[Federal Register Volume 85, Number 72 (Tuesday, April 14, 2020)]
[Notices]
[Pages 20799-20803]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07773]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88594; File No. SR-NYSEAMER-2020-26]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Change To Modify the
NYSE American Options Fee Schedule
April 8, 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 April 1, 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-
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 amend the NYSE American Options Fee
Schedule (``Fee Schedule'') to raise the existing cap on the available
credit for certain Qualified Contingent Cross (``QCC'') transactions.
The Exchange proposes to implement the fee change effective April 1,
2020. 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.
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
[[Page 20800]]
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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to modify the existing cap on the
available credit to Floor Brokers that execute a specified number of
Qualified Contingent Cross (``QCC'') transactions.
Since March 9, 2020, markets worldwide have been experiencing
unprecedented market-wide declines and volatility that has resulted
from the ongoing spread of the novel COVID-19 virus. In addition,
beginning March 16, 2020, to slow the spread of COVID-19 through
social-distancing measures, significant limitations have been placed on
large gatherings throughout the country.\4\ Shortly thereafter, U.S.
options exchanges that operate physical trading floors, such as Cboe,
Inc. and NASDAQ PHLX, announced the temporarily closure of such floors
as a precautionary measure to prevent the potential spread of COVID-19.
The Exchange likewise announced the temporarily closure of the Trading
Floor, effective March 23, 2020, which meant that Exchange Floor
Brokers could not engage in open outcry trading. Following the floor
closures, including the Exchange's Trading Floor, the Exchange has
experienced an increase in QCC volume.
---------------------------------------------------------------------------
\4\ For example, in New York City, which is where the NYSE
Trading Floor is located, public and private schools, universities,
churches, restaurants, bars, movie theaters, and other commercial
establishments where large crowds can gather have been closed.
---------------------------------------------------------------------------
Currently, Floor Brokers earn a credit for executed QCC orders of
$0.07 per contact up to 300,000 contracts or $0.10 per contract above
300,000.\5\ The Exchange currently limits the maximum Floor Broker
credit to $425,000 per month per Floor Broker firm (the ``Cap'').\6\
---------------------------------------------------------------------------
\5\ See Fee Schedule, Section I.F., QCC Fees & Credits, n. 1,
available here, https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf. QCC
executions in which a Customer or Professional Customer is on both
sides of the QCC trade are not eligible for the Floor Broker credit.
\6\ See id. (providing that ``[t]he maximum Floor Broker credit
paid shall not exceed $425,000 per month per Floor Broker firm'').
---------------------------------------------------------------------------
Given the unanticipated surge in QCC volume that has resulted from
the unprecedented temporary closure of the Trading Floor, the Exchange
proposes to increase the Cap solely for the month of April 2020.
Specifically, the Exchange proposes that the Cap would remain at
$425,000, except that for the month of April 2020, the Cap would be
$625,000 per Floor Broker firm.\7\ The Exchange believes that this
change would allow Exchange incentives to operate as intended--to
encourage Floor Brokers to execute volume on the Exchange, and for the
period when open outcry is unavailable, to execute all QCC transactions
on Exchange and, for the month of April, to continue to increase the
number of such QCC transactions. The Exchange also believes the
proposed change would also facilitate fair and orderly markets by
attempting to avoid an unintended increase in the cost of Floor
Brokers' QCC trading on the Exchange.
---------------------------------------------------------------------------
\7\ See proposed Fee Schedule, Section I.F., QCC Fees & Credits,
n. 1 (providing that ``[t]he maximum Floor Broker credit paid shall
not exceed $425,000 per month per Floor Broker firm (the ``Cap''),
except that for the month of April 2020, the Cap will be $625,000
per Floor Broker firm''). The Exchange will re-evaluate the time
limitations on this change (i.e., whether it will need to apply to
May) depending upon how long the Trading Floor remains temporarily
closed and would file a separate proposed rule change if an
extension is warranted.
---------------------------------------------------------------------------
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 trading QCCs. The Exchange believes that
increasing the Cap for the month of April when the Trading Floor may
continue to be unavailable would provide Floor Brokers with greater
certainty as to their monthly costs and diminish the likelihood of an
effective increase in the cost of trading.
