[Federal Register Volume 85, Number 15 (Thursday, January 23, 2020)]
[Notices]
[Pages 3955-3960]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01038]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87994; File No. SR-NYSEArca-2020-05]


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 Two New Pricing Tiers, 
Retail Order Step-Up Tier 3 and Retail Order Step-Up Tier 4

January 16, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on January 9, 2020, NYSE Arca, Inc. (``NYSE Arca'' 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Equities Fees and 
Charges (``Fee Schedule'') to introduce two new pricing tiers, Retail 
Order Step-Up Tier 3 and Retail Order Step-Up Tier 4. 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 introduce two 
new pricing tiers, Retail Order Step-Up Tier 3 and Retail Order Step-Up 
Tier 4. 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 \4\ to send additional displayed liquidity to the Exchange.
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    \4\ All references to ETP Holders in connection with this 
proposed fee change include Market Makers.
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    The Exchange proposes to implement the fee changes effective 
January 9, 2020.\5\
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    \5\ The Exchange originally filed to amend the Fee Schedule on 
January 2, 2020 (SR-NYSArca-2020-02). SR-NYSEArca-2020-02 was 
subsequently withdrawn and replaced by this filing.
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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.'' \6\
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    \6\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
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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 for November 2019, no single 
exchange has more than 18% market share (whether including or excluding 
auction

[[Page 3956]]

volume).\10\ 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).\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) (Final Rule).
    \8\ 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.
    \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. 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-exchange venues 
to which a firm routes order flow. The competition for Retail Orders 
\12\ is even more stark, particularly as it relates to exchange versus 
off-exchange venues. For example, the Exchange examined Rule 606 
disclosures from three prominent retail brokerages: E-Trade, TD 
Ameritrade and Charles Schwab. For securities listed on the New York 
Stock Exchange LLC in the third quarter of 2019, TD Ameritrade routed 
92% of its limit orders to off-exchange venues.\13\ Similarly, E-Trade 
Financial and Charles Schwab routed more than 73% and more than 
97%,\14\ respectively, of its limit orders to off-exchange venues. With 
respect to non-marketable order flow that would provide displayed 
liquidity on an Exchange against which market makers can quote, ETP 
Holders 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.
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    \12\ A Retail Order is an agency order that originates from a 
natural person and is submitted to the Exchange by an ETP Holder, 
provided that no change is made to the terms of the order to price 
or side of market and the order does not originate from a trading 
algorithm or any other computerized methodology. See Securities 
Exchange Act Release No. 67540 (July 30, 2012), 77 FR 46539 (August 
3, 2012) (SR-NYSEArca-2012-77).
    \13\ See https://www.tdameritrade.com/retail-en_us/resources/pdf/AMTD2054.pdf.
    \14\ See https://content.etrade.com/etrade/powerpage/pdf/OrderRouting11AC6.pdf. See also https://www.schwab.com/public/schwab/nn/legal_compliance/important_notices/order_routing.html.
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Proposed Rule Change
    The proposed rule change is designed to be available to all ETP 
Holders on the Exchange and is intended to provide ETP Holders an 
opportunity to receive enhanced rebates by quoting and trading more on 
the Exchange.
    The Exchange currently provides credits to ETP Holders 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 ETP Holders send to the Exchange.
    As described in greater detail below, the Exchange proposes the 
following changes:
     Introduce Retail Order Step-Up Tier 3, which provides a 
credit of $0.0035 per share to ETP Holders that execute an ADV of 
Retail Orders with a time-in-force of Day that add or remove liquidity 
during the month that is an increase of 0.10% or more of the US CADV 
\15\ above their April 2018 ADV taken as a percentage of US CADV; and
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    \15\ US CADV means the United States Consolidated Average Daily 
Volume for transactions reported to the Consolidated Tape, excluding 
odd lots through January 31, 2014 (except for purposes of Lead 
Market Maker pricing), and excludes volume on days when the market 
closes early and on the date of the annual reconstitution of the 
Russell Investments Indexes. Transactions that are not reported to 
the Consolidated Tape are not included in US CADV. See Fee Schedule, 
footnote 3.
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     Introduce Retail Order Step-Up Tier 4, which provides a 
credit of $0.0036 per share to ETP Holders that execute an ADV of 
Retail Orders with a time-in-force of Day that add or remove liquidity 
during the month that is an increase of 0.20% or more of the US CADV 
above their April 2018 ADV taken as a percentage of US CADV.
    In this competitive environment, the Exchange has already 
established Retail Order Step-Up Tiers 1 and 2, which are designed to 
encourage ETP Holders that provide displayed liquidity in Retail Orders 
on the Exchange to increase that order flow, which would benefit all 
ETP Holders by providing greater execution opportunities on the 
Exchange. In order to provide an incentive for ETP Holders to direct 
providing displayed Retail Order flow to the Exchange, the credits 
increase in the various tiers based on increased levels of volume 
directed to the Exchange.
    Currently, the following credits are available to ETP Holders that 
provide increased levels of displayed liquidity in Retail Orders on the 
Exchange:

