Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Price List Regarding Port Fees, 52159-52164 [2020-18462]
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Federal Register / Vol. 85, No. 164 / Monday, August 24, 2020 / Notices
technological collection techniques or
other forms of information technology,
e.g., permitting electronic submissions
of responses.
Title of Collection: Annual Refiling
Survey.
OMB Number: 1220–0032.
Type of Review: Revision of a
currently approved collection.
Total
responses
ARS collection instrument
Affected Public: Business or other forprofit, Not-for-profit institutions, and
farms.
Frequency
Estimated time per
response
Total burden
(hours)
BLS NVS ....................................................................
Non-mandatory ...........................................................
BLS NVS ....................................................................
Mandatory ...................................................................
BLS NVM ....................................................................
Non-mandatory ...........................................................
BLS NVM ....................................................................
Mandatory ...................................................................
BLS NCA ....................................................................
Non-mandatory ...........................................................
BLS NCA ....................................................................
Mandatory ...................................................................
397,000
once .................................
5 minutes ..........................
33,083
444,000
once .................................
5 minutes ..........................
37,000
22,000
once .................................
15 minutes ........................
5,500
24,000
once .................................
15 minutes ........................
6,000
91,000
once .................................
10 minutes ........................
15,167
120,000
once .................................
10 minutes ........................
20,000
Totals ...................................................................
1,098,000
..........................................
...........................................
116,750
Comments submitted in response to
this notice will be summarized and/or
included in the request for Office of
Management and Budget approval of the
information collection request; they also
will become a matter of public record.
Signed at Washington, DC, on August 18,
2020.
Leslie Bennett,
Acting Chief, Division of Management
Systems.
BILLING CODE 4510–24–P
Board of Governors; Sunshine Act
Meeting
August 17, 2020, at 7:30
Washington, DC.
Closed.
STATUS:
MATTERS TO BE CONSIDERED:
1. Administrative Issues.
2. Strategic Issues.
On August 17, 2020, a majority of the
members of the Board of Governors of
the United States Postal Service voted
unanimously to hold and to close to
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Washington, DC, via teleconference. The
Board determined that no earlier public
notice was practicable.
General Counsel Certification: The
General Counsel of the United States
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meeting may be closed under the
Government in the Sunshine Act.
CONTACT PERSON FOR MORE INFORMATION:
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[FR Doc. 2020–18595 Filed 8–20–20; 11:15 am]
BILLING CODE 7710–12–P
SECURITIES AND EXCHANGE
COMMISSION
August 18, 2020.
p.m.
PLACE:
Michael J. Elston,
Secretary.
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Its
Price List Regarding Port Fees
POSTAL SERVICE
TIME AND DATE:
Plaza SW, Washington, DC 20260–1000.
Telephone: (202) 268–4800.
[Release No. 34–89591; File No. SR–NYSE–
2020–68]
[FR Doc. 2020–18460 Filed 8–21–20; 8:45 am]
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52159
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’),2 and Rule 19b–4 thereunder,3
notice is hereby given that on August
10, 2020, New York Stock Exchange
LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
Period for member organizations to
transition to the utilization of ports that
connect to the Exchange using Pillar
technology; (2) extend the
Decommission Period that begins once
the Transition Period ends; and (3)
extend the effective date that the
Exchange would prorate the monthly fee
for ports activated on or after July 1,
2019. The Exchange proposes to
implement these changes to its Price
List effective August 10, 2020.4 The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
Price List to (1) extend the Transition
4 The Exchange originally filed to amend the
Price List on July 31, 2020 (SR–NYSE–2020–64).
SR–NYSE–2020–64 was subsequently withdrawn
and replaced by this filing.
1 15
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
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Federal Register / Vol. 85, No. 164 / Monday, August 24, 2020 / Notices
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this filing is to
provide additional time for member
organizations to transition from older to
newer and more efficient Pillar
technology. The Exchange is not
proposing to adjust the amount of the
port fees or the fees charged to offset the
Exchange’s continuing costs of
supporting legacy ports, which will
remain at the current level for all market
participants.
Effective July 3, 2019, the Exchange
introduced transition pricing designed
to provide member organizations an
extended transition period to connect to
the Exchange using Pillar technology
with no fee increase. Specifically, the
Exchange (1) adopted a cap on monthly
fees for the use of certain ports
connecting to the Exchange for the
billing months July 2019 through March
2020 (the ‘‘Transition Period’’); (2)
adopted a Decommission Extension Fee
applicable for the billing months April
2020 through September 2020 (the
‘‘Decommission Period’’) for legacy port
connections; and (3) prorated the
monthly fee for certain ports activated
after July 1, 2019, effective April 1,
2020.5
Effective March 2, 2020, the Exchange
(1) extended the end of the Transition
Period from March 2020 to August 2020
for member organizations to transition
to the utilization of ports that connect
to the Exchange using Pillar technology;
(2) shortened the Decommission Period
from six months (April 2020-September
2020) to four months (SeptemberDecember 2020); (3) extended the
effective date that the Exchange would
prorate the monthly fee for certain ports
activated on or after July 1, 2019 from
April 1, 2020 to September 1, 2020; and
(4) revised the fees charged for legacy
port connections during the
Decommission Period.6
The Exchange proposes to:
• extend the end of the Transition
Period from August 2020 to October
2020;
• extend the beginning of the
Decommission Period from September
2020 to November 2020 and the end of
the Decommission Period from
December 2020 to February 2021; and
• extend the effective date that the
Exchange would prorate the monthly fee
5 See Securities Exchange Act Release No. 86360
(July 11, 2019), 84 FR 34210 (SR–NYSE–2019–39).
6 See Securities Exchange Act Release No. 88373
(March 12, 2020), 85 FR 15533 (SR–NYSE–2020–
14).
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for ports activated on or after July 1,
2019 from September 1, 2020 to
November 1, 2020.
The Exchange would continue to
provide a cap on how much member
organizations would be charged for
ports during the proposed extra two
months of the Transition Period so that
they would not incur additional charges
during the transition to Pillar
communication protocols. Moreover,
the Exchange would retain a four month
period during which the few firms that
do not transition during the proposed
longer Transition Period would be
charged fees to offset the Exchange’s
continuing costs of supporting legacy
ports but proposes to extend the
beginning and end dates for this period.
