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, 17112-17119 [2020-06298]
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Federal Register / Vol. 85, No. 59 / Thursday, March 26, 2020 / Notices
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange notes that waiver
of the operative delay would allow it to
implement the proposal immediately
and would allow investors and the
public to immediately benefit from the
Exchange’s revised opening process.
Further, the Exchange states that the
proposed rule amendments are
substantially similar to those currently
in place on other options exchanges.62
The Commission believes the proposal
raises no novel or unique regulatory
issues. The Commission finds that it is
consistent with the protection of
investors and the public interest to
waive the 30-day operative delay.
Accordingly, the Commission hereby
waives the operative delay and
designates the proposal operative upon
filing.63
At any time within 60 days of the
filing of the 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
to determine whether the proposed rule
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:
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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–
MIAX–2020–04 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–MIAX–2020–04. This file
62 See,
e.g., supra notes 6,7, 9, 32–34, 40–41.
purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
63 For
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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–MIAX–2020–04 and should
be submitted on or before April 16,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.64
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–06386 Filed 3–25–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88436; File No. SR–
NYSEArca–2020–21]
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
March 20, 2020.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’),2 and Rule 19b–4 thereunder,3
notice is hereby given that on March 11,
64 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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2020, NYSE Arca, Inc. (‘‘NYSE Arca’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE Arca Equities Fees and Charges
(‘‘Fee Schedule’’) to (1) amend the
requirement to qualify for the Tape B
Tier 1 pricing tier; (2) amend the per
share fee for PO Orders routed to the
Nasdaq Stock Market LLC; (3) adopt a
per share fee for PO Orders routed to
Cboe BZX Exchange, Inc.; (4) adopt a
cap applicable to the Step Up Tier 4
credit in Tape B securities; and (5)
amend the requirement to qualify for the
tiered-rebate structure applicable to
Lead Market Makers and to ETP Holders
affiliated with such Lead Market
Makers. 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 (1) amend the
requirement to qualify for the Tape B
Tier 1 pricing tier; (2) amend the per
share fee for Primary Only (‘‘PO’’)
Orders 4 routed to the Nasdaq Stock
4 A PO Order is a Market or Limit Order that on
arrival is routed directly to the primary listing
market without being assigned a working time or
interacting with interest on the NYSE Arca Book.
See NYSE Arca Rule 7.31–E(f)(1).
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Market LLC (‘‘Nasdaq’’); (3) adopt a per
share fee for PO Orders routed to Cboe
BZX Exchange, Inc. (‘‘Cboe BZX’’); (4)
adopt a cap applicable to the Step Up
Tier 4 credit in Tape B securities; and
(5) amend the requirement to qualify for
the tiered-rebate structure applicable to
Lead Market Makers (‘‘LMMs’’),5 and to
ETP Holders 6 affiliated with such
LMMs, 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 March 11,
2020.7
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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.’’ 8
As the Commission itself recognized,
the market for trading services in NMS
stocks has become ‘‘more fragmented
and competitive.’’ 9 Indeed, equity
trading is currently dispersed across 13
exchanges,10 numerous alternative
trading systems,11 and broker-dealer
5 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.
6 All references to ETP Holders in connection
with this proposed fee change include Market
Makers.
7 The Exchange originally filed to amend the Fee
Schedule on March 2, 2020 (SR–NYSEArca–2020–
19). SR–NYSEArca–2020–19 was subsequently
withdrawn and replaced by this filing.
8 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
9 See Securities Exchange Act Release No. 51808,
84 FR 5202, 5253 (February 20, 2019) (File No. S7–
05–18) (Final Rule).
10 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.
11 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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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).12 Therefore,
no exchange possesses significant
pricing power in the execution of equity
order flow. More specifically, the
Exchange currently has less than 12%
market share of executed volume of
equity.13
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 on the
Exchange, and with respect to the LMM
credits, the proposed rule change is
designed to be available to all 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.
Tape B Tier 1
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.
Currently, a Tape B Tier 1 credit of
$0.0030 14 per share applies to ETP
Holders that, on a daily basis, measured
12 See Cboe Global Markets U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
13 See id.
14 Under the Basic Rate, ETP Holders receive a
credit of $0.0020 per share for Tape B orders that
provide liquidity to the Book.
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17113
monthly, directly execute providing
volume in Tape B securities that is
equal to at least 1.50% of US Tape B
CADV 15 for the billing month.16
Alternatively, ETP Holders could
qualify for the Tape B Tier 1 credit if an
ETP Holder who is affiliated with an
OTP Holder or OTP Firm that provides
an ADV of electronic posted executions
for the account of a market maker in all
issues on NYSE Arca Options
(excluding mini options) of at least
0.55% of total Customer equity and ETF
option ADV as reported by The Options
Clearing Corporation (‘‘OCC’’) and the
ETP Holder directly executes providing
volume in Tape B securities during the
billing month that is equal to
• at least 1.00% of US Tape B CADV
for the billing month of February 2020.
• at least 1.15% of US Tape B CADV
for the billing month of March 2020.
• at least 1.25% of US Tape B CADV
for the billing month of April 2020 and
each billing month thereafter.17
The Exchange proposes to amend the
1.00% CADV requirement so that it
would continue to apply for an
additional three months, i.e., for each of
March, April and May 2020; amend the
1.15% CADV requirement so that it
would apply during each of June, July
and August 2020, rather than March
2020; and amend the 1.25% CADV
requirement so that it would apply
during the billing month of September
2020 and each month thereafter, rather
than April 2020.
The Exchange is not proposing any
change to the level of credits applicable
under the Tape B Tier 1 pricing tier.
The proposed rule change would
allow a greater number of ETP Holders
to qualify for the pricing tier as the
lower CADV requirement would remain
in place for an additional period of time.
The proposed rule change would
continue to encourage ETP Holders to
promote price discovery and market
quality for the benefit of all market
participants. As noted above, the
Exchange operates in a competitive
environment, particularly as it relates to
attracting non-marketable orders, which
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. 76084
(October 6, 2015), 80 FR 61529 (October 13, 2015)
(SR–NYSEArca–2015–87).
17 See Securities Exchange Act Release No. 88194
(February 13, 2020), 85 FR 9820 (February 20, 2020)
(SR–NYSEArca–2020–12).
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add liquidity to the Exchange. Because,
as proposed, the tier requires an ETP
Holder increase the volume of its trades
against orders that add liquidity in Tape
B securities at increasing levels, the
Exchange believes the current credit
provides an incentive for ETP Holders
to route additional liquidity to the
Exchange in order to qualify for it.
Routing Fees
Currently, under Tier 1, Tier 2 and
Basic Rates sections of the Fee
Schedule, the Exchange currently
charges a per share fee of $0.0010 for PO
Orders in Tape C securities that are
routed to Nasdaq and execute in the
opening or closing auction.18 The
Exchange proposes to increase the fee to
$0.0030 per share and proposes to
streamline the Fee Schedule by
eliminating reference to this routing fee
from Tier 1 and Tier 2 because the
routing fee is not a tier-based fee and
therefore should not be in Tier 1 and
Tier 2.
Additionally, the Exchange proposes
to adopt a fee of $0.0030 per share in the
Basic Rates section of the Fee Schedule
for PO Orders in Tape B securities that
are routed to Cboe BZX for execution in
the opening or closing auction on that
market. The Exchange currently does
not charge a fee for routing PO Orders
to Cboe BZX. The purpose of the
proposed fee is to simplify the Fee
Schedule and maintain consistency
with respect to the fee charged by the
Exchange when it routes orders for
execution in an away market’s auction.
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Step Up Tier 4
The Exchange currently has multiple
levels of step-up pricing tiers, Step Up
Tiers 1–4, which are designed to
encourage ETP Holders that provide
displayed liquidity on the Exchange to
increase that order flow, which would
benefit all ETP Holders by providing
greater execution opportunities on the
Exchange. In order to provide an
incentive for ETP Holders to direct
providing displayed order flow to the
Exchange, the credits increase in the
various tiers based on increased levels
of volume directed to the Exchange.
Currently, the following credits are
available to ETP Holders that provide
increased levels of displayed liquidity
on the Exchange:
Credit for providing
displayed liquidity
Tier
Step Up Tier ......
$0.0030 (Tape A).
$0.0023 (Tape B).
18 See Securities Exchange Act Release No. 62843
(September 3, 2010), 75 FR 55624 (September 13,
2010) (SR–NYSEArca–2010–81).
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Credit for providing
displayed liquidity
Tier
Step Up Tier 2 ...
Step Up Tier 3 ...
Step Up Tier 4 ...
$0.0031
$0.0028
$0.0022
$0.0025
$0.0022
$0.0033
$0.0034
(Tape
(Tape
(Tape
(Tape
(Tape
(Tape
(Tape
C).
