Notice2023-15356
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
July 20, 2023
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 88 Issue 138 (Thursday, July 20, 2023)</title>
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[Federal Register Volume 88, Number 138 (Thursday, July 20, 2023)]
[Notices]
[Pages 46820-46823]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-15356]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97909; File No. SR-NYSE-2023-26]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Its Price List
July 14, 2023.
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 June 30, 2023, 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its Price List to provide for an
alternate way for member organizations to qualify for the market at-
the-close (``MOC'') and limit at-the-close (``LOC'') Tier 3. 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 it Price List to provide for an
alternate way for member organizations to qualify for the MOC/LOC Tier
3.
The proposed changes respond to the current competitive environment
where order flow providers have a choice of where to direct closing
orders in NYSE-listed securities by providing an alternate way for
member organizations to send additional auction flow that will
incentivize member organizations to send closing liquidity to achieve
lower fees and encourage greater liquidity at the closing auction.
The Exchange proposes to implement the fee changes effective July
3, 2023.
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. In Regulation NMS, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues and, also, recognized that current regulation of the
market system ``has been remarkably successful in promoting market
competition in its broader forms that are most important to investors
and listed companies.'' \4\
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\4\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (File No. S7-10-04) (Final
Rule) (``Regulation NMS'').
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While Regulation NMS has enhanced competition, it has also fostered
a ``fragmented'' market structure where trading in a single stock can
occur across multiple trading centers. When multiple trading centers
compete for order flow in the same stock, the Commission has recognized
that ``such competition can lead to the fragmentation of order flow in
that stock.'' \5\ Indeed, cash equity trading is
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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).
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[[Page 46821]]
currently dispersed across 16 exchanges,\6\ numerous alternative
trading systems,\7\ and broker-dealer internalizers and wholesalers,
all competing for order flow. Based on publicly-available information,
no single exchange currently has more than 17% market share.\8\
Therefore, no exchange possesses significant pricing power in the
execution of cash equity order flow. More specifically, the Exchange's
share of executed volume of equity trades in Tapes A, B and C
securities is less than 12%.\9\
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\6\ See Cboe U.S Equities Market Volume Summary, available at
<a href="https://markets.cboe.com/us/equities/market_share">https://markets.cboe.com/us/equities/market_share</a>. See generally
<a href="https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html">https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html</a>.
\7\ See FINRA ATS Transparency Data, available at <a href="https://otctransparency.finra.org/otctransparency/AtsIssueData">https://otctransparency.finra.org/otctransparency/AtsIssueData</a>. A list of
alternative trading systems registered with the Commission is
available at <a href="https://www.sec.gov/foia/docs/atslist.htm">https://www.sec.gov/foia/docs/atslist.htm</a>.
\8\ See Cboe Global Markets U.S. Equities Market Volume Summary,
available at <a href="https://markets.cboe.com/us/equities/market_share/">https://markets.cboe.com/us/equities/market_share/</a>.
\9\ See id.
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In addition, in light of this crowded competitive landscape for
order flow, including at the close, the Exchange does not have a
monopoly over where closing orders in NYSE-listed securities are
executed. Indeed, competition with respect to these orders in NYSE-
listed securities is fierce, not only because of the availability of
the Cboe Exchange, Inc. (``Cboe'') Market Close, but also, and more
relevant, because of the internalization of MOC order flow by some of
the largest broker-dealers.\10\ In the currently highly competitive
national market system, numerous exchanges and other order execution
venues compete for order flow intraday as well as at the close, and
competition for closing orders is robust.
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\10\ There are at least seven broker-dealer sponsored products
competing for volume at the close, including Credit Suisse's CLOSEX;
Instinet's Market-on-Close Cross; Morgan Stanley's Market-on-Close
Aggregator (MOCHA); Bank of America's Instinct X[supreg] and Global
Conditional Cross; JP Morgan's JPB-X; Piper Sandler's On-Close Match
Book; and Goldman Sachs' One Delta Close Facility (ODCF).
