Notice2023-25666
Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Price List
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 21, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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[Federal Register Volume 88, Number 223 (Tuesday, November 21, 2023)]
[Notices]
[Pages 81114-81121]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-25666]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98953; File No. SR-NYSE-2023-41]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Its Price List
November 15, 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 November 1, 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 (1) modify fee
rates and requirements for transactions that remove liquidity from the
Exchange; (2) offer a monthly rebate for Designated Market Maker
(``DMM'') units with 150 or fewer assigned securities along with
incentives for affiliated Supplemental Liquidity Providers (``SLPs'');
and (3) eliminate an underutilized fee for transactions that remove
liquidity from the Exchange in Tape B and C securities. The Exchange
proposes to implement the fee changes effective November 1, The
Exchange proposes to implement the fee changes effective September 25,
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Price List to (1) modify fee
rates and requirements for transactions that remove liquidity from the
Exchange; (2) offer a monthly rebate for DMM units with 150 or fewer
assigned securities along with incentives for affiliated SLPs; and (3)
eliminate an underutilized fee for transactions that remove liquidity
from the Exchange in Tape B and C securities.
The proposed changes respond to the current competitive environment
by incentivizing submission of additional liquidity in Tape A, B and
Tape C
[[Page 81115]]
securities to a public exchange and offering an additional incentive to
smaller DMM units and affiliated SLPs to quote on the Exchange. The
proposed incentive also seeks to attract potential new DMM units and
affiliated SLPs in order to expand and diversify the pool of Exchange
marker makers.
The Exchange proposes to implement the fee changes effective
November 1, 2023.\4\
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\4\ The Exchange originally filed to amend the Price List on
September 1, 2023 (SR-NYSE-2023-31). SR-NYSE-2023-31 was withdrawn
on September 13, 2023 and replaced by SR-NYSE-2023-32. SR-NYSE-2023-
32 was withdrawn on September 22, 2023 and replaced by SR-NYSE-2023-
33. SR-NYSE-2023-33 was withdrawn on September 28, 2023 and replaced
by SR-NYSE-2023-35. SR-NYSE-2023-35 was withdrawn on November 1,
2023 and replaced by this filing.
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Background
Current Market and Competitive Environment
The Exchange operates in a highly competitive market. The
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. 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.'' \5\
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\5\ 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.'' \6\ Indeed, cash equity trading is currently dispersed
across 16 exchanges,\7\ numerous alternative trading systems,\8\ 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.\9\ 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%.\10\
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\6\ 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).
\7\ 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>.
\8\ 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>.
\9\ 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>.
\10\ 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 the firm routes order flow. 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.
In response to the competitive environment described above, the
Exchange has established incentives for its member organizations who
submit orders that remove liquidity on the Exchange. The Exchange
believes that the proposed changes, taken together, will incentivize
submission of additional liquidity in Tape A, B and Tape C securities
to a public exchange, thereby promoting price discovery and
transparency and enhancing order execution opportunities for member
organizations. The Exchange has also established incentives for DMM
units to quote at specified levels. The proposed fee change is designed
to encourage market maker quoting by offering an additional incentive
to smaller DMM units and affiliated SLPs to quote on the Exchange. The
proposed change could also have the added benefit of potentially
attracting new DMM units and affiliated SLPs to the Exchange.
Proposed Rule Change
The Exchange proposes to revise the rates and requirements for fees
for transactions that remove liquidity from the Exchange and pay DMM
units with 150 or fewer assigned securities a new, monthly rebate based
on the number of assigned securities and time at the National Best Bid
(``NBB'') and National Best Offer (``NBO,'' together the ``NBBO'') in
the applicable security in the applicable month, along with a minimum
SLP credit for adding displayed liquidity. The Exchange also proposes
to eliminate an underutilized fee for transactions that remove
liquidity from the Exchange in Tape B and C securities.
Charges for Removing Liquidity
Currently, the Exchange sets forth the fees for removing liquidity
from the Exchange in Tape A securities in a different section of the
Price List from fees for removing liquidity in Tape B and C securities,
which are grouped with credits for adding liquidity in Tape B and C
securities under their own heading in the Price List.
The Exchange proposes to modify the rates and requirements for
certain fees for removing liquidity in Tapes B and C securities.
First, for non-Floor broker transactions that remove liquidity from
the Exchange (i.e., when taking liquidity from the NYSE), the Exchange
currently offers a fee of $0.00290 in Tape A securities and a fee of
$0.00295 for Tape B and C securities where the member organization has
an Adding ADV,\11\ excluding liquidity added by a DMM, that is at least
2,000,000 ADV on the NYSE in Tape A securities.
