[Federal Register Volume 85, Number 14 (Wednesday, January 22, 2020)]
[Notices]
[Pages 3727-3732]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00918]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87978; File No. SR-NYSEArca-2020-03]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE 
Arca Equities Fees and Charges To Introduce a New Lead Market Maker 
Credit

January 15, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 2, 2020, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 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 the NYSE Arca Equities Fees and 
Charges (``Fee Schedule'') to (1) introduce a new Lead Market Maker 
(``LMM'') credit, (2) introduce a new LMM rebate, and (3) replace the 
rebate applicable to ETP Holders and Market Makers with a monthly 
rebate payable on a per-security basis that is tied to quoting 
requirements in NYSE Arca-listed securities. The Exchange proposes to 
implement the fee changes effective January 2, 2020. The proposed rule 
change is available on the Exchange's website at www.nyse.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend the Fee Schedule to (1) introduce a 
new LMM \3\ credit, (2) introduce a new LMM rebate, and (3) replace the 
rebate applicable to ETP Holders \4\ with a monthly rebate payable on a 
per-security basis that is tied to quoting requirements in NYSE Arca-
listed securities.
---------------------------------------------------------------------------

    \3\ The term ``Lead Market Maker'' is defined in Rule 1.1(w) to 
mean a registered Market Maker that is the exclusive Designated 
Market Maker in listings for which the Exchange is the primary 
market.
    \4\ All references to ETP Holders in connection with this 
proposed fee change include Market Makers.
---------------------------------------------------------------------------

    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 ETP Holders and 
LMMs to send additional displayed liquidity to the Exchange.
    The Exchange proposes to implement the fee changes effective 
January 2, 2020.
Background
    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.'' \5\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------

    As the Commission itself recognized, the market for trading 
services in NMS stocks has become ``more fragmented and competitive.'' 
\6\ Indeed, equity trading is currently dispersed across 13 
exchanges,\7\ 31 alternative trading systems,\8\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow. 
Based on publicly-available information for November 2019, no single 
exchange has more than 18% market share (whether including or excluding 
auction volume).\9\ Therefore, no exchange possesses significant 
pricing power in the execution of equity order flow. More specifically, 
in November 2019, the Exchange had 7.6% market share of executed volume 
of equity trades (excluding auction volume).\10\
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 51808, 84 FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18) (Final Rule).
    \7\ See Cboe U.S Equities Market Volume Summary, available at 
https://markets.cboe.com/us/equities/market_share. See generally 
https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
    \8\ 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.
    \9\ See Cboe Global Markets U.S. Equities Market Volume Summary, 
available at http://markets.cboe.com/us/equities/market_share/.
    \10\ See id.
---------------------------------------------------------------------------

    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. While it is not possible to know a firm's reason for shifting 
order flow, the Exchange believes that one such reason is because of 
fee changes at any of the registered exchanges or non-

[[Page 3728]]

exchange venues to which a firm routes order flow. With respect to non-
marketable order flow that would provide displayed liquidity on an 
Exchange against which market makers can quote, ETP Holders and LMMs 
can choose from any one of the 13 currently operating registered 
exchanges to route such order flow. Accordingly, competitive forces 
constrain exchange transaction fees and credits that relate to orders 
that would provide displayed liquidity on an exchange.
Proposed Rule Change
    The proposed rule change is designed to be available to all ETP 
Holders and LMMs on the Exchange, and is intended to provide ETP 
Holders and LMMs an opportunity to receive enhanced rebates by quoting 
and trading more on the Exchange.
    The Exchange currently provides incentives in the form of tiered 
and/or incremental credits to ETP Holders and LMMs who submit orders 
that provide displayed liquidity on the Exchange. The Exchange 
currently has multiple levels of credits for orders that provide 
displayed liquidity that are based on the amount of volume of such 
orders that participants send to the Exchange.
    As described in greater detail below, the Exchange proposes the 
following changes:
     Adopt a new incremental credit of $0.00005 per share if an 
LMM is registered as the LMM in at least 50 but less than 75 Less 
Active ETP Securities;
     Adopt a new monthly rebate that ranges between $100 per 
security and $50 per security payable to LMMs that quote and trade in 
NYSE Arca-listed Tape B Securities that are not actively traded; and
     Adopt an ETF Incentive Program that provides a monthly 
rebate on a per-security basis to ETP Holders that meet certain quoting 
requirements.
LMM Credits
    The Exchange currently provides tier-based incremental credits to 
LMMs \11\ and to ETP Holders affiliated with the LMM that provide 
displayed liquidity to the NYSE Arca Book in Tape B Securities. 
Specifically, LMMs that are registered as the LMM in Tape B Securities 
that have a consolidated average daily volume (``CADV'') in the 
previous month of less than 100,000 shares, or 0.0010% of Consolidated 
Tape B ADV, whichever is greater (``Less Active ETP Securities''), and 
the ETP Holders affiliated with such LMMs, currently receive an 
additional credit for orders that provide displayed liquidity to the 
Book in any Tape B Securities that trade on the Exchange.\12\ The 
current incremental credits and volume thresholds are as follows:
---------------------------------------------------------------------------

