Notice2026-20071
Self-Regulatory Organizations; Texas Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Listing Fees for Exchange Traded Products and Performance Standards and Daily Stipends Paid by the Exchange for Its Lead Market Maker Program
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
October 1, 2026
Issuing agencies
Securities and Exchange Commission
Abstract
December and Full Year 2025 Results, FactSet (Jan. 8, 2026), https:/ /insight.factset.com/u.s.-etf-summary-december-and-full-year-2025- results (reporting that U.S. ETF assets under management reached $13.5 trillion at year-end 2025 and that 1,167 new funds launched in 2025). \5\ See Investment Company Act Release No. 35786 (Nov. 17, 2025) (In the Matter of DFA Investment Dimensions Group Inc., Dimensional Investment Group Inc., Dimensional ETF Trust and Dimensional Fund Advisors LP) (File No. 812-15484). ---------------------------------------------------------------------------
Full Text
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<title>Federal Register, Volume 91 Issue 189 (Thursday, October 1, 2026)</title>
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[Federal Register Volume 91, Number 189 (Thursday, October 1, 2026)]
[Notices]
[Pages 62572-62579]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-20071]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106505; File No. SR-TXSE-2026-030]
Self-Regulatory Organizations; Texas Stock Exchange LLC; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Adopt Listing Fees for Exchange Traded Products and Performance
Standards and Daily Stipends Paid by the Exchange for Its Lead Market
Maker Program
September 28, 2026.
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 September 14, 2026, Texas Stock Exchange LLC (``Exchange'' or
``TXSE'') filed with the Securities and Exchange Commission a proposed
rule change to adopt listing fees for exchange traded products and
performance standards and daily stipends paid by the Exchange for the
lead market maker program (``LMM Program'') on the Exchange.
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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 is filing with the Securities and Exchange Commission
(``Commission'') a proposed rule change to adopt listing fees for
exchange traded products and performance standards and daily stipends
paid by the Exchange for the LMM Program on the Exchange. The text of
the proposed rule change is available on the Commission's website
(<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>) at the Exchange's website
(<a href="https://www.txse.com/regulations/rules-filings">https://www.txse.com/regulations/rules-filings</a>), and at the principal
office of the Exchange.
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 Exchange 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 these 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
As further described below, the Exchange is proposing to: (i) adopt
three fee tiers for exchange-traded products listed on the Exchange
pursuant to Chapter 17 of the Exchange's rulebook (``ETPs''); (ii)
adopt three tiers of Lead Market Maker (``LMM'') Minimum Performance
Standards; \3\ and (iii) adopt stipends to be paid by the Exchange
directly to LMMs that satisfy the Minimum Performance Standards.
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\3\ ``Minimum Performance Standards'' means the quoting
standards applicable to LMMs for each of the tiers outlined below
and in the proposed Fee Schedule.
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Background
The U.S. ETP market has grown significantly over the past 20 years,
with nearly 5,000 ETPs now listed and over 1,000 launched in 2025
alone.\4\ Lower costs and streamlined regulatory processes have
produced a wave of innovative ETPs offering investors reduced expense
ratios and access to strategies and asset classes once out of reach,
including defined outcome strategies, crypto, and private markets
exposure. The advent of Class ETF Shares within Dual Share Class Funds
\5\ will bring another wave as existing mutual funds list ETF share
classes on exchange, extending tax benefits and intraday liquidity to
their investors.
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\4\ See J.P. Morgan Asset Management, 2025 in Review: An ETF Hat
Trick, J.P. Morgan Asset Management, <a href="https://am.jpmorgan.com/us/en/asset-management/adv/insights/etf-insights/2025-in-review-an-etf-hat-trick/">https://am.jpmorgan.com/us/en/asset-management/adv/insights/etf-insights/2025-in-review-an-etf-hat-trick/</a> (reporting that, in the U.S. market, over 1,000 new ETFs
launched in 2025); and Jose Paulo Tolentino, U.S. ETF Summary:
December and Full Year 2025 Results, FactSet (Jan. 8, 2026), <a href="https://insight.factset.com/u.s.-etf-summary-december-and-full-year-2025-results">https://insight.factset.com/u.s.-etf-summary-december-and-full-year-2025-results</a> (reporting that U.S. ETF assets under management reached
$13.5 trillion at year-end 2025 and that 1,167 new funds launched in
2025).
\5\ See Investment Company Act Release No. 35786 (Nov. 17, 2025)
(In the Matter of DFA Investment Dimensions Group Inc., Dimensional
Investment Group Inc., Dimensional ETF Trust and Dimensional Fund
Advisors LP) (File No. 812-15484).
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But product innovation has outpaced the market structure meant to
support it. The common thread across these new product categories is
that they are harder and more costly for liquidity providers to make
markets in. Many Class ETF Shares may initially trade infrequently as
they come to market, yet still require market makers to hold inventory
and quote continuously so investors receive quality executions when
they transact. Defined outcome strategies launch in quarterly or
monthly series, each requiring its own dedicated liquidity provision.
ETPs holding private market assets carry fundamentally different
liquidity profiles than traditional ETP holdings. Making tight, two-
sided markets in a private credit ETP, for example, is significantly
more costly than doing so for an S&P 500 fund. Quality liquidity in
these products cannot be expected without sufficient compensation to
liquidity providers.
