Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the NYSE Arca Equities Fees and Charges to Institute Ratio Threshold Fees, 32068-32073 [2020-11405]
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Policy. The Commission therefore
believes that the proposed rule change
should help to promote the prompt and
accurate clearance and settlement of
securities transactions and assure the
safeguarding of securities and funds in
ICC’s custody and control.
Similarly, in specifying that ICC has
two backup settlement banks in
addition to one primary settlement
bank, the Commission believes that the
proposed rule change should better
reflect that ICC has backup settlement
banks available, and therefore should be
able to continue clearing and settling
transactions should its primary
settlement bank fail.
Therefore, the Commission finds that
the proposed rule change should
promote the prompt and accurate
clearance and settlement of securities
transactions and assure the safeguarding
of securities and funds in ICC’s custody
and control, consistent with the Section
17A(b)(3)(F) of the Act.8
B. Consistency With Rule 17Ad–22(d)(5)
Rule 17Ad–22(d)(5) requires that ICC
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to employ money
settlement arrangements that eliminate
or strictly limit its settlement bank risks,
that is, its credit and liquidity risks from
the use of banks to effect money
settlements with its participants; and
require funds transfers to the clearing
agency to be final when effected.9 By
establishing that the CRS must approve
ICC’s use of a bank before ICC begins
using that bank as a settlement bank, the
Commission believes that the proposed
rule change should limit the risks of
ICC’s use of banks to effect money
settlements with its Clearing
Participants by establishing CRS
approval as an additional check on the
adequacy and fitness of a proposed
settlement bank. Similarly, the
Commission believes that the minimum
criteria discussed above should require
a bank to demonstrate sufficient
regulatory oversight and operational
ability before becoming a settlement
bank, thereby further limiting the risks
of ICC’s use of banks to effect money
settlements with its Clearing
Participants. Finally, in specifying that
ICC has two backup settlement banks in
addition to one primary settlement
bank, the Commission believes the
proposed rule change should help
reflect that ICC has backup settlement
banks available should its primary
settlement bank fail, thereby further
helping to reduce settlement bank risk.
8 15
9 15
U.S.C. 78q–1(b)(3)(F).
U.S.C. 17Ad–22(d)(5).
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For these reasons, the Commission finds
that the proposed rule change is
consistent with Rule 17Ad–22(d)(5).10
C. Consistency With Rule 17Ad–22(d)(8)
Rule 17Ad–22(d)(8) requires that ICC
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to have governance
arrangements that are clear and
transparent to fulfill the public interest
requirements in Section 17A of the
Act 11 applicable to clearing agencies, to
support the objectives of owners and
participants, and to promote the
effectiveness of ICC’s risk management
procedures.12 As discussed above, the
proposed rule change would require
approval by the CRS before ICC
establishes a new bank as a settlement
bank. The Commission believes this
aspect of the proposed rule change
would establish a governance
arrangement (CRS approval) that is clear
and promotes the effectiveness of ICC’s
procedures to mitigate the risks arising
from use of a settlement bank by
ensuring that appropriate personnel at
ICC are involved in the approval of a
new settlement bank. For this reason,
the Commission finds that the proposed
rule change is consistent with Rule
17Ad–22(d)(8).13
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act, and in
particular, with the requirements of
Section 17A(b)(3)(F) of the Act 14 and
Rules 17Ad–22(d)(5) and 17Ad–
22(d)(8).15
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 16 that the
proposed rule change (SR–ICC–2020–
006) be, and hereby is, approved.17
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–11402 Filed 5–27–20; 8:45 am]
BILLING CODE 8011–01–P
10 15
U.S.C. 17Ad–22(d)(5).
U.S.C. 78q–1.
12 15 U.S.C. 17Ad–22(d)(8).
13 15 U.S.C. 17Ad–22(d)(8).
14 15 U.S.C. 78q–1(b)(3)(F).
15 17 CFR 240.17Ad–22(d)(5), (d)(8).
16 15 U.S.C. 78s(b)(2).
17 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
18 17 CFR 200.30–3(a)(12).
11 15
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88930; File No. SR–
NYSEArca–2020–45]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending the NYSE Arca
Equities Fees and Charges to Institute
Ratio Threshold Fees
May 21, 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 May 13,
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 institute Ratio
Threshold Fees. The Exchange proposes
to implement the fee change effective
May 13, 2020. The proposed rule change
is available on the Exchange’s website at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
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 institute Ratio
1
2
15 U.S.C. 78s(b)(1).
17 CFR 240.19b–4.
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Threshold Fees, which would be
applied to orders ranked Priority 2—
Display Orders and to shares of
Auction-Only Orders that have a
disproportionate ratio of orders that are
not executed. The Exchange proposes to
implement the fee change effective May
13, 2020.3
The purpose of the proposed rule
change is to encourage efficient usage of
Exchange systems by ETP Holders. The
Exchange believes that it is in the best
interests of all ETP Holders and
investors who access the Exchange to
encourage efficient systems usage.
Unproductive share entry and
cancellation practices, such as when
ETP Holders flood the market with
displayed orders that are frequently
and/or rapidly cancelled, do little to
support meaningful price discovery,
may create investor confusion about the
extent of trading interest in a security.
The Exchange further believes that
inefficient order entry practices of a
small number of ETP Holders may place
excessive burdens on Exchange systems
and to the systems of other ETP Holders
that are ingesting market data, while
also negatively impacting the usefulness
of market data feeds that transmit each
order and subsequent cancellation.4 ETP
Holders with an excessive ratio of
cancelled to executed orders do little to
support meaningful price discovery.
The Exchange believes that market
quality can be improved through the
imposition of a fee on market
participants that have a
disproportionate ratio of orders that are
not executed. The Exchange believes
that the proposed rule change would
promote a more efficient marketplace
and enhance the trading experience of
all ETP Holders by encouraging them to
more efficiently participate in the
marketplace, while at the same time
allowing for the provision of liquidity in
volatile, high-volume markets and
provide ETP Holders with order
management flexibility without being
subject to this proposed fee.
3 The Exchange originally filed to amend the Fee
Schedule on May 1, 2020 (SR–NYSEArca-2020–40).
SR–NYSEArca–2020–40 was subsequently
withdrawn and replaced by this filing.
4 See generally Recommendations Regarding
Regulatory Reponses to the Market Events of May
6, 2010, Joint CFTC–SEC Advisory Committee on
Emerging Regulatory Issues, at 11 (February 18,
2011) (‘‘The SEC and CFTC should also consider
addressing the disproportionate impact that [high
frequency trading] has on Exchange message traffic
and market surveillance costs. . . . The Committee
recognizes that there are valid reasons for
algorithmic strategies to drive high cancellation
rates, but we believe that this is an area that
deserves further study. At a minimum, we believe
that the participants of those strategies should
properly absorb the externalized costs of their
activity.’’).
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Unnecessary ratios of executed orders
due to cancellations can have a
detrimental effect on all market
participants who are potentially
compelled to upgrade capacity as a
result of the bandwidth usage of other
participants. All ETP Holders are free to
manage their order and message flow as
is consistent with their business models,
and the vast majority of ETP Holders are
able to do so without even approaching
the ratio thresholds proposed for the fee,
as described below. The Exchange
believes that the proposed rule change
would promote a more efficient
marketplace, encourage liquidity
provision and enhance the trading
experience of all ETP Holders by
imposing a financial incentive for the
small number of ETP Holders that are
currently exceeding the proposed ratio
thresholds. The Exchange notes that its
technology and infrastructure is
adequately able to handle high-volume
and high-volatility situations for ETP
Holders that exceed the thresholds
established by the Exchange. As
described below, the proposed fee
would take into consideration the
number of shares that are executed or
trades that occur.
