[Federal Register Volume 87, Number 184 (Friday, September 23, 2022)]
[Notices]
[Pages 58166-58168]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-20591]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95820; File No. SR-NYSEARCA-2022-63]


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

September 19, 2022.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on September 16, 2022, NYSE Arca, Inc. (``NYSE Arca'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the 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\ 15 U.S.C. 78a.
    \3\ 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 reflect the fee for Directed Orders 
routed by the Exchange to an alternative trading system (``ATS''). The 
proposed rule change is available on the Exchange's website at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule to reflect the fee 
for Directed Orders routed by the Exchange to an ATS. The Exchange 
proposes to implement the fee change effective September 16, 2022.\4\
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    \4\ The Exchange originally filed to amend the Fee Schedule on 
September 7, 2022 (SR-NYSEARCA-2022-60). SR-NYSEARCA-2022-60 was 
subsequently withdrawn and replaced by this filing.
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Background
    The Exchange operates in a highly competitive market. The 
Securities and Exchange Commission (``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.'' \5\
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    \5\ 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.'' \6\ Indeed, equity trading is currently dispersed across 
16 exchanges,\7\ numerous alternative trading systems,\8\ and broker-
dealer internalizers and wholesalers, all competing for order flow. 
Based on publicly available information, no single exchange currently 
has more than 17% market share.\9\ 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 cash equities trading.\10\
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    \6\ 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).
    \7\ 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.
    \8\ 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.
    \9\ See Cboe Global Markets U.S. Equities Market Volume Summary, 
available at http://markets.cboe.com/us/equities/market_share/.
    \10\ 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. Accordingly, competitive forces 
constrain exchange transaction fees because market participants can 
readily trade on competing venues if they deem pricing levels at those 
other venues to be more favorable.
Proposed Rule Change
    Pursuant to Commission approval, the Exchange adopted a new order 
type known as Directed Orders.\11\ A Directed Order is a Limit Order 
\12\ with instructions to route on arrival at its limit price to a 
specified ATS with which the Exchange maintains an electronic linkage. 
Under Exchange rules, the ATS to which a Directed Order is routed would 
be responsible for validating whether the order is eligible to be 
accepted, and if such ATS determines to reject the order, the order 
would be cancelled. Directed Orders must be designated with a Time in

[[Page 58167]]

