Notice2022-03392
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
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
February 17, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 87 Issue 33 (Thursday, February 17, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 33 (Thursday, February 17, 2022)]
[Notices]
[Pages 9093-9096]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-03392]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94233; File No. SR-NYSEArca-2022-08]
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
February 11, 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
January 31, 2022, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 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 an alternative requirement to
qualify for the Retail Order Step-Up Tier 1 pricing tier. The Exchange
proposes to implement the fee change effective February 1, 2022. The
proposed rule change is available on the 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 Retail Order Step-Up Tier 1
pricing tier. The Exchange proposes to implement the fee change
effective February 1, 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\
---------------------------------------------------------------------------
\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'').
---------------------------------------------------------------------------
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 20% 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 10% market share of
executed volume of equities trading.\8\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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. The competition for Retail Orders
\9\ is even more stark, particularly as it relates to exchange versus
off-exchange venues.
---------------------------------------------------------------------------
\9\ A Retail Order is an agency order that originates from a
natural person and is submitted to the Exchange by an ETP Holder,
provided that no change is made to the terms of the order to price
or side of market and the order does not originate from a trading
algorithm or any other computerized methodology. See Securities
Exchange Act Release No. 67540 (July 30, 2012), 77 FR 46539 (August
3, 2012) (SR-NYSEArca-2012-77).
---------------------------------------------------------------------------
The Exchange thus needs to compete in the first instance with non-
exchange venues for Retail Order flow, and with the 15 other exchange
venues for that Retail Order flow that is not directed off-exchange.
Accordingly, competitive forces compel the Exchange to use exchange
transaction fees and credits, particularly as they relate to competing
for Retail Order flow, because market participants can readily trade on
competing venues if they deem pricing levels at those other venues to
be more favorable.
[[Page 9094]]
To respond to this competitive environment, the Exchange has
established Retail Order Step-Up tiers,\10\ which are designed to
provide an incentive for ETP Holders to route Retail Orders to the
Exchange by providing higher credits for adding liquidity correlated to
an ETP Holder's higher trading volume in Retail Orders on the Exchange.
Under the Retail Order Step-Up Tiers, ETP Holders also do not pay a fee
when such Retail Orders have a time-in-force of Day that add and remove
liquidity from the Exchange.
---------------------------------------------------------------------------
\10\ See Retail Order Tier, Retail Order Step-Up Tier 1, Retail
Order Step-Up Tier 2, and Retail Order Step-Up Tier 3 under Retail
Tiers on the Fee Schedule.
---------------------------------------------------------------------------
Proposed Rule Change
Currently, to qualify for the Retail Order Step-Up Tier 1 credit,
an ETP Holder must execute an average daily volume (ADV) per month of
Retail Orders with a time-in-force of Day that add or remove liquidity
that is an increase of 0.40% of CADV above its April 2018 ADV taken as
a percentage of CADV, and have Adding ADV of 1.00% or more of CADV. ETP
Holders that meet the Retail Order Step-Up Tier 1 requirement are
eligible to earn a credit of $0.0038 per share for Retail Orders that
add liquidity in Tape A, Tape B and Tape C securities.\11\ As noted
above, ETP Holders are not a charged a fee for Retail Orders with a
time-in-force of Day that add and remove liquidity.\12\
---------------------------------------------------------------------------
\11\ Pursuant to footnote (d) under Retail Tiers, ETP Holders
that qualify for Retail Order Step-Up Tier 1 are subject to the
following rates in Tape C: ($0.0035) for Adding displayed liquidity;
$0.0027 for Removing; and Additional ($0.0002) for Adding non-
displayed liquidity. See Fee Schedule.
\12\ Pursuant to footnote (e) under Retail Tiers, ETP Holders
that qualify for Retail Order Step-Up Tier 1, Retail Order Step-Up
Tier 2 and Retail Order Step-Up Tier 3 are not charged a fee or
provided a credit for Retail Orders where each side of the executed
order (1) shares the same MPID and (2) is a Retail Order with a
time-in-force of Day. See Fee Schedule.
