Notice2022-25671
Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Price List
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Published
November 25, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 226 (Friday, November 25, 2022)</title>
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[Federal Register Volume 87, Number 226 (Friday, November 25, 2022)]
[Notices]
[Pages 72578-72581]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-25671]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96361; File No. SR-NYSE-2022-53]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Its Price List
November 18, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 14, 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 self-regulatory
organization. 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 its Price List to introduce monthly
quoting incentives for Designated Market Makers (``DMM'') in assigned
Exchange Traded Products (``ETP'') for the first 12 months following
listing on the Exchange. The Exchange proposes to implement the fee
changes effective November 14, 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes monthly quoting incentives for DMMs in
assigned ETPs for the first 12 months following listing on the Exchange
while that ETP is listed on the Exchange.
The proposed change responds to the current competitive environment
where order flow providers have a choice of where to direct orders by
offering incentives to DMMs to quote and trade at the national best bid
or offer (``NBBO'') \3\ in assigned ETPs during the first 12 months
following the ETP's listing on the Exchange. The Exchange also hopes
thereby to encourage additional ETPs to list and trade on the Exchange.
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\3\ See Rule 1.1(r) (definition of NBBO, Best Protected Bid,
Best Protected Offer, Protected Best Bid and Offer (PBBO)).
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The Exchange proposes to implement the fee changes effective
November 14, 2022.
[[Page 72579]]
Background
Current Market and Competitive Environment
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. 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.'' \4\
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\4\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (Final Rule)
(``Regulation NMS'').
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As the Commission itself has recognized, the market for trading
services in NMS stocks has become ``more fragmented and competitive.''
\5\ Indeed, equity trading is currently dispersed across 16
exchanges,\6\ 31 alternative trading systems,\7\ and numerous broker-
dealer internalizers and wholesalers. Based on publicly-available
information, no single exchange has more than 20% of the market.\8\
Therefore, no exchange possesses significant pricing power in the
execution of equity order flow. More specifically, the Exchange's share
of executed volume of equity trades in Tapes A, B and C securities is
less than 12%.\9\
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\5\ See Securities Exchange Act Release No. 51808, 84FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Transaction Fee Pilot
for NMS Stocks Final Rule) (``Transaction Fee Pilot'').
\6\ 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>. 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, in response to fee changes. With respect to non-marketable
order flow that would provide displayed liquidity on an Exchange,
member organizations 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.
In response to the competitive environment described above, the
Exchange proposes monthly credits for DMMs that meet certain quoting
requirements in assigned ETPs during the first 12 months following the
assigned ETP's listing on the Exchange while that ETP is listed on the
Exchange.
Proposed Rule Change
In order to encourage quoting on the Exchange in listed ETPs, the
Exchange proposes to offer monthly quoting credits to DMMs in assigned
ETPs. Specifically, the Exchange proposes that DMMs quoting 30% or more
of the time in a billing month in an ETP assigned to that DMM on the
last day of that billing month would be eligible for a credit of $4,000
per assigned ETP for that billing month. DMMs quoting less than 30% of
the time in a billing month in an ETP assigned to that DMM on the last
day of that billing month would be eligible for a credit of $2,000 per
assigned ETP for that billing month. As proposed, DMMs would be
eligible for the credits for the first 12 months following the listing
of the ETP on the Exchange while that ETP is listed on the Exchange.
For example, ETP 1 lists on the Exchange and is assigned to DMM A
in November 2022. ETP 2 lists on the Exchange and is assigned to DMM A
in December 2022. Further assume that in November and December 2022,
DMM A quotes at the NBBO 40% of the time for ETP 1 and at 20% of the
time for ETP 2. Based on this quoting activity, DMM A would be eligible
for the following credits for those billing months:
<bullet> a $4,000 credit for ETP 1 in November 2022;
<bullet> a $4,000 credit for ETP 1 in December 2022; and
<bullet> a $2,000 credit for ETP 2 in December 2022, for a combined
$6,000 credit in December 2022.
If DMM A improves their quoting in ETP 2 in January 2023 and quotes
at the NBBO 40% of the time in that billing month, DMM A's combined
credit for January 2023 for both ETPs would increase to $8,000.
If DMM A quotes at the NBBO 40% of the time in both ETP 1 and ETP 2
in November 2023, DMM A would receive a $4,000 credit for ETP 2 and no
credit for ETP 1 since November 2023 would be ETP's 13th month listed
on the Exchange.
The purpose of the proposed change is to encourage higher quoting
levels by DMMs on the Exchange in a listed ETP's first 12 months
following listing, which would support the quality of price discovery
on the Exchange and is consistent with the overall goals of enhancing
market quality. As noted above, the Exchange operates in a competitive
environment, and member organizations have a choice of where to send
order flow. Because the proposal permits DMMs to receive a monthly
credit if the DMM quotes a certain percentage at the NBBO on the
Exchange during the first 12 months following an ETP's listing while
the ETP is listed, the Exchange believes that the proposed credits
would provide incentives for DMMs to quote more aggressively on the
Exchange in their listed ETPs in order to qualify for it. The Exchange
believes that incentivizing DMMs on the Exchange to add liquidity at
the NBBO to meet the higher quote levels could contribute to price
discovery and improve quoting on the Exchange. In addition, additional
liquidity providing quotes benefit all market participants because they
provide greater execution opportunities on the Exchange and improve the
public quotation, which benefits all member organizations.
