83 FR 39800 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE Arca Options Fee Schedule

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 155 (August 10, 2018)

[Federal Register Volume 83, Number 155 (Friday, August 10, 2018)]
[Notices]
[Pages 39800-39802]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-17124]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83780; File No. SR-NYSEARCA-2018-56]


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

August 6, 2018.
    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 July 31, 2018, 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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify the NYSE Arca Options Fee Schedule 
(``Fee Schedule''). The Exchange proposes to implement the fee change 
effective August 1, 2018. The proposed rule change is available on the 
Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of this filing is to modify the Fee Schedule, effective 
August 1, 2018, to modify or eliminate the criteria for achieving 
various credits.
    The Exchange currently 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 (``OFPs'') 
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 Customer orders.\4\ The Exchange proposes 
to modify certain of the thresholds for achieving posting credits on 
the Exchange as described below.
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    \4\ Per the Fee Schedule, ``[u]nless Professional Customer 
executions are specifically delineated, such executions will be 
treated as `Customer' executions for fee/credit purposes.'' See Fee 
Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES FOR STANDARD 
OPTIONS.
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    Pursuant to the Customer Penny Pilot Posting Tiers (the ``Penny 
Credit Tiers'', each a ``Penny Tier''), Customer orders

[[Page 39801]]

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 (up 
to $0.50) based on the participant's activity. Currently, there are 
eight (8) Penny Credit Tiers, with increasing minimum volume thresholds 
associated with each tier.
    The Exchange proposes to eliminate Penny Tier 4, which would remove 
the $0.46 per contract credit for OTPs that achieve at least 0.60% of 
TCADV from Customer posted interest in all issues, plus executed 
Average Daily Volume (``ADV'') of Retail Orders of 0.1% ADV of U.S. 
Equity Market Share Posted and Executed on NYSE Arca Equity Market. 
Consistent with this change, the Exchange proposed to renumber the 
remaining higher Tiers (i.e., to re-number current Penny Tiers 5-8 to 
Penny Tiers 4-7). The Exchange also proposes to modify certain minimum 
volume thresholds in new Penny Tiers 5 and 6. In new Penny Tier 5, in 
the alternative qualification, an OTP would earn the $0.48 per contract 
credit by achieving at least 0.75% (up from 0.50%) of TCADV from 
Customer posted interest in all issues, plus at least 0.45% of TCADV 
from Market Maker Total Electronic Volume.\5\ As proposed, in the new 
Penny Tier 6, an OTP would earn the $0.49 per contract credit by 
achieving at least 0.75% (up from 0.50%) of TCADV from Customer posted 
interest in all issues, plus at least 0.60% of TCADV from Market Maker 
Total Electronic Volume.
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    \5\ Per the Fee Schedule, the ``Total Industry Customer equity 
and ETF option average daily volume (`TCADV') includes OCC 
calculated Customer volume of all types, including Complex Order 
Transactions and QCC transactions, in equity and ETF options.'' See 
Fee Schedule, endnote 8.
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    The Exchange also offers a Customer Incentive Program (the 
``Incentive Program''), which offers OTPs the ability to earn one 
additional credit by achieving the minimum thresholds listed.\6\ The 
Exchange now proposes to eliminate one of the alternatives. 
Specifically, the Exchange would no longer provide an additional $0.03 
per contract credit for achieving executed ADV of retail orders of 
0.10% ADV of U.S. Equity Market Share Posted and Executed on NYSE Arca 
Equity Market.
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    \6\ The Exchange proposes to make a non-substantive change to 
the second alternative basis for the Incentive Program by replacing 
reference to ``Total Industry Customer equity and ETF option ADV'' 
with the defined abbreviation of ``TCADV,'' which would add clarity 
and internal consistency to the Fee Schedule. See proposed Fee 
Schedule, Customer Incentive Program.
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    The Exchange also offers increasing credits to be applied to 
executions of Customer posted interest in non-Penny Pilot issues based 
on minimum volume thresholds through the Customer Posting Credit Tiers 
in Non-Penny Pilot Issues (``Non-Penny Credit Tiers'', each a ``Non-
Penny Tier''). The Exchange proposes to eliminate one Non-Penny Tier 
(the current Tier A), which would remove the $0.83 per contract credit 
