FR 2025-07047

Summary of the Document

The document is a notice from the NYSE American Exchange, published by the Securities and Exchange Commission (SEC), regarding a proposed rule change to the NYSE American Options Fee Schedule. This change involves temporarily waiving a cap on the combined credits and rebates that Floor Broker firms can earn from Qualified Contingent Cross (QCC) trades and the Manual Billable Rebate Program for April 2025. The aim of this waiver is to prevent Floor Broker firms from potentially redirecting their order flows to other exchanges due to increased market activity, which could lead to exceeding the current cap. The SEC is soliciting public comments on this proposal.

Significant Issues and Concerns

The document does not provide a clear definition of the "Cap," which may confuse those not familiar with this specific financial terminology. While the waiver is justified by referencing "extreme volatility in the market," the absence of concrete data or examples of volatility weakens this rationale. The document suggests that brokers might redirect order flows to other markets but does not present supporting evidence or statistics for this claim. This could seem speculative to stakeholders looking for solid justification for the proposed waiver. Furthermore, the language in the document is highly technical, which may be challenging for those without a background in securities exchanges.

Additionally, the document does not discuss potential risks or downsides associated with waiving the Cap. While it claims that increased liquidity and market quality will result from the change, no quantitative estimates or evidence are provided to support such benefits. The assertion that all market participants will benefit from increased liquidity lacks specific evidence, making it less persuasive.

Impact on the Public

Broadly, this document might not directly affect the general public. Still, it could have indirect implications for individual investors due to changes in market liquidity and pricing dynamics as floor brokers adjust their trading activities in response to the fee changes. The potential increase in liquidity might lead to tighter spreads, potentially benefiting small investors indirectly. However, without detailed data, these effects remain speculative.

Impact on Specific Stakeholders

For Floor Broker firms, the waiver could present immediate financial benefits by allowing them to continue earning credits and rebates without the constraint of a monthly cap. This could encourage them to maintain or increase their order flows through the NYSE American Exchange, potentially enhancing their trading activity and revenue. However, competing exchanges might view this waiver as a heightened competitive maneuver, necessitating potential adjustments in their own fee structures or strategies to retain or attract broker business.

On the flip side, if this change does not equitably enhance liquidity or if it concentrates benefits disproportionately among brokers, it could lead to broader market distortions that negatively impact fair competition. This highlights the need for careful consideration and open discussion regarding the waiver's implications before its implementation.

In the Federal Register document concerning the proposed amendment to the NYSE American Options Fee Schedule, there are notable financial references and considerations that merit commentary.

The document discusses the waiver of a financial cap related to Floor Broker credits and rebates for QCC (Qualified Contingent Cross) trades. Specifically, the current provision imposes a limit of $3,000,000 per month per Floor Broker firm for these combined credits and rebates. The purpose of this cap is to incentivize Floor Broker firms to continue directing their open outcry transactions to the Exchange. This cap is meant to counterbalance the increasing volumes in the industry, which have made reaching the cap less challenging.

The document indicates a recent adjustment to this limit, increasing it from $2,700,000 to $3,000,000, which suggests a response to higher trading volumes across the industry. The exchange's reasoning for further waiving this cap for April 2025 is attributed to experiencing extreme market volatility, leading to higher transaction volumes directed to the Trading Floor. However, the document does not provide specific quantitative data supporting the "extreme volatility" claim. This lack of evidence is an identified issue, as it might weaken the justification for the waiver.

By choosing to waive the $3,000,000 cap temporarily, the Exchange aims to prevent Floor Broker firms from redirecting order flow to competing markets once the cap is reached. This decision is based on speculative behavior from Floor Brokers, as the document lacks specific evidence or statistics indicating such redirection is imminent. The potential consequence of order flow shifting due to hitting the cap is presented as a rationale to allow continued credit/rebate benefits without financial limitations, yet no concrete data is provided.

While the document asserts that waiving the cap could enhance liquidity and market quality for all participants, no quantitative estimates or evidence substantiate these benefits. This claim might be strengthened by including empirical data demonstrating how increased liquidity tangibly benefits the market participants.

In summary, the financial references in this document revolve around adjusting and waiving a significant monetary cap on credits and rebates for Floor Broker firms. The proposed changes rest on assumptions about market behavior and consequences that are not fully substantiated with empirical data, which presents a limitation in the economic argument within the document. These considerations highlight the importance of transparency and evidence in supporting financial policy decisions in regulatory contexts.