[Federal Register Volume 85, Number 32 (Tuesday, February 18, 2020)]
[Notices]
[Pages 8982-8985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03094]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88165; File No. SR-NYSE-2020-08]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Its Price List

February 11, 2020.
    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 January 31, 2020, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 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 its Price List to eliminate the Step 
Up Tier 2 Adding Credit. The Exchange proposes to implement the fee 
changes effective February 3, 2020. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Price List to eliminate the Step 
Up Tier 2 Adding Credit.
    The proposed change responds to the current competitive environment 
where order flow providers have a choice of where to direct liquidity-
providing orders by offering further incentives for member 
organizations to send additional displayed liquidity to the Exchange.
    The Exchange proposes to implement the fee changes effective 
February 3, 2020.
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\
---------------------------------------------------------------------------

    \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'').
---------------------------------------------------------------------------

    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

[[Page 8983]]

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, the Exchange's market share of trading in Tapes A, B and 
C securities combined is less than 15%.
---------------------------------------------------------------------------

    \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, 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, 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.
    \8\ See Cboe Global Markets U.S. Equities Market Volume Summary, 
available at http://markets.cboe.com/us/equities/market_share/.
---------------------------------------------------------------------------

    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, 
member organizations 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 
established incentives for its member organizations who submit orders 
that provide liquidity on the Exchange. The proposed fee change is 
designed to eliminate a pricing tier intended to incentivize member 
organizations to step up their liquidity-providing orders on the 
Exchange on all tapes that has not encouraged member organizations to 
increase their activity on the Exchange.
Proposed Rule Change
    Under the current Step Up Tier 2 Adding Credit, a member 
organization that sends orders, except Mid-Point Liquidity Orders 
(``MPL'') and Non-Displayed Limit Orders, that add liquidity (``Adding 
ADV'') in Tape A securities would receive a credit of $0.0029 if:
     The member organization quotes at least 15% of the 
National Best Bid or Offer (``NBBO'') in 300 or more Tape A securities 
on a monthly basis, and
     the member organization's Adding ADV as a percentage of 
NYSE consolidated average daily volume (``CADV''), excluding any orders 
by a Designated Market Maker (``DMM''), that is at least two times more 
than the member organization's July 2019 Adding ADV as a percentage of 
NYSE CADV, and
     the member organization's Adding ADV as a percentage of 
NYSE CADV, excluding any liquidity added by a DMM, exceeds that member 
organization's Adding ADV in July 2019 taken as a percentage of NYSE 
CADV by at least 1.05% of NYSE CADV over that Member Organization's 
July 2019 Adding ADV as a percentage of NYSE CADV.
    In addition, a member organization that meets these requirements, 
and thus qualifies for the $0.0029 credit in Tape A securities, would 
be eligible to receive an additional $0.00005 per share if trades in 
Tapes B and C securities against the member organization's orders that 
add liquidity, excluding orders as a Supplemental Liquidity Provider 
(``SLP''), equal to at least 0.20% of Tape B and Tape C CADV combined.
    The Exchange proposes to eliminate this tier in its entirety. 
Current Step Up Tier 3 Adding Credit would become the new Step Up Tier 
2 Adding Credit. The requirements for qualifying for the current Step 
Up Tier 3 Adding Credit would remain unchanged.
    The Exchange proposes eliminating the tier because it has not 
encouraged member organizations to increase their activity in order to 
qualify for the tier as significantly as the Exchange had anticipated. 
The Exchange does not know how much order flow member organizations 
choose to route to other exchanges or to off-exchange venues. The 
Exchange has nonetheless observed that, historically, few members have 
received this credit, with little associated volume, and it has not 
served to meaningfully increase activity on the Exchange or improve 
market quality. Indeed, no member organization currently qualifies for 
the credit. The Exchange therefore proposes to eliminate it.
    The proposed change is not otherwise intended to address other 
issues, and the Exchange is not aware of any significant problems that 
market participants would have in complying with the proposed changes.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\10\ 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.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) & (5).
---------------------------------------------------------------------------

