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 To Introduce Two New Pricing Tiers, Retail Order Step-Up Tier 3 and Retail Order Step-Up Tier 4, 3955-3960 [2020-01038]
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Federal Register / Vol. 85, No. 15 / Thursday, January 23, 2020 / Notices
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–
C2–2020–001 on the subject line.
jbell on DSKJLSW7X2PROD with NOTICES
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–C2–2020–001. 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–C2–2020–001 and should
be submitted on or before February 13,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.55
J. Matthew DeLesDernier,
Assistant Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87994; File No. SR–
NYSEArca–2020–05]
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 To
Introduce Two New Pricing Tiers,
Retail Order Step-Up Tier 3 and Retail
Order Step-Up Tier 4
January 16, 2020.
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 January 9,
2020, NYSE Arca, Inc. (‘‘NYSE Arca’’ or
the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. 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 the Substance
of the Proposed Rule Change
The Exchange proposes to amend the
NYSE Arca Equities Fees and Charges
(‘‘Fee Schedule’’) to introduce two new
pricing tiers, Retail Order Step-Up Tier
3 and Retail Order Step-Up Tier 4. 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. 2020–01035 Filed 1–22–20; 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
55 17
CFR 200.30–3(a)(12).
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule to introduce two new
pricing tiers, Retail Order Step-Up Tier
3 and Retail Order Step-Up Tier 4. 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 4 to send additional
displayed liquidity to the Exchange.
The Exchange proposes to implement
the fee changes effective January 9,
2020.5
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
November 2019, no single exchange has
more than 18% market share (whether
including or excluding auction
4 All references to ETP Holders in connection
with this proposed fee change include Market
Makers.
5 The Exchange originally filed to amend the Fee
Schedule on January 2, 2020 (SR–NYSArca–2020–
02). SR–NYSEArca–2020–02 was subsequently
withdrawn and replaced by this filing.
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.
E:\FR\FM\23JAN1.SGM
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Federal Register / Vol. 85, No. 15 / Thursday, January 23, 2020 / Notices
volume).10 Therefore, no exchange
possesses significant pricing power in
the execution of equity order flow. More
specifically, in November 2019, the
Exchange had 7.6% 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. The competition for Retail
Orders 12 is even more stark,
particularly as it relates to exchange
versus off-exchange venues. For
example, the Exchange examined Rule
606 disclosures from three prominent
retail brokerages: E-Trade, TD
Ameritrade and Charles Schwab. For
securities listed on the New York Stock
Exchange LLC in the third quarter of
2019, TD Ameritrade routed 92% of its
limit orders to off-exchange venues.13
Similarly, E-Trade Financial and
Charles Schwab routed more than 73%
and more than 97%,14 respectively, of
its limit orders to off-exchange venues.
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 and credits 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
enhanced rebates by quoting and trading
more 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
changes:
• Introduce Retail Order Step-Up Tier
3, which provides a credit of $0.0035
per share to ETP Holders that execute an
Tier
Credit for providing displayed liquidity in retail orders
Retail Order Step-Up Tier 1 ................................
Retail Order Step-Up Tier 2 ................................
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ADV of Retail Orders with a time-inforce of Day that add or remove
liquidity during the month that is an
increase of 0.10% or more of the US
CADV 15 above their April 2018 ADV
taken as a percentage of US CADV; and
• Introduce Retail Order Step-Up Tier
4, which provides a credit of $0.0036
per share to ETP Holders that execute an
ADV of Retail Orders with a time-inforce of Day that add or remove
liquidity during the month that is an
increase of 0.20% or more of the US
CADV above their April 2018 ADV
taken as a percentage of US CADV.
In this competitive environment, the
Exchange has already established Retail
Order Step-Up Tiers 1 and 2, which are
designed to encourage ETP Holders that
provide displayed liquidity in Retail
Orders 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 Retail
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
in Retail Orders on the Exchange:
$0.0033 (Tape A, Tape B and Tape C).
$0.0035 (Tape A, Tape B and Tape C).
Under the Retail Order Step-Up Tier
1, 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 April 2018, it is eligible to earn
higher credits. Specifically, to qualify
for the credit under Retail Order StepUp Tier 1, an ETP Holder must execute
an average daily volume (ADV) per
month of Retail Orders with a time-inforce of Day that add or remove
liquidity that is an increase of 0.12% or
more of the US CADV above their April
2018 ADV taken as a percentage of US
CADV.
Currently, if an ETP Holder meets the
Retail Order Step-Up Tier 1
requirement, such ETP Holder is eligible
to earn a credit of $0.0033 per share for
Retail Orders that provide displayed
liquidity to the Book in Tape A, Tape
B and Tape C securities, and is not
charged a fee for Retail Orders with a
time-in-force of Day that remove
liquidity.16
Under Retail Order Step-Up Tier 2, if
an ETP Holder increases its providing
liquidity by a specified percentage over
the US CADV, and the ETP Holder
increases its providing liquidity on the
Exchange by a specified percentage over
the level that such ETP Holder provided
liquidity in April 2018, it is eligible to
earn higher credits. Specifically, ETP
Holders that provide liquidity an ADV
per month of 1.10% or more of the US
CADV, and execute an ADV of Retail
Orders with a time-in-force of Day that
add or remove liquidity during the
month that is an increase of 0.35% or
more of the US CADV above their April
2018 ADV taken as a percentage of US
CADV are eligible for the per share
credit under the Retail Order Step-Up
Tier 2 pricing tier.
