[Federal Register Volume 85, Number 103 (Thursday, May 28, 2020)]
[Notices]
[Pages 32068-32073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11405]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88930; File No. SR-NYSEArca-2020-45]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE 
Arca Equities Fees and Charges to Institute Ratio Threshold Fees

May 21, 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 May 13, 2020, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``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

    The Exchange proposes to amend the NYSE Arca Equities Fees and 
Charges (``Fee Schedule'') to institute Ratio Threshold Fees. The 
Exchange proposes to implement the fee change effective May 13, 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 institute Ratio

[[Page 32069]]

Threshold Fees, which would be applied to orders ranked Priority 2--
Display Orders and to shares of Auction-Only Orders that have a 
disproportionate ratio of orders that are not executed. The Exchange 
proposes to implement the fee change effective May 13, 2020.\3\
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    \3\ The Exchange originally filed to amend the Fee Schedule on 
May 1, 2020 (SR-NYSEArca-2020-40). SR-NYSEArca-2020-40 was 
subsequently withdrawn and replaced by this filing.
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    The purpose of the proposed rule change is to encourage efficient 
usage of Exchange systems by ETP Holders. The Exchange believes that it 
is in the best interests of all ETP Holders and investors who access 
the Exchange to encourage efficient systems usage. Unproductive share 
entry and cancellation practices, such as when ETP Holders flood the 
market with displayed orders that are frequently and/or rapidly 
cancelled, do little to support meaningful price discovery, may create 
investor confusion about the extent of trading interest in a security. 
The Exchange further believes that inefficient order entry practices of 
a small number of ETP Holders may place excessive burdens on Exchange 
systems and to the systems of other ETP Holders that are ingesting 
market data, while also negatively impacting the usefulness of market 
data feeds that transmit each order and subsequent cancellation.\4\ ETP 
Holders with an excessive ratio of cancelled to executed orders do 
little to support meaningful price discovery.
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    \4\ See generally Recommendations Regarding Regulatory Reponses 
to the Market Events of May 6, 2010, Joint CFTC-SEC Advisory 
Committee on Emerging Regulatory Issues, at 11 (February 18, 2011) 
(``The SEC and CFTC should also consider addressing the 
disproportionate impact that [high frequency trading] has on 
Exchange message traffic and market surveillance costs. . . . The 
Committee recognizes that there are valid reasons for algorithmic 
strategies to drive high cancellation rates, but we believe that 
this is an area that deserves further study. At a minimum, we 
believe that the participants of those strategies should properly 
absorb the externalized costs of their activity.'').
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    The Exchange believes that market quality can be improved through 
the imposition of a fee on market participants that have a 
disproportionate ratio of orders that are not executed. The Exchange 
believes that the proposed rule change would promote a more efficient 
marketplace and enhance the trading experience of all ETP Holders by 
encouraging them to more efficiently participate in the marketplace, 
while at the same time allowing for the provision of liquidity in 
volatile, high-volume markets and provide ETP Holders with order 
management flexibility without being subject to this proposed fee. 
Unnecessary ratios of executed orders due to cancellations can have a 
detrimental effect on all market participants who are potentially 
compelled to upgrade capacity as a result of the bandwidth usage of 
other participants. All ETP Holders are free to manage their order and 
message flow as is consistent with their business models, and the vast 
majority of ETP Holders are able to do so without even approaching the 
ratio thresholds proposed for the fee, as described below. The Exchange 
believes that the proposed rule change would promote a more efficient 
marketplace, encourage liquidity provision and enhance the trading 
experience of all ETP Holders by imposing a financial incentive for the 
small number of ETP Holders that are currently exceeding the proposed 
ratio thresholds. The Exchange notes that its technology and 
infrastructure is adequately able to handle high-volume and high-
volatility situations for ETP Holders that exceed the thresholds 
established by the Exchange. As described below, the proposed fee would 
take into consideration the number of shares that are executed or 
trades that occur.
    Only a small number of ETP Holders are executing orders at a 
disproportionately low ratio to the number of orders that have been 
entered and, thus, the impact of the proposed fee would be narrow and 
limited to those ETP Holders. These ETP Holders could avoid the 
proposed fee by changing their behavior. The Exchange believes the 
proposed fee would encourage ETP Holders that could be impacted by the 
proposed fee to modify their practices in order to avoid the fee, 
thereby improving the market for all participants. Accordingly, the 
Exchange does not expect the proposed fee to result in meaningful, if 
any, revenue. Prior to the submission of the proposed fee change, the 
Exchange engaged in discussions with ETP Holders that could be impacted 
by the proposed fee based on their prior trading behavior so that they 
may enhance the efficiency of their order entry practices and avoid the 
fee. The Exchange also provided notice to ETP Holders generally 
regarding the proposed fee.\5\
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    \5\ See Trader Update at https://www.nyse.com/publicdocs/nyse/notifications/trader-update/NYSE_Arca_Price_Change_2020_May.pdf.
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    As proposed, the Ratio Threshold Fee would apply to orders ranked 
Priority 2--Display Orders and to shares of Auction-Only Orders during 
the period when Auction Imbalance information is being disseminated.
Ratio Threshold for Priority 2--Display Orders (``RT--Display Fee'')
    For orders ranked Priority 2--Display Orders, ETP Holders that have 
characteristics indicative of inefficient order entry practices would 
be charged an RT--Display Fee on a monthly basis.\6\ For purposes of 
determining the RT--Display Fee:
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    \6\ The proposed fee focuses on displayed orders because such 
orders use more system resources than non-displayed orders.
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     The ``Weighted Order Total'' is the total number of orders 
ranked Priority 2--Display Orders entered by that ETP Holder in a 
month, as adjusted by a ``Weighting Factor.'' The Weighted Order Total 
calculation excludes (i) all orders in securities in which an ETP 
Holder is registered as a Market Maker \7\ or Lead Market Maker \8\ and 
(ii) all orders for an ETP Holder that is registered as a Market Maker 
or Lead Market Maker in 100 or more securities.
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    \7\ The term ``Market Maker'' is defined in Rule 1.1(z) to mean 
an ETP Holder that acts as a Market Maker pursuant to Rule 7-E.
    \8\ 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.
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     The ``Weighting Factor'' applied to each order based on 
its price in comparison to the national best bid or best offer 
(``NBBO'') at the time of order entry is:

------------------------------------------------------------------------
     Order's price versus NBBO at entry            Weighting factor
------------------------------------------------------------------------
Less than 0.20% away.......................  0x
0.20% to 0.99% away........................  1x
1.00% to 1.99% away........................  2x
2.00% or more away.........................  3x
------------------------------------------------------------------------

    For example, an order more than 2.0% away from the NBBO would be 
equivalent to three orders that were 0.50% away. Due to the applicable 
Weighting Factor of 0x, orders entered less than 0.20% away from the 
NBBO would not be included in the Weighted Order Total but would be 
included in the ``executed'' orders component of the Order Entry Ratio 
if they execute in full or part.
     The ``Order Entry Ratio'' would be calculated by dividing 
an ETP Holder's Weighted Order Total by the greater of (i) the number 
of orders ranked Priority 2--Display Orders that execute in full or in 
part or (ii) the number one (1).\9\
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    \9\ In the case where no orders entered by an ETP Holder 
executed, this component of the ratio would be assumed to be 1, so 
as to avoid the impossibility of dividing by zero.
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     ``Excess Weighted Orders'' would be calculated by 
subtracting (i) the Weighted Order Total that would result in the ETP 
Holder having an Order

[[Page 32070]]

Entry Ratio of 100 from (ii) the ETP Holder's actual Weighted Order 
Total.
    An ETP Holder with a daily average Weighted Order Total of 100,000 
or more \10\ during a month would be charged the RT--Display Fee, which 
is calculated by multiplying the Applicable Rate in the chart below by 
the number of Excess Weighted Orders.
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    \10\ The Exchange believes it is reasonable to exclude ETP 
Holders with a daily average Weighted Order Total of less than 
100,000 during the month because an ETP Holder with an extremely low 
volume of entered orders has only a de minimis impact on Exchange 
systems.
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    ETP Holders that exceed the Order Entry Ratio threshold of 1,000:1 
would pay a fee of $0.01 on each order that caused the ETP Holder to 
surpass the threshold. ETP Holders that exceed the Order Entry Ratio 
threshold of 100:1 but less than 1,000:1 would pay a fee of $0.005 on 
all orders that caused ETP Holder's ratio to exceed 100:1.

