Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE Arca Equities Fees and Charges To Adopt a Fee for Directed Orders Routed Directly by the Exchange to an Alternative Trading System, 55785-55788 [2023-17606]

Download as PDF Federal Register / Vol. 88, No. 157 / Wednesday, August 16, 2023 / Notices disclosures on its website relating to information on collateral haircuts for Government securities and GSE debt securities, and concentration limits for letters of credit, the Commission believes that OCC’s rules would support the communication of information that Clearing Members may use to identify and evaluate the haircuts and concentration limits resulting from OCC’s valuation processes. Additionally, the Commission believes that codifying minimum standards for Clearing Banks and letter-of-credit issuers in OCC’s public rules would provide increased clarity and transparency to Clearing Members and market participants, while preserving OCC’s flexibility and authority in disapproving specific relationships based on individual facts and circumstances. As such, the Commission believes that the proposed rule and policy revisions are consistent with publicly disclosing all relevant rules and material procedures; and providing sufficient information to enable participants to identify and evaluate the risks, fees, and other material costs incurred with participation in the covered clearing agency. The Commission finds, therefore, that OCC’s proposals, described above, are consistent with the requirements of Rule 17Ad–22(e)(23)(i) and (ii) under the Exchange Act.117 IV. Conclusion On the basis of the foregoing, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Exchange Act, and in particular, the requirements of Section 17A of the Exchange Act 118 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,119 that the Proposed Rule Change (SR– OCC–2022–012), be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.120 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–17529 Filed 8–15–23; 8:45 am] lotter on DSK11XQN23PROD with NOTICES1 BILLING CODE 8011–01–P 117 Id. 118 In approving this Proposed Rule Change, the Commission has considered the proposed rules’ impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 119 15 U.S.C. 78s(b)(2). 120 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 19:39 Aug 15, 2023 Jkt 259001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98115; File No. SR– NYSEARCA–2023–50] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE Arca Equities Fees and Charges To Adopt a Fee for Directed Orders Routed Directly by the Exchange to an Alternative Trading System August 11, 2023. Pursuant to section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’),2 and Rule 19b–4 thereunder,3 notice is hereby given that, on July 31, 2023, NYSE Arca, Inc. (‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the NYSE Arca Equities Fees and Charges (‘‘Fee Schedule’’) to adopt a fee for Directed Orders routed by the Exchange to an alternative trading system (‘‘ATS’’). 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. 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 55785 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 adopt a fee for Directed Orders routed by the Exchange to an ATS. The Exchange proposes to implement the fee change effective August 1, 2023. Background The Exchange operates in a highly competitive market. The Securities and Exchange Commission (‘‘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.’’ 4 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.’’ 5 Indeed, equity trading is currently dispersed across 16 exchanges,6 numerous alternative trading systems,7 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.8 Therefore, no exchange possesses significant pricing power in the execution of equity order flow. More 4 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’’). 5 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). 6 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/divisionsmarket regmrexchangesshtml.html. 7 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. 8 See Cboe Global Markets U.S. Equities Market Volume Summary, available at https:// markets.cboe.com/us/equities/market_share/. E:\FR\FM\16AUN1.SGM 16AUN1 55786 Federal Register / Vol. 88, No. 157 / Wednesday, August 16, 2023 / Notices specifically, the Exchange currently has less than 10% market share of executed volume of cash equities trading.9 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. Accordingly, competitive forces constrain exchange transaction fees because market participants can readily trade on competing venues if they deem pricing levels at those other venues to be more favorable. Proposed Rule Change Pursuant to Commission approval, the Exchange adopted a new order type known as Directed Orders.10 Under Exchange rules, the ATS to which a Directed Order is routed is responsible for validating