[Federal Register Volume 87, Number 226 (Friday, November 25, 2022)]
[Notices]
[Pages 72578-72581]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-25671]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96361; File No. SR-NYSE-2022-53]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Its Price List

November 18, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on November 14, 2022, New York Stock Exchange LLC (``NYSE'' 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 self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Price List to introduce monthly 
quoting incentives for Designated Market Makers (``DMM'') in assigned 
Exchange Traded Products (``ETP'') for the first 12 months following 
listing on the Exchange. The Exchange proposes to implement the fee 
changes effective November 14, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes monthly quoting incentives for DMMs in 
assigned ETPs for the first 12 months following listing on the Exchange 
while that ETP is listed on the Exchange.
    The proposed change responds to the current competitive environment 
where order flow providers have a choice of where to direct orders by 
offering incentives to DMMs to quote and trade at the national best bid 
or offer (``NBBO'') \3\ in assigned ETPs during the first 12 months 
following the ETP's listing on the Exchange. The Exchange also hopes 
thereby to encourage additional ETPs to list and trade on the Exchange.
---------------------------------------------------------------------------

    \3\ See Rule 1.1(r) (definition of NBBO, Best Protected Bid, 
Best Protected Offer, Protected Best Bid and Offer (PBBO)).
---------------------------------------------------------------------------

    The Exchange proposes to implement the fee changes effective 
November 14, 2022.

[[Page 72579]]

Background
Current Market and Competitive Environment
    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. 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.'' \4\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (Final Rule) 
(``Regulation NMS'').
---------------------------------------------------------------------------

    As the Commission itself has recognized, the market for trading 
services in NMS stocks has become ``more fragmented and competitive.'' 
\5\ Indeed, equity trading is currently dispersed across 16 
exchanges,\6\ 31 alternative trading systems,\7\ and numerous broker-
dealer internalizers and wholesalers. Based on publicly-available 
information, no single exchange has more than 20% of the market.\8\ 
Therefore, no exchange possesses significant pricing power in the 
execution of equity order flow. More specifically, the Exchange's share 
of executed volume of equity trades in Tapes A, B and C securities is 
less than 12%.\9\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 51808, 84FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18) (Transaction Fee Pilot 
for NMS Stocks Final Rule) (``Transaction Fee Pilot'').
    \6\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, available at http://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/.
    \9\ See id.
---------------------------------------------------------------------------

    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, in response to fee changes. With respect to non-marketable 
order flow that would provide displayed liquidity on an Exchange, 
member organizations can choose from any one of the 16 currently 
operating registered exchanges to route such order flow. Accordingly, 
competitive forces constrain exchange transaction fees that relate to 
orders that would provide liquidity on an exchange.
    In response to the competitive environment described above, the 
Exchange proposes monthly credits for DMMs that meet certain quoting 
requirements in assigned ETPs during the first 12 months following the 
assigned ETP's listing on the Exchange while that ETP is listed on the 
Exchange.
Proposed Rule Change
    In order to encourage quoting on the Exchange in listed ETPs, the 
Exchange proposes to offer monthly quoting credits to DMMs in assigned 
ETPs. Specifically, the Exchange proposes that DMMs quoting 30% or more 
of the time in a billing month in an ETP assigned to that DMM on the 
last day of that billing month would be eligible for a credit of $4,000 
per assigned ETP for that billing month. DMMs quoting less than 30% of 
the time in a billing month in an ETP assigned to that DMM on the last 
day of that billing month would be eligible for a credit of $2,000 per 
assigned ETP for that billing month. As proposed, DMMs would be 
eligible for the credits for the first 12 months following the listing 
of the ETP on the Exchange while that ETP is listed on the Exchange.
    For example, ETP 1 lists on the Exchange and is assigned to DMM A 
in November 2022. ETP 2 lists on the Exchange and is assigned to DMM A 
in December 2022. Further assume that in November and December 2022, 
DMM A quotes at the NBBO 40% of the time for ETP 1 and at 20% of the 
time for ETP 2. Based on this quoting activity, DMM A would be eligible 
for the following credits for those billing months:
     a $4,000 credit for ETP 1 in November 2022;
     a $4,000 credit for ETP 1 in December 2022; and
     a $2,000 credit for ETP 2 in December 2022, for a combined 
$6,000 credit in December 2022.
    If DMM A improves their quoting in ETP 2 in January 2023 and quotes 
at the NBBO 40% of the time in that billing month, DMM A's combined 
credit for January 2023 for both ETPs would increase to $8,000.
    If DMM A quotes at the NBBO 40% of the time in both ETP 1 and ETP 2 
in November 2023, DMM A would receive a $4,000 credit for ETP 2 and no 
credit for ETP 1 since November 2023 would be ETP's 13th month listed 
on the Exchange.
    The purpose of the proposed change is to encourage higher quoting 
levels by DMMs on the Exchange in a listed ETP's first 12 months 
following listing, which would support the quality of price discovery 
on the Exchange and is consistent with the overall goals of enhancing 
market quality. As noted above, the Exchange operates in a competitive 
environment, and member organizations have a choice of where to send 
order flow. Because the proposal permits DMMs to receive a monthly 
credit if the DMM quotes a certain percentage at the NBBO on the 
Exchange during the first 12 months following an ETP's listing while 
the ETP is listed, the Exchange believes that the proposed credits 
would provide incentives for DMMs to quote more aggressively on the 
Exchange in their listed ETPs in order to qualify for it. The Exchange 
believes that incentivizing DMMs on the Exchange to add liquidity at 
the NBBO to meet the higher quote levels could contribute to price 
discovery and improve quoting on the Exchange. In addition, additional 
liquidity providing quotes benefit all market participants because they 
provide greater execution opportunities on the Exchange and improve the 
public quotation, which benefits all member organizations.
    The proposed change is not otherwise intended to address 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,\10\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\11\ 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) & (5).
---------------------------------------------------------------------------

