Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE Arca Equities Fees and Charges, 55603-55608 [2019-22700]
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Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–87292; File No. SR–
NYSEArca–2019–70]
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
PEARL–2019–28 on the subject line.
Paper Comments
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the NYSE Arca
Equities Fees and Charges
October 11, 2019.
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–PEARL–2019–28. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–PEARL–2019–28 and
should be submitted on or before
November 7, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Jill M. Peterson,
Assistant Secretary.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on October
1, 2019, NYSE Arca, Inc. (‘‘NYSE Arca’’
or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE Arca Equities Fees and Charges
(‘‘Fee Schedule’’) to (1) modify the
requirements associated with the Step
Up Tier 4, and (2) adopt a new pricing
tier, Tape B Step Up Tier. The Exchange
proposes to implement the fee changes
effective October 1, 2019. The proposed
rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
[FR Doc. 2019–22597 Filed 10–16–19; 8:45 am]
BILLING CODE 8011–01–P
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
14 17
CFR 200.30–3(a)(12).
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule to (1) modify the volume
requirements applicable to ETP Holders
(including Market Makers) to qualify for
the per share credits for orders that
provide displayed liquidity under the
Step Up Tier 4,4 and (2) adopt a new
pricing tier, the Tape B Step Up Tier.
The proposed changes respond to the
current competitive environment where
order flow providers have a choice of
where to direct liquidity-providing
orders by offering further incentives for
ETP Holders 5 to send additional
displayed liquidity to the Exchange.
The Exchange proposes to implement
the fee changes effective October 1,
2019.
Background
The Commission has repeatedly
expressed its preference for competition
over regulatory intervention in
determining prices, products, and
services in the securities markets. In
Regulation NMS, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues and, also, recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 6
As the Commission itself recognized,
the market for trading services in NMS
stocks has become ‘‘more fragmented
and competitive.’’ 7 Indeed, equity
trading is currently dispersed across 13
exchanges,8 31 alternative trading
systems,9 and numerous broker-dealer
internalizers and wholesalers, all
competing for order flow. Based on
publicly-available information for
4 See Securities Exchange Act Release No. 85311
(March 14, 2019), 84 FR 10348 (March 20, 2019)
(SR–NYSEArca–2019–10).
5 All references to ETP Holders in connection
with the Step Up Tier 4 and the Tape B Step Up
Tier include Market Makers.
6 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
7 See Securities Exchange Act Release No. 51808,
84 FR 5202, 5253 (February 20, 2019) (File No. S7–
05–18) (Final Rule).
8 See Cboe U.S Equities Market Volume
Summary, available at https://markets.cboe.com/us/
equities/market_share. See generally https://
www.sec.gov/fast-answers/
divisionsmarketregmrexchangesshtml.html.
9 See FINRA ATS Transparency Data, available at
https://otctransparency.finra.org/otctransparency/
AtsIssueData. A list of alternative trading systems
registered with the Commission is available at
https://www.sec.gov/foia/docs/atslist.htm.
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August 2019, no single exchange has
more than 19% market share (whether
including or excluding auction
volume).10 Therefore, no exchange
possesses significant pricing power in
the execution of equity order flow. More
specifically, in August 2019, the
Exchange had 8.2% market share of
executed volume of equity trades
(excluding auction volume).11
The Exchange believes that the evershifting market share among the
exchanges from month to month
demonstrates that market participants
can move order flow, or discontinue or
reduce use of certain categories of
products. While it is not possible to
know a firm’s reason for shifting order
flow, the Exchange believes that one
such reason is because of fee changes at
any of the registered exchanges or nonexchange venues to which a firm routes
order flow. With respect to nonmarketable order flow that would
provide displayed liquidity on an
Exchange against which market makers
can quote, ETP Holders can choose from
any one of the 13 currently operating
registered exchanges to route such order
flow. Accordingly, competitive forces
constrain exchange transaction fees that
relate to orders that would provide
displayed liquidity on an exchange.
Securities when such providing volume
is at least 0.50% of the US Tape B
CADV and such volume in Tape B
Securities as a percentage of US Tape B
CADV is an increase of 20% or more
over the ETP Holder’s providing ADV as
a percentage of US Tape B CADV in the
third quarter (‘‘3Q’’) of 2019.
Step Up Tier 4
In this competitive environment, the
Exchange has already established Step
Up Tiers 1–4, which are designed to
encourage ETP Holders that provide
displayed liquidity on the Exchange to
increase that order flow, which would
benefit all ETP Holders by providing
greater execution opportunities on the
Exchange. In order to provide an
incentive for ETP Holders to direct
providing displayed order flow to the
Exchange, the credits increase in the
various tiers based on increased levels
of volume directed to the Exchange.
Currently, the following credits are
available to ETP Holders that provide
increased levels of displayed liquidity
on the Exchange:
Credit for providing
displayed liquidity
Tier
Step Up Tier ..............
Proposed Rule Change
The proposed rule change is designed
to be available to all ETP Holders on the
Exchange and is intended to provide
ETP Holders an opportunity to receive
an enhanced rebate by executing more
of their orders on the Exchange. The
Exchange currently provides credits to
ETP Holders who submit orders that
provide displayed liquidity on the
Exchange. The Exchange currently has
multiple levels of credits for orders that
provide displayed liquidity that are
based on the amount of volume of such
orders that ETP Holders send to the
Exchange.
As described in greater detail below,
the Exchange proposes the following
change:
• Modify the volume requirements
applicable to ETP Holders to qualify for
the Step Up Tier 4 by lowering the
percentage threshold that an ETP Holder
must meet, and modify the baseline
month over which the minimum
threshold requirement must be met; and
• A new pricing tier that provides an
incremental credit between $0.0002 per
share and $0.0004 per share to ETP
Holders that provide liquidity in Tape B
10 See Cboe Global Markets U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
11 See id.
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Step Up Tier 2 ..........
Step Up Tier 3 ..........
Step Up Tier 4 ..........
$0.0030
$0.0023
$0.0031
$0.0028
C).
$0.0022
$0.0025
C).
$0.0022
$0.0033
C).
$0.0034
(Tape
(Tape
(Tape
(Tape
A).
B).
C).
A and
(Tape B).
(Tape A and
(Tape B).
(Tape A and
(Tape B).
Under the Step Up Tier 4, if an ETP
Holder increases its providing liquidity
on the Exchange by a specified
percentage over the level that such ETP
Holder provided liquidity in January
2019, it is eligible to earn higher credits
for providing displayed liquidity.
Specifically, to qualify for the credits
under the Step Up Tier 4, an ETP
Holder must directly execute providing
average daily volume (ADV) per month
that is an increase of no less than 0.70%
of US CADV 12 for that month over the
ETP Holder’s providing ADV in January
12 US CADV means the United States
Consolidated Average Daily Volume for
transactions reported to the Consolidated Tape,
excluding odd lots through January 31, 2014 (except
for purposes of Lead Market Maker pricing), and
excludes volume on days when the market closes
early and on the date of the annual reconstitution
of the Russell Investments Indexes. Transactions
that are not reported to the Consolidated Tape are
not included in US CADV. See Fee Schedule,
footnote 3.
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2019, taken as a percentage of US
CADV.
