[Federal Register Volume 85, Number 117 (Wednesday, June 17, 2020)]
[Notices]
[Pages 36637-36644]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12989]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89050; File No. SR-NYSE-2020-49]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Its Price List
June 11, 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 June 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its Price List to (1) adopt a step
up tier for member organizations adding liquidity in Non-Displayed
Limit Orders in Tapes A, B and C securities; (2) revise the credits for
member organizations qualifying for Step Up Tier 2 Adding Credit; and
(3) extend through June 2020 the waiver of equipment and related
service charges and trading license fees for NYSE Trading Floor-based
member organizations implemented for April and May 2020. The Exchange
proposes to implement the fee changes effective June 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Price List to (1) adopt a step
up tier for member organizations adding liquidity in Non-Displayed
Limit Orders in Tapes A, B and C securities; (2) revise the credits for
member organizations qualifying for Step Up Tier 2 Adding Credit; and
(3) extend through June 2020 the waiver of equipment and related
service charges and trading license fees for NYSE Trading Floor-based
member organizations implemented for April and May 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.
The proposed changes also respond to the current volatile market
[[Page 36638]]
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 June
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\
---------------------------------------------------------------------------
\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'').
---------------------------------------------------------------------------
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%.
---------------------------------------------------------------------------
\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/.
---------------------------------------------------------------------------
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 a new pricing tier to incentivize member organizations to step
up their liquidity-providing Non-Displayed Limit Orders and Mid-Point
Liquidity (``MPL'') Orders on the Exchange and revising the credits for
member organizations adding liquidity by qualifying for Step Up Tier 2
Adding Credit.
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\ 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.\10\ 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 June 2020.
---------------------------------------------------------------------------
\9\ See Press Release, dated March 18, 2020, available here:
https://ir.theice.com/press/press-releases/allcategories/2020/03-18-2020-204202110 [sic].
\10\ See Trader Update, dated May 14, 2020, available here:
https://www.nyse.com/traderupdate/history#110000251588 [sic].
---------------------------------------------------------------------------
Proposed Rule Change
Step Up Tier for Adding Liquidity in Non-Displayed Limit Orders
The Exchange proposes to adopt a step up tier that would offer
credits to member organizations providing non-displayed liquidity to
the Exchange in Tape A, B, and C securities.
As proposed, a member organization that
sends orders that add liquidity to the Exchange in Non-
Displayed Limit Orders, and
that has adding average daily volume (``ADV'') in Non-
Displayed Limit Orders and MPL Orders in Tapes A, B, and C consolidated
ADV (``CADV'') \11\ combined, excluding any liquidity added by a
Designated Market Makers (``DMM''), that is at least 0.02% of NYSE CADV
over that member organization's May 2020 adding liquidity in Non-
Displayed Limit Orders and MPL Orders as a percentage of NYSE CADV (the
``Baseline Tape A Share'')
---------------------------------------------------------------------------
\11\ The terms ``ADV'' and ``CADV'' are defined in footnote *
[sic] of the Price List.
would receive a credit of $0.0005 for adding liquidity if the increase
in Adding ADV over the Baseline Tape A Share is at least 0.02% and less
than 0.04%. If the increase in Adding ADV over the Baseline Tape A
Share is at least 0.04% and less than 0.08%, a member organization
meeting the above requirements would receive a credit of $0.0010. If
the increase in Adding ADV over the Baseline Tape A Share is at least
0.08% or more, a member organization meeting the above requirements
would receive a credit of $0.0015.
For example, Member Organization A had an adding ADV in Non-
Displayed Limit Orders and MPL Orders in Tape A, Tape B and Tape C
securities combined of 6 million shares in the baseline month of May
2020 when Tape A, Tape B and Tape C CADV combined (``US CADV'') was
10.0 billion shares or 0.06% of US CADV. Further assume that in the
billing month, Member Organization A had an adding ADV in Non-Displayed
Limit Orders and MPL Orders combined of 10 million shares when US CADV
was again 10 billion shares, or 0.10% of US CADV. In this scenario,
Member Organization A would have a step up percentage of US CADV of
0.04% (0.10% minus 0.06%), which would qualify Member Organization A
for a credit of $0.0010 per share for Non-Displayed Limit Orders.
If Member Organization A had an adding ADV of 18 million shares, or
0.18%, for a step up ADV of 0.12%, Member Organization A would instead
qualify for a credit of $0.0015 because Member Organization A's
increase in Adding ADV over the Baseline Tape A Share is at least
0.08%.