The Proposed Change Is Reasonable
    As discussed above, 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

[[Page 72580]]

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.'' \12\ 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.'' \13\
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule) 
(``Regulation NMS'').
    \13\ 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).
---------------------------------------------------------------------------

    The new proposed incentives are reasonable. Specifically, the 
Exchange believes that a new DMM credits would provide an incentive for 
DMMs to increase liquidity-providing orders at the NBBO on the Exchange 
during the first year following the listing of an ETP. The proposed 
credits are thus intended to encourage higher levels of liquidity and 
quoting by DMMs on the Exchange in listed ETPs, which would support the 
quality of price discovery on the Exchange and is consistent with the 
overall goals of enhancing market quality. To the extent that the 
proposed change leads to an increase in overall liquidity activity and 
quoting on the Exchange and more competitive pricing, this will improve 
the quality of the Exchange's market, improve quote spreads and 
increase its attractiveness to existing and prospective participants. 
The proposed incentives will also support new ETPs listing on the 
Exchange by incentivizing DMMs to quote at the NBBO more often.
    As noted above, the Exchange operates in a competitive environment, 
and member organizations have a choice of where to send order flow. 
Because the proposed credits require DMMs to meets certain quoting 
requirements at the NBBO in order to qualify for the credits, the 
Exchange believes that the proposed credit would provide an incentive 
for all DMMs to quote aggressively on the Exchange in order to qualify 
for the base credit and more aggressively in order to qualify for the 
higher credit. The Exchange believes that incentivizing DMMs on the 
Exchange to add liquidity to meet the higher quote levels at the NBBO 
could contribute to price discovery and improve quoting on the 
Exchange. In addition, additional liquidity providing quotes benefit 
all market participants because they provide greater execution 
opportunities on the Exchange and improve the public quotation.
The Proposal Is an Equitable Allocation of Fees
    The Exchange believes that the proposed credits are an equitable 
allocation of fees because the proposed credits would be available to 
all DMMs on an equal basis. The Exchange believes that the proposal 
will allocate the proposed credits fairly among DMMs and allow DMMs to 
qualify for a credit by adding liquidity and improving quoting at the 
NBBO during the first 12 months following an ETP's listing on the 
Exchange. The Exchange believes the proposed rule change would improve 
market quality by providing incentives for all DMMs to increase 
aggressively priced liquidity-providing orders at the NBBO on the 
Exchange, thereby encouraging higher levels of liquidity by DMMs on the 
Exchange, which would support the quality of price discovery on the 
Exchange and is consistent with the overall goals of enhancing market 
quality.
The Proposal Is Not Unfairly Discriminatory
    The Exchange believes it is not unfairly discriminatory to provide 
credits for adding liquidity that encourage DMMs on the Exchange to 
quote at the NBBO as the proposed credits would be provided on an equal 
basis to all similarly situated DMMs that add liquidity in assigned 
ETPs during the first year following listing and by meeting the 
proposed quoting requirements. For the same reason, the Exchange 
believes it is not unfairly discriminatory to provide a higher credit 
for increased quoting at the NBBO at or above 30% because the proposed 
higher credit would equally encourage all DMMs to provide additional 
liquidity on the Exchange. As noted, the Exchange intends for the 
proposal to improve market quality for all members on the Exchange in 
listed ETPs and by extension attract more liquidity to the market, 
thereby encouraging higher levels of liquidity by DMMs on the Exchange 
in listed ETPs, which would support the quality of price discovery on 
the Exchange and is consistent with the overall goals of enhancing 
market quality.
    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,\14\ 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 member organizations. 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.'' \15\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f(b)(8).
    \15\ Regulation NMS, 70 FR at 37498-99.
---------------------------------------------------------------------------

    Intramarket Competition. The proposed changes are designed to 
incentivize market participants to direct displayed order flow to the 
Exchange. Greater liquidity benefits all market participants on the 
Exchange by providing more trading opportunities and encourages member 
organizations to send orders, thereby contributing to robust levels of 
liquidity, which benefits all market participants on the Exchange. The 
proposed credits would be available 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. As noted, the proposal would apply to all similarly situated 
member organizations on the same and equal terms, who would benefit 
from the change on the same basis. Accordingly, 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. 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

[[Page 72581]]

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) \16\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \17\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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) \18\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-NYSE-2022-53 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-NYSE-2022-53. 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-NYSE-2022-53 and should be submitted on 
or before December 16, 2022.
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-25671 Filed 11-23-22; 8:45 am]
BILLING CODE 8011-01-P