The Exchange proposes to implement
these changes to its Price List effective
August 10, 2020.7
Competitive Environment
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. 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 31 alternative trading
systems,11 and numerous broker-dealer
internalizers and wholesalers. Based on
publicly-available information, no
single exchange has more than 20% of
the market share of executed volume of
7 The Exchange originally filed to amend the
Price List on July 31, 2020 (SR–NYSE–2020–64).
SR–NYSE–2020–64 was subsequently withdrawn
and replaced by this filing.
8 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37495, 37499 (June 29, 2005)
(S7–10–04) (Final Rule) (‘‘Regulation NMS’’).
9 See Securities Exchange Act Release No. 51808,
84 FR 5202, 5253 (February 20, 2019) (File No. S7–
05–18) (Transaction Fee Pilot for NMS Stocks Final
Rule) (‘‘Transaction Fee Pilot’’).
10 See Cboe Global Markets, 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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equity trades (whether excluding or
including auction volume).12 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, including ports,
in response to fee changes. Accordingly,
the Exchange’s fees, including port fees,
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.
The Exchange is proposing these
changes in the context of a competitive
environment in which market
participants can and do shift order flow,
or discontinue or reduce use of certain
categories of products, in response to fee
changes. Because ports are used by
member organizations to trade
electronically on the Exchange, fees
associated with ports are subject to
these same competitive forces. The
Exchange believes that the proposal
represents a reasonable attempt to
provide member organizations with
additional time to effect an orderly
transition to upgraded technology
without incurring additional costs.
Proposed Rule Change
Member organizations enter orders
and order instructions, and receive
information from the Exchange, by
establishing a connection to a gateway
that uses communication protocols that
map to the order types and modifiers
described in Exchange rules. These
gateway connections, also known as
logical port connections, are referred to
as ‘‘ports’’ on the Exchange’s Price List.
Legacy ports connect with the Exchange
via a Common Customer Gateway
(known as ‘‘CCG’’) that accesses its
equity trading systems (‘‘Phase I ports’’).
Beginning July 1, 2019, the Exchange
began making available ports using
Pillar gateways to its member
organizations (‘‘Phase II ports’’).
Extension of the Date To Prorate Ports
The Exchange currently makes
available ports that provide connectivity
to the Exchange’s trading systems (i.e.,
ports for entry of orders and/or quotes
(‘‘order/quote entry ports’’)) and charges
$550 per port per month. Designated
Market Makers (‘‘DMMs’’) are not
charged for the first 12 ports per month
that connect to the Exchange.13 The
12 See Cboe Global Markets U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
13 DMMs completed the transition to Phase II
ports last year.
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Exchange also currently makes ports
available for drop copies and charges
$550 per port per month,14 except that
DMMs are not charged for drop copy
ports that connect to the Exchange.
During the ongoing first phase of the
Exchange’s transition pricing, the fees
charged for both order/quote entry and
drop copy ports are, with certain
exceptions, capped at—and thus not
charged for more than—the total
number of both order/quote entry and
drop copy ports that the member
organization has activated as of its June
2019 invoice.
Effective September 1, 2020, the
Exchange will prorate fees for order/
quote entry and drop copy ports
activated after July 1, 2019, to the
number of trading days that a port is
eligible for production trading with the
Exchange, including any scheduled
early closing days.
The Exchange proposes to extend the
effective date for the prorating of order/
quote entry and drop copy ports to
November 1, 2020 to coincide with the
end of the proposed extended
Transition Period in October 2020,
discussed below.
Extension of the Transition Period
Currently, during the billing months
of July 2019 through August 2020 (the
‘‘Transition Period’’), the total number
of ports charged per member
organization is capped at the total
number of ports that the member
organization activated as of the June
2019 invoice, which was the last full
month prior to the introduction of the
new gateways (the ‘‘Transition Cap’’).
Transition Cap pricing is available until
the earlier of (1) the end of the
Transition Period, i.e., August 2020, or
(2) the billing month during which a
member organization fully transitions to
using only ports that communicate
using Pillar phase II protocols. If during
the Transition Period, a member
organization increases the number of
Phase I ports above the Transition Cap,
those ports would be charged at the
current rates for order/quote entry ports
and drop copy ports. Finally, if during
the Transition Period a member
organization has a total number of ports
below the Transition Cap, the Exchange
would charge a member organization for
their actual number of ports.
The Exchange proposes to extend the
Transition Period by two months to
October 2020. As proposed, the charge
per port (order/quote entry and drop
copy) would remain at $550 per port per
14 Only one fee per drop copy port applies, even
if receiving drop copies from multiple order/quote
entry ports.
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month. DMMs would continue not to be
charged for drop copy ports and for
their first 12 order/quote entry ports per
month that connect to the Exchange,
and then charged $550 per order/quote
entry port that connects to the Exchange
per month thereafter.
The purpose of Transition Period
pricing is to cap port fees to allow
member organizations additional time to
implement technology changes
necessary to connect to the Exchange
using the Phase II ports without
incurring additional Exchange fees. As
of June 2020, only 65% of Phase I ports
have been cancelled. Based on the
Exchange’s experience to date, the
Exchange believes that an additional
two months will be necessary to provide
sufficient time for all member
organizations, regardless of size, to be
able to complete the necessary changes
and transition fully to the Phase II ports.
Extension of the Decommission Period
Currently, member organizations that
have not transitioned to Phase II ports
and are still utilizing Phase I ports
during the billing months of September
2020 through December 2020 (i.e., the
Decommission Period), would, in
addition to the current port fees, be
charged a Decommission Extension Fee
of $1,000 per port per month, increasing
by $1,000 per port for each month for
any ports that communicate using Pillar
phase I protocols. As per the Price List,
ports using Pillar phase I protocols
would no longer be available beginning
January 1, 2021.