------------------------------------------------------------------------
                                                            Applicable
                    Order entry ratio                          rate
------------------------------------------------------------------------
0-100...................................................           $0.00
101-1,000...............................................           0.005
More than 1,000.........................................            0.01
------------------------------------------------------------------------

    The following example illustrates the calculation of the Order 
Entry Ratio and resulting RT--Display Fee:
     In a month, ETP Holder A enters 35,000,000 displayed, 
liquidity-providing orders:
    [cir] 20,000,000 of the orders are in securities in which ETP 
Holder A is an LMM. These orders are excluded from the calculation.
    [cir] 10,000,000 orders are entered at the NBBO. The Weighting 
Factor for these orders is 0x.
    [cir] 5,000,000 orders are entered at a price that is 1.50% away 
from the NBBO. The Weighting Factor for these orders is 2x.
     The Weighted Order Total is (10,000,000 x 0) + (5,000,000 
x 2) = 10,000,000.
     Of the 15,000,000 orders included in the calculation, 
90,000 are executed in full or in part.
     The Order Entry Ratio is 10,000,000 (Weighted Order 
Total)/90,000 (executed orders total) = 111
    In the example above, the Weighted Order Total that would result in 
an Order Entry Ratio of 100 is 9,000,000, since 9,000,000/90,000 = 100. 
Accordingly, the Excess Weighted Orders would be 10,000,000-9,000,000 = 
1,000,000.
    The RT--Display Fee charged to an ETP Holder would then be 
determined by multiplying the Applicable Rate by the number of Excess 
Weighted Orders.
    In the example above, because ETP Holder A had an Order Entry Ratio 
of 111, the Applicable Rate would be $0.0005. Accordingly, the monthly 
RT--Display Fee would be 1,000,000 (Excess Weighted Orders) x $0.005 
(Applicable Rate) = $5,000.
    Ratio Threshold for Auction-Only Orders During the Period When 
Auction Imbalance Information is Being Disseminated for a Core Open 
Auction or Closing Auction (``RT--Auction Fee'')
    For Auction-Only Orders,\11\ ETP Holders with an average daily 
number of orders of 10,000 or more \12\ would be charged an RT--Auction 
Fee on a monthly basis.\13\ For purposes of determining the RT--Auction 
Fee:
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    \11\ An Auction-Only Order is a Limit or Market Order that is to 
be traded only within an auction pursuant to Rule 7.35-E or routed 
pursuant to Rule 7.34-E. See Rule 7.31-E(c). Auction-Only Orders are 
orders submitted by an ETP Holder during the Early Open Auction, 
Core Open Auction, Closing Auction and Trading Halt Auction. See 
Rule 7.35-E.
    \12\ The Exchange believes it is reasonable to exclude ETP 
Holders with average daily orders of less than 10,000 during the 
month because an ETP Holder with an extremely low volume of entered 
orders has only a de minimis impact on Exchange systems.
    \13\ Similar to orders ranked Priority 2--Display Orders, the 
proposed fee focuses on Auction-Only Orders because a 
disproportionate ratio of such orders that are not executed uses 
more system resources, including updates to the Auction Imbalance 
Information as such orders are entered and cancelled, than other 
order entry and cancellation practices of ETP Holders. Accordingly, 
for Auction-Only Orders, Ratio Shares include shares of Auction-Only 
Orders executed in a disproportionate ratio to the quantity of 
shares entered during the period when Auction Imbalance Information 
is being disseminated for the Core Open Auction and Closing Auction.
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     The number of ``Ratio Shares'' is the average daily number 
