Document ID: SEC-2023-0644-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2023-06-20T04:00Z

[Federal Register Volume 88, Number 117 (Tuesday, June 20, 2023)]
[Notices]
[Pages 39895-39901]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-13004]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97718; File No. SR-NYSE-2023-20]

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

June 13, 2023.
    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 May 30, 2023, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II 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.
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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 its Price List to institute Ratio 
Threshold Fees. The Exchange proposes to implement the fee change 
effective June 1, 2023. 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 Price List to institute Ratio 
Threshold

[[Page 39896]]

Fees, which would be applied to orders ranked Priority 2--Display 
Orders and to shares of Auction-Only Orders \4\ that have a 
disproportionate ratio of orders that are not executed.
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    \4\ See Rule 7.31(c) and note 15, infra.
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    The Exchange proposes to implement the fee change effective June 1, 
2023.
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, cash 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 17% market share.\9\ Therefore, no exchange 
possesses significant pricing power in the execution of cash equity 
order flow. More specifically, the Exchange's share of executed volume 
of equity trades in Tapes A, B and C securities is less than 12%.\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. See generally 
https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
    \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, based on transaction fees and credits. Accordingly, the 
Exchange's fees, including the proposed Ratio Threshold Fee, 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 purpose of the proposed rule change is to encourage efficient 
usage of Exchange systems by member organizations, which the Exchange 
believes is in the best interests of all member organizations and 
investors who access the Exchange. Unproductive share entry and 
cancellation practices, such as when member organizations flood the 
market with displayed orders that are frequently and/or rapidly 
cancelled, do little to support meaningful price discovery and may 
create investor confusion about the extent of trading interest in a 
security. The Exchange further believes that the inefficient order 
entry practices of a small number of member organizations may place 
excessive burdens on Exchange systems and on the systems of member 
organizations that ingest market data, while also negatively impacting 
the usefulness of market data feeds that transmit each order and 
subsequent cancellation.\11\ Member organizations with an excessive 
ratio of cancelled to executed orders do little to support meaningful 
price discovery.
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    \11\ See generally Recommendations Regarding Regulatory Reponses 
to the Market Events of May 6, 2010, Joint CFTC-SEC Advisory 
Committee on Emerging Regulatory Issues, at 11 (February 18, 2011) 
(``The SEC and CFTC should also consider addressing the 
disproportionate impact that [high frequency trading] has on 
Exchange message traffic and market surveillance costs. . . . The 
Committee recognizes that there are valid reasons for algorithmic 
strategies to drive high cancellation rates, but we believe that 
this is an area that deserves further study. At a minimum, we 
believe that the participants of those strategies should properly 
absorb the externalized costs of their activity.'').
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    The Exchange also believes that market quality can be improved 
through the imposition of a fee on market participants that have a 
disproportionate ratio of unexecuted orders. The Exchange believes that 
the proposed rule change would promote a more efficient marketplace and 
enhance the trading experience of all member organizations by 
encouraging them to more efficiently participate in the marketplace 
while at the same time allowing for the provision of liquidity in 
volatile, high-volume markets and providing member organizations with 
order management flexibility without being subject to the proposed fee. 
Unnecessary ratios of executed orders due to cancellations can have a 
detrimental effect on all market participants who are potentially 
compelled to upgrade capacity as a result of the bandwidth usage of 
other participants.
    All member organizations are free to manage their order and message 
flow consistent with their business models, and the vast majority of 
member organizations are able to do so without even approaching the 
ratio thresholds proposed for the fee, as described below. The Exchange 
believes that the proposed rule change would promote a more efficient 
marketplace, encourage liquidity provision and enhance the trading 
experience of all member organizations by imposing a financial 
incentive for the small number of member organizations that are 
currently exceeding the proposed ratio thresholds. The Exchange notes 
that its technology and infrastructure is adequately able to handle 
high-volume and high-volatility situations for member organizations 
that exceed the thresholds established by the Exchange. As described 
below, the proposed fee would take into consideration the number of 
shares that are executed or trades that occur.
    As noted, only a small number of member organizations are executing 
orders at a disproportionately low ratio to the number of orders that 
have been entered and, thus, the impact of the proposed fee would be 
narrow and limited to those member organizations. These member 
organizations can avoid the proposed fee by altering their behavior. 
The Exchange believes the proposed fee would encourage member 
organizations that could be impacted to modify their practices in order 
to avoid the fee, thereby improving the market for all participants. 
Accordingly, the Exchange does not expect the proposed fee to result in 
meaningful, if any, revenue. Prior to the submission of the proposed 
fee change, the Exchange engaged in discussions with member 
organizations that could be impacted by the proposed fee based on their 
prior trading behavior so that they may enhance the efficiency of their 
order entry practices and avoid the fee. The Exchange also provided 
notice to member organizations generally regarding the proposed 
fee.\12\
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    \12\ See NYSE Equities Trader Update dated May 30, 2023, 
available at https://www.nyse.com/publicdocs/nyse/notifications/trader-update/110000564614/NYSE_Notice_Fee_Change_202306.pdf.

