[Federal Register Volume 85, Number 174 (Tuesday, September 8, 2020)]
[Notices]
[Pages 55550-55561]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19851]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89754; File No. SR-NYSE-2020-71]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Its Price List
September 2, 2020.
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 August 20, 2020, 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,
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.
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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 (1) revise the
Step Up Tier 1 Adding Credit; (2) revise the Step Up Tier 4 Adding
Credit; (3) revise a requirement for the Incremental Rebate Per Share
for Designated Market Makers (``DMM'') in most active securities; (4)
adopt a new National Best Bid and Offer (``NBBO'') Setter pricing tier
for DMMs; (5) adopt a new NBBO Setter pricing tier for Supplemental
Liquidity Providers (``SLP''); and (6) extend through August 2020 the
waiver of equipment and related service charges and trading license
fees for NYSE Trading Floor-based member organizations implemented for
April, May, June and July 2020, make Floor broker member organizations
that had no March 2020 volumes eligible for both waivers, and provide a
one-time credit of the equipment and related service charges and
trading license fees for member organizations that became member
organizations after April 1, 2020. The Exchange proposes to implement
the fee changes effective August 20, 2020.\4\ 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.
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\4\ The Exchange originally filed to amend the Price List on
August 3, 2020 (SR-NYSE-2020-65). SR-NYSE-2020-65 was subsequently
withdrawn and replaced by SR-NYSE-2020-70. SR-NYSE-2020-70 was
subsequently withdrawn and replaced by this filing.
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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 its Price List to:
Revise the Step Up Tier 1 Adding Credit;
revise the Step Up Tier 4 Adding Credit;
revise a requirement for the Incremental Rebate Per Share
for DMMs in most active securities;
adopt a new NBBO Setter pricing tier for DMMs;
adopt a new NBBO Setter pricing tier for SLPs; and
extend through August 2020 the waiver of equipment and
related service charges and trading license fees for NYSE Trading
Floor-based member organizations implemented for April, May, June and
July 2020, make Floor broker member organizations that had no March
2020 volumes eligible for both waivers, and provide a one-time credit
of the equipment and related service charges and trading license fees
for member organizations that became member organizations after April
1, 2020.
The proposed changes respond to the current competitive environment
where order flow providers have a choice of where to direct liquidity-
providing orders by offering further incentives for member
organizations to send additional displayed liquidity to the Exchange,
especially aggressively priced orders that improve the market by
setting the NBBO on the Exchange. The proposed changes also respond to
the current volatile market environment that has resulted in
unprecedented average daily volumes and the temporary closure of the
Trading Floor,
[[Page 55551]]
which are both related to the ongoing spread of the novel coronavirus
(``COVID-19'').
The Exchange proposes to implement the fee changes effective August
20, 2020.\5\
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\5\ The Exchange originally filed to amend the Price List on
August 3, 2020 (SR-NYSE-2020-65). SR-NYSE-2020-65 was subsequently
withdrawn and replaced by SR-NYSE-2020-70. SR-NYSE-2020-70 was
subsequently withdrawn and replaced by this filing.
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Current Market and Competitive Environment
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.'' \6\
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\6\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule)
(``Regulation NMS'').
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As the Commission itself recognized, the market for trading
services in NMS stocks has become ``more fragmented and competitive.''
\7\ Indeed, equity trading is currently dispersed across 13
exchanges,\8\ 31 alternative trading systems,\9\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow.
Based on publicly-available information, no single exchange has more
than 20% market share (whether including or excluding auction
volume).\10\ Therefore, no exchange possesses significant pricing power
in the execution of equity order flow. More specifically, the
Exchange's market share of trading in Tape A, B and C securities
combined is less than 10%.
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\7\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Transaction Fee Pilot
for NMS Stocks Final Rule) (``Transaction Fee Pilot'').
\8\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, available at http://markets.cboe.com/us/equities/market_share/. See generally https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
\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/.
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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, in response to fee changes. With respect to non-marketable
order flow that would provide displayed liquidity on an Exchange,
member organizations can choose from any one of the 13 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.
In response to the competitive environment described above, the
Exchange has established incentives for its member organizations who
submit orders that provide liquidity on the Exchange. The proposed fee
change is designed to attract additional order flow to the Exchange by
offering new pricing tiers and lowering a step up requirement in order
to incentivize member organizations to submit additional liquidity to,
and quote aggressively in support of the price discovery process on,
the Exchange.
Moreover, beginning on March 16, 2020, in order to slow the spread
of COVID-19 through social distancing measures, significant limitations
were placed on large gatherings throughout the country. As a result, on
March 18, 2020, the Exchange determined that beginning March 23, 2020,
the physical Trading Floor facilities located at 11 Wall Street in New
York City would close and that the Exchange would move, on a temporary
basis, to fully electronic trading.\11\ On May 14, 2020, the Exchange
announced that on May 26, 2020 trading operations on the Trading Floor
would resume on a limited basis to a subset of Floor brokers, subject
to safety measures designed to prevent the spread of COVID-19.\12\ On
June 15, 2020, the Exchange announced that on June 17, 2020, the
Trading Floor would reintroduce a subset of DMMs, also subject to
safety measures designed to prevent the spread of COVID-19.\13\
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\11\ See Press Release, dated March 18, 2020, available here:
https://ir.theice.com/press/press-releases/allcategories/2020/03-18-2020-204202110.
\12\ See Trader Update, dated May 14, 2020, available here:
https://www.nyse.com/traderupdate/history#110000251588.
\13\ See Trader Update, dated June 15, 2020, available here:
https://www.nyse.com/trader-update/history#110000272018.
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The proposed rule change responds to these unprecedented events by
extending the waiver of equipment and related service charges and
trading license fees for NYSE Trading Floor-based member organizations
for August 2020 and providing relief for member organizations that
became member organizations after the partial closure of the Trading
Floor.
Proposed Rule Change
Step Up Tier 1 Adding Credit
Currently, the Step Up Tier 1 Adding Credit offers a higher credit
to member organizations that qualify for the tier and an additional
credit for member organizations providing displayed liquidity in Tapes
B and C securities. Specifically, under the current tier, a member
organization that sends orders, except MPL and Non-Displayed Limit
Orders, that add liquidity in Tape A securities would receive a credit
of $0.0019 if:
The member organization has Adding ADV, excluding any
liquidity added by a DMM, that is at least 0.45% of NYSE CADV,\14\ and
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\14\ The terms ``ADV'' and ``CADV'' are defined in footnote * of
the Price List.
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the member organization has Adding ADV, excluding any
liquidity added by a DMM, that is at least 0.20% of NYSE CADV for the
billing month over the member organization's March 2019 Adding ADV as a
percentage of NYSE CADV in March 2019.
In addition, a member organization that meets these requirements,
and thus qualifies for the $0.0019 credit in Tape A securities, would
be eligible to receive an additional $0.00005 per share if trades in
Tapes B and C securities against the member organization's orders that
add liquidity, excluding orders as a SLP, equal to at least 0.20% of
Tape B and Tape C CADV combined.
The Exchange proposes to retain the current credit and offer an
additional tiered credit based on a member organization's Adding ADV
percentage of NYSE CADV. Specifically, the Exchange proposes that a
$0.0020 credit would be available to member organizations that have
Adding ADV, excluding any liquidity added by a DMM, that is at least
0.65% of NYSE CADV and at least 0.60% of NYSE CADV over that Member
Organization's March 2019 adding liquidity taken as a percentage of
NYSE CADV.