A and C).
B).
A and C).
B).
A and C).
B).
Under the Step Up Tier 4, if an ETP
Holder increases its providing liquidity
on the Exchange by a specified
percentage over the level that such ETP
Holder provided liquidity in September
2019, it is eligible to earn higher credits
for providing displayed liquidity.
Specifically, to qualify for the credits
under the Step Up Tier 4, an ETP
Holder must directly execute providing
average daily volume (ADV) per month
that is an increase of no less than 0.55%
of US CADV for that month over the
ETP Holder’s providing ADV in
September 2019, taken as a percentage
of US CADV.
Currently, if an ETP Holder meets
these Step Up Tier 4 qualifications, such
ETP Holder is eligible to earn a credit
of:
• $0.0033 per share for orders that
provide displayed liquidity to the Book
in Tape A and Tape C Securities, and
• $0.0034 per share for orders that
provide displayed liquidity to the Book
in Tape B Securities.19
With this proposed rule change, the
Exchange proposes to adopt a cap
applicable to the Step Up Tier 4 credit
in Tape B securities. As proposed, ETP
Holders that qualify for Step Up Tier 4
would not receive any additional
incremental Tape B Tier credits for
providing displayed liquidity, including
any incremental credits associated with
Less Active ETP Securities.20
The purpose of the proposed rule
change is to continue to incentivize
order flow providers to send liquidityproviding orders to the Exchange while
capping the level of credit that such
participants would receive. The
Exchange believes that, although it is
proposing to limit the financial
incentive for orders that provide
displayed liquidity in Tape B securities,
the current rebate, i.e., $0.0034 per
share, is among one of the higher credits
paid by the Exchange and should
continue to serve as an incentive for
ETP Holders to direct displayed
19 See Securities Exchange Act Release Nos.
86122 (June 17, 2019), 84 FR 29258 (June 21, 2019)
(SR–NYSEArca–2019–43); and 87292 (October 11,
2019), 84 FR 55603 (October 17, 2019) (SR–
NYSEArca–2019–70).
20 Under Step Up Tier 4, ETP Holders currently
do not receive any incremental Tape C Tier credits
for providing displayed liquidity.
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liquidity providing orders to the
Exchange.
The Exchange is not proposing any
change to the level of credits applicable
under the Step Up Tier 4.
LMM Credits
The Exchange currently provides tierbased incremental credits for orders that
provide displayed liquidity in Tape B
securities to the NYSE Arca Book.21
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
provide displayed liquidity to the Book
in any Tape B securities that trade on
the Exchange.22 The current
incremental credits and volume
thresholds are as follows:
• An additional credit of $0.0004 per
share if an LMM is registered as the
LMM in at least 400 Less Active ETP
Securities or at least 300 Less Active
ETP Securities if the LMM and ETP
Holders and Market Makers affiliated
with such LMM add liquidity in all
securities of at least 1.00% of US CADV.
• An additional credit of $0.0003 per
share if an LMM is registered as the
LMM in at least 200 but less than 400
Less Active ETP Securities or in at least
200 but less than 300 Less Active ETP
Securities if the LMM and ETP Holders
and Market Makers affiliated with such
LMM add liquidity in all securities of at
least 1.00% of US CADV.
• An additional credit of $0.0002 per
share if an LMM is registered as the
LMM in at least 100 but less than 200
Less Active ETP Securities.
• An additional credit of $0.0001 per
share if an LMM is registered as the
LMM in at least 75 but less than 100
Less Active ETP Securities.
• An additional credit of $0.00005
per share if an LMM is registered as the
LMM in at least 50 but less than 75 Less
Active ETP Securities.
The number of Less Active ETP
Securities for the billing month is based
on the number of Less Active ETP
Securities in which an LMM is
21 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).
22 The Exchange defines ‘‘affiliate’’ to ‘‘mean any
ETP Holder under 75% common ownership or
control of that ETP Holder.’’ See Fee Schedule,
NYSE Arca Marketplace: General.
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Federal Register / Vol. 85, No. 59 / Thursday, March 26, 2020 / Notices
registered as the LMM on the average of
the first and last business day of the
previous month.
With this proposed rule change, the
Exchange proposes that the CADV
requirement of less than 100,000 shares,
or 0.010% of Consolidated Tape B ADV,
which is currently determined on a
previous month basis, would instead be
determined on a prior calendar quarter
basis.
The purpose of the proposed rule
change is to encourage LMMs and ETP
Holders to enhance the market quality
in Tape B securities that are listed and
traded on the Exchange and the
Exchange believes that amending the
benchmark from previous month to
prior calendar quarter would serve to
stabilize the number of Less Active ETP
Securities and provide LMMs more
consistency in the number of Less
Active ETP Securities in which it is
registered as the LMM, and should
therefore provide LMMs increased
opportunities to earn incremental
credits. The Exchange believes the
proposal would also encourage
competition in Tape B securities quoted
and traded on the Exchange. To
illustrate, for the billing month of March
2020, the CADV requirement would
currently be measured based on
February 2020 volume. With this
proposed rule change, the CADV
requirement would now be measured
based on volume from the prior
calendar quarter, i.e., October 2019,
November 2019 and December 2019.
The Exchange does not know how
much order flow LMMs and ETP
Holders choose to route to other
exchanges or to off-exchange venues.
The incremental credits in NYSE Arcalisted securities are available to all
LMMs that are registered as the LMM in
a security, and to ETP Holders that are
affiliated with a LMM. Currently, there
are no LMMs that qualify for the
$0.0003 per share credit and 2 LMMs
that qualify for the $0.0004 per share
credit.23 Without having a view of a
LMM’s activity on other markets and
off-exchange venues, the Exchange has
no way of knowing whether this
proposed rule change would result in
more LMMs sending their orders in
NYSE Arca-listed securities to the
Exchange to qualify for the existing
credits or whether this proposed rule
change would result in LMMs to send
more of their orders in NYSE Arca-listed
securities to the Exchange to qualify for
such credits. The Exchange cannot
23 As of February 28, 2020, there are 18 registered
LMMs on the Exchange that could qualify for the
incremental rebates for Less Active ETP Securities,
all of whom are affiliated with one or more ETP
holders.
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17115
predict with certainty how many LMMs
would avail themselves of this
opportunity but additional liquidityproviding 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.
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 order
which provide liquidity on an
Exchange, LMMs and ETP Holders can
2. Statutory Basis
choose from any one of the 13 currently
operating registered exchanges to route
The Exchange believes that the
proposed rule change is consistent with such order flow. Accordingly,
Section 6(b) of the Act,24 in general, and competitive forces reasonably constrain
exchange transaction fees that relate to
furthers the objectives of Sections
6(b)(4) and (5) of the Act,25 in particular, orders that would provide displayed
liquidity on an exchange. Stated
because it provides for the equitable
otherwise, changes to exchange
allocation of reasonable dues, fees, and
transaction fees can have a direct effect
other charges among its members,
on the ability of an exchange to compete
issuers and other persons using its
for order flow.
facilities and does not unfairly
Given this competitive environment,
discriminate between customers,
the proposal represents a reasonable
issuers, brokers or dealers.
attempt to attract additional order flow
The Proposed Fee Change Is Reasonable to the Exchange.
As discussed above, the Exchange
Tape B Tier 1
operates in a highly fragmented and
The Exchange believes the proposed
competitive market. The Commission
amendment
to Tape B Tier 1 is
has repeatedly expressed its preference
reasonable because it would maintain
for competition over regulatory
the current threshold in place for an
intervention in determining prices,
additional three months before
products, and services in the securities
increasing levels of activity is
markets. Specifically, in Regulation
implemented to qualify for the Tape B
NMS, the Commission highlighted the
Tier 1 credits. The Exchange believes
importance of market forces in
that keeping the current requirement in
determining prices and SRO revenues
place would allow a greater number of
and, also, recognized that current
ETP Holders to qualify for the pricing
regulation of the market system ‘‘has
tier. The Exchange believes the
been remarkably successful in
proposed rule change would continue to
promoting market competition in its
incentivize ETP Holders to bring
broader forms that are most important to
additional order flow to a public
investors and listed companies.’’ 26
exchange, thereby encouraging greater
As the Commission itself recognized,
participation and liquidity.
the market for trading services in NMS
The Exchange notes that volumestocks has become ‘‘more fragmented
based
incentives and discounts have
and competitive.’’ 27 Indeed, equity
been widely adopted by exchanges,
trading is currently dispersed across 13
including the Exchange, and are
exchanges,28 numerous alternative
reasonable, equitable and not unfairly
29
trading systems, and broker-dealer
discriminatory because they are
internalizers and wholesalers, all
available to all ETP Holders on an equal
24 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
26 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
27 See Securities Exchange Act Release No. 51808,
84 FR 5202, 5253 (February 20, 2019) (File No. S7–
05–18) (Final rule).
