Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the NYSE Arca Equities Fees and Charges, 29868-29876 [2021-11611]
Download as PDF
<![CDATA[
29868
Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,52 that the
proposed rule change (SR–NASDAQ–
2021–009), as modified by Amendment
No. 1, be, and hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.53
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–11693 Filed 6–2–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92053; File No. SR–
NYSEArca–2021–43]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending the NYSE Arca
Equities Fees and Charges
May 27, 2021.
19(b)(1) 1
Pursuant to Section
of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on May 14,
2021, NYSE Arca, Inc. (‘‘NYSE Arca’’ or
the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
khammond on DSKJM1Z7X2PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE Arca Equities Fees and Charges
(‘‘Fee Schedule’’) to replace the monthly
rebate tied to the performance in the
opening and closing auctions in NYSE
Arca-listed Securities and the ETF
Incentive Program for NYSE Arca-listed
Securities with a new pricing incentive
for Lead Market Makers and ETP
Holders registered as Market Makers.
The Exchange proposes to implement
the fee changes effective May 14, 2021.
The proposed rule change is available
on the Exchange’s website at
www.nyse.com, at the principal office of
52 Id.
53 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
17:23 Jun 02, 2021
Jkt 253001
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule to replace the monthly
rebate tied to the performance in the
opening and closing auctions in NYSE
Arca-listed Securities and the ETF
Incentive Program for NYSE Arca-listed
Securities 4 with a new pricing incentive
that is tied to meeting enhanced market
quality metrics. The Exchange now
proposes to provide financial incentives
for Lead Market Makers (‘‘LMMs’’) 5 that
are based on whether the LMM meets
certain Performance Metrics (as
described below). Specifically, the
Exchange would provide incremental
credits to LMMs based on how many
Performance Metrics an LMM meets in
each NYSE Arca-listed Security. The
Exchange also proposes to make the
additional credits available for ETP
Holders registered as Market Maker
(‘‘Market Makers’’).6 The Exchange
believes that the proposed rule change
would encourage LMMs and Market
4 See Securities and Exchange Act Release No.
87978 (January 15, 2020), 85 FR 3727 (January 22,
2020) (SR–NYSEArca–2020–03).
5 The term ‘‘Lead Market Maker’’ is defined in
Rule 1.1(w) to mean a registered Market Maker that
is the exclusive Designated Market Maker in listings
for which the Exchange is the primary market.
6 Pursuant to Rule 7.23–E(a)(1), all registered
Market Makers, including LMMs, have an
obligation to maintain continuous, two-sided
trading interest in those securities in which the
Market Marker is registered to trade. In addition,
pursuant to Rule 7.24–E(b), LMMs are held to
higher performance standards in the securities in
which they are registered as LMM. LMMs can earn
additional financial incentives for meeting the
higher performance standards specified from time
to time in the Fee Schedule. Only one LMM can be
registered in a NYSE-Arca listed security, but that
security can have an unlimited number of registered
Market Makers. Market Makers can also be
registered in securities that trade on an unlisted
trading privileges basis on the Exchange.
PO 00000
Frm 00132
Fmt 4703
Sfmt 4703
Makers to maintain better market
quality in NYSE Arca-listed Securities
in which they are registered, including
in lower volume securities.
The Exchange notes that its listing
business operates in a highly
competitive market in which market
participants, including issuers of
securities, LMMs, and other liquidity
providers, can readily transfer their
listings, or direct order flow to
competing venues if they deem fee
levels, liquidity provision incentive
programs, or other factors at a particular
venue to be insufficient or excessive.
The proposed rule change reflects the
current competitive pricing
environment and is designed to
incentivize market participants to
participate as LMMs or Market Makers,
and thereby, further enhance the market
quality on all securities listed on the
Exchange and encourage issuers to list
new products on the Exchange.
The Exchange proposes to implement
the fee changes effective May 14, 2021.7
Background
As noted above, 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
While Regulation NMS has enhanced
competition, it has also fostered a
‘‘fragmented’’ market structure where
trading in a single stock can occur
across multiple trading centers. When
multiple trading centers compete for
order flow in the same stock, the
Commission has recognized that ‘‘such
competition can lead to the
fragmentation of order flow in that
stock.’’ 9 Indeed, equity trading is
currently dispersed across 16
7 The Exchange originally filed to amend the Fee
Schedule on May 3, 2021 (SR–NYSEArca–2021–33).
SR–NYSEArca–2021–33 was subsequently
withdrawn and replaced by this filing.
8 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(File No. S7–10–04) (Final Rule) (‘‘Regulation
NMS’’).
9 See Securities Exchange Act Release No. 61358,
75 FR 3594, 3597 (January 21, 2010) (File No. S7–
02–10) (Concept Release on Equity Market
Structure).
E:\FR\FM\03JNN1.SGM
03JNN1
Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices
exchanges,10 numerous alternative
trading systems,11 and broker-dealer
internalizers and wholesalers, all
competing for order flow. Based on
publicly-available information, no
single exchange currently has more than
17% market share.12 Therefore, no
exchange possesses significant pricing
power in the execution of equity order
flow. More specifically, the Exchange
currently has less than 10% market
share of executed volume of equities
trading.13
The Exchange believes that the evershifting market share among the
exchanges from month to month
demonstrates that market participants
can move order flow, or discontinue or
reduce use of certain categories of
products. While it is not possible to
know a firm’s reason for shifting order
flow, the Exchange believes that one
such reason is because of fee changes at
any of the registered exchanges or nonexchange venues to which a firm routes
order flow. With respect to nonmarketable order flow that would
provide liquidity on an Exchange
against which market makers can quote,
ETP Holders can choose from any one
of the 16 currently operating registered
exchanges to route such order flow.
Accordingly, competitive forces
constrain exchange transaction fees that
relate to orders that would provide
liquidity on an exchange.
Proposed Rule Change
With this proposed rule change, the
Exchange proposes to reorganize certain
existing fees and credits and introduce
new pricing that is tied to market
quality metrics provided by LMMs and
Market Makers on an ETP basis. In
doing so, the Exchange proposes four
new sections that would be applicable
to LMM Transaction Fees and Credits.
The proposed four sections, discussed
below, would be:
• Section I. Definitions for purposes
of LMM Transaction Fees and Credits
• Section II. LMM Base Fees and
Credits per Share
• Section III. LMM Performance
Metrics-based Incremental Base Credit
Adjustments
khammond on DSKJM1Z7X2PROD with NOTICES
10 See
Cboe U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/
equities/market_share. See generally https://
www.sec.gov/fast-answers/divisionsmarketregmr
exchangesshtml.html.
11 See FINRA ATS Transparency Data, available
at https://otctransparency.finra.org/
otctransparency/AtsIssueData. A list of alternative
trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/
atslist.htm.
12 See Cboe Global Markets U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
13 See id.
VerDate Sep<11>2014
17:23 Jun 02, 2021
Jkt 253001
• Section IV. Additional Tape B
Credits for LMMs and Market Makers
Section I. Definitions for purposes of
LMM Transaction Fees and Credits
In connection with the proposed rule
change, the Exchange would add new
Section I titled ‘‘Definitions for
purposes of LMM Transaction Fees and
Credits’’ that would set forth the
following nine definitions:
1. ‘‘CADV’’ would mean the
consolidated average daily volume in a
security in the prior month.
2. ‘‘ETP’’ would mean Exchange
Traded Products listed on NYSE Arca.
3. ‘‘ETP Price’’ would mean the
average Official Closing Price 14 in that
ETP in the prior month.
4. ‘‘Less Active ETPs’’ would mean
ETPs that have a CADV in the prior
calendar quarter that is the greater of
either less than 100,000 shares or less
than 0.013% of Consolidated Tape B
ADV.
5. ‘‘Leveraged ETP’’ would mean an
ETP that tracks an underlying index by
a ratio other than on a one-to-one basis.
6. ‘‘Maximum LMM Spread’’ would
mean time-weighted average LMM
spread (LMM Offer minus LMM Bid)
divided by the average of the LMM Bid
and LMM Offer, in basis points.
7. ‘‘Minimum LMM Shares within 1%
of NBBO’’ would mean the average
number of LMM shares quoted
throughout the trading day that are
within 1% of the National Best Bid and
Best Offer divided by two.
8. ‘‘Minimum LMM Shares at the Core
Open Auction within 1.5% of the
Auction Reference Price’’ would mean
the average of LMM buy shares and
LMM sell shares for Limit Orders
quoted within 1.5% of the Auction
Reference Price 15 divided by two.
9. ‘‘Minimum LMM Shares at the
Closing Auction within 1% of the
NBBO’’ would mean the average
number of LMM buy shares and LMM
sell shares for Limit Orders quoted
within 1% of the National Best Bid and
Best Offer before the end of Core
Trading Hours 16 divided by two.
14 With respect to equities traded on the
Exchange, the term ‘‘Official Closing Price’’ means
the reference price to determine the closing price
in a security. See NYSE Arca Rule 1.1(ll). NYSE
Arca Rule 1.1(ll) describes how the Official Closing
Price is determined.
15 The term ‘‘Auction Reference Price’’ is defined
in NYSE Arca Rule 7.35–E(a)(8)(A). NYSE Arca
Rule 7.35–E(a)(8)(A) describes how the Auction
Reference Price is determined.
16 With respect to equities traded on the
Exchange, the term ‘‘Core Trading Hours’’ means
the hours of 9:30 a.m. Eastern Time through 4:00
p.m. (Eastern Time) or such other hours as may be
determined by the Exchange from time to time. See
NYSE Arca Rule 1.1(j).
PO 00000
Frm 00133
Fmt 4703
Sfmt 4703
29869
The Exchange proposes these
definitions to use consistent terms
throughout this section of the Fee
Schedule relating to LMMs.
Section II. LMM Base Fees and Credits
per Share
The Exchange proposes to add new
Section II titled ‘‘LMM Base Fees and
Credits per Share.’’ The Exchange notes
that the fees and credits in proposed
Section II are current fees and credits.
The Exchange proposes a nonsubstantive change to reorganize these
current fees and credits in a table format
without any change to the level of the
fees and credits.
Specifically, the Exchange currently
charges LMMs a base fee of $0.0029 per
share for orders that remove liquidity
and provides the following base credits:
• $0.0033 per share for orders that
provide liquidity in securities for which
the LMM is registered as the LMM and
which have a CADV in the previous
month greater than 3,000,000 shares;
• $0.0040 per share for orders that
provide liquidity in securities for which
the LMM is registered as the LMM and
which have a CADV in the previous
month of between 1,000,000 and
3,000,000 shares; and
• $0.0045 per share for orders that
provide liquidity in securities for which
the LMM is registered as the LMM and
which have a CADV in the previous
month of less than 1,000,000 shares.
Additionally, LMMs are provided a
credit of $0.0030 per share for orders
that provide undisplayed liquidity in
Arca Only Orders 17 in securities for
which the LMM is registered as the
LMM, and a credit of $0.0015 per share
for Non-Displayed Limit Orders that
provide liquidity in securities for which
the LMM is registered as the LMM. The
Exchange also does not charge LMMs a
fee for orders executed in the Closing
Auction.
The Exchange proposes to reorganize
the presentation of the Fee Schedule in
order to enhance its clarity and
transparency, thereby making the Fee
Schedule easier to navigate. With
respect the current LMM fees and
credits discussed above, the Exchange
proposes a horizontal presentation in a
table rather than the current vertical
presentation. The proposed changes
described above would be included in
the new presentation under proposed
17 The ‘‘Arca Only Order’’ has been renamed as
the ‘‘Non-Routable Limit Order.’’ See Securities
Exchange Act Release No. 83967 (August 28, 2018),
83 FR 44984 (September 4, 2018) (SR–NYSEArca2018–61). Accordingly, the proposed new
presentation would utilize the new name ‘‘NonRoutable Limit Orders’’ instead of ‘‘Arca Only
Orders.’’