Currently, if an ETP Holder meets the
Retail Order Step-Up Tier 2
10 See Cboe Global Markets U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
11 See id.
12 A Retail Order is an agency order that
originates from a natural person and is submitted
to the Exchange by an ETP Holder, provided that
no change is made to the terms of the order to price
or side of market and the order does not originate
from a trading algorithm or any other computerized
methodology. See Securities Exchange Act Release
No. 67540 (July 30, 2012), 77 FR 46539 (August 3,
2012) (SR–NYSEArca–2012–77).
13 See https://www.tdameritrade.com/retail-en_
us/resources/pdf/AMTD2054.pdf.
14 See https://content.etrade.com/etrade/
powerpage/pdf/OrderRouting11AC6.pdf. See also
https://www.schwab.com/public/schwab/nn/legal_
compliance/important_notices/order_routing.html.
15 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.
16 See Securities Exchange Act Release No. 83268
(May 17, 2018), 83 FR 23983 (May 23, 2018) (SR–
NYSEArca–2018–34).
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Federal Register / Vol. 85, No. 15 / Thursday, January 23, 2020 / Notices
requirement, such ETP Holder is eligible
to earn a credit of $0.0035 per share for
Retail Orders that provide displayed
liquidity to the Book in Tape A, Tape
B and Tape C securities, and is not
charged a fee for Retail Orders with a
time-in-force of Day that remove
liquidity.17 Additionally, under Retail
Order Step-Up Tier 2, ETP Holders are
eligible to earn a credit of $0.0035 per
share for orders in Tape C securities that
provide displayed liquidity, can receive
an incremental credit of $0.0002 per
share for orders in Tape C securities that
provide non-displayed liquidity, and are
charged a fee of $0.0027 per share for
orders in Tape C securities that take
liquidity.18
With this proposed rule change, the
Exchange proposes to introduce two
new pricing tiers, Retail Order Step-Up
Tier 3 and Retail Order Step-Up Tier 4.
Under proposed Retail Order Step-Up
Tier 3, ETP Holders that execute an
ADV of Retail Orders with a time-inforce of Day that add or remove
liquidity during the month that is an
increase of 0.10% or more of the US
CADV above their April 2018 ADV
taken as a percentage of US CADV,
would receive a credit of $0.0035 per
share for Retail Orders that provide
displayed liquidity in Tape A, Tape B
and Tape C securities. Retail Orders
with a time-in-force designation of Day
that remove liquidity from the Book will
not be charged a fee. The Exchange
notes that proposed Retail Order StepUp Tier 3 provides the same level of
credit for Retail Orders that provide
displayed liquidity to the Book in Tapes
A, B and C securities payable under the
current Retail Order Step-Up Tier 2 but
proposes a lower requirement to qualify
for the credit. Proposed Retail Order
Step-Up Tier 3 also does not provide the
incremental $0.0002 per share credit in
Tape C securities for orders that provide
non-displayed liquidity to the Book, the
$0.0035 per share credits for non-Retail
Orders that provide displayed liquidity
to the Book in Tape C Securities, or the
$0.0027 per share fee applicable for
orders in Tape C securities that take
liquidity, all of which are currently
payable under Retail Order Step-Up Tier
2.
For example, assume an ETP holder
has an ADV of 7 million shares in Retail
Orders with a time-in-force of Day that
add or remove liquidity in April 2018
when US CADV was 7 billion shares, or
0.10% of US CADV. If that same ETP
Holder has an ADV of at least 14 million
shares in Retail Orders with a time-inforce of Day that add or remove
liquidity in the billing month when US
CADV was also 7 billion shares, or
0.20% of US CADV, for a step up of
0.10% of US CADV, that ETP holder
Tier
jbell on DSKJLSW7X2PROD with NOTICES
Retail
Retail
Retail
Retail
Order
Order
Order
Order
Step-Up
Step-Up
Step-Up
Step-Up
Tier
Tier
Tier
Tier
would qualify for Retail Order Step-Up
Tier 3 credit of $0.0035 per share.
Under proposed Retail Order Step-Up
Tier 4, ETP Holders that execute an
ADV of Retail Orders with a time-inforce of Day that add or remove
liquidity during the month that is an
increase of 0.20% or more of the US
CADV above their April 2018 ADV
taken as a percentage of US CADV,
would receive a credit of $0.0036 per
share for Retail Orders that provide
displayed liquidity in Tape A, Tape B
and Tape C securities. Retail Orders
with a time-in-force designation of Day
that remove liquidity from the Book will
not be charged a fee.
For example, assume the ETP holder
in the previous example has an ADV of
at least 21 million shares in Retail
Orders with a time-in-force of Day that
add or remove liquidity in the billing
month when US CADV was 7 billion
shares, or 0.30% of US CADV, for a step
up of 0.20% of US CADV, then that ETP
holder would qualify for Retail Order
Step-Up Tier 4 credit of $0.0036 per
share.
With this proposed rule change, the
following credits would be available to
ETP Holders that provide increased
levels of displayed liquidity in Retail
Orders on the Exchange:
Credit for providing displayed liquidity in retail orders
1
2
3
4
................................
................................
................................
................................
$0.0033
$0.0035
$0.0035
$0.0036
(Tape
(Tape
(Tape
(Tape
A,
A,
A,
A,
Tape
Tape
Tape
Tape
B
B
B
B
and
and
and
and
Tape
Tape
Tape
Tape
C).
C).
C).
C).
For all other fees and credits, tiered or
basic rates apply based on a firm’s
qualifying levels.
The purpose of the proposed rule
change is to encourage even greater
participation from ETP Holders and
promote additional liquidity in Retail
Orders. As described above, ETP
Holders with liquidity-providing orders
have a choice of where to send those
orders. The Exchange believes that if it
adopts the proposed credits, more ETP
Holders will choose to route their
liquidity-providing Retail Orders to the
Exchange to qualify for the credits.
