[Federal Register Volume 84, Number 225 (Thursday, November 21, 2019)]
[Notices]
[Pages 64363-64368]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25214]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87551; File No. SR-NYSE-2019-58]


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

November 15, 2019.
    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 November 1, 2019, 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 offer (1) new 
tiered credits for member organizations providing additional liquidity 
in Non-Displayed Limit Orders across Tapes A, B and C, and (2) new 
incremental credits and rebates applicable to certain Designated Market 
Makers transactions. The Exchange proposes to implement the fee change 
effective November 1, 2019. The proposed rule change is available on 
the Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Price List to offer (1) new 
tiered credits for member organizations providing additional liquidity 
in Non-Displayed Limit Orders across Tapes A, B and C, and (2) new 
incremental credits and rebates applicable to certain Designated Market 
Makers (``DMM'') transactions.
    The proposed change responds to the current competitive environment 
by offering additional incentives to member organizations to provide 
additional liquidity in Non-Displayed Limit Orders \4\ and to existing 
DMMs to increase their quoting at the National Best Bid or Offer 
(``NBBO'') in their assigned More Active Securities and Less Active 
Securities.\5\
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    \4\ ``Non-Displayed Limit Orders'' in Rule 7.31(d)(2) were 
previously known as ``Non-Display Reserve orders.'' The Exchange 
proposes to use the new term and replace two outdated references to 
``Non-Display Reserve orders'' on the first page of the Price List. 
The Exchange also proposes to capitalize the word ``order'' 
following MPL throughout.
    \5\ ``More Active Securities'' are securities with an average 
daily consolidated volume (``Security CADV'') in the previous month 
equal to or greater than 1,000,000 shares per month. ``Less Active 
Securities'' are securities that have a Security CADV of less than 
1,000,000 shares per month in the previous month.
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    The Exchange proposes to implement the fee change effective 
November 1, 2019.
Competitive Environment
    The Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. In Regulation NMS, 
the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \6\
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    \6\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule) 
(``Regulation NMS'').
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    As the Commission itself recognized, the market for trading 
services in NMS stocks has become ``more fragmented and competitive.'' 
\7\ Indeed, equity trading is currently dispersed across 13 
exchanges,\8\ 31 alternative trading systems,\9\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow. 
Based on publicly-available information, no single exchange has more 
than 19% market share (whether including or excluding auction 
volume).\10\ Therefore, no exchange possesses significant pricing power 
in the execution of equity

[[Page 64364]]

order flow. More specifically, for the month of September 2019, the 
Exchange's market share of intraday trading (i.e., excluding auctions) 
in Tapes A, B and C securities was only 9.3%.\11\
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    \7\ See Securities Exchange Act Release No. 51808, 84 FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18) (Transaction Fee Pilot 
for NMS Stocks Final Rule) (``Transaction Fee Pilot'').
    \8\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, available at http://markets.cboe.com/us/equities/market_share/ . See generally https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
    \9\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of 
alternative trading systems registered with the Commission is 
available at https://www.sec.gov/foia/docs/atslist.htm.
    \10\ See Cboe Global Markets U.S. Equities Market Volume 
Summary, available at http://markets.cboe.com/us/equities/market_share/.
    \11\ See id.
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
move order flow, or discontinue or reduce use of certain categories of 
products, 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 this competitive environment, the Exchange has 
established incentives for its member organizations and DMMs to quote 
and trade at specified levels. The proposed fee change is designed to 
encourage member organizations to provide additional liquidity to the 
Exchange in Non-Displayed Limit Orders and to encourage DMMs to 
increase their quoting at the NBBO in their assigned More Active 
Securities and Less Active Securities by offering a series of 
incremental enhanced credits and rebates, as follows.
Proposed Rule Change
Credits for Non-Displayed Limit Orders
    Member organizations currently receive a Non-Tier Adding Credit for 
Non-Displayed Limit Orders when adding liquidity to the Exchange. The 
Price List instead reflects that member organizations are not charged. 
