[Federal Register Volume 90, Number 18 (Wednesday, January 29, 2025)]
[Notices]
[Pages 8413-8416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-01855]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102274; File No. SR-NYSEARCA-2024-90]
Self-Regulatory Organizations; NYSE Arca, Inc.; Suspension of and
Order Instituting Proceedings To Determine Whether To Approve or
Disapprove a Proposed Rule Change To Waive the Options Regulatory Fee
(ORF) for December 2024
January 23, 2025.
I. Introduction
On November 25, 2024, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change (File No. SR-NYSEARCA-2024-90) to amend its
Options Fee Schedule (``Fee Schedule'') regarding the Options
Regulatory Fee (``ORF'').\3\ The proposed rule change was immediately
effective upon filing with the Commission pursuant to Section
19(b)(3)(A) of the Act.\4\ The proposed rule change was published for
comment in the Federal Register on December 16, 2024.\5\ The Commission
has not received any comments on the proposal. Pursuant to Section
19(b)(3)(C) of the Act,\6\ the Commission is hereby: (1) temporarily
suspending File No. SR-NYSEARCA-2024-90; and (2) instituting
proceedings to determine whether to approve or disapprove File No. SR-
NYSEARCA-2024-90.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 101868 (Dec. 10,
2024), 89 FR 101650 (Dec. 16, 2024) (``Notice'').
\4\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take
effect upon filing with the Commission if it is designated by the
exchange as ``establishing or changing a due, fee, or other charge
imposed by the self-regulatory organization on any person, whether
or not the person is a member of the self-regulatory organization.''
15 U.S.C. 78s(b)(3)(A)(ii).
\5\ See Notice, supra note 3.
\6\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The Exchange proposed to amend the Fee Schedule to temporarily
waive the ORF for the period December 1, 2024 through December 31, 2024
and resume assessment of the ORF at the same rate of $0.0038 per share
on January 1, 2025.\7\ Noting that it adjusts the amount of ORF amount
periodically to ensure that the revenue from its ORF does not exceed
its regulatory costs, the Exchange proposed to waive assessment of the
ORF from December 1 through December 31, 2024 ``in order to help ensure
that the amount collected from the ORF, in combination with other
regulatory fees and fines, does not exceed the Exchange's total
regulatory costs.'' \8\ According to the Exchange, the proposed waiver
was based on its ``analysis of recent options volumes and regulatory
costs'' and its belief that ``if the ORF is not adjusted, the ORF
revenue to the Exchange year over year could exceed a material portion
of the Exchange's ORF Costs.'' \9\ The Exchange proposed to resume
assessment of the ORF at the same rate on January 1, 2025, ``based on
the Exchange's estimated projections for its regulatory costs, balanced
with the observed increases in options volumes.'' \10\ The exchange
previously waived its ORF for selected months in 2022 and 2023.\11\
---------------------------------------------------------------------------
\7\ See Notice, supra note 3, at 101651. The Exchange also
proposed a ministerial change to delete outdated language relating
to a prior ORF waiver and superseded ORF rate. Id. The Exchange
assesses the ORF on Options Trading Permit (``OTP'') Holders and OTP
Firms (collectively, ``OTP Holders'') for options transactions that
are cleared by those firms through the Options Clearing Corporation
(``OCC'') in the Customer range, regardless of the exchange on which
the transaction occurs. See id. at 101650.
\8\ See id. at 101651.
\9\ Id.
\10\ Id. at 101652.
\11\ See Securities Exchange Act Release Nos. 96374 (Nov. 22,
2022), 87 FR 73372 (Nov. 29, 2022) (SR-NYSEARCA-2022-78) and 98676
(Oct. 3, 2023), 88 FR 69969 (Oct. 10, 2023) (SR-NYSEARCA-2023-68).
---------------------------------------------------------------------------
[[Page 8414]]
III. Suspension of the Proposed Rule Change
Pursuant to Section 19(b)(3)(C) of the Act,\12\ at any time within
60 days of the date of filing of an immediately effective proposed rule
change pursuant to Section 19(b)(1) of the Act,\13\ the Commission
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') 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. As discussed below, the Commission believes a temporary
suspension of the proposed rule change is necessary and appropriate to
allow for additional analysis of the proposed rule change's consistency
with the Act and the rules thereunder.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(3)(C).
