Document ID: SEC-2022-1598-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Chicago, Inc.
Posted Date: 2022-12-13T05:00Z

[Federal Register Volume 87, Number 238 (Tuesday, December 13, 2022)]
[Notices]
[Pages 76225-76228]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-26949]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96461; File No. SR-NYSECHX-2022-28]

Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
Fee Schedule of NYSE Chicago, Inc.

December 7, 2022.
    Effectiveness of Proposed Rule Change to amend the Fee Schedule of 
NYSE Chicago, Inc.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on November 28, 2022, NYSE Chicago, Inc. (``NYSE Chicago'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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\ 15 U.S.C. 78a.
    \3\ 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 the Fee Schedule of NYSE Chicago, 
Inc. (the ``Fee Schedule'') to adopt a new credit and increase an 
existing credit applicable to certain Exchange members. The Exchange 
proposes to implement the fee changes effective November 28, 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 to amend the Fee Schedule to adopt a new 
credit and increase an existing credit applicable to certain Exchange 
members. Specifically, the Exchange proposes new Section F.1 to adopt a 
Participant \4\ credit applicable to Clearing Participants and amend 
Section F.2 to increase the Transaction Fee Credit and Clearing 
Submission Fee Credit applicable to Clearing Brokers. The Exchange 
proposes to implement the fee changes effective November 28, 2022.\5\
---------------------------------------------------------------------------

    \4\ A ``Participant'' is, except as otherwise described in the 
Rules of the Exchange, ``any Participant Firm that holds a valid 
Trading Permit and any person associated with a Participant Firm who 
is registered with the Exchange under Articles 16 and 17 as a Market 
Maker Authorized Trader or Institutional Broker Representative, 
respectively.'' See Article 1, Rule 1(s).
    \5\ The Exchange originally filed to amend the Fee Schedule on 
November 1, 2022 (SR-NYSECHX-2022-25). SR-NYSECHX-2022-25 was 
subsequently withdrawn and replaced by SR-NYSECHX-2022-26. SR-
NYSECHX-2022-26 was subsequently withdrawn and replaced by this 
filing.
---------------------------------------------------------------------------

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 National Market System 
(``NMS''), the Commission highlighted the importance of market forces 
in determining prices and Self-Regulatory Organizations (``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.'' \6\
---------------------------------------------------------------------------

    \6\ 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'').
---------------------------------------------------------------------------

    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.'' \7\ Indeed, equity trading is

[[Page 76226]]

currently dispersed across 16 exchanges,\8\ numerous alternative 
trading systems,\9\ and broker-dealer internalizers and wholesalers, 
all competing for order flow. Based on publicly available information, 
no single exchange currently has more than 17% market share.\10\ 
Therefore, no exchange possesses significant pricing power in the 
execution of equity order flow. More specifically, the Exchange 
currently has less than 1% market share of executed volume of equities 
trading.\11\
---------------------------------------------------------------------------

    \7\ 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).
    \8\ See Cboe U.S Equities Market Volume Summary, available at 
https://markets.cboe.com/us/equities/market_share.
    \9\ 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.
    \10\ See Cboe Global Markets U.S. Equities Market Volume 
Summary, available at http://markets.cboe.com/us/equities/market_share/.
    \11\ 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. 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.
Proposed Rule Change
    Current Section E.3(a) assesses a fee of $0.0030 per share, capped 
at $75 per Clearing Side,\12\ for an execution within the Exchange in a 
security priced at $1.00 per share or more that results from an agency 
order submitted by an Institutional Broker.\13\
---------------------------------------------------------------------------

    \12\ Section E.3(a)(3) of the Fee Schedule defines ``Clearing 
Side,'' in pertinent part, as the buy or sell side of a clearing 
submission that is related to a Section E.3(a) or Section E.7 
execution. The Clearing Side is paid by the Clearing Participant or 
an Institutional Broker.
    \13\ The term ``Institutional Broker'' is defined in Article 1, 
Rule 1(n) to mean a member of the Exchange who is registered as an 
Institutional Broker pursuant to the provisions of Article 17 and 
has satisfied all Exchange requirements to operate as an 
Institutional Broker on the Exchange; see also generally NYSE 
Chicago Article 17.
---------------------------------------------------------------------------

    Current Section E.7 assesses a similar fee of $0.0030 per share, 
capped at $75 per Clearing Side, for an away execution in a security 
priced at $1.00 per share or more that is cleared through the 
Exchange's systems by an Institutional Broker and submitted to a 
Qualified Clearing Agency pursuant to Article 21, Rule 6(a).\14\
---------------------------------------------------------------------------