The Proposed 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.'' \11\
---------------------------------------------------------------------------

    \11\ See Regulation NMS, 70 FR at 37499.
---------------------------------------------------------------------------

    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 
orders which provide liquidity on an Exchange, member organizations 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 
displayed liquidity on an exchange. Stated otherwise, changes to 
exchange transaction fees can have a direct effect on the ability of an 
exchange to compete for order flow.
    Given the competitive environment, the proposal to eliminate the 
Step Up Tier 2 Adding Credit is reasonable. Currently, no member 
organization qualifies for the credit. Member organizations have not 
increased their activity significantly as the Exchange anticipated they 
would in order to qualify for the credit, related volume is low, and it 
has not served to meaningfully increase volume or market quality.
The Proposal is an Equitable Allocation of Fees
    The Exchange believes the proposal equitably allocates its fees 
among its market participants by fostering

[[Page 8984]]

liquidity provision and stability in the marketplace.
    The Exchange believes that eliminating the step up tier constitutes 
an equitable allocation of fees because it would apply equally to all 
similarly situated member organizations that submit orders to the NYSE, 
and that all such member organizations would continue to be subject to 
the same fee structure, and access to the Exchange's market would 
continue to be offered on fair and nondiscriminatory terms. As noted, 
the credit has not prompted a meaningful increase in volume or market 
quality. No member organization currently qualifies for the credit, and 
no member organization would accordingly be affected by its 
elimination.
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.
    The proposal is not unfairly discriminatory because it neither 
targets nor will it have a disparate impact on any particular category 
of market participant. The proposal does not permit unfair 
discrimination because elimination of the tier would apply to all 
similarly situated member organizations and other market participants, 
who would all be eligible for the remaining step up credits on an equal 
basis. As noted, no member organization currently qualifies for the 
credit and thus no member organizations operating on the Exchange would 
be disadvantaged by its elimination. In addition, elimination of the 
credit would allow the Exchange to consider new, more effective 
incentives to attract order flow to the Exchange.
    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,\12\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, as discussed above, the Exchange believes 
that the proposed changes would encourage the submission of additional 
liquidity to a public exchange, thereby promoting market depth, price 
discovery and transparency and enhancing order execution opportunities 
for member organizations. As a result, the Exchange believes that the 
proposed change furthers the Commission's goal in adopting Regulation 
NMS of fostering integrated competition among orders, which promotes 
``more efficient pricing of individual stocks for all types of orders, 
large and small.'' \13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b)(8).
    \13\ Regulation NMS, 70 FR at 37498-99.
---------------------------------------------------------------------------

    Intramarket Competition. The Exchange believes that the proposed 
elimination of the step up credit will not place any undue burden on 
competition. The credit has not served its intended purpose of 
incentivizing a broader population of member organizations to increase 
their participation on the Exchange. Elimination of the credit would 
impact no member organizations because no member organization currently 
qualifies for it. Moreover, member organizations may seek to mitigate 
the effects of the loss of the credit by qualifying for the remaining 
step up credits the Exchange offers that would remain available to all 
market participants. Accordingly, 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. As 
previously noted, the Exchange's market share of trading in Tapes A, B 
and C securities combined is under 15%. 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. The Exchange's proposal 
to eliminate the step up tier credit will not meaningfully impact 
intermarket competition. As discussed above, no member organization 
currently qualifies for the credit. The Exchange also believes that the 
proposed change is designed to provide the public and investors with a 
Price List that is clear and consistent, thereby reducing burdens on 
the marketplace and facilitating investor protection.

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) \14\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \15\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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) \16\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \16\ 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 [email protected]. Please include 
File Number SR-NYSE-2020-08 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-2020-08. 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

[[Page 8985]]

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-2020-08 and should be submitted on 
or before March 10, 2020.
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-03094 Filed 2-14-20; 8:45 am]
 BILLING CODE 8011-01-P