E:\FR\FM\03JNN1.SGM
03JNN1
29870
Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices
Section II titled LMM Base Fees and
Credits per Share, without any
substantive change to the rate or the
requirement to qualify for these existing
fees and credits. The proposed changes
Credit for adding
liquidity
ETP CADV
<1,000,000 ...............................................
1,000,000 to 3,000,000 ...........................
>3,000,000 ...............................................
($0.0045)
($0.0040)
($0.0033)
Section III. LMM Performance MetricsBased Incremental Base Credit
Adjustments
The Exchange proposes to adopt
market quality metrics that LMMs
would be required to meet to qualify for
incremental credits. Proposed Section
III titled ‘‘LMM Performance Metricsbased Incremental Base Credit
Adjustments’’ would provide a table of
Performance Metrics that LMMs would
be required to meet to qualify for certain
incremental credits. LMMs that meet the
Performance Metrics would be entitled
to enhanced credits based on the quality
of the market provided by an LMM in
an ETP assigned to the LMM.
The Exchange proposes to adopt the
following four Performance Metrics that
LMMs would be measured by:
would appear as follows in the Fee
Schedule:
Fee for removing
liquidity
Credit for adding
non-displayed limit
orders
Credit for adding
undisplayed liquidity
in non-routable limit
orders
Fee for orders
in the closing
auction
$0.0029
..............................
..............................
($0.0015)
..............................
..............................
($0.0030)
..................................
..................................
No Fee.
1. Maximum LMM Spread. Maximum
LMM Spread means time-weighted
average LMM spread (LMM Offer minus
LMM Bid) divided by the average of the
LMM Bid and LMM Offer, in basis
points;
2. Minimum LMM Shares within 1%
of NBBO. Minimum LMM Shares within
1% of NBBO means the average number
of LMM shares quoted throughout the
trading day that are within 1% of the
National Best Bid and Best Offer
divided by two;
3. Minimum LMM Shares in Core
Open Auction within 1.5% of Auction
Reference Price. Minimum LMM Shares
at the Core Open Auction within 1.5%
of the Auction Reference Price means
the average of LMM buy shares and
LMM sell shares for Limit Orders
quoted within 1.5% of the Auction
Reference Price divided by two; and
4. Minimum LMM Shares at the
Closing Auction within 1% of the
NBBO. Minimum LMM Shares at the
Closing Auction within 1% of the NBBO
means the average number of LMM buy
shares and LMM sell shares for Limit
Orders quoted within 1% of the
National Best Bid and Best Offer before
the end of Core Trading Hours divided
by two.
As proposed, each ETP would be
grouped based on its prior month CADV
and its price. An LMM would be
considered to have met a Performance
Metric in an ETP assigned to the LMM
in a billing month if it meets the
following:
MONTHLY AVERAGE LMM PERFORMANCE METRICS
ETP CADV
ETP price
>1,000,000 ........................................
>$50 .................................................
$25–$50 ...........................................
Under $25 ........................................
>$50 .................................................
$25–$50 ...........................................
Under $25 ........................................
>$50 .................................................
$25–$50 ...........................................
Under $25 ........................................
>$50 .................................................
$25–$50 ...........................................
Under $25 ........................................
100,001–1,000,000 ...........................
10,000–100,000 ................................
Under 10,000 ....................................
khammond on DSKJM1Z7X2PROD with NOTICES
Maximum
LMM spread
(bps)
Under the proposal, the base credit
earned by an LMM for Adding
Displayed Liquidity (as provided in
Section II above) in an assigned ETP
would be adjusted based on the number
of Performance Metrics met by the LMM
in the billing month for each assigned
ETP, as follows:
VerDate Sep<11>2014
17:23 Jun 02, 2021
Jkt 253001
Minimum LMM
shares within
1% of national
BBO
Minimum LMM
shares in core
open auction
within 1.5% of
auction
reference price
Minimum LMM
shares at the
closing auction
within 1% of
the national
BBO
6,000
20,000
42,000
2,500
3,500
10,000
2,200
2,400
4,000
2,000
3,000
3,000
4,000
8,500
22,000
2,500
4,000
5,750
2,000
2,050
2,200
1,750
1,800
1,800
12,250
14,250
30,000
3,250
4,750
7,250
2,250
2,500
4,500
2,000
3,000
3,000
55
45
40
35
35
65
40
55
70
50
60
75
including Leveraged ETPs. However, for
Leveraged ETPs, there would be no
adjustment to the base credit payable to
the LMM if the LMM meets 1 or 2
Performance Metrics or if the LMM does
4 ....................
($0.0001)
($0.0001) not meet any Performance Metrics.
3 ....................
(0.00005)
(0.00005) LMMs that are registered as the LMM in
2 ....................
0.0000
0.0000 a Leveraged ETF would be able to earn
1 ....................
0.0001
0.0000 an incremental credit of $0.00005 per
0 ....................
0.0002
0.0000 share if the LMM meets 3 of the 4
Performance Metrics, or earn an
The Performance Metrics illustrated
incremental credit of $0.0001 per share
above would apply to all ETPs,
Numbers of
performance
metrics met
PO 00000
Frm 00134
Incremental
base credit
adjustment
per ETP
Fmt 4703
Sfmt 4703
Incremental
base credit
adjustment
per leveraged
ETP
E:\FR\FM\03JNN1.SGM
03JNN1
khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices
if the LMM meets all 4 Performance
Metrics.
The following example illustrates
how a LMM can earn an incremental
credit by meeting the Performance
Metrics. Assume an LMM is registered
in an ETP that has a CADV of 500,000
shares and a price of $30, both in the
prior month. That LMM would
currently be eligible for a base credit for
adding of $0.0045 per share.18 Given the
profile of the ETP, i.e., CADV of 500,000
shares and a price of $30, the LMM
would have to meet the following
Performance Metrics to earn an
incremental credit (as illustrated in the
Performance Metrics table above):
• Maximum LMM Spread (‘‘Spread’’):
35 basis points (‘‘bps’’)
• Minimum LMM Shares within 1% of
Last Bid and Offer (‘‘Depth’’): 3,500
shares
• Minimum LMM Shares at the Core
Open Auction within 1.5% of the
Auction Reference Price (‘‘Open
Depth’’): 4,000 shares
• Minimum LMM Shares at the Closing
Auction within 1% of the Last Bid &
Offer (‘‘Closing Depth’’): 4,750 shares
Assume in the billing month, the
LMM in this ETP had a Spread of 30
bps, Depth of 3,000 shares, Open Depth
of 4,500 shares, and Closing Depth of
5,000 shares. The LMM in this example
met 3 of the 4 Performance Metrics
(Spread, Open Depth, and Closing
Depth) but did not meet Depth. As a
result, the LMM has qualified to earn an
incremental credit of $0.00005 per
share, for a combined credit per share of
$0.00455.
The following example illustrates
how a LMM registered as a LMM in a
Leveraged ETP can earn an incremental
credit. Assume the same LMM as in the
example above was registered in a
second ETP that is a Leveraged ETP that
also has a CADV of 500,000 shares and
a price of $30, both in the prior month.
The LMM would currently be eligible
for a base credit for adding of $0.0045
per share. In this example, the profile of
the Leveraged ETP is the same as in the
non-Leveraged ETP in the example
above.
Assume in the billing month, the
LMM in the Leveraged ETP had a
Spread of 25 bps, Depth of 3,000 shares,
Open Depth of 2,000 shares, and Closing
Depth of 2,500 shares. The LMM in this
example has met just 1 of the 4
Performance Metrics and therefore,
would not earn any incremental credit.
Since the credit payable to a LMM in a
18 Under
proposed Section II. LMM Base Fees and
Credits per Share, ETPs that have a CADV of less
than 1,000,000 shares receive $0.0045 per share
credit for adding displayed liquidity.
VerDate Sep<11>2014
19:59 Jun 02, 2021
Jkt 253001
Leveraged ETP would not be adjusted if
the LMM meets only 1 or 2 Metrics, or
does not meet any Performance Metrics,
the LMM in this example would
continue to receive the base credit of
$0.0045 per share. If the LMM had met
at least 3 of the 4 Performance Metrics
in the Leveraged ETP, the LMM would
have qualified for an incremental credit
of $0.00005 per share, for a combined
credit of $0.00455 per share. And if the
LMM had met all 4 Performance Metrics
in the Leveraged ETP, the LMM would
have qualified for an incremental credit
of $0.0001 per share, for a combined
credit of $0.0046 per share.
Section IV. Additional Tape B Credits
for LMMs and Market Makers
The Exchange proposes to add new
Section IV titled ‘‘Additional Tape B
Credits for LMMs and Market Makers.’’
The Exchange notes that the additional
credits in proposed Section IV for
LMMs are current; the Exchange is not
proposing any new additional credits
for LMMs under Section IV with this
proposed rule change.
As more fully described below, the
Exchange proposes a non-substantive
change to reorganize the presentation of
the credits under proposed Section IV.
The Exchange also proposes two
changes with respect to the Section IV
credits. First, the Exchange proposes
that to qualify for the additional credits
available under Section IV, LMMs
would be required to meet at least two
Performance Metrics per Less Active
ETP assigned to the LMM. Second, the
Exchange proposes to make additional
credits available to Market Makers who
meet the specified Performance Metrics.
Non-Substantive Change
The Exchange currently provides
LMMs, and ETP Holders affiliated with
such LMM, incremental credits for
orders in Tape B Securities that provide
displayed liquidity in securities for
which they are registered as the LMM
and in securities for which they are not
registered as an LMM based on the
number of securities that have a CADV
in the prior calendar quarter of less than
100,000 shares, or 0.013% of
Consolidated Tape B ADV, whichever is
greater (‘‘Less Active ETPs’’).19
These additional credits are as
follows:
• An additional credit of $0.0004 per
share if an LMM is registered as the
LMM in at least 400 Less Active ETPs
or at least 300 Less Active ETPs if the
19 The number of Less Active ETPs for the billing
month is based on the number of Less Active ETPs
in which an LMM is registered as the LMM on the
average of the first and last business day of the
previous month.
PO 00000
Frm 00135
Fmt 4703
Sfmt 4703
29871
LMM and ETP Holders and Market
Makers affiliated with such LMM add
liquidity in all securities of at least
1.00% of US CADV. This credit would
appear in the proposed Less Active table
under proposed Section IV as Tier 1
without any substantive change to the
amount of the credit.
• An additional credit of $0.0003 per
share if an LMM is registered as the
LMM in at least 200 but less than 400
Less Active ETPs or in at least 200 but
less than 300 Less Active ETPs if the
LMM and ETP Holders and Market
Makers affiliated with such LMM add
liquidity in all securities of at least
1.00% of US CADV. This credit would
appear in the proposed Less Active table
under proposed Section IV as Tier 2
without any substantive change to the
amount of the credit.
• An additional credit of $0.0002 per
share if an LMM is registered as the
LMM in at least 100 but less than 200
Less Active ETPs. This credit would
appear in the proposed Less Active table
under proposed Section IV as Tier 3
without any substantive change to the
amount of the credit.
• An additional credit of $0.0001 per
share if an LMM is registered as the
LMM in at least 75 but less than 100
Less Active ETPs. This credit would
appear in the proposed Less Active table
under proposed Section IV as Tier 4
without any substantive change to the
amount of the credit.
• An additional credit of $0.00005
per share if an LMM is registered as the
LMM in at least 50 but less than 75 Less
Active ETPs. This credit would appear
in the proposed Less Active table under
proposed Section IV as Tier 5 without
any substantive change to the amount of
the credit.
As noted above, the Exchange
proposes to reorganize the presentation
of the incremental credits described
above in a table rather than the current
vertical presentation in order to enhance
its clarity and transparency.
Performance Metrics-Based Tape B
Credits
As noted above, the Exchange
currently provides tier-based
incremental credits to LMMs and to ETP
Holders affiliated with the LMM that
provide displayed liquidity in Tape B
securities. A LMM can earn anywhere
between $0.00005 per share to $0.0004
per share of incremental credits
depending on the number of Less Active
ETP Securities in which an LMM is
registered as the LMM.