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[[Page 39897]]

Proposed Rule Change
    As proposed, the Ratio Threshold Fee would apply to orders ranked 
Priority 2--Display Orders and to shares of Auction-Only Orders during 
the period when Auction Imbalance information is being 
disseminated.\13\
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    \13\ The Exchange proposes the non-substantive change of 
removing the colon following ``Routing Fees'' in the heading beneath 
which the proposed Ratio Threshold Fee would be inserted.
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Ratio Threshold for Priority 2--Display Orders (``RT--Display Fee'')
    For orders ranked Priority 2--Display Orders, member organizations 
that have characteristics indicative of inefficient order entry 
practices would be charged an RT--Display Fee on a monthly basis.\14\ 
For purposes of determining the RT--Display Fee:
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    \14\ The proposed fee focuses on displayed orders because such 
orders utilize more system resources than non-displayed orders.
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     The ``Weighted Order Total'' is the total number of orders 
ranked Priority 2--Display Orders entered by that member organization 
in a month, as adjusted by a ``Weighting Factor.'' The Weighted Order 
Total calculation excludes (i) all orders in securities in which that 
member organization is registered as a Designated Market Makers 
(``DMM''), and (ii) all orders for a member organization that is 
registered as a DMM, a market maker, a Supplemental Liquidity Provider 
(``SLP'') or as an SLP registered as an Exchange market maker 
(``SLMM'') in 100 or more securities.
     The ``Weighting Factor'' applied to each order based on 
its price in comparison to the national best bid or best offer 
(``NBBO'') at the time of order entry is:

------------------------------------------------------------------------
                                                               Weighting
             Order's price versus NBBO at entry                 factor
------------------------------------------------------------------------
Less than 0.20% away........................................          0x
0.20% to 0.99% away.........................................          1x
1.00% to 1.99% away.........................................          2x
2.00% or more away..........................................          3x
------------------------------------------------------------------------

    For example, an order more than 2.0% away from the NBBO would be 
equivalent to three orders that were 0.50% away. Due to the applicable 
Weighting Factor of 0x, orders entered less than 0.20% away from the 
NBBO would not be included in the Weighted Order Total but would be 
included in the ``executed'' orders component of the Order Entry Ratio 
if they execute in full or part.
     The ``Order Entry Ratio'' would be calculated by dividing 
a member organization's Weighted Order Total by the greater of (i) the 
number of orders ranked Priority 2--Display Orders that execute in full 
or in part or (ii) the number one (1).\15\
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    \15\ In the case where no orders entered by a member 
organization executed, this component of the ratio would be assumed 
to be 1 so as to avoid the impossibility of dividing by zero.
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     ``Excess Weighted Orders'' would be calculated by 
subtracting (i) the Weighted Order Total that would result in the 
member organization having an Order Entry Ratio of 100 from (ii) the 
member organization's actual Weighted Order Total.
    A member organization with a daily average Weighted Order Total of 
100,000 or more \16\ during a month would be charged the RT--Display 
Fee, which is calculated by multiplying the Applicable Rate in the 
chart below by the number of Excess Weighted Orders.
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    \16\ The Exchange believes it is reasonable to exclude member 
organizations with a daily average Weighted Order Total of less than 
100,000 during the month because member organizations with an 
extremely low volume of entered orders has only a de minimis impact 
on Exchange systems.
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    Member organizations that exceed the Order Entry Ratio threshold of 
1,000:1 would pay a fee of $0.01 on each order that caused the member 
organization to surpass the threshold. member organizations that exceed 
the Order Entry Ratio threshold of 100:1 but less than 1,000:1 would 
pay a fee of $0.005 on all orders that caused member organization's 
ratio to exceed 100:1.

