[Federal Register Volume 77, Number 166 (Monday, August 27, 2012)]
[Proposed Rules]
[Pages 51720-51722]
[FR Doc No: 2012-20967]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2012-0860; Directorate Identifier 2012-NM-123-AD]
RIN 2120-AA64

Airworthiness Directives; The Boeing Company Airplanes

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking (NPRM).

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SUMMARY: We propose to adopt a new airworthiness directive (AD) for
certain The Boeing Company Model 737-600, -700, -800, and -900ER series
airplanes. This proposed AD was prompted by incorrect wire support
clamps installed within the left environmental cooling systems (ECS)
bay, which could allow wiring to come in contact with the exposed metal
of the improper clamp. This proposed AD would require inspections to
identify the part number of the wire support clamp, related
investigative actions, and corrective actions if necessary. We are
proposing this AD to prevent electrical arcing and a potential ignition
source, which in combination with flammable fuel vapors could result in
a fuel tank explosion, and consequent loss of the airplane.

DATES: We must receive comments on this proposed AD by October 11,
2012.

ADDRESSES: You may send comments, using the procedures found in 14 CFR
11.43 and 11.45, by any of the following methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the instructions for submitting comments.
     Fax:<PHONE_NUMBER>.
     Mail: U.S. Department of Transportation, Docket
Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue SE., Washington, DC 20590.
     Hand Delivery: Deliver to Mail address above between 9
a.m. and 5 p.m., Monday through Friday, except Federal holidays.
    For service information identified in this proposed AD, contact
Boeing Commercial Airplanes, Attention: Data & Services Management,
P.O. Box 3707, MC 2H-65, Seattle, Washington 98124-2207; telephone 206-
544-5000, extension 1; fax<PHONE_NUMBER>; Internet https://www.myboeingfleet.com. You may review copies of the referenced service
information at the FAA, Transport Airplane Directorate, 1601

Lind Avenue SW., Renton, Washington. For information on the
availability of this material at the FAA, call<PHONE_NUMBER>.

Examining the AD Docket

    You may examine the AD docket on the Internet at http://www.regulations.gov; or in person at the Docket Management Facility
between 9 a.m. and 5 p.m., Monday through Friday, except Federal
holidays. The AD docket contains this proposed AD, the regulatory
evaluation, any comments received, and other information. The street
address for the Docket Office (phone:<PHONE_NUMBER>) is in the ADDRESSES
section. Comments will be available in the AD docket shortly after
receipt.

FOR FURTHER INFORMATION CONTACT: Georgios Roussos, Aerospace Engineer,
Systems and Equipment Branch, ANM-130S, FAA, Seattle Aircraft
Certification Office, 1601 Lind Avenue SW., Renton, WA 98057-3356;
phone:<PHONE_NUMBER>; fax:<PHONE_NUMBER>; email:
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

Comments Invited

    We invite you to send any written relevant data, views, or
arguments about this proposal. Send your comments to an address listed
under the ADDRESSES section. Include ``Docket No. FAA-2012-0860;
Directorate Identifier 2012-NM-123-AD'' at the beginning of your
comments. We specifically invite comments on the overall regulatory,
economic, environmental, and energy aspects of this proposed AD. We
will consider all comments received by the closing date and may amend
this proposed AD because of those comments.
    We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We
will also post a report summarizing each substantive verbal contact we
receive about this proposed AD.

Discussion

    We reviewed reports of incorrect wire support clamps installed
within the left ECS bay, which is a flammable leakage zone. Use of
incorrect wire support clamps that are not fully cushioned could allow
electrical power wiring to come in contact with the exposed metal of
the improper clamp. Power wiring shorts to the exposed metal of the
wire support clamp could produce electrical arcing. We are proposing
this AD to prevent electrical arcing and a potential ignition source,
which in combination with flammable fuel vapors, could result in a fuel
tank explosion, and consequent loss of the airplane.

Relevant Service Information

    We reviewed Boeing Special Attention Service Bulletin 737-28-1303,
dated April 26, 2012. The service information describes procedures for
a detailed inspection of certain wire support clamps to identify part
number TA0930034-10 wire support clamp and related investigative
actions to verify that the flange cushions completely surround the two
metal strap sections of the wire support clamp and to detect any
possible chafing of the wire bundle within the left side ECS bay, and
corrective actions if necessary. Corrective actions include replacing
the discrepant clamp with a new or serviceable TA0930034-10 wire
support clamp if the part number is incorrect or if the flange cushions
do not completely surround the two metal strap sections of the wire
support clamp, and repairing or replacing chafed wiring.

FAA's Determination

    We are proposing this AD because we evaluated all the relevant
information and determined the unsafe condition described previously is
likely to exist or develop in other products of these same type
designs.

Proposed AD Requirements

    This proposed AD would require accomplishing the actions specified
in the service information described previously.

Costs of Compliance

    We estimate that this proposed AD affects 297 airplanes of U.S.
registry.
    We estimate the following costs to comply with this proposed AD:

                                                 Estimated Costs
----------------------------------------------------------------------------------------------------------------
                                                                     Cost per        Number of     Cost on U.S.
            Action                 Labor cost       Parts cost        product        airplanes       operators
----------------------------------------------------------------------------------------------------------------
Inspection Group 1 airplanes..  10 work-hours x               $0            $850             185        $157,250
                                 $85 per hour =
                                 $850.
Inspection Group 2 airplanes..  2 work-hours x                 0             170             112          19,040
                                 $85 per hour =
                                 $170.
----------------------------------------------------------------------------------------------------------------

    We estimate the following costs to do any necessary replacements
that would be required based on the results of the proposed inspection.
We have no way of determining the number of aircraft that might need
these replacements.

                                               On-Condition Costs
----------------------------------------------------------------------------------------------------------------
                                                                                Cost per
                 Action                                Labor cost                  Parts cost        product
----------------------------------------------------------------------------------------------------------------
Replacement of wire support clamp.......  1 work-hour x $85 per hour = $85....              $3              $88
----------------------------------------------------------------------------------------------------------------

    According to the manufacturer, some of the costs of this proposed
AD may be covered under warranty, thereby reducing the cost impact on
affected individuals. We do not control warranty coverage for affected
individuals. As a result, we have included all costs in our cost
estimate.
    We have received no definitive data that would enable us to provide
cost estimates for the on-condition repair of chafed or damaged wiring
specified in this proposed AD.

Authority for This Rulemaking

    Title 49 of the United States Code specifies the FAA's authority to
issue rules on aviation safety. Subtitle I, section 106, describes the
authority of the FAA Administrator. Subtitle VII: Aviation Programs,
describes in more detail the scope of the Agency's authority.
    We are issuing this rulemaking under the authority described in
Subtitle VII, Part A, Subpart III, Section 44701:

``General requirements.'' Under that section, Congress charges the FAA
with promoting safe flight of civil aircraft in air commerce by
prescribing regulations for practices, methods, and procedures the
Administrator finds necessary for safety in air commerce. This
regulation is within the scope of that authority because it addresses
an unsafe condition that is likely to exist or develop on products
identified in this rulemaking action.