Currently, if an ETP Holder meets
these Step Up Tier 4 qualifications, such
ETP Holder is eligible to earn a credit
of:
• $0.0033 per share for orders that
provide displayed liquidity to the Book
in Tape A and Tape C Securities, and
• $0.0034 per share for orders that
provide displayed liquidity to the Book
in Tape B Securities.13
With this proposed rule change, the
Exchange proposes to modify the
volume requirements applicable to ETP
Holders to qualify for the Step Up Tier
4 by lowering the percentage threshold
that an ETP Holder must meet, from a
minimum of 0.70% of US CADV for the
billing month to a minimum of 0.55%
of US CADV for the billing month.
Additionally, the Exchange proposes to
modify the baseline month over which
the minimum threshold requirement
must be met from January 2019 to
September 2019.
The purpose of the proposed rule
change is to increase the incentive for
order flow providers to send liquidityproviding orders to the Exchange. As
described above, ETP Holders with
liquidity-providing orders have a choice
of where to send those orders. The
Exchange believes that, if it reduces the
requirement to qualify for a tiered
credit, more ETP Holders will choose to
route their liquidity-providing orders to
the Exchange to qualify for the credit.
The Exchange does not know how
much order flow ETP Holders choose to
route to other exchanges or to offexchange venues. While the Step Up
Tier 4 pricing tier is available to all ETP
Holders, to date, not one ETP Holder
has qualified for it.14 Without having a
view of ETP Holders’ activity on other
markets and off-exchange venues, the
Exchange has no way of knowing
whether this proposed rule change
would result in any ETP Holders
qualifying for the Step Up Tier 4 credit.
The Exchange cannot predict with
certainty how many ETP Holders would
avail themselves of this opportunity but
additional liquidity-providing orders
would benefit all market participants
because it would provide greater
execution opportunities on the
Exchange.
The Exchange is not proposing to
amend any of the credits payable under
the Step Up Tier 4.
13 See Securities Exchange Act Release No. 86122
(June 17, 2019), 84 FR 29258 (June 21, 2019) (SR–
NYSEArca–2019–43).
14 As of July 24, 2019, there are 165 ETP Holders
on the Exchange that could qualify for the
Exchange’s Step Up pricing tiers.
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Tape B Step Up Tier
The Exchange proposes to adopt a
new pricing tier, Tape B Step Up Tier,
that would offer an incremental credit to
ETP Holders that qualify for the tier. As
proposed, an ETP Holder that sends
orders that add liquidity in Tape B
Securities would receive the following:
• An incremental credit of $0.0002
per share when an ETP Holder’s
providing ADV in Tape B Securities
during the billing month is at least
0.50% of the US Tape B CADV and the
ETP Holder’s providing ADV in Tape B
Securities during the billing month as a
percentage of US Tape B CADV is at
least 20% more but less than 30% of the
ETP Holder’s providing ADV as a
percentage of US Tape B CADV in 3Q
2019;
• An incremental credit of $0.0003
per share when an ETP Holder’s
providing ADV in Tape B Securities
during the billing month is at least
0.50% of the US Tape B CADV and the
ETP Holder’s providing ADV in Tape B
Securities during the billing month as a
percentage of US Tape B CADV is at
least 30% more but less than 40% of the
ETP Holder’s providing ADV as a
percentage of US Tape B CADV in 3Q
2019; and
• An incremental credit of $0.0004
per share when an ETP Holder’s
providing ADV in Tape B Securities
during the billing month is at least
0.50% of the US Tape B CADV and the
ETP Holder’s providing ADV in Tape B
Securities during the billing month as a
percentage of US Tape B CADV is at
least 40% more than the ETP Holder’s
providing ADV as a percentage of US
Tape B CADV in 3Q 2019.
The proposed incremental credit
would be payable in addition to the ETP
Holder’s Tiered or Basic Rate credit(s);
provided, however, that such combined
credit(s) in Tape B Securities shall not
exceed $0.0032 per share.
For example, assume an ETP Holder
has providing ADV of 0.80% of Tape B
CADV in Tape B securities in the
baseline period of third quarter of 2019.
Further assume that the same ETP
Holder has providing ADV of 0.96% of
Tape B in the billing month, which is
at least 20% more but less than 30% of
the ETP Holder’s baseline ADV of
0.80% of Tape B CADV. Therefore, the
ETP Holder in the above example would
qualify to receive an incremental credit
of $0.0002 per share. If instead, the
same ETP Holder had providing ADV of
Tape B CADV of 1.04% of Tape B in the
billing month, then that ETP Holder
would qualify for an incremental credit
of $0.0003 per share, as 1.04% is at least
30% more but less than 40% of the ETP
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Holder’s baseline ADV of 0.80% of Tape
B CADV.15 If instead, the same ETP
Holder had providing ADV of Tape B
CADV of 1.12% of Tape B in the billing
month, then that ETP Holder would
qualify for an incremental credit of
$0.0004 per share, as 1.12% is at least
40% more than the ETP Holder’s
baseline ADV of 0.80% of Tape B
CADV.16
As noted above, the Exchange
operates in a competitive environment,
particularly as it relates to attracting
non-marketable, providing liquidity that
would be displayed on the Exchange.
Because, as proposed, the tier requires
an ETP Holder to increase the volume
of its liquidity-providing orders over
that ETP Holder’s 3Q 2019 baseline, the
Exchange believes that the proposed
incremental credit would provide an
incentive for ETP Holders to route
additional liquidity to the Exchange in
order to qualify for it.
The proposed rule change is designed
to incentivize ETP Holders to increase
the orders sent to the Exchange that
would provide liquidity, which would
support the quality of price discovery
and transparency on the Exchange. The
Exchange believes that by correlating
the level of the credits to the level of
executed providing volume on the
Exchange, the Exchange’s fee structure
would incentivize ETP Holders to
submit more displayed, liquidityproviding orders to the Exchange that
are likely to be executed (i.e., are not
orders that are intended to be displayed,
but are priced such that they are not
likely to be executed), thereby
increasing the potential for incoming
marketable orders submitted to the
Exchange to receive an execution.
The proposed changes are not
otherwise intended to address any other
issues, and the Exchange is not aware of
any significant problems that market
participants would have in complying
with the proposed changes.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,17 in general, and
furthers the objectives of Sections
15 The ETP Holder would also qualify for the
existing Tape B Tier 2 credit of $0.0028 by meeting
the 1.0% of the US Tape B CADV requirement, for
a total credit of $0.0031 per share ($0.0028 per
share Tape B Tier 2 credit plus the proposed
$0.0003 per share Tape B Step Up Tier credit).
16 The ETP Holder would also qualify for the
existing Tape B Tier 2 credit of $0.0028 by meeting
the 1.0% of the US Tape B CADV requirement, for
a total credit of $0.0032 per share ($0.0028 per
share Tape B Tier 2 credit plus the proposed
$0.0004 per share Tape B Step Up Tier credit).
17 15 U.S.C. 78f(b).
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55605
6(b)(4) and (5) of the Act,18 in particular,
because it provides for the equitable
allocation of reasonable dues, fees, and
other charges among its members,
issuers and other persons using its
facilities and does not unfairly
discriminate between customers,
issuers, brokers or dealers.