As proposed, LMMs would be able to
earn an additional credit on all Tape B
Securities if the LMM meets at least two
Performance Metrics in each of the Less
E:\FR\FM\03JNN1.SGM
03JNN1
29872
Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices
Active ETPs in which they are
registered as the LMM.
The number of Less Active ETPs for
a billing month would be calculated as
the average number of Less Active ETPs
in which an LMM is registered on the
first and last business day of the
previous month.
To determine which Less Active ETP
Tier would apply to an LMM, the
Exchange would count the number of
Less Active ETPs assigned to that LMM,
as follows:
Each Less Active ETP in which an
LMM is registered and meets at least
two Performance Metrics would count
as one Less Active ETP. Each Less
Active ETP that is a Leveraged ETP in
which an LMM is registered would
count as one Less Active ETP regardless
of the number of Performance Metrics
met.
The Exchange also proposes that
Market Makers would be eligible to earn
this additional credit on all Tape B
securities if:
• The Market Maker notifies the
Exchange on or before the first trading
day that the additional credit is
available in a calendar month of which
new Less Active ETPs for which the
Marker Maker is registered that it would
be seeking to count towards or remove
from qualifying for this additional credit
in that month.
• The Market Maker cannot also be
the registered LMM in a Less Active
ETP that it is seeking to count to qualify
for the additional credit as a Market
Maker.
• Every two Less Active ETPs that a
Market Maker identifies and meets at
least two Performance Metrics will
count as one Less Active ETP for
purposes of determining the applicable
additional credit.
• If an ETP Holder is both an LMM
and a Market Maker in Less Active ETPs
Less active ETP tiers
Tier
Tier
Tier
Tier
5
4
3
2
Number of less active ETPs per LMM/Market Maker
.........................................................
.........................................................
.........................................................
.........................................................
khammond on DSKJM1Z7X2PROD with NOTICES
Tier 1 .........................................................
50–74 ETPs .................................................................................................................
75–99 ETPs .................................................................................................................
100–199 ETPs .............................................................................................................
200–399 ETPs, or 200–299 ETPs if the LMM or Market Maker and its affiliates add
liquidity of at least 1.00% of US CADV.
At Least 400 ETPs, or at least 300 ETPs if the LMM or Market Maker and its affiliates add liquidity of at least 1.00% of US CADV.
The following example illustrates the
applicability of the expanded eligibility
of additional Tape B credits to LMMs
and Market Makers that meet a certain
number of Performance Metrics.
Assume a LMM is registered in 120
Less Active ETPs. Currently, that LMM
would qualify for an additional credit of
$0.0002 per share for adding liquidity in
all Tape B Securities under the Less
Active ETP Tier 3 in the table above.
Assume further that of those 120 Less
Active ETPs, the LMM meets at least
two Performance Metrics in 90 of those
Less Active ETPs, and does not meet at
least two Performance Metric in the
other 30 Less Active ETPs. The LMM in
this example would qualify for Less
Active ETP Tier 4 and would receive an
incremental credit of $0.0001 per share
for adding liquidity on all Tape B
Securities. If the LMM in this example
seeks to qualify as a Market Maker in
another 50 Less Active ETPs, and as a
Market Maker, the LMM meets at least
two Performance Metrics in 40 of its
non-registered Less Active ETPs, then
those 40 Less Active ETPs would count
as 20 Less Active ETPs for a combined
total number of Less Active ETPs of 110
Less Active ETPs (90 Less Active ETPs
VerDate Sep<11>2014
17:23 Jun 02, 2021
and has notified the Exchange of Less
Active ETPs that it seeking to count for
the additional credit as a Market Maker,
the number of Less Active ETPs
calculated for the Market Maker above
will be combined with the number of
Less Active ETPs in which the LMM is
registered.
The Exchange believes that offering
this incentive program to Market Makers
would promote the additional display of
liquidity in Less Active ETPs that list
and trade on the Exchange. The
Exchange notes that Market Makers
would need to meet Performance
Metrics in more Less Active ETPs than
the assigned LMMs in order to achieve
the same level of additional credit.
The changes described above would
be included under proposed new
Section IV and would appear as follows
on the Fee Schedule:
Jkt 253001
as LMM + 20 Less Active ETPs as
Market Maker). The LMM would then
qualify for Less Active ETP Tier 3 and
would receive an incremental credit of
$0.0002 per share for adding liquidity
on all Tape B Securities.
The following example illustrates
how a Market Maker that is not an LMM
can receive the incremental credits.
Assume a Market Maker notifies the
Exchange that it is seeking to qualify in
180 Less Active ETPs. Assume further
that the Market Maker meets at least 2
Performance Metrics in 160 Less Active
ETPs, and does not meet at least 2
Performance Metrics in the other 20
Less Active ETPs, for a total of 80 Less
Active ETPs since every two Less Active
ETPs that a Market Maker identifies and
meets at least two Performance Metrics
count as one Less Active ETP for
purposes of determining which Less
Active ETP tier applies to the Market
Maker. The Market Maker in this
example would qualify under Less
Active Tier 4 for an incremental credit
of $0.0001 per share for adding liquidity
in all Tape B securities.
The Exchange believes the proposed
rule change would enhance market
quality on all NYSE Arca-listed
PO 00000
Frm 00136
Fmt 4703
Sfmt 4703
Additional
credit on all
Tape B
Securities
($0.00005)
(0.0001)
(0.0002)
(0.0003)
(0.0004)
Securities by incentivizing LMMs and
Market Makers to meet the Performance
Metrics across all Less Active ETPs,
which would support the quality of
price discovery in such securities on the
Exchange and provide additional
liquidity for incoming orders for the
benefit of all market participants. The
Exchange believes that providing
increased credits to LMMs and ETP
Holders that are affiliated with a LMM
that add liquidity in Tape B Securities
to the Exchange could lead to more
LMMs to register to quote and trade in
Less Active ETP Securities. The
Exchange believes the proposed
financial incentives could also
encourage competition in Tape B
Securities quoted and traded on the
Exchange.
The Exchange does not know how
much order flow LMMs and Market
Makers choose to route to other
exchanges or to off-exchange venues.
The proposed credits in NYSE Arcalisted Securities would be available to
all LMMs and Market Makers that are
registered in those securities and are
subject to the obligations specified in
Rule 7.23–E relating to Market Makers.
There are currently seven LMMs that
E:\FR\FM\03JNN1.SGM
03JNN1
khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices
would qualify for the incremental
credits. Without having a view of their
activity on other markets and offexchange venues, the Exchange has no
way of knowing whether this proposed
rule change would result in more LMMs
and Market Makers sending their orders
in NYSE Arca-listed Securities to the
Exchange to qualify for the existing
credits or whether this proposed rule
change would result in these members
sending more of their orders in NYSE
Arca-listed Securities to the Exchange to
qualify for the proposed incremental
credits. The Exchange cannot predict
with certainty how many LMMs and
Market Makers would avail themselves
of this opportunity, but additional
liquidity-providing orders would benefit
all market participants because it would
provide greater execution opportunities
on the Exchange.
The proposed rule change is also
intended to incentivize LMMs to
increase auction liquidity in less liquid
NYSE Arca-listed Securities to support
price discovery in the Exchange’s
opening and closing auctions for the
benefit of all market participants. The
Exchange believes that the proposed
rule change could lead to more LMMs
to register in less liquid securities and
encourage greater participation in the
opening and closing auctions on the
Exchange.
The Exchange believes the proposed
rule change would also to provide
superior market quality and price
discovery for NYSE Arca-listed
Securities, specifically securities that
are less active, through a quoting size
requirement that would promote
liquidity in the opening and closing
auction in such securities. The proposed
rule change is intended to provide a
more meaningful incentive to both
LMMs and ETP Holders to provide
liquidity in less active securities by
providing financial incentives to the
Exchange’s members as long as they
meet certain prescribed quoting criteria.
The Exchange believes that a
performance-driven incentive would
encourage such members to provide
meaningful quotes and size in less
active securities listed and traded on the
Exchange.
Additionally, for newly listed and low
volume ETPs, the cost to a firm for
making a market, such as holding
inventory in the security, is often not
fully offset by the revenue through
rebates provided by the Exchange. In
some cases, firms may even operate at
a loss in new and low volume ETPs. The
Exchange believes the proposed credits,
which would compensate members as
long as they meet the prescribed
performance metrics, is a more
VerDate Sep<11>2014
17:23 Jun 02, 2021
Jkt 253001
29873
by participants to access the Exchange.
Rather, the proposed rebates are based
on achieving certain objective market
quality metrics. The Exchange believes
providing rebates that are based on the
quality of the market in individual ETPs
that generally have low volume will
allow ETP Holders to anticipate their
revenue and will incentivize them to
provide tight and deep markets in those
securities.
Given the novelty of the proposed
rule change, the Exchange cannot be
certain that LMMs and Market Makers
will choose to actively compete for
2. Statutory Basis
these incentives. For LMMs and Market
The Exchange believes that the
Makers that do choose to actively
proposed rule change is consistent with participate by providing deep and tight
Section 6(b) of the Act,20 in general, and markets in Less Active ETP Securities,
furthers the objectives of Sections
the Exchange expects those members to
6(b)(4) and (5) of the Act,21 in particular, receive payments comparable to what
because it provides for the equitable
they currently receive, with the
allocation of reasonable dues, fees, and
potential for additional upside when
other charges among its members,
they meet the Performance Metrics in a
issuers and other persons using its
greater number of less active securities.
facilities and does not unfairly
The Exchange believes the proposed
discriminate between customers,
credits, which would compensate
issuers, brokers or dealers. The
LMMs and Market Makers as long as
Exchange also notes that its ETP listing
they meet the prescribed Performance
business operates in a highlyMetrics, is also reasonable because it is
competitive market in which market
a more deterministic program from an
participants, which includes LMMs and ETP Holder’s perspective.
The Exchange believes the proposed
ETP Holders, as well as ETP issuers, can
rule change is intended to encourage
readily transfer their listings or opt not
to participate, respectively, if they deem LMMs and Market Makers to promote
price discovery and market quality in
fee levels, liquidity provision incentive
Less Active ETP Securities for the
programs, or any other factor at a
benefit of all market participants. The
particular venue to be insufficient or
Exchange believes the proposed rule
excessive. The proposed rule change
change is reasonable and appropriate in
reflects a competitive pricing structure
that the credits are based on the amount
designed to incentivize issuers to list
of business transacted on the Exchange.
new products and transfer existing
The Exchange notes that the proposed
products to the Exchange and market
incremental credits offered by the
participants to enroll and participate as
Exchange is similar to market quality
LMMs on the Exchange, which the
incentive programs already in place on
Exchange believes will enhance market
other markets, such as the Designated
quality in all ETPs listed on the
Liquidity Provider incentives on the
Exchange.
Nasdaq Stock Market LLC (‘‘Nasdaq’’),
The Proposed Fee Change is Reasonable which requires a member on that
The Exchange believes that the
exchange to provide meaningful and
consistent support to market quality and
proposal to adopt market quality-based
price discovery in low volume
incentives is a reasonable means to
exchange-traded products by quoting at
incentivize liquidity provision in ETPs
listed on the Exchange. The marketplace the National Best Bid and Offer and
for listings is extremely competitive and adding liquidity in a minimum number
of such securities. In return, Nasdaq
the Exchange is not the only venue for
provides the member with an
listing ETPs. Competition in ETPs is
incremental rebate.22 The Exchange
further exacerbated by the fact that
believes that providing increased credits
listings can and do transfer from one
to LMMs and Market Makers that add
listing market to another. The proposed
liquidity in Tape B Securities to the
rule change is intended to help the
Exchange compete as a listing venue for Exchange is reasonable because the
Exchange believes that by providing
ETPs. Further, the Exchange notes that
the proposed incentives are not
22 See Equity 7 Pricing Schedule, Section 114.
transaction fees, nor are they fees paid
deterministic program from a member’s
perspective. The member would decide
how many, if any, low volume securities
it wants to provide tight and deep
markets in. The more securities the
member provides heightened quoting in,
the more the member could collect in
the form of a rebate.