    \14\ Section E.3(a) and E.7 fees are virtually identical as both 
apply to executions effected through Institutional Brokers that are 
cleared through the Exchange's clearing systems, except that Section 
E.3(a) applies to executions within the Exchange, whereas Section 
E.7 applies to qualified away executions pursuant to CHX Article 21, 
Rule 6(a).
---------------------------------------------------------------------------

    The Exchange proposes to adopt new Section F.1 titled ``Participant 
credits'' pursuant to which the total monthly fees owed by a Clearing 
Participant to the Exchange under Section E.3(a) and Section E.7 would 
be reduced by the application of a credit equal to 5% of such fees. The 
Exchange believes that reducing Section E.3(a) and Section E.7 fees 
would increase trading on the Exchange.
    Additionally, current Section F.2 provides for a Transaction Fee 
Credit and a Clearing Submission Fee Credit and generally states that 
the total monthly fees owed by an Exchange-registered Institutional 
Broker to the Exchange will be reduced (and Institutional Brokers will 
be paid for any unused credits) by the application of a Transaction Fee 
Credit and a Clearing Submission Fee Credit. Specifically, a Clearing 
Broker \15\ receives a ``Transaction Fee Credit'' equal to 5% of the 
transaction fees received by the Exchange each month for agency trades 
executed through the Institutional Broker (i.e., Section E.3(a) fees) 
for the portion(s) of the transaction handled by the Clearing Broker. 
Similarly, a Clearing Broker receives a ``Clearing Submission Fee 
Credit'' equal to 5% of the Clearing Submission Fees received by the 
Exchange pursuant to Section E.7 of the Fee Schedule for the portion(s) 
of the transaction handled by the Clearing Broker. Also, only 
Institutional Brokers which are members of the Financial Industry 
Regulatory Authority, Inc. are eligible for the Clearing Submission Fee 
Credit. Both the Transaction Fee Credit and the Clearing Submission Fee 
Credit are provided by the Exchange to the Clearing Broker, who then 
passes on these credits to the Institutional Broker associated with the 
transaction.
---------------------------------------------------------------------------

    \15\ Section F.2 of the Fee Schedule defines ``Clearing Broker'' 
as the Exchange-registered Institutional Broker that did not execute 
the trade, but acted as the broker for the ultimate Clearing 
Participant. ``Clearing Participant'' means a Participant which has 
been admitted to membership in a Qualified Clearing Agency pursuant 
to the provisions of the Rules of the Qualified Clearing Agency. See 
Article 1, Rule 1(ee).
---------------------------------------------------------------------------

    The Exchange proposes to amend current Section F.2 by increasing 
both the Transaction Fee Credit and the Clearing Submission Fee Credit 
from 5% to 8% each. As with the Participant credit proposed herein, the 
Exchange believes that increasing the Transaction Fee Credit and the 
Clearing Submission Fee Credit, which would result in reduced fees, 
would increase trading and post-trade activity on the Exchange.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\16\ in general, and furthers the 
objectives of Sections 6(b)(4) of the Act,\17\ 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.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

The Proposed Fee Change is Reasonable
    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.'' \18\
---------------------------------------------------------------------------

    \18\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------

    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. With respect to non-marketable 
orders that provide liquidity on an Exchange, Participants 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.
    The Exchange believes that the proposed new Participant credit is 
reasonable because it is designed to encourage increased trading 
activity on the Exchange. The Exchange believes the proposed rule 
change to introduce the Participant credit, which would result in lower 
fees paid by Clearing Participants for the execution of single-

[[Page 76227]]