The Exchange proposes to replace ``No Charge'' in the current Price 
List with ``No credit,'' add the phrase ``unless a higher credit 
applies,'' and specify the following tiered credits for member 
organizations adding liquidity in Non-Displayed Limit Orders.
    The Exchange proposes that a member organization that has Adding 
ADV in Non-Displayed Limit Orders that is at least 0.12% of Tapes A, B 
and C CADV \12\ combined, excluding any liquidity added by a DMM, would 
be eligible for a $0.0010 credit. In addition, the Exchange proposes 
that a member organization that has Adding ADV in Non-Displayed Limit 
Orders that is at least 0.15% of Tapes A, B and C CADV combined, 
excluding any liquidity added by a DMM, would be eligible for a $0.0018 
credit.
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    \12\ The terms ``ADV'' and ``CADV'' are defined in footnote * of 
the Price List.
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    For example, assume Member Organization B added an average of 7.8 
million shares in Non-Displayed Limit Orders in a month where Tapes A, 
B and C CADV was 6.5 billion, or 0.12% of Tape A, B and C CADV. Member 
Organization B would qualify for the $0.0010 credit. If Member 
Organization B instead provided an average of 13 million shares in Non-
Displayed Limit Orders, or 0.20%, Member Organization B would qualify 
for the higher $0.0018 credit.
    The purpose of this proposed change is to incentivize member 
organizations to increase the liquidity-providing Non-Displayed Limit 
Orders in the Tapes A, B and C 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 does not know how much order flow member organizations 
choose to route to other exchanges or to off-exchange venues. There are 
currently no member organizations that could qualify for the proposed 
credits based on their current trading profile on the Exchange, but 
believes that at least 5 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.
Proposed DMM Credits
    The section of the Exchange's Price List entitled ``Fees and 
Credits applicable to Designated Market Makers (``DMMs'')'' sets out 
different monthly rebate amounts to DMMs depending on the CADV of the 
security and the DMM quoting percentage and size in any month in which 
the DMM meets the More Active Securities Quoting Requirement and the 
Less Active Securities Quoting Requirement, as well as DMM providing as 
a percent of the NYSE's total intraday adding liquidity, as those terms 
are defined in the Price List.\13\ The Exchange also provides monthly 
rebates to DMMs depending on the Security CADV \14\ and the DMM quoting 
percentage.
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    \13\ See notes 15 and 23, infra.
    \14\ The Price List uses ``Security CADV'' to mean the average 
daily consolidated volume for the applicable security, and to remove 
any confusion with the term ``ADV'' as defined and used elsewhere in 
the Price List.
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Incremental Credits for Increased DMM Quoting at the NBBO
More Active Securities
    Currently, DMMs earn a rebate of $0.0027 per share when adding 
liquidity, other than MPL Orders, in More Active Securities if the More 
Active Security has a stock price of $1.00 or more and the DMM meets 
the More Active Securities Quoting Requirement \15\ and has a DMM 
Quoted Size \16\ for an applicable month that is at least 5% of the 
NYSE Quoted Size, unless the more favorable rates set forth below in 
the Price List apply. DMMs electing the optional monthly rebate per 
security (``Rebate per Security'') would receive a lower monthly rebate 
per share (``Optional Credit'') of $0.0026 per share if the quoting 
requirements are met.\17\
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    \15\ The ``More Active Securities Quoting Requirement'' is met 
if the More Active Security has a stock price of $1.00 or more and 
the DMM quotes at the National Best Bid or Offer (``NBBO'') in the 
applicable security at least 10% of the time in the applicable 
month. Both ``More Active Securities'' and the ``More Active 
Securities Quoting Requirement'' are defined in the current Price 
List. The Exchange is not proposing any changes to these 
definitions.
    \16\ The ``NYSE Quoted Size'' is calculated by multiplying the 
average number of shares quoted on the NYSE at the NBBO by the 
percentage of time the NYSE had a quote posted at the NBBO. The 
``DMM Quoted Size'' is calculated by multiplying the average number 
of shares of the applicable security quoted at the NBBO by the DMM 
by the percentage of time during which the DMM quoted at the NBBO. 
