Regulation NMS: Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders

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Federal RegisterOct 8, 2024
89 Fed. Reg. 81620 (Oct. 8, 2024)
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    Securities and Exchange Commission
  • 17 CFR Part 242
  • [Release No. 34-101070; File No. S7-30-22]
  • RIN 3235-AN23
  • AGENCY:

    Securities and Exchange Commission.

    ACTION:

    Final rule.

    SUMMARY:

    The Securities and Exchange Commission (“Commission” or “SEC”) is adopting amendments to certain rules of Regulation National Market System (“Regulation NMS”) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) to amend the minimum pricing increments for the quoting of certain NMS stocks, reduce the access fee caps, and enhance the transparency of better priced orders.

    DATES:

    Effective Date: December 9, 2024. Compliance dates: See section VI., titled “Compliance Dates,” for further information on transitioning to the final rules.

    FOR FURTHER INFORMATION CONTACT:

    Kelly Riley, Senior Special Counsel, Johnna Dumler, Special Counsel, Steve Kuan, Special Counsel, Marc McKayle, Special Counsel, Leigh Roth, Special Counsel, and Alba Baze, Attorney-Advisor, at (202) 551-5500, Office of Market Supervision, Division of Trading and Markets, Commission, 100 F Street NE, Washington, DC 20549.

    SUPPLEMENTARY INFORMATION:

    The Commission is adopting amendments to the following rules under Regulation NMS:

    Commission reference CFR citation (17 CFR)
    Rule 600(b)(69) § 242.600(b)(69)
    Rule 600(b)(89) § 242.600(b)(89)
    Rule 600(b)(93) § 242.600(b)(93)
    Rule 603 § 242.603
    Rule 610 § 242.610
    Rule 612 § 242.612

    Table 1

    Round lot tier Round lot size (shares) Percent
    $0-$250.00 100 0.00
    $250.01-$1,000.00 40 52.89
    $1,000.01-$10,000.00 10 76.89
    $10,000.01 or more 1 100.00
    Portion of all corporate stock and ETP share volume executed on an exchange, transacted in a quantity less than 100 shares, at a price better than the prevailing NBBO, occurring in a quantity that would be defined as a round lot under the MDI Rules as amended, for Oct. 23-27, 2023.
    Source: Equity consolidated data feeds (CTS and UTDF), as collected by MIDAS; NYSE Daily TAQ.

    Table 2

    Round lot tier Round lot size (shares) Percent
    $0-$250.00 100 0.00
    $250.01-$1,000.00 40 13.79
    $1,000.01-$10,000.00 10 26.63
    $10,000.01 or more 1 100.00
    Portion of all corporate stock and ETP trades executed on an exchange, transacted in a quantity less than 100 shares, at a price better than the prevailing NBBO, occurring in a quantity that would be defined as a round lot under the MDI Rules as amended, for Oct. 23-27, 2023.
    Source: Equity consolidated data feeds (CTS and UTDF), as collected by MIDAS; NYSE Daily TAQ.