\13\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------
When exchanges file their proposed rule changes with the
Commission, including fee filings like the Exchange's present proposal,
they are required to provide a statement supporting the proposal's
basis under the Act and the rules and regulations thereunder applicable
to the exchange.\14\ The instructions to Form 19b-4, on which exchanges
file their proposed rule changes, specify that such statement ``should
be sufficiently detailed and specific to support a finding that the
proposed rule change is consistent with [those] requirements'' \15\
---------------------------------------------------------------------------
\14\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory
Organization's Statement of the Purpose of, and Statutory Basis for,
the Proposed Rule Change'').
\15\ See id.
---------------------------------------------------------------------------
Section 6 of the Act, including Sections 6(b)(4), (5), and (8),
require the rules of an exchange to: (1) provide for the equitable
allocation of reasonable fees among members, issuers, and other persons
using the exchange's facilities; \16\ (2) perfect the mechanism of a
free and open market and a national market system, protect investors
and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers; \17\
and (3) not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\18\ In
justifying its proposal, the Exchange stated that its proposed
temporary waiver and subsequent resumption of the assessment of the ORF
on January 1, 2025 at the same rate ``is reasonable because it would
help ensure that collections from the ORF do not exceed a material
portion of the Exchange's ORF Costs.'' \19\ The Exchange further stated
that ``resumption of the ORF at the current rate on January 1, 2025 . .
. is reasonable because it would permit the Exchange to resume
collecting an ORF that is designed to recover a material portion, but
not all, of the Exchange's projected ORF Costs'' and ``is based on the
Exchange's estimated projections for its regulatory costs, which are
currently projected to increase in 2025, balanced with the increase in
options volumes that has persisted into 2024 and that may continue into
2025.'' \20\ The Exchange also stated that the proposal is an equitable
allocation of fees among its market participants and not unfairly
discriminatory because the temporary waiver (and subsequent resumption
of the assessment ORF on January 1, 2025 at the same rate) ``would
apply equally to all OTP Holders on all their transactions that clear
in the Customer range at the OCC.'' \21\ According to the Exchange, the
proposed waiver ``would not place certain market participants at an
unfair disadvantage because it would apply equally to all OTP Holders
on all their transactions that clear in the Customer range at the OCC
and would allow the Exchange to continue to monitor the amount
collected from the ORF to help ensure that the ORF collection, in
combination with other regulatory fees and fines, does not exceed
regulatory costs.'' \22\ Further, the Exchange stated that resumption
of the assessment of the ORF on January 1, 2025 at the current rate is
equitable ``because the ORF would resume applying equally to all OTP
Holders . . . at a rate designed to recover a material portion, but not
all, of the Exchange's projected ORF Costs, based on current
projections that such costs will increase in 2025.'' \23\
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f(b)(4).
\17\ 15 U.S.C. 78f(b)(5).
\18\ 15 U.S.C. 78f(b)(8).
\19\ See Notice, supra note 3, at 101652. In its proposed rule
change, the Exchange defined ``ORF Costs'' collectively to include
``the Exchange's costs for the supervision and regulation of OTP
Holders, including the Exchange's regulatory program and legal
expenses associated with options regulation, such as the costs
related to in-house staff, third-party service providers, and
technology that facilitate regulatory functions such as
surveillance, investigation, examinations, and enforcement.'' Id. at
101650. The Exchange further stated that ``ORF funds may also be
used for indirect expenses such as human resources and other
administrative costs.'' Id.
\20\ See id. 101652.
\21\ See id. at 101652.
\22\ Id.
\23\ Id.
