[Federal Register Volume 86, Number 152 (Wednesday, August 11, 2021)]
[Notices]
[Pages 44116-44118]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-17087]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92583; File No. SR-NYSEArca-2021-52]


Self-Regulatory Organizations; NYSE Arca, Inc.; Suspension of and 
Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change To Amend the NYSE Arca Equities Fees 
and Charges

August 5, 2021.

I. Introduction

    On June 14, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change (File No. SR-NYSEArca-2021-52) to amend the NYSE 
Arca Equities Fees and Charges (``Fee Schedule'').\3\ The proposed rule 
change was immediately effective upon filing with the Commission 
pursuant to Section 19(b)(3)(A) of the Act.\4\ The proposed rule change 
was published for comment in the Federal Register on July 6, 2021.\5\ 
The Commission received no comment letters regarding the proposed rule 
change. Pursuant to Section 19(b)(3)(C) of the Act,\6\ the Commission 
is hereby: (1) Temporarily suspending File No. SR-NYSEArca-2021-52; and 
(2) instituting proceedings to determine whether to approve or 
disapprove File No. SR-NYSEArca-2021-52.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 92291 (June 29, 
2021), 86 FR 35551 (July 6, 2021) (``Notice'').
    \4\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take 
effect upon filing with the Commission if it is designated by the 
exchange as ``establishing or changing a due, fee, or other charge 
imposed by the self-regulatory organization on any person, whether 
or not the person is a member of the self-regulatory organization.'' 
15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ See Notice, supra note 3.
    \6\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Change

    The Exchange proposes to establish a new category of Retail Order 
executions for purposes of the Fee Schedule. Specifically, the Exchange 
proposes that no fees or credits would apply for Retail Order 
executions that are denoted ``internalized'' executions under certain 
circumstances.\7\ The Exchange proposes that no fees will be charged 
nor credits paid for Retail Orders where (i) each side of the executed 
order shares the same MPID, (ii) each side of the executed order is a 
Retail Order with a time-in-force of Day, and (iii) the above executed 
orders have an Average Daily Volume (``ADV'') of at least 150,000 
shares.
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    \7\ The Exchange defines internalized executions as an execution 
where two orders presented to the Exchange from the same ETP Holder 
(i.e., MPID) are presented separately and not in a paired manner, 
but nonetheless inadvertently match with one another. See Notice, 
supra note 3, at 35552 note 13.
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    Prior to the proposed rule change, Retail Orders that were 
internalized \8\ on the Exchange were not identified in the Fee 
Schedule and were treated the like other Retail Orders, regardless of 
whether they were internalized executions, and regardless of ADV. 
Specifically, the Exchange provides a credit ranging from $0.0035 to 
$0.0038, depending on the step-up tier, to Retail Orders that provide 
liquidity, and charges no fee for Retail Orders that remove liquidity. 
Therefore, the proposal carves out a particular group of Retail 
Orders--internalized orders when such orders have an ADV of at least 
150,000 shares--and eliminates the credits for those Retail Orders that 
provide liquidity. ETP Holders with an ADV under 150,000 of 
internalized Retail Orders would continue to receive the relevant 
credit for Retail Orders that provide liquidity.
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    \8\ See id.
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III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\9\ at any time within 
60 days of the date of filing of an immediately effective proposed rule 
change pursuant to Section 19(b)(1) of the Act,\10\ the Commission 
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') 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. As discussed below, the Commission believes a temporary 
suspension of the proposed rule change is necessary and appropriate to 
allow for additional analysis of the proposed rule change's consistency 
with the Act and the rules thereunder.
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    \9\ 15 U.S.C. 78s(b)(3)(C).
    \10\ 15 U.S.C. 78s(b)(1).
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    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\11\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement ``should 
be sufficiently detailed and specific to support a finding that the 
proposed rule change is consistent with [those] requirements.'' \12\
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    \11\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \12\ See id.
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    Section 6 of the Act, including Sections 6(b)(4), (5), and (8), 
require the rules of an exchange to: (1) Provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \13\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \14\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\15\
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    \13\ 15 U.S.C. 78f(b)(4).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78f(b)(8).
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    In justifying its proposal, the Exchange stated in its filing that 
its proposal is reasonable because it ``is a reasonable attempt to 
increase liquidity on the Exchange and improve the Exchange's market 
share relative to its competitors.'' \16\ The Exchange also states that 
the proposal is an equitable allocation of fees and credits because 
``all ETP Holder that participate on the

[[Page 44117]]

