[Federal Register Volume 85, Number 38 (Wednesday, February 26, 2020)]
[Notices]
[Pages 11162-11165]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03769]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88248; File No. SR-LTSE-2020-04]
Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to the Annual Membership Fee
February 20, 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 10, 2020, Long-Term Stock Exchange, Inc. (``LTSE'' or
``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
LTSE proposes a rule change to establish an Annual Membership Fee.
The text of the proposed rule change is available at the Exchange's
website at https://longtermstockexchange.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 these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects 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 is proposing to establish an Annual Membership Fee for
Members \3\ of the Exchange of $10,000. The Annual Membership Fee is
proposed to be assessed on a calendar-year basis and will be due on or
before December 31 of the prior year. For example, the Annual
Membership Fee for calendar year 2021 will be due on or before December
31, 2020.
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\3\ The term ``Member'' means any registered broker or dealer
that has been admitted to membership in the Exchange. A Member has
the status of a Member of the Exchange as that term is defined in
Section 3(a)(3) of the Act. Membership may be granted to a sole
proprietor, partnership, corporation, limited liability company, or
other organization that is a registered broker or dealer pursuant to
Section 15 of the Act, and which has been approved by the Exchange.
See LTSE Rule 1.160(w).
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However, if a Member is pending a voluntary termination of rights
as a Member pursuant to Rule 2.190 prior to the date any Annual
Membership Fee for a given year will be due (i.e., December 31) and the
Member does not utilize the facilities of the Exchange while such
voluntary termination of rights is pending, then the Member will not be
obligated to pay the Annual Membership Fee for the upcoming calendar
year. The Exchange believes this to be appropriate because there is
ordinarily a 30-day waiting period before such resignation shall take
effect.
The Annual Membership Fee for a firm that becomes a Member during a
calendar year is proposed to be prorated (starting with the next
calendar month) based upon the date the firm becomes a Member. For
example, if a firm is approved as a Member on July 15, the prorated
Annual Membership Fee assessed on such new Member would cover the
months of August through December, i.e., five months at $833 for a
total of $4,165. Any Annual Membership Fees that are paid are proposed
to be non-refundable.
As an inducement for firms to become Members of the Exchange as the
Exchange completes the build-out of its trading platform and finalizes
compliance with the conditions set forth in the Exchange's approval
order,\4\ the Exchange proposes to waive the 2020 Annual Membership Fee
for any firm that submits its completed membership application prior to
the commencement of trading operations. Additional information
regarding the Exchange's readiness to commence trading operations and
the anticipated start of trading will be announced on its website at
www.longtermstockexchange.com.
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\4\ See Securities Exchange Act Release No. 34-85828 (May 10,
2019), 84 FR 21841 (May 15, 2019) (File No. 10-234).
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The Exchange does not presently contemplate proposing any
application
[[Page 11163]]
fees, trading fees, trading rights or trading permit fees, or so-called
``headcount'' fees.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the requirements of Section 6(b) of the Act \5\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \6\ in
particular, because it provides for the equitable allocation of
reasonable dues, fees, and other charges among its Members and other
persons using its facilities. The Exchange also believes that the
proposed rule change is consistent with the requirements of Section
6(b)(5) of the Act \7\ because the proposed rule change is designed to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest and is not
designed to permit unfair discrimination between customer, issuers,
brokers, and dealers.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(4).
\7\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed Annual Membership Fee is
reasonable because it is a de minimis expense in relation to the costs
of operating a broker-dealer that routes and executes orders across the
trading venues that comprise the national market system. The Exchange
is offering a novel trading model--the Very Simply Market (``VSM'')
\8\--in which all orders would be fully displayed and all trades would
occur at displayed prices, thus dispensing with both the need for
midpoint executions (e.g., traders accessing non-displayed prices) and
complex order types. The Exchange believes that the VSM also would
appeal to market makers and other firms who, by virtue of the simple
nature of the market, would be able to easily and effectively manage
their quoting behavior. In view of these offerings, the Exchange
believes that there is value in becoming a Member of the Exchange and
that the proposed Annual Membership Fee is reasonable. Moreover,
insofar as the Annual Membership Fee is an ``all-in'' fee (i.e., LTSE
does not charge--nor does LTSE presently contemplate charging--
application fees, trading fees, trading rights fees, or trading permit
fees), the Annual Membership Fee is lower than other national
securities exchanges that charge such fees.\9\ The Exchange also does
not charge--nor does it presently contemplate charging--so-called
``headcount fees,'' e.g., fees charged for each Form U-4 filed for
registration of a representative or a principal or the transfer or re-
licensing of such personnel,\10\ further highlighting the
reasonableness of the proposed Annual Membership Fee. The proposed
Annual Membership Fee might be seen as relatively more reasonable for a
Member that conducts more trading on LTSE, but the Exchange believes
that the clarity and convenience of a fixed fee--in contrast to fees
based on trading volume or the number or type of connections to the
exchange--as well the amount of the fee, makes the proposed rule change
reasonable.
