[Federal Register Volume 85, Number 34 (Thursday, February 20, 2020)]
[Notices]
[Pages 9820-9823]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03314]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88194; File No. SR-NYSEArca-2020-12]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE 
Arca Equities Fees and Charges

February 13, 2020.
    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 February 3, 2020, 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\ 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 introduce an alternative requirement to 
qualify for the Tape B Tier 1 pricing tier. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule to introduce an 
alternative requirement to qualify for the Tape B Tier 1 pricing tier.
    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 \3\ to 
send additional displayed liquidity to the Exchange.
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    \3\ All references to ETP Holders in connection with this 
proposed fee change include Market Makers.
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    The Exchange proposes to implement the fee changes effective 
February 3, 2020.
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.'' \4\
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    \4\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
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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 currently 
has more than 20% market share (whether including or excluding auction 
volume).\8\ Therefore, no exchange possesses significant

[[Page 9821]]

pricing power in the execution of equity order flow. More specifically, 
the Exchange currently has less than 10% market share of executed 
volume of equity.
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    \5\ See Securities Exchange Act Release No. 51808, 84 FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18) (Final Rule).
    \6\ 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.
    \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/.
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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. 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. With respect to non-marketable order 
flow that would provide displayed liquidity on an Exchange against 
which market makers can quote, 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 and credits that relate to orders that would provide displayed 
liquidity on an 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 rebates by quoting and trading more on the 
Exchange.
    The Exchange currently provides credits to ETP Holders who submit 
orders that provide displayed liquidity on the Exchange. The Exchange 
currently has multiple levels of credits for orders that provide 
displayed liquidity that are based on the amount of volume of such 
orders that ETP Holders send to the Exchange.
    As described in greater detail below, the Exchange proposes to 
introduce an alternative requirement to qualify for the current Tape B 
Tier 1 rebate for orders that provide liquidity to the Exchange in Tape 
B securities.
    Currently, a Tape B Tier 1 credit of $0.0030 \9\ per share applies 
to ETP Holders that, on a daily basis, measured monthly, directly 
execute providing volume in Tape B securities that is equal to at least 
1.50% of US Tape B CADV for the billing month. With this proposed rule 
change, the Exchange proposes to introduce an alternative method for 
ETP Holders to qualify for the Tape B Tier 1 credit. As proposed, ETP 
Holders could alternatively qualify for the Tape B Tier 1 credit if an 
ETP Holder who is affiliated with an OTP Holder or OTP Firm that 
provides an ADV of electronic posted executions for the account of a 
market maker in all issues on NYSE Arca Options (excluding mini 
options) of at least 0.55% of total Customer equity and ETF option ADV 
as reported by The Options Clearing Corporation (``OCC'') and the ETP 
Holder directly executes providing volume in Tape B securities during 
the billing month that is equal to
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    \9\ Under the Basic Rate, ETP Holders receive a credit of 
$0.0020 per share for Tape B orders that provide liquidity to the 
Book.
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     at least 1.00% of US Tape B CADV for the billing month of 
February 2020.
     at least 1.15% of US Tape B CADV for the billing month of 
March 2020.
     at least 1.25% of US Tape B CADV for the billing month of 
April 2020 and each billing month thereafter.
    For example, assume an ETP Holder has providing ADV of at least 15 
million shares in a billing month where US Tape B CADV is 1.2 billion 
shares, or 1.25% of US Tape B CADV. Currently, that ETP Holder would 
not qualify under the current volume requirement which requires ETP 
Holders to add at least 1.5% of US Tape B for the billing month. 
However, if that same ETP Holder was affiliated with an OTP Holder or 
OTP Firm that provides an ADV of electronic posted executions for the 
account of a market maker in all issues on NYSE Arca Options of at 
least 110,000 contracts in a billing month where total Customer equity 
and ETF option volume was 20 million contracts, or 0.55% of total 
Customer equity and ETF option volume, then the ETP Holder would 
qualify under the proposed alternative requirement and would receive a 
credit of $0.0030 per share for orders that provide liquidity in Tape B 
Securities.
    For all other fees and credits, tiered or basic rates apply based 
on a firm's qualifying levels.
    The purpose of the proposed rule change is to encourage ETP Holders 
to promote price discovery and market quality for the benefit of all 
market participants. The Exchange believes that providing credits to 
ETP Holders that are affiliated with an OTP Holder or OTP Firm that add 
liquidity in Tape B securities to the Exchange could lead to increased 
trading on the Exchange's equities and options markets.\10\ As noted 
above, the Exchange operates in a competitive environment, particularly 
as it relates to attracting non-marketable orders, which add liquidity 
to the Exchange. Because, as proposed, the tier requires an ETP Holder 
increase the volume of its trades against orders that add liquidity in 
Tape B securities at increasing levels in February 2020, March 2020, 
April 2020 and thereafter at the April 2020 level, coupled with the 
required minimum of options volume, the Exchange believes the proposed 
credit would provide an incentive for ETP Holders to route additional 
liquidity to the Exchange in order to qualify for it.
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    \10\ There are currently 55 firms that are both ETP Holders and 
OTP Holders.
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    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,\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) and (5).
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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.'' \13\
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    \13\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
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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