Only a small number of ETP Holders
are executing orders at a
disproportionately low ratio to the
number of orders that have been entered
and, thus, the impact of the proposed
fee would be narrow and limited to
those ETP Holders. These ETP Holders
could avoid the proposed fee by
changing their behavior. The Exchange
believes the proposed fee would
encourage ETP Holders that could be
impacted by the proposed fee to modify
their practices in order to avoid the fee,
thereby improving the market for all
participants. Accordingly, the Exchange
does not expect the proposed fee to
result in meaningful, if any, revenue.
Prior to the submission of the proposed
fee change, the Exchange engaged in
discussions with ETP Holders that
could be impacted by the proposed fee
based on their prior trading behavior so
that they may enhance the efficiency of
their order entry practices and avoid the
fee. The Exchange also provided notice
to ETP Holders generally regarding the
proposed fee.5
As proposed, the Ratio Threshold Fee
would apply to orders ranked Priority
2—Display Orders and to shares of
Auction-Only Orders during the period
when Auction Imbalance information is
being disseminated.
5 See Trader Update at https://www.nyse.com/
publicdocs/nyse/notifications/trader-update/NYSE_
Arca_Price_Change_2020_May.pdf.
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Ratio Threshold for Priority 2—Display
Orders (‘‘RT—Display Fee’’)
For orders ranked Priority 2—Display
Orders, ETP Holders that have
characteristics indicative of inefficient
order entry practices would be charged
an RT—Display Fee on a monthly
basis.6 For purposes of determining the
RT—Display Fee:
• The ‘‘Weighted Order Total’’ is the
total number of orders ranked Priority
2—Display Orders entered by that ETP
Holder in a month, as adjusted by a
‘‘Weighting Factor.’’ The Weighted
Order Total calculation excludes (i) all
orders in securities in which an ETP
Holder is registered as a Market Maker 7
or Lead Market Maker 8 and (ii) all
orders for an ETP Holder that is
registered as a Market Maker or Lead
Market Maker in 100 or more securities.
• The ‘‘Weighting Factor’’ applied to
each order based on its price in
comparison to the national best bid or
best offer (‘‘NBBO’’) at the time of order
entry is:
Order’s price versus NBBO at
entry
Less than 0.20% away .................
0.20% to 0.99% away ..................
1.00% to 1.99% away ..................
2.00% or more away ....................
Weighting
factor
0x
1x
2x
3x
For example, an order more than
2.0% away from the NBBO would be
equivalent to three orders that were
0.50% away. Due to the applicable
Weighting Factor of 0x, orders entered
less than 0.20% away from the NBBO
would not be included in the Weighted
Order Total but would be included in
the ‘‘executed’’ orders component of the
Order Entry Ratio if they execute in full
or part.
• The ‘‘Order Entry Ratio’’ would be
calculated by dividing an ETP Holder’s
Weighted Order Total by the greater of
(i) the number of orders ranked Priority
2—Display Orders that execute in full or
in part or (ii) the number one (1).9
• ‘‘Excess Weighted Orders’’ would
be calculated by subtracting (i) the
Weighted Order Total that would result
in the ETP Holder having an Order
6 The proposed fee focuses on displayed orders
because such orders use more system resources
than non-displayed orders.
7 The term ‘‘Market Maker’’ is defined in Rule
1.1(z) to mean an ETP Holder that acts as a Market
Maker pursuant to Rule 7–E.
8 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.
9 In the case where no orders entered by an ETP
Holder executed, this component of the ratio would
be assumed to be 1, so as to avoid the impossibility
of dividing by zero.
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111, the Applicable Rate would be
$0.0005. Accordingly, the monthly RT—
Display Fee would be 1,000,000 (Excess
Weighted Orders) x $0.005 (Applicable
Rate) = $5,000.
Ratio Threshold for Auction-Only
Orders During the Period When Auction
Imbalance Information is Being
Disseminated for a Core Open Auction
or Closing Auction (‘‘RT—Auction Fee’’)
For Auction-Only Orders,11 ETP
Holders with an average daily number
of orders of 10,000 or more 12 would be
charged an RT—Auction Fee on a
monthly basis.13 For purposes of
determining the RT—Auction Fee:
• The number of ‘‘Ratio Shares’’ is the
average daily number of shares of
Order entry ratio
Applicable rate
Auction-Only Orders that are cancelled
0–100 ....................................
$0.00 by the ETP Holder at a disproportionate
101–1,000 .............................
0.005 ratio to the average daily number of
More than 1,000 ...................
0.01 shares executed by that ETP Holder.
Orders ranked Priority 2—Display
The following example illustrates the
Orders designated for the Core Trading
calculation of the Order Entry Ratio and Session only that are entered during the
resulting RT—Display Fee:
period when Auction Imbalance
• In a month, ETP Holder A enters
Information for the Core Open Auction
35,000,000 displayed, liquidityis being disseminated are included in
providing orders:
the Ratio Shares calculation.14 All
Æ 20,000,000 of the orders are in
orders entered by an ETP Holder for
securities in which ETP Holder A is an
securities in which it is registered as a
LMM. These orders are excluded from
the calculation.
11 An Auction-Only Order is a Limit or Market
Æ 10,000,000 orders are entered at the Order that is to be traded only within an auction
NBBO. The Weighting Factor for these
pursuant to Rule 7.35–E or routed pursuant to Rule
7.34–E. See Rule 7.31–E(c). Auction-Only Orders
orders is 0x.
are orders submitted by an ETP Holder during the
Æ 5,000,000 orders are entered at a
Early Open Auction, Core Open Auction, Closing
price that is 1.50% away from the
Auction and Trading Halt Auction. See Rule 7.35–
NBBO. The Weighting Factor for these
E.
12 The Exchange believes it is reasonable to
orders is 2x.
exclude ETP Holders with average daily orders of
• The Weighted Order Total is
less than 10,000 during the month because an ETP
(10,000,000 × 0) + (5,000,000 × 2) =
Holder with an extremely low volume of entered
10,000,000.
orders has only a de minimis impact on Exchange
• Of the 15,000,000 orders included
systems.
13 Similar to orders ranked Priority 2—Display
in the calculation, 90,000 are executed
Orders, the proposed fee focuses on Auction-Only
in full or in part.
• The Order Entry Ratio is 10,000,000 Orders because a disproportionate ratio of such
orders that are not executed uses more system
(Weighted Order Total)/90,000
resources, including updates to the Auction
(executed orders total) = 111
Imbalance Information as such orders are entered
In the example above, the Weighted
and cancelled, than other order entry and
cancellation practices of ETP Holders. Accordingly,
Order Total that would result in an
for Auction-Only Orders, Ratio Shares include
Order Entry Ratio of 100 is 9,000,000,
shares of Auction-Only Orders executed in a
since 9,000,000/90,000 = 100.
disproportionate ratio to the quantity of shares
Accordingly, the Excess Weighted
entered during the period when Auction Imbalance
Orders would be 10,000,000¥9,000,000 Information is being disseminated for the Core
Open Auction and Closing Auction.
= 1,000,000.
14 For purposes of the Ratio Threshold Fees,
The RT—Display Fee charged to an
orders ranked Priority 2—Display Orders
ETP Holder would then be determined
designated for the Core Trading Session only that
by multiplying the Applicable Rate by
are cancelled during the period when Auction
Imbalance Information for the Core Open Auction
the number of Excess Weighted Orders.
is being disseminated are included in the
In the example above, because ETP
calculation of the proposed RT—Auction Fee. The
Holder A had an Order Entry Ratio of
Exchange proposes to include such orders as
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Entry Ratio of 100 from (ii) the ETP
Holder’s actual Weighted Order Total.