    \11\ The term ``Lead Market Maker'' is defined in Rule 1.1(w) to 
mean a registered Market Maker that is the exclusive Designated 
Market Maker in listings for which the Exchange is the primary 
market.
    \12\ The Exchange defines ``affiliate'' to ``mean any ETP Holder 
under 75% common ownership or control of that ETP Holder.'' See Fee 
Schedule, NYSE Arca Marketplace: General.
---------------------------------------------------------------------------

     An additional credit of $0.0004 per share if an LMM is 
registered as the LMM in at least 300 Less Active ETP Securities
     An additional credit of $0.0003 per share if an LMM is 
registered as the LMM in at least 200 but less than 300 Less Active ETP 
Securities
     An additional credit of $0.0002 per share if an LMM is 
registered as the LMM in at least 100 but less than 200 Less Active ETP 
Securities
     An additional credit of $0.0001 per share if an LMM is 
registered as the LMM in at least 75 but less than 100 Less Active ETP 
Securities
    With this proposed rule change, the Exchange proposes to adopt a 
new incremental credit of $0.00005 per share if a LMM is registered as 
the LMM in at least 50 but less than 75 Less Active ETP Securities.
    The purpose of the proposed rule change is to encourage LMMs and 
ETP Holders to enhance the market quality in Tape B securities that are 
listed and traded on the Exchange by offering incremental credits, 
which would support the quality of price discovery in Less Active ETP 
Securities on the Exchange and provide additional liquidity for 
incoming orders for the benefit of all market participants. The 
Exchange believes that providing increased credits to LMMs and ETP 
Holders that are affiliated with a LMM that add liquidity in Tape B 
securities to the Exchange could lead to more LMMs to register to quote 
and trade in Less Active ETP Securities. The Exchange believes the 
incremental credit for adding liquidity could also encourage 
competition in Tape B securities quoted and traded on the Exchange.
    The Exchange does not know how much order flow LMMs and ETP Holders 
choose to route to other exchanges or to off-exchange venues. The 
incremental credits in NYSE Arca-listed securities are available to all 
LMMs that are registered as the LMM in a security, and to ETP Holders 
that are affiliated with a LMM. Currently, there are 2 LMMs that meet 
the requirements of the proposed tier and that would qualify for the 
incremental credit.\13\ Without having a view of a LMM's activity on 
other markets and off-exchange venues, the Exchange has no way of 
knowing whether this proposed rule change would result in more LMMs 
sending their orders in NYSE Arca-listed securities to the Exchange to 
qualify for the existing credits or whether this proposed rule change 
would result in LMMs to send more of their orders in NYSE Arca-listed 
securities to the Exchange to qualify for the proposed new credits. The 
Exchange cannot predict with certainty how many LMMs would avail 
themselves of this opportunity but additional liquidity-providing 
orders would benefit all market participants because it would provide 
greater execution opportunities on the Exchange.
---------------------------------------------------------------------------