of shares of Auction-Only Orders that are cancelled by the ETP Holder 
at a disproportionate ratio to the average daily number of shares 
executed by that ETP Holder. Orders ranked Priority 2--Display Orders 
designated for the Core Trading Session only that are entered during 
the period when Auction Imbalance Information for the Core Open Auction 
is being disseminated are included in the Ratio Shares calculation.\14\ 
All orders entered by an ETP Holder for securities in which it is 
registered as a Lead Market Maker are not included the calculation of 
Ratio Shares.
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    \14\ For purposes of the Ratio Threshold Fees, orders ranked 
Priority 2--Display Orders designated for the Core Trading Session 
only that are cancelled during the period when Auction Imbalance 
Information for the Core Open Auction is being disseminated are 
included in the calculation of the proposed RT--Auction Fee. The 
Exchange proposes to include such orders as Auction-Only Orders for 
purposes of such fee because prior to the Core Open Auction, such 
orders would not be eligible to trade and therefore would not be 
included in the RT--Display Fee calculation, yet such orders would 
be included in the imbalance calculation for the Core Open Auction.
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     The ``Ratio Shares Threshold'' is an ETP Holder's Ratio 
Shares divided by the average daily executed shares by the ETP Holder.
    The Exchange proposes to charge the RT--Auction Fee for Auction-
Only Orders during the period when Auction Imbalance Information is 
being disseminated.\15\
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    \15\ See Rules 7.35-E(c)(1) (Core Open Auction Imbalance 
Information begins at 8:00 a.m. ET) and 7.35-E(d)(1) (Closing 
Auction Imbalance Information begins at 3:00 p.m. ET).
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    The Exchange proposes that it would not charge the RT--Auction Fee 
if Auction-Only Orders have a Ratio Shares Threshold of less than 50. 
If the Ratio Shares Threshold is greater than or equal to 50, the fee 
would be as follows:
     No Charge for ETP Holders with an average of fewer than 20 
million Ratio Shares per day.
     $1.00 per million Ratio Shares for ETP Holders with an 
average of 20 million to 200 million Ratio Shares per day.
     $10.00 per million Ratio Shares for ETP Holders with an 
average of more than 200 million Ratio Shares per day.
    ETP Holders would be charged for the entirety of their Ratio Shares 
at a rate of $1.00 per million Ratio Shares if the ETP Holder has an 
average of 20 million to 200 million Ratio Shares; and $10.00 per 
million Ratio Shares if the ETP Holder has an average of more than 200 
million Ratio Shares.
    The following example illustrates the calculation of the RT--
Auction Fee for Auction-Only Orders.
     In a month, ETP Holder B enters a daily average of 100,000 
Auction-Only Orders for the Closing Auction, with an average size of 
600 shares.
     Thus, ETP Holder B's daily average number of shares 
submitted in Auction-Only Orders for the Closing Auction is 60,000,000 
shares (100,000 orders x 600 shares).
     During the period when Closing Auction Imbalance 
Information is being disseminated, ETP Holder B cancels a daily average 
of 59,000,000 shares and executes a daily average of 1,000,000 shares 
in the Closing Auction.
     ETP Holder B has an average daily Ratio Shares quantity of 
58,000,000 (59,000,000-1,000,000), and a Ratio Shares Threshold of 58 
(58,000,000/1,000,000).
     Since the Ratio Shares Threshold is greater than 50 and 
the average daily Ratio Shares quantity is between 20 million and 200 
million, ETP Holder B would be subject to the proposed fee of

[[Page 32071]]