Regulatory Findings

    We determined that this proposed AD would not have federalism
implications under Executive Order 13132. This proposed AD would not
have a substantial direct effect on the States, on the relationship
between the national Government and the States, or on the distribution
of power and responsibilities among the various levels of government.
    For the reasons discussed above, I certify this proposed
regulation:
    (1) Is not a ``significant regulatory action'' under Executive
Order 12866,
    (2) Is not a ``significant rule'' under the DOT Regulatory Policies
and Procedures (44 FR 11034, February 26, 1979),
    (3) Will not affect intrastate aviation in Alaska, and
    (4) Will not have a significant economic impact, positive or
negative, on a substantial number of small entities under the criteria
of the Regulatory Flexibility Act.

List of Subjects in 14 CFR Part 39

    Air transportation, Aircraft, Aviation safety, Incorporation by
reference, Safety.

The Proposed Amendment

    Accordingly, under the authority delegated to me by the
Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

PART 39--AIRWORTHINESS DIRECTIVES

    1. The authority citation for part 39 continues to read as follows:

    Authority:  49 U.S.C. 106(g), 40113, 44701.

Sec.  39.13  [Amended]

    2. The FAA amends Sec.  39.13 by adding the following new
airworthiness directive (AD):

The Boeing Company: Docket No. FAA-2012-0860; Directorate Identifier
2012-NM-123-AD.

(a) Comments Due Date

    We must receive comments by October 11, 2012.

(b) Affected ADs

    None.

(c) Applicability

    This AD applies to The Boeing Company Model 737-600, -700, -800,
and -900ER series airplanes; certificated in any category; as
identified in Boeing Special Attention Service Bulletin 737-28-1303,
dated April 26, 2012.

(d) Subject

    Joint Aircraft System Component (JASC)/Air Transport Association
(ATA) of America Code 28, Fuel System.

(e) Unsafe Condition

    This AD was prompted by incorrect wire support clamps installed
within the left environmental cooling systems (ECS) bay, which could
allow wiring to come in contact with the exposed metal of the
improper clamp. We are issuing this AD to prevent electrical arcing
and a potential ignition source, which in combination with flammable
fuel vapors could result in a fuel tank explosion, and consequent
loss of the airplane.

(f) Compliance

    Comply with this AD within the compliance times specified,
unless already done.

(g) Inspection and Corrective Actions

    Within 60 months after the effective date of this AD, do a
detailed inspection for part number TA0930034-10 wire support clamp,
and do all applicable related investigative and corrective actions,
in accordance with the Accomplishment Instructions of Boeing Special
Attention Service Bulletin 737-28-1303, dated April 26, 2012. Do all
applicable related investigative and corrective actions before
further flight.

(h) Parts Installation Prohibition

    As of the effective date of this AD, no person may install a
wire support clamp that is not part number (P/N) TA0930034-10 within
the left ECS bay of any airplane.

(i) Alternative Methods of Compliance (AMOCs)

    (1) The Manager, Seattle Aircraft Certification Office (ACO),
FAA, has the authority to approve AMOCs for this AD, if requested
using the procedures found in 14 CFR 39.19. In accordance with 14
CFR 39.19, send your request to your principal inspector or local
Flight Standards District Office, as appropriate. If sending
information directly to the manager of the ACO, send it to the
attention of the person identified in the Related Information
section of this AD. Information may be emailed to<EMAIL_ADDRESS>    (2) Before using any approved AMOC, notify your appropriate
principal inspector, or lacking a principal inspector, the manager
of the local flight standards district office/certificate holding
district office.

(j) Related Information

    (1) For more information about this AD, contact Georgios
Roussos, Aerospace Engineer, Systems and Equipment Branch, ANM-130S,
FAA, Seattle Aircraft Certification Office, 1601 Lind Avenue SW.,
Renton, WA 98057-3356; phone:<PHONE_NUMBER>; fax:<PHONE_NUMBER>;
email<EMAIL_ADDRESS>    (2) For service information identified in this AD, contact
Boeing Commercial Airplanes, Attention: Data & Services Management,
P. O. Box 3707, MC 2H-65, Seattle, Washington 98124-2207; telephone
206-544-5000, extension 1; fax<PHONE_NUMBER>; Internet https://www.myboeingfleet.com. You may review copies of the referenced
service information at the FAA, Transport Airplane Directorate, 1601
Lind Avenue SW., Renton, Washington. For information on the
availability of this material at the FAA, call<PHONE_NUMBER>.

    Issued in Renton, Washington, on August 17, 2012.
Ali Bahrami,
Manager, Transport Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 2012-20967 Filed 8-24-12; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register Volume 77, Number 92 (Friday, May 11, 2012)]
[Notices]
[Pages 27822-27825]
[FR Doc No: 2012-11365]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66934; File No. SR-CBOE-2012-040]

Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Proposed Rule Change Related to Permanent
Approval of Its Pilot on FLEX Minimum Value Sizes

May 7, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 25, 2012, the Chicago Board Options Exchange, Incorporated
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I and II below, which Items have been prepared by the
Exchange. 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\ 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 is proposing to make permanent its pilot program
regarding minimum value sizes for Flexible Exchange Options (``FLEX
Options'').\3\ The text of the rule proposal is available on the
Exchange's Web site (http://www.cboe.org/legal), at the Exchange's
Office of the Secretary and at the Commission.
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    \3\ FLEX Options provide investors with the ability to customize
basic option features including size, expiration date, exercise
style, and certain exercise prices. FLEX Options can be FLEX Index
Options or FLEX Equity Options. In addition, other products are
permitted to be traded pursuant to the FLEX trading procedures. For
example, credit options are eligible for trading as FLEX Options
pursuant to the FLEX rules in Chapters XXIVA and XXIVB. See CBOE
Rules 24A.1(e) and (f), 24A.4(b)(1) and (c)(1), 24B.1(f) and (g),
24B.4(b)(1) and (c)(1), and 28.17. The rules governing the trading
of FLEX Options on the FLEX Request for Quote (``RFQ'') System
platform are contained in Chapter XXIVA. The rules governing the
trading of FLEX Options on the FLEX Hybrid Trading System platform
are contained in Chapter XXIVB.
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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
    On January 28, 2010, the Exchange received approval of a rule
change that, among other things, established a pilot program that
eliminated minimum value sizes for FLEX Options. The pilot program is
currently set to expire on the earlier of November 2, 2012 or the date
on which the pilot program is approved on a permanent basis.\4\ The
purpose of this rule change filing is to make the pilot program
permanent.
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    \4\ At the same time the minimum value size pilot program was
established, the Exchange also established a pilot program regarding
permissible exercise settlement values for FLEX Index Options.
Securities Exchange Act Release Nos. 61439 (January 28, 2010), 75 FR
5831 (February 4, 2010) (SR-CBOE-2009-087) (Approval Order); 61676
(March 9, 2010), 75 FR 13191 (March 18, 2010) (SR-CBOE-2010-026)
(technical rule change to include original pilots' conclusion date
of March 28, 2011 in the rule text); 64110 (March 24, 2011), 76 FR
17463 (March 29, 2011) (SR-CBOE-2011-024) (extending the pilots
through March 30, 2012); and 66701 (March 30, 2012), 77 FR 20673
(April 5, 2012) (SR-CBOE-2012-027) (extending the pilots through the
earlier of November 2, 2012 or the date on which the respective
pilot program is approved on a permanent basis). The Exchange is not
currently proposing permanent approval of the exercise settlement
values pilot program for FLEX Index Options. Any such proposal would
be the subject of a separate rule change filing.