The Exchange does not know how
much Retail Order flow ETP Holders
choose to route to other exchanges or to
off-exchange venues. While the
proposed Retail Order Step-Up Tier 3
and Tier 4 pricing tiers would be
available to all ETP Holders, no ETP
Holder currently qualifies given the
pricing tiers are new.19 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
sending more of their Retail Orders to
the Exchange to qualify for the proposed
Retail Order Step-Up Tier 3 and Tier 4
credits. The Exchange cannot predict
with certainty how many ETP Holders
would avail themselves of this
opportunity but additional liquidityproviding Retail Orders would benefit
all market participants because it would
provide greater execution opportunities
on the Exchange.
17 See Securities Exchange Act Release No. 83828
(August 10, 2018), 83 FR 40816 (August 16, 2018)
(SR–NYSEArca–2018–58).
18 Id.
19 As of December 27, 2019, there are 12 ETP
Holders on the Exchange that provide liquidity that
could qualify for the Exchange’s Retail Step-Up
pricing tiers.
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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,20 in general, and
furthers the objectives of Sections
6(b)(4) and (5) of the Act,21 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.
20 15
21 15
E:\FR\FM\23JAN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
23JAN1
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Federal Register / Vol. 85, No. 15 / Thursday, January 23, 2020 / Notices
jbell on DSKJLSW7X2PROD with NOTICES
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.’’ 22
As the Commission itself recognized,
the market for trading services in NMS
stocks has become ‘‘more fragmented
and competitive.’’ 23 Indeed, equity
trading is currently dispersed across 13
exchanges,24 31 alternative trading
systems,25 and numerous broker-dealer
internalizers and wholesalers, all
competing for order flow. As noted
above, no exchange possesses
significant pricing power in the
execution of equity order flow.
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
products, in response to fee changes.
With respect to non-marketable orders
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.
As noted above, the competition for
Retail Order flow is stark given the
22 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
23 See Securities Exchange Act Release No. 51808,
84 FR 5202, 5253 (February 20, 2019) (File No. S7–
05–18) (Final Rule).
24 See Cboe Global Markets, U.S Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
25 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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amount of retail limit orders that are
routed to non-exchange venues. 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 products, in response to fee
changes. This competition is
particularly acute for non-marketable, or
limit, retail orders, i.e., retail orders that
can provide liquidity on an exchange.
That competition is even more fierce for
retail limit orders that provide
displayed liquidity on an exchange.
Accordingly, competitive forces
constrain exchange transaction fees,
particularly as they relate to competing
for retail orders.
The Exchange believes the proposed
change to adopt the Retail Order StepUp Tier 3 and Retail Order Step-Up Tier
4 pricing tiers is reasonable because it
would provide ETP Holders with
additional incentives to send a greater
number of Retail Orders to the
Exchange. The proposed change to
adopt Retail Order Step-Up Tier 3
would allow ETP Holders an alternative
way to qualify for the $0.0035 per share
credit that is currently available under
Retail Order Step-Up Tier 2. The
Exchange believes the proposed change
is reasonable because the proposed
credits would continue to encourage
ETP Holders to send Retail Orders to the
Exchange to qualify for the proposed
pricing tiers. As noted above, the
Exchange operates in a highly
competitive environment, particularly
for attracting Retail Order flow that
provides displayed liquidity on an
exchange. The Exchange believes it is
reasonable to continue to provide
credits in general, and higher credits,
with respect to the Retail Order Step-Up
Tier 4 pricing tier, for Retail Orders that
provide displayed liquidity if an ETP
Holder meets the qualifications for the
proposed pricing tiers.
Further, given the competitive market
for attracting Retail Orders, the
Exchange notes that with this proposed
rule change, the Exchange’s pricing for
Retail Orders would be comparable to
credits currently in place on other
exchanges that the Exchange competes
with for order flow. For example, the
Nasdaq Stock Market LLC (‘‘Nasdaq’’)
provides its members with a credit of
$0.0033 per share if such member has
an 85% add to total volume (adding
liquidity and removing liquidity) ratio
during a billing month.26 Cboe BZX
26 See Nasdaq Price List, Rebate to Add Displayed
Designated Retail Liquidity, at https://
nasdaqtrader.com/
Trader.aspx?id=PriceListTrading2.
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Frm 00068
Fmt 4703
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Exchange, Inc. (‘‘BZX’’) provides its
members with a credit of $0.0032 per
share for retail orders that add liquidity
to that market.27 In addition, Cboe
EDGX Exchange, Inc. (‘EDGX’’) provides
its members with a credit of $0.0037 per
share for retail orders that add liquidity
to that market if an EDGX member adds
liquidity in Retail Orders of 0.50% of
CADV or more.28
The Exchange believes the proposed
change is also reasonable because it is
designed to attract higher volumes of
Retail Orders transacted on the
Exchange by ETP Holders which would
benefit all market participants by
offering greater price discovery,
increased transparency, and an
increased opportunity to trade on the
Exchange.
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 that the
proposed rule change to adopt Retail
Order Step-Up Tier 3 and Retail Order
Step-Up Tier 4 equitably allocates fees
among its market participants because it
is reasonably related to the value of the
Exchange’s market quality associated
with higher volume in Retail Orders.
The Exchange notes that currently 12
firms submit Retail Orders that add
liquidity on the Exchange and of those
12 firms, the Exchange anticipates that
as many as five 29 of those firms could
meet, or would reasonably be able to
meet, the proposed criteria and qualify
for the credits and fees if those firms
directed more of their Retail Orders to
the Exchange. The Exchange believes
that pricing is just one of the factors that
ETP Holders consider when
determining where to direct their order
flow. Among other things, factors such
as execution quality, fill rates, and
volatility, are important and
deterministic to ETP Holders in
deciding where to send their order flow.