The Exchange proposes that the
Decommission Period would begin in
November 2020, after the end of the
proposed longer Transition Period, and
end four months later. As proposed, the
Decommission Period would commence
in November 2020 and end in February
2021. As a result, the Price List would
also be amended to provide that ports
using Pillar phase I protocols would no
longer be available beginning March 1,
2021.
As noted above, the Exchange
believes that extending the Transition
Period would provide sufficient time for
member organizations to fully transition
to Phase II ports and eliminate their use
of Phase I ports. To the extent that
member organizations do not complete
the transition during the Transition
Period, the Exchange will offer member
organizations the ability to choose to
continue using Phase I ports until
March 2021.
The proposed changes are not
otherwise intended to address any other
issues, and the Exchange is not aware of
any problems that member
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52161
organizations would have in complying
with the proposed change.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,15 in general, and
furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,16 in
particular, because it provides for the
equitable allocation of reasonable dues,
fees, and other charges among its
members, issuers and other persons
using its facilities and does not unfairly
discriminate between customers,
issuers, brokers or dealers.
The Proposed 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.’’ 17
As the Commission itself recognized,
the market for trading services in NMS
stocks has become ‘‘more fragmented
and competitive.’’ 18 Indeed, equity
trading is currently dispersed across 13
exchanges,19 31 alternative trading
systems,20 and numerous broker-dealer
internalizers and wholesalers. Based on
publicly-available information, no
single exchange has more than 20% of
the market share of executed volume of
equity trades (whether excluding or
including auction volume).21 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, including ports,
15 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) & (5).
17 See Regulation NMS, 70 FR at 37499.
18 See Transaction Fee Pilot, 84 FR at 5253.
19 See Cboe Global Markets, U.S. Equities Market
Volume, available at https://markets.cboe.com/us/
equities/market_share/. See generally https://
www.sec.gov/fast-answers/divisionsmarketregmr
exchangesshtml.html.
20 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.
21 See Cboe Global Markets U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
16 15
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in response to fee changes. Accordingly,
the Exchange’s fees, including port fees,
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.
If a particular exchange charges
excessive fees for connectivity,
impacted members and non-members
may opt to terminate their connectivity
arrangements with that exchange, and
adopt a possible range of alternative
strategies, including routing to the
applicable exchange through another
participant or market center or taking
that exchange’s data indirectly.
Accordingly, if the Exchange charges
excessive fees, it would stand to lose not
only connectivity revenues but also
revenues associated with the execution
of orders routed to it, and, to the extent
applicable, market data revenues. The
Exchange believes that this competitive
dynamic imposes powerful restraints on
the ability of any exchange to charge
unreasonable fees for connectivity.
Given this competitive environment,
the proposal represents a fair and
reasonable attempt to provide member
organizations with additional time to
make an orderly transition to upgraded
technology without increasing their
costs. As noted, as of June 2020, 35% of
legacy ports have not been cancelled. If
a member organization is unable to
complete this transition within the
additional two months of the extended
Transition Period, the pricing is
designed so that only those few member
organizations that may not transition
within that time period would pay for
the Exchange to continue to support
their Phase I ports.
The Proposal is an Equitable Allocation
of Fees
The Exchange believes its proposal
equitably allocates its fees among its
market participants. The Exchange is
not proposing to adjust the amount of
the port fees or the fees charged fees to
offset the Exchange’s continuing costs of
supporting legacy ports, which will
remain at the current level for all market
participants. Rather, the proposal would
provide additional time for member
organizations to transition from older to
newer and more efficient Pillar
technology and would charge the same
fee for those few member organizations
that choose not to transition to Phase II
ports during the extended Transition
Period.
The Exchange believes that the
proposal to pro-rate port fees beginning
November 1, 2020, is also an equitable
allocation of fees since it would apply
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equally to all member organizations that
connect to the Exchange, who would
equally receive the benefit of being
charged only for the connectivity
utilized during any trading month
beginning in November 1, 2020. As
noted above, to the extent a member
organization continues to use ports
activated before July 1, 2019 to connect
to the Exchange during the new
November 1, 2020 date and any
subsequent months, the Exchange
believes it is fair and equitable to
continue to charge flat fees for such
ports until such time that connection to
the Exchange through the use of Phase
I ports is no longer available beginning
March 1, 2021.
The proposal constitutes an equitable
allocation of fees because all similarly
situated member organizations and
other market participants that choose to
connect to the Exchange through the use
of Phase I ports during the
Decommission Period would continue
to be charged the same, unchanged
Decommission Extension Fee.
Moreover, as noted above, the Exchange
proposes a longer transition period
which the Exchange expects should be
more than sufficient for all member
organizations, regardless of size, to
transition to Phase II ports before the
Decommission Fee goes into effect.
The Proposal is Not Unfairly
Discriminatory
The Exchange believes that the
proposal is not unfairly discriminatory.
In the prevailing competitive
environment, member organizations are
free to disfavor the Exchange’s pricing if
they believe that alternatives offer them
better value, and are free to discontinue
to connect to the Exchange through its
ports. As noted, the Exchange is offering
upgraded connections in an effort to
keep pace with changes in the industry
and evolving customer needs as new
technologies emerge and products
continue to develop and change.
The proposal neither targets nor will
it have a disparate impact on any
particular category of market
participant. The Exchange believes that
the proposal does not permit unfair
discrimination because the proposal
would be applied to all similarly
situated member organizations and
other market participants would be
charged the same rates, which will
remain unchanged.
The Exchange believes that the
proposal does not permit unfair
discrimination because the Exchange
will be making available both the Phase
I and Phase II ports available to all
member organizations during the
extended Transition Period on an equal
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basis. Accordingly, no member
organization already operating on the
Exchange would be disadvantaged by
this allocation of fees. For the same
reasons, the Exchange believes that the
proposal would not permit unfair
discrimination between member
organizations.
Similarly, the Decommission
Extension Fee would apply equally to
all member organizations that choose to
connect to the Exchange through the use
of such ports during the proposed
Decommission Period. If a member
organizations becomes subject to the
Decommission Fee, it would only be
because such firm chose not to complete
its transition to the Phase II ports by the
end of the proposed Transition Period.
