \15\ See e.g., MIAX Pearl Fee Schedule, available at: https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_PEARL_Fee_Schedule_11052020.pdf (regarding Market Maker Posting 
credits).
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    The Exchange believes that the proposed modification to the 
criteria to qualify for the Incentive is reasonably designed to 
continue to incent OTPs to

[[Page 81536]]

increase the amount and type of Market Maker posted interest sent to 
the Exchange. The Exchange notes that Market Makers are still eligible 
to qualify for Market Maker Penny and SPY Posting Credit Tiers based on 
a specified benchmark in posted interest in all issues from Market 
Maker posted interest.\16\ By continuing to provide alternative methods 
to qualify for enhanced Penny posting credits, the Exchange believes 
OTPs will have increased opportunities to qualify for credits, which 
benefits all participants through increased volume to the Exchange.
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    \16\ See supra note 5.
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    To the extent that the proposed change attracts to the Exchange 
more Market Maker posted interest in both Penny and non-Penny issues, 
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 cannot predict with certainty whether any Market 
Makers would qualify for the Incentive under the modified criteria; 
however, the Exchange believes that OTPs would continue to be 
encouraged to increase Market Maker posted volume to qualify for this 
Incentive.
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 OTPs can opt to 
avail themselves of the modified criteria to qualify for the Incentive 
or not. Moreover, the proposal is designed to incent OTPs to aggregate 
all Customer posting interest and Market Maker interest at the Exchange 
as a primary execution venue. To the extent that the proposed change 
attracts more Market Maker posting interest 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, therefore, 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 proposed rule change is not unfairly 
discriminatory because all similarly-situated market participants would 
be eligible to qualify for the Incentive pursuant to the modified 
criteria on an equal and non-discriminatory basis.
    The proposal is based on the amount and type of business transacted 
on the Exchange, and Market Makers are not obligated to try to qualify 
for the Incentive, as modified, nor are they obligated to execute 
posted interest. Rather, the proposal is designed to encourage OTPs to 
utilize the Exchange as a primary trading venue for Customer posted 
interest and Market Maker posted interest (if they have not done so 
previously) or increase volume sent to the Exchange. To the extent that 
the proposed change attracts to the Exchange more Market Maker 
interest, including posted 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, 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.'' \17\
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    \17\ See Reg NMS Adopting Release, supra note 9, at 37499.
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    Intramarket Competition. The proposed change is designed to attract 
additional order flow (particularly Market Maker posted interest) to 
the Exchange. The Exchange believes that the proposed modification to 
the Incentive would continue to incent Market Makers to direct their 
posted interest to the Exchange. Greater liquidity benefits all market 
participants on the Exchange, and increased Market Maker interest would 
increase opportunities for execution of other trading interest. The 
proposed modification would be available to all similarly-situated 
market participants that execute Customer posted interest and also make 
markets, and, accordingly, 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.\18\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. More specifically, 
in August 2020, the Exchange had slightly more than 10% market share of 
executed volume of multiply-listed equity and ETF options trades.\19\
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    \18\ The OCC publishes options and futures volume in a variety 
of formats, including daily and monthly volume by exchange, 
available at: https://www.theocc.com/market-data/volume/default.jsp.
    \19\ Based on OCC data, the Exchange's market share in equity-
based options was 9.59% for the month of August 2019 and 10.20% for 
the month of August 2020. See id.
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    The Exchange believes that the proposed modification to the 
criteria to qualify for the Incentive reflects this competitive 
environment because it modifies the Exchange's fees in a manner 
designed to encourage Market

[[Page 81537]]

Makers to continue to direct trading interest (particularly Market 
Maker posted interest) to the Exchange, provide liquidity, and 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.
    The Exchange believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
those that currently offer similar Market Maker posting credits, by 
encouraging additional orders to be sent to the Exchange for execution.

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) \20\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \21\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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) \22\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \22\ 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-2020-109 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-2020-109. 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-2020-109, and should be 
submitted on or before January 6, 2021.
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    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27598 Filed 12-15-20; 8:45 am]
BILLING CODE 8011-01-P


