87 FR 222 pgs. 69356-69360 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amend the NYSE Arca Equities Fees and Charges
Type: NOTICEVolume: 87Number: 222Pages: 69356 - 69360
Pages: 69356, 69357, 69358, 69359, 69360Docket number: [Release No. 34-96305; File No. SR-NYSEARCA-2022-75]
FR document: [FR Doc. 2022-25088 Filed 11-17-22; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
[top]
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96305; File No. SR-NYSEARCA-2022-75]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amend the NYSE Arca Equities Fees and Charges
November 14, 2022.
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 November 1, 2022, NYSE Arca, Inc. ("NYSE Arca" or the "Exchange") filed with the Securities and Exchange Commission ("SEC" or "Commission") the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
Footnotes:
1 ?15 U.S.C. 78s(b)(1).
2 ?17 CFR 240.19b-4.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to amend the NYSE Arca Equities Fees and Charges ("Fee Schedule") to adopt a new pricing tier, Retail Tier 2. The Exchange proposes to implement the fee changes effective November 1, 2022. The proposed rule change is available on the Exchange's website at www.nyse.com, at the principal office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to adopt a new pricing tier, Retail Tier 2. The proposed changes respond to the current competitive environment where order flow providers have a choice of where to direct liquidity-providing orders by offering further incentives for ETP Holders to send additional displayed liquidity to the Exchange.
The Exchange proposes to implement the fee changes effective November 1, 2022.
Background
The Exchange operates in a highly competitive market. The Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system "has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies."? 3
Footnotes:
3 ? See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (File No. S7-10-04) (Final Rule) ("Regulation NMS").
While Regulation NMS has enhanced competition, it has also fostered a "fragmented" market structure where trading in a single stock can occur across multiple trading centers. When multiple trading centers compete for order flow in the same stock, the Commission has recognized that "such competition can lead to the fragmentation of order flow in that stock."? 4 Indeed, equity trading is currently dispersed across 16 exchanges, 5 numerous alternative trading systems, 6 and broker-dealer internalizers and wholesalers, all competing for order flow. Based on publicly available information, no single exchange currently has more than 17% market share. 7 Therefore, no exchange possesses significant pricing power in the execution of equity order flow. More specifically, the Exchange currently has less than 10% market share of executed volume of equities trading. 8
Footnotes:
4 ? See Securities Exchange Act Release No. 61358, 75 FR 3594, 3597 (January 21, 2010) (File No. S7-02-10) (Concept Release on Equity Market Structure).
5 ? See Cboe U.S Equities Market Volume Summary, available at https://markets.cboe.com/us/equities/market_share. See generally https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
6 ? See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of alternative trading systems registered with the Commission is available at https://www.sec.gov/foia/docs/atslist.htm.
7 ? See Cboe Global Markets U.S. Equities Market Volume Summary, available at http://markets.cboe.com/us/equities/market_share/.
8 ? See id.
The Exchange believes that the ever-shifting market share among the exchanges from month to month demonstrates that market participants can move order flow, or discontinue or reduce use of certain categories of products. While it is not possible to know a firm's reason for shifting order flow, the Exchange believes that one such reason is because of fee changes at any of the registered exchanges or non-exchange venues to which a firm routes order flow. The competition for Retail Orders? 9 is even more stark, particularly as it relates to exchange versus off-exchange venues.
Footnotes:
9 ?A Retail Order is an agency order that originates from a natural person and is submitted to the Exchange by an ETP Holder, provided that no change is made to the terms of the order to price or side of market and the order does not originate from a trading algorithm or any other computerized methodology. See Securities Exchange Act Release No. 67540 (July 30, 2012), 77 FR 46539 (August 3, 2012) (SR-NYSEArca-2012-77).
The Exchange thus needs to compete in the first instance with non-exchange venues for Retail Order flow, and with the 15 other exchange venues for that Retail Order flow that is not directed off-exchange. Accordingly, competitive forces compel the Exchange to use exchange transaction fees and credits, particularly as they relate to competing for Retail Order flow, because market participants can readily trade on competing venues if they deem pricing levels at those other venues to be more favorable.
To respond to this competitive environment, the Exchange has established a number of Retail Tiers, e.g., Retail Tier 1, Retail Tier 2, Retail Tier 3 and Retail Step-Up Tier, which are designed to provide an incentive for ETP Holders to route Retail Orders to the Exchange by providing higher credits for adding liquidity correlated to an ETP Holder's higher trading volume in Retail Orders on the Exchange. Under three of these four tiers, ETP Holders also do not pay a fee when such Retail Orders have a time-in-force of Day that remove liquidity from the Exchange.