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\11\ The terms ``ADV'' and ``CADV'' are defined in footnote * of
the Price List.
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The Exchange proposes to change the fee for Tape A securities and
revise the requirements to qualify for the fees, as follows. As
proposed, for non-Floor broker transactions that remove liquidity from
the Exchange, the Exchange would offer a fee of $0.00300 in Tape A
securities and the current fee of $0.00295 for Tape B and C securities
where the member organization has 0.05% Adding ADV of Tape A CADV.
Second, the Exchange currently offers a fee of $0.00285 in Tape A
securities and a fee of $0.00290 in Tape B and C securities for non-
Floor broker transactions if the member organization has Adding ADV,
excluding liquidity added by a DMM, that is at least 7,000,000 in Tape
A and 500,000 ADV in Tape B and Tape C combined during the billing
month.
The Exchange proposes to change the fee for Tape A securities and
revise the requirements to qualify for the fees, as follows. As
proposed, for non-Floor broker transactions that remove liquidity from
the Exchange, the Exchange would offer a fee of $0.00295 in Tape A
securities and the current fee of $0.00290 for Tape B and C securities
where the member organization has 0.10% Adding ADV of Tape A CADV
[[Page 81116]]
and 0.007% Adding ADV in Tape B and Tape C CADV combined during the
billing month.
Third, the Exchange currently offers a fee of $0.0028 in Tape A
securities and a fee of $0.00285 Tape B and C securities for non-Floor
broker transactions if the member organization has Adding ADV,
excluding liquidity added by a DMM, that is at least 14,000,000 ADV in
Tape A securities and 750,000 ADV in Tape B and Tape C securities
combined during the billing month.
The Exchange proposes to change the fee for Tape A securities and
revise the requirements to qualify for the fees, as follows. As
proposed, for non-Floor broker transactions that remove liquidity from
the Exchange, the Exchange would offer a fee of $0.00290 in Tape A
securities and the current fee of $0.00285 for Tape B and C securities
where the member organization has 0.30% Adding ADV in Tape A CADV and
0.01% Adding ADV in Tape B and Tape C CADV combined during the billing
month.
Finally, the Exchange proposes a new tier for non-Floor broker
transactions that remove liquidity from the Exchange. As proposed,
member organizations would be eligible for a fee of $0.00285 in Tape A,
Tape B and Tape C securities for non-Floor broker transactions if the
member organization (1) has 1.05% Adding ADV in Tape A CADV and 0.01%
Adding ADV in Tape B and Tape C CADV combined during the billing month,
or (2) is affiliated \12\ with a DMM unit that is registered as a DMM
unit in at least 25 securities and has 0.05% Adding ADV in Tape A CADV.
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\12\ For purposes of the Price List, ``affiliate'' means any
member organization under 75% common ownership or control of that
member organization. See NYSE Price List, General, II(c), available
at <a href="https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf">https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf</a>.
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The purpose of this proposed change is to encourage member
organizations to send liquidity to the Exchange. Specifically, the
first proposed qualification method seeks to encourage member
organizations to send adding liquidity in all Tapes as way to achieve
eligibility for a lower remove fee, which could in turn incentivize
those member organizations to send removing liquidity to the Exchange
in response to the lower remove fee. The second proposed qualification
method seeks to encourage member organizations affiliated with a DMM
unit that is registered in at least 25 securities to send adding
liquidity in Tape A securities as way to achieve eligibility for a
lower remove fee, which could in turn incentivize those member
organizations to send removing liquidity to the Exchange to capture
that lower remove fee. The Exchange believes that it is reasonable to
offer a lower remove fee based on a combination of adding liquidity and
affiliation with a DMM unit of a certain size. The Exchange notes that
other marketplaces offer incremental credits to members affiliated with
a lead market maker (``LMM'') registered in a minimum number of
securities that adds a specified percentage of displayed liquidity.\13\
The Exchange further believes that eligibility for the proposed fee
based on a combination of affiliation with a DMM unit with a certain
number of registrations and an adding volume requirement is not
unfairly discriminatory because member organizations that are not
affiliated with a DMM unit can still qualify for the lower remove fee
by sending adding liquidity to the Exchange and meeting the ADV
requirements for all Tapes set out in the first qualification method.
