82 FR 29126 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE Arca Options Fee Schedule

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 122 (June 27, 2017)

[Federal Register Volume 82, Number 122 (Tuesday, June 27, 2017)]
[Notices]
[Pages 29126-29128]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-13345]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80990; File No. SR-NYSEARCA-2017-67]


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

June 21, 2017.
    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 June 9, 2017, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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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Self-Regulatory Organization's Statement of the Terms of Substance of 
the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Options Fee Schedule 
(``Fee Schedule''). The proposed rule change is available on the 
Exchange's Web site 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 
the criteria for achieving various credits, including by broadening the 
qualifying order flow and trading activity, to make the different 
qualifications more achievable to a variety of market participants.
    Currently, the Exchange provides a number of incentives for OTP 
Holders and OTP Firms (collectively, ``OTPs'') designed to encourage 
OTPs to direct additional order flow to the Exchange to achieve more 
favorable pricing and higher credits. Among these incentives are 
enhanced posted liquidity credits based on achieving certain 
percentages of NYSE Arca Equity daily activity, also known as ``cross-
asset pricing.'' In addition, certain of the qualifications for 
achieving these incentives are more tailored to specific activity 
(i.e., posting in Penny Pilot issues only, or cross-asset pricing based 
only on levels of Retail Orders on the NYSE Arca Equity Market). 
Similarly, because the Exchange allows Order Flow Providers (``OFP''s) 
to aggregate their volume executed on NYSE Arca with affiliated or 
Appointed Market Makers, OFPs may encourage an increased level of 
activity from these participants to qualify for various incentives, 
including higher credits for Customers or Professional Customer orders. 
As a result, NYSE Arca becomes a more attractive venue for Customer 
(and Professional Customer) orders offering enhanced rebates. To 
further incent OFPs to direct order flow to the Exchange, the Exchange 
proposes to allow participants to combine their Customer activity with 
their Market Maker activity in an effort to achieve certain enhanced 
rebates.
    Pursuant to the Customer and Professional Customer Monthly Posting 
Credit Tiers and Qualifications for Executions in Penny Pilot Issues 
(the ``Penny Credit Tiers''), Customer and Professional Customer orders 
that post liquidity and are executed on the Exchange earn a base credit 
of $0.25 per contract, with the ability to earn increased credits based 
on the participant's activity. There are currently seven Penny Credit 
Tiers with associated qualifications. The Exchange is not proposing any 
change to Penny Credit Tiers 1 through 5.
    Regarding current Penny Credit Tier 6, an OTP is eligible to 
achieve a credit of $0.48 per contract, provided the OTP has (i) at 
least 0.35% of Total Industry Customer equity and ETF option ADV 
(``TCADV'') from Customer and Professional Customer Posted Orders in 
all Issues, and (ii) Executed ADV of 0.80% of U.S. Equity Market Share 
Posted and Executed on NYSE Arca Equity Market. The Exchange proposes 
to add an alternative qualification basis to Tier 6, which would enable 
an OTP to qualify for the $0.48 per contract credit, provided the OTP 
has (i) at least 0.50% of TCADV from Customer and Professional Customer 
Posted orders in all Issues, and (ii) at least 0.45% of TCADV from 
Market Maker Total Electronic Volume.
    Additionally, the Exchange proposes to rename current Penny Credit 
Tier 7 as Tier 8, and to add a new Tier 7 with an associated credit of 
$0.49 per contract. As proposed, OTPs may qualify for the new Tier 7 by 
achieving a level of at least 0.50% of TCADV from Customer and 
Professional Customer Posted orders in all Issues, plus at least 0.60% 
of TCADV from Market Maker Total Electronic Volume.
    The Exchange is also proposing a small clarifying change to the 
Penny Credit Tiers by replacing ``Total Industry Customer equity and 
ETF option average daily volume'' with ``TCADV'' and explaining the 
abbreviation with a note at the bottom of the table referenced by an 
asterisk in the table header.
    Next, the Exchange proposes to modify the Customer and Professional 
Customer Incentive Program (the ``Incentive Program'') by replacing two 
of the possible incentives that are based solely on Market Maker Posted 
Orders with new incentives that combine a level of Market Maker Total 
Electronic Volume and Customer and Professional Customer volume. 
Specifically, the Exchange proposes to no longer provide an additional 
$0.01 per contract credit for OTPs that achieve an ADV from Market 
Maker Posted Orders equal to 0.80% of TCADV. Instead, the Exchange 
proposes to offer an additional $0.01 per contract credit incentive for 
an OTP that

