Notice2022-26949
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.
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Published
December 13, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 238 (Tuesday, December 13, 2022)</title>
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[Federal Register Volume 87, Number 238 (Tuesday, December 13, 2022)]
[Notices]
[Pages 76225-76228]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-26949]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96461; File No. SR-NYSECHX-2022-28]
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.
December 7, 2022.
Effectiveness of Proposed Rule Change to amend the Fee Schedule of
NYSE Chicago, Inc.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on November 28, 2022, NYSE Chicago, Inc. (``NYSE Chicago'' or
``Exchange'') filed with the Securities and Exchange Commission
(``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\ 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 adopt a new credit and increase an
existing credit applicable to certain Exchange members. The Exchange
proposes to implement the fee changes effective November 28, 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 to amend the Fee Schedule to adopt a new
credit and increase an existing credit applicable to certain Exchange
members. Specifically, the Exchange proposes new Section F.1 to adopt a
Participant \4\ credit applicable to Clearing Participants and amend
Section F.2 to increase the Transaction Fee Credit and Clearing
Submission Fee Credit applicable to Clearing Brokers. The Exchange
proposes to implement the fee changes effective November 28, 2022.\5\
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\4\ 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).
\5\ The Exchange originally filed to amend the Fee Schedule on
November 1, 2022 (SR-NYSECHX-2022-25). SR-NYSECHX-2022-25 was
subsequently withdrawn and replaced by SR-NYSECHX-2022-26. SR-
NYSECHX-2022-26 was subsequently withdrawn and replaced by this
filing.
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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 National Market System
(``NMS''), the Commission highlighted the importance of market forces
in determining prices and Self-Regulatory Organizations (``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.'' \6\
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\6\ 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.'' \7\ Indeed, equity trading is
[[Page 76226]]
currently dispersed across 16 exchanges,\8\ numerous alternative
trading systems,\9\ 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.\10\
Therefore, no exchange possesses significant pricing power in the
execution of equity order flow. More specifically, the Exchange
currently has less than 1% market share of executed volume of equities
trading.\11\
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\7\ 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).
\8\ 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>.
\9\ 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>.
\10\ 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>.
\11\ 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.
Proposed Rule Change
Current Section E.3(a) assesses a fee of $0.0030 per share, capped
at $75 per Clearing Side,\12\ for an execution within the Exchange in a
security priced at $1.00 per share or more that results from an agency
order submitted by an Institutional Broker.\13\
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\12\ Section E.3(a)(3) of the Fee Schedule defines ``Clearing
Side,'' in pertinent part, as the buy or sell side of a clearing
submission that is related to a Section E.3(a) or Section E.7
execution. The Clearing Side is paid by the Clearing Participant or
an Institutional Broker.
\13\ The term ``Institutional Broker'' is defined in Article 1,
Rule 1(n) to mean a member of the Exchange who is registered as an
Institutional Broker pursuant to the provisions of Article 17 and
has satisfied all Exchange requirements to operate as an
Institutional Broker on the Exchange; see also generally NYSE
Chicago Article 17.
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Current Section E.7 assesses a similar fee of $0.0030 per share,
capped at $75 per Clearing Side, for an away execution in a security
priced at $1.00 per share or more that is cleared through the
Exchange's systems by an Institutional Broker and submitted to a
Qualified Clearing Agency pursuant to Article 21, Rule 6(a).\14\
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\14\ Section E.3(a) and E.7 fees are virtually identical as both
apply to executions effected through Institutional Brokers that are
cleared through the Exchange's clearing systems, except that Section
E.3(a) applies to executions within the Exchange, whereas Section
E.7 applies to qualified away executions pursuant to CHX Article 21,
Rule 6(a).
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The Exchange proposes to adopt new Section F.1 titled ``Participant
credits'' pursuant to which the total monthly fees owed by a Clearing
Participant to the Exchange under Section E.3(a) and Section E.7 would
be reduced by the application of a credit equal to 5% of such fees. The
Exchange believes that reducing Section E.3(a) and Section E.7 fees
would increase trading on the Exchange.
