Document ID: SEC-2022-0071-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2022-01-19T05:00Z

[Federal Register Volume 87, Number 12 (Wednesday, January 19, 2022)]
[Notices]
[Pages 2964-2968]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-00873]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93960; File No. SR-NYSEArca-2021-109]

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

January 12, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 30, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Equities Fees and 
Charges (``Fee Schedule'') to adopt an alternative requirement to 
qualify for the Tape B Tier 3 pricing tier. The Exchange proposes to 
implement the fee change effective January 3, 2022. The proposed rule 
change is available on the

[[Page 2965]]

Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend the Fee Schedule to adopt an 
alternative requirement to qualify for the Tape B Tier 3 pricing tier. 
The Exchange proposes to implement the fee change effective January 3, 
2022.
Background
    The Exchange operates in a highly competitive market. The 
Commission has repeatedly expressed its preference for competition over 
regulatory intervention in determining prices, products, and services 
in the securities markets. In Regulation NMS, the Commission 
highlighted the importance of market forces in determining prices and 
SRO revenues and, also, recognized that current regulation of the 
market system ``has been remarkably successful in promoting market 
competition in its broader forms that are most important to investors 
and listed companies.'' \3\
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    \3\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (File No. S7-10-04) (Final 
Rule) (``Regulation NMS'').
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    While Regulation NMS has enhanced competition, it has also fostered 
a ``fragmented'' market structure where trading in a single stock can 
occur across multiple trading centers. When multiple trading centers 
compete for order flow in the same stock, the Commission has recognized 
that ``such competition can lead to the fragmentation of order flow in 
that stock.'' \4\ Indeed, equity trading is currently dispersed across 
16 exchanges,\5\ numerous alternative trading systems,\6\ and broker-
dealer internalizers and wholesalers, all competing for order flow. 
Based on publicly available information, no single exchange currently 
has more than 18% market share.\7\ Therefore, no exchange possesses 
significant pricing power in the execution of equity order flow. More 
specifically, the Exchange currently has less than 12% market share of 
executed volume of equities trading.\8\
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    \4\ See Securities Exchange Act Release No. 61358, 75 FR 3594, 
3597 (January 21, 2010) (File No. S7-02-10) (Concept Release on 
Equity Market Structure).
    \5\ See Cboe U.S Equities Market Volume Summary, available at 
https://markets.cboe.com/us/equities/market_share. See generally 
https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
    \6\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of 
alternative trading systems registered with the Commission is 
available at https://www.sec.gov/foia/docs/atslist.htm.
    \7\ See Cboe Global Markets U.S. Equities Market Volume Summary, 
available at http://markets.cboe.com/us/equities/market_share/.
    \8\ See id.
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
move order flow, or discontinue or reduce use of certain categories of 
products. While it is not possible to know a firm's reason for shifting 
order flow, the Exchange believes that one such reason is because of 
fee changes at any of the registered exchanges or non-exchange venues 
to which a firm routes order flow. With respect to non-marketable order 
flow that would provide liquidity on an Exchange against which market 
makers can quote, 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
    Currently, under the Tape B Tier 3 pricing tier, an ETP Holder 
could qualify for a credit of $0.0025 per share \9\ for adding 
liquidity in Tape B Securities if such ETP Holder (1) has Adding ADV of 
Tape B CADV that is equal to at least 0.20% of the Tape B CADV and (2) 
has Market Maker Electronic Posting Volume of TCADV of at least 0.50% 
by an OTP Holder or OTP Firm affiliated with the ETP Holder.
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    \9\ Under Section III of the Fee Schedule--Standard Rates, ETP 
Holders receive a credit of $0.0020 per share for orders that add 
liquidity in Tape B securities. Additionally, in securities priced 
at or above $1.00, an additional credit in Tape B securities may be 
available to LMMs and to Market Makers affiliated with LMMs that add 
displayed liquidity based on the number of Less Active ETP 
Securities in which the LMM is registered as the LMM. The applicable 
tiered-credits are noted in the Fee Schedule under LMM Transaction 
Fees and Credits.
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    The Exchange proposes to adopt an alternative requirement to 
qualify for Tape B Tier 3 credit. As proposed, an ETP Holder could 
qualify for the Tape B Tier 3 credit of $0.0025 per share for adding 
liquidity in Tape B securities if such ETP Holder has Adding ADV of 
Tape B CADV that is equal to at least 0.15% over the ETP Holder's April 
2020 Adding ADV taken as a percentage of Tape B CADV.
    The Exchange is not proposing any change to the level of Tape B 
Tier 3 credits.
    The proposed rule change to adopt an alternative requirement to 
qualify for the existing credit is designed to incentivize ETP Holders 
to increase liquidity-providing orders in Tape B securities they send 
to the Exchange, which would support the quality of price discovery on 
the Exchange and provide additional liquidity for incoming orders.
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.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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.'' \12\
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    \12\ 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 or reduce use of certain categories of