The requirement that a member organization has Adding ADV,
excluding any liquidity added by a DMM, that is at least 0.20% of NYSE
CADV for the billing month over the member organization's March 2019
Adding ADV as a percentage of NYSE CADV in March 2019 would remain
unchanged.
For example, assume Member Organization B, excluding any liquidity
added by a DMM, has an Adding ADV in March 2019 of 0.15% of NYSE CADV.
[[Page 55552]]
In the applicable billing month, Member Organization B has an Adding
ADV of 0.85% of NYSE CADV. Member Organization B would qualify for the
Step Up Tier 1's higher Adding Credit of $0.0020 per share in the
billing month because it both (1) meets the Adding ADV requirement of
0.65% of NYSE CADV with 0.85%, and (2) meets the Adding ADV increase
over that firm's March 2019 Adding ADV by at least 0.60% (Adding ADV of
0.85% of NYSE CADV in the billing month minus the Adding ADV of 0.15%
of NYSE CADV in the baseline month for a step up of 0.70% Adding ADV of
NYSE CADV).
The purpose of this proposed change is to continue to incentivize
member organizations to increase the liquidity-providing orders in Tape
A securities they send to the Exchange, which would support the quality
of price discovery on the Exchange and provide additional price
improvement opportunities for incoming orders. The Exchange believes
that by correlating the amount of the credit to the level of orders
sent by a member organization that add liquidity, the Exchange's fee
structure would incentivize member organizations to submit more orders
that add liquidity to the Exchange, thereby increasing the potential
for price improvement to incoming marketable orders submitted to the
Exchange. The Exchange proposes higher credits to provide an incentive
for member organizations to send more orders because they would then
qualify for the credit.
As noted above, the Exchange operates in a competitive environment,
particularly as it relates to attracting non-marketable orders, which
add liquidity to the Exchange. Currently, two (2) member organizations
qualify for the Step Up Tier 1 Adding Credit. The Exchange does not
know how much order flow member organizations choose to route to other
exchanges or to off-exchange venues. There are currently approximately
five (5) firms that could qualify for the proposed higher Step Up Tier
1 Adding Credits based on their current trading profile on the Exchange
if they so choose. However, without having a view of member
organization's activity on other exchanges and off-exchange venues, the
Exchange has no way of knowing whether this proposed rule change would
result in any member organization directing orders to the Exchange in
order to qualify for the new tier credits.
Step Up Tier 4 Adding Credit
The Exchange currently provides an incremental $0.0006 credit in
Tapes A, B and C securities for all orders from a qualifying member
organization market participant identifier (``MPID'') or mnemonic that
sets the NBBO \15\ or a new BBO \16\ if the MPID or mnemonic:
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\15\ See Rule 1.1(q) (defining ``NBBO'' to mean the national
best bid or offer).
\16\ See Rule 1.1(c) (defining ``BBO'' to mean the best bid or
offer on the Exchange).
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Has adding average daily volume (``ADV'') in Tapes A, B
and C Securities as a percentage of Tapes A, B and C CADV, excluding
any liquidity added by a DMM, that is at least 50% more than the MPID's
or mnemonic's Adding ADV in Tapes A, B and C securities in June 2020 as
a percentage of Tapes A, B and C CADV, and
is affiliated with an SLP that has an Adding ADV in Tape A
securities at least 0.10% of NYSE CADV, and
has Adding ADV in Tape A securities as a percentage of
NYSE CADV, excluding any liquidity added by a DMM, that is at least
0.20%.
The credits are in addition to the MPID's or mnemonic's current
credit for adding liquidity and also do not count toward the combined
limit on SLP credits of $0.0032 per share provided for in the
Incremental Credit per Share for affiliated SLPs whereby SLPs can
qualify for incremental credits of $0.0001, $0.0002 or $0.0003.
The Exchange proposes that member organizations meeting the above
current Step Up Tier 4 Adding Credit requirements and that also have
an Adding ADV that is at least 0.45% of Tapes A, B and C CADV,
and
Adding ADV setting the NBBO that is at least 0.18% of Tapes A,
B and C CADV (``US CADV'')
would qualify for the following credits instead of the existing credit
combined with the incremental $0.0006 credit:
$0.0036 for adding orders that set the NBBO; or
$0.0031 for all other displayed adding orders in Tape A, B and
C Securities.
For example, assume Member Organization A has two MPIDs, MPID1 and
MPID2, and that MPID1 is a SLP with at least 0.10% SLP Adding ADV of
NYSE CADV in the billing month. Further assume that MPID2 has an Adding
ADV in Tape A, B and C Securities of 0.10% of US CADV in June 2020.
If in the billing month MPID2 has an Adding ADV in Tape A, B and C
Securities of 0.50% of US CADV, of which 0.20% of US CADV is in Adding
ADV that sets the NBBO, and MPID2 also has Adding ADV in Tape A
Securities of 0.25% of NYSE CADV, then Member Organization A's MPID2
would qualify for the current higher incremental credit of $0.0006 per
share for setting the NBBO and NYSE BBO in the billing month because
MPID2:
Is affiliated with MPID1 that has an SLP Adding ADV of at
least 0.10%;
has an Adding ADV of 0.50% of US CADV, which is at least
50% higher than June's Adding ADV of 0.10% of US CADV; and
also meets the Adding ADV in Tape A securities as a
percentage of NYSE CADV of least 0.20% with an Adding ADV of 0.25% of
NYSE ADV in the billing month.
However, since MPID2 has an Adding ADV of 0.50% of US CADV with
0.20% of US CADV of Adding ADV that sets the NBBO, MPID2 would instead
qualify for the proposed credits of $0.0036 for adding orders that set
the NBBO, and $0.0031 for all other displayed adding orders, both in
Tape A, B and C Securities. MPID1 would also receive the new credits as
it is affiliated with MPID2, unless it's current SLP credits combined
with the SLP Step Up credits are higher.
The purpose of this proposed change is to continue incentivizing
member organizations to increase aggressively priced liquidity-
providing orders that improve the market by setting the NBBO or a new
BBO on the Exchange and encourage higher levels of liquidity, which
would support the quality of price discovery on the Exchange and is
consistent with the overall goals of enhancing market quality.
As noted above, the Exchange operates in a competitive environment,
particularly as it relates to attracting non-marketable orders that
adds liquidity to the Exchange. Currently, one (1) member organizations
qualifies for the Step Up Tier 4 Adding Credit. The Exchange does not
know how much order flow member organizations choose to route to other
exchanges or to off-exchange venues but there are currently
approximately three (3) firms that could qualify for the proposed
alternative credits based on their current trading profile on the
Exchange if they so choose. However, without having a view of member
organization's activity on other exchanges and off-exchange venues, the
Exchange has no way of knowing whether this proposed rule change would
result in any member organization directing orders to the Exchange in
order to qualify for the new credits.
NYSE CADV Requirement for DMM Incremental Rebate
Currently, the Exchange offers an additional per share credit to
DMMs in each eligible assigned More Active Security with a stock price
of at least $1.00 on current rebates of $0.0034 or
[[Page 55553]]
less, i.e., adding credits of $0.0015, $0.0027, $0.0031, and $0.0034
per share. Specifically, DMMs are eligible for an incremental rebate
$0.0002 per share in each eligible assigned More Active Security with a
stock price of at least $1.00 where NYSE CADV is equal to or greater
than 4.5 billion shares, when adding liquidity with orders, other than
MPL Orders, in such securities and the DMM either:
(1) Has providing liquidity in all assigned securities as a
percentage of NYSE CADV that is an increase of 0.30% more than the
DMM's April 2020 providing liquidity in all assigned securities as a
percentage of NYSE CADV, or
(2) has providing liquidity in all assigned securities as a
percentage of NYSE CADV that is an increase of at least 40% more than
the DMM's April 2020 providing liquidity in all assigned securities as
a percentage of NYSE CADV for DMMs with 750 or fewer assigned
securities in the previous month.