Moreover, the Exchange's fees are constrained by intermarket
competition, as Floor Brokers may direct their order flow to any of the
16 options exchanges, including those with similar QCC rebate programs
and associated caps on same.\8\ Thus, Floor Brokers have a choice of
where they direct their order flow. This proposed change--which
increases the maximum available credit for the month of April 2020--is
designed to incent Floor Brokers to increase their QCC volumes on the
Exchange. The Exchange notes that all market participants stand to
benefit from increased volume, which promotes market depth, facilitates
tighter spreads and enhances price discovery, and may lead to a
corresponding increase in order flow from other market participants.
---------------------------------------------------------------------------
\8\ See, e.g., NASDAQ PHLX, Options 7 Pricing Schedule, Section
4. Multiply Listed Options Fees, QCC Rebate Schedule, available
here, http://nasdaqphlx.cchwallstreet.com/NASDAQPHLXTools/PlatformViewer.asp?selectednode=chp%5F1%5F1%5F3%5F1&manual=%2Fnasdaqomxphlx%2Fphlx%2Fphlx%2Dllcrules%2F (providing that ``[t]he maximum
QCC Rebate to be paid in a given month will not exceed $550,000'');
NASDAQ ISE, Options 7 Pricing Schedule, Section 6. Other Options
Fees and Rebates, A. QCC and Solicitation Rebate, available here,
http://ise.cchwallstreet.com/tools/PlatformViewer.asp?selectednode=chp_1_1_22&manual=/contents/ise/ise-rules/ (providing no cap on the maximum on the amount of QCC rebate
to be paid in a given month).
---------------------------------------------------------------------------
The Exchange cannot predict with certainty whether any Floor
Brokers would benefit from this proposed fee change. However, without
this proposed change during a time when Floor Brokers have increasingly
turned to QCCs because the temporary Trading Floor closure prevents
open outcry trading, the Exchange believes the proposed change is
necessary to prevent Floor Brokers from diverting QCC order flow from
the Exchange if and when they hit the Cap.
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.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 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.'' \11\
---------------------------------------------------------------------------
\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'').
---------------------------------------------------------------------------
There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based
[[Page 20801]]
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 currently 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\
---------------------------------------------------------------------------
\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., in 2019, the Exchange's market
share in equity-based options was 9.82% for the month of January
2019 and 8.08% for the month of January 2020.
---------------------------------------------------------------------------
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 and credits can have a direct effect on
the ability of an exchange to compete for order flow. 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
Floor Brokers may direct their order flow to any of the 16 options
exchanges, including those with similar QCC credit programs and
associated caps on same.\14\
---------------------------------------------------------------------------
\14\ See supra note 7 [sic] (regarding NASDAQ PHLX's $550,000
monthly cap on QCC rebate and NASDAQ ISE's lack of any such monthly
cap of QCC rebate).
---------------------------------------------------------------------------
Given the recent uptick in QCC transactions on the Exchange
following the temporary closures of options trading floors--including
the Exchange's Trading Floor, the Exchange believes the proposed
increase to the Cap for the month of April would allow Exchange
incentives to operate as intended and would also facilitate fair and
orderly markets by attempting to avoid an unintended increase in the
cost of Floor Brokers' QCC trading on the Exchange. 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
trading QCCs. The Exchange believes that increasing the Cap for the
month of April when the Trading Floor may continue to be unavailable
would provide Floor Brokers with greater certainty as to their monthly
costs and diminish the likelihood of an effective increase in the cost
of trading.
Furthermore, as a general matter, the proposal is designed to
encourage Floor Brokers to execute all QCC transactions on Exchange
and, for the month of April, to continue to increase the number of such
QCC transactions. The proposal caps fees on all similar (QCC)
transactions, regardless of size and similarly-situated Floor Brokers
can opt to try to achieve the modified (and increased) credit during
the month of April. To the extent that the proposed change attracts
more QCC trades to the Exchange, 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.
The Exchange cannot predict with certainty whether any Floor
Brokers would benefit from this proposed fee change. However, without
this proposed change during a time when Floor Brokers have increasingly
turned to QCCs because the temporary Trading Floor closure prevents
open outcry trading, the Exchange believes the proposed change is
necessary to prevent Floor Brokers from diverting QCC order flow from
the Exchange if and when they hit the Cap.
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 during the month of
April and Floor Brokers can opt to avail themselves of the modified Cap
(i.e., by executing more QCC transactions) or not. The proposed change
would incent Floor Brokers to attract increased QCC order flow to the
Exchange that might otherwise go to other options exchanges (e.g.,
NASDAQ ISE has no cap on its rebate).\15\ As the proposal is designed
to encourage Floor Brokers to execute QCC transactions on the Exchange,
any resulting increase in 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.
