[Federal Register Volume 85, Number 98 (Wednesday, May 20, 2020)]
[Notices]
[Pages 30743-30751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10817]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88874; File No. SR-NYSE-2020-39]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend its Price List
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on May 1, 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
adding average daily volume (``ADV'') requirement for the second way to
qualify for the Tier 3 Adding Credit; (2) adopt a new Step Up Tier 3
Adding Credit; (3) adopt a new Incremental Rebate Per Share for
Designated Market Makers (``DMM'') in most active securities; (4)
revise the adding liquidity requirement in Tape B and C securities for
the Supplemental Liquidity Provider (``SLP'') Tape A adding tiers; and
(5) extend the waiver of equipment and
[[Page 30744]]
related service charges and trading license fees for NYSE Trading
Floor-based member organizations to May 2020 in connection with the
temporary closing of the Trading Floor. The proposed rule change is
available on the Exchange's website at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Price List to (1) revise the ADV
requirement for the second way to qualify for the Tier 3 Adding Credit;
(2) adopt a new Step Up Tier 3 Adding Credit; (3) adopt a new
Incremental Rebate Per Share for DMMs in most active securities; (4)
revise the adding liquidity requirement in Tape B and C securities for
the SLP Tape A adding tiers; and (5) extend the waiver of equipment and
related service charges and trading license fees for NYSE Trading
Floor-based member organizations to May 2020 in connection with the
temporary closing of the Trading Floor.
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.
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, which are both related
to the ongoing spread of the novel coronavirus (``COVID-19'').
The Exchange proposes to implement the fee changes effective May 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. 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 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.''
\5\ Indeed, equity trading is currently dispersed across 13
exchanges,\6\ 31 alternative trading systems,\7\ 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).\8\ 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 13%.
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\5\ 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'').
\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. 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/.
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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 and remove liquidity on the Exchange,
including cross-tape incentives for member organizations and SLPs based
on submission of orders that provide displayed and non-displayed
liquidity in Tapes B and C securities. The proposed fee change is
designed to attract additional order flow to the Exchange by:
Lowering the adding ADV requirement for the second way to
qualify for Tier 3 Adding Credit;
offering a new pricing tier to incentivize member
organizations to step up their liquidity-providing orders on the
Exchange;
offering an incremental rebate per share for DMMs in more
active securities; and
lowering the adding liquidity requirement in Tape B and C
securities for the SLP Tape A adding tiers.
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.\9\ 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 May 2020 in connection
with the temporary closing of the Trading Floor. The proposed DMM
incremental credit is also designed to incentivize DMM to increase
their added liquidity on the Exchange during periods of high market
volumes.
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\9\ See Press Release, dated March 18, 2020, available here:
https://ir.theice.com/press/press-releases/allcategories/2020/03-18-2020-204202110.
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Proposed Rule Change
Tier 3 Adding Credit Adding ADV Requirement
Under current Tier 3, a member organization that adds liquidity to
the Exchange in securities with a share price of $1.00 or more would be
entitled to a per share credit of $0.0018 if the
[[Page 30745]]
criteria in A or B are satisfied, as follows:
A
(i) The member organization has an Adding ADV equal to at least
0.40% of NYSE CADV,\10\ and
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\10\ The terms ``ADV'' and ``CADV'' are defined in footnote * of
the Price List.
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(ii) The member organization executes market at-the-close (``MOC'')
and limit at-the-close (``LOC'') orders equal to at least 0.05% of NYSE
CADV.
B
(i) The member organization has an Adding ADV equal to at least
0.35% of NYSE CADV,
(ii) The member organization executes MOC and LOC orders equal to
at least 0.05% of NYSE CADV, and
(iii) The member organization has an Adding ADV in MPL orders of at
least 200,000 shares.
The Exchange proposes to reduce the adding ADV requirement in the
second of the two alternative methods described above to qualify for
the credit by requiring member organization to have an Adding ADV equal
to at least 0.30% of NYSE CADV. As proposed, the first method to
qualify for the credit and the amount of the credit would remain
unchanged.
