Notice2023-10685
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE Arca Equities Fees and Charges
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Published
May 18, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 96 (Thursday, May 18, 2023)</title>
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[Federal Register Volume 88, Number 96 (Thursday, May 18, 2023)]
[Notices]
[Pages 31835-31838]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-10685]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97504; File No. SR-NYSEARCA-2023-36]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE
Arca Equities Fees and Charges
May 15, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 1, 2023, NYSE Arca, Inc. (``NYSE Arca'' or the ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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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 the NYSE Arca Equities Fees and
Charges (``Fee Schedule'') to amend the fee for orders routed that
remove liquidity in away markets in Round Lots and Odd Lots in Tapes A,
B and C securities with a per share price below $1.00, and eliminate an
incremental credit associated with the Tier 4 pricing tier under Adding
Tiers. The Exchange proposes to implement the fee changes effective May
1, 2023. The proposed rule change is available on the Exchange's
website at <a href="http://www.nyse.com">www.nyse.com</a>, at the principal office of the Exchange, and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to amend the fee
for orders routed that remove liquidity in away markets in Round Lots
and Odd Lots in Tapes A, B and C securities with a per share price
below $1.00 (``Sub-Dollar Securities''), and eliminate an incremental
credit associated with the Tier 4 pricing tier under Adding Tiers. The
Exchange proposes to implement the fee changes effective May 1, 2023.
Background
The Exchange operates in a highly competitive market. The
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. In Regulation NMS, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues and, also, recognized that current regulation of the
market system ``has been remarkably successful in promoting market
competition in its broader forms that are most important to investors
and listed companies.'' \3\
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\3\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (File No. S7-10-04) (Final
Rule) (``Regulation NMS'').
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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.'' \4\ Indeed, equity trading is currently dispersed across
16 exchanges,\5\ numerous alternative trading systems,\6\ and broker-
dealer internalizers and wholesalers, all competing for order flow.
Based on publicly available information, no single exchange currently
has more than 17% market share.\7\ Therefore, no exchange possesses
significant pricing power in the execution of equity order flow. More
specifically, the Exchange currently has less than 10% market share of
executed volume of equities trading.\8\
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\4\ See Securities Exchange Act Release No. 61358, 75 FR 3594,
3597 (January 21, 2010) (File No. S7-02-10) (Concept Release on
Equity Market Structure).
\5\ See Cboe U.S Equities Market Volume Summary, available at
<a href="https://markets.cboe.com/us/equities/market_share">https://markets.cboe.com/us/equities/market_share</a>.
\6\ See FINRA ATS Transparency Data, available at <a href="https://otctransparency.finra.org/otctransparency/AtsIssueData">https://otctransparency.finra.org/otctransparency/AtsIssueData</a>. A list of
alternative trading systems registered with the Commission is
available at <a href="https://www.sec.gov/foia/docs/atslist.htm">https://www.sec.gov/foia/docs/atslist.htm</a>.
\7\ See Cboe Global Markets U.S. Equities Market Volume Summary,
available at <a href="http://markets.cboe.com/us/equities/market_share/">http://markets.cboe.com/us/equities/market_share/</a>.
\8\ See id.
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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. ETP Holders can choose from any one
of the 16 currently operating registered exchanges to route such order
flow. Accordingly,
[[Page 31836]]
competitive forces constrain exchange transaction fees that relate to
orders that would provide and take liquidity on an exchange or that are
routed to another venue for execution.
Proposed Rule Change
Routing Fee
The Exchange currently charges a standard fee of 0.3% of Dollar
Value for orders routed that remove liquidity in away markets in Sub-
Dollar Securities across all Tapes.\9\ The Exchange now proposes to
increase the fee from 0.3% to 0.35% of Dollar Value for orders routed
that remove liquidity in away markets in Sub-Dollar Securities across
all Tapes. The purpose of the proposed rule change is for business and
competitive reasons. U.S equity market volumes have been remarkably
high in Sub-Dollar Securities since the beginning of 2023, driven in
part by retail traders, leading to increased off-exchange (or Trade
Reporting Facility (TRF)) trading volumes.\10\ Without having a view of
ETP Holders' activity on other exchanges and off-exchange venues, the
Exchange has no way of knowing whether this modest increase would
result in any ETP Holder altering its trading activity in Sub-Dollar
Securities. The submission of orders in Sub-Dollar Securities to the
Exchange is optional for ETP Holders in that they could choose whether
to submit such orders to the Exchange and, if they do, the extent of
its activity in this regard.
