[Federal Register Volume 85, Number 79 (Thursday, April 23, 2020)]
[Notices]
[Pages 22772-22775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08589]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88682; File No. SR-NYSEAMER-2020-31]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Change To Amend the NYSE
American Options Fee Schedule
April 17, 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 16, 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.
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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 Strategy Execution Fee Cap to
allow the inclusion of certain Qualified Contingent Cross transactions
for the month of April 2020. The Exchange proposes to implement the fee
change effective April 16 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
April 1, 2020 (SR-NYSEAMER-2020-27) and withdrew such filing on
April 9, 2020. The Exchange then filed to amend the Fee Schedule on
April 9, 2020 (SR-NYSEAMER-2020-30) and withdrew such filing on
April 16, 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 amend the Fee Schedule to modify
the Strategy Execution Fee Cap (``Strategy Cap'') to allow the
inclusion of certain Qualified Contingent Cross (``QCC'') transactions
for the month of April 2020, as set forth below. The Exchange proposes
to implement the rule change on April 16 2020.
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.\5\ Shortly thereafter, U.S.
options exchanges that operate physical trading floors, such as Cboe,
Inc. and NASDAQ PHLX, announced the temporary closure of such floors as
a precautionary measure to prevent the potential spread of COVID-19.
The Exchange likewise announced the temporary closure of the Trading
Floor, effective March 23, 2020, which meant that Exchange Floor
Brokers could not engage in open outcry trading.
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\5\ 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.
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Section I.J. of the Fee Schedule currently provides a Strategy Cap
that limits to $1,000 the daily fees for certain options strategies
execution on the same trading day.\6\ Strategy executions that qualify
for the Strategy Cap are (a) reversals and conversions, (b) box
spreads, (c) short stock interest spreads, (d) merger spreads, and (e)
jelly rolls, which are described in detail in the Fee Schedule.\7\
However, the Strategy Cap specifically excludes from the Cap ``[a]ny
qualifying Strategy Execution executed as a QCC.'' \8\ A QCC is defined
as an originating order to buy or sell at least 1000 contracts that is
identified as being part of a qualified contingent
[[Page 22773]]
trade, coupled with a contraside order or orders totaling an equal
number of contracts.\9\ Since reversal and conversions (``RevCons'')
have a stock component, it is possible for a RevCon to also qualify as
a QCC (``RevCon QCCs'').\10\
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\6\ See Fee Schedule, Section I.J., Strategy Execution Fee Cap,
available here: https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf.
\7\ See id.
\8\ See id.
\9\ See Rule 900.3NY(y) (defining QCC order type).
\10\ A RevCon refers to two sides of the same trade.
Specifically, the Reversal portion ``is established by combining a
short security position with a short put and a long call position
that shares the same strike and expiration,'' while contra-side
conversion portion ``is established by combining a long position in
the underlying security with a long put and a short call position
that shares the same strike and expiration.'' See Fee Schedule,
Section I.J.a., supra note 6.
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Currently, RevCon QCCs are not eligible for the Strategy Cap (but
instead are subject to QCC Fees & Credits).\11\ With the temporary
closure of the Trading Floor, Floor Brokers are unable to execute
RevCons in open outcry. However, Floor Brokers are able to execute
RevCon QCCs electronically via the Exchange systems. The Exchange
believes that RevCon QCC volumes would increase on the Exchange if they
qualified for the Strategy Cap. Accordingly, the Exchange proposes to
amend the Fee Schedule to permit the inclusion of RevCon QCC volumes in
the Strategy Cap for the month of April 2020.\12\ Although this
proposed change was prompted by the (temporary) inability of Floor
Brokers to execute RevCon strategies in open outcry, the benefit of
this proposed change would inure to any ATP Holders that opted to
execute a RevCon as a QCC.\13\
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\11\ See Fee Schedule, Section I.F., QCC Fees & Credits, supra
note 6.
\12\ See proposed Fee Schedule, Section I.J., Strategy Execution
Fee Cap. 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.
\13\ The Exchange notes that while all Floor Brokers must be ATP
Holders, not all ATP Holders act as Floor Brokers.