$1.00 per million Ratio Share, resulting in a fee of $1,218 assuming a 
21-day month (58,000,000/1,000,000 x $1.00 x 21).
    As noted above, the Exchange is not proposing to implement this fee 
in order to create revenue, but rather to provide an incentive for a 
small number of ETP Holders to change their order entry practices. 
Therefore, the Exchange also proposes to limit the amount an ETP Holder 
would pay by adopting a cap such that the combined RT--Display Fee and 
RT--Auction Fee for an ETP Holder would not exceed $2,000,000 per 
month. Based on an analysis of the impact to ETP Holders, the Exchange 
does not believe that many ETP Holders would be impacted. For example, 
the median Order Entry Ratio across all ETP Holders in April 2020 \16\ 
for orders ranked Priority 2--Display Orders is 0.32. The median Ratio 
Shares Threshold across all ETP Holders in April 2020 \17\ for Auction-
Only Orders is approximately -0.68, which indicates that the median ETP 
Holder has more executed shares than Ratio Shares.
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    \16\ Through April 20, 2020.
    \17\ Id.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\18\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\19\ 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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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed fee would help to prevent 
fraudulent and manipulative acts and practices, 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, because it is designed to 
reduce the numbers of orders and shares being entered and then 
cancelled prior to an execution.
The Proposed Changes are Reasonable
    The Exchange operates in a highly competitive market. The 
Commission has repeatedly expressed its preference for competition over 
regulatory intervention in determining prices, products, and services 
in the securities markets. Specifically, in Regulation NMS, the 
Commission highlighted the importance of market forces in determining 
prices and SRO revenues and, also, recognized that current regulation 
of the market system ``has been remarkably successful in promoting 
market competition in its broader forms that are most important to 
investors and listed companies.'' \20\
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    \20\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (``Regulation 
NMS'').
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    As the Commission itself recognized, the market for trading 
services in NMS stocks has become ``more fragmented and competitive.'' 
\21\ Indeed, equity trading is currently dispersed across 13 
exchanges,\22\ numerous alternative trading systems,\23\ and broker-
dealer internalizers and wholesalers, all competing for order flow. 
Based on publicly-available information, no single exchange currently 
has more than 20% market share (whether including or excluding auction 
volume).\24\ 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 or reduce use of 
certain categories of products, in response to fee changes. 
Accordingly, the Exchange's fees, including the proposed Ratio 
Threshold Fee, are reasonably constrained by competitive alternatives 
and market participants can readily trade on competing venues if they 
deem pricing levels at those other venues to be more favorable.
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    \21\ See Securities Exchange Act Release No. 51808, 84 FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18) (Final Rule).
    \22\ 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.
    \23\ 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.
    \24\ See Cboe Global Markets U.S. Equities Market Volume 
Summary, available at http://markets.cboe.com/us/equities/market_share/.
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    The Exchange believes that the proposed Ratio Threshold Fees are 
reasonable because they are designed to achieve improvements in the 
quality of displayed liquidity--both intraday and in advance of 
auctions--on the Exchange for the benefit of all market participants. 
In addition, the proposed fees are reasonable because market 
participants may readily avoid the fee by adjusting their order entry 
and/or cancellation practices, which would result in more orders or 
shares being cancelled before execution.
    The Exchange believes it is also reasonable to charge a Ratio 
Threshold Fee on the basis of the number of orders ranked Priority 2--
Display Orders and to charge a Ratio Threshold Fee that is based on the 
number of shares of Auction-Only Orders because, as a general matter, 
displayed orders entered on the Exchange have fewer shares associated 
with each order whereas, the share quantity of an Auction-Only Order 
typically is much larger. The Exchange believes that applying the Ratio 
Threshold Fee to orders ranked Priority 2--Display Orders based on the 
number of shares of each order would not promote efficient order entry 
practice by ETP Holders in a meaningful way because, as noted above, 
the average size of each displayed order is relatively small in terms 
of shares. Therefore, to properly incentivize ETP Holders, the Exchange 
believes assessing the proposed fee based on orders, rather than number 
of shares, is more appropriate. The Exchange further believes that it 
is reasonable to apply the proposed fee to Auction-Only Orders only 
during the period when Auction Imbalance Information is being 
disseminated, because such orders are not displayed prior to such 
information being disseminated. By contrast, cancelling shares of 
Auction-Only Orders during the period when Auction Imbalance 
Information is being disseminated could result in excessive and 
unnecessary changes to imbalance information.
    Although only a small number of ETP Holders could be subject to the 
proposed fee, the Exchange believes that the proposed fee is necessary 
because of the negative externalities that such behavior imposes on 
others through order entry practices resulting in a disproportionate 
ratio of executed orders or shares to those that are not executed. 
Accordingly, the Exchange believes that it is fair to impose the fee on 
these market participants in order to incentivize them to modify their 
practices and thereby benefit the market. Importantly, whether an ETP 
Holder would be subject to the proposed fee would be independent of any 
determination of whether such ETP Holder is complying with Exchange and 
federal rules, including those governing order entry and cancellation.
    The Exchange believes that the proposed combined fee cap of 
$2,000,000 is reasonable as it would reduce the impact of the fee on 
ETP Holders. As noted above, the purpose of

