Notice2022-20378
Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Price List To Reflect the Fee for Directed Orders Routed by the Exchange to an Alternative Trading System
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Published
September 21, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 182 (Wednesday, September 21, 2022)</title>
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[Federal Register Volume 87, Number 182 (Wednesday, September 21, 2022)]
[Notices]
[Pages 57741-57744]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-20378]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95798; File No. SR-NYSE-2022-43]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Its Price List To Reflect the Fee for Directed Orders Routed by
the Exchange to an Alternative Trading System
September 15, 2022.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on September 7, 2022, 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 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\ 15 U.S.C. 78a.
\3\ 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 its Price List to reflect the 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 <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.
[[Page 57742]]
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 NYSE Price List to reflect the
fee for Directed Orders routed by the Exchange to an ATS. The Exchange
proposes to implement the fee change effective September 9, 2022.
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\
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\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'').
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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.'' \5\ Indeed, cash 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 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 12%.\9\
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\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
<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>.
\7\ 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>.
\8\ 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>.
\9\ 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. 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\ A Directed Order is a Limit Order
\11\ with instructions to route on arrival at its limit price to a
specified ATS with which the Exchange maintains an electronic linkage.
Under Exchange rules, the ATS to which a Directed Order is routed would
be 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 must be designated with a Time in
Force modifier of Day \12\ or IOC \13\ and are eligible to be
designated for the Core Trading Session \14\ only. Directed Orders that
are the subject of this proposed rule change would be routed to
OneChronos LLC (``OneChronos'').
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\10\ 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).
\11\ A Limit Order is defined in Rule 7.31(a)(2) as an order to
buy or sell a stated amount of a security at a specified price or
better.
\12\ Pursuant to Rule 7.31(b)(1), any order to buy or sell
designated Day, if not traded, will expire at the end of the
designated session on the day on which it was entered.
\13\ Pursuant to Rule 7.31(b)(2), a Limit Order may be
designated with an Immediate-or-Cancel (``IOC'') modifier.
\14\ The Core Trading Session for each security begins at 9:30
a.m. Eastern Time and ends at the conclusion of Core Trading Hours.
See Rule 7.34(a)(2). The term ``Core Trading Hours'' means the hours
of 9:30 a.m. eastern time through 4 p.m. eastern time or such other
hours as may be determined by the Exchange from time to time. See
Rule 1.1.
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In anticipation of the scheduled implementation of routing
functionality to OneChronos,\15\ the Exchange proposes to amend the
Price List to state that the Exchange will not charge a fee for
Directed Orders routed to OneChronos. To reflect the no fee, the
Exchange proposes to amend the current table under Transaction Fees.
Specifically, under Routing Fee--per share, the Exchange proposes to
adopt new rule text to state ``No fee for a Directed Order, as defined
in Rule 7.31(f)(1), routed to OneChronos LLC'' for securities priced at
or above $1.00. Additionally, the Exchange proposes to adopt similar
rule text under Transaction Fees and Credits For Tape B and C
Securities. Specifically, the Exchange proposes to amend the first
bullet under Routing Fees. As proposed, the first bullet would state:
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\15\ See <a href="https://www.nyse.com/publicdocs/nyse/notifications/trader-update/110000456275/OneChronos_August_2022_Trader_Update_Final.pdf">https://www.nyse.com/publicdocs/nyse/notifications/trader-update/110000456275/OneChronos_August_2022_Trader_Update_Final.pdf</a>.
[cir] For securities at or above $1.00, no fee for a Directed
Order, as defined in Rule 7.31(f)(1), routed to OneChronos LLC;
$0.0005 per share in a NYSE American Auction; $0.0010 per share
execution in an Away Market Auction at venues other than NYSE
American; $0.0035 per share for all other executions, or $0.0030 if
the member organization has adding ADV in Tapes A, B, and C combined
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that is at least 0.20% of Tapes A, B and C CADV combined.
