[Federal Register Volume 85, Number 71 (Monday, April 13, 2020)]
[Notices]
[Pages 20545-20548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07654]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88574; File No. SR-NYSEAMER-2020-24]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Change To Amend the NYSE
American Options Fee Schedule
April 7, 2020.
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 March 31, 2020, NYSE American LLC (``NYSE American'' 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-
[[Page 20546]]
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 amend the NYSE American Options Fee
Schedule (``Fee Schedule'') to modify the calculations for certain
aspects of the Floor Broker Prepayment Program to account for the
recent closure of the Trading Floor. The Exchange proposes to implement
the fee change effective March 31, 2020.\4\ The proposed 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.
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\4\ The Exchange originally filed to amend the Fee Schedule on
March 24, 2020 (SR-NYSEAMER-2020-21) and withdrew such filing on
March 31, 2020.
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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
The purpose of this filing is to modify the Fee Schedule to modify
the calculations for certain aspects of the Floor Broker Prepayment
Program to account for the recent closure of the Trading Floor. The
Exchange proposes to implement the fee change effective March 31, 2020.
On March 18, 2020, the Exchange announced that it would temporarily
close the Trading Floor, effective Monday, March 23, 2020, as a
precautionary measure to prevent the potential spread of COVID-19.
Because the Trading Floor is closed, Floor Brokers cannot engage in
open outcry trading, which impacts their ability to qualify for certain
pricing incentives tied to manual volume.
Specifically, participants in the Floor Broker Prepayment Program
(the ``FB Prepay Program'' or ``Program'') \5\ may qualify for the
Percentage Growth Incentive portion of that program (the ``Growth
Incentive'') by increasing their average daily volume (``ADV'') in
billable manual contract sides by certain percentages (correlated with
Tiers) as measured against (the greater of) one of two benchmarks.\6\
Per the Fee Schedule, to qualify for the Growth Incentive, a
participating Floor Broker organization must increase their ADV for the
calendar year, above the greater of 20,000 contract sides in billable
manual ADV; or 105% of the Floor Broker's total billable manual ADV in
contract sides during the second half of 2017--i.e., July through
December 2017.
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\5\ See Fee Schedule, Section III.E., Floor Broker Fixed Cost
Prepayment Incentive Program (the ``FB Prepay Program''), available
here, https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf (providing that participants
may prepay their Eligible Fixed Costs for a 10% discount, which
costs include: Section III.A. Monthly ATP Fees; Section III.B. Floor
Access Fee; and Section IV. Monthly Floor Communication,
Connectivity, Equipment and Booth or Podia Fees, specifically:
Login, Transport Charges, Booth Premises, Telephone Service,
Cellular Phones, Booth Telephone System--Line Charge, Booth
Telephone System--Single line phone jack and data jack, and Wire
Services).
\6\ The Percentage Growth Incentive excludes Customer volume,
Firm Facilitation 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, are likewise excluded from the
Percentage Growth Incentive because fees on such volume is already
capped and therefore does not increase billable manual volume. See
id.
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Current Floor Broker participants have already prepaid into the
Program as of the end of 2019 and could not have anticipated at that
time that the Trading Floor would have been closed in 2020, which will
impact their ability to increase their billable manual contract sides
to qualify for the Growth Incentive. Thus, the Exchange proposes to
modify the FB Prepay Program to provide that ``[w]hen calculating the
increase in a Floor Broker organization's ADV, the Exchange may exclude
any trading day when open outcry on the Trading Floor is unavailable
for a full day.'' \7\ The Exchange believes this change would allow
Exchange incentives to operate as intended and would also facilitate
fair and orderly markets, particularly given that participants in the
Program could not have foreseen that the Trading Floor would have been
temporarily closed.
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\7\ See proposed Fee Schedule, Section III.E., Floor Broker
Fixed Cost Prepayment Incentive Program (the ``FB Prepay Program'').
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Absent the proposed change, participating Floor Brokers could
experience an unintended increase in the cost of trading on the
Exchange, a result that is unintended and undesirable to the Exchange
and its Floor Brokers participating in the Program. The Exchange
believes that excluding trading days when the Trading Floor is
unavailable would provide member organizations with greater certainty
as to their monthly costs and diminish the likelihood of an effective
increase in the cost of trading. Further, the Exchange's proposal is
consistent with the provision in the Fee Schedule that allows the
Exchange to exclude from its monthly calculations of contract volume
any day that (1) the Exchange is not open for the entire trading day
and/or (2) a disruption affects an Exchange system that lasts for more
than 60 minutes during regular trading hours'' (i.e., the ``System
Disruption exclusion'').\8\
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\8\ See Fee Schedule, Preface, System Disruptions, supra note 5.
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The Exchange cannot predict with certainty whether any Floor
Brokers would qualify for a higher Growth Incentive tier (and this
[sic] a higher credit) as a result of this proposed fee change.
However, without this proposed change, all participants in the Program
would be impacted as the Floor Closure prevents them from engaging in
any open outcry trading.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\9\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\10\ 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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\9\ 15 U.S.C. 78f(b).
\10\ 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
[[Page 20547]]
broader forms that are most important to investors and listed
companies.'' \11\
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\11\ 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 currently has more than 16% of
the market share of executed volume of multiply-listed equity and ETF
options trades.\12\ Therefore, no exchange possesses significant
pricing power in the execution of multiply-listed equity & ETF options
order flow. More specifically, the Exchange had less than 10% market
share of executed volume of multiply-listed equity & ETF options trades
in January 2020.\13\
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\12\ 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/volume/default.jsp.
