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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Notices
Holders 4 to send additional liquidity to the Exchange.
The Exchange proposes to implement the fee changes effective February 10, 2021.5
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 internalizers and wholesalers, all competing for order flow. Based on publicly-available information, no single exchange currently has more than 18% 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 4 All references to ETP Holders in connection with this proposed fee change include Market Makers.
5 The Exchange originally filed to amend the Fee Schedule on February 1, 2021 SRNYSEArca 202110. SRNYSEArca202110 was subsequently withdrawn and replaced by this filing.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 Global Markets, 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/.

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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. With respect to nonmarketable order flow that would provide liquidity on an Exchange against which market makers can quote, ETP Holders can choose from any one of the 16 currently operating registered exchanges to route such order flow.
Accordingly, competitive forces constrain exchange transaction fees that relate to orders that would provide liquidity on an exchange.
Proposed Rule Change Tape B Tier 3
The Exchange proposes to introduce a new pricing tierTape B Tier 3for securities with a per share price of $1.00
and above. The proposed rule change is designed to be available to ETP Holders that are affiliated with an OTP Holder or OTP Firm that has a market maker account on the Exchanges options platform NYSE Arca Options and is intended to provide such ETP Holders with an incentive to direct their liquidity-providing orders in Tape B
securities to the Exchange.
As proposed, ETP Holders would qualify for the new Tape B Tier 3
pricing tier if, on a daily basis, measured monthly, they directly execute providing volume in Tape B
Securities during the billing month that is equal to 0.20% or more of the US
consolidated average daily volume US
CADV 12 in Tape B Securities and are affiliated with an OTP Holder or OTP
Firm that provides an ADV of electronic posted executions for the account of a market maker in all issues on NYSE
Arca Options of at least 0.50% of total Customer equity and ETF option ADV
as reported by The Options Clearing Corporation OCC. ETP Holders that 11 See
id.
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.
12 US

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qualify for the proposed Tape B Tier 3
would receive a credit of $0.0025 per share for orders that provide liquidity in Tape B securities.
As with the current Tape B Tier 1 and Tape B Tier 2 pricing tiers, Lead Market Makers LMMs cannot qualify for the proposed Tape B Tier 3 pricing tier. For all other fees and credits, tiered or basic rates would apply based on a firms qualifying levels.
The purpose of this proposed rule change is to incentivize ETP Holders to increase the liquidity-providing orders they send to the Exchange, which would support the quality of price discovery on the Exchange and provide additional liquidity for incoming orders. The Exchange believes that the proposal would create an added incentive for ETP Holders to bring additional order flow to a public market. The Exchange further believes that providing credits to ETP Holders that are affiliated with an OTP Holder or OTP Firm could lead to increased trading on the Exchanges equities and options markets.13
The Exchange believes that the proposed pricing tier would provide an incentive for a greater number of ETP
Holders to send additional liquidity to the Exchange in order to qualify for the proposed new credit because, although the proposed pricing tier has a requirement of a minimum of options volume, it also requires an ETP Holder to provide liquidity in Tape B securities at a level below the requirement under both the Tape B Tier 1 and Tape B Tier 2 pricing tiers.14
The Exchange believes that this proposed change will provide a greater incentive to attract additional liquidity from additional ETP Holders so as to qualify for the Tape B Tier 3 credit. The Exchange anticipates a small number of ETP Holders could qualify for Tape B
Tier 3 if they choose to route their orders to the Exchange. The Exchange does not know how much order flow ETP Holders choose to route to other exchanges or to off-exchange venues.
Without having a view of ETP Holders activity on other exchanges and offexchange venues, the Exchange has no way of knowing whether this proposed rule change would result in any ETP
Holder directing orders to the Exchange 13 There are currently 54 firms that are both ETP
Holders and OTP Holders.
14 For example, Tape B Tier 1 requires ETP
Holders to execute providing volume in Tape B
Securities that is equal to at least 1.50% of US Tape B CADV. While Tape B Tier 2 provides ETP Holders multiple ways to earn Tape B Tier 2 credit, at a minimum, ETP Holders must execute providing volume equal to at least 0.20% of the US Tape B
CADV over the ETP Holders baseline, which for Tape B Tier 2 is the ETP Holders Q2 2015
providing ADV.

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