[Federal Register Volume 87, Number 151 (Monday, August 8, 2022)]
[Notices]
[Pages 48212-48215]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-16882]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95411; No. SR-NYSEARCA-2022-45]


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

August 2, 2022.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on July 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 Posting Credit Tiers in Non-
Penny Issues. The Exchange proposes to implement the fee change 
effective August 1, 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.

[[Page 48213]]

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 Posting Credit Tiers in Non-Penny Issues (the ``Non-Penny 
Posting 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 non-Penny 
issues by meeting specified increasing volume levels in Non-Penny 
Posting Tiers A through F.\4\ Currently, an OTP Holder that achieves 
0.80% of TCADV from Customer posted interest in all issues will qualify 
for Non-Penny Posting Tier A (``Tier A'') and earn a credit of $0.85 
per contract applied to electronic executions of Customer posted 
interest in non-Penny issues.\5\ OTP Holders that achieve 0.80% of 
TCADV from Customer posted interest in all issues, of which at least 
0.10% of TCADV is from Customer posted interest in non-Penny Issues 
will qualify for Non-Penny Posting Tier B (``Tier B'') and earn a 
credit of $0.95 per contract applied to electronic executions of 
Customer posted interest in non-Penny issues.
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    \4\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES 
FOR STANDARD OPTIONS, CUSTOMER POSTING CREDIT TIERS IN NON-PENNY 
ISSUES.
    \5\ An OTP Holder may also qualify for Tier A by achieving at 
least 0.15% of TCADV of Firm and Broker Dealer posted interest in 
all issues and at least 0.10% TCADV from Customer posted interest in 
all issues. The Exchange does not propose any modifications to this 
qualification basis for Tier A.
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    The Exchange now proposes to modify the qualification bases for 
Tiers A and B. Specifically, the Exchange proposes to modify the TCADV 
component of the qualifying basis for each of Tiers A and B to require 
an OTP Holder to execute at least 1.00% of TCADV (rather than 0.80% of 
TCADV) from Customer posted interest in all issues. In addition, to 
qualify for Tier B, the Exchange also proposes to modify the 
qualification basis to provide that at least 0.20% of TCADV (rather 
than 0.10% TCADV) must be from Customer posted interest in non-Penny 
Issues. Although the proposed modifications to the qualifying criteria 
for Tiers A and B would increase the volume requirement for those 
Tiers, the Exchange believes that the proposed change would continue to 
encourage OTP Holders to execute Customer posted interest on the 
Exchange in order to earn the credits offered in Tiers A and B.
    In addition, to maintain the incentive structure of the Non-Penny 
Posting Tiers following the proposed changes to Tier B, the Exchange 
also proposes to modify the Customer Incentive Program.\6\ Currently, 
the Exchange offers an additional $0.03 credit on Customer Posting 
Credits through the Customer Incentive Program. An OTP Holder may 
qualify for the additional $0.03 credit in three ways, including by 
achieving at least 0.80% of TCADV from Customer posted interest in all 
issues, of which at least 0.20% of TCADV is from Customer posted 
interest in non-Penny issues. The Exchange notes that an OTP Holder 
that qualifies for Tier B, as proposed in this filing, would also meet 
this qualification for the additional $0.03 credit offered in the 
Customer Incentive Program, and such OTP Holder would receive a greater 
credit on Customer non-Penny posting volume than if they qualified for 
Non-Penny Posting Tier C. Thus, to preserve the tiered incentives 
offered in the Non-Penny Posting Tiers, the Exchange proposes to 
eliminate this qualifying option for the Customer Incentive Program. 
Although this proposal would eliminate a method by which OTP Holders 
could qualify for the Customer Incentive Program, the Exchange notes 
that OTP Holders will continue to be able to earn the additional $0.03 
credit on Customer Posting Credits via two other qualifying bases, 
which remain unchanged, and believes that the Customer Incentive 
Program would continue to incent OTP Holders to execute Customer posted 
interest on the Exchange.
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    \6\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES 
FOR STANDARD OPTIONS, NON-CUSTOMER, NON-PENNY POSTING CREDIT TIERS.
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    The Exchange proposes to implement the rule change on August 1, 
2022.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 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.'' \9\
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    \9\ 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.\10\ Therefore, currently no exchange possesses significant 
pricing power in the execution of multiply-listed equity & ETF options 
order flow. More specifically, in June 2022, the Exchange had less than 
13% market share of executed volume of multiply-listed equity & ETF 
options trades.\11\
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    \10\ 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.
    \11\ 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 9.07% for the month of June 2021 to 12.23% for the month of 
June 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 A or B, as modified, the 
Exchange believes that the new qualifying criteria for Tiers A and B 
are attainable and that the credits offered in Tiers A and B would 
continue to encourage OTP Holders to increase Customer posted volume on 
the Exchange and incent OTP Holders to direct more Customer order flow 
to the Exchange, which would bring increased liquidity for the benefit 
of all market

