[Federal Register Volume 85, Number 237 (Wednesday, December 9, 2020)]
[Notices]
[Pages 79239-79242]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26993]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90560; File No. SR-NYSENAT-2020-35]
Self-Regulatory Organizations; NYSE National, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its
Schedule of Fees and Rebates
December 3, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on December 1, 2020, NYSE National, Inc. (``NYSE National'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its Schedule of Fees and Rebates
(``Fee Schedule'') to modify Adding Tier 2 and Removing Tier 1. The
Exchange proposes to implement the rule change on December 1, 2020. 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 its Fee Schedule to modify Adding
Tier 2 and Removing Tier 1.
The proposed changes respond to the current competitive environment
where order flow providers have a choice of where to direct liquidity-
providing and liquidity-removing orders by offering further incentives
for ETP Holders to send additional displayed and non-displayed
liquidity to the Exchange. The proposed changes also respond to the
current volatile market environment that has resulted in unprecedented
average daily volumes, which is related to the ongoing spread of the
novel coronavirus (``COVID-19'').
The Exchange proposes to implement the rule change on December 1,
2020.
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. 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.'' \4\
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\4\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (S7-10-04) (Final Rule) (``Regulation
NMS'').
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While Regulation NMS has enhanced competition, it has also fostered
a ``fragmented'' market structure where trading in a single stock can
occur across multiple trading centers. When multiple trading centers
compete for order flow in the same stock, the Commission has recognized
that ``such competition can lead to the fragmentation of order flow in
that stock.'' \5\ Indeed, equity trading is currently dispersed across
16 exchanges,\6\ 31 alternative trading
[[Page 79240]]
systems,\7\ and numerous broker-dealer internalizers and wholesalers.
Based on publicly-available information, no single exchange has more
than 16% of the market share of executed volume of equity trades
(whether excluding or including auction volume).\8\ Therefore, no
exchange possesses significant pricing power in the execution of 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 2%.\9\
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\5\ See Securities Exchange Act Release No. 61358, 75 FR 3594,
3597 (January 21, 2010) (File No. S7-02-10) (Concept Release on
Equity Market Structure).
\6\ See Cboe 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.
\7\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. Although 54
alternative trading systems were registered with the Commission as
of July 29, 2019, only 31 are currently trading. A list of
alternative trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/atslist.htm.
\8\ See Cboe Global Markets U.S. Equities Market Volume Summary,
available at http://markets.cboe.com/us/equities/market_share/.
\9\ See id.
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
move order flow, or discontinue or reduce use of certain products, in
response to fee changes. While it is not possible to know a firm's
reason for moving order flow, the Exchange believes that one such
reason is because of fee changes at any of the registered exchanges or
non-exchange trading venues to which a firm routes order flow. These
fees vary month to month, and not all are publicly available. With
respect to non-marketable order flow that would provide liquidity on an
exchange, ETP Holders can choose from any one of the 16 currently
operating registered exchanges to route such order flow. Accordingly,
competitive forces constrain the Exchange's transaction fees, and
market participants can readily trade on competing venues if they deem
pricing levels at those other venues to be more favorable.
The Exchange utilizes a ``taker-maker'' or inverted fee model to
attract orders that provide liquidity at the most competitive prices.
Under the taker-maker model, offering rebates for taking (or removing)
liquidity increases the likelihood that market participants will send
orders to the Exchange to trade with liquidity providers' orders. This
increased taker order flow provides an incentive for market
participants to send orders that provide liquidity. The Exchange
generally charges fees for order flow that provides liquidity. These
fees are reasonable due to the additional marketable interest (in part
attracted by the Exchange's rebate to remove liquidity) with which
those order flow providers can trade.
Proposed Rule Change
To respond to this competitive environment, the Exchange proposes
the following changes to its Fee Schedule designed to provide order
flow providers with incentives to route liquidity-providing order flow
to the Exchange. As described above, ETP Holders with liquidity-
providing order flow have a choice of where to send that order flow.
Proposed Change To Adding Tier 2
Under current Adding Tier 2, ETP Holders that add liquidity to the
Exchange in securities with a per share price of $1.00 or more and that
have at least 0.15% or more of ADV of adding liquidity as a percentage
of US CADV are charged a fee of $0.0022 per share for adding displayed
orders in Tape A, B, and C securities. The Exchange proposes to revise
Adding Tier 2 by modifying the requirements to qualify for the tier, as
follows (proposed additions underlined, deletions bracketed):
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Tier requirement Adding rate
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Adding Tier 2:
At least [0.15%] 0.13% or more Adding Displayed liquidity: Tapes
ADV as a % of US CADV. A, B and C: $0.0022.
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The Exchange does not propose any changes to the Adding Rate for
Adding Tier 2, and the rate for Orders that add liquidity under the
Adding Tier 2 would remain unchanged.