28 See Cboe Global Markets, U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
29 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.
25 15
PO 00000
Frm 00075
Fmt 4703
Sfmt 4703
basis. They also provide additional
benefits or discounts that are reasonably
related to the value of the Exchange’s
market quality and associated higher
levels of market activity, such as higher
levels of liquidity provision and/or
growth patterns. Additionally, as noted
above, the Exchange operates in a highly
competitive market. The Exchange is
one of several venues and off-exchange
venues to which market participants
may direct their order flow, and it
represents a small percentage of the
overall market. Competing exchanges
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offer similar tiered pricing structures to
that of the Exchange, including
schedules of rebates and fees that apply
based on members achieving certain
volume thresholds.
Moreover, the Exchange believes the
proposed amendment to Tape B Tier 1
is a reasonable means to encourage ETP
Holders to increase their liquidity on
the Exchange and their participation on
NYSE Arca Options. Increased liquidity
benefits all investors by deepening the
Exchange’s liquidity pool, offering
additional flexibility for all investors to
enjoy cost savings, supporting the
quality of price discovery, promoting
market transparency and improving
investor protection.
lotter on DSKBCFDHB2PROD with NOTICES
Routing Fees
The Exchange believes the proposed
amendment to the routing fees is
reasonable because it seeks to
standardize the fee for routing PO
Orders to away markets that conduct an
opening and closing auction. The
Exchange periodically reviews its fees
and rebates and determined that it does
not currently charge a fee for routing
orders to Cboe BZX. The Exchange
believes it is reasonable to adopt a fee
when it routes orders to away markets.
The Exchange also considered the fees
charged by its affiliates, NYSE,30 NYSE
Chicago,31 NYSE National 32 and NYSE
American,33 all of whom have a fee
comparable to that proposed by the
Exchange. In determining the routing
fees, the Exchange considered
transaction fees assessed by Nasdaq and
Cboe BZX to which the Exchange routes
orders for execution on those markets’
opening and closing auctions. The
Exchange believes that because the
proposed fees are comparable to fees
charged by the Exchange’s affiliates,
ETP Holders may choose to continue to
send routable orders to the Exchange,
thereby directing order flow to be
entered on the Exchange. The Exchange
believes it is reasonable to increase the
30 See New York Stock Exchange Price List,
Routing Fee, at https://www.nyse.com/publicdocs/
nyse/markets/nyse/NYSE_Price_List.pdf. NYSE
charges a routing fee of $0.0035 per share, except
that for member organizations that have adding
ADV in Tapes A, B, and C combined that is at least
0.20% of Tapes A, B and C CADV combined, the
routing fee is $0.0030 per share.
31 See Fee Schedule of NYSE Chicago, Inc.,
Section E.1., Routing Fee, at https://www.nyse.com/
publicdocs/nyse/NYSE_Chicago_Fee_Schedule.pdf.
32 See NYSE National Schedule of Fees and
Rebates, Section II, Routing Fees, at https://
www.nyse.com/publicdocs/nyse/regulation/nyse/
NYSE_National_Schedule_of_Fees.pdf.
33 See NYSE American Equities Price List, Section
III, Fees for Routing for all ETP Holders, at https://
www.nyse.com/publicdocs/nyse/markets/
nyseamerican/NYSE_America_Equities_Price_
List.pdf.
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fee for orders routed to Nasdaq for
execution in that market’s opening or
closing auction as the proposed fee
would be uniform with those charged by
the Exchange’s affiliates, who similarly
charge $0.0030 per share for routing
orders to away markets for execution.
As noted above, the Exchange’s
proposal to charge a fee of $0.0030 per
share for orders in securities priced at
or above $1.00 that are routed to Nasdaq
and Cboe BZX for execution in the
opening auction or closing auction on
those markets is consistent with fees
charged by the Exchange’s affiliates
NYSE, NYSE Chicago, NYSE National
and NYSE American.
Step Up Tier 4
The Exchange believes the proposed
rule change to cap the credit applicable
to the Step Up Tier 4 credit in Tape B
securities is reasonable because the
current credit is among the highest paid
by the Exchange, and the Exchange
believes the level of the current rebate
would continue to encourage ETP
Holders to submit additional liquidity to
a national securities exchange.
Submission of additional liquidity to
the Exchange would promote price
discovery and transparency and
enhance order execution opportunities
for ETP Holders from the substantial
amounts of liquidity present on the
Exchange. All ETP Holders would
benefit from the greater amounts of
liquidity that will be present on the
Exchange, which would provide greater
execution opportunities.
LMM Credits
The Exchange believes the proposed
rule change to amend the requirement to
qualify for the incremental LMM credits
is reasonable because it is intended to
continue to encourage LMMs, and ETP
Holders affiliated with such LMMs, to
promote price discovery and market
quality in Less Active ETP Securities for
the benefit of all market participants.
The Exchange believes that amending
the benchmark from previous month to
prior calendar quarter would serve to
stabilize the number of Less Active ETP
Securities and provide LMMs more
consistency in the number of Less
Active ETP Securities in which it is
registered as the LMM, and should
therefore provide LMMs increased
opportunities to earn incremental
credits. The Exchange believes the
proposed amendment to qualify for the
current incremental credit for adding
liquidity is also reasonable because it
would encourage liquidity and
competition in all securities quoted and
traded on the Exchange. Moreover, the
Exchange believes that the proposed
PO 00000
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Sfmt 4703
change could incentivize LMMs to
register as an LMM in Less Active ETP
Securities and thus, add more liquidity
in all securities, and in particular Tape
B securities, to the benefit of all market
participants.
Submission of additional liquidity to
the Exchange would promote price
discovery and transparency and
enhance order execution opportunities
for LMMs from the substantial amounts
of liquidity present on the Exchange. All
participants, including LMMs, would
benefit from the greater amounts of
liquidity that will be present on the
Exchange, which would provide greater
execution opportunities.
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
Tape B Tier 1
The Exchange believes the proposed
amendment to Tape B Tier 1 equitably
allocates its fees and credits among
market participants because it is
reasonably related to the value of the
Exchange’s market quality associated
with higher equities and options
volume. Additionally, a number of ETP
Holders have a reasonable opportunity
to satisfy the pricing tier’s criteria.34
The Exchange does not know how
much order flow ETP Holders choose to
route to other exchanges or to offexchange venues. The current pricing
tier is available to all ETP Holders that
are also OTP Holders or OTP Firms.
There are currently 3 ETP Holders that
qualify for the Tape B Tier 1 credit and
would continue to receive the credit
under the pricing tier if they maintain
the same level of trading activity for the
next three months. And as noted above,
there are 54 firms that are both ETP
Holders and OTP Holders and a number
of such firms could qualify for Tape B
Tier 1 credits. Without having a view of
an ETP Holder’s 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 Holder to
increase participation in the Exchange’s
equities and options markets to qualify
for the existing credits. The Exchange
cannot predict with certainty how many
ETP Holders would avail themselves of
this opportunity. The Exchange believes
that maintaining the current
34 There are currently 54 firms that are both ETP
Holders and OTP Holders.
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requirement for an additional three
months could provide an incentive for
other ETP Holders to submit additional
liquidity on the Exchange and on NYSE
Arca Options to qualify for the rebate.
To the extent an ETP Holder
participates on the Exchange but not on
NYSE Arca Options, the Exchange
believes that the proposal is still
reasonable, equitable and not unfairly
discriminatory with respect to such ETP
Holder based on the overall benefit to
the Exchange resulting from the success
of NYSE Arca Options. In particular,
such success would allow the Exchange
to continue to provide and potentially
expand its existing incentive programs
to the benefit of all participants on the
Exchange, whether they participate on
NYSE Arca Options or not.
lotter on DSKBCFDHB2PROD with NOTICES
Routing Fees
The Exchange believes that the
proposed rule change constitutes an
equitable allocation of reasonable fees
because the proposed fee is designed to
reflect the costs incurred by the
Exchange for orders submitted by ETP
Holders that remove liquidity from
auctions conducted on away markets
and would apply equally to all ETP
Holders that choose to use the Exchange
to route PO Orders to Nasdaq and Cboe
BZX. Furthermore, the Exchange notes
that routing through the Exchange is
voluntary, and, because the Exchange
operates in a highly competitive
environment as discussed below, ETP
Holders that do not favor the Exchange’s
pricing can readily direct order flow
directly to Nasdaq or Cboe BZX or
through competing venues or providers
of routing services. The proposed
change may impact the submission of
orders to a national securities exchange,
and to the extent that ETP Holders
continue to submit PO Orders to the
Exchange, the proposed rule change
would not have a negative impact to
ETP Holders trading on the Exchange
because the proposed fee would be in
line with the routing fee charged by the
Exchange’s affiliates. However, without
having a view of ETP Holder’s activity
on other markets and off-exchange
venues, the Exchange has no way of
knowing whether this proposed rule
change would result in a change in
trading behavior by ETP Holders.