The economics of ETP listings for exchange listing markets,
however, have moved in the opposite direction. ETP listing venues have
been in a race to zero on listing fees for years. The three largest,
Nasdaq, Cboe BZX, and NYSE Arca, charge low annual fees \6\ and, as
such, provide liquidity programs that generally do not cover a market
maker's expenses for many ETPs, including inventory cost, hedging cost,
and cost of capital. As noted above, different ETPs and their
underlying holdings have different costs associated with liquidity
provision. Current exchange pricing relies on a small number of large,
high-volume ETPs that are more profitable for listing exchanges and
market makers in order to subsidize the economics of the rest. Those
products have generally reached a level of sufficient natural trading
volume and liquidity and thus require less liquidity support; they also
generate enough revenue for the listing exchange through auction
revenue and outside trading volume on the listing market to effectively
cover the cost of a much larger population of smaller ETPs whose
listing fees barely offset the cost of the liquidity program payouts
they require.
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\6\ For example, the other exchanges charge the following annual
fees for listing a series of Exchange-Traded Fund Shares, which make
up the vast majority of ETPs listed in the U.S.: Nasdaq--$4,000;
BZX--$4,000-$9,000; and Arca--$8,500--$30,000.
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This model may have worked when the ETP market was smaller and more
homogeneous, but it is no longer
[[Page 62573]]
sustainable. It incentivizes a ``throw spaghetti at the wall'' approach
to listings: a high volume of cheaply listed products with minimal
liquidity support, brought to market on the hope that some grow into
profitable products. Many do not. Many new ETPs trade infrequently,
suffer from poor liquidity, and liquidate shortly after launch.\7\
Liquidity providers in many ETPs are asked to make markets at
compensation well below cost. Issuers increasingly struggle to secure a
lead market maker, and some products now launch without one. Investors
in these products bear the ultimate cost in the form of wider spreads,
worse executions, and failed funds.
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\7\ The average life span of an ETF liquidated in 2026 has
fallen to one year and nine months compared to three years and six
months in 2025 and four years and eight months in 2024. See Katie
Greifeld, Average ETF Lifespan Collapses With Wall Street Antsy for
Scale, Bloomberg (Apr. 2, 2026), <a href="https://www.bloomberg.com/news/articles/2026-04-02/average-etf-lifespan-collapses-with-wall-street-antsy-for-scale">https://www.bloomberg.com/news/articles/2026-04-02/average-etf-lifespan-collapses-with-wall-street-antsy-for-scale</a> (reporting Bloomberg Intelligence research by
analysts Eric Balchunas and Andre Yapp finding that the average
lifespan of an ETF liquidated in 2026 has fallen over prior years).
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The volume of new products and low listing and liquidity provision
fees, combined with the need for consistent, quality liquidity across
all asset classes and trading levels, has created a scarcity of
liquidity and market maker attention. Layered on top of continued
growth in ETP launches, the result is a looming liquidity crisis for
the industry and its investors. Solving it requires aligning incentives
across the ecosystem. Exchange listing fees should more transparently
reflect the true cost of bringing a quality product to market and
provide more flexible liquidity programs to compensate market makers
commensurate with the costs associated with making a market in a
particular ETP, ensuring sufficient liquidity and quality markets for
investors.
Proposed Changes
With this background in mind, the Exchange is proposing a new
tiered ETP listing and LMM Program in which it would: (i) adopt three
fee tiers for ETPs; (ii) adopt three tiers of Minimum Performance
Standards associated with those listing tiers, each additional tier
having higher market quality requirements than the prior; and (iii)
adopt stipends to be paid by the Exchange directly to LMMs that meet
the Minimum Performance Standards (``Daily Stipends'').
Listing Fee Tiers
The Exchange is proposing to add Rule 17.180 to establish three
tiers for ETP listings: the Signature Tier, priced at $100,000
annually; the Premier Tier, priced at $55,000 annually; and the Core
Tier, priced at $10,000 annually.\8\ The issuer of an ETP may select
whichever tier it believes is most appropriate for a particular ETP.
The selection of a listing tier applies only for the current year, and
an issuer may select a different listing tier for the following year
based on what it believes is most appropriate for the ETP at that time.
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\8\ An ETP that begins listing during the year will be charged a
prorated fee for the remainder of the calendar year based on the
percentage of trading days remaining in the applicable year. For
example, for an ETP that is listed on the Exchange with 125 trading
days remaining in the year in a year with 250 trading days, the
Exchange will charge 50% of the annual fee.
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Minimum Performance Standards Tiers
The Exchange is proposing three corresponding tiers of Minimum
Performance Standards for its Lead Market Maker Program. The Minimum
Performance Standards are broken down by asset class and listing fee
tier, both of which are designated by the issuer. The Minimum
Performance Standards for each asset class generally decrease for each
lower listing fee tier (i.e., the Minimum Performance Standards for the
Signature Tier are higher than those for the Premier Tier, which in
turn are higher than those for the Core Tier). The Minimum Performance
Standards include the following measurements: Maximum LMM Spread,\9\
Size Near the Inside,\10\ Layered Depth,\11\ Time at NBBO,\12\ Opening
Auction Depth,\13\ Closing Auction Depth,\14\ Opening Auction Reference
Price,\15\ and Closing Auction Reference Price.\16\ The Minimum
Performance Standards are generally designed with specific asset
classes in mind,\17\ which include High Volume Products,\18\ U.S.
Equity,\19\ International,\20\ Fixed Income,\21\ Currencies,\22\ Single
Stock & Outcome Based,\23\ Commodities,\24\ and Other.\25\
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\9\ As provided in the proposed Fee Schedule, ``Maximum LMM
Spread'' means the time weighted average of the LMM's displayed two-
sided spread, calculated as (LMM Best Offer minus LMM Best Bid)
divided by the SIP NBBO midpoint, expressed in basis points, for a
trading day.