------------------------------------------------------------------------
                                                              Applicable
                     Order entry ratio                           rate
------------------------------------------------------------------------
0-100......................................................        $0.00
101-1,000..................................................        0.005
More than 1,000............................................         0.01
------------------------------------------------------------------------

    The following example illustrates the calculation of the Order 
Entry Ratio and resulting RT--Display Fee:
     In a month, Member Organization A enters 35,000,000 
displayed, liquidity-providing orders:
    [cir] 20,000,000 of the orders are in securities in which Member 
Organization A is an DMM or registered as a DMM, a market maker, SLP, 
which assumes is 100 securities or more. These orders are excluded from 
the calculation.
    [cir] 10,000,000 orders are entered at the NBBO. The Weighting 
Factor for these orders is 0x.
    [cir] 5,000,000 orders are entered at a price that is 1.50% away 
from the NBBO. The Weighting Factor for these orders is 2x.
     The Weighted Order Total is (10,000,000 x 0) + (5,000,000 
x 2) = 10,000,000.
     Of the 15,000,000 orders included in the calculation, 
90,000 are executed in full or in part.
     The Order Entry Ratio is 10,000,000 (Weighted Order 
Total)/90,000 (executed orders total) = 111
    In the example above, the Weighted Order Total that would result in 
an Order Entry Ratio of 100 is 9,000,000, since 9,000,000/90,000 = 100. 
Accordingly, the Excess Weighted Orders would be 10,000,000-9,000,000 = 
1,000,000.
    The RT--Display Fee charged to a member organization would then be 
determined by multiplying the Applicable Rate by the number of Excess 
Weighted Orders.
    In the example above, because Member Organization A had an Order 
Entry Ratio of 111, the Applicable Rate would be $0.005. Accordingly, 
the monthly RT--Display Fee would be 1,000,000 (Excess Weighted Orders) 
x $0.005 (Applicable Rate) = $5,000.
Ratio Threshold for Auction-Only Orders During the Period When Auction 
Imbalance Information is Being Disseminated for a Core Open Auction or 
Closing Auction (``RT--Auction Fee'')
    For Auction-Only Orders,\17\ member organizations with an average 
daily number of orders of 10,000 or more \18\ would be charged an RT--
Auction Fee on a monthly basis.\19\ For purposes of determining the 
RT--Auction Fee:
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    \17\ An Auction-Only Order is a Limit or Market Order that is to 
be traded only within an auction pursuant to Rule 7.35 Series (for 
Auction-Eligible Securities) or routed pursuant to Rule 7.34 (for 
UTP Securities). See Rule 7.31(c). Auction-Only Orders are orders 
submitted by member organizations before the Core Trading Session 
begins (for the Core Open Auction) or during a halt or pause (for a 
Trading Halt Auction). See id.
    \18\ The Exchange believes it is reasonable to exclude member 
organizations with average daily orders of less than 10,000 during 
the month because a member organization with an extremely low volume 
of entered orders has only a de minimis impact on Exchange systems.
    \19\ Similar to orders ranked Priority 2--Display Orders, the 
proposed fee focuses on Auction-Only Orders because a 
disproportionate ratio of such orders that are not executed utilize 
more system resources, including updates to the Auction Imbalance 
Information as such orders are entered and cancelled, than other 
order entry and cancellation practices of member organizations. 
Accordingly, for Auction-Only Orders, Ratio Shares include shares of 
Auction-Only Orders executed in a disproportionate ratio to the 
quantity of shares entered during the period when Auction Imbalance 
Information is being disseminated for the Core Open Auction and 
Closing Auction.
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     The number of ``Ratio Shares'' is the average daily number 
of shares of Auction-Only Orders that are cancelled by the member 
organization during the Closing Auction Imbalance Freeze Time \20\ at a 
disproportionate ratio to the average daily number of shares executed 
by that member organization. Orders

