Notice2022-00873
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
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Published
January 19, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 12 (Wednesday, January 19, 2022)</title>
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[Federal Register Volume 87, Number 12 (Wednesday, January 19, 2022)]
[Notices]
[Pages 2964-2968]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-00873]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93960; File No. SR-NYSEArca-2021-109]
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
January 12, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 30, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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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 an alternative requirement to
qualify for the Tape B Tier 3 pricing tier. The Exchange proposes to
implement the fee change effective January 3, 2022. The proposed rule
change is available on the
[[Page 2965]]
Exchange's website at <a href="http://www.nyse.com">www.nyse.com</a>, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to adopt an
alternative requirement to qualify for the Tape B Tier 3 pricing tier.
The Exchange proposes to implement the fee change effective January 3,
2022.
Background
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.'' \3\
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\3\ 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'').
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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.'' \4\ Indeed, equity trading is currently dispersed across
16 exchanges,\5\ numerous alternative trading systems,\6\ and broker-
dealer internalizers and wholesalers, all competing for order flow.
Based on publicly available information, no single exchange currently
has more than 18% market share.\7\ Therefore, no exchange possesses
significant pricing power in the execution of equity order flow. More
specifically, the Exchange currently has less than 12% market share of
executed volume of equities trading.\8\
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\4\ 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).
\5\ See Cboe U.S Equities Market Volume Summary, available at
<a href="https://markets.cboe.com/us/equities/market_share">https://markets.cboe.com/us/equities/market_share</a>. See generally
<a href="https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html">https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html</a>.
\6\ See FINRA ATS Transparency Data, available at <a href="https://otctransparency.finra.org/otctransparency/AtsIssueData">https://otctransparency.finra.org/otctransparency/AtsIssueData</a>. A list of
alternative trading systems registered with the Commission is
available at <a href="https://www.sec.gov/foia/docs/atslist.htm">https://www.sec.gov/foia/docs/atslist.htm</a>.
\7\ See Cboe Global Markets U.S. Equities Market Volume Summary,
available at <a href="http://markets.cboe.com/us/equities/market_share/">http://markets.cboe.com/us/equities/market_share/</a>.
\8\ See id.
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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
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
Currently, under the Tape B Tier 3 pricing tier, an ETP Holder
could qualify for a credit of $0.0025 per share \9\ for adding
liquidity in Tape B Securities if such ETP Holder (1) has Adding ADV of
Tape B CADV that is equal to at least 0.20% of the Tape B CADV and (2)
has Market Maker Electronic Posting Volume of TCADV of at least 0.50%
by an OTP Holder or OTP Firm affiliated with the ETP Holder.
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\9\ Under Section III of the Fee Schedule--Standard Rates, ETP
Holders receive a credit of $0.0020 per share for orders that add
liquidity in Tape B securities. Additionally, in securities priced
at or above $1.00, an additional credit in Tape B securities may be
available to LMMs and to Market Makers affiliated with LMMs that add
displayed liquidity based on the number of Less Active ETP
Securities in which the LMM is registered as the LMM. The applicable
tiered-credits are noted in the Fee Schedule under LMM Transaction
Fees and Credits.
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The Exchange proposes to adopt an alternative requirement to
qualify for Tape B Tier 3 credit. As proposed, an ETP Holder could
qualify for the Tape B Tier 3 credit of $0.0025 per share for adding
liquidity in Tape B securities if such ETP Holder has Adding ADV of
Tape B CADV that is equal to at least 0.15% over the ETP Holder's April
2020 Adding ADV taken as a percentage of Tape B CADV.
The Exchange is not proposing any change to the level of Tape B
Tier 3 credits.
The proposed rule change to adopt an alternative requirement to
qualify for the existing credit is designed to incentivize ETP Holders
to increase liquidity-providing orders in Tape B securities they send
to the Exchange, which would support the quality of price discovery on
the Exchange and provide additional liquidity for incoming orders.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\10\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\11\ 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.