\10\ As provided in the proposed Fee Schedule, ``Size Near the
Inside'' means the average notional depth within 25 basis points of
the NBBO.
\11\ As provided in the proposed Fee Schedule, ``Layered Depth''
means the minimum notional value of both bids and offers within a
certain percentage of the NBBO for at least 95% of the trading day.
\12\ As provided in the proposed Fee Schedule, ``Time at NBBO''
means the percentage of time during Regular Trading Hours in which
the LMM maintains both a bid and offer at the NBBO with at least
$10,000 notional at each of the NBB and NBO.
\13\ As provided in the proposed Fee Schedule, ``Opening Auction
Depth'' means the aggregate size, expressed in notional value, of
all LMM Eligible Auction Orders that are executable in the opening
auction and priced within 100 basis points (1.00%) of the NBBO
midpoint, as measured immediately prior to the execution of the
opening auction.
\14\ As provided in the proposed Fee Schedule, ``Closing Auction
Depth'' means the aggregate size, expressed in notional value, of
all LMM Eligible Auction Orders that are executable in the closing
auction and priced within fifty basis points (0.50%) of the NBBO
midpoint, as measured immediately prior to the execution of the
closing auction.
\15\ As provided in the proposed Fee Schedule, ``Opening Auction
Reference Price'' means the difference between the midpoint of the
NBBO immediately prior to the opening auction and the opening
auction price.
\16\ As provided in the proposed Fee Schedule, ``Closing Auction
Reference Price'' means the difference between the midpoint of the
NBBO immediately prior to the closing auction and the closing
auction price.
\17\ As noted above, issuers are responsible for designating the
asset class appropriate for a particular ETP.
\18\ High Volume Products generally means ETPs that have a 90-
day CADV above 1,000,000 shares.
\19\ U.S. Equity generally means ETPs whose primary investment
objective is exposure to equity securities of U.S.-domiciled or
U.S.-listed issuers.
\20\ International generally means ETPs whose primary investment
objective is exposure to non-U.S. equity or debt markets--developed,
emerging, regional, or global ex-U.S. strategies.
\21\ Fixed Income generally means ETPs whose primary holdings
are debt instruments of any type including, government, corporate,
municipal, securitized, or high-yield, across any duration, credit
quality, or geography.
\22\ Currencies generally means ETPs whose investment objective
is primarily exposure to currency exchange rates, currency baskets,
or FX-linked instruments.
\23\ Single Stock & Outcome Based generally means ETPs providing
leveraged, inverse, or defined-outcome (e.g., buffer, floor, cap)
exposure tied to a single reference security or a pre-set payoff
structure, rather than a diversified basket.
\24\ Commodities generally means ETPs whose primary investment
objective is exposure to physical commodities, commodity futures, or
commodity baskets.
\25\ Other generally means any ETP that does not squarely fit
one of the categories above, including multi-asset, alternative, or
novel strategies.
[[Page 62574]]
Signature Tier *
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Size near the Opening auction Closing auction Auction reference Auction reference
Asset class Maximum LMM spread inside (25 bps) Layered depth Time at NBBO depth (100 bps) depth (50 bps) price (opening) price (closing)
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High Volume Products............ 20 Bps............ $80,000 on each $150,000 on each 15.0%............. $50,000 on each $100,000 on each 65 Bps............ 25 Bps.
side of the NBB side of the NBB side of the NBBO side of the NBBO
and NBO. and NBO within Midpoint. Midpoint.
0.50%.
U.S. Equity..................... 20 Bps............ $45,000 on each $150,000 on each For ETPs with $45,000 on each $90,000 on each 70 Bps............ 25 Bps.
side of the NBB side of the NBB under a 250K 30- side of the NBBO side of the NBBO
and NBO. and NBO within Day CADV, LMM Midpoint. Midpoint.
0.55%. must quote at
NBBO 45% of time.
International................... 35 Bps............ $30,000 on each $150,000 on each For ETPs at or $30,000 on each $60,000 on each 130 Bps........... 50 Bps.
side of the NBB side of the NBB over a 250K 30- side of the NBBO side of the NBBO
and NBO. and NBO within Day CADV, LMM Midpoint. Midpoint.
0.75%. must quote at
NBBO 20% of time.
Fixed Income.................... 15 Bps............ $45,000 on each $150,000 on each $40,000 on each $85,000 on each 85 Bps............ 25 Bps.
side of the NBB side of the NBB side of the NBBO side of the NBBO
and NBO. and NBO within Midpoint. Midpoint.
0.60%.
Currencies...................... 20 Bps............ $40,000 on each $150,000 on each $40,000 on each $85,000 on each 85 Bps............ 25 Bps.
side of the NBB side of the NBB side of the NBBO side of the NBBO
and NBO. and NBO within Midpoint. Midpoint.
0.60%.
Single Stock & Outcome Based.... 50 Bps............ $25,000 on each $150,000 on each $30,000 on each $60,000 on each 125 Bps........... 30 Bps.
side of the NBB side of the NBB side of the NBBO side of the NBBO
and NBO. and NBO within Midpoint. Midpoint.
1.00%.
Commodities..................... 30 Bps............ $35,000 on each $150,000 on each $30,000 on each $65,000 on each 100 Bps........... 30 Bps.
side of the NBB side of the NBB side of the NBBO side of the NBBO
and NBO. and NBO within Midpoint. Midpoint.
0.80%.