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Background on the Pilot
    Prior to the initiation of the minimum value size pilot, the
minimum value size requirements under CBOE Rules 24A.4 and 24B.4 were
as follows:
     For opening transactions in any FLEX series in which there
is no open interest at the time a FLEX RFQ or FLEX Order, as
applicable, is submitted, the minimum value size was (i) for FLEX
Equity Options, the lesser of 250 contracts or the number of contracts
overlying $1 million in the underlying securities; and (ii) for FLEX
Index Options, $10 million Underlying Equivalent Value. Under a prior
pilot program (which was superseded by the minimum value size pilot
program), the ``250 contracts'' component above had been reduced to
``150 contracts.'' \5\
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    \5\ See Securities Exchange Act Release No. 57249 [sic] (March
4, 2008), 73 FR 13058 (March 11, 2008) (SR-CBOE-2006-36) (approval
of rule change that, among other things, established a pilot program
that reduced the minimum number contracts required for a FLEX Equity
Option opening transaction in an new series).
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     For a transaction in any currently-opened FLEX series
resulting from an RFQ or from trading against the electronic book
(other than FLEX Quotes responsive to a FLEX Request for Quotes and
FLEX Orders submitted to rest in the electronic book), the minimum
value size was (i) for FLEX Equity Options, the lesser of 100 contracts
or the number of contracts overlying $1 million in the underlying
securities in the case of opening transactions, and 25 contracts in the
case of closing transactions; and (ii) for FLEX Index Options, $1
million Underlying Equivalent Value in the case of both opening and
closing transactions; or (iii) in either case the remaining underlying
size or Underlying Equivalent Value on a closing transaction, whichever
is less.
     The minimum value size for FLEX Quotes responsive to an
RFQ and FLEX Orders (undecremented size) submitted to rest in the
electronic book was 25 contracts in the case of FLEX Equity Options,
and $1 million Underlying Equivalent Value in the case of FLEX Index
Options, or in either case the remaining underlying size or Underlying
Equivalent Value on a closing transaction, whichever is less. In
addition, with respect to FLEX Index Appointed Market-Makers, FLEX
Quotes and FLEX Orders (undecremented size) must have been for at least
$10 million Underlying Equivalent Value or the dollar amount indicated
in the Request for Quote (if applicable), whichever is less.
    Under the minimum value size pilot, these minimum value size
requirements were eliminated.\6\ As mentioned above, the minimum value
size pilot is currently set to expire on the earlier of November 2,
2012 or the date on which the pilot program is approved on a permanent
basis.
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    \6\ The provisions in CBOE Rules 24A.9(b) and 24B.9(c) that
provide that every FLEX Quote entered by a FLEX Appointed Market-
Maker or a FLEX Qualified Market-Maker shall meet or exceed the
minimum value size parameters set forth in CBOE Rules
24A.4(a)(4)(iv) and 24B.4(a)(5)(iv), respectively, have not been/are
not applicable during the duration of the pilot program. This is
because all minimum value size requirements under CBOE Rules
24A.4(a)(4) and 24B.4(a)(5) have been eliminated under the pilot
program.
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Proposal

    CBOE is proposing to make the minimum value size pilot program
permanent. CBOE believes the pilot program has been successful and well
received by its membership and the investing public for the period that
it has been in operation as a pilot.
    To accomplish this change, CBOE is proposing to eliminate the rule
text describing the pilot program, which descriptions are contained in
CBOE Rules 24A.4.01, FLEX Pilot Programs, and 24B.4.01, FLEX Pilot
Programs; and to eliminate the rule text describing the minimum value
size requirements, which descriptions are contained in CBOE Rules
24A.4(a)(4) and 24B.4(a)(5) and cross-referenced in paragraph (b) of
CBOE Rule 24A.9, FLEX Market-Maker Appointments and Obligations, and
paragraph (c) of CBOE 24B.9, FLEX Market-Maker Appointments and
Obligations.
    In conjunction with these changes, the Exchange is proposing
certain non-substantive changes to reorganize the rule text. In
particular, text from CBOE Rules 24A.4(a)(4)(i) and 24B.4(a)(5)(i)
pertaining to the maximum fifteen (15) year term for a FLEX Option is
proposed to be relocated and combined with the text of CBOE Rules
24A.4(a)(2)(iv) and 24B.4(a)(2)(iv), respectively, which describe FLEX
Option expiration date requirements. As modified, Rules 24A.4(a)(2)(iv)
and 24B.4(a)(2)(iv) will state that the expiration date may be any
business day specified as to day, month, and year, not to exceed a
maximum of fifteen (15) years, except that a FLEX Index Option that
expires on any business day that falls on, or within two business days
of, a third Friday-of-the-month expiration day for any Non-FLEX Option
other than a QIX option) (``Expiration Friday''), may only have an
exercise settlement value on the expiration date determined by
reference to the reported level of the index as derived from the
opening prices of the component securities (``a.m. settlement'').\7\
Finally, the minimum percentage requirements for FLEX Appointed Market-
Maker responses to electronic Request for Quotes set forth in CBOE Rule
24B.4(a)(5)(iv) will be relocated to CBOE Rule 24B.9(c) (and replace an
existing cross-reference in Rule 24B.9(c) to Rule 24B.4(a)(5)(iv)).
These changes are proposed simply to reorganize the rule text in light
of the other changes being proposed. As noted above, the changes are
not substantive.
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    \7\ The Exchange notes that the a.m. settlement limitation on
permissible exercise settlement values for FLEX Index Options with
an Expiration Friday expiration has been eliminated on a pilot
basis. See CBOE Rules 24A.4.01 and 24B.4.01 and note 4, supra.
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    In support of approving the pilot program on a permanent basis, and
as required by the pilot program's approval order, the Exchange has
submitted to the Commission a pilot program report regarding the pilot,
which details the Exchange's experience with the program. Specifically,
the Exchange provided the Commission an annual report containing data
and analysis of underlying equivalent values, open interest and trading
volume, and analysis of the types of investors that initiated opening
FLEX Equity and Index Options transactions (i.e., institutional, high
net worth, or retail). The report was provided to the Commission on a
confidential basis.
    The Exchange believes there is sufficient investor interest and
demand in the pilot program to warrant its permanent approval. The
Exchange believes that, for the period that the pilot has been in
operation, the program has provided investors with additional means of
managing their risk exposures and carrying out their investment
objectives. Furthermore, as discussed in more detail below, the
Exchange has not experienced any adverse market effects with respect to
the pilot program.
    CBOE believes that eliminating the minimum value size requirements
for all FLEX Options on a permanent basis is important and necessary to
the Exchange's efforts to create a product and market that provides its
membership and investors interested in FLEX-type options with an
improved but comparable alternative to the over-the-counter (``OTC'')
market in customized options, which can take on contract
characteristics similar to FLEX Options but are not subject to the same
restrictions. By making the pilot permanent, market participants will
continue to have greater flexibility in determining whether to execute
their customized options in an exchange environment or in the OTC
market. CBOE believes market participants

