[Federal Register Volume 84, Number 139 (Friday, July 19, 2019)]
[Notices]
[Pages 34979-34984]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15346]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86377; File No. SR-NYSEArca-2019-53]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE
Arca Equities Fees and Charges
July 15, 2019.
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 July 12, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 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 the NYSE Arca Equities Fees and
Charges (``Fee Schedule'') to adopt new pricing tiers, Mid-Point
Liquidity Orders Step Up Tier 1 and 2, and modify current Tier 3. The
Exchange proposes to implement the fee changes effective July 12,
2019.\4\ 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.
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\4\ The Exchange originally filed to amend the Fee Schedule on
July 1, 2019 (SR-NYSEArca-2019-47). SR-NYSEArca-2019-47 was
subsequently withdrawn and replaced by this filing.
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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 the Fee Schedule to adopt new
pricing tiers that would (1) provide an additional incentive for all
ETP Holders (including Market Makers) \5\ to send liquidity-providing
Mid-Point Liquidity (``MPL'') Orders \6\ to the Exchange, and (2)
provide additional incentives for ETP Holders to provide displayed
liquidity in Tapes A and C Securities.
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\5\ All references to ETP Holders in connection with the MPL
Orders Step Up Tier include Market Makers.
\6\ A MPL Order is a limit order that is not displayed and does
not route, with a working price at the midpoint of the Protected
Best Bid/Offer. See NYSE Arca Rule 7.31-E(d)(3).
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With respect to MPL Orders, the Exchange currently has multiple
levels of credits, ranging from $0.0010 per share to $0.0020 per share,
for ETP Holders that send MPL Orders that provide liquidity. The amount
of the per share credit is based on an ETP Holder's traded volume
against its MPL orders that provide liquidity.
The purpose of this proposed rule change is to add new pricing
tiers to incentivize ETP Holders to increase the liquidity-providing
MPL Orders they send to the Exchange as compared to such orders sent in
May 2019. Specifically, the Exchange proposes that an ETP Holder would
receive the following credits:
If an ETP Holder's traded volume against its MPL orders
that provide liquidity is one million shares more than such ETP
Holder's baseline of MPL liquidity-providing average daily volume
(``ADV''), as measured in May 2019, the ETP Holder will receive a
credit of $0.0025 per share for such MPL orders (proposed MPL Orders
Step Up Tier 2); or
If an ETP Holder's traded volume against its MPL orders
that provide liquidity is two million shares more than such ETP
Holder's baseline of MPL liquidity-providing ADV, as measured in May
2019, the ETP Holder will receive a credit of $0.0026 per share for
such MPL orders (proposed MPL Orders Step Up Tier 1).
The Exchange also proposes to introduce a credit of $0.0027 per
share for adding displayed liquidity in Tapes A and C Securities if an
ETP Holder meets both the existing Tier 3 requirements and increases
its executed providing volume over its providing ADV as a percent of US
CADV from May 2019.
[[Page 34980]]
The Exchange proposes to implement the fee changes effective July
12, 2019.
Background
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.'' \7\
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\7\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule)
(``Regulation NMS'').
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As the Commission itself recognized, the market for trading
services in NMS stocks has become ``more fragmented and competitive.''
\8\ Indeed, equity trading is currently dispersed across 13
exchanges,\9\ 31 alternative trading systems,\10\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow.
Based on publicly-available information, no single exchange has more
than 18% market share (whether including or excluding auction
volume).\11\ Therefore, no exchange possesses significant pricing power
in the execution of equity order flow. More specifically, for the first
five months of 2019, the Exchange averaged less than 9% market share of
executed volume of equity trades.\12\
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\8\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Final rule)
(``Transaction Fee Pilot'').
\9\ See Cboe U.S. Equities Market Volume Summary at https://markets.cboe.com/us/equities/market_share.
\10\ See FINRA ATS Transparency Data (June 3, 2019), available
at https://otctransparency.finra.org/otctransparency/AtsIssueData.
