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, 9505-9510 [2020-03183]
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Federal Register / Vol. 85, No. 33 / Wednesday, February 19, 2020 / Notices
comment in the Federal Register on
August 20, 2019. The 180th day after
publication of the Notice is February 16,
2020, and April 16, 2020 is an
additional 60 days from that date.
The Commission finds it appropriate
to designate a longer period within
which to issue an order approving or
disapproving the proposed rule change
so that it has sufficient time to consider
the proposed rule change. Accordingly,
the Commission, pursuant to Section
19(b)(2) of the Act,8 designates April 16,
2020 as the date by which the
Commission shall either approve or
disapprove the proposed rule change
(File No. SR–CboeBYX–2019–012).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–03181 Filed 2–18–20; 8:45 am]
BILLING CODE 8011–01–P
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
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88181; File No. SR–
NYSEARCA–2020–10]
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
February 12, 2020.
khammond on DSKJM1Z7X2PROD with NOTICES
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 February
3, 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 Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE Arca Equities Fees and Charges
(‘‘Fee Schedule’’) to amend the Retail
Order Step-Up Tier 2 pricing tier. The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
8 Id.
9 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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The Exchange proposes to amend the
Fee Schedule to amend the Retail Order
Step-Up Tier 2 pricing 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 4 to send additional
displayed liquidity to the Exchange.
The Exchange proposes to implement
the fee changes effective February 3,
2020.
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.’’ 5
As the Commission itself recognized,
the market for trading services in NMS
stocks has become ‘‘more fragmented
and competitive.’’ 6 Indeed, equity
trading is currently dispersed across 13
4 All references to ETP Holders in connection
with this proposed fee change include Market
Makers.
5 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
6 See Securities Exchange Act Release No. 51808,
84 FR 5202, 5253 (February 20, 2019) (File No. S7–
05–18) (Final Rule).
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9505
exchanges,7 31 alternative trading
systems,8 and numerous broker-dealer
internalizers and wholesalers, all
competing for order flow. Based on
publicly-available information, no
single exchange currently has more than
20% market share (whether including or
excluding auction volume).9 Therefore,
no exchange possesses significant
pricing power in the execution of equity
order flow. More specifically, the
Exchange currently has less than 10%
market share of executed volume of
equity trades (excluding auction
volume).10
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 11 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.12
Similarly, E-Trade Financial and
Charles Schwab routed more than 73%
and more than 97%,13 respectively, of
its limit orders to off-exchange venues.
With respect to non-marketable order
7 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/divisionsmarketregmr
exchangesshtml.html.
8 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.
9 See Cboe Global Markets U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
10 See id.
11 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).
12 See https://www.tdameritrade.com/retail-en_
us/resources/pdf/AMTD2054.pdf.
13 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.
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Federal Register / Vol. 85, No. 33 / Wednesday, February 19, 2020 / Notices
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 to amend the
volume requirements and the associated
per share credit payable for Retail
Orders that provide liquidity in Tape A,
Tape B and Tape C securities.
In this competitive environment, the
Exchange has already established Retail
Order Step-Up Tiers 1, 2, 3 and 4, 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 liquidity
in retail orders
Tier
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Retail
Retail
Retail
Retail
Order
Order
Order
Order
Step-Up
Step-Up
Step-Up
Step-Up
Tier
Tier
Tier
Tier
1
2
3
4
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
Generally, under the Retail Order
step-up pricing tiers, if an ETP Holder
increases its retail liquidity, it is eligible
to earn higher credits and lower fees.
Under Retail Order Step-Up Tier 1, to
qualify for the Retail Order Step-Up Tier
1 credit, 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 its 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.14
Under Retail Order Step-Up Tier 2,
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 requirement, such ETP Holder is
eligible to earn a credit of $0.0035 per
share for Retail Orders that provide
14 See Securities Exchange Act Release No. 83268
(May 17, 2018), 83 FR 23983 (May 23, 2018) (SR–
NYSEArca–2018–34).
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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.15 Additionally, under Retail
Order Step-Up Tier 2, ETP Holders can
earn an incremental credit of $0.0002
per share for orders in Tape C securities
that provide non-displayed liquidity in
addition to a credit of $0.0035 per share
for orders in Tape C securities that
provide displayed liquidity to the Book,
and [sic] a fee of $0.0027 per share for
orders in Tape C securities that take
liquidity from the Book.
Under Retail Order Step-Up Tier 3,16
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, are eligible to 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
15 See Securities Exchange Act Release No. 83828
(August 10, 2018), 83 FR 40816 (August 16, 2018)
(SR–NYSEArca–2018–58). 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. The Exchange
is not proposing any change to this aspect of Retail
Order Step-Up Tier 2 with this proposed rule
change.