The purpose of the proposed change is to increase the incentive for
order flow providers to send liquidity-providing orders to the
Exchange. As described above, member organizations with liquidity-
providing orders have a choice of where to send those orders. The
Exchange believes that by reducing the Adding ADV requirement to
qualify for a tiered credit, more member organizations will choose to
route their liquidity-providing orders to the Exchange to qualify for
the credit. The Exchange cannot predict with certainty how many member
organizations would avail themselves of this opportunity, but believes
that at least three member organizations could qualify for the tier.
Additional liquidity-providing orders benefits all market participants
because it provides greater execution opportunities on the Exchange.
Step Up Tier 3 Adding Credit
The Exchange proposes to adopt a ``Step Up Tier 3 Adding Credit''
that would offer a credit to member organizations providing displayed
liquidity to the Exchange in Tape A securities.
As proposed, a member organization that
sends orders, except Mid-Point Liquidity Orders (``MPL'')
and Non-Displayed Limit Orders, that add liquidity to the NYSE in Tape
A securities, and
that has Adding ADV, excluding any liquidity added by a
DMM, that is at least 0.05% of NYSE CADV over that member
organization's Fourth Quarter 2019 adding liquidity taken as a
percentage of NYSE CADV (the ``Baseline Tape A Share'')
would receive a credit of $0.0015 for adding liquidity, except MPL and
Non-Displayed Limit Orders, if the increase in Adding ADV over the
Baseline Tape A Share is at least 0.05% and less than 0.10%. If the
increase in Adding ADV over the Baseline Tape A Share is at least 0.10%
or more, a member organization meeting the above requirements would
receive a credit of $0.0018 for adding liquidity, except MPL and Non-
Displayed Limit Orders.
In addition, member organizations that meet these requirements and
qualify for the $0.0015 or $0.0018 credit in Tape A securities would be
eligible to receive an additional $0.0001 per share for adding
liquidity in Tape A securities if trades in Tapes B and C securities
against the member organization's orders that add liquidity, excluding
orders as an SLP, equal to at least 0.20% of Tape B and Tape C CADV
combined.
For example, Member Organization A averages an Adding ADV in Tape A
securities of 3.5 million shares in the Fourth Quarter of 2019 where
the NYSE CADV was 3.5 billion shares. Member Organization A's adding
percentage of NYSE CADV for the Fourth Quarter 2019 would be 0.10%. In
the billing month, Member Organization A has an adding ADV of 5.25
million shares when NYSE CADV was again 3.5 billion shares. Member
Organization A's adding percentage of NYSE CADV for that billing month
would thus be of 0.15%. Since Member Organization A's Adding ADV for
the billing month was is 0.05% of NYSE ADV over Member Organization A's
Fourth Quarter 2019 adding percentage of NYSE CADV, Member
Organizations A qualifies for the $0.0015 credit. If Member
Organization A had instead had an Adding ADV of 7 million shares in
that same billing month for an Adding percent of NYSE CADV of 0.20%,
then Member Organization A would have instead qualified for the $0.0018
credit.
The purpose of this proposed change is to incentivize member
organizations to increase the liquidity-providing orders in the Tape A
securities they send to the Exchange, which would support the quality
of price discovery on the Exchange and provide additional liquidity for
incoming orders. 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 a member organization to increase the volume of its trades in
orders that add liquidity over that member organization's Fourth
Quarter 2019 baseline, the Exchange believes that the proposed credit
would provide an incentive for all member organizations to send
additional liquidity to the Exchange 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. There are
currently no firms that could qualify for the proposed Step Up Tier 3
Adding Credit based on their current trading profile on the Exchange,
but the Exchange believes that at least six member organizations could
qualify for the tier 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.
DMM Incremental Rebate per Share for More Active Securities
The Exchange proposes to adopt an incremental rebate per share that
would offer 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 less.
As proposed, DMMs would earn 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
[[Page 30746]]
assigned securities in the previous month.
As noted, the proposed incremental credit would be payable in
addition to the DMM regular Most Activity Security credits for those
credits up to $0.0034 per share or less, specifically adding credits of
$0.0015, $0.0027, $0.0031, and $0.0034 per share.
