[Federal Register Volume 87, Number 67 (Thursday, April 7, 2022)]
[Notices]
[Pages 20488-20491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-07345]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94575; File No. SR-NYSEArca-2022-15]


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

April 1, 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 March 21, 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 introduce a new credit that would apply 
to transactions executed on the Exchange using Discretionary Pegged 
Orders. The Exchange proposes to implement the fee change effective 
March 21, 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.

[[Page 20489]]

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 introduce a new 
credit that would apply to transactions executed on the Exchange using 
Discretionary Pegged Orders.
    The Exchange proposes to implement the fee change effective March 
21, 2022.
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.'' \4\
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    \4\ 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.'' \5\ Indeed, equity trading is currently dispersed across 
16 exchanges,\6\ numerous alternative trading systems,\7\ and broker-
dealer internalizers and wholesalers, all competing for order flow. 
Based on publicly available information, no single exchange currently 
has more than 18% market share.\8\ Therefore, no exchange possesses 
significant pricing power in the execution of equity order flow. More 
specifically, the Exchange currently has less than 9% market share of 
executed volume of equities trading.\9\
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    \5\ 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).
    \6\ 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.
    \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.
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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. With respect to non-marketable order 
flow that would provide liquidity on an Exchange, ETP Holders 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.
Proposed Rule Change
    Pursuant to Commission approval, the Exchange adopted a new order 
type known as a Discretionary Pegged Order (``DPO order'').\10\ A DPO 
order is a Pegged Order \11\ to buy (sell) that upon entry is assigned 
a working price \12\ equal to the lower (higher) of the midpoint of the 
PBBO \13\ (``Midpoint Price'') or the limit price of the order. In 
order to trade with contra-side orders on the NYSE Arca Book, a DPO 
order to buy (sell) will exercise the least amount of price discretion 
necessary from its working price to its discretionary price (defined as 
the lower (higher) of the Midpoint Price or the DPO order's limit 
price), except during periods of quote instability. DPO orders are not 
displayed, must be designated Day \14\ and are eligible to be 
designated for the Core Trading Session \15\ only.
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    \10\ See NYSE Arca Rule 7.31-E(h)(3). See also Securities 
Exchange Act Release No. 78181 (June 28, 2016), 81 FR 43297 (July 1, 
2016) (SR-NYSEArca-2016-44) (Notice of Filing of Amendment No. 1, 
and Order Granting Accelerated Approval of a Proposed Rule Change, 
as Modified by Amendment No. 1, To Add a New Discretionary Pegged 
Order).
    \11\ A ``Pegged Order'' is defined in Rule 7.31-E(h) as a Limit 
Order that does not route with a working price that is pegged to a 
dynamic reference price. If the designated reference price is higher 
(lower) than the limit price of a Pegged Order to buy (sell), the 
working price will be the limit price of the order.
    \12\ The term ``working price'' is defined in Rule 7.36-E(a)(3) 
as the price at which an order is eligible to trade at any given 
time, which may be different from the limit price or display price 
of the order. The term ``limit price'' is defined in Rule 7.36-
E(a)(2) as the highest (lowest) specified price at which a Limit 
Order to buy (sell) is eligible to trade.
    \13\ The term ``PBBO'' is defined in Rule 1.1(dd) as the highest 
Protected Bid and the lowest Protected Offer.
    \14\ Pursuant to NYSE Arca Rule 7.31-E(b)(1), any order to buy 
or sell designated Day, if not traded, expires at the end of the 
designated session on the day on which it was entered.
    \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 NYSE Arca 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 NYSE Arca Rule 1.1.
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    In anticipation of the scheduled implementation of the DPO order 
functionality,\16\ the Exchange proposes to introduce a new credit to 
the Fee Schedule, effective March 21, 2022. Specifically, the Exchange 
proposes to introduce a credit of $0.0005 per share for DPO orders that 
add liquidity. To reflect the new credit, the Exchange proposes to 
amend Section IV of the Fee Schedule titled ``Other Standard Rates for 
Securities with a Per Share Price $1.00 or Above'' by adopting a new 
bullet that would state ``($0.0005) credit for Discretionary Pegged 
Orders that add liquidity.''
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    \16\ See https://www.nyse.com/trader-update/history#110000415898.
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    The Exchange believes the proposed rule change to adopt a new 
credit for DPO orders that add liquidity will incentivize ETP Holders 
to use the DPO order functionality and direct liquidity-providing 
orders to the Exchange, which would provide additional liquidity for 
incoming orders and offer additional opportunities for midpoint 
execution.
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

[[Page 20490]]