16 See Securities Exchange Act Release No. 87994
(January 16, 2020), 85 FR 3955 (January 23, 2020)
(SR–NYSEArca–2020–05).
PO 00000
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$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).
of Day that remove liquidity from the
Book are not charged a fee. The 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 has a lower requirement to
qualify for the credit. Retail Order StepUp 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.
Under Retail Order Step-Up Tier 4,17
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, are eligible to 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 are not charged a fee.
With this proposed rule change, the
Exchange proposes to amend the
volume requirements and the associated
per share credit payable under Retail
17 See
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Federal Register / Vol. 85, No. 33 / Wednesday, February 19, 2020 / Notices
Order Step-Up Tier 2. More specifically,
the Exchange proposes to amend the
average share volume requirement that
ETP Holders are required to meet, from
1.10% or more of US CADV to 1.00%
or more of US CADV. Additionally, the
Exchange proposes to amend the
amount of Retail Orders that ETP
Holders are required to execute from an
increase over their April 2018 ADV of
0.35% or more to an increase over their
April 2018 ADV of 0.40% or more.
Finally, the Exchange proposes to
increase the credit payable under Retail
Order Step-Up Tier 2 from $0.0035 per
share to $0.0038 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
Tier
khammond on DSKJM1Z7X2PROD with NOTICES
Retail
Retail
Retail
Retail
Order
Order
Order
Order
Step-Up
Step-Up
Step-Up
Step-Up
Tier
Tier
Tier
Tier
1
2
3
4
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
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 the
proposed amendment to the volume
requirement and credit payable under
Retail Order Step-Up Tier 2 could lead
to more ETP Holders choosing to route
their liquidity-providing Retail Orders
to the Exchange rather than to a
competing exchange.
The Exchange does not know how
much Retail Order flow ETP Holders
choose to route to other exchanges or to
off-exchange venues. 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 2 credit.
Currently, no ETP Holders qualify for
Retail Order Step-Up Tier 2.18 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.
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.
18 As of January 31, 2020, there are 13 ETP
Holders on the Exchange that provide liquidity that
could qualify for the Exchange’s Retail Step-Up
pricing tiers.
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2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,19 in general, and
furthers the objectives of Sections
6(b)(4) and (5) of the Act,20 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.’’ 21
As the Commission itself recognized,
the market for trading services in NMS
stocks has become ‘‘more fragmented
and competitive.’’ 22 Indeed, equity
trading is currently dispersed across 13
exchanges,23 31 alternative trading
systems,24 and numerous broker-dealer
19 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
21 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
22 See Securities Exchange Act Release No. 51808,
84 FR 5202, 5253 (February 20, 2019) (File No. S7–
05–18) (Final Rule).
23 See Cboe Global Markets, U.S Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
24 See FINRA ATS Transparency Data, available
at https://otctransparency.finra.org/
otctransparency/AtsIssueData. A list of alternative
trading systems registered with the Commission is
20 15
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$0.0033
$0.0038
$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).
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
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,
available at https://www.sec.gov/foia/docs/
atslist.htm.
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Federal Register / Vol. 85, No. 33 / Wednesday, February 19, 2020 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
particularly as they relate to competing
for retail orders.
The Exchange believes the proposed
change to the Retail Order Step-Up Tier
2 pricing tier is reasonable because it
would provide ETP Holders with
additional incentives to send a greater
number of Retail Orders to the
Exchange. The Exchange believes that
the proposed amendment to qualify for
the tier utilizing a higher Retail Order
requirement and a lower liquidity
providing ADV is reasonable because
the proposal would provide firms with
greater incentive to reach retail order
volume tiers, thereby creating an added
incentive for ETP Holders to bring
additional retail order flow to a public
market. The Exchange believes the
proposed change is reasonable because
the increased credit proposed herein
would continue to encourage ETP
Holders to send Retail Orders to the
Exchange to qualify for the pricing tier.
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, for
Retail Orders that provide displayed
liquidity if an ETP Holder meets the
amended qualifications for the pricing
tier.
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.25 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.26 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.27
25 See Nasdaq Price List, Rebate to Add Displayed
Designated Retail Liquidity, at https://
nasdaqtrader.com/Trader.aspx?id=
PriceListTrading2.
26 See BZX Fee Schedule, Fee Codes and
Associated Fees, at https://markets.cboe.com/us/
equities/membership/fee_schedule/bzx/.
