Notice2021-17087
Self-Regulatory Organizations; NYSE Arca, Inc.; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend the NYSE Arca Equities Fees and Charges
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 11, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 152 (Wednesday, August 11, 2021)</title>
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[Federal Register Volume 86, Number 152 (Wednesday, August 11, 2021)]
[Notices]
[Pages 44116-44118]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-17087]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92583; File No. SR-NYSEArca-2021-52]
Self-Regulatory Organizations; NYSE Arca, Inc.; Suspension of and
Order Instituting Proceedings To Determine Whether To Approve or
Disapprove a Proposed Rule Change To Amend the NYSE Arca Equities Fees
and Charges
August 5, 2021.
I. Introduction
On June 14, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change (File No. SR-NYSEArca-2021-52) to amend the NYSE
Arca Equities Fees and Charges (``Fee Schedule'').\3\ The proposed rule
change was immediately effective upon filing with the Commission
pursuant to Section 19(b)(3)(A) of the Act.\4\ The proposed rule change
was published for comment in the Federal Register on July 6, 2021.\5\
The Commission received no comment letters regarding the proposed rule
change. Pursuant to Section 19(b)(3)(C) of the Act,\6\ the Commission
is hereby: (1) Temporarily suspending File No. SR-NYSEArca-2021-52; and
(2) instituting proceedings to determine whether to approve or
disapprove File No. SR-NYSEArca-2021-52.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 92291 (June 29,
2021), 86 FR 35551 (July 6, 2021) (``Notice'').
\4\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take
effect upon filing with the Commission if it is designated by the
exchange as ``establishing or changing a due, fee, or other charge
imposed by the self-regulatory organization on any person, whether
or not the person is a member of the self-regulatory organization.''
15 U.S.C. 78s(b)(3)(A)(ii).
\5\ See Notice, supra note 3.
\6\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Change
The Exchange proposes to establish a new category of Retail Order
executions for purposes of the Fee Schedule. Specifically, the Exchange
proposes that no fees or credits would apply for Retail Order
executions that are denoted ``internalized'' executions under certain
circumstances.\7\ The Exchange proposes that no fees will be charged
nor credits paid for Retail Orders where (i) each side of the executed
order shares the same MPID, (ii) each side of the executed order is a
Retail Order with a time-in-force of Day, and (iii) the above executed
orders have an Average Daily Volume (``ADV'') of at least 150,000
shares.
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\7\ The Exchange defines internalized executions as an execution
where two orders presented to the Exchange from the same ETP Holder
(i.e., MPID) are presented separately and not in a paired manner,
but nonetheless inadvertently match with one another. See Notice,
supra note 3, at 35552 note 13.
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Prior to the proposed rule change, Retail Orders that were
internalized \8\ on the Exchange were not identified in the Fee
Schedule and were treated the like other Retail Orders, regardless of
whether they were internalized executions, and regardless of ADV.
Specifically, the Exchange provides a credit ranging from $0.0035 to
$0.0038, depending on the step-up tier, to Retail Orders that provide
liquidity, and charges no fee for Retail Orders that remove liquidity.
Therefore, the proposal carves out a particular group of Retail
Orders--internalized orders when such orders have an ADV of at least
150,000 shares--and eliminates the credits for those Retail Orders that
provide liquidity. ETP Holders with an ADV under 150,000 of
internalized Retail Orders would continue to receive the relevant
credit for Retail Orders that provide liquidity.
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\8\ See id.
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III. Suspension of the Proposed Rule Change
Pursuant to Section 19(b)(3)(C) of the Act,\9\ at any time within
60 days of the date of filing of an immediately effective proposed rule
change pursuant to Section 19(b)(1) of the Act,\10\ the Commission
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') 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. As discussed below, the Commission believes a temporary
suspension of the proposed rule change is necessary and appropriate to
allow for additional analysis of the proposed rule change's consistency
with the Act and the rules thereunder.
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\9\ 15 U.S.C. 78s(b)(3)(C).
\10\ 15 U.S.C. 78s(b)(1).