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 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 non-marketable 
orders which provide liquidity on an Exchange, ETP Holders can choose 
from any one of the 16 currently operating registered exchanges to 
route such order flow. Accordingly, competitive forces reasonably 
constrain exchange transaction fees that relate to orders that would 
provide liquidity 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 the proposed rule change is 
reasonable because it is designed to enhance the Exchange's market 
quality by encouraging ETP Holders to add more liquidity on the 
Exchange, which would benefit all market participants by deepening the 
Exchange's liquidity pool. The Exchange believes it is reasonable to 
introduce a fee incentive for the use of DPO orders, which is designed 
to exercise discretion in order to provide price improvement to contra-
side orders. As noted above, a DPO order is designed to be a non-
displayed order that could execute at the midpoint of the PBBO, and 
thus would enhance order execution opportunities at the Exchange. The 
Exchange believes the proposed credit will therefore incentivize ETP 
Holders to utilize the new functionality.
    The Exchange believes it is reasonable to provide the proposed 
credit as an incentive to ETP Holders when they use the DPO order to 
provide liquidity to the Exchange, which would benefit all market 
participants. The Exchange believes the proposed change to adopt a new 
credit is reasonable as it would provide an incentive to ETP Holders to 
use the order type to provide meaningful added levels of liquidity, 
thereby contributing to market quality on the Exchange.
    As noted above, the Exchange operates in a highly competitive 
environment, particularly for attracting non-displayed and midpoint 
order flow. Additionally, many of the Exchange's competitors for this 
order flow are alternative trading systems (ATSs) which are not 
registered national securities exchanges and therefore operate with far 
more regulatory freedom. For example, ATSs can segregate and/or 
eliminate undesirable order flow based on client demand, a function 
that is not available to the Exchange.
    Additionally, the Exchange is one of many venues and off-exchange 
venues to which market participants may direct their order flow, and it 
represents a small percentage of the overall market.
    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 and is not unfairly discriminatory because it would 
apply uniformly to all ETP Holders, in that all ETP Holders will be 
eligible for the proposed new credit and will have the opportunity to 
utilize the DPO order and receive the applicable credit when such 
orders add liquidity on the Exchange. The proposed credit would apply 
automatically and uniformly to all ETP Holders that use the new 
functionality. The proposed credit is designed as an incentive to all 
liquidity providers to submit liquidity providing orders by using the 
DPO order type and each will receive the associated credit when such 
orders add liquidity on the Exchange. 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 anticipates a number of ETP 
Holders will benefit from the proposed rule change when they utilize 
the new functionality. As stated, the proposed new credit is designed 
to provide an incentive for ETP Holders to submit additional liquidity 
across all Tapes by using the DPO order type.
    The Exchange believes that the proposal is not unfairly 
discriminatory. The Exchange believes it is not unfairly discriminatory 
to provide the proposed credit as the credit would be provided on an 
equal basis to all ETP Holders that use the DPO order type to add 
liquidity in all securities. As noted above, the proposed credit is 
designed to serve as an incentive to all ETP Holders to utilize the DPO 
order type to add liquidity on the Exchange and each would receive the 
corresponding new credit. The Exchange also notes that the proposed 
rule change will not adversely impact any ETP Holder's pricing or their 
ability to qualify for other fees and credits on the Exchange. Rather, 
should an ETP Holder not use the new functionality, the ETP Holder will 
merely not receive the corresponding rebate.
    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, 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 DPO order type 
functionality would be available to all ETP Holders and each such ETP 
Holder would receive the proposed new credit when adding liquidity on 
the Exchange through the use of the new order type.
    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,\20\ 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 rule change would encourage the submission of 
additional liquidity to a public exchange, thereby promoting market 
depth and enhancing order execution opportunities for ETP Holders. 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.'' \21\
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    \20\ 15 U.S.C. 78f(b)(8).
    \21\ See Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).

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[[Page 20491]]

    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 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 additional liquidity to the Exchange in all securities through 
the use of a new order type. The Exchange believes that the proposed 
adoption of a new credit would incentivize market participants to 
direct liquidity adding order flow to the Exchange, bringing with it 
additional execution opportunities for market participants. Greater 
overall order flow and more trading opportunities at multiple price 
points benefits all market participants on the Exchange by enhancing 
market quality and continuing to encourage ETP Holders to send orders 
to the Exchange, thereby contributing towards a robust and well-
balanced market ecosystem.
    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 9%. 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.
    The Exchange believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
those that currently offer similar order types and 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 is effective upon filing pursuant to 
Section 19(b)(3)(A) \22\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \23\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 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) \24\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \24\ 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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2d5f584148004e4240404843595e6d5e484e034a425b"><span class="__cf_email__" data-cfemail="780a0d141d551b1715151d160c0b380b1d1b561f170e">[email protected]</span></a>. Please include 
File Number SR-NYSEArca-2022-15 on the subject line.

Paper Comments

    <bullet> 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-2022-15. 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-2022-15, and should be 
submitted on or before April 28, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-07345 Filed 4-6-22; 8:45 am]
BILLING CODE 8011-01-P


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