[Federal Register Volume 89, Number 120 (Friday, June 21, 2024)]
[Notices]
[Pages 52153-52156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-13552]



[[Page 52153]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100350; File No. SR-NYSEARCA-2024-50]


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

June 14, 2024.
    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 June 3, 2024, 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 provide an additional calculation for 
purposes of determining whether an ETP Holder qualifies for fees and 
credits that pertain to providing liquidity under certain pricing 
tiers. The Exchange proposes to implement the fee change effective June 
3, 2024. 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 provide an 
additional calculation for purposes of determining whether an ETP 
Holder qualifies for fees and credits that pertain to providing 
liquidity under certain pricing tiers. More specifically, the proposed 
additional calculation would apply to the following pricing tiers in 
Section VII. of the Fee Schedule: Adding Tiers,\3\ Limit Non-Display 
Step Up Tier and Tape C Tiers for Adding.\4\ The Exchange proposes to 
implement the fee change effective June 3, 2024.
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    \3\ Adding Tiers refers to Tiers 1 through 5 under the Adding 
Tiers pricing tier table on the Fee Schedule.
    \4\ Tape C Tiers for Adding refers to Tiers 1 through 3 under 
the Tape C Tiers for Adding pricing tier table on the Fee Schedule.
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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.'' \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 20% 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 12% market share of 
executed volume of 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.
    \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 the firm routes order flow. Accordingly, competitive forces 
compel the Exchange to use exchange transaction fees and credits 
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
    The Exchange currently provides ETP Holders with various tiered 
credits for executing orders that add liquidity to the Exchange and 
charges them various fees for executing orders that remove liquidity 
from the Exchange, as set forth in Section VII. of the Fee Schedule, 
titled ``Tier Rates--Round Lots and Odd Lots. The fees and credits 
enumerated in Section VII. apply all securities priced at $1 or more 
that are executed on the Exchange. ETP Holders may qualify for tiers of 
discounted fees and premium credits based, in part, upon the volume of 
their activities on the Exchange as a percentage of total 
``Consolidated Average Daily Volume'' or ``CADV.''
    Pursuant to Section I. of the Fee Schedule, the term ``CADV'' 
means, unless otherwise stated, the United States consolidated average 
daily volume of transactions reported to a securities information 
processor (``SIP''). Transactions that are not reported to a SIP are 
not included in the CADV. If CADV is preceded by a reference to a Tape 
or to Sub-Dollar, then CADV would refer to all consolidated average 
daily volume of transactions reported to a SIP for all securities in 
that Tape or to all Sub-Dollar securities. Per the Fee Schedule, trade 
activity on days when

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the market closes early and on the date of the annual reconstitution of 
the Russell Investment Indexes does not count toward volume tiers.\11\ 
For purposes of determining trade related fees and credits based on 
CADV, the Exchange may exclude any day that (1) the Exchange is not 
open for the entire trading day and/or (2) a disruption affects an 
Exchange system that lasts for more than 60 minutes during regular 
trading hours.\12\
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    \11\ See Fee Schedule, Footnote 1.
    \12\ Id.
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    Generally, the ratio of consolidated volumes in securities priced 
at or above $1 (``dollar plus volume'') relative to consolidated 
volumes inclusive of securities priced below a dollar is usually stable 
from month to month, such that ``CADV'' has been a reasonable baseline 
for determining tiered incentives for ETP Holders that execute dollar 
plus volume on the Exchange. However, there have been a few months 
where volumes in securities priced below a dollar (``sub-dollar 
volume'') have been elevated, thereby impacting the ratio mentioned 
above.
    Anomalous rises in sub-dollar volume stand to have a material 
adverse impact on ETP Holders' qualifications for pricing tiers/
incentives because such qualifications depend upon ETP Holders 
achieving threshold percentages of volumes as a percentage of CADV, and 
an extraordinary rise in sub-dollar volume stands to elevate CADV. As a 
result, ETP Holders may find it more difficult, if not practically 
impossible, to qualify for or to continue to qualify for their existing 
incentives during months where there are such rises in sub-dollar 
volumes, even if their dollar plus volumes have not diminished relative 
to prior months.
    The Exchange believes that it would be unfair for ETP Holders that 
execute significant dollar plus volumes on the Exchange to fail to 
achieve or to lose their existing incentives for such volumes due to 
anomalous behavior that is extraneous to them. Therefore, the Exchange 
wishes to amend the Fee Schedule to help avoid extraordinary spikes in 
sub-dollar volumes from adversely affecting an ETP Holder's 
qualification of incentives for their dollar plus stock executions.
    Accordingly, the Exchange proposes to amend footnote 1 of the Fee 
Schedule to state that, for purposes of calculating an ETP Holder's 
qualifications for fees and credits that pertain to providing 
liquidity, the Exchange will calculate an ETP Holder's equity volume 
and total equity CADV twice for the following tiers: Adding Tiers, 
Limit Non-Display Step Up Tier and Tape C Tiers for Adding. First, the 
Exchange will calculate an ETP Holder's equity volume and total equity 
CADV inclusive of volume that consists of executions in securities 
priced less than $1. Second, the Exchange will calculate an ETP 
Holder's equity volume and total equity CADV exclusive of volume that 
consists of executions in securities priced less than $1. As proposed, 
the Exchange will then assess which of these two calculations would 
qualify the ETP Holder for the most advantageous fees and credits for 
the month and then the Exchange will apply those to the ETP Holder. 
Another market recently amended its rules to provide its members with a 
similar remedy.\13\
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    \13\ See Securities Exchange Act Release No. 99535 (February 14, 
2024), 89 FR 13125 (SR-NASDAQ-2024-005) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, 
Section 118).
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    Although the Exchange wishes to avoid extraordinary spikes in sub-
dollar volumes from adversely affecting an ETP Holder's qualification 
of incentives for their dollar plus stock executions, the Exchange 
proposes to limit the application of the proposed calculation to 
efficiently allocate the Exchange's limited resources for incentives. 
Specifically, as noted above, the Exchange proposes to apply the 
proposed calculation excluding sub-dollar volumes to the incentives 
that pertain to providing liquidity under the Adding Tiers, the Limit 
Non-Display Step Up Tier and the Tape C Tiers for Adding. The Exchange 
wishes to impose such limitations in order to limit the cost impact on 
the Exchange, while still providing some relief to ETP Holders in 
months with extraordinary spikes in sub-dollar volumes. It is 
appropriate for the Exchange to devote to incentive programs in a 
meaningful way and to reallocate these incentives periodically in a 
manner that best achieves the Exchange's overall mix of objectives.
    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,\14\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\15\ 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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    \14\ 15 U.S.C. 78f(b).
    \15\ 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.'' \16\ As a 
threshold matter, the Exchange is subject to significant competitive 
forces in the market for equity securities transaction services that 
constrain its pricing determinations in that market.
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    \16\ See Regulation NMS, supra note 6, 70 FR at 37499.
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
equity security transaction services. The Exchange is only one of 
several equity venues to which market participants may direct their 
order flow. Competing equity exchanges offer similar tiered pricing 
structures to that of the Exchange, including credits and fees that 
apply based upon members achieving certain volume thresholds. 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, the Exchange's fees 
are reasonably constrained by competitive alternatives and market 
participants can readily trade on competing venues if they deem pricing 
levels at those other venues to be more favorable.
    The Exchange believes that the proposal to amend the Fee Schedule 
is reasonable and equitable because, in its absence, ETP Holders may 
experience material adverse impacts on their ability to qualify for 
certain incentives during a month with an anomalous rise in sub-dollar 
volumes. The Exchange does not wish to penalize ETP Holders that 
execute significant volumes on the Exchange due to anomalous and 
extraneous trading activities of a small number of firms in sub-dollar 
securities. The proposed rule would seek to