Other........................... 100 Bps........... $10,000 on each $150,000 on each $25,000 on each $50,000 on each 200 Bps........... 100 Bps.
side of the NBB side of the NBB side of the NBBO side of the NBBO
and NBO. and NBO within Midpoint. Midpoint.
1.50%.
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* As provided in the proposed Fee Schedule, ``CADV'' means consolidated average daily volume calculated as the average daily volume reported for a security by all exchanges and trade reporting
facilities to a consolidated transaction reporting plan excluding volume on days when the market closes early and on the Russell Reconstitution Day.
Premier Tier
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Size near the Opening auction Closing auction Auction reference Auction reference
Asset class Maximum LMM spread inside (25 bps) Layered depth Time at NBBO depth (100 bps) depth (50 bps) price (opening) price (closing)
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High Volume Products............ 25 Bps............ $80,000 on each $150,000 on each 5.0%.............. $35,000 on each $80,000 on each 75 Bps............ 35 Bps.
side of the NBB side of the NBB side of the NBBO side of the NBBO
and NBO. and NBO within Midpoint. Midpoint.
1.0%.
U.S. Equity..................... 25 Bps............ $45,000 on each $150,000 on each For ETPs with $30,000 on each $65,000 on each 80 Bps............ 35 Bps.
side of the NBB side of the NBB under 250K 30-Day side of the NBBO side of the NBBO
and NBO. and NBO within CADV, LMM must Midpoint. Midpoint.
1.0%. quote at NBBO 35%
of time.
International................... 60 Bps............ $30,000 on each $150,000 on each For ETPs with over $20,000 on each $40,000 on each 150 Bps........... 75 Bps.
side of the NBB side of the NBB 250K 30-Day CADV, side of the NBBO side of the NBBO
and NBO. and NBO within LMM must quote at Midpoint. Midpoint.
1.5%. NBBO 10% of time.
Fixed Income.................... 25 Bps............ $45,000 on each $150,000 on each $25,000 on each $60,000 on each 100 Bps........... 35 Bps.
side of the NBB side of the NBB side of the NBBO side of the NBBO
and NBO. and NBO within Midpoint. Midpoint.
1.0%.
Currencies...................... 30 Bps............ $40,000 on each $150,000 on each $25,000 on each $60,000 on each 100 Bps........... 35 Bps.
side of the NBB side of the NBB side of the NBBO side of the NBBO
and NBO. and NBO within Midpoint. Midpoint.
1.0%.
Single Stock & Outcome Based.... 80 Bps............ $25,000 on each $150,000 on each $20,000 on each $40,000 on each 150 Bps........... 40 Bps.
side of the NBB side of the NBB side of the NBBO side of the NBBO
and NBO. and NBO within Midpoint. Midpoint.
2.0%.
[[Page 62575]]
Commodities..................... 45 Bps............ $35,000 on each $150,000 on each $20,000 on each $45,000 on each 120 Bps........... 40 Bps.
side of the NBB side of the NBB side of the NBBO side of the NBBO
and NBO. and NBO within Midpoint. Midpoint.
1.0%.
Other........................... 110 Bps........... $10,000 on each $150,000 on each $15,000 on each $30,000 on each 225 Bps........... 150 Bps.
side of the NBB side of the NBB side of the NBBO side of the NBBO
and NBO. and NBO within Midpoint. Midpoint.
2.5%.
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Core Tier
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Size near the Opening auction Closing auction Auction reference Auction reference
Asset class Maximum LMM spread inside (25 bps) Layered depth Time at NBBO depth (100 bps) depth (50 bps) price price
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High Volume Products............ 50 Bps............ $80,000 on each N/A............... 5.0%.............. $25,000 on each $50,000 on each 90 Bps............ 50 Bps.
side of the NBB side of the NBBO side of the NBBO
and NBO. Midpoint. Midpoint.
U.S. Equity..................... 50 Bps............ $45,000 on each For ETPs with $20,000 on each $40,000 on each 100 Bps........... 50 Bps.
side of the NBB under a 250K 30- side of the NBBO side of the NBBO
and NBO. Day CADV, LMM Midpoint. Midpoint.
must quote at
NBBO 30% of time.
International................... 100 Bps........... $30,000 on each For ETPs at or $10,000 on each $20,000 on each 200 Bps........... 100 Bps.
side of the NBB over a 250K 30- side of the NBBO side of the NBBO
and NBO. Day CADV, LMM Midpoint. Midpoint.
must quote at
NBBO 10% of time.
Fixed Income.................... 30 Bps............ $45,000 on each $15,000 on each $35,000 on each 150 Bps........... 50 Bps.
side of the NBB side of the NBBO side of the NBBO
and NBO. Midpoint. Midpoint.
Currencies...................... 35 bps............ $40,000 on each $15,000 on each $30,000 on each 150 Bps........... 50 Bps.
side of the NBB side of the NBBO side of the NBBO
and NBO. Midpoint. Midpoint.
Single Stock & Outcome Based.... 100 Bps........... $25,000 on each $15,000 on each $20,000 on each 180 Bps........... 50 Bps.
side of the NBB side of the NBBO side of the NBBO
and NBO. Midpoint. Midpoint.
Commodities..................... 60 Bps............ $35,000 on each $15,000 on each $25,000 on each 150 Bps........... 50 Bps.
side of the NBB side of the NBBO side of the NBBO
and NBO. Midpoint. Midpoint.
Other........................... 130 Bps........... $10,000 on each $10,000 on each $20,000 on each 300 Bps........... 200 Bps.
side of the NBB side of the NBBO side of the NBBO
and NBO. Midpoint. Midpoint.