---------------------------------------------------------------------------
\15\ See supra note 7 [sic] (regarding NASDAQ ISE's lack of any
monthly cap of QCC rebate).
---------------------------------------------------------------------------
The Proposed Rule Change Is Not Unfairly Discriminatory
The Exchange believes it is not unfairly discriminatory to modify
the maximum allowable credit on QCC transactions to Floor Brokers
because the proposed modification would be available to all similarly-
situated market participants (i.e., Floor Brokers) on an equal and non-
discriminatory basis.
The proposal is based on the amount and type of business transacted
on the Exchange during April 2020 and Floor Brokers are not obligated
to try to achieve the modified Cap. The proposed change would incent
Floor Brokers to attract increased QCC order flow to the Exchange that
might otherwise go to other options exchanges (e.g., NASDAQ ISE has no
cap on its rebate).\16\ As such, the proposal is designed encourage
Floor Brokers to utilize the Exchange as a primary trading venue for
QCC transactions (if they have not done so previously) or increase
volume sent to the Exchange. To the extent that the proposed change
attracts more QCC 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, to protect investors and the
public interest.
---------------------------------------------------------------------------
\16\ See id.
---------------------------------------------------------------------------
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.
[[Page 20802]]
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.'' \17\
---------------------------------------------------------------------------
\17\ See Reg NMS Adopting Release, supra note 10 [sic], at
37499.
---------------------------------------------------------------------------
Intramarket Competition. The proposed change is designed to attract
additional order flow (particularly QCC trades) to the Exchange. The
Exchange believes that the proposed increased QCC Floor Broker credit
would incent Floor Brokers to attract increased QCC order flow to the
Exchange that might otherwise go to other options exchanges (e.g.,
NASDAQ ISE has no cap on its rebate).\18\. [sic] Greater liquidity
benefits all market participants on the Exchange and increased QCC
transactions would increase opportunities for execution of other
trading interest. The proposed increased cap would be available to all
similarly-situated market participants that execute QCC transactions,
and, as such, the proposed change would not impose a disparate burden
on competition among market participants on the Exchange.
---------------------------------------------------------------------------
\18\ See id. [sic]
---------------------------------------------------------------------------
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 currently has more than 16% of the market share of executed
volume of multiply-listed equity and ETF options trades.\19\ Therefore,
no exchange possesses significant pricing power in the execution of
multiply-listed equity & ETF options order flow. More specifically, in
the fourth quarter of 2019, the Exchange had less than 10% market share
of executed volume of multiply-listed equity & ETF options trades.\20\
---------------------------------------------------------------------------
\19\ See supra note 11 [sic].
\20\ Based on OCC data, supra note 12, the Exchange's market
share in equity-based options was 9.82% for the month of January
2019 and 8.08% for the month of January, 2020.
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change reflects this
competitive environment because it modifies the Exchange's fees in a
manner designed to incent Floor Brokers to attract increased QCC order
flow to the Exchange that might otherwise go to other options exchanges
(e.g., NASDAQ ISE has no cap on its rebate).\21\ To the extent that
Floor Brokers are encouraged to direct trading interest (particularly
QCC transactions) to the Exchange. To the extent that this purpose is
achieved, all the Exchange's market participants should benefit from
the improved market quality and increased opportunities for price
improvement.
---------------------------------------------------------------------------
\21\ See supra note 7 [sic] (regarding NASDAQ ISE's lack of any
monthly cap of QCC rebate).
---------------------------------------------------------------------------
The Exchange believes that the proposed change could promote
competition between the Exchange and other execution venues, including
those that currently offer similar QCC credits (and caps thereon), by
encouraging additional orders to be sent to the Exchange for
execution.\22\
---------------------------------------------------------------------------
\22\ See id.
---------------------------------------------------------------------------
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) \23\ of the Act and subparagraph (f)(2) of Rule
19b-4 \24\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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) \25\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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-2020-26 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEAMER-2020-26. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEAMER-2020-26 and should be submitted
on or before May 5, 2020.
[[Page 20803]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
---------------------------------------------------------------------------
\26\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07773 Filed 4-13-20; 8:45 am]
BILLING CODE 8011-01-P