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\13\ For instance, Cboe BZX offers a higher tiered rebate based
on a lower adding requirement if the member is enrolled in a minimum
number of LLM securities. See Cboe BZX Equities Fee Schedule,
available at <a href="https://www.cboe.com/us/equities/membership/fee_schedule/bzx/">https://www.cboe.com/us/equities/membership/fee_schedule/bzx/</a>. The Exchange's affiliate NYSE Arca, Inc., offers
incremental credits for adding liquidity in Tape B securities to
permit ETP holders affiliated with an LMM based on the number of
Less Active ETP Securities that meet at least two of four quoting
requirements in which the LMM is registered as the LMM. See NYSE
Arca Equities Fees and Charges, 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>.
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Because the tier would be new, the Exchange does not know how many
member organizations could qualify based on the proposed Adding ADV
criteria set out in the first prong. The Exchange does not know,
however, whether any of these member organizations would send
sufficient adding ADV volume to the Exchange in Tape A, B and C
securities to be eligible for the proposed fee based on the first
qualification method. Similarly, there are 3 member organizations
affiliated with a DMM unit that is registered in at least 25 securities
that could be eligible for the lower remove if they send the proposed
amount of adding ADV in Tape A securities. The Exchange does not know,
however, whether any of these member organizations would send
sufficient Adding ADV volume in Tape A securities to the Exchange in
order to be eligible for the proposed fee based on the second
qualification method.
The Exchange proposes an approach for the removing tiers that will
compare the liquidity added by member organizations from one based on
ADV to a percentage threshold based on Tape A CADV and combined Tape B
and C CADV. As proposed, the percentage threshold will adjust each
calendar month based on the US average daily consolidated share volume
in Tape A securities and Tape B and Tape C securities CADV for that
month. By allowing tiers to move in sync with consolidated volume, the
proposed change will provide a more consistent floor against which to
measure member organizations' adding volume on the Exchange. In
addition, the proposed change will provide a more straightforward way
to communicate floating volume tiers while maintaining a minimum
threshold, an approach similar to that adopted by other exchanges.\14\
Although the percentage thresholds will result in lower minimum share
volume requirements for the removing tiers when consolidated volumes
are lower, they will also result in higher minimum share volume
requirements when consolidated volumes are higher.
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\14\ For example, NYSE Arca, Inc. (``NYSE Arca'') charges fees
for removing liquidity of $0.0030, or $0.0029 in Tape B securities
for ETP Holders meeting the requirements of Adding Tiers 1-4, or
$0.0029 in Tape C securities for ETP Holders meeting the
requirements of Tape C Tier 1. See NYSE Arca Equities Fees and
Charges, 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>.
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The Exchange notes the proposed percentages of CADV are comparable
to the current ADV levels. For example, Tape A CADV in May 2023 was 4
billion shares. The current Tape A Add ADV requirements of 14 million
shares ADV, 7 million shares ADV, and 2 million shares ADV would equate
to 12 million shares ADV (using 0.30% of Tape A CADV), 4.0 million
shares ADV (using 0.10% of Tape A CADV), and 2 million shares ADV
(using 0.05% of Tape A CADV), respectively. The Exchange further notes
that changing the 7 million share requirement to 0.10% of Tape A CADV
represents a significant reduction in the requirement, which the
Exchange believes should encourage more member organizations to
participate in that tiered pricing.
The Exchange believes that the proposed changes, taken together,
will incentivize submission of liquidity in Tape A, B and Tape C
securities to a public exchange, thereby promoting price discovery and
transparency and enhancing order execution opportunities for member
organizations. As noted above, the Exchange operates in a competitive
environment, particularly as it relates to attracting non-marketable
orders, which add liquidity to the Exchange. The Exchange does not know
how much order flow member organizations choose to route to
[[Page 81117]]
other exchanges or to off-exchange venues. Because the proposed
reconfiguration involves the introduction of new fees, incentives, and/
or new requirements, the Exchange does not know how many member
organizations could qualify for the new remove fees based on their
current trading profile on the Exchange and if they choose to direct
order flow to the NYSE. In short, without having a view of member
organization's activity on other exchanges and off-exchange venues, the
Exchange has no way of knowing whether this proposed rule change would
result in any member organization directing orders to the Exchange. The
proposed changes are not otherwise intended to address other issues,
and the Exchange is not aware of any significant problems that market
participants would have in complying with the proposed changes.
Small DMM Incentive
The Exchange proposes to pay DMM units with 150 or fewer assigned
securities a new, monthly rebate based on the number of assigned
securities and time at the NBBO in the applicable security in the
applicable month. The proposed rebate would be payable for each
security assigned to such a DMM in the previous month (regardless of
whether the stock price exceeds $1.00) for which that DMM provides
quotes at the NBBO at least 15% of the time in the applicable month,
which the Exchange proposes to define in the Price List as the
``Incentive Quoting Requirement'').\15\ The proposed monthly rebate
would be in addition to the current rate on transactions and would be
prorated to the number of trading days in a month that an eligible
security is assigned to a DMM.