The proposed changes are not
otherwise intended to address any other
issues, and the Exchange is not aware of
any significant problems that market
participants would have in complying
with the proposed changes.
20 15
21 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
Frm 00137
Fmt 4703
Sfmt 4703
Market Quality Incentive Programs, at https://
listingcenter.nasdaq.com/rulebook/nasdaq/rules/
Nasdaq%20Equity%207#section_114_market_
quality_incentive_programs.
E:\FR\FM\03JNN1.SGM
03JNN1
khammond on DSKJM1Z7X2PROD with NOTICES
29874
Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices
increased rebates to such members,
more of them will register to quote and
trade in Less Active ETP Securities. The
Exchange believes the proposed
incremental credit for adding liquidity
is also reasonable because it will
encourage liquidity and competition in
Tape B Securities quoted and traded on
the Exchange. Moreover, the Exchange
believes that the proposed fee change
will incentivize LMMs and Market
Maker to register as either an LMM or
Market Maker in Less Active ETP
Securities and thus, add more liquidity
in Tape B Securities to the benefit of all
market participants.
The Exchange believes that providing
additional credits to Market Makers that
add liquidity in Less Active ETPs is
reasonable because the Exchange
believes that by providing such
additional credits, more Market Makers
would choose to register in Less Active
ETP Securities on the Exchange, which
the Exchange believes would benefit all
market participants. As noted above,
because Market Makers registered in a
security must meet the quoting
obligations specified in Rule 7.23–E,
expanding eligibility to Market Makers
to receive credits is a reasonable attempt
to increase participation on the
Exchange and provide an incentive for
Market Makers to meet additional
standards for their registered Less
Active ETPs.
Submission of additional liquidity to
the Exchange would promote price
discovery and transparency and
enhance order execution opportunities
for LMMs and Market Makers from the
substantial amounts of liquidity present
on the Exchange. All participants would
benefit from the greater amounts of
liquidity that will be present on the
Exchange, which would provide greater
execution opportunities.
The Exchange believes that
eliminating the existing monthly rebate
tied to the performance in the opening
and closing auctions in NYSE Arcalisted Securities and the ETF Incentive
Program for NYSE Arca-listed Securities
is reasonable because those pricing
incentives did not the achieve their
intended purpose of incentivizing
LMMs and ETP Holders to send a
greater number of their orders in Tape
B Securities to the Exchange. The
Exchange believes replacing the
monthly rebate program and the ETF
Incentive Program with pricing
incentives tied to Performance Metrics
discussed above will allow the
Exchange to better maintain its
competitive standing. On the backdrop
of the competitive environment in
which the Exchange currently operates,
the proposed rule change is a reasonable
VerDate Sep<11>2014
17:23 Jun 02, 2021
Jkt 253001
attempt to increase liquidity on the
Exchange and improve the Exchange’s
market share relative to its competitors.
Finally, the Exchange believes the
proposed non-substantive changes to
relocate existing fees and credits into a
table format is reasonable and would
not be inconsistent with the public
interest and the protection of investors
because investors will not be harmed
and in fact would benefit from increased
clarity and transparency of the Fee
Schedule, thereby reducing potential
confusion.
The Proposed Fee Change is an
Equitable Allocation of Fees and Credits
The Exchange believes the proposed
rule change is equitable because the
proposal would provide discounts that
are reasonably related to the value to the
Exchange’s market quality associated
with higher volumes in Less Active ETP
Securities. The Exchange further
believes that the proposed incremental
rebate is equitable because it is
consistent with the market quality and
competitive benefits associated with the
fee program and because the magnitude
of the additional rebate is not
unreasonably high in comparison to the
rebate paid with respect to other
displayed liquidity-providing orders.
The Exchange believes that it is
equitable to offer increased rebates to
LMMs and Market Makers as both are
currently subject to obligations specified
in Rule 7.23–E, which are not applicable
to non-Market Maker ETP Holders, and
they would be subject to additional
requirements and obligations (such as
meeting Performance Metrics) that other
market participants are not.
The Exchange believes that the
proposal to offer rebates tied to market
quality metrics represents an equitable
allocation of payments because LMMs
and Market Makers would be required
to not only meet their Rule 7.23–E
obligations, but also meet prescribed
quoting requirements in order to qualify
for the payments, as described above.
Where an LMM or Market Maker does
not meet at least two Performance
Metrics, that member will not receive
any additional financial benefit.
Further, all LMMs and Market Makers
on the Exchange are eligible to
participate and could do so by simply
registering in a Less Active ETP and
meeting the proposed market quality
metrics. The Exchange has designed the
proposed pricing incentives to be
sustainable over the long-term and
generally expects that payments made to
LMMs and Market Makers will be
comparable to payments the Exchange
currently makes to its members and
comparable to pricing incentives offered
PO 00000
Frm 00138
Fmt 4703
Sfmt 4703
by the Exchange’s competitors. As such,
the Exchange believes that the proposal
represents an equitable allocation of
dues, fees and credits.
The Exchange believes that
eliminating the existing monthly rebate
tied to the performance in the opening
and closing auctions in NYSE Arcalisted Securities and the ETF Incentive
Program for NYSE Arca-listed Securities
is equitable because the Exchange is
eliminating those pricing incentives for
all participants.
The Proposed Fee Change is not
Unfairly Discriminatory
The Exchange believes that the
proposed rule change is not unfairly
discriminatory. In the prevailing
competitive environment, LMMs and
Market Makers are free to disfavor the
Exchange’s pricing if they believe that
alternatives offer them better value.
The Exchange believes it is not
unfairly discriminatory to adopt
incremental credits applicable to LMMs
and Market Makers because both are
already subject to additional obligations,
as specified in Rule 7.23–E, and the
proposed additional credits would be
provided on an equal basis to all
similarly situated participant provided
each such participant meets the
prescribed market quality metrics. If an
LMM or Market Maker does not meet
the required number of Performance
Metrics, the member would not receive
any incremental credit. Further, the
Exchange believes the incremental
credit would incentivize each of these
participants to register in Less Active
ETPs and send more orders to the
Exchange to qualify for higher credits.
The Exchange also believes that the
proposed rule change is not unfairly
discriminatory because it is reasonably
related to the value to the Exchange’s
market quality associated with higher
volume.
The proposal to offer an additional
credit tied to meeting certain market
quality requirements neither targets nor
will it have a disparate impact on any
particular category of market
participant. The proposal does not
permit unfair discrimination because
LMMs and Market Makers already have
increased obligations vis-a`-vis nonMarket Maker ETP Holders, as specified
in Rule 7.23–E, and the proposed
requirements would be applied to all
similarly-situated LMMs and Market
Maker equally. In addition, the
proposed incentives for LMMs replace
the existing incentive structure, which
is already available only for LMMs. The
Exchange does not believe it would be
unfairly discriminatory to extend the
availability of additional credits for
E:\FR\FM\03JNN1.SGM
03JNN1
Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
Tape B securities to Market Makers
because Market Makers have obligations
under Rule 7.23–E, and pursuant to the
proposed change, would need to meet
additional performance requirements in
order to qualify for the additional credit.
The Exchange believes that the
proposed rule change is not unfairly
discriminatory because all LMMs and
Market Makers that choose to qualify for
the incremental credits would be
required to meet a minimum number of
Performance Metrics in order to receive
the credits. Where a participant does not
achieve a certain number of
Performance Metrics, it will not receive
any incremental credits. Further, all
LMMs and Market Makers on the
Exchange are eligible to participate in
the program and could do so by simply
registering in Less Active ETPs and
meeting a minimum number of
Performance Metrics. The Exchange has
designed the pricing incentives
proposed herein to be sustainable over
the long-term and generally expects that
payments made to LMMs and Market
Makers would be comparable to
payments the Exchange currently makes
to its LMMs and comparable to pricing
incentives offered by the Exchange’s
competitors. As such, the Exchange
believes that the proposal is not unfairly
discriminatory.
The Exchange believes that
eliminating the existing monthly rebate
tied to the performance in the opening
and closing auctions in NYSE Arcalisted Securities and the ETF Incentive
Program for NYSE Arca-listed Securities
is not unfairly discriminatory because
the Exchange is eliminating both pricing
incentives for all participants.
Finally, subject to their obligations
specified in Rule 7.23–E, the submission
of additional orders to the Exchange is
optional for LMMs and Market Makers
in that they could choose the level of
trading activity on the Exchange. 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,23 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
23 15
U.S.C. 78f(b)(8).
VerDate Sep<11>2014
17:23 Jun 02, 2021
Jkt 253001
that the proposed changes would
encourage the submission of additional
liquidity to a public exchange, thereby
promoting market depth, price
discovery and transparency and
enhancing order execution
opportunities for LMMs and ETP
Holders. As a result, the Exchange
believes that the proposed change
furthers the Commission’s goal in
adopting Regulation NMS of fostering
integrated competition among orders,
which promotes ‘‘more efficient pricing
of individual stocks for all types of
orders, large and small.’’ 24
Intramarket Competition. The
proposed change is designed to attract
additional order flow to the Exchange.
The Exchange believes that the
proposed Performance Metrics-based
incremental credit applicable to LMMs
and Market Makers in Less Active ETPs
in which they are registered would
continue to incentivize market
participants to direct their displayed
order flow to the Exchange. Greater
liquidity benefits all market participants
on the Exchange by providing more
trading opportunities and encourages
LMMs and Market Makers to send
additional orders to the Exchange,
thereby contributing to robust levels of
liquidity, which benefits all market
participants. The proposed pricing
incentive would be applicable to all
similarly-situated market participants
that have obligations under Rule 7.23–
E to meet specified obligations, and, as
such, the proposed changes would not
impose a disparate burden on
competition among market participants
on the Exchange. The Exchange believes
the proposed adoption of Performance
Metrics would enhance competition as
it is intended to increase the Exchange’s
competitiveness in Less Active ETPs,
and all LMMs and Market Makers
would be able to participate on an equal
basis. Accordingly, the Exchange does
not believe that the proposed change
will impair the ability of ETP Holders to
maintain their competitive standing.
The Exchange does not believe that the
proposed change represents a significant
departure from previous pricing offered
by the Exchange or its competitors. The
Exchange also does not believe the
proposed rule change to eliminate
underutilized pricing incentives will
impose any burden on intramarket
competition because the proposed
change would impact all LMMs and
Market Makers uniformly.
Intermarket Competition. The
Exchange operates in a highly
24 See Securities Exchange Act Release No. 51808,
70 FR 37495, 37498–99 (June 29, 2005) (S7–10–04)
(Final Rule).
PO 00000
Frm 00139
Fmt 4703
Sfmt 4703
29875
competitive market in which market
participants can readily choose to send
their orders to other exchange and offexchange venues if they deem fee levels
at those other venues to be more
favorable. As noted above, the
Exchange’s market share of intraday
trading (i.e., excluding auctions) is
currently less than 10%. In such an
environment, the Exchange must
continually adjust its fees and rebates to
remain competitive with other
exchanges and with off-exchange
venues. Because competitors are free to
modify their own fees and credits in
response, and because market
participants may readily adjust their
order routing practices, the Exchange
does not believe its proposed fee change
can impose any burden on intermarket
competition. The Exchange believes that
the proposed rule change could promote
competition between the Exchange and
other execution venues, including those
that currently offer comparable
transaction pricing, by encouraging
additional orders to be sent to the
Exchange for execution.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 25 of the Act and
subparagraph (f)(2) of Rule 19b–4 26
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) 27 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
25 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
27 15 U.S.C. 78s(b)(2)(B).
26 17
E:\FR\FM\03JNN1.SGM
03JNN1
29876
Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices
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:
[FR Doc. 2021–11611 Filed 6–2–21; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
DEPARTMENT OF TRANSPORTATION
• 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 No. SR–
NYSEArca–2021–43 on the subject line.
Federal Motor Carrier Safety
Administration
Paper Comments
khammond on DSKJM1Z7X2PROD with NOTICES
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
J. Matthew DeLesDernier,
Assistant Secretary.