---------------------------------------------------------------------------
The Exchange proposes to modify the requirements to qualify for
Retail Order Step-Up Tier 1 by adopting an alternative qualification
basis for the Retail Order Step-Up Tier 1 fees and credits. As
proposed, in addition to providing an ADV of 1.00% or more of CADV, an
ETP Holder would qualify for the current fees and credits by executing
an ADV per month of Retail Orders with a time-in-force of Day that add
or remove liquidity that is an increase of 0.40% of CADV above its
April 2018 ADV taken as a percentage of CADV, or by executing an ADV
per month of 55 million shares of Retail Orders with a time-in-force of
Day that add or remove liquidity. The Exchange does not propose any
change to the level of fees and credits under Retail Order Step-Up Tier
1.
The purpose of the proposed rule change is to encourage greater
participation from ETP Holders and promote additional liquidity in
Retail Orders. As described above, ETP Holders with liquidity-providing
orders have a choice of where to send those orders. Given the overall
decline of Retail Orders, as a percentage of total volume in the equity
markets, the Exchange believes introducing alternative criteria for ETP
Holders to qualify for Retail Order Step-Up Tier 1 will allow greater
number of ETP Holders to potentially qualify for the tier, and will
incentivize more ETP Holders to route their liquidity-providing Retail
Orders to the Exchange rather than to a competing exchange.
The proposed changes are not otherwise intended to address any
other issues, and the Exchange is not aware of any significant problems
that market participants would have in complying with the proposed
changes
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\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).
---------------------------------------------------------------------------
The Proposed Fee Change Is Reasonable
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\
---------------------------------------------------------------------------
\15\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------
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 to reduce use of certain categories of
products, in response to fee changes. With respect to Retail Orders,
ETP Holders can choose from any one of the 16 currently operating
registered exchanges, and numerous off-exchange venues, to route such
order flow. Accordingly, competitive forces reasonably constrain
exchange transaction fees that relate to Retail Orders 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 that the proposed new
alternative threshold to qualify for Retail Order Step-Up Tier 1 is
reasonable because it is designed to encourage greater participation
from ETP Holders and promote additional liquidity in Retail Orders. The
Exchange believes it is reasonable to require ETP Holders to meet the
applicable volume threshold to qualify for the Retail Order Step-Up
Tier 1 credit. Further, the proposed change is reasonable as it would
allow ETP Holders an additional method to qualify for the credit
payable under the pricing tier if ETP Holders are unable to meet the
existing requirement, particularly when there has been an overall
decline of Retail Orders as a percentage of total volume in the equity
markets, and yet sustained high consolidated daily volumes. The
Exchange believes that the proposal represents a reasonable effort to
promote price improvement and enhanced order execution opportunities
for ETP Holders. All ETP Holders would benefit from the greater amounts
of liquidity on the Exchange, which would represent a wider range of
execution opportunities. The Exchange notes that market participants
are free to shift their order flow to competing venues if they believe
other markets offer more favorable fees and credits.
The Proposed Fee Change Is an Equitable Allocation of Fees and Credits
The Exchange believes the proposed rule change to introduce
alternative criteria for ETP Holders to qualify for Retail Order Step-
Up Tier 1 equitably allocates its fees among its market participants.
The Exchange believes the Retail Order Step-Up Tier 1 pricing tier is
equitable because it would apply to all similarly situated ETP Holders
on an equal basis and provides an alternative path to qualify for a per
share credit that is reasonably related to the value of an exchange's
market quality associated with higher volumes. The Exchange believes it
is equitable to require ETP
[[Page 9095]]
Holders to meet the applicable volume thresholds to qualify for the
Retail Order Step-Up Tier 1 credit. Further, the proposed change is
also equitable as it would allow ETP Holders an alternative method to
qualify for the credit payable under the pricing tier if ETP Holders
are unable to meet the current requirement.