Exchange will be able to internalize their Retail Orders on the 
Exchange at no cost, i.e., they would not receive a credit or pay any 
fee for the execution of Retail Orders that are internalized.'' \17\ 
Further, the Exchange states that the proposal is an equitable 
allocation of fees and credits because it would benefit all investors 
by deepening the Exchange's liquidity pool, supporting the quality of 
price discovery, promoting market transparency, and improving investor 
protection.\18\ The Exchange states that the proposal is not unfairly 
discriminatory because ETP Holders are free to transact on other 
exchanges if they believe those exchanges offer better value.\19\ 
Finally, the Exchange states that the proposal is not unfairly 
discriminatory because it is available to all ETP holders on an equal 
and non-discriminatory basis and that ``all similarly situated ETP 
Holders would be charged the same fee for executing Retail Orders that 
are internalized.'' \20\
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    \16\ See Notice, supra note 3, at 35552.
    \17\ See id. at 35553.
    \18\ See id.
    \19\ See id.
    \20\ See id.
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    In temporarily suspending the Exchange's proposed rule change, the 
Commission intends to further consider whether the proposal to amend 
the NYSE Arca Fee Schedule is consistent with the statutory 
requirements applicable to a national securities exchange under the 
Act. In particular, the Commission will consider whether the proposed 
rule change satisfies the standards under the Act and the rules 
thereunder requiring, among other things, that an exchange's rules 
provide for the equitable allocation of reasonable fees among members, 
issuers, and other persons using its facilities; not permit unfair 
discrimination between customers, issuers, brokers or dealers; and do 
not impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.\21\
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    \21\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule change.\22\
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    \22\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    In addition to temporarily suspending the proposal, the Commission 
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 
\23\ and 19(b)(2)(B) of the Act \24\ to determine whether the 
Exchange's proposed rule change should be approved or disapproved. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, the Commission seeks and encourages interested persons to 
provide additional comment on the proposed rule change to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule change.
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    \23\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \24\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\25\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
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    \25\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also 
provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
See id. The time for conclusion of the proceedings may be extended 
for up to 60 days if the Commission finds good cause for such 
extension and publishes its reasons for so finding, or if the 
exchange consents to the longer period. See id.
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     Whether the Exchange has demonstrated how its proposed fee 
is consistent with Section 6(b)(4) of the Act, which requires that the 
rules of a national securities exchange ``provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and issuers and other persons using its facilities;'' \26\;
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    \26\ 15 U.S.C. 78f(b)(4).
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     Whether the Exchange has demonstrated how its proposed fee 
is consistent with Section 6(b)(5) of the Act, which requires, among 
other things, that the rules of a national securities exchange not be 
``designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers'' \27\; and
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    \27\ 15 U.S.C. 78f(b)(5).
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     Whether the Exchange has demonstrated how its proposed fee 
is consistent with Section 6(b)(8) of the Act, which requires that the 
rules of a national securities exchange ``not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of [the Act].'' \28\
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    \28\ 15 U.S.C. 78f(b)(8).
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    As noted above, the proposal purports to amend the NYSE Arca Fee 
Schedule to eliminate the credits for providing liquidity for certain 
internalized Retail Orders when such orders have an ADV of at least 
150,000 shares. However, the Exchange's statements in support of the 
proposed rule change lack specificity and are at times contradictory. 
For example, the Exchange provides only broad general statements that 
the proposal is not unfairly discriminatory because all ETP Holders 
will be treated the same. However, this explanation fails to address 
why it is not unfairly discriminatory for ETP Holders with under 
150,000 ADV of internalized Retail Orders to continue to receive a 
credit for providing liquidity while those with over 150,000 ADV of 
internalized Retail Orders no longer receive the same credit. 
Furthermore, the Exchange contends that the proposal is consistent with 
the Act because it will incentivize more Retail Order flow to the 
Exchange, thereby benefitting all investors. However, the Exchange does 
not explain how a proposal to eliminate an existing credit would 
achieve these goals.
    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the [SRO] 
that proposed the rule change.'' \29\ The description of a proposed 
rule change, its purpose and operation, its effect, and a legal 
analysis of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative Commission 
finding,\30\ and any failure of an SRO to provide this information may 
result in the Commission not having a sufficient basis to make an 
affirmative finding that a proposed rule change is consistent with the 
Act and the applicable rules and regulations.\31\
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    \29\ 17 CFR 201.700(b)(3).
    \30\ See id.
    \31\ See id.
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    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposed fees are consistent with the Act, and 
specifically, with its requirements that exchange fees be reasonable 
and equitably allocated, not be unfairly discriminatory, and not impose 
a burden on competition.\32\
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    \32\ See 15 U.S.C. 78f(b)(4), (5), and (8).

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[[Page 44118]]

V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by September 1, 2021. 
Rebuttal comments should be submitted by September 15, 2021. Although 
there do not appear to be any issues relevant to approval or 
disapproval which would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\33\
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    \33\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by an SRO. See Securities 
Acts Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th 
Cong., 1st Sess. 30 (1975).
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    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
    Interested persons are invited to submit written data, views, and 
arguments concerning the proposed rule changes, 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 No. SR-NYSEArca-2021-52 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 No. SR-NYSEArca-2021-52. The 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 such 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 publicly available. All submissions 
should refer to File No. SR-NYSEArca-2021-52 and should be submitted on 
or before September 1, 2021. Rebuttal comments should be submitted by 
September 15, 2021.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\34\ that File No. SR-NYSEArca-2021-52, be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
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    \34\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(57) and (58).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-17087 Filed 8-10-21; 8:45 am]
BILLING CODE 8011-01-P