The Proposed Fee Change is Reasonable
As discussed above, the Exchange
operates in a highly fragmented and
competitive market. The Commission
has repeatedly expressed its preference
for competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. Specifically, in Regulation
NMS, the Commission highlighted the
importance of market forces in
determining prices and SRO revenues
and, also, recognized that current
regulation of the market system ‘‘has
been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 19
As the Commission itself recognized,
the market for trading services in NMS
stocks has become ‘‘more fragmented
and competitive.’’ 20 Indeed, equity
trading is currently dispersed across 13
exchanges,21 31 alternative trading
systems,22 and numerous broker-dealer
internalizers and wholesalers, all
competing for order flow. Based on
publicly-available information, no
single exchange has more than 19%
market share (whether including or
excluding auction volume).23 Therefore,
no exchange possesses significant
pricing power in the execution of equity
order flow. More specifically, as noted
earlier, the Exchange averaged less than
9% market share of executed volume of
equity trades (excluding auction
volume) for August 2019.
The Exchange believes that the evershifting market share among the
exchanges from month to month
demonstrates that market participants
can shift order flow, or discontinue to
reduce use of certain categories of
18 15
U.S.C. 78f(b)(4) and (5).
Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
20 See Securities Exchange Act Release No. 51808,
84 FR 5202, 5253 (February 20, 2019) (File No. S7–
05–18) (Final rule).
21 See Cboe Global Markets, U.S Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
22 See FINRA ATS Transparency Data, available
at https://otctransparency.finra.org/
otctransparency/AtsIssueData. A list of alternative
trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/
atslist.htm.
23 See Cboe Global Markets U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
19 See
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Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices
products, in response to fee changes.
With respect to non-marketable order
which provide liquidity on an
Exchange, ETP Holders can choose from
any one of the 13 currently operating
registered exchanges to route such order
flow. Accordingly, competitive forces
reasonably constrain exchange
transaction fees that relate to orders that
would provide displayed liquidity on an
exchange. Stated otherwise, changes to
exchange transaction fees can have a
direct effect on the ability of an
exchange to compete for order flow.
Given this competitive environment,
the proposal represents a reasonable
attempt to attract additional order flow
to the Exchange.
The Exchange believes the proposed
change to lower the volume
requirements under the Step Up Tier 4
is reasonable because it would allow
ETP Holders an additional opportunity
to meet the requirement of the pricing
tier to receive per share credits payable
under the Step Up Tier 4, thereby
encouraging the submission of
additional liquidity to a national
securities exchange. Submission of
additional liquidity to the Exchange
would promote price discovery and
transparency and enhance order
execution opportunities for ETP Holders
from the substantial amounts of
liquidity present on the Exchange. All
ETP Holders would benefit from the
greater amounts of liquidity that will be
present on the Exchange, which would
provide greater execution opportunities.
The Exchange believes that the
proposed change to modify the baseline
month from January 2019 to September
2019 is reasonable given the trend of
recent trading on the Exchange. The
Exchange’s market share in January
2019, the original baseline month
adopted under the Step Up Tier 4, was
9.0%, and has declined to 8.2% in
August 2019.24 The Exchange believes
modifying the baseline month would
allow ETP Holders to more easily
qualify for the pricing tier as it would
need to submit lesser number of orders
to qualify for the tier.
Because no ETP Holder to date has
qualified for the Step Up Tier 4, the
Exchange believes the proposed lower
volume requirements are reasonable as
they would provide an additional
incentive for ETP Holders to qualify for
this established tier and direct their
order flow to the Exchange and provide
meaningful added levels of displayed
liquidity, thereby contributing to the
depth and market quality on the
Exchange.
24 See
id.
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The Exchange believes the proposed
Tape B Step Up Tier would provide an
incentive for ETP Holders to route
additional liquidity-providing orders to
the Exchange in Tape B Securities. As
noted above, the Exchange operates in a
highly competitive environment,
particularly for attracting order flow that
provides displayed liquidity on an
exchange. The Exchange believes it is
reasonable to provide a higher credit for
orders that provide additional liquidity.
Similarly, the Exchange believes that it
is reasonable to provide an incremental
credit to ETP Holders that meet the
requirements of the Tape B Step Up Tier
that add additional liquidity in Tape B
Securities on the Exchange.
Since the proposed Tape B Step Up
Tier would be new with a requirement
for increased providing volume over the
baseline month, no ETP Holder
currently qualifies for the proposed
pricing tier. The Exchange believes that
a number of ETP Holders could qualify
for the proposed higher credit but
without a view of ETP Holder activity
on other exchanges and off-exchange
venues, the Exchange has no way of
knowing whether the proposed rule
change would result in any ETP Holder
qualifying for the tier. The Exchange
believes the proposed higher credit is
reasonable as it would provide an
additional incentive for ETP Holders to
direct their order flow to the Exchange
and provide meaningful added levels of
liquidity in order to qualify for the
higher credit, thereby contributing to
depth and market quality on the
Exchange.
The Exchange notes that volumebased incentives and discounts have
been widely adopted by exchanges,25
including the Exchange,26 and are
reasonable, equitable and nondiscriminatory because they are open to
all ETP Holders on an equal basis and
provide additional credits that are
reasonably related to the value to an
exchange’s market quality and
associated higher levels of market
activity.
On the backdrop of the competitive
environment in which the Exchange
25 See e.g., Cboe BZX U.S. Equities Exchange
(‘‘BZX’’) Fee Schedule, Footnote 1, Add Volume
Tiers which provide enhanced rebates between
$0.0025 and $0.0032 per share for displayed orders
where BZX members meet certain volume
thresholds.
26 See e.g., Fee Schedule, Step Up Tier, Step Up
Tier 2, Step Up Tier 3 and Step Up Tier 4, which
provide enhanced rebates between $0.0025 and
$0.0033 per share in Tape A Securities, between
$0.0022 and $0.0034 per share in Tape B Securities,
and between $0.0025 and $0.0033 per share in Tape
C Securities for orders that provide displayed
liquidity where ETP Holders meet certain volume
thresholds.
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currently operates, the proposed rule
change is a reasonable attempt to
increase liquidity on the Exchange and
improve the Exchange’s market share
relative to its competitors.
The Proposed Fee Change is an
Equitable Allocation of Fees and Credits
The Exchange believes its proposal
equitably allocates its fees among its
market participants.
First, the Exchange is not proposing to
adjust the amount of the Step Up Tier
4 credits, which will remain at the
current level for all ETP Holders.
Rather, the proposal would continue to
encourage ETP Holders to send orders
that add liquidity to the Exchange,
thereby contributing to robust levels of
liquidity, which benefits all market
participants. The Exchange believes
that, for the reasons discussed above,
lowering the requirements would make
it easier for liquidity providers to
qualify for the Step Up Tier 4 credit,
thereby encouraging submission of
additional liquidity to the Exchange.
The proposed change will thereby
encourage the submission of additional
liquidity to a national securities
exchange, thus promoting price
discovery and transparency and
enhancing order execution
opportunities for ETP Holders from the
substantial amounts of liquidity present
on the Exchange. All ETP Holders
would benefit from the greater amounts
of liquidity that will be present on the
Exchange, which would provide greater
execution opportunities.
As noted above, no ETP Holder
currently qualifies for the Step Up Tier
4 pricing tier. Without having a view of
ETP Holders’ activity on other markets
and off-exchange venues, the Exchange
has no way of knowing whether this
proposed rule change would result in
any ETP Holders qualifying for this tier.