whether the order is eligible to be accepted, and if such ATS determines to reject the order, the order would be cancelled. Directed Orders that are the subject of this proposed rule change are those that are routed to OneChronos LLC (‘‘OneChronos’’). The Exchange implemented the routing functionality to OneChronos on September 7, 2022,11 and introduced the functionality at that time without charging a fee.12 The Exchange now proposes to adopt a fee of $0.0015 per share for Directed Orders routed to OneChronos. To reflect the proposed fee, the Exchange proposes to amend the bullet under Section VI of the Fee Schedule titled ‘‘Other Standard Rates— Routing (Per Share Price $1.00 or Above)’’ to state ‘‘$0.0015 per share for Directed Orders routed to OneChronos LLC.’’ Since its implementation, the Directed Order functionality has facilitated additional trading opportunities by offering ETP Holders the ability to designate orders submitted 9 See id. Directed Order is a Limit Order with instructions to route on arrival at its limit price to a specified ATS with which the Exchange maintains an electronic linkage. See Rule 7.31– E(f)(4). See also Securities Exchange Act Release No. 95428 (August 4, 2022), 87 FR 48738 (August 10, 2022) (SR–NYSEARCA–2022–25). 11 See https://www.nyse.com/publicdocs/nyse/ notifications/trader-update/110000456275/ OneChronos_August_2022_Trader_Update_ Final.pdf. 12 See Securities Exchange Act Release No. 95820 (September 19, 2022), 87 FR 58166 (September 23, 2022) (SR–NYSEARCA–2022–63). lotter on DSK11XQN23PROD with NOTICES1 10 A VerDate Sep<11>2014 19:39 Aug 15, 2023 Jkt 259001 to the Exchange to be routed to OneChronos for execution. The functionality has also created efficiencies for ETP Holders that choose to use the functionality by enabling them to send orders that they wish to route to OneChronos through the Exchange by leveraging order entry protocols already configured for their interaction with the Exchange. Routing functionality offered by the Exchange is completely optional and ETP Holders can readily select between various providers of routing services, including other exchanges and non-exchange venues. ETP Holders that choose not to utilize Directed Orders would continue to be able to trade on the Exchange as they currently do. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with section 6(b) of the Act,13 in general, and furthers the objectives of sections 6(b)(4) and (5) of the Act,14 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. As discussed above, the Exchange operates in a highly fragmented and competitive market. The Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. Specifically, in Regulation NMS, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system ‘‘has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.’’ 15 The Exchange believes that the evershifting market share among the exchanges from month to month demonstrates that market participants can shift order flow, or discontinue or reduce use of certain categories of products, in response to fee changes. Accordingly, changes to exchange transaction fees can have a direct effect on the ability of an exchange to compete for order flow. The routing of orders to OneChronos is provided by the Exchange on a voluntary basis and no rule or regulation requires that the Exchange 13 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 15 See supra note 4. offer it. Nor does any rule or regulation require market participants to send orders to an ATS generally, let alone to OneChronos. The routing of orders to OneChronos operates similarly to the Primary Only Order already offered by the Exchange, which is an order that is routed directly to the primary listing market on arrival, without interacting with interest on the NYSE Arca Book.16 The Exchange believes its proposal equitably allocates its fees among market participants. The Exchange believes that the proposal represents an equitable allocation of fees because it would apply uniformly to all ETP Holders, in that all ETP Holders will have the ability to designate orders submitted to the Exchange to be routed to OneChronos, and each such ETP Holder would be charged the proposed fee when utilizing the functionality. Without having a view of ETP Holders’ activity on other exchanges and offexchange venues, the Exchange has no way of knowing whether the proposed fee would result in any ETP Holder from reducing or discontinuing its use of the routing functionality. While the Exchange has no way of knowing whether this proposed rule change would serve as a disincentive to utilize the order type, the Exchange believes that a number of ETP Holders will continue to utilize the functionality because of the efficiencies created for ETP Holders that enables them to send orders that they wish to route to OneChronos through the Exchange by leveraging order entry protocols already configured for their