    Table 3—Share Volume by Quoted Spread 2023

    Quoted spread Share volume (%) Dollar volume (%) Average # stocks
    Quoted Spread ≤ $0.011 65.2 31.5 1,782
    $0.011 < Quoted Spread <= $0.015 9.1 15.3 638
    $0.015 < Quoted Spread <= $0.02 4.2 5.2 560
    $0.02 < Quoted Spread <= $0.03 5.7 8.4 1,036
    $0.03 < Quoted Spread <= $0.04 3.6 7.6 811
    $0.04 < Quoted Spread <= $0.05 2.1 3.6 673
    $0.05 < Quoted Spread <= $0.06 1.5 2.3 582
    $0.06 < Quoted Spread <= $0.07 1.2 2.1 522
    $0.07 < Quoted Spread <= $0.08 1.0 1.8 445
    $0.08 < Quoted Spread <= $0.09 0.8 1.6 377
    $0.09 < Quoted Spread <= $0.10 0.7 1.6 317
    $0.10 < Quoted Spread <= $0.11 0.6 1.5 271
    $0.11 < Quoted Spread <= $0.12 0.5 1.3 222
    $0.12 < Quoted Spread <= $0.13 0.4 1.1 187
    $0.13 < Quoted Spread <= $0.14 0.3 1.1 163
    $0.14 < Quoted Spread <= $0.15 0.3 1.0 144
    $0.15 < Quoted Spread 2.8 13.0 2,177
    This table provides share volume by stocks with different quoted spread profiles. To create this table, for each day the universe of stocks (identified by a unique stock variable) covered in the WRDS Intra-Day Indicators data are assigned into one of the 17 quoted spread bins based on that day's time weighted quoted spread as computed by WRDS Intra-Day Indicators. Then all share and dollar trading volume across all trading days in 2023 is aggregated for each of the 17 quoted spread bins. Percentages based on these totals are then computed. This table also presents the daily average number of stocks in each bin. To compute this variable, for each trading day in 2023, the number of stocks in each bin is tabulated, then the average across all trading days is presented here. Certain items in this table 3 may also be affected by the MDI Rules once they are fully implemented. See infra section VII.C.3.

    Table 4—Summary of Transaction-Based Fee Schedules for U.S. National Equities Exchanges as of February 2024

    Exchange Fee model Number of revisions 2023 Date of fee schedule Fees (# of categories) Rebates (# of categories)
    Panel A: Fees and Rebates for Transactions Greater Than $1.00
    Cboe BZX Maker-Taker 42 1/2/2024 $0.0030 (1) $0.0016-$0.0031 (7)
    Cboe BYX Inverted 9 2/1/2024 $0.0012-$0.0020 (10) $0.0015-$0.0020 (4)
    Cboe EDGA Inverted 14 2/7/2024 $0.0000-$0.0030 (12) $0.0016-$0.0024 (5)
    Cboe EDGX Maker-Taker 44 2/1/2024 $0.00275-$0.0030 (3) $0.0020-$0.0034 (8)
    BX Inverted 6 2/1/2024 $0.0020-$-$0.0030 (2) $0.0005-$0.0018 (7)
    Phlx (PSX) Maker-Taker 4 2/1/2024 $0.0030 (1) $0.0020-$0.0033 (5)
    Nasdaq Maker-Taker 6 2/1/2024 $0.0030(1) $0.0013-$0.00305 (26)
    NYSE Arca Maker-Taker 11 2/1/2024 $0.0000-$0.0030 (6) $0.0000-$0.0032 (6)
    NYSE American Maker-Taker 7 1/3/2024 $0.0025-$0.0030 (3) $0.0016-$0.0030 (3)
    NYSE Maker-Taker 16 1/12/2024 $0.0000-$0.00275 (5) $0.0004-$0.0030 (11)
    NYSE National Inverted 5 1/3/2024 $0.0022-$0.0029 (4) $0.0007-$0.0030 (5)
    NYSE Chicago Maker-Taker 3 1/8/2024 $0.0010-$0.0030 (1) $0.0000 (0)
    IEX Maker-Taker 2 1/24/2024 $0.0000-$0.0010 (2) $0.0004 (1)
    MEMX Maker-Taker 22 2/1/2024 $0.00295-$0.0030 (2) $0.0015-$0.0033 (6)
    MIAX Pearl Maker-Taker 10 1/17/2024 $0.0024 (1) $0.00295 (1)
    LTSE Free NA N/A $0.0000 (1) $0.0000 (1)