benefit from being able to trade these customized options in an
exchange environment in several ways, including, but not limited to the
following: (i) Enhanced efficiency in initiating and closing out
positions; (ii) increased market transparency; and (iii) heightened
contra-party creditworthiness due to the role of The Options Clearing
Corporation (``OCC'') as issuer and guarantor of FLEX Options. The
Exchange also believes the pilot programs are wholly consistent with
comments by Timothy F. Geithner, Secretary of the Treasury, to the U.S.
Senate. In particular, Secretary Geithner has stated that:

    Market efficiency and price transparency should be improved in
derivatives markets by requiring the clearing of standardized
contracts through regulated [central counterparties] and by moving
the standardized part of these markets onto regulated exchanges and
regulated transparent electronic trade execution systems for OTC
derivatives and by requiring development of a system for timely
reporting of trades and prompt dissemination of prices and other
trade information. Furthermore, regulated financial institutions
should be encouraged to make greater use of regulated exchange-
traded derivatives. Competition between appropriately regulated OTC
derivatives markets and regulated exchanges will make both sets of
markets more efficient and thereby better serve end-users of
derivatives.\8\
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    \8\ See letter from Secretary Geithner to the Honorable Harry
Reid, United States Senate (May 13, 2009), located at http://www.financialstability.gov/docs/OTCletter.pdf.

    The Exchange believes that the elimination of the minimum value
size requirements on a permanent basis would provide FLEX-participating
Trading Permit Holders with greater flexibility in structuring the
terms of FLEX Options that best comports with their and their
customers' particular needs. In this regard, the Exchange notes that
the minimum value size requirements were originally put in place over
nineteen years ago to limit participation in FLEX Options to
sophisticated, high net worth investors rather than retail
investors.\9\ However, the Exchange believes the restriction is no
longer necessary and is overly restrictive. The Exchange has also not
experienced any adverse market effects with respect to the pilot
program eliminating the minimum value size requirements. Again, based
on the Exchange's experience to date and over the pilot period, the
minimum value size requirements are too large to accommodate the needs
of Trading Permit Holders and their customers--who may be
institutional, high net worth or retail--that currently participate in
the OTC market. In this regard, the Exchange notes that, prior to
establishing the minimum value size pilot, it received numerous
requests from broker-dealers representing institutional, high net worth
and retail investors indicating that the minimum value size
requirements prevented them from bringing transactions that are already
taking place in the OTC market to an exchange environment. The Exchange
believes that eliminating the minimum value size requirements on a
permanent basis would further broaden the base of investors that use
FLEX Options to manage their trading and investment risk, including
investors that currently trade in the OTC market for customized
options, where similar size restrictions do not apply. The Exchange
also believes that this may open up FLEX Options to more retail
investors. The Exchange does not believe this raises any unique
regulatory concerns because existing safeguards--such as certain
position limit, aggregation and exercise limit requirements, reporting
requirements, and margin requirements--continue to apply.\10\ In
addition, the Exchange notes that FLEX Options are subject to the
options disclosure document (``ODD'') requirements of Rule 9b-1 \11\
under the Act.\12\ No broker or dealer can accept an order from a
customer to purchase or sell an option contract relating to an options
class that is the subject of a definitive ODD (including FLEX Options),
or approve the customer's account for the trading of such an option,
unless the broker or dealer furnishes or has furnished to the customer
a copy of the definitive ODD. The ODD contains a description, special
features, and special risks of FLEX Options. Lastly, similar to any
other options, FLEX Options are subject to Trading Permit Holder
organization supervision and suitability requirements, such as in CBOE
Rules 9.8, Supervision of Accounts, and 9.9, Suitability of
Recommendations.
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    \9\ See Securities Exchange Act Release Nos. 31361 (October 27,
1992) 57 FR 52655 (November 4, 1992) (SR-CBOE-92-17)(notice of
filing of proposed rule change relating to Flexible Exchange
Options) and 31920 (February 24, 1993), 58 FR 12280 (March 3, 1993)
(order approving SR-CBOE-92-17).
    \10\ The Exchange also notes that certain position limit,
aggregation and exercise limit requirements continue to apply to
FLEX Options in accordance with CBOE Rules 24A.7, Position Limits
and Reporting Requirements, 24A.8, Exercise Limits, 24B.7, Position
Limits and Reporting Requirements, and 24B.8, Exercise Limits.
Additionally, all FLEX options remain subject to the position
reporting requirements in paragraph (a) of CBOE Rule 4.13, Reports
Related to Position Limits. CBOE Rule 4.13(a) provides that ``[i]n a
manner and form prescribed by the Exchange, each Trading Permit
Holder shall report to the Exchange, the name, address, and social
security or tax identification number of any customer who, acting
alone, or in concert with others, on the previous business day
maintained aggregate long or short positions on the same side of the
market of 200 or more contracts of any single class of option
contracts dealt in on the Exchange. The report shall indicate for
each such class of options, the number of option contracts
comprising each such position and, in the case of short positions,
whether covered or uncovered.'' For purposes of this Rule, the term
``customer'' in respect of any Trading Permit Holder includes ``the
Trading Permit Holder, any general or special partner of the Trading
Permit Holder, any officer or director of the Trading Permit Holder,
or any participant, as such, in any joint, group or syndicate
account with the Trading Permit Holder or with any partner, officer
or director thereof.'' CBOE Rule 4.13(d). Moreover, the Exchange and
its Trading Permit Holder organizations each have the authority,
pursuant to CBOE Rule 12.10, Margin Required is Minimum, to impose
additional margin as deemed advisable.
    \11\ 17 CFR 240.9b-1.
    \12\ 15 U.S.C. 78a et seq.
---------------------------------------------------------------------------

    In proposing the pilot itself and in now proposing to make it
permanent, CBOE is cognizant of the need for market participants to
have substantial options transaction capacity and flexibility to hedge
their substantial investment portfolios, on the one hand, and the
potential for adverse effects that the minimum value size restrictions
were originally designed to address, on the other. However, the
Exchange has not experienced any adverse market effects with respect to
the pilot program. CBOE is also cognizant of the OTC market, in which
similar restrictions on minimum value size do not apply. In light of
these considerations and Secretary Geithner's comments on moving the
standardized parts of OTC contracts onto regulated exchanges, CBOE
believes that making the pilot permanent is appropriate and reasonable
and will provide market participants with additional flexibility in
determining whether to execute their customized options in an exchange
environment or in the OTC market. CBOE believes market participants
benefit from being able to trade these customized options in an
exchange environment in several ways, including, but not limited to,
enhanced efficiency in initiating and closing out positions, increased
market transparency, and heightened contra-party creditworthiness due
to the role of OCC as issuer and guarantor of FLEX Options.
    For the foregoing reasons, CBOE believes that the minimum value
size pilot program is reasonable and appropriate, promotes just and
equitable principles of trade, and facilitates transactions in
securities while continuing to foster the public interest and investor
protection, and therefore should be made permanent.

