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Federal Register / Vol. 86, No. 174 / Monday, September 13, 2021 / Notices A. Self-Regulatory Organizations Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend the Fee Schedule to eliminate the per share credit associated with certain Retail Orders 4 that add and remove liquidity.
The Exchange proposes to implement the fee change effective August 23, 2021.5

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Background 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. 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
While Regulation NMS has enhanced competition, it has also fostered a fragmented market structure where trading in a single stock can occur across multiple trading centers. When multiple trading centers compete for order flow in the same stock, the Commission has recognized that such competition can lead to the fragmentation of order flow in that stock. 7 Indeed, equity trading is currently dispersed across 16
exchanges,8 numerous alternative trading systems,9 and broker-dealer 4 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 SRNYSEArca201277.
5 The Exchange originally filed to amend the Fee Schedule on August 9, 2021 SRNYSEArca2021
72. SRNYSEArca202172 was subsequently withdrawn and replaced by this filing.
6 See Securities Exchange Act Release No. 51808
June 9, 2005, 70 FR 37496, 37499 June 29, 2005
File No. S71004 Final Rule Regulation NMS.
7 See Securities Exchange Act Release No. 61358, 75 FR 3594, 3597 January 21, 2010 File No. S7
0210 Concept Release on Equity Market Structure.
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/divisionsmarketregmr exchangesshtml.html.
9 See FINRA ATS Transparency Data, available at https otctransparency.finra.org/otctransparency/
AtsIssueData. A list of alternative trading systems
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internalizers and wholesalers, all competing for order flow. Based on publicly-available information, no single exchange currently has more than 17% market share.10 Therefore, no exchange possesses significant pricing power in the execution of equity order flow. More specifically, the Exchange currently has less than 10% market share of executed volume of equities trading.11
The Exchange believes that the evershifting 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 firms reason for shifting order flow, the Exchange believes that one such reason is because of fee changes at any of the registered exchanges or nonexchange venues to which a firm routes order flow. The competition for Retail Orders is even more stark, particularly as it relates to exchange versus offexchange venues.
The Exchange thus needs to compete in the first instance with non-exchange venues for Retail Order flow, and with the 15 other exchange venues for that Retail Order flow that is not directed off-exchange. Accordingly, competitive forces compel the Exchange to use exchange transaction fees and credits, particularly as they relate to competing for Retail Order flow, because market participants can readily trade on competing venues if they deem pricing levels at those other venues to be more favorable.
To respond to this competitive environment, the Exchange has established Retail Order Step-Up tiers,12
which are designed to provide an incentive for ETP Holders to route Retail Orders to the Exchange by providing higher credits for adding liquidity correlated to an ETP Holders higher trading volume in Retail Orders on the Exchange. Under the Retail Order StepUp Tiers, ETP Holders also do not pay a fee when such Retail Orders have a time-in-force of Day and remove liquidity from the Exchange.
Proposed Rule Change The Exchange proposes to eliminate the per share credit associated with the execution of orders that are 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.
12 See Retail Order Tier, Retail Order Step-Up Tier 1, Retail Order Step-Up Tier 2 and Retail Order Step-Up Tier 3 on the Fee Schedule.

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internalized.13 An internalized retail order execution is a trade where two Retail Orders that trade against each other share the same Market Participant Identifier MPID. Under the proposal, for Retail Orders that are internalized, the Exchange would not provide the current rebate and would continue to not charge a fee for orders that qualify for the Retail Order Step-Up Tier 1, Retail Order Step-Up Tier 2 and Retail Order Step-Up Tier 3 pricing tiers. More specifically, the Exchange proposes to not charge a fee or pay a credit for Retail Orders where each side of the executed order 1 shares the same MPID and 2
is a Retail Order with a time-in-force of Day. The proposed rule change would not create new means of submitting orders to the Exchange nor would it permit ETP Holders to circumvent the Exchanges order priority rules. The Exchanges priority rules would continue to apply as they currently do with respect to the execution of Retail Orders that are the subject of this proposed rule change.
Under the Retail Order Step-Up Tier 1 pricing tier, such orders currently receive a credit of $0.0038 per share for adding liquidity and do not pay a fee for removing liquidity. Under the Retail Order Step-Up Tier 2 pricing tier, such orders currently receive a credit of $0.0035 per share for adding liquidity and do not pay a fee for removing liquidity. Lastly, under the Retail Order Step-Up Tier 3 pricing tier, such orders currently receive a credit of $0.0036 per share for adding liquidity and do not pay a fee for removing liquidity. When both sides of an execution are not Retail Orders or do not share the same MPID, the Exchange will continue to not charge a fee for removing liquidity and will continue to provide the credits noted above. The proposed rule change would not impact orders that qualify for the Retail Order pricing tier that are internalized. Such orders would continue to receive a credit of $0.0033
per share for providing liquidity and would continue to pay a fee of $0.0030
per share for removing liquidity.14
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.
13 This occurs when two orders presented to the Exchange from the same ETP Holder i.e., MPID are presented separately and not in a paired manner, but nonetheless inadvertently match with one another.
14 Under Tier 1, Tier 2 and Tier 3 pricing tiers, such orders would pay a fee of $0.0029 per share in Tape B securities. See Fee Schedule.

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