[Federal Register Volume 86, Number 215 (Wednesday, November 10, 2021)]
[Notices]
[Pages 62575-62579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-24527]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93520; No. SR-NYSEArca-2021-94]


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

November 4, 2021.
    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 November 1, 2021, 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

[[Page 62576]]

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 incentives available to Market Makers. The 
Exchange proposes to implement the fee change effective November 1, 
2021. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to amend the Fee Schedule to modify 
certain incentives intended to encourage Market Maker posted volume.
    Currently, the Fee Schedule provides a variety of incentives to 
encourage greater participation by Market Makers and Market Maker 
affiliates, including more favorable rates for higher volumes from 
posted interest (e.g., the Market Maker Incentive For Non-Penny 
Interval Issues and the Market Maker Incentives for SPY). The Exchange 
also offers incentives that reward higher volume from posted interest 
in conjunction with activity in the NYSE Arca Equity Market (for 
purposes of this filing, activity in the NYSE Arca Equity Market is 
referred to as ``cross asset activity'').
    The Exchange now proposes to modify the qualifying criteria for the 
Market Maker Penny and SPY Posting Credit Tiers \4\ by (1) modifying 
the qualification basis for the additional $0.03 credit on Market Maker 
posted interest applicable to OTP Holders who qualify for either Super 
Tier (the ``Additional Credit''), and (2) eliminating one of the 
alternative qualifications for Super Tier II.
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    \4\ See Fee Schedule, MARKET MAKER PENNY AND SPY POSTING CREDIT 
TIERS.
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    The Exchange proposes to implement the fee change on November 1, 
2021.
Proposed Rule Change
    The Exchange proposes to modify the qualifying criteria for the 
Additional Credit, which is currently applied to electronic executions 
of Market Maker posted interest in Penny Issues provided an OTP Holder 
or OTP Firm that qualifies for either Super Tier achieves (i) at least 
0.18% of TCADV from Market Maker posted interest in all issues, and 
(ii) ETP Holder and Market Maker posted volume in Tape B Securities 
(``Tape B Adding ADV'') that is equal to at least 1.50% of US Tape B 
consolidated average daily volume (``CADV'') executed on the NYSE Arca 
Equity Market for the billing month.\5\ The Exchange now proposes to 
modify the first qualification for the Additional Credit to require at 
least 0.55% of total combined IWM, QQQ, and SPY industry ADV from 
Market Maker posted interest in IWM, QQQ, and SPY.\6\ The cross asset 
activity component to qualify for the Additional Credit will remain 
unchanged; OTP Holders will still be required to achieve ETP Holder and 
Market Maker posted volume in Tape B Adding ADV equal to at least 1.50% 
of US Tape B CADV for the billing month executed on NYSE Arca Equity 
Market to qualify for the Additional Credit. The Exchange believes that 
the proposed modification will encourage more Market Maker posted 
interest in certain very high volume products, in combination with 
cross asset activity.
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    \5\ This credit does not apply to executions of issues in an 
LMM's appointment, as Market Makers who are LMMs already receive an 
additional $0.04 credit on posted interest in Penny issues in their 
appointment.
    \6\ IWM is the iShares Russell 2000 ETF. QQQ is the Invesco QQQ 
Trust. SPY is the SPDR S&P 500 ETF Trust.
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    The Exchange also proposes to eliminate one of the alternative 
qualifications for Super Tier II.\7\ Currently, OTP Holders may achieve 
Super Tier II by meeting one of three alternative qualifications: (i) 
At least 0.10% of TCADV from Market Maker posted interest in all 
issues, plus ETP Holder and Market Maker posted volume in Tape B Adding 
ADV that is equal to at least 1.50% of US Tape B CADV for the billing 
month executed on NYSE Arca Equity Market; (ii) at least 0.10% of TCADV 
from Market Maker posted interest in all issues, plus at least 0.42% of 
executed ADV of Retail Orders of U.S. Equity Market Share posted and 
executed on the NYSE Arca Equity Market; or (iii) at least 1.60% of 
TCADV from Market Maker interest in all issues, with at least 0.90% of 
TCADV from Market Maker posted interest in all issues. The Exchange 
proposes to eliminate the second qualification described above, such 
that Market Makers that execute 10% of TCADV from Market Maker posted 
interest in all issues, plus at least 0.42% of executed ADV of Retail 
Orders of U.S. Equity Market Share Posted and Executed on NYSE Arca 
Equity will no longer qualify for Super Tier II. Market Makers will 
still be able to earn the $0.42 credit available to OTP Holders that 
qualify for Super Tier II by meeting one of two alternative 
qualification levels. Although the Exchange proposes to eliminate one 
of the ways in which OTP Holders can qualify for the credit available 
in Super Tier II, the Exchange believes that the remaining alternative 
qualifying criteria are attainable and will continue to incentivize 
participation in greater volume from posted interest, as well as cross 
asset activity.
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    \7\ OTP Holders that qualify for Super Tier II receive a $0.42 
credit for executions in Penny Interval Program issues and SPY.
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    The Exchange cannot predict with certainty whether any OTP Holders 
would seek to qualify for the Additional Credit or to achieve Super 
Tier II, as modified, but believes that OTP Holders would continue to 
be encouraged to qualify for the advantages of the Additional Credit 
and Super Tier II. The Exchange believes the proposed modifications to 
the qualifying criteria for the Additional Credit and Super Tier II, 
which encourage increased posted interest from Market Makers in certain 
high-volume issues as well as cross market activity, would continue to 
incentivize OTP Holders to submit these types of orders to the 
Exchange, from all account types, which brings increased liquidity and 
order flow for the benefit of all market participants.
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 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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[[Page 62577]]