The Exchange believes that lowering the ADV requirement for Adding
Tier 2 from 0.15% to 0.13% or more Adding ADV as a percentage of US
CADV will allow greater numbers of ETP Holders to potentially qualify
for the tier, and will incentivize more ETP Holders to route their
liquidity-providing order flow to the Exchange in order to qualify for
the tier. This in turn 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 fee to the level of orders sent by an ETP Holder that add
liquidity, the Exchange's fee structure would incentivize ETP Holders
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.
As noted above, the Exchange operates in a competitive environment,
particularly as relates to attracting non-marketable orders, which add
liquidity to the Exchange. Currently, only a few ETP Holders have
qualified for Adding Tier 2. The Exchange does not know how much order
flow ETP Holders choose to route to other exchanges or to off-exchange
venues. Without having a view of ETP Holders' activity on other
exchanges and off-exchange venues, the Exchange has no way of knowing
whether this proposed rule change would result in any additional ETP
Holders directing orders to the Exchange in order to qualify for the
revised Adding Tier 2 rate. However, the Exchange believes there are
multiple additional ETP Holders that could qualify for the revised
Adding Tier 2, if they so choose, based on their current trading
profiles.
Proposed Changes To Removing Tier 1
Under current Removing Tier 1, the Exchange provides a rebate of
$0.0030 per share to ETP Holders that remove liquidity from the
Exchange in securities with a per share price of $1.00 or more and that
have (i) a combined Adding ADV and Removing ADV of at least 0.20% as a
% of US CADV, and (ii) 250,000 of Adding ADV.
The Exchange proposes to revise Removing Tier 1 by modifying the
requirements to qualify for the tier, as follows (proposed additions
underlined, deletions bracketed):
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Tier requirement Removing rate
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Removing Tier 1:
At least [0.20%] 0.18% Adding ADV and Removing ADV ($0.0030)
combined as a % of US CADV and 250,000 Adding ADV
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[[Page 79241]]
The Exchange does not propose any changes to the Removing Rate for
Orders that removed liquidity that qualify for Removing Tier 1, and the
rate for such orders under Removing Tier 1 would remain unchanged.
The Exchange believes that lowering the combined Adding ADV and
Removing ADV requirement for Removing Tier 1 from 0.20% to 0.18% as a
percentage of US CADV for ETP Holders that also have 250,000 Adding ADV
will allow greater numbers of ETP Holders to qualify for the tier, and
will incentivize more ETP Holders to route liquidity-removing order
flow to the Exchange in order to qualify for the tier. This is turn
would support the quality of price discovery on the Exchange and
provide additional price improvement opportunities for incoming orders.
As described above, ETP Holders with liquidity-removing order flow
have a choice of where to send that order flow. The Exchange believes
that as a result of the proposed change to Removing Tier 1, more ETP
Holders will choose to route their liquidity-removing order flow to the
Exchange in order to qualify for the credits for removing liquidity
associated with Removing Tier 1 given that the requirements to qualify
have been reduced.
As noted, the Exchange operates in a competitive environment.
Currently, only a few ETP Holders qualify for Removing Tier 1. The
Exchange does not know how much order flow ETP Holders choose to route
to other exchanges or to off-exchange venues. Without having a view of
ETP Holders' activity on other exchanges and off-exchange venues, the
Exchange has no way of knowing whether this proposed rule change would
result in any additional ETP Holders directing orders to the Exchange
in order to qualify for the revised Removing Tier 1 rate. However, the
Exchange believes there are multiple ETP Holders that could qualify for
the revised Removing Tier 1, if they so choose, based on their current
trading profiles.
The proposed changes are not otherwise intended to address any
other issues, and the Exchange is not aware of any problems that ETP
Holders 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,\10\ in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\11\ in
particular, because it provides for the equitable allocation of
reasonable dues, fees, and other charges among its members, issuers and
other persons using its facilities and does not unfairly discriminate
between customers, issuers, brokers or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) & (5).
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The Proposed Change Is Reasonable
As discussed above, the Exchange operates in a highly fragmented
and competitive market. 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. While it
is not possible to know a firm's reason for shifting order flow, the
Exchange believes that one such reason is because of fee changes at any
one of the registered exchanges or non-exchange trading venues that a
firm routes order flow to, which vary month to month, and not all of
which are publicly known. With respect to non-marketable order flow
that would provide liquidity on an Exchange, ETP Holders can choose
from any one of the 16 currently operating registered exchanges to
route such order flow. Accordingly, competitive forces constrain
exchange transaction fees that relate to orders that would provide
liquidity on an exchange.