For example, DMM A with more than 750 assigned securities in the
billing month has providing liquidity in those securities of 35 million
shares in April 2020. Assume Tape A was 3.5 billion shares in April
2020. DMM A would thus have providing liquidity of 1.00% of NYSE CADV
for April 2020. If DMM A averages 75 million shares in a month when
NYSE CADV is 5 billion shares, for a providing liquidity of 1.50%, DMM
A would then qualify for the incremental rebate of $0.0002 per share in
More Activity Securities with an increase of 0.50%.
If DMM B had less than 750 assigned securities in that same billing
month with a providing liquidity of 3.5 million shares in April 2020,
for providing liquidity of 0.10% of NYSE CADV, then DMM B would need to
increase its providing liquidity by 40%, or 0.14% of NYSE CADV, in
order to qualify in that billing month when NYSE CADV was 5 billion
shares. If NYSE CADV was instead 4 billion shares in that billing
month, both DMM A and DMM B would not be eligible for any incremental
credits.
The purpose of this proposed change is to incentivize DMM to
increase their added liquidity on the Exchange during a period of high
market volumes, which would improve quoting and increase adding
liquidity across securities where there may be more liquidity
providers.
The Exchange believes that higher quoting obligations provide
higher volumes of liquidity, which contributes to price discovery and
benefits all market participants. 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, as
proposed, the first way to qualify for the proposed credit requires
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 while the way for DMMs with less than 750 issues to qualify
requires 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, the Exchange believes that the proposed credit would provide an
incentive for all DMMs to send additional liquidity to the Exchange in
order to qualify for it.
Moreover, the Exchange believes that the second way to qualify for
the incremental credit is designed to provide smaller market makers
(i.e., DMMs with 750 or fewer assigned securities in the previous
month) with an added incentive to add liquidity in their assigned
securities in a given month. A DMM with providing share of NYSE CADV of
0.10% would otherwise have to quadruple its providing ADV, for an
increase of 0.30% to 0.40% of NYSE CADV, in order to qualify for the
incremental credit. 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 liquidity 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.
Adding Liquidity Requirement for SLP Tape A Tiers
The Exchange currently offers tiered and non-tiered credits in Tape
A securities to SLPs that meet certain quoting obligations in assigned
securities based upon the total percent of NYSE CADV executed.
Each of the current adding liquidity tiers (SLP Tiers 1, 1A, 2, 3,
4, and the SLP Step Up Tier) offer a cross-tier incentive.
Specifically, in addition to the credit specified for each tier, SLPs
are eligible for an additional incremental per share credit \11\ in
securities with a per share price of $1.00 that meet the 10% average or
more quoting requirement in an assigned security pursuant to Rule 107B
(quotes of an SLP-Prop and an SLMM of the same member organization
shall not be aggregated) where the SLP:
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\11\ The incremental credits are $0.0001 (SLP Tiers 1A, 2, 3 and
the SLP Step Up Tier) and $0.00005 (SLP Tier 1 and 4).
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Meets the applicable tier requirements, and
adds liquidity in Tape B and C securities \12\ of at least
0.30% of Tape B and Tape C CADV combined.
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\12\ In SLP Tiers 1, 1A, 2, 3, 4, and the SLP Step Up Tier, the
Price List uses the phrase ``securities traded pursuant to Unlisted
Trading Privileges (Tapes B and C) on the Pillar Trading Platform.''
The Exchange proposes the non-substantive change of replacing that
phrase with ``Tape B and C securities'' in each place in SLP Tiers
1, 1A, 2, 3, 4, and the SLP Step Up Tier where it appears by adding
``Tape B and C'' before ``securities'' and deleting each use of
``traded pursuant to Unlisted Trading Privileges (Tapes B and C) on
the Pillar Trading Platform.''