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The Exchange will measure LMM performance on a daily basis. For
each trading day, the Exchange will determine the number of Minimum
Performance Standards that are satisfied by the LMM. For each category
that an LMM meets for that particular trading day, the LMM will be
considered by the Exchange to be a Performant LMM. LMMs will be
considered Performant LMMs for each trading day during the months of
September and October as the Exchange begins offering ETP listings and
rolls out the LMM Program.
LMM Stipend Tiers
LMMs that meet the applicable Minimum Performance Standards for a
particular ETP will be paid by the Exchange up to $278 per trading day
for Signature Tier, up to $139 per trading day for Premier Tier, and
$16 per trading day for Core Tier. As described above, the
determination of whether an LMM is a Performant LMM \26\ is done on a
daily basis by the Exchange for each Minimum Performance Standard
applicable to the tier and asset class (e.g., an LMM can be a
Performant LMM in one measurement and not in another and can be a
Performant LMM on one day and not the next).
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\26\ As defined in the proposed Fee Schedule, ``Performant LMM''
means an LMM that meets a particular Minimum Performance Standard
for a trading day.
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For Signature Tier and Premier Tier, an LMM is paid by the Exchange
for each Minimum Performance Standard in which they are a Performant
LMM. For example, where an LMM in Signature Tier (or Premier Tier)
meets 4 of 8 Minimum Performance Standards, they are a Performant LMM
in those 4 measurements and would thus receive from the Exchange a
Daily Stipend as follows: (\4/8\) * $278 = $139. For Signature Tier,
where an LMM is not a Performant LMM in any Minimum Performance
Standard on a particular trading day, the Daily Stipend for that
Minimum Performance Standard will be credited by the Exchange back to
the issuer of the ETP in January of the following year and will only be
applicable to the issuer's listing fees for that year, regardless of
whether they remain listed on Signature Tier or if they change to
another tier. Any unused credit during that year will be forfeited. For
example, where an issuer is credited by the Exchange for a non-
Performant LMM during 2026, the issuer will receive the credit in
January 2027 and such credit will apply to the issuer's listing fees
for 2027. For Core Tier, an LMM must be a Performant LMM in all
applicable measurements on a given trading day in order to receive from
the Exchange the Daily Stipend.
[[Page 62576]]
Consistency With FINRA Rule 5250 and Regulation M
FINRA Rule 5250 (Payments for Market Making) generally prohibits a
FINRA member or associated person from accepting payment or other
consideration, directly or indirectly, from an issuer or its affiliates
and promoters, for publishing a quotation, acting as a market maker or
submitting an application in connection therewith. FINRA Rule 5250 is
designed to preserve the integrity of the marketplace by ensuring that
quotations accurately reflect a broker-dealer's interest in buying or
selling a security and that the decision by a firm to make a market in
a given security should not be influenced by payments to FINRA members
from issuers or promoters.\27\
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\27\ See Securities Exchange Act Release No. 60066 (June 8,
2009), 74 FR 28308 (June 15, 2009) (SR-FINRA2009-36). See also
Securities Exchange Act Release No. 38812 (July 3, 1997), 62 FR
37105 (July 10, 1997) (SR-NASD-97-29) (order approving NASD Rule
2460, predecessor to FINRA Rule 5250).
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FINRA Rule 5250(b)(3) provides an exception for any payment
expressly provided for under the rules of a national securities
exchange to accommodate exchange market maker incentive programs for
ETPs (including the Exchange's prior market quality program).\28\ Under
these incentive programs, the exchanges could make payments to market
makers that were funded through additional fees paid by participating
issuers.\29\ In SR-FINRA-2013-020, FINRA stated that where a market
maker payment is provided for under the rules of an exchange that are
effective after being filed with, or filed with and approved by, the
SEC, comity should be afforded to such exchange rulemaking and the
payment should not be prohibited under Rule FINRA 5250.\30\ FINRA
further stated that comparable prior programs \31\ contained features
that mitigate the concerns underlying FINRA Rule 5250, including that
the program terms were objective, clear, and transparent and included
disclosure requirements to help alert and educate potential and
existing investors about the program.\32\ The Exchange believes that
the proposed LMM Program falls squarely within the FINRA Rule
5250(b)(3). The incentives are expressly provided for under the
Exchange's fee schedule, which will be effective after being filed with
the SEC pursuant to the requirements of the Exchange Act. In addition,
the LMM Program has the same features that FINRA identified as
mitigating the concerns underlying FINRA Rule 5250. The LMM Program is
rules-based, objective, clear, and transparent. Accordingly, the
Exchange does not believe that the proposed LMM Program raises concerns
under FINRA Rule 5250.
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\28\ FINRA amended FINRA Rule 5250 in 2013 to adopt this
exception. See Securities Exchange Act Release No. 69398 (April 18,
2013), 78 FR 24261 (April 24, 2013) (SR-FINRA-2013-020). See also
FINRA Regulatory Notice 20-03, available at: <a href="https://www.finra.org/rules-guidance/notices/20-03">https://www.finra.org/rules-guidance/notices/20-03</a>.
\29\ See, e.g., Securities Exchange Act Release Nos. 69195
(March 20, 2013), 78 FR 18393 (March 26, 2013) (SR-NASDAQ-2012-137);
69706 (June 6, 2013), 78 FR 35340 (June 12, 2013) (SR-NYSEArca-2013-
34); and 72692 (July 28, 2014), 79 FR 44908 (SR-BATS-2014-022).
\30\ See SR-FINRA-2013-020 at 24262.
