Notice2022-26541
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Fee Schedule of NYSE Chicago, Inc. To Reflect the Fee for Directed Orders Routed by the Exchange to an Alternative Trading System
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Published
December 7, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 234 (Wednesday, December 7, 2022)</title>
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[Federal Register Volume 87, Number 234 (Wednesday, December 7, 2022)]
[Notices]
[Pages 75113-75116]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-26541]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96433; File No. SR-NYSECHX-2022-27]
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the
Fee Schedule of NYSE Chicago, Inc. To Reflect the Fee for Directed
Orders Routed by the Exchange to an Alternative Trading System
December 1, 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 November 21, 2022, the NYSE Chicago, Inc. (``NYSE
Chicago'' or the ``Exchange'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I and II below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit
[[Page 75114]]
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 the Fee Schedule of NYSE Chicago,
Inc. (the ``Fee Schedule'') to reflect the fee for Directed Orders
routed directly 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. 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 Fee Schedule to reflect the fee
for Directed Orders routed directly by the Exchange to an ATS. The
Exchange proposes to implement the fee change effective November 21,
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, 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 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 1%.\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>.
\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, and 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)(4). See also Securities Exchange Act
Release No. 95425 (August 4, 2022), 87 FR 48735 (August 10, 2022)
(SR-NYSECHX-2022-06).
\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 4:00 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 Fee
Schedule 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 current Section E. Transaction and Order Processing
Fees. More specifically, the Exchange proposes to adopt footnote 1 and
append it to the stated fee of $0.0030/share for securities priced at
or above $1.00 under Routing Fee. Proposed footnote 1 would state ``No
fee for Directed Orders routed to OneChronos LLC.'' Additionally, the
Exchange proposes to define ``Directed Orders'' in proposed footnote 1.
As proposed, the term ``Directed Orders'' would mean ``a Limit Order
with instructions to route on arrival at its limit price to a specified
alternative trading system (``ATS'') with which the Exchange maintains
an electronic linkage.''
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\15\ See <a href="https://www.nyse.com/publicdocs/nyse/notifications/trader-update/110000486743/ALO_MPL_One_Chronos_Chicago.pdf">https://www.nyse.com/publicdocs/nyse/notifications/trader-update/110000486743/ALO_MPL_One_Chronos_Chicago.pdf</a>.
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The Exchange believes that the Directed Orders functionality would
facilitate additional trading opportunities by offering Participants
\16\
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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 Participants 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.
Participants that choose not to utilize Directed Orders would continue
to be able to trade on the Exchange as they currently do.
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\16\ A ``Participant'' is, except as otherwise described in the
Rules of the Exchange, ``any Participant Firm that holds a valid
Trading Permit and any person associated with a Participant Firm who
is registered with the Exchange under Articles 16 and 17 as a Market
Maker Authorized Trader or Institutional Broker Representative,
respectively.'' See Article 1, Rule 1(s).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\17\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\18\ 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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\17\ 15 U.S.C. 78f(b).
\18\ 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.'' \19\
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\19\ 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 Participants to utilize the Directed Orders
functionality and allow Participants to 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, which is an order that is
routed directly to the primary listing market on arrival, without
interacting with the interest on the Exchange Book.\20\
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\20\ See 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 Participants, in that all Participants will have the
ability to designate orders submitted to the Exchange to be routed to
OneChronos, and each such Participant 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
Participants will utilize the new functionality because it would create
efficiencies for Participants 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 Participants that use the Directed Order functionality. The
proposal to not charge a fee would also enable Participants 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
Participants. Accordingly, no Participant 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 Participants because the Directed
Order functionality would be available to all Participants on an equal
basis and each such member would not be charged a fee for using the
functionality.
Finally, the submission of orders to the Exchange is optional for
Participants 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,\21\ 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.'' \22\
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\21\ 15 U.S.C. 78f(b)(8).
\22\ See supra note 4.
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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 believes the proposed rule change is
a reasonable means to incent Participants to utilize the Directed
Orders functionality and allow Participants to evaluate its efficacy.
The Directed Orders functionality would be available to all
Participants and all Participants that use the Directed Orders
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. Participants have the choice whether or not
to use the Directed Orders 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
Participants equally that choose to utilize the Directed Orders
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
[[Page 75116]]
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 1%. 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.
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) \23\ of the Act and subparagraph (f)(2) of Rule
19b-4 \24\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 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) \25\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\25\ 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#3a484f565f17595557575f544e497a495f59145d554c"><span class="__cf_email__" data-cfemail="255750494008464a4848404b5156655640460b424a53">[email protected]</span></a>. Please include
File Number SR-NYSECHX-2022-27 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-NYSECHX-2022-27. 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-NYSECHX-2022-27 and should be submitted
on or before December 28, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-26541 Filed 12-6-22; 8:45 am]
BILLING CODE 8011-01-P
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