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\15\ For purposes of the Price List, DMM NBBO Quoting means DMM
quoting at the NBBO. See NYSE Price List, General, third bullet,
available at <a href="https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf">https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf</a>. Time at the NBBO or ``inside'' is calculated as
the average of the percentage of time the DMM unit has a bid or
offer at the inside. Reserve or other non-displayed orders entered
by the DMM are not included in the inside quote calculations.
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As proposed, a DMM unit that has at least 1 and not more than 24
assigned securities that meets the Incentive Quoting Requirement would
be eligible for a monthly rebate of $250 per qualifying symbol.
A DMM unit that has a least 25 and no more than 74 assigned
securities that meets the Incentive Quoting Requirement would be
eligible for a monthly rebate of $500 per qualifying symbol. SLPs
affiliated with a DMM unit that has between 25 and 74 assigned
securities that meet the Incentive Quoting Requirement are eligible for
a minimum display credit for SLP Adding of $0.0023 in SLP symbols that
meet the 10% average quoting requirement in an assigned security
pursuant to Rule 107B.\16\
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\16\ Under Rule 107B, a SLP can be either a proprietary trading
unit of a member organization (``SLP-Prop'') or a registered market
maker at the Exchange (``SLMM''). For purposes of the 10% average or
more quoting requirement in assigned securities pursuant to Rule
107B, quotes of an SLP-Prop and an SLMM of the same member
organization are not aggregated. However, for purposes of adding
liquidity for assigned SLP securities in the aggregate, shares of
both an SLP-Prop and an SLMM of the same member organization are
included. SLPs affiliated with a DMM unit that has between 1 and 24
assigned securities would not be eligible for a minimum display
credit for SLP Adding. It should be noted that eligible SLPs would
receive the better of the proposed minimum display credit or the
applicable current SLP tiered credit.
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Finally, a DMM unit that has at least 75 but no more than 150
assigned securities that meets the Incentive Quoting Requirement would
be eligible for a monthly rebate of $1,000 per qualifying symbol. SLPs
affiliated with a DMM unit that has between 75 and 150 assigned
securities that meet the Incentive Quoting Requirement are eligible for
a minimum display credit for SLP Adding of $0.0026 in SLP symbols that
meet the 10% average quoting requirement in an assigned security
pursuant to Rule 107B.
For example, assume a DMM has 35 assigned securities. Further
assume the DMM quotes at the NBBO at least 15% of the time in 30 of
those assigned securities and quotes under the NBBO 15% of the time in
the remaining 5 assigned securities. For a billable month in those 30
assigned securities that meet the Incentive Quoting Requirement, the
DMM would receive a per qualified symbol credit of $500, with a total
combined credit of $15,000 (30 securities x $500). In addition, a SLP
affiliated with that DMM would receive a minimum credit of $0.0023 for
displayed adding, and would receive a higher credit if that SLP
qualified for higher credits under the SLP Tiers.
The proposed rule change is designed to provide smaller market
makers (i.e., DMM units with 150 or fewer assigned securities) with an
added incentive to quote in their assigned securities at the NBBO at
least 15% of the time in a given month and increase SLP displayed
adding volume. As described above, member organizations have a choice
of where to send order flow. The Exchange believes that incentivizing
DMM units on the Exchange to quote at the NBBO more frequently could
attract additional orders to the Exchange and contribute to price
discovery which benefits all market participants. In addition,
additional liquidity-providing quotes benefit all market participants
because they provide greater execution opportunities on the Exchange
and improve the public quotation. Moreover, the Exchange believes the
proposed change could have the added benefit of attracting additional
DMM units to the Exchange. Currently, the Exchange has three DMM units,
only one of which has fewer than 150 assigned securities and therefore
could qualify for the rebate.\17\ The Exchange cannot predict with
certainty whether and how many member organizations would avail
themselves of the opportunity to become an Exchange DMM unit. However,
the Exchange believes that the proposed rebate could incentivize
additional firms to become DMM units on the Exchange by increasing
incentives for new and smaller entrants. Finally, the Exchange believes
that the proposed minimum display credits for SLPs affiliated with a
DMM unit is reasonable because it would incentivize greater adding
liquidity by SLPs affiliated with a DMM unit, thereby contributing to
depth and market quality on the Exchange.
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\17\ In contrast, there are 14 competing Lead Marker Makers on
NYSE Arca. See <a href="https://www.nyse.com/markets/nyse-arca/membership">https://www.nyse.com/markets/nyse-arca/membership</a>.