An ETP Holder with a daily average
Weighted Order Total of 100,000 or
more 10 during a month would be
charged the RT—Display Fee, which is
calculated by multiplying the
Applicable Rate in the chart below by
the number of Excess Weighted Orders.
ETP Holders that exceed the Order
Entry Ratio threshold of 1,000:1 would
pay a fee of $0.01 on each order that
caused the ETP Holder to surpass the
threshold. ETP Holders that exceed the
Order Entry Ratio threshold of 100:1 but
less than 1,000:1 would pay a fee of
$0.005 on all orders that caused ETP
Holder’s ratio to exceed 100:1.
The Exchange believes it is reasonable to
exclude ETP Holders with a daily average Weighted
Order Total of less than 100,000 during the month
because an ETP Holder with an extremely low
volume of entered orders has only a de minimis
impact on Exchange systems.
10
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Auction-Only Orders for purposes of such fee
because prior to the Core Open Auction, such
orders would not be eligible to trade and therefore
would not be included in the RT—Display Fee
calculation, yet such orders would be included in
the imbalance calculation for the Core Open
Auction.
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Lead Market Maker are not included the
calculation of Ratio Shares.
• The ‘‘Ratio Shares Threshold’’ is an
ETP Holder’s Ratio Shares divided by
the average daily executed shares by the
ETP Holder.
The Exchange proposes to charge the
RT—Auction Fee for Auction-Only
Orders during the period when Auction
Imbalance Information is being
disseminated.15
The Exchange proposes that it would
not charge the RT—Auction Fee if
Auction-Only Orders have a Ratio
Shares Threshold of less than 50. If the
Ratio Shares Threshold is greater than
or equal to 50, the fee would be as
follows:
• No Charge for ETP Holders with an
average of fewer than 20 million Ratio
Shares per day.
• $1.00 per million Ratio Shares for
ETP Holders with an average of 20
million to 200 million Ratio Shares per
day.
• $10.00 per million Ratio Shares for
ETP Holders with an average of more
than 200 million Ratio Shares per day.
ETP Holders would be charged for the
entirety of their Ratio Shares at a rate of
$1.00 per million Ratio Shares if the
ETP Holder has an average of 20 million
to 200 million Ratio Shares; and $10.00
per million Ratio Shares if the ETP
Holder has an average of more than 200
million Ratio Shares.
The following example illustrates the
calculation of the RT—Auction Fee for
Auction-Only Orders.
• In a month, ETP Holder B enters a
daily average of 100,000 Auction-Only
Orders for the Closing Auction, with an
average size of 600 shares.
• Thus, ETP Holder B’s daily average
number of shares submitted in AuctionOnly Orders for the Closing Auction is
60,000,000 shares (100,000 orders × 600
shares).
• During the period when Closing
Auction Imbalance Information is being
disseminated, ETP Holder B cancels a
daily average of 59,000,000 shares and
executes a daily average of 1,000,000
shares in the Closing Auction.
• ETP Holder B has an average daily
Ratio Shares quantity of 58,000,000
(59,000,000¥1,000,000), and a Ratio
Shares Threshold of 58 (58,000,000/
1,000,000).
• Since the Ratio Shares Threshold is
greater than 50 and the average daily
Ratio Shares quantity is between 20
million and 200 million, ETP Holder B
would be subject to the proposed fee of
15 See Rules 7.35–E(c)(1) (Core Open Auction
Imbalance Information begins at 8:00 a.m. ET) and
7.35–E(d)(1) (Closing Auction Imbalance
Information begins at 3:00 p.m. ET).
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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.’’ 20
As the Commission itself recognized,
the market for trading services in NMS
stocks has become ‘‘more fragmented
and competitive.’’ 21 Indeed, equity
trading is currently dispersed across 13
exchanges,22 numerous alternative
trading systems,23 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).24 The
Exchange believes that the ever-shifting
market share among the exchanges from
2. Statutory Basis
month to month demonstrates that
market participants can shift order flow,
The Exchange believes that the
proposed rule change is consistent with or discontinue or reduce use of certain
Section 6(b) of the Act,18 in general, and categories of products, in response to fee
changes. Accordingly, the Exchange’s
furthers the objectives of Sections
6(b)(4) and (5) of the Act,19 in particular, fees, including the proposed Ratio
Threshold Fee, are reasonably
because it provides for the equitable
constrained by competitive alternatives
allocation of reasonable dues, fees, and
and market participants can readily
other charges among its members,
trade on competing venues if they deem
issuers and other persons using its
pricing levels at those other venues to
facilities and does not unfairly
be more favorable.
discriminate between customers,
The Exchange believes that the
issuers, brokers or dealers.
proposed Ratio Threshold Fees are
The Exchange believes that the
reasonable because they are designed to
proposed fee would help to prevent
achieve improvements in the quality of
fraudulent and manipulative acts and
displayed liquidity—both intraday and
practices, to promote just and equitable
principles of trade, to foster cooperation in advance of auctions—on the
Exchange for the benefit of all market
and coordination with persons engaged
participants. In addition, the proposed
in regulating, clearing, settling,
fees are reasonable because market
processing information with respect to,
participants may readily avoid the fee
and facilitating transactions in
securities, to remove impediments to
20 See Securities Exchange Act Release No. 51808
and perfect the mechanism of a free and
(June 9, 2005), 70 FR 37495, 37499 (June 29, 2005)
open market and a national market
(S7–10–04) (‘‘Regulation NMS’’).
system, and, in general, to protect
21 See Securities Exchange Act Release No.
investors and the public interest,
51808, 84 FR 5202, 5253 (February 20, 2019) (File
No. S7–05–18) (Final Rule).
because it is designed to reduce the
22 See Cboe U.S Equities Market Volume
numbers of orders and shares being
Summary,
available at https://markets.cboe.com/us/
entered and then cancelled prior to an
equities/market_share. See generally https://
execution.
www.sec.gov/fast-answers/divisionsmarketregmr
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$1.00 per million Ratio Share, resulting
in a fee of $1,218 assuming a 21-day
month (58,000,000/1,000,000 × $1.00 ×
21).
As noted above, the Exchange is not
proposing to implement this fee in order
to create revenue, but rather to provide
an incentive for a small number of ETP
Holders to change their order entry
practices. Therefore, the Exchange also
proposes to limit the amount an ETP
Holder would pay by adopting a cap
such that the combined RT—Display
Fee and RT—Auction Fee for an ETP
Holder would not exceed $2,000,000 per
month. Based on an analysis of the
impact to ETP Holders, the Exchange
does not believe that many ETP Holders
would be impacted. For example, the
median Order Entry Ratio across all ETP
Holders in April 2020 16 for orders
ranked Priority 2—Display Orders is
0.32. The median Ratio Shares
Threshold across all ETP Holders in
April 2020 17 for Auction-Only Orders is
approximately -0.68, which indicates
that the median ETP Holder has more
executed shares than Ratio Shares.
The Proposed Changes are Reasonable
The Exchange operates in a highly
competitive market. The Commission
Through April 20, 2020.
Id.
18 15 U.S.C. 78f(b).
19 15 U.S.C. 78f(b)(4) and (5).
16
17
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exchangesshtml.html.
23 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.
24 See Cboe Global Markets U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
PO 00000
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32071
by adjusting their order entry and/or
cancellation practices, which would
result in more orders or shares being
cancelled before execution.