    Exchange Fee Model Rebate Fee (%) Charged both sides
    Panel B: Fees and Rebates for Transactions Under $1.00
    Cboe BZX Maker-Taker 0 0.30
    Cboe BYX Inverted 0 0.10
    Cboe EDGA Inverted 0 0
    Cboe EDGX Maker-Taker 0.00009 (per share) 0.30
    BX Inverted 0 0.10
    Phlx (PSX) Maker-Taker 0 0.30
    Nasdaq Maker-Taker 0 0.30
    NYSE Arca Maker-Taker 0 0.10
    NYSE American Maker-Taker 0 0.10
    NYSE Maker-Taker 0 0.10
    NYSE National Inverted 0 0
    NYSE Chicago Maker-Taker 0 0.10 Yes.
    IEX Maker-Taker 0 0.09
    MEMX Maker-Taker 0.075% (of value) 0.10
    MIAX Pearl Maker-Taker 0.15% (of value) 0.250
    LTSE Free 0 0
    The number of fee revisions is obtained by counting each Rule 19b-4 filing for each exchange that is not clearly marked for a non-transaction fee related purpose such as connectivity fees, listing fees, options fees, etc. To determine the fee and rebate information, the staff searched each exchange's webpage for its current posted access fee and rebate schedule and collected information on access fees and rebates pertaining to non-auction trading in stocks priced equal to, or greater than, $1.00 per share. Sources for Current Access Fee Data were effective on the dates shown in panel A of table 4, and were accessed during February 2024 at the websites shown beneath the table.
    https://www.cboe.com/us/equities/membership/fee_schedule/bzx/.
    https://www.cboe.com/us/equities/membership/fee_schedule/byx/.
    https://www.cboe.com/us/equities/membership/fee_schedule/edga/.
    https://www.cboe.com/us/equities/membership/fee_schedule/edgx/.
    https://www.nasdaqtrader.com/trader.aspx?id=bx_pricing.
    https://www.nasdaqtrader.com/trader.aspx?id=psx_pricing.
    https://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.
    All NYSE Exchange Family fees: https://www.nyse.com/markets/fees.
    https://exchange.iex.io/resources/trading/fee-schedule/. (Note: that the majority of IEX trading occurs via non-displayed orders. IEX only pays rebates on displayed orders.)
    https://info.memxtrading.com/equities-trading-resources/us-equities-fee-schedule/.
    https://www.miaxglobal.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Equities_Fee_Schedule_01172024.pdf.
    https://ltse.com/trading/faqs.

    Table 5—Trading Volume by Exchange, Exchange Type 2023

    Exchange name Exchange type <$1 Volume (billions) >=$1 Volume QS<= $0.015 (billions) >=$1 Volume QS > $0.015 (billions) % of Exchange volume
