FR 2021-01727

The document under review is a notice from the Securities and Exchange Commission (SEC) regarding a proposed rule change submitted by NYSE American LLC. This rule change aims to adjust how certain transaction credits are calculated within the American Customer Engagement (ACE) Program. Specifically, the change involves slightly reducing the credit from $0.24 to $0.23 per contract for participants that meet specific criteria. The proposal became effective on January 13, 2021, and the SEC is seeking public feedback as part of the regulatory process.

General Summary

The notice outlines an amendment to the NYSE American Options Fee Schedule, which aims to make the exchange more competitive by adjusting incentives for market participants. The ACE Program offers credits to electronic customer transactions, and the change reduces the per-contract credit for Tier 5 Simple transactions in the program. The broader objective is to encourage more trading activity, which theoretically benefits all market participants through improved market quality, increased liquidity, and enhanced price discovery.

Significant Issues and Concerns

One significant issue with the notice is the complexity of its language and explanations, which may pose understanding challenges for readers not familiar with financial and regulatory terminology. The document outlines the intended benefits of these changes but does not deeply explore the potential impacts on different market stakeholders or provide a detailed impact analysis. Thus, the assessment of how reducing the credit amount will influence market behaviors is not fully developed.

Public Impact

For the general public, these changes might seem arcane, as they mostly affect market participants like traders and market makers, rather than retail investors. Yet, the modifications could indirectly influence market conditions by potentially improving liquidity and market stability based on increased trading activity. However, the nuances of how such changes will unfold remain unclear from the document.

Stakeholder Impact

Market participants, including ACE Program members and affiliated market makers, are the primary stakeholders directly impacted by these fee schedule adjustments. The reduction in credit may incentivize these stakeholders to enhance their trading volume on the exchange to continue enjoying financial benefits. Yet, without explicit rationale as to why the credit was reduced or analysis on its broader impact, stakeholders may have concerns about the fairness and long-term implications of this change.

This lack of specificity in explaining how changes will maintain NYSE American's competitive edge relative to other exchanges could raise questions. Stakeholders likely need clearer guidance to adapt their strategies accordingly and understand how to navigate these changes effectively. Without this clarity, especially regarding any possible conflicts of interest or scenarios illustrating practical outcomes, the proposal may be perceived as setting a precedent that lacks transparency.

The financial reference in the document pertains to a modification in the credit amount provided to participants of the American Customer Engagement (ACE) Program under the NYSE American Options Fee Schedule. The central financial change involves a reduction of the credit from ($0.24) per contract to ($0.23) per contract. This slight decrease represents a modest adjustment aimed at aligning the fee structure with the increased volume of electronic executions across the industry.

The document suggests that this adjustment is designed to encourage program participants to direct more order flow to the Exchange, thereby maintaining competitive pressure within the electronic trading environment. The reduced credit could seem minor; however, in the context of high-volume trading, even a small adjustment per contract can lead to significant financial implications for participants when scaled across many transactions.

Relation to Identified Issues

The financial adjustment from ($0.24) to ($0.23) per contract relates to several identified issues, particularly those concerning clarity and impact analysis:

1. Lack of Clarity and Impact Analysis: The document does not elucidate why precisely the credit is being adjusted downward by $0.01 per contract. A more explicit rationale or quantitative analysis discussing how this change affects the different stakeholders, particularly the market participants in the ACE Program, would significantly enhance the document's transparency and help stakeholders understand the financial implications of the adjustment.

2. Complexity of Language: The section discussing the credit is somewhat embroiled in technical jargon, which may obfuscate the financial reality for individuals not deeply familiar with financial markets and fee schedules. This could be mitigated by providing simpler explanations or illustrative examples that contextualize the decision's financial basis.

3. Impact on Competitiveness: By adjusting the credit, ostensibly to align with growing electronic execution volumes, the Exchange intends to maintain its competitive edge. However, there needs to be a clearer explanation of how this change affects the competitiveness of NYSE American LLC relative to other exchanges. A detailed financial comparison with competitors would provide much-needed context for this adjustment.

Overall, while the financial elements in the document highlight a minor credit reduction, understanding its broader implications and reasoning would benefit greatly from additional clarification and analysis. The document would thus better serve its audience by enhancing transparency concerning these financial modifications.