The Exchange believes that modifying Retail Order Step-Up Tier 1
would encourage the submission of additional liquidity to the Exchange,
thus enhancing order execution opportunities for ETP Holders from the
substantial amounts of liquidity present on the Exchange. All ETP
Holders would benefit from the greater amounts of liquidity that would
be present on the Exchange, which would provide greater execution
opportunities.
The Exchange does not know how much Retail Order flow ETP Holders
choose to route to other exchanges or to off-exchange venues. Without
having a view of ETP Holders' activity on other markets and off-
exchange venues, the Exchange has no way of knowing whether this
proposed rule change would result in ETP Holders sending more of their
Retail Orders to the Exchange to qualify for the Retail Order Step-Up
Tier 1 credit of $0.0038 per share, which is among the highest credits
offered by the Exchange. The Exchange believes that its fee structure
for Retail Orders, in particular the Retail Order Step-Up Tier 1
pricing tier, should incentivize ETP Holders to send such orders to the
Exchange. The Exchange cannot predict with certainty how many ETP
Holders would avail themselves of this opportunity but additional
Retail Orders would benefit all market participants because it would
provide greater execution opportunities on the Exchange.
The Exchange believes that the proposed rule change is equitable
because maintaining the proportion of Retail Orders in exchange-listed
securities that are executed on a registered national securities
exchange (rather than relying on certain available off-exchange
execution methods) would contribute to investors' confidence in the
fairness of their transactions and would benefit all investors by
deepening the Exchange's liquidity pool, supporting the quality of
price discovery, promoting market transparency and improving investor
protection.
The Proposed Fee Change Is Not Unfairly Discriminatory
The Exchange believes that the proposed rule change to introduce
alternative criteria for ETP Holders to qualify for Retail Order Step-
Up Tier 1 is not unfairly discriminatory. 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, the
proposal neither targets nor will it have a disparate impact on any
particular category of market participant. The Exchange believes that
the proposal does not permit unfair discrimination because the proposal
would be applied to all similarly situated ETP Holders and all ETP
Holders would be subject to the same modified Retail Order Step-Up Tier
1. 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 general and tiered rates
are available equally to all ETP Holders.
As described above, in today's competitive marketplace, order flow
providers have a choice of where to direct liquidity-providing order
flow, and the Exchange believes there are additional ETP Holders that
could qualify for Retail Order Step-Up Tier 1 if they chose to direct
their order flow to the Exchange. Lastly, the submission of Retail
Orders is optional for ETP Holders in that they could choose whether to
submit Retail Orders 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,\16\ 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
the proposed change 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 all market participants. As a result, the Exchange believes that
the proposed change furthers the Commission's goal in adopting
Regulation NMS of fostering competition among orders, which promotes
``more efficient pricing of individual stocks for all types of orders,
large and small.'' \17\
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f(b)(8).
\17\ See Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
---------------------------------------------------------------------------
Intramarket Competition. The Exchange believes the proposed rule
change does not impose any burden on intramarket 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 Retail
Orders to the Exchange. The Exchange believes that amending criteria of
established tiers 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, thereby contributing towards a robust and well-
balanced market ecosystem.
Intermarket Competition. The Exchange believes the proposed rule
change does not impose any burden on intermarket competition that is
not necessary or appropriate in furtherance of the purposes of the Act.
The Exchange operates in a highly competitive market in which market
participants can readily choose to send their orders to other exchanges
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
this proposed fee change would impose any burden on intermarket
competition.
[[Page 9096]]
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) \18\ of the Act and subparagraph (f)(2) of Rule
19b-4 \19\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \20\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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#4331362f266e202c2e2e262d3730033026206d242c35"><span class="__cf_email__" data-cfemail="1062657c753d737f7d7d757e6463506375733e777f66">[email protected]</span></a>. Please include
File Number SR-NYSEArca-2022-08 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-2022-08. 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 submissions
should refer to File Number SR-NYSEArca-2022-08, and should be
submitted on or before March 10, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
---------------------------------------------------------------------------
\21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03392 Filed 2-16-22; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on February 17, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.