interactions with the Exchange. The Exchange reiterates that the routing functionality offered by the Exchange is completely optional and that the Exchange operates in a highly competitive market in which market participants can readily select between various providers of routing services with different product offerings and different pricing. The Exchange believes that the proposed flat fee structure for orders routed to away venues is a fair and equitable approach to pricing, as it will provide certainty with respect to execution fees. The Exchange believes that the proposal is not unfairly discriminatory. The Exchange believes it is not unfairly discriminatory as the proposal to charge a fee would be assessed on an equal basis to all ETP Holders that use the Directed Order functionality. Moreover, this proposed rule change neither targets nor will it have a disparate impact on any particular category of market participant. The Exchange 14 15 PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 16 See E:\FR\FM\16AUN1.SGM Rule 7.31–E(f)(1). 16AUN1 Federal Register / Vol. 88, No. 157 / Wednesday, August 16, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 believes that this proposal does not permit unfair discrimination because the changes described in this proposal would be applied to all similarly situated ETP Holders. Accordingly, no ETP Holder already operating on the Exchange would be disadvantaged by the proposed allocation of fees. The Exchange further believes that the proposed rule change would not permit unfair discrimination among ETP Holders because the Directed Order functionality would remain available to all ETP Holders on an equal basis and each such participant would be charged the same fee for using the functionality. Finally, the submission of orders to the Exchange is optional for ETP Holders in that they could choose whether to submit orders to the Exchange and, if they do, the extent of its activity in this regard. The Exchange believes that it is subject to significant 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,17 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. 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.’’ 18 The Exchange does not believe that the proposed fee change represents a significant departure from previous pricing offered by the Exchange or pricing offered by the Exchange’s competitors. ETP Holders may opt to disfavor the Exchange’s pricing if they believe that alternatives offer them better value. Accordingly, the Exchange does not believe that the proposed change will impair the ability of ETP Holders or competing venues to maintain their competitive standing in the financial markets. Intramarket Competition. The Exchange believes the proposed amendment to its Fee Schedule would not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Directed Order functionality is 17 15 U.S.C. 78f(b)(8). supra note 4. 18 See VerDate Sep<11>2014 19:39 Aug 15, 2023 available to all ETP Holders and all ETP Holders that use the functionality to route their orders to OneChronos would be charged the proposed fee. The routing of orders to OneChronos is provided by the Exchange on a voluntary basis and no rule or regulation requires that the Exchange offer it. ETP Holders have the choice whether or not to use the Directed Order functionality and those that choose not to utilize it will not be impacted by the proposed rule change. The Exchange also does not believe the proposed rule change would impact intramarket competition as the proposed fee would apply equally to all ETP Holders that choose to utilize the Directed Order functionality, and therefore the proposed change would not impose a disparate burden on competition among market participants on the Exchange. Intermarket Competition. The Exchange operates in a highly competitive market in which market participants can readily choose to send their orders to other exchange and offexchange venues if they deem fee levels at those other venues to be more favorable. As noted above, the Exchange’s 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. 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 has become effective upon filing pursuant to section 19(b)(3)(A) 19 of the Act and paragraph (f) thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of 19 15 Jkt 259001 PO 00000 U.S.C. 78s(b)(3)(A). Frm 00127 Fmt 4703 Sfmt 4703 55787 investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– NYSEARCA–2023–50 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–NYSEARCA–2023–50. 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–NYSEARCA–2023–50 and should be submitted on or before September 6, 2023. E:\FR\FM\16AUN1.SGM 16AUN1 55788 Federal Register / Vol. 88, No. 157 / Wednesday, August 16, 2023 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 J. Matthew DeLesDernier, Deputy Secretary. 