------------------------------------------------------------------------
                                       Credit for providing displayed
               Tier                      liquidity in retail orders
------------------------------------------------------------------------
Retail Order Step-Up Tier 1.......  $0.0033 (Tape A, Tape B and Tape C).
Retail Order Step-Up Tier 2.......  $0.0035 (Tape A, Tape B and Tape C).
------------------------------------------------------------------------

    Under the Retail Order Step-Up Tier 1, if an ETP Holder increases 
its providing liquidity on the Exchange by a specified percentage over 
the level that such ETP Holder provided liquidity in April 2018, it is 
eligible to earn higher credits. Specifically, to qualify for the 
credit under Retail Order Step-Up Tier 1, an ETP Holder must execute an 
average daily volume (ADV) per month of Retail Orders with a time-in-
force of Day that add or remove liquidity that is an increase of 0.12% 
or more of the US CADV above their April 2018 ADV taken as a percentage 
of US CADV.
    Currently, if an ETP Holder meets the Retail Order Step-Up Tier 1 
requirement, such ETP Holder is eligible to earn a credit of $0.0033 
per share for Retail Orders that provide displayed liquidity to the 
Book in Tape A, Tape B and Tape C securities, and is not charged a fee 
for Retail Orders with a time-in-force of Day that remove 
liquidity.\16\
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    \16\ See Securities Exchange Act Release No. 83268 (May 17, 
2018), 83 FR 23983 (May 23, 2018) (SR-NYSEArca-2018-34).
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    Under Retail Order Step-Up Tier 2, if an ETP Holder increases its 
providing liquidity by a specified percentage over the US CADV, and the 
ETP Holder increases its providing liquidity on the Exchange by a 
specified percentage over the level that such ETP Holder provided 
liquidity in April 2018, it is eligible to earn higher credits. 
Specifically, ETP Holders that provide liquidity an ADV per month of 
1.10% or more of the US CADV, and execute an ADV of Retail Orders with 
a time-in-force of Day that add or remove liquidity during the month 
that is an increase of 0.35% or more of the US CADV above their April 
2018 ADV taken as a percentage of US CADV are eligible for the per 
share credit under the Retail Order Step-Up Tier 2 pricing tier.
    Currently, if an ETP Holder meets the Retail Order Step-Up Tier 2

[[Page 3957]]