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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 the firm routes order flow. With respect to closing order
flow, member organizations can choose among multiple options of where
to execute such orders. Accordingly, competitive forces compel the
Exchange to use exchange transaction fees and credits because market
participants can readily trade on competing venues if they deem pricing
levels at those other venues to be more favorable.
The proposed change responds to the current competitive environment
where order flow providers have a choice of where to direct orders in
NYSE-listed securities, including at the close, by modifying
requirements in order to provide an additional way for member
organizations to qualify for a MOC/LOC tier and encourage additional
liquidity to the Exchange.
Proposed Rule Change
Currently, for MOC/LOC Tier 3, the Exchange charges $0.0009 per
share for MOC orders and $0.0009 per share for LOC orders from any
member organization executing in the current billing month (1) an
average daily trading volume (``ADV'') of MOC activity on the NYSE of
at least 0.20% of NYSE consolidated ADV (``CADV''),\11\ (2) an ADV of
the member organization's total close activity (MOC/LOC and other
executions at the close) on the NYSE of at least 0.30% of NYSE CADV,
and (3) whose MOC activity comprised at least 35% of the member
organization's total close activity (MOC/LOC and other executions at
the close).
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\11\ ADV and CADV are defined in footnote * of the Price List.
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The Exchange proposes to modify the third requirement by adding an
alternate way for member organizations to qualify for the MOC/LOC Tier
3. As proposed, member organizations that meet the first two
requirements would be able to satisfy the third requirement and qualify
for the tier if the member organization has either MOC activity
comprised at least 35% of the member organization's total close
activity (MOC/LOC and other executions at the close), which is the
current requirement, or executes an ADV of D Order executions at the
close of at least 30 million shares. The Exchange proposes no changes
to the other requirements or to the fees.
The purpose of the proposed change is to increase the ability for
order flow providers to send greater marketable and other liquidity at
the closing auction. As described above, member organizations with
closing orders have a choice of where to send those orders. The
Exchange believes that, by offering an alternate way for member
organizations to qualify for the fees, more member organizations will
choose to route greater marketable and other liquidity to the Exchange
at the close. Currently, a number of member organizations qualify for
MOC/LOC Tier 3. The Exchange cannot predict with certainty how many
member organizations would avail themselves of the opportunity offered
by the proposed change but believes that at least 1-5 member
organizations could choose to execute the required volume of D Orders
to qualify for the tier based on the additional qualification method.
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,\12\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\13\ 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, is designed to prevent fraudulent and
manipulative acts and practices and to promote just and equitable
principles of trade, and does not unfairly discriminate between
customers, issuers, brokers or dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4) and (5).
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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.'' \14\
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\14\ See Regulation NMS, supra note 4, 70 FR at 37499.
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In light of the competitive environment in which the Exchange
currently operates, the proposed rule change is a reasonable attempt to
increase liquidity on the Exchange and improve the Exchange's market
share relative to its competitors. The Exchange believes the proposed
change is also reasonable because it is designed to attract higher
volumes of orders transacted on the Exchange by member
[[Page 46822]]
organizations during the closing auction. The Exchange's closing
auction is a recognized industry benchmark,\15\ and member
organizations receive a substantial benefit from the Exchange in
obtaining high levels of executions at the Exchange's closing price on
a daily basis.
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\15\ For example, the pricing and valuation of certain indices,
funds, and derivative products require primary market prints.
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The Exchange believes that the proposed additional way to qualify
for MOC/LOC Tier 3 is a reasonable way to both encourage greater
liquidity and achieve the proposed discounts. Higher volumes of closing
orders contribute to the quality of the Exchange's closing auction by
leading the price discovery process. Closing orders are also a valuable
tool for market participants, as any closing order priced more
aggressively than the closing auction price would be filled in the
auction. In addition, as noted above, in the currently highly
competitive national market system, competition for closing orders
among exchanges, ATSs and other market execution venues is robust.