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Because RevCon QCC volumes would be eligible for the Strategy Cap,
the Exchange proposes to modify the Fee Schedule to make clear that,
for April 2020, the RevCon QCC trades that would be included in the
revised Strategy Cap would not be eligible for the QCC Floor Broker
credit during April 2020, which credit is available only to ATP Holders
acting as Floor Brokers.\14\
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\14\ See proposed Fee Schedule, Section I.F., QCC Fees &
Credits, n. 1 (providing that ``[the Floor Broker credit will not
apply to any QCC trades that qualify for the Strategy Cap during the
month of April 2020 (per Section I.J.)'').
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To illustrate the difference in costs under the current and
proposed Fee Schedule, consider the following example where a Floor
Broker executes a RevCon QCC strategy on behalf of a non-Customer that
is not a Specialist or e-Specialist as a QCC Order on the same day:
A RevCon QCC in DEF comprised of 3,000 call options
against 3,000 put options and 300,000 shares of stock would pay $1,200
in options fees.
A RevCon QCC in ABC comprised of 1,000 call options
against 1,000 put options and 100,000 shares of stock would pay $400 in
options fees.
Under the current Fee Schedule, the total fees for these RevCon
QCCs would be $1,600, whereas the proposed change to include these
transactions in the Strategy Cap would limit these total RevCon QCC to
$1,000.
The Exchange believes the proposed inclusion of RevCon QCCs in the
Strategy Cap, which is available to all ATP Holders, would encourage
ATP Holders (including those acting as Floor Brokers) to execute their
RevCon QCC volume on the Exchange, particularly during the period when
open outcry is unavailable and to continue to increase the number of
such RevCon QCC transactions during the month of April.
Further, the Exchange's fees are constrained by intermarket
competition, as ATP Holders may direct their order flow to any of the
16 options exchanges, including those with similar Strategy Caps.\15\
Thus, ATP Holders have a choice of where they direct their order flow.
This proposed change--which allows RevCon QCCs executed by an ATP
Holder to be included in the $1,000 daily Strategy Cap for the month of
April 2020--is designed to incent ATP Holders to increase their RevCon
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.
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\15\ See e.g., BOX Options Market LLC (``BOX'') fee schedule,
Section II.D (Strategy QOO Order Fee Cap and Rebate). BOX caps fees
for each participant at $1,000 per day for the following strategies
executed on the same trading day: Short stock interest, merger,
reversal, conversion, jelly roll, and box spread strategies. BOX
also caps participant fees at $1,000 for all dividend strategies
executed on the same trading day in the same options class. BOX also
offers a $500 rebate to floor brokers for presenting certain
Strategy QOO Orders on the BOX trading floor, which is applied
``once the $1,000 fee cap for all dividend, short stock interest,
merger, reversal, conversion, jelly roll, and box spread strategies
is met.'' See id. The Exchange does not include dividend strategies
in the Strategy Cap, nor does the Exchange offer a similar rebate.
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The Exchange cannot predict with certainty whether any ATP Holders
would benefit from this proposed fee change. At present, whether or
when an ATP Holder qualifies for the Strategy Cap varies day-to-day,
month-to-month. That said, the Exchange believes that ATP Holders would
be encouraged to take advantage of the modified Cap. In addition, the
Exchange believes the proposed change is necessary to prevent ATP
Holders from diverting RevCon QCC order flow from the Exchange to a
more economical venue.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\16\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\17\ 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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\16\ 15 U.S.C. 78f(b).
\17\ 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.'' \18\
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\18\ 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.\19\ 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
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of multiply-listed equity & ETF options trades in January 2020.\20\
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\19\ 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.
\20\ 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.
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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 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 ATP
Holders (including those acting as Floor Brokers) may direct their
order flow to any of the 16 options exchanges, including those with
similar Strategy Caps.\21\
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\21\ See supra note 15 (regarding BOX's Strategy QOO Order Fee
Cap and Rebate).