[[Page 39898]]

ranked Priority 2--Display Orders designated for the Core Trading 
Session only that are entered during the period when Auction Imbalance 
Information for the Core Open Auction is being disseminated are 
included in the Ratio Shares calculation.\21\ All orders entered by a 
member organization acting as a DMM are not included in the calculation 
of Ratio Shares.
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    \20\ ``Closing Auction Imbalance Freeze Time'' means 10 minutes 
before the scheduled end of Core Trading Hours. See Rule 7.35(a)(8).
    \21\ For purposes of the Ratio Threshold Fees, orders ranked 
Priority 2--Display Orders designated for the Core Trading Session 
only that are cancelled during the period when Auction Imbalance 
Information for the Core Open Auction is being disseminated are 
included in the calculation of the proposed RT--Auction Fee. The 
Exchange proposes to include such orders as Auction-Only Orders for 
purposes of such fee because prior to the Core Open Auction, such 
orders would not be eligible to trade and therefore would not be 
included in the RT--Display Fee calculation, yet such orders would 
be included in the imbalance calculation for the Core Open Auction.
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     The ``Ratio Shares Threshold'' is a member organization's 
Ratio Shares divided by the average daily executed shares by the member 
organization.
    The Exchange proposes to charge the RT--Auction Fee for Auction-
Only Orders during the period when Auction Imbalance Information is 
being disseminated.\22\
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    \22\ See Rules 7.35A(e)(1) (Core Open Auction Imbalance 
Information begins at 8:00 a.m.); 7.35B(e)(1) (Closing Auction 
Imbalance Information begins at the Closing Auction Imbalance Freeze 
Time); Rule 7.35(a)(8) (Closing Auction Imbalance Freeze Time means 
10 minutes before the scheduled end of Core Trading Hours).
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    The Exchange proposes that it would not charge the RT--Auction Fee 
if Auction-Only Orders have a Ratio Shares Threshold of less than 25. 
If the Ratio Shares Threshold is greater than or equal to 25, the fee 
would be as follows:
     No Charge for member organizations with an average of 
fewer than 10 million Ratio Shares per day.
     $5.00 per million Ratio Shares for member organizations 
with an average of 10 million to 100 million Ratio Shares per day.
     $15.00 per million Ratio Shares for member organizations 
with an average of more than 100 million Ratio Shares per day.
    Member organizations would be charged for the entirety of their 
Ratio Shares at a rate of $5.00 per million Ratio Shares if the member 
organization has an average of 10 million to 100 million Ratio Shares; 
and $15.00 per million Ratio Shares if the member organization has an 
average of more than 100 million Ratio Shares.
    The following example illustrates the calculation of the RT--
Auction Fee for Auction-Only Orders.
     In a month, Member Organization B enters a daily average 
of 100,000 Auction-Only Orders for the Closing Auction, with an average 
size of 600 shares.
     Thus, Member Organization B's daily average number of 
shares submitted in Auction-Only Orders for the Closing Auction is 
60,000,000 shares (100,000 orders x 600 shares).
     During the period when Closing Auction Imbalance 
Information is being disseminated, Member Organization B cancels a 
daily average of 59,000,000 shares and executes a daily average of 
1,000,000 shares in the Closing Auction.
     Member Organization B has an average daily Ratio Shares 
quantity of 58,000,000 (59,000,000-1,000,000), and a Ratio Shares 
Threshold of 58 (58,000,000/1,000,000).
     Since the Ratio Shares Threshold is greater than 25 and 
the average daily Ratio Shares quantity is between 10 million and 100 
million, Member Organization B would be subject to the proposed fee of 
$5.00 per million Ratio Share, resulting in a fee of $6,090 assuming a 
21-day month (58,000,000/1,000,000 x $5.00 x 21).
    As noted above, the purpose of the fee is not the generation of 
revenue but rather to provide an incentive for a small number of member 
organizations to change their order entry practices. Therefore, the 
Exchange also proposes to limit the amount a member organization would 
pay by adopting a cap such that the combined RT--Display Fee and RT--
Auction Fee for a member organization would not exceed $1,000,000 per 
month. Based on an analysis of the impact to member organizations, the 
Exchange does not believe that many member organizations would be 
impacted. For example, the median Order Entry Ratio across all member 
organizations was 0.59 in April 2023 and 0.62 in May 2023 \23\ for 
orders ranked Priority 2--Display Orders. The median Ratio Shares 
Threshold across all ETP Holders was -0.918 in April 2023 and -0.919 in 
May 2023 \24\ Auction-Only Orders. The negative Ratio Shares Threshold 
indicates that the median ETP Holder has more executed shares than 
Ratio Shares.
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    \23\ Through May 17, 2023.
    \24\ Through May 17, 2023.
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    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,\25\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\26\ 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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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed fee would help to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest, because it is designed to 
reduce the numbers of orders and shares being entered and then 
cancelled prior to an execution.
The Proposed Changes Are 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.'' \27\
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    \27\ See Regulation NMS, supra note 4, 70 FR at 37499.
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    As the Commission itself recognized, the market for trading 
services in NMS stocks has become ``more fragmented and competitive.'' 
\28\ Indeed, equity trading is currently dispersed across 13 
exchanges,\29\ numerous alternative trading systems,\30\ and broker-
dealer