    \13\ As of November 27, 2019, there are 13 LMMs on the Exchange 
that could qualify for the incremental rebates for Less Active ETP 
Securities, all of whom are affiliated with an ETP holder.
---------------------------------------------------------------------------

    Additionally, with this proposed rule change, the Exchange proposes 
to adopt a new rebate as another incentive for LMMs to actively improve 
market quality in the opening and closing auctions in NYSE Arca-listed 
securities that are not actively traded. As proposed, LMMs registered 
as the LMM in a NYSE Arca-listed security where the security has been 
listed on NYSE Arca for an entire calendar month would be eligible for 
a rebate payable each month provided that there has been either an 
opening auction or a closing auction of at least one round-lot 
conducted in the security each day during the billing month, and where, 
in the case of an opening auction, the security's opening auction price 
is within 1.50% of the Auction Reference Price (as defined in Rule 
7.35-E), and in the case of a closing auction, the security's closing 
auction price is within 0.50% of the Auction Reference Price, for every 
auction in that security during the billing month. Qualifying LMMs in a 
security that meets the criteria described above would receive a 
monthly rebate, as follows:
     $100 per security for each security that had a CADV in the 
previous month of less than 100,000 shares;
     $75 per security for each security that had a CADV in the 
previous month between 100,000 shares and up to 175,000 shares;
     $50 per security for each security that had a CADV in the 
previous month between 175,000 shares and up to 250,000 shares.
    The purpose of the proposed rule change is to incentivize LMMs to 
increase auction liquidity in less liquid NYSE Arca-listed securities 
to support price discovery in the Exchange's opening and closing 
auctions for the

[[Page 3729]]