\13\ Based on OCC data, see id., the Exchange's market share in
equity-based options declined from 9.82% for the month of January
2019 to 8.08% for the month of January 2020.
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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 it is reasonable to permit the Exchange
to exclude trading days when the Trading Floor is closed from the
calculation of a Floor Broker organization's ADV for purposes of the
Program because it preserves the Exchange's intent behind adopting
volume-based pricing and allows the Growth Inventive to operate as
intended. Similarly, the Exchange believes that its proposal is
reasonable because it would provide participating Floor Brokers with a
greater level of certainty as to their level of rebates and costs for
trading in any month where open outcry trading in unavailable,
including the current period while the Trading Floor is temporarily
closed. The Exchange is not proposing to amend the thresholds that
Floor Brokers must achieve to become eligible for, or the dollar value
associated with, the tiered rebates or fees. By eliminating the
inclusion of a trading day on which open outcry trading was
unavailable, the Exchange would be making it more likely for Floor
Brokers to meet the minimum or higher tier thresholds and thus
incentivizing them to increase their participation on the Exchange in
order to meet the next highest tier on days when the Trading Floor is
open.
The Exchange further believes that the proposal is reasonable
because the proposed exclusion seeks to avoid penalizing Floor Brokers
that might otherwise qualify for certain tiered pricing associated with
the Growth Incentive but that, because of the unavailability of open
outcry trading during the period when the Trading Floor is temporarily
closed, would not participate to the extent that they might have
otherwise participated.
The Exchange cannot predict with certainty whether any Floor
Brokers would qualify for a higher Growth Incentive tier (and this
[sic] a higher credit) as a result of this proposed fee change.
However, without this proposed change, all participants in the Program
would be impacted as the Floor Closure prevents them from engaging in
any open outcry trading.
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 designed to account
for trading days when open outcry trading is unavailable so as not to
penalize Floor Brokers participating in the Program who may opt to
avail themselves of the Growth Incentive. Absent the proposed change,
participating Floor Brokers could experience an unintended increase in
the cost of trading on the Exchange, a result that is unintended and
undesirable to the Exchange and its Floor Brokers participating in the
Program. Moreover, the proposals are designed to encourage Floor
Brokers to continue to aggregate their executions at the Exchange as a
primary execution venue. To the extent that the proposed changes
attract more Manual volume to the Exchange once the Trading Floor
reopens, this increased order flow would continue to make the Exchange
a more competitive venue for order execution. Thus, the Exchange
believes the proposed rule changes 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 that the proposal is not unfairly
discriminatory because the proposed modifications would affect all
similarly-situated market participants on an equal and non-
discriminatory basis. The Exchange is not proposing any changes to the
Program, but rather, is proposing to amend the Fee Schedule to reflect
that Floor Brokers would be uniquely impacted by the temporary closing
of the Trading Floor because they are not able to engage in open outcry
trading during this period. In addition, the methodology for the
monthly ADV calculations for billable manual contract sides would apply
equally to all Floor Brokers participating in the Program.
Finally, the Exchange believes that it is subject to significant
competitive forces, as described below in the Exchange's statement
regarding the burden on competition.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act, the Exchange does
not believe that the proposed rule change would impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Instead, as discussed above, the Exchange believes
that the proposed changes would encourage the submission of additional
liquidity to a public exchange, thereby promoting market depth, price
discovery and transparency and enhancing order execution opportunities
for all market participants. As a result, the Exchange believes that
the proposed change furthers the Commission's goal in adopting
Regulation NMS of fostering integrated competition among orders, which
promotes ``more efficient pricing of individual stocks for all types of
orders, large and small.'' \14\
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\14\ See Reg NMS Adopting Release, supra note 11, at 37499.
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Intramarket Competition. The proposed change is designed to
continue to attract Floor Broker order flow to the Exchange by
eliminating days when open outcry trading is unavailable for purposes
of the Growth Incentive. To the extent that this purpose is achieved,
all of the Exchange's market participants should benefit from the
improved market liquidity. Enhanced market quality and increased
transaction volume that results from the anticipated increase in order
flow directed to the Exchange will benefit all market participants and
improve competition on the Exchange. The Exchange notes that the
proposed change is likewise consistent with the Exchange's System
Disruption exclusion.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market
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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 currently has more than 16% of the
market share of executed volume of multiply-listed equity and ETF
options trades.\15\ Therefore, no exchange possesses significant
pricing power in the execution of multiply-listed equity & ETF options
order flow. More specifically, in January 2020, the Exchange had less
than 10% market share of executed volume of multiply-listed equity &
ETF options trades.\16\
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\15\ See supra note 12.
\16\ Based on OCC data, supra note 13, the Exchange's market
share in equity-based options declined from 9.82% for the month of
January 2019 to 8.08% for the month of January 2020.
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The Exchange believes that the proposed rule change reflects this
competitive environment because it modifies the Exchange's fees in a
manner designed to continue to encourage Floor Brokers to direct (open
outcry) trading interest 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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \17\ of the Act and subparagraph (f)(2) of Rule
19b-4 \18\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \19\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\19\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEAMER-2020-24 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-NYSEAMER-2020-24. 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-NYSEAMER-2020-24 and should be submitted
on or before May 4, 2020.
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\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07654 Filed 4-10-20; 8:45 am]
BILLING CODE 8011-01-P