The Exchange proposes that the incremental credit would be
available in months where NYSE CADV is equal to or greater than 4.0
billion shares. The purpose of this proposed change is to continue to
incentivize DMM to increase their added liquidity on the Exchange
during periods of high market volumes, thereby improving quoting and
increase adding liquidity across securities where there may be more
liquidity providers. The Exchange notes that the lower NYSE CADV
requirement is still higher than the average NYSE CADV in 2019 (3.56
billion shares) and 2018 (3.64 billion shares). The Exchange therefore
believes that the proposed NYSE CADV level will continue to increase
DMM liquidity during periods of higher market volumes.
DMM NBBO Setter Tier
The Exchange proposes to adopt a new pricing tier--the DMM NBBO
Setter Tier--for securities with a per share price of $1.00 or
above.\17\
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\17\ For both the DMM NBBO Setter Tier and the SLP NBBO Setter
Tier discussed below, the Exchange also proposes the non-substantive
change of inserting a column to the right of the proposed fee that
would identify the relevant Exchange liquidity indicator as set
forth in the NYSE Pillar Gateway Binary Protocol Specification
(August 3, 2020). The value represents the conditions under which an
order was executed and whether it added or removed liquidity from
the Exchange. For the DMM NBBO Setter Tier, the relevant liquidity
indicators would be a combination of the following: ``ASP'' (Add
Limit Order Setting New NBBO with Priority), ``ASB'' (Add Limit
Order Setting New BBO) and ``AJP'' (Add Limit Order Joining NBBO
with Priority). The SLP NBBO Setter Tier would utilize the ASP
liquidity indicator.
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The Exchange proposes an incremental rebate per share for orders,
other than MPL Orders, in DMM assigned securities that provide
displayed liquidity in Tape A, B and C Securities, as follows:
1. A DMM with providing liquidity in all assigned securities as a
percentage of NYSE CADV of the DMM's assigned securities of
at least 0.65% and less than 0.90%, and
at least 0.12% of a DMM's Adding ADV setting the NBBO or BBO
combined would receive an incremental DMM BBO Setter Credit in Tape A,
B and C Securities of $0.00005 per share for adding orders that set the
BBO.
2. A DMM with providing liquidity in all assigned securities as a
percentage of NYSE CADV of the DMM's assigned securities of
at least 0.90% and less than 1.25%, and
at least 0.225% of a DMM's Adding ADV setting the NBBO or BBO
combined would receive an incremental DMM NBBO Setter Credit in Tape A,
B and C Securities of
$0.0002 per share for adding orders that set the NBBO; or
$0.000075 per share for adding orders that set the BBO; or
$0.00005 per share for all other adding orders, other than MPL
Orders.
3. Finally, a DMM with providing liquidity in all assigned
securities as a percentage of NYSE CADV of the DMM's assigned
securities of
at least 1.25%, and
at least 0.375% Adding ADV setting the NBBO or BBO combined
would receive an incremental DMM NBBO Setter Credit in Tape A, B and C
Securities of
$0.0003 per share for adding orders that set the NBBO; or
$0.0001 per share for adding orders that set the BBO; or
$0.0001 per share for all other adding orders, other than MPL
Orders.
For example, assume DMM A has an Adding ADV of NYSE CADV of 1.30%
in their assigned securities, with 0.30% Adding ADV of NYSE CADV that
sets the NBBO or BBO. DMM A would then qualify for incremental credits
per share of:
Adding orders that set the NBBO: $0.0002.
Adding orders that set the BBO: $0.000075.
All other adding orders, other than MPL Orders: $0.00005.
If the DMM A's current credit in a symbol was $0.0031, then the
credits in that symbol for DMM A would now be $ 0.0033 when setting the
NBBO ($0.0031 + $0.0002), $0.003175 when setting the BBO ($0.0031 +
$0.000075), and $0.00315 for all other adding orders, other than MPL
Orders ($0.0031 + $0.00005).
However, if DMM A has the same Adding ADV of NYSE CADV of 1.30% but
instead had an Adding ADV of NYSE CADV that sets the NBBO or BBO of
0.39%, then DMM A would qualify for higher DMM incremental credits of:
$0.0003 per share for adding orders that set the NBBO; or
$0.0001 per share for adding orders that set the BBO; or
$0.0001 per share for all other displayed adding orders,
other than MPL Orders.
The purpose of this proposed change is to incentivize DMMs to
increase aggressively priced liquidity-providing orders that improve
the market by setting the NBBO on the Exchange. The proposed DMM NBBO
Setter Tier is thus intended to encourage higher levels of liquidity by
DMMs on the Exchange, which would support the quality of price
discovery on the Exchange and is consistent with the overall goals of
enhancing market quality. As noted above, the Exchange operates in a
competitive environment, and member organizations have a choice of
where to send order flow. Because the proposed tier requires DMMs to
receive an incremental per share credit if the DMM meets certain
trading qualifications and establishes the NBBO on the Exchange, the
Exchange believes that the proposed credit would provide an incentive
for all four (4) DMMs to quote more aggressively on the Exchange in
order to qualify for it. The Exchange believes that incentivizing DMMs
on the Exchange to add liquidity that improve the market by setting the
NBBO on the Exchange could contribute to price discovery and improve
quoting on the Exchange. In addition, additional liquidity providing
quotes benefit all market participants because they provide greater
execution opportunities on the Exchange and improve the public
quotation, which benefits all member organizations.
SLP NBBO Setter Tier
The Exchange proposes to adopt a new pricing tier--the SLP NBBO
Setter Tier--for securities with a per share price of $1.00 or above.
The Exchange proposes three tiered credits for orders that provide
displayed liquidity in Tape A, B and C Securities, on a monthly basis,
from SLPs and member organizations affiliated with SLPs in addition to
the tiered or non-
[[Page 55554]]
tiered SLP credit for adding displayed liquidity, as follows:
1. A member organization that has an
Adding ADV, including any liquidity added by a DMM, that is at
least 1.25% of US CADV combined, and
Adding ADV setting the NBBO of at least 0.30% of US CADV
combined would receive an NBBO Setter Credit in Tape A, B and C
Securities of
$0.0038 per share for adding orders that set the NBBO; and
$0.0033 per share for all other displayed adding orders.
2. A member organization that has an
Adding ADV, including any liquidity added by a DMM, that is at
least 0.95% of US CADV combined, and
Adding ADV setting the NBBO of at least 0.18% of US CADV
combined would receive an NBBO Setter Credit in Tape A, B and C
Securities of
$0.0037 per share for adding orders that set the NBBO; and
$0.0032 per share for all other displayed adding orders.
3. A member organization that has an
has an Adding ADV, including any liquidity added by a DMM,
that is at least 0.65% of US CADV combined, and
has an Adding ADV setting the NBBO of at least 0.09% of US
CADV combined would receive an NBBO Setter Credit in Tape A, B and C
Securities of
$0.0036 per share for adding orders that set the NBBO; and
$0.0031 per share for all other displayed adding orders.