Step Up Tier 4
The Exchange believes the proposed
amendment to Step Up Tier 4 equitably
allocates its fees and credits among
market participants because it is
reasonably related to the value of the
Exchange’s market quality associated
with higher equities volume. First, the
Exchange is not proposing to adjust the
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17:20 Mar 25, 2020
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amount of the Step Up Tier 4 credits,
which will remain at the current level
for all ETP Holders. Rather, the proposal
caps an already high level of the credit
paid for displayed liquidity in Tape B
securities and is similar to the cap
currently in place for Tape C securities
that provide displayed liquidity. The
Exchange believes the current level of
credit would continue to encourage ETP
Holders to send orders that add
liquidity to the Exchange, thereby
contributing to robust levels of liquidity,
which benefit all market participants.
LMM Credits
The Exchange believes the proposed
rule change to amend the benchmark
threshold to qualify for the incremental
LMM credits is equitable because it
provides discounts that are reasonably
related to the value to the Exchange’s
market quality associated with higher
volumes. The Exchange further believes
that amending the benchmark from
previous month to prior calendar
quarter would serve to stabilize the
number of Less Active ETP Securities
and provide LMMs more consistency in
the number of Less Active ETP
Securities in which it is registered as the
LMM, and should therefore provide
LMMs increased opportunities to earn
incremental credits.
The Proposed Fee Change Is Not
Unfairly Discriminatory
The Exchange believes that the
proposed rule change is not unfairly
discriminatory. In the prevailing
competitive environment, LMMs and
ETP Holders are free to disfavor the
Exchange’s pricing if they believe that
alternatives offer them better value.
Tape B Tier 1
The Exchange believes it is not
unfairly discriminatory to extend the
current CADV requirement for an
additional three months for ETP Holders
to qualify for per share credits, as the
proposed change would be applied on
an equal basis to all ETP Holders.
Further, the Exchange believes that
maintaining the current requirement for
an additional period of time could
provide an incentive for other ETP
Holders to submit additional liquidity
on the Exchange and on NYSE Arca
Options to qualify for the rebate. 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.
The proposal to maintain the CADV
requirement at current levels to qualify
for the Tape B Tier 1 credit neither
PO 00000
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17117
targets nor will it have a disparate
impact on any particular category of
market participant. The proposal does
not permit unfair discrimination
because the amended threshold would
be applied to all similarly situated ETP
Holders, who would all be eligible for
the same credit on an equal basis.
Accordingly, no ETP Holder already
operating on the Exchange would be
disadvantaged by this allocation of fees.
Routing Fees
The proposal to amend the routing fee
for PO Orders routed to Nasdaq and
adopting routing fees for PO Orders
routed to Cboe BZX for execution in
each market’s opening or closing
auction is not unfairly discriminatory
because the fee would be applied on an
equal basis to all ETP Holders that
choose to send PO Orders to the
Exchange. Additionally, the proposed
rule change neither targets nor will it
have a disparate impact on any
particular category of market
participant. The proposal does not
permit unfair discrimination because
the proposed fees would be applied to
all ETP Holders, who would all be
charged the same fee on an equal basis.
Accordingly, no ETP Holder already
operating on the Exchange would be
disadvantaged by this allocation of fees.
Step Up Tier 4
The Exchange believes it is not
unfairly discriminatory to cap the credit
payable under Step Up Tier 4 for
providing displayed liquidity in Tape B
securities because the proposed cap
would be applied on an equal basis to
all ETP Holders, who would all be
subject to the proposed cap on an equal
basis. Additionally, the proposal neither
targets nor will it have a disparate
impact on any particular category of
market participant. The proposal does
not permit unfair discrimination
because the proposed cap would be
applied to all ETP Holders, who would
all be subject to the proposed cap on an
equal basis. Accordingly, no ETP Holder
already operating on the Exchange
would be disadvantaged by this
allocation of fees.
LMM Credits
The Exchange believes it is not
unfairly discriminatory to amend the
benchmark threshold to qualify for the
incremental LMM credits, as the
amended requirements would apply on
an equal basis to all LMMs. Further, the
Exchange believes that amending the
benchmark from previous month to
prior calendar quarter would serve to
stabilize the number of Less Active ETP
Securities and provide LMMs more
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consistency in the number of Less
Active ETP Securities in which it is
registered as the LMM, and should
therefore incentivize LMMs to send
more orders to the Exchange resulting in
increased opportunities to earn
incremental 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.
The proposal to amend the
benchmark threshold to qualify for the
incremental rebates neither targets nor
will it have a disparate impact on any
particular category of market
participant. The proposal does not
permit unfair discrimination because
the proposed threshold would be
applied to all similarly situated LMMs,
who would all be eligible for the same
credit on an equal basis. Accordingly,
no LMM already operating on the
Exchange would be disadvantaged by
this allocation of fees.
Finally, the submission of orders to
the Exchange is optional for LMMs and
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.
lotter on DSKBCFDHB2PROD with NOTICES
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,35 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 LMMs and 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.’’ 36
35 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).
36 See
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Intramarket Competition. The
proposed change is designed to attract
additional order flow to the Exchange.
The Exchange believes that the
proposed amendment to the volume
requirement under Tape B Tier 1 and
the proposed cap to the credit payable
under Step Up Tier 4 would continue to
incentivize market participants to direct
providing displayed order flow to the
Exchange. Further, as noted above, the
Exchange would uniformly assess the
routing fee on all ETP Holders who
choose to route orders through the
Exchange to Nasdaq or Cboe BZX for
execution in an auction conducted on
those markets. Finally, the Exchange
believes that the amended benchmark to
qualify for the incremental credit
applicable to LMMs, and ETP Holders
affiliated with such LMMs, would
continue to incentivize market
participants to direct their displayed
order flow to the Exchange. Greater
liquidity benefits all market participants
on the Exchange by providing more
trading opportunities and encourages
LMMs, to send orders to the Exchange,
thereby contributing to robust levels of
liquidity, which benefits all market
participants. The proposed rule change
would be applicable to all similarlysituated market participants, and, as
such, the proposed change would not
impose a disparate burden on
competition among market participants
on the Exchange.
Intermarket Competition. The
Exchange operates in a highly
competitive market in which market
participants can readily choose to send
their orders to other exchange and offexchange venues if they deem fee levels
at those other venues to be more
favorable. As noted above, the
Exchange’s current market share of
intraday trading (i.e., excluding
auctions) is less than 12%. In such an
environment, the Exchange must
continually adjust its fees and rebates to
remain competitive with other
exchanges and with off-exchange
venues. Because competitors are free to
modify their own fees and credits in
response, and because market
participants may readily adjust their
order routing practices, the Exchange
does not believe its proposed fee change
can impose any burden on intermarket
competition.
The Exchange believes that the
proposed change could promote
competition between the Exchange and
other execution venues, including those
that currently offer similar order types
and comparable transaction pricing, by
encouraging additional orders to be sent
to the Exchange for execution.
PO 00000
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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) 37 of the Act and
subparagraph (f)(2) of Rule 19b–4 38
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) 39 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–2020–21 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–2020–21. 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/
37 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
39 15 U.S.C. 78s(b)(2)(B).
38 17
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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–NYSEArca–2020–21, and
should be submitted on or before April
16, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.40
J. Matthew DeLesDernier,
Assistant Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88434; File No. SR–ISE–
2020–10]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Related to Complex
Orders
lotter on DSKBCFDHB2PROD with NOTICES
March 20, 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 March 9,
2020, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
17:20 Mar 25, 2020
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
Exchange 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 these
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 aspects of such
statements.
1. Purpose
The Exchange proposes to amend
Options 3, Section 7, ‘‘Types of Orders,’’
and Options 3, Section 14, ‘‘Complex
Orders’’ to: (1) Provide that the
Exchange may determine which order
types and times-in-force provisions are
available on a class or system basis; and
(2) to add other existing order types to
the list of single-leg and Complex Order
types.
The Exchange proposes to add a
sentence to Options 3, Section 14,
Complex Orders, which states, ‘‘The
Exchange may determine to make
certain order types and/or times-in-force
available on a class or System basis.’’
This sentence exists today within
Nasdaq ISE, LLC (‘‘ISE’’) Options 3,
Section 7, ‘‘Types of Orders.’’ 3 This
proposed change is based on the rules
of ISE Options 3, Section 7 and the rules
of Cboe BZX Exchange, Inc. (‘‘BZX
3 See Securities Exchange Act Release No. 88294
(February 26, 2020), 85 FR 12629 (March 3, 2020)
(SR–ISE–2020–07).