benefit of all market participants. The Exchange believes that 
providing monthly rebates on a per-security basis could lead to more 
LMMs to register in less liquid securities and encourage greater 
participation in the opening and closing auctions on the Exchange. The 
Exchange believes the proposed monthly rebate, in addition to the 
incremental credit for adding liquidity, could encourage competition in 
Tape B securities quoted and traded on the Exchange.
ETF Incentive Program
    The Exchange proposes to replace the rebate applicable to ETP 
Holders with a monthly rebate payable on a per-security basis that is 
tied to quoting requirements in NYSE Arca-listed securities. The 
Exchange believes that the proposed ETF Incentive Program (``EIP 
Program'') would encourage ETP Holders to maintain better market 
quality in NYSE Arca-listed securities, and, in particular, in lower 
volume securities.
    The Exchange currently offers an Exchange Traded Fund Liquidity 
Provider Program (``ELP Program'') pursuant to which the Exchange 
provides an incremental credit of $0.0001 per share to ETP Holders for 
providing displayed liquidity that result in an execution to ETP 
Holders that meet prescribed quoting standards in NYSE Arca-listed 
securities that have a CADV in the previous month of less than 250,000 
shares. Under the ELP Program, for each billing month, in at least 50 
qualifying securities, an ETP Holder must quote at the National Best 
Bid or Offer (``NBBO'') for at least an average of 15% of the time, and 
display at least 2,500 shares that are priced no more than 2% away from 
the NBBO at least 90% of the time. The Exchange proposes to eliminate 
the ELP Program and replace it with the EIP Program.
    The Exchange is now proposing to adopt an incentive program that 
would provide ETP Holders with a monthly rebate for each NYSE Arca-
listed security that has been listed on the Exchange for an entire 
calendar month and that had a CADV in the previous month of less than 
10,000 shares (``EIP Security''). To qualify for the proposed rebate, 
an EIP Security must have a time-weighted quoting size at the NBBO. 
Specifically, for each billing month, ETP Holders must quote at the 
NBBO with average time-weighted minimum bid and minimum offer of at 
least 300 on each side (``Share Size''). An ETP Holder with the largest 
Share Size in an EIP Security would receive a rebate of $60 per 
security that meets the Share Size requirements for the billing month. 
An ETP Holder with the second largest Share Size in an EIP Security 
would receive a rebate of $40 per security. No registration is required 
to participate in the program.
    For example, assume a NYSE Arca-listed security had a CADV in the 
previous month of 5,000 shares, and is listed on the Exchange for every 
day of a billing month. Further, assume the following:
     ETP Holder 1 has a time-weighted bid size of 800 shares 
and a time-weighted offer size of 600 shares, for an average Share Size 
of 700 shares.
     The LMM registered as the LMM in the security has a time-
weighted bid size of 400 shares and a time-weighted offer size of 800 
shares, for an average Share Size of 600 shares.
     ETP Holder 2 has a time-weighted bid size of 2,000 shares 
and a time- weighted offer size of 200 shares, for an average Share 
Size of 1,100 shares.
    In the example above, ETP Holder 1 would qualify for the $60 rebate 
with an average Share Size of 700 shares, and the LMM would qualify for 
the $40 rebate with an average Share Size of 600 shares. While ETP 
Holder 2 has the largest average Share Size with 1,100 shares, ETP 
Holder 2 had a time-weighted offer size of 200 shares, which is less 
than the 300 share requirement, and therefore ETP Holder 2 would not 
qualify for the rebate.
    The Exchange will calculate the Share Size for each ETP Holder, on 
a daily basis, up to and including the last trading day of a calendar 
month to determine at the end of each month whether an ETP Holder is 
meeting the requirements of the EIP Program.
    The purpose of the proposed rule change is to provide superior 
market quality and price discovery for NYSE Arca-listed securities, 
specifically securities that are less active, through a quoting size 
requirement that would also promote liquidity in the opening and 
closing auction in such securities. The proposed program is intended to 
provide a more meaningful incentive to ETP Holders to provide liquidity 
in less active securities. The proposed EIP Program would allow the 
Exchange to provide financial incentives to ETP Holders as long as they 
meet certain prescribed quoting criteria. The Exchange believes this 
type of an incentive, which provides a rebate on a per-security basis 
rather on a per-transaction basis, would encourage ETP Holders to 
provide meaningful quotes in the less active securities that are the 
focus of the proposed EIP Program.
    Additionally, for newly listed and low volume ETP securities, the 
cost to a firm for making a market, such as holding inventory in the 
security, is often not fully offset by the revenue through rebates 
provided by the Exchange. In some cases, ETP Holders may even operate 
at a loss in new and low volume ETFs. The Exchange believes the 
proposed EIP Program, which would compensate ETP Holders on a per-
security basis as long as they meet the prescribed quoting requirement, 
is a more deterministic program from an ETP Holder's perspective. The 
ETP Holder would decide how many, if any, low volume securities in 
which it wants to provide tight and deep markets. The more securities 
it provides heightened quoting in, the more the ETP Holder could 
collect in the form of the proposed per-security rebate.
    The proposed changes are not otherwise intended to address any 
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,\14\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\15\ 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.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

The Proposed Fee 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.'' \16\
---------------------------------------------------------------------------

    \16\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------

    As the Commission itself recognized, the market for trading 
services in NMS stocks has become ``more fragmented

[[Page 3730]]

and competitive.'' \17\ Indeed, equity trading is currently dispersed 
across 13 exchanges,\18\ 31 alternative trading systems,\19\ and 
numerous broker-dealer internalizers and wholesalers, all competing for 
order flow. As noted above, no exchange possesses significant pricing 
power in the execution of equity order flow.
---------------------------------------------------------------------------

    \17\ See Securities Exchange Act Release No. 51808, 84 FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18) (Final rule).
    \18\ See Cboe Global Markets, U.S Equities Market Volume 
Summary, available at https://markets.cboe.com/us/equities/market_share/.
    \19\ 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.
---------------------------------------------------------------------------