See Price List, n. 7.
    \17\ The Exchange proposes non-substantive conforming changes to 
this section of the Price List. First, the Exchange would add the 
missing word ``applies'' following ``set forth below.'' Second, the 
Exchange would add the following sentence that appears in the other 
sections of the Price List where the term ``NYSE total intraday 
adding liquidity'' is used to the end of the section: ``Unless 
otherwise stated, the NYSE total intraday adding liquidity will be 
totaled monthly and includes all NYSE adding liquidity, excluding 
NYSE open and NYSE close volume, by all NYSE participants, including 
Supplemental Liquidity Providers, customers, Floor brokers, and 
DMMs.''
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    The Exchange proposes that a DMMs that (1) meets the current 
requirements would receive an incremental credit of $0.0004 per share 
in each eligible DMM assigned More Active Security if the DMM also (2) 
increases their quoting at the NBBO by at least 5% over their quoting 
at the NBBO in September 2019 (the ``Baseline Month'') in at least 300

[[Page 64365]]

assigned securities (to be defined as the ``DMM Additional Quoting 
Requirement''). The proposed incremental credit would be available to 
DMMs that qualify for the regular credit and those that elect the 
Rebate per Security and corresponding Optional Credit.
    Currently, DMMs earn a rebate of $0.0031 per share when adding 
liquidity, other than MPL Orders, in More Active Securities if the More 
Active Security has a stock price of $1.00 or more and the DMM meets 
(1) the More Active Securities Quoting Requirement, (2) has a DMM 
Quoted Size for an applicable month that is at least 10% of the NYSE 
Quoted Size, and (3) the DMM quotes at the NBBO in the applicable 
security at least 20% of the time in the applicable month and for 
providing liquidity that is more than 5% of the NYSE's total intraday 
adding liquidity in each such security for that month. DMMs electing 
the optional Rebate per Security would instead receive an Optional 
Credit of $0.0003 per share if the quoting and providing requirements 
are met.\18\
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    \18\ In this section of the Price List, the Exchange proposes 
two non-substantive changes. In addition to capitalizing ``order'' 
following MPL, the Exchange would move the sentence describing 
calculation and composition of NYSE total intraday adding liquidity 
to end of the section and add ``Unless otherwise stated'' to the 
beginning the sentence.
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    A DMM that meets (1) these current requirements, and (2) the DMM 
Additional Quoting Requirement would receive an incremental credit of 
$0.0003 per share in each eligible assigned More Active Security. The 
proposed incremental credit would be available to DMMs that qualify for 
the regular credit and those that elect the Rebate per Security and 
corresponding Optional Credit.
    DMMs currently earn a rebate of $0.0034 per share when adding 
liquidity with orders, other than MPL Orders, in More Active Securities 
if the More Active Security has a stock price of $1.00 or more and the 
DMM meets (1) the More Active Securities Quoting Requirement, (2) has a 
DMM Quoted Size for an applicable month that is at least 15% of the 
NYSE Quoted Size, for providing liquidity that is more than 15% of the 
NYSE's total intraday adding liquidity in each such security for that 
month, and (3) the DMMs quotes at the NBBO in the applicable security 
at least 30% of the time in the applicable month. DMMs electing the 
optional Rebate per Security would instead receive an Optional Credit 
of $0.0033 per share if the quoting and providing requirements are 
met.\19\
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    \19\ In this section of the Price List, the Exchange proposes 
the non-substantive change of moving the sentence describing the 
calculation and composition of NYSE total intraday adding liquidity 
to end of the section and add ``Unless otherwise stated'' to the 
beginning the sentence. In the following section setting forth the 
rebate of $0.0035 per share and $0.0034 if electing the Optional 
Credit, the Exchange would also add ``Unless otherwise stated'' to 
the beginning the same sentence describing calculation and 
composition of NYSE total intraday adding liquidity.
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    The Exchange proposes that a DMM that meets (1) these current 
requirements, and (2) the DMM Additional Quoting Requirement would 
receive an incremental credit of $0.0001 per share in each eligible 
assigned More Active Security.\20\ The proposed incremental credit 
would be available to DMMs that qualify for the regular credit and 
those that elect the Rebate per Security and corresponding Optional 
Credit.