for OTPs that achieve at least 0.70% of TCADV from Customer posted 
interest in all issues, plus executed ADV of Retail Orders of 0.1% ADV 
of U.S. Equity Market Share Posted and Executed on NYSE Arca Equity 
Market. Consistent with this change, the Exchange proposes to re-title 
the balance of the Non-Penny Tiers (i.e., to re-title current Non-Penny 
Tiers B-F to Non-Penny Tiers A through E).
    Additionally, the Exchange proposes to modify the minimum volume 
threshold required to achieve new Tier B, such that an OTP would earn 
the $0.94 per contract credit by achieving at least 0.75% (up from 
0.50%) of TCADV from Customer posted interest in all issues, plus an 
ADV from Market Maker Total Electronic Volume equal to 0.45% of TCADV. 
The Exchange also proposes to modify the minimum volume threshold for 
the new Tier D, such that an OTP would earn the $1.00 per contract 
credit by achieving at least 0.75% (up from 0.50%) of TCADV from 
Customer posted interest in all issues, plus an ADV from Market Maker 
Total Electronic Volume equal to 0.60% of TCADV.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed modifications to the 
minimum threshold qualification for certain of the Penny, and Non-
Penny, Credit Tiers and the Incentive Program are reasonable, 
equitable, and not unfairly discriminatory because, among other things, 
the proposed changes would streamline the available means for an OTP to 
qualify for credits on the Exchange, while still offering OTPs 
incentives to direct volume to the Exchange. The Exchange notes that it 
proposes to remove certain tiers from the various posting credit 
programs because such tiers are underutilized. The proposed changes, 
therefore, should provide more meaningful criteria for OTPs to qualify 
for (and seek to achieve higher) credits by posting desired volume on 
the Exchange. The Exchange believes that the proposed changes would 
continue to attract Customer (and Professional Customer) orders to the 
Exchange, which results in increased liquidity to the benefit of all 
participants by offering greater price discovery, increased 
transparency, and an increased opportunity to trade on the Exchange.
    The Exchange also believes the proposed changes are reasonable, 
equitable and not unfairly discriminatory because the modified minimum 
volume thresholds for the Penny, and Non-Penny, Tiers and the Incentive 
Program 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 participants to enhance 
their order flow to qualify for the various incentives, including 
encouraging more participants to have affiliated or appointed order 
flow directed to the Exchange. Further, encouraging OFPs to send higher 
volumes of Customer (and Professional Customer) orders to the Exchange 
would also contribute to the Exchange's depth of book as well as to the 
top of book liquidity.
    The proposed changes to the various posting credit incentives 
offered on the Exchange are also reasonable as they are consistent with 
similar such programs offered on other exchanges.\9\
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    \9\ See e.g., NASDAQ Options Market, Chapter XV Options Pricing, 
Sec. 2, Fees and Rebates, available here, http://nasdaq.cchwallstreet.com/NASDAQTools/PlatformViewer.asp?selectednode=chp_1_1_15&manual=%2Fnasdaq%2Fmain%2Fnasdaq-optionsrules%2F (setting forth various rebates per executed 
contract, including for adding Customer and Professional Customer 
volume).
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    Finally, the Exchange believes the proposed non-substantive changes 
to the Fee Schedule (see supra note 6) are reasonable, equitable, and 
not unfairly discriminatory because it would add clarity, transparency 
and internal consistency to the Fee Schedule.

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 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

[[Page 39802]]

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. The Exchange notes that the proposed rule change merely 
modifies existing posting tiers that offer additional credits to OTPs 
that (opt to) meet certain volume thresholds. The proposed change does 
not impose any new burden or requirement on OTPs, as achieving the 
modified tiers is voluntary (i.e., an OTP that does not does not seek 
to achieve additional credits by meeting the modified volume thresholds 
has no obligation to do so).
    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) \10\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \11\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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) \12\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \12\ 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-2018-56 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEARCA-2018-56. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEARCA-2018-56 and should be submitted 
on or before August 31, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-17124 Filed 8-9-18; 8:45 am]
BILLING CODE 8011-01-P