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act \13\ in general and furthers the objectives of
Section 6(b)(5) of the Act \14\ in particular in that it should promote
just and equitable principles of trade, serve to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and protect investors and the public interest.
Specifically, the Exchange believes that the permanent approval of the
pilot program, which eliminates minimum value size requirements, would
provide greater opportunities for investors to manage risk through the
use of FLEX Options. Further, the Exchange notes that it has not
experienced any adverse effects from the operation of the pilot
program. The Exchange also believes that making the minimum value size
pilot permanent does not raise any unique regulatory concerns. The
Exchange also believes that the proposed rule change would continue to
provide Trading Permit Holders and investors with additional
opportunities to trade customized options in an exchange environment
and subject to exchange-based rules, and investors would benefit as a
result.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the
proposal.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule
change should be disapproved.

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_ADDRESS>Please include
File Number SR-CBOE-2012-040 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-CBOE-2012-040. 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 Web site (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 Web site 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-CBOE-2012-040 and should be
submitted on or before June 1, 2012.
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-11365 Filed 5-10-12; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 88, Number 22 (Thursday, February 2, 2023)]
[Notices]
[Pages 7119-7125]
[FR Doc No: 2023-02129]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96763; File No. SR-NYSEARCA-2023-09]

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

January 27, 2023.
    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 January 26, 2023, 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 and II
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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 Floor Broker Fixed Cost Prepayment
Incentive Program and certain manual execution fees. The Exchange
proposes to implement the fee change effective January 26, 2023.\4\ The
proposed rule change is available on the Exchange's website at
www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
---------------------------------------------------------------------------

    \4\ The Exchange originally filed to amend the Fee Schedule on
December 30, 2022 (SR-NYSEARCA-2022-86), with an effective date of
January 3, 2023, then withdrew such filing and amended the Fee
Schedule on January 13, 2023 (SR-NYSEARCA-2023-08), which latter
filing the Exchange withdrew on January 26, 2023.
---------------------------------------------------------------------------

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to modify the Floor Broker Fixed Cost
Prepayment Incentive Program (the ``FB Prepay Program'') and to modify
certain fees relating to manual executions. The Exchange proposes to
implement the rule change on January 26, 2023.
Professional Customer Manual Executions
    The Exchange proposes to modify the fees for Professional Customer
manual executions (``Professional Customer Manual Fees'').\5\ The Fee
Schedule currently provides for a $0.25 per contract fee for such
executions, which fee the Exchange has waived for the period August 1,
2022 to December 31, 2022.\6\ The Exchange now proposes to make the
waiver permanent by modifying the fee for Professional Customer manual
executions to $0.00.\7\ The Exchange also proposes to delete the
asterisk-denoted statement regarding the period of the waiver, as the
language would no longer be relevant in light of this proposed change
and following the expiration of the waiver period on December 31, 2022.
The proposed change is intended to continue to attract manually
executed Professional Customer orders to the Exchange, and the Exchange
believes that all market participants stand to benefit from an increase
in such volume, which would promote market depth, facilitate tighter
spreads and enhance price discovery, and may lead to a corresponding
increase in order flow from other market participants as well.
---------------------------------------------------------------------------

    \5\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES
FOR STANDARD OPTIONS, TRANSACTION FEE FOR MANUAL EXECUTIONS--PER
CONTRACT.
    \6\ See Securities Exchange Act Release No. 95412 (August 3,
2022), 87 FR 48523 (August 9, 2022) (SR-NYSEARCA-2022-47) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Modify
the NYSE Arca Options Fee Schedule) (the ``Professional Customer
Manual Fee Filing'').
    \7\ The Professional Customer Manual Fee Filing also modified
the Fee Schedule's description of the FB Prepay Program to provide
that volume from Professional Customer manual executions would still
be included in the calculation of billable volume for purposes of
the FB Prepay Program when Professional Customer manual execution
fees are waived. See id. The Exchange proposes to delete this
statement further to its proposal to eliminate the fee for
Professional Customer manual executions and consistent with the
proposed changes to the FB Prepay Program as described below.
---------------------------------------------------------------------------

Firm and Broker Dealer Monthly Fee Cap
    The Exchange also proposes to modify the Firm and Broker Dealer
Monthly Fee Cap (the ``Monthly Fee Cap'').\8\ Currently, combined Firm
proprietary fees and Broker Dealer fees for transactions in standard
option contracts cleared in the customer range for manual executions
and QCC transactions are capped at $100,000 per month. A Firm or Broker
Dealer currently may also qualify for a decreased fee cap by achieving
Customer Penny Posting Credit Tier levels.\9\
---------------------------------------------------------------------------

    \8\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES
FOR STANDARD OPTIONS, FIRM AND BROKER DEALER MONTHLY FEE CAP.
    \9\ See id. at CUSTOMER PENNY POSTING TIERS.
---------------------------------------------------------------------------

    The Exchange proposes to raise the Monthly Fee Cap to $150,000 per
month and to eliminate the decreased fee caps for Firms or Broker
Dealers that achieve Customer Penny Posting Credit Tiers, such that all
Firms and Broker Dealers would be eligible for a $150,000 monthly fee
cap. Accordingly, the Exchange proposes to modify the Fee Schedule to
replace $100,000 with $150,000 in the description of the Monthly Fee
Cap and to delete the sentence and table describing decreased fee caps
offered to Firms or Broker Dealers that achieve Customer Penny Posting
Credit Tiers. The Exchange does not otherwise propose any changes to
the provisions of the Monthly Fee Cap. Strategy executions, royalty
fees, and firm trades executed via a Joint Back Office agreement will
continue to be excluded from fees to which the Monthly Fee Cap would
apply. The incremental service fee of $0.01 per contract for Firm or
Broker Dealer manual transactions other than QCC transactions (for
which there is no incremental service fee) will continue to apply once
the Monthly Fee Cap has been reached.
    The Exchange believes that the proposed change, despite increasing
the amount of the Monthly Fee Cap, would continue to incentivize Firms
and Broker Dealers to direct order flow to the Exchange to achieve the
benefits of a fee cap. The Exchange also notes that the proposed change
would provide for a uniform fee cap amount that would be applicable to
all Firms and Broker Dealers and sets the Monthly Fee Cap at an amount
similar to the firm fee cap established by other options exchanges.\10\
---------------------------------------------------------------------------