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Deletion of Underutilized Remove Tier Fee
In August 2019, the Exchange adopted a new, lower fee of $0.0026
per share for removing liquidity from the Exchange in both Tapes B and
C securities as an alternative way for member organizations to qualify
for the Remove Tier for Tape B and C Securities. The purpose of the
change was to incentivize member organizations to remove additional
liquidity from the Exchange, thereby increasing the number of orders
adding liquidity that are executed on the Exchange and improving
overall liquidity on a public exchange, resulting in lower costs for
member organizations that qualify for the rate.
The Exchange proposes to eliminate and remove the fee of $0.0026
per share for removing liquidity from the Exchange in both Tapes B and
C and the associated requirements. The fee has been underutilized by
member organizations insofar as only three have achieved the fee since
it was adopted. The Exchange does not anticipate that any additional
member organization in the near future would qualify for the tiered fee
that is the subject of this proposed rule change.
[[Page 81118]]
The proposed change is not otherwise intended to address other
issues, and the Exchange is not aware of any significant problems that
market participants would have in complying with the proposed changes.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\18\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\19\ 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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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(4) & (5).
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The Proposed Change is Reasonable
As discussed above, the Exchange operates in a highly competitive
market. The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO 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.'' \20\ 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.'' \21\
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\20\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule)
(``Regulation NMS'').
\21\ 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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Charges for Removing Liquidity
The Exchange believes that the proposal to revise the rates and
requirements for fees for transactions that remove liquidity from the
Exchange are reasonable. The purpose of these changes is to encourage
additional liquidity on the Exchange because market participants
benefit from the greater amounts of displayed liquidity present on a
public exchange. The Exchange believes that the proposed modifications
to the qualification requirements, including replacing a fixed volume
number with a percentage of Adding ADV, and the new fees will
incentivize additional liquidity in Tape A, Tape B and Tape C
securities to a public exchange to qualify for lower fees for removing
liquidity on those tapes, thereby promoting price discovery and
transparency and enhancing order execution opportunities for member
organizations. The proposal is thus reasonable because all member
organizations would benefit from such increased levels of liquidity. As
noted, the Exchange believes that replacing a fixed volume number with
a percentage of Adding ADV is reasonable because the proposed
percentages of Adding ADV are comparable to the current levels with one
exception that represents a significant reduction in the requirement,
which the Exchange believes is reasonable because it should encourage
more member organizations to participate in that tiered pricing.
With respect to the addition of percentage ADV thresholds to the
existing share thresholds for the remove pricing tiers, the Exchange
believes that the change is reasonable because the levels of liquidity
provision required to receive the applicable credits will move month to
month with respect to the levels of market volumes. The Exchange
believes the levels of activity required to achieve higher tiers will
be generally consistent with existing requirements for these tiers.
For the same reasons, the Exchange believes that it is reasonable
to offer a lower fee of $0.00285 fee in Tape A, B and C securities for
non-Floor broker transactions if the member organization has 1.05%
Adding ADV in Tape A CADV and 0.01% Adding ADV in Tape B and Tape C
CADV combined during the billing month, or is affiliated with a DMM
unit registered in at least 25 securities and sends a minimum of 0.05%
Adding ADV in Tape A CADV. As noted above, the proposed fee is designed
to encourage member organizations to send liquidity to the Exchange,
which would be accomplished by member organizations sending adding
liquidity to the Exchange to meet the proposed tier requirements. Under
either proposed qualification method, by qualifying for the lower
remove fee, the Exchange believes the member organization would have an
incentive to send removing liquidity to the Exchange. The Exchange thus
believes both methods are a reasonable way to increase liquidity on a
public exchange.
As noted, because the proposed fee is new, the Exchange does know
how many member organizations would qualify for the proposed fee based
on their current Exchange trading profile. The Exchange believes that
offering the proposed tiered remove fee to member organizations that
are affiliated with a DMM unit registered in at least 25 securities
could incentivize other member organizations to become DMM units or
increase their number of DMM registrations in order for their DMM unit
affiliates to become eligible for the fee. The proposal is reasonable
because all member organizations would benefit from such increased
levels of liquidity. As noted, the Exchange believes the proposed
alternative qualification method is reasonable and fair because member
organizations that do not qualify for the proposed lower fee based on
the revised alternative qualification criteria can still qualify by
meeting the proposed adding ADV requirements for all Tapes. As also
noted, other marketplaces offer incremental credits to members
affiliated with an LMM that add a specified percentage of displayed
liquidity or meet a minimum number of registrations in ETPs as LMM.\22\
---------------------------------------------------------------------------
\22\ See note 13, supra.