However, the Exchange believes the
proposed lower volume requirements
would provide an incentive for ETP
Holders to continue to submit liquidityproviding order flow, which would
promote price discovery and increase
execution opportunities for all ETP
Holders. The proposed change will
thereby encourage the submission of
additional liquidity to a national
securities exchange, thus promoting
price discovery and transparency and
enhancing order execution
opportunities for ETP Holders from the
substantial amounts of liquidity present
on the Exchange, which would benefit
all market participants on the Exchange.
Finally, the Exchange believes that
the proposed Tape B Step Up Tier is
equitable because the magnitude of the
additional credit is not unreasonably
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high relative to credits paid by other
exchanges for orders that provide
additional step up liquidity.27 The
Exchange believes the proposed rule
change would improve market quality
for all market participants on the
Exchange and, as a consequence, attract
more liquidity to the Exchange, thereby
improving market-wide quality and
price discovery.
Since the proposed Tape B Step Up
Tier would be new, no ETP Holder
currently qualifies for it. The Exchange
believes that at least seven ETP Holders
could qualify for the proposed higher
credit, but without a view of ETP Holder
activity on other exchanges and offexchange venues, the Exchange has no
way of knowing whether this proposed
rule change would result in any ETP
Holder qualifying for the tier. The
Exchange believes the proposed higher
credit is reasonable as it would provide
an additional incentive for ETP Holders
to direct their order flow to the
Exchange and provide meaningful
added levels of liquidity in order to
qualify for the higher credit, thereby
contributing to depth and market
quality on the Exchange.
The Exchange believes the proposed
rule change would improve market
quality for all market participants on the
Exchange and, as a consequence, attract
more liquidity to the Exchange thereby
improving market-wide quality. The
proposal neither targets nor will it have
a disparate impact on any particular
category of market participant. ETP
Holders that currently qualify for credits
associated with Step Up pricing tiers on
the Exchange will continue to receive
credits when they provide liquidity to
the Exchange. The Exchange believes
that recalibrating the requirements for
providing liquidity will continue to
attract order flow and liquidity to the
Exchange for the benefit of investors
generally.
Since no ETP Holder presently
qualifies for the credits associated with
Step Up Tier 4, the proposal will not
adversely impact their existing pricing
or their ability to qualify for other
credits provided by the Exchange. With
the proposed new Tape B Step Up Tier,
all ETP Holders would be eligible to
qualify for the higher credit if they
increase their Adding ADV over their
own baseline of order flow. The
Exchange believes that offering a higher
step up credit for providing liquidity if
the step up requirements for Tape B
securities are met, will continue to
attract order flow and liquidity to the
Exchange, thereby providing additional
price improvement opportunities on the
27 See
note 25, supra.
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17:26 Oct 16, 2019
Jkt 250001
Exchange and benefiting investors
generally. As to those market
participants that do not presently
qualify for the adding liquidity credits,
the proposal will not adversely impact
their existing pricing or their ability to
qualify for other credits provided by the
Exchange.
The Proposed Fee Change Is Not
Unfairly Discriminatory
The Exchange believes that the
proposal is not unfairly discriminatory.
In the prevailing competitive
environment, ETP Holders are free to
disfavor the Exchange’s pricing if they
believe that alternatives offer them
better value.
The proposal to lower the volume
requirement under Step Up Tier 4
neither targets or will it have a disparate
impact on any particular category of
market participant. The proposal does
not permit unfair discrimination
because the lower threshold would be
applied to all similarly situated ETP
Holders, who would all be eligible for
the same credit on an equal basis.
Accordingly, no ETP Holder already
operating on the Exchange would be
disadvantaged by this allocation of fees.
The Exchange believes it is not
unfairly discriminatory to adopt lower
volume requirements for ETP Holders to
qualify for the Step Up Tier 4 pricing
tier as the proposed change would apply
on an equal basis to all ETP Holders that
add liquidity by meeting the lower
volume requirements. Further, the
Exchange believes the proposed lower
volume requirements would incentivize
ETP Holders to execute more of their
liquidity-providers orders on the
Exchange to qualify for the increased
credits payable under Step Up Tier 4.
The Exchange also believes that the
proposed change is not unfairly
discriminatory because it is reasonably
related to the value of the Exchange’s
market quality associated with higher
volume. The proposed lower volume
requirements would apply equally to all
ETP Holders as each would be required
to execute providing volume in Tapes
A, B and C Securities during the billing
month that is at least 0.55% of US
CADV over its providing ADV in
September 2019, taken as a percentage
of US CADV, regardless of whether an
ETP Holder currently meets the
requirement of another pricing tier.
The Exchange believes it is not
unfairly discriminatory to provide a
higher per share step up credit, as the
proposed credit would be provided on
an equal basis to all ETP Holders that
add liquidity by meeting the new
proposed Tape B Step Up Tier’s
requirements. For the same reason, the
PO 00000
Frm 00068
Fmt 4703
Sfmt 4703
55607
Exchange believes it is not unfairly
discriminatory to provide an additional
incremental credit to ETP Holders that
satisfy the Tape B Step Up Tier
requirements and add liquidity in Tape
B Securities. Further, the Exchange
believes the proposed Tape B Step Up
Tier credit would incentivize ETP
Holders that meet the current tiered
requirements to send more orders to the
Exchange to qualify for higher credits.
The Exchange also believes that the
proposed change is not unfairly
discriminatory because it is reasonably
related to the value to the Exchange’s
market quality associated with higher
volume.
Finally, the submission of orders to
the Exchange is optional for ETP
Holders in that they could choose
whether to submit orders to the
Exchange and, if they do, the extent of
its activity in this regard. The Exchange
believes that it is subject to significant
competitive forces, as described below
in the Exchange’s statement regarding
the burden on competition.
For the foregoing reasons, the
Exchange believes that the proposal is
consistent with the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,28 the Exchange believes that the
proposed rule change would not impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. Instead, as
discussed above, the Exchange believes
that the proposed changes would
encourage the submission of additional
liquidity to a public exchange, thereby
promoting market depth, price
discovery and transparency and
enhancing order execution
opportunities for ETP Holders. As a
result, the Exchange believes that the
proposed change furthers the
Commission’s goal in adopting
Regulation NMS of fostering integrated
competition among orders, which
promotes ‘‘more efficient pricing of
individual stocks for all types of orders,
large and small.’’ 29
Intramarket Competition. The
proposed change is designed to attract
additional order flow to the Exchange.
The Exchange believes that the
proposed lower volume requirements
would continue to incentivize market
participants to direct providing
displayed order flow to the Exchange.
Greater liquidity benefits all market
28 15
U.S.C. 78f(b)(8).
Securities Exchange Act Release No. 51808,
70 FR 37495, 37498–99 (June 29, 2005) (S7–10–04)
(Final Rule).
29 See
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17OCN1
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Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices
participants on the Exchange by
providing more trading opportunities
and encourages ETP Holders, to send
orders, thereby contributing to robust
levels of liquidity, which benefits all
market participants. The proposed
volume requirements would be
applicable to all similarly-situated
market participants, and, as such, the
proposed change would not impose a
disparate burden on competition among
market participants on the Exchange.