[[Page 9822]]

internalizers and wholesalers, all competing for order flow. As noted 
above, no exchange possesses significant pricing power in the execution 
of equity order flow.
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    \14\ See Securities Exchange Act Release No. 51808, 84 FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18) (Final rule).
    \15\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, available at https://markets.cboe.com/us/equities/market_share/.
    \16\ 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.
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    Given this competitive environment, the proposal represents a 
reasonable attempt to attract additional order flow to the Exchange. In 
particular, the Exchange believes the proposed amendment to Tape B Tier 
1 is reasonable because it provides ETP Holders affiliated with an OTP 
Holder or OTP Firm with an additional way to qualify for the Tape B 
Tier 1 rebate through equity and options orders. The Exchange believes 
that the proposed alternative to qualify for the tier utilizing a lower 
equity volume requirement coupled with a minimum options volume 
requirement is reasonable because the proposal provides firms with 
greater flexibility to reach volume tiers across asset classes, thereby 
creating an added incentive for ETP Holders to bring additional order 
flow to a public exchange, thereby encouraging greater participation 
and liquidity.
    The Exchange notes that volume-based incentives and discounts have 
been widely adopted by exchanges, including the Exchange, and are 
reasonable, equitable and not unfairly discriminatory because they are 
available to all ETP Holders on an equal basis. They also provide 
additional benefits or discounts that are reasonably related to the 
value of the Exchange's market quality and associated higher levels of 
market activity, such as higher levels of liquidity provision and/or 
growth patterns. Additionally, as noted above, the Exchange operates in 
a highly competitive market. The Exchange is one of several venues and 
off-exchange venues to which market participants may direct their order 
flow, and it represents a small percentage of the overall market. 
Competing exchanges offer similar tiered pricing structures to that of 
the Exchange, including schedules of rebates and fees that apply based 
on members achieving certain volume thresholds.
    Moreover, the Exchange believes the proposed amendment to Tape B 
Tier 1 is a reasonable means to encourage ETP Holders to increase their 
liquidity on the Exchange and their participation on NYSE Arca Options. 
The Exchange believes amending the current pricing tier by adopting an 
alternative requirement may encourage those ETP Holders who could not 
previously achieve the pricing tier to increase their order flow on the 
Exchange and on NYSE Arca Options. Increased liquidity benefits all 
investors by deepening the Exchange's liquidity pool, offering 
additional flexibility for all investors to enjoy cost savings, 
supporting the quality of price discovery, promoting market 
transparency and improving investor protection.
The Proposed Fee Change Is an Equitable Allocation of Fees and Credits
    The Exchange believes the proposed rule change to adopt an 
alternative way to qualify for the Tape B Tier 1 credit equitably 
allocates its fees and credits among market participants because it is 
reasonably related to the value of the Exchange's market quality 
associated with higher equities and options volume. Additionally, a 
number of ETP Holders have a reasonable opportunity to satisfy the 
tier's criteria.\17\
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    \17\ See supra, note 11.
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    The Exchange does not know how much order flow ETP Holders choose 
to route to other exchanges or to off-exchange venues. The proposed 
alternative method to qualify for the Tape B Tier 1 credit would be 
available to all ETP Holders that are also [sic] OTP Holders or OTP 
Firms. There are currently 3 ETP Holders that qualify for the Tape B 
Tier 1 credit. And as noted above, there are 55 firms that are both ETP 
Holders and OTP Holders and a number of such firms could qualify for 
Tape B Tier 1 credits under the proposed alternative method. Without 
having a view of an ETP Holder's 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 Holder affiliated with an 
OTP Holder or OTP Firm to increase participation in the Exchange's 
equities and options markets to qualify for the existing and proposed 
new credits. The Exchange cannot predict with certainty how many ETP 
