[Federal Register Volume 87, Number 33 (Thursday, February 17, 2022)]
[Notices]
[Pages 9093-9096]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03392]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94233; File No. SR-NYSEArca-2022-08]


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 11, 2022.
    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 
January 31, 2022, 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 adopt an alternative requirement to 
qualify for the Retail Order Step-Up Tier 1 pricing tier. The Exchange 
proposes to implement the fee change effective February 1, 2022. 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 adopt an 
alternative requirement to qualify for the Retail Order Step-Up Tier 1 
pricing tier. The Exchange proposes to implement the fee change 
effective February 1, 2022.
Background
    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. 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.'' \3\
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    \3\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (File No. S7-10-04) (Final 
Rule) (``Regulation NMS'').
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    While Regulation NMS has enhanced competition, it has also fostered 
a ``fragmented'' market structure where trading in a single stock can 
occur across multiple trading centers. When multiple trading centers 
compete for order flow in the same stock, the Commission has recognized 
that ``such competition can lead to the fragmentation of order flow in 
that stock.'' \4\ Indeed, equity trading is currently dispersed across 
16 exchanges,\5\ numerous alternative trading systems,\6\ and 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.\7\ Therefore, no exchange possesses 
significant pricing power in the execution of equity order flow. More 
specifically, the Exchange currently has less than 10% market share of 
executed volume of equities trading.\8\
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    \4\ See Securities Exchange Act Release No. 61358, 75 FR 3594, 
3597 (January 21, 2010) (File No. S7-02-10) (Concept Release on 
Equity Market Structure).
    \5\ 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.
    \6\ 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.
    \7\ See Cboe Global Markets U.S. Equities Market Volume Summary, 
available at http://markets.cboe.com/us/equities/market_share/.
    \8\ 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. 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. The competition for Retail Orders 
\9\ is even more stark, particularly as it relates to exchange versus 
off-exchange venues.
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    \9\ A Retail Order is an agency order that originates from a 
natural person and is submitted to the Exchange by an ETP Holder, 
provided that no change is made to the terms of the order to price 
or side of market and the order does not originate from a trading 
algorithm or any other computerized methodology. See Securities 
Exchange Act Release No. 67540 (July 30, 2012), 77 FR 46539 (August 
3, 2012) (SR-NYSEArca-2012-77).
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    The Exchange thus needs to compete in the first instance with non-
exchange venues for Retail Order flow, and with the 15 other exchange 
venues for that Retail Order flow that is not directed off-exchange. 
Accordingly, competitive forces compel the Exchange to use exchange 
transaction fees and credits, particularly as they relate to competing 
for Retail Order flow, because market participants can readily trade on 
competing venues if they deem pricing levels at those other venues to 
be more favorable.

[[Page 9094]]