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provide a means for ETP Holders that provide liquidity to avoid such a 
penalty by determining whether calculating ETP Holder equity volume and 
total equity CADV to include or exclude sub-dollar volume would result 
in ETP Holders qualifying for the most advantageous fees and credits, 
and then applying the calculations that would result in the incentives 
for providing liquidity that are most advantageous to each ETP Holder. 
The Exchange believes it is reasonable to limit the proposal by 
applying the proposed calculation to incentives that pertain to 
providing liquidity to a limited number of pricing tiers because the 
pricing tiers that are the subject of this proposed rule change are 
those that are the most impacted by anomalous spikes in sub-dollar 
volumes, and by applying the additional calculation to those specified 
pricing tiers would alleviate burden on ETP Holders from being 
disadvantaged by trading over which it has little or no control. The 
Exchange believes that the proposed rule change is an equitable 
allocation and is not unfairly discriminatory because the Exchange does 
not intend for the proposal to advantage any particular ETP Holders and 
the Exchange will apply the proposed calculation to all similarly 
situated ETP Holders.
    On the backdrop of the competitive environment in which the 
Exchange currently operates, the proposed rule change is a reasonable 
attempt by the Exchange to maintain, if not improve its market share 
relative to its competitors.
    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.

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

    In accordance with Section 6(b)(8) of the Act,\17\ 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.
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    \17\ 15 U.S.C. 78f(b)(8).
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    Intramarket Competition. The Exchange does not believe that its 
proposal would place any category of Exchange participant at a 
competitive disadvantage. The Exchange intends for its proposed changes 
to the fees and credits to reallocate its limited resources more 
efficiently and to align them with the Exchange's overall mix of 
objectives. The proposed rule change is intended to help avoid pricing 
disadvantages due to anomalous spikes in sub-dollar volumes and is not 
intended to provide a competitive advantage to any one particular ETP 
Holder. The proposed calculation would be available to all similarly-
situated market participants, and, as such, the proposed changes 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 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 12%. In such an environment, the 
Exchange must continually review, and consider adjusting its fees and 
credits to remain competitive with other exchanges and with off-
exchange venues. Because competitors are free to modify their own fees 
and credits in response, the Exchange does not believe its proposed fee 
change can impose any burden on intermarket competition.
    The Exchange believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
those that currently offer comparable transaction pricing, by 
encouraging additional orders to be sent to the Exchange for execution.

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 has become effective upon filing pursuant 
to Section 19(b)(3)(A) \18\ of the Act and paragraph (f) thereunder. At 
any time within 60 days of the filing of the 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.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
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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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSEARCA-2024-50 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-2024-50. 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 (https://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. Do 
not include personal identifiable information in submissions; you 
should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to file number SR-NYSEARCA-2024-50, and 
should be submitted on or before July 12, 2024.


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-13552 Filed 6-20-24; 8:45 am]
BILLING CODE 8011-01-P