[Federal Register Volume 85, Number 38 (Wednesday, February 26, 2020)]
[Notices]
[Pages 11162-11165]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03769]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88248; File No. SR-LTSE-2020-04]


Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the Annual Membership Fee

February 20, 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 February 10, 2020, Long-Term Stock Exchange, Inc. (``LTSE'' 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 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

    LTSE proposes a rule change to establish an Annual Membership Fee.
    The text of the proposed rule change is available at the Exchange's 
website at https://longtermstockexchange.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 these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects 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 is proposing to establish an Annual Membership Fee for 
Members \3\ of the Exchange of $10,000. The Annual Membership Fee is 
proposed to be assessed on a calendar-year basis and will be due on or 
before December 31 of the prior year. For example, the Annual 
Membership Fee for calendar year 2021 will be due on or before December 
31, 2020.
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    \3\ The term ``Member'' means any registered broker or dealer 
that has been admitted to membership in the Exchange. A Member has 
the status of a Member of the Exchange as that term is defined in 
Section 3(a)(3) of the Act. Membership may be granted to a sole 
proprietor, partnership, corporation, limited liability company, or 
other organization that is a registered broker or dealer pursuant to 
Section 15 of the Act, and which has been approved by the Exchange. 
See LTSE Rule 1.160(w).
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    However, if a Member is pending a voluntary termination of rights 
as a Member pursuant to Rule 2.190 prior to the date any Annual 
Membership Fee for a given year will be due (i.e., December 31) and the 
Member does not utilize the facilities of the Exchange while such 
voluntary termination of rights is pending, then the Member will not be 
obligated to pay the Annual Membership Fee for the upcoming calendar 
year. The Exchange believes this to be appropriate because there is 
ordinarily a 30-day waiting period before such resignation shall take 
effect.
    The Annual Membership Fee for a firm that becomes a Member during a 
calendar year is proposed to be prorated (starting with the next 
calendar month) based upon the date the firm becomes a Member. For 
example, if a firm is approved as a Member on July 15, the prorated 
Annual Membership Fee assessed on such new Member would cover the 
months of August through December, i.e., five months at $833 for a 
total of $4,165. Any Annual Membership Fees that are paid are proposed 
to be non-refundable.
    As an inducement for firms to become Members of the Exchange as the 
Exchange completes the build-out of its trading platform and finalizes 
compliance with the conditions set forth in the Exchange's approval 
order,\4\ the Exchange proposes to waive the 2020 Annual Membership Fee 
for any firm that submits its completed membership application prior to 
the commencement of trading operations. Additional information 
regarding the Exchange's readiness to commence trading operations and 
the anticipated start of trading will be announced on its website at 
www.longtermstockexchange.com.
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    \4\ See Securities Exchange Act Release No. 34-85828 (May 10, 
2019), 84 FR 21841 (May 15, 2019) (File No. 10-234).
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    The Exchange does not presently contemplate proposing any 
application

[[Page 11163]]