    To respond to this competitive environment, the Exchange has 
established Retail Order Step-Up tiers,\10\ which are designed to 
provide an incentive for ETP Holders to route Retail Orders to the 
Exchange by providing higher credits for adding liquidity correlated to 
an ETP Holder's higher trading volume in Retail Orders on the Exchange. 
Under the Retail Order Step-Up Tiers, ETP Holders also do not pay a fee 
when such Retail Orders have a time-in-force of Day that add and remove 
liquidity from the Exchange.
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    \10\ See Retail Order Tier, Retail Order Step-Up Tier 1, Retail 
Order Step-Up Tier 2, and Retail Order Step-Up Tier 3 under Retail 
Tiers on the Fee Schedule.
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Proposed Rule Change
    Currently, to qualify for the Retail Order Step-Up Tier 1 credit, 
an ETP Holder must execute an average daily volume (ADV) per month of 
Retail Orders with a time-in-force of Day that add or remove liquidity 
that is an increase of 0.40% of CADV above its April 2018 ADV taken as 
a percentage of CADV, and have Adding ADV of 1.00% or more of CADV. ETP 
Holders that meet the Retail Order Step-Up Tier 1 requirement are 
eligible to earn a credit of $0.0038 per share for Retail Orders that 
add liquidity in Tape A, Tape B and Tape C securities.\11\ As noted 
above, ETP Holders are not a charged a fee for Retail Orders with a 
time-in-force of Day that add and remove liquidity.\12\
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    \11\ Pursuant to footnote (d) under Retail Tiers, ETP Holders 
that qualify for Retail Order Step-Up Tier 1 are subject to the 
following rates in Tape C: ($0.0035) for Adding displayed liquidity; 
$0.0027 for Removing; and Additional ($0.0002) for Adding non-
displayed liquidity. See Fee Schedule.
    \12\ Pursuant to footnote (e) under Retail Tiers, ETP Holders 
that qualify for Retail Order Step-Up Tier 1, Retail Order Step-Up 
Tier 2 and Retail Order Step-Up Tier 3 are not charged a fee or 
provided a credit for Retail Orders where each side of the executed 
order (1) shares the same MPID and (2) is a Retail Order with a 
time-in-force of Day. See Fee Schedule.
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    The Exchange proposes to modify the requirements to qualify for 
Retail Order Step-Up Tier 1 by adopting an alternative qualification 
basis for the Retail Order Step-Up Tier 1 fees and credits. As 
proposed, in addition to providing an ADV of 1.00% or more of CADV, an 
ETP Holder would qualify for the current fees and credits by executing 
an ADV per month of Retail Orders with a time-in-force of Day that add 
or remove liquidity that is an increase of 0.40% of CADV above its 
April 2018 ADV taken as a percentage of CADV, or by executing an ADV 
per month of 55 million shares of Retail Orders with a time-in-force of 
Day that add or remove liquidity. The Exchange does not propose any 
change to the level of fees and credits under Retail Order Step-Up Tier 
1.
    The purpose of the proposed rule change is to encourage greater 
participation from ETP Holders and promote additional liquidity in 
Retail Orders. As described above, ETP Holders with liquidity-providing 
orders have a choice of where to send those orders. Given the overall 
decline of Retail Orders, as a percentage of total volume in the equity 
markets, the Exchange believes introducing alternative criteria for ETP 
Holders to qualify for Retail Order Step-Up Tier 1 will allow greater 
number of ETP Holders to potentially qualify for the tier, and will 
incentivize more ETP Holders to route their liquidity-providing Retail 
Orders to the Exchange rather than to a competing exchange.
    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,\13\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\14\ 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 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.'' \15\
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    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
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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 
shift order flow, or discontinue to reduce use of certain categories of 
products, in response to fee changes. With respect to Retail Orders, 
ETP Holders can choose from any one of the 16 currently operating 
registered exchanges, and numerous off-exchange venues, to route such 
order flow. Accordingly, competitive forces reasonably constrain 
exchange transaction fees that relate to Retail Orders 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.
    In particular, the Exchange believes that the proposed new 
alternative threshold to qualify for Retail Order Step-Up Tier 1 is 
reasonable because it is designed to encourage greater participation 
from ETP Holders and promote additional liquidity in Retail Orders. The 
Exchange believes it is reasonable to require ETP Holders to meet the 
applicable volume threshold to qualify for the Retail Order Step-Up 
Tier 1 credit. Further, the proposed change is reasonable as it would 
allow ETP Holders an additional method to qualify for the credit 
payable under the pricing tier if ETP Holders are unable to meet the 
existing requirement, particularly when there has been an overall 
decline of Retail Orders as a percentage of total volume in the equity 
markets, and yet sustained high consolidated daily volumes. The 
Exchange believes that the proposal represents a reasonable effort to 
promote price improvement and enhanced order execution opportunities 
for ETP Holders. All ETP Holders would benefit from the greater amounts 
of liquidity on the Exchange, which would represent a wider range of 
execution opportunities. The Exchange notes that market participants 
are free to shift their order flow to competing venues if they believe 
other markets offer more favorable fees and credits.
The Proposed Fee Change Is an Equitable Allocation of Fees and Credits
    The Exchange believes the proposed rule change to introduce 
alternative criteria for ETP Holders to qualify for Retail Order Step-
Up Tier 1 equitably allocates its fees among its market participants. 
The Exchange believes the Retail Order Step-Up Tier 1 pricing tier is 
equitable because it would apply to all similarly situated ETP Holders 
on an equal basis and provides an alternative path to qualify for a per 
share credit that is reasonably related to the value of an exchange's 
market quality associated with higher volumes. The Exchange believes it 
is equitable to require ETP

[[Page 9095]]