Although 54 alternative trading systems were registered with the
Commission as of May 31, 2019, only 31 are currently trading. A list
of alternative trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/atslist.htm.
\11\ See Cboe Global Markets U.S. Equities Market Volume Summary
(June 28, 2019), available at http://markets.cboe.com/us/equities/market_share/.
\12\ Based on Cboe U.S. Equities Market Volume Summary, the
Exchange's market share of intraday trading (excluding auctions) for
the months of January 2019, February 2019, March 2019, April 2019
and May 2019 was 9.01%, 8.33%, 9.02%, 8.73% and 8.8%, respectively.
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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, in response to fee changes. With respect to non-marketable
order flow that would provide liquidity on an Exchange, ETP Holders can
choose from any one of the 13 currently operating registered exchanges
to route such order flow. Accordingly, competitive forces constrain
exchange transaction fees that relate to orders that would provide
liquidity on an exchange.
In response to this competitive environment, the Exchange has
already established multiple levels of credits for MPL Orders that
allow ETP Holders to passively interact with trading interest on the
Exchange and offer potential price improvement to incoming marketable
orders submitted to the Exchange.\13\ In order to provide an incentive
for ETP Holders to provide such liquidity to the Exchange, the credits
increase based on increased levels of volume directed to the Exchange.
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\13\ See, e.g., Securities Exchange Act Release No. 54511
(September 26, 2006), 71 FR 58460, 58461 (October 3, 2006) (SR-PCX-
2005-53).
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More specifically, the Exchange currently provides per share
credits under Tier 1, Tier 2 and Basic Rates \14\ for MPL Orders that
provide liquidity based on the ADV of provided liquidity in MPL Orders
for Tape A, Tape B and Tape C Securities combined (``MPL Adding ADV'').
For ETP Holders that have MPL Adding ADV during a billing month of at
least 3 million shares, the Exchange provides a credit of $0.0015 per
share for Tape A Securities and $0.0020 per share for Tape B and Tape C
Securities. For ETP Holders with MPL Adding ADV during a billing month
of at least 1.5 million shares but less than 3 million shares, the
Exchange provides a credit of $0.0015 per share for Tape A, Tape B and
Tape C Securities. For ETP Holders with MPL Adding ADV during a billing
month of less than 1.5 million shares, the Exchange provides a credit
of $0.0010 per share for Tape A, Tape B and Tape C Securities.\15\
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\14\ Tier 1 applies to ETP Holders (1) that provide liquidity an
average daily share volume per month of 0.70% or more of the US
CADV. Tier 2 applies to ETP Holders that provide liquidity an
average daily share volume per month of 0.30% or more, but less than
0.70% of the US CADV. Basic Rates apply when tier rates do not
apply. US CADV means United States Consolidated Average Daily Volume
for transactions reported to the Consolidated Tape, excluding odd
lots through January 31, 2014 (except for purposes of Lead Market
Maker pricing), and excludes volume on days when the market closes
early and on the date of the annual reconstitution of the Russell
Investments Indexes. Transactions that are not reported to the
Consolidated Tape are not included in US CADV.
\15\ The Exchange charges a fee of $0.0030 per share for MPL
Orders in Tape A, Tape B and Tape C Securities that remove liquidity
from the Exchange that are not designated as ``Retail Orders.'' MPL
Orders removing liquidity from the Exchange that are designated as
Retail Orders are subject to a fee of $0.0010 per share. See Fee
Schedule.
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In addition, the Exchange currently has different rates depending
on whether an ETP Holder meets different specified volume thresholds.
Under the current Tier 3 threshold, if an ETP Holder provides liquidity
of an average daily share volume per month of 0.20% or more, but less
than 0.30% of US CADV, that ETP Holder is eligible for the specified
Tier 3 fees and credits. For Tape A and C Securities, if an ETP Holder
qualifies for Tier 3, that ETP Holder is eligible for a $0.0025 per
share credit for orders that provide liquidity to the Book, and is
charged a fee of $0.0030 per share for order that take liquidity from
the Book.
