[Federal Register Volume 86, Number 215 (Wednesday, November 10, 2021)]
[Notices]
[Pages 62575-62579]
[FR Doc No: 2021-24527]

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SECURITIES AND EXCHANGE COMMISSION

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

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

November 4, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on November 1, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to

solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to modify the NYSE Arca Options Fee Schedule
(``Fee Schedule'') regarding incentives available to Market Makers. The
Exchange proposes to implement the fee change effective November 1,
2021. The proposed rule change is available on the Exchange's website
at www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of this filing is to amend the Fee Schedule to modify
certain incentives intended to encourage Market Maker posted volume.
    Currently, the Fee Schedule provides a variety of incentives to
encourage greater participation by Market Makers and Market Maker
affiliates, including more favorable rates for higher volumes from
posted interest (e.g., the Market Maker Incentive For Non-Penny
Interval Issues and the Market Maker Incentives for SPY). The Exchange
also offers incentives that reward higher volume from posted interest
in conjunction with activity in the NYSE Arca Equity Market (for
purposes of this filing, activity in the NYSE Arca Equity Market is
referred to as ``cross asset activity'').
    The Exchange now proposes to modify the qualifying criteria for the
Market Maker Penny and SPY Posting Credit Tiers \4\ by (1) modifying
the qualification basis for the additional $0.03 credit on Market Maker
posted interest applicable to OTP Holders who qualify for either Super
Tier (the ``Additional Credit''), and (2) eliminating one of the
alternative qualifications for Super Tier II.
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    \4\ See Fee Schedule, MARKET MAKER PENNY AND SPY POSTING CREDIT
TIERS.
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    The Exchange proposes to implement the fee change on November 1,
2021.
Proposed Rule Change
    The Exchange proposes to modify the qualifying criteria for the
Additional Credit, which is currently applied to electronic executions
of Market Maker posted interest in Penny Issues provided an OTP Holder
or OTP Firm that qualifies for either Super Tier achieves (i) at least
0.18% of TCADV from Market Maker posted interest in all issues, and
(ii) ETP Holder and Market Maker posted volume in Tape B Securities
(``Tape B Adding ADV'') that is equal to at least 1.50% of US Tape B
consolidated average daily volume (``CADV'') executed on the NYSE Arca
Equity Market for the billing month.\5\ The Exchange now proposes to
modify the first qualification for the Additional Credit to require at
least 0.55% of total combined IWM, QQQ, and SPY industry ADV from
Market Maker posted interest in IWM, QQQ, and SPY.\6\ The cross asset
activity component to qualify for the Additional Credit will remain
unchanged; OTP Holders will still be required to achieve ETP Holder and
Market Maker posted volume in Tape B Adding ADV equal to at least 1.50%
of US Tape B CADV for the billing month executed on NYSE Arca Equity
Market to qualify for the Additional Credit. The Exchange believes that
the proposed modification will encourage more Market Maker posted