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    \20\ No incremental credit for current credit of $0.0035 for 
More Active Securities is proposed as that is the highest credit 
available.
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    Finally, DMMs currently earn a rebate of $0.0015 per share when 
adding liquidity, other than MPL Orders, in More Active Securities if 
the More Active Security has a stock price of $1.00 or more and the DMM 
does not meet the More Active Securities Quoting in the applicable 
month. DMMs electing the optional Rebate per Security would instead 
receive an Optional Credit of $0.0012 per share if the quoting 
requirements are met.\21\
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    \21\ In this section, the Exchange's non-substantive conforming 
change would be to add the sentence describing the calculation and 
composition of NYSE total intraday adding liquidity to end of the 
section.
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    The Exchange proposes that a DMM that (1) has DMM assigned 
securities that did not meet the More Active Securities Quoting 
Requirement in the applicable security, and (2) meets the DMM 
Additional Quoting Requirement would receive an incremental credit of 
$0.0012 per share in each eligible assigned DMM More Active Security. 
The proposed incremental credit would be available to DMMs that qualify 
for the regular credit and those that elect the Rebate per Security and 
corresponding Optional Credit.
Less Active Securities \22\
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    \22\ In this section, the Exchange's non-substantive conforming 
change would be to add ``in'' before ``Less Active Securities.''
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    In the case of Less Active Securities, DMMs currently earn a rebate 
of $0.0035 per share when adding liquidity with orders, other than MPL 
Orders, in Less Active Securities if the Less Active Security has a 
stock price of $1.00 or more and the DMM meets the Less Active 
Securities Quoting Requirement.\23\ DMMs electing the optional Rebate 
per Security would instead receive an Optional Credit of $0.0031 per 
share if the quoting requirements are met.
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    \23\ The ``Less Active Securities Quoting Requirement'' is met 
when a security has a consolidated ADV of less than 1,000,000 shares 
per month in the previous month and a stock price of $1.00 or more, 
and the DMM quotes at the NBBO in the applicable security at least 
15% of the time in the applicable month.
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    The Exchange proposes that a DMM that meets (1) these current 
requirements and (2) the DMM Additional Quoting Requirement will 
receive an incremental credit of $0.0010 per share in each eligible 
assigned Less Active Security.\24\
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    \24\ No incremental credit for current credit of $0.0045 for 
Less Active Securities is proposed as that is the highest credit 
available.
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    In addition, DMMs currently earn a rebate of $0.0015 per share when 
adding liquidity in shares of Less Active Securities if the Less Active 
Security has a stock price of $1.00 or more and the DMM does not meet 
the Less Active Securities Quoting Requirement in the applicable 
security in the applicable month. DMMs electing the optional Rebate per 
Security would instead receive an Optional Credit of $0.0011 per share 
if the quoting requirements are met.
    The Exchange proposes that a DMM that (1) has DMM assigned 
securities that did not meet the Less Active Securities Quoting 
Requirement in the applicable security, and (2) meets the DMM 
Additional Quoting Requirement will receive an incremental credit of 
$0.0020 per share in each eligible assigned Less Active Security.\25\
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    \25\ If a DMM is assigned a security after the Baseline Month, 
the DMM quoting for the Baseline Month would be assigned as 0%. If a 
DMM quoted at the NBBO over 95% in the Baseline Month in an assigned 
security, that same security would count toward the DMM Additional 
Quoting Requirement since the maximum quoting, or 100%, would less 
than 5% over the quoting in the Baseline Month.
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    The following example demonstrates how the proposed incremental 
credits would operate.
    In the Baseline Month, assume DMM Y has 500 assigned securities, 
300 of which are More Active Securities and 200 of which are Less 
Active Securities. Further assume that the DMM's quoting at the NBBO 
was as follows:
     50% time at the NBBO each in 100 securities in the 
Baseline Month, and 60% time at the NBBO each in the billing month for 
those same securities;
     20% time at the NBBO each in 250 securities in the 
Baseline Month and 40% time at the NBBO each in the

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billing month for those same securities; and
     30% time at the NBBO each in 150 securities in the 
Baseline Month and 20% time at the NBBO each in the billing month for 
those same securities.