Further, the Exchange notes that, with
this proposed rule change, the
27 See BZX Fee Schedule, Fee Codes and
Associated Fees, at https://markets.cboe.com/us/
equities/membership/fee_schedule/bzx/.
28 See EDGX Fee Schedule, Fee Codes and
Associated Fees, at https://markets.cboe.com/us/
equities/membership/fee_schedule/edgx/.
29 These five firms have historically submitted the
most amount of Retail Orders to the Exchange. The
Exchange believes each of these firms would qualify
for the proposed pricing tiers if each were to submit
all, or most of all, its Retail Orders to the Exchange,
rather than to a competitor.
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difference between the highest credit
provided for Retail Orders, $0.0036 per
share, as proposed, and the credit for
Retail Orders that do not qualify for any
Retail Order pricing tiers, $0.0030 per
share, is $0.0006, or 17%, which the
Exchange believes is small given the
requirements that ETP Holders must
meet to qualify for the higher credit.
Similarly, with this proposed rule
change, the difference in the highest
credit for Retail Orders, $0.0036 per
share, as proposed, and the credit
provided for Retail Orders to those ETP
Holders qualifying for the Retail Order
Tier or Retail Order Step-Up Tier 1,
$0.0033 per share, would only be
$0.0003 per share, or 9%. Therefore, the
Exchange believes the proposed Retail
Order Step-Up Tier 3 and Retail Order
Step-Up Tier 4 pricing tiers are
equitably allocated and provide
discounts that are reasonably related to
the value to the Exchange’s market
quality associated with higher volumes.
In today’s competitive marketplace,
order flow providers have a choice of
where to direct liquidity-providing
order flow, and while only three ETP
Holders have qualified to date for the
current Retail Order pricing tiers, the
Exchange believes there are additional
ETP Holders that could qualify if they
chose to direct their order flow to the
Exchange.
Finally, the Exchange believes that
the proposed Retail Order Step-Up Tier
3 and Retail Order Step-Up Tier 4
pricing tiers are equitable because the
magnitude of the proposed credits is not
unreasonably high relative to credits
paid by other exchanges for orders that
provide additional step up liquidity in
Retail Orders.30 The Exchange believes
the proposed rule change would
improve market quality for all market
participants on the Exchange and, as a
consequence, attract more Retail Orders
to the Exchange, thereby improving
market-wide quality and price
discovery.
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 Retail
Order Step-Up pricing tiers on the
Exchange will continue to receive
credits when they provide liquidity to
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
30 See
notes 26–28, supra.
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disfavor the Exchange’s pricing if they
believe that alternatives offer them
better value.
The Exchange believes it is not
unfairly discriminatory to provide a
higher per share step-up credit for Retail
Orders, as the proposed credit would be
provided on an equal basis to all ETP
Holders that add liquidity by meeting
the requirements of the proposed Retail
Order Step-Up Tier 3 and Retail Order
Step-Up Tier 4. Further, the Exchange
believes the proposed increased per
share credits would incentivize ETP
Holders that meet the current tiered
requirements to send more of their
Retail Orders to the Exchange to qualify
for increased 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,31 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.’’ 32
Intramarket Competition. The
Exchange believes the proposed rule
change does not impose any burden on
31 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).
32 See
PO 00000
Frm 00069
Fmt 4703
Sfmt 4703
3959
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. Particularly,
the proposed change applies to all ETP
Holders equally in that all ETP Holders
are eligible for the proposed tiers, have
a reasonable opportunity to meet each
tier’s criteria and will all receive the
proposed rebate if such criteria is met.
Additionally, the proposed change is
designed to attract additional order flow
to the Exchange. The Exchange believes
that the proposed new Retail Order
Step-Up pricing tiers would continue to
incentivize market participants to
submit orders that qualify as Retail
Orders to the Exchange. Greater
liquidity benefits all market 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 credits would be available
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 believes the proposed rule
change does not impose any burden on
intermarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange operates in a highly
competitive market in which market
participants can readily choose to send
their orders to other exchanges and offexchange venues if they deem fee levels
at those other venues to be more
favorable. As noted above, the
Exchange’s market share of intraday
trading (i.e., excluding auctions) was
7.6% in November 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 this proposed fee
change would 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.
E:\FR\FM\23JAN1.SGM
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3960
Federal Register / Vol. 85, No. 15 / Thursday, January 23, 2020 / Notices
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) 33 of the Act and
subparagraph (f)(2) of Rule 19b–4 34
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
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) 35 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:
jbell on DSKJLSW7X2PROD with NOTICES
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–2020–05 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–2020–05. 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/
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
35 15 U.S.C. 78s(b)(2)(B).
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 such
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–NYSEArca–2020–05, and
should be submitted on or before
February 13, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–01038 Filed 1–22–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. SIPA–180; File No. SIPC–2019–
01]
Securities Investor Protection
Corporation; Notice of Filing of
Proposed Bylaw Change, as Revised
by Amendment No. 1, Relating to SIPC
Board Compensation
January 16, 2020.
Pursuant to Section 3(e)(1) of the
Securities Investor Protection Act of
1970 (‘‘SIPA’’),1 on October 7, 2019 the
Securities Investor Protection
Corporation (‘‘SIPC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed bylaw
change relating to the SIPC Board of
Directors’ (‘‘Board’’) compensation. On
October 24, 2019, SIPC consented to a
90-day extension of time before the
proposed bylaw amendments would
take effect pursuant to section 3(e)(1) of
SIPA. On November 19, 2019, SIPC filed
a revised version of the proposed bylaw
change, which replaced and superseded
the original proposed bylaw change in
its entirety. Pursuant to section
3(e)(1)(B) of SIPA, the Commission finds
that the proposed bylaw change, as
revised by Amendment No. 1, involves
a matter of such significant public
interest that public comment should be
obtained.2 Therefore, pursuant to
section 3(e)(2)(A) of SIPA, the
Commission is publishing this notice to
solicit comment from interested persons
on the proposed bylaw change, as
revised by Amendment No. 1.3
In its filing with the Commission,
SIPC included statements concerning
the purpose of and statutory basis for
the proposed bylaw change, as revised
by Amendment No. 1, as described
below, which description has been
substantially prepared by SIPC.