Proposed Rule Change
The proposed rule change is designed to be available to all ETP Holders on the Exchange and is intended to provide ETP Holders an opportunity to receive enhanced rebates by quoting and trading more on the Exchange.
[top] The Exchange currently provides tiered credits for Retail Orders that provide liquidity on the Exchange. Specifically, Section VII. Tier Rates-Round Lots and Odd Lots (Per Share
Footnotes:
10 ? See Fee Schedule, Retail Tiers table under Section VII. Tier Rates-Round Lots and Odd Lots (Per Share Price $1.00 or Above).
The Exchange proposes to adopt a new pricing tier, Retail Tier 2, 11 which would provide a credit of $0.0037 per share to ETP Holders that execute an ADV of Retail Orders with a time-in-force of Day that add or remove liquidity during the month that is equal to at least 0.35% of CADV. As with current Retail Tier 1, Retail Tier 2 and Retail Step-Up Tier, under the proposed Retail Tier 2, ETP Holders that qualify for proposed Retail Tier 2 would also not be charged a fee for Retail Orders with a time-in-force of Day that remove liquidity. 12
Footnotes:
11 ?With this proposed rule change to adopt new Retail Tier 2, the Exchange proposes to rename current Retail Tier 2 to Retail Tier 3 and rename current Retail Tier 3 to Retail Tier 4.
12 ?Pursuant to footnote (e) under Retail Tiers, ETP Holders that qualify for current Retail Tier 1, Retail Tier 2 and Retail Step-Up Tier are not charged a fee or provided a credit for Retail Orders where each side of the executed order (1) shares the same MPID and (2) is a Retail Order with a time-in-force of Day. See Fee Schedule. With the proposed renaming of current Retail Tier 2 to Retail Tier 3, the Exchange also proposes to add Retail Tier 3 to current footnote (e) to reflect its applicability to the renamed tier.
With this proposed rule change, the following credits would be available to ETP Holders that provide increased levels of displayed liquidity in Retail Orders on the Exchange:
| Tier | Credit for retail adding |
|---|---|
| Retail Tier 1 | $0.0038 (Tape A, Tape B and Tape C). |
| Retail Tier 2 | $0.0037 (Tape A, Tape B and Tape C). |
| Retail Tier 3 | $0.0036 (Tape A, Tape B and Tape C). |
| Retail Tier 4 | $0.0034 (Tape A, Tape B and Tape C). |
| Retail Step-Up Tier | $0.0035 (Tape A, Tape B and Tape C). |
The purpose of the proposed rule change is to encourage greater participation from ETP Holders and promote additional liquidity in Retail Orders. As described above, ETP Holders with liquidity-providing orders have a choice of where to send those orders. The Exchange believes that the proposed new increased credit should encourage more ETP Holders to route their liquidity-providing Retail Order to the Exchange rather than to a competing exchange.
The Exchange does not know how much Retail Order flow ETP Holders choose to route to other exchanges or to off-exchange venues. While the proposed Retail Tier 2 pricing tier would be available to all ETP Holders, no ETP Holder currently qualifies given the pricing tier is new. Without having a view of ETP Holders' activity on other markets and off-exchange venues, the Exchange has no way of knowing whether this proposed rule change would result in any ETP Holders sending more of their Retail Orders to the Exchange to qualify for the proposed Retail Order credit. The Exchange cannot predict with certainty how many ETP Holders would avail themselves of this opportunity, but additional liquidity-providing Retail Orders would benefit all market participants because it would provide greater execution opportunities on the Exchange.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act, 13 in general, and furthers the objectives of Sections 6(b)(4) and (5) of the Act, 14 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.
Footnotes:
13 ?15 U.S.C. 78f(b).
14 ?15 U.S.C. 78f(b)(4) and (5).
The Proposed Fee Change Is Reasonable
As discussed above, the Exchange operates in a highly fragmented and competitive market. The Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. Specifically, in Regulation NMS, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system "has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies."? 15
Footnotes:
15 ? See supra note 3.
Given this competitive environment, the proposal represents a reasonable attempt to attract additional order flow to the Exchange.
As noted above, the competition for Retail Order flow is stark given the amount of retail limit orders that are routed to non-exchange venues. The Exchange believes that the ever-shifting market share among the exchanges from month to month demonstrates that market participants can shift order flow, or discontinue or reduce use of certain categories of products, in response to fee changes. This competition is particularly acute for non-marketable, or limit, retail orders, i.e., retail orders that can provide liquidity on an exchange. That competition is even more fierce for retail limit orders that provide displayed liquidity on an exchange. With respect to such orders, ETP Holders can choose from any one of the 16 currently operating registered exchanges to route such order flow. Accordingly, competitive forces constrain exchange transaction fees, particularly as they relate to competing for retail orders. Stated otherwise, changes to exchange transaction fees can have a direct effect on the ability of an exchange to compete for order flow.