[[Page 32072]]

the proposed fee is not to generate revenue for the Exchange, but 
rather to provide an incentive for a small number of ETP Holders to 
change their order entry and/or cancellation behavior. As a general 
principal, the Exchange believes that greater participation on the 
Exchange by ETP Holders improves market quality for all market 
participants. Thus, in adopting the proposed fee, and the cap, the 
Exchange balanced the desire to improve market quality against the need 
to discourage inefficient order entry and/or cancellation practices.
    The Exchange believes the proposed rule change is designed to 
promote just and equitable principles of trade by adopting a fee that 
is comparable to a fee charged by the NASDAQ Stock Market LLC 
(``Nasdaq'') \25\ and by Exchange's options market, NYSE Arca Options, 
to OTP Holders to disincentivize a disproportionate ratio of orders 
that are not executed.\26\ With respect to the RT--Display Fee, the 
proposed fee is identical to the Excess Order Fee currently in place on 
Nasdaq and would subject ETP Holders to the fee if they exceed the 
Order Entry Ratio thresholds established by the Exchange, which 
thresholds are also identical to those on Nasdaq. Additionally, while 
the RT--Auction Fee is novel in that no other exchange currently 
assesses such a fee, the proposed fee, similar to the RT--Display fee, 
is intended to disincentivize a disproportionate ratio of orders that 
are not executed. Therefore, the RT--Auction Fee focuses on Auction-
Only Orders because a disproportionate ratio of such orders that are 
not executed uses more system resources, including updates to the 
Auction Imbalance Information as such orders are entered and cancelled, 
than other order entry and cancellation practices of ETP Holders. 
Finally, the RT--Auction Fee, unlike the RT--Display Fee which would be 
assessed on a tiered basis, would be applied on the entirety of each 
ETP Holder's Ratio Shares, which, as defined above, is calculated net 
of shares that have been executed, and therefore, the fee would be 
applied only to those shares that remain unexecuted. The Exchange 
believes it would be appropriate to assess the fee in a non-tiered 
manner because Auction-Only Orders generally have a larger number of 
shares associated with each order than orders ranked Priority 2--
Display Orders and therefore, the number of shares that could be 
impacted could increase significantly in a short period of time since 
the auction imbalance period only lasts for one hour. Additionally, the 
submission, and subsequent cancellation, of Auction-Only Orders during 
the imbalance dissemination period could lead to disruption in trading 
as each order, which could contain a large number of shares, would 
require the Exchange to update and disseminate the new order 
information on its market data feed. Accordingly, the Exchange believes 
assessing the fee on a share basis is appropriate because it would more 
effectively disincentivize ETP Holders from submitting a 
disproportionate ratio of shares that are not executed.
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    \25\ See Securities Exchange Act Release No. 66951 (May 9, 
2012), 77 FR 28647 (May 15, 2012) (SR-NASDAQ-2012-055) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To 
Institute an Excess Order Fee).
    \26\ See Ratio Threshold Fee, at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf. The Ratio Threshold Fee is 
charged to OTP Holders based on the number of orders entered 
compared to the number of executions received in a calendar month.
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The Proposal Is an Equitable Allocation of Fees
    For the reasons noted above, the Exchange believes the proposed 
fees are also equitably allocated among its market participants. 
Although only a small number of ETP Holders may be subject to the 
proposed fees based on their current trading practices, any ETP Holder 
could determine to change their order entry practices at any time, and 
the proposed fees would be applied to any ETP Holder that determined to 
engage in such inefficient order entry practices. The proposed fee is 
therefore designed to encourage better displayed order entry practices 
by all ETP Holders for the benefit of all market participants. 
Moreover, the purpose of the proposal is not to generate revenue for 
the Exchange, but rather to provide an incentive for a small number of 
ETP Holders to change their order entry and/or cancellation behavior.
    The Exchange believes that the proposal constitutes an equitable 
allocation of fees because all similarly situated ETP Holders would be 
subject to the proposed fees. As noted above, the Exchange believes 
that because having a disproportionate ratio of unexecuted orders is a 
problem associated with a relatively small number of ETP Holders, the 
impact of the proposal would be limited to those ETP Holders, and only 
if they do not alter their trading practices. The Exchange believes the 
proposal would encourage ETP Holders that could be impacted to modify 
their practices in order to avoid the fee, thereby improving the market 
for all participants.
The Proposal 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, and are free to transact on 
competitor markets to avoid being subject to the proposed fees. The 
Exchange believes that the proposed fees neither target nor will they 
have a disparate impact on any particular category of market 
participant. The Exchange believes that the proposal change does not 
permit unfair discrimination because it would be applied to all 
similarly situated ETP Holders, who would all be subject to the 
proposed fee on an equal basis.
    The Exchange further believes that it is not unfairly 
discriminatory to exclude Market Makers and Lead Market Makers from the 
proposed RT--Display Fee in securities in which they are registered, or 
if they are registered in more than 100 securities. Market Makers and 
Lead Market Makers have independent obligations to maintain a two-sided 
quotation a specified percentage away from the NBBO. In order to meet 
this obligation, such ETP Holders are more likely to need to cancel 
their resting orders so that they can update their quotes. The Exchange 
believes that such independent obligation to maintain a fair and 
orderly market outweighs any impact such cancellations would have on 
Exchange systems. The Exchange similarly believes that, unlike Lead 
Market Makers, Market Makers do not have a similar obligation leading 
into an auction, therefore it is not necessary to exclude Market Makers 
from the proposed RT--Auction Fee.
    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. 
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,\27\ 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 fee would encourage