27 See EDGX Fee Schedule, Fee Codes and
Associated Fees, at https://markets.cboe.com/us/
equities/membership/fee_schedule/edgx/.
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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 amend the
requirement and credit payable under
Retail Order Step-Up Tier 2 equitably
allocates fees and credits 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 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
difference between the highest credit
provided for Retail Orders, $0.0038 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 $0.0008, or 21%, which the
Exchange believes is relatively small
given the heightened 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,
$0.0038 per share, as proposed, and the
credit provided for Retail Orders to
those ETP Holders qualifying for the
Retail Order Tier or Retail Order StepUp Tier 1, $0.0033 per share, would
only be $0.0005 per share, or 13%.
Therefore, the Exchange believes the
proposed amendment to the Retail
Order Step-Up Tier 2 pricing tier is
equitably allocated and provides credits
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
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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 amendment to the Retail
Order Step-Up Tier 2 pricing tier is
equitable because the magnitude of the
proposed credit is not unreasonably
high relative to credits paid by other
exchanges for orders that provide
additional step up liquidity in Retail
Orders.28 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
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 amended requirements of the Retail
Order Step-Up Tier 2. 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
28 See
E:\FR\FM\19FEN1.SGM
notes 25–27, supra.
19FEN1
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khammond on DSKJM1Z7X2PROD with NOTICES
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,29 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.’’ 30
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 pricing tier, have a
reasonable opportunity to meet the 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 amendment to Retail
Order Step-Up Tier 2 pricing tier 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 amended
pricing tier 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.
29 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).
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) is
currently less than 10%. 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.
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) 31 of the Act and
subparagraph (f)(2) of Rule 19b–4 32
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) 33 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–2020–10 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–2020–10. 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
30 See
VerDate Sep<11>2014
17:51 Feb 18, 2020
Jkt 250001
31 15
32 17
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
Frm 00059
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Sfmt 4703
9509
33 15
34 17
E:\FR\FM\19FEN1.SGM
U.S.C. 78s(b)(2)(B).
CFR 200.30–3(a)(12).
19FEN1
9510
Federal Register / Vol. 85, No. 33 / Wednesday, February 19, 2020 / Notices
Number SR–NYSEARCA–2020–10 and
should be submitted on or before March
11, 2020.
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
J. Matthew DeLesDernier,
Assistant Secretary.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2020–03183 Filed 2–18–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88182; File No. SR–
NYSEArca–2020–11]
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
February 12, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
3, 2020, 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.
khammond on DSKJM1Z7X2PROD with NOTICES
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’’). The Exchange
proposes to implement the fee changes
effective February 3, 2020. 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,
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
VerDate Sep<11>2014
17:51 Feb 18, 2020
Jkt 250001
1. Purpose
The Exchange proposes to amend the
Fee Schedule regarding the Exchange’s
tiered-rebate structure applicable to
Lead Market Makers (‘‘LMMs’’),3 and to
ETP 4 Holders affiliated with such LMM,
that provide displayed liquidity in Tape
B securities to the NYSE Arca Book.
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 and LMMs to send
additional displayed liquidity to the
Exchange.
The Exchange proposes to implement
the fee changes effective February 3,
2020.
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.’’ 5
As the Commission itself recognized,
the market for trading services in NMS
stocks has become ‘‘more fragmented
and competitive.’’ 6 Indeed, equity
trading is currently dispersed across 13
exchanges,7 31 alternative trading
systems,8 and numerous broker-dealer
3 The term ‘‘Lead Market Maker’’ is defined in
Rule 1.1(w) to mean a registered Market Maker that
is the exclusive Designated Market Maker in listings
for which the Exchange is the primary market.
4 All references to ETP Holders in connection
with this proposed fee change include Market
Makers.
5 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
6 See Securities Exchange Act Release No. 51808,
84 FR 5202, 5253 (February 20, 2019) (File No. S7–
05–18) (Final Rule).
7 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/divisionsmarketregmr
exchangesshtml.html.
8 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.
PO 00000
Frm 00060
Fmt 4703
Sfmt 4703
internalizers and wholesalers, all
competing for order flow. Based on
publicly-available information, no
single exchange currently has more than
20% market share (whether including or
excluding auction volume).9 Therefore,
no exchange possesses significant
pricing power in the execution of equity
order flow. More specifically, the
Exchange currently has less than 10%
market share of executed volume of
equity.10
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 and LMMs 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 and
LMMs on the Exchange and is intended
to provide ETP Holders and LMMs an
opportunity to receive enhanced rebates
by quoting and trading more on the
Exchange.