Proposed Fee Change for MPL Orders
The Exchange proposes two additional tiers designed to provide an
additional incentive for ETP Holders to enter MPL Orders that post
interest on the Exchange. As proposed:
An ETP Holder that qualifies for the ``MPL Orders Step Up
Tier 2'' is eligible for a $0.0025 per share credit for MPL Orders that
provide liquidity in Tape A, Tape B, and Tape C Securities. To qualify
for this tier, ETP Holders must provide liquidity to the Book in MPL
Orders in Tape A, Tape B and Tape C Securities combined (``MPL Adding
ADV'') during the billing month equal to at least one million shares
more than the ETP Holder's May 2019 MPL Adding ADV.
An ETP Holder that qualifies for the ``MPL Orders Step Up
Tier 1'' is eligible for a $0.0026 per share credit in MPL Orders that
provide liquidity in Tape A, Tape B, and Tape C Securities. To qualify
for this tier, ETP Holders must provide liquidity to the Book in MPL
Orders in Tape A, Tape B and Tape C Securities combined (``MPL Adding
ADV'') during the billing month equal to at least two million shares
more than the ETP Holder's May 2019 MPL Adding ADV.
The goal of the proposed change to add MPL Orders Step Up Tiers 1
and 2 is to incentivize ETP Holders with higher per share credits to
increase the number of MPL Orders they post on the Exchange's Book,
which would provide additional price improvement opportunities for
incoming orders. MPL Orders allow for additional opportunities for
passive interaction with trading interest on the Exchange and are
designed to offer potential price improvement to incoming marketable
orders submitted to the Exchange. The Exchange believes that by
correlating the level of the credit to the level of MPL Adding ADV, the
Exchange's fee structure would incentivize ETP Holders to submit more
liquidity-
[[Page 34981]]
providing MPL Orders to the Exchange, thereby increasing the potential
for price improvement to incoming marketable orders submitted to the
Exchange.
The Exchange proposes to increase the credits available under the
proposed MPL Orders Step Up Tiers to provide an incentive for ETP
Holders to send increased order flow to qualify for these tiers. As
noted above, the Exchange operates in a competitive environment,
particularly as it relates to attracting MPL Orders that are posted on
the Exchange's Book. Because each of the proposed MPL Orders Step Up
Tiers would require ETP Holders to provide increased liquidity over
that ETP Holder's baseline providing volume, the Exchange believes that
the proposed increased credits would incentivize ETP Holders to route
additional liquidity providing MPL Orders to the Exchange to qualify
for the higher credit.
The Exchange does not know how much order flow ETP Holders choose
to route to other exchanges or to off-exchange venues. There are
currently two firms that qualify for the credits associated with MPL
Orders under current Tier 1, while five other firms currently qualify
for the credits associated with MPL Orders under current Tier 2. The
Exchange further notes that there are 12 firms that currently have MPL
Adding ADV of at least 500,000 shares and if these firms were to submit
more of their liquidity-providing MPL Orders to the Exchange, each
could qualify for the proposed increased credits under either of the
proposed MPL Orders Step Up tiers. However, 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 qualifying for these tiers. The Exchange
believes the proposed higher credits would provide an incentive for ETP
Holders to submit additional liquidity-providing MPL Orders to the
Exchange to qualify for the higher credits.
Proposed Rule Change for Tier 3
The Exchange proposes to provide an increased incentive for ETP
Holders that otherwise qualify for the current Tier 3 to send displayed
orders to the Exchange in Tape A and C Securities. As proposed, if an
ETP Holder (including Market Makers) meets the requirements of Tier 3
and, for the billing month, its ADV of executed orders that provide
liquidity is at least 0.05% of US CADV more than the ETP Holder's ADV
of executed orders that provide liquidity as a percent of US CADV in
May 2019, that ETP Holder would be eligible for a $0.0027 per share
credit for orders that provide liquidity to the Book in Tape A and C
Securities.