[[Page 39899]]

internalizers and wholesalers, all competing for order flow. Based on 
publicly-available information, no single exchange currently has more 
than 20% market share (whether including or excluding auction 
volume).\31\ 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, including the proposed Ratio 
Threshold Fee, 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.
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    \28\ See Securities Exchange Act Release No. 51808, 84 FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18) (Final Rule).
    \29\ 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.
    \30\ 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.
    \31\ See Cboe Global Markets U.S. Equities Market Volume 
Summary, available at http://markets.cboe.com/us/equities/market_share/.
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    The Exchange believes that the proposed Ratio Threshold Fees are 
reasonable because they are designed to achieve improvements in the 
quality of displayed liquidity--both intraday and in advance of 
auctions--on the Exchange for the benefit of all market participants. 
In addition, the proposed fees are reasonable because market 
participants may readily avoid the fee by adjusting their order entry 
and/or cancellation practices, which would result in more orders or 
shares being cancelled before execution.
    The Exchange believes it is also reasonable to charge a Ratio 
Threshold Fee on the basis of the number of orders ranked Priority 2--
Display Orders and to charge a Ratio Threshold Fee that is based on the 
number of shares of Auction-Only Orders because, as a general matter, 
displayed orders entered on the Exchange have fewer shares associated 
with each order whereas, the share quantity of an Auction-Only Order 
typically is much larger. The Exchange believes that applying the Ratio 
Threshold Fee to orders ranked Priority 2--Display Orders based on the 
number of shares of each order would not promote efficient order entry 
practice by member organizations in a meaningful way because, as noted 
above, the average size of each displayed order is relatively small in 
terms of shares. Therefore, to properly incentivize member 
organizations, the Exchange believes assessing the proposed fee based 
on orders, rather than number of shares, is more appropriate. The 
Exchange further believes that it is reasonable to apply the proposed 
fee to Auction-Only Orders only during the period when Auction 
Imbalance Information is being disseminated, because such orders are 
not displayed prior to such information being disseminated. By 
contrast, cancelling shares of Auction-Only Orders during the period 
when Auction Imbalance Information is being disseminated could result 
in excessive and unnecessary changes to imbalance information.
    Although only a small number of member organizations could be 
subject to the proposed fee, the Exchange believes that the proposed 
fee is necessary because of the negative externalities that such 
behavior imposes on others through order entry practices resulting in a 
disproportionate ratio of executed orders or shares to those that are 
not executed. Accordingly, the Exchange believes that it is fair to 
impose the fee on these market participants in order to incentivize 
them to modify their practices and thereby benefit the market. 
Importantly, whether a member organization would be subject to the 
proposed fee would be independent of any determination of whether such 
member organization is complying with Exchange and federal rules, 
including those governing order entry and cancellation.
    The Exchange believes that the proposed combined fee cap of 
$1,000,000 is reasonable as it would reduce the impact of the fee on 