---------------------------------------------------------------------------
In temporarily suspending the Exchange's proposed rule change, the
Commission intends to further consider whether the proposal to
temporarily waive assessment of the ORF for one month and resume
assessment of the ORF at the same rate thereafter is consistent with
the statutory requirements applicable to a national securities exchange
under the Act. In particular, the Commission will consider whether the
proposed rule change satisfies the standards under the Act and the
rules thereunder requiring, among other things, that an exchange's
rules provide for the equitable allocation of reasonable fees among
members, issuers, and other persons using its facilities; not permit
unfair discrimination between customers, issuers, brokers or dealers;
and do not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\24\
---------------------------------------------------------------------------
\24\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------
Therefore, the Commission finds that it is necessary and
appropriate in the public interest, for the protection of investors,
and otherwise in furtherance of the purposes of the Act, to temporarily
suspend the proposed rule change.\25\
---------------------------------------------------------------------------
\25\ For purposes of temporarily suspending the proposed rule
change, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
IV. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change
In addition to temporarily suspending the proposal, the Commission
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C)
\26\ and 19(b)(2)(B) of the Act \27\ to determine whether the
Exchange's proposed rule change should be approved or disapproved.
Institution of proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
Rather, the Commission seeks and encourages interested persons to
provide additional comment on the proposed rule change to inform the
Commission's analysis of whether to approve or disapprove the proposed
rule change.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily
suspends a proposed rule change, Section 19(b)(3)(C) of the Act
requires that the Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule change should be
approved or disapproved.
\27\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act,\28\ the Commission is
providing
[[Page 8415]]
notice of the grounds for possible disapproval under consideration:
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also
provides that proceedings to determine whether to disapprove a
proposed rule change must be concluded within 180 days of the date
of publication of notice of the filing of the proposed rule change.
See id. The time for conclusion of the proceedings may be extended
for up to 60 days if the Commission finds good cause for such
extension and publishes its reasons for so finding, or if the
exchange consents to the longer period. See id.
---------------------------------------------------------------------------
Whether the Exchange has demonstrated how its proposed
temporary ORF waiver (and subsequent recommencement of the assessment
of the ORF on January 1, 2025 at the same rate) is consistent with
Section 6(b)(4) of the Act, which requires that the rules of a national
securities exchange ``provide for the equitable allocation of
reasonable dues, fees, and other charges among its members and issuers
and other persons using its facilities;'' \29\ (emphasis added);
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
Whether the Exchange has demonstrated how its proposed
temporary ORF waiver (and subsequent recommencement of the assessment
of the ORF on January 1, 2025 at the same rate) is consistent with
Section 6(b)(5) of the Act, which requires, among other things, that
the rules of a national securities exchange not be ``designed to permit
unfair discrimination between customers, issuers, brokers, or dealers''
\30\ (emphasis added); and
---------------------------------------------------------------------------
\30\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Whether the Exchange has demonstrated how its proposed
temporary ORF waiver (and subsequent recommencement of the assessment
of the ORF on January 1, 2025 at the same rate) is consistent with
Section 6(b)(8) of the Act, which requires that the rules of a national
securities exchange ``not impose any burden on competition not
necessary or appropriate in furtherance of the purposes of [the Act].''
\31\
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
As noted above, the Exchange proposes to waive the assessment of
ORF for the month of December 2024 ``in order to help ensure that the
amount collected from the ORF, in combination with other regulatory
fees and fines, does not exceed the Exchange's total regulatory
costs.'' \32\ The Exchange further proposes to resume assessing the ORF
at the same rate of $0.0038 on January 1, 2025 because the Exchange
``cannot predict whether options volumes will remain at [elevated]
levels going forward and projections for future regulatory costs are
estimated, preliminary, and may change.'' \33\ However, the Exchange's
statements in support of the proposed rule change are general in nature
and lack detail and specificity. For example, the proposal states that
the proposed temporary wavier of the assessment of the ORF is equitable
and not unfairly discriminatory because it would not place certain
market participants at an unfair disadvantage and would apply equally
to all OTP Holders on all their transactions that clear in the Customer
range at the OCC. However, the proposal lacks specificity regarding how
assessing the ORF to participants that execute transactions from
January 1-November 30, 2024, but waiving the assessment of the ORF for
participants that execute transactions in December 2024 constitutes a
reasonable, equitable, and not unfairly discriminatory fee when such
ORF revenue is used to offset the Exchange's 2024 regulatory expenses,
including those incurred in connection with transactions occurring in
December 2024. In addition, as noted above, this is the third time that
the Exchange has proposed an end-of-year fee waiver for ORF to avoid
over-collection in excess of ORF Costs.\34\ In light of that emerging
patten, the Exchange has not demonstrated with specificity how
reimposing the unreduced ORF in January 2025 would not result in over-
collection once again in 2025 beyond a general reference to potentially
increased regulatory costs for 2025, and thus a question is presented
as to whether reimposing the ORF at the unreduced former rate in 2025
would constitute a reasonable, equitable, and not unfairly
discriminatory fee.