    DMM Y would qualify for the DMM Additional Quoting Requirement 
since DMM Y had 100 securities that had 10% higher quoting over the 
Baseline Month and 250 securities that had 20% higher quoting over the 
Baseline Month, for a total of 350 securities, regardless of whether 
those securities were More Active or Less Active Securities.
    The other 150 securities with 20% time at the NBBO would not count 
towards the requirement since their time at the NBBO was 10% lower, or 
less than the 5% increase required.
    Further assume that DMM Y's 300 More Active Securities and 200 Less 
Active Securities were eligible for the following credits in the 
billing month:
     If 175 of DMM Y's More Active Securities were eligible for 
$0.0031 in credits, the DMM Additional Quoting Requirement would 
qualify those securities for an additional credit of $0.0003 or 
$0.0034, combined.
     If 125 of DMM Y's More Active Securities were eligible for 
$0.0035 in credits, the DMM Additional Quoting Requirement would not 
qualify those securities for an additional credit since $0.0035 would 
be the highest credit.
     If 125 of DMM Y's Less Active Securities were eligible for 
$0.0015 in credits, the DMM Additional Quoting Requirement would 
qualify those securities for an additional credit of $0.0020 or 
$0.0035, combined.
     If 75 of DMM Y's Less Active Securities were eligible for 
$0.0045 in credits, the DMM Additional Quoting Requirement would not 
qualify those securities for a higher credit since $0.0045 is the 
highest credit.
    The proposed rule change is designed to incentivize DMMs to 
increase trading volume in their assigned More Active Securities on the 
Exchange.
Enhanced DMM Monthly Rebates
    Currently, the Exchange provides additional monthly rebates to DMMs 
in addition to the current rate on transactions, prorated to the number 
of trading days in a month that a stock is assigned to a DMM, depending 
on the Security CADV and the DMM quoting percentage, as follows.
    The monthly rebates payable to DMMs for securities with a Security 
CADV of 250,000 up to 1,500,000 shares in the previous month, 
applicable in any month in which the DMM meets the Less Active 
Securities Quoting Requirement in an applicable security, are as 
follows:
     $500 rebate if the DMM quotes at the NBBO 50% of the time 
or more in an applicable security.
     $425 rebate if the DMM quotes at the NBBO at least 40% and 
up to 50% of the time in an applicable month in an applicable security.
     $350 rebate if the DMM quotes at the NBBO at least 30% and 
up to 40% of the time in an applicable month in an applicable security.
     $275 rebate if the DMM quotes at the NBBO at least 20% and 
up to 30% of the time in an applicable month in an applicable security.
     $200 rebate if the DMM quotes at the NBBO at least 15% and 
up to 20% of the time in an applicable month in an applicable security.
    The monthly rebates payable to DMMs for securities with a Security 
CADV of 100,000 up to 250,000 shares in the previous month (regardless 
of whether the stock price exceeds $1.00) in any month in which the DMM 
meets the Less Active Securities Quoting Requirement, are as follows:
     $450 rebate if the DMM quotes at the NBBO 50% of the time 
or more in an applicable security.
     $375 rebate if the DMM quotes at the NBBO at least 40% and 
up to 50% of the time in an applicable month in an applicable security.
     $300 rebate if the DMM quotes at the NBBO at least 30% and 
up to 40% of the time in an applicable month in an applicable security.
     $225 rebate if the DMM quotes at the NBBO at least 20% and 
up to 30% of the time in an applicable month in an applicable security.
     $150 rebate if the DMM quotes at the NBBO at least 15% and 
up to 20% of the time in an applicable month in an applicable security.