---------------------------------------------------------------------------
Small DMM Incentive
The Exchange believes that the proposal to offer an additional
rebate to a DMM with 150 or fewer assigned securities if it increases
its quoting at the NBBO, and associated incentives for affiliated SLPs,
is a reasonable means to improve market quality, attract additional
order flow to a public market, and enhance execution opportunities for
member organizations on the Exchange, to the benefit of all market
participants. The Exchange notes that the proposal would also foster
liquidity provision and stability in the marketplace and reduce smaller
DMM's reliance on transaction fees. The proposal would also reward DMM
units, who have greater risks and heightened quoting and other
obligations than other market participants. The proposed change is also
a reasonable attempt to potentially attract additional DMM units to the
Exchange by providing financial incentives for smaller firms to become
DMM units. Moreover, offering minimum display credits for SLPs
affiliated with a DMM unit is a reasonable method to incentivize
greater adding liquidity by SLPs that are affiliated with a DMM unit,
thereby contributing to depth and market quality on the Exchange. The
Exchange further believes that it is reasonable to offer the proposed
minimum display
[[Page 81119]]
credits to SLPs affiliated with an DMM unit because the proposed
credits are in line with the current adding credits for all SLPs.\23\
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\23\ See NYSE Price List, SLP Provide Tiers, available at
<a href="https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf">https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf</a>. See note 16, infra.
---------------------------------------------------------------------------
Deletion of Underutilized Remove Tier Fee
The Exchange believes that the proposed elimination of the
underutilized remove tier fee is reasonable because member
organizations have underutilized this fee. As noted, only three member
organizations have achieved the fee since it was adopted. The Exchange
does not anticipate that any additional member organization in the near
future would qualify for the tiered fee that is the subject of this
proposed rule change. The Exchange believes it is reasonable to
eliminate fee when such incentives become underutilized. The Exchange
also believes eliminating underutilized incentives would add clarity
and transparency to the Price List.
The Proposal Is an Equitable Allocation of Fees
Charges for Removing Liquidity
The Exchange believes that, for the reasons discussed above, the
proposed changes taken together, will incentivize member organizations
to send additional adding liquidity to achieve lower fees when removing
liquidity in Tape A, Tape B and Tape C securities from the Exchange,
thereby increasing the number of orders that are executed on the
Exchange, promoting price discovery and transparency and enhancing
order execution opportunities and improving overall liquidity on a
public exchange. The Exchange believes that providing a new lower fee
when removing liquidity from the Exchange based on Adding ADV in all
Tapes or Adding ADV in Tape A securities where the member organization
is affiliated with a DMM unit registered in at least 25 securities is
equitable because it the proposed lower fee would apply equally to all
similarly situated member organizations. Further, the proposed
alternative qualification criteria is equitable because a member
organization that would not qualify for the lower fee based on adding
volume and affiliation with a DMM unit with a minimum number of
assigned securities has the ability to qualify for the lower fee based
on adding volume in Tapes A, B and C under the first qualification
criteria.
The proposed change also is equitable because it would be in line
with the applicable rates on other marketplaces.\24\ As previously
noted, the Exchange operates in a competitive environment, particularly
as it relates to attracting orders, which add or remove liquidity to
the Exchange. The Exchange does not know how much order flow member
organizations choose to route to other exchanges or to off-exchange
venues. Because the proposed reconfiguration of the fees involves the
introduction of new requirements and/or new fees, the Exchange does not
know how many member organizations could qualify for the new remove
fees based on their current trading profile on the Exchange and if they
choose to direct order flow to the NYSE. As noted, although there are
currently 3 member organizations affiliated with a DMM unit that is
registered in at least 25 securities that could qualify for the
proposed new $0.00285 fee in all Tapes if they send the proposed amount
of adding ADV in Tape A securities, the Exchange does not know whether
any of these member organizations or how many additional member
organizations could qualify for the proposed rate based on the member
organization's trading profile on the Exchange. Hence, without having a
view of member organization's activity on other exchanges and off-
exchange venues, the Exchange has no way of knowing whether this
proposed rule change would result in any member organization directing
orders to the Exchange.
---------------------------------------------------------------------------
\24\ For example, NYSE Arca, Inc. (``NYSE Arca'') charges fees
for removing liquidity of $0.0030, or $0.0029 in Tape B securities
for ETP Holders meeting the requirements of Adding Tiers 1-4, or
$0.0029 in Tape C securities for ETP Holders meeting the
requirements of Tape C Tier 1. See NYSE Arca Equities Fees and
Charges, available at <a href="https://www.nyse.com/publicdocs/nyse/markets/nysearca/NYSE_Arca_Marketplace_Fees.pdf">https://www.nyse.com/publicdocs/nyse/markets/nysearca/NYSE_Arca_Marketplace_Fees.pdf</a>.