Intermarket Competition. The
Exchange operates in a highly
competitive market in which market
participants can readily choose to send
their orders to other exchange and offexchange venues if they deem fee levels
at those other venues to be more
favorable. As noted, the Exchange’s
market share of intraday trading (i.e.,
excluding auctions) was 8.2% in August
2019. In such an environment, the
Exchange must continually adjust its
fees and rebates to remain competitive
with other exchanges and with offexchange venues. Because competitors
are free to modify their own fees and
credits in response, and because market
participants may readily adjust their
order routing practices, the Exchange
does not believe its proposed fee change
can impose any burden on intermarket
competition.
The Exchange believes that the
proposed change could promote
competition between the Exchange and
other execution venues, including those
that currently offer similar order types
and comparable transaction pricing, by
encouraging additional orders to be sent
to the Exchange for execution.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 30 of the Act and
subparagraph (f)(2) of Rule 19b–4 31
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
U.S.C. 78s(b)(3)(A).
31 17 CFR 240.19b-4(f)(2).
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 32 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2019–70 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca-2019–70. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
offices of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
30 15
VerDate Sep<11>2014
17:26 Oct 16, 2019
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEArca–2019–70, and
should be submitted on or before
November 7, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–22700 Filed 10–16–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87286; File No. SR–
CboeBZX–2019–076]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change, as Modified
by Amendment No. 1, To List and
Trade Shares of the Clearbridge Small
Cap Value ETF Under Currently
Proposed Rule 14.11(k)
October 10, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 26, 2019, Cboe BZX
Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change, and on October 9,
2019, the Exchange filed Amendment
No. 1 to the proposed rule change,
which amended and replaced the
proposed rule change in its entirety. The
proposed rule change, as modified by
Amendment No. 1, is described in Items
I, II, and III below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as modified by Amendment No.
1, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes a rule change
to list and trade shares of the
Clearbridge Small Cap Value ETF under
currently proposed Rule 14.11(k).
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), at
the Exchange’s Office of the Secretary,
33 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
32 15
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U.S.C. 78s(b)(2)(B).
Frm 00069
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]]>Agencies
[Federal Register Volume 84, Number 201 (Thursday, October 17, 2019)]
[Notices]
[Pages 55603-55608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22700]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87292; File No. SR-NYSEArca-2019-70]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE
Arca Equities Fees and Charges
October 11, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on October 1, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the NYSE Arca Equities Fees and
Charges (``Fee Schedule'') to (1) modify the requirements associated
with the Step Up Tier 4, and (2) adopt a new pricing tier, Tape B Step
Up Tier. The Exchange proposes to implement the fee changes effective
October 1, 2019. The proposed rule change is available on the
Exchange's website at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to (1) modify the
volume requirements applicable to ETP Holders (including Market Makers)
to qualify for the per share credits for orders that provide displayed
liquidity under the Step Up Tier 4,\4\ and (2) adopt a new pricing
tier, the Tape B Step Up Tier.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 85311 (March 14,
2019), 84 FR 10348 (March 20, 2019) (SR-NYSEArca-2019-10).
---------------------------------------------------------------------------
The proposed changes respond to the current competitive environment
where order flow providers have a choice of where to direct liquidity-
providing orders by offering further incentives for ETP Holders \5\ to
send additional displayed liquidity to the Exchange.
---------------------------------------------------------------------------
\5\ All references to ETP Holders in connection with the Step Up
Tier 4 and the Tape B Step Up Tier include Market Makers.
---------------------------------------------------------------------------
The Exchange proposes to implement the fee changes effective
October 1, 2019.
Background
The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \6\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------
As the Commission itself recognized, the market for trading
services in NMS stocks has become ``more fragmented and competitive.''
\7\ Indeed, equity trading is currently dispersed across 13
exchanges,\8\ 31 alternative trading systems,\9\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow.
Based on publicly-available information for
[[Page 55604]]
August 2019, no single exchange has more than 19% market share (whether
including or excluding auction volume).\10\ Therefore, no exchange
possesses significant pricing power in the execution of equity order
flow. More specifically, in August 2019, the Exchange had 8.2% market
share of executed volume of equity trades (excluding auction
volume).\11\
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Final Rule).
\8\ See Cboe U.S Equities Market Volume Summary, available at
https://markets.cboe.com/us/equities/market_share. See generally
https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
\9\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of
alternative trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/atslist.htm.
\10\ See Cboe Global Markets U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
\11\ See id.
---------------------------------------------------------------------------
The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
move order flow, or discontinue or reduce use of certain categories of
products. While it is not possible to know a firm's reason for shifting
order flow, the Exchange believes that one such reason is because of
fee changes at any of the registered exchanges or non-exchange venues
to which a firm routes order flow. With respect to non-marketable order
flow that would provide displayed liquidity on an Exchange against
which market makers can quote, ETP Holders can choose from any one of
the 13 currently operating registered exchanges to route such order
flow. Accordingly, competitive forces constrain exchange transaction
fees that relate to orders that would provide displayed liquidity on an
exchange.
Proposed Rule Change
The proposed rule change is designed to be available to all ETP
Holders on the Exchange and is intended to provide ETP Holders an
opportunity to receive an enhanced rebate by executing more of their
orders on the Exchange. The Exchange currently provides credits to ETP
Holders who submit orders that provide displayed liquidity on the
Exchange. The Exchange currently has multiple levels of credits for
orders that provide displayed liquidity that are based on the amount of
volume of such orders that ETP Holders send to the Exchange.
As described in greater detail below, the Exchange proposes the
following change:
Modify the volume requirements applicable to ETP Holders
to qualify for the Step Up Tier 4 by lowering the percentage threshold
that an ETP Holder must meet, and modify the baseline month over which
the minimum threshold requirement must be met; and
A new pricing tier that provides an incremental credit
between $0.0002 per share and $0.0004 per share to ETP Holders that
provide liquidity in Tape B Securities when such providing volume is at
least 0.50% of the US Tape B CADV and such volume in Tape B Securities
as a percentage of US Tape B CADV is an increase of 20% or more over
the ETP Holder's providing ADV as a percentage of US Tape B CADV in the
third quarter (``3Q'') of 2019.
Step Up Tier 4
In this competitive environment, the Exchange has already
established Step Up Tiers 1-4, which are designed to encourage ETP
Holders that provide displayed liquidity on the Exchange to increase
that order flow, which would benefit all ETP Holders by providing
greater execution opportunities on the Exchange. In order to provide an
incentive for ETP Holders to direct providing displayed order flow to
the Exchange, the credits increase in the various tiers based on
increased levels of volume directed to the Exchange.
Currently, the following credits are available to ETP Holders that
provide increased levels of displayed liquidity on the Exchange:
------------------------------------------------------------------------
Credit for providing
Tier displayed liquidity
------------------------------------------------------------------------
Step Up Tier.............................. $0.0030 (Tape A).
$0.0023 (Tape B).
$0.0031 (Tape C).
Step Up Tier 2............................ $0.0028 (Tape A and C).
$0.0022 (Tape B).
Step Up Tier 3............................ $0.0025 (Tape A and C).
$0.0022 (Tape B).
Step Up Tier 4............................ $0.0033 (Tape A and C).
$0.0034 (Tape B).
------------------------------------------------------------------------
Under the Step Up Tier 4, if an ETP Holder increases its providing
liquidity on the Exchange by a specified percentage over the level that
such ETP Holder provided liquidity in January 2019, it is eligible to
earn higher credits for providing displayed liquidity. Specifically, to
qualify for the credits under the Step Up Tier 4, an ETP Holder must
directly execute providing average daily volume (ADV) per month that is
an increase of no less than 0.70% of US CADV \12\ for that month over
the ETP Holder's providing ADV in January 2019, taken as a percentage
of US CADV.