requirement, such ETP Holder is eligible to earn a credit of $0.0035 
per share for Retail Orders that provide displayed liquidity to the 
Book in Tape A, Tape B and Tape C securities, and is not charged a fee 
for Retail Orders with a time-in-force of Day that remove 
liquidity.\17\ Additionally, under Retail Order Step-Up Tier 2, ETP 
Holders are eligible to earn a credit of $0.0035 per share for orders 
in Tape C securities that provide displayed liquidity, can receive an 
incremental credit of $0.0002 per share for orders in Tape C securities 
that provide non-displayed liquidity, and are charged a fee of $0.0027 
per share for orders in Tape C securities that take liquidity.\18\
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    \17\ See Securities Exchange Act Release No. 83828 (August 10, 
2018), 83 FR 40816 (August 16, 2018) (SR-NYSEArca-2018-58).
    \18\ Id.
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    With this proposed rule change, the Exchange proposes to introduce 
two new pricing tiers, Retail Order Step-Up Tier 3 and Retail Order 
Step-Up Tier 4. Under proposed Retail Order Step-Up Tier 3, ETP Holders 
that execute an ADV of Retail Orders with a time-in-force of Day that 
add or remove liquidity during the month that is an increase of 0.10% 
or more of the US CADV above their April 2018 ADV taken as a percentage 
of US CADV, would receive a credit of $0.0035 per share for Retail 
Orders that provide displayed liquidity in Tape A, Tape B and Tape C 
securities. Retail Orders with a time-in-force designation of Day that 
remove liquidity from the Book will not be charged a fee. The Exchange 
notes that proposed Retail Order Step-Up Tier 3 provides the same level 
of credit for Retail Orders that provide displayed liquidity to the 
Book in Tapes A, B and C securities payable under the current Retail 
Order Step-Up Tier 2 but proposes a lower requirement to qualify for 
the credit. Proposed Retail Order Step-Up Tier 3 also does not provide 
the incremental $0.0002 per share credit in Tape C securities for 
orders that provide non-displayed liquidity to the Book, the $0.0035 
per share credits for non-Retail Orders that provide displayed 
liquidity to the Book in Tape C Securities, or the $0.0027 per share 
fee applicable for orders in Tape C securities that take liquidity, all 
of which are currently payable under Retail Order Step-Up Tier 2.
    For example, assume an ETP holder has an ADV of 7 million shares in 
Retail Orders with a time-in-force of Day that add or remove liquidity 
in April 2018 when US CADV was 7 billion shares, or 0.10% of US CADV. 
If that same ETP Holder has an ADV of at least 14 million shares in 
Retail Orders with a time-in-force of Day that add or remove liquidity 
in the billing month when US CADV was also 7 billion shares, or 0.20% 
of US CADV, for a step up of 0.10% of US CADV, that ETP holder would 
qualify for Retail Order Step-Up Tier 3 credit of $0.0035 per share.
    Under proposed Retail Order Step-Up Tier 4, ETP Holders that 
execute an ADV of Retail Orders with a time-in-force of Day that add or 
remove liquidity during the month that is an increase of 0.20% or more 
of the US CADV above their April 2018 ADV taken as a percentage of US 
CADV, would receive a credit of $0.0036 per share for Retail Orders 
that provide displayed liquidity in Tape A, Tape B and Tape C 
securities. Retail Orders with a time-in-force designation of Day that 
remove liquidity from the Book will not be charged a fee.
    For example, assume the ETP holder in the previous example has an 
ADV of at least 21 million shares in Retail Orders with a time-in-force 
of Day that add or remove liquidity in the billing month when US CADV 
was 7 billion shares, or 0.30% of US CADV, for a step up of 0.20% of US 
CADV, then that ETP holder would qualify for Retail Order Step-Up Tier 
4 credit of $0.0036 per share.
    With this proposed rule change, the following credits would be 
available to ETP Holders that provide increased levels of displayed 
liquidity in Retail Orders on the Exchange:

------------------------------------------------------------------------
                                       Credit for providing displayed
               Tier                      liquidity in retail orders
------------------------------------------------------------------------
Retail Order Step-Up Tier 1.......  $0.0033 (Tape A, Tape B and Tape C).
Retail Order Step-Up Tier 2.......  $0.0035 (Tape A, Tape B and Tape C).
Retail Order Step-Up Tier 3.......  $0.0035 (Tape A, Tape B and Tape C).
Retail Order Step-Up Tier 4.......  $0.0036 (Tape A, Tape B and Tape C).
------------------------------------------------------------------------

    For all other fees and credits, tiered or basic rates apply based 
on a firm's qualifying levels.
    The purpose of the proposed rule change is to encourage even 
greater participation from ETP Holders and promote additional liquidity 
in Retail Orders. As described above, ETP Holders with liquidity-
providing orders have a choice of where to send those orders. The 
Exchange believes that if it adopts the proposed credits, more ETP 
Holders will choose to route their liquidity-providing Retail Orders to 
the Exchange to qualify for the credits.
    The Exchange does not know how much Retail Order flow ETP Holders 
choose to route to other exchanges or to off-exchange venues. While the 
proposed Retail Order Step-Up Tier 3 and Tier 4 pricing tiers would be 
available to all ETP Holders, no ETP Holder currently qualifies given 
the pricing tiers are new.\19\ Without having a view of ETP Holders' 
activity on other markets and off-exchange venues, the Exchange has no 
way of knowing whether this proposed rule change would result in any 
ETP Holders sending more of their Retail Orders to the Exchange to 
qualify for the proposed Retail Order Step-Up Tier 3 and Tier 4 
credits. The Exchange cannot predict with certainty how many ETP 
Holders would avail themselves of this opportunity but additional 
liquidity-providing Retail Orders would benefit all market participants 
because it would provide greater execution opportunities on the 
Exchange.
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    \19\ As of December 27, 2019, there are 12 ETP Holders on the 
Exchange that provide liquidity that could qualify for the 
Exchange's Retail Step-Up pricing tiers.
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    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,\20\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\21\ 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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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(4) and (5).