I. SIPC’s Statement of the Purpose of,
and Statutory Basis for, Proposed SIPC
Bylaw Change Relating to SIPC Board
Compensation
Pursuant to Section 3(e)(1) of SIPA,
SIPC hereby submits for filing with the
Commission a proposed amendment to
Article 2, Section 6, of the SIPC Bylaws.
Article 2, Section 6, of the Bylaws
relates to the honoraria paid to nonGovernmental members of the SIPC
Board.
As amended, Article 2, Section 6,
would: (1) Change the Board
Chairperson’s yearly honorarium from
$15,000 to $28,000; (2) change the
Directors’ yearly honorarium from
$6,250 to $12,000; (3) while the position
of Chairperson remains vacant,
authorize the Board Vice Chairperson
who serves as acting Chairperson for a
continuous twelve month period, to
receive an honorarium of $28,000; (4)
while the positions of Chairperson and
Vice Chairperson remain vacant,
authorize any Director, to whom the
SIPC Board delegates authority to
perform certain functions of the
Chairperson, to receive an honorarium
of $28,000 provided that the Director
performs those functions for a
continuous twelve month period; and
(5) provide for a re-evaluation of Board
honoraria every ten (10) years under a
formula tied to the Senior Executive
Service pay scale.
The proposed bylaw amendment was
approved by the SIPC Board. Under
SIPA section 78ccc(e)(1), unless it is
disapproved by the Commission or the
Commission determines that the matter
is of such significant public interest as
33 15
34 17
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17:13 Jan 22, 2020
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36 17
2 15
1 15
3 15
PO 00000
CFR 200.30–3(a)(12).
U.S.C. 78ccc(e)(1).
Frm 00070
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U.S.C. 78ccc(e)(1)(B).
U.S.C. 78ccc(e)(2)(A).
23JAN1
]]>Agencies
[Federal Register Volume 85, Number 15 (Thursday, January 23, 2020)]
[Notices]
[Pages 3955-3960]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01038]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87994; File No. SR-NYSEArca-2020-05]
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 To Introduce Two New Pricing Tiers,
Retail Order Step-Up Tier 3 and Retail Order Step-Up Tier 4
January 16, 2020.
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 January 9, 2020, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. 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 the
Substance of the Proposed Rule Change
The Exchange proposes to amend the NYSE Arca Equities Fees and
Charges (``Fee Schedule'') to introduce two new pricing tiers, Retail
Order Step-Up Tier 3 and Retail Order Step-Up Tier 4. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to introduce two
new pricing tiers, Retail Order Step-Up Tier 3 and Retail Order Step-Up
Tier 4. 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 \4\ to send additional displayed liquidity to the Exchange.
---------------------------------------------------------------------------
\4\ All references to ETP Holders in connection with this
proposed fee change include Market Makers.
---------------------------------------------------------------------------
The Exchange proposes to implement the fee changes effective
January 9, 2020.\5\
---------------------------------------------------------------------------
\5\ The Exchange originally filed to amend the Fee Schedule on
January 2, 2020 (SR-NYSArca-2020-02). SR-NYSEArca-2020-02 was
subsequently withdrawn and replaced by this filing.
---------------------------------------------------------------------------
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 November 2019, no single
exchange has more than 18% market share (whether including or excluding
auction
[[Page 3956]]
volume).\10\ Therefore, no exchange possesses significant pricing power
in the execution of equity order flow. More specifically, in November
2019, the Exchange had 7.6% 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. The competition for Retail Orders
\12\ is even more stark, particularly as it relates to exchange versus
off-exchange venues. For example, the Exchange examined Rule 606
disclosures from three prominent retail brokerages: E-Trade, TD
Ameritrade and Charles Schwab. For securities listed on the New York
Stock Exchange LLC in the third quarter of 2019, TD Ameritrade routed
92% of its limit orders to off-exchange venues.\13\ Similarly, E-Trade
Financial and Charles Schwab routed more than 73% and more than
97%,\14\ respectively, of its limit orders to off-exchange venues. 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 and credits that relate to
orders that would provide displayed liquidity on an exchange.
---------------------------------------------------------------------------
\12\ A Retail Order is an agency order that originates from a
natural person and is submitted to the Exchange by an ETP Holder,
provided that no change is made to the terms of the order to price
or side of market and the order does not originate from a trading
algorithm or any other computerized methodology. See Securities
Exchange Act Release No. 67540 (July 30, 2012), 77 FR 46539 (August
3, 2012) (SR-NYSEArca-2012-77).
\13\ See https://www.tdameritrade.com/retail-en_us/resources/pdf/AMTD2054.pdf.
\14\ See https://content.etrade.com/etrade/powerpage/pdf/OrderRouting11AC6.pdf. See also https://www.schwab.com/public/schwab/nn/legal_compliance/important_notices/order_routing.html.
---------------------------------------------------------------------------
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 enhanced rebates by quoting and trading more 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 changes:
Introduce Retail Order Step-Up Tier 3, which provides a
credit of $0.0035 per share to ETP Holders that execute an ADV of
Retail Orders with a time-in-force of Day that add or remove liquidity
during the month that is an increase of 0.10% or more of the US CADV
\15\ above their April 2018 ADV taken as a percentage of US CADV; and
---------------------------------------------------------------------------
\15\ 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.