The proposed change is not otherwise intended to address 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,\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) & (5).
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The Proposed Change Is Reasonable
As discussed above, 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
[[Page 72580]]
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\ 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.'' \13\
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\12\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule)
(``Regulation NMS'').
\13\ 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).
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The new proposed incentives are reasonable. Specifically, the
Exchange believes that a new DMM credits would provide an incentive for
DMMs to increase liquidity-providing orders at the NBBO on the Exchange
during the first year following the listing of an ETP. The proposed
credits are thus intended to encourage higher levels of liquidity and
quoting by DMMs on the Exchange in listed ETPs, which would support the
quality of price discovery on the Exchange and is consistent with the
overall goals of enhancing market quality. To the extent that the
proposed change leads to an increase in overall liquidity activity and
quoting on the Exchange and more competitive pricing, this will improve
the quality of the Exchange's market, improve quote spreads and
increase its attractiveness to existing and prospective participants.
The proposed incentives will also support new ETPs listing on the
Exchange by incentivizing DMMs to quote at the NBBO more often.
As noted above, the Exchange operates in a competitive environment,
and member organizations have a choice of where to send order flow.
Because the proposed credits require DMMs to meets certain quoting
requirements at the NBBO in order to qualify for the credits, the
Exchange believes that the proposed credit would provide an incentive
for all DMMs to quote aggressively on the Exchange in order to qualify
for the base credit and more aggressively in order to qualify for the
higher credit. The Exchange believes that incentivizing DMMs on the
Exchange to add liquidity to meet the higher quote levels at the NBBO
could contribute to price discovery and improve quoting on the
Exchange. In addition, additional liquidity providing quotes benefit
all market participants because they provide greater execution
opportunities on the Exchange and improve the public quotation.
The Proposal Is an Equitable Allocation of Fees
The Exchange believes that the proposed credits are an equitable
allocation of fees because the proposed credits would be available to
all DMMs on an equal basis. The Exchange believes that the proposal
will allocate the proposed credits fairly among DMMs and allow DMMs to
qualify for a credit by adding liquidity and improving quoting at the
NBBO during the first 12 months following an ETP's listing on the
Exchange. The Exchange believes the proposed rule change would improve
market quality by providing incentives for all DMMs to increase
aggressively priced liquidity-providing orders at the NBBO on the
Exchange, thereby encouraging higher levels of liquidity by DMMs on the
Exchange, which would support the quality of price discovery on the
Exchange and is consistent with the overall goals of enhancing market
quality.
The Proposal Is Not Unfairly Discriminatory
The Exchange believes it is not unfairly discriminatory to provide
credits for adding liquidity that encourage DMMs on the Exchange to
quote at the NBBO as the proposed credits would be provided on an equal
basis to all similarly situated DMMs that add liquidity in assigned
ETPs during the first year following listing and by meeting the
proposed quoting requirements. For the same reason, the Exchange
believes it is not unfairly discriminatory to provide a higher credit
for increased quoting at the NBBO at or above 30% because the proposed
higher credit would equally encourage all DMMs to provide additional
liquidity on the Exchange. As noted, the Exchange intends for the
proposal to improve market quality for all members on the Exchange in
listed ETPs and by extension attract more liquidity to the market,
thereby encouraging higher levels of liquidity by DMMs on the Exchange
in listed ETPs, which would support the quality of price discovery on
the Exchange and is consistent with the overall goals of enhancing
market quality.
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,\14\ 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 member organizations. 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.'' \15\
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\14\ 15 U.S.C. 78f(b)(8).
\15\ Regulation NMS, 70 FR at 37498-99.
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Intramarket Competition. The proposed changes are designed to
incentivize market participants to direct displayed order flow to the
Exchange. Greater liquidity benefits all market participants on the
Exchange by providing more trading opportunities and encourages member
organizations to send orders, thereby contributing to robust levels of
liquidity, which benefits all market participants on the Exchange. The
proposed credits would be available to all similarly-situated market
participants, and, as such, the proposed change would not impose a
disparate burden on competition among market participants on the
Exchange. As noted, the proposal would apply to all similarly situated
member organizations on the same and equal terms, who would benefit
from the change on the same basis. Accordingly, 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. 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
[[Page 72581]]
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) \16\ of the Act and subparagraph (f)(2) of Rule
19b-4 \17\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 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) \18\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\18\ 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#7f0d0a131a521c1012121a110b0c3f0c1a1c51181009"><span class="__cf_email__" data-cfemail="fd8f889198d09e9290909893898ebd8e989ed39a928b">[email protected]</span></a>. Please include
File Number SR-NYSE-2022-53 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-2022-53. 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-2022-53 and should be submitted on
or before December 16, 2022.
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\19\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-25671 Filed 11-23-22; 8:45 am]
BILLING CODE 8011-01-P
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