[Docket No. FMCSA–FMCSA–2021–0059]
Parts and Accessories Necessary for
Safe Operation; Application for an
Exemption From Waste Management,
Inc.
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
AGENCY:
All submissions should refer to File No.
NYSEArca–2021–43. 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 No.
NYSEArca–2021–43, and should be
submitted on or before June 24, 2021.
SUMMARY:
Federal Motor Carrier Safety
Administration (FMCSA), DOT.
ACTION: Notice of application for
exemption; request for comments.
The Federal Motor Carrier
Safety Administration (FMCSA)
requests public comment on Waste
Management, Inc.’s (Waste
Management) application for an
exemption to allow all of its 106
operating companies to replace the
high-mounted brake lights on their
owned and operated fleets of heavyduty refuse and support trucks with red
or amber brake-activated pulsating
lamps positioned in the upper center
position, or in an upper dual outboard
position, in addition to the steady
burning brake lamps required by the
Federal Motor Carrier Safety
Regulations (FMCSRs).
DATES: Comments must be received on
or before July 6, 2021.
ADDRESSES: You may submit comments
bearing the Federal Docket Management
System (FDMS) Docket ID FMCSA–
2021–0059 using any of the following
methods:
• Website: https://
www.regulations.gov. Follow the
instructions for submitting comments
on the Federal electronic docket site.
• Fax: 1–202–493–2251.
• Mail: Send comments to Docket
Operations, M–30; U.S. Department of
Transportation, 1200 New Jersey
Avenue SE, Room W12–140, West
Building Ground Floor, Washington, DC
20590–0001.
• Hand Delivery by Courier: Bring
comments to Docket Operations in
Room W12–140 of the West Building
Ground Floor, U.S. Department of
Transportation, 1200 New Jersey
Avenue SE, Washington, DC, between 9
28 17
VerDate Sep<11>2014
17:23 Jun 02, 2021
Jkt 253001
PO 00000
CFR 200.30–3(a)(12).
Frm 00140
Fmt 4703
Sfmt 4703
a.m. and 5 p.m. e.t., Monday–Friday,
except Federal holidays. To be sure
someone is there to help you, please call
(202) 366–9317 or (202) 366–9826
before visiting Docket Operations.
Instructions: All submissions must
include the Agency name and docket
number for this notice. For detailed
instructions on submitting comments
and additional information on the
exemption process, see the ‘‘Public
Participation’’ heading below. Note that
all comments received will be posted
without change to https://
www.regulations.gov, including any
personal information provided. Please
see the ‘‘Privacy Act’’ heading for
further information.
Docket: For access to the docket to
read background documents or
comments received, go to https://
www.regulations.gov or to Docket
Operations in Room W12–140, U.S.
Department of Transportation, West
Building Ground Floor, 1200 New Jersey
Avenue SE, Washington, DC, between 9
a.m. and 5 p.m., Monday through
Friday, except Federal holidays. To be
sure someone is there to help you,
please call (202) 366–9317 or (202) 366–
9826 before visiting Docket Operations.
Privacy Act: In accordance with 5
U.S.C. 553(c), DOT solicits comments
from the public to better inform its
regulatory processes. DOT posts these
comments, without edit, including any
personal information the commenter
provides, to www.regulations.gov, as
described in the system of records
notice (DOT/ALL–14 FDMS), which can
be reviewed at www.dot.gov/privacy.
Public participation: The https://
www.regulations.gov website is
generally available 24 hours each day,
365 days each year. You may find
electronic submission and retrieval help
and guidelines under the ‘‘help’’ section
of the https://www.regulations.gov
website as well as the DOT’s https://
docketsinfo.dot.gov website. If you
would like notification that we received
your comments, please include a selfaddressed, stamped envelope or
postcard or print the acknowledgment
page that appears after submitting
comments online.
Mr.
Luke W. Loy, Vehicle and Roadside
Operations Division, Office of Carrier,
Driver, and Vehicle Safety, MC–PSV,
Federal Motor Carrier Safety
Administration, 1200 New Jersey
Avenue SE, Washington, DC 20590–
0001, (202) 366–0676, luke.loy@dot.gov.
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
E:\FR\FM\03JNN1.SGM
03JNN1
]]>Agencies
[Federal Register Volume 86, Number 105 (Thursday, June 3, 2021)]
[Notices]
[Pages 29868-29876]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11611]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92053; File No. SR-NYSEArca-2021-43]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE
Arca Equities Fees and Charges
May 27, 2021.
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 May 14, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the NYSE Arca Equities Fees and
Charges (``Fee Schedule'') to replace the monthly rebate tied to the
performance in the opening and closing auctions in NYSE Arca-listed
Securities and the ETF Incentive Program for NYSE Arca-listed
Securities with a new pricing incentive for Lead Market Makers and ETP
Holders registered as Market Makers. The Exchange proposes to implement
the fee changes effective May 14, 2021. The proposed rule change is
available on the Exchange's website at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to replace the
monthly rebate tied to the performance in the opening and closing
auctions in NYSE Arca-listed Securities and the ETF Incentive Program
for NYSE Arca-listed Securities \4\ with a new pricing incentive that
is tied to meeting enhanced market quality metrics. The Exchange now
proposes to provide financial incentives for Lead Market Makers
(``LMMs'') \5\ that are based on whether the LMM meets certain
Performance Metrics (as described below). Specifically, the Exchange
would provide incremental credits to LMMs based on how many Performance
Metrics an LMM meets in each NYSE Arca-listed Security. The Exchange
also proposes to make the additional credits available for ETP Holders
registered as Market Maker (``Market Makers'').\6\ The Exchange
believes that the proposed rule change would encourage LMMs and Market
Makers to maintain better market quality in NYSE Arca-listed Securities
in which they are registered, including in lower volume securities.
---------------------------------------------------------------------------
\4\ See Securities and Exchange Act Release No. 87978 (January
15, 2020), 85 FR 3727 (January 22, 2020) (SR-NYSEArca-2020-03).
\5\ The term ``Lead Market Maker'' is defined in Rule 1.1(w) to
mean a registered Market Maker that is the exclusive Designated
Market Maker in listings for which the Exchange is the primary
market.
\6\ Pursuant to Rule 7.23-E(a)(1), all registered Market Makers,
including LMMs, have an obligation to maintain continuous, two-sided
trading interest in those securities in which the Market Marker is
registered to trade. In addition, pursuant to Rule 7.24-E(b), LMMs
are held to higher performance standards in the securities in which
they are registered as LMM. LMMs can earn additional financial
incentives for meeting the higher performance standards specified
from time to time in the Fee Schedule. Only one LMM can be
registered in a NYSE-Arca listed security, but that security can
have an unlimited number of registered Market Makers. Market Makers
can also be registered in securities that trade on an unlisted
trading privileges basis on the Exchange.
---------------------------------------------------------------------------
The Exchange notes that its listing business operates in a highly
competitive market in which market participants, including issuers of
securities, LMMs, and other liquidity providers, can readily transfer
their listings, or direct order flow to competing venues if they deem
fee levels, liquidity provision incentive programs, or other factors at
a particular venue to be insufficient or excessive. The proposed rule
change reflects the current competitive pricing environment and is
designed to incentivize market participants to participate as LMMs or
Market Makers, and thereby, further enhance the market quality on all
securities listed on the Exchange and encourage issuers to list new
products on the Exchange.
The Exchange proposes to implement the fee changes effective May
14, 2021.\7\
---------------------------------------------------------------------------
\7\ The Exchange originally filed to amend the Fee Schedule on
May 3, 2021 (SR-NYSEArca-2021-33). SR-NYSEArca-2021-33 was
subsequently withdrawn and replaced by this filing.
---------------------------------------------------------------------------
Background
As noted above, 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 37496, 37499 (June 29, 2005) (File No. S7-10-04) (Final
Rule) (``Regulation NMS'').
---------------------------------------------------------------------------
While Regulation NMS has enhanced competition, it has also fostered
a ``fragmented'' market structure where trading in a single stock can
occur across multiple trading centers. When multiple trading centers
compete for order flow in the same stock, the Commission has recognized
that ``such competition can lead to the fragmentation of order flow in
that stock.'' \9\ Indeed, equity trading is currently dispersed across
16
[[Page 29869]]
exchanges,\10\ numerous alternative trading systems,\11\ and broker-
dealer internalizers and wholesalers, all competing for order flow.
Based on publicly-available information, no single exchange currently
has more than 17% market share.\12\ Therefore, no exchange possesses
significant pricing power in the execution of equity order flow. More
specifically, the Exchange currently has less than 10% market share of
executed volume of equities trading.\13\
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 61358, 75 FR 3594,
3597 (January 21, 2010) (File No. S7-02-10) (Concept Release on
Equity Market Structure).
\10\ See Cboe U.S. Equities Market Volume Summary, available at
https://markets.cboe.com/us/equities/market_share. See generally
https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
\11\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of
alternative trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/atslist.htm.
\12\ See Cboe Global Markets U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
\13\ See id.
---------------------------------------------------------------------------
The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
move order flow, or discontinue or reduce use of certain categories of
products. While it is not possible to know a firm's reason for shifting
order flow, the Exchange believes that one such reason is because of
fee changes at any of the registered exchanges or non-exchange venues
to which a firm routes order flow. With respect to non-marketable order
flow that would provide liquidity on an Exchange against which market
makers can quote, ETP Holders can choose from any one of the 16
currently operating registered exchanges to route such order flow.
Accordingly, competitive forces constrain exchange transaction fees
that relate to orders that would provide liquidity on an exchange.
Proposed Rule Change
With this proposed rule change, the Exchange proposes to reorganize
certain existing fees and credits and introduce new pricing that is
tied to market quality metrics provided by LMMs and Market Makers on an
ETP basis. In doing so, the Exchange proposes four new sections that
would be applicable to LMM Transaction Fees and Credits. The proposed
four sections, discussed below, would be:
Section I. Definitions for purposes of LMM Transaction
Fees and Credits
Section II. LMM Base Fees and Credits per Share
Section III. LMM Performance Metrics-based Incremental
Base Credit Adjustments
Section IV. Additional Tape B Credits for LMMs and Market
Makers
Section I. Definitions for purposes of LMM Transaction Fees and Credits
In connection with the proposed rule change, the Exchange would add
new Section I titled ``Definitions for purposes of LMM Transaction Fees
and Credits'' that would set forth the following nine definitions:
1. ``CADV'' would mean the consolidated average daily volume in a
security in the prior month.
2. ``ETP'' would mean Exchange Traded Products listed on NYSE Arca.
3. ``ETP Price'' would mean the average Official Closing Price \14\
in that ETP in the prior month.
---------------------------------------------------------------------------
\14\ With respect to equities traded on the Exchange, the term
``Official Closing Price'' means the reference price to determine
the closing price in a security. See NYSE Arca Rule 1.1(ll). NYSE
Arca Rule 1.1(ll) describes how the Official Closing Price is
determined.
---------------------------------------------------------------------------
4. ``Less Active ETPs'' would mean ETPs that have a CADV in the
prior calendar quarter that is the greater of either less than 100,000
shares or less than 0.013% of Consolidated Tape B ADV.
5. ``Leveraged ETP'' would mean an ETP that tracks an underlying
index by a ratio other than on a one-to-one basis.
6. ``Maximum LMM Spread'' would mean time-weighted average LMM
spread (LMM Offer minus LMM Bid) divided by the average of the LMM Bid
and LMM Offer, in basis points.
7. ``Minimum LMM Shares within 1% of NBBO'' would mean the average
number of LMM shares quoted throughout the trading day that are within
1% of the National Best Bid and Best Offer divided by two.
8. ``Minimum LMM Shares at the Core Open Auction within 1.5% of the
Auction Reference Price'' would mean the average of LMM buy shares and
LMM sell shares for Limit Orders quoted within 1.5% of the Auction
Reference Price \15\ divided by two.
---------------------------------------------------------------------------
\15\ The term ``Auction Reference Price'' is defined in NYSE
Arca Rule 7.35-E(a)(8)(A). NYSE Arca Rule 7.35-E(a)(8)(A) describes
how the Auction Reference Price is determined.