While the Exchange cannot predict with
certainty whether any firms would be
subject to the Decommission Fee, and if
so, which ones, the Exchange
anticipates that it would be a limited set
of member organizations that would
incur such fees.
The Exchange believes that the
proposal to pro-rate port fees does not
permit unfair discrimination because it
would apply equally to all member
organizations that connect to the
Exchange, who would equally receive
the benefit of being charged only for the
connectivity utilized during any trading
month beginning November 1, 2020. As
noted, to the extent a member
organization continues to use ports
activated before July 1, 2019 to connect
to the Exchange during November 1,
2020 and any subsequent months, the
Exchange believes it is fair, equitable
and not unfairly discriminatory to
continue to charge flat fees for such
ports until such time that connection to
the Exchange through the use of old
ports is no longer available beginning
March 1, 2021.
Finally, 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,22 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
provide additional time for member
22 15
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U.S.C. 78f(b)(8).
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organizations to transition from older to
newer and more efficient Pillar
technology with no fee increase and
offset the Exchange’s continuing costs of
supporting the Phase I ports for the few
firms that do not transition to the new
ports during the longer transition period
without any change to the fees currently
charged by the Exchange for the use of
ports to connect to the Exchange’s
trading systems.
Intramarket Competition. The
Exchange does not believe the proposed
rule change would impose any burden
on intramarket competition that is not
necessary or appropriate because it
would apply to all member
organizations equally that connect to the
Exchange. All member organizations,
regardless of size, will be eligible for the
transition pricing through the extended
Transition Period ending October 2020
and will be eligible to connect via either
Phase I or Phase II ports during this
period. In addition, all member
organizations will be subject to the
Decommission Fee on an equal basis if
they do complete the transition to Phase
II ports by the end of the new October
2020 date. As noted, the Exchange
anticipates that a low percentage of
member organizations would be subject
to the proposed Decommission Fee, and
the firms likely to be subject to such fee
would be larger firms that could more
easily absorb the cost of that fee. The
Exchange further believes that by
extending the Transition Period, all
member organizations have an equal
opportunity to timely transition to
Phase II ports before the Decommission
Fee would take effect.
Intermarket Competition. The
Exchange does not believe the proposed
rule change would impose any burden
on intermarket competition that is not
necessary or appropriate because 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. The Exchange believes that
fees for connectivity are constrained by
the robust competition for order flow
among exchanges and non-exchange
markets.
As noted, the no single exchange has
more than 20% of the market share of
executed volume of equity trades
(whether excluding or including auction
volume).23 The Exchange believes that
the ever-shifting market share among
the exchanges from month to month
23 See Cboe Global Markets U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
VerDate Sep<11>2014
16:31 Aug 21, 2020
Jkt 250001
demonstrates that market participants
can shift order flow, or discontinue or
reduce use of certain categories of
products, including ports, in response to
fee changes. Accordingly, the
Exchange’s fees, including port fees, 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.
The Exchange is proposing these
changes in the context of a competitive
environment in which market
participants can and do shift order flow,
or discontinue or reduce use of certain
categories of products, in response to fee
changes. Because ports are used by
member organizations to trade
electronically on the Exchange, fees
associated with ports are subject to
these same competitive forces. The
Exchange therefore believes that the
proposal would not impose an undue
burden on intermarket competition
because the purpose of this filing is not
to change the rates charged for ports or
to offset the Exchange’s continuing costs
of supporting legacy ports but rather to
provide member organizations with
more time to effect an orderly transition
to upgraded technology without needing
to incur any additional costs.
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) 24 of the Act and
subparagraph (f)(2) of Rule 19b–4 25
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) 26 of the Act to
determine whether the proposed rule
24 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
26 15 U.S.C. 78s(b)(2)(B).
25 17
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
52163
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–
NYSE–2020–68 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–NYSE–2020–68. 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–NYSE–2020–68, and
should be submitted on or before
September 14, 2020.
E:\FR\FM\24AUN1.SGM
24AUN1
52164
Federal Register / Vol. 85, No. 164 / Monday, August 24, 2020 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–18462 Filed 8–21–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89593; File No. SR–FICC–
2020–006]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Order
Approving Proposed Rule Change To
Provide for a Passive
Acknowledgement Process and Make
Other Changes
August 18, 2020.
I. Introduction
On June 19, 2020, Fixed Income
Clearing Corporation (‘‘FICC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 proposed rule
change SR–FICC–2020–006. The
proposed rule change was published for
comment in the Federal Register on July
7, 2020.3 The Commission did not
receive any comment letters on the
proposed rule change. For the reasons
discussed below, the Commission is
approving the proposed rule change.
II. Description of the Proposed Rule
Change
FICC proposes to modify its
Government Securities Division
(‘‘GSD’’) Rulebook (‘‘GSD Rules’’) and
its Mortgage-Backed Securities Division
(‘‘MBSD’’ and together with GSD, each,
a ‘‘Division’’) Clearing Rules (‘‘MSBD
Rules,’’ and together with the GSD
Rules, ‘‘Rules’’) 4 in order to (i) provide
for a passive acknowledgement process
whereby any settling bank that does not
timely acknowledge that it will settle its
Funds-Only (Cash) Settlement Figures
(as defined below) with FICC (i.e.,
acknowledge its intention to pay to or
collect from FICC), or notify the
Settlement Agent (as defined below) of
its refusal to settle for one or more
jbell on DSKJLSW7X2PROD with NOTICES
27 17
CFR 200.30–3(a)(12), (59).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 89193
(June 30, 2020), 85 FR 40723 (July 7, 2020) (SR–
FICC–2020–006) (‘‘Notice’’).
4 Capitalized terms not defined herein are defined
in the Rules, available at https://www.dtcc.com/
legal/rules-and-procedures.