[[Page 29127]]

achieves at least 0.50% of TCADV from Customer and Professional 
Customer Posted Orders in all Issues, plus an ADV from Market Maker 
Posted Orders in Penny Pilot Issues equal to at least 0.30% of Total 
Industry Customer equity and ETF option ADV. The Exchange notes that an 
OTP that achieves this incentive would be qualified for Penny Credit 
Tier 3 (which requires an OTP achieve at least 0.40% of TCADV from 
Customer and Professional Customer Posted Orders in all Issues).\4\ The 
Exchange also proposes to replace the current additional $0.02 per 
contract rebate available under the Incentive Program, earned by 
achieving an ADV from Market Maker Posted Orders equal to 1.40% of 
TCADV, with a new $0.03 per contract rebate that is earned by achieving 
an ADV from Market Maker Total Electronic Volume of at least 0.60% of 
TCADV, plus at least 0.10% of TCADV from Customer and Professional 
Customer Posted Orders in non-Penny Pilot Issues. By encouraging 
additional activity from affiliated or Appointed Market Makers, the 
Exchange hopes to encourage a broader spectrum of business and, in 
turn, to increase liquidity and opportunities to trade on the Exchange.
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    \4\ The Exchange notes that the qualifying OTP would be eligible 
to receive both the $0.45 per contract credit available for 
achieving Tier 3 as well as the $0.01 per contract credit available 
for achieving the proposed threshold in the Incentive Program.
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    The Exchange is also proposing modifications to the Customer and 
Professional Customer Posting Credit Tiers in Non-Penny Pilot Issues 
(``Non-Penny Credit Tiers'') that would enable OTPs to include volume 
from an affiliated or Appointed Market Maker to achieve these Tiers. 
There are currently four Non-Penny Tiers Credit Tiers. The Exchange is 
not proposing any change to Non-Penny Credit Tiers A or B. The Exchange 
proposes to rename current Tier C to Tier D and to add a new Tier C. As 
proposed, new Tier C will be achieved by meeting at least 0.50% TCADV 
from Customer and Professional Customer Posted Order executions in all 
Issues, plus an ADV from Market Maker Total Electronic Volume equal to 
0.45% of TCADV. OTPs that qualify for proposed Tier C will receive a 
credit of $0.94 per contract. Additionally, the Exchange proposes to 
designate the current Non-Penny Credit Tier D as Tier F, and introduce 
a new Tier E. As proposed, new Tier E will be achieved by meeting at 
least 0.50% of TCADV from Customer and Professional Customer posted 
orders in all issues, plus an ADV from Market Maker Total Electronic 
Volume equal to 0.60% of TCADV. OTPs that qualify for proposed Tier E 
will receive a credit of $1.00 per contract.
    The Exchange also proposes to amend endnote 8 of the Fee Schedule 
to clarify make clear [sic] that the Exchange is adopting the term 
``Market Maker Total Electronic Volume,'' which is calculated on the 
same basis as Customer volumes, in that Electronic Complex Order 
Executions, QCC Transactions, and executions of orders routed to 
another market are not included. By defining long standing practice, 
the Exchange believes this adds clarity to the calculation of Market 
Maker Total Electronic Volume, and is consistent with the treatment of 
Customer volumes. Complex strategies carry no market making obligations 
beyond making markets for simple executions in the component legs of 
the strategy; for this reason they are not included in Total Electronic 
Market Maker Volume. Similarly, QCCs are negotiated transactions that 
neither post nor take liquidity, and therefore QCCs do not interact 
with Market Makers quotes. Market Maker orders routed to another market 
do not contribute to activity on NYSE Arca, and are therefore not 
included.
    The Exchange is also correcting two minor typographical errors 
within the Fee Schedule, placing a hyphen between ``Non'' and ``Penny'' 
in the header of ``Customer and Professional Customer Posting Credit 
Tiers In Non Penny Pilot Issues'', and removing an underlined space in 
``Credit Applied to Posted Electronic Customer and Professional 
Customer Executions in Penny Pilot Issues'', which should add clarity 
to the Fee Schedule.
    Finally, given the proposed increase in the number of Penny Credit 
Tiers from seven to eight, the Exchange proposes to make clear that 
OTPs that achieve Tier 6, 7, or 8, (rather than just Tier 6 or 7) will 
be capped at $65,000 under the Firm and Broker Dealer Monthly Fee Cap.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\5\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\6\ 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that providing alternative qualifications for 
the Penny and Non-Penny Credit Tiers and the Incentive Program is 
reasonable, equitable, and not unfairly discriminatory because, among 
other things, it increases the methods of qualifying for greater 
credits through the inclusion of affiliated or appointed Market Maker 
volume. The proposed changes would also provide additional means (via 
the proposed new Tiers) for OTPs to qualify for credits for posting 
volume on the Exchange. By providing alternative methods to qualify for 
a Tier or an Incentive, the Exchange believes the opportunities to 
qualify for rebates is increased, which benefits all participants 
through both increased Customer (and Professional Customer) volume and 
increased Market Maker activity. The Exchange notes that allowing 
participants to aggregate volume is not new or novel.\7\ To the extent 
that order flow which adds liquidity is increased by the proposal, 
market participants will increasingly compete for the opportunity to 
trade on the Exchange, including sending more orders to reach higher 
tiers or rebates. The resulting increased volume and liquidity will 
benefit all Exchange participants by providing more trading 
opportunities and tighter spreads.
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    \7\ See e.g., NASDAQ Options Market--Fees and Rebates, Section 
2, available here, http://www.nasdaqtrader.com/Micro.aspx?id=optionsPricing (providing for qualification of tiers/
rebates on the basis of customer and market maker volume); Bats BZX 
Options Fee Schedule, fn 1, Customer Penny Pilot Add Tiers, 
available here, https://www.bats.com/us/options/membership/fee_schedule/bzx/ (same).
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    The Exchange also believes the proposed changes would be available 
to all similarly-situated market participants on an equal and non-
discriminatory basis. The Exchange believes the proposed modifications 
are reasonable, equitable and not unfairly discriminatory because they 
encourage more participants to qualify for the various incentives, 
including encouraging more participants to have affiliated or appointed 
order flow directed to the Exchange. Further, encouraging Market Makers 
to send higher volumes of orders to the Exchange would also contribute 
to the Exchange's depth of book as well as to the top of book 
liquidity.
    The credits are also reasonable as they are within the current 
range of credits on posted Customer and Professional Customer orders.
    Finally, the Exchange believes the proposed non-substantive changes 
to