The Exchange believes it is also
reasonable to charge a Ratio Threshold
Fee on the basis of the number of orders
ranked Priority 2—Display Orders and
to charge a Ratio Threshold Fee that is
based on the number of shares of
Auction-Only Orders because, as a
general matter, displayed orders entered
on the Exchange have fewer shares
associated with each order whereas, the
share quantity of an Auction-Only Order
typically is much larger. The Exchange
believes that applying the Ratio
Threshold Fee to orders ranked Priority
2—Display Orders based on the number
of shares of each order would not
promote efficient order entry practice by
ETP Holders in a meaningful way
because, as noted above, the average
size of each displayed order is relatively
small in terms of shares. Therefore, to
properly incentivize ETP Holders, the
Exchange believes assessing the
proposed fee based on orders, rather
than number of shares, is more
appropriate. The Exchange further
believes that it is reasonable to apply
the proposed fee to Auction-Only
Orders only during the period when
Auction Imbalance Information is being
disseminated, because such orders are
not displayed prior to such information
being disseminated. By contrast,
cancelling shares of Auction-Only
Orders during the period when Auction
Imbalance Information is being
disseminated could result in excessive
and unnecessary changes to imbalance
information.
Although only a small number of ETP
Holders could be subject to the
proposed fee, the Exchange believes that
the proposed fee is necessary because of
the negative externalities that such
behavior imposes on others through
order entry practices resulting in a
disproportionate ratio of executed
orders or shares to those that are not
executed. Accordingly, the Exchange
believes that it is fair to impose the fee
on these market participants in order to
incentivize them to modify their
practices and thereby benefit the
market. Importantly, whether an ETP
Holder would be subject to the proposed
fee would be independent of any
determination of whether such ETP
Holder is complying with Exchange and
federal rules, including those governing
order entry and cancellation.
The Exchange believes that the
proposed combined fee cap of
$2,000,000 is reasonable as it would
reduce the impact of the fee on ETP
Holders. As noted above, the purpose of
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the proposed fee is not to generate
revenue for the Exchange, but rather to
provide an incentive for a small number
of ETP Holders to change their order
entry and/or cancellation behavior. As a
general principal, the Exchange believes
that greater participation on the
Exchange by ETP Holders improves
market quality for all market
participants. Thus, in adopting the
proposed fee, and the cap, the Exchange
balanced the desire to improve market
quality against the need to discourage
inefficient order entry and/or
cancellation practices.
The Exchange believes the proposed
rule change is designed to promote just
and equitable principles of trade by
adopting a fee that is comparable to a
fee charged by the NASDAQ Stock
Market LLC (‘‘Nasdaq’’) 25 and by
Exchange’s options market, NYSE Arca
Options, to OTP Holders to
disincentivize a disproportionate ratio
of orders that are not executed.26 With
respect to the RT—Display Fee, the
proposed fee is identical to the Excess
Order Fee currently in place on Nasdaq
and would subject ETP Holders to the
fee if they exceed the Order Entry Ratio
thresholds established by the Exchange,
which thresholds are also identical to
those on Nasdaq. Additionally, while
the RT—Auction Fee is novel in that no
other exchange currently assesses such
a fee, the proposed fee, similar to the
RT—Display fee, is intended to
disincentivize a disproportionate ratio
of orders that are not executed.
Therefore, the RT—Auction Fee focuses
on Auction-Only Orders because a
disproportionate ratio of such orders
that are not executed uses more system
resources, including updates to the
Auction Imbalance Information as such
orders are entered and cancelled, than
other order entry and cancellation
practices of ETP Holders. Finally, the
RT—Auction Fee, unlike the RT—
Display Fee which would be assessed
on a tiered basis, would be applied on
the entirety of each ETP Holder’s Ratio
Shares, which, as defined above, is
calculated net of shares that have been
executed, and therefore, the fee would
be applied only to those shares that
remain unexecuted. The Exchange
believes it would be appropriate to
25 See Securities Exchange Act Release No. 66951
(May 9, 2012), 77 FR 28647 (May 15, 2012) (SR–
NASDAQ–2012–055) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
To Institute an Excess Order Fee).
26 See Ratio Threshold Fee, at https://
www.nyse.com/publicdocs/nyse/markets/arcaoptions/NYSE_Arca_Options_Fee_Schedule.pdf.
The Ratio Threshold Fee is charged to OTP Holders
based on the number of orders entered compared
to the number of executions received in a calendar
month.
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assess the fee in a non-tiered manner
because Auction-Only Orders generally
have a larger number of shares
associated with each order than orders
ranked Priority 2—Display Orders and
therefore, the number of shares that
could be impacted could increase
significantly in a short period of time
since the auction imbalance period only
lasts for one hour. Additionally, the
submission, and subsequent
cancellation, of Auction-Only Orders
during the imbalance dissemination
period could lead to disruption in
trading as each order, which could
contain a large number of shares, would
require the Exchange to update and
disseminate the new order information
on its market data feed. Accordingly, the
Exchange believes assessing the fee on
a share basis is appropriate because it
would more effectively disincentivize
ETP Holders from submitting a
disproportionate ratio of shares that are
not executed.
The Proposal Is an Equitable Allocation
of Fees
For the reasons noted above, the
Exchange believes the proposed fees are
also equitably allocated among its
market participants. Although only a
small number of ETP Holders may be
subject to the proposed fees based on
their current trading practices, any ETP
Holder could determine to change their
order entry practices at any time, and
the proposed fees would be applied to
any ETP Holder that determined to
engage in such inefficient order entry
practices. The proposed fee is therefore
designed to encourage better displayed
order entry practices by all ETP Holders
for the benefit of all market participants.
Moreover, the purpose of the proposal is
not to generate revenue for the
Exchange, but rather to provide an
incentive for a small number of ETP
Holders to change their order entry and/
or cancellation behavior.
The Exchange believes that the
proposal constitutes an equitable
allocation of fees because all similarly
situated ETP Holders would be subject
to the proposed fees. As noted above,
the Exchange believes that because
having a disproportionate ratio of
unexecuted orders is a problem
associated with a relatively small
number of ETP Holders, the impact of
the proposal would be limited to those
ETP Holders, and only if they do not
alter their trading practices. The
Exchange believes the proposal would
encourage ETP Holders that could be
impacted to modify their practices in
order to avoid the fee, thereby
improving the market for all
participants.
PO 00000
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The Proposal Is Not Unfairly
Discriminatory
The Exchange believes that the
proposal is not unfairly discriminatory.
In the prevailing competitive
environment, ETP Holders are free to
disfavor the Exchange’s pricing if they
believe that alternatives offer them
better value, and are free to transact on
competitor markets to avoid being
subject to the proposed fees. The
Exchange believes that the proposed
fees neither target nor will they have a
disparate impact on any particular
category of market participant. The
Exchange believes that the proposal
change does not permit unfair
discrimination because it would be
applied to all similarly situated ETP
Holders, who would all be subject to the
proposed fee on an equal basis.
The Exchange further believes that it
is not unfairly discriminatory to exclude
Market Makers and Lead Market Makers
from the proposed RT—Display Fee in
securities in which they are registered,
or if they are registered in more than
100 securities. Market Makers and Lead
Market Makers have independent
obligations to maintain a two-sided
quotation a specified percentage away
from the NBBO. In order to meet this
obligation, such ETP Holders are more
likely to need to cancel their resting
orders so that they can update their
quotes. The Exchange believes that such
independent obligation to maintain a
fair and orderly market outweighs any
impact such cancellations would have
on Exchange systems. The Exchange
similarly believes that, unlike Lead
Market Makers, Market Makers do not
have a similar obligation leading into an
auction, therefore it is not necessary to
exclude Market Makers from the
proposed RT—Auction Fee.