Additionally, current Section F.2 provides for a Transaction Fee
Credit and a Clearing Submission Fee Credit and generally states that
the total monthly fees owed by an Exchange-registered Institutional
Broker to the Exchange will be reduced (and Institutional Brokers will
be paid for any unused credits) by the application of a Transaction Fee
Credit and a Clearing Submission Fee Credit. Specifically, a Clearing
Broker \15\ receives a ``Transaction Fee Credit'' equal to 5% of the
transaction fees received by the Exchange each month for agency trades
executed through the Institutional Broker (i.e., Section E.3(a) fees)
for the portion(s) of the transaction handled by the Clearing Broker.
Similarly, a Clearing Broker receives a ``Clearing Submission Fee
Credit'' equal to 5% of the Clearing Submission Fees received by the
Exchange pursuant to Section E.7 of the Fee Schedule for the portion(s)
of the transaction handled by the Clearing Broker. Also, only
Institutional Brokers which are members of the Financial Industry
Regulatory Authority, Inc. are eligible for the Clearing Submission Fee
Credit. Both the Transaction Fee Credit and the Clearing Submission Fee
Credit are provided by the Exchange to the Clearing Broker, who then
passes on these credits to the Institutional Broker associated with the
transaction.
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\15\ Section F.2 of the Fee Schedule defines ``Clearing Broker''
as the Exchange-registered Institutional Broker that did not execute
the trade, but acted as the broker for the ultimate Clearing
Participant. ``Clearing Participant'' means a Participant which has
been admitted to membership in a Qualified Clearing Agency pursuant
to the provisions of the Rules of the Qualified Clearing Agency. See
Article 1, Rule 1(ee).
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The Exchange proposes to amend current Section F.2 by increasing
both the Transaction Fee Credit and the Clearing Submission Fee Credit
from 5% to 8% each. As with the Participant credit proposed herein, the
Exchange believes that increasing the Transaction Fee Credit and the
Clearing Submission Fee Credit, which would result in reduced fees,
would increase trading and post-trade activity on the Exchange.
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) of the Act,\17\ 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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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(4).
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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.'' \18\
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\18\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow, or discontinue or reduce use of certain categories of
products, in response to fee changes. With respect to non-marketable
orders that provide liquidity on an Exchange, Participants can choose
from any one of the 16 currently operating registered exchanges to
route such order flow. Accordingly, competitive forces reasonably
constrain exchange transaction fees that relate to orders that would
provide displayed liquidity on an exchange. Stated otherwise, changes
to exchange transaction fees can have a direct effect on the ability of
an exchange to compete for order flow.
The Exchange believes that the proposed new Participant credit is
reasonable because it is designed to encourage increased trading
activity on the Exchange. The Exchange believes the proposed rule
change to introduce the Participant credit, which would result in lower
fees paid by Clearing Participants for the execution of single-
[[Page 76227]]
sided or cross orders, would incentivize more trading on the Exchange.
Further, the Exchange believes that increasing the Transaction Fee
Credit, which applies to executions effected on the Exchange, and the
Clearing Submission Fee Credit, which applies to off-exchange
executions cleared on the Exchange, from 5% to 8% is reasonable because
these credits are designed to incent trading, in the case of the
Transaction Fee Credit, and clearing activity, in the case of the
Clearing Submission Fee Credit, by Institutional Brokers. The Exchange
believes increasing these credits, which would result in lower fees, is
a reasonable means to further incentivize Institutional Brokers to
conduct more of their trading and clearing activity on the Exchange.
The Exchange believes that the proposal represents a reasonable
effort to promote enhanced order execution opportunities as well as
promote post-trade clearing submissions by Exchange members. 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.
On the backdrop of the competitive environment in which the
Exchange currently operates, the proposed rule change is a reasonable
attempt to attract additional order flow and increase liquidity on the
Exchange and improve the Exchange's market share relative to its
competitors.