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\9\ Footnote (a) under the Standard Rates--Routing table
provides that the fee applies to orders of listed and Nasdaq
securities routed away and executed by another market center or
participant. See Fee Schedule, available at <a href="https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf">https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf</a>.
\10\ In the first quarter of 2023, the TRF represented about
60.2% market share in Sub-Dollar Securities. See Cboe Insights,
available at <a href="https://www.cboe.com/insights/posts/how-subdollar-securities-are-trading-now/">https://www.cboe.com/insights/posts/how-subdollar-securities-are-trading-now/</a>.
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Eliminate Unused Credit
Currently, under the Adding Tiers table in Section VII. Tier
Rates--Round Lots and Odd Lots (Per Share Price $1.00 or Above), the
Exchange provides multiple tiers and associated credits for Adding
liquidity on the Exchange. Specifically, under Tier 4, if an ETP Holder
has Adding ADV that is equal to at least 0.20% of CADV then that ETP
Holder receives a credit of $0.0025 per share for Adding in Tape A
securities, $0.0022 per share for Adding in Tape B securities and
$0.0025 per share for Adding in Tape C securities. Additionally, ETP
Holders that qualify for Tier 4 and have Adding ADV that is equal to
0.05% of CADV above May 2019 receive an incremental credit of $0.0002
per share for Tape A and Tape C Adding. This incremental credit is
currently denoted on the Fee Schedule under footnote ** and is appended
to the credits applicable under Tier 4.
The Exchange proposes to eliminate the incremental credit of
$0.0002 per share for Tape A and Tape C Adding and remove the credit
from the Fee Schedule because the pricing incentive has been
underutilized by ETP Holders. The Exchange has observed that not a
single ETP Holder has qualified for the incremental credit in the last
six months. Since the incremental credit has not been effective in
accomplishing its intended purpose, which is to incent ETP Holders to
increase their liquidity adding activity on the Exchange, the Exchange
has determined to eliminate the incremental credit and remove it from
the Fee Schedule.
The proposed changes are not otherwise intended to address any
other issues, and the Exchange is not aware of any significant problems
that market participants would have in complying with the proposed
changes.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with section 6(b) of the Act,\11\ in general, and furthers the
objectives of sections 6(b)(4) and (5) of the Act,\12\ 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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\11\ 15 U.S.C. 78f(b).
\12\ 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.'' \13\
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\13\ See Regulation NMS, 70 FR at 37499.
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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 to reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
reasonably constrain exchange transaction rates that relate to orders
that would add or remove liquidity on an exchange or that are routed
away from an exchange. Stated otherwise, changes to exchange
transaction fees and credits can have a direct effect on the ability of
an exchange to compete for order flow.
Routing Fee
The Exchange believes that the proposed change to increase the
standard fee for routing orders in Sub-Dollar Securities away from the
Exchange is reasonable, equitable and consistent with the Act because
it represents a modest increase from the current standard fee (change
from 0.3% to 0.35% of Dollar Value). The Exchange further believes that
the proposal to increase the standard fee for routing orders in Sub-
Dollar Securities away from the Exchange is equitably allocated and not
unfairly discriminatory because it would apply to all ETP Holders in an
equivalent manner.
The Exchange believes that the proposed rule change is equitable
and not unfairly discriminatory because ETP Holders will continue to
have the option to elect to route their orders in the same manner as
they do today and will be automatically and uniformly assessed the
applicable standard rates. Further, if ETP Holders do not favor the
Exchange's pricing for routed orders, they can send their routable
orders directly to other markets instead of utilizing routing
functionality provided by the Exchange. Routing through the Exchange is
optional, and the Exchange operates in a competitive environment where
market participants can readily direct order flow to competing venues
or providers of routing services if they believe alternatives offer
them better value. The proposal is not unfairly discriminatory because
it neither targets nor will it have a disparate impact on any
particular category of market participant.