    \10\ See, e.g., NYSE American Options Fee Schedule, Section
I.I., Firm Monthly Fee Cap (providing for $150,000 cap on fees
associated with firm manual transactions); Nasdaq PHLX LLC, Options
7 Pricing Schedule, Section 4 (providing for a ``Monthly Firm Fee
Cap'' capping firm fees at $150,000). The Exchange believes its
proposed fee cap is of a comparable amount to those offered by these
other options exchanges, although the volumes considered to qualify
for the various fee caps differ.
---------------------------------------------------------------------------

FB Prepay Program
    The FB Prepay Program is a prepayment incentive program that allows
Floor Brokers to prepay certain of their annual Eligible Fixed Costs in
exchange for volume rebates. Currently, the FB Prepay Program offers
participating Floor Brokers who prepay certain annual fixed costs an
opportunity to qualify for rebates by achieving growth in billable
manual volume by a certain percentage as measured against one of two
benchmarks (the ``Percentage Growth Incentive'').\11\ Specifically, the
Percentage Growth Incentive is designed to encourage Floor Brokers to
increase their average daily volume in billable manual contract sides
to qualify for a Tier; each Tier of the FB Prepay Program corresponds
to an annual rebate equal to the greater of the ``Total Percentage
Reduction of pre-paid annual Eligible Fixed Costs'' or the
``Alternative Rebate.'' \12\ In either case, participating Floor
Brokers receive their annual rebate amount in the following
January.\13\ Floor Brokers that wish to participate in the FB Prepay
Program for the following calendar year must notify the Exchange no
later than the last business day of December in the current year.\14\
---------------------------------------------------------------------------

    \11\ See Fee Schedule, FLOOR BROKER FIXED COST PREPAYMENT
INCENTIVE PROGRAM (the ``FB Prepay Program''). ``Eligible Fixed
Costs'' include the OTP Trading Participant Rights fee for a Floor
Broker, Floor Broker Order Capture Device--Market Data Fees, Floor
Booth fees, the Options Floor Access Fee, and Wire Services fees, as
set forth in the table in the Fee Schedule.
    \12\ See id. The Percentage Growth Incentive excludes Customer
volume, Firm Facilitation and Broker Dealer facilitating a Customer
trades, and QCCs. Any volume calculated to achieve the Firm and
Broker Dealer Monthly Fee Cap and the Limit of Fees on Options
Strategy Executions (``Strategy Cap''), will likewise be excluded
from the Percentage Growth Incentive because fees on such volume are
already capped and therefore do not increase billable manual volume.
See id.
    \13\ See id.
    \14\ See id.
---------------------------------------------------------------------------

    The Exchange now proposes to simplify the FB Prepay Program by
eliminating the Percentage Growth Incentive and accompanying annual
rebates \15\ and instead providing FB

Prepay Program participants with monthly rebates through the Manual
Billable Rebate Program. Specifically, all Floor Brokers that
participate in the FB Prepay Program are eligible for a rebate on
manual billable volume of ($0.08) per billable side. In addition, FB
Prepay Program participants that achieve more than 500,000 billable
sides in a month will be eligible for an additional rebate of ($0.02)
per billable side, which would be payable back to the first billable
side. The calculation of volume on which rebates earned through the
Manual Billable Rebate Program would be paid is based on transactions
including at least one side for which manual transaction fees are
applicable and excludes QCCs.\16\ The Exchange proposes to continue to
exclude any volume calculated to achieve the Strategy Cap, regardless
of whether the cap is achieved, because fees on such volume are already
capped and therefore such volume does not increase billable manual
volume.\17\
---------------------------------------------------------------------------

    \15\ To effect the proposed change to eliminate the Percentage
Growth Incentive and related rebates, the Exchange also proposes to
delete the last sentence of the description of the FB Prepay Program
(which currently provides that Floor Brokers in the FB Prepay
Program will receive their rebate in the following January), as such
text would no longer apply to the FB Prepay Program, as modified.
    \16\ The Exchange proposes to continue to exclude volume from
QCC transactions from the calculation of eligible volume for rebates
paid through the Manual Billable Rebate Program, as proposed,
because Floor Brokers would be eligible for separate credits and
rebates for QCC transactions.
    \17\ The Exchange proposes to remove references to the exclusion
of Customer volume and Firm Facilitation and Broker Dealer
facilitating a Customer trades as redundant because such volume is
not billable. The Exchange also proposes that it would no longer
exclude volume calculated to achieve the Monthly Fee Cap from the
Manual Billable Rebate Program and proposes conforming changes to
reflect the deletion of references to the same. The Exchange
proposes to include volume calculated to achieve the Monthly Fee Cap
in calculations for the Manual Billable Rebate Program in light of
the proposed change to the Monthly Fee Cap (as described in this
filing), which would result in more non-facilitation Firm and Broker
Dealer volume being subject to regular transaction fees.
---------------------------------------------------------------------------

    The Exchange further proposes to provide that Submitting Broker QCC
credits \18\ and Floor Broker rebates earned through the Manual
Billable Rebate Program shall not combine to exceed $2,000,000 per
month per firm.
---------------------------------------------------------------------------

    \18\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES
FOR STANDARD OPTIONS, QUALIFIED CONTINGENT CROSS (``QCC'')
TRANSACTION FEES AND CREDITS. The Exchange provides a ($0.22) per
contract credits to Submitting Brokers for Non-Customer vs. Non-
Customer QCC transactions and a ($0.16) per contract credit to
Submitting Brokers for Customer vs. Non-Customer QCC transactions.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to modify the date it will use for
the calculation of a Floor Broker's Eligible Fixed Costs for the
following calendar year. The FB Prepay Program currently specifies that
a Floor Broker that commits to the program will be invoiced in January
for Eligible Fixed Costs, based on annualizing their Eligible Fixed
Costs incurred in November 2020. The Exchange proposes to modify the
Fee Schedule to specify that the annualization of Eligible Fixed Costs
would be based on costs incurred in November 2022, which the Exchange
believes would more accurately reflect Eligible Fixed Costs for the
coming calendar year.
    Although the Exchange cannot predict with certainty whether the
proposed changes to the FB Prepay Program would encourage Floor Brokers
to participate in the program or to increase either their manual
billable volume, the Exchange believes that the proposed changes would
continue to incentivize Floor Brokers to participate in the FB Prepay
Program by simplifying the structure of the program, modifying the
qualifying criteria and rebates offered through the program to be on a
monthly (rather than annual) basis, and offering additional rebates on
manual billable volume through the Manual Billable Rebate Program. All
Floor Brokers are eligible to participate in the FB Prepay Program and
qualify for the proposed rebates, and the rebates are achievable in any
given month without regard to volumes from any other month.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\19\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\20\ 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.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

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.'' \21\
---------------------------------------------------------------------------

    \21\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS
Adopting Release'').
---------------------------------------------------------------------------

    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.\22\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity and ETF options order flow.
More specifically, in November 2022, the Exchange had less than 13%
market share of executed volume of multiply-listed equity and ETF
options trades.\23\
---------------------------------------------------------------------------

    \22\ 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.
    \23\ Based on a compilation of OCC data for monthly volume of
equity-based options and monthly volume of equity-based ETF options,
see id., the Exchange's market share in equity-based options
decreased from 12.99% for the month of November 2021 to 12.31% for
the month of November 2022.
---------------------------------------------------------------------------