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[[Page 3958]]

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.'' \22\
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    \22\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
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    As the Commission itself recognized, the market for trading 
services in NMS stocks has become ``more fragmented and competitive.'' 
\23\ Indeed, equity trading is currently dispersed across 13 
exchanges,\24\ 31 alternative trading systems,\25\ 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.
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    \23\ See Securities Exchange Act Release No. 51808, 84 FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18) (Final Rule).
    \24\ See Cboe Global Markets, U.S Equities Market Volume 
Summary, available at https://markets.cboe.com/us/equities/market_share/.
    \25\ 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.
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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 
shift order flow, or discontinue to reduce use of certain categories of 
products, in response to fee changes. With respect to non-marketable 
orders 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.
    As noted above, the competition for Retail Order flow is stark 
given the amount of retail limit orders that are routed to non-exchange 
venues. 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. This competition is 
particularly acute for non-marketable, or limit, retail orders, i.e., 
retail orders that can provide liquidity on an exchange. That 
competition is even more fierce for retail limit orders that provide 
displayed liquidity on an exchange. Accordingly, competitive forces 
constrain exchange transaction fees, particularly as they relate to 
competing for retail orders.
    The Exchange believes the proposed change to adopt the Retail Order 
Step-Up Tier 3 and Retail Order Step-Up Tier 4 pricing tiers is 
reasonable because it would provide ETP Holders with additional 
incentives to send a greater number of Retail Orders to the Exchange. 
The proposed change to adopt Retail Order Step-Up Tier 3 would allow 
ETP Holders an alternative way to qualify for the $0.0035 per share 
credit that is currently available under Retail Order Step-Up Tier 2. 
The Exchange believes the proposed change is reasonable because the 
proposed credits would continue to encourage ETP Holders to send Retail 
Orders to the Exchange to qualify for the proposed pricing tiers. As 
noted above, the Exchange operates in a highly competitive environment, 
particularly for attracting Retail Order flow that provides displayed 
liquidity on an exchange. The Exchange believes it is reasonable to 
continue to provide credits in general, and higher credits, with 
respect to the Retail Order Step-Up Tier 4 pricing tier, for Retail 
Orders that provide displayed liquidity if an ETP Holder meets the 
qualifications for the proposed pricing tiers.
    Further, given the competitive market for attracting Retail Orders, 
the Exchange notes that with this proposed rule change, the Exchange's 
pricing for Retail Orders would be comparable to credits currently in 
place on other exchanges that the Exchange competes with for order 
flow. For example, the Nasdaq Stock Market LLC (``Nasdaq'') provides 
its members with a credit of $0.0033 per share if such member has an 
85% add to total volume (adding liquidity and removing liquidity) ratio 
during a billing month.\26\ Cboe BZX Exchange, Inc. (``BZX'') provides 
its members with a credit of $0.0032 per share for retail orders that 
add liquidity to that market.\27\ In addition, Cboe EDGX Exchange, Inc. 
(`EDGX'') provides its members with a credit of $0.0037 per share for 
retail orders that add liquidity to that market if an EDGX member adds 
liquidity in Retail Orders of 0.50% of CADV or more.\28\
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    \26\ See Nasdaq Price List, Rebate to Add Displayed Designated 
Retail Liquidity, at http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
    \27\ See BZX Fee Schedule, Fee Codes and Associated Fees, at 
https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
    \28\ See EDGX Fee Schedule, Fee Codes and Associated Fees, at 
https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/.
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    The Exchange believes the proposed change is also reasonable 
because it is designed to attract higher volumes of Retail Orders 
transacted on the Exchange by ETP Holders which would benefit all 
market participants by offering greater price discovery, increased 
transparency, and an increased opportunity to trade on the Exchange.
    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 that the proposed rule change to adopt Retail 
Order Step-Up Tier 3 and Retail Order Step-Up Tier 4 equitably 
allocates fees among its market participants because it is reasonably 
related to the value of the Exchange's market quality associated with 
higher volume in Retail Orders. The Exchange notes that currently 12 
firms submit Retail Orders that add liquidity on the Exchange and of 
those 12 firms, the Exchange anticipates that as many as five \29\ of 
those firms could meet, or would reasonably be able to meet, the 
proposed criteria and qualify for the credits and fees if those firms 
directed more of their Retail Orders to the Exchange. The Exchange 
believes that pricing is just one of the factors that ETP Holders 
consider when determining where to direct their order flow. Among other 
things, factors such as execution quality, fill rates, and volatility, 
are important and deterministic to ETP Holders in deciding where to 
send their order flow.
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    \29\ These five firms have historically submitted the most 
amount of Retail Orders to the Exchange. The Exchange believes each 
of these firms would qualify for the proposed pricing tiers if each 
were to submit all, or most of all, its Retail Orders to the 
Exchange, rather than to a competitor.
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    Further, the Exchange notes that, with this proposed rule change, 
the