    Finally, the current monthly rebate payable to DMMs for securities 
with a Security CADV of less than 100,000 shares in the previous month 
in the previous month (regardless of whether the stock price exceeds 
$1.00) in any month in which the DMM meets the Less Active Securities 
Quoting Requirement, are as follows:
     $400 rebate if the DMM quotes at the NBBO 50% of the time 
or more in an applicable security.
     $325 rebate if the DMM quotes at the NBBO at least 40% and 
up to 50% of the time in an applicable month in an applicable security.
     $250 rebate if the DMM quotes at the NBBO at least 30% and 
up to 40% of the time in an applicable month in an applicable security.
     $175 rebate if the DMM quotes at the NBBO at least 20% and 
up to 30% of the time in an applicable month in an applicable security.
     $100 rebate if the DMM quotes at the NBBO at least 15% and 
up to 20% of the time in an applicable month in an applicable security.
    In each case, the Exchange proposes that DMMs meeting the Less 
Active Securities Quoting Requirement as well as the DMM Additional 
Quoting Requirement in the billing month would qualify for the next 
highest monthly rebate in each tier. For example, using DMM Y with 500 
assigned securities and qualified for the DMM Additional Quoting 
Requirement in the billing month in the previous example, assume DMM Y 
had 200 assigned securities with a Security CADV under 1,500,000 shares 
as follows:
     125 securities with Security CADV between 250,000 and 
1,500,000, that each had a DMM quote at the NBBO of 40%. Those 
securities would each receive a rebate for the month of $500, the next 
highest rebate over the current $425 rebate.
     75 securities with Security CADV between 100,000 and 
250,000, that each had a DMM quote at the NBBO of 20%. Those securities 
would each receive a rebate for the month of $300, the next highest 
rebate over the current $225 rebate.
DMM Quoting Share
    Currently, the Exchange provides all of the market data quote 
revenue (the ``Quoting Share'') received by the Exchange from the 
Consolidated Tape Association under the Revenue Allocation Formula of 
Regulation NMS with respect to any security that has a Security CADV of 
less than 1,500,000 shares in the previous month (regardless of whether 
the stock price exceeds $1.00) in any month in which a DMM quotes at 
the NBBO at least 20% of the time in the applicable month. If the DMM 
quotes at the NBBO at least 15% of the time in the applicable month in 
a security that has a Security CADV of less than 1,500,000 shares in 
the previous month but quotes less than 20% of the time in the 
applicable month, the DMM receives 50% of the Quoting Share.
    The Exchange proposes that DMMs that quote at the NBBO at least 15% 
of the time in the applicable month in a security that has a Security 
CADV of less than 1,500,000 shares in the previous month but quote less 
than 20% of the time in the applicable month and meet the DMM 
Additional Quoting Requirement would also receive 100% of the Quoting 
Share.
    The proposed change is not otherwise intended to address any other 
issues,

[[Page 64367]]

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,\26\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\27\ 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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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(4) & (5).
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The Proposed Change Is Reasonable
    The Exchange operates in a highly competitive market. The 
Commission has repeatedly expressed its preference for competition over 
regulatory intervention in determining prices, products, and services 
in the securities markets. Specifically, in Regulation NMS, the 
Commission highlighted the importance of market forces in determining 
prices and SRO revenues and, also, recognized that current regulation 
of the market system ``has been remarkably successful in promoting 
market competition in its broader forms that are most important to 
investors and listed companies.'' \28\
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    \28\ See Regulation NMS, 70 FR at 37499.
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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 
against which market makers can quote, member organizations can choose 
from any one of the 13 currently operating registered exchanges to 
route such order flow. Accordingly, competitive forces constrain 
exchange fees that relate to providing incentives for market makers to 
compete for order flow.
    Given this competitive environment, the proposal represents a 
reasonable attempt to attract additional order flow to the Exchange. 
The Exchange believes that the proposal to offer tiered credits for 
member organizations that add additional liquidity in Non-Displayed 
Limit Orders to the Exchange 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. Further, the proposal to offer 
enhanced credits, rebates, and quoting share to DMMs in order to 
increase their quoting at the NBBO in their assigned More Active 
Securities and Less Active Securities is a reasonable means to increase 
DMM quoting at the NBBO in their assigned securities more frequently, 
which could attract additional orders to the Exchange and contribute to 
price discovery. In addition, additional liquidity-providing quotes 
benefit all market participants because they provide greater execution 
opportunities on the Exchange and improve the public quotation. The 
proposal would also reward DMMs, who have greater risks and heightened 
quoting and other obligations than other market participants.