For example, assume an ETP Holder has an ADV of executed orders
that provide liquidity of 0.10% of US CADV in all securities in the
baseline month of May 2019. If that ETP Holder has an ADV of executed
orders that provide liquidity of 0.25% of US CADV in the billing month,
that ETP Holder would qualify for current Tier 3 credits of $0.0025 per
share in Tape A and C Securities by meeting the 0.20% adding
requirement, but would also qualify for the proposed higher credits of
$0.0027 per share by meeting the 0.05% step up requirement with an
increase of 0.15% (0.0025% Adding ADV in the billing month minus the
0.0010% Adding ADV in the baseline month).
The goal of this proposed rule change is to provide an additional
incentive for ETP Holders to send displayed liquidity to the Exchange.
If an ETP Holder qualifies for Tier 3 and meets the additional proposed
volume requirements, that ETP Holder would be eligible for an increased
credit for displayed liquidity as compared to the current credit for
qualifying for Tier 3, which is $0.0025 per share credit for orders
that provide liquidity in Tape A and C Securities.
With this proposed change, the following credits would be available
for orders that provide liquidity to the Book in Tapes A and C
Securities:
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Per share credit for orders
Tier providing liquidity
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Tier 1................................. $0.0031 (Tape A), $0.0032 (Tape
C).
Tier 2................................. $0.0031 (Tapes A and C) or
$0.0029 (Tapes A and C).
Tier 3................................. $0.0025 (Tape A and C) or
$0.0027 (Tape A and C).
Step Up Tier........................... $0.0030 (Tape A), $0.0031 (Tape
C).
Step Up Tier 2......................... $0.0028 (Tapes A and C).
Step Up Tier 3......................... $0.0025 (Tapes A and C).
Step Up Tier 4......................... $0.0033 (Tapes A and C).
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As noted above, the Exchange operates in a competitive environment,
particularly as it relates to attracting non-marketable, providing
liquidity that would be displayed on the Exchange. The proposed rule
change is designed to incentivize ETP Holders to increase the orders
sent to the Exchange that would provide displayed liquidity, which
would support the quality of price discovery and transparency on the
Exchange. The Exchange believes that by correlating the level of the
credit to the level of executed providing volume on the Exchange, the
Exchange's fee structure would incentivize ETP Holders to submit more
displayed, liquidity-providing orders to the Exchange that are likely
to be executed (i.e., are not orders that are intended to be displayed,
but are priced such that they are not likely to be executed), thereby
increasing the potential for incoming marketable orders submitted to
the Exchange to receive an execution.
Applicability of Proposed Rule Change
Both of the proposed changes to the Fee Schedule are designed to be
available to all ETP Holders on the Exchange.
With respect to the proposed new MPL Orders Step Up Tiers, there
are currently two ETP Holders that have qualified for the credits
associated with MPL Orders under current Tier 1, while five other ETP
Holders currently qualify for the credits associated with MPL Orders
under current Tier 2. The Exchange further notes that there are 12 ETP
Holders that currently have MPL Adding ADV of at least 500,000 shares
and if these firms were to submit more of their liquidity-providing MPL
Orders to the Exchange, each could qualify for the proposed increased
credits under either of the proposed MPL Order Step Up tiers.
With respect to the proposed new credit under Tier 3 for orders
that provide liquidity, there are currently four ETP Holders that
qualify for Tier 3. The Exchange believes that each of these ETP
Holders could meet the proposed volume requirements to qualify for the
proposed new credit for displayed liquidity under this tier. In
addition, the Exchange believes that there are additional ETP Holders
that could qualify for both the existing Tier
[[Page 34982]]
3 requirements as well as the proposed new requirements in order to
qualify for the proposed new credit. However, without having a view of
ETP Holders' activity on other markets and off-exchange venues, the
Exchange has no way of knowing whether these proposed rule changes
would result in any ETP Holders qualifying for any of these proposed
new credits.
