FR 2021-02714

The document in question is a notice from the NYSE American LLC about a proposed amendment to its Options Fee Schedule, as filed with the Securities and Exchange Commission (SEC) on February 1, 2021. This amendment is crafted to introduce a credit system for Customer Electronic executions, potentially offering a $0.10 per contract credit for meeting specified trading volume thresholds. The overarching aim of this change is to attract more trading activity, which could, in turn, enhance market depth and price discovery. The SEC has opened this proposal for public comments, inviting a broader discussion on its implications and effectiveness.

General Overview

The NYSE American LLC intends to bolster trading activities by offering financial incentives to ATP Holders who reach certain trading volumes. This strategy appears to be a targeted effort to increase participation in the exchange and improve its competitive standing. The proposal's introduction specifies that conditions must be met for the credit to apply, suggesting a structured approach to achieving desired trading behaviors among participants.

Issues and Concerns

Several issues emerge from the complexity of the document. Firstly, while the document mentions that ATP Holders must meet certain volume thresholds to qualify for credits, it lacks clear details about what these volumes entail, making it challenging for participants to understand the exact requirements. Additionally, the text is peppered with technical jargon and references to specific sections of the NYSE American Options Fee Schedule, which may not be accessible to those unfamiliar with this domain.

Moreover, while the text claims that the proposal is equitable and non-discriminatory, it does not provide a transparent explanation of how "similarly-situated" market participants are defined. This lack of clarity might raise concerns about fairness and accessibility of the proposed credits among smaller market players and those with less competitive sway.

Public Impact

For the general public, particularly investors, this rule change might influence trading behaviors. If successful, the approach could lead to more trading activity and potentially tighter bid-ask spreads, which are favorable for investors looking to make transactions. Tight spreads often indicate a more liquid and efficient market.

Nevertheless, the document does not address the implications of the proposed change on small investors, which could cause unease regarding issues of equity and fairness. There's a risk that advantages might disproportionately favor larger, more established market players who can more easily achieve the necessary trading volumes.

Stakeholder Implications

For ATP Holders and market makers, this rule change could provide a strong financial incentive to direct more order flow to the NYSE American exchange. Those able to align their trading volumes with the requisite conditions could benefit substantially from the proposed credits.

Conversely, smaller trading firms or individual retail investors might find themselves at a disadvantage if they are unable or unwilling to meet the volume criteria necessary to secure these credits. This may potentially aggravate the competitive disparity among market participants.

In summary, while the proposed amendment to the NYSE American's fee schedule offers potential benefits in terms of increased market activity and competitive edge, it also raises questions about accessibility and fairness, particularly for smaller players who might not be able to capitalize on the incentive structure. The SEC's invitation for comments appears to be an opportunity for stakeholders to voice these concerns and influence the final shape of the proposal.

The document published in the Federal Register discusses financial incentives relating to the NYSE American Options Fee Schedule. Specifically, it outlines a proposed rule change that introduces a new credit system for ATP (Amex Trading Permit) Holders. This proposed credit system is designed to encourage specific trading activities on the Exchange.

Financial Incentives and Allocations

The central financial reference in this document is the introduction of a $0.10 per contract credit for Customer Electronic executions. This credit is contingent on meeting specific volume thresholds in different trading activities on the Exchange. These activities exclude particular types of transactions, namely CUBE Auctions, QCC Transactions, and orders routed to another exchange.

The document specifies that the conditions for receiving the credit include meeting three monthly volume qualifications:

1. An average daily volume (ADV) of 15,000 contracts from Initiating CUBE Orders in Complex CUBE Auctions.
2. Customer Electronic executions accounting for 0.05% of total consolidated ADV (TCADV).
3. Professional Electronic executions comprising 0.03% of TCADV.

The financial strategy here aims to drive more active participation in the Exchange by providing financial rewards, thereby increasing market depth and competition.

Relation to Identified Issues

One issue identified in the document is the lack of detail regarding what constitutes the "requisite volume" needed to qualify for these credits. While the document outlines specific percentages and ADV requirements, it does not explain the potential impact on various market participants or provide examples that clarify these thresholds in practical terms. This lack of detail can make it challenging for some ATP Holders to understand precisely what they must achieve to benefit from the $0.10 credit.

Moreover, these financial incentives could have varying impacts on market participants. The document suggests that the credits are available to "all similarly-situated market participants," but it does not clearly define these criteria, leaving room for interpretation. This ambiguity could lead to concerns about fairness and whether the largest market participants are disproportionately benefiting from these financial incentives compared to smaller or less competitive entities.

Additionally, while the document specifies that the proposed changes aim to enhance the Exchange's competitiveness, there is little discussion on how this might affect smaller exchanges or market participants. By offering this credit, the Exchange is competing aggressively for order flow, which may put pressure on smaller players that cannot afford similar financial incentives.

Simplification for Broader Understanding

The financial terms and strategies described in the document are complex, tailored to industry professionals familiar with trading volumes and exchange operations. However, for the broader audience, a clearer explanation regarding the financial thresholds and exclusions could improve understanding. For example, using practical examples or comparisons could help illustrate how ATP Holders might reach the required trading volumes and thus qualify for the $0.10 credit.

In summary, while the document elaborates on a sophisticated financial incentive system intended to enhance trading activity and competitiveness, there are notable areas where clarity could be improved to better address the concerns of all potential participants, particularly those less familiar with the nuances of exchange operations.