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For each cross-tier incentive in SLP Tiers 1, 1A, 2, 3, 4, and the
SLP Step Up Tier, the Exchange proposes to require that SLPs add
liquidity in Tape B and C securities of at least 0.25% of Tape B and
Tape C CADV combined. The other requirements to qualify for SLP Tiers
1, 1A, 2, 3, 4, and the SLP Step Up Tier, as well as the associated
credits, would remain unchanged.
The proposed fee change is designed to attract additional order
flow to the Exchange by making it easier to qualify for cross-tier
incentive in SLP Tiers 1, 1A, 2, 3, 4, and the SLP Step Up Tier based
on adding liquidity to the Exchange in Tape B and C Securities. There
are currently no SLPs that qualify for the cross tier incentives based
on their current trading profile on the Exchange, but the Exchange
believes that at least two more SLPs could qualify if they so choose.
However, without having a view of SLP'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 SLP directing orders to the
Exchange in order to qualify for these incentives.
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.\13\
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\13\ See Securities Exchange Act Release No. 88602 (April 8,
2020), 85 FR 20730 (April 14, 2020) (SR-NYSE-2020-27). See footnote
11 of the Price List.
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Specifically, 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.\14\ 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
[[Page 30747]]
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 Designated
Market Makers with 30 or fewer assigned securities for the billing
month of March 2020.
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\14\ The Service Charges also include an internet Equipment
Monthly Hosting Fee that the Exchange did not waive for April 2020
and that the Exchange does not propose to waive for May 2020.
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Because the Trading Floor at 11 Wall Street remains temporarily
closed, the Exchange proposes to waive these Trading Floor-based fees
for May 2020. To effectuate this change, the Exchange proposes to add
``and May'' between ``April'' and ``2020'' in footnote 11 to the Price
List.
The proposed change is designed to reduce monthly costs for member
organizations with a Trading Floor presence that are unable to use the
services associated with the fees while the Trading Floor is
temporarily closed. The Exchange believes that extension of the fee
waiver would ease the financial burden associated with the temporary
Trading Floor closure.
In order to further reduce costs for member organizations with a
Trading Floor presence, the Exchange also waived the April 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.\15\
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\15\ See note 13, supra. See footnotes 15 of the Price List.
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The Exchange proposes to also waive the May 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 May 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 May'' between ``April'' and ``2020'' in footnote
15.
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,\16\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\17\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers and other persons
using its facilities and does not unfairly discriminate between
customers, issuers, brokers or dealers.
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\16\ 15 U.S.C. 78f(b).
\17\ 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 Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. Specifically,
in Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \18\
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\18\ See Regulation NMS, 70 FR at 37499.
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Tier 3 Adding Credit Adding ADV Requirement
The Exchange believes that lowering the ADV requirement for the
second way to qualify for the Tier 3 Adding Credit is reasonable
because it would make it easier for member organizations to qualify for
the credit, thereby encouraging the submission of additional liquidity
by more member organizations to a national securities exchange.
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.
Step Up Tier 3 Adding Credit
The Exchange believes that a new Step Up Tier 3 Adding Credit is
reasonable. Specifically, the Exchange believes that the proposed Step
Up Tier 3 Adding Credit would provide an incentive for member
organizations to send additional liquidity providing orders to the
Exchange in Tape A securities. 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 that requiring member organizations to have
adding ADV, excluding any liquidity added by a DMM, that is at least
0.05% of NYSE CADV over that member organization's Fourth Quarter 2019
adding liquidity taken as a percentage of NYSE CADV in order to qualify
for the proposed Step Up Tier 3 Adding Credit is reasonable because it
would encourage additional displayed liquidity on the Exchange and
because market participants benefit from the greater amounts of
displayed liquidity present on the Exchange.
The Exchange believes that it is reasonable to offer a lower credit
of $0.0015 if the increase in adding ADV over that member
organization's Fourth Quarter 2019 adding liquidity taken as a
percentage of NYSE CADV is 0.05% or more up to 0.09%, and to offer a
higher credit of $0.0018 if the adding ADV increase is 0.10% or more,
because it is reasonably related to the value to the Exchange's market
quality associated with higher volume.