4. Finally, a member organization that has an
has an Adding ADV, including any liquidity added by a DMM,
that is at least 0.55% of US CADV combined, and
has an Adding ADV setting the NBBO of at least 0.05% of US
CADV combined would receive an NBBO Setter Credit in Tape A, B and C
Securities of
$0.0035 per share for adding orders that set the NBBO; or
$0.00305 per share for all other displayed adding orders.
For example, assume Member Organization B affiliated with an SLP
has an Adding ADV of at least 0.60% of US CADV, of which at least 0.05%
of US CADV sets the NBBO. Member Organization B would qualify for a
credit of $0.0035 for orders that set the NBBO and $0.00305 for all
other displayed adding orders. Further assume that Member Origination B
qualifies for the current SLP Tier 1 credit of $0.0029 and Incremental
SLP Step Up Tier credit of $0.0003 for a combined current SLP credit of
$0.0032.
For the billing month, Member Organization B would qualify for
credits per share of:
$0.0035 per share for adding orders that set the NBBO,
$0.0032 per share for SLP adding orders that meet the
current 10% average or more quoting requirement in an assigned security
pursuant to Rule 107B
$0.00305 per share for all other displayed adding orders.
The Incremental SLP Step Up Tier credit would not apply to the
proposed $0.0035 or $00305 credits.
The purpose of this proposed change is to incentivize member
organizations that are SLPs to increase aggressively priced liquidity-
providing orders that improve the market by setting the NBBO. The
proposed SLP NBBO Setter Tier is thus intended to encourage higher
levels of liquidity, which would support the quality of price discovery
on the Exchange and is consistent with the overall goals of enhancing
market quality. As noted above, the Exchange operates in a competitive
environment, particularly as it relates to attracting non-marketable
orders, which add liquidity to the Exchange. Because the proposed tier
requires an SLP to receive an per share credit if the SLP meets certain
trading qualifications and establish the NBBO on the Exchange, the
Exchange believes that the proposed credit would provide an incentive
for SLPs and their affiliates to send additional liquidity to the
Exchange to set the NBBO in order to qualify for it.
The Exchange does not know how much order flow member organizations
choose to route to other exchanges or to off-exchange venues. Since the
proposed tier is new, the Exchange does not know how many SLPs and
their affiliates could qualify for the proposed tiered credits based on
their current trading profile on the Exchange. However, without having
a view of member organization's activity on other exchanges and off-
exchange venues, there are currently approximately six (6) SLPs and
affiliated firms that could qualify for the new setting tier based on
their current trading profile on the Exchange if they so choose.
However, without having a view of member organization's activity on
other exchanges and off-exchange venues, the Exchange has no way of
knowing whether this proposed rule change would result in any member
organization directing orders to the Exchange in order to qualify for
the new setting tier.
Fee Waivers for Trading Floor-Based Member Organizations
As noted above, on March 18, 2020, the Exchange announced that it
would temporarily close the Trading Floor, effective March 23, 2020, as
a precautionary measure to prevent the potential spread of COVID-19.
Following the temporary closure of the Trading Floor, the Exchange
waived certain equipment fees for the booth telephone system on the
Trading Floor and associated service charges for the months of April
and May.\18\ On May 26, 2020, the Trading Floor reopened on a limited
basis to a reduced number of Floor brokers to accommodate health-
focused considerations. Following the partial reopening, the Exchange
extended the equipment fee waiver for the months of June and July.\19\
As noted above, on June 15, 2020, a limited number of DMMs returned to
the Trading Floor. The Trading Floor continues to operate with reduced
headcount and additional health and safety precautions.\20\
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\18\ See Securities Exchange Act Release No. 88602 (April 8,
2020), 85 FR 20730 (April 14, 2020) (SR-NYSE-2020-27); Securities
Exchange Act Release No. 88874 (May 14, 2020), 85 FR 30743 (May 20,
2020) (SR-NYSE-2020-29). See footnote 11 of the Price List.
\19\ See Securities Exchange Act Release No. 89050 (June 11,
2020), 85 FR 36637 (June 17, 2020) (SR-NYSE-2020-49); Securities
Exchange Act Release No. 89324 (July 15, 2020), 85 FR 44129 (July
21, 2020) (SR-NYSE-2020-59).
\20\ See Trader Update, dated June 15, 2020, available here:
https://www.nyse.com/trader-update/history#110000272018. DMMs
continue to support a subset of NYSE-listed securities remotely.
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For the months of April, May, June and July, the Exchange waived
the Annual Telephone Line Charge of $400 per phone number and the $129
fee for a single line phone, jack, and data jack. The Exchange also
waived related service charges, as follows: $161.25 to install single
jack (voice or data); $107.50 to relocate a jack; $53.75 to remove a
jack; $107.50 to install voice or data line; $53.75 to disconnect data
line; $53.75 to change a phone line subscriber; and miscellaneous
telephone charges billed at $106 per hour in 15 minute increments.\21\
These fees were waived for (1) member organizations with at least one
trading license, a physical Trading Floor presence, and Floor broker
executions accounting for 40% or more of the member organization's
combined adding, taking, and auction volumes during March 1 to March
20, 2020, and (2) member organizations with at least one trading
[[Page 55555]]
license that are Designated Market Makers with 30 or fewer assigned
securities for the billing month of March 2020.
---------------------------------------------------------------------------
\21\ The Service Charges also include an internet Equipment
Monthly Hosting Fee that the Exchange did not waive for April, May
and June 2020 and that the Exchange does not propose to waive for
August 2020.
---------------------------------------------------------------------------
Because the Trading Floor continues to operate with reduced
capacity, the Exchange proposes to extend the waiver of these Trading
Floor-based fees through August 2020. To effectuate this change, the
Exchange proposes to add ``and August'' between ``July'' and ``2020''
in footnote 11 to the Price List.
In addition, the Exchange proposes to enable member organizations
that had no Floor broker executions during March 1 to March 20, 2020 to
be eligible for the waiver of these Trading Floor-based fees through
August 2020. As proposed, a Floor member organization member
organizations with at least one trading license and a physical Trading
Floor presence that had no Floor broker executions during March 1 to
March 20, 2020 would be eligible for the waiver if it had Floor broker
executions accounting for 40% or more of the member organization's
combined adding, taking, and auction volumes during its first month as
a member organization on or after May 26, 2020, i.e., the date the
Trading Floor re-opened on a limited basis.
Finally, the Exchange also proposes that member organizations with
a physical trading Floor presence that became member organizations on
or after April 1, 2020 would be eligible for a one-time credit for the
member organization's Booth Telephone System charges and all Service
Charges except the internet Equipment Monthly Hosting Fee for the
months of April through July 2020 if the member organization meets the
other requirements for the waiver described in footnote 11 of the Price
List.
In order to further reduce costs for member organizations with a
Trading Floor presence, the Exchange also waived the April, May, June
and July 2020 monthly portion of all applicable annual fees for (1)
member organizations with at least one trading license, a physical
Trading Floor presence and Floor broker executions accounting for 40%
or more of the member organization's combined adding, taking, and
auction volumes during March 1 to March 20, 2020, and (2) member
organizations with at least one trading license that are DMMs with 30
or fewer assigned securities for the billing month of March 2020.\22\
---------------------------------------------------------------------------
\22\ See notes 17-19, supra. See footnote 15 of the Price List.
