[Federal Register Volume 84, Number 225 (Thursday, November 21, 2019)]
[Notices]
[Pages 64381-64384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25212]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87552; File No. SR-NYSE-2019-59]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Its Price List To Revise the Step Up Tier 2 Adding Credit in Tape 
A Securities

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 revise the Step Up 
Tier 2 Adding Credit in Tape A securities. The Exchange proposes to 
implement the fee changes 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 revise the Step Up 
Tier 2 Adding Credit in Tape A securities.
    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 Exchange proposes to implement the fee changes 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.'' \4\
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    \4\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule) 
(``Regulation NMS'').
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    As the Commission itself recognized, the market for trading 
services in NMS stocks has become ``more fragmented and competitive.'' 
\5\ Indeed, equity trading is currently dispersed across 13 
exchanges,\6\ 31 alternative trading systems,\7\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow. 
Based on publicly-available information, no single exchange has more 
than 19% market share (whether including or excluding auction 
volume).\8\ Therefore, no exchange possesses significant pricing power 
in the execution of equity

[[Page 64382]]

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%.\9\
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    \5\ See Securities Exchange Act Release No. 51808, 84 FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18) (Transaction Fee Pilot 
for NMS Stocks Final Rule) (``Transaction Fee Pilot'').
    \6\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, available at http://markets.cboe.com/us/equities/market_share/. See generally https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
    \7\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of 
alternative trading systems registered with the Commission is 
available at https://www.sec.gov/foia/docs/atslist.htm.
    \8\ See Cboe Global Markets U.S. Equities Market Volume Summary, 
available at http://markets.cboe.com/us/equities/market_share/.
    \9\ See id.
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
move order flow, or discontinue or reduce use of certain 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 who submit orders 
that provide liquidity on the Exchange. The proposed fee change is 
designed to attract additional order flow to the Exchange by lowering 
the adding requirement in order for member organizations to qualify for 
the November 2019 Step Up Tier 2 Adding Credit, thereby incentivizing 
member organizations to step up their liquidity-providing orders on the 
Exchange on all tapes.
Proposed Rule Change
    Currently, 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 would receive a 
credit of $0.0029 if:

 The member organization quotes at least 15% of the National 
Best Bid or Offer (``NBBO'') \10\ in 300 or more Tape A securities on a 
monthly basis, and
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    \10\ See Rule 1.1(q) (defining ``NBBO'' to mean the national 
best bid or offer).
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 The member organization's Adding ADV as a percentage of NYSE 
consolidated average daily volume (``CADV''),\11\ excluding any orders 
by a Designated Market Maker (``DMM''), is at least two times more than 
the member organization's July 2019 Adding ADV as a percentage of NYSE 
CADV, and
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    \11\ The terms ``ADV'' and ``CADV'' are defined in footnote * of 
the Price List.
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 The member organization's Adding ADV as a percentage of NYSE 
CADV, excluding any liquidity added by a DMM, exceeds that member 
organization's Adding ADV in July 2019 taken as a percentage of NYSE 
CADV as follows:
 For the billing month of October 2019, an Adding ADV, 
excluding any liquidity added by a DMM, that is at least 0.35% of NYSE 
CADV over that member organization's July 2019 Adding ADV taken as a 
percentage of NYSE CADV.
 For the billing month of November 2019, an Adding ADV, 
excluding any liquidity added by a DMM, that is at least 0.70% of NYSE 
CADV over that member organization's July 2019 Adding ADV taken as a 
percentage of NYSE CADV.
 For the billing month of December 2019 and for every month 
thereafter, an Adding ADV, excluding any liquidity added by a DMM, that 
is at least 1.05% of NYSE CADV over that member organization's July 
2019 Adding ADV taken as a percentage of NYSE CADV.

    In addition, a member organization that meets these requirements, 
and thus qualifies for the $0.0029 credit in Tape A securities, would 
be eligible to receive an additional $0.00005 per share if trades in 
Tapes B and C securities against the member organization's orders that 
add liquidity, excluding orders as a Supplemental Liquidity Provider 
(``SLP''), equal to at least 0.20% of Tape B and Tape C CADV combined.
    The Exchange proposes to lower the Adding ADV requirement for the 
billing month of November 2019. Specifically, in order to qualify for 
the Step Up Tier 2 Adding Credit of $0.0029 for the current billing 
month, a member organization would need to have an Adding ADV, 
excluding any liquidity added by a DMM, that is at least 0.35% of NYSE 
CADV over that member organization's July 2019 Adding ADV taken as a 
percentage of NYSE CADV. The other requirements for qualifying for the 
Step Up Tier 2 Adding Credit and the additional credit would remain 
unchanged.
    For example, member organization A has an Adding ADV of 12 million 
shares when NYSE CADV (Tape A) was 3.0 billion, or 0.40% of NYSE CADV 
in all Tape A securities, in the baseline month of July 2019 (the 
``Baseline Month''). Member organization A also has an Adding ADV of 
0.75% of US CADV in Tape A securities in November 2019.
    Based on the foregoing, member organization A would meet the 0.35% 
step up requirement for November 2019 but fall short of the two times 
Adding ADV as a percentage of NYSE CADV requirement in order to qualify 
for the proposed tier. In order to qualify for the proposed rate in 
November 2019, member organization A would need at least 0.80% share of 
NYSE CADV in November 2019, or 2 times the 0.40% Adding ADV in Baseline 
Month.
    Finally, the Exchange proposes the non-substantive change of 
deleting the Adding ADV requirements for the October 2019 billing month 
from the rule.
    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. As noted above, the 
Exchange operates in a competitive environment, particularly as it 
relates to attracting non-marketable orders, which add liquidity to the 
Exchange.
    The Exchange does not know how much order flow member organizations 
choose to route to other exchanges or to off-exchange venues. There is 
currently 1 firm that qualified for the proposed higher Step Up Tier 2 
Adding Credit for the October 2019 billing month, but the Exchange 
believes that at least 7 additional 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.
    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,\12\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\13\ 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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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4) & (5).