The proposed changes are not otherwise intended to address any
other issues, and the Exchange is not aware of any significant problems
that market participants would have in complying with the proposed
changes.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\16\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\17\ 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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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Fee Change is Reasonable
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. 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.'' \18\
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\18\ See Regulation NMS, 70 FR at 37499.
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As the Commission itself recognized, the market for trading
services in NMS stocks has become ``more fragmented and competitive.''
\19\ Indeed, equity trading is currently dispersed across 13
exchanges,\20\ 31 alternative trading systems,\21\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow.
Based on publicly-available information, no single exchange has more
than 18% market share (whether including or excluding auction
volume).\22\ Therefore, no exchange possesses significant pricing power
in the execution of equity order flow. More specifically, for the first
five months of 2019, the Exchange averaged less than 9% market share of
executed volume of equity trades (excluding auction volume).\23\ The
Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow, or discontinue to reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
reasonably constrain exchange transaction fees. Stated otherwise,
changes to exchange transaction fees can have a direct effect on the
ability of an exchange to compete for order flow.
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\19\ See Transaction Fee Pilot, 84 FR at 5253.
\20\ See Cboe U.S Equities Market Volume Summary at https://markets.cboe.com/us/equities/market_share.
\21\ See FINRA ATS Transparency Data (June 3, 2019), available
at https://otctransparency.finra.org/otctransparency/AtsIssueData.
Although 54 alternative trading systems were registered with the
Commission as of May 31, 2019, only 31 are currently trading. A list
of alternative trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/atslist.htm.
\22\ See Cboe Global Markets U.S. Equities Market Volume Summary
(June 28, 2019), available at http://markets.cboe.com/us/equities/market_share/.
\23\ Based on Cboe U.S. Equities Market Volume Summary, the
Exchange's market share of intraday trading (excluding auctions) for
the months of January 2019, February 2019, March 2019, April 2019
and May 2019 was 9.01%, 8.33%, 9.02%, 8.73% and 8.8%, respectively.
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The Exchange believes the proposed MPL Orders Step Up Tiers 1 and 2
are reasonable because the higher credits under the proposed MPL Orders
Step Up Tiers would provide an incentive for ETP Holders to route
additional liquidity-providing MPL Orders to the Exchange. As noted
above, the Exchange operates in a highly competitive environment,
particularly for attracting order flow that provides liquidity on an
exchange. The Exchange believes it is reasonable to continue to provide
a higher credit for orders that provide liquidity if an ETP Holder
meets the qualification for the proposed MPL Orders Step Up Tiers.
Because the proposed MPL Orders Step Up Tiers would be new with a
requirement to increase MPL Adding ADV, no ETP Holder currently
qualifies for the proposed new pricing tiers. The Exchange believes the
proposed increased credits are reasonable as they would provide an
additional incentive for ETP Holders to qualify for these new tiers and
direct their order flow to the Exchange and provide meaningful added
levels of liquidity, thereby contributing to the depth and market
quality on the Exchange.
The Exchange notes that there are currently two firms that qualify
for the credits associated with MPL Orders under current Tier 1, while
five other firms currently qualify for the credits associated with MPL
Orders under current Tier 2. The Exchange further notes that there are
12 firms that currently have MPL Adding ADV of at least 500,000 shares
and if these firms were to submit more of their liquidity-providing MPL
Orders to the Exchange, each could qualify for the proposed increased
credits. However, 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 qualifying for these tiers. The Exchange believes the proposed
higher credits would provide an incentive for ETP Holders to submit
additional adding liquidity to qualify for the higher credits.