[top] The Exchange believes the proposed change to adopt the Retail Tier 2 pricing tier is reasonable because it would provide ETP Holders with additional incentives to send a greater number of Retail Orders to the Exchange. The Exchange believes that the proposal represents a reasonable effort to provide enhanced order execution opportunities for ETP Holders. All ETP Holders would benefit from the greater amounts of liquidity on the Exchange, which would
The Exchange believes the proposed change is also reasonable because the increased credit proposed herein would continue to encourage ETP Holders to send Retail Orders to the Exchange to qualify for the proposed pricing tier. As noted above, the Exchange operates in a highly competitive environment, particularly for attracting Retail Order flow that provides displayed liquidity on an exchange. The Exchange believes it is reasonable to continue to provide credits for adding liquidity, in general, and higher credits for Retail Orders that provide displayed liquidity if an ETP Holder meets the requirement for the Retail Tiers.
Further, given the competitive market for attracting Retail Orders, the Exchange notes that with this proposed rule change, the Exchange's pricing for Retail Orders would be comparable to credits currently in place on other exchanges that the Exchange competes with for order flow. For example, Cboe EDGX Exchange, Inc. (`EDGX") provides its members with a credit of $0.0037 per share for retail orders that add liquidity to that market if an EDGX member adds liquidity in Retail Orders of at least 0.45% of CADV. 16 Additionally, MIAX PEARL, LLC ("MIAX") provides is member with a similar credit of $0.0037 per share for Retail Orders that add liquidity to that market. 17
Footnotes:
16 ? See EDGX Fee Schedule, Fee Codes and Associated Fees, at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/.
17 ? See MIAX Fee Schedule, at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Equities_Fee_Schedule_09012022.pdf.
The Exchange believes the proposed change is also reasonable because it is designed to attract higher volumes of Retail Orders transacted on the Exchange by ETP Holders which would benefit all market participants by offering greater price discovery, increased transparency, and an increased opportunity to trade on the Exchange.
On the backdrop of the competitive environment in which the Exchange currently operates, the proposed rule change is a reasonable attempt to increase liquidity on the Exchange and improve the Exchange's market share relative to its competitors.
The Proposed Fee Change Is an Equitable Allocation of Fees and Credits
The Exchange believes that the proposed rule change to adopt new Retail Tier 2 equitably allocates fees and credits among its market participants because it is reasonably related to the value of the Exchange's market quality associated with higher volume in Retail Orders. The Exchange believes that pricing is just one of the factors that ETP Holders consider when determining where to direct their order flow. Among other things, factors such as execution quality, fill rates, and volatility, are important and deterministic to ETP Holders in deciding where to send their order flow.
Further, the Exchange notes that, with this proposed rule change, the difference between the highest credit provided for Retail Orders, $0.0038 per share under Retail Tier 1, and the credit for Retail Orders that do not qualify for any Retail Order pricing tiers, $0.0032 per share, is $0.0006, or 15%, which the Exchange believes is relatively small given the heightened requirements that ETP Holders must meet to qualify for the higher credit. Similarly, with this proposed rule change, the difference in the highest credit for Retail Orders, $0.0038 per share under Retail Tier 1 and the credit provided for Retail Orders to those ETP Holders qualifying for proposed Retail Tier 2, $0.0037 per share, would only be $0.0001 per share, or less than 3%. Therefore, the Exchange believes the proposed new Retail Tier 2 pricing tier is equitably allocated and provides credits that are reasonably related to the value to the Exchange's market quality associated with higher volumes.
Finally, the Exchange believes that the proposed adoption of new Retail Tier 2 is equitable because the magnitude of the proposed credit is not unreasonably high relative to credits paid by other exchanges for orders that provide additional liquidity in Retail Orders. 18 The Exchange believes the proposed rule change would improve market quality for all market participants on the Exchange and, as a consequence, attract more Retail Orders to the Exchange, thereby improving market-wide quality and price discovery.
Footnotes:
18 ? See supra notes 16-17.
The Exchange believes that the proposed rule change equitably allocates its fees and credits because maintaining the proportion of Retail Orders in exchange-listed securities that are executed on a registered national securities exchange (rather than relying on certain available off-exchange execution methods) would contribute to investors' confidence in the fairness of their transactions and would benefit all investors by deepening the Exchange's liquidity pool, supporting the quality of price discovery, promoting market transparency and improving investor protection.