---------------------------------------------------------------------------
9. ``Minimum LMM Shares at the Closing Auction within 1% of the
NBBO'' would mean the average number of LMM buy shares and LMM sell
shares for Limit Orders quoted within 1% of the National Best Bid and
Best Offer before the end of Core Trading Hours \16\ divided by two.
---------------------------------------------------------------------------
\16\ With respect to equities traded on the Exchange, the term
``Core Trading Hours'' means the hours of 9:30 a.m. Eastern Time
through 4:00 p.m. (Eastern Time) or such other hours as may be
determined by the Exchange from time to time. See NYSE Arca Rule
1.1(j).
---------------------------------------------------------------------------
The Exchange proposes these definitions to use consistent terms
throughout this section of the Fee Schedule relating to LMMs.
Section II. LMM Base Fees and Credits per Share
The Exchange proposes to add new Section II titled ``LMM Base Fees
and Credits per Share.'' The Exchange notes that the fees and credits
in proposed Section II are current fees and credits. The Exchange
proposes a non-substantive change to reorganize these current fees and
credits in a table format without any change to the level of the fees
and credits.
Specifically, the Exchange currently charges LMMs a base fee of
$0.0029 per share for orders that remove liquidity and provides the
following base credits:
$0.0033 per share for orders that provide liquidity in
securities for which the LMM is registered as the LMM and which have a
CADV in the previous month greater than 3,000,000 shares;
$0.0040 per share for orders that provide liquidity in
securities for which the LMM is registered as the LMM and which have a
CADV in the previous month of between 1,000,000 and 3,000,000 shares;
and
$0.0045 per share for orders that provide liquidity in
securities for which the LMM is registered as the LMM and which have a
CADV in the previous month of less than 1,000,000 shares.
Additionally, LMMs are provided a credit of $0.0030 per share for
orders that provide undisplayed liquidity in Arca Only Orders \17\ in
securities for which the LMM is registered as the LMM, and a credit of
$0.0015 per share for Non-Displayed Limit Orders that provide liquidity
in securities for which the LMM is registered as the LMM. The Exchange
also does not charge LMMs a fee for orders executed in the Closing
Auction.
---------------------------------------------------------------------------
\17\ The ``Arca Only Order'' has been renamed as the ``Non-
Routable Limit Order.'' See Securities Exchange Act Release No.
83967 (August 28, 2018), 83 FR 44984 (September 4, 2018) (SR-
NYSEArca-2018-61). Accordingly, the proposed new presentation would
utilize the new name ``Non-Routable Limit Orders'' instead of ``Arca
Only Orders.''
---------------------------------------------------------------------------
The Exchange proposes to reorganize the presentation of the Fee
Schedule in order to enhance its clarity and transparency, thereby
making the Fee Schedule easier to navigate. With respect the current
LMM fees and credits discussed above, the Exchange proposes a
horizontal presentation in a table rather than the current vertical
presentation. The proposed changes described above would be included in
the new presentation under proposed
[[Page 29870]]
Section II titled LMM Base Fees and Credits per Share, without any
substantive change to the rate or the requirement to qualify for these
existing fees and credits. The proposed changes would appear as follows
in the Fee Schedule:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Credit for adding
Credit for adding undisplayed
ETP CADV Credit for adding Fee for removing non-displayed liquidity in non- Fee for orders in the closing
liquidity liquidity limit orders routable limit auction
orders
--------------------------------------------------------------------------------------------------------------------------------------------------------
<1,000,000............................... ($0.0045) $0.0029 ($0.0015) ($0.0030) No Fee.
1,000,000 to 3,000,000................... ($0.0040) ................. ................. ................... ...............................
>3,000,000............................... ($0.0033) ................. ................. ................... ...............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Section III. LMM Performance Metrics-Based Incremental Base Credit
Adjustments
The Exchange proposes to adopt market quality metrics that LMMs
would be required to meet to qualify for incremental credits. Proposed
Section III titled ``LMM Performance Metrics-based Incremental Base
Credit Adjustments'' would provide a table of Performance Metrics that
LMMs would be required to meet to qualify for certain incremental
credits. LMMs that meet the Performance Metrics would be entitled to
enhanced credits based on the quality of the market provided by an LMM
in an ETP assigned to the LMM.
The Exchange proposes to adopt the following four Performance
Metrics that LMMs would be measured by:
1. Maximum LMM Spread. Maximum LMM Spread means time-weighted
average LMM spread (LMM Offer minus LMM Bid) divided by the average of
the LMM Bid and LMM Offer, in basis points;
2. Minimum LMM Shares within 1% of NBBO. Minimum LMM Shares within
1% of NBBO means the average number of LMM shares quoted throughout the
trading day that are within 1% of the National Best Bid and Best Offer
divided by two;
3. Minimum LMM Shares in Core Open Auction within 1.5% of Auction
Reference Price. Minimum LMM Shares at the Core Open Auction within
1.5% of the Auction Reference Price means the average of LMM buy shares
and LMM sell shares for Limit Orders quoted within 1.5% of the Auction
Reference Price divided by two; and
4. Minimum LMM Shares at the Closing Auction within 1% of the NBBO.
Minimum LMM Shares at the Closing Auction within 1% of the NBBO means
the average number of LMM buy shares and LMM sell shares for Limit
Orders quoted within 1% of the National Best Bid and Best Offer before
the end of Core Trading Hours divided by two.
As proposed, each ETP would be grouped based on its prior month
CADV and its price. An LMM would be considered to have met a
Performance Metric in an ETP assigned to the LMM in a billing month if
it meets the following:
Monthly Average LMM Performance Metrics
----------------------------------------------------------------------------------------------------------------
Minimum LMM
shares in core Minimum LMM
Minimum LMM open auction shares at the
ETP CADV ETP price Maximum LMM shares within within 1.5% of closing
spread (bps) 1% of national auction auction within
BBO reference 1% of the
price national BBO
----------------------------------------------------------------------------------------------------------------
>1,000,000.................... >$50............ 55 6,000 4,000 12,250
$25-$50......... 45 20,000 8,500 14,250
Under $25....... 40 42,000 22,000 30,000
100,001-1,000,000............. >$50............ 35 2,500 2,500 3,250
$25-$50......... 35 3,500 4,000 4,750
Under $25....... 65 10,000 5,750 7,250
10,000-100,000................ >$50............ 40 2,200 2,000 2,250
$25-$50......... 55 2,400 2,050 2,500
Under $25....... 70 4,000 2,200 4,500
Under 10,000.................. >$50............ 50 2,000 1,750 2,000
$25-$50......... 60 3,000 1,800 3,000
Under $25....... 75 3,000 1,800 3,000
----------------------------------------------------------------------------------------------------------------
Under the proposal, the base credit earned by an LMM for Adding
Displayed Liquidity (as provided in Section II above) in an assigned
ETP would be adjusted based on the number of Performance Metrics met by
the LMM in the billing month for each assigned ETP, as follows:
------------------------------------------------------------------------
Incremental
Incremental base credit
base credit adjustment
Numbers of performance metrics met adjustment per
per ETP leveraged
ETP
------------------------------------------------------------------------
4........................................... ($0.0001) ($0.0001)
3........................................... (0.00005) (0.00005)
2........................................... 0.0000 0.0000
1........................................... 0.0001 0.0000
0........................................... 0.0002 0.0000
------------------------------------------------------------------------
The Performance Metrics illustrated above would apply to all ETPs,
including Leveraged ETPs. However, for Leveraged ETPs, there would be
no adjustment to the base credit payable to the LMM if the LMM meets 1
or 2 Performance Metrics or if the LMM does not meet any Performance
Metrics. LMMs that are registered as the LMM in a Leveraged ETF would
be able to earn an incremental credit of $0.00005 per share if the LMM
meets 3 of the 4 Performance Metrics, or earn an incremental credit of
$0.0001 per share
[[Page 29871]]
if the LMM meets all 4 Performance Metrics.
The following example illustrates how a LMM can earn an incremental
credit by meeting the Performance Metrics. Assume an LMM is registered
in an ETP that has a CADV of 500,000 shares and a price of $30, both in
the prior month. That LMM would currently be eligible for a base credit
for adding of $0.0045 per share.\18\ Given the profile of the ETP,
i.e., CADV of 500,000 shares and a price of $30, the LMM would have to
meet the following Performance Metrics to earn an incremental credit
(as illustrated in the Performance Metrics table above):
---------------------------------------------------------------------------
\18\ Under proposed Section II. LMM Base Fees and Credits per
Share, ETPs that have a CADV of less than 1,000,000 shares receive
$0.0045 per share credit for adding displayed liquidity.
Maximum LMM Spread (``Spread''): 35 basis points (``bps'')
Minimum LMM Shares within 1% of Last Bid and Offer
(``Depth''): 3,500 shares
Minimum LMM Shares at the Core Open Auction within 1.5% of the
Auction Reference Price (``Open Depth''): 4,000 shares
Minimum LMM Shares at the Closing Auction within 1% of the
Last Bid & Offer (``Closing Depth''): 4,750 shares
Assume in the billing month, the LMM in this ETP had a Spread of 30
bps, Depth of 3,000 shares, Open Depth of 4,500 shares, and Closing
Depth of 5,000 shares. The LMM in this example met 3 of the 4
Performance Metrics (Spread, Open Depth, and Closing Depth) but did not
meet Depth. As a result, the LMM has qualified to earn an incremental
credit of $0.00005 per share, for a combined credit per share of
$0.00455.
The following example illustrates how a LMM registered as a LMM in
a Leveraged ETP can earn an incremental credit. Assume the same LMM as
in the example above was registered in a second ETP that is a Leveraged
ETP that also has a CADV of 500,000 shares and a price of $30, both in
the prior month. The LMM would currently be eligible for a base credit
for adding of $0.0045 per share. In this example, the profile of the
Leveraged ETP is the same as in the non-Leveraged ETP in the example
above.
Assume in the billing month, the LMM in the Leveraged ETP had a
Spread of 25 bps, Depth of 3,000 shares, Open Depth of 2,000 shares,
and Closing Depth of 2,500 shares. The LMM in this example has met just
1 of the 4 Performance Metrics and therefore, would not earn any
incremental credit. Since the credit payable to a LMM in a Leveraged
ETP would not be adjusted if the LMM meets only 1 or 2 Metrics, or does
not meet any Performance Metrics, the LMM in this example would
continue to receive the base credit of $0.0045 per share. If the LMM
had met at least 3 of the 4 Performance Metrics in the Leveraged ETP,
the LMM would have qualified for an incremental credit of $0.00005 per
share, for a combined credit of $0.00455 per share. And if the LMM had
met all 4 Performance Metrics in the Leveraged ETP, the LMM would have
qualified for an incremental credit of $0.0001 per share, for a
combined credit of $0.0046 per share.
Section IV. Additional Tape B Credits for LMMs and Market Makers
The Exchange proposes to add new Section IV titled ``Additional
Tape B Credits for LMMs and Market Makers.'' The Exchange notes that
the additional credits in proposed Section IV for LMMs are current; the
Exchange is not proposing any new additional credits for LMMs under
Section IV with this proposed rule change.
As more fully described below, the Exchange proposes a non-
substantive change to reorganize the presentation of the credits under
proposed Section IV. The Exchange also proposes two changes with
respect to the Section IV credits. First, the Exchange proposes that to
qualify for the additional credits available under Section IV, LMMs
would be required to meet at least two Performance Metrics per Less
Active ETP assigned to the LMM. Second, the Exchange proposes to make
additional credits available to Market Makers who meet the specified
Performance Metrics.
Non-Substantive Change
The Exchange currently provides LMMs, and ETP Holders affiliated
with such LMM, incremental credits for orders in Tape B Securities that
provide displayed liquidity in securities for which they are registered
as the LMM and in securities for which they are not registered as an
LMM based on the number of securities that have a CADV in the prior
calendar quarter of less than 100,000 shares, or 0.013% of Consolidated
Tape B ADV, whichever is greater (``Less Active ETPs'').\19\
---------------------------------------------------------------------------
\19\ The number of Less Active ETPs for the billing month is
based on the number of Less Active ETPs in which an LMM is
registered as the LMM on the average of the first and last business
day of the previous month.