[[Page 2966]]

products, in response to fee changes. With respect to non-marketable 
orders that 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 displayed 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 provides an additional opportunity for ETP 
Holders to receive an existing rebate on qualifying orders in a manner 
that incentivizes order flow on the Exchange's equities platform. The 
Exchange believes the proposed change to adopt an alternative 
requirement to qualify for the Tape B Tier 3 pricing tier is reasonable 
because it provides ETP Holders with an additional way to qualify for 
the pricing tier's credit by providing liquidity in Tape B securities 
each month over a predetermined baseline, and which does not include an 
options component. The Exchange believes that the proposed alternative 
to qualify for the pricing tier utilizing an equities-only requirement 
is reasonable because the proposal provides firms that do not have an 
affiliation with an OTP Holder or OTP Firm the ability to reach the 
proposed volume tier by sending liquidity providing orders in tape B 
securities, thereby creating an incentive for ETP Holders to bring 
increased order flow to a public exchange.
    The Exchange believes the proposed change to adopt an alternative 
method to qualify for existing credits is reasonable as these changes 
would provide an incentive for ETP Holders to direct their order flow 
to the Exchange and provide meaningful added levels of liquidity in 
order to qualify for the existing credit, thereby contributing to depth 
and market quality on the Exchange.
    As noted above, the Exchange operates in a highly competitive 
environment, particularly for attracting order flow that provides 
displayed liquidity on an exchange. More specifically, the Exchange 
notes that greater add volume order flow may provide for deeper, more 
liquid markets and execution opportunities at improved prices, which 
the Exchange believes would incentivize liquidity providers to submit 
additional liquidity and enhance execution opportunities.
    The Exchange notes that volume-based incentives and discounts have 
been widely adopted by exchanges, including the Exchange, and are 
reasonable, equitable and not unfairly discriminatory because they are 
available to all ETP Holders on an equal basis. They also provide 
additional benefits or discounts that are reasonably related to the 
value of the Exchange's market quality and associated higher levels of 
market activity, such as higher levels of liquidity provision and/or 
growth patterns. 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. 
Competing exchanges offer similar tiered pricing structures to that of 
the Exchange, including schedules of rebates and fees that apply based 
on members achieving certain volume thresholds.
    The Exchange believes its proposal equitably allocates its fees and 
credits among its market participants.
    The Exchange believes that the proposal represents an equitable 
allocation of fees and credits and is not unfairly discriminatory 
because it would apply uniformly to all ETP Holders, in that all ETP 
Holders will be eligible for the existing credit and have the 
opportunity to meet the tier's criteria and receive the applicable 
rebate if such criteria is met. The existing rebate would apply 
automatically and uniformly to all ETP Holders that achieve the 
corresponding criteria. The proposed change is designed as an incentive 
to any and all liquidity providers interested in meeting the tier 
criteria to submit order flow to the Exchange and each will receive the 
associated rebate if the tier criteria is met. While the Exchange has 
no way of knowing whether this proposed rule change would definitively 
result in any particular ETP Holder qualifying for the existing credit 
by utilizing the proposed alternative requirement, the Exchange 
anticipates a number of ETP Holders would be able to meet, or will 
reasonably be able to meet, the proposed criteria. However, without 
having a view of activity on other markets and off-exchange venues, the 
Exchange has no way of knowing whether this proposed rule change would 
result in any ETP Holder meeting the alternative requirement and 
qualifying for the Tape B Tier 3 rebate. As stated, the proposed 
alternative requirement to qualify for an existing credit is designed 
to provide an incentive for ETP Holders to submit additional liquidity 
in Tape B securities.
    The Exchange believes that the proposal is not unfairly 
discriminatory.
    The Exchange believes it is not unfairly discriminatory to provide 
an alternative way to qualify for the per share credit under the Tape B 
Tier 3 pricing tier, as the credit would be provided on an equal basis 
to all ETP Holders that meet the proposed alternative requirement. 
Further, the Exchange believes the proposed alternative requirement 
would incentivize ETP Holders to send their liquidity providing orders 
in Tape B securities to the Exchange to qualify for the existing 
rebate.
    The Exchange believes that the proposed alternative requirement to 
qualify for the Tape B Tier 3 credit is not unfairly discriminatory 
because it would be available to all ETP Holders on an equal and non-
discriminatory basis. In this regard, the Exchange notes that ETP 
Holders that do not meet the proposed alternative requirement would 
continue to have the opportunity to qualify for the Tape B Tier 3 
credit by satisfying the current requirement, which would not change as 
a result of this proposal.
    The Exchange also believes that the proposed rule change is not 
unfairly discriminatory because it is reasonably related to the value 
to the Exchange's market quality associated with higher volume. The 
proposed change to the Tape B Tier 3 pricing tier is designed as an 
incentive to any and all ETP Holders interested in meeting the tier 
criteria to submit additional order flow to the Exchange and each will 
receive the existing rebate if the tier criteria is met. The Exchange 
also notes that the proposed rule change will not adversely impact any 
ETP Holder's pricing or its ability to qualify for other tiers. Rather, 
should an ETP Holder not meet the Tape B Tier 3 pricing tier's 
criteria, 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 uniformly to all similarly situated ETP 
Holders and all ETP Holders would be subject to the same requirements. 
Accordingly, no ETP Holder already operating on the Exchange would be 
disadvantaged by the proposed allocation of fees. The Exchange further 
believes that the proposed changes would not permit unfair 
discrimination among ETP Holders because the Tape B Tier 3 credit

[[Page 2967]]

would be available equally to all ETP Holders.
    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,\13\ 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 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.'' \14\
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    \13\ 15 U.S.C. 78f(b)(8).
    \14\ See Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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    Intramarket Competition. The Exchange believes the proposed 
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 order flow to the Exchange, in particular with 
respect to Tape B securities. The Exchange believes that the proposed 
adoption of an alternative requirement to qualify for an established 
credit under the Tape B Tier 3 pricing tier would incentivize market 
participants to direct liquidity adding order flow to the Exchange, 
bringing with it additional execution opportunities for market 
participants and improved price transparency. Greater overall order 
flow, trading opportunities, and pricing transparency benefits all 
market participants on the Exchange by enhancing market quality and 
continuing to encourage ETP Holders to send orders 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 12%. 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) \15\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \16\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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) \17\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \17\ 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-2021-109 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-2021-109. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal offices of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All

[[Page 2968]]

submissions should refer to File Number SR-NYSEArca-2021-109, and 
should be submitted on or before February 9, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-00873 Filed 1-18-22; 8:45 am]
BILLING CODE 8011-01-P