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When exchanges file their proposed rule changes with the
Commission, including fee filings like the Exchange's present proposal,
they are required to provide a statement supporting the proposal's
basis under the Act and the rules and regulations thereunder applicable
to the exchange.\11\ The instructions to Form 19b-4, on which exchanges
file their proposed rule changes, specify that such statement ``should
be sufficiently detailed and specific to support a finding that the
proposed rule change is consistent with [those] requirements.'' \12\
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\11\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory
Organization's Statement of the Purpose of, and Statutory Basis for,
the Proposed Rule Change'').
\12\ See id.
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Section 6 of the Act, including Sections 6(b)(4), (5), and (8),
require the rules of an exchange to: (1) Provide for the equitable
allocation of reasonable fees among members, issuers, and other persons
using the exchange's facilities; \13\ (2) perfect the mechanism of a
free and open market and a national market system, protect investors
and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers; \14\
and (3) not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\15\
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\13\ 15 U.S.C. 78f(b)(4).
\14\ 15 U.S.C. 78f(b)(5).
\15\ 15 U.S.C. 78f(b)(8).
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In justifying its proposal, the Exchange stated in its filing that
its proposal is reasonable because it ``is a reasonable attempt to
increase liquidity on the Exchange and improve the Exchange's market
share relative to its competitors.'' \16\ The Exchange also states that
the proposal is an equitable allocation of fees and credits because
``all ETP Holder that participate on the
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Exchange will be able to internalize their Retail Orders on the
Exchange at no cost, i.e., they would not receive a credit or pay any
fee for the execution of Retail Orders that are internalized.'' \17\
Further, the Exchange states that the proposal is an equitable
allocation of fees and credits because it would benefit all investors
by deepening the Exchange's liquidity pool, supporting the quality of
price discovery, promoting market transparency, and improving investor
protection.\18\ The Exchange states that the proposal is not unfairly
discriminatory because ETP Holders are free to transact on other
exchanges if they believe those exchanges offer better value.\19\
Finally, the Exchange states that the proposal is not unfairly
discriminatory because it is available to all ETP holders on an equal
and non-discriminatory basis and that ``all similarly situated ETP
Holders would be charged the same fee for executing Retail Orders that
are internalized.'' \20\
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\16\ See Notice, supra note 3, at 35552.
\17\ See id. at 35553.
\18\ See id.
\19\ See id.
\20\ See id.
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In temporarily suspending the Exchange's proposed rule change, the
Commission intends to further consider whether the proposal to amend
the NYSE Arca Fee Schedule is consistent with the statutory
requirements applicable to a national securities exchange under the
Act. In particular, the Commission will consider whether the proposed
rule change satisfies the standards under the Act and the rules
thereunder requiring, among other things, that an exchange's rules
provide for the equitable allocation of reasonable fees among members,
issuers, and other persons using its facilities; not permit unfair
discrimination between customers, issuers, brokers or dealers; and do
not impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.\21\
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\21\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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Therefore, the Commission finds that it is appropriate in the
public interest, for the protection of investors, and otherwise in
furtherance of the purposes of the Act, to temporarily suspend the
proposed rule change.\22\
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\22\ For purposes of temporarily suspending the proposed rule
change, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change
In addition to temporarily suspending the proposal, the Commission
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C)
\23\ and 19(b)(2)(B) of the Act \24\ to determine whether the
Exchange's proposed rule change should be approved or disapproved.
Institution of proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
Rather, the Commission seeks and encourages interested persons to
provide additional comment on the proposed rule change to inform the
Commission's analysis of whether to approve or disapprove the proposed
rule change.
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\23\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily
suspends a proposed rule change, Section 19(b)(3)(C) of the Act
requires that the Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule change should be
approved or disapproved.
\24\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\25\ the Commission is
providing notice of the grounds for possible disapproval under
consideration:
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\25\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also
provides that proceedings to determine whether to disapprove a
proposed rule change must be concluded within 180 days of the date
of publication of notice of the filing of the proposed rule change.
See id. The time for conclusion of the proceedings may be extended
for up to 60 days if the Commission finds good cause for such
extension and publishes its reasons for so finding, or if the
exchange consents to the longer period. See id.
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<bullet> Whether the Exchange has demonstrated how its proposed fee
is consistent with Section 6(b)(4) of the Act, which requires that the
rules of a national securities exchange ``provide for the equitable
allocation of reasonable dues, fees, and other charges among its
members and issuers and other persons using its facilities;'' \26\;
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\26\ 15 U.S.C. 78f(b)(4).