\31\ See Securities Exchange Act Release Nos. 69195 (March 20,
2013), 78 FR 18393 (March 26, 2013) (SRNASDAQ-2012-137); 69706 (June
6, 2013), 78 FR 35340 (June 12, 2013) (SR-NYSEArca-2013-34); and
72692 (July 28, 2014), 79 FR 44908 (SR-BATS-2014-022).
\32\ See id.
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Rule 102 of Regulation M prohibits an issuer from directly or
indirectly attempting ``to induce any person to bid for or purchase, a
covered security during the applicable restricted period'' unless an
exemption is available.\33\ The Exchange has considered whether the LMM
Program, under which the annual listing fee paid by an issuer is
credited to the Exchange's general revenues and used to offset the
costs of the daily stipends paid to the LMM, could be viewed as an
indirect attempt by an issuer to induce bidding or purchasing under
Rule 102.
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\33\ 17 CFR 242.102.
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With respect to securities that are registered under the Investment
Company Act of 1940 (``1940 Act'') and listed on TXSE, the Exchange
notes that these products are exempt from Rule 102 pursuant to Rule
102(d)(4), which provides that Rule 102 shall not apply to redeemable
securities issued by an open-end management investment company or a
unit investment trust.\34\ Accordingly, the LMM Program does not
implicate Rule 102 with respect to the foregoing ETPs, which constitute
the substantial majority of U.S ETPs eligible to participate in the LMM
Program.
---------------------------------------------------------------------------
\34\ 17 CFR 242.102(d)(4).
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With respect to securities that are not registered under the 1940
Act and listed on TXSE, the Exchange does not believe that the LMM
Program implicates the concerns underlying Rule 102 for the following
reasons.
First, the derivative and open-ended nature of many of the non-1940
Act ETPs eligible to participate in the LMM Program would allow for
transparent intrinsic intraday pricing. As such, the Exchange does not
believe that such products would lend themselves to the type of market
manipulation that Rule 102 was designed to prevent. The Exchange notes
that the Commission and its staff have previously granted relief from
Rule 102 to a number of ETPs (``Prior Relief'') in order to permit the
operation of such ETPs.\35\ In granting the Prior Relief, the
Commission has relied in part on the exclusion from the provisions of
Rule 102 provided by paragraph (d)(4) of Rule 102 for securities issued
by an open-end management investment company or unit investment trust.
In granting the Prior Relief from Rule 102 to other types of ETPs for
which the (d)(4) exception is not available (i.e., non-1940 Act ETPs),
the staff has relied on (i) representations that the fund in question
would continuously redeem ETP shares in basket-size aggregations at
their net asset value (``NAV'') and that there should be little
disparity between the market price of an ETP share and the NAV per
share and (ii) a finding that ``[t]he creation, redemption, and
secondary market transactions in [shares] do not appear to result in
the abuses that . . . Rules 101 and 102 of Regulation M . . . were
designed to prevent.'' \36\ The crux of the Commission's findings in
granting the Prior Relief rests on the premise that the prices of ETP
shares closely track their per-share NAVs. Given that the proposed LMM
Program neither alters the derivative pricing nature of ETPs nor
impacts the arbitrage opportunities inherent therein, the conclusion on
which the Prior Relief is based remains unaffected by the LMM Program.
In this regard, most ETPs that would be eligible to participate in the
LMM Program would have previously been granted relief from Rule 102.
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\35\ See, e.g., Class Relief for Exchange Traded Index Funds,
SEC No-Action Letter (October 24, 2006); Commodity-based Investment
Vehicles Class Letter, SEC No-Action Letter (June 21, 2006); and
iPath Securities--Exchange-Traded Notes, SEC No-Action Letter (July
27, 2006).
\36\ See Commodity-based Investment Vehicles Class Letter, SEC
No-Action Letter (June 21, 2006).
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Second, the LMM Program requires, among other things, that the LMM
make two-sided quotes and not just bids. It is not intended to raise
ETP prices but rather to improve market quality. In light of the
derivative nature of ETPs described above, the Exchange does not expect
that ETPs participating in the LMM Program would quote outside of the
normal ranges. Specifically, the transparent nature of many ETPs'
portfolio composition as well as their accessibility and the elasticity
of shares outstanding contribute to an arbitrage process that will lead
to executions of orders of many ETPs priced at or near their NAVs. If
and when a quote is priced beyond the intrinsic value of an ETP, an
arbitrage opportunity can arise, and market participants will arbitrage
[[Page 62577]]
such spread until price equilibrium is restored. Accordingly, the LMM
Program would not create any incentive for an LMM to quote outside of
the normal quoting ranges for these products as a result of the daily
stipend, but rather would quote within their normal ranges as
determined by market factors.
In light of the pricing mechanisms of ETPs and the structural
safeguards of the LMM Program, the Exchange does not believe that the
proposed LMM Program implicates the concerns underlying Rule 102 of
Regulation M with respect to any securities eligible to participate in
the program.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\37\ in general, and furthers the
objectives of Section 6(b)(5) \38\ requirements that the rules of an
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \39\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers as well as Section 6(b)(4) \40\
as it is designed to provide for the equitable allocation of reasonable
dues, fees, and other charges among its members and other persons using
its facilities. The Exchange also believes that the proposed LMM
Program is consistent with Section 6(b)(5) of the Act because it is
designed to enhance market quality and liquidity in Exchange-listed
ETPs.
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\37\ 15 U.S.C. 78f(b).
\38\ 15 U.S.C. 78f(b)(5).
\39\ 15 U.S.C. 78f(b)(5).