member organizations. As noted above, the purpose of the proposed fee 
is not to generate revenue for the Exchange, but rather to provide an 
incentive for a small number of member organizations to change their 
order entry and/or cancellation behavior. As a general principal, the 
Exchange believes that greater participation on the Exchange by member 
organizations improves market quality for all market participants. 
Thus, in adopting the proposed fee, and the cap, the Exchange balanced 
the desire to improve market quality against the need to discourage 
inefficient order entry and/or cancellation practices.
    The Exchange believes the proposed rule change is designed to 
promote just and equitable principles of trade by adopting a fee that 
is comparable to a fee charged by the NASDAQ Stock Market LLC 
(``Nasdaq'') \32\ and by both the options and equities markets of the 
Exchange's affiliate NYSE Arca, Inc. (``NYSE Arca'').\33\
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    \32\ See Nasdaq Stock Market LLC Equity Rule 7, Section 118(m).
    \33\ See NYSE Arca Equities Fees and Charges, Ratio Threshold 
Fee, at available at https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf, and NYSE Arca Options Fees 
and Charges, Ratio Threshold Fee, at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf. On the NYSE Arca options 
marketplace, the Ratio Threshold Fee is charged to OTP Holders based 
on the number of orders entered compared to the number of executions 
received in a calendar month.
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    With respect to the RT--Display Fee, the proposed fee is 
substantially the same as the display fee charged on NYSE Arca's 
equities market and the Excess Order Fee on Nasdaq, and would subject 
member organizations to the fee if they exceed the Order Entry Ratio 
thresholds established by the Exchange, which thresholds are also 
substantially the same as those on NYSE Arca and Nasdaq. Additionally, 
the proposed RT--Auction Fee, similar to the RT--Display fee, is 
intended to disincentivize a disproportionate ratio of orders that are 
not executed. Therefore, the RT--Auction Fee focuses on Auction-Only 
Orders because a disproportionate ratio of such orders that are not 
executed uses more system resources, including updates to the Auction 
Imbalance Information as such orders are entered and cancelled, than 
other order entry and cancellation practices of member organizations. 
Finally, the RT--Auction Fee, unlike the RT--Display Fee which would be 
assessed on a tiered basis, would be applied on the entirety of each 
member organization's Ratio Shares, which, as defined above, is 
calculated net of shares that have been executed, and therefore, the 
fee would be applied only to those shares that remain unexecuted. The 
Exchange believes it would be appropriate to assess the fee in a non-
tiered manner because Auction-Only Orders generally have a larger 
number of shares associated with each order than orders ranked Priority 
2--Display Orders and therefore, the number of shares that could be 
impacted could increase significantly in a short period of time since 
the auction imbalance period only lasts for one hour. Additionally, the 
submission, and subsequent cancellation, of Auction-Only Orders during 
the imbalance dissemination period could lead to disruption in trading 
as each order, which could contain a large number of shares, would 
require the Exchange to update and disseminate the new order 
information on its market data feed. Accordingly, the Exchange believes 
assessing the fee on a share basis is appropriate because it would more 
effectively disincentivize member organizations from submitting a 
disproportionate ratio of shares that are not executed.