[[Page 29128]]

the Fee Schedule are reasonable, equitable, and not unfairly 
discriminatory because it would add clarity, transparency and internal 
consistency to the Fee Schedule.
    For these 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,\8\ the Exchange does 
not believe that the proposed rule change will impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, the Exchange believes that the proposed 
changes would encourage competition, including by attracting additional 
liquidity to the Exchange, which would continue to make the Exchange a 
more competitive venue for, among other things, order execution and 
price discovery. The Exchange does not believe that the proposed change 
would impair the ability of any market participants or competing order 
execution venues to maintain their competitive standing in the 
financial markets. Further, the incentive would be available to all 
similarly-situated participants, and, as such, the proposed change 
would not impose a disparate burden on competition either among or 
between classes of market participants and may, in fact, encourage 
competition.
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    \8\ 15 U.S.C. 78f(b)(8).
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    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues. In 
such an environment, the Exchange must continually review, and consider 
adjusting, its fees and credits to remain competitive with other 
exchanges. For the reasons described above, the Exchange believes that 
the proposed rule change reflects this competitive environment.

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) \9\ of the Act and subparagraph (f)(2) of Rule 19b-
4 \10\ thereunder, because it establishes a due, fee, or other charge 
imposed by the Exchange.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 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) \11\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \11\ 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-2017-67 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-2017-67. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2017-67, and should 
be submitted on or before July 18, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-13345 Filed 6-26-17; 8:45 am]
 BILLING CODE 8011-01-P