\40\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that the proposed rule change, which
establishes three ETP listing tiers with progressively higher Minimum
Performance Standards applied and measured by the Exchange and Daily
Stipends paid by the Exchange, is consistent with Section 6(b)(5) of
the Act in that it provides issuers with the flexibility to choose the
proper listing tier and liquidity support at the right time based on
the product's underlying asset class, time at market, average daily
trading volume, and assets under management, among other factors. The
Exchange believes that prevailing listing economics across the industry
leave issuers without the tools necessary to support their varied
product lineups and are not sufficient to support the provision of
quality liquidity in many listed ETPs. Listing fees at the largest
venues have been driven to levels insufficient to fund liquidity
programs that cover a market maker's basic inventory, hedging, and
capital costs, producing a cross-subsidy in which a small number of
high-volume ETPs effectively underwrite the listing economics of a much
larger population of products. The Exchange believes that this model
contributes to insufficient incentives to provide liquidity in many
ETPs and difficulty securing lead market makers, the cost of which is
ultimately borne by investors. The continued growth of the U.S. ETP
market to more than 5,000 listed products with over 1,000 launched in
the past twelve months alone, has compounded these strains and made the
misalignment between listing economics and the cost of quality
liquidity more acute across the listed product landscape.
The Exchange believes that the proposed rule change is designed to
address these concerns directly. By establishing three fee tiers, each
paired with Minimum Performance Standards applied and measured by the
Exchange and Daily Stipends paid by the Exchange that scale with each
tier, the proposal allows ETP issuers to select the tier most
appropriate for its product and ensures that the corresponding listing
economics are sufficient to support that commitment. The Exchange
believes that providing issuers with a transparent choice among
differentiated tiers rather than a single offering promotes innovation
and competition among listing venues, gives fund boards a meaningfully
differentiated option to consider in discharging their fiduciary
obligations to shareholders, and aligns market maker compensation with
the market quality standards they are expected to meet. The Exchange
further believes that the proposal expands the set of tools available
to issuers seeking to improve the trading experience of their
investors, allowing each issuer to elect the tier best suited to its
product and shareholders, consistent with the protection of investors
and the public interest under Section 6(b)(5) of the Act.
The Exchange believes that segmenting the Minimum Performance
Standards into asset classes is consistent with Section 6(b)(5) of the
Act and is in line with how market makers take on and quote ETPs.
Different asset classes--including High Volume Products, U.S. Equity,
International, Fixed Income, Currencies, Single Stock & Outcome Based,
Commodities, and Other--have distinct trading characteristics,
liquidity profiles, and market dynamics that affect how market makers
can effectively provide liquidity. By tailoring the performance
standards to reflect these differences, the Exchange believes that
aligning asset classes with respective quoting obligations will result
in more correlated market making support to the ETPs that fall in each
asset class. This approach promotes just and equitable principles of
trade by establishing performance standards that are appropriately
calibrated to the unique characteristics of each asset class, which in
turn enhances liquidity provision and market quality for investors
trading in these securities.
The Exchange believes that it is also consistent with the Act to
require an LMM for Core Tier ETPs to be a Performant LMM in all of the
Minimum Performance Standards in order to receive the Daily Stipend
from the Exchange because Core Tier has the least burdensome Minimum
Performance Standards and represents a baseline for liquidity provision
for ETPs. The Exchange also notes that the Minimum Performance
Standards are evaluated on a daily basis and that failure to qualify
for the Daily Stipend from the Exchange one day will only apply to that
single day, allowing the LMM to meet all of the Minimum Performance
Standards and receive the Daily Stipend from the Exchange on any
subsequent days. Further, the proposed LMM Program will be applied
equally to all LMMs and issuers and both LMMs and issuers will
understand the requirements to receive the Daily Stipend from the
Exchange as part of their participation in the LMM Program.
The Exchange believes that it is consistent with the Act for the
Exchange to provide Daily Stipends based on individual Minimum
Performance Standards for the Signature and Premier Tiers because they
represent heightened standards that are more difficult for LMMs to
meet. The Exchange providing the Daily Stipend based on the number of
Minimum Performance Standards that an LMM meets will incentivize
issuers to continue to provide intraday liquidity in ETPs even where
there are certain Minimum Performance Standards that they may not meet
for a given day. This incentivizes more consistent liquidity,
especially on
[[Page 62578]]
particularly volatile trading days, rather than having an LMM withdraw
completely when they realize that they will fail to be a Performant LMM
in one Minimum Performance Standard to the benefit of investors and
other market participants. The Exchange also believes that it is
consistent with the Act to provide a credit to Signature Tier issuers
applicable to their listing fees where an LMM does not receive a Daily
Stipend from the Exchange. Under the Signature Tier, both the listing
fee and the Minimum Performance Standards are the highest of any ETP
listing exchange and, while the Exchange is confident in its LMM
Program, the listing fees and quoting standards model has not yet been
proven. Providing credit where Minimum Performance Standards are not
met will provide issuers with the backstop of knowing that to the
extent that the assigned LMM does not meet Minimum Performance
Standards, they will receive a listing credit if the LMM Program does
not have the desired effect. As noted above, the credit is only
applicable to the issuer's listing fees in the following year. The
Exchange believes that it is not unfairly discriminatory to provide a
credit only to Signature Tier issuers for the same general reasons--
both the listing fee and the Minimum Performance Standards are the
highest of any ETP listing exchange. Providing a backstop for issuers
that choose Signature Tier will help to prove that model while other
exchanges already have ETP listing fees comparable to those for the
Premier and Core Tiers.