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\10\ 15 U.S.C. 78f(b).
\11\ 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.'' \12\
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\12\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
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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
[[Page 2966]]
products, in response to fee changes. With respect to non-marketable
orders that provide liquidity on an Exchange, ETP Holders can choose
from any one of the 16 currently operating registered exchanges to
route such order flow. Accordingly, competitive forces reasonably
constrain exchange transaction fees that relate to orders that would
provide displayed liquidity on an exchange. Stated otherwise, changes
to exchange transaction fees can have a direct effect on the ability of
an exchange to compete for order flow.
In particular, the Exchange believes the proposed rule change is
reasonable because it provides an additional opportunity for ETP
Holders to receive an existing rebate on qualifying orders in a manner
that incentivizes order flow on the Exchange's equities platform. The
Exchange believes the proposed change to adopt an alternative
requirement to qualify for the Tape B Tier 3 pricing tier is reasonable
because it provides ETP Holders with an additional way to qualify for
the pricing tier's credit by providing liquidity in Tape B securities
each month over a predetermined baseline, and which does not include an
options component. The Exchange believes that the proposed alternative
to qualify for the pricing tier utilizing an equities-only requirement
is reasonable because the proposal provides firms that do not have an
affiliation with an OTP Holder or OTP Firm the ability to reach the
proposed volume tier by sending liquidity providing orders in tape B
securities, thereby creating an incentive for ETP Holders to bring
increased order flow to a public exchange.
The Exchange believes the proposed change to adopt an alternative
method to qualify for existing credits is reasonable as these changes
would provide an incentive for ETP Holders to direct their order flow
to the Exchange and provide meaningful added levels of liquidity in
order to qualify for the existing credit, thereby contributing to depth
and market quality on the Exchange.
As noted above, the Exchange operates in a highly competitive
environment, particularly for attracting order flow that provides
displayed liquidity on an exchange. More specifically, the Exchange
notes that greater add volume order flow may provide for deeper, more
liquid markets and execution opportunities at improved prices, which
the Exchange believes would incentivize liquidity providers to submit
additional liquidity and enhance execution opportunities.
The Exchange notes that volume-based incentives and discounts have
been widely adopted by exchanges, including the Exchange, and are
reasonable, equitable and not unfairly discriminatory because they are
available to all ETP Holders on an equal basis. They also provide
additional benefits or discounts that are reasonably related to the
value of the Exchange's market quality and associated higher levels of
market activity, such as higher levels of liquidity provision and/or
growth patterns. Additionally, the Exchange is one of many venues and
off-exchange venues to which market participants may direct their order
flow, and it represents a small percentage of the overall market.
Competing exchanges offer similar tiered pricing structures to that of
the Exchange, including schedules of rebates and fees that apply based
on members achieving certain volume thresholds.
The Exchange believes its proposal equitably allocates its fees and
credits among its market participants.
The Exchange believes that the proposal represents an equitable
allocation of fees and credits and is not unfairly discriminatory
because it would apply uniformly to all ETP Holders, in that all ETP
Holders will be eligible for the existing credit and have the
opportunity to meet the tier's criteria and receive the applicable
rebate if such criteria is met. The existing rebate would apply
automatically and uniformly to all ETP Holders that achieve the
corresponding criteria. The proposed change is designed as an incentive
to any and all liquidity providers interested in meeting the tier
criteria to submit order flow to the Exchange and each will receive the
associated rebate if the tier criteria is met. While the Exchange has
no way of knowing whether this proposed rule change would definitively
result in any particular ETP Holder qualifying for the existing credit
by utilizing the proposed alternative requirement, the Exchange
anticipates a number of ETP Holders would be able to meet, or will
reasonably be able to meet, the proposed criteria. However, without
having a view of activity on other markets and off-exchange venues, the
Exchange has no way of knowing whether this proposed rule change would
result in any ETP Holder meeting the alternative requirement and
qualifying for the Tape B Tier 3 rebate. As stated, the proposed
alternative requirement to qualify for an existing credit is designed
to provide an incentive for ETP Holders to submit additional liquidity
in Tape B securities.