---------------------------------------------------------------------------
The Exchange proposes to also waive the August 2020 monthly portion
of all applicable annual fees for member organizations with at least
one trading license, a physical Trading Floor presence and Floor broker
executions accounting for 40% or more of the member organization's
combined adding, taking, and auction volumes during March 1 to March
20, 2020. The indicated annual trading license fees would also be
waived for August 2020 for member organizations with at least one
trading license that are DMMs with 30 or fewer assigned securities for
the billing month of March 2020. To effectuate this change, the
Exchange proposes to add ``and August'' between ``July'' and ``2020''
in footnote 15.
In addition, the Exchange proposes to enable member organizations
that had no Floor broker executions during March 1 to March 20, 2020,
as they were not NYSE members, to be eligible for waiver of the monthly
portion of the applicable annual fees through August 2020. As proposed,
a Floor member organization member organizations with at least one
trading license and a physical Trading Floor presence that had no Floor
broker executions during March 1 to March 20, 2020 would be eligible
for the waiver if it had Floor broker executions accounting for 40% or
more of the member organization's combined adding, taking, and auction
volumes during its first full month as a member organization on or
after May 26, 2020.
Similarly, the Exchange proposes that member organizations with a
physical trading Floor presence that became member organizations on or
after April 1, 2020 would be eligible for a one-time credit for the
member organization's indicated annual trading license fee for the
months of April through July 2020 if the member organization meets the
other requirements for the waiver described in footnote 15 of the Price
List.
The proposed extension of the fee waivers would reduce monthly
costs for member organizations with a Trading Floor presence whose
operations were disrupted by the Floor closure, which lasted
approximately two months, and remains partially closed. The Exchange
believes that extension of the fee waiver would ease the financial
burden associated with the ongoing partial Trading Floor closure. The
Exchange believes that all member organization that conduct a
significant portion of trading on the Trading Floor would benefit from
this proposed fee change. In addition, enabling member organizations
with a Trading Floor presence and at least one trading license who
became member organizations on or after May 26, 2020 to be eligible for
the proposed waivers for August 2020 and to provide a one-time credit
for the waivers for the months April through July 2020 would reduce
monthly costs and ease the financial burden associated with the ongoing
partial Trading Floor closure for member organizations that became
member organizations after the temporary closure of the Trading Floor
in March and who, like other Floor-based member organizations, are not
operating at full capacity while the Trading Floor remains partially
closed.
The proposed changes are not otherwise intended to address 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,\23\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\24\ 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.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(4) & (5).
---------------------------------------------------------------------------
The Proposed 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.'' \25\
---------------------------------------------------------------------------
\25\ See Regulation NMS, 70 FR at 37499.
---------------------------------------------------------------------------
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, in response to fee changes. With respect to non-marketable
orders which provide liquidity on an Exchange, member organizations can
choose from any one of the 13 currently operating registered exchanges
to route such order flow. Accordingly, competitive forces constrain
exchange
[[Page 55556]]
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.
Step Up Tier 1 Adding Credit
The Exchange believes that the proposed revisions to the Step Up
Tier 1 Adding Credit represent a reasonable attempt to attract
additional order flow to the Exchange.
Specifically, the Exchange believes that providing additional
higher credits for incremental increases in Adding ADV as a percentage
of NYSE CADV would continue to provide an incentive for member
organizations to route additional liquidity-providing orders to the
Exchange in Tape A securities, which would support the quality of price
discovery on the Exchange and provide additional price improvement
opportunities for incoming orders. Submission of additional liquidity
to the Exchange would promote price discovery and transparency and
enhance order execution opportunities for member organizations from the
substantial amounts of liquidity present on the Exchange. All member
organizations would benefit from the greater amounts of liquidity that
will be present on the Exchange, which would provide greater execution
opportunities. The Exchange further believes that by correlating the
amount of the credit to the level of orders sent by a member
organization that add liquidity, the Exchange's fee structure would
incentivize member organizations to submit more orders that add
liquidity to the Exchange, thereby increasing the potential for price
improvement to incoming marketable orders submitted to the Exchange.
The Exchange proposes higher credits to provide an incentive for member
organizations to send more orders because they would then qualify for
the credit.
As noted above, the Exchange operates in a competitive environment,
particularly as it relates to attracting non-marketable orders, which
add liquidity to the Exchange. As previously noted, there are a number
of member organizations that could qualify for the proposed higher
credit but without a view of member organization activity on other
exchanges and off-exchange venues, the Exchange has no way of knowing
whether the proposed rule change would result in any member
organization qualifying for the tier. The Exchange believes the
proposed higher credit is reasonable as it would provide an additional
incentive for member organizations to direct their order flow to the
Exchange and provide meaningful added levels of liquidity in order to
qualify for the higher credit, thereby contributing to depth and market
quality on the Exchange.
Step Up Tier 4 Adding Credit
The Exchange believes that the proposed alternative incentives to
member organizations that meet the current Step Up Tier 4 Adding Credit
requirements and add additional liquidity to the Exchange is
reasonable.
Specifically, the Exchange believes that providing alternative
credits to member organizations that increase aggressively priced
liquidity-providing orders that improve the market by setting the NBBO
on the Exchange and encourage higher levels of liquidity would continue
to support the quality of price discovery on the Exchange and is
consistent with the overall goals of enhancing market quality. As noted
above, the Exchange operates in a highly competitive environment,
particularly for attracting non-marketable order flow that provides
liquidity on an exchange. The Exchange believes it is reasonable to
provide higher credits for orders that provide additional liquidity.
Moreover, the Exchange believes that providing a higher credit for
adding orders that set the NBBO or a new BBO is reasonable because it
would encourage additional aggressively priced displayed liquidity on
the Exchange and because market participants benefit from the greater
amounts of liquidity and price improvement present on the Exchange.
Further, the Exchange believes that requiring member organizations to
meet additional specific Adding ADV requirements is reasonable.
Specifically, requiring additional Adding ADV that is at least 0.45% of
US CADV, and at least 0.18% of US CADV is reasonable because it would
encourage additional displayed liquidity on the Exchange and because
market participants benefit from the greater amounts of liquidity and
price improvement present on the Exchange.
As previously noted, there are a number of member organizations
that could qualify for the proposed higher credit but without a view of
member organization activity on other exchanges and off-exchange
venues, the Exchange has no way of knowing whether the proposed rule
change would result in any member organization qualifying for the
alternate credits. The Exchange believes the proposed credits are
reasonable as it would provide an additional incentive for member
organizations to direct their order flow to the Exchange and provide
meaningful added levels of liquidity in order to qualify for the higher
incremental credit, thereby contributing to depth and market quality on
the Exchange.
NYSE CADV Requirement for DMM Incremental Rebate
The Exchange believes that requiring that the DMM incremental
credit be available in months where NYSE CADV is equal to or greater
than 4.0 billion shares is reasonable. As noted, the purpose of this
proposed change is to continue to incentivize DMM to increase their
added liquidity on the Exchange during periods of high market volumes,
thereby improving quoting and increase adding liquidity across
securities where there may be more liquidity providers and contributing
to price discovery, thus benefiting all market participants. As noted
above, the lower NYSE CADV requirement is still higher than the average
NYSE CADV in 2019 (3.56 billion shares) and 2018 (3.64 billion shares).
The Exchange therefore believes that the proposed NYSE CADV level will
continue to increase DMM liquidity during periods of high market
volumes. Revising the NYSE CADV requirement would not impair the
fostering of liquidity provision and stability in the marketplace
during periods of high volumes.