[[Page 3959]]

difference between the highest credit provided for Retail Orders, 
$0.0036 per share, as proposed, and the credit for Retail Orders that 
do not qualify for any Retail Order pricing tiers, $0.0030 per share, 
is $0.0006, or 17%, which the Exchange believes is small given the 
requirements that ETP Holders must meet to qualify for the higher 
credit. Similarly, with this proposed rule change, the difference in 
the highest credit for Retail Orders, $0.0036 per share, as proposed, 
and the credit provided for Retail Orders to those ETP Holders 
qualifying for the Retail Order Tier or Retail Order Step-Up Tier 1, 
$0.0033 per share, would only be $0.0003 per share, or 9%. Therefore, 
the Exchange believes the proposed Retail Order Step-Up Tier 3 and 
Retail Order Step-Up Tier 4 pricing tiers are equitably allocated and 
provide discounts that are reasonably related to the value to the 
Exchange's market quality associated with higher volumes. In today's 
competitive marketplace, order flow providers have a choice of where to 
direct liquidity-providing order flow, and while only three ETP Holders 
have qualified to date for the current Retail Order pricing tiers, the 
Exchange believes there are additional ETP Holders that could qualify 
if they chose to direct their order flow to the Exchange.
    Finally, the Exchange believes that the proposed Retail Order Step-
Up Tier 3 and Retail Order Step-Up Tier 4 pricing tiers are equitable 
because the magnitude of the proposed credits is not unreasonably high 
relative to credits paid by other exchanges for orders that provide 
additional step up liquidity in Retail Orders.\30\ The Exchange 
believes the proposed rule change would improve market quality for all 
market participants on the Exchange and, as a consequence, attract more 
Retail Orders to the Exchange, thereby improving market-wide quality 
and price discovery.
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    \30\ See notes 26-28, supra.
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    The proposal neither targets nor will it have a disparate impact on 
any particular category of market participant. ETP Holders that 
currently qualify for credits associated with Retail Order Step-Up 
pricing tiers on the Exchange will continue to receive credits when 
they provide liquidity to the Exchange.
The Proposed Fee Change Is Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory. In the prevailing competitive environment, 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 provide 
a higher per share step-up credit for Retail Orders, as the proposed 
credit would be provided on an equal basis to all ETP Holders that add 
liquidity by meeting the requirements of the proposed Retail Order 
Step-Up Tier 3 and Retail Order Step-Up Tier 4. Further, the Exchange 
believes the proposed increased per share credits would incentivize ETP 
Holders that meet the current tiered requirements to send more of their 
Retail Orders to the Exchange to qualify for increased credits. The 
Exchange also believes that the proposed change is not unfairly 
discriminatory because it is reasonably related to the value to the 
Exchange's market quality associated with higher volume.
    Finally, the submission of orders to the Exchange is optional for 
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,\31\ 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.'' \32\
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    \31\ 15 U.S.C. 78f(b)(8).
    \32\ See Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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    Intramarket Competition. The Exchange believes the proposed rule 
change does not impose any burden on intramarket competition that is 
not necessary or appropriate in furtherance of the purposes of the Act. 
Particularly, the proposed change applies to all ETP Holders equally in 
that all ETP Holders are eligible for the proposed tiers, have a 
reasonable opportunity to meet each tier's criteria and will all 
receive the proposed rebate if such criteria is met. Additionally, the 
proposed change is designed to attract additional order flow to the 
Exchange. The Exchange believes that the proposed new Retail Order 
Step-Up pricing tiers would continue to incentivize market participants 
to submit orders that qualify as Retail Orders to the Exchange. Greater 
liquidity benefits all market participants on the Exchange by providing 
more trading opportunities and encourages ETP Holders to send orders, 
thereby contributing to robust levels of liquidity, which benefits all 
market participants. The proposed credits would be available to all 
similarly-situated market participants, and, as such, the proposed 
change would not impose a disparate burden on competition among market 
participants on the Exchange.
    Intermarket Competition. The Exchange believes the proposed rule 
change does not impose any burden on intermarket competition that is 
not necessary or appropriate in furtherance of the purposes of the Act. 
The Exchange operates in a highly competitive market in which market 
participants can readily choose to send their orders to other exchanges 
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 
this proposed fee change would 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.

[[Page 3960]]

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) \33\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \34\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \33\ 15 U.S.C. 78s(b)(3)(A).
    \34\ 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) \35\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \35\ 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-NYSEArca-2020-05 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-2020-05. 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 such 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-2020-05, and should be 
submitted on or before February 13, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-01038 Filed 1-22-20; 8:45 am]
 BILLING CODE 8011-01-P