interest in certain very high volume products, in combination with
cross asset activity.
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    \5\ This credit does not apply to executions of issues in an
LMM's appointment, as Market Makers who are LMMs already receive an
additional $0.04 credit on posted interest in Penny issues in their
appointment.
    \6\ IWM is the iShares Russell 2000 ETF. QQQ is the Invesco QQQ
Trust. SPY is the SPDR S&P 500 ETF Trust.
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    The Exchange also proposes to eliminate one of the alternative
qualifications for Super Tier II.\7\ Currently, OTP Holders may achieve
Super Tier II by meeting one of three alternative qualifications: (i)
At least 0.10% of TCADV from Market Maker posted interest in all
issues, plus ETP Holder and Market Maker posted volume in Tape B Adding
ADV that is equal to at least 1.50% of US Tape B CADV for the billing
month executed on NYSE Arca Equity Market; (ii) at least 0.10% of TCADV
from Market Maker posted interest in all issues, plus at least 0.42% of
executed ADV of Retail Orders of U.S. Equity Market Share posted and
executed on the NYSE Arca Equity Market; or (iii) at least 1.60% of
TCADV from Market Maker interest in all issues, with at least 0.90% of
TCADV from Market Maker posted interest in all issues. The Exchange
proposes to eliminate the second qualification described above, such
that Market Makers that execute 10% of TCADV from Market Maker posted
interest in all issues, plus at least 0.42% of executed ADV of Retail
Orders of U.S. Equity Market Share Posted and Executed on NYSE Arca
Equity will no longer qualify for Super Tier II. Market Makers will
still be able to earn the $0.42 credit available to OTP Holders that
qualify for Super Tier II by meeting one of two alternative
qualification levels. Although the Exchange proposes to eliminate one
of the ways in which OTP Holders can qualify for the credit available
in Super Tier II, the Exchange believes that the remaining alternative
qualifying criteria are attainable and will continue to incentivize
participation in greater volume from posted interest, as well as cross
asset activity.
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    \7\ OTP Holders that qualify for Super Tier II receive a $0.42
credit for executions in Penny Interval Program issues and SPY.
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    The Exchange cannot predict with certainty whether any OTP Holders
would seek to qualify for the Additional Credit or to achieve Super
Tier II, as modified, but believes that OTP Holders would continue to
be encouraged to qualify for the advantages of the Additional Credit
and Super Tier II. The Exchange believes the proposed modifications to
the qualifying criteria for the Additional Credit and Super Tier II,
which encourage increased posted interest from Market Makers in certain
high-volume issues as well as cross market activity, would continue to
incentivize OTP Holders to submit these types of orders to the
Exchange, from all account types, which brings increased liquidity and
order flow for the benefit of all market participants.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\8\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\9\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers and other persons
using its facilities and does not unfairly discriminate between
customers, issuers, brokers or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).

