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Federal Register / Vol. 86, No. 126 / Tuesday, July 6, 2021 / Notices
Proposed Rule Change
jbell on DSKJLSW7X2PROD with NOTICES

In response to this competitive environment, the Exchange proposes to modify the per share credit and fee associated with the execution of orders that are 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. As proposed, the Exchange would not charge a fee or pay a credit for certain 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 shares the same MPID, each side of the executed order is a Retail Order with a time-in-force of Day, and the executed orders have an average daily volume ADV of at least 150,000
shares. 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 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 pay a basic rate fee of $0.0030 per share for removing liquidity.14
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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The Proposed Fee Change Is Reasonable As discussed above, the Exchange operates in a highly fragmented and 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. 17
The Exchange believes that the evershifting market share among the exchanges from month to month demonstrates that market participants can shift order flow, or discontinue to reduce use of certain categories of products, in response to fee changes.
With respect to Retail Orders, ETP
Holders can choose from any one of the 16 currently operating registered exchanges, and numerous off-exchange venues, to route such order flow.
Accordingly, competitive forces reasonably constrain exchange transaction fees that relate to Retail Orders on an exchange. Stated otherwise, changes to exchange transaction fees can have a direct effect on the ability of an exchange to compete for order flow.
Given this competitive environment, the proposal represents a reasonable attempt to attract additional Retail Orders and retain existing Retail Order flow on the Exchange.
The Exchange believes that the proposed change to adopt lower credits for Retail Orders that are internalized is reasonable because while ETP Holders would no longer receive credits for such orders, they would also continue to not pay any fees for such orders. Further, as noted below, the Exchange believes that not providing a credit and not charging a fee for Retail Orders that are 2. Statutory Basis internalized is reasonable because, The Exchange believes that the despite the lower credit, the resulting proposed rule change is consistent with pricing would remain favorable Section 6b of the Act,15 in general, and compared to the fees charged for orders furthers the objectives of Sections that are internalized by another 6b4 and 5 of the Act,16 in particular, market,18 and will therefore continue to because it provides for the equitable incentivize market participants to allocation of reasonable dues, fees, and submit Retail Orders to the Exchange.
other charges among its members, That said, the Exchange notes that issuers and other persons using its market participants are free to shift their facilities and does not unfairly order flow to competing venues if they discriminate between customers, believe other markets offer more issuers, brokers or dealers.
The following example illustrates how the proposed rule change would operate. Assume an ETP holder qualifies for the Retail Order Step-Up Tier 3
pricing tier. As such, the ETP Holder would receive a credit of $0.0036 per share for Retail Orders that add liquidity and would pay no fee for Retail Orders with a time-in-force of Day that remove liquidity. Further assume that the ETP
holder has an ADV of Retail Orders with a time-in-force of Day that remove liquidity of 500,000 shares, of which 250,000 shares ADV where both sides of the executed orders share the same MPID and are both Retail Orders with a time-in-force of Day. Both sides of such orders would not pay a fee or receive a credit.
100,000 shares ADV where both sides of the executed orders share the same MPID but are not both Retail Orders with a time-in-force of Day e.g., the liquidity providing order is not a Retail Order. The retail removing shares would continue to not pay a fee for removing liquidity and the non-retail providing shares would continue to receive the tiered or basic rates that are applicable based on the ETP holders qualifying levels.
The remaining 150,000 shares ADV
are where both sides of the executed orders do not share the same MPID. The retail removing shares would continue to not pay a fee for removing liquidity and the non-retail providing shares would continue to receive the tiered or basic rates that are applicable based on the ETP holders qualifying levels.
If instead, the ETP Holder in the example above has an ADV under 150,000 shares then the ETP Holder would not be subject to the proposed fee change.
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.

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15 15

U.S.C. 78fb.
16 15 U.S.C. 78fb4 and 5.

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17 See Securities Exchange Act Release No. 51808
June 9, 2005, 70 FR 37496, 37499 June 29, 2005.
18 See infra, note 19.

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