[[Page 32073]]

ETP Holders to modify their order entry and/or cancellation practices 
so that fewer orders or shares are cancelled without resulting in an 
execution, thereby promoting price discovery and transparency and 
enhancing order execution opportunities on the Exchange.
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    \27\ 15 U.S.C. 78f(b)(8).
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    Intramarket Competition. The Exchange believes the proposed Ratio 
Threshold Fees would not place any undue burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because the proposed fees are designed to encourage 
ETP Holders to submit orders or shares into the market that are 
actionable. Further, the proposal would apply to all ETP Holders on an 
equal basis, and, as such, the proposed change would not impose a 
disparate burden on competition among market participants on the 
Exchange. To the extent that these purposes are achieved, the Exchange 
believes that the proposal would serve as an incentive for ETP Holders 
to modify their order entry practices, thus enhancing the quality of 
the market and increase the volume of orders or shares directed to, and 
executed on, the Exchange. In turn, all the Exchange's market 
participants would benefit from the improved market liquidity.
    Intermarket Competition. The Exchange operates in a highly 
competitive market in which market participants can readily favor other 
exchange and off-exchange venues. In such an environment, the Exchange 
must continually review, and consider adjusting its services along with 
its fees and rebates, to remain competitive with other exchanges and 
with off-exchange venues. Because competitors are free to modify their 
own services, and their fees and credits in response, the Exchange does 
not believe the proposed fee change can impose any burden on 
intermarket competition.

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) \28\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \29\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \28\ 15 U.S.C. 78s(b)(3)(A).
    \29\ 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) \30\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \30\ 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-2020-45 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-2020-45. 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-2020-45, and should be 
submitted on or before June 18, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11405 Filed 5-27-20; 8:45 am]
BILLING CODE 8011-01-P