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\8\ See Securities Exchange Act Release No. 34-87221 (October 3,
2019), 84 FR 54195 (October 9, 2019) (SR-LTSE-2019-02).
\9\ For example, NYSE's annual trading license fee for member
organizations ranges from $25,000 to $50,000 based on the number of
trading licenses. See ``Price List 2020,'' New York Stock Exchange
at 39 (last updated January 2, 2020), https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf. Nasdaq's annual
membership fee is $3,000 plus a monthly $1,250 trading rights fee
(totaling $18,000 per year). See ``NASDAQ Membership Fees,'' Nasdaq,
http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2#membership.
See also Securities Exchange Act Release No. 34-81133 (July 12,
2017), 82 FR 32904 (July 18, 2017) (SR-NASDAQ-2017-065) (discussing
the reasonableness of NASDAQ's fees).
\10\ See, e.g., ``NASDAQ Membership Fees,'' supra note 9 ($55
for each Form U-4 filed for the registration of a Representative or
Principal, and $55 for each Form U-4 filed for the transfer or re-
licensing of a Representative or Principal).
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The Exchange believes that the proposed Annual Membership Fee is
not unfairly discriminatory because it would be assessed equally across
all Members or firms that seek to become Members. The Exchange believes
that the proposed Annual Membership Fee is not unfairly discriminatory
because no broker-dealer is required to become a member of the
Exchange.\11\ The vigorous competition among national securities
exchanges provides many alternatives for firms to voluntarily decide
whether membership in LTSE is appropriate and worthwhile, and no
broker-dealer is required to become a member of the Exchange.\12\
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\11\ For example, NYSE National lists only 52 firms in its
membership directory, as compared to 148 firms listed as members of
NYSE. Compare ``NYSE National Membership,'' https://www.nyse.com/markets/nyse-national/membership (last visited January 23, 2020),
with ``NYSE Membership,'' https://www.nyse.com/markets/nyse/membership (last visited January 23, 2020).
\12\ Neither the trade-through requirements under Regulation NMS
nor broker-dealers' best execution obligations require a broker-
dealer to become a member of every exchange.
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The Exchange further believes that the proposed fees would be an
equitable allocation of reasonable dues, fees, and other charges among
its members and issuers and other persons using its facilities, and are
not unfairly discriminatory. As the Commission noted in its Concept
Release Concerning Self-Regulation:
The Commission to date has not issued detailed rules specifying
proper funding levels of [self-regulatory organization (``SRO'')]
regulatory programs, or how costs should be allocated among the various
SRO constituencies. Rather, the Commission has examined the SROs to
determine whether they are complying with their statutory
responsibilities. This approach was developed in response to the
diverse characteristics and roles of the various SROs and the markets
they operate. The mechanics of SRO funding, including the amount of
revenue that is spent on regulation and how that amount is allocated
among various regulatory operations, is related to the type of market
that an SRO is operating. . . . Thus, each SRO and its financial
structure is, to a certain extent, unique. While this uniqueness can
result in different levels of SRO funding across markets, it also is a
reflection of one of the primary underpinnings of the National Market
System. Specifically, by fostering an environment in which diverse
markets with diverse business models compete within a unified National
Market System, investors and market participants benefit.\13\
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\13\ Securities Exchange Act Release No. 34-50700 (November 22,
2004), 69 FR 71255, 71267-68 (December 8, 2004) (File No. S7-40-04).
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The Exchange's proposed funding model relies primarily on issuers,
who would pay listing fees,\14\ and Members, who would pay annual
membership fees. Thus, the proposed rule change has broker-dealers
sharing in the costs of operating the Exchange. Over time, the Exchange
can assess whether the apportionment of fees among its various
constituencies, but the approach outlined in the proposed rule change
aligns with a new exchange that is seeking to attract members amidst a
highly competitive landscape. Indeed, for this reason, the Exchange
proposes to waive the Annual Membership Fee for calendar year 2020 for
any firm submitting a completed membership application before the
Exchange
[[Page 11164]]
commences trading operations. While this incentive to attract members
will reduce revenue from broker-dealer memberships in the short run,
the Exchange believes that these incentives will encourage firms to
consider becoming members and better position the Exchange for the long
term.
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\14\ See SR-LTSE-2020-03 (filed January 30, 2020) (on file with
Commission). The Commission notes that, since the Exchange's filing
of the instant proposed rule change, notice of the listing fees
proposal has been published in the Federal Register. See Securities
Exchange Act Release No. 88133 (February 6, 2020), 85 FR 8048
(February 12, 2019) (SR-LTSE-2020-03).