---------------------------------------------------------------------------
\12\ US CADV means the United States Consolidated Average Daily
Volume for transactions reported to the Consolidated Tape, excluding
odd lots through January 31, 2014 (except for purposes of Lead
Market Maker pricing), and excludes volume on days when the market
closes early and on the date of the annual reconstitution of the
Russell Investments Indexes. Transactions that are not reported to
the Consolidated Tape are not included in US CADV. See Fee Schedule,
footnote 3.
---------------------------------------------------------------------------
Currently, if an ETP Holder meets these Step Up Tier 4
qualifications, such ETP Holder is eligible to earn a credit of:
$0.0033 per share for orders that provide displayed
liquidity to the Book in Tape A and Tape C Securities, and
$0.0034 per share for orders that provide displayed
liquidity to the Book in Tape B Securities.\13\
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release No. 86122 (June 17,
2019), 84 FR 29258 (June 21, 2019) (SR-NYSEArca-2019-43).
---------------------------------------------------------------------------
With this proposed rule change, the Exchange proposes to modify the
volume requirements applicable to ETP Holders to qualify for the Step
Up Tier 4 by lowering the percentage threshold that an ETP Holder must
meet, from a minimum of 0.70% of US CADV for the billing month to a
minimum of 0.55% of US CADV for the billing month. Additionally, the
Exchange proposes to modify the baseline month over which the minimum
threshold requirement must be met from January 2019 to September 2019.
The purpose of the proposed rule change is to increase the
incentive for order flow providers to send liquidity-providing orders
to the Exchange. As described above, ETP Holders with liquidity-
providing orders have a choice of where to send those orders. The
Exchange believes that, if it reduces the requirement to qualify for a
tiered credit, more ETP Holders will choose to route their liquidity-
providing orders to the Exchange to qualify for the credit.
The Exchange does not know how much order flow ETP Holders choose
to route to other exchanges or to off-exchange venues. While the Step
Up Tier 4 pricing tier is available to all ETP Holders, to date, not
one ETP Holder has qualified for it.\14\ Without having a view of ETP
Holders' activity on other markets and off-exchange venues, the
Exchange has no way of knowing whether this proposed rule change would
result in any ETP Holders qualifying for the Step Up Tier 4 credit. The
Exchange cannot predict with certainty how many ETP Holders would avail
themselves of this opportunity but additional liquidity-providing
orders would benefit all market participants because it would provide
greater execution opportunities on the Exchange.
---------------------------------------------------------------------------
\14\ As of July 24, 2019, there are 165 ETP Holders on the
Exchange that could qualify for the Exchange's Step Up pricing
tiers.
---------------------------------------------------------------------------
The Exchange is not proposing to amend any of the credits payable
under the Step Up Tier 4.
[[Page 55605]]
Tape B Step Up Tier
The Exchange proposes to adopt a new pricing tier, Tape B Step Up
Tier, that would offer an incremental credit to ETP Holders that
qualify for the tier. As proposed, an ETP Holder that sends orders that
add liquidity in Tape B Securities would receive the following:
An incremental credit of $0.0002 per share when an ETP
Holder's providing ADV in Tape B Securities during the billing month is
at least 0.50% of the US Tape B CADV and the ETP Holder's providing ADV
in Tape B Securities during the billing month as a percentage of US
Tape B CADV is at least 20% more but less than 30% of the ETP Holder's
providing ADV as a percentage of US Tape B CADV in 3Q 2019;
An incremental credit of $0.0003 per share when an ETP
Holder's providing ADV in Tape B Securities during the billing month is
at least 0.50% of the US Tape B CADV and the ETP Holder's providing ADV
in Tape B Securities during the billing month as a percentage of US
Tape B CADV is at least 30% more but less than 40% of the ETP Holder's
providing ADV as a percentage of US Tape B CADV in 3Q 2019; and
An incremental credit of $0.0004 per share when an ETP
Holder's providing ADV in Tape B Securities during the billing month is
at least 0.50% of the US Tape B CADV and the ETP Holder's providing ADV
in Tape B Securities during the billing month as a percentage of US
Tape B CADV is at least 40% more than the ETP Holder's providing ADV as
a percentage of US Tape B CADV in 3Q 2019.
The proposed incremental credit would be payable in addition to the
ETP Holder's Tiered or Basic Rate credit(s); provided, however, that
such combined credit(s) in Tape B Securities shall not exceed $0.0032
per share.
For example, assume an ETP Holder has providing ADV of 0.80% of
Tape B CADV in Tape B securities in the baseline period of third
quarter of 2019. Further assume that the same ETP Holder has providing
ADV of 0.96% of Tape B in the billing month, which is at least 20% more
but less than 30% of the ETP Holder's baseline ADV of 0.80% of Tape B
CADV. Therefore, the ETP Holder in the above example would qualify to
receive an incremental credit of $0.0002 per share. If instead, the
same ETP Holder had providing ADV of Tape B CADV of 1.04% of Tape B in
the billing month, then that ETP Holder would qualify for an
incremental credit of $0.0003 per share, as 1.04% is at least 30% more
but less than 40% of the ETP Holder's baseline ADV of 0.80% of Tape B
CADV.\15\ If instead, the same ETP Holder had providing ADV of Tape B
CADV of 1.12% of Tape B in the billing month, then that ETP Holder
would qualify for an incremental credit of $0.0004 per share, as 1.12%
is at least 40% more than the ETP Holder's baseline ADV of 0.80% of
Tape B CADV.\16\
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\15\ The ETP Holder would also qualify for the existing Tape B
Tier 2 credit of $0.0028 by meeting the 1.0% of the US Tape B CADV
requirement, for a total credit of $0.0031 per share ($0.0028 per
share Tape B Tier 2 credit plus the proposed $0.0003 per share Tape
B Step Up Tier credit).
\16\ The ETP Holder would also qualify for the existing Tape B
Tier 2 credit of $0.0028 by meeting the 1.0% of the US Tape B CADV
requirement, for a total credit of $0.0032 per share ($0.0028 per
share Tape B Tier 2 credit plus the proposed $0.0004 per share Tape
B Step Up Tier credit).
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As noted above, the Exchange operates in a competitive environment,
particularly as it relates to attracting non-marketable, providing
liquidity that would be displayed on the Exchange. Because, as
proposed, the tier requires an ETP Holder to increase the volume of its
liquidity-providing orders over that ETP Holder's 3Q 2019 baseline, the
Exchange believes that the proposed incremental credit would provide an
incentive for ETP Holders to route additional liquidity to the Exchange
in order to qualify for it.
The proposed rule change is designed to incentivize ETP Holders to
increase the orders sent to the Exchange that would provide liquidity,
which would support the quality of price discovery and transparency on
the Exchange. The Exchange believes that by correlating the level of
the credits to the level of executed providing volume on the Exchange,
the Exchange's fee structure would incentivize ETP Holders to submit
more displayed, liquidity-providing orders to the Exchange that are
likely to be executed (i.e., are not orders that are intended to be
displayed, but are priced such that they are not likely to be
executed), thereby increasing the potential for incoming marketable
orders submitted to the Exchange to receive an execution.