If in the same billing month Member Organization A's adding ADV of
18 million shares was solely in Non-Displayed Limit Orders (i.e., the
share
[[Page 36639]]
number did not include MPL Orders) for an Adding ADV in Non-Displayed
Limit Orders of 0.18%, Member Organization A would also qualify for the
existing Non-Displayed Limit Order credit of $0.0018 by meeting the
existing adding ADV requirement of 0.15%. In this scenario, Member
Organization A would achieve the higher of the two credits, or $0.0018.
The purpose of this proposed change is to incentivize member
organizations to increase the liquidity-providing orders in Non-
Displayed Limit Orders and MPL Orders 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 May 2020 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. Since the
tier's requirements utilize an increase in volume from the most recent
month, the Exchange does not know how many member organizations could
qualify for the proposed tiered credits based on their current trading
profile on the Exchange, but the Exchange notes that, since the lowest
step up is only an Adding ADV of 0.02% of US CADV in Non-Display Limit
Orders and MPL Orders combined, the Exchange believes that many member
organizations could qualify 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.
Revised Credits for the Step Up Tier 2 Adding Credit
Under the current Step Up Tier 2 Adding Credit, a member
organization that sends orders, except Mid-Point Liquidity Orders
(``MPL'') and Non-Displayed Limit Orders, that add liquidity (``Adding
ADV'') in Tape A securities receive a credit of $0.0029 if:
The member organization quotes at least 15% of the
National Best Bid or Offer (``NBBO'') \12\ in 300 or more Tape A
securities on a monthly basis, and
---------------------------------------------------------------------------
\12\ See Rule 1.1(q) (defining ``NBBO'' to mean the national
best bid or offer).
---------------------------------------------------------------------------
the member organization's Adding ADV in Tapes A, B and C
securities as a percentage of Tapes A, B and C CADV, excluding any
orders by a DMM, that
[cir] is at least two times more than the Member Organization's
Adding ADV in Tapes A, B and C securities in July 2019 as a percentage
of Tapes A, B and C CADV, and
[cir] adds liquidity as an Supplemental Liquidity Provider in Tape
A securities of at least 0.10% of NYSE CADV, and
[cir] exceeds the Member Organization's Adding ADV, excluding any
liquidity added by a DMM, in Tapes A, B and C securities in July 2019
as a percentage of Tapes A, B and C CADV by at least 0.20% of Tapes A,
B and C CADV.
In addition, a member organization that meets these requirements,
and thus qualifies for the $0.0029 credit, 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 Supplemental Liquidity Provider (``SLP''), equal to at
least 0.20% of Tape B and Tape C CADV combined.
The Exchange proposes two higher credits for member organizations
that meet the current Step Up Tier 2 Adding Credit requirements and
increase their Adding ADV, excluding any liquidity added by a DMM, in
Tapes A, B and C securities in July 2019 as a percentage of Tapes A, B
and C CADV (``July 2019 Adding ADV'').
Specifically, member organizations whose Adding ADV as a percentage
of US CADV represents an increase of at least 0.20% and less than 0.35%
over their July 2019 Adding ADV as a percentage of US CADV would
receive the current $0.0029 credit. Member organizations whose Adding
ADV as a percentage of US CADV represents an increase of at least 0.35%
and less than 0.45% over their July 2019 Adding ADV as a percentage of
US CADV would receive a $0.0030 credit. Finally, member organizations
whose Adding ADV as a percentage of US CADV represents an increase of
at least 0.45% or more over their July 2019 Adding ADV as a percentage
of US CADV would receive a $0.0031 credit.
The Exchange does not propose to change any of the other
requirements to qualify for the Step Up Tier 2 Adding Credit.
The purpose of this proposed change is 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 under this tier to
provide an incentive for member organizations to send more orders
because they would then qualify for the credits. 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 tier requires a member organization
to increase the volume of its trades against orders that add liquidity,
the Exchange believes that the proposed higher credits based on a
commensurate increase in Adding ADV would provide an incentive for
member organizations to route additional liquidity to the Exchange in
order to qualify for the higher credits.
The Exchange does not know how much order flow member organizations
choose to route to other exchanges or to off-exchange venues. No firms
currently qualify for the proposed higher Step Up Tier 2 Adding Credits
based on their current trading profile on the Exchange, but the
Exchange believes that at least five member organizations could qualify
for the tier if they so choose. The Exchange notes that, given the
lower requirement for Adding ADV of 0.20% as a percentage of US CADV
requirement when compared to other Exchange Adding Tiers (for example,
Tier 1 Adding Credit and Tier 2 Adding Credit), a number of firms would
be eligible to qualify 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.