---------------------------------------------------------------------------
Small DMM Incentive
The Exchange believes the proposal equitably allocates its fees
among its market participants by fostering liquidity provision and
stability in the marketplace and reducing smaller DMM's reliance on
transaction fees. Moreover, the proposal is an equitable allocation of
fees because it would reward DMM units for their increased risks and
heightened quoting and other obligations. As such, it is equitable to
offer smaller DMM units an additional flat, per security credit for
orders that add liquidity. Moreover, the proposal is an equitable
allocation of fees because it would reward DMM units for their
increased risks and heightened quoting requirements and other
obligations. As such, it is equitable to offer smaller DMM units an
additional flat, per qualified security credit for orders that add
liquidity. The proposed rebate is also equitable because it would apply
equally to any DMM unit of a certain size. The Exchange notes that at
this time there is currently only one DMM unit that could qualify for
the proposed rebate based on its number of assigned securities. The
Exchange believes that the proposal would provide an equal incentive to
any member organization to maintain a DMM unit, and that the proposal
constitutes an equitable allocation of fees because all similarly
situated member organizations would be eligible for the same rebate.
Similarly, the Exchange believes that it is equitable to offer minimum
display credits to SLPs affiliated with a DMM because the proposed
credits would apply to all similarly situated member organizations that
are affiliated with a DMM unit on a full and equal basis. Further, the
Exchange believes the proposed minimum display credits are equitable
because, as noted, the proposed rates are in line with the current
adding tiered rates for all SLPs and thus an SLP that is not affiliated
with a DMM unit could qualify for comparable rates by satisfying the
current SLP adding requirements.
Deletion of Underutilized Remove Tier Fee
The Exchange believes the proposal equitably allocates fees among
its market participants because the underutilized fee the Exchange
proposes to eliminate would be eliminated in its entirety, and would no
longer be available to any member organization in any form. Similarly,
the Exchange believes the proposal equitably allocates fees among its
market participants because elimination of the underutilized fee would
apply to all similarly-situated member organizations that remove
liquidity from the Exchange on an equal basis. All such member
organizations 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 nondiscriminatory terms.
The Proposal Is Not Unfairly Discriminatory
Charges for Removing Liquidity
The Exchange believes that that reconfiguring the fee for member
organizations that remove liquidity from the Exchange will incentivize
submission of additional liquidity in Tape A, Tape B and Tape C
securities
[[Page 81120]]
to a public exchange to qualify for the lower fees for removing
liquidity, thereby promoting price discovery and transparency and
enhancing order execution opportunities for member organizations. The
proposal does not permit unfair discrimination because the new rates
for removing liquidity in Tape A, Tape B and Tape C securities would be
applied to all similarly situated member organizations and other market
participants, who would all be eligible for the same credits on an
equal basis. Moreover, the new lower fee when removing liquidity also
neither targets nor will it have a disparate impact on any particular
category of market participant. The proposal does not permit unfair
discrimination because the proposed alternative criteria would be
applied to all similarly situated member organizations, who would all
be eligible for the same credit on an equal basis. Member organizations
could qualify the new lower rate either by meeting the proposed Adding
ADV requirements in all Tapes or meeting the proposed Adding ADV
requirement in Tape A securities and affiliation with a DMM unit
registered in at least 25 securities based on affiliation with a DMM
unit. In both cases, the proposal does not permit unfair discrimination
because the proposed criteria apply equally to all similarly situated
member organizations, and all member organizations eligible for the new
fee under either criteria would be eligible for the same credit on an
equal and non-discriminatory basis. Accordingly, no member organization
already operating on the Exchange would be disadvantaged by the
proposed allocation of fees.
The Exchange believes it is not unfairly discriminatory to provide
higher fees for removing liquidity in Tape A securities insofar as the
proposed fees would be provided on an equal basis to all member
organizations that remove liquidity by meeting the tiered requirements.
Further, the Exchange believes the proposed fee would provide an
incentive for member organizations to remove additional liquidity from
the Exchange in Tape B and C securities. The Exchange also believes
that the proposed change is not unfairly discriminatory because it is
reasonably related to the value to the Exchange's market quality
associated with higher volume. As noted, the proposed change also is
not unfairly discriminatory because it would be in line with the
applicable rates on other marketplaces.\25\ It should be noted that the
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.
