Nov. 2, 2012
Comment Regarding NYSE Arca proposal to raise maker-taker fees in non-penny pilot issues.
As a long standing Floor Broker and OTP holder of NYSE Arca, I believe the aforementioned proposal is a bad idea and will in fact hinder competition in the Options Market in general.
Customers and order flow providers already have access to a similar structure on NASD and BATS and a third such structure is unnecessary and will not improve the market. In addition, the other two exchanges do not have open-outcry physical floors to consider in their decision making. Whereas, NYSE Arca does have a physical floor and the general consensus among open-outcry floor traders is that this Rule proposal will serve to hinder the overall marketplace. Furthermore, NYSE Arca decision makers did not solicit comments from the floor community prior to proposing this Rule.
Arca has stated they do "not believe the proposed rule change will have any direct effect" on other participants. etc. In my opinion, the Exchange has failed to consider all the possible scenarios with this filing. In all probability, this filing will serve to make the venue a less attractive place to route and execute orders. The types of orders that will most likely get directed here will be limit orders with little to no chance of trading.
As it stands now, in the names with the higher make/take fees, many order routers have strict directives to AVOID sending marketable orders to Arca. We've seen that order routers would actually prefer to POST a marketable order on the CBOE or PHLX and lock the market, rather than send the order to Arca and incur the higher fees. In effect, these ridiculously high take fees promote LOCKED markets and cause a distorion in market prices and information. This is a FACT, we've seen it over and over again and no doubt the Arca exchange has NOT considered this.
Furthermore, since electronic order routers have strict directives to avoid the Arca, the mandate trickles down to open outcry order providers as well. Many financial institutions have told us they cannot send orders to Arca because they do not want to pay the ridiculous electronic take fees and therefore don't want to route manual orders either. Every day the list grows longer of firms that just avoid Arca at all costs! We've alerted the Exchange to this activity, but it falls on deaf ears. Instead, they sit around scratching their heads and prepare to go to battle with NASD and BATS in an all out make/take fee war!
In summary, the proposed rule change will have the following effect;
Hinder competition
Encourage marketable customer orders to be routed elsewhere, thus removing the possibility of price improvement
Decrease overall order flow to the exchange
Decrease quality of order interaction and executions
Reduce the possibility of a more fair and orderly market
I would highly encourage anyone interested to solicit me for further comments on this matter.
Regards,
Darren Story, CFA
Student Options, LLC
NYSE Arca - SF