1 15
VerDate Sep<11>2014
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Options 3, Section 7, ‘‘Types of Orders,’’
and Options 3, Section 14, ‘‘Complex
Orders’’ to permit the Exchange to
determine the availability of order types
and time-in-force provisions and to add
other existing order types to the list of
single-leg and Complex Order types.
The text of the proposed rule change
is available on the Exchange’s website at
https://ise.cchwallstreet.com/, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2020–06298 Filed 3–25–20; 8:45 am]
40 17
comments on the proposed rule change
from interested persons.
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17119
Options’’),4 Rule 21.1, Cboe EDGX
Exchange, Inc. (‘‘EDGX Options’’) Rule
21.1(d),5 Cboe Exchange, Inc. (‘‘Cboe’’)
Rule 5.6(a) 6 and Cboe C2 Exchange, Inc.
(‘‘C2’’) Rule 6.10(a).7
The purpose of this rule change is to
provide the Exchange with appropriate
flexibility to address different trading
characteristics, market models, and the
investor base of each class, as well as to
handle any System issues that may arise
and require the Exchange to temporarily
not accept certain order types. This rule
is consistent with BZX Options Rule
21.1(d) and (f), EDGX Options Rules
21.1(d) and (f), Cboe Rule 5.6(a) and C2
Rule 6.10(a), each of which provides
these exchanges with substantially the
4 BZX Options Rule 21.1(d), Definitions, provides
‘‘The term ‘Order Type’ shall mean the unique
processing prescribed for designated orders, subject
to the restrictions set forth in paragraph (l) below
with respect to orders and bulk messages submitted
through bulk ports, that are eligible for entry into
the System. Unless otherwise specified in the Rules
or the context indicates otherwise, the Exchange
determines which of the following Order Types are
available on a class or system basis.’’ BZX Options
Rule 21.1(f), Definitions, provides ‘‘The term ‘Time
in Force’ shall mean the period of time that the
System will hold an order, subject to the
restrictions set forth in paragraph (l) below with
respect to bulk messages submitted through bulk
ports, for potential execution. Unless otherwise
specified in the Rules or the context indicates
otherwise, the Exchange determines which of the
following Times-in-Force are available on a class or
system basis.’’
5 EDGX Options Rule 21.1(d), Definitions,
provides, ‘‘The term ‘Order Type’ shall mean the
unique processing prescribed for designated orders,
subject to the restrictions set forth in paragraph (j)
below with respect to orders and bulk messages
submitted through bulk ports, that are eligible for
entry into the System. Unless otherwise specified
in the Rules or the context indicates otherwise, the
Exchange determines which of the following Order
Types are available on a class, system, or trading
session basis. Rule 21.20 sets forth the Order Types
the Exchange may make available for complex
orders.’’ EDGX Options Rule 21.1(f), Definitions,
provides, ‘‘The term ‘Time in Force’ means the
period of time that the System will hold an order,
subject to the restrictions set forth in paragraph (j)
below with respect to bulk messages submitted
through bulk ports, for potential execution. Unless
otherwise specified in the Rules or the context
indicates otherwise, the Exchange determines
which of the following Times-in-Force are available
on a class, system, or trading session basis. Rule
21.20 sets forth the Times-in-Force the Exchange
may make available for complex orders.’’
6 Cboe Rule 5.6, Order Types, Order Instructions,
and Times-in-Force at subsection (a), Availability,
provides, ‘‘Unless otherwise specified in the Rules
or the context indicates otherwise, the Exchange
determines which of the following order types,
Order Instructions, and Times-in-Force are
available on a class, system, or trading session
basis.’’
7 C2 Rule 6.10, Availability of Orders, at
subsection (a) provides, ‘‘Availability. Unless
otherwise specified in the Rules or the context
indicates otherwise, the Exchange determines
which of the following order types, Order
Instructions, and Times-in-Force are available on a
class, system, or trading session basis. Rule 6.13
sets forth the order types, Order Instructions, and
Times-in-Force the Exchange may make available
for complex orders.’’
E:\FR\FM\26MRN1.SGM
26MRN1
]]>Agencies
[Federal Register Volume 85, Number 59 (Thursday, March 26, 2020)]
[Notices]
[Pages 17112-17119]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06298]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88436; File No. SR-NYSEArca-2020-21]
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
March 20, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on March 11, 2020, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the NYSE Arca Equities Fees and
Charges (``Fee Schedule'') to (1) amend the requirement to qualify for
the Tape B Tier 1 pricing tier; (2) amend the per share fee for PO
Orders routed to the Nasdaq Stock Market LLC; (3) adopt a per share fee
for PO Orders routed to Cboe BZX Exchange, Inc.; (4) adopt a cap
applicable to the Step Up Tier 4 credit in Tape B securities; and (5)
amend the requirement to qualify for the tiered-rebate structure
applicable to Lead Market Makers and to ETP Holders affiliated with
such Lead Market Makers. 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 (1) amend the
requirement to qualify for the Tape B Tier 1 pricing tier; (2) amend
the per share fee for Primary Only (``PO'') Orders \4\ routed to the
Nasdaq Stock
[[Page 17113]]
Market LLC (``Nasdaq''); (3) adopt a per share fee for PO Orders routed
to Cboe BZX Exchange, Inc. (``Cboe BZX''); (4) adopt a cap applicable
to the Step Up Tier 4 credit in Tape B securities; and (5) amend the
requirement to qualify for the tiered-rebate structure applicable to
Lead Market Makers (``LMMs''),\5\ and to ETP Holders \6\ affiliated
with such LMMs, that provide displayed liquidity in Tape B securities
to the NYSE Arca Book.
---------------------------------------------------------------------------
\4\ A PO Order is a Market or Limit Order that on arrival is
routed directly to the primary listing market without being assigned
a working time or interacting with interest on the NYSE Arca Book.
See NYSE Arca Rule 7.31-E(f)(1).
\5\ 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.
\6\ All references to ETP Holders in connection with this
proposed fee change include Market Makers.
---------------------------------------------------------------------------
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 March
11, 2020.\7\
---------------------------------------------------------------------------
\7\ The Exchange originally filed to amend the Fee Schedule on
March 2, 2020 (SR-NYSEArca-2020-19). SR-NYSEArca-2020-19 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.'' \8\
---------------------------------------------------------------------------
\8\ 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.''
\9\ Indeed, equity trading is currently dispersed across 13
exchanges,\10\ numerous alternative trading systems,\11\ and 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).\12\ Therefore, no exchange possesses significant pricing power
in the execution of equity order flow. More specifically, the Exchange
currently has less than 12% market share of executed volume of
equity.\13\
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Final Rule).
\10\ 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.
\11\ 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.
\12\ See Cboe Global Markets U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
\13\ See id.
---------------------------------------------------------------------------
The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
move order flow or discontinue or reduce use of certain categories of
products. While it is not possible to know a firm's reason for shifting
order flow, the Exchange believes that one such reason is because of
fee changes at any of the registered exchanges or non-exchange venues
to which a firm routes order flow. With respect to non-marketable order
flow that would provide displayed liquidity on an Exchange against
which market makers can quote, ETP Holders 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 on the Exchange, and with respect to the LMM credits, the
proposed rule change is designed to be available to all 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.
Tape B Tier 1
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.
Currently, a Tape B Tier 1 credit of $0.0030 \14\ per share applies
to ETP Holders that, on a daily basis, measured monthly, directly
execute providing volume in Tape B securities that is equal to at least
1.50% of US Tape B CADV \15\ for the billing month.\16\ Alternatively,
ETP Holders could qualify for the Tape B Tier 1 credit if an ETP Holder
who is affiliated with an OTP Holder or OTP Firm that provides an ADV
of electronic posted executions for the account of a market maker in
all issues on NYSE Arca Options (excluding mini options) of at least
0.55% of total Customer equity and ETF option ADV as reported by The
Options Clearing Corporation (``OCC'') and the ETP Holder directly
executes providing volume in Tape B securities during the billing month
that is equal to
---------------------------------------------------------------------------
\14\ Under the Basic Rate, ETP Holders receive a credit of
$0.0020 per share for Tape B orders that provide liquidity to the
Book.
\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. 76084 (October 6,
2015), 80 FR 61529 (October 13, 2015) (SR-NYSEArca-2015-87).
---------------------------------------------------------------------------
at least 1.00% of US Tape B CADV for the billing month of
February 2020.
at least 1.15% of US Tape B CADV for the billing month of
March 2020.
at least 1.25% of US Tape B CADV for the billing month of
April 2020 and each billing month thereafter.\17\
---------------------------------------------------------------------------
\17\ See Securities Exchange Act Release No. 88194 (February 13,
2020), 85 FR 9820 (February 20, 2020) (SR-NYSEArca-2020-12).