Force modifier of Day \13\ or IOC \14\ and are eligible to be 
designated for the Core Trading Session \15\ only. Directed Orders that 
are the subject of this proposed rule change would be routed to 
OneChronos LLC (``OneChronos'').
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    \11\ See Rule 7.31-E(f)(4). See also Securities Exchange Act 
Release No. 95428 (August 4, 2022), 87 FR 48738 (August 10, 2022) 
(SR-NYSEARCA-2022-25).
    \12\ A Limit Order is defined in Rule 7.31-E(a)(2) as an order 
to buy or sell a stated amount of a security at a specified price or 
better.
    \13\ Pursuant to Rule 7.31-E(b)(1), any order to buy or sell 
designated Day, if not traded, will expire at the end of the 
designated session on the day on which it was entered.
    \14\ Pursuant to Rule 7.31-E(b)(2), a Limit Order may be 
designated with an Immediate-or-Cancel (``IOC'') modifier.
    \15\ The Core Trading Session for each security begins at 9:30 
a.m. Eastern Time and ends at the conclusion of Core Trading Hours. 
See Rule 7.34-E(a)(2). The term ``Core Trading Hours'' means the 
hours of 9:30 a.m. Eastern Time through 4:00 p.m. Eastern Time or 
such other hours as may be determined by the Exchange from time to 
time. See Rule 1.1.
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    In anticipation of the scheduled implementation of routing 
functionality to OneChronos,\16\ the Exchange proposes to amend the Fee 
Schedule to state that the Exchange will not charge a fee for Directed 
Orders routed to OneChronos. To reflect the no fee, the Exchange 
proposes to add new Section VI to the Fee Schedule titled ``Other 
Standard Rates--Routing (Per Share Price $1.00 or Above)'' and adopt a 
new bullet that would state ``No fee for Directed Orders routed to 
OneChronos LLC.'' With the proposed adoption of new Section VI., the 
Exchange proposes to renumber current Section VI. as Section VII. and 
current Section VII. as Section VIII. Additionally, the Exchange 
proposes to adopt a definition of the term ``Directed Orders'' under 
Section I. of the Fee Schedule. As proposed, ``Directed Orders'' would 
mean a Limit Order with instructions to route on arrival at its limit 
price to a specified alternative trading system (``ATS'') with which 
the Exchange maintains an electronic linkage.
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    \16\ See https://www.nyse.com/publicdocs/nyse/notifications/trader-update/110000456275/OneChronos_August_2022_Trader_Update_Final.pdf.
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    The Exchange believes that the Directed Order functionality would 
facilitate additional trading opportunities by offering ETP Holders the 
ability to designate orders submitted to the Exchange to be routed to 
OneChronos for execution. The Exchange believes the functionality could 
create efficiencies for ETP Holders that choose to use the 
functionality by enabling them to send orders that they wish to route 
to OneChronos through the Exchange by leveraging order entry protocols 
already configured for their interaction with the Exchange. ETP Holders 
that choose not to utilize Directed Orders would continue to be able to 
trade on the Exchange as they currently do.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\17\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\18\ 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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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(4) and (5).
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    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.'' \19\
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    \19\ See supra note 4.
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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 or reduce use of certain categories of 
products, in response to fee changes. Accordingly, 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 the proposed rule change is a 
reasonable means to incent ETP Holders to utilize the Directed Order 
functionality and evaluate its efficacy. The proposed routing of orders 
to OneChronos is provided by the Exchange on a voluntary basis and no 
rule or regulation requires that the Exchange offer it. Nor does any 
rule or regulation require market participants to send orders to an ATS 
generally, let alone to OneChronos. The routing of orders to OneChronos 
would operate similarly to the Primary Only Order already offered by 
the Exchange, which is an order that is routed directly to the primary 
listing market on arrival, without interacting with interest on the 
NYSE Arca Book.\20\
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    \20\ See Rule 7.31-E(f)(1).
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    The Exchange believes its proposal equitably allocates its fees 
among its market participants. The Exchange believes that the proposal 
represents an equitable allocation of fees because it would apply 
uniformly to all ETP Holders, in that all ETP Holders will have the 
ability to designate orders submitted to the Exchange to be routed to 
OneChronos, and each such ETP Holder would not be charged a fee when 
utilizing the new functionality. While the Exchange has no way of 
knowing whether this proposed rule change would serve as an incentive 
to utilize the new order type, the Exchange expects that a number of 
ETP Holders will utilize the new functionality because it would create 
efficiencies for ETP Holders by enabling them to send orders that they 
wish to route to OneChronos through the Exchange, thereby enabling them 
to leverage order entry protocols already configured for their 
interactions with the Exchange.
    The Exchange believes that the proposal is not unfairly 
discriminatory. The Exchange believes it is not unfairly discriminatory 
as the proposal to not charge a fee would be assessed on an equal basis 
to all ETP Holders that use the Directed Order functionality. The 
proposal to not charge a fee would also enable ETP Holders to evaluate 
the efficacy of the new functionality. Moreover, this proposed rule 
change neither targets nor will it have a disparate impact on any 
particular category of market participant. The Exchange believes that 
this proposal does not permit unfair discrimination because the changes 
described in this proposal would be applied to all similarly situated 
ETP Holders. 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 rule change would not 
permit unfair discrimination among ETP Holders because the Directed 
Order functionality would be available to all ETP Holders on an equal 
basis and each such participant would not be charged a fee for using 
the functionality.
    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 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.

[[Page 58168]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\21\ 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. 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.'' \22\
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    \21\ 15 U.S.C. 78f(b)(8).
    \22\ See supra note 4.
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    Intramarket Competition. The Exchange believes the proposed 
amendment to its Fee Schedule would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The Exchange believes the proposed rule change is 
a reasonable means to incent ETP Holders to utilize the Directed Order 
functionality and allow ETP Holders to evaluate its efficacy. The 
Directed Order functionality would be available to all ETP Holders and 
all ETP Holders that use Directed Order functionality to route their 
orders to OneChronos will not be charged a routing fee. The proposed 
routing of orders to OneChronos is provided by the Exchange on a 
voluntary basis and no rule or regulation requires that the Exchange 
offer it. ETP Holders have the choice whether or not to use the 
Directed Order functionality and those that choose not to utilize it 
will not be impacted by the proposed rule change. The Exchange also 
does not believe the proposed rule change would impact intramarket 
competition as the proposed rule change would apply equally to all ETP 
Holders that choose to utilize the Directed Order functionality, and 
therefore 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 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 its proposed fee change can 
impose any burden on intermarket competition.

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) \23\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \24\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 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) \25\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \25\ 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-2022-63 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-2022-63. 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 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-NYSEARCA-2022-63, and should be 
submitted on or before October 14, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-20591 Filed 9-22-22; 8:45 am]
BILLING CODE 8011-01-P