Finally, the Exchange believes it's reasonable to provide an
additional $0.0001 per share for adding liquidity in Tape A securities
for member organizations meet the proposed tier requirements and
qualify for the $0.0015 or $0.0018 credit in Tape A securities if
trades in Tapes B and C securities against the member organization's
orders that add liquidity, excluding orders as an SLP, equal to at
least 0.20% of Tape B and Tape C CADV combined, is reasonable as this
same incentive is offered in the NYSE `s other adding tiers (Tier 1-4
Adding Credits).
Since the proposed Step Up Tier 3 would be new with a step up
requirement, no member organization currently qualifies for the
proposed pricing tier. 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 credit is reasonable
as it would provide an additional incentive for member organizations to
direct their order flow to the Exchange and provide meaningful
[[Page 30748]]
added levels of liquidity in order to qualify for the higher credit,
thereby contributing to depth and market quality on the Exchange.
DMM Incremental Rebate per Share for More Active Securities
The Exchange believes that the proposed incremental rebate for DMMs
is a reasonable way to incentivize DMM to increase their added
liquidity on the Exchange, which would improve quoting and increase
adding liquidity across securities when market volumes are high. The
Exchange believes that the incremental rebate will provide incentives
for DMMs to provide higher volumes of liquidity, which contributes to
price discovery and benefits all market participants. 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, as proposed, the first way to qualify for the
proposed credit requires 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 while the second way to qualify requires 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, the
Exchange believes that the proposed credit would provide an incentive
for DMMs to send additional liquidity to the Exchange in order to
qualify for it.
Moreover, the Exchange believes that the second way to qualify for
the incremental credit is designed to provide smaller market makers
(i.e., DMMs with 750 or fewer assigned securities in the previous
month) with an added incentive to add liquidity in their assigned
securities in a given month is a reasonable means to improve market
quality, attract additional order flow to a public market, and enhance
execution opportunities for member organizations on the Exchange, to
the benefit of all market participants. The Exchange notes that the
proposal would also foster liquidity provision and stability in the
marketplace during periods of high volumes. The proposal would also
reward DMMs, who have greater risks and heightened quoting and other
obligations than other market participants.
Adding Liquidity Requirement for SLP Tape A Tiers
In addition, lowering the adding liquidity requirement to 0.25% of
Tape B and Tape C CADV combined in order for member organizations that
are SLPs to qualify for the applicable credit in SLP Tiers 1, 1A, 2, 3,
4, and the SLP Step Up Tier is reasonable because it would provide
further incentives for such member organizations to provide additional
liquidity to a public exchange in Tape B and C securities to reach the
proposed Adding ADV requirement, thereby promoting price discovery and
transparency and enhancing order execution opportunities for member
organizations. 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 believes the proposal would provide an incentive for
member organizations that are SLPs to route additional liquidity-
providing orders to the Exchange in Tape B and C securities. As noted
above, the Exchange operates in a highly competitive environment,
particularly for attracting non-marketable order flow that provides
liquidity on an exchange. Without having a view of a member
organization's activity on other markets and off-exchange venues, the
Exchange believes the proposed additional requirement to qualify for
the SLP Adding Tier credits would provide an incentive for member
organizations who are SLPs to submit additional adding liquidity to the
Exchange in Tape B and C securities. As previously noted, there are
currently no SLPs that qualify for the cross tier incentives based on
their current trading profile on the Exchange, but the Exchange
believes that at least 2 more SLPs could qualify if they choose to
direct order flow to, and increase quoting on, 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
temporary 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 that has also
resulted in the temporary closure of the NYSE Trading Floor. The
proposed change is designed to reduce costs for Floor participants for
the month of May 2020 that are unable to conduct Floor operations while
the Trading Floor remains temporarily closed. The Exchange believes
that this fee waiver would ease the financial burden faced by member
organizations that conduct business on the Trading Floor and benefit
all such member organizations.
Finally, the Exchange also believes the proposed non-substantive
changes are 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.