---------------------------------------------------------------------------
The Exchange proposes to amend the 1.00% CADV requirement so that
it would continue to apply for an additional three months, i.e., for
each of March, April and May 2020; amend the 1.15% CADV requirement so
that it would apply during each of June, July and August 2020, rather
than March 2020; and amend the 1.25% CADV requirement so that it would
apply during the billing month of September 2020 and each month
thereafter, rather than April 2020.
The Exchange is not proposing any change to the level of credits
applicable under the Tape B Tier 1 pricing tier.
The proposed rule change would allow a greater number of ETP
Holders to qualify for the pricing tier as the lower CADV requirement
would remain in place for an additional period of time. The proposed
rule change would continue to encourage ETP Holders to promote price
discovery and market quality for the benefit of all market
participants. As noted above, the Exchange operates in a competitive
environment, particularly as it relates to attracting non-marketable
orders, which
[[Page 17114]]
add liquidity to the Exchange. Because, as proposed, the tier requires
an ETP Holder increase the volume of its trades against orders that add
liquidity in Tape B securities at increasing levels, the Exchange
believes the current credit provides an incentive for ETP Holders to
route additional liquidity to the Exchange in order to qualify for it.
Routing Fees
Currently, under Tier 1, Tier 2 and Basic Rates sections of the Fee
Schedule, the Exchange currently charges a per share fee of $0.0010 for
PO Orders in Tape C securities that are routed to Nasdaq and execute in
the opening or closing auction.\18\ The Exchange proposes to increase
the fee to $0.0030 per share and proposes to streamline the Fee
Schedule by eliminating reference to this routing fee from Tier 1 and
Tier 2 because the routing fee is not a tier-based fee and therefore
should not be in Tier 1 and Tier 2.
---------------------------------------------------------------------------
\18\ See Securities Exchange Act Release No. 62843 (September 3,
2010), 75 FR 55624 (September 13, 2010) (SR-NYSEArca-2010-81).
---------------------------------------------------------------------------
Additionally, the Exchange proposes to adopt a fee of $0.0030 per
share in the Basic Rates section of the Fee Schedule for PO Orders in
Tape B securities that are routed to Cboe BZX for execution in the
opening or closing auction on that market. The Exchange currently does
not charge a fee for routing PO Orders to Cboe BZX. The purpose of the
proposed fee is to simplify the Fee Schedule and maintain consistency
with respect to the fee charged by the Exchange when it routes orders
for execution in an away market's auction.
Step Up Tier 4
The Exchange currently has multiple levels of step-up pricing
tiers, Step Up Tiers 1-4, which are designed to encourage ETP Holders
that provide displayed liquidity on the Exchange to increase that order
flow, which would benefit all ETP Holders by providing greater
execution opportunities on the Exchange. In order to provide an
incentive for ETP Holders to direct providing displayed order flow to
the Exchange, the credits increase in the various tiers based on
increased levels of volume directed to the Exchange.
Currently, the following credits are available to ETP Holders that
provide increased levels of displayed liquidity on the Exchange:
------------------------------------------------------------------------
Credit for providing displayed
Tier liquidity
------------------------------------------------------------------------
Step Up Tier.......................... $0.0030 (Tape A).
$0.0023 (Tape B).
$0.0031 (Tape C).
Step Up Tier 2........................ $0.0028 (Tape A and C).
$0.0022 (Tape B).
Step Up Tier 3........................ $0.0025 (Tape A and C).
$0.0022 (Tape B).
Step Up Tier 4........................ $0.0033 (Tape A and C).
$0.0034 (Tape B).
------------------------------------------------------------------------
Under the Step Up Tier 4, if an ETP Holder increases its providing
liquidity on the Exchange by a specified percentage over the level that
such ETP Holder provided liquidity in September 2019, it is eligible to
earn higher credits for providing displayed liquidity. Specifically, to
qualify for the credits under the Step Up Tier 4, an ETP Holder must
directly execute providing average daily volume (ADV) per month that is
an increase of no less than 0.55% of US CADV for that month over the
ETP Holder's providing ADV in September 2019, taken as a percentage of
US CADV.
Currently, if an ETP Holder meets these Step Up Tier 4
qualifications, such ETP Holder is eligible to earn a credit of:
$0.0033 per share for orders that provide displayed
liquidity to the Book in Tape A and Tape C Securities, and
$0.0034 per share for orders that provide displayed
liquidity to the Book in Tape B Securities.\19\
---------------------------------------------------------------------------
\19\ See Securities Exchange Act Release Nos. 86122 (June 17,
2019), 84 FR 29258 (June 21, 2019) (SR-NYSEArca-2019-43); and 87292
(October 11, 2019), 84 FR 55603 (October 17, 2019) (SR-NYSEArca-
2019-70).
---------------------------------------------------------------------------
With this proposed rule change, the Exchange proposes to adopt a
cap applicable to the Step Up Tier 4 credit in Tape B securities. As
proposed, ETP Holders that qualify for Step Up Tier 4 would not receive
any additional incremental Tape B Tier credits for providing displayed
liquidity, including any incremental credits associated with Less
Active ETP Securities.\20\
---------------------------------------------------------------------------
\20\ Under Step Up Tier 4, ETP Holders currently do not receive
any incremental Tape C Tier credits for providing displayed
liquidity.
---------------------------------------------------------------------------
The purpose of the proposed rule change is to continue to
incentivize order flow providers to send liquidity-providing orders to
the Exchange while capping the level of credit that such participants
would receive. The Exchange believes that, although it is proposing to
limit the financial incentive for orders that provide displayed
liquidity in Tape B securities, the current rebate, i.e., $0.0034 per
share, is among one of the higher credits paid by the Exchange and
should continue to serve as an incentive for ETP Holders to direct
displayed liquidity providing orders to the Exchange.
The Exchange is not proposing any change to the level of credits
applicable under the Step Up Tier 4.
LMM Credits
The Exchange currently provides tier-based incremental credits for
orders that provide displayed liquidity in Tape B securities to the
NYSE Arca Book.\21\ 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 provide displayed
liquidity to the Book in any Tape B securities that trade on the
Exchange.\22\ The current incremental credits and volume thresholds are
as follows:
---------------------------------------------------------------------------
\21\ 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).
\22\ The Exchange defines ``affiliate'' to ``mean any ETP Holder
under 75% common ownership or control of that ETP Holder.'' See Fee
Schedule, NYSE Arca Marketplace: General.
---------------------------------------------------------------------------
An additional credit of $0.0004 per share if an LMM is
registered as the LMM in at least 400 Less Active ETP Securities or at
least 300 Less Active ETP Securities if the LMM and ETP Holders and
Market Makers affiliated with such LMM add liquidity in all securities
of at least 1.00% of US CADV.
An additional credit of $0.0003 per share if an LMM is
registered as the LMM in at least 200 but less than 400 Less Active ETP
Securities or in at least 200 but less than 300 Less Active ETP
Securities if the LMM and ETP Holders and Market Makers affiliated with
such LMM add liquidity in all securities of at least 1.00% of US CADV.
An additional credit of $0.0002 per share if an LMM is
registered as the LMM in at least 100 but less than 200 Less Active ETP
Securities.
An additional credit of $0.0001 per share if an LMM is
registered as the LMM in at least 75 but less than 100 Less Active ETP
Securities.
An additional credit of $0.00005 per share if an LMM is
registered as the LMM in at least 50 but less than 75 Less Active ETP
Securities.
The number of Less Active ETP Securities for the billing month is
based on the number of Less Active ETP Securities in which an LMM is
[[Page 17115]]
registered as the LMM on the average of the first and last business day
of the previous month.
With this proposed rule change, the Exchange proposes that the CADV
requirement of less than 100,000 shares, or 0.010% of Consolidated Tape
B ADV, which is currently determined on a previous month basis, would
instead be determined on a prior calendar quarter basis.
The purpose of the proposed rule change is to encourage LMMs and
ETP Holders to enhance the market quality in Tape B securities that are
listed and traded on the Exchange and the Exchange believes that
amending the benchmark from previous month to prior calendar quarter
would serve to stabilize the number of Less Active ETP Securities and
provide LMMs more consistency in the number of Less Active ETP
Securities in which it is registered as the LMM, and should therefore
provide LMMs increased opportunities to earn incremental credits. The
Exchange believes the proposal would also encourage competition in Tape
B securities quoted and traded on the Exchange. To illustrate, for the
billing month of March 2020, the CADV requirement would currently be
measured based on February 2020 volume. With this proposed rule change,
the CADV requirement would now be measured based on volume from the
prior calendar quarter, i.e., October 2019, November 2019 and December
2019.