Finally, the submission of orders to
the Exchange is optional for ETP
Holders in that they could choose
whether to submit orders to the
Exchange and, if they do, the extent of
its activity in this regard. 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,27 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 fee would encourage
27
15 U.S.C. 78f(b)(8).
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ETP Holders to modify their order entry
and/or cancellation practices so that
fewer orders or shares are cancelled
without resulting in an execution,
thereby promoting price discovery and
transparency and enhancing order
execution opportunities on the
Exchange.
Intramarket Competition. The
Exchange believes the proposed Ratio
Threshold Fees would not place any
undue burden on intramarket
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act because the
proposed fees are designed to encourage
ETP Holders to submit orders or shares
into the market that are actionable.
Further, the proposal would apply to all
ETP Holders on an equal basis, and, as
such, the proposed change would not
impose a disparate burden on
competition among market participants
on the Exchange. To the extent that
these purposes are achieved, the
Exchange believes that the proposal
would serve as an incentive for ETP
Holders to modify their order entry
practices, thus enhancing the quality of
the market and increase the volume of
orders or shares directed to, and
executed on, the Exchange. In turn, all
the Exchange’s market participants
would benefit from the improved
market liquidity.
Intermarket Competition. The
Exchange operates in a highly
competitive market in which market
participants can readily favor other
exchange and off-exchange venues. In
such an environment, the Exchange
must continually review, and consider
adjusting its services along with its fees
and rebates, to remain competitive with
other exchanges and with off-exchange
venues. Because competitors are free to
modify their own services, and their
fees and credits in response, the
Exchange does not believe the proposed
fee change can impose any burden on
intermarket competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
jbell on DSKJLSW7X2PROD with NOTICES
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) 28 of the Act and
subparagraph (f)(2) of Rule 19b–4 29
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) 30 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–2020–45 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–2020–45. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
29 17
28 15
U.S.C. 78s(b)(3)(A).
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CFR 240.19b–4(f)(2).
U.S.C. 78s(b)(2)(B).
Frm 00071
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32073
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–2020–45, and
should be submitted on or before June
18, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–11405 Filed 5–27–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[[Release No. 34–88925; File No. SR–ICC–
2020–004]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Order Approving
Proposed Rule Change Relating to the
ICC CDS Instrument On-Boarding
Policies and Procedures
May 21, 2020.
I. Introduction
On March 30, 2020, ICE Clear Credit
LLC (‘‘ICC’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (the ‘‘Act’’),1 and Rule 19b–4,2
a proposed rule change to update and
formalize the ICC CDS Instrument Onboarding Policies and Procedures
(‘‘Instrument On-boarding Policy’’). The
proposed rule change was published for
comment in the Federal Register on
April 8, 2020.3 The Commission did not
receive comments regarding the
proposed rule change. For the reasons
discussed below, the Commission is
approving the proposed rule change.
17 CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Self-Regulatory Organizations; ICE Clear Credit
LLC; Notice of Filing of Proposed Rule Change,
Security-Based Swap Submission, or Advance
Notice Relating to the ICC CDS Instrument Onboarding Policies and Procedures; Exchange Act
Release No. 88545 (Apr. 2, 2020); 85 FR 19785 (Apr.
8, 2020) (SR–ICC–2020–004) (‘‘Notice’’).
31
1 15
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]]>Agencies
[Federal Register Volume 85, Number 103 (Thursday, May 28, 2020)]
[Notices]
[Pages 32068-32073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11405]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88930; File No. SR-NYSEArca-2020-45]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE
Arca Equities Fees and Charges to Institute Ratio Threshold Fees
May 21, 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 May 13, 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\ 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 institute Ratio Threshold Fees. The
Exchange proposes to implement the fee change effective May 13, 2020.
The proposed rule change is available on the Exchange's website at
www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, 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 institute Ratio
[[Page 32069]]
Threshold Fees, which would be applied to orders ranked Priority 2--
Display Orders and to shares of Auction-Only Orders that have a
disproportionate ratio of orders that are not executed. The Exchange
proposes to implement the fee change effective May 13, 2020.\3\
---------------------------------------------------------------------------
\3\ The Exchange originally filed to amend the Fee Schedule on
May 1, 2020 (SR-NYSEArca-2020-40). SR-NYSEArca-2020-40 was
subsequently withdrawn and replaced by this filing.
---------------------------------------------------------------------------
The purpose of the proposed rule change is to encourage efficient
usage of Exchange systems by ETP Holders. The Exchange believes that it
is in the best interests of all ETP Holders and investors who access
the Exchange to encourage efficient systems usage. Unproductive share
entry and cancellation practices, such as when ETP Holders flood the
market with displayed orders that are frequently and/or rapidly
cancelled, do little to support meaningful price discovery, may create
investor confusion about the extent of trading interest in a security.
The Exchange further believes that inefficient order entry practices of
a small number of ETP Holders may place excessive burdens on Exchange
systems and to the systems of other ETP Holders that are ingesting
market data, while also negatively impacting the usefulness of market
data feeds that transmit each order and subsequent cancellation.\4\ ETP
Holders with an excessive ratio of cancelled to executed orders do
little to support meaningful price discovery.
---------------------------------------------------------------------------
\4\ See generally Recommendations Regarding Regulatory Reponses
to the Market Events of May 6, 2010, Joint CFTC-SEC Advisory
Committee on Emerging Regulatory Issues, at 11 (February 18, 2011)
(``The SEC and CFTC should also consider addressing the
disproportionate impact that [high frequency trading] has on
Exchange message traffic and market surveillance costs. . . . The
Committee recognizes that there are valid reasons for algorithmic
strategies to drive high cancellation rates, but we believe that
this is an area that deserves further study. At a minimum, we
believe that the participants of those strategies should properly
absorb the externalized costs of their activity.'').
---------------------------------------------------------------------------
The Exchange believes that market quality can be improved through
the imposition of a fee on market participants that have a
disproportionate ratio of orders that are not executed. The Exchange
believes that the proposed rule change would promote a more efficient
marketplace and enhance the trading experience of all ETP Holders by
encouraging them to more efficiently participate in the marketplace,
while at the same time allowing for the provision of liquidity in
volatile, high-volume markets and provide ETP Holders with order
management flexibility without being subject to this proposed fee.
Unnecessary ratios of executed orders due to cancellations can have a
detrimental effect on all market participants who are potentially
compelled to upgrade capacity as a result of the bandwidth usage of
other participants. All ETP Holders are free to manage their order and
message flow as is consistent with their business models, and the vast
majority of ETP Holders are able to do so without even approaching the
ratio thresholds proposed for the fee, as described below. The Exchange
believes that the proposed rule change would promote a more efficient
marketplace, encourage liquidity provision and enhance the trading
experience of all ETP Holders by imposing a financial incentive for the
small number of ETP Holders that are currently exceeding the proposed
ratio thresholds. The Exchange notes that its technology and
infrastructure is adequately able to handle high-volume and high-
volatility situations for ETP Holders that exceed the thresholds
established by the Exchange. As described below, the proposed fee would
take into consideration the number of shares that are executed or
trades that occur.