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<bullet> Whether the Exchange has demonstrated how its proposed fee
is consistent with Section 6(b)(5) of the Act, which requires, among
other things, that the rules of a national securities exchange not be
``designed to permit unfair discrimination between customers, issuers,
brokers, or dealers'' \27\; and
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\27\ 15 U.S.C. 78f(b)(5).
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<bullet> Whether the Exchange has demonstrated how its proposed fee
is consistent with Section 6(b)(8) of the Act, which requires that the
rules of a national securities exchange ``not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of [the Act].'' \28\
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\28\ 15 U.S.C. 78f(b)(8).
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As noted above, the proposal purports to amend the NYSE Arca Fee
Schedule to eliminate the credits for providing liquidity for certain
internalized Retail Orders when such orders have an ADV of at least
150,000 shares. However, the Exchange's statements in support of the
proposed rule change lack specificity and are at times contradictory.
For example, the Exchange provides only broad general statements that
the proposal is not unfairly discriminatory because all ETP Holders
will be treated the same. However, this explanation fails to address
why it is not unfairly discriminatory for ETP Holders with under
150,000 ADV of internalized Retail Orders to continue to receive a
credit for providing liquidity while those with over 150,000 ADV of
internalized Retail Orders no longer receive the same credit.
Furthermore, the Exchange contends that the proposal is consistent with
the Act because it will incentivize more Retail Order flow to the
Exchange, thereby benefitting all investors. However, the Exchange does
not explain how a proposal to eliminate an existing credit would
achieve these goals.
Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the [Act]
and the rules and regulations issued thereunder . . . is on the [SRO]
that proposed the rule change.'' \29\ The description of a proposed
rule change, its purpose and operation, its effect, and a legal
analysis of its consistency with applicable requirements must all be
sufficiently detailed and specific to support an affirmative Commission
finding,\30\ and any failure of an SRO to provide this information may
result in the Commission not having a sufficient basis to make an
affirmative finding that a proposed rule change is consistent with the
Act and the applicable rules and regulations.\31\
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\29\ 17 CFR 201.700(b)(3).
\30\ See id.
\31\ See id.
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The Commission is instituting proceedings to allow for additional
consideration and comment on the issues raised herein, including as to
whether the proposed fees are consistent with the Act, and
specifically, with its requirements that exchange fees be reasonable
and equitably allocated, not be unfairly discriminatory, and not impose
a burden on competition.\32\
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\32\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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V. Commission's Solicitation of Comments
The Commission requests written views, data, and arguments with
respect to the concerns identified above as well as any other relevant
concerns. Such comments should be submitted by September 1, 2021.
Rebuttal comments should be submitted by September 15, 2021. Although
there do not appear to be any issues relevant to approval or
disapproval which would be facilitated by an oral presentation of
views, data, and arguments, the Commission will consider, pursuant to
Rule 19b-4, any request for an opportunity to make an oral
presentation.\33\
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\33\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by an SRO. See Securities
Acts Amendments of 1975, Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
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The Commission asks that commenters address the sufficiency and
merit of the Exchange's statements in support of the proposal, in
addition to any other comments they may wish to submit about the
proposed rule change.
Interested persons are invited to submit written data, views, and
arguments concerning the proposed rule changes, including whether the
proposed rule change is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#6614130a034b05090b0b030812152615030548010910"><span class="__cf_email__" data-cfemail="1765627b723a74787a7a727963645764727439707861">[email protected]</span></a>. Please include
File No. SR-NYSEArca-2021-52 on the subject line.
Paper Comments
<bullet> 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. SR-NYSEArca-2021-52. The 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 such 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 publicly available. All submissions
should refer to File No. SR-NYSEArca-2021-52 and should be submitted on
or before September 1, 2021. Rebuttal comments should be submitted by
September 15, 2021.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(3)(C) of the
Act,\34\ that File No. SR-NYSEArca-2021-52, be and hereby is,
temporarily suspended. In addition, the Commission is instituting
proceedings to determine whether the proposed rule change should be
approved or disapproved.
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\34\ 15 U.S.C. 78s(b)(3)(C).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(57) and (58).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-17087 Filed 8-10-21; 8:45 am]
BILLING CODE 8011-01-P
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