1 15
VerDate Sep<11>2014
16:31 Aug 21, 2020
Jkt 250001
members 5 for which it is the designated
GSD Funds-Only Settling Bank or
MBSD Cash Settling Bank (collectively,
‘‘FICC Settling Banks’’) and has not
otherwise been in contact with the
Settlement Agent, would be deemed to
have acknowledged its Funds-Only
(Cash) Settlement Figures, (ii) codify
FICC’s discretion to exclude a FICC
Settling Bank’s balance from the
National Settlement Service (‘‘NSS’’) file
in certain circumstances, and (iii) make
certain technical and conforming
changes.
A. Current Funds-Only (Cash)
Settlement Process
Each Division provides a
standardized, automated method for
settling funds-only, for GSD, and cash,
for MBSD, settlement (collectively,
‘‘Funds-Only (Cash) Settlement’’)
obligations, respectively, between each
Division and its respective members’
FICC Settling Banks. Each member
designates a FICC Settling Bank to settle
its Funds-Only (Cash) Settlement
obligations with FICC. Settlement is
effected via the NSS.6
On each business day, as applicable,
each Division calculates either a FundsOnly Settlement Amount or Cash
Balance figure, respectively, for each
member and reports to each member
and its respective FICC Settling Bank a
Net Funds-Only Settlement Figure 7 (for
GSD) and either a Total Debit Cash
Balance Figure or a Total Credit Cash
Balance Figure 8 (for MBSD)
5 The use of ‘‘members’’ here refers to any
participant that is required to appoint a Funds-Only
Settling Bank or Cash Settling Bank, which includes
GSD Netting Members, GSD Centrally Cleared
Institutional Triparty (‘‘CCIT’’) Members, GSD
Sponsoring Members, and MBSD Clearing
Members. References hereinafter to the term
‘‘members’’ shall be used for ease of reference. See
GSD Rule 13, Section 4(a) and MBSD Rule 3A,
Section (a), supra note 4.
6 GSD Rule 13, Section 5(i) and MBSD Rule 11,
Section 9(i), supra note 4. For a general description
of the NSS, see National Settlement Service,
available at https://www.frbservices.org/financialservices/national-settlement-service/.
7 Net Funds-Only Settlement Figure means the
net amount of the Funds-Only Settlement Amounts
of the Netting Members for which a Funds-Only
Settling Bank Member is acting. GSD Rule 1, supra
note 4. For GSD, Funds-Only Settlement Amounts
reflect: (i) Changes in the value of securities when
they are marked to market, (ii) cash adjustments
related to securities trades, (iii) the pass-through of
coupon payments for term repos or trade
obligations that cross a coupon date, and (iv) other
items, such as billing invoices. GSD Rule 13,
Section 1, supra note 4.
8 Total Debit Cash Balance Figure means the sum
of the Cash Balances which are debits of the
Members for which a Cash Settling Bank Member
is acting. MSBD Rule 1, supra note 4. Total Credit
Cash Balance Figures means the sum of the Cash
Balances which are credits of the Members for
which a Cash Settling Bank Member is acting.
MSBD Rule 1, supra note 4. For MBSD, Cash
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
(collectively, ‘‘Funds-Only (Cash)
Settlement Figures’’). The Depository
Trust Company (‘‘DTC’’) acts as
Settlement Agent 9 for both GSD’s
funds-only and MBSD’s cash settlement
process.
Once the FICC Settling Banks receive
their Funds-Only (Cash) Settlement
Figures from the Settlement Agent, the
FICC Settling Banks submit either (1)
acknowledgement that they will settle
their Funds-Only (Cash) Settlement
Figures with FICC or (2) refusal to settle
such amounts on behalf of one or more
of their respective members.10 The
acknowledgement or refusal submission
occurs through a designated terminal
system.11 If all of the FICC Settling
Banks submit acknowledgements of
their intent to settle, then DTC, as
Settlement Agent, would submit the
requisite file to the relevant Federal
Reserve Bank (‘‘FRB’’) for processing
through the NSS.12
If a FICC Settling Bank notifies the
Settlement Agent that the FICC Settling
Bank refuses to pay the Funds-Only
(Cash) Settlement Figure for a member,
then FICC would exclude that member’s
amount and the Settlement Agent would
provide the FICC Settling Bank with a
new Funds-Only (Cash) Settlement
Figure that no longer includes the
excluded member’s amount. The FICC
Settling Bank must then immediately
send a message to the Settlement Agent
acknowledging the new amount.13 The
Settlement Agent would then submit the
requisite file to the FRB for processing
through the NSS.
Settlement amounts reflect: (i) The To Be
Announced (‘‘TBA’’) Transaction Adjustment
Payment, (ii) Net Pool Transaction Adjustment
Payment, (iii) principal and interest payments for
failing net pool settlement obligations (to the extent
that they are not handled by the FedWire Securities
Service Automated Claims Adjustment Process),
and (iv) other items, such as Factor Update
Adjustments and billing invoices. MBSD Rule 11,
Section 7, supra note 4.
9 DTC Settlement Operations acts as the
Settlement Agent for GSD and MBSD. ‘‘Settlement
Agent’’ means the bank or trust company that FICC
may, from time to time, designate to act as its agent
for purposes of interfacing with NSS for funds-only
settlement pursuant to GSD Rule 13 (for GSD) and
for Cash Settlement pursuant to MBSD Rule 11.
GSD Rule 1 and MBSD Rule 1, supra note 4.
10 A FICC Settling Bank that settles only for itself
may not refuse to settle for itself and, therefore, may
opt out of the requirement to acknowledge its
Funds-Only (Cash) Settlement Figures. GSD Rule
13, Section 5(b) and MBSD Rule 11, Section 9,
supra note 4. The passive acknowledgement
process would not apply to such FICC Settling
Banks that have chosen to opt out. See Notice,
supra note 3, at 40723–24.
11 GSD Rule 13, Section 5(b) and MBSD Rule 11,
Section 9(b), supra note 4.
12 GSD Rule 13, Section 5(i) and MBSD Rule 11,
Section 9(i), supra note 4.
13 GSD Rule 13, Section 5(c) and MBSD Rule 11,
Section 9(c), supra note 4.