    Panel A: Share Volume
    Off-Exchange 192.9 620.3 241.3
    Nasdaq Maker-Taker 26.8 226.2 88.9 26.9
    NYSE Arca Maker-Taker 27.5 139.3 30.4 15.5
    NYSE Maker-Taker 3.4 127.4 37.4 13.2
    Cboe BZX Maker-Taker 14.0 86.3 20.9 9.5
    Cboe EDGX Maker-Taker 21.1 98.2 23.3 11.2
    MEMX Maker-Taker 8.1 61.9 12.0 6.5
    IEX Maker-Taker 1.7 38.9 19.5 4.7
    Cboe EDGA Inverted 2.7 33.8 5.6 3.3
    Cboe BYX Inverted 2.6 20.4 2.8 2.0
    MIAX Pearl Maker-Taker 2.4 41.9 2.7 3.7
    NYSE National Inverted 0.5 11.0 1.4 1.0
    Nasdaq OMX PSX Maker-Taker 0.3 7.5 1.9 0.8
    Nasdaq OMX BX Inverted 0.5 6.7 2.6 0.8
    NYSE American Maker-Taker 1.0 4.8 1.0 0.5
    NYSE Chicago Flat 0.2 0.8 1.8 0.2
    LTSE Flat 0.0 0.0 0.0 0.0
    Total 305.5 1,525.4 493.5
    Exchange Total 112.6 905.1 252.2
    Panel B: Dollar Volume
    Off-Exchange 65.3 19,744.9 24,508.4
    Nasdaq (TapeC) Maker-Taker 9.1 9,008.3 9,402.3 30.4
    NYSE Arca Maker-Taker 7.6 6,433.3 3,107.1 15.8
    NYSE Maker-Taker 1.5 3,985.9 3,658.6 12.6
    Cboe BZX Maker-Taker 3.1 3,711.6 2,479.9 10.2
    Cboe EDGX Maker-Taker 6.2 3,450.0 2,371.1 9.6
    MEMX Maker-Taker 2.5 2,148.8 1,130.4 5.4
    IEX Maker-Taker 0.8 1,383.8 2,119.0 5.8
    Cboe EDGA Inverted 1.0 1,038.0 494.8 2.5
    Cboe BYX Inverted 0.9 657.2 275.3 1.5
    MIAX Maker-Taker 0.7 1,297.3 268.4 2.6
    NYSE National Inverted 0.2 287.3 131.0 0.7
    Nasdaq OMX PSX Maker-Taker 0.1 368.9 211.9 1.0
    Nasdaq OMX BX Inverted 0.2 274.9 258.7 0.9
    NYSE American Maker-Taker 0.4 165.5 97.7 0.4
    NYSE Chicago Flat 0.1 39.6 236.0 0.5
    LTSE Flat 0.0 1.5 1.6 0.0
    Total 99.4 53,996.9 50,752.2
    Exchange Total 34.2 34,252.0 26,243.9
    This table aggregates all trade information from the TAQ database for every trading day in 2023. Only trading volume reflecting normal trades during regular trading is included. Normal trades are identified in TAQ data by sale conditions “blank, @, E, F, I, S, Y” which correspond to regular trades, intermarket sweep orders, odd-lot trades, split trades, and yellow flag regular trades. The remaining share volume was aggregated by exchange, and the table denotes exchange type (maker-taker, inverted, flat, free). Share and dollar volume from exchange codes T and Q were combined into `Nasdaq.' Panel A presents share volume totals and panel B presents dollar volume totals. Certain items in table 5 may also be affected by the MDI Rules once they are fully implemented. See infra section VII.C.3.