Only a small number of ETP Holders are executing orders at a
disproportionately low ratio to the number of orders that have been
entered and, thus, the impact of the proposed fee would be narrow and
limited to those ETP Holders. These ETP Holders could avoid the
proposed fee by changing their behavior. The Exchange believes the
proposed fee would encourage ETP Holders that could be impacted by the
proposed fee to modify their practices in order to avoid the fee,
thereby improving the market for all participants. Accordingly, the
Exchange does not expect the proposed fee to result in meaningful, if
any, revenue. Prior to the submission of the proposed fee change, the
Exchange engaged in discussions with ETP Holders that could be impacted
by the proposed fee based on their prior trading behavior so that they
may enhance the efficiency of their order entry practices and avoid the
fee. The Exchange also provided notice to ETP Holders generally
regarding the proposed fee.\5\
---------------------------------------------------------------------------
\5\ See Trader Update at https://www.nyse.com/publicdocs/nyse/notifications/trader-update/NYSE_Arca_Price_Change_2020_May.pdf.
---------------------------------------------------------------------------
As proposed, the Ratio Threshold Fee would apply to orders ranked
Priority 2--Display Orders and to shares of Auction-Only Orders during
the period when Auction Imbalance information is being disseminated.
Ratio Threshold for Priority 2--Display Orders (``RT--Display Fee'')
For orders ranked Priority 2--Display Orders, ETP Holders that have
characteristics indicative of inefficient order entry practices would
be charged an RT--Display Fee on a monthly basis.\6\ For purposes of
determining the RT--Display Fee:
---------------------------------------------------------------------------
\6\ The proposed fee focuses on displayed orders because such
orders use more system resources than non-displayed orders.
---------------------------------------------------------------------------
The ``Weighted Order Total'' is the total number of orders
ranked Priority 2--Display Orders entered by that ETP Holder in a
month, as adjusted by a ``Weighting Factor.'' The Weighted Order Total
calculation excludes (i) all orders in securities in which an ETP
Holder is registered as a Market Maker \7\ or Lead Market Maker \8\ and
(ii) all orders for an ETP Holder that is registered as a Market Maker
or Lead Market Maker in 100 or more securities.
---------------------------------------------------------------------------
\7\ The term ``Market Maker'' is defined in Rule 1.1(z) to mean
an ETP Holder that acts as a Market Maker pursuant to Rule 7-E.
\8\ 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.
---------------------------------------------------------------------------
The ``Weighting Factor'' applied to each order based on
its price in comparison to the national best bid or best offer
(``NBBO'') at the time of order entry is:
------------------------------------------------------------------------
Order's price versus NBBO at entry Weighting factor
------------------------------------------------------------------------
Less than 0.20% away....................... 0x
0.20% to 0.99% away........................ 1x
1.00% to 1.99% away........................ 2x
2.00% or more away......................... 3x
------------------------------------------------------------------------
For example, an order more than 2.0% away from the NBBO would be
equivalent to three orders that were 0.50% away. Due to the applicable
Weighting Factor of 0x, orders entered less than 0.20% away from the
NBBO would not be included in the Weighted Order Total but would be
included in the ``executed'' orders component of the Order Entry Ratio
if they execute in full or part.
The ``Order Entry Ratio'' would be calculated by dividing
an ETP Holder's Weighted Order Total by the greater of (i) the number
of orders ranked Priority 2--Display Orders that execute in full or in
part or (ii) the number one (1).\9\
---------------------------------------------------------------------------
\9\ In the case where no orders entered by an ETP Holder
executed, this component of the ratio would be assumed to be 1, so
as to avoid the impossibility of dividing by zero.
---------------------------------------------------------------------------
``Excess Weighted Orders'' would be calculated by
subtracting (i) the Weighted Order Total that would result in the ETP
Holder having an Order
[[Page 32070]]
Entry Ratio of 100 from (ii) the ETP Holder's actual Weighted Order
Total.
An ETP Holder with a daily average Weighted Order Total of 100,000
or more \10\ during a month would be charged the RT--Display Fee, which
is calculated by multiplying the Applicable Rate in the chart below by
the number of Excess Weighted Orders.
---------------------------------------------------------------------------
\10\ The Exchange believes it is reasonable to exclude ETP
Holders with a daily average Weighted Order Total of less than
100,000 during the month because an ETP Holder with an extremely low
volume of entered orders has only a de minimis impact on Exchange
systems.
---------------------------------------------------------------------------
ETP Holders that exceed the Order Entry Ratio threshold of 1,000:1
would pay a fee of $0.01 on each order that caused the ETP Holder to
surpass the threshold. ETP Holders that exceed the Order Entry Ratio
threshold of 100:1 but less than 1,000:1 would pay a fee of $0.005 on
all orders that caused ETP Holder's ratio to exceed 100:1.
------------------------------------------------------------------------
Applicable
Order entry ratio rate
------------------------------------------------------------------------
0-100................................................... $0.00
101-1,000............................................... 0.005
More than 1,000......................................... 0.01
------------------------------------------------------------------------
The following example illustrates the calculation of the Order
Entry Ratio and resulting RT--Display Fee:
In a month, ETP Holder A enters 35,000,000 displayed,
liquidity-providing orders:
[cir] 20,000,000 of the orders are in securities in which ETP
Holder A is an LMM. These orders are excluded from the calculation.
[cir] 10,000,000 orders are entered at the NBBO. The Weighting
Factor for these orders is 0x.
[cir] 5,000,000 orders are entered at a price that is 1.50% away
from the NBBO. The Weighting Factor for these orders is 2x.
The Weighted Order Total is (10,000,000 x 0) + (5,000,000
x 2) = 10,000,000.
Of the 15,000,000 orders included in the calculation,
90,000 are executed in full or in part.
The Order Entry Ratio is 10,000,000 (Weighted Order
Total)/90,000 (executed orders total) = 111
In the example above, the Weighted Order Total that would result in
an Order Entry Ratio of 100 is 9,000,000, since 9,000,000/90,000 = 100.
Accordingly, the Excess Weighted Orders would be 10,000,000-9,000,000 =
1,000,000.
The RT--Display Fee charged to an ETP Holder would then be
determined by multiplying the Applicable Rate by the number of Excess
Weighted Orders.
In the example above, because ETP Holder A had an Order Entry Ratio
of 111, the Applicable Rate would be $0.0005. Accordingly, the monthly
RT--Display Fee would be 1,000,000 (Excess Weighted Orders) x $0.005
(Applicable Rate) = $5,000.
Ratio Threshold for Auction-Only Orders During the Period When
Auction Imbalance Information is Being Disseminated for a Core Open
Auction or Closing Auction (``RT--Auction Fee'')
For Auction-Only Orders,\11\ ETP Holders with an average daily
number of orders of 10,000 or more \12\ would be charged an RT--Auction
Fee on a monthly basis.\13\ For purposes of determining the RT--Auction
Fee:
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\11\ An Auction-Only Order is a Limit or Market Order that is to
be traded only within an auction pursuant to Rule 7.35-E or routed
pursuant to Rule 7.34-E. See Rule 7.31-E(c). Auction-Only Orders are
orders submitted by an ETP Holder during the Early Open Auction,
Core Open Auction, Closing Auction and Trading Halt Auction. See
Rule 7.35-E.
\12\ The Exchange believes it is reasonable to exclude ETP
Holders with average daily orders of less than 10,000 during the
month because an ETP Holder with an extremely low volume of entered
orders has only a de minimis impact on Exchange systems.
\13\ Similar to orders ranked Priority 2--Display Orders, the
proposed fee focuses on Auction-Only Orders because a
disproportionate ratio of such orders that are not executed uses
more system resources, including updates to the Auction Imbalance
Information as such orders are entered and cancelled, than other
order entry and cancellation practices of ETP Holders. Accordingly,
for Auction-Only Orders, Ratio Shares include shares of Auction-Only
Orders executed in a disproportionate ratio to the quantity of
shares entered during the period when Auction Imbalance Information
is being disseminated for the Core Open Auction and Closing Auction.
