[Federal Register Volume 87, Number 95 (Tuesday, May 17, 2022)]
[Notices]
[Pages 29911-29913]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-10515]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94895; No. SR-NYSEArca-2022-26]


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

May 11, 2022.
    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 29, 2022, 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 Customer Penny Posting Tiers. The 
Exchange proposes to implement the fee change effective May 2, 2022. 
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 
the Customer Penny Posting Credit Tiers.
    Currently, the Fee Schedule provides that OTP Holders and OTP Firms 
(collectively, ``OTP Holders'') can qualify for tiered credits applied 
to electronic executions of Customer posted interest in Penny issues by 
meeting specified increasing volume levels in Customer Penny Posting 
Credit Tiers 1 through 6.\4\ Currently, an OTP Holder that achieves 
0.10% of TCADV from Customer posted interest in all issues will qualify 
for Customer Penny Posting Credit Tier 1 (``Tier 1'') and earn a credit 
of $0.27 per contract applied to electronic executions of Customer 
posted interest in Penny issues.
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    \4\ See Fee Schedule, NYSE Arca Options: Trade-Related Charges 
for Standard Options, Customer Penny Posting Credit Tiers.
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    The Exchange now proposes to modify the qualification basis for 
Tier 1 and increase the credit offered to OTP Holders that achieve Tier 
1. Specifically, the Exchange proposes that an OTP Holder would qualify 
for Tier 1 by executing at least 0.20% of TCADV from Customer posted 
interest, plus executed ADV of 0.30% of U.S. equity market share posted 
and executed on the NYSE Arca Equity Market,\5\ and such qualifying OTP 
Holder would earn a $0.36 per contract credit applied to electronic 
executions of Customer posted interest in Penny issues.
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    \5\ For purposes of this filing, activity in the NYSE Arca 
Equity Market is referred to as ``cross asset activity.''
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    The Exchange notes that the credit currently offered in Tier 1 has 
not sufficiently encouraged OTP Holders to increase their Customer 
posting interest. Thus, although the proposed modifications to the 
qualifying criteria for Tier 1 would increase the volume requirement 
and add a cross asset activity component, the Exchange believes that 
the proposed change would encourage OTP Holders to execute Customer 
posted interest on the Exchange and also incent OTP Holders to use the 
Exchange as a primary destination for both options and equity order 
flow in order to earn the significantly increased credit that would be 
available in Tier 1.
    The Exchange proposes to implement the rule change on May 2, 2022.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\6\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\7\ 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 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.'' \8\
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    \8\ 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

[[Page 29912]]

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.\9\ 
Therefore, currently no exchange possesses significant pricing power in 
the execution of multiply-listed equity & ETF options order flow. More 
specifically, in March 2022, the Exchange had less than 14% market 
share of executed volume of multiply-listed equity & ETF options 
trades.\10\
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    \9\ 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.
    \10\ Based on a compilation of 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 increased 
from 10.16% for the month of March 2021 to 13.57% for the month of 
March 2022.
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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.
    While the Exchange cannot predict with certainty whether any OTP 
Holders would seek to qualify for Tier 1, as modified, the Exchange 
believes that the new qualifying criteria for Tier 1 are attainable and 
that the increased credit that OTP Holders would earn in Tier 1 would 
encourage OTP Holders to increase both Customer posted volume on the 
Exchange and their activity on the NYSE Arca Equity Market. The 
Exchange further believes that modifying the qualification basis for 
Tier 1 to include both a Customer posted interest volume requirement 
and a cross asset activity component would incent OTP Holders to direct 
more Customer options order flow and equity order flow to the Exchange, 
which would bring increased liquidity and order flow for the benefit of 
all market participants.
    Finally, to the extent the proposed change continues to attract 
greater volume and liquidity to the Exchange, and, in particular, 
encourages OTP Holders to increase Customer volume and cross asset 
activity to qualify for the increased credit available in Tier 1, 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 an exchange with a similarly structured customer 
posting credit program.\11\ Thus, OTP Holders have a choice of where 
they direct their order flow, including their Customer posting interest 
and equity posted interest. The proposed rule change is designed to 
incent OTP Holders to direct liquidity to the Exchange and, in 
particular, to increase their Customer posting interest and cross asset 
activity, thereby promoting market depth, price discovery and 
improvement, and enhanced order execution opportunities for market 
participants.
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    \11\ See Cboe BZX Options Exchange Fee Schedule, available at: 
https://www.cboe.com/us/options/membership/fee_schedule/bzx/ 
(offering similarly structured credits on customer volume in Penny 
issues, based on qualifying volume).
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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 try to qualify for the credit or not. The proposal is designed 
to incent OTP Holders to aggregate Customer posting interest at the 
Exchange as a primary execution venue and to attract more posting 
interest on the NYSE Arca Equity Market. To the extent that these 
purposes are achieved, this increased order flow would continue to make 
the Exchange a more competitive venue for, among other things, order 
execution on both options and equities. 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 credit offered in Tier 1, as modified, would 
be available to all similarly-situated market participants on an equal 
and non-discriminatory basis.
    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 enhanced qualifications for Tier 1, nor are they obligated to 
execute Customer posted interest or cross asset activity. Rather, the 
proposal is designed to encourage OTP Holders to utilize the Exchange 
as a primary trading venue for Customer posted interest (if they have 
not done so previously) and to increase cross asset activity, and all 
OTP Holders that meet the qualifications for Tier 1 would be eligible 
for the corresponding credit on electronic executions of Customer 
posted interest in Penny issues. To the extent that the proposed change 
attracts more Customer interest, including posted 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, 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.
    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

[[Page 29913]]

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.'' \12\
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    \12\ See Reg NMS Adopting Release, supra note 8, at 37499.
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    Intramarket Competition. The proposed change is designed to attract 
additional order flow (particularly Customer posted interest and cross 
asset activity) to the Exchange. The Exchange believes that the 
proposed modification to Tier 1 would incent OTP Holders to direct 
their Customer order flow and cross asset activity to the Exchange. 
Greater liquidity benefits all market participants on the Exchange, and 
increased Customer order flow and posted equity order flow would 
increase opportunities for execution of other trading interest. The 
proposed modification to Tier 1 would be available to all similarly-
situated market participants that execute Customer posted interest, 
and, as such, the Exchange does not believe that 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.\13\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity & ETF options order flow. More specifically, in 
March 2022, the Exchange had less than 14% market share of executed 
volume of multiply-listed equity & ETF options trades.\14\
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    \13\ See note 9, supra.
    \14\ 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 increased from 
10.16% for the month of March 2021 to 13.57% for the month of March 
2022.
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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 incent OTP Holders to direct trading 
interest (particularly Customer posted interest and cross asset 
activity) to the Exchange, which would provide liquidity and attract 
order flow to the Exchange. 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 also believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
an exchange that currently offers similarly structured customer posting 
credits,\15\ by encouraging additional orders to be sent to the 
Exchange for execution.
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    \15\ See note 11, supra.
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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) \16\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \17\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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) \18\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \18\ 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 [email protected]. Please include 
File Number SR-NYSEArca-2022-26 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-2022-26. 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-2022-26, and should be 
submitted on or before June 7, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10515 Filed 5-16-22; 8:45 am]
BILLING CODE 8011-01-P