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[[Page 64383]]

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.'' \14\
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    \14\ 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 
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.
    Given this competitive environment, the proposal represents a 
reasonable attempt to attract additional order flow to the Exchange. As 
noted, the Exchange's market share of intraday trading (i.e., excluding 
auctions) for the month of September 2019, in Tapes A, B and C 
securities was only 9.3%.\15\
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    \15\ See note 8 supra.
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    Specifically, the Exchange believes that the proposed lower Adding 
ADV requirements to qualify for the Step Up Tier 2 for the November 
2019 billing month 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.
    As previously noted, 1 member organization qualify for the Step Up 
Tier 2 Adding Credit for the October 2019 billing month 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 lower Adding ADV 
requirement is reasonable as it would provide an additional incentive 
for member organizations to direct 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 is an Equitable Allocation of Fees
    The Exchange believes its proposal equitably allocates its fees 
among its market participants.
    The Exchange believes that a lower Adding ADV requirement in order 
to qualify for the Step Up Tier 2 credit for the November 2019 billing 
month is equitable because the lower requirement could attract 
additional order flow, thus improving 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.
    As noted, 1 member organization has qualified for the Step Up Tier 
2 Adding 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 lower Adding ADV requirement for the November 2019 billing 
month is reasonable as it would provide an additional incentive for 
member organizations to direct their order flow to the Exchange and 
provide meaningful added levels of liquidity in order to qualify for 
the higher credit, thereby contributing to depth and market quality on 
the Exchange.
    The proposal neither targets nor will it have a disparate impact on 
any particular category of market participant. All member organizations 
would be eligible to qualify for the Step Up Tier 2 Adding Credit in 
November 2019 if they maintain or increase their Adding ADV over their 
own baseline of order flow. The Exchange believes that lowering the 
Adding ADV requirement will make it more likely that additional member 
organizations will qualify for the credit for the current billing 
month, thereby continuing to attract order flow and liquidity to the 
Exchange and providing additional price improvement opportunities on 
the Exchange that benefit investors generally. As to those market 
participants that would not qualify for the adding liquidity credit 
even with the lower Adding ADV requirement, the proposal will not 
adversely impact their existing pricing or their ability to qualify for 
other credits provided by the Exchange.
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 it is not unfairly discriminatory to provide 
a lower Adding ADV requirement in order to qualify for the per share 
step up credit, as the proposed credit would be provided on an equal 
basis to all member organizations that add liquidity by meeting the new 
proposed Step Up 2 Tier's requirement. 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.
    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,\16\ 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 a result, the Exchange believes that the 
proposed change furthers the

[[Page 64384]]

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.'' \17\
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    \16\ 15 U.S.C. 78f(b)(8).
    \17\ Regulation NMS, 70 FR at 37498-99.
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    Intramarket Competition. The proposed changes are designed 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 proposed credits 
would be available to all similarly-situated market participants that 
meet the revised Adding ADV requirement for November 2019, 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 their orders to other exchange and off-exchange venues if they 
deem fee levels at those other venues to be more favorable. As noted, 
the Exchange's market share of intraday trading (i.e., excluding 
auctions) for the month of September 2019, in Tapes A, B and C 
securities was only 9.3%.\18\ 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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    \18\ See note 8 supra.
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    The Exchange believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
those that currently offer similar order types and comparable 
transaction pricing, by encouraging additional orders to be sent to the 
Exchange for execution. The Exchange also believes that the proposed 
change is designed to provide the public and investors with a Price 
List that is clear and consistent, thereby reducing burdens on the 
marketplace and facilitating investor protection.

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) \19\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \20\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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) \21\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \21\ 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-2019-59 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-2019-59. 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-2019-59 and should be submitted on 
or before December 12, 2019.
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    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-25212 Filed 11-20-19; 8:45 am]
 BILLING CODE 8011-01-P