    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,
modifications 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 changes are reasonable
because they are designed to incent OTP Holders to increase the number
of manual transactions sent to the Exchange by offering rebates to
Floor Brokers on manual transactions with at least one billable side
and eliminating Professional Customer Manual Fees. The proposed
increase to the Monthly Fee Cap is likewise reasonable because the
Exchange believes the fee cap, although higher, would continue to
incentivize Firms and Broker Dealers to direct order flow to the
Exchange to receive the benefits of capped fees. Moreover, the proposed
Monthly Fee Cap would provide for a cap amount that would be applicable
to all Firms and Broker Dealers (regardless of their qualification for
Customer Penny Posting Credit Tiers) and establishes a cap amount
similar to that offered by other options exchanges.\24\ The Exchange
also believes that the proposed maximum monthly amount that a firm
could earn from Submitting Broker QCC credits and Floor Broker rebates
on manual billable volume is set at an amount that would encourage OTP

Holders to direct QCC transactions and manual billable volume to the
Exchange to receive the existing credits and proposed rebates.
---------------------------------------------------------------------------

    \24\ See note 10, supra.
---------------------------------------------------------------------------

    With respect to the FB Prepay Program, the Exchange also believes
that the proposed changes are reasonable because participation in the
program is optional, and Floor Brokers can elect to participate in the
program to be eligible for the rebates offered through the Manual
Billable Rebate Program or not. The Exchange also believes that the
proposed modification of the FB Prepay Program is reasonable because it
is designed to simplify the program, to continue to encourage Floor
Brokers to participate in the FB Prepay Program, and to provide
liquidity on the Exchange. Specifically, the Exchange believes that the
proposed restructuring of the FB Prepay Program to offer participating
Floor Brokers rebates on manual billable volume is reasonable because
it would streamline both the incentives offered to Floor Brokers and
the qualification basis for such incentives; all Floor Brokers
participating in the FB Prepay Program would be eligible for the same
rebate on manual billable volume and would qualify for the same
additional rebate on manual billable volume by meeting a set volume
threshold (which the Exchange believes is reasonable and attainable
based on recent manual billable volume executed by Floor Brokers). The
Exchange also believes that the proposed modification of the qualifying
criteria for and rebates offered through the FB Prepay Program to be on
a monthly basis is reasonable and could increase opportunities for
participating Floor Brokers to qualify for and receive the benefit of
the incentives offered. The Exchange further believes that the proposed
change to focus the FB Prepay Program on manual billable volume is
reasonable because the proposed change is intended to incentivize Floor
Brokers to increase manual billable volume executed on the Exchange,
and any increase in such volume would benefit all market participants.
Finally, the Exchange believes the proposed rebate amounts are
reasonable and comparable to rebate amounts offered by another options
exchange to Floor Brokers on manual transactions.\25\
---------------------------------------------------------------------------

    \25\ See, e.g., BOX Options Exchange Fee Schedule, Section V.C.
(offering rebates to Floor Brokers on orders presented on the
Trading Floor, including a $0.075 rebate for Broker Dealer and
Market Maker orders).
---------------------------------------------------------------------------

    To the extent that the proposed changes attract more volume to the
Exchange, 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 notes that all market participants stand to
benefit from any increase in volume entered by Floor Brokers, which
could promote market depth, facilitate tighter spreads and enhance
price discovery, to the extent the proposed change encourages OTP
Holders to utilize the Exchange as a primary trading venue, and may
lead to a corresponding increase in order flow from other market
participants. In addition, any increased liquidity on the Exchange
would result in enhanced market quality for all participants.
    The Exchange also believes that the proposed change to update the
date used for the calculation of Eligible Fixed Costs from November
2020 to November 2022 is reasonable because it expects Floor Broker
organizations' more recent November 2022 costs to provide a more
accurate basis for annualizing Eligible Fixed Costs for the coming
calendar year based on anticipated fixed costs in 2023.
    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 an exchange offering Floor Broker
rebates on manual transactions.\26\ Thus, OTP Holders have a choice of
where they direct their order flow, including their manual
transactions. The proposed rule changes are designed to continue to
incent OTP Holders to direct liquidity and, in particular, manual
transactions to the Exchange. In addition, to the extent OTP Holders
are incentivized to aggregate their trading activity at the Exchange,
that increased liquidity could promote market depth, price discovery
and improvement, and enhanced order execution opportunities for market
participants.
---------------------------------------------------------------------------

    \26\ See id.
---------------------------------------------------------------------------

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 because the proposal is based on the
amount and type of business transacted on the Exchange. Professional
Customers can opt to submit orders for trading electronically or for
manual execution on the Trading Floor. Floor Brokers are not obligated
to participate in the FB Prepay Program, and those who do can choose to
execute manual billable volume to earn rebates through the Manual
Billable Rebate Program or not. The Exchange also believes that the
proposed modification of the qualifying criteria for and rebates
offered through the FB Prepay Program to be on a monthly basis is
equitable because it could provide participating Floor Brokers
opportunities each month to qualify for and receive the benefit of the
incentives offered through the program. In addition, the proposed
Manual Billable Rebate Program is equally available to all Floor
Brokers that participate in the FB Prepay Program (with the additional
rebate available to all participating Floor Brokers that execute the
required number of manual billable transactions), and the proposed
monthly limit on the amount that firms could earn from Floor Broker
manual billable rebates and Submitting Broker QCC credits combined
would apply to all firms equally. The proposed elimination of
Professional Customer Manual Fees would likewise equally impact all
Professional Customers executing manual transactions. The Exchange also
believes that the proposed modification of the Monthly Fee Cap is
equitable because it would apply to all Firms and Broker Dealers
equally and, by eliminating the decreased caps available to Firms and
Broker Dealers that achieve Customer Penny Posting Credit Tiers, would
provide for the same fee cap amount for all Firms and Broker Dealers.
To the extent the proposed changes continue to encourage increased
liquidity to the Exchange, all market participants would benefit from
enhanced opportunities for price improvement and order execution.
    The Exchange also notes that the proposed changes are designed to
encourage Floor Brokers that have previously enrolled in the FB Prepay
Program to reenroll for the upcoming year, as well as to attract Floor
Brokers that have not yet participated in the program. Moreover, the
Exchange believes that the proposed modifications to the FB Prepay
Program are an equitable allocation of fees and credits