The Exchange believes that the proposed new credit for displayed
liquidity providing orders in Tapes A and C Securities under current
Tier 3 is reasonable because it provides for an incentive for ETP
Holders to route additional displayed liquidity-providing order flow to
the Exchange, which will promote price discovery and increase execution
opportunities for all ETP Holders. The proposed pricing is structured
similarly to the Exchange's current Tier 2, which likewise provides for
a per share credit for orders that provide liquidity in Tape A and C
Securities, and provides for a higher per share credit for orders that
provide displayed liquidity if the ETP Holder meets the additional
qualifying requirements.\24\ The Exchange further believes that the
proposed change to Tier 3 is reasonable because an ETP Holder that
otherwise qualifies for the tier would still be eligible for the
current per share credit of $0.0025 per share for orders that provide
liquidity. The proposed additional credit is designed to provide an
incentive for such ETP Holder to route additional displayed providing
liquidity to the Exchange, which would be eligible for the higher
credit.
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\24\ If an ETP Holder qualifies for Tier 2, the per share credit
for orders that provide liquidity in Tape A and C Securities is
$0.0029 per share. That that ETP Holder both meets the Tier 2
qualifying requirements plus the additional requirements, the per
share credit for orders that provide displayed liquidity in Tape A
and C Securities is $0.0031 per share.
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On the backdrop of the competitive environment in which the
Exchange currently operates, the proposed rule change is a reasonable
attempt by the Exchange to increase its liquidity and improve its
market share relative to its competitors.
[[Page 34983]]
The Proposed Fee Change Is an Equitable Allocation of Credits and Fees
The Exchange believes the proposed fee change is an equitable
allocation of its fees and credits. The Exchange believes that the
proposed increased credit under the MPL Orders Step Up Tiers 1 and 2 is
equitable because the magnitude of the additional credit is not
unreasonably high in comparison to the credit paid with respect to
other pricing tiers on the Exchange, and in comparison to the credits
paid by other exchanges for orders that provide midpoint liquidity. For
example, ETP Holders currently receive credits in Tape A, Tape B and
Tape C Securities that range between $0.0010 per share and $0.0020 per
share under Tier 1, Tier 2 and Basic Rates.
With respect to credits paid by the Exchange's competitors, the
Nasdaq Stock Market LLC provides a credit of $0.0025 per share for MPL
orders in Tape A, Tape B and Tape C Securities that add non-displayed
midpoint liquidity on that market for members that add greater than 5
million shares of midpoint liquidity and add 8 million shares on non-
displayed liquidity.\25\
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\25\ See Rebate to Add Non-Displayed Midpoint Liquidity, at
http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
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The Exchange believes that the proposed new credit for liquidity
providing orders in Tapes A and C Securities under current Tier 3 is
also equitable because the proposal would continue to encourage ETP
Holders to route displayed liquidity to the Exchange in Tape A and C
Securities, thereby contributing to robust levels of liquidity, which
benefits all market participants.
The Exchange notes that there are currently 4 firms qualifying for
Tier 3 and another 4 firms within 0.1% of qualifying for Tier 3. Based
on current participation on the Exchange, one firm would qualify for
the new credit and six firms are within 0.1% of qualifying for it.
Without having a view of an ETP Holder's activity on other markets and
off-exchange venues, the Exchange believes the proposed new credit
would provide an incentive for market participants to increase
liquidity in order to qualify for the proposed credit, thereby
encouraging submission of additional liquidity to the Exchange. The
proposed change will thereby encourage the submission of additional
liquidity to a national securities exchange, thus promoting price
discovery and transparency and enhancing order execution opportunities
for ETP Holders from the substantial amounts of liquidity present on
the Exchange. All ETP Holders would benefit from the greater amounts of
liquidity that will be present on the Exchange, which would provide
greater execution opportunities.
The Exchange believes the proposed rule change would improve market
quality for all market participants on the Exchange and, as a
consequence, attract more liquidity to the Exchange thereby improving
market-wide quality. The proposal neither targets nor will it have a
disparate impact on any particular category of market participant. ETP
Holders that currently qualify for credits associated with MPL Orders
will continue to receive credits when they provide liquidity to the
Exchange. With the proposed new MPL Orders Step Up Tiers, all ETP
Holders would be eligible to qualify for the higher credit if they
increase their MPL Adding ADV over their own baseline of order flow.
The Exchange believes that recalibrating the credits for providing
liquidity will continue to attract order flow and liquidity to the
Exchange, thereby providing additional price improvement opportunities
on the Exchange and benefiting investors generally. As to those market
participants that do not presently qualify for the credits associated
with MPL Orders, the proposal will not adversely impact their existing
pricing or their ability to qualify for other credits provided by the
Exchange.
The Proposed Fee Change Is not Unfairly Discriminatory
The Exchange believes it is not unfairly discriminatory to provide
increased per share credits as the proposed increased credits would be
provided on an equal basis to all ETP Holders that add liquidity by
meeting the requirements of the proposed MPL Orders Step Up Tiers.
Further, the Exchange believes the proposed increased per share credits
would incentivize ETP Holders that meet the current tiered requirements
to send more of their MPL Orders to the Exchange to qualify for
increased credits. The Exchange also believes that the proposed change
is not unfairly discriminatory because it is reasonably related to the
value of the Exchange's market quality associated with higher volume.
The proposed increased per share credits would apply equally to all ETP
Holders as each would be required to provide liquidity in MPL Orders
for Tape A, Tape B and Tape C Securities combined during the billing
month equal to at least 2 million shares over the ETP Holder's May 2019
MPL Adding ADV in order to qualify for MPL Orders Step Up Tier 1 and at
least 1 million shares over the ETP Holder's May 2019 MPL Adding ADV in
order to qualify for MPL Orders Step Up Tier 2 regardless of whether an
ETP Holder currently meets the requirement of another pricing tier.
Similarly, the Exchange believes it is not unfairly discriminatory
to provide a higher new credit for liquidity providing orders in Tapes
A and C Securities under current Tier 3 because the proposed credit
would be provided on an equal basis to all ETP Holders that add
liquidity by meeting the Tier 3 requirements. Further, the Exchange
believes the proposed credit would incentivize ETP Holders to send more
orders to the Exchange to qualify for the higher credit.
Finally, the submission of orders to the Exchange is optional for
ETP Holders in that they could choose whether to submit orders to the
Exchange 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
In accordance with Section 6(b)(8) of the Act,\26\ 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 ETP Holders. As a result, the Exchange believes that the proposed
change furthers the Commission's goal in adopting Regulation NMS of
fostering integrated competition among orders, which promotes ``more
efficient pricing of individual stocks for all types of orders, large
and small.'' \27\
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\26\ 15 U.S.C. 78f(b)(8).
\27\ Regulation NMS, 70 FR at 37498-99.
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Intramarket Competition. The proposed changes are designed to
attract additional order flow to the Exchange. The Exchange believes
that the proposed increased credits would continue to incentivize
market participants to direct more orders to the Exchange, and in
particular, liquidity providing MPL Orders. Greater liquidity
[[Page 34984]]
benefits all market participants on the Exchange by providing more
trading opportunities and encourages ETP Holders, to send orders,
thereby contributing to robust levels of liquidity, which benefits all
market participants on the Exchange. The proposed credits would be
available to all similarly-situated market participants, and, as such,
the proposed change would not impose a disparate burden on competition
among market participants on the Exchange.
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. The
Exchange notes that for the months of January 2019, February 2019,
March 2019, April 2019 and May 2019, the Exchange's market share of
intraday trading (excluding auctions) was 9.01%, 8.33%, 9.02%, 8.73%
and 8.8%, respectively.\28\ 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.
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\28\ See note 12, supra.
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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) \29\ of the Act and subparagraph (f)(2) of Rule
19b-4 \30\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\29\ 15 U.S.C. 78s(b)(3)(A).
\30\ 17 CFR 240.19b-4(f)(2).
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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) \31\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\31\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2019-53 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-2019-53. 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-2019-53, and should be
submitted on or before August 9, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15346 Filed 7-18-19; 8:45 am]
BILLING CODE 8011-01-P