Holders would avail themselves of this opportunity. The Exchange 
believes the proposed amended tier could provide an incentive for other 
ETP Holders to submit additional liquidity on the Exchange and on NYSE 
Arca Options to qualify for the rebate. To the extent an ETP Holder 
participates on the Exchange but not on NYSE Arca Options, the Exchange 
believes that the proposal is still reasonable, equitable and not 
unfairly discriminatory with respect to such ETP Holder based on the 
overall benefit to the Exchange resulting from the success of NYSE Arca 
Options. In particular, such success would allow the Exchange to 
continue to provide and potentially expand its existing incentive 
programs to the benefit of all participants on the Exchange, whether 
they participate on NYSE Arca Options or not.
    The proposal neither targets nor will it have a disparate impact on 
any particular category of market participant. Rather, should an ETP 
Holder not meet the proposed criteria, the ETP Holder can still qualify 
for the same credit by meeting the current criteria which does not 
require it to have any affiliation with an OTP Holder or OTP Firm and 
conduct options trading on NYSE Arca Options. ETP Holders also have 
several other tiers to aim to achieve to receive rebates.
The Proposed Fee Change Is Not Unfairly Discriminatory
    The Exchange believes that the proposal 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.
    The Exchange believes it is not unfairly discriminatory to provide 
an alternative way to qualify for per share credits, as the proposed 
credit would be provided on an equal basis to all ETP Holders that are 
affiliated with an OTP Holder or OTP Firm that add liquidity by meeting 
the proposed alternative requirement of Tape B Tier 1. Further, the 
Exchange believes the proposed alternative requirement would 
incentivize ETP Holders that are affiliated with an OTP Holder or OTP 
Firm to send their options orders to the Exchange to qualify for the 
pricing tier. The Exchange also believes that the proposed change is 
not unfairly discriminatory because it is reasonably related to the 
value to the Exchange's market quality associated with higher volume.
    The proposal to amend the volume requirement to qualify for the 
Tape B Tier 1 credit neither targets nor will it have a disparate 
impact on any particular category of market participant. The proposal 
does not permit unfair discrimination because the amended threshold 
would be applied to all similarly situated ETP Holders, who would all 
be eligible for the same credit on an equal basis. Accordingly, no ETP 
Holder already operating on the Exchange would be disadvantaged by this 
allocation of fees.
    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

[[Page 9823]]

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,\18\ 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.'' \19\
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    \18\ 15 U.S.C. 78f(b)(8).
    \19\ See Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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    Intramarket Competition. The proposed change is designed to attract 
additional equities and options order flow to the Exchange. The 
Exchange believes that the proposed amendment to the volume requirement 
under Tape B Tier 1 would continue to incentivize market participants 
to direct providing displayed order flow to the Exchange and greater 
participation on NYSE Arca Options. Greater liquidity benefits all 
market participants on the Exchange by providing more trading 
opportunities and encourages ETP Holders to send orders to the 
Exchange, thereby contributing to robust levels of liquidity, which 
benefits all market participants. The proposed volume requirement would 
be applicable 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. As noted 
above, the Exchange's market share of intraday trading (i.e., excluding 
auctions) is 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 its proposed fee change can 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) \20\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \21\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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) \22\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \22\ 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-2020-12 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-2020-12. 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-2020-12, and should be 
submitted on or before March 12, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03314 Filed 2-19-20; 8:45 am]
 BILLING CODE 8011-01-P