    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
shift order flow, or discontinue to reduce use of certain categories of 
products, in response to fee changes. With respect to non-marketable 
order which provide liquidity on an Exchange, ETP Holders can choose 
from any one of the 13 currently operating registered exchanges to 
route such order flow. Accordingly, competitive forces reasonably 
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.
    The Exchange believes the proposed rule change to introduce a new 
$0.00005 per share incremental credit is reasonable because it is 
intended to encourage LMMs to promote price discovery and market 
quality in Less Active ETP Securities for the benefit of all market 
participants. The Exchange believes the proposed rule change is 
reasonable and appropriate in that the credits are based on the amount 
of business transacted on the Exchange. The Exchange notes that the 
proposed incremental credit is similar to market quality incentive 
programs already in place on other markets, such as the Qualified 
Market Maker incentive on the Nasdaq Stock Market LLC (``Nasdaq''), 
which requires a member on that exchange to provide meaningful and 
consistent support to market quality and price discovery by quoting at 
the National Best Bid and Offer in a large number of securities. In 
return, Nasdaq provides such member with an incremental rebate.\20\ 
Nasdaq PHLX LLC (``PHLX'') also provides enhanced credits to Market 
Makers on certain volumes based on an affiliate's activity. 
Specifically, PHLX offers a tiered Customer Rebate Program that 
qualifies either a Specialist or Market Maker or its affiliate under 
Common Ownership \21\ to an additional rebate provided the Specialist 
or Market Maker has reached the Monthly Market Maker Cap.\22\ The 
Exchange believes that providing increased credits to ETP Holders and 
Market Makers that are affiliated with a LMM that add liquidity in Tape 
B securities to the Exchange is reasonable because the Exchange 
believes that by providing increased rebates to affiliated ETP Holders 
and Market Makers of a LMM, more LMMs will register to quote and trade 
in Less Active ETP Securities. The Exchange believes the proposed 
incremental credit for adding liquidity is also reasonable because it 
will encourage liquidity and competition in Tape B securities quoted 
and traded on the Exchange. Moreover, the Exchange believes that the 
proposed fee change will incentivize LMMs to register as an LMM in Less 
Active ETP Securities and thus, add more liquidity in Tape B securities 
to the benefit of all market participants.
---------------------------------------------------------------------------

    \20\ See Equity 7 Pricing Schedule, Section 114. Market Quality 
Incentive Programs, at http://nasdaq.cchwallstreet.com/NASDAQTools/PlatformViewer.asp?selectednode=chp%5F1%5F1%5F2%5F3&manual=%2Fnasdaq%2Fmain%2Fnasdaq%2Dllcrules%2F.
    \21\ The term ``Common Ownership'' is defined as meaning 
``members or member organizations under 75% common ownership or 
control.'' See PHLX fee schedule, at http://www.nasdaqtrader.com/Micro.aspx?id=phlxpricing.
    \22\ See Options 7 Pricing Schedule, Section I, B. Customer 
Rebate Program, at http://nasdaqphlx.cchwallstreet.com/NASDAQPHLXTools/PlatformViewer.asp?selectednode=chp%5F1%5F1%5F2&manual=%2Fnasdaqomxphlx%2Fphlx%2Fphlx%2Dllcrules%2F. See also Securities Exchange Act 
Release No. 70969 (December 3, 2013), 78 FR 73906 (December 9, 2013) 
(SR-Phlx-2013-114).
---------------------------------------------------------------------------