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.
    The Exchange believes that the proposed tiered credits for member 
organizations adding liquidity in Non-Displayed Limit Orders is 
equitable because the proposed credits would create incentives for 
adding greater liquidity and providing price improvement. 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 notes that it currently provides similar 
non-tiered and tiered credits for Mid-Point Limit orders of $0.0010, 
$0.0020, $0.0025 and $0.00275.
    The Exchange believes that the proposed enhanced credits and 
rebates 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 
credits for increased quoting at the NBBO in addition to the current 
rates.
    The proposed rule change is also equitable because it would apply 
equally to all existing and potential DMM firms. The Exchange notes 
that 3 of the 5 DMM firms could qualify for the proposed incremental 
credits and enhanced rebates. The Exchange believes that the proposal 
would provide an equal incentive to all DMMs to increase quoting at the 
NBBO in their assigned securities, and that the proposal constitutes an 
equitable allocation of fees because all similarly situated DMMs would 
be eligible for the same incremental rebates.
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 Exchange 
believes that offering the proposed credits to member organizations 
based on the amount of liquidity provided to the Exchange in Non-
Displayed Limit Orders would provide a further incentive for all member 
organizations to provide additional liquidity to the Exchange. 
Similarly, the proposed additional credits and enhanced rebates for 
DMMs would provide an additional incentive to DMMs to quote and trade 
their assigned securities on the Exchange, and will generally allow the 
Exchange and DMMs to better compete for order flow, thus enhancing 
competition. The Exchange also believes that the requirement that DMMs 
increase quoting that is at least 5% over the DMM's quoting in at least 
300 DMM assigned securities over the Baseline Month in order to qualify 
for the credits is not unfairly discriminatory because it would apply 
equally to all DMMs.
    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,\29\ 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 incentivize member organizations to 
provide additional liquidity in Non-Displayed Limit Orders to a public 
exchange and incentivize DMMs to quote and trade in their DMM assigned 
securities, which could attract additional liquidity and contribute to 
price discovery. Additional liquidity on a public exchange benefits all 
market participants because they provide

[[Page 64368]]

greater execution opportunities on the Exchange and improves the public 
quotation. 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.'' \30\
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    \29\ 15 U.S.C. 78f(b)(8).
    \30\ Regulation NMS, 70 FR at 37498-99.
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    Intramarket Competition. The proposed change is designed to attract 
additional order flow to the Exchange. The Exchange believes that the 
proposed credits for member organizations providing liquidity in Non-
Displayed Limit Orders would incentivize all member organizations 
submit additional liquidity to the Exchange, contributing to greater 
liquidity on the Exchange. Similarly, the proposed incremental credits 
and enhanced rebates would continue to incentivize DMMs to quote and 
trade at the NBBO more frequently, which could attract additional 
liquidity and contribute to price discovery. Greater liquidity benefits 
all market participants because it provides greater execution 
opportunities on the Exchange. The proposed credits and rebates 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.
    Intermarket Competition. The Exchange operates in a highly 
competitive market in which market participants can readily choose to 
send orders to other exchange and off-exchange venues if they deem fee 
levels at those other venues to be more favorable. The Exchange notes 
that for the month of September 2019, the Exchange's market share of 
intraday trading (excluding auctions) in Tapes A, B and C securities 
was only 9.3%.\31\ 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.
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    \31\ See note 11, supra.
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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) \32\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \33\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \32\ 15 U.S.C. 78s(b)(3)(A).
    \33\ 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) \34\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \34\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2019-58 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-2019-58. 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-2019-58 and should be submitted on 
or before December 12, 2019.
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    \35\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-25214 Filed 11-20-19; 8:45 am]
 BILLING CODE 8011-01-P