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. [FR Doc. 2023–17606 Filed 8–15–23; 8:45 am] A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98111; File No. SR–NYSE– 2023–30] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Price List To Adopt a Fee for Directed Orders Routed Directly by the Exchange to an Alternative Trading System August 11, 2023. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’),2 and Rule 19b–4 thereunder,3 notice is hereby given that on August 9, 2023, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the selfregulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Price List to adopt a fee for Directed Orders routed directly by the Exchange to an alternative trading system (‘‘ATS’’). 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. lotter on DSK11XQN23PROD with NOTICES1 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 20 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 19:39 Aug 15, 2023 Jkt 259001 1. Purpose The Exchange proposes to amend the NYSE Price List to adopt a fee for Directed Orders routed directly by the Exchange to an ATS. The Exchange proposes to implement the fee change effective August 9, 2023.4 Background The Exchange operates in a highly competitive market. The Securities and Exchange Commission (‘‘Commission’’) has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system ‘‘has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.’’ 5 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.’’ 6 Indeed, cash equity trading is currently dispersed across 16 exchanges,7 numerous alternative trading systems,8 and broker-dealer 4 The Exchange originally filed to amend the Fee Schedule on July 31, 2023 (SR–NYSE–2023–28). SR–NYSE–2023–28 was subsequently withdrawn and replaced by this filing. 5 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’’). 6 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). 7 See Cboe U.S Equities Market Volume Summary, available at https://markets.cboe.com/us/ equities/market_share. See generally https:// www.sec.gov/fast-answers/divisionsmarket regmrexchangesshtml.html. 8 See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/ AtsIssueData. A list of alternative trading systems registered with the Commission is available at https://www.sec.gov/foia/docs/atslist.htm. PO 00000 Frm 00128 Fmt 4703 Sfmt 4703 internalizers and wholesalers, all competing for order flow. Based on publicly available information, no single exchange currently has more than 17% market share.9 Therefore, no exchange possesses significant pricing power in the execution of cash equity order flow. More specifically, the Exchange’s share of executed volume of equity trades in Tapes A, B and C securities is currently has less than 10%.10 The Exchange believes that the evershifting market share among the exchanges from month to month demonstrates that market participants can move order flow, or discontinue or reduce use of certain categories of products. While it is not possible to know a firm’s reason for shifting order flow, the Exchange believes that one such reason is because of fee changes at any of the registered exchanges or nonexchange venues to which a firm routes order flow. Accordingly, competitive forces constrain exchange transaction fees because market participants can readily trade on competing venues if they deem pricing levels at those other venues to be more favorable. Proposed Rule Change Pursuant to Commission approval, the Exchange adopted a new order type known as Directed Orders.11 Under Exchange rules, the ATS to which a Directed Order is routed is responsible for validating whether the order is eligible to be accepted, and if such ATS determines to reject the order, the order would be cancelled. Directed Orders that are the subject of this proposed rule change are those that are routed to OneChronos LLC (‘‘OneChronos’’). The Exchange implemented the routing functionality to OneChronos on September 9, 2022,12 and introduced the functionality at that time without charging a fee.13 The Exchange now proposes to adopt a fee of $0.0015 per share for Directed Orders routed to OneChronos. To reflect the proposed fee, the Exchange proposes to amend the current table under the section titled 9 See Cboe Global Markets U.S. Equities Market Volume Summary, available at https:// markets.cboe.com/us/equities/market_share/. 10 See id. 11 A Directed Order is a Limit Order with instructions to route on arrival at its limit price to a specified ATS with which the Exchange maintains an electronic linkage. See Rule 7.31(f)(1). See also Securities Exchange Act Release No. 95423 (August 4, 2022), 87 FR 48741 (August 10, 2022) (SR–NYSE–2022–20). 12 See https://www.nyse.com/publicdocs/nyse/ notifications/trader-update/110000456275/ OneChronos_August_2022_Trader_Update_ Final.pdf. 13 See Securities Exchange Act Release No. 95798 (September 15, 2022), 87 FR 57741 (September 21, 2022) (SR–NYSE–2022–43). E:\FR\FM\16AUN1.SGM 16AUN1