The Exchange believes that the Directed Order functionality would
facilitate additional trading opportunities by offering member
organizations the ability to designate orders submitted to the Exchange
to be routed to OneChronos for execution. The Exchange believes the
functionality could create efficiencies for member organizations 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. Member organizations 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,\16\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\17\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and
[[Page 57743]]
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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\16\ 15 U.S.C. 78f(b).
\17\ 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.'' \18\
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\18\ 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.
In particular, the Exchange believes the proposed rule change is a
reasonable means to incent member organizations to utilize the Directed
Order functionality and evaluate its efficacy. The proposed 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 would operate similarly to the Primary Only Order already
offered by the Exchange's affiliates NYSE American LLC (``NYSE
American''), NYSE Arca, Inc. (``NYSE Arca''), NYSE Chicago, Inc.
(``NYSE Chicago'') and NYSE National, Inc. (``NYSE National'')
(``collectively, the ``Affiliated Exchanges''). On the Affiliated
Exchanges, a Primary Only Order is an order that is routed directly to
the primary listing market on arrival, without being assigned a working
time or interacting with interest on the order book of the exchange to
which it was submitted.\19\
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\19\ See NYSE American Rule 7.31E(f)(1); NYSE Arca Rule 7.31-
E(f)(1); NYSE Chicago Rule 7.31(f)(1); NYSE National Rule
7.31(f)(1).
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The Exchange believes its proposal equitably allocates its fees
among its market participants. The Exchange believes that the proposal
represents an equitable allocation of fees because it would apply
uniformly to all member organizations, in that all member organizations
will have the ability to designate orders submitted to the Exchange to
be routed to OneChronos, and each such member organization would not be
charged a fee when utilizing the new functionality. While the Exchange
has no way of knowing whether this proposed rule change would serve as
an incentive to utilize the new order type, the Exchange expects that a
number of member organizations will utilize the new functionality
because it would create efficiencies for member organizations by
enabling them to send orders that they wish to route to OneChronos
through the Exchange, thereby enabling them to leverage order entry
protocols already configured for their interactions with the Exchange.
The Exchange believes that the proposal is not unfairly
discriminatory. The Exchange believes it is not unfairly discriminatory
as the proposal to not charge a fee would be assessed on an equal basis
to all member organizations that use the Directed Order functionality.
The proposal to not charge a fee would also enable member organizations
to evaluate the efficacy of the new functionality. 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 to all
similarly situated member organizations. Accordingly, no member
organization 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
member organizations because the Directed Order functionality would be
available to all member organizations on an equal basis and each such
participant would not be charged a fee for using the functionality.
Finally, the submission of orders to the Exchange is optional for
member organizations 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,\20\ 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.'' \21\
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\20\ 15 U.S.C. 78f(b)(8).
\21\ See supra note 4.
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Intramarket Competition. The Exchange believes the proposed
amendment to its Price List would not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act. The Exchange believes the proposed rule change is a reasonable
means to incent member organizations to utilize the Directed Order
functionality and allow member organizations to evaluate its efficacy.
The Directed Order functionality would be available to all member
organizations and all member organizations that use the Directed Order
functionality to route their orders to OneChronos will not be charged a
routing fee. The proposed 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. Member organizations 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 rule change would
apply to all member organizations equally 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 is currently
less than 12%. In such an environment, the Exchange
[[Page 57744]]
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 is effective upon filing pursuant to
Section 19(b)(3)(A) \22\ of the Act and subparagraph (f)(2) of Rule
19b-4 \23\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 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) \24\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\24\ 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#047671686129676b6969616a7077447761672a636b72"><span class="__cf_email__" data-cfemail="6311160f064e000c0e0e060d1710231006004d040c15">[email protected]</span></a>. Please include
File Number SR-NYSE-2022-43 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-NYSE-2022-43. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<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 office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSE-2022-43, and should be submitted on
or before October 12, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-20378 Filed 9-20-22; 8:45 am]
BILLING CODE 8011-01-P
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