FR 2021-04177

General Summary

The document from the Federal Register concerns a proposal by NYSE American LLC to amend its fee schedule related to options trading. This proposal introduces new pricing for the "All-or-None" (AON) functionality in certain trading mechanisms known as CUBE auctions. CUBE auctions are designed for executing large-sized orders and ensuring customer best execution. The Securities and Exchange Commission (SEC) is seeking public feedback on whether this proposal should become effective, as it aims to boost market share by attracting more trading activity through financial incentives.

Significant Issues and Concerns

Several issues arise from this proposal. First, the document is filled with complex financial and regulatory terminology, which may not be easily understood by a lay audience. Without an in-depth understanding of market mechanics and regulatory frameworks, readers may find it challenging to grasp the implications of the proposed changes.

Moreover, there is a lack of transparency regarding how the proposed changes in fees and rebates might affect different market participants. In particular, there may be concerns about whether these changes disproportionately benefit certain groups, such as professional traders or market makers, potentially to the detriment of retail investors.

Additionally, while the document touches on the competitive landscape and the lack of significant pricing power by any single exchange, it does not back these claims with concrete data. This absence of evidence may leave stakeholders questioning the assertions and rationale behind the proposed fee adjustments.

Impact on the Public

For the general public, particularly those who engage in options trading, these changes could indirectly affect the costs and benefits of their trading activities. If the proposal successfully draws more trades to NYSE American, it could lead to enhanced market liquidity, potentially resulting in narrower spreads and better pricing for investors. However, there's also a possibility that the shift in fee structures could increase trading costs for non-preferred participants, like small investors who may not qualify for the proposed rebates and credits.

Impact on Specific Stakeholders

The proposal is likely designed to attract more volume from certain stakeholders, particularly larger institutional investors and traders who engage in large orders. These entities might benefit from lower transaction costs due to the rebates and reduced fees associated with the AON CUBE auctions.

On the flip side, smaller traders, or those who do not frequently participate in large trades, might not see significant benefits from this new fee structure. There is an inherent risk that this fee model could create a tiered market, where advantages are skewed in favor of entities able to engage in high-volume trading.

Conclusion

The proposed amendment to the NYSE American Options Fee Schedule marks an effort by the exchange to increase its competitiveness by attracting more trading activity. While the proposal is positioned to make trading financially attractive under certain conditions, the complexity of the document and the potential ramifications of the fee changes require careful consideration. Stakeholders, especially smaller investors, must remain vigilant about how such changes could affect their trading practices and costs. Public feedback to the SEC will be essential in shaping the final decision and ensuring a balanced approach that considers the interests of all market participants.

The document in question involves the NYSE American LLC's filing regarding amendments to their options fee schedule. This amendment pertains specifically to the introduction of pricing for a new All-Or-None (AON) functionality in Customer Best Execution Auctions, both Single-Leg and Complex.

Summary of Financial References

The proposed rule changes outline several specific financial implications:

• $0.20 per contract is the proposed charge for non-Customer executions of AON CUBE Orders and similarly for Customer and non-Customer AON Contra Orders.

• For executions of non-Customer RFR Responses in an AON CUBE Auction, the document proposes a fee of $0.50 per contract for Penny issues and $1.05 per contract for non-Penny issues.

• An Initiating Participant Credit is mentioned, with a credit of $0.30 per contract in Penny issues and $0.70 per contract in non-Penny issues. This credit applies when the initiating participant's AON Contra Order in the auction is replaced by other responses.

• A rebate is introduced for qualifying participants: $0.12 per contract for the first 5,000 contracts in an AON Single-Leg CUBE Auction and for the first 1,000 contracts per leg in an AON Complex CUBE Auction.

• There is also a proposed Floor Broker Initiating Participant Rebate of $0.12 per contract for floor brokers who execute an average daily volume of 2,500 contracts in AON CUBE Orders.

Relation to Identified Issues

The document hints at several issues related to these financial changes:

1. Complexity and Accessibility: The financial terms and variations in fees and credits could be daunting for individuals not well-versed in financial markets. The specificity in charges, such as $0.20, $0.50, and $1.05 per contract, introduces a layer of complexity that may not be easily understandable without proper context.

2. Transparency: While the document outlines various fees and rebates, it lacks detailed explanations on how these might impact different market participants. This lack of transparency could lead to confusion or concern about whether the proposed fee changes could unfairly benefit certain participants over others.

3. Competition: The outlined charges and rebates could affect the competitive dynamics between exchanges. By introducing specific financial incentives, the NYSE American LLC might be aiming to attract more order flow, thus potentially impacting market competition. However, the document does not provide concrete data to back claims regarding the lack of significant pricing power held by any single exchange.

Conclusion

Overall, the proposed financial changes detailed in the document aim to modify the NYSE American Options Fee Schedule with specific charges and rebates to attract more activity. However, without clearer breakdowns or explanations of these financial allocations, particularly concerning their impact on various stakeholders, the changes could be perceived as complex and somewhat opaque. This could create challenges for stakeholders to fully understand or critically assess the implications of these financial adjustments.