Agencies

[Federal Register Volume 88, Number 157 (Wednesday, August 16, 2023)]
[Notices]
[Pages 55785-55788]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17606]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98115; File No. SR-NYSEARCA-2023-50]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE 
Arca Equities Fees and Charges To Adopt a Fee for Directed Orders 
Routed Directly by the Exchange to an Alternative Trading System

August 11, 2023.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on July 31, 2023, 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 adopt a fee for Directed Orders routed by 
the Exchange to an alternative trading system (``ATS''). 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 adopt a fee for 
Directed Orders routed by the Exchange to an ATS. The Exchange proposes 
to implement the fee change effective August 1, 2023.
Background
    The Exchange operates in a highly competitive market. The 
Securities and Exchange Commission (``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.'' \4\
---------------------------------------------------------------------------

    \4\ 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.'' \5\ Indeed, equity trading is currently dispersed across 
16 exchanges,\6\ numerous alternative trading systems,\7\ 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.\8\ Therefore, no exchange possesses 
significant pricing power in the execution of equity order flow. More

[[Page 55786]]

specifically, the Exchange currently has less than 10% market share of 
executed volume of cash equities trading.\9\
---------------------------------------------------------------------------

    \5\ 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).
    \6\ 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.
    \7\ 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.
    \8\ See Cboe Global Markets U.S. Equities Market Volume Summary, 
available at https://markets.cboe.com/us/equities/market_share/.
    \9\ 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. Accordingly, competitive forces 
constrain exchange transaction fees because market participants can 
readily trade on competing venues if they deem pricing levels at those 
other venues to be more favorable.
Proposed Rule Change
    Pursuant to Commission approval, the Exchange adopted a new order 
type known as Directed Orders.\10\ Under Exchange rules, the ATS to 
which a Directed Order is routed is responsible for validating whether 
the order is eligible to be accepted, and if such ATS determines to 
reject the order, the order would be cancelled. Directed Orders that 
are the subject of this proposed rule change are those that are routed 
to OneChronos LLC (``OneChronos'').
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    \10\ A Directed Order is a Limit Order with instructions to 
route on arrival at its limit price to a specified ATS with which 
the Exchange maintains an electronic linkage. See Rule 7.31-E(f)(4). 
See also Securities Exchange Act Release No. 95428 (August 4, 2022), 
87 FR 48738 (August 10, 2022) (SR-NYSEARCA-2022-25).
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    The Exchange implemented the routing functionality to OneChronos on 
September 7, 2022,\11\ and introduced the functionality at that time 
without charging a fee.\12\ The Exchange now proposes to adopt a fee of 
$0.0015 per share for Directed Orders routed to OneChronos. To reflect 
the proposed fee, the Exchange proposes to amend the bullet under 
Section VI of the Fee Schedule titled ``Other Standard Rates--Routing 
(Per Share Price $1.00 or Above)'' to state ``$0.0015 per share for 
Directed Orders routed to OneChronos LLC.''
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    \11\ See https://www.nyse.com/publicdocs/nyse/notifications/trader-update/110000456275/OneChronos_August_2022_Trader_Update_Final.pdf.
    \12\ See Securities Exchange Act Release No. 95820 (September 
19, 2022), 87 FR 58166 (September 23, 2022) (SR-NYSEARCA-2022-63).
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    Since its implementation, the Directed Order functionality has 
facilitated additional trading opportunities by offering ETP Holders 
the ability to designate orders submitted to the Exchange to be routed 
to OneChronos for execution. The functionality has also created 
efficiencies for ETP Holders that choose to use the functionality by 
enabling them to send orders that they wish to route to OneChronos 
through the Exchange by leveraging order entry protocols already 
configured for their interaction with the Exchange. Routing 
functionality offered by the Exchange is completely optional and ETP 
Holders can readily select between various providers of routing 
services, including other exchanges and non-exchange venues. ETP 
Holders that choose not to utilize Directed Orders would continue to be 
able to trade on the Exchange as they currently do.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\13\ in general, and furthers the 
objectives of sections 6(b)(4) and (5) of the Act,\14\ 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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4) and (5).
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    As discussed above, the Exchange operates in a highly fragmented 
and competitive market. The Commission has repeatedly expressed its 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. Specifically, 
in Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \15\
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    \15\ See supra note 4.
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
shift order flow, or discontinue or reduce use of certain categories of 
products, in response to fee changes. Accordingly, changes to exchange 
transaction fees can have a direct effect on the ability of an exchange 
to compete for order flow.
    The routing of orders to OneChronos is provided by the Exchange on 
a voluntary basis and no rule or regulation requires that the Exchange 
offer it. Nor does any rule or regulation require market participants 
to send orders to an ATS generally, let alone to OneChronos. The 
routing of orders to OneChronos operates similarly to the Primary Only 
Order already offered by the Exchange, which is an order that is routed 
directly to the primary listing market on arrival, without interacting 
with interest on the NYSE Arca Book.\16\
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    \16\ See Rule 7.31-E(f)(1).
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    The Exchange believes its proposal equitably allocates its fees 
among market participants. The Exchange believes that the proposal 
represents an equitable allocation of fees because it would apply 
uniformly to all ETP Holders, in that all ETP Holders will have the 
ability to designate orders submitted to the Exchange to be routed to 
OneChronos, and each such ETP Holder would be charged the proposed fee 
when utilizing the functionality. Without having a view of ETP Holders' 
activity on other exchanges and off-exchange venues, the Exchange has 
no way of knowing whether the proposed fee would result in any ETP 
Holder from reducing or discontinuing its use of the routing 
functionality. While the Exchange has no way of knowing whether this 
proposed rule change would serve as a disincentive to utilize the order 
type, the Exchange believes that a number of ETP Holders will continue 
to utilize the functionality because of the efficiencies created for 
ETP Holders that enables them to send orders that they wish to route to 
OneChronos through the Exchange by leveraging order entry protocols 
already configured for their interactions with the Exchange.
    The Exchange reiterates that the routing functionality offered by 
the Exchange is completely optional and that the Exchange operates in a 
highly competitive market in which market participants can readily 
select between various providers of routing services with different 
product offerings and different pricing. The Exchange believes that the 
proposed flat fee structure for orders routed to away venues is a fair 
and equitable approach to pricing, as it will provide certainty with 
respect to execution fees.
    The Exchange believes that the proposal is not unfairly 
discriminatory. The Exchange believes it is not unfairly discriminatory 
as the proposal to charge a fee would be assessed on an equal basis to 
all ETP Holders that use the Directed Order functionality. Moreover, 
this proposed rule change neither targets nor will it have a disparate 
impact on any particular category of market participant. The Exchange