[[Page 36640]]
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.\13\ On May 26, 2020, the Trading Floor reopened on a limited
basis to a reduced number of Floor brokers to accommodate health-
focused considerations. DMMs continue to operate remotely.\14\
---------------------------------------------------------------------------
\13\ 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.
\14\ DMMs will be provided access to the Trading Floor on
trading days when an IPO Auction or Core Open Auction for a post-IPO
public offering is scheduled. DMMs will continue to otherwise be
absent from the Trading Floor and, thus, all intra-day trading and
other Auctions will be conducted remotely by DMMs.
---------------------------------------------------------------------------
For the months of April and May, 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.\15\ 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 license that are
Designated Market Makers with 30 or fewer assigned securities for the
billing month of March 2020.
---------------------------------------------------------------------------
\15\ The Service Charges also include an internet Equipment
Monthly Hosting Fee that the Exchange did not waive for April and
May 2020 and that the Exchange does not propose to waive for June
2020.
---------------------------------------------------------------------------
Because the Trading Floor will continue to operate with reduced
capacity, the Exchange proposes to extend the waiver of these Trading
Floor-based fees through June 2020. To effectuate this change, the
Exchange proposes to add ``and June'' between ``May'' and ``2020'' in
footnote 11 to the Price List.
In order to further reduce costs for member organizations with a
Trading Floor presence, the Exchange also waived the April and May 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.\16\
---------------------------------------------------------------------------
\16\ See note 13, supra. See footnotes 15 of the Price List.
---------------------------------------------------------------------------
The Exchange proposes to also waive the June 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 June 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 June'' between ``May'' and ``2020'' in footnote
15.
This 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 business on
the Trading Floor would benefit from this proposed fee change.
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,\17\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\18\ 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.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78f(b).
\18\ 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.'' \19\
---------------------------------------------------------------------------
\19\ 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 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 for Adding Liquidity in Non-Displayed Limit Orders
Given the competitive environment, the proposed Step Up Tier for
Adding Liquidity in Non-Displayed Limit Orders would provide an
incentive for member organizations to route 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 it is
reasonable to provide a higher credit for orders that provide
additional liquidity. The Exchange believes that requiring member
[[Page 36641]]
organizations to have an Adding ADV in Non-Displayed Limit Orders and
MPL Orders in Tapes A, B and C CADV combined, excluding any liquidity
added by a DMM, that is at least 0.02% of NYSE CADV over that member
organization's May 2020 adding liquidity in Non-Displayed Limit Orders
and MPL Orders taken as a percentage of NYSE CADV in order to qualify
for the proposed Step Up Tier is reasonable because it would encourage
additional non-displayed and mid-point liquidity on the Exchange and
because market participants benefit from the greater amounts of
liquidity and price improvement present on the Exchange.
Similarly, the Exchange believes that it is reasonable to provide
an incremental credit to member organizations that meet the
requirements of the Step Up Tier that add additional liquidity in Non-
Displayed Limit Orders and MPL Orders. Since the proposed Step Up Tier
would be new with a requirement for increased Adding ADV over the
baseline month, 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 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 2 Adding Credit
The Exchange believes that higher credits for meeting the Step Up
Tier 2 Adding Credit requirements is reasonable. Specifically, the
Exchange believes that offering higher credits for increased Adding ADV
of a minimum and maximum percentage over a baseline would provide an
incentive for member organizations to route additional liquidity
providing orders to the Exchange. 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 incrementally higher
credits for orders that provide additional liquidity 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. Because, as proposed, the tier
requires a member organization to increase the volume of its trades
against orders that add liquidity, the Exchange believes that the
proposed higher credits based on a commensurate increase in Adding ADV
would provide an incentive for member organizations to route additional
liquidity to the Exchange in order to qualify for the higher credits.
The Exchange does not know how much order flow member organizations
choose to route to other exchanges or to off-exchange venues. As
previously noted, there are currently a number of firms that could
qualify for the proposed higher Step Up Tier 2 Adding Credits based on
their current trading profile on the Exchange if they so choose, 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.
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, 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 June 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.
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 for Adding Liquidity in Non-Displayed Limit Orders
The Exchange believes that the proposed Step Up Tier is equitable
because the magnitude of the additional credit is not unreasonably high
relative to the current tiered credits for Non-Displayed Limit orders
that add liquidity of $0.0010 and $0.0018. 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.