---------------------------------------------------------------------------
Introduce Retail Order Step-Up Tier 4, which provides a
credit of $0.0036 per share to ETP Holders that execute an ADV of
Retail Orders with a time-in-force of Day that add or remove liquidity
during the month that is an increase of 0.20% or more of the US CADV
above their April 2018 ADV taken as a percentage of US CADV.
In this competitive environment, the Exchange has already
established Retail Order Step-Up Tiers 1 and 2, which are designed to
encourage ETP Holders that provide displayed liquidity in Retail Orders
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 Retail 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 in Retail Orders on the
Exchange:
------------------------------------------------------------------------
Credit for providing displayed
Tier liquidity in retail orders
------------------------------------------------------------------------
Retail Order Step-Up Tier 1....... $0.0033 (Tape A, Tape B and Tape C).
Retail Order Step-Up Tier 2....... $0.0035 (Tape A, Tape B and Tape C).
------------------------------------------------------------------------
Under the Retail Order Step-Up Tier 1, 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 April 2018, it is
eligible to earn higher credits. Specifically, to qualify for the
credit under Retail Order Step-Up Tier 1, an ETP Holder must execute an
average daily volume (ADV) per month of Retail Orders with a time-in-
force of Day that add or remove liquidity that is an increase of 0.12%
or more of the US CADV above their April 2018 ADV taken as a percentage
of US CADV.
Currently, if an ETP Holder meets the Retail Order Step-Up Tier 1
requirement, such ETP Holder is eligible to earn a credit of $0.0033
per share for Retail Orders that provide displayed liquidity to the
Book in Tape A, Tape B and Tape C securities, and is not charged a fee
for Retail Orders with a time-in-force of Day that remove
liquidity.\16\
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 83268 (May 17,
2018), 83 FR 23983 (May 23, 2018) (SR-NYSEArca-2018-34).
---------------------------------------------------------------------------
Under Retail Order Step-Up Tier 2, if an ETP Holder increases its
providing liquidity by a specified percentage over the US CADV, and the
ETP Holder increases its providing liquidity on the Exchange by a
specified percentage over the level that such ETP Holder provided
liquidity in April 2018, it is eligible to earn higher credits.
Specifically, ETP Holders that provide liquidity an ADV per month of
1.10% or more of the US CADV, and execute an ADV of Retail Orders with
a time-in-force of Day that add or remove liquidity during the month
that is an increase of 0.35% or more of the US CADV above their April
2018 ADV taken as a percentage of US CADV are eligible for the per
share credit under the Retail Order Step-Up Tier 2 pricing tier.
Currently, if an ETP Holder meets the Retail Order Step-Up Tier 2
[[Page 3957]]
requirement, such ETP Holder is eligible to earn a credit of $0.0035
per share for Retail Orders that provide displayed liquidity to the
Book in Tape A, Tape B and Tape C securities, and is not charged a fee
for Retail Orders with a time-in-force of Day that remove
liquidity.\17\ Additionally, under Retail Order Step-Up Tier 2, ETP
Holders are eligible to earn a credit of $0.0035 per share for orders
in Tape C securities that provide displayed liquidity, can receive an
incremental credit of $0.0002 per share for orders in Tape C securities
that provide non-displayed liquidity, and are charged a fee of $0.0027
per share for orders in Tape C securities that take liquidity.\18\
---------------------------------------------------------------------------
\17\ See Securities Exchange Act Release No. 83828 (August 10,
2018), 83 FR 40816 (August 16, 2018) (SR-NYSEArca-2018-58).
\18\ Id.
---------------------------------------------------------------------------
With this proposed rule change, the Exchange proposes to introduce
two new pricing tiers, Retail Order Step-Up Tier 3 and Retail Order
Step-Up Tier 4. Under proposed Retail Order Step-Up Tier 3, ETP Holders
that execute an ADV of Retail Orders with a time-in-force of Day that
add or remove liquidity during the month that is an increase of 0.10%
or more of the US CADV above their April 2018 ADV taken as a percentage
of US CADV, would receive a credit of $0.0035 per share for Retail
Orders that provide displayed liquidity in Tape A, Tape B and Tape C
securities. Retail Orders with a time-in-force designation of Day that
remove liquidity from the Book will not be charged a fee. The Exchange
notes that proposed Retail Order Step-Up Tier 3 provides the same level
of credit for Retail Orders that provide displayed liquidity to the
Book in Tapes A, B and C securities payable under the current Retail
Order Step-Up Tier 2 but proposes a lower requirement to qualify for
the credit. Proposed Retail Order Step-Up Tier 3 also does not provide
the incremental $0.0002 per share credit in Tape C securities for
orders that provide non-displayed liquidity to the Book, the $0.0035
per share credits for non-Retail Orders that provide displayed
liquidity to the Book in Tape C Securities, or the $0.0027 per share
fee applicable for orders in Tape C securities that take liquidity, all
of which are currently payable under Retail Order Step-Up Tier 2.
For example, assume an ETP holder has an ADV of 7 million shares in
Retail Orders with a time-in-force of Day that add or remove liquidity
in April 2018 when US CADV was 7 billion shares, or 0.10% of US CADV.
If that same ETP Holder has an ADV of at least 14 million shares in
Retail Orders with a time-in-force of Day that add or remove liquidity
in the billing month when US CADV was also 7 billion shares, or 0.20%
of US CADV, for a step up of 0.10% of US CADV, that ETP holder would
qualify for Retail Order Step-Up Tier 3 credit of $0.0035 per share.