    Table 6—Volume by Exchange Type and Estimated Access Fee/Rebate Estimates 2023

    Price<$1 (billions) Price>$1; TWAQS ≤ $0.015 (billions) Price>$1; TWAQS > $0.015 (billions) % Total
    Panel A: Exchange Share Volume by Venue Type
    Maker-Taker 106.2 832.4 237.9 92.7
    Inverted 6.2 71.9 12.4 7.1
    Flat/Free 0.2 0.8 1.8 0.2
    Panel B: Exchange Dollar Volume by Venue Type
    Maker-Taker 31.9 31,953.4 24,846.4 93.9
    Inverted 2.2 2,257.4 1,159.8 5.6
    Flat/Free 0.1 41.1 237.6 0.5
    Panel C: Estimated Fees Collected and Rebates Distributed (Billions)
    Fees Collected $3.41
    Rebates Distributed $3.08
    Exchange Capture $0.34
    Panel D: Total Estimated Net Fees by Liquidity Type (Billions)
    Demander $2.97
    Provider ($2.63)
    Exchange Capture $0.34
    Certain items in this table 6 may also be affected by the amendments in the MDI Rules once they are fully implemented. See infra section VII.C.3.

    Table 7—Estimated Number of Stocks and Trading Volume in Each Tick Size Group

    Average quoted spread Tick Number of stocks Estimated % share volume Estimated % dollar volume
    All Stocks
    Spread <= $0.015 $0.005 1,788 66.2 42.9
    $0.015 < Spread $0.01 9,047 33.8 57.1
    Spread <= $0.04 (Proposed Reduction to $0.005 or smaller) 4,333 84.8 66.5
    Price < $1
    $0.0001 1,106 12.3 0.1
    In this table, quoted spreads, and thus tick sizes, are determined by computing the time weighted quoted spread during regular trading hours as computed by the WRDS intra-day indicators for every sym_root and sym_suffix combination in the WRDS intra-day indicators dataset and taking the equal weighted average across all trading days in January-March 2023. Stocks with average quoted spreads less than $0.015 are assigned a $0.005 tick. All other stocks are assigned a $0.01 tick. A stock with a price less than $1.00 will still be assigned a tick size per the usual process, which would be in force should the stock's price rise above $1.00. As long as the stock's price remains below $1.00 the $0.0001 tick size would prevail. The designated tick size is applied to trading volume in May-October 2023 where share and dollar volume is obtained from the universe of stocks in WRDS intra-day indicators. New stocks are given a tick size of $0.01. The number of stocks assigned to each group is indicated in the Number of Stocks column and indicates the average number of stocks in each category (listings and de-listings can affect the daily number of stocks trading as well as if a stock's price falls below $1). If a stock has a VWAP of less than $1.00, then that stock, as well as all of its trading volume for that day, is assigned to the $0.0001 tick size.
    This estimate may be an upper bound. As discussed in section VII.B.3, supra and infra section VII.D.2, rebates can lower the quoted spread (although not necessarily transaction costs). Thus, lowering the access fee, and thus the associated rebates, may lead to wider quoted spreads. Because of this, some stocks may have quoted spreads that meet the threshold for the smaller tick size in the current environment but may not meet that threshold once the access fee cap is reduced, leading to lower rebates offered. Additionally, all stocks, even those priced below $1.00, will be assigned a tick size via the usual process. If a stock price falls below $1.00 the applicable tick size will be $0.0001. So not all stocks initially assigned the $0.005 tick size will trade differently than the baseline. This table differs from table 3 because table 3 is based on daily average TWAQs and does not attempt to analyze the effect of the adopted amendments.
    Once implemented, the changes to the current arrangements for consolidated market data pursuant to the MDI Rules may impact the number of stocks and their estimated percentage volumes anticipated for each tick level. In particular, under the MDI Rules, NMS stocks priced $250 or more will receive reductions in round lot sizes which is anticipated to lower their quoted spreads; however, the effect on the reported numbers is likely small both because these stocks make up less than 4% of share volume and because they are unlikely to have quoted spreads less than $0.015. Based on an analysis of data from May-October 2023, the average quoted spread of a stock priced between $250 and $1,000 was $0.71, far greater from the $0.015 that will trigger a smaller minimum increment. Similarly, for stocks priced between $1,000 and $10,000 the average quoted spread was $3.85 and the only stock that had a value weighted average price greater than $10,000 already has a round lot size of one share and had an average quoted spread of $0.07.