As noted above, the Exchange operates in a competitive environment,
particularly as it relates to attracting non-marketable orders, which
add liquidity to the Exchange. The Exchange believes that the proposed
revision would continue to provide an incentive for DMMs to send
additional liquidity to the Exchange to set the NBBO in order to
qualify for the credit. In addition, the proposal would continue to
foster liquidity provision and stability in the marketplace during
periods of high volumes and continue to reward DMMs, who have greater
risks and heightened quoting and other obligations than other market
participants.
DMM NBBO Setter Tier
The Exchange believes that the proposed DMM NBBO Setter Tier is
reasonable. Specifically, the Exchange believes that a new DMM NBBO
Setter Tier would provide an incentive for DMMs to increase
aggressively priced liquidity-providing orders that improve the market
by setting the NBBO and BBO on the Exchange. The proposed DMM NBBO
Setter Tier is thus intended to encourage higher levels of liquidity by
DMMs on the Exchange, which would support the quality of price
discovery on the Exchange and is consistent with the overall goals of
enhancing market quality. To the extent that the proposed change leads
to an
[[Page 55557]]
increase in overall liquidity activity on the Exchange and more
competitive pricing, this will improve the quality of the Exchange's
market, improve quote spreads and increase its attractiveness to
existing and prospective participants.
As noted above, the Exchange operates in a competitive environment,
and member organizations have a choice of where to send order flow.
Because the proposed tier requires DMMs to receive an incremental per
share credit if the DMM meets certain trading qualifications and
establishes the NBBO or BBO, the Exchange believes that the proposed
credit would provide an incentive for all DMMs to quote more
aggressively on the Exchange in order to qualify for it. The Exchange
believes that incentivizing DMMs on the Exchange to add liquidity that
improves the market by setting the NBBO or BBO on the Exchange could
contribute to price discovery and improve quoting on the Exchange. In
addition, additional liquidity providing quotes benefit all market
participants because they provide greater execution opportunities on
the Exchange and improve the public quotation.
SLP NBBO Setter Tier
The Exchange believes that the proposed SLP NBBO Setter Tier is
reasonable. Specifically, the Exchange believes that a new NBBO Setter
Tier would provide an incentive for SLPs to provide aggressively priced
orders that improve the market by setting the NBBO and to send
additional liquidity providing orders to the Exchange in Tape A, B and
C Securities. To the extent that the proposed change leads to an
increase in overall liquidity activity on the Exchange and more
competitive pricing, this will improve the quality of the Exchange's
market, improve quote spreads and increase its attractiveness to
existing and prospective participants.
As noted above, the Exchange operates in a highly competitive
environment, particularly for attracting non-marketable order flow that
provides liquidity on an exchange. The Exchange believes it is
reasonable to provide higher credits for orders that provide additional
liquidity and set the NBBO. Moreover, the Exchange believes that
providing an incrementally higher credit for adding orders that set the
NBBO is reasonable because it would encourage additional aggressively
priced displayed liquidity on the Exchange by SLPs and because market
participants benefit from the greater amounts of liquidity and price
improvement present on the Exchange. Further, the Exchange believes
that requiring SLPs to meet specific Adding ADV requirements in order
to qualify for the credits is also reasonable because it would
encourage additional liquidity on the Exchange and because market
participants benefit from the greater amounts of liquidity and price
improvement present on the Exchange.
Since the proposed tier would be new, no SLP currently qualifies
for the proposed pricing tier. As previously noted, based on the
profile of liquidity-providing SLPs generally, the Exchange believes
that a number of SLPs and affiliated firms could qualify for the
credits if they choose to direct order flow to, and increase quoting
on, the Exchange. The Exchange believes the proposed credit is also
reasonable because it would provide an additional incentive for member
organizations that are not SLPs to become SLPs and direct their order
flow to the Exchange.
Fee Waivers for Trading Floor-Based Member Organizations
The proposed extension of the waiver of equipment and related
service fees and the applicable monthly trading license fee for Trading
Floor-based member organizations is reasonable in light of the partial
continued closure of the NYSE Trading Floor. Beginning March 2020,
markets worldwide have experienced unprecedented declines and
volatility because of the ongoing spread of COVID-19 also resulted in
the temporary closure of the NYSE Trading Floor. As noted, the Trading
Floor was recently partially reopened on a limited basis to a subset of
Floor brokers and DMMs, subject to safety measures designed to prevent
the spread of COVID-19. The proposed change is designed to reduce costs
for Floor participants for the month of August 2020 and therefore ease
the financial burden faced by member organizations that conduct
business on the Trading Floor while it continues to operate with
reduced capacity. For the same reasons, the Exchange believes that it
is reasonable to provide an alternate benchmark for member
organizations with a Floor presence that were not member organizations
in March 2020 in order to be eligible for the waiver in August.
Similarly, the Exchange believes that it is reasonable to provide
member organizations with a Floor presence that became member
organizations after April 1, 2020 and could not previously qualify for
the waivers between April and July 2020 with a one-time credit for
those fees if the member organization meets the requirements for the
waiver described in the Price List.
Finally, the Exchange believes the proposed non-substantive changes
to add relevant liquidity indicators to the proposed NBBO setter tiers
is reasonable and would not be inconsistent with the public interest
and the protection of investors because investors will not be harmed
and in fact would benefit from increased clarity and transparency on
the Price List, thereby reducing potential confusion.
The Proposal Is an Equitable Allocation of Fees
The Exchange believes the proposal equitably allocates its fees
among its market participants by fostering liquidity provision and
stability in the marketplace.
Step Up Tier 1 Adding Credit
The Exchange believes that the proposed revisions to the Step Up
Tier 1 Adding Credit is equitable because the magnitude of the
additional credits are not unreasonably high relative to the other
adding tier and step up tier credits, which range from $0.0015 to
$0.0029, in comparison to the credits paid by other exchanges for
orders that provide additional step up liquidity.\26\ The Exchange
believes the proposed rule change would improve market quality for all
market participants on the Exchange and, as a consequence, attract more
liquidity to the Exchange, thereby improving marketwide quality and
price discovery.
---------------------------------------------------------------------------
\26\ The tiered adding credits (Tier 1-4 Adding Credits, Step Up
Tier 1-4) range from $0.0029 to $0.0015. See Cboe BZX Fee Schedule,
which has adding credits ranging from $0.0020 to $0.0032, at https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
---------------------------------------------------------------------------
As noted, without a view of member organization activity on other
exchanges and off-exchange venues, the Exchange has no way of knowing
whether this proposed rule change would result in any member
organization qualifying for new tier rates. The Exchange believes the
proposed higher credits are reasonable as it would provide an
additional incentive for member organizations to direct their order
flow to the Exchange and provide meaningful added levels of liquidity
in order to qualify for the higher credit, thereby contributing to
depth and market quality on the Exchange.
The proposal neither targets nor will it have a disparate impact on
any particular category of market participant. Member organizations
that add liquidity to the Exchange and meet the current Step Up Tier 1
Adding requirements would be eligible for the additional credits by
increasing their amount of Adding ADV as a percentage of NYSE CADV, and
because the tiered thresholds would apply equally to all
[[Page 55558]]
similarly situated member organizations. Similarly, member
organizations that currently qualify for adding liquidity credit of
$0.0019 will continue to receive credits when they provide liquidity to
the Exchange. With the proposed new tiered requirements, all member
organizations would be eligible to qualify for the higher credits if
they increase their Adding ADV as a percentage of NYSE CADV. The
Exchange believes that offering higher step up credits for providing
liquidity will continue to attract order flow and liquidity to the
Exchange, thereby providing additional price improvement opportunities
on the Exchange and benefiting investors generally. As to those market
participants that do not presently qualify for the adding liquidity
credit, the proposal will not adversely impact their existing pricing
or their ability to qualify for other credits provided by the Exchange.