The Proposed Change Is an Equitable Allocation of Fees and Credits
The Exchange believes the proposal equitably allocates fees and
credits among market participants because all member organizations that
participate on the Exchange may qualify for the proposed alternate way
to qualify for MOC/LOC Tier 3 on an equal basis. The Exchange believes
its proposal equitably allocates its fees and credits among its market
participants by fostering liquidity provision and stability in the
marketplace.
The Exchange believes that the proposed additional qualification
method is an equitable allocation of fees because the proposed change
will incentivize member organizations to send additional liquidity to
achieve lower fees and encourage greater marketable and other liquidity
at the closing auction. Higher volumes of closing orders contribute to
the quality of the Exchange's closing auction and provide market
participants whose orders participate in the close with a greater
opportunity for execution of orders on the Exchange, thereby promoting
price discovery and transparency and enhancing order execution
opportunities and improving overall liquidity on a public exchange. The
Exchange also believes that the proposed change is equitable because it
would apply to all similarly situated member organizations that utilize
closing orders on the Exchange.
The Proposed Fee Change Is Not Unfairly Discriminatory
The Exchange believes that the proposal is not unfairly
discriminatory. In the prevailing competitive environment, member
organizations are free to disfavor the Exchange's pricing if they
believe that alternatives offer them better value.
The proposed additional way to satisfy the requirements for MOC/LOC
Tier 3 is not unfairly discriminatory because the proposal would be
applied to all similarly situated member organizations and other market
participants, who would all be subject to the same fees, requirements,
and discounts on an equal basis. For the same reason, the proposal
neither targets nor will it have a disparate impact on any particular
category of market participant. Accordingly, no member organization
already operating on the Exchange would be disadvantaged by this
allocation of fees. Further, submission of orders to the Exchange is
optional for member organizations in that they could choose whether to
submit orders to the Exchange and, if they do, the extent of its
activity in this regard.
Finally, the Exchange believes that it is subject to significant
competitive forces, as described above and 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,\16\ 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, the Exchange believes that the proposed
fee change 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 market
participants. The Exchange believes that this could promote competition
between the Exchange and other execution venues, including those that
currently offer similar order types and comparable transaction pricing,
by encouraging additional orders to be sent to the Exchange for
execution. 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.'' \17\
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\16\ 15 U.S.C. 78f(b)(8).
\17\ 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 change
would not impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The proposed
change is designed to attract additional orders to the Exchange. The
Exchange believes that the proposed changes would encourage market
participants to direct their closing orders to the Exchange. Greater
overall order flow, trading opportunities, and pricing transparency
benefit all market participants on the Exchange by enhancing market
quality and continuing to encourage member organizations to send
orders, thereby contributing towards a robust and well-balanced market
ecosystem. The current and proposed fees 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 changes 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 does not believe its
proposed fee change can impose any burden on intermarket competition.
Finally, as previously noted, the Exchange operates in a highly
competitive market for closing orders in which market participants can
readily favor competing venues if they deem fee levels at a particular
venue to be excessive or rebate opportunities available at other venues
to be more
[[Page 46823]]
favorable. In such an environment, the Exchange must continually adjust
its fees and rebates to remain competitive with other exchanges and
non-exchange trading venues that are not subject to the same
transparency or statutory standards applicable to exchanges relating to
setting fees. Because competitors are free to modify their own fees and
credits in response, some without the requirement of making a filing
with the Commission, and because market participants may readily adjust
their order routing practices, the Exchange believes that any degree to
which fee changes in this market may impose any burden on competition
would be extremely limited.
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) \18\ 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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\18\ 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="https://www.sec.gov/rules/sro.shtml">https://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="f98b8c959cd49a9694949c978d8ab98a9c9ad79e968f">[email protected]</span></a>. Please include
file number SR-NYSE-2023-26 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-2023-26. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office 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-NYSE-2023-26 and should be
submitted on or before August 10, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-15356 Filed 7-19-23; 8:45 am]
BILLING CODE 8011-01-P
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