E:\FR\FM\24AUN1.SGM
24AUN1
]]>Agencies
[Federal Register Volume 85, Number 164 (Monday, August 24, 2020)]
[Notices]
[Pages 52159-52164]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-18462]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89591; File No. SR-NYSE-2020-68]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Its Price List Regarding Port Fees
August 18, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on August 10, 2020, New York Stock Exchange LLC (``NYSE'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its Price List to (1) extend the
Transition Period for member organizations to transition to the
utilization of ports that connect to the Exchange using Pillar
technology; (2) extend the Decommission Period that begins once the
Transition Period ends; and (3) extend the effective date that the
Exchange would prorate the monthly fee for ports activated on or after
July 1, 2019. The Exchange proposes to implement these changes to its
Price List effective August 10, 2020.\4\ The proposed rule change is
available on the Exchange's website at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
---------------------------------------------------------------------------
\4\ The Exchange originally filed to amend the Price List on
July 31, 2020 (SR-NYSE-2020-64). SR-NYSE-2020-64 was subsequently
withdrawn and replaced by this filing.
---------------------------------------------------------------------------
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.
[[Page 52160]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to provide additional time for member
organizations to transition from older to newer and more efficient
Pillar technology. The Exchange is not proposing to adjust the amount
of the port fees or the fees charged to offset the Exchange's
continuing costs of supporting legacy ports, which will remain at the
current level for all market participants.
Effective July 3, 2019, the Exchange introduced transition pricing
designed to provide member organizations an extended transition period
to connect to the Exchange using Pillar technology with no fee
increase. Specifically, the Exchange (1) adopted a cap on monthly fees
for the use of certain ports connecting to the Exchange for the billing
months July 2019 through March 2020 (the ``Transition Period''); (2)
adopted a Decommission Extension Fee applicable for the billing months
April 2020 through September 2020 (the ``Decommission Period'') for
legacy port connections; and (3) prorated the monthly fee for certain
ports activated after July 1, 2019, effective April 1, 2020.\5\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 86360 (July 11,
2019), 84 FR 34210 (SR-NYSE-2019-39).
---------------------------------------------------------------------------
Effective March 2, 2020, the Exchange (1) extended the end of the
Transition Period from March 2020 to August 2020 for member
organizations to transition to the utilization of ports that connect to
the Exchange using Pillar technology; (2) shortened the Decommission
Period from six months (April 2020-September 2020) to four months
(September-December 2020); (3) extended the effective date that the
Exchange would prorate the monthly fee for certain ports activated on
or after July 1, 2019 from April 1, 2020 to September 1, 2020; and (4)
revised the fees charged for legacy port connections during the
Decommission Period.\6\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 88373 (March 12,
2020), 85 FR 15533 (SR-NYSE-2020-14).
---------------------------------------------------------------------------
The Exchange proposes to:
extend the end of the Transition Period from August 2020
to October 2020;
extend the beginning of the Decommission Period from
September 2020 to November 2020 and the end of the Decommission Period
from December 2020 to February 2021; and
extend the effective date that the Exchange would prorate
the monthly fee for ports activated on or after July 1, 2019 from
September 1, 2020 to November 1, 2020.
The Exchange would continue to provide a cap on how much member
organizations would be charged for ports during the proposed extra two
months of the Transition Period so that they would not incur additional
charges during the transition to Pillar communication protocols.
Moreover, the Exchange would retain a four month period during which
the few firms that do not transition during the proposed longer
Transition Period would be charged fees to offset the Exchange's
continuing costs of supporting legacy ports but proposes to extend the
beginning and end dates for this period.
The Exchange proposes to implement these changes to its Price List
effective August 10, 2020.\7\
---------------------------------------------------------------------------
\7\ The Exchange originally filed to amend the Price List on
July 31, 2020 (SR-NYSE-2020-64). SR-NYSE-2020-64 was subsequently
withdrawn and replaced by this filing.
---------------------------------------------------------------------------
Competitive Environment
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. 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 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule)
(``Regulation NMS'').
---------------------------------------------------------------------------
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\ 31 alternative trading systems,\11\ and numerous broker-
dealer internalizers and wholesalers. Based on publicly-available
information, no single exchange has more than 20% of the market share
of executed volume of equity trades (whether excluding or including
auction volume).\12\ 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, including ports, in response to fee
changes. Accordingly, the Exchange's fees, including port fees, 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.
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Transaction Fee Pilot
for NMS Stocks Final Rule) (``Transaction Fee Pilot'').
\10\ See Cboe Global Markets, 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/.
---------------------------------------------------------------------------
The Exchange is proposing these changes in the context of a
competitive environment in which market participants can and do shift
order flow, or discontinue or reduce use of certain categories of
products, in response to fee changes. Because ports are used by member
organizations to trade electronically on the Exchange, fees associated
with ports are subject to these same competitive forces. The Exchange
believes that the proposal represents a reasonable attempt to provide
member organizations with additional time to effect an orderly
transition to upgraded technology without incurring additional costs.
Proposed Rule Change
Member organizations enter orders and order instructions, and
receive information from the Exchange, by establishing a connection to
a gateway that uses communication protocols that map to the order types
and modifiers described in Exchange rules. These gateway connections,
also known as logical port connections, are referred to as ``ports'' on
the Exchange's Price List. Legacy ports connect with the Exchange via a
Common Customer Gateway (known as ``CCG'') that accesses its equity
trading systems (``Phase I ports''). Beginning July 1, 2019, the
Exchange began making available ports using Pillar gateways to its
member organizations (``Phase II ports'').
Extension of the Date To Prorate Ports
The Exchange currently makes available ports that provide
connectivity to the Exchange's trading systems (i.e., ports for entry
of orders and/or quotes (``order/quote entry ports'')) and charges $550
per port per month. Designated Market Makers (``DMMs'') are not charged
for the first 12 ports per month that connect to the Exchange.\13\ The
[[Page 52161]]
Exchange also currently makes ports available for drop copies and
charges $550 per port per month,\14\ except that DMMs are not charged
for drop copy ports that connect to the Exchange.
---------------------------------------------------------------------------
\13\ DMMs completed the transition to Phase II ports last year.
\14\ Only one fee per drop copy port applies, even if receiving
drop copies from multiple order/quote entry ports.