---------------------------------------------------------------------------
These additional credits are as follows:
An additional credit of $0.0004 per share if an LMM is
registered as the LMM in at least 400 Less Active ETPs or at least 300
Less Active ETPs if the LMM and ETP Holders and Market Makers
affiliated with such LMM add liquidity in all securities of at least
1.00% of US CADV. This credit would appear in the proposed Less Active
table under proposed Section IV as Tier 1 without any substantive
change to the amount of the credit.
An additional credit of $0.0003 per share if an LMM is
registered as the LMM in at least 200 but less than 400 Less Active
ETPs or in at least 200 but less than 300 Less Active ETPs if the LMM
and ETP Holders and Market Makers affiliated with such LMM add
liquidity in all securities of at least 1.00% of US CADV. This credit
would appear in the proposed Less Active table under proposed Section
IV as Tier 2 without any substantive change to the amount of the
credit.
An additional credit of $0.0002 per share if an LMM is
registered as the LMM in at least 100 but less than 200 Less Active
ETPs. This credit would appear in the proposed Less Active table under
proposed Section IV as Tier 3 without any substantive change to the
amount of the credit.
An additional credit of $0.0001 per share if an LMM is
registered as the LMM in at least 75 but less than 100 Less Active
ETPs. This credit would appear in the proposed Less Active table under
proposed Section IV as Tier 4 without any substantive change to the
amount of the credit.
An additional credit of $0.00005 per share if an LMM is
registered as the LMM in at least 50 but less than 75 Less Active ETPs.
This credit would appear in the proposed Less Active table under
proposed Section IV as Tier 5 without any substantive change to the
amount of the credit.
As noted above, the Exchange proposes to reorganize the
presentation of the incremental credits described above in a table
rather than the current vertical presentation in order to enhance its
clarity and transparency.
Performance Metrics-Based Tape B Credits
As noted above, the Exchange currently provides tier-based
incremental credits to LMMs and to ETP Holders affiliated with the LMM
that provide displayed liquidity in Tape B securities. A LMM can earn
anywhere between $0.00005 per share to $0.0004 per share of incremental
credits depending on the number of Less Active ETP Securities in which
an LMM is registered as the LMM.
As proposed, LMMs would be able to earn an additional credit on all
Tape B Securities if the LMM meets at least two Performance Metrics in
each of the Less
[[Page 29872]]
Active ETPs in which they are registered as the LMM.
The number of Less Active ETPs for a billing month would be
calculated as the average number of Less Active ETPs in which an LMM is
registered on the first and last business day of the previous month.
To determine which Less Active ETP Tier would apply to an LMM, the
Exchange would count the number of Less Active ETPs assigned to that
LMM, as follows:
Each Less Active ETP in which an LMM is registered and meets at
least two Performance Metrics would count as one Less Active ETP. Each
Less Active ETP that is a Leveraged ETP in which an LMM is registered
would count as one Less Active ETP regardless of the number of
Performance Metrics met.
The Exchange also proposes that Market Makers would be eligible to
earn this additional credit on all Tape B securities if:
The Market Maker notifies the Exchange on or before the
first trading day that the additional credit is available in a calendar
month of which new Less Active ETPs for which the Marker Maker is
registered that it would be seeking to count towards or remove from
qualifying for this additional credit in that month.
The Market Maker cannot also be the registered LMM in a
Less Active ETP that it is seeking to count to qualify for the
additional credit as a Market Maker.
Every two Less Active ETPs that a Market Maker identifies
and meets at least two Performance Metrics will count as one Less
Active ETP for purposes of determining the applicable additional
credit.
If an ETP Holder is both an LMM and a Market Maker in Less
Active ETPs and has notified the Exchange of Less Active ETPs that it
seeking to count for the additional credit as a Market Maker, the
number of Less Active ETPs calculated for the Market Maker above will
be combined with the number of Less Active ETPs in which the LMM is
registered.
The Exchange believes that offering this incentive program to
Market Makers would promote the additional display of liquidity in Less
Active ETPs that list and trade on the Exchange. The Exchange notes
that Market Makers would need to meet Performance Metrics in more Less
Active ETPs than the assigned LMMs in order to achieve the same level
of additional credit.
The changes described above would be included under proposed new
Section IV and would appear as follows on the Fee Schedule:
------------------------------------------------------------------------
Additional
Number of less active credit on all
Less active ETP tiers ETPs per LMM/Market Tape B
Maker Securities
------------------------------------------------------------------------
Tier 5......................... 50-74 ETPs............. ($0.00005)
Tier 4......................... 75-99 ETPs............. (0.0001)
Tier 3......................... 100-199 ETPs........... (0.0002)
Tier 2......................... 200-399 ETPs, or 200- (0.0003)
299 ETPs if the LMM or
Market Maker and its
affiliates add
liquidity of at least
1.00% of US CADV.
Tier 1......................... At Least 400 ETPs, or (0.0004)
at least 300 ETPs if
the LMM or Market
Maker and its
affiliates add
liquidity of at least
1.00% of US CADV.
------------------------------------------------------------------------
The following example illustrates the applicability of the expanded
eligibility of additional Tape B credits to LMMs and Market Makers that
meet a certain number of Performance Metrics.
Assume a LMM is registered in 120 Less Active ETPs. Currently, that
LMM would qualify for an additional credit of $0.0002 per share for
adding liquidity in all Tape B Securities under the Less Active ETP
Tier 3 in the table above. Assume further that of those 120 Less Active
ETPs, the LMM meets at least two Performance Metrics in 90 of those
Less Active ETPs, and does not meet at least two Performance Metric in
the other 30 Less Active ETPs. The LMM in this example would qualify
for Less Active ETP Tier 4 and would receive an incremental credit of
$0.0001 per share for adding liquidity on all Tape B Securities. If the
LMM in this example seeks to qualify as a Market Maker in another 50
Less Active ETPs, and as a Market Maker, the LMM meets at least two
Performance Metrics in 40 of its non-registered Less Active ETPs, then
those 40 Less Active ETPs would count as 20 Less Active ETPs for a
combined total number of Less Active ETPs of 110 Less Active ETPs (90
Less Active ETPs as LMM + 20 Less Active ETPs as Market Maker). The LMM
would then qualify for Less Active ETP Tier 3 and would receive an
incremental credit of $0.0002 per share for adding liquidity on all
Tape B Securities.
The following example illustrates how a Market Maker that is not an
LMM can receive the incremental credits. Assume a Market Maker notifies
the Exchange that it is seeking to qualify in 180 Less Active ETPs.
Assume further that the Market Maker meets at least 2 Performance
Metrics in 160 Less Active ETPs, and does not meet at least 2
Performance Metrics in the other 20 Less Active ETPs, for a total of 80
Less Active ETPs since every two Less Active ETPs that a Market Maker
identifies and meets at least two Performance Metrics count as one Less
Active ETP for purposes of determining which Less Active ETP tier
applies to the Market Maker. The Market Maker in this example would
qualify under Less Active Tier 4 for an incremental credit of $0.0001
per share for adding liquidity in all Tape B securities.
The Exchange believes the proposed rule change would enhance market
quality on all NYSE Arca-listed Securities by incentivizing LMMs and
Market Makers to meet the Performance Metrics across all Less Active
ETPs, which would support the quality of price discovery in such
securities on the Exchange and provide additional liquidity for
incoming orders for the benefit of all market participants. The
Exchange believes that providing increased credits to LMMs and ETP
Holders that are affiliated with a LMM that add liquidity in Tape B
Securities to the Exchange could lead to more LMMs to register to quote
and trade in Less Active ETP Securities. The Exchange believes the
proposed financial incentives could also encourage competition in Tape
B Securities quoted and traded on the Exchange.
The Exchange does not know how much order flow LMMs and Market
Makers choose to route to other exchanges or to off-exchange venues.
The proposed credits in NYSE Arca-listed Securities would be available
to all LMMs and Market Makers that are registered in those securities
and are subject to the obligations specified in Rule 7.23-E relating to
Market Makers. There are currently seven LMMs that
[[Page 29873]]
would qualify for the incremental credits. Without having a view of
their activity on other markets and off-exchange venues, the Exchange
has no way of knowing whether this proposed rule change would result in
more LMMs and Market Makers sending their orders in NYSE Arca-listed
Securities to the Exchange to qualify for the existing credits or
whether this proposed rule change would result in these members sending
more of their orders in NYSE Arca-listed Securities to the Exchange to
qualify for the proposed incremental credits. The Exchange cannot
predict with certainty how many LMMs and Market Makers would avail
themselves of this opportunity, but additional liquidity-providing
orders would benefit all market participants because it would provide
greater execution opportunities on the Exchange.
The proposed rule change is also intended to incentivize LMMs to
increase auction liquidity in less liquid NYSE Arca-listed Securities
to support price discovery in the Exchange's opening and closing
auctions for the benefit of all market participants. The Exchange
believes that the proposed rule change could lead to more LMMs to
register in less liquid securities and encourage greater participation
in the opening and closing auctions on the Exchange.
The Exchange believes the proposed rule change would also to
provide superior market quality and price discovery for NYSE Arca-
listed Securities, specifically securities that are less active,
through a quoting size requirement that would promote liquidity in the
opening and closing auction in such securities. The proposed rule
change is intended to provide a more meaningful incentive to both LMMs
and ETP Holders to provide liquidity in less active securities by
providing financial incentives to the Exchange's members as long as
they meet certain prescribed quoting criteria. The Exchange believes
that a performance-driven incentive would encourage such members to
provide meaningful quotes and size in less active securities listed and
traded on the Exchange.
Additionally, for newly listed and low volume ETPs, the cost to a
firm for making a market, such as holding inventory in the security, is
often not fully offset by the revenue through rebates provided by the
Exchange. In some cases, firms may even operate at a loss in new and
low volume ETPs. The Exchange believes the proposed credits, which
would compensate members as long as they meet the prescribed
performance metrics, is a more deterministic program from a member's
perspective. The member would decide how many, if any, low volume
securities it wants to provide tight and deep markets in. The more
securities the member provides heightened quoting in, the more the
member could collect in the form of a rebate.
The proposed changes are not otherwise intended to address any
other issues, and the Exchange is not aware of any significant problems
that market participants would have in complying with the proposed
changes.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\20\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\21\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers and other persons
using its facilities and does not unfairly discriminate between
customers, issuers, brokers or dealers. The Exchange also notes that
its ETP listing business operates in a highly-competitive market in
which market participants, which includes LMMs and ETP Holders, as well
as ETP issuers, can readily transfer their listings or opt not to
participate, respectively, if they deem fee levels, liquidity provision
incentive programs, or any other factor at a particular venue to be
insufficient or excessive. The proposed rule change reflects a
competitive pricing structure designed to incentivize issuers to list
new products and transfer existing products to the Exchange and market
participants to enroll and participate as LMMs on the Exchange, which
the Exchange believes will enhance market quality in all ETPs listed on
the Exchange.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Proposed Fee Change is Reasonable
The Exchange believes that the proposal to adopt market quality-
based incentives is a reasonable means to incentivize liquidity
provision in ETPs listed on the Exchange. The marketplace for listings
is extremely competitive and the Exchange is not the only venue for
listing ETPs. Competition in ETPs is further exacerbated by the fact
that listings can and do transfer from one listing market to another.
The proposed rule change is intended to help the Exchange compete as a
listing venue for ETPs. Further, the Exchange notes that the proposed
incentives are not transaction fees, nor are they fees paid by
participants to access the Exchange. Rather, the proposed rebates are
based on achieving certain objective market quality metrics. The
Exchange believes providing rebates that are based on the quality of
the market in individual ETPs that generally have low volume will allow
ETP Holders to anticipate their revenue and will incentivize them to
provide tight and deep markets in those securities.