The Exchange currently provides tierbased incremental credits for orders that
provide displayed liquidity in Tape B
securities to the NYSE Arca Book.11
Specifically, LMMs that are registered as
the LMM in Tape B securities that have
a consolidated average daily volume
(‘‘CADV’’) in the previous month of less
than 100,000 shares, or 0.010% of
Consolidated Tape B ADV, whichever is
greater (‘‘Less Active ETP Securities’’),
and the ETP Holders affiliated with
such LMMs, currently receive an
incremental credit for orders that
9 See Cboe Global Markets U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
10 See id.
11 See Securities Exchange Act Release Nos.
76084 (October 6, 2015), 80 FR 61529 (October 13,
2015) (SR–NYSEArca–2015–87); 79597 (December
19, 2016), 81 FR 94460 (December 23, 2016) (SR–
NYSEArca–2016–165); and 85094 (February 11,
2019), 84 FR 4579 (February 15, 2019) (SR–
NYSEArca–2019–05).
E:\FR\FM\19FEN1.SGM
19FEN1
]]>Agencies
[Federal Register Volume 85, Number 33 (Wednesday, February 19, 2020)]
[Notices]
[Pages 9505-9510]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03183]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88181; File No. SR-NYSEARCA-2020-10]
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
February 12, 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 February 3, 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 Substance
of the Proposed Rule Change
The Exchange proposes to amend the NYSE Arca Equities Fees and
Charges (``Fee Schedule'') to amend the Retail Order Step-Up Tier 2
pricing tier. 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 amend the Retail
Order Step-Up Tier 2 pricing 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 \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
February 3, 2020.
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.'' \5\
---------------------------------------------------------------------------
\5\ 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.''
\6\ Indeed, equity trading is currently dispersed across 13
exchanges,\7\ 31 alternative trading systems,\8\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow.
Based on publicly-available information, no single exchange currently
has more than 20% market share (whether including or excluding auction
volume).\9\ Therefore, no exchange possesses significant pricing power
in the execution of equity order flow. More specifically, the Exchange
currently has less than 10% market share of executed volume of equity
trades (excluding auction volume).\10\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Final Rule).
\7\ 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.
\8\ 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.
\9\ See Cboe Global Markets U.S. Equities Market Volume Summary,
available at https://markets.cboe.com/us/equities/market_share/.
\10\ 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
\11\ 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.\12\ Similarly, E-Trade
Financial and Charles Schwab routed more than 73% and more than
97%,\13\ respectively, of its limit orders to off-exchange venues. With
respect to non-marketable order
[[Page 9506]]
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.
---------------------------------------------------------------------------
\11\ 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).
\12\ See https://www.tdameritrade.com/retail-en_us/resources/pdf/AMTD2054.pdf.
\13\ 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 to
amend the volume requirements and the associated per share credit
payable for Retail Orders that provide liquidity in Tape A, Tape B and
Tape C securities.
In this competitive environment, the Exchange has already
established Retail Order Step-Up Tiers 1, 2, 3 and 4, 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:
----------------------------------------------------------------------------------------------------------------
Tier Credit for providing displayed 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).
----------------------------------------------------------------------------------------------------------------
Generally, under the Retail Order step-up pricing tiers, if an ETP
Holder increases its retail liquidity, it is eligible to earn higher
credits and lower fees.
Under Retail Order Step-Up Tier 1, to qualify for the Retail Order
Step-Up Tier 1 credit, 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 its 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.\14\
---------------------------------------------------------------------------
\14\ 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, 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 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.\15\ Additionally, under Retail Order Step-Up Tier 2, ETP
Holders can earn an incremental credit of $0.0002 per share for orders
in Tape C securities that provide non-displayed liquidity in addition
to a credit of $0.0035 per share for orders in Tape C securities that
provide displayed liquidity to the Book, and [sic] a fee of $0.0027 per
share for orders in Tape C securities that take liquidity from the
Book.
---------------------------------------------------------------------------
\15\ See Securities Exchange Act Release No. 83828 (August 10,
2018), 83 FR 40816 (August 16, 2018) (SR-NYSEArca-2018-58).
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. The Exchange is not proposing any change to this aspect
of Retail Order Step-Up Tier 2 with this proposed rule change.
---------------------------------------------------------------------------
Under Retail Order Step-Up Tier 3,\16\ 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,
are eligible to 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 are not charged a fee. The 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 has a lower
requirement to qualify for the credit. 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.
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 87994 (January 16,
2020), 85 FR 3955 (January 23, 2020) (SR-NYSEArca-2020-05).
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Under Retail Order Step-Up Tier 4,\17\ 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,
are eligible to 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 are not charged a fee.