Tier 3 Adding Credit Adding ADV Requirement
The Exchange is not proposing to adjust the amount of the Tier 3
Adding Credit, which will remain at the current level for all market
participants. Rather, the proposal to lower the ADV requirement for the
second way to qualify for the Tier 3 Adding Credit would continue to
encourage more member organizations to send add liquidity to the
Exchange by making it more attainable, thereby contributing to robust
levels of liquidity, which benefits all market participants. As
described above, member organizations with liquidity-providing orders
have a choice of where to send those orders. The Exchange believes
that, for the reasons discussed above, lowering the Adding ADV
requirement to qualify for a tiered credit, would make it easier for
additional liquidity providers to qualify for the Tier 3 Adding Credit,
thereby encouraging submission of additional liquidity to the Exchange.
The proposed change will thereby encourage the submission of additional
liquidity to a national securities exchange, thus promoting price
discovery and transparency and enhancing 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.
Step Up Tier 3 Adding Credit
The Exchange believes that the proposed Step Up Tier 3 is equitable
because the magnitude of the additional credit is less than the current
Step Up Tier 2 credit in Tape A securities. Moreover, the proposed
credits are not unreasonable relative with the other non-SLP adding
tier credits, which as
[[Page 30749]]
range from $0.0015 to $0.0029, in comparison to the credits paid by
other exchanges for orders that provide additional step up
liquidity.\19\ 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.
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\19\ See Cboe BZX Fee Schedule, which has adding credits ranging
from $0.0025 to $0.0032, at https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
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Since the proposed Step Up Tier 3 would be new and includes a step
up Adding ADV requirement, no member organization currently qualifies
for it. As noted, there are currently a number of member organizations
that could qualify for the proposed tier, but 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 the tier. The Exchange
believes the proposed 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. The proposal neither targets
nor will it have a disparate impact on any particular category of
market participant. All member organizations that provide liquidity
could be eligible to qualify for the credit proposed in Step Up Tier 3
if they increase their Adding ADV over their own baseline of order
flow. The Exchange believes that offering a step up credit for
providing liquidity if the step up requirements for Tape A securities
are met 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
credits, the proposal will not adversely impact their existing pricing
or their ability to qualify for other credits provided by the Exchange.
DMM Incremental Rebate per Share for More Active Securities
The Exchange believes that the proposed incremental rebate to DMMs
is an equitable allocation of fees because it would reward DMMs for
their increased risks and heightened quoting and other obligations. As
such, it is equitable to offer DMMs an incremental rebate for increased
adding liquidity in addition to current rates of $0.0034 or less. The
proposed rule change is also equitable because it would apply equally
to all existing and potential DMM firms.
The Exchange notes that all five DMM firms could qualify for the
proposed incremental rebate. 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.
Adding Liquidity Requirement for SLP Tape A Tiers
The Exchange believes that lowering the adding liquidity
requirement in order for member organizations that are SLPs to qualify
for the applicable credit in SLP Tiers 1, 1A, 2, 3, 4, and the SLP Step
Up Tier equitably allocates its fees among its market participants. The
Exchange is not proposing to adjust the amount of any of the SLP Adding
Tier credits, which will remain at current levels for all market
participants. For the reasons discussed above, the Exchange believes
that the proposed change to the SLP Adding Tier requirements would
encourage the SLPs to add liquidity to the market in Tape B and C
securities, thereby providing customers with a higher quality venue for
price discovery, liquidity, competitive quotes and price improvement.
The proposed change will thereby encourage the submission of additional
liquidity to a national securities exchange, thus promoting price
discovery and transparency and enhancing 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. As previously
noted, there are currently no SLPs that qualify for the cross tier
incentives based on their current trading profile on the Exchange, but
the Exchange believes that at least two more SLPs could qualify if they
choose to direct order flow to, and increase quoting on, the Exchange.
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 May 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 temporarily closed. The proposed change is
equitable as it is designed to reduce monthly costs for Trading Floor-
based member organizations that are unable to conduct Floor operations.
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.
Tier 3 Adding Credit Adding ADV Requirement
The Exchange believes that the proposal to lower the ADV
requirement for the Tier 3 Adding Credit does not permit unfair
discrimination because the lower threshold would be applied to all
similarly situated member organizations and other market participants,
who would all be eligible for the same credit on an equal basis.