---------------------------------------------------------------------------
The number of ``Ratio Shares'' is the average daily number
of shares of Auction-Only Orders that are cancelled by the ETP Holder
at a disproportionate ratio to the average daily number of shares
executed by that ETP Holder. Orders ranked Priority 2--Display Orders
designated for the Core Trading Session only that are entered during
the period when Auction Imbalance Information for the Core Open Auction
is being disseminated are included in the Ratio Shares calculation.\14\
All orders entered by an ETP Holder for securities in which it is
registered as a Lead Market Maker are not included the calculation of
Ratio Shares.
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\14\ For purposes of the Ratio Threshold Fees, orders ranked
Priority 2--Display Orders designated for the Core Trading Session
only that are cancelled during the period when Auction Imbalance
Information for the Core Open Auction is being disseminated are
included in the calculation of the proposed RT--Auction Fee. The
Exchange proposes to include such orders as Auction-Only Orders for
purposes of such fee because prior to the Core Open Auction, such
orders would not be eligible to trade and therefore would not be
included in the RT--Display Fee calculation, yet such orders would
be included in the imbalance calculation for the Core Open Auction.
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The ``Ratio Shares Threshold'' is an ETP Holder's Ratio
Shares divided by the average daily executed shares by the ETP Holder.
The Exchange proposes to charge the RT--Auction Fee for Auction-
Only Orders during the period when Auction Imbalance Information is
being disseminated.\15\
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\15\ See Rules 7.35-E(c)(1) (Core Open Auction Imbalance
Information begins at 8:00 a.m. ET) and 7.35-E(d)(1) (Closing
Auction Imbalance Information begins at 3:00 p.m. ET).
---------------------------------------------------------------------------
The Exchange proposes that it would not charge the RT--Auction Fee
if Auction-Only Orders have a Ratio Shares Threshold of less than 50.
If the Ratio Shares Threshold is greater than or equal to 50, the fee
would be as follows:
No Charge for ETP Holders with an average of fewer than 20
million Ratio Shares per day.
$1.00 per million Ratio Shares for ETP Holders with an
average of 20 million to 200 million Ratio Shares per day.
$10.00 per million Ratio Shares for ETP Holders with an
average of more than 200 million Ratio Shares per day.
ETP Holders would be charged for the entirety of their Ratio Shares
at a rate of $1.00 per million Ratio Shares if the ETP Holder has an
average of 20 million to 200 million Ratio Shares; and $10.00 per
million Ratio Shares if the ETP Holder has an average of more than 200
million Ratio Shares.
The following example illustrates the calculation of the RT--
Auction Fee for Auction-Only Orders.
In a month, ETP Holder B enters a daily average of 100,000
Auction-Only Orders for the Closing Auction, with an average size of
600 shares.
Thus, ETP Holder B's daily average number of shares
submitted in Auction-Only Orders for the Closing Auction is 60,000,000
shares (100,000 orders x 600 shares).
During the period when Closing Auction Imbalance
Information is being disseminated, ETP Holder B cancels a daily average
of 59,000,000 shares and executes a daily average of 1,000,000 shares
in the Closing Auction.
ETP Holder B has an average daily Ratio Shares quantity of
58,000,000 (59,000,000-1,000,000), and a Ratio Shares Threshold of 58
(58,000,000/1,000,000).
Since the Ratio Shares Threshold is greater than 50 and
the average daily Ratio Shares quantity is between 20 million and 200
million, ETP Holder B would be subject to the proposed fee of
[[Page 32071]]
$1.00 per million Ratio Share, resulting in a fee of $1,218 assuming a
21-day month (58,000,000/1,000,000 x $1.00 x 21).
As noted above, the Exchange is not proposing to implement this fee
in order to create revenue, but rather to provide an incentive for a
small number of ETP Holders to change their order entry practices.
Therefore, the Exchange also proposes to limit the amount an ETP Holder
would pay by adopting a cap such that the combined RT--Display Fee and
RT--Auction Fee for an ETP Holder would not exceed $2,000,000 per
month. Based on an analysis of the impact to ETP Holders, the Exchange
does not believe that many ETP Holders would be impacted. For example,
the median Order Entry Ratio across all ETP Holders in April 2020 \16\
for orders ranked Priority 2--Display Orders is 0.32. The median Ratio
Shares Threshold across all ETP Holders in April 2020 \17\ for Auction-
Only Orders is approximately -0.68, which indicates that the median ETP
Holder has more executed shares than Ratio Shares.
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\16\ Through April 20, 2020.
\17\ Id.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\18\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\19\ 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.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that the proposed fee would help to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest, because it is designed to
reduce the numbers of orders and shares being entered and then
cancelled prior to an execution.
The Proposed Changes are Reasonable
The Exchange operates in a highly 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.'' \20\
---------------------------------------------------------------------------
\20\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (``Regulation
NMS'').
---------------------------------------------------------------------------
As the Commission itself recognized, the market for trading
services in NMS stocks has become ``more fragmented and competitive.''
\21\ Indeed, equity trading is currently dispersed across 13
exchanges,\22\ numerous alternative trading systems,\23\ 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).\24\ 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 or reduce use of
certain categories of products, in response to fee changes.
Accordingly, the Exchange's fees, including the proposed Ratio
Threshold Fee, are reasonably constrained by competitive alternatives
and market participants can readily trade on competing venues if they
deem pricing levels at those other venues to be more favorable.
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\21\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Final Rule).
\22\ 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.
\23\ 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.
\24\ See Cboe Global Markets U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
---------------------------------------------------------------------------
The Exchange believes that the proposed Ratio Threshold Fees are
reasonable because they are designed to achieve improvements in the
quality of displayed liquidity--both intraday and in advance of
auctions--on the Exchange for the benefit of all market participants.
In addition, the proposed fees are reasonable because market
participants may readily avoid the fee by adjusting their order entry
and/or cancellation practices, which would result in more orders or
shares being cancelled before execution.
The Exchange believes it is also reasonable to charge a Ratio
Threshold Fee on the basis of the number of orders ranked Priority 2--
Display Orders and to charge a Ratio Threshold Fee that is based on the
number of shares of Auction-Only Orders because, as a general matter,
displayed orders entered on the Exchange have fewer shares associated
with each order whereas, the share quantity of an Auction-Only Order
typically is much larger. The Exchange believes that applying the Ratio
Threshold Fee to orders ranked Priority 2--Display Orders based on the
number of shares of each order would not promote efficient order entry
practice by ETP Holders in a meaningful way because, as noted above,
the average size of each displayed order is relatively small in terms
of shares. Therefore, to properly incentivize ETP Holders, the Exchange
believes assessing the proposed fee based on orders, rather than number
of shares, is more appropriate. The Exchange further believes that it
is reasonable to apply the proposed fee to Auction-Only Orders only
during the period when Auction Imbalance Information is being
disseminated, because such orders are not displayed prior to such
information being disseminated. By contrast, cancelling shares of
Auction-Only Orders during the period when Auction Imbalance
Information is being disseminated could result in excessive and
unnecessary changes to imbalance information.
Although only a small number of ETP Holders could be subject to the
proposed fee, the Exchange believes that the proposed fee is necessary
because of the negative externalities that such behavior imposes on
others through order entry practices resulting in a disproportionate
ratio of executed orders or shares to those that are not executed.
Accordingly, the Exchange believes that it is fair to impose the fee on
these market participants in order to incentivize them to modify their
practices and thereby benefit the market. Importantly, whether an ETP
Holder would be subject to the proposed fee would be independent of any
determination of whether such ETP Holder is complying with Exchange and
federal rules, including those governing order entry and cancellation.