The Exchange also believes that it is consistent with the Act to
allow issuers to change their listing tier each year. This will allow
issuers to dial up or dial down liquidity support as needed based on
where the ETP is in its life cycle and the underlying asset, including
the time at market, assets under management, and natural liquidity
support for the product. The issuer must determine, both at listing and
on an ongoing basis, the proper listing tier for a particular product
in order to ensure sufficient liquidity support for the ETP. As noted
above, the Core Tier is generally consistent with the liquidity
programs at the other three largest ETP listing venues, and the
Exchange expects similar liquidity support for Core Tier products as on
those venues. The Exchange notes that the differences in listing fees
and liquidity programs at each listing venue are effectively different
tiers with different levels of liquidity support that an issuer is
choosing to list a particular ETP on. ETPs frequently transfer between
primary listing venues, including to and from New York Stock Exchange
LLC's more expensive offering with higher liquidity incentives.\41\ The
Exchange believes that moving between tiers on the Exchange would be
comparable to such a transfer.
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\41\ The Exchange notes that the New York Stock Exchange LLC
(``NYSE'') also offers ETP listings and charges a higher annual fee
with higher payouts to market makers, charging a minimum of $25,000
annually per ETP and paying out as much as $48,000 annually to
market makers plus a one-time incentive for DMMs of up to $60,000.
See New York Stock Exchange Price List 2026 at 13. <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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Finally, for the reasons stated above, the Exchange believes that
the LMM Program is designed to mitigate the risks and concerns that
FINRA Rule 5250 addresses and that the LMM Program does not implicate
the concerns underlying Rule 102 of Regulation M.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Exchange Act. Rather, the
Exchange believes the proposed rule change will enhance competition
among exchanges for ETP listings and among liquidity providers to
participate as Lead Market Makers on the Exchange.
The Exchange does not believe the proposed rule change will impose
any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The proposed
multiple tiers are available equally to all issuers and issuers are
able to select the tier most appropriate for a particular ETP at a
particular time. The proposed tiers for Minimum Performance Standards
apply equally to all LMMs that choose to participate in the LMM Program
and an LMM will know the Minimum Performance Standards applicable for a
particular ETP in advance of their registration as an LMM for the
security. All LMMs have the opportunity to qualify to receive the Daily
Stipend from the Exchange by meeting the Minimum Performance Standards,
and the standards are transparent and objective. The Exchange notes
that participation in the LMM Program is voluntary, and market makers
can choose whether to participate based on their assessment of whether
they can meet the applicable Minimum Performance Standards as applied
and measured by the Exchange and whether the Daily Stipends from the
Exchange are attractive relative to their costs.
Similarly, the proposed asset class specific Minimum Performance
Standards do not impose a burden on intramarket competition because it
reflects the different characteristics and trading dynamics of various
ETP types. LMMs specializing in different asset classes face different
operational requirements and market conditions, and the tailored
standards recognize these differences rather than creating competitive
advantages or disadvantages. An LMM's ability to meet the standards for
any particular asset class depends on its operational capabilities and
market making strategies, which are within the control of each market
participant.
The Exchange does not believe the proposed rule change will impose
any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
operates in a highly competitive market in which market participants
can readily direct their business to competing venues if they deem fee
levels, incentive programs, or other factors at a particular venue to
be insufficient or excessive. The proposed LMM Program is designed to
attract and retain LMMs by offering competitive incentives in exchange
for meeting performance standards that enhance market quality.
To the extent the proposed rule change makes the Exchange's LMM
Program more attractive to market makers or issuers, any resulting
competitive impact would be the result of the Exchange's competitive
pricing and program design, which is appropriate and consistent with
the Act. Other exchanges are free to adopt similar or different LMM
programs and incentive structures to compete for market maker
participation and issuer listings. The Exchange believes that
competition among venues for LMM participation and listings benefits
investors by encouraging exchanges to develop programs that promote
liquidity and market quality.
Furthermore, the proposed rule change may enhance intermarket
competition by encouraging other exchanges to evaluate and potentially
improve their own LMM programs. This type of competitive dynamic
promotes innovation and improvement in market structure, which
ultimately benefits investors and the broader market ecosystem.
The Exchange also notes that the proposed Minimum Performance
Standards are designed to enhance liquidity in Exchange-listed ETPs,
which benefits all market participants regardless of where they choose
to trade.
[[Page 62579]]
Improved liquidity and tighter spreads resulting from the enhanced LMM
Program contribute to better price discovery and more efficient markets
across all trading venues, as the benefits of improved market quality
are not limited to the Exchange's platform. For these reasons, the
Exchange does not believe the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
The Exchange neither solicited nor received written comments on 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 pursuant to Section
19(b)(3)(A) of the Act \42\ and Rule 19b-4(f)(2) \43\ 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. If the Commission takes such
action, the Commission will institute proceedings to determine whether
the proposed rule change should be approved or disapproved.
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\42\ 15 U.S.C. 78s(b)(3)(A).
\43\ 17 CFR 240.19b-4(f)(2).
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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 proposal 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#5022253c357d333f3d3d353e2423102335337e373f26"><span class="__cf_email__" data-cfemail="c0b2b5aca5eda3afadada5aeb4b380b3a5a3eea7afb6">[email protected]</span></a>. Please include
File Number SR-TXSE-2026-030 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-TXSE-2026-030. 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 filing 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-TXSE-2026-030 and should be submitted on or
before October 22, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
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\44\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-20071 Filed 9-30-26; 8:45 am]
BILLING CODE 8011-01-P
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