Under proposed Retail Order Step-Up Tier 4, ETP Holders that
execute an ADV of Retail Orders with a time-in-force of Day that add or
remove liquidity during the month that is an increase of 0.20% or more
of the US CADV above their April 2018 ADV taken as a percentage of US
CADV, would receive a credit of $0.0036 per share for Retail Orders
that provide displayed liquidity in Tape A, Tape B and Tape C
securities. Retail Orders with a time-in-force designation of Day that
remove liquidity from the Book will not be charged a fee.
For example, assume the ETP holder in the previous example has an
ADV of at least 21 million shares in Retail Orders with a time-in-force
of Day that add or remove liquidity in the billing month when US CADV
was 7 billion shares, or 0.30% of US CADV, for a step up of 0.20% of US
CADV, then that ETP holder would qualify for Retail Order Step-Up Tier
4 credit of $0.0036 per share.
With this proposed rule change, the following credits would be
available to ETP Holders that provide increased levels of displayed
liquidity in Retail Orders on the Exchange:
------------------------------------------------------------------------
Credit for providing displayed
Tier liquidity in retail orders
------------------------------------------------------------------------
Retail Order Step-Up Tier 1....... $0.0033 (Tape A, Tape B and Tape C).
Retail Order Step-Up Tier 2....... $0.0035 (Tape A, Tape B and Tape C).
Retail Order Step-Up Tier 3....... $0.0035 (Tape A, Tape B and Tape C).
Retail Order Step-Up Tier 4....... $0.0036 (Tape A, Tape B and Tape C).
------------------------------------------------------------------------
For all other fees and credits, tiered or basic rates apply based
on a firm's qualifying levels.
The purpose of the proposed rule change is to encourage even
greater participation from ETP Holders and promote additional liquidity
in Retail Orders. As described above, ETP Holders with liquidity-
providing orders have a choice of where to send those orders. The
Exchange believes that if it adopts the proposed credits, more ETP
Holders will choose to route their liquidity-providing Retail Orders to
the Exchange to qualify for the credits.
The Exchange does not know how much Retail Order flow ETP Holders
choose to route to other exchanges or to off-exchange venues. While the
proposed Retail Order Step-Up Tier 3 and Tier 4 pricing tiers would be
available to all ETP Holders, no ETP Holder currently qualifies given
the pricing tiers are new.\19\ 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 sending more of their Retail Orders to the Exchange to
qualify for the proposed Retail Order Step-Up Tier 3 and Tier 4
credits. The Exchange cannot predict with certainty how many ETP
Holders would avail themselves of this opportunity but additional
liquidity-providing Retail Orders would benefit all market participants
because it would provide greater execution opportunities on the
Exchange.
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\19\ As of December 27, 2019, there are 12 ETP Holders on the
Exchange that provide liquidity that could qualify for the
Exchange's Retail Step-Up pricing tiers.
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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,\20\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\21\ 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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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(4) and (5).
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[[Page 3958]]
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.'' \22\
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\22\ 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.''
\23\ Indeed, equity trading is currently dispersed across 13
exchanges,\24\ 31 alternative trading systems,\25\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow. As
noted above, no exchange possesses significant pricing power in the
execution of equity order flow.
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\23\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Final Rule).
\24\ See Cboe Global Markets, U.S Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
\25\ 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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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
products, in response to fee changes. With respect to non-marketable
orders 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.
As noted above, the competition for Retail Order flow is stark
given the amount of retail limit orders that are routed to non-exchange
venues. 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 products, in response to fee changes. This competition is
particularly acute for non-marketable, or limit, retail orders, i.e.,
retail orders that can provide liquidity on an exchange. That
competition is even more fierce for retail limit orders that provide
displayed liquidity on an exchange. Accordingly, competitive forces
constrain exchange transaction fees, particularly as they relate to
competing for retail orders.
The Exchange believes the proposed change to adopt the Retail Order
Step-Up Tier 3 and Retail Order Step-Up Tier 4 pricing tiers is
reasonable because it would provide ETP Holders with additional
incentives to send a greater number of Retail Orders to the Exchange.
The proposed change to adopt Retail Order Step-Up Tier 3 would allow
ETP Holders an alternative way to qualify for the $0.0035 per share
credit that is currently available under Retail Order Step-Up Tier 2.
The Exchange believes the proposed change is reasonable because the
proposed credits would continue to encourage ETP Holders to send Retail
Orders to the Exchange to qualify for the proposed pricing tiers. As
noted above, the Exchange operates in a highly competitive environment,
particularly for attracting Retail Order flow that provides displayed
liquidity on an exchange. The Exchange believes it is reasonable to
continue to provide credits in general, and higher credits, with
respect to the Retail Order Step-Up Tier 4 pricing tier, for Retail
Orders that provide displayed liquidity if an ETP Holder meets the
qualifications for the proposed pricing tiers.
Further, given the competitive market for attracting Retail Orders,
the Exchange notes that with this proposed rule change, the Exchange's
pricing for Retail Orders would be comparable to credits currently in
place on other exchanges that the Exchange competes with for order
flow. For example, the Nasdaq Stock Market LLC (``Nasdaq'') provides
its members with a credit of $0.0033 per share if such member has an
85% add to total volume (adding liquidity and removing liquidity) ratio
during a billing month.\26\ Cboe BZX Exchange, Inc. (``BZX'') provides
its members with a credit of $0.0032 per share for retail orders that
add liquidity to that market.\27\ In addition, Cboe EDGX Exchange, Inc.
(`EDGX'') provides its members with a credit of $0.0037 per share for
retail orders that add liquidity to that market if an EDGX member adds
liquidity in Retail Orders of 0.50% of CADV or more.\28\
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\26\ See Nasdaq Price List, Rebate to Add Displayed Designated
Retail Liquidity, at https://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
\27\ See BZX Fee Schedule, Fee Codes and Associated Fees, at
https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
\28\ See EDGX Fee Schedule, Fee Codes and Associated Fees, at
https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/.