The Exchange believes that the proposal is not unfairly
discriminatory.
The Exchange believes it is not unfairly discriminatory to provide
an alternative way to qualify for the per share credit under the Tape B
Tier 3 pricing tier, as the credit would be provided on an equal basis
to all ETP Holders that meet the proposed alternative requirement.
Further, the Exchange believes the proposed alternative requirement
would incentivize ETP Holders to send their liquidity providing orders
in Tape B securities to the Exchange to qualify for the existing
rebate.
The Exchange believes that the proposed alternative requirement to
qualify for the Tape B Tier 3 credit is not unfairly discriminatory
because it would be available to all ETP Holders on an equal and non-
discriminatory basis. In this regard, the Exchange notes that ETP
Holders that do not meet the proposed alternative requirement would
continue to have the opportunity to qualify for the Tape B Tier 3
credit by satisfying the current requirement, which would not change as
a result of this proposal.
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
proposed change to the Tape B Tier 3 pricing tier is designed as an
incentive to any and all ETP Holders interested in meeting the tier
criteria to submit additional order flow to the Exchange and each will
receive the existing rebate if the tier criteria is met. The Exchange
also notes that the proposed rule change will not adversely impact any
ETP Holder's pricing or its ability to qualify for other tiers. Rather,
should an ETP Holder not meet the Tape B Tier 3 pricing tier's
criteria, the ETP Holder will merely not receive the corresponding
rebate.
In the prevailing competitive environment, ETP Holders are free to
disfavor the Exchange's pricing if they believe that alternatives offer
them better value. Moreover, this proposed rule change neither targets
nor will it have a disparate impact on any particular category of
market participant. The Exchange believes that this proposal does not
permit unfair discrimination because the changes described in this
proposal would be applied uniformly to all similarly situated ETP
Holders and all ETP Holders would be subject to the same requirements.
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 changes would not permit unfair
discrimination among ETP Holders because the Tape B Tier 3 credit
[[Page 2967]]
would be available equally to all ETP Holders.
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,\13\ 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 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.'' \14\
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\13\ 15 U.S.C. 78f(b)(8).
\14\ See Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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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 Exchange does not believe that the proposed
change represents a significant departure from previous pricing offered
by the Exchange or its competitors. The proposed change is designed to
attract additional order flow to the Exchange, in particular with
respect to Tape B securities. The Exchange believes that the proposed
adoption of an alternative requirement to qualify for an established
credit under the Tape B Tier 3 pricing tier would incentivize market
participants to direct liquidity adding order flow to the Exchange,
bringing with it additional execution opportunities for market
participants and improved price transparency. Greater overall order
flow, trading opportunities, and pricing transparency benefits all
market participants on the Exchange by enhancing market quality and
continuing to encourage ETP Holders to send orders to the Exchange,
thereby contributing towards a robust and well-balanced market
ecosystem.
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 12%. 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 change could promote
competition between the Exchange and other execution venues, including
those that currently offer similar order types and 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) \15\ of the Act and subparagraph (f)(2) of Rule
19b-4 \16\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \17\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\17\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<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#bfcdcad3da92dcd0d2d2dad1cbccffccdadc91d8d0c9"><span class="__cf_email__" data-cfemail="285a5d444d054b4745454d465c5b685b4d4b064f475e">[email protected]</span></a>. Please include
File Number SR-NYSEArca-2021-109 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 Number SR-NYSEArca-2021-109. 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 (<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 the filing also will be available for inspection
and copying at the principal offices 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
[[Page 2968]]
submissions should refer to File Number SR-NYSEArca-2021-109, and
should be submitted on or before February 9, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-00873 Filed 1-18-22; 8:45 am]
BILLING CODE 8011-01-P
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