[[Page 55787]]

believes that this proposal does not permit unfair discrimination 
because the changes described in this proposal would be applied to all 
similarly situated ETP Holders. Accordingly, no ETP Holder already 
operating on the Exchange would be disadvantaged by the proposed 
allocation of fees. The Exchange further believes that the proposed 
rule change would not permit unfair discrimination among ETP Holders 
because the Directed Order functionality would remain available to all 
ETP Holders on an equal basis and each such participant would be 
charged the same fee for using the functionality.
    Finally, the submission of orders to the Exchange is optional for 
ETP Holders in that they could choose whether to submit orders to the 
Exchange and, if they do, the extent of its activity in this regard. 
The Exchange believes that it is subject to significant 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,\17\ 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. 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.'' \18\ The Exchange does not believe that the proposed fee 
change represents a significant departure from previous pricing offered 
by the Exchange or pricing offered by the Exchange's competitors. ETP 
Holders may opt to disfavor the Exchange's pricing if they believe that 
alternatives offer them better value. Accordingly, the Exchange does 
not believe that the proposed change will impair the ability of ETP 
Holders or competing venues to maintain their competitive standing in 
the financial markets.
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    \17\ 15 U.S.C. 78f(b)(8).
    \18\ See supra note 4.
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    Intramarket Competition. The Exchange believes the proposed 
amendment to its Fee Schedule would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The Directed Order functionality is available to 
all ETP Holders and all ETP Holders that use the functionality to route 
their orders to OneChronos would be charged the proposed fee. The 
routing of orders to OneChronos is provided by the Exchange on a 
voluntary basis and no rule or regulation requires that the Exchange 
offer it. ETP Holders have the choice whether or not to use the 
Directed Order functionality and those that choose not to utilize it 
will not be impacted by the proposed rule change. The Exchange also 
does not believe the proposed rule change would impact intramarket 
competition as the proposed fee would apply equally to all ETP Holders 
that choose to utilize the Directed Order functionality, and therefore 
the proposed change would not impose a disparate burden on competition 
among market participants on the Exchange.
    Intermarket Competition. The Exchange operates in a highly 
competitive market in which market participants can readily choose to 
send their orders to other exchange and off-exchange venues if they 
deem fee levels at those other venues to be more favorable. As noted 
above, the Exchange's 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.

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 has become effective upon filing pursuant 
to section 19(b)(3)(A) \19\ of the Act and paragraph (f) thereunder. At 
any time within 60 days of the filing of the proposed rule change, the 
Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSEARCA-2023-50 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-NYSEARCA-2023-50. 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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NYSEARCA-2023-50 and should 
be submitted on or before September 6, 2023.


[[Page 55788]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-17606 Filed 8-15-23; 8:45 am]
BILLING CODE 8011-01-P
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