[[Page 48214]]

participants. The Exchange also believes that the proposed elimination 
of one of the qualifying options for the Customer Incentive Program, 
which, as described above, would preserve the incentive structure of 
the Non-Penny Posting Tiers, is reasonable because OTP Holders will 
continue to be able to earn the additional credit on Customer Posting 
Credits via two other qualifying bases. The Exchange also believes that 
the additional credit available through the Customer Incentive Program 
(the amount of which remains unchanged) would continue to incent OTP 
Holders to execute Customer posted interest on the Exchange.
    Finally, to the extent the proposed change continues to attract 
greater volume and liquidity to the Exchange, and, in particular, 
continues to encourage OTP Holders to increase Customer volume to 
qualify for the credits available in Tiers A and B or the Customer 
Incentive Program, 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 for non-Penny issues.\12\ Thus, OTP Holders have 
a choice of where they direct their order flow, including their 
Customer posting 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, thereby 
promoting market depth, price discovery and improvement, and enhanced 
order execution opportunities for market participants.
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    \12\ 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 Non-
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 credits available in Tiers A and B and 
the Customer Incentive Program or not. The proposal is designed to 
continue to incent OTP Holders to aggregate Customer posting interest 
at the Exchange as a primary execution venue. To the extent that this 
purpose is achieved, this increased order flow would continue to make 
the Exchange a more competitive venue for, among other things, order 
execution on options. 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 credits offered in Tiers A and B and through 
the Customer Incentive Program would be available to all similarly-
situated market participants on an equal and non-discriminatory basis. 
The Exchange also believes that the proposed elimination of a 
qualifying basis for the credit offered through the Customer Incentive 
Program is not unfairly discriminatory because OTP Holders will still 
be able to earn such credit by meeting either of the two remaining 
qualifying bases.
    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 modified qualifications for Tiers A or B or to qualify for the 
Customer Incentive Program, nor are they obligated to execute Customer 
posted interest. Rather, the proposal is designed to continue 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 all OTP Holders that meet the qualifications for Tiers 
A or B or the remaining qualifications for the Customer Incentive 
Program would be eligible for the corresponding credit on electronic 
executions of Customer posted interest.
    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.

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.'' \13\
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    \13\ 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 Customer posted interest) to the 
Exchange. The Exchange believes that the proposed modifications to 
Tiers A and B and to the Customer Incentive Program would continue to 
incent OTP Holders to direct their Customer order flow to the Exchange. 
Greater liquidity benefits all market participants on the Exchange, and 
increased Customer order flow would increase opportunities for 
execution of other trading interest. The proposed modifications to 
Tiers A and B and to the Customer Incentive Program would apply to all 
similarly-situated market participants that execute Customer posted 
interest, and, as such, the Exchange does not believe that the proposed 
change would impose a disparate burden on competition among market 
participants on the Exchange.
    Intermarket Competition. The Exchange operates in a highly

[[Page 48215]]

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.\14\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity & ETF options order flow. More specifically, in 
June 2022, the Exchange had less than 13% market share of executed 
volume of multiply-listed equity & ETF options trades.\15\
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    \14\ See note 10, supra.
    \15\ 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 9.07% 
for the month of June 2021 to 12.23% for the month of June 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) 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,\16\ by encouraging additional orders to be sent to the 
Exchange for execution.
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    \16\ See note 12, 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) \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 [email protected]. Please include 
File Number SR-NYSEARCA-2022-45 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-2022-45. 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-2022-45, and should be 
submitted on or before August 29, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-16882 Filed 8-5-22; 8:45 am]
BILLING CODE 8011-01-P