---------------------------------------------------------------------------
The Exchange believes the proposed change is also reasonable
because it is designed to attract higher volumes of Retail Orders
transacted on the Exchange by ETP Holders which would benefit all
market participants by offering greater price discovery, increased
transparency, and an increased opportunity to trade on the Exchange.
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 that the proposed rule change to adopt Retail
Order Step-Up Tier 3 and Retail Order Step-Up Tier 4 equitably
allocates fees among its market participants because it is reasonably
related to the value of the Exchange's market quality associated with
higher volume in Retail Orders. The Exchange notes that currently 12
firms submit Retail Orders that add liquidity on the Exchange and of
those 12 firms, the Exchange anticipates that as many as five \29\ of
those firms could meet, or would reasonably be able to meet, the
proposed criteria and qualify for the credits and fees if those firms
directed more of their Retail Orders to the Exchange. The Exchange
believes that pricing is just one of the factors that ETP Holders
consider when determining where to direct their order flow. Among other
things, factors such as execution quality, fill rates, and volatility,
are important and deterministic to ETP Holders in deciding where to
send their order flow.
---------------------------------------------------------------------------
\29\ These five firms have historically submitted the most
amount of Retail Orders to the Exchange. The Exchange believes each
of these firms would qualify for the proposed pricing tiers if each
were to submit all, or most of all, its Retail Orders to the
Exchange, rather than to a competitor.
---------------------------------------------------------------------------
Further, the Exchange notes that, with this proposed rule change,
the
[[Page 3959]]
difference between the highest credit provided for Retail Orders,
$0.0036 per share, as proposed, and the credit for Retail Orders that
do not qualify for any Retail Order pricing tiers, $0.0030 per share,
is $0.0006, or 17%, which the Exchange believes is small given the
requirements that ETP Holders must meet to qualify for the higher
credit. Similarly, with this proposed rule change, the difference in
the highest credit for Retail Orders, $0.0036 per share, as proposed,
and the credit provided for Retail Orders to those ETP Holders
qualifying for the Retail Order Tier or Retail Order Step-Up Tier 1,
$0.0033 per share, would only be $0.0003 per share, or 9%. Therefore,
the Exchange believes the proposed Retail Order Step-Up Tier 3 and
Retail Order Step-Up Tier 4 pricing tiers are equitably allocated and
provide discounts that are reasonably related to the value to the
Exchange's market quality associated with higher volumes. In today's
competitive marketplace, order flow providers have a choice of where to
direct liquidity-providing order flow, and while only three ETP Holders
have qualified to date for the current Retail Order pricing tiers, the
Exchange believes there are additional ETP Holders that could qualify
if they chose to direct their order flow to the Exchange.
Finally, the Exchange believes that the proposed Retail Order Step-
Up Tier 3 and Retail Order Step-Up Tier 4 pricing tiers are equitable
because the magnitude of the proposed credits is not unreasonably high
relative to credits paid by other exchanges for orders that provide
additional step up liquidity in Retail Orders.\30\ The Exchange
believes the proposed rule change would improve market quality for all
market participants on the Exchange and, as a consequence, attract more
Retail Orders to the Exchange, thereby improving market-wide quality
and price discovery.
---------------------------------------------------------------------------
\30\ See notes 26-28, supra.
---------------------------------------------------------------------------
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 Retail Order Step-Up
pricing tiers on the Exchange will continue to receive credits when
they provide liquidity to 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 Exchange believes it is not unfairly discriminatory to provide
a higher per share step-up credit for Retail Orders, as the proposed
credit would be provided on an equal basis to all ETP Holders that add
liquidity by meeting the requirements of the proposed Retail Order
Step-Up Tier 3 and Retail Order Step-Up Tier 4. Further, the Exchange
believes the proposed increased per share credits would incentivize ETP
Holders that meet the current tiered requirements to send more of their
Retail Orders to the Exchange to qualify for increased 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,\31\ 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.'' \32\
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\31\ 15 U.S.C. 78f(b)(8).
\32\ 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 Exchange believes the proposed rule
change does not impose any burden on intramarket competition that is
not necessary or appropriate in furtherance of the purposes of the Act.
Particularly, the proposed change applies to all ETP Holders equally in
that all ETP Holders are eligible for the proposed tiers, have a
reasonable opportunity to meet each tier's criteria and will all
receive the proposed rebate if such criteria is met. Additionally, the
proposed change is designed to attract additional order flow to the
Exchange. The Exchange believes that the proposed new Retail Order
Step-Up pricing tiers would continue to incentivize market participants
to submit orders that qualify as Retail Orders to the Exchange. Greater
liquidity benefits all market 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 credits would be available 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 believes the proposed rule
change does not impose any burden on intermarket competition that is
not necessary or appropriate in furtherance of the purposes of the Act.
The Exchange operates in a highly competitive market in which market
participants can readily choose to send their orders to other exchanges
and off-exchange venues if they deem fee levels at those other venues
to be more favorable. As noted above, the Exchange's market share of
intraday trading (i.e., excluding auctions) was 7.6% in November 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
this proposed fee change would 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.
[[Page 3960]]
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) \33\ of the Act and subparagraph (f)(2) of Rule
19b-4 \34\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\33\ 15 U.S.C. 78s(b)(3)(A).
\34\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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) \35\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\35\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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-2020-05 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-2020-05. 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 such 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-NYSEArca-2020-05, and should be
submitted on or before February 13, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-01038 Filed 1-22-20; 8:45 am]
BILLING CODE 8011-01-P