because they would apply to participating Floor Brokers equally and are
intended to encourage the role performed by Floor Brokers in
facilitating the execution of orders via open outcry, a function which
the Exchange wishes to support for the benefit of all market
participants. The Exchange further believes that the proposed change
with respect to the calculation of Eligible Fixed Costs is equitable
because it would continue to be based on each Floor Broker
organization's annualized costs and because the November 2022 basis for
annualizing costs would provide a more accurate reflection of Eligible
Fixed Costs for the coming calendar year based on anticipated fixed
costs in 2023.
    Moreover, the proposed changes are designed to continue to incent
Floor Brokers to encourage OTP Holders to aggregate their executions at
the Exchange as a primary execution venue. To the extent that the
proposed change achieves its purpose in attracting more volume 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 Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes the proposed change is not unfairly
discriminatory because it is based on the amount and type of business
transacted on the Exchange. Floor Brokers are not obligated to execute
manual billable transactions or participate in the FB Prepay Program,
and the proposed rebates offered through the Manual Billable Rebate
Program are available to all Floor Brokers that participate in the FB
Prepay Program on a non-discriminatory basis. The proposed changes are
designed to streamline the structure of the FB Prepay Program by
offering all participating Floor Brokers the same rebate on manual
billable volume (and, for qualifying Floor Brokers, the same additional
rebate on such volume) and to encourage Floor Brokers to utilize the
Exchange as a primary trading venue for all transactions (if they have
not done so previously) and increase manual billable volume sent to the
Exchange.
    The Exchange believes that the proposed change to Professional
Customer Manual Fees is not unfairly discriminatory because it would
apply to all manually executed Professional Customer orders on an equal
and non-discriminatory basis. The proposed change is also not unfairly
discriminatory to other market participants because Professional
Customers are an important source of order flow to the Exchange for
execution via open outcry, which promotes price discovery, and the
Exchange thus believes that it is appropriate to continue to encourage
manually executed Professional Customer orders by eliminating the fee
charged for such orders, which would apply to all similarly situated
Professional Customers on an equal and non-discriminatory basis.
    The Exchange also believes that the proposed changes to the Monthly
Fee Cap are not unfairly discriminatory because the fee cap, as
proposed, would be available to all similarly situated Firms and Broker
Dealers, any of which could continue to be incentivized to direct order
flow to the Exchange to qualify for the fee cap. Moreover, the proposed
change to the Monthly Fee Cap is not unfairly discriminatory because it
would apply the same fee cap amount to all Firms and Broker Dealers,
regardless of whether they achieve Customer Penny Posting Credit Tiers.
Similarly, the proposed monthly maximum amount of Submitting Broker
credits paid for QCC trades and rebates paid through the Manual
Billable Rebate Program is not unfairly discriminatory because it would
apply to all Firms and Broker Dealers equally. The Exchange notes that
offering the Monthly Fee Cap to Firms and Broker Dealers but not other
market participants is not unfairly discriminatory because the Monthly
Fee Cap would not be meaningful for Customers or Professional Customers
because neither Customers nor Professional Customers pay transaction
charges for manual transactions (as proposed) or QCC transactions and
is not unfairly discriminatory towards Market Makers, as Market Makers
are generally charged a lower fee for manual executions and have
alternative avenues to reduce transaction fees.\27\
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    \27\ See generally Fee Schedule (various incentives available to
Market Makers for posted monthly volume, including on executions in
penny issues, non-penny issues, and SPY).
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    The Exchange further believes that the proposed change with respect
to the calculation of Eligible Fixed Costs is not unfairly
discriminatory because it would continue to be based on each Floor
Broker organization's annualized costs and because the Exchange expects
that using November 2022 as the basis for annualizing costs would
provide a more accurate reflection of Eligible Fixed Costs for the
coming calendar year.
    To the extent that the proposed change attracts more manual
transactions to the Exchange, 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.'' \28\
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    \28\ See Reg NMS Adopting Release, supra note 21, at 37499.
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    Intramarket Competition. The proposed rebates on manual billable
volume and the proposed modification of Professional Customer Manual
Fees are designed to attract additional order flow to the Exchange
(particularly in manual billable transactions), which could increase
the volumes of contracts traded on the Exchange. The proposed

modification of the FB Prepay Program is likewise intended to incent
Floor Brokers specifically to direct manual billable transactions to
the Exchange, as well as encourage Floor Brokers to participate in the
program. The proposed rebates would be available to all similarly
situated Floor Brokers that participate in the FB Prepay Program.
Greater liquidity benefits all market participants on the Exchange, and
increased manual transactions could increase opportunities for
execution of other trading interest. The modification of the monthly
maximum Submitting Broker credits paid for QCC trades and rebates paid
through the Manual Billable Rebate Program, would likewise apply
equally to all similarly situated Floor Brokers, as would the
elimination of Professional Customer Manual Fees impact all
Professional Customers equally.
    With respect to the modification of the Monthly Fee Cap, the
Exchange believes that the proposed change (even though it would raise
the amount of the fee cap) would continue to incentivize Firms and
Broker Dealers to direct order flow to the Exchange to be eligible for
the benefits of capped fees on Manual transactions, thereby promoting
liquidity on the Exchange to the benefit of all market participants
    To the extent that the proposed changes impose an additional
competitive burden on non-Floor Brokers or, with respect to the
proposed elimination of Professional Customer Manual Fees, on market
participants other than Professional Customers, the Exchange believes
that any such burden would be appropriate because Floor Brokers serve
an important function in facilitating the execution of orders and price
discovery for all market participants and, to the extent the proposed
change encourages Professional Customers to submit additional orders to
the Exchange to be executed via open outcry, such increase in manually
executed Professional Customer orders would also benefit all market
participants by promoting opportunities for price discovery.
    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.\29\ Therefore, currently
no exchange possesses significant pricing power in the execution of
multiply-listed equity and ETF options order flow. More specifically,
in November 2022, the Exchange had less than 13% market share of
executed volume of multiply-listed equity and ETF options trades.\30\
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    \29\ 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.
    \30\ Based on a compilation of OCC data for monthly volume of
equity-based options and monthly volume of equity-based ETF options,
see id., the Exchange's market share in equity-based options
decreased from 12.99% for the month of November 2021 to 12.31% for
the month of November 2022.
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    The Exchange believes that the proposed changes reflect this
competitive environment because they modify the Exchange's fees and
rebates in a manner designed to continue to incent OTP Holders to
direct trading interest (particularly manual transactions) to the
Exchange, to provide liquidity and to attract order flow. To the extent
that Floor Brokers are encouraged to participate in the FB Prepay
Program and/or incentivized to utilize the Exchange as a primary
trading venue for all transactions, all of the Exchange's market
participants should benefit from the improved market quality and
increased opportunities for price improvement. The Exchange similarly
believes that the proposed change relating to Professional Customer
Manual Fees would continue to encourage Professional Customers to
direct manual orders to the Exchange, which in turn 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 trading
opportunities.
    The Exchange further believes that the proposed change could
promote competition between the Exchange and other execution venues,
including those that currently offer rebates on manual transactions and
similar firm fee caps, by encouraging additional orders to be sent to
the Exchange for execution.\31\
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    \31\ See notes 10 & 25, 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) \32\ of the Act and subparagraph (f)(2) of Rule
19b-4 \33\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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    \32\ 15 U.S.C. 78s(b)(3)(A).
    \33\ 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) \34\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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    \34\ 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-2023-09 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-2023-09. 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-2023-09, and should
be submitted on or before February 23, 2023.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-02129 Filed 2-1-23; 8:45 am]
BILLING CODE 8011-01-P