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The Proposed Rule Change Is Reasonable
    The Exchange operates in a highly competitive market. The
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. In Regulation NMS, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues and, also, recognized that current regulation of the
market system ``has been remarkably successful in promoting market
competition in its broader forms that are most important to investors
and listed companies.'' \10\
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    \10\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS
Adopting Release'').
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    There are currently 16 registered options exchanges competing for
order flow. Based on publicly available information, and excluding
index-based options, no single exchange has more than 16% of the market
share of executed volume of multiply-listed equity and ETF options
trades.\11\ Therefore, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity & ETF options
order flow. More specifically, in September 2021, the Exchange had less
than 13% market share of executed volume of multiply-listed equity &
ETF options trades.\12\
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    \11\ The OCC publishes options and futures volume in a variety
of formats, including daily and monthly volume by exchange,
available here: https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics.
    \12\ Based on OCC data for monthly volume of equity-based
options and monthly volume of ETF-based options, see id., the
Exchange's market share in equity-based options was 10.9% for the
month of September 2020 and 12.4% for the month of September 2021.
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    The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow, or discontinue or reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
constrain options exchange transaction fees. Stated otherwise, changes
to exchange transaction fees can have a direct effect on the ability of
an exchange to compete for order flow.
    The Exchange believes that the proposed modifications to the
qualifying criteria for the Additional Credit and Super Tier II are
reasonably designed to incent OTP Holders to increase the number and
variety of orders sent to the Exchange for execution. Specifically, to
the extent that the proposed change attracts more Market Maker posted
interest in certain high-volume issues and cross asset activity, this
increased order flow would continue to make the Exchange a more
competitive venue for, among other things, order execution, which, in
turn, promotes just and equitable principles of trade and removes
impediments to and perfects the mechanism of a free and open market and
a national market system. Although the Exchange proposes to eliminate
one of the alternative qualification bases for the credit available in
Super Tier II, the Exchange believes that the remaining qualifying
criteria will continue to incentivize participation in greater volume
from posted interest, as well as cross asset activity.
    Finally, to the extent the proposed change continues to attract
greater volume and liquidity, the Exchange believes the proposed change
would improve the Exchange's overall competitiveness and strengthen its
market quality for all market participants. In the backdrop of the
competitive environment in which the Exchange operates, the proposed
rule change is a reasonable attempt by the Exchange to increase the
depth of its market and improve its market share relative to its
competitors. The Exchange's fees are constrained by intermarket
competition, as OTP Holders may direct their order flow to any of the
16 options exchanges, including those that also offer incentives based
on Market Maker posted volume in IWM, QQQ, and SPY.\13\ Thus, OTP
Holders have a choice of where they direct their order flow, including
their Market Maker posted interest and cross asset activity. The
proposed rule change is designed to incent OTP Holders to direct
liquidity to the Exchange, and in particular, Market Maker posted
interest in highly liquid issues and cross asset activity, thereby
promoting market depth, price discovery and improvement, and enhanced
order execution opportunities for market participants.
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    \13\ See MIAX Pearl Options Exchange Fee Schedule, available at
https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Options_Fee_Schedule_100721.pdf (offering tiered
incentives based on Market Maker volume in IWM, QQQ, and SPY); Cboe
BZX Options Fee Schedule, available at https://www.cboe.com/us/options/membership/fee_schedule/bzx/ (offering favorable credits as
an alternative for Market Maker posting volume in IWM, QQQ, and
SPY).
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    At present, whether or when an OTP Holder qualifies for the various
incentives set forth in the Market Maker Penny and SPY Posting Credit
Tiers in a given month is dependent on market activity and an OTP
Holder's mix of order flow. Thus, while the Exchange cannot predict
with certainty whether any OTP Holders will seek to qualify for the
Additional Credit or Super Tier II, as proposed, the Exchange believes
that OTP Holders would continue to be encouraged to take advantage of
the Additional Credit and Super Tier II $0.42 credit available to
qualifying OTP Holders. The Exchange believes the proposed incentives,
as modified, which apply to Market Maker posted interest in certain
high volume issues and cross asset activity, would provide an incentive
for OTP Holders to continue to submit these types of orders to the
Exchange, which brings increased liquidity and order flow for the
benefit of all market participants.
The Proposed Rule Change Is an Equitable Allocation of Credits and Fees
    The Exchange believes the proposed rule change is an equitable
allocation of its fees and credits. The proposal is based on the amount
and type of business transacted on the Exchange, and OTP Holders can
opt to seek to qualify for the incentives or not. Moreover, the
proposal is designed to encourage OTP Holders to submit orders from all
account types to the Exchange as a primary execution venue. In
addition, while the Exchange proposes to modify the available
qualification levels for Super Tier II, the Exchange believes that the
remaining alternative qualifying criteria are attainable and will
continue to incentivize participation in greater volume from posted
interest, as well as cross asset activity. To the extent that the
proposed change attracts more Market Maker posted interest to the
Exchange, as well as increased cross asset activity, this increased
order flow would continue to make the Exchange a more competitive venue
for, among other things, order execution. Thus, the Exchange believes
the proposed rule change would improve market quality for all market
participants on the Exchange and, as a consequence, attract more order
flow to the Exchange thereby improving market-wide quality and price
discovery.
The Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes the proposed rule change is not unfairly
discriminatory because the modified qualifying criteria for both the
Additional Credit and the credit available to OTP Holders who achieve
Super Tier II would apply and be available equally to all similarly-
situated market participants on an equal and non-discriminatory basis.