    Submission of additional liquidity to the Exchange would promote 
price discovery and transparency and enhance order execution 
opportunities for LMMs from the substantial amounts of liquidity 
present on the Exchange. All participants, including LMMs, would 
benefit from the greater amounts of liquidity that will be present on 
the Exchange, which would provide greater execution opportunities.
    The Exchange believes that proposal to adopt market quality based 
incentives under the proposed EIP Program is a reasonable means to 
incentivize liquidity provision in ETPs listed on the Exchange. The 
marketplace for listings is extremely competitive and the Exchange is 
not the only venue for listing ETPs. Competition in ETPs is further 
exacerbated by the fact that listings can and do transfer from one 
listing market to another. The proposed EIP Program is intended to help 
the Exchange compete as an ETP listing venue. Further, the Exchange 
notes that the proposed incentives are not transaction fees, nor are 
they fees paid by participants to access the Exchange. Rather, the 
proposed rebates are based on achieving certain objective market 
quality metrics. The Exchange believes providing monthly rebates for 
the two largest Share Sizes in less active securities will allow ETP 
Holders to anticipate their revenue as participants of the EIP Program 
and will incentivize ETP Holders to participate in the EIP Program.
    Given the proposed EIP Program is a new program, the Exchange 
cannot be certain that ETP Holders will choose to actively compete for 
this incentive. For ETP Holders that do choose to actively participate 
by increasing their quoting at the NBBO with a time-weighted minimum 
bid and minimum offer of at least 300 shares on each side of their 
quote, the Exchange generally expects ETP Holders would receive 
payments comparable to what they currently receive under the ELP 
Program, with the potential for additional upside when they meet the 
quoting requirement in a greater number of less active securities.
    The Exchange believes that eliminating the existing ELP Program is 
reasonable because the Exchange is not required to maintain the program 
and the Exchange is proposing to implement the new EIP Program in its 
place, as described above. The Exchange notes that only 2 ETP Holders 
qualified for the ELP Program in November 2019.
    On the backdrop of the competitive environment in which the 
Exchange currently operates, the proposed rule change is a reasonable 
attempt to increase liquidity on the Exchange and improve the 
Exchange's market share relative to its competitors.
The Proposed Fee Change Is an Equitable Allocation of Fees and Credits
    The Exchange believes the proposed rule change to amend the LMM 
credits are equitable because they provide discounts that are 
reasonably related to the value to the Exchange's market quality 
associated with higher volumes. The Exchange further believes that the 
proposed incremental rebate is equitable because it is consistent with 
the market quality and competitive benefits associated with the fee 
program and because the magnitude of the additional rebate is not 
unreasonably high in

[[Page 3731]]

comparison to the rebate paid with respect to other displayed 
liquidity-providing orders. The Exchange believes that it is equitable 
to offer increased rebates to LMMs as LMMs are subject to additional 
requirements and obligations (such as quoting requirements) that other 
market participants are not. When PHLX adopted its proposal to provide 
enhanced credits, it noted its belief that the additional rebate it 
provides was equitable, and not unfairly discriminatory because, among 
other things, PHLX Specialists and Market Makers ``have burdensome 
quoting obligations,'' to the market that other market participants do 
not, and ``also serve an important role on the Exchange with regard to 
order interaction and they provide liquidity in the marketplace.'' \23\ 
PHLX further noted that the ``proposed differentiation as between 
Specialists and Market Makers as compared to other market participants 
recognizes the differing contributions made to the trading environment 
on the Exchange by these market participants.'' The Exchange also 
believes that allowing ETP Holders to receive enhanced credits based on 
activities of their affiliates is equitable and not unfairly 
discriminatory because the Exchange believes that ETP Holders 
affiliated with LMMs may qualify to earn enhanced credits in 
recognition of their shared economic interest, which includes the 
heightened obligations imposed on LMMs. ETP Holders unaffiliated with 
LMMs do not share the same type of economic interests. Further, ETP 
Holders not affiliated with a LMM have an opportunity to establish such 
affiliation by several means, including but not limited to, a business 
combination or the establishment of their own market making operation, 
which each unaffiliated firm has the potential to establish.
---------------------------------------------------------------------------

    \23\ See Securities Exchange Act Release No. 70969 (December 3, 
2013), 78 FR 73906 (December 9, 2013) (SR-Phlx-2013-114).
---------------------------------------------------------------------------