---------------------------------------------------------------------------
During the ongoing first phase of the Exchange's transition
pricing, the fees charged for both order/quote entry and drop copy
ports are, with certain exceptions, capped at--and thus not charged for
more than--the total number of both order/quote entry and drop copy
ports that the member organization has activated as of its June 2019
invoice.
Effective September 1, 2020, the Exchange will prorate fees for
order/quote entry and drop copy ports activated after July 1, 2019, to
the number of trading days that a port is eligible for production
trading with the Exchange, including any scheduled early closing days.
The Exchange proposes to extend the effective date for the
prorating of order/quote entry and drop copy ports to November 1, 2020
to coincide with the end of the proposed extended Transition Period in
October 2020, discussed below.
Extension of the Transition Period
Currently, during the billing months of July 2019 through August
2020 (the ``Transition Period''), the total number of ports charged per
member organization is capped at the total number of ports that the
member organization activated as of the June 2019 invoice, which was
the last full month prior to the introduction of the new gateways (the
``Transition Cap''). Transition Cap pricing is available until the
earlier of (1) the end of the Transition Period, i.e., August 2020, or
(2) the billing month during which a member organization fully
transitions to using only ports that communicate using Pillar phase II
protocols. If during the Transition Period, a member organization
increases the number of Phase I ports above the Transition Cap, those
ports would be charged at the current rates for order/quote entry ports
and drop copy ports. Finally, if during the Transition Period a member
organization has a total number of ports below the Transition Cap, the
Exchange would charge a member organization for their actual number of
ports.
The Exchange proposes to extend the Transition Period by two months
to October 2020. As proposed, the charge per port (order/quote entry
and drop copy) would remain at $550 per port per month. DMMs would
continue not to be charged for drop copy ports and for their first 12
order/quote entry ports per month that connect to the Exchange, and
then charged $550 per order/quote entry port that connects to the
Exchange per month thereafter.
The purpose of Transition Period pricing is to cap port fees to
allow member organizations additional time to implement technology
changes necessary to connect to the Exchange using the Phase II ports
without incurring additional Exchange fees. As of June 2020, only 65%
of Phase I ports have been cancelled. Based on the Exchange's
experience to date, the Exchange believes that an additional two months
will be necessary to provide sufficient time for all member
organizations, regardless of size, to be able to complete the necessary
changes and transition fully to the Phase II ports.
Extension of the Decommission Period
Currently, member organizations that have not transitioned to Phase
II ports and are still utilizing Phase I ports during the billing
months of September 2020 through December 2020 (i.e., the Decommission
Period), would, in addition to the current port fees, be charged a
Decommission Extension Fee of $1,000 per port per month, increasing by
$1,000 per port for each month for any ports that communicate using
Pillar phase I protocols. As per the Price List, ports using Pillar
phase I protocols would no longer be available beginning January 1,
2021.
The Exchange proposes that the Decommission Period would begin in
November 2020, after the end of the proposed longer Transition Period,
and end four months later. As proposed, the Decommission Period would
commence in November 2020 and end in February 2021. As a result, the
Price List would also be amended to provide that ports using Pillar
phase I protocols would no longer be available beginning March 1, 2021.
As noted above, the Exchange believes that extending the Transition
Period would provide sufficient time for member organizations to fully
transition to Phase II ports and eliminate their use of Phase I ports.
To the extent that member organizations do not complete the transition
during the Transition Period, the Exchange will offer member
organizations the ability to choose to continue using Phase I ports
until March 2021.
The proposed changes are not otherwise intended to address any
other issues, and the Exchange is not aware of any problems that member
organizations would have in complying with the proposed change.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\15\ in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\16\ 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.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4) & (5).
---------------------------------------------------------------------------
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.'' \17\
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\17\ See Regulation NMS, 70 FR at 37499.
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As the Commission itself recognized, the market for trading
services in NMS stocks has become ``more fragmented and competitive.''
\18\ Indeed, equity trading is currently dispersed across 13
exchanges,\19\ 31 alternative trading systems,\20\ and numerous broker-
dealer internalizers and wholesalers. Based on publicly-available
information, no single exchange has more than 20% of the market share
of executed volume of equity trades (whether excluding or including
auction volume).\21\ 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, including ports,
[[Page 52162]]
in response to fee changes. Accordingly, the Exchange's fees, including
port fees, 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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\18\ See Transaction Fee Pilot, 84 FR at 5253.
\19\ See Cboe Global Markets, U.S. Equities Market Volume,
available at https://markets.cboe.com/us/equities/market_share/. See
generally https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
\20\ 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.
\21\ See Cboe Global Markets U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
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If a particular exchange charges excessive fees for connectivity,
impacted members and non-members may opt to terminate their
connectivity arrangements with that exchange, and adopt a possible
range of alternative strategies, including routing to the applicable
exchange through another participant or market center or taking that
exchange's data indirectly. Accordingly, if the Exchange charges
excessive fees, it would stand to lose not only connectivity revenues
but also revenues associated with the execution of orders routed to it,
and, to the extent applicable, market data revenues. The Exchange
believes that this competitive dynamic imposes powerful restraints on
the ability of any exchange to charge unreasonable fees for
connectivity.
Given this competitive environment, the proposal represents a fair
and reasonable attempt to provide member organizations with additional
time to make an orderly transition to upgraded technology without
increasing their costs. As noted, as of June 2020, 35% of legacy ports
have not been cancelled. If a member organization is unable to complete
this transition within the additional two months of the extended
Transition Period, the pricing is designed so that only those few
member organizations that may not transition within that time period
would pay for the Exchange to continue to support their Phase I ports.
The Proposal is an Equitable Allocation of Fees
The Exchange believes its proposal equitably allocates its fees
among its market participants. The Exchange is not proposing to adjust
the amount of the port fees or the fees charged fees to offset the
Exchange's continuing costs of supporting legacy ports, which will
remain at the current level for all market participants. Rather, the
proposal would provide additional time for member organizations to
transition from older to newer and more efficient Pillar technology and
would charge the same fee for those few member organizations that
choose not to transition to Phase II ports during the extended
Transition Period.