Step Up Tier 4 Adding Credit
The Exchange believes that the proposed alternative incentives for
member organizations that meet the current Step Up Tier 4 Adding Credit
requirements will allocate the proposed credits fairly among market
participants. The proposal will allow member organizations to qualify
for an enhanced credit by adding liquidity and setting the NBBO. The
Exchange believes the proposed rule change would improve market quality
for all market participants on the Exchange and, as a consequence,
attract more liquidity to the Exchange, thereby improving marketwide
quality and price discovery. It is equitable for the Exchange to add
additional incentives for member organizations when their orders add
liquidity to the Exchange as a means of incentivizing increased
liquidity adding activity. An increase in overall liquidity on the
Exchange will improve the quality of the Exchange's market and increase
its attractiveness to existing and prospective participants.
As previously noted, there are a number of member organizations
that could qualify for the proposed higher credit but without a view of
member organization activity on other exchanges and off-exchange
venues, the Exchange has no way of knowing whether the proposed rule
change would result in any member organization qualifying for the
alternate credits. The Exchange believes the proposed incremental
credits are reasonable as it would incentivize activity that encourages
the setting of the NBBO, thereby contributing to depth and market
quality and increased price improvement on the Exchange.
The proposal neither targets nor will it have a disparate impact on
any particular category of market participant. All member organizations
would be eligible to qualify for the proposed credits if the Adding ADV
requirements are met. Any market participant that is dissatisfied with
the proposed new credit is free to shift order flow to competing venues
that provide more favorable pricing or less stringent qualifying
criteria. The Exchange believes that offering an alternative step up
credit for setting the NBBO will encourage higher levels of liquidity
provision into the price discovery process and is consistent with the
overall goals of enhancing market quality, thereby providing additional
price improvement opportunities on the Exchange and benefiting
investors generally. As to those market participants that do not
presently qualify for the Step Up Tier 4 Adding Credit, the proposal
will not adversely impact their existing pricing or their ability to
qualify for other credits provided by the Exchange.
NYSE CADV Requirement for DMM Incremental Rebate
The Exchange believes that the proposal for the DMM incremental
credit to be available in months where NYSE CADV is equal to or greater
than 4.0 billion shares is an equitable allocation of fees because it
would apply equally to all existing and potential DMM firms on an equal
basis. As noted, the purpose of this proposed change is to continue to
incentivize DMM to increase their added liquidity on the Exchange
during periods of higher market volumes, thereby improving quoting and
increase adding liquidity across securities where there may be more
liquidity providers and contributing to price discovery, thus
benefiting all market participants. The Exchange believes that the
proposal would provide an equal incentive to all DMMs to add liquidity
in more active securities, and that the proposal constitutes an
equitable allocation of fees because all similarly situated DMMs would
be eligible for the same incremental rebate.
DMM NBBO Setter Tier
The Exchange believes the proposed DMM NBBO Setter Tier is
equitable and not unfairly discriminatory because the proposed
incremental credits would be available to all DMMs on an equal basis.
The Exchange believes that the proposed setter tier will allocate the
proposed credits fairly among DMMs and allow DMMs to qualify for a
credit by adding liquidity and setting the NBBO or BBO. The Exchange
believes the proposed rule change would improve market quality by
providing incentives for all DMMs to increase aggressively priced
liquidity-providing orders that improve the market by setting the NBBO
or BBO on the Exchange, thereby encouraging higher levels of liquidity
by DMMs on the Exchange, which would support the quality of price
discovery on the Exchange and is consistent with the overall goals of
enhancing market quality.
SLP NBBO Setter Tier
The Exchange believes that the proposed SLP NBBO Setter Tier will
allocate the proposed credits fairly among market participants. The
proposed tier will allow SLPs to qualify for a credit by adding
liquidity and setting the NBBO on the Exchange. The Exchange believes
the proposed rule change would improve market quality for all market
participants on the Exchange and, as a consequence, attract more
liquidity to the Exchange, thereby improving market-wide quality and
price discovery. It is equitable for the Exchange to add additional
incentives for SLPs to receive a credit when their orders add liquidity
to the Exchange as a means of incentivizing increased liquidity adding
activity. An increase in overall liquidity on the Exchange will improve
the quality of the Exchange's market and increase its attractiveness to
existing and prospective participants.
Since the proposed tier would be new, no SLP currently qualifies
for the proposed pricing tier. As previously noted, based on the
profile of liquidity-providing SLPs generally, the Exchange believes
that a number of SLPs and affiliated firms could qualify for the
credits if they choose to direct order flow to, and increase quoting
on, the Exchange.
The proposal neither targets nor will it have a disparate impact on
any particular category of market participant. All similarly situated
SLPs would be eligible to qualify for the proposed credits if the
Adding ADV requirements in Tapes A, B and C securities are met.
Moreover, the Exchange believes that the proposed provides an equal
incentive for all member organizations that are not SLPs to become SLPs
and qualify for the proposed credits on an equal basis by directing
their order flow to the Exchange. The Exchange believes that offering
SLPs credits for setting the NBBO will encourage higher levels of
liquidity provision into the price discovery process and is consistent
with the overall goals of enhancing market
[[Page 55559]]
quality, thereby providing additional price improvement opportunities
on the Exchange and benefiting investors generally.
Fee Waivers for Trading Floor-Based Member Organizations
Finally, the proposed extension of the waiver of equipment and
related service fees and the applicable monthly trading license fee for
Trading Floor-based member organizations to August 2020 are also an
equitable allocation of fees. The proposed waivers apply to all Trading
Floor-based firms meeting specific requirements during the period that
the Trading Floor is partially open.
The proposed change is equitable as it merely continues the fee
waiver granted in April, May, June and July 2020, and is designed to
reduce monthly costs for Trading Floor-based member organizations that
are unable to fully conduct Floor operations. For the same reasons,
providing a way for member organizations with a Floor presence that
were not member organizations during March 2020 to qualify for the
waivers in August in the same way as all other Trading Floor-based
member organizations is also an equitable allocation of fees. Finally,
the Exchange believes that providing member organizations with a Floor
presence that became member organizations after April 1, 2020 with a
one-time credit for those fees during April-July 2020 is an equitable
allocation of fees because it would have the effect of treating all
similarly situated Floor-based member organizations the same for the
period April and July 2020.
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.
The proposal is not unfairly discriminatory because it neither
targets nor will it have a disparate impact on any particular category
of market participant.
Step Up Tier 1 Adding Credit
The Exchange believes it is not unfairly discriminatory to provide
a higher per share step up credit, as the proposed credit would be
provided on an equal basis to all member organizations that add
liquidity by meeting the new Step Up Tier 1's requirements. Further,
the Exchange believes the proposed Step Up Tier 1 credit would
incentivize member organizations that meet the current tiered
requirements to send more orders to the Exchange to qualify for higher
credits. The Exchange also believes that the proposed change is not
unfairly discriminatory because it is reasonably related to the value
to the Exchange's market quality associated with higher volume.
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.