---------------------------------------------------------------------------
\32\ See Notice, supra note 3, at 101651.
\33\ Id. at 101652.
\34\ See supra note 11.
---------------------------------------------------------------------------
Further, the Exchange provides only broad information on options
transaction volume trends, and generalized statements regarding the
Exchange's anticipated regulatory costs for 2025 to justify its
proposal. Without more information in the filing on the Exchange's
regulatory revenues attributable to ORF as well as regulatory revenue
from other sources, and more information on the Exchange's regulatory
costs to supervise and regulate OTP Holders, including, e.g., Customer
versus non-Customer activity and on-exchange versus off-exchange
activity, the proposal lacks information that can speak to whether the
proposed one-month ORF waiver and subsequent resumption at the same
rate is reasonable, equitably allocated, and not unfairly
discriminatory, particularly given that the ORF is assessed only on
transactions that clear in the Customer range and regardless of the
exchange on which the transaction occurs, and that the ORF is designed
to recover a material portion, but not all, of the Exchange's
regulatory costs for the supervision and regulation of activity across
all OTP Holders.
Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the [Act]
and the rules and regulations issued thereunder . . . is on the [SRO]
that proposed the rule change.'' \35\ The description of a proposed
rule change, its purpose and operation, its effect, and a legal
analysis of its consistency with applicable requirements must all be
sufficiently detailed and specific to support an affirmative Commission
finding,\36\ and any failure of an SRO to provide this information may
result in the Commission not having a sufficient basis to make an
affirmative finding that a proposed rule change is consistent with the
Act and the applicable rules and regulations.\37\
---------------------------------------------------------------------------
\35\ 17 CFR 201.700(b)(3).
\36\ See id.
\37\ See id.
---------------------------------------------------------------------------
The Commission is instituting proceedings to allow for additional
consideration and comment on the issues raised herein, including as to
whether the proposed fees are consistent with the Act, and
specifically, with its requirements that exchange fees be reasonable
and equitably allocated and not be unfairly discriminatory.\38\
---------------------------------------------------------------------------
\38\ See 15 U.S.C. 78f(b)(4), (5), and (8).
---------------------------------------------------------------------------
V. Commission's Solicitation of Comments
The Commission requests written views, data, and arguments with
respect to the concerns identified above as well as any other relevant
concerns. Such comments should be submitted by February 19, 2025.
Rebuttal comments should be submitted by March 5, 2025. Although there
do not appear to be any issues relevant to approval or disapproval that
would be facilitated by an oral presentation of views, data, and
arguments, the Commission will consider, pursuant to Rule 19b-4, any
request for an opportunity to make an oral presentation.\39\
---------------------------------------------------------------------------
\39\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by an SRO. See Securities
Acts Amendments of 1975, Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------
The Commission asks that commenters address the sufficiency and
merit of the Exchange's statements in support of the Proposal, in
addition to any other comments they may wish to submit about the
proposed rule change.
Interested persons are invited to submit written data, views and
arguments concerning the foregoing,
[[Page 8416]]
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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
file number SR-NYSEARCA-2024-90 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-2024-90. 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 (https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NYSEARCA-2024-90 and should
be submitted on or before February 19, 2025. Rebuttal comments should
be submitted by March 5, 2025.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(3)(C) of the
Act,\40\ that File No. SR-NYSEARCA-2024-90, be and hereby is,
temporarily suspended. In addition, the Commission is instituting
proceedings to determine whether the proposed rule change should be
approved or disapproved.
---------------------------------------------------------------------------
\40\ 15 U.S.C. 78s(b)(3)(C).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
---------------------------------------------------------------------------
\41\ 17 CFR 200.30-3(a)(57) and (58).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-01855 Filed 1-28-25; 8:45 am]
BILLING CODE 8011-01-P