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Federal Register / Vol. 86, No. 103 / Tuesday, June 1, 2021 / Notices liquidity and charges fees to members that provide liquidity. Currently, the Exchange has a schedule, at Equity 7, Section 118a, which consists of several different credits that it provides for orders in securities priced at $1 or more per share that access liquidity on the Exchange and several different charges that it assesses for orders in such securities that add liquidity on the Exchange.
The Exchange proposes to add a new credit to this schedule of $0.0018 per share executed for orders in securities in Tape B that access liquidity excluding orders with Midpoint pegging and excluding orders that receive price improvement and execute against an order with a Non-displayed price entered by a member that: i Accesses at least 60% more liquidity in securities in Tape B, as a percentage of total Consolidated Volume during a month, than it did during April 2021; ii accesses liquidity in securities in Tape B equal to or exceeding 0.035% of total Consolidated Volume during a month;
and iii adds liquidity equal to or exceeding an average daily volume of 50,000 shares in a month. Orders in securities in Tapes A and C will not be eligible for the new proposed credit.
The Exchange intends for this new credit to reward members that remove significant volumes of Tape B liquidity from the Exchange and to encourage such members to further grow the extent to which they remove Tape B liquidity from the Exchange. The Exchange believes that any ensuing increase in the removal of Tape B liquidity from the Exchange will improve the quality of the Exchanges market. In particular, the Exchange intends to encourage members to increase the extent to which they remove liquidity in securities in Tape B, as the Exchange believes that increased removal activity in securities in Tape B
is most needed and likely to be most beneficial to market quality.
The Exchange also notes that, like its other removal credit tiers, it proposes to tie the new proposed credit to the addition of at least an average daily volume of 50,000 shares of liquidity during the month. Doing so will help to incent members, not only to remove a significant amount of liquidity from the Exchange, but also to add a significant amount of liquidity as well. Any increase in liquidity adding activity that ensues from this credit will improve market quality, to the benefit of all participants.
2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6b
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of the Act,3 in general, and furthers the objectives of Sections 6b4 and 6b5
of the Act,4 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The proposal is also consistent with Section 11A of the Act relating to the establishment of the national market system for securities.
The Proposal Is Reasonable The Exchanges proposed change to its schedule of credits is reasonable in several respects. As a threshold matter, the Exchange is subject to significant competitive forces in the market for equity securities transaction services that constrain its pricing determinations in that market. The fact that this market is competitive has long been recognized by the courts. In NetCoalition v.
Securities and Exchange Commission, the D.C. Circuit stated as follows: no one disputes that competition for order flow is fierce. . . . As the SEC
explained, in the U.S. national market system, buyers and sellers of securities, and the broker-dealers that act as their order-routing agents, have a wide range of choices of where to route orders for execution; and no exchange can afford to take its market share percentages for granted because no exchange possesses a monopoly, regulatory or otherwise, in the execution of order flow from broker dealers. . . . 5
The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, 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
Numerous indicia demonstrate the competitive nature of this market. For 3 15

U.S.C. 78fb.
U.S.C. 78fb4 and 5.
5 NetCoalition v. SEC, 615 F.3d 525, 539 D.C. Cir.
2010 quoting Securities Exchange Act Release No.
59039 December 2, 2008, 73 FR 74770, 7478283
December 9, 2008 SRNYSEArca200621.
6 Securities Exchange Act Release No. 51808
June 9, 2005, 70 FR 37496, 37499 June 29, 2005
Regulation NMS Adopting Release.
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example, clear substitutes to the Exchange exist in the market for equity security transaction services. The Exchange is only one of several equity venues to which market participants may direct their order flow, and it represents a small percentage of the overall market. It is also only one of several taker-maker exchanges.
Competing equity exchanges offer similar tiered pricing structures to that of the Exchange, including schedules of rebates and fees that apply based upon members achieving certain volume thresholds.7
Within this environment, market participants can freely and often do shift their order flow among the Exchange and competing venues in response to changes in their respective pricing schedules.8 Within the foregoing context, the proposal represents a reasonable attempt by the Exchange to increase its liquidity and market share relative to its competitors.
The Exchange believes that its proposal is reasonable to establish a new remove credit with a growth component tied to the removal of liquidity in securities in Tape B. The proposal will encourage members to increase the extent to which they remove Tape B liquidity from the Exchange, and it will reward members that do so in significant volumes. The Exchange believes that any ensuing increase in the removal of liquidity from the Exchangeand in particular, liquidity in securities in Tape Bwill improve the quality of the Exchanges market, and it will cause the Exchange to become more attractive to existing and prospective participants. The Exchange notes that it selected April 2021 as the baseline for the growth requirements because it is the month immediately preceding the establishment of the new tier.
The Exchange also believes it is reasonable to tie the new proposed credit to the addition of at least an average daily volume of 50,000 shares of liquidity during the month. Doing so will help to incent members, not only to remove a significant amount of liquidity from the Exchange, but also to add a 7 See CBOE BYX Fee Schedule, at http
markets.cboe.com/us/equities/membership/fee_
schedule/byx/; NYSE National Fee Schedule, at https www.nyse.com/publicdocs/nyse/regulation/
nyse/NYSE_National_Schedule_of_Fees.pdf.
8 The Exchange perceives no regulatory, structural, or cost impediments to market participants shifting order flow away from it. In particular, the Exchange notes that these examples of shifts in liquidity and market share, along with many others, have occurred within the context of market participants existing duties of Best Execution and obligations under the Order Protection Rule under Regulation NMS.

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