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.'' \10\
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    \10\ 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.\11\ Therefore, currently no exchange possesses significant 
pricing power in the execution of multiply-listed equity & ETF options 
order flow. More specifically, in September 2021, the Exchange had less 
than 13% market share of executed volume of multiply-listed equity & 
ETF options trades.\12\
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    \11\ 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.
    \12\ Based on OCC data for monthly volume of equity-based 
options and monthly volume of ETF-based options, see id., the 
Exchange's market share in equity-based options was 10.9% for the 
month of September 2020 and 12.4% for the month of September 2021.
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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 the proposed modifications to the 
qualifying criteria for the Additional Credit and Super Tier II are 
reasonably designed to incent OTP Holders to increase the number and 
variety of orders sent to the Exchange for execution. Specifically, to 
the extent that the proposed change attracts more Market Maker posted 
interest in certain high-volume issues and cross asset activity, this 
increased order flow would continue to make the Exchange a more 
competitive venue for, among other things, 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. Although the Exchange proposes to eliminate 
one of the alternative qualification bases for the credit available in 
Super Tier II, the Exchange believes that the remaining qualifying 
criteria will continue to incentivize participation in greater volume 
from posted interest, as well as cross asset activity.
    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 OTP Holders may direct their order flow to any of the 
16 options exchanges, including those that also offer incentives based 
on Market Maker posted volume in IWM, QQQ, and SPY.\13\ Thus, OTP 
Holders have a choice of where they direct their order flow, including 
their Market Maker posted interest and cross asset activity. The 
proposed rule change is designed to incent OTP Holders to direct 
liquidity to the Exchange, and in particular, Market Maker posted 
interest in highly liquid issues and cross asset activity, thereby 
promoting market depth, price discovery and improvement, and enhanced 
order execution opportunities for market participants.
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    \13\ See MIAX Pearl Options Exchange Fee Schedule, available at 
https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Options_Fee_Schedule_100721.pdf (offering tiered 
incentives based on Market Maker volume in IWM, QQQ, and SPY); Cboe 
BZX Options Fee Schedule, available at https://www.cboe.com/us/options/membership/fee_schedule/bzx/ (offering favorable credits as 
an alternative for Market Maker posting volume in IWM, QQQ, and 
SPY).
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    At present, whether or when an OTP Holder qualifies for the various 
incentives set forth in the Market Maker Penny and SPY Posting Credit 
Tiers in a given month is dependent on market activity and an OTP 
Holder's mix of order flow. Thus, while the Exchange cannot predict 
with certainty whether any OTP Holders will seek to qualify for the 
Additional Credit or Super Tier II, as proposed, the Exchange believes 
that OTP Holders would continue to be encouraged to take advantage of 
the Additional Credit and Super Tier II $0.42 credit available to 
qualifying OTP Holders. The Exchange believes the proposed incentives, 
as modified, which apply to Market Maker posted interest in certain 
high volume issues and cross asset activity, would provide an incentive 
for OTP Holders to continue to submit these types of orders to the 
Exchange, which brings increased liquidity and order flow for the 
benefit of all market participants.
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 OTP Holders can 
opt to seek to qualify for the incentives or not. Moreover, the 
proposal is designed to encourage OTP Holders to submit orders from all 
account types to the Exchange as a primary execution venue. In 
addition, while the Exchange proposes to modify the available 
qualification levels for Super Tier II, the Exchange believes that the 
remaining alternative qualifying criteria are attainable and will 
continue to incentivize participation in greater volume from posted 
interest, as well as cross asset activity. To the extent that the 
proposed change attracts more Market Maker posted interest to the 
Exchange, as well as increased cross asset activity, 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 the proposed rule change is not unfairly 
discriminatory because the modified qualifying criteria for both the 
Additional Credit and the credit available to OTP Holders who achieve 
Super Tier II would apply and be available equally to all similarly-
situated market participants on an equal and non-discriminatory basis.