Given the current competitive environment, the Exchange believes
that the proposal represents a reasonable attempt to attract additional
order flow to the Exchange. Specifically, the Exchange believes that
the proposed revisions to Adding Tier 2 and Removing Tier 1 are
reasonable because they would promote execution opportunities for ETP
Holders routing order flow to the Exchange.
The Exchange believes that the proposal as a whole represents a
reasonable effort to promote price improvement and enhanced order
execution opportunities for ETP Holders. All ETP Holders would benefit
from the greater amounts of liquidity on the Exchange, which would
represent a wider range of execution opportunities.
The Proposal Is an Equitable Allocation of Fees
The Exchange believes the proposed rule change equitably allocates
its fees among its market participants. The proposed change would
continue to encourage ETP Holders to both submit additional liquidity
to the Exchange and execute orders on the Exchange, thereby
contributing to robust levels of liquidity, to the benefit of all
market participants.
The Exchange believes that modifying Adding Tier 2 and Removing
Tier 1 would encourage the submission and removal of additional
liquidity from the Exchange, thus enhancing order execution
opportunities for ETP Holders from the substantial amounts of liquidity
present on the Exchange. All ETP Holders would benefit from the greater
amounts of liquidity that would be present on the Exchange, which would
provide greater execution opportunities.
The Exchange believes the proposed rule change would also improve
market quality for all market participants seeking to remove liquidity
on the Exchange and, as a consequence, attract more liquidity to the
Exchange, thereby improving market-wide quality. The proposal neither
targets nor will it have a disparate impact on any particular category
of market participant.
Specifically, the Exchange believes that the proposal constitutes
an equitable allocation of fees because all similarly situated ETP
Holders and other market participants would be eligible for the same
general and tiered rates and would be eligible for the same fees and
credits. Moreover, the proposed change is equitable because the revised
fees would apply equally to all similarly situated ETP Holders.
The Proposal Is Not Unfairly Discriminatory
The Exchange believes that the proposal is not unfairly
discriminatory. In the prevailing competitive environment, ETP Holders
are free to disfavor the Exchange's pricing if they believe that
alternatives offer them better value.
Moreover, the proposal neither targets nor will it have a disparate
impact on any particular category of market participant. The Exchange
believes that the proposal does not permit unfair discrimination
because the proposal would be applied to all similarly situated ETP
Holders and all ETP Holders would be subject to the same modified
Adding Tier 2 and Removing Tier 1. Accordingly, no ETP Holder already
operating on the Exchange would be disadvantaged by the proposed
allocation of fees and credits.
The Exchange further believes that the proposed changes would not
permit unfair discrimination among ETP Holders because the tiered rates
are available equally to all ETP Holders. As described above, in
today's competitive marketplace, order flow providers have a choice of
where to direct liquidity-providing order flow, and the Exchange
believes there are additional ETP Holders that could qualify if they
chose
[[Page 79242]]
to direct their order flow to the Exchange.
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,\12\ 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 change would encourage the submission of additional
liquidity and order flow to a public exchange, thereby enhancing order
execution opportunities for ETP Holders. As a result, the Exchange
believes that the proposed change furthers the Commission's goal in
adopting Regulation NMS of fostering competition among orders, which
promotes ``more efficient pricing of individual stocks for all types of
orders, large and small.'' \13\
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\12\ 15 U.S.C. 78f(b)(8).
\13\ Regulation NMS, 70 FR at 37498-99.
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Intramarket Competition. The proposed change is designed to attract
additional order flow to the Exchange. As described above, the Exchange
believes that the proposed change would provide additional incentives
for market participants to route liquidity-providing and liquidity-
removing orders to the Exchange. Greater liquidity benefits all market
participants on the Exchange by providing more trading opportunities
and encourages ETP Holders to send orders, thereby contributing to
robust levels of liquidity. The proposed revised fees would be
available to all similarly-situated market participants, and thus, 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 exchanges and off-exchange venues if they
deem fee levels at those other venues to be more favorable. As noted
above, the Exchange's market share of intraday trading in Tapes A, B
and C securities is less than 2%. In such an environment, the Exchange
must continually adjust its fees and rebates to remain competitive with
other exchanges and off-exchange venues. Because competitors are free
to modify their own fees and credits in response, and because market
participants may readily adjust their order routing practices, the
Exchange does not believe its proposed fee change can impose any burden
on intermarket competition.
The Exchange believes that the proposed change could promote
competition between the Exchange and other execution venues, including
those that currently offer similar order types and comparable
transaction pricing, by encouraging additional orders to be sent to the
Exchange for execution.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \14\ of the Act and subparagraph (f)(2) of Rule
19b-4 \15\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \16\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\16\ 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-NYSENAT-2020-35 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-NYSENAT-2020-35. 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-NYSENAT-2020-35, and should be submitted
on or before December 30, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26993 Filed 12-8-20; 8:45 am]
BILLING CODE 8011-01-P