The Exchange believes that the proposed combined fee cap of
$2,000,000 is reasonable as it would reduce the impact of the fee on
ETP Holders. As noted above, the purpose of
[[Page 32072]]
the proposed fee is not to generate revenue for the Exchange, but
rather to provide an incentive for a small number of ETP Holders to
change their order entry and/or cancellation behavior. As a general
principal, the Exchange believes that greater participation on the
Exchange by ETP Holders improves market quality for all market
participants. Thus, in adopting the proposed fee, and the cap, the
Exchange balanced the desire to improve market quality against the need
to discourage inefficient order entry and/or cancellation practices.
The Exchange believes the proposed rule change is designed to
promote just and equitable principles of trade by adopting a fee that
is comparable to a fee charged by the NASDAQ Stock Market LLC
(``Nasdaq'') \25\ and by Exchange's options market, NYSE Arca Options,
to OTP Holders to disincentivize a disproportionate ratio of orders
that are not executed.\26\ With respect to the RT--Display Fee, the
proposed fee is identical to the Excess Order Fee currently in place on
Nasdaq and would subject ETP Holders to the fee if they exceed the
Order Entry Ratio thresholds established by the Exchange, which
thresholds are also identical to those on Nasdaq. Additionally, while
the RT--Auction Fee is novel in that no other exchange currently
assesses such a fee, the proposed fee, similar to the RT--Display fee,
is intended to disincentivize a disproportionate ratio of orders that
are not executed. Therefore, the RT--Auction Fee focuses on Auction-
Only Orders because a disproportionate ratio of such orders that are
not executed uses more system resources, including updates to the
Auction Imbalance Information as such orders are entered and cancelled,
than other order entry and cancellation practices of ETP Holders.
Finally, the RT--Auction Fee, unlike the RT--Display Fee which would be
assessed on a tiered basis, would be applied on the entirety of each
ETP Holder's Ratio Shares, which, as defined above, is calculated net
of shares that have been executed, and therefore, the fee would be
applied only to those shares that remain unexecuted. The Exchange
believes it would be appropriate to assess the fee in a non-tiered
manner because Auction-Only Orders generally have a larger number of
shares associated with each order than orders ranked Priority 2--
Display Orders and therefore, the number of shares that could be
impacted could increase significantly in a short period of time since
the auction imbalance period only lasts for one hour. Additionally, the
submission, and subsequent cancellation, of Auction-Only Orders during
the imbalance dissemination period could lead to disruption in trading
as each order, which could contain a large number of shares, would
require the Exchange to update and disseminate the new order
information on its market data feed. Accordingly, the Exchange believes
assessing the fee on a share basis is appropriate because it would more
effectively disincentivize ETP Holders from submitting a
disproportionate ratio of shares that are not executed.
---------------------------------------------------------------------------
\25\ See Securities Exchange Act Release No. 66951 (May 9,
2012), 77 FR 28647 (May 15, 2012) (SR-NASDAQ-2012-055) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To
Institute an Excess Order Fee).
\26\ See Ratio Threshold Fee, at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf. The Ratio Threshold Fee is
charged to OTP Holders based on the number of orders entered
compared to the number of executions received in a calendar month.
---------------------------------------------------------------------------
The Proposal Is an Equitable Allocation of Fees
For the reasons noted above, the Exchange believes the proposed
fees are also equitably allocated among its market participants.
Although only a small number of ETP Holders may be subject to the
proposed fees based on their current trading practices, any ETP Holder
could determine to change their order entry practices at any time, and
the proposed fees would be applied to any ETP Holder that determined to
engage in such inefficient order entry practices. The proposed fee is
therefore designed to encourage better displayed order entry practices
by all ETP Holders for the benefit of all market participants.
Moreover, the purpose of the proposal is not to generate revenue for
the Exchange, but rather to provide an incentive for a small number of
ETP Holders to change their order entry and/or cancellation behavior.
The Exchange believes that the proposal constitutes an equitable
allocation of fees because all similarly situated ETP Holders would be
subject to the proposed fees. As noted above, the Exchange believes
that because having a disproportionate ratio of unexecuted orders is a
problem associated with a relatively small number of ETP Holders, the
impact of the proposal would be limited to those ETP Holders, and only
if they do not alter their trading practices. The Exchange believes the
proposal would encourage ETP Holders that could be impacted to modify
their practices in order to avoid the fee, thereby improving the market
for all participants.
The Proposal Is Not Unfairly Discriminatory
The Exchange believes that the proposal is not unfairly
discriminatory. In the prevailing competitive environment, ETP Holders
are free to disfavor the Exchange's pricing if they believe that
alternatives offer them better value, and are free to transact on
competitor markets to avoid being subject to the proposed fees. The
Exchange believes that the proposed fees neither target nor will they
have a disparate impact on any particular category of market
participant. The Exchange believes that the proposal change does not
permit unfair discrimination because it would be applied to all
similarly situated ETP Holders, who would all be subject to the
proposed fee on an equal basis.
The Exchange further believes that it is not unfairly
discriminatory to exclude Market Makers and Lead Market Makers from the
proposed RT--Display Fee in securities in which they are registered, or
if they are registered in more than 100 securities. Market Makers and
Lead Market Makers have independent obligations to maintain a two-sided
quotation a specified percentage away from the NBBO. In order to meet
this obligation, such ETP Holders are more likely to need to cancel
their resting orders so that they can update their quotes. The Exchange
believes that such independent obligation to maintain a fair and
orderly market outweighs any impact such cancellations would have on
Exchange systems. The Exchange similarly believes that, unlike Lead
Market Makers, Market Makers do not have a similar obligation leading
into an auction, therefore it is not necessary to exclude Market Makers
from the proposed RT--Auction Fee.
Finally, the submission of orders to the Exchange is optional for
ETP Holders in that they could choose whether to submit orders to the
Exchange and, if they do, the extent of its activity in this regard.
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,\27\ 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 fee would encourage
[[Page 32073]]
ETP Holders to modify their order entry and/or cancellation practices
so that fewer orders or shares are cancelled without resulting in an
execution, thereby promoting price discovery and transparency and
enhancing order execution opportunities on the Exchange.
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
Intramarket Competition. The Exchange believes the proposed Ratio
Threshold Fees would not place any undue burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act because the proposed fees are designed to encourage
ETP Holders to submit orders or shares into the market that are
actionable. Further, the proposal would apply to all ETP Holders on an
equal basis, and, as such, the proposed change would not impose a
disparate burden on competition among market participants on the
Exchange. To the extent that these purposes are achieved, the Exchange
believes that the proposal would serve as an incentive for ETP Holders
to modify their order entry practices, thus enhancing the quality of
the market and increase the volume of orders or shares directed to, and
executed on, the Exchange. In turn, all the Exchange's market
participants would benefit from the improved market liquidity.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily favor other
exchange and off-exchange venues. In such an environment, the Exchange
must continually review, and consider adjusting its services along with
its fees and rebates, to remain competitive with other exchanges and
with off-exchange venues. Because competitors are free to modify their
own services, and their fees and credits in response, the Exchange does
not believe the proposed fee change can impose any burden on
intermarket competition.
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) \28\ of the Act and subparagraph (f)(2) of Rule
19b-4 \29\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78s(b)(3)(A).
\29\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \30\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\30\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2020-45 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-2020-45. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2020-45, and should be
submitted on or before June 18, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11405 Filed 5-27-20; 8:45 am]
BILLING CODE 8011-01-P