    The Exchange believes that the proposed EIP Program represents an 
equitable allocation of payments because ETP Holders would be required 
to meet prescribed quoting requirements in order to qualify for the 
payments, as described above. Where an ETP Holder does not achieve the 
largest Share Size in an EIP Security or second largest Share Size in 
an EIP Security, it will not receive the payments. Further, all ETP 
Holders on the Exchange are eligible to participate in the program and 
could do so by simply meeting the quoting requirement. The Exchange has 
designed the EIP Program to be sustainable over the long-term and 
generally expects that payments made to ETP Holders under the program 
will be comparable to payments the Exchange currently makes under the 
ELP Program. As such, the Exchange believes that the proposal 
represents an equitable allocation of payments.
    The Exchange believes that eliminating the existing ELP Program is 
equitable because the Exchange is not required to maintain the program 
and the Exchange is eliminating the program for all ETP Holders.
The Proposed Fee Change Is Not Unfairly Discriminatory
    The Exchange believes that the proposed rule change is not unfairly 
discriminatory. In the prevailing competitive environment, LMMs and ETP 
Holders 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 adopt an 
additional incremental credit applicable to a LMM, and ETP Holders 
affiliated with such LMM, for orders that provide displayed liquidity 
in NYSE Arca-listed securities for which they are registered as the 
LMM, as the proposed credits would be provided on an equal basis to all 
such participants. Further, the Exchange believes the proposed 
additional incremental credit would incentivize LMMs 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 unfairly discriminatory because it is reasonably 
related to the value to the Exchange's market quality associated with 
higher volume.
    The proposal to introduce an additional LMM credit neither targets 
nor will it have a disparate impact on any particular category of 
market participant. The proposal does not permit unfair discrimination 
because the proposed threshold would be applied to all similarly 
situated LMMs, who would all be eligible for the same credit on an 
equal basis. Accordingly, no LMM already operating on the Exchange 
would be disadvantaged by this allocation of fees.
    The Exchange believes that the proposed EIP Program is not unfairly 
discriminatory because ETP Holders would be required to meet prescribed 
quoting requirements in order to qualify for the payments, as described 
above. Where an ETP Holder does not achieve the largest Share Size in 
an EIP Security or second largest Share Size in an EIP Security, it 
will not receive the payments. Further, all ETP Holders on the Exchange 
are eligible to participate in the program and could do so by simply 
meeting the quoting requirement. The Exchange has designed the EIP 
Program to be sustainable over the long-term and generally expects that 
payments made to ETP Holders under the program will be comparable to 
payments the Exchange currently makes under the ELP Program. As such, 
the Exchange believes that the proposal is not unfairly discriminatory.
    The Exchange believes that eliminating the existing ELP Program is 
not unfairly discriminatory because the Exchange is not required to 
maintain the program and the Exchange is eliminating the program for 
all ETP Holders.
    Finally, the submission of orders to the Exchange is optional for 
ETP Holders in that they could choose whether to submit orders to the 
Exchange and, if they do, the extent of its activity in this regard. 
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,\24\ 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 ETP Holders. 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.'' \25\
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78f(b)(8).
    \25\ See Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
---------------------------------------------------------------------------

    Intramarket Competition. The proposed change is designed to attract 
additional order flow to the Exchange. The Exchange believes that the 
new incremental credit applicable to LMMs would continue to incentivize 
market participants to direct their displayed order flow to the 
Exchange. Greater

[[Page 3732]]

liquidity benefits all market participants on the Exchange by providing 
more trading opportunities and encourages LMMs, to send orders to the 
Exchange, thereby contributing to robust levels of liquidity, which 
benefits all market participants. The proposed new incremental credit 
would be applicable 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. The Exchange 
believes the proposed EIP Program would enhance competition as it is 
intended to increase the Exchange's competitiveness in NYSE Arca-listed 
ETPs, and all ETP Holders would be able to participate in the program 
uniformly. Accordingly, the Exchange does not believe that the proposed 
change will impair the ability of ETP Holders to maintain their 
competitive standing.
    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 
above, the Exchange's market share of intraday trading (i.e., excluding 
auctions) was 7.6% in November 2019. 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 change could promote 
competition between the Exchange and other execution venues, including 
those that currently offer similar order types and comparable 
transaction pricing, by encouraging additional orders to be sent to the 
Exchange for execution.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \26\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \27\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78s(b)(3)(A).
    \27\ 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) \28\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2020-03 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-NYSEArca-2020-03. 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-NYSEArca-2020-03, and should be 
submitted on or before February 12, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00918 Filed 1-21-20; 8:45 am]
 BILLING CODE 8011-01-P