The Proposed Fee Change is an Equitable Allocation of Fees and Credits
The Exchange believes that the proposed new Participant credit and
the proposed increase to the Transaction Fee Credit and the Clearing
Submission Fee Credit equitably allocates its fees and credits among
its market participants. The Exchange believes the proposed new
Participant credit is equitable because it is open to all similarly
situated Clearing Participants on an equal basis and provides 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 provide Clearing Participants with the proposed credit
and provide Clearing Brokers with increased credits, both of which
would result in lower fees, because the credits would serve to
incentivize each such member to conduct more of its trading and
clearing activity on the Exchange.
The Exchange believes that the proposed new Participant credit
could encourage the submission of a greater number of orders to the
Exchange, thus enhancing order execution opportunities for all market
participants trading on the Exchange. All market participants would
benefit from the greater amounts of liquidity that would be present on
the Exchange, which would provide greater execution opportunities. The
Exchange also believes that the proposed increase to the Transaction
Fee Credit and the Clearing Submission Fee Credit could encourage
Institutional Brokers to conduct more of their trading and post-trade
activity on the Exchange.
The Proposed Fee Change is Not Unfairly Discriminatory
The Exchange believes that the proposed new Participant credit and
increasing the level of the Transaction Fee Credit and the Clearing
Submission Fee Credit is not unfairly discriminatory. The Exchange
believes that the proposal does not permit unfair discrimination
because the proposed new credit would be applied to all similarly
situated Clearing Participants while the existing Transaction Fee
Credit and the Clearing Submission Fee Credit would be similarly
applied to all Clearing Brokers on an equal basis. Accordingly, no
Exchange member already operating on the Exchange would be
disadvantaged by the proposed allocation of fees and credits under the
proposal. The Exchange further believes that the proposed fee change
would not permit unfair discrimination among Clearing Participants or
among Clearing Brokers because the credits would be available equally
to them. As described above, in today's competitive marketplace, market
participants have a choice of where to direct their order flow or which
market to transact on. The Exchange believes this proposal would
benefit a number of members by lowering their current fees, regardless
of whether or not they increase their trading and clearing activity on
the Exchange.
In the prevailing competitive environment, Exchange members are
free to disfavor the Exchange's pricing if they believe that
alternatives offer them better value. Accordingly, no Exchange member
already operating on the Exchange would be disadvantaged by the
proposed allocation of the Exchange's fees and credits.
Finally, the submission of orders to the Exchange is optional for
Exchange members 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,\19\ 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 all market participants on the Exchange. 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.'' \20\
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\19\ 15 U.S.C. 78f(b)(8).
\20\ See Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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Intramarket Competition. The Exchange believes the proposed new
Participant credit and the proposed increase to the Transaction Fee
Credit and the Clearing Submission Fee Credit would not impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believe
that the proposed change represents a significant departure from
previous pricing offered by the Exchange. The proposed changes are
designed to attract additional trading and post-trade activity to the
Exchange. The Exchange believes that the proposed adoption of the
Participant credit and increasing the level of the Transaction Fee
Credit and the Clearing Submission Fee Credit would incentivize market
participants to direct more of their trading and post-trading activity
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. Additionally, the proposed changes would apply equally to all
similarly situated Clearing Participants and Clearing Brokers, in that
they would all be equally eligible
[[Page 76228]]
for the credits available under Sections F.1 and F.2, respectively, of
the Fee Schedule.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily choose to
send their orders to other exchange and off-exchange venues if they
deem fee levels at those other venues to be more favorable. As noted
above, the Exchange's market share of intraday trading (i.e., excluding
auctions) is currently less than 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 has become effective upon filing pursuant
to Section 19(b)(3)(A) \21\ of the Act and paragraph (f) thereunder. At
any time within 60 days of the filing of the 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.
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\21\ 15 U.S.C. 78s(b)(3)(A).
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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#6311160f064e000c0e0e060d1710231006004d040c15"><span class="__cf_email__" data-cfemail="99ebecf5fcb4faf6f4f4fcf7edead9eafcfab7fef6ef">[email protected]</span></a>. Please include
File Number SR-NYSECHX-2022-28 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-2022-28. 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-2022-28 and should be submitted
on or before January 3, 2023.
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\22\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-26949 Filed 12-12-22; 8:45 am]
BILLING CODE 8011-01-P
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