sided or cross orders, would incentivize more trading on the Exchange. 
Further, the Exchange believes that increasing the Transaction Fee 
Credit, which applies to executions effected on the Exchange, and the 
Clearing Submission Fee Credit, which applies to off-exchange 
executions cleared on the Exchange, from 5% to 8% is reasonable because 
these credits are designed to incent trading, in the case of the 
Transaction Fee Credit, and clearing activity, in the case of the 
Clearing Submission Fee Credit, by Institutional Brokers. The Exchange 
believes increasing these credits, which would result in lower fees, is 
a reasonable means to further incentivize Institutional Brokers to 
conduct more of their trading and clearing activity on the Exchange.
    The Exchange believes that the proposal represents a reasonable 
effort to promote enhanced order execution opportunities as well as 
promote post-trade clearing submissions by Exchange members. The 
Exchange notes that market participants are free to shift their order 
flow to competing venues if they believe other markets offer more 
favorable fees and credits.
    On the backdrop of the competitive environment in which the 
Exchange currently operates, the proposed rule change is a reasonable 
attempt to attract additional order flow and increase liquidity on the 
Exchange and improve the Exchange's market share relative to its 
competitors.
The Proposed Fee Change is an Equitable Allocation of Fees and Credits
    The Exchange believes that the proposed new Participant credit and 
the proposed increase to the Transaction Fee Credit and the Clearing 
Submission Fee Credit equitably allocates its fees and credits among 
its market participants. The Exchange believes the proposed new 
Participant credit is equitable because it is open to all similarly 
situated Clearing Participants on an equal basis and provides a per 
share credit that is reasonably related to the value of an exchange's 
market quality associated with higher volumes. The Exchange believes it 
is equitable to provide Clearing Participants with the proposed credit 
and provide Clearing Brokers with increased credits, both of which 
would result in lower fees, because the credits would serve to 
incentivize each such member to conduct more of its trading and 
clearing activity on the Exchange.
    The Exchange believes that the proposed new Participant credit 
could encourage the submission of a greater number of orders to the 
Exchange, thus enhancing order execution opportunities for all market 
participants trading on the Exchange. All market participants would 
benefit from the greater amounts of liquidity that would be present on 
the Exchange, which would provide greater execution opportunities. The 
Exchange also believes that the proposed increase to the Transaction 
Fee Credit and the Clearing Submission Fee Credit could encourage 
Institutional Brokers to conduct more of their trading and post-trade 
activity on the Exchange.
The Proposed Fee Change is Not Unfairly Discriminatory
    The Exchange believes that the proposed new Participant credit and 
increasing the level of the Transaction Fee Credit and the Clearing 
Submission Fee Credit is not unfairly discriminatory. The Exchange 
believes that the proposal does not permit unfair discrimination 
because the proposed new credit would be applied to all similarly 
situated Clearing Participants while the existing Transaction Fee 
Credit and the Clearing Submission Fee Credit would be similarly 
applied to all Clearing Brokers on an equal basis. Accordingly, no 
Exchange member already operating on the Exchange would be 
disadvantaged by the proposed allocation of fees and credits under the 
proposal. The Exchange further believes that the proposed fee change 
would not permit unfair discrimination among Clearing Participants or 
among Clearing Brokers because the credits would be available equally 
to them. As described above, in today's competitive marketplace, market 
participants have a choice of where to direct their order flow or which 
market to transact on. The Exchange believes this proposal would 
benefit a number of members by lowering their current fees, regardless 
of whether or not they increase their trading and clearing activity on 
the Exchange.
    In the prevailing competitive environment, Exchange members are 
free to disfavor the Exchange's pricing if they believe that 
alternatives offer them better value. Accordingly, no Exchange member 
already operating on the Exchange would be disadvantaged by the 
proposed allocation of the Exchange's fees and credits.
    Finally, the submission of orders to the Exchange is optional for 
Exchange members 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,\19\ 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 all market participants on the Exchange. 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.'' \20\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b)(8).
    \20\ See Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
---------------------------------------------------------------------------

    Intramarket Competition. The Exchange believes the proposed new 
Participant credit and the proposed increase to the Transaction Fee 
Credit and the Clearing Submission Fee Credit 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. The proposed changes are 
designed to attract additional trading and post-trade activity to the 
Exchange. The Exchange believes that the proposed adoption of the 
Participant credit and increasing the level of the Transaction Fee 
Credit and the Clearing Submission Fee Credit would incentivize market 
participants to direct more of their trading and post-trading activity 
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. Additionally, the proposed changes would apply equally to all 
similarly situated Clearing Participants and Clearing Brokers, in that 
they would all be equally eligible

[[Page 76228]]

for the credits available under Sections F.1 and F.2, respectively, of 
the Fee Schedule.
    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 1%. In such an environment, the 
Exchange must continually adjust its fees and rebates to remain 
competitive with other exchanges and with off-exchange venues. Because 
competitors are free to modify their own fees and credits in response, 
and because market participants may readily adjust their order routing 
practices, the Exchange does not believe its proposed fee change can 
impose any burden on intermarket competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A) \21\ 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.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(3)(A).
---------------------------------------------------------------------------

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-NYSECHX-2022-28 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-NYSECHX-2022-28. 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-NYSECHX-2022-28 and should be submitted 
on or before January 3, 2023.
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-26949 Filed 12-12-22; 8:45 am]
BILLING CODE 8011-01-P