Accordingly, no member organization already operating on the Exchange
would be disadvantaged by this allocation of fees.
Step Up Tier 3 Adding Credit
The Exchange believes it is not unfairly discriminatory to provide
an additional per share step up credit, as the proposed credits would
be provided on an equal basis to all member organizations that add
liquidity by meeting the new proposed Step Up 3 Tier's requirements.
For the same reason, the Exchange believes it is not unfairly
discriminatory to provide a higher credit of $0.0018 for increased
adding ADV over the member organization's Fourth Quarter 2019 adding
liquidity taken as a percentage of NYSE CADV because the proposed
higher credit would equally encourage all member organizations to
provide additional displayed liquidity on the Exchange. As noted, the
Exchange believes that the proposed credit would provide an incentive
for member organizations to send additional liquidity to the Exchange
in order to qualify for the additional credits.
[[Page 30750]]
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.
DMM Incremental Rebate per Share for More Active Securities
The proposed incremental rebate for DMM more active securities
during periods of high volumes is also not unfairly discriminatory
because the proposed rebates would provide an additional incentive to
DMMs to quote and trade their assigned securities on the Exchange in
very active months, and will generally allow the Exchange and DMMs to
better compete for order flow, thus enhancing competition. The Exchange
believes that the requirement that DMMs increase adding liquidity over
the Baseline Month in order to qualify for the credits is not unfairly
discriminatory because it would apply equally to all DMMs. The Exchange
believes that requiring a higher percentage 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 is not unfairly
discriminatory because it would apply equally to all similarly situated
DMMs.
Moreover, the Exchange believes that the second way to qualify for
the incremental credit is designed to provide smaller market makers
(i.e., DMMs with 750 or fewer assigned securities in the previous
month) with an added incentive to add liquidity in their assigned
securities in a given month. 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.
Adding Liquidity Requirement for SLP Tape A Tiers
Lowering the adding ADV requirement for the SLP Adding Tiers is not
unfairly discriminatory because the proposal would be provided on an
equal basis to all member organizations that add liquidity by meeting
the new proposed alternative requirement, who would all be eligible for
the same credits on an equal basis. Accordingly, no member organization
already operating on the Exchange would be disadvantaged by this
allocation of fees. Further, as noted, the Exchange believes the
proposal would provide an incentive for member organizations to
continue to send orders that provide liquidity to the Exchange, to the
benefit of all market participants.
Fee Waivers for Trading Floor-Based Member Organizations
The proposed waiver of equipment and related service fees and the
applicable monthly trading license fee for Trading Floor-based member
organizations during May 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 temporarily closed. The
proposed fee change is designed to ease the financial burden on Trading
Floor-based member organizations that cannot conduct Floor operations
while the Trading Floor remains closed.
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,\20\ 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 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.'' \21\
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\20\ 15 U.S.C. 78f(b)(8).
\21\ Regulation NMS, 70 FR at 37498-99.
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Intramarket Competition. The Exchange believes that lowering the
adding ADV requirement for the second way to qualify for Tier 3 Adding
Credit, offering a new pricing tier to incentivize member organizations
to step up their liquidity-providing orders on the Exchange, offering
an incremental rebate per share for DMMs in more active securities, and
lowering the adding liquidity requirement in Tape B and C securities
for the SLP Tape A adding tiers 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 and
incentives and revised qualification requirements 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 May
2020 provide a degree of certainty to DMMs and SLPs adding liquidity to
the Exchange during high volatility and to ease the financial burden on
Trading Floor-based member organizations impacted by the temporary
closing 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
[[Page 30751]]
less than 13%. 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
inoperative, 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) \22\ of the Act and subparagraph (f)(2) of Rule
19b-4 \23\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 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) \24\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\24\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2020-39 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-2020-39. 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-2020-39 and should be submitted on
or before June 10, 2020.
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\25\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10817 Filed 5-19-20; 8:45 am]
BILLING CODE 8011-01-P