fees, trading fees, trading rights or trading permit fees, or so-called 
``headcount'' fees.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act \5\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \6\ in 
particular, because it provides for the equitable allocation of 
reasonable dues, fees, and other charges among its Members and other 
persons using its facilities. The Exchange also believes that the 
proposed rule change is consistent with the requirements of Section 
6(b)(5) of the Act \7\ because the proposed rule change is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest and is not 
designed to permit unfair discrimination between customer, issuers, 
brokers, and dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed Annual Membership Fee is 
reasonable because it is a de minimis expense in relation to the costs 
of operating a broker-dealer that routes and executes orders across the 
trading venues that comprise the national market system. The Exchange 
is offering a novel trading model--the Very Simply Market (``VSM'') 
\8\--in which all orders would be fully displayed and all trades would 
occur at displayed prices, thus dispensing with both the need for 
midpoint executions (e.g., traders accessing non-displayed prices) and 
complex order types. The Exchange believes that the VSM also would 
appeal to market makers and other firms who, by virtue of the simple 
nature of the market, would be able to easily and effectively manage 
their quoting behavior. In view of these offerings, the Exchange 
believes that there is value in becoming a Member of the Exchange and 
that the proposed Annual Membership Fee is reasonable. Moreover, 
insofar as the Annual Membership Fee is an ``all-in'' fee (i.e., LTSE 
does not charge--nor does LTSE presently contemplate charging--
application fees, trading fees, trading rights fees, or trading permit 
fees), the Annual Membership Fee is lower than other national 
securities exchanges that charge such fees.\9\ The Exchange also does 
not charge--nor does it presently contemplate charging--so-called 
``headcount fees,'' e.g., fees charged for each Form U-4 filed for 
registration of a representative or a principal or the transfer or re-
licensing of such personnel,\10\ further highlighting the 
reasonableness of the proposed Annual Membership Fee. The proposed 
Annual Membership Fee might be seen as relatively more reasonable for a 
Member that conducts more trading on LTSE, but the Exchange believes 
that the clarity and convenience of a fixed fee--in contrast to fees 
based on trading volume or the number or type of connections to the 
exchange--as well the amount of the fee, makes the proposed rule change 
reasonable.
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    \8\ See Securities Exchange Act Release No. 34-87221 (October 3, 
2019), 84 FR 54195 (October 9, 2019) (SR-LTSE-2019-02).
    \9\ For example, NYSE's annual trading license fee for member 
organizations ranges from $25,000 to $50,000 based on the number of 
trading licenses. See ``Price List 2020,'' New York Stock Exchange 
at 39 (last updated January 2, 2020), https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf. Nasdaq's annual 
membership fee is $3,000 plus a monthly $1,250 trading rights fee 
(totaling $18,000 per year). See ``NASDAQ Membership Fees,'' Nasdaq, 
http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2#membership. 
See also Securities Exchange Act Release No. 34-81133 (July 12, 
2017), 82 FR 32904 (July 18, 2017) (SR-NASDAQ-2017-065) (discussing 
the reasonableness of NASDAQ's fees).
    \10\ See, e.g., ``NASDAQ Membership Fees,'' supra note 9 ($55 
for each Form U-4 filed for the registration of a Representative or 
Principal, and $55 for each Form U-4 filed for the transfer or re-
licensing of a Representative or Principal).
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    The Exchange believes that the proposed Annual Membership Fee is 
not unfairly discriminatory because it would be assessed equally across 
all Members or firms that seek to become Members. The Exchange believes 
that the proposed Annual Membership Fee is not unfairly discriminatory 
because no broker-dealer is required to become a member of the 
Exchange.\11\ The vigorous competition among national securities 
exchanges provides many alternatives for firms to voluntarily decide 
whether membership in LTSE is appropriate and worthwhile, and no 
broker-dealer is required to become a member of the Exchange.\12\
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    \11\ For example, NYSE National lists only 52 firms in its 
membership directory, as compared to 148 firms listed as members of 
NYSE. Compare ``NYSE National Membership,'' https://www.nyse.com/markets/nyse-national/membership (last visited January 23, 2020), 
with ``NYSE Membership,'' https://www.nyse.com/markets/nyse/membership (last visited January 23, 2020).
    \12\ Neither the trade-through requirements under Regulation NMS 
nor broker-dealers' best execution obligations require a broker-
dealer to become a member of every exchange.
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    The Exchange further believes that the proposed fees would be an 
equitable allocation of reasonable dues, fees, and other charges among 
its members and issuers and other persons using its facilities, and are 
not unfairly discriminatory. As the Commission noted in its Concept 
Release Concerning Self-Regulation:
    The Commission to date has not issued detailed rules specifying 
proper funding levels of [self-regulatory organization (``SRO'')] 
regulatory programs, or how costs should be allocated among the various 
SRO constituencies. Rather, the Commission has examined the SROs to 
determine whether they are complying with their statutory 
responsibilities. This approach was developed in response to the 
diverse characteristics and roles of the various SROs and the markets 
they operate. The mechanics of SRO funding, including the amount of 
revenue that is spent on regulation and how that amount is allocated 
among various regulatory operations, is related to the type of market 
that an SRO is operating. . . . Thus, each SRO and its financial 
structure is, to a certain extent, unique. While this uniqueness can 
result in different levels of SRO funding across markets, it also is a 
reflection of one of the primary underpinnings of the National Market 
System. Specifically, by fostering an environment in which diverse 
markets with diverse business models compete within a unified National 
Market System, investors and market participants benefit.\13\
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    \13\ Securities Exchange Act Release No. 34-50700 (November 22, 
2004), 69 FR 71255, 71267-68 (December 8, 2004) (File No. S7-40-04).
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    The Exchange's proposed funding model relies primarily on issuers, 
who would pay listing fees,\14\ and Members, who would pay annual 
membership fees. Thus, the proposed rule change has broker-dealers 
sharing in the costs of operating the Exchange. Over time, the Exchange 
can assess whether the apportionment of fees among its various 
constituencies, but the approach outlined in the proposed rule change 
aligns with a new exchange that is seeking to attract members amidst a 
highly competitive landscape. Indeed, for this reason, the Exchange 
proposes to waive the Annual Membership Fee for calendar year 2020 for 
any firm submitting a completed membership application before the 
Exchange