The Exchange does not know how much order flow LMMs and ETP Holders
choose to route to other exchanges or to off-exchange venues. The
incremental credits in NYSE Arca-listed securities are available to all
LMMs that are registered as the LMM in a security, and to ETP Holders
that are affiliated with a LMM. Currently, there are no LMMs that
qualify for the $0.0003 per share credit and 2 LMMs that qualify for
the $0.0004 per share credit.\23\ Without having a view of a LMM's
activity on other markets and off-exchange venues, the Exchange has no
way of knowing whether this proposed rule change would result in more
LMMs sending their orders in NYSE Arca-listed securities to the
Exchange to qualify for the existing credits or whether this proposed
rule change would result in LMMs to send more of their orders in NYSE
Arca-listed securities to the Exchange to qualify for such credits. The
Exchange cannot predict with certainty how many LMMs would avail
themselves of this opportunity but additional liquidity-providing
orders would benefit all market participants because it would provide
greater execution opportunities on the Exchange.
---------------------------------------------------------------------------
\23\ As of February 28, 2020, there are 18 registered LMMs on
the Exchange that could qualify for the incremental rebates for Less
Active ETP Securities, all of whom are affiliated with one or more
ETP holders.
---------------------------------------------------------------------------
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,\24\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\25\ 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.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
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.'' \26\
---------------------------------------------------------------------------
\26\ 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.''
\27\ Indeed, equity trading is currently dispersed across 13
exchanges,\28\ numerous alternative trading systems,\29\ and 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.
---------------------------------------------------------------------------
\27\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Final rule).
\28\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
\29\ 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.
---------------------------------------------------------------------------
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
order which provide liquidity on an Exchange, LMMs and 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.
Tape B Tier 1
The Exchange believes the proposed amendment to Tape B Tier 1 is
reasonable because it would maintain the current threshold in place for
an additional three months before increasing levels of activity is
implemented to qualify for the Tape B Tier 1 credits. The Exchange
believes that keeping the current requirement in place would allow a
greater number of ETP Holders to qualify for the pricing tier. The
Exchange believes the proposed rule change would continue to
incentivize ETP Holders to bring additional order flow to a public
exchange, thereby encouraging greater participation and liquidity.
The Exchange notes that volume-based incentives and discounts have
been widely adopted by exchanges, including the Exchange, and are
reasonable, equitable and not unfairly discriminatory because they are
available to all ETP Holders on an equal basis. They also provide
additional benefits or discounts that are reasonably related to the
value of the Exchange's market quality and associated higher levels of
market activity, such as higher levels of liquidity provision and/or
growth patterns. Additionally, as noted above, the Exchange operates in
a highly competitive market. The Exchange is one of several venues and
off-exchange venues to which market participants may direct their order
flow, and it represents a small percentage of the overall market.
Competing exchanges
[[Page 17116]]
offer similar tiered pricing structures to that of the Exchange,
including schedules of rebates and fees that apply based on members
achieving certain volume thresholds.
Moreover, the Exchange believes the proposed amendment to Tape B
Tier 1 is a reasonable means to encourage ETP Holders to increase their
liquidity on the Exchange and their participation on NYSE Arca Options.
Increased liquidity benefits all investors by deepening the Exchange's
liquidity pool, offering additional flexibility for all investors to
enjoy cost savings, supporting the quality of price discovery,
promoting market transparency and improving investor protection.
Routing Fees
The Exchange believes the proposed amendment to the routing fees is
reasonable because it seeks to standardize the fee for routing PO
Orders to away markets that conduct an opening and closing auction. The
Exchange periodically reviews its fees and rebates and determined that
it does not currently charge a fee for routing orders to Cboe BZX. The
Exchange believes it is reasonable to adopt a fee when it routes orders
to away markets. The Exchange also considered the fees charged by its
affiliates, NYSE,\30\ NYSE Chicago,\31\ NYSE National \32\ and NYSE
American,\33\ all of whom have a fee comparable to that proposed by the
Exchange. In determining the routing fees, the Exchange considered
transaction fees assessed by Nasdaq and Cboe BZX to which the Exchange
routes orders for execution on those markets' opening and closing
auctions. The Exchange believes that because the proposed fees are
comparable to fees charged by the Exchange's affiliates, ETP Holders
may choose to continue to send routable orders to the Exchange, thereby
directing order flow to be entered on the Exchange. The Exchange
believes it is reasonable to increase the fee for orders routed to
Nasdaq for execution in that market's opening or closing auction as the
proposed fee would be uniform with those charged by the Exchange's
affiliates, who similarly charge $0.0030 per share for routing orders
to away markets for execution.
---------------------------------------------------------------------------
\30\ See New York Stock Exchange Price List, Routing Fee, at
https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf. NYSE charges a routing fee of $0.0035 per
share, except that for member organizations that have adding ADV in
Tapes A, B, and C combined that is at least 0.20% of Tapes A, B and
C CADV combined, the routing fee is $0.0030 per share.
\31\ See Fee Schedule of NYSE Chicago, Inc., Section E.1.,
Routing Fee, at https://www.nyse.com/publicdocs/nyse/NYSE_Chicago_Fee_Schedule.pdf.
\32\ See NYSE National Schedule of Fees and Rebates, Section II,
Routing Fees, at https://www.nyse.com/publicdocs/nyse/regulation/nyse/NYSE_National_Schedule_of_Fees.pdf.
\33\ See NYSE American Equities Price List, Section III, Fees
for Routing for all ETP Holders, at https://www.nyse.com/publicdocs/nyse/markets/nyseamerican/NYSE_America_Equities_Price_List.pdf.
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As noted above, the Exchange's proposal to charge a fee of $0.0030
per share for orders in securities priced at or above $1.00 that are
routed to Nasdaq and Cboe BZX for execution in the opening auction or
closing auction on those markets is consistent with fees charged by the
Exchange's affiliates NYSE, NYSE Chicago, NYSE National and NYSE
American.
Step Up Tier 4
The Exchange believes the proposed rule change to cap the credit
applicable to the Step Up Tier 4 credit in Tape B securities is
reasonable because the current credit is among the highest paid by the
Exchange, and the Exchange believes the level of the current rebate
would continue to encourage ETP Holders to submit additional liquidity
to a national securities exchange. Submission of additional liquidity
to the Exchange would promote price discovery and transparency and
enhance order execution opportunities for ETP Holders from the
substantial amounts of liquidity present on the Exchange. All ETP
Holders would benefit from the greater amounts of liquidity that will
be present on the Exchange, which would provide greater execution
opportunities.
LMM Credits
The Exchange believes the proposed rule change to amend the
requirement to qualify for the incremental LMM credits is reasonable
because it is intended to continue to encourage LMMs, and ETP Holders
affiliated with such LMMs, to promote price discovery and market
quality in Less Active ETP Securities for the benefit of all market
participants. The Exchange believes that amending the benchmark from
previous month to prior calendar quarter would serve to stabilize the
number of Less Active ETP Securities and provide LMMs more consistency
in the number of Less Active ETP Securities in which it is registered
as the LMM, and should therefore provide LMMs increased opportunities
to earn incremental credits. The Exchange believes the proposed
amendment to qualify for the current incremental credit for adding
liquidity is also reasonable because it would encourage liquidity and
competition in all securities quoted and traded on the Exchange.
Moreover, the Exchange believes that the proposed change could
incentivize LMMs to register as an LMM in Less Active ETP Securities
and thus, add more liquidity in all securities, and in particular Tape
B securities, to the benefit of all market participants.
Submission of additional liquidity to the Exchange would promote
price discovery and transparency and enhance order execution
opportunities for LMMs from the substantial amounts of liquidity
present on the Exchange. All participants, including LMMs, would
benefit from the greater amounts of liquidity that will be present on
the Exchange, which would provide greater execution opportunities.
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
Tape B Tier 1
The Exchange believes the proposed amendment to Tape B Tier 1
equitably allocates its fees and credits among market participants
because it is reasonably related to the value of the Exchange's market
quality associated with higher equities and options volume.
Additionally, a number of ETP Holders have a reasonable opportunity to
satisfy the pricing tier's criteria.\34\
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\34\ There are currently 54 firms that are both ETP Holders and
OTP Holders.
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The Exchange does not know how much order flow ETP Holders choose
to route to other exchanges or to off-exchange venues. The current
pricing tier is available to all ETP Holders that are also OTP Holders
or OTP Firms. There are currently 3 ETP Holders that qualify for the
Tape B Tier 1 credit and would continue to receive the credit under the
pricing tier if they maintain the same level of trading activity for
the next three months. And as noted above, there are 54 firms that are
both ETP Holders and OTP Holders and a number of such firms could
qualify for Tape B Tier 1 credits. Without having a view of an ETP
Holder's 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 Holder to increase participation in the Exchange's
equities and options markets to qualify for the existing credits. The
Exchange cannot predict with certainty how many ETP Holders would avail
themselves of this opportunity. The Exchange believes that maintaining
the current
[[Page 17117]]
requirement for an additional three months could provide an incentive
for other ETP Holders to submit additional liquidity on the Exchange
and on NYSE Arca Options to qualify for the rebate. To the extent an
ETP Holder participates on the Exchange but not on NYSE Arca Options,
the Exchange believes that the proposal is still reasonable, equitable
and not unfairly discriminatory with respect to such ETP Holder based
on the overall benefit to the Exchange resulting from the success of
NYSE Arca Options. In particular, such success would allow the Exchange
to continue to provide and potentially expand its existing incentive
programs to the benefit of all participants on the Exchange, whether
they participate on NYSE Arca Options or not.