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Effective regulation is central to the proper functioning of the
securities markets. Recognizing the importance of such efforts,
Congress decided to require national securities exchanges to register
with the Commission as self-regulatory organizations to carry out the
purposes of the Act. The Exchange therefore believes that it is
critical to ensure that regulation is appropriately funded. The Annual
Membership Fee is expected to provide a source of funding towards the
Exchange's total regulatory costs.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\15\ the Exchange
believes that the proposed rule change would not impose any burden on
intermarket or intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. Instead, the
Exchange believes that the proposed rule change would promote and
enhance intermarket competition by supporting the funding and operation
of a national securities exchange that is focused principally on
uniting bold ideas with patient capital and for companies and investors
who measure success over years and decades, not financial quarters.\16\
In this regard, the Exchange believes that there is broad
acknowledgment that the number of new companies accessing the U.S.
public capital markets is decreasing and has been for some time.\17\
For example, the Commission's recent proposal on Amending the
``Accredited Investor'' Definition acknowledges this problem, but
focuses instead on bringing more investors into the private
markets.\18\ The Exchange believes that its entry as a national
securities exchange will help reinvigorate the public capital
markets,\19\ and in turn, promote intermarket competition given the
wide number of venues in which a listed company's stock can trade.
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\15\ 15 U.S.C. 78f(b)(8).
\16\ See Lananh Nguyen, ``Silicon Valley Exchange Says Wall
Street Needs to Slow Down,'' Bloomberg (December 19, 2019), https://www.bloomberg.com/news/articles/2019-12-19/long-term-stock-exchange-says-wall-street-needs-to-slow-down?sref=CDdNJ6yd; Laurence Dodds,
``One Man's Quest to Challenge Wall Street with a New Silicon Valley
Stock Exchange,'' The Telegraph (November 7, 2019), https://www.telegraph.co.uk/technology/2019/11/07/one-mans-quest-challenge-wall-street-new-silicon-valley-stock/.
\17\ See Richard Henderson, ``The Incredible Shrinking Stock
Market,'' Financial Times (June 26, 2019), https://www.ft.com/content/0c9c0b64-9760-11e9-9573-ee5cbb98ed36; Speech, Rick A.
Fleming, ``Enhancing the Demand for IPOs'', NASAA 2017 Public Policy
Conference (May 9, 2017), available at https://www.sec.gov/news/speech/fleming-enhancing-demand-ipos-050917.
\18\ Amending the ``Accredited Investor'' Definition, Proposed
Rule, Release Nos. 33-10734, 34-87784, 85 FR 2574, 2605 (January 15,
2020) (File No. S7-25-19) (``[T]he high-growth stage of the
lifecycle of many issuers occurs while they remain private. Thus,
investors that do not qualify for accredited investor status may not
be able to participate in the high-growth stage of these issuers
because it often occurs before they engage in registered offerings.
Allowing more investors to invest in unregistered offerings of
private firms thus may allow them to participate in the high-growth
stages of these firms.'') (footnote omitted).
\19\ See Order Approving Proposed Rule Change To Adopt Rule
14.425, Which Would Require Companies Listed on the Exchange To
Develop and Publish Certain Long-Term Policies, Securities Exchange
Act Release No. 34-86722 (August 21, 2019), 84 FR 44952 (August 27,
2019) (SR-LTSE-2019-01).
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The Exchange also believes that the proposed costs of membership
will not impose an unnecessary or inappropriate burden on intermarket
competition given the highly competitive market for execution venues,
which includes not only the 13 other equities exchanges, but also off-
exchange venues, including over 30 alternative trading systems trading
NMS stocks.\20\ The Exchange believes that the proposed rule change
also will not burden intermarket competition given the many choices
firms have regarding the national securities exchanges in which they
choose to become members.\21\ As noted above, neither the trade-through
requirements under Regulation NMS nor broker-dealers' best execution
obligations require a broker-dealer to become a member of every
exchange.
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\20\ See ``NMS Stock ATSs,'' U.S. Securities and Exchange
Commission, https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm#ats-n.
\21\ See supra note 11.
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Additionally, the Exchange believes that the Annual Membership Fee
would not be an inappropriate burden on intramarket competition in
particular, as it would be applied equally to all Members.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing proposal has become effective pursuant to section
19(b)(3)(A) of the Act,\22\ and Rule 19b-4(f)(2) \23\ thereunder. 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 to determine whether
the proposed rule should be approved or disapproved.
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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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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-LTSE-2020-04 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-LTSE-2020-04. 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
[[Page 11165]]
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-LTSE-2020-04,
and should be submitted on or before March 18, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03769 Filed 2-25-20; 8:45 am]
BILLING CODE 8011-01-P