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\17\ See id.
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With this proposed rule change, the Exchange proposes to amend the
volume requirements and the associated per share credit payable under
Retail
[[Page 9507]]
Order Step-Up Tier 2. More specifically, the Exchange proposes to amend
the average share volume requirement that ETP Holders are required to
meet, from 1.10% or more of US CADV to 1.00% or more of US CADV.
Additionally, the Exchange proposes to amend the amount of Retail
Orders that ETP Holders are required to execute from an increase over
their April 2018 ADV of 0.35% or more to an increase over their April
2018 ADV of 0.40% or more. Finally, the Exchange proposes to increase
the credit payable under Retail Order Step-Up Tier 2 from $0.0035 per
share to $0.0038 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:
----------------------------------------------------------------------------------------------------------------
Tier Credit for providing displayed 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.................. $0.0038 (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 the proposed amendment to the volume requirement
and credit payable under Retail Order Step-Up Tier 2 could lead to more
ETP Holders choosing to route their liquidity-providing Retail Orders
to the Exchange rather than to a competing exchange.
The Exchange does not know how much Retail Order flow ETP Holders
choose to route to other exchanges or to off-exchange venues. 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 2 credit. Currently, no ETP Holders qualify for
Retail Order Step-Up Tier 2.\18\ 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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\18\ As of January 31, 2020, there are 13 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,\19\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\20\ 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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\19\ 15 U.S.C. 78f(b).
\20\ 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.'' \21\
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\21\ 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.''
\22\ Indeed, equity trading is currently dispersed across 13
exchanges,\23\ 31 alternative trading systems,\24\ 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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\22\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Final Rule).
\23\ See Cboe Global Markets, U.S Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
\24\ 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,
[[Page 9508]]
particularly as they relate to competing for retail orders.
The Exchange believes the proposed change to the Retail Order Step-
Up Tier 2 pricing tier is reasonable because it would provide ETP
Holders with additional incentives to send a greater number of Retail
Orders to the Exchange. The Exchange believes that the proposed
amendment to qualify for the tier utilizing a higher Retail Order
requirement and a lower liquidity providing ADV is reasonable because
the proposal would provide firms with greater incentive to reach retail
order volume tiers, thereby creating an added incentive for ETP Holders
to bring additional retail order flow to a public market. The Exchange
believes the proposed change is reasonable because the increased credit
proposed herein would continue to encourage ETP Holders to send Retail
Orders to the Exchange to qualify for the pricing tier. 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, for Retail Orders that
provide displayed liquidity if an ETP Holder meets the amended
qualifications for the pricing tier.
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.\25\ 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.\26\ 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.\27\
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\25\ See Nasdaq Price List, Rebate to Add Displayed Designated
Retail Liquidity, at https://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
\26\ See BZX Fee Schedule, Fee Codes and Associated Fees, at
https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
\27\ See EDGX Fee Schedule, Fee Codes and Associated Fees, at
https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/.
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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 amend the
requirement and credit payable under Retail Order Step-Up Tier 2
equitably allocates fees and credits 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
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 difference between the highest credit provided for Retail Orders,
$0.0038 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 $0.0008, or 21%, which the Exchange believes is relatively small
given the heightened 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, $0.0038 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 $0.0005 per share, or 13%.
Therefore, the Exchange believes the proposed amendment to the Retail
Order Step-Up Tier 2 pricing tier is equitably allocated and provides
credits 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 amendment to the
Retail Order Step-Up Tier 2 pricing tier is equitable because the
magnitude of the proposed credit is not unreasonably high relative to
credits paid by other exchanges for orders that provide additional step
up liquidity in Retail Orders.\28\ 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.
---------------------------------------------------------------------------
\28\ See notes 25-27, 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 amended requirements of the Retail Order Step-
Up Tier 2. 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
[[Page 9509]]
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,\29\ 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.'' \30\
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\29\ 15 U.S.C. 78f(b)(8).
\30\ 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 pricing tier, have a
reasonable opportunity to meet the 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 amendment to Retail Order Step-
Up Tier 2 pricing tier 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 amended pricing
tier 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) is currently less than 10%.
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.
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) \31\ of the Act and subparagraph (f)(2) of Rule
19b-4 \32\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78s(b)(3)(A).
\32\ 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) \33\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\33\ 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-2020-10 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-2020-10. 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
[[Page 9510]]
Number SR-NYSEARCA-2020-10 and should be submitted on or before March
11, 2020.
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\34\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-03183 Filed 2-18-20; 8:45 am]
BILLING CODE 8011-01-P