[[Page 39900]]

The Proposal Is an Equitable Allocation of Fees
    For the reasons noted above, the Exchange believes the proposed 
fees are also equitably allocated among its market participants. 
Although only a small number of member organizations may be subject to 
the proposed fees based on their current trading practices, any member 
organization could determine to change their order entry practices at 
any time, and the proposed fees would be applied to any member 
organization that determined to engage in such inefficient order entry 
practices. The proposed fee is therefore designed to encourage better 
displayed order entry practices by all member organizations for the 
benefit of all market participants. Moreover, the purpose of the 
proposal is not to generate revenue for the Exchange, but rather to 
provide an incentive for a small number of member organizations to 
change their order entry and/or cancellation behavior.
    The Exchange believes that the proposal constitutes an equitable 
allocation of fees because all similarly situated member organizations 
would be subject to the proposed fees. As noted above, the Exchange 
believes that because having a disproportionate ratio of unexecuted 
orders is a problem associated with a relatively small number of member 
organizations, the impact of the proposal would be limited to those 
member organizations, and only if they do not alter their trading 
practices. The Exchange believes the proposal would encourage member 
organizations that could be impacted to modify their practices in order 
to avoid the fee, thereby improving the market for all participants.
The Proposal Is Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory. In the prevailing competitive environment, member 
organizations are free to disfavor the Exchange's pricing if they 
believe that alternatives offer them better value, and are free to 
transact on competitor markets to avoid being subject to the proposed 
fees. The Exchange believes that the proposed fees neither target nor 
will they have a disparate impact on any particular category of market 
participant. The Exchange believes that the proposal change does not 
permit unfair discrimination because it would be applied to all 
similarly situated member organizations, who would all be subject to 
the proposed fee on an equal basis.
    The Exchange further believes that it is not unfairly 
discriminatory to exclude DMMs from the proposed RT--Display Fee in 
securities in which they are registered, or DMMs, non-DMM market 
makers, SLPs or SLMMs if they are registered in more than 100 
securities. Each of these market participants have independent 
obligations to maintain a two-sided quotation in their registered 
securities. In order to meet this obligation, these member 
organizations are more likely to need to cancel their resting orders so 
that they can update their quotes. The Exchange believes that such 
independent obligation to maintain a fair and orderly market outweighs 
any impact such cancellations would have on Exchange systems.
    Finally, the submission of orders to the Exchange is optional for 
member organizations in that they could choose whether to submit orders 
to the Exchange and, if they do, the extent of its activity in this 
regard.
    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,\34\ 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 fee would encourage member organizations to modify 
their order entry and/or cancellation practices so that fewer orders or 
shares are cancelled without resulting in an execution, thereby 
promoting price discovery and transparency and enhancing order 
execution opportunities on the Exchange.
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    \34\ 15 U.S.C. 78f(b)(8).
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    Intramarket Competition. The Exchange believes the proposed Ratio 
Threshold Fees would not place any undue burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because the proposed fees are designed to encourage 
member organizations to submit orders or shares into the market that 
are actionable. Further, the proposal would apply to all member 
organizations on an equal basis, and, as such, the proposed change 
would not impose a disparate burden on competition among market 
participants on the Exchange. To the extent that these purposes are 
achieved, the Exchange believes that the proposal would serve as an 
incentive for member organizations to modify their order entry 
practices, thus enhancing the quality of the market and increase the 
volume of orders or shares directed to, and executed on, the Exchange. 
In turn, all the Exchange's market participants would benefit from the 
improved market liquidity.
    Intermarket Competition. The Exchange operates in a highly 
competitive market in which market participants can readily favor other 
exchange and off-exchange venues. In such an environment, the Exchange 
must continually review, and consider adjusting its services along with 
its fees and rebates, to remain competitive with other exchanges and 
with off-exchange venues. Because competitors are free to modify their 
own services, and their fees and credits in response, the Exchange does 
not believe the proposed fee change can impose any burden on 
intermarket competition.

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

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

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

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \35\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \36\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \35\ 15 U.S.C. 78s(b)(3)(A).
    \36\ 17 CFR 240.19b-4(f)(2).
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    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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \37\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \37\ 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.

[[Page 39901]]

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-NYSE-2023-20 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-NYSE-2023-20. 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 
a.m. and 3 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-NYSE-2023-20 and should be 
submitted on or before July 11, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-13004 Filed 6-16-23; 8:45 am]
BILLING CODE 8011-01-P