The Exchange believes that the proposal to pro-rate port fees
beginning November 1, 2020, is also an equitable allocation of fees
since it would apply equally to all member organizations that connect
to the Exchange, who would equally receive the benefit of being charged
only for the connectivity utilized during any trading month beginning
in November 1, 2020. As noted above, to the extent a member
organization continues to use ports activated before July 1, 2019 to
connect to the Exchange during the new November 1, 2020 date and any
subsequent months, the Exchange believes it is fair and equitable to
continue to charge flat fees for such ports until such time that
connection to the Exchange through the use of Phase I ports is no
longer available beginning March 1, 2021.
The proposal constitutes an equitable allocation of fees because
all similarly situated member organizations and other market
participants that choose to connect to the Exchange through the use of
Phase I ports during the Decommission Period would continue to be
charged the same, unchanged Decommission Extension Fee. Moreover, as
noted above, the Exchange proposes a longer transition period which the
Exchange expects should be more than sufficient for all member
organizations, regardless of size, to transition to Phase II ports
before the Decommission Fee goes into effect.
The Proposal is Not Unfairly Discriminatory
The Exchange believes that the proposal is not unfairly
discriminatory. In the prevailing competitive environment, member
organizations are free to disfavor the Exchange's pricing if they
believe that alternatives offer them better value, and are free to
discontinue to connect to the Exchange through its ports. As noted, the
Exchange is offering upgraded connections in an effort to keep pace
with changes in the industry and evolving customer needs as new
technologies emerge and products continue to develop and change.
The proposal neither targets nor will it have a disparate impact on
any particular category of market participant. The Exchange believes
that the proposal does not permit unfair discrimination because the
proposal would be applied to all similarly situated member
organizations and other market participants would be charged the same
rates, which will remain unchanged.
The Exchange believes that the proposal does not permit unfair
discrimination because the Exchange will be making available both the
Phase I and Phase II ports available to all member organizations during
the extended Transition Period on an equal basis. Accordingly, no
member organization already operating on the Exchange would be
disadvantaged by this allocation of fees. For the same reasons, the
Exchange believes that the proposal would not permit unfair
discrimination between member organizations.
Similarly, the Decommission Extension Fee would apply equally to
all member organizations that choose to connect to the Exchange through
the use of such ports during the proposed Decommission Period. If a
member organizations becomes subject to the Decommission Fee, it would
only be because such firm chose not to complete its transition to the
Phase II ports by the end of the proposed Transition Period. While the
Exchange cannot predict with certainty whether any firms would be
subject to the Decommission Fee, and if so, which ones, the Exchange
anticipates that it would be a limited set of member organizations that
would incur such fees.
The Exchange believes that the proposal to pro-rate port fees does
not permit unfair discrimination because it would apply equally to all
member organizations that connect to the Exchange, who would equally
receive the benefit of being charged only for the connectivity utilized
during any trading month beginning November 1, 2020. As noted, to the
extent a member organization continues to use ports activated before
July 1, 2019 to connect to the Exchange during November 1, 2020 and any
subsequent months, the Exchange believes it is fair, equitable and not
unfairly discriminatory to continue to charge flat fees for such ports
until such time that connection to the Exchange through the use of old
ports is no longer available beginning March 1, 2021.
Finally, 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,\22\ 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 provide additional time for member
[[Page 52163]]
organizations to transition from older to newer and more efficient
Pillar technology with no fee increase and offset the Exchange's
continuing costs of supporting the Phase I ports for the few firms that
do not transition to the new ports during the longer transition period
without any change to the fees currently charged by the Exchange for
the use of ports to connect to the Exchange's trading systems.
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\22\ 15 U.S.C. 78f(b)(8).
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Intramarket Competition. The Exchange does not believe the proposed
rule change would impose any burden on intramarket competition that is
not necessary or appropriate because it would apply to all member
organizations equally that connect to the Exchange. All member
organizations, regardless of size, will be eligible for the transition
pricing through the extended Transition Period ending October 2020 and
will be eligible to connect via either Phase I or Phase II ports during
this period. In addition, all member organizations will be subject to
the Decommission Fee on an equal basis if they do complete the
transition to Phase II ports by the end of the new October 2020 date.
As noted, the Exchange anticipates that a low percentage of member
organizations would be subject to the proposed Decommission Fee, and
the firms likely to be subject to such fee would be larger firms that
could more easily absorb the cost of that fee. The Exchange further
believes that by extending the Transition Period, all member
organizations have an equal opportunity to timely transition to Phase
II ports before the Decommission Fee would take effect.
Intermarket Competition. The Exchange does not believe the proposed
rule change would impose any burden on intermarket competition that is
not necessary or appropriate because 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. The
Exchange believes that fees for connectivity are constrained by the
robust competition for order flow among exchanges and non-exchange
markets.
As noted, the no single exchange has more than 20% of the market
share of executed volume of equity trades (whether excluding or
including auction volume).\23\ 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, including
ports, in response to fee changes. Accordingly, the Exchange's fees,
including port fees, 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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\23\ See Cboe Global Markets U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
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The Exchange is proposing these changes in the context of a
competitive environment in which market participants can and do shift
order flow, or discontinue or reduce use of certain categories of
products, in response to fee changes. Because ports are used by member
organizations to trade electronically on the Exchange, fees associated
with ports are subject to these same competitive forces. The Exchange
therefore believes that the proposal would not impose an undue burden
on intermarket competition because the purpose of this filing is not to
change the rates charged for ports or to offset the Exchange's
continuing costs of supporting legacy ports but rather to provide
member organizations with more time to effect an orderly transition to
upgraded technology without needing to incur any additional costs.
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) \24\ of the Act and subparagraph (f)(2) of Rule
19b-4 \25\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 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) \26\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\26\ 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-NYSE-2020-68 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-NYSE-2020-68. 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-NYSE-2020-68, and should be submitted on
or before September 14, 2020.
[[Page 52164]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12), (59).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-18462 Filed 8-21-20; 8:45 am]
BILLING CODE 8011-01-P