The Proposed Fee Change Is Not Unfairly Discriminatory
The Exchange believes that the proposed rule change is not unfairly discriminatory. In the prevailing competitive environment, ETP Holders are free to disfavor the Exchange's pricing if they believe that alternatives offer them better value. Moreover, the proposal neither targets nor will it have a disparate impact on any particular category of market participant. The Exchange believes that the proposal does not permit unfair discrimination because the proposal would be applied to all similarly situated ETP Holders and all ETP Holders would be similarly subject to the proposed volume requirement to qualify for the proposed new Retail Tier 2. Accordingly, no ETP Holder already operating on the Exchange would be disadvantaged by the proposed allocation of fees. The Exchange further believes that the proposed change would not permit unfair discrimination among ETP Holders because the general and tiered rates are available equally to all ETP Holders.
As described above, in today's competitive marketplace, order flow providers have a choice of where to direct liquidity-providing order flow, and the Exchange believes the proposed adoption of an increased credit under the proposed new pricing tier will incentivize greater number of ETP Holders to direct their order flow to the Exchange. Lastly, the submission of Retail Orders is optional for ETP Holders in that they could choose whether to submit Retail Orders and, if they do, the extent of its activity in this regard. The Exchange believes that it is subject to significant competitive forces, as described below in the Exchange's statement regarding the burden on competition.
For the foregoing reasons, the Exchange believes that the proposal is consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
[top] In accordance with Section 6(b)(8) of the Act, 19 the Exchange believes that the proposed rule change would not impose
Footnotes:
19 ?15 U.S.C. 78f(b)(8).
20 ? See supra note 3.
Intramarket Competition. The Exchange believes the proposed rule change does not impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. Particularly, the proposed change applies to all ETP Holders equally in that all ETP Holders are eligible for the proposed pricing tier, have a reasonable opportunity to meet the proposed pricing tier's criteria and will all receive the proposed rebate if such criteria is met. The Exchange does not believe that the proposed change represents a significant departure from previous pricing offered by the Exchange or its competitors. The proposed change is designed to attract additional order flow to the Exchange. The Exchange believes the proposed new pricing tier would continue to incentivize market participants to submit orders that qualify as Retail Order to the Exchange. Greater overall order flow, trading opportunities, and pricing transparency would benefit all market participants on the Exchange by enhancing market quality and would continue to encourage ETP Holders to send their orders to the Exchange, thereby contributing towards a robust and well-balanced market ecosystem. Additionally, the proposed rule change would apply to all ETP Holders equally in that all ETP Holders would be eligible for the proposed pricing tier, have a reasonable opportunity to meet the proposed pricing tier's criteria and would all receive the proposed credit if such criteria is met.
Intermarket Competition. The Exchange believes the proposed rule change does not 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 choose to send their orders to other exchanges and off-exchange venues if they deem fee levels at those other venues to be more favorable. As noted above, the Exchange's market share of intraday trading ( i.e., excluding auctions) is currently less than 10%. In such an environment, the Exchange must continually adjust its fees and rebates to remain competitive with other exchanges and with off-exchange venues. Because competitors are free to modify their own fees and credits in response, and because market participants may readily adjust their order routing practices, the Exchange does not believe this proposed fee change would impose any burden on intermarket competition.
The Exchange believes that the proposed change could promote competition between the Exchange and other execution venues, including those that currently offer similar order types and comparable transaction pricing, by encouraging additional orders to be sent to the Exchange for execution.
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 is effective upon filing pursuant to Section 19(b)(3)(A)? 21 of the Act and subparagraph (f)(2) of Rule 19b-4? 22 thereunder, because it establishes a due, fee, or other charge imposed by the Exchange.
Footnotes:
21 ?15 U.S.C. 78s(b)(3)(A).
22 ?17 CFR 240.19b?4(f)(2).
At any time within 60 days of the filing of such 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 shall institute proceedings under Section 19(b)(2)(B)? 23 of the Act to determine whether the proposed rule change should be approved or disapproved.
Footnotes:
23 ?15 U.S.C. 78s(b)(2)(B).
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
• Use the Commission's internet comment form ( http://www.sec.gov/rules/sro.shtml ); or
• Send an email to rule-comments@sec.gov. Please include File Number SR-NYSEARCA-2022-75 on the subject line.
Paper Comments
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEARCA-2022-75. 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 ( http://www.sec.gov/rules/sro.shtml ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal offices of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSEARCA-2022-75, and should be submitted on or before December 9, 2022.
[top]
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 24
Footnotes:
24 ?17 CFR 200.30-3(a)(12).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-25088 Filed 11-17-22; 8:45 am]
BILLING CODE 8011-01-P