The Exchange believes that requiring member organizations to having
an Adding ADV in Non-Displayed Limit Orders and MPL Orders in Tapes A,
B and C CADV combined, excluding any liquidity added by a DMM, that is
at least 0.02% of NYSE CADV over that member organization's May 2020
adding liquidity in Non-Displayed Limit Orders and MPL Orders combined
taken as a percentage of NYSE CADV in order to qualify for the proposed
credits would also encourage additional displayed liquidity on the
Exchange. Since the proposed Step Up Tier would be new, no member
organization currently qualifies for it. As noted, there are currently
no 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 this 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 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 higher credit proposed in Step Up Tier if they increase their
Adding ADV in Non-Displayed Limit orders and MPL Orders combined over
[[Page 36642]]
their own baseline of order flow. The Exchange believes that offering a
higher step up credits for providing liquidity if the step up
requirements for Tape A, Tape B and Tape C 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.
Step Up Tier 2 Adding Credit
The Exchange is not proposing to adjust the current requirements to
qualify for the Step Up Tier 2 Adding Credit, which will remain the
same for all market participants. Rather, the proposal would provide
incrementally higher credits for member organizations that increase
Adding ADV over the current baseline. The Exchange believes that the
proposed higher credits are equitable because the magnitude of the
additional credits is not unreasonably high compared to the current
credit for Step Up Tier 2 and also relative to the other adding tier
credits, which noted above range from $0.0015 to $0.0022, in comparison
to the credits paid by other exchanges for orders that provide
additional step up liquidity.\20\ 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.
---------------------------------------------------------------------------
\20\ 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/.
---------------------------------------------------------------------------
The Exchange believes that requiring member organizations to having
an Adding ADV in Non-Displayed Limit Orders and MPL Orders in Tapes A,
B and C CADV combined, excluding any liquidity added by a DMM, that is
at least 0.02% of NYSE CADV over that member organization's May 2020
adding liquidity in Non-Displayed Limit Orders and MPL Orders taken as
a percentage of NYSE CADV in order to qualify for the proposed credits
would also encourage additional displayed liquidity on the Exchange.
Since the proposed Step Up Tier would be new, no member organization
currently qualifies for it. As noted, there are currently no member
organizations that currently 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
this proposed rule change would result in any member organization
qualifying for the tier. 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. All member
organizations would be eligible to qualify for the higher credits
proposed in Step Up Tier 2 if they increase their Adding ADV over their
own baseline of order flow accordingly. The Exchange believes that
offering higher step up credits 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.
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 June 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 and May 2020,
and is designed to reduce monthly costs for Trading Floor-based member
organizations that are unable to fully 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.
Step Up Tier for Adding Liquidity in Non-Displayed Limit Orders
The Exchange believes it is not unfairly discriminatory to provide
additional per share step up credits for adding liquidity in Non-
Displayed Limit Orders, 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 Tier's requirements. For the same reason, the
Exchange believes it is not unfairly discriminatory to provide
additional incrementally higher credits for increased adding ADV over
the member organization's May 2020 adding liquidity in Non-Displayed
Limit Orders and MPL Orders combined taken as a percentage of NYSE CADV
because the proposed higher credits would equally encourage all member
organizations to provide additional liquidity on the Exchange in Non-
Displayed Limit Orders and MPL Orders. 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. 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 2 Adding Credit
The Exchange believes it is not unfairly discriminatory to provide
higher per share step up credits, as the proposed credit would be
provided on an equal basis to all member organizations that add
liquidity by meeting the new proposed Step Up Tier 2 requirements. For
the same reason, the Exchange believes it is not unfairly
discriminatory to provide additional incremental credits to member
organizations that satisfy the Step Up Tier 2 requirements and add
liquidity in Tape A, B and C securities. Further, the Exchange believes
the proposed Step Up Tier 2 credits 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
[[Page 36643]]
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.
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 June 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.
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,\21\ 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.'' \22\
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78f(b)(8).
\22\ Regulation NMS, 70 FR at 37498-99.
---------------------------------------------------------------------------
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 June 2020 provide 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 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 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) \23\ of the Act and subparagraph (f)(2) of Rule
19b-4 \24\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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) \25\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\25\ 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
[[Page 36644]]
Send an email to [email protected]. Please include
File Number SR-NYSE-2020-49 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-2020-49. 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-2020-49 and should be submitted on
or before July 8, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
---------------------------------------------------------------------------
\26\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12989 Filed 6-16-20; 8:45 am]
BILLING CODE 8011-01-P