Step Up Tier 4 Adding Credit
The Exchange believes it is not unfairly discriminatory to provide
an alternative per share step up credits for activity that encourages
the setting of the NBBO or a new BBO as the proposed credits would be
provided on an equal basis to all member organizations that add
liquidity by meeting the new proposed requirements. As noted, the
Exchange intends for the proposal to improve market quality for all
members on the Exchange and by extension attract more liquidity to the
market, thereby improving market wide quality and price discovery. The
Exchange also believes that the proposed change is not unfairly
discriminatory because it is reasonably related to the value to the
Exchange's market quality associated with higher volume. 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.
NYSE CADV Requirement for DMM Incremental Rebate
The proposal for the DMM incremental credit to be available in
months where NYSE CADV is equal to or greater than 4.0 billion shares
is also not unfairly discriminatory because the proposal would continue
to provide an additional incentive to DMMs to quote and trade their
assigned securities on the Exchange in very active months, and will
still allow the Exchange and DMMs to better compete for order flow,
thus enhancing competition. The proposed lower NYSE CADV requirement
would apply equally to all similarly situated DMMs. As described above,
member organizations have a choice of where to send order flow. The
Exchange believes that incentivizing DMMs on the Exchange to add more
liquidity during period of high volumes could contribute to greater
price discovery on the Exchange. In addition, additional liquidity-
providing quotes benefit all market participants because they provide
greater execution opportunities on the Exchange and improve the public
quotation.
DMM NBBO Setter Tier
The Exchange believes it is not unfairly discriminatory to provide
credits for adding liquidity that encourages DMMs on the Exchange to
set the NBBO or BBO as the proposed credits would be provided on an
equal basis to all similarly situated DMMs that add liquidity by
meeting the new proposed DMM Setter Tier's requirements. For the same
reason, the Exchange believes it is not unfairly discriminatory to
provide incrementally higher credits for increased adding ADV setting
the NBBO or BBO combined because the proposed higher credits would
equally encourage all DMMs to provide additional liquidity on the
Exchange. As noted, the Exchange intends for the proposal to improve
market quality for all members on the Exchange and by extension attract
more liquidity to the market, thereby encouraging higher levels of
liquidity by DMMs on the Exchange, which would support the quality of
price discovery on the Exchange and is consistent with the overall
goals of enhancing market quality.
SLP NBBO Setter Tier
The Exchange believes it is not unfairly discriminatory to provide
credits for adding liquidity that encourages SLPs to set the NBBO on
the Exchange as the proposed credits would be provided on an equal
basis to all SLPs and add liquidity by meeting the new proposed
requirements. For the same reason, the Exchange believes it is not
unfairly discriminatory to provide incrementally higher credits for
increased adding ADV setting the NBBO in Tapes A, B and C CADV combined
because the proposed higher credits would equally encourage all SLPs to
provide additional liquidity on the Exchange in all three tapes. As
noted, the Exchange believes that the proposed credit would provide an
incentive for SLPs to send additional liquidity to the Exchange to set
the NBBO in order to qualify for the additional credits. The Exchange
also believes that the proposed change is not unfairly discriminatory
because it is reasonably related to the value to the Exchange's market
quality associated with higher volume. Finally, the Exchange believes
that the proposed provides an equal incentive for all member
organizations that are not SLPs to become SLPs or becomes affiliated
with SLPs and qualify for the proposed credits on an
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equal basis by directing their order flow to the Exchange. The Exchange
believes that offering SLPs credits for setting the NBBO will encourage
higher levels of liquidity provision into the price discovery process
and is consistent with the overall goals of enhancing market quality,
thereby providing additional price improvement opportunities on the
Exchange and benefiting investors generally.
Fee Waivers for Trading Floor-Based Member Organizations
The proposed continuation of the waiver of equipment and related
service fees and the applicable monthly trading license fee for Trading
Floor-based member organizations during July 2020 is not unfairly
discriminatory because the proposed waivers would benefit all
similarly-situated market participants on an equal and non-
discriminatory basis. The Exchange is not proposing to waive the Floor-
related fixed indefinitely, but rather during the period that the
Trading Floor is not fully open. The proposed fee change is designed to
ease the financial burden on Trading Floor-based member organizations
that cannot fully conduct Floor operations.
For the same reasons, it is not unfairly discriminatory to provide
a way for member organizations with a Floor presence that were not
member organizations during March 2020 to qualify for the waivers in
August in the same way as all other Trading Floor-based member
organizations. Similarly, the Exchange believes that providing member
organizations with a Floor presence that became member organizations
after April 1, 2020 with a one-time credit for the fees waived during
April-July 2020 if the member organization meets the requirements for
the waiver is not unfairly discriminatory because it would treat all
similarly situated Floor-based member organizations equally for the
period April and July 2020.
Finally, 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,\27\ 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 member organizations. As further discussed above, the Exchange
believes that the proposed changes would encourage the continued
participation of member organizations on the Exchange by providing
certainty and fee relief during the unprecedented volatility and market
declines caused by the continued spread of COVID-19. 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.'' \28\
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\27\ 15 U.S.C. 78f(b)(8).
\28\ Regulation NMS, 70 FR at 37498-99.
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Intramarket Competition. The proposed changes are designed to
respond to the current competitive environment and to attract
additional order flow to the Exchange. The Exchange believes that the
proposed changes would continue to incentivize market participants to
direct displayed order flow to the Exchange. Greater liquidity benefits
all market participants on the Exchange by providing more trading
opportunities and encourages member organizations to send orders,
thereby contributing to robust levels of liquidity, which benefits all
market participants on the Exchange. The current and proposed credits
would be available to all similarly-situated market participants, and,
as such, the proposed change would not impose a disparate burden on
competition among market participants on the Exchange. Further, the
proposed continued waiver of equipment and related service fees and the
applicable monthly trading license fee for Trading Floor-based member
organizations during August 2020 and the one-time credit for Floor
brokers that became member organizations after April 2020 provides a
degree of certainty and ease the financial burden on Trading Floor-
based member organizations impacted by the temporary closing and
partial reopening of the Trading Floor. As noted, the proposal would
apply to all similarly situated member organizations on the same and
equal terms, who would benefit from the changes on the same basis.
Accordingly, the proposed change would not impose a disparate burden on
competition among market participants on the Exchange.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily choose to
send their orders to other exchange and off-exchange venues if they
deem fee levels at those other venues to be more favorable. As
previously noted, the Exchange's market share of trading in Tape A, B
and C securities combined is less than 10%. 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 rule change reflects this competitive environment
because it modifies the Exchange's fees in a manner designed to provide
a degree of certainty and ease the financial burdens of the current
unsettled market environment, and permit affected member organizations
to continue to conduct market-making operations on the Exchange and
avoid unintended costs of doing business on the Exchange while the
Trading Floor is not fully open, which could make the Exchange a less
competitive venue on which to trade as compared to other options
exchanges.
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) \29\ of the Act and subparagraph (f)(2) of Rule
19b-4 \30\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\29\ 15 U.S.C. 78s(b)(3)(A).
\30\ 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
[[Page 55561]]
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) \31\ of the Act to determine
whether the proposed rule change should be approved or disapproved.
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\31\ 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 rule-comments@sec.gov. Please include
File Number SR-NYSE-2020-71 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-2020-71. 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-NYSE-2020-71, and should be submitted on
or before September 29, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12), (59).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-19851 Filed 9-4-20; 8:45 am]
BILLING CODE 8011-01-P