Lastly, the Exchange believes that it is subject to significant
competitive forces, as described below in the Exchange's statement
regarding the burden on competition.
---------------------------------------------------------------------------
\25\ See note 13, supra.
---------------------------------------------------------------------------
Small DMM Incentive
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. For example, member
organizations could display quotes on competing exchanges rather than
quoting sufficiently on the Exchange to meet the 15% NBBO quoting
requirement. The Exchange believes that offering a rebate for DMM units
with 150 or fewer assigned securities in the previous month would
provide a further incentive for smaller DMM units to quote and trade
their assigned securities on the Exchange, and will generally allow the
Exchange and DMM units to better compete for order flow, thus enhancing
competition. The Exchange also believes that the requirement of 150 or
fewer assigned securities to qualify for the credit is not unfairly
discriminatory because it would apply equally to all existing and
prospective member organizations with 150 or fewer assigned securities
that choose to maintain a DMM unit on the Exchange. The Exchange does
not believe that it is unfairly discriminatory to offer incentives
based on a maximum threshold. The Exchange notes that it currently
offers incentives that apply equally to all member organizations that
cannot or choose not to exceed a certain volume threshold.\26\ The
Exchange believes that the proposal would provide an equal incentive to
any member organization to maintain a DMM unit, and that the proposal
would not be unfairly discriminatory because the threshold-based
incentive would be offered on equal terms to all similarly situated
member organizations. Finally, the proposed minimum display credits for
SLPs affiliated with a DMM unit neither targets nor will it have a
disparate impact on any particular category of market participant. The
proposal does not permit unfair discrimination because the proposed
minimum display credits would be applied to all similarly situated SLPs
that are affiliated with a DMM unit, who would all be eligible for the
same credit on an equal and non-discriminatory basis. Moreover, the
proposal does not permit unfair discrimination because SLPs that are
not affiliated with a DMM unit can qualify for comparable rates by
satisfying the current SLP adding requirements. Accordingly, no member
organization already operating on the Exchange would be disadvantaged
by the proposed allocation of fees.
---------------------------------------------------------------------------
\26\ For instance, the first 750,000 ADV of the aggregate of
executions at the close by a member organization are not charged.
See NYSE Price List, available at <a href="https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf">https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf</a>.
---------------------------------------------------------------------------
Deletion of Underutilized Remove Tier Fee
The Exchange believes that the proposal is not unfairly
discriminatory because it neither targets nor will it have a disparate
impact on any particular category of market participant. The Exchange
believes that the proposal is not unfairly discriminatory because the
proposed elimination of the underutilized fee would affect all
similarly-situated market participants on an equal and non-
discriminatory basis. The Exchange believes that eliminating a fee that
is underutilized and ineffective would no longer be available to any
member organization on an equal basis. The Exchange also believes that
the proposed change would protect investors and the public interest
because the deletion of an underutilized fee would make the Price List
more accessible and transparent.
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,\27\ the Exchange
believes that the proposed rule change would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Instead, as discussed above, the Exchange believes
that the proposed changes would encourage the submission of additional
liquidity to a public exchange, thereby promoting market depth, price
discovery and transparency and enhancing order execution opportunities
for member organizations. As a result, the Exchange believes that the
proposed change furthers the Commission's goal in adopting Regulation
NMS of fostering integrated competition among orders, which promotes
``more efficient pricing of
[[Page 81121]]
individual stocks for all types of orders, large and small.'' \28\
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78f(b)(8).
\28\ Regulation NMS, 70 FR at 37498-99.
---------------------------------------------------------------------------
Intramarket Competition. The proposed change is designed to attract
additional order flow and new potential DMM units to the Exchange. The
Exchange believes that the proposed changes, including the DMM rebate
that would continue to incentivize smaller DMM units to quote at the
NBBO more frequently, 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 execution
opportunities on the Exchange and encourages member organizations to
send orders, thereby contributing to robust levels of liquidity, which
benefits all market participants on the Exchange. The proposed fees and
rebate would be available to all similarly-situated market
participants, and, as such, the proposed changes 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.
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) \29\ 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.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78s(b)(3)(A).
---------------------------------------------------------------------------
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#a0d2d5ccc58dc3cfcdcdc5ced4d3e0d3c5c38ec7cfd6"><span class="__cf_email__" data-cfemail="3341465f561e505c5e5e565d4740734056501d545c45">[email protected]</span></a>. Please include
file number SR-NYSE-2023-41 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-2023-41. 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-2023-41 and should be
submitted on or before December 12, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
---------------------------------------------------------------------------
\30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25666 Filed 11-20-23; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.