[[Page 62578]]

    The proposal is based on the amount and type of business transacted 
on the Exchange, and OTP Holders are not obligated to try to achieve 
the qualifications for any of the tiers or execute either Market Maker 
posted interest or cross asset activity. Rather, the proposal is 
designed to continue to encourage OTP Holders to utilize the Exchange 
as a primary trading venue for Market Maker posted interest (if they 
have not done so previously) and to increase volume sent to the 
Exchange. To the extent that the proposed change attracts more Market 
Maker posted interest to the Exchange (particularly in certain high 
volume issues), 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 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, to 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.
    For the foregoing 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, 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 10, at 37499.
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    Intramarket Competition. The proposed change is designed to attract 
additional order flow (particularly Market Maker posted interest in 
certain high volume issues) to the Exchange. The Exchange believes that 
the proposed modification to the qualifying criteria for the Additional 
Credit and the credit available to Super Tier II would continue to 
encourage market participants to direct their Market Maker posted 
interest volume to the Exchange, particularly in certain high volume 
issues, as well as encourage cross asset activity. Greater liquidity 
benefits all market participants on the Exchange, and increased Market 
Maker posted interest would increase opportunities for execution of 
other trading interest. The proposed modifications would apply and be 
available equally to all similarly-situated market participants that 
handle Market Maker posted interest and cross asset activity, and, 
accordingly, the proposed change 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.\15\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity & ETF options order flow. More specifically, in 
September 2021, the Exchange had less than 13% market share of executed 
volume of multiply-listed equity & ETF options trades.\16\
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    \15\ See supra note 11.
    \16\ Based on OCC data for monthly volume of equity-based 
options and monthly volume of ETF-based options, see id., the 
Exchange's market share in equity-based options was 10.9% for the 
month of September 2020 and 12.4% for the month of September 2021.
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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 encourage OTP Holders to direct trading interest 
(particularly Market Maker posted interest and cross asset activity) 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.
    The Exchange believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
those that also currently offer incentives based on Market Maker posted 
volume in IWM, QQQ, and SPY,\17\ by encouraging additional orders to be 
sent to the Exchange for execution.
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    \17\ See supra note 13.
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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) \18\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \19\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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) \20\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \20\ 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 62579]]

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-2021-94 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-2021-94. 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-2021-94, and should be 
submitted on or before December 1, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-24527 Filed 11-9-21; 8:45 am]
BILLING CODE 8011-01-P