Finally, the submission of orders in Sub-Dollar Securities to the
Exchange is optional for ETP Holders in that they could choose whether
to submit such orders to the Exchange and, if they do, the extent of
its activity in this regard.
Eliminate Unused Credit
The Exchange believes that the proposed rule change to eliminate
the incremental credit associated with the Tier 4 pricing tier under
Adding Tiers is reasonable because the pricing incentive that is the
subject of this proposed rule change has been
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underutilized and has not incentivized ETP Holders to bring liquidity
and increase trading on the Exchange as anticipated. No ETP Holder has
availed itself of the incremental credit in the last six months. The
Exchange also does not anticipate any ETP Holder in the near future
will qualify for the pricing incentive that is the subject of this
proposed rule change. The Exchange believes it is reasonable to
eliminate requirements and credits, and even entire pricing tiers, when
such incentives become underutilized. The Exchange believes eliminating
underutilized incentive programs would also simplify the Fee Schedule.
The Exchange further believes that removing reference to the
incremental credit that the Exchange proposes to eliminate from the Fee
Schedule would also add clarity to the Fee Schedule. The Exchange
believes that eliminating requirements and credits, and even entire
pricing tiers, from the Fee Schedule when such incentives become
ineffective is equitable and not unfairly discriminatory because the
requirements, and credits, and even entire pricing tiers, would be
eliminated in their entirety and would no longer be available to any
ETP Holder. All ETP Holders would continue to be subject to the same
fee structure, and access to the Exchange's market would continue to be
offered on fair and non-discriminatory terms. The Exchange also
believes that the proposed change would protect investors and the
public interest because the deletion of underutilized pricing
incentives would make the Fee Schedule more accessible and transparent
and facilitate market participants' understanding of the fees charged
for services currently offered by the Exchange.
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. The Exchange believes that the proposed change to
modestly increase a routing fee would continue to encourage ETP Holders
to maintain their order flow on the Exchange, thereby promoting market
depth, price discovery and transparency. As a result, the Exchange
believes that the proposed changes further 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\ See Regulation NMS, 70 FR at 37498-99.
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Intramarket Competition. The proposed changes are designed to
respond to the current competitive environment. The Exchange believes
that the proposed change to modestly increase a routing fee would
continue to incentivize market participants to direct order flow to the
Exchange. Greater liquidity benefits all market participants on the
Exchange by providing more trading opportunities and encourages ETP
Holders to send orders, thereby contributing to robust levels of
liquidity, which benefits all market participants on the Exchange. The
proposed fee would be applicable 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. The Exchange's proposal to eliminate an incremental credit
will not place any undue burden on intramarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act
given that not a single ETP Holder has qualified for the credit
proposed for deletion for the last six months. To the extent the
proposed rule change places a burden on competition, any such burden
would be outweighed by the fact that the pricing incentive proposed for
deletion has not served its intended purpose of incentivizing ETP
Holders to more broadly participate on the Exchange.
As such, the Exchange believes the proposed amendment to its Fee
Schedule would not impose any burden on intramarket competition that is
not necessary or appropriate in furtherance of the purposes of the Act.
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 10%. In such an environment, the
Exchange must continually adjust its fees and rebates to remain
competitive with other exchanges and with off-exchange venues. Because
competitors are free to modify their own fees and credits in response,
and because market participants may readily adjust their order routing
practices, the Exchange does not believe 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) \16\ 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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\16\ 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#6715120b024a04080a0a020913142714020449000811"><span class="__cf_email__" data-cfemail="285a5d444d054b4745454d465c5b685b4d4b064f475e">[email protected]</span></a>. Please include
File Number SR-NYSEARCA-2023-36 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEARCA-2023-36. 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
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proposed rule change between the Commission and any person, other than
those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal offices of the Exchange. Do
not include personal identifiable information in submissions; you
should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to File Number SR-NYSEARCA-2023-36, and
should be submitted on or before June 8, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-10685 Filed 5-17-23; 8:45 am]
BILLING CODE 8011-01-P
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