[[Page 11164]]

commences trading operations. While this incentive to attract members 
will reduce revenue from broker-dealer memberships in the short run, 
the Exchange believes that these incentives will encourage firms to 
consider becoming members and better position the Exchange for the long 
term.
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    \14\ See SR-LTSE-2020-03 (filed January 30, 2020) (on file with 
Commission). The Commission notes that, since the Exchange's filing 
of the instant proposed rule change, notice of the listing fees 
proposal has been published in the Federal Register. See Securities 
Exchange Act Release No. 88133 (February 6, 2020), 85 FR 8048 
(February 12, 2019) (SR-LTSE-2020-03).
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    Effective regulation is central to the proper functioning of the 
securities markets. Recognizing the importance of such efforts, 
Congress decided to require national securities exchanges to register 
with the Commission as self-regulatory organizations to carry out the 
purposes of the Act. The Exchange therefore believes that it is 
critical to ensure that regulation is appropriately funded. The Annual 
Membership Fee is expected to provide a source of funding towards the 
Exchange's total regulatory costs.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\15\ the Exchange 
believes that the proposed rule change would not impose any burden on 
intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. Instead, the 
Exchange believes that the proposed rule change would promote and 
enhance intermarket competition by supporting the funding and operation 
of a national securities exchange that is focused principally on 
uniting bold ideas with patient capital and for companies and investors 
who measure success over years and decades, not financial quarters.\16\ 
In this regard, the Exchange believes that there is broad 
acknowledgment that the number of new companies accessing the U.S. 
public capital markets is decreasing and has been for some time.\17\ 
For example, the Commission's recent proposal on Amending the 
``Accredited Investor'' Definition acknowledges this problem, but 
focuses instead on bringing more investors into the private 
markets.\18\ The Exchange believes that its entry as a national 
securities exchange will help reinvigorate the public capital 
markets,\19\ and in turn, promote intermarket competition given the 
wide number of venues in which a listed company's stock can trade.
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    \15\ 15 U.S.C. 78f(b)(8).
    \16\ See Lananh Nguyen, ``Silicon Valley Exchange Says Wall 
Street Needs to Slow Down,'' Bloomberg (December 19, 2019), https://www.bloomberg.com/news/articles/2019-12-19/long-term-stock-exchange-says-wall-street-needs-to-slow-down?sref=CDdNJ6yd; Laurence Dodds, 
``One Man's Quest to Challenge Wall Street with a New Silicon Valley 
Stock Exchange,'' The Telegraph (November 7, 2019), https://www.telegraph.co.uk/technology/2019/11/07/one-mans-quest-challenge-wall-street-new-silicon-valley-stock/.
    \17\ See Richard Henderson, ``The Incredible Shrinking Stock 
Market,'' Financial Times (June 26, 2019), https://www.ft.com/content/0c9c0b64-9760-11e9-9573-ee5cbb98ed36; Speech, Rick A. 
Fleming, ``Enhancing the Demand for IPOs'', NASAA 2017 Public Policy 
Conference (May 9, 2017), available at https://www.sec.gov/news/speech/fleming-enhancing-demand-ipos-050917.
    \18\ Amending the ``Accredited Investor'' Definition, Proposed 
Rule, Release Nos. 33-10734, 34-87784, 85 FR 2574, 2605 (January 15, 
2020) (File No. S7-25-19) (``[T]he high-growth stage of the 
lifecycle of many issuers occurs while they remain private. Thus, 
investors that do not qualify for accredited investor status may not 
be able to participate in the high-growth stage of these issuers 
because it often occurs before they engage in registered offerings. 
Allowing more investors to invest in unregistered offerings of 
private firms thus may allow them to participate in the high-growth 
stages of these firms.'') (footnote omitted).
    \19\ See Order Approving Proposed Rule Change To Adopt Rule 
14.425, Which Would Require Companies Listed on the Exchange To 
Develop and Publish Certain Long-Term Policies, Securities Exchange 
Act Release No. 34-86722 (August 21, 2019), 84 FR 44952 (August 27, 
2019) (SR-LTSE-2019-01).
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    The Exchange also believes that the proposed costs of membership 
will not impose an unnecessary or inappropriate burden on intermarket 
competition given the highly competitive market for execution venues, 
which includes not only the 13 other equities exchanges, but also off-
exchange venues, including over 30 alternative trading systems trading 
NMS stocks.\20\ The Exchange believes that the proposed rule change 
also will not burden intermarket competition given the many choices 
firms have regarding the national securities exchanges in which they 
choose to become members.\21\ As noted above, neither the trade-through 
requirements under Regulation NMS nor broker-dealers' best execution 
obligations require a broker-dealer to become a member of every 
exchange.
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    \20\ See ``NMS Stock ATSs,'' U.S. Securities and Exchange 
Commission, https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm#ats-n.
    \21\ See supra note 11.
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    Additionally, the Exchange believes that the Annual Membership Fee 
would not be an inappropriate burden on intramarket competition in 
particular, as it would be applied equally to all Members.

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

    Written comments were neither solicited nor received.

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

    The foregoing proposal has become effective pursuant to section 
19(b)(3)(A) of the Act,\22\ and Rule 19b-4(f)(2) \23\ thereunder. 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 to determine whether 
the proposed rule should be approved or disapproved.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(2).
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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-LTSE-2020-04 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-LTSE-2020-04. 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

[[Page 11165]]

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-LTSE-2020-04, 
and should be submitted on or before March 18, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03769 Filed 2-25-20; 8:45 am]
BILLING CODE 8011-01-P