    Table 8—Effects of a Reduction in Tick Size on Quoting and Trading Outcomes

    Spread bin # OLS Quantile (median) regression
    Quoted spread ($) May & June 2018 Quoted spread ($) May & June 2018
    1st 2nd 3rd 4th 1st 2nd 3rd 4th
    Depth (100 shares) *** −22.5 [−12.02] *** −5.30 [−7.09] *** −1.55 [−4.40] −0.51 [−1.30] *** −11.8 [−16.99] *** −3.16 [−23.52] *** −0.96 [−17.81] *** −0.21 [−4.30]
    Depth ($1,000) *** −16.7 [−14.58] *** −8.41 [−10.94] *** −4.67 [−7.82] *** −2.06 [−3.66] *** −11.2 [−22.04] *** −7.27 [−20.70] *** −3.96 [−12.58] *** −1.48 [−4.14]
    Quoted Spread ($) *** −0.033 [−18.71] *** −0.027 [−6.46] *** 0.023 [2.99] *** 0.12 [5.51] *** −0.034 [−35.41] *** −0.031 [−10.31] ** 0.012 [2.03] *** 0.12 [6.80]
    Relative quoted Spread *** −0.0049 [−9.59] * −0.00097 [−1.80] 0.00034 [0.53] *** 0.0046 [3.30] *** −0.0041 [−8.54] *** −0.0014 [−6.89] 0.00021 [0.74] *** 0.0034 [4.66]
    Effective spread ($) *** −0.027 [−4.97] −0.026 [−1.43] *** 0.029 [5.17] ** 0.038 [2.16] *** −0.026 [−58.10] *** −0.021 [−12.81] −0.0018 [−0.63] *** 0.051 [4.81]
    Relative eff. spread *** −0.0039 [−3.12] 0.00043 [0.17] 0.0055 [1.36] *** 0.0028 [4.42] *** −0.0030 [−10.78] *** −0.0010 [−9.58] −0.00013 [−1.09] *** 0.0016 [3.23]
    Cancel-to-trade *** 5.10 [5.99] *** 6.69 [6.38] *** 7.56 [6.79] *** 18.8 [8.84] *** 4.56 [7.75] *** 5.49 [7.79] *** 6.87 [10.44] *** 12.3 [10.61]
    Odd-lot rate (%) *** 4.89 [9.62] *** 5.61 [8.04] *** 2.85 [4.35] ** 1.49 [2.15] *** 5.59 [8.02] *** 6.39 [8.99] *** 3.29 [4.72] ** 1.85 [2.51]
    Realized spread ($) *** −0.014 [−27.94] *** −.0099 [−7.43] .00037 [0.12] *** 0.040 [4.45] *** −0.014 [−48.36] *** −0.013 [−17.96] *** −0.0068 [−5.13] *** 0.038 [5.64]
    Relative real. spread *** −.0024 [−11.82] −.00032 [−1.36] −.00039 [−1.25] ** .0014 [2.37] *** −.0014 [−14.08] *** −.00054 [−12.52] *** −.00013 [−2.77] *** .0012 [3.65]
    Volume (1,000 shares) 26.5 [1.30] ** 30.3 [2.13] 12.5 [1.32] −5.41 [−1.07] 19.1 [1.42] 3.35 [0.40] 0.20 [0.04] ** −3.25 [−2.44]
    Cum Depth 10c from mdpt *** −0.17 [−3.93] *** −0.26 [−5.00] ** −0.27 [−2.59] ** −0.34 [−2.37] *** −0.49 [−5.51] *** −0.54 [−6.29] *** −0.45 [−4.91] ** −0.63 [−3.15]
    Cum Depth −10c from mdpt *** −0.22 [−5.28] *** −0.19 [−3.74] *** −0.37 [−3.44] ** −0.45 [−2.83] *** −0.49 [−6.33] *** −0.42 [−5.21] *** −0.50 [−5.68] ** −0.79 [−2.75]
    CRT 10 round lots *** −0.026 [−19.56] −0.001 [−0.19] *** 0.035 [3.99] *** 0.14 [1.03] *** −0.037 [−2.72] *** 0.085 [2.75] *** 0.035 [4.20] ** 0.075 [2.37]
    This table presents the effects of a reduction in minimum tick size from $0.05 to $0.01 cent on various quoting and trading outcome variables. The first bin is for stocks with quoted spreads ($0.00, $0.06). The second bin is for stocks with quoted spreads in the range ($0.06, $0.09). The third bin is for stocks that had quoted spreads of ($0.09, $0.15). The fourth bin is for stocks with quoted spreads greater than $0.15. A difference-in-differences regression with no control variables is estimated using data covering Control, Test Group 2, and Test Group 3 TSP stocks from 08/01/2018-11/30/2018. All observations are at the stock day level. For each outcome variable Yjt, listed in the left-hand side column, the table presents only the difference-in-differences coefficient estimates that indicate the effect of the TSP on the dependent variable. Estimates are performed by past quoted spread subsamples that decompose the sample based on average quoted spreads during May-June of 2018. Among the outcomes' variables, the quoted spread refers to the distance between the NBBO midpoint and the NBBO quote. The effective spread is the distance between the NBBO midpoint and the realized trade price; the realized spread is the distance between a future NBBO midpoint (5-minutes ahead) and the trade price. Relative spread measures are calculated as the spread scaled by the NBBO midpoint. The cancel-to-trade ratio is the daily number of order cancellations divided by the number of trades, for displayed orders. The odd-lot rate is the percentage of trades in a day which executed against an odd-lot quote. CRT 10, or the cost of a round-trip trade of 10 round lots, measures the cumulative transaction costs from buying and then immediately selling 10 round lots. The CRT assumes that an order that is larger than the displayed depth at the best price will not execute in full at that price. Instead, the assumed unfilled portion will execute at worse prices until completely filled with displayed depth. All data are Winsorized at the 1% and 99% level. The numbers in the [ ] brackets reflect t-statistics that are based on two-way stock-and-date clustered standard errors. Symbols *, **, and *** reflect statistical significance at 10%, 5%, and 1% type-1 error levels.