Holders to meet the applicable volume thresholds to qualify for the 
Retail Order Step-Up Tier 1 credit. Further, the proposed change is 
also equitable as it would allow ETP Holders an alternative method to 
qualify for the credit payable under the pricing tier if ETP Holders 
are unable to meet the current requirement.
    The Exchange believes that modifying Retail Order Step-Up Tier 1 
would encourage the submission of additional liquidity to the Exchange, 
thus enhancing order execution opportunities for ETP Holders from the 
substantial amounts of liquidity present on the Exchange. All ETP 
Holders would benefit from the greater amounts of liquidity that would 
be present on the Exchange, which would provide greater execution 
opportunities.
    The Exchange does not know how much Retail Order flow ETP Holders 
choose to route to other exchanges or to off-exchange venues. Without 
having a view of ETP Holders' activity on other markets and off-
exchange venues, the Exchange has no way of knowing whether this 
proposed rule change would result in ETP Holders sending more of their 
Retail Orders to the Exchange to qualify for the Retail Order Step-Up 
Tier 1 credit of $0.0038 per share, which is among the highest credits 
offered by the Exchange. The Exchange believes that its fee structure 
for Retail Orders, in particular the Retail Order Step-Up Tier 1 
pricing tier, should incentivize ETP Holders to send such orders to the 
Exchange. The Exchange cannot predict with certainty how many ETP 
Holders would avail themselves of this opportunity but additional 
Retail Orders would benefit all market participants because it would 
provide greater execution opportunities on the Exchange.
    The Exchange believes that the proposed rule change is equitable 
because maintaining the proportion of Retail Orders in exchange-listed 
securities that are executed on a registered national securities 
exchange (rather than relying on certain available off-exchange 
execution methods) would contribute to investors' confidence in the 
fairness of their transactions and would benefit all investors by 
deepening the Exchange's liquidity pool, supporting the quality of 
price discovery, promoting market transparency and improving investor 
protection.
The Proposed Fee Change Is Not Unfairly Discriminatory
    The Exchange believes that the proposed rule change to introduce 
alternative criteria for ETP Holders to qualify for Retail Order Step-
Up Tier 1 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. Moreover, the 
proposal neither targets nor will it have a disparate impact on any 
particular category of market participant. The Exchange believes that 
the proposal does not permit unfair discrimination because the proposal 
would be applied to all similarly situated ETP Holders and all ETP 
Holders would be subject to the same modified Retail Order Step-Up Tier 
1. Accordingly, no ETP Holder already operating on the Exchange would 
be disadvantaged by the proposed allocation of fees. The Exchange 
further believes that the proposed changes would not permit unfair 
discrimination among ETP Holders because the general and tiered rates 
are available equally to all ETP Holders.
    As described above, in today's competitive marketplace, order flow 
providers have a choice of where to direct liquidity-providing order 
flow, and the Exchange believes there are additional ETP Holders that 
could qualify for Retail Order Step-Up Tier 1 if they chose to direct 
their order flow to the Exchange. Lastly, the submission of Retail 
Orders is optional for ETP Holders in that they could choose whether to 
submit Retail Orders and, if they do, the extent of its activity in 
this regard. 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,\16\ 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 
the proposed change 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 all market participants. As a result, the Exchange believes that 
the proposed change furthers the Commission's goal in adopting 
Regulation NMS of fostering competition among orders, which promotes 
``more efficient pricing of individual stocks for all types of orders, 
large and small.'' \17\
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    \16\ 15 U.S.C. 78f(b)(8).
    \17\ 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 Exchange believes the proposed rule 
change does not impose any burden on intramarket competition that is 
not necessary or appropriate in furtherance of the purposes of the Act. 
The Exchange does not believe that the proposed change represents a 
significant departure from previous pricing offered by the Exchange or 
its competitors. The proposed change is designed to attract Retail 
Orders to the Exchange. The Exchange believes that amending criteria of 
established tiers would incentivize market participants to direct 
liquidity adding order flow to the Exchange, bringing with it 
additional execution opportunities for market participants and improved 
price transparency. Greater overall order flow, trading opportunities, 
and pricing transparency benefits all market participants on the 
Exchange by enhancing market quality and continuing to encourage ETP 
Holders to send orders, thereby contributing towards a robust and well-
balanced market ecosystem.
    Intermarket Competition. The Exchange believes the proposed rule 
change does not impose any burden on intermarket competition that is 
not necessary or appropriate in furtherance of the purposes of the Act. 
The Exchange operates in a highly competitive market in which market 
participants can readily choose to send their orders to other exchanges 
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 currently 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 
this proposed fee change would impose any burden on intermarket 
competition.

[[Page 9096]]

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) \18\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \19\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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) \20\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \20\ 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-2022-08 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-NYSEArca-2022-08. 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 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-2022-08, and should be 
submitted on or before March 10, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03392 Filed 2-16-22; 8:45 am]
BILLING CODE 8011-01-P