The proposed changes are not otherwise intended to address any
other issues, and the Exchange is not aware of any significant problems
that market participants would have in complying with the proposed
changes.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\17\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\18\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers and other persons
using its facilities and does not unfairly discriminate between
customers, issuers, brokers or dealers.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Fee Change is Reasonable
As discussed above, the Exchange operates in a highly fragmented
and competitive market. The Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. Specifically,
in Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \19\
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\19\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
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As the Commission itself recognized, the market for trading
services in NMS stocks has become ``more fragmented and competitive.''
\20\ Indeed, equity trading is currently dispersed across 13
exchanges,\21\ 31 alternative trading systems,\22\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow.
Based on publicly-available information, no single exchange has more
than 19% market share (whether including or excluding auction
volume).\23\ Therefore, no exchange possesses significant pricing power
in the execution of equity order flow. More specifically, as noted
earlier, the Exchange averaged less than 9% market share of executed
volume of equity trades (excluding auction volume) for August 2019.
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\20\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Final rule).
\21\ See Cboe Global Markets, U.S Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
\22\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of
alternative trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/atslist.htm.
\23\ See Cboe Global Markets U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow, or discontinue to reduce use of certain categories of
[[Page 55606]]
products, in response to fee changes. With respect to non-marketable
order which provide liquidity on an Exchange, ETP Holders can choose
from any one of the 13 currently operating registered exchanges to
route such order flow. Accordingly, competitive forces reasonably
constrain exchange transaction fees that relate to orders that would
provide displayed liquidity on an exchange. Stated otherwise, changes
to exchange transaction fees can have a direct effect on the ability of
an exchange to compete for order flow.
Given this competitive environment, the proposal represents a
reasonable attempt to attract additional order flow to the Exchange.
The Exchange believes the proposed change to lower the volume
requirements under the Step Up Tier 4 is reasonable because it would
allow ETP Holders an additional opportunity to meet the requirement of
the pricing tier to receive per share credits payable under the Step Up
Tier 4, thereby encouraging the submission of additional liquidity to a
national securities exchange. Submission of additional liquidity to the
Exchange would promote price discovery and transparency and enhance
order execution opportunities for ETP Holders from the substantial
amounts of liquidity present on the Exchange. All ETP Holders would
benefit from the greater amounts of liquidity that will be present on
the Exchange, which would provide greater execution opportunities. The
Exchange believes that the proposed change to modify the baseline month
from January 2019 to September 2019 is reasonable given the trend of
recent trading on the Exchange. The Exchange's market share in January
2019, the original baseline month adopted under the Step Up Tier 4, was
9.0%, and has declined to 8.2% in August 2019.\24\ The Exchange
believes modifying the baseline month would allow ETP Holders to more
easily qualify for the pricing tier as it would need to submit lesser
number of orders to qualify for the tier.
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\24\ See id.
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Because no ETP Holder to date has qualified for the Step Up Tier 4,
the Exchange believes the proposed lower volume requirements are
reasonable as they would provide an additional incentive for ETP
Holders to qualify for this established tier and direct their order
flow to the Exchange and provide meaningful added levels of displayed
liquidity, thereby contributing to the depth and market quality on the
Exchange.
The Exchange believes the proposed Tape B Step Up Tier would
provide an incentive for ETP Holders to route additional liquidity-
providing orders to the Exchange in Tape B Securities. As noted above,
the Exchange operates in a highly competitive environment, particularly
for attracting order flow that provides displayed liquidity on an
exchange. The Exchange believes it is reasonable to provide a higher
credit for orders that provide additional liquidity. Similarly, the
Exchange believes that it is reasonable to provide an incremental
credit to ETP Holders that meet the requirements of the Tape B Step Up
Tier that add additional liquidity in Tape B Securities on the
Exchange.
Since the proposed Tape B Step Up Tier would be new with a
requirement for increased providing volume over the baseline month, no
ETP Holder currently qualifies for the proposed pricing tier. The
Exchange believes that a number of ETP Holders could qualify for the
proposed higher credit but without a view of ETP Holder activity on
other exchanges and off-exchange venues, the Exchange has no way of
knowing whether the proposed rule change would result in any ETP Holder
qualifying for the tier. The Exchange believes the proposed higher
credit is reasonable as it would provide an additional incentive for
ETP Holders to direct their order flow to the Exchange and provide
meaningful added levels of liquidity in order to qualify for the higher
credit, thereby contributing to depth and market quality on the
Exchange.
The Exchange notes that volume-based incentives and discounts have
been widely adopted by exchanges,\25\ including the Exchange,\26\ and
are reasonable, equitable and non-discriminatory because they are open
to all ETP Holders on an equal basis and provide additional credits
that are reasonably related to the value to an exchange's market
quality and associated higher levels of market activity.
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\25\ See e.g., Cboe BZX U.S. Equities Exchange (``BZX'') Fee
Schedule, Footnote 1, Add Volume Tiers which provide enhanced
rebates between $0.0025 and $0.0032 per share for displayed orders
where BZX members meet certain volume thresholds.
\26\ See e.g., Fee Schedule, Step Up Tier, Step Up Tier 2, Step
Up Tier 3 and Step Up Tier 4, which provide enhanced rebates between
$0.0025 and $0.0033 per share in Tape A Securities, between $0.0022
and $0.0034 per share in Tape B Securities, and between $0.0025 and
$0.0033 per share in Tape C Securities for orders that provide
displayed liquidity where ETP Holders meet certain volume
thresholds.
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On the backdrop of the competitive environment in which the
Exchange currently operates, the proposed rule change is a reasonable
attempt to increase liquidity on the Exchange and improve the
Exchange's market share relative to its competitors.
The Proposed Fee Change is an Equitable Allocation of Fees and Credits
The Exchange believes its proposal equitably allocates its fees
among its market participants.
First, the Exchange is not proposing to adjust the amount of the
Step Up Tier 4 credits, which will remain at the current level for all
ETP Holders. Rather, the proposal would continue to encourage ETP
Holders to send orders that add liquidity to the Exchange, thereby
contributing to robust levels of liquidity, which benefits all market
participants. The Exchange believes that, for the reasons discussed
above, lowering the requirements would make it easier for liquidity
providers to qualify for the Step Up Tier 4 credit, thereby encouraging
submission of additional liquidity to the Exchange. The proposed change
will thereby encourage the submission of additional liquidity to a
national securities exchange, thus promoting price discovery and
transparency and enhancing order execution opportunities for ETP
Holders from the substantial amounts of liquidity present on the
Exchange. All ETP Holders would benefit from the greater amounts of
liquidity that will be present on the Exchange, which would provide
greater execution opportunities.
As noted above, no ETP Holder currently qualifies for the Step Up
Tier 4 pricing tier. Without having a view of ETP Holders' activity on
other markets and off-exchange venues, the Exchange has no way of
knowing whether this proposed rule change would result in any ETP
Holders qualifying for this tier. However, the Exchange believes the
proposed lower volume requirements would provide an incentive for ETP
Holders to continue to submit liquidity-providing order flow, which
would promote price discovery and increase execution opportunities for
all ETP Holders. The proposed change will thereby encourage the
submission of additional liquidity to a national securities exchange,
thus promoting price discovery and transparency and enhancing order
execution opportunities for ETP Holders from the substantial amounts of
liquidity present on the Exchange, which would benefit all market
participants on the Exchange.