    Table 10—Effect of the Evaluation Period on Inappropriate Tick Assignment

    Length of operative period in months
    1 (%) 3 (%) 6 (%) 12 (%)
    Panel A: Fraction of aggregate share volume assigned a $0.01 tick with a subsequent TWAQS below $0.015 ( i.e., false negatives)
    Length of evaluation period in months:
    1 8.5 9.4 10.7 12.9
    3 11.4 12.4 13.7 15.8
    5 13.1 14.1 15.3 17.3
    12 17.0 17.8 18.9 20.8
    Panel B: Fraction of aggregate share volume assigned a $0.005 tick with a subsequent TWAQS above $0.015 ( i.e., false positives )
    Length of operative period in months:
    1 3.1 3.3 3.8 4.3
    3 2.6 2.9 3.4 3.8
    5 2.6 2.9 3.2 3.6
    12 2.5 2.7 2.9 3.2
    Panel C: False negative rates
    Length of operative period in months:
    1 12.8 14.2 16.2 19.3
    3 17.4 18.8 20.6 23.6
    5 19.9 21.2 23.0 25.9
    12 25.7 26.9 28.6 31.2
    Panel D: False positive rates
    Length of operative period in months:
    1 8.5 9.4 10.9 12.6
    3 7.2 8.2 9.6 11.2
    5 7.1 8.1 9.3 10.6
    12 6.8 7.5 8.4 9.5
    For every month from January 2018 to June 2022, the Commission simulates the tick assignment procedure under 16 combinations of evaluation and operative period lengths. The evaluation period determines the number of prior months to use when averaging each stock's quoted spread; a TWAQS of $0.015 or below during the evaluation period causes the stock to receive a tick of $0.005 during the subsequent tick assignment interval. The operative period determines the length of each tick assignment.
    All the statistics in the tables are computed using data beginning one month after the evaluation period. For example, suppose the month is April 2018. To compute the statistics for an evaluation length of 3 months and an operative length of 6 months, the tick size for May 2018 through August 2018 is set by the stock's TWAQS from January 2018 through March 2018. The statistics in the table are determined by stocks' trading during the May 2018 through August 2018 period (the operative period). This process is repeated on a rolling basis for every month from January 2018 to June 2022, and the table summarizes results across all months.
    TWAQS is determined by computing the time weighted quoted spread during regular trading hours as computed by the WRDS intra-day indicators for every sym_root and sym_suffix combination in the dataset. When calculating a stock's TWAQS during an evaluation period, the stock's daily TWAQS is averaged across all trading days in the evaluation period.
    When assigning volume to a TWAQS bucket in an operative period, the TWAQS on a given day for a particular stock is used. That is, if a stock trades with a TWAQS of $0.011 on Monday but the same stock has a TWAQS of $0.016 on Tuesday, then its volume on Monday is assigned to the sub-$0.015 category while its Tuesday volume is assigned to the over-$0.015 category in the operative period.
    The universe of securities in the WRDS intra-day indicators dataset is used.
    Panel A computes the fraction of total aggregate share volume that occurs in stocks that would have been assigned a $0.01 tick yet subsequently trade at a TWAQS of under $0.015 in the operative period. These stocks would benefit from a $0.005 tick instead of a $0.01 tick.
    Panel B computes the fraction of total aggregate share volume that occurs in stocks that would have been assigned a $0.005 tick yet subsequently trade at a TWAQS of over $0.015 in the operative period. These stocks may not benefit from the $0.005 tick.
    Panel C computes false negative rates. The false negative rate is the fraction of share volume that is assigned a tick of $0.01 among the share volume that trades with a TWAQS under $0.015 in the operative period.
    Panel D computes the false positive rates. The false positive rate is