Given the novelty of the proposed rule change, the Exchange cannot
be certain that LMMs and Market Makers will choose to actively compete
for these incentives. For LMMs and Market Makers that do choose to
actively participate by providing deep and tight markets in Less Active
ETP Securities, the Exchange expects those members to receive payments
comparable to what they currently receive, with the potential for
additional upside when they meet the Performance Metrics in a greater
number of less active securities. The Exchange believes the proposed
credits, which would compensate LMMs and Market Makers as long as they
meet the prescribed Performance Metrics, is also reasonable because it
is a more deterministic program from an ETP Holder's perspective.
The Exchange believes the proposed rule change is intended to
encourage LMMs and Market Makers to promote price discovery and market
quality in Less Active ETP Securities for the benefit of all market
participants. The Exchange believes the proposed rule change is
reasonable and appropriate in that the credits are based on the amount
of business transacted on the Exchange. The Exchange notes that the
proposed incremental credits offered by the Exchange is similar to
market quality incentive programs already in place on other markets,
such as the Designated Liquidity Provider incentives on the Nasdaq
Stock Market LLC (``Nasdaq''), which requires a member on that exchange
to provide meaningful and consistent support to market quality and
price discovery in low volume exchange-traded products by quoting at
the National Best Bid and Offer and adding liquidity in a minimum
number of such securities. In return, Nasdaq provides the member with
an incremental rebate.\22\ The Exchange believes that providing
increased credits to LMMs and Market Makers that add liquidity in Tape
B Securities to the Exchange is reasonable because the Exchange
believes that by providing
[[Page 29874]]
increased rebates to such members, more of them will register to quote
and trade in Less Active ETP Securities. The Exchange believes the
proposed incremental credit for adding liquidity is also reasonable
because it will encourage liquidity and competition in Tape B
Securities quoted and traded on the Exchange. Moreover, the Exchange
believes that the proposed fee change will incentivize LMMs and Market
Maker to register as either an LMM or Market Maker in Less Active ETP
Securities and thus, add more liquidity in Tape B Securities to the
benefit of all market participants.
---------------------------------------------------------------------------
\22\ See Equity 7 Pricing Schedule, Section 114. Market Quality
Incentive Programs, at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/Nasdaq%20Equity%207#section_114_market_quality_incentive_programs.
---------------------------------------------------------------------------
The Exchange believes that providing additional credits to Market
Makers that add liquidity in Less Active ETPs is reasonable because the
Exchange believes that by providing such additional credits, more
Market Makers would choose to register in Less Active ETP Securities on
the Exchange, which the Exchange believes would benefit all market
participants. As noted above, because Market Makers registered in a
security must meet the quoting obligations specified in Rule 7.23-E,
expanding eligibility to Market Makers to receive credits is a
reasonable attempt to increase participation on the Exchange and
provide an incentive for Market Makers to meet additional standards for
their registered Less Active ETPs.
Submission of additional liquidity to the Exchange would promote
price discovery and transparency and enhance order execution
opportunities for LMMs and Market Makers from the substantial amounts
of liquidity present on the Exchange. All participants would benefit
from the greater amounts of liquidity that will be present on the
Exchange, which would provide greater execution opportunities.
The Exchange believes that eliminating the existing monthly rebate
tied to the performance in the opening and closing auctions in NYSE
Arca-listed Securities and the ETF Incentive Program for NYSE Arca-
listed Securities is reasonable because those pricing incentives did
not the achieve their intended purpose of incentivizing LMMs and ETP
Holders to send a greater number of their orders in Tape B Securities
to the Exchange. The Exchange believes replacing the monthly rebate
program and the ETF Incentive Program with pricing incentives tied to
Performance Metrics discussed above will allow the Exchange to better
maintain its competitive standing. On the backdrop of the competitive
environment in which the Exchange currently operates, the proposed rule
change is a reasonable attempt to increase liquidity on the Exchange
and improve the Exchange's market share relative to its competitors.
Finally, the Exchange believes the proposed non-substantive changes
to relocate existing fees and credits into a table format is reasonable
and would not be inconsistent with the public interest and the
protection of investors because investors will not be harmed and in
fact would benefit from increased clarity and transparency of the Fee
Schedule, thereby reducing potential confusion.
The Proposed Fee Change is an Equitable Allocation of Fees and Credits
The Exchange believes the proposed rule change is equitable because
the proposal would provide discounts that are reasonably related to the
value to the Exchange's market quality associated with higher volumes
in Less Active ETP Securities. The Exchange further believes that the
proposed incremental rebate is equitable because it is consistent with
the market quality and competitive benefits associated with the fee
program and because the magnitude of the additional rebate is not
unreasonably high in comparison to the rebate paid with respect to
other displayed liquidity-providing orders. The Exchange believes that
it is equitable to offer increased rebates to LMMs and Market Makers as
both are currently subject to obligations specified in Rule 7.23-E,
which are not applicable to non-Market Maker ETP Holders, and they
would be subject to additional requirements and obligations (such as
meeting Performance Metrics) that other market participants are not.
The Exchange believes that the proposal to offer rebates tied to
market quality metrics represents an equitable allocation of payments
because LMMs and Market Makers would be required to not only meet their
Rule 7.23-E obligations, but also meet prescribed quoting requirements
in order to qualify for the payments, as described above. Where an LMM
or Market Maker does not meet at least two Performance Metrics, that
member will not receive any additional financial benefit. Further, all
LMMs and Market Makers on the Exchange are eligible to participate and
could do so by simply registering in a Less Active ETP and meeting the
proposed market quality metrics. The Exchange has designed the proposed
pricing incentives to be sustainable over the long-term and generally
expects that payments made to LMMs and Market Makers will be comparable
to payments the Exchange currently makes to its members and comparable
to pricing incentives offered by the Exchange's competitors. As such,
the Exchange believes that the proposal represents an equitable
allocation of dues, fees and credits.
The Exchange believes that eliminating the existing monthly rebate
tied to the performance in the opening and closing auctions in NYSE
Arca-listed Securities and the ETF Incentive Program for NYSE Arca-
listed Securities is equitable because the Exchange is eliminating
those pricing incentives for all participants.
The Proposed Fee Change is not Unfairly Discriminatory
The Exchange believes that the proposed rule change is not unfairly
discriminatory. In the prevailing competitive environment, LMMs and
Market Makers are free to disfavor the Exchange's pricing if they
believe that alternatives offer them better value.
The Exchange believes it is not unfairly discriminatory to adopt
incremental credits applicable to LMMs and Market Makers because both
are already subject to additional obligations, as specified in Rule
7.23-E, and the proposed additional credits would be provided on an
equal basis to all similarly situated participant provided each such
participant meets the prescribed market quality metrics. If an LMM or
Market Maker does not meet the required number of Performance Metrics,
the member would not receive any incremental credit. Further, the
Exchange believes the incremental credit would incentivize each of
these participants to register in Less Active ETPs and send more orders
to the Exchange to qualify for higher credits. The Exchange also
believes that the proposed rule change is not unfairly discriminatory
because it is reasonably related to the value to the Exchange's market
quality associated with higher volume.
The proposal to offer an additional credit tied to meeting certain
market quality requirements neither targets nor will it have a
disparate impact on any particular category of market participant. The
proposal does not permit unfair discrimination because LMMs and Market
Makers already have increased obligations vis-[agrave]-vis non-Market
Maker ETP Holders, as specified in Rule 7.23-E, and the proposed
requirements would be applied to all similarly-situated LMMs and Market
Maker equally. In addition, the proposed incentives for LMMs replace
the existing incentive structure, which is already available only for
LMMs. The Exchange does not believe it would be unfairly discriminatory
to extend the availability of additional credits for
[[Page 29875]]
Tape B securities to Market Makers because Market Makers have
obligations under Rule 7.23-E, and pursuant to the proposed change,
would need to meet additional performance requirements in order to
qualify for the additional credit.
The Exchange believes that the proposed rule change is not unfairly
discriminatory because all LMMs and Market Makers that choose to
qualify for the incremental credits would be required to meet a minimum
number of Performance Metrics in order to receive the credits. Where a
participant does not achieve a certain number of Performance Metrics,
it will not receive any incremental credits. Further, all LMMs and
Market Makers on the Exchange are eligible to participate in the
program and could do so by simply registering in Less Active ETPs and
meeting a minimum number of Performance Metrics. The Exchange has
designed the pricing incentives proposed herein to be sustainable over
the long-term and generally expects that payments made to LMMs and
Market Makers would be comparable to payments the Exchange currently
makes to its LMMs and comparable to pricing incentives offered by the
Exchange's competitors. As such, the Exchange believes that the
proposal is not unfairly discriminatory.
The Exchange believes that eliminating the existing monthly rebate
tied to the performance in the opening and closing auctions in NYSE
Arca-listed Securities and the ETF Incentive Program for NYSE Arca-
listed Securities is not unfairly discriminatory because the Exchange
is eliminating both pricing incentives for all participants.
Finally, subject to their obligations specified in Rule 7.23-E, the
submission of additional orders to the Exchange is optional for LMMs
and Market Makers in that they could choose the level of trading
activity on the Exchange. 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,\23\ the Exchange
believes that the proposed rule change would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Instead, as discussed above, the Exchange believes
that the proposed changes would encourage the submission of additional
liquidity to a public exchange, thereby promoting market depth, price
discovery and transparency and enhancing order execution opportunities
for LMMs and ETP Holders. As a result, the Exchange believes that the
proposed change furthers the Commission's goal in adopting Regulation
NMS of fostering integrated competition among orders, which promotes
``more efficient pricing of individual stocks for all types of orders,
large and small.'' \24\
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78f(b)(8).
\24\ See Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
---------------------------------------------------------------------------
Intramarket Competition. The proposed change is designed to attract
additional order flow to the Exchange. The Exchange believes that the
proposed Performance Metrics-based incremental credit applicable to
LMMs and Market Makers in Less Active ETPs in which they are registered
would continue to incentivize market participants to direct their
displayed order flow to the Exchange. Greater liquidity benefits all
market participants on the Exchange by providing more trading
opportunities and encourages LMMs and Market Makers to send additional
orders to the Exchange, thereby contributing to robust levels of
liquidity, which benefits all market participants. The proposed pricing
incentive would be applicable to all similarly-situated market
participants that have obligations under Rule 7.23-E to meet specified
obligations, and, as such, the proposed changes would not impose a
disparate burden on competition among market participants on the
Exchange. The Exchange believes the proposed adoption of Performance
Metrics would enhance competition as it is intended to increase the
Exchange's competitiveness in Less Active ETPs, and all LMMs and Market
Makers would be able to participate on an equal basis. Accordingly, the
Exchange does not believe that the proposed change will impair the
ability of ETP Holders to maintain their competitive standing. The
Exchange does not believe that the proposed change represents a
significant departure from previous pricing offered by the Exchange or
its competitors. The Exchange also does not believe the proposed rule
change to eliminate underutilized pricing incentives will impose any
burden on intramarket competition because the proposed change would
impact all LMMs and Market Makers uniformly.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily choose to
send their orders to other exchange and off-exchange venues if they
deem fee levels at those other venues to be more favorable. As noted
above, the Exchange's market share of intraday trading (i.e., excluding
auctions) is currently less than 10%. In such an environment, the
Exchange must continually adjust its fees and rebates to remain
competitive with other exchanges and with off-exchange venues. Because
competitors are free to modify their own fees and credits in response,
and because market participants may readily adjust their order routing
practices, the Exchange does not believe its proposed fee change can
impose any burden on intermarket competition. The Exchange believes
that the proposed rule change could promote competition between the
Exchange and other execution venues, including those that currently
offer comparable transaction pricing, by encouraging additional orders
to be sent to the Exchange for execution.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \25\ of the Act and subparagraph (f)(2) of Rule
19b-4 \26\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 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) \27\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
[[Page 29876]]
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 No. SR-NYSEArca-2021-43 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 No. NYSEArca-2021-43. 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 No. NYSEArca-2021-43, and should be submitted on
or before June 24, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
---------------------------------------------------------------------------
\28\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-11611 Filed 6-2-21; 8:45 am]
BILLING CODE 8011-01-P