Finally, the Exchange believes that the proposed Tape B Step Up
Tier is equitable because the magnitude of the additional credit is not
unreasonably
[[Page 55607]]
high relative to credits paid by other exchanges for orders that
provide additional step up liquidity.\27\ The Exchange believes the
proposed rule change would improve market quality for all market
participants on the Exchange and, as a consequence, attract more
liquidity to the Exchange, thereby improving market-wide quality and
price discovery.
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\27\ See note 25, supra.
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Since the proposed Tape B Step Up Tier would be new, no ETP Holder
currently qualifies for it. The Exchange believes that at least seven
ETP Holders could qualify for the proposed higher credit, but without a
view of ETP Holder activity on other exchanges and off-exchange venues,
the Exchange has no way of knowing whether this proposed rule change
would result in any ETP Holder qualifying for the tier. The Exchange
believes the proposed higher credit is reasonable as it would provide
an additional incentive for ETP Holders to direct their order flow to
the Exchange and provide meaningful added levels of liquidity in order
to qualify for the higher credit, thereby contributing to depth and
market quality on the Exchange.
The Exchange believes the proposed rule change would improve market
quality for all market participants on the Exchange and, as a
consequence, attract more liquidity to the Exchange thereby improving
market-wide quality. The proposal neither targets nor will it have a
disparate impact on any particular category of market participant. ETP
Holders that currently qualify for credits associated with Step Up
pricing tiers on the Exchange will continue to receive credits when
they provide liquidity to the Exchange. The Exchange believes that
recalibrating the requirements for providing liquidity will continue to
attract order flow and liquidity to the Exchange for the benefit of
investors generally.
Since no ETP Holder presently qualifies for the credits associated
with Step Up Tier 4, the proposal will not adversely impact their
existing pricing or their ability to qualify for other credits provided
by the Exchange. With the proposed new Tape B Step Up Tier, all ETP
Holders would be eligible to qualify for the higher credit if they
increase their Adding ADV over their own baseline of order flow. The
Exchange believes that offering a higher step up credit for providing
liquidity if the step up requirements for Tape B securities are met,
will continue to attract order flow and liquidity to the Exchange,
thereby providing additional price improvement opportunities on the
Exchange and benefiting investors generally. As to those market
participants that do not presently qualify for the adding liquidity
credits, the proposal will not adversely impact their existing pricing
or their ability to qualify for other credits provided by the Exchange.
The Proposed Fee Change Is Not Unfairly Discriminatory
The Exchange believes that the proposal is not unfairly
discriminatory. In the prevailing competitive environment, ETP Holders
are free to disfavor the Exchange's pricing if they believe that
alternatives offer them better value.
The proposal to lower the volume requirement under Step Up Tier 4
neither targets or will it have a disparate impact on any particular
category of market participant. The proposal does not permit unfair
discrimination because the lower threshold would be applied to all
similarly situated ETP Holders, who would all be eligible for the same
credit on an equal basis. Accordingly, no ETP Holder already operating
on the Exchange would be disadvantaged by this allocation of fees.
The Exchange believes it is not unfairly discriminatory to adopt
lower volume requirements for ETP Holders to qualify for the Step Up
Tier 4 pricing tier as the proposed change would apply on an equal
basis to all ETP Holders that add liquidity by meeting the lower volume
requirements. Further, the Exchange believes the proposed lower volume
requirements would incentivize ETP Holders to execute more of their
liquidity-providers orders on the Exchange to qualify for the increased
credits payable under Step Up Tier 4. The Exchange also believes that
the proposed change is not unfairly discriminatory because it is
reasonably related to the value of the Exchange's market quality
associated with higher volume. The proposed lower volume requirements
would apply equally to all ETP Holders as each would be required to
execute providing volume in Tapes A, B and C Securities during the
billing month that is at least 0.55% of US CADV over its providing ADV
in September 2019, taken as a percentage of US CADV, regardless of
whether an ETP Holder currently meets the requirement of another
pricing tier.
The Exchange believes it is not unfairly discriminatory to provide
a higher per share step up credit, as the proposed credit would be
provided on an equal basis to all ETP Holders that add liquidity by
meeting the new proposed Tape B Step Up Tier's requirements. For the
same reason, the Exchange believes it is not unfairly discriminatory to
provide an additional incremental credit to ETP Holders that satisfy
the Tape B Step Up Tier requirements and add liquidity in Tape B
Securities. Further, the Exchange believes the proposed Tape B Step Up
Tier credit would incentivize ETP Holders that meet the current tiered
requirements to send more orders to the Exchange to qualify for higher
credits. The Exchange also believes that the proposed change is not
unfairly discriminatory because it is reasonably related to the value
to the Exchange's market quality associated with higher volume.
Finally, the submission of orders to the Exchange is optional for
ETP Holders in that they could choose whether to submit orders to the
Exchange and, if they do, the extent of its activity in this regard.
The Exchange believes that it is subject to significant competitive
forces, as described below in the Exchange's statement regarding the
burden on competition.
For the foregoing reasons, the Exchange believes that the proposal
is consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\28\ the Exchange
believes that the proposed rule change would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Instead, as discussed above, the Exchange believes
that the proposed changes would encourage the submission of additional
liquidity to a public exchange, thereby promoting market depth, price
discovery and transparency and enhancing order execution opportunities
for ETP Holders. As a result, the Exchange believes that the proposed
change furthers the Commission's goal in adopting Regulation NMS of
fostering integrated competition among orders, which promotes ``more
efficient pricing of individual stocks for all types of orders, large
and small.'' \29\
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\28\ 15 U.S.C. 78f(b)(8).
\29\ See Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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Intramarket Competition. The proposed change is designed to attract
additional order flow to the Exchange. The Exchange believes that the
proposed lower volume requirements would continue to incentivize market
participants to direct providing displayed order flow to the Exchange.
Greater liquidity benefits all market
[[Page 55608]]
participants on the Exchange by providing more trading opportunities
and encourages ETP Holders, to send orders, thereby contributing to
robust levels of liquidity, which benefits all market participants. The
proposed volume requirements would be applicable to all similarly-
situated market participants, and, as such, the proposed change would
not impose a disparate burden on competition among market participants
on the Exchange.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily choose to
send their orders to other exchange and off-exchange venues if they
deem fee levels at those other venues to be more favorable. As noted,
the Exchange's market share of intraday trading (i.e., excluding
auctions) was 8.2% in August 2019. In such an environment, the Exchange
must continually adjust its fees and rebates to remain competitive with
other exchanges and with off-exchange venues. Because competitors are
free to modify their own fees and credits in response, and because
market participants may readily adjust their order routing practices,
the Exchange does not believe its proposed fee change can impose any
burden on intermarket competition.
The Exchange believes that the proposed change could promote
competition between the Exchange and other execution venues, including
those that currently offer similar order types and comparable
transaction pricing, by encouraging additional orders to be sent to the
Exchange for execution.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \30\ of the Act and subparagraph (f)(2) of Rule
19b-4 \31\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\30\ 15 U.S.C. 78s(b)(3)(A).
\31\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \32\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\32\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2019-70 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2019-70. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal offices of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2019-70, and should be
submitted on or before November 7, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22700 Filed 10-16-19; 8:45 am]
BILLING CODE 8011-01-P