Routing Fees
The Exchange believes that the proposed rule change constitutes an
equitable allocation of reasonable fees because the proposed fee is
designed to reflect the costs incurred by the Exchange for orders
submitted by ETP Holders that remove liquidity from auctions conducted
on away markets and would apply equally to all ETP Holders that choose
to use the Exchange to route PO Orders to Nasdaq and Cboe BZX.
Furthermore, the Exchange notes that routing through the Exchange is
voluntary, and, because the Exchange operates in a highly competitive
environment as discussed below, ETP Holders that do not favor the
Exchange's pricing can readily direct order flow directly to Nasdaq or
Cboe BZX or through competing venues or providers of routing services.
The proposed change may impact the submission of orders to a national
securities exchange, and to the extent that ETP Holders continue to
submit PO Orders to the Exchange, the proposed rule change would not
have a negative impact to ETP Holders trading on the Exchange because
the proposed fee would be in line with the routing fee charged by the
Exchange's affiliates. However, without having a view of ETP Holder's
activity on other markets and off-exchange venues, the Exchange has no
way of knowing whether this proposed rule change would result in a
change in trading behavior by ETP Holders.
Step Up Tier 4
The Exchange believes the proposed amendment to Step Up Tier 4
equitably allocates its fees and credits among market participants
because it is reasonably related to the value of the Exchange's market
quality associated with higher equities volume. First, the Exchange is
not proposing to adjust the amount of the Step Up Tier 4 credits, which
will remain at the current level for all ETP Holders. Rather, the
proposal caps an already high level of the credit paid for displayed
liquidity in Tape B securities and is similar to the cap currently in
place for Tape C securities that provide displayed liquidity. The
Exchange believes the current level of credit would continue to
encourage ETP Holders to send orders that add liquidity to the
Exchange, thereby contributing to robust levels of liquidity, which
benefit all market participants.
LMM Credits
The Exchange believes the proposed rule change to amend the
benchmark threshold to qualify for the incremental LMM credits is
equitable because it provides discounts that are reasonably related to
the value to the Exchange's market quality associated with higher
volumes. The Exchange further believes that amending the benchmark from
previous month to prior calendar quarter would serve to stabilize the
number of Less Active ETP Securities and provide LMMs more consistency
in the number of Less Active ETP Securities in which it is registered
as the LMM, and should therefore provide LMMs increased opportunities
to earn incremental credits.
The Proposed Fee Change Is Not Unfairly Discriminatory
The Exchange believes that the proposed rule change is not unfairly
discriminatory. In the prevailing competitive environment, LMMs and ETP
Holders are free to disfavor the Exchange's pricing if they believe
that alternatives offer them better value.
Tape B Tier 1
The Exchange believes it is not unfairly discriminatory to extend
the current CADV requirement for an additional three months for ETP
Holders to qualify for per share credits, as the proposed change would
be applied on an equal basis to all ETP Holders. Further, the Exchange
believes that maintaining the current requirement for an additional
period of time could provide an incentive for other ETP Holders to
submit additional liquidity on the Exchange and on NYSE Arca Options to
qualify for the rebate. 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.
The proposal to maintain the CADV requirement at current levels to
qualify for the Tape B Tier 1 credit neither targets nor will it have a
disparate impact on any particular category of market participant. The
proposal does not permit unfair discrimination because the amended
threshold would be applied to all similarly situated ETP Holders, who
would all be eligible for the same credit on an equal basis.
Accordingly, no ETP Holder already operating on the Exchange would be
disadvantaged by this allocation of fees.
Routing Fees
The proposal to amend the routing fee for PO Orders routed to
Nasdaq and adopting routing fees for PO Orders routed to Cboe BZX for
execution in each market's opening or closing auction is not unfairly
discriminatory because the fee would be applied on an equal basis to
all ETP Holders that choose to send PO Orders to the Exchange.
Additionally, the proposed rule change neither targets nor will it have
a disparate impact on any particular category of market participant.
The proposal does not permit unfair discrimination because the proposed
fees would be applied to all ETP Holders, who would all be charged the
same fee on an equal basis. Accordingly, no ETP Holder already
operating on the Exchange would be disadvantaged by this allocation of
fees.
Step Up Tier 4
The Exchange believes it is not unfairly discriminatory to cap the
credit payable under Step Up Tier 4 for providing displayed liquidity
in Tape B securities because the proposed cap would be applied on an
equal basis to all ETP Holders, who would all be subject to the
proposed cap on an equal basis. Additionally, the proposal neither
targets nor will it have a disparate impact on any particular category
of market participant. The proposal does not permit unfair
discrimination because the proposed cap would be applied to all ETP
Holders, who would all be subject to the proposed cap on an equal
basis. Accordingly, no ETP Holder already operating on the Exchange
would be disadvantaged by this allocation of fees.
LMM Credits
The Exchange believes it is not unfairly discriminatory to amend
the benchmark threshold to qualify for the incremental LMM credits, as
the amended requirements would apply on an equal basis to all LMMs.
Further, the Exchange believes that amending the benchmark from
previous month to prior calendar quarter would serve to stabilize the
number of Less Active ETP Securities and provide LMMs more
[[Page 17118]]
consistency in the number of Less Active ETP Securities in which it is
registered as the LMM, and should therefore incentivize LMMs to send
more orders to the Exchange resulting in increased opportunities to
earn incremental 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.
The proposal to amend the benchmark threshold to qualify for the
incremental rebates neither targets nor will it have a disparate impact
on any particular category of market participant. The proposal does not
permit unfair discrimination because the proposed threshold would be
applied to all similarly situated LMMs, who would all be eligible for
the same credit on an equal basis. Accordingly, no LMM already
operating on the Exchange would be disadvantaged by this allocation of
fees.
Finally, the submission of orders to the Exchange is optional for
LMMs and 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,\35\ 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 LMMs and 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.'' \36\
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\35\ 15 U.S.C. 78f(b)(8).
\36\ See Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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Intramarket Competition. The proposed change is designed to attract
additional order flow to the Exchange. The Exchange believes that the
proposed amendment to the volume requirement under Tape B Tier 1 and
the proposed cap to the credit payable under Step Up Tier 4 would
continue to incentivize market participants to direct providing
displayed order flow to the Exchange. Further, as noted above, the
Exchange would uniformly assess the routing fee on all ETP Holders who
choose to route orders through the Exchange to Nasdaq or Cboe BZX for
execution in an auction conducted on those markets. Finally, the
Exchange believes that the amended benchmark to qualify for the
incremental credit applicable to LMMs, and ETP Holders affiliated with
such LMMs, would continue to incentivize market participants to direct
their displayed order flow to the Exchange. Greater liquidity benefits
all market participants on the Exchange by providing more trading
opportunities and encourages LMMs, to send orders to the Exchange,
thereby contributing to robust levels of liquidity, which benefits all
market participants. The proposed rule change would be applicable to
all similarly-situated market participants, and, as such, the proposed
change would not impose a disparate burden on competition among market
participants on the Exchange.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily choose to
send their orders to other exchange and off-exchange venues if they
deem fee levels at those other venues to be more favorable. As noted
above, the Exchange's current market share of intraday trading (i.e.,
excluding auctions) is less than 12%. In such an environment, the
Exchange must continually adjust its fees and rebates to remain
competitive with other exchanges and with off-exchange venues. Because
competitors are free to modify their own fees and credits in response,
and because market participants may readily adjust their order routing
practices, the Exchange does not believe its proposed fee change can
impose any burden on intermarket competition.
The Exchange believes that the proposed change could promote
competition between the Exchange and other execution venues, including
those that currently offer similar order types and comparable
transaction pricing, by encouraging additional orders to be sent to the
Exchange for execution.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \37\ of the Act and subparagraph (f)(2) of Rule
19b-4 \38\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\37\ 15 U.S.C. 78s(b)(3)(A).
\38\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \39\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\39\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2020-21 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-2020-21. 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/
[[Page 17119]]
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-NYSEArca-2020-21, and should
be submitted on or before April 16, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06298 Filed 3-25-20; 8:45 am]
BILLING CODE 8011-01-P