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The Exchange believes the proposed change to include RevCon QCCs
executed by an ATP Holder in the $1,000 daily Strategy Cap for the
month of April 2020 would encourage ATP Holders to execute their RevCon
QCC volume on the Exchange, particularly during the period when open
outcry is unavailable and to continue to increase the number of such
RevCon QCC transactions during the month of April. Further, the
proposal is designed to encourage ATP Holders to aggregate all Strategy
Executions--including RevCon QCCs--at the Exchange as a primary
execution venue. To the extent that the proposed change attracts more
Strategy Executions 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.
Similarly, given the inclusion of RevCon QCC trades in the Strategy
Cap in April 2020, the Exchange proposes that these trades not be
charged the rates for QCC executions. And, because RevCon QCCs would
not be subject to QCC fees, the Exchange believes it is reasonable that
such trades should not receive the corresponding QCC credits, including
the QCC Floor Broker Rebate. This proposed change would also add
transparency and internal consistency making the Fee Schedule easier to
navigate and comprehend.
The Exchange cannot predict with certainty whether any ATP Holders
would benefit from this proposed fee change. At present, whether or
when an ATP Holder qualifies for the Strategy Cap varies day-to-day,
month-to-month. That said, the Exchange believes that ATP Holders would
be encouraged to take advantage of the modified Cap. In addition, the
Exchange believes the proposed change is necessary to prevent ATP
Holders from diverting RevCon QCC order flow from the Exchange to a
more economical venue.
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 ATP Holders can opt
to avail themselves of the modified Strategy Cap (i.e., by executing
more RevCon QCC transactions) or not. In addition, the proposal is
designed to encourage ATP Holders to aggregate all Strategy
Executions--including RevCon QCCs--at the Exchange as a primary
execution venue. To the extent that the proposed change attracts more
Strategy Executions 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 Proposed Rule Change Is Not Unfairly Discriminatory
The Exchange believes it is not unfairly discriminatory to modify
the Strategy Cap because the proposed modification would be available
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 ATP Holders are not obligated to try to achieve the
Strategy Cap, nor are they obligated to execute RevCon trades as a QCC
order. Rather, the proposal is designed to encourage ATP Holders to
utilize the Exchange as a primary trading venue for Strategy Executions
(if they have not done so previously) or increase volume sent to the
Exchange. To the extent that the proposed change attracts more Strategy
Executions to the Exchange, particularly RevCon QCCs, 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.
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.'' \22\
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\22\ See Reg NMS Adopting Release, supra note 18, at 37499.
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Intramarket Competition. The proposed change is designed to attract
additional order flow (particularly RevCon QCC transactions) to the
Exchange. The Exchange believes that the proposed modification to the
Strategy Cap would incent market participants to direct their Strategy
Execution volume to the Exchange. Greater liquidity benefits all market
participants on the Exchange and increased Strategy Executions would
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increase opportunities for execution of other trading interest. The
proposed expanded Strategy Cap would be available to all similarly-
situated market participants that incur transaction fees on Strategy
Executions, and, as such, the proposed change would not impose a
disparate burden on competition among market participants on the
Exchange. Moreover, the proposal to modify the Fee Schedule to make
clear that RevCon QCC trades would neither be charged QCC rates nor
receive QCC credits during April 2020, given the inclusion of such
trades in the Strategy Cap, would not pose an undue burden on
competition but would instead add clarity, transparency and internal
consistency to the Fee Schedule regarding the treatment of RevCon QCCs
for April 2020.
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.\23\ Therefore,
no exchange currently 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.\24\
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\23\ See supra note 19.
\24\ Based on OCC data, supra note 20, the Exchange's market
share in equity-based options was 9.57% for the month of January
2019 and 9.59% 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 encourage ATP Holders to direct trading interest
(particularly RevCon QCC transactions) 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 currently offer similar Strategy Caps, by encouraging
additional orders to be sent to the Exchange for execution.\25\
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\25\ See supra note 15 (regarding BOX's Strategy QOO Order Fee
Cap and Rebate).
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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) \26\ of the Act and subparagraph (f)(2) of Rule
19b-4 \27\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\26\ 15 U.S.C. 78s(b)(3)(A).
\27\ 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) \28\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\28\ 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-2020-31 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-2020-31. 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-2020-31, and should be
submitted on or before May 14, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08589 Filed 4-22-20; 8:45 am]
BILLING CODE 8011-01-P