    The proposal is based on the amount and type of business transacted
on the Exchange, and OTP Holders are not obligated to try to achieve
the qualifications for any of the tiers or execute either Market Maker
posted interest or cross asset activity. Rather, the proposal is
designed to continue to encourage OTP Holders to utilize the Exchange
as a primary trading venue for Market Maker posted interest (if they
have not done so previously) and to increase volume sent to the
Exchange. To the extent that the proposed change attracts more Market
Maker posted interest to the Exchange (particularly in certain high
volume issues), this increased order flow would continue to make the
Exchange a more competitive venue for, among other things, order
execution. Thus, the Exchange believes the proposed rule change would
improve market quality for all market participants on the Exchange and,
as a consequence, attract more order flow to the Exchange thereby
improving market-wide quality and price discovery. The resulting
increased volume and liquidity would provide more trading opportunities
and tighter spreads to all market participants and thus would promote
just and equitable principles of trade, remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in general, to protect investors and the public interest.
    Finally, the Exchange believes that it is subject to significant
competitive forces, as described below in the Exchange's statement
regarding the burden on competition.
    For the foregoing reasons, the Exchange believes that the proposal
is consistent with the Act.

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

    In accordance with Section 6(b)(8) of the Act, the Exchange does
not believe that the proposed rule change would impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Instead, as discussed above, the Exchange believes
that the proposed changes would encourage the submission of additional
liquidity to a public exchange, thereby promoting market depth, price
discovery and transparency and enhancing order execution opportunities
for all market participants. As a result, the Exchange believes that
the proposed change furthers the Commission's goal in adopting
Regulation NMS of fostering integrated competition among orders, which
promotes ``more efficient pricing of individual stocks for all types of
orders, large and small.'' \14\
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    \14\ See Reg NMS Adopting Release, supra note 10, at 37499.
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    Intramarket Competition. The proposed change is designed to attract
additional order flow (particularly Market Maker posted interest in
certain high volume issues) to the Exchange. The Exchange believes that
the proposed modification to the qualifying criteria for the Additional
Credit and the credit available to Super Tier II would continue to
encourage market participants to direct their Market Maker posted
interest volume to the Exchange, particularly in certain high volume
issues, as well as encourage cross asset activity. Greater liquidity
benefits all market participants on the Exchange, and increased Market
Maker posted interest would increase opportunities for execution of
other trading interest. The proposed modifications would apply and be
available equally to all similarly-situated market participants that
handle Market Maker posted interest and cross asset activity, and,
accordingly, the proposed change would not impose a disparate burden on
competition among market participants on the Exchange.
    Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily favor one
of the 16 competing option exchanges if they deem fee levels at a
particular venue to be excessive. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
exchanges and to attract order flow to the Exchange. Based on publicly-
available information, and excluding index-based options, no single
exchange has more than 16% of the market share of executed volume of
multiply-listed equity and ETF options trades.\15\ Therefore, currently
no exchange possesses significant pricing power in the execution of
multiply-listed equity & ETF options order flow. More specifically, in
September 2021, the Exchange had less than 13% market share of executed
volume of multiply-listed equity & ETF options trades.\16\
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    \15\ See supra note 11.
    \16\ Based on OCC data for monthly volume of equity-based
options and monthly volume of ETF-based options, see id., the
Exchange's market share in equity-based options was 10.9% for the
month of September 2020 and 12.4% for the month of September 2021.
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    The Exchange believes that the proposed rule change reflects this
competitive environment because it modifies the Exchange's fees in a
manner designed to encourage OTP Holders to direct trading interest
(particularly Market Maker posted interest and cross asset activity) to
the Exchange, to provide liquidity and to attract order flow. To the
extent that this purpose is achieved, all the Exchange's market
participants should benefit from the improved market quality and
increased opportunities for price improvement.
    The Exchange believes that the proposed change could promote
competition between the Exchange and other execution venues, including
those that also currently offer incentives based on Market Maker posted
volume in IWM, QQQ, and SPY,\17\ by encouraging additional orders to be
sent to the Exchange for execution.
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    \17\ See supra note 13.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the
proposed rule change.

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

    The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \18\ of the Act and subparagraph (f)(2) of Rule
19b-4 \19\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \20\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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    \20\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-NYSEArca-2021-94 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2021-94. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2021-94, and should be
submitted on or before December 1, 2021.

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