[Federal Register Volume 84, Number 140 (Monday, July 22, 2019)]
[Notices]
[Pages 35173-35175]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15472]



[[Page 35173]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86386; File No. SR-NYSE-2019-37]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Its Price List To Offer a New Monthly Rebate for Designated 
Market Makers Assigned 30 or Fewer Securities

July 16, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 1, 2019, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Price List to offer a new 
monthly rebate for Designated Market Makers (``DMM'') assigned 30 or 
fewer securities. The Exchange proposes to implement the fee change 
effective July 1, 2019. 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 its Price List to offer a new 
monthly rebate to Designated Market Makers (``DMM'') assigned 30 or 
fewer securities.
    The proposed change responds to the current competitive environment 
by offering an additional incentive to existing, smaller DMMs to quote 
on the Exchange. The proposed incentive also seeks to attract new DMMs 
in order to expand and diversify the pool of Exchange DMMs.
    The Exchange proposes to implement the fee change effective July 1, 
2019.
Competitive Environment
    The Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. In Regulation NMS, 
the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \4\
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    \4\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 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.'' 
\5\ Indeed, equity trading is currently dispersed across 13 
exchanges,\6\ 31 alternative trading systems,\7\ 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).\8\ Therefore, no exchange possesses significant pricing power 
in the execution of equity order flow. More specifically, in June 2019, 
the Exchange averaged less than 9.2% market share (excluding auctions) 
of executed volume of equity trades in all securities.\9\
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    \5\ See Securities Exchange Act Release No. 51808, 84 FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18) (Transaction Fee Pilot 
for NMS Stocks Final Rule) (``Transaction Fee Pilot'').
    \6\ See Cboe Global Markets, U.S. Equities Market Volume Summary 
(June 28, 2019), available at http://markets.cboe.com/us/equities/market_share/. See generally https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
    \7\ 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.
    \8\ See Cboe Global Markets U.S. Equities Market Volume Summary 
(June 28, 2019), available at http://markets.cboe.com/us/equities/market_share/.
    \9\ See id.
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
move order flow, or discontinue or reduce use of certain categories of 
products, in response to fee changes. With respect to non-marketable 
order flow that would provide displayed liquidity on an Exchange 
against which market makers can quote, member organizations can choose 
from any one of the 13 currently operating registered exchanges to 
route such order flow. Accordingly, competitive forces constrain 
exchange fees that relate to providing incentives for market makers to 
compete for order flow.
    In response to this competitive environment, the Exchange has 
established incentives for its DMMs to quote at specified levels. The 
proposed fee change is designed to (1) encourage market maker quoting 
by offering an additional incentive to existing, smaller DMMs to quote 
on the Exchange, and (2) attract new DMMs in order to expand and 
diversify the pool of Exchange DMMs.
Proposed Rule Change
    The Exchange proposes to pay to a DMM with 30 or fewer assigned 
securities a new, monthly rebate of $1,500 per security, up to a 
maximum of $10,000. The proposed rebate would be payable for each 
security assigned to such a DMM in the previous month (regardless of 
whether the stock price exceeds $1.00) for which that DMM provides 
quotes at the National Best Bid (``NBB'') and National Best Offer 
(``NBO,'' together the ``NBBO'') at least 25% of the time in the 
applicable month. As proposed, the monthly rebate would be in addition 
to the current rate on transactions and would be prorated to the number 
of trading days in a month that an eligible security is assigned to a 
DMM.
    For example, if a DMM is assigned 8 securities during the entire 
month of March, in April, if the DMM provides quotes at the NBBO in the 
applicable security at least 25% of the time, the Exchange would 
calculate the DMM's rebate as 8 x $1,500 = $12,000. Since the proposed 
benefit is capped at $10,000 per month, the DMM would receive a credit 
of $10,000.

[[Page 35174]]

    The proposed rule change is designed to provide smaller market 
makers (i.e., DMMs with 30 or fewer assigned securities) with an added 
incentive to quote in their assigned securities at the NBBO at least 
25% of the time in a given month. As described above, member 
organizations have a choice of where to send order flow. The Exchange 
believes that incentivizing DMMs on the Exchange to quote at the NBBO 
more frequently could attract additional orders to the Exchange and 
contribute to price discovery. In addition, additional liquidity-
providing quotes benefit all market participants because they provide 
greater execution opportunities on the Exchange and improve the public 
quotation.
    Moreover, the Exchange believes that the proposed change is 
designed to attract additional DMMs to the Exchange. Currently, the 
Exchange has five DMMs, only one of which has fewer than 30 assigned 
securities and therefore could qualify for the rebate. The Exchange's 
affiliate, NYSE Arca, Inc. (``NYSE Arca''), for instance, has more than 
three times as many primary market makers.\10\ The Exchange cannot 
predict with certainty whether and how many member organizations would 
avail themselves of the opportunity to become an Exchange DMM. However, 
the Exchange believes that the proposed rebate could incentivize 
additional firms to become DMMs on the Exchange by making it easier for 
smaller entrants.
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    \10\ There are 18 competing Lead Marker Makers (``LMMs'') on 
NYSE Arca. See https://www.nyse.com/markets/nyse-arca/membership.
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    The proposed change is 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,\11\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\12\ 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4) & (5).
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The Proposed 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.'' \13\
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    \13\ 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.'' 
\14\ Indeed, equity trading is currently dispersed across 13 
exchanges,\15\ 31 alternative trading systems,\16\ and numerous broker-
dealer internalizers and wholesalers. Based on publicly-available 
information, no single exchange has more than 18% of the market share 
of executed volume of equity trades (whether including or excluding 
auction volume).\17\ Therefore, no exchange possesses significant 
pricing power in the execution of equity order flow. More specifically, 
in June 2019, the Exchange had 9.2% market share of executed volume of 
equity trades (excluding auction volume).\18\
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    \14\ See Transaction Fee Pilot, 84 FR at 5253.
    \15\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary (June 28, 2019), available at http://markets.cboe.com/us/equities/market_share/. See generally https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
    \16\ 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.
    \17\ See Cboe Global Markets U.S. Equities Market Volume Summary 
(June 28, 2019), available at http://markets.cboe.com/us/equities/market_share/.
    \18\ See id.
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
move order flow, or discontinue or reduce use of certain categories of 
products, in response to fee changes. With respect to non-marketable 
order flow that would provide displayed liquidity on an Exchange 
against which market makers can quote, member organizations can choose 
from any one of the 13 currently operating registered exchanges to 
route such order flow. Accordingly, competitive forces constrain 
exchange fees that relate to providing incentives for market makers to 
compete for order flow.
    The Exchange believes that the proposal to offer an additional 
rebate to a DMM with 30 or fewer assigned securities if it increases 
its quoting at the NBBO is a reasonable means to improve market 
quality, attract additional order flow to a public market, and enhance 
execution opportunities for member organizations on the Exchange, to 
the benefit of all market participants. The proposed change is also a 
reasonable attempt to attract additional DMMs to the Exchange by 
providing a financial incentive for smaller firms to become DMMs. The 
Exchange notes that the proposal would also foster liquidity provision 
and stability in the marketplace and reduce smaller DMM's reliance on 
transaction fees. The proposal would also reward DMMs, who have greater 
risks and heightened quoting and other obligations than other market 
participants.
The Proposal Is an Equitable Allocation of Fees
    The Exchange believes the proposal equitably allocates its fees 
among its market participants by fostering liquidity provision and 
stability in the marketplace and reducing smaller DMM's reliance on 
transaction fees. Moreover, the proposal is an equitable allocation of 
fees because it would reward DMMs for their increased risks and 
heightened quoting and other obligations. As such, it is equitable to 
offer smaller DMMs an additional flat, per security credit up to a 
maximum amount with the current credits for orders that add liquidity.
    The proposed rebate is also equitable because it would apply 
equally to all existing and potential DMM firms of a certain size. The 
Exchange notes that there is currently only one DMM firm that could 
qualify for the proposed rebate based on its number of assigned 
securities. The Exchange believes the proposed rebate could provide an 
incentive for other market participants to become DMMs on the Exchange. 
The Exchange believes that the proposal would provide an equal 
incentive to all member organizations to become DMMs, and that the 
proposal constitutes an equitable allocation of fees because all 
similarly situated member organizations would be eligible for the same 
rebate.
The Proposal Is Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory. In the prevailing competitive environment, member 
organizations are free to disfavor the Exchange's pricing if they 
believe that alternatives offer them better value. For example, member 
organizations could display quotes on competing exchanges rather than

[[Page 35175]]

quoting sufficiently on the Exchange to meet the 25% NBBO quoting 
requirement. The Exchange believes that offering this rebate would 
provide a further incentive for smaller and new DMMs to quote and trade 
their assigned securities on the Exchange, and will generally allow the 
Exchange and DMMs to better compete for order flow, thus enhancing 
competition. The Exchange also believes that the requirement of 30 or 
more assigned securities to qualify for the credit is not unfairly 
discriminatory because it would apply equally to all member 
organizations.
    Finally, 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,\19\ 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 incentivize DMMs on the Exchange to 
quote at the NBBO more frequently, which could attract additional 
liquidity and contribute to price discovery. Additional liquidity-
providing quotes benefit all market participants because it provides 
greater execution opportunities on the Exchange and improves the public 
quotation. 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.'' \20\
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    \19\ 15 U.S.C. 78f(b)(8).
    \20\ Regulation NMS, 70 FR at 37498-99.
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    Intramarket Competition. The proposed change is designed to attract 
additional order flow and new DMMs to the Exchange. The Exchange 
believes that the proposed rebate would continue to incentivize smaller 
DMMs to quote at the NBBO more frequently, which could attract 
additional liquidity and contribute to price discovery. Greater 
liquidity benefits all market participants because it provides greater 
execution opportunities on the Exchange. The proposed rebate 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 orders to other exchange and off-exchange venues if they deem fee 
levels at those other venues to be more favorable. As noted, for the 
month of June 2019, the Exchange's market share of intraday trading 
(excluding auctions) was 9.2%.\21\ 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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    \21\ See note 9, supra.
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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) \22\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \23\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 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) \24\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \24\ 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-NYSE-2019-37 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-NYSE-2019-37. 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 office 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-NYSE-2019-37 and should be submitted on 
or before August 12, 2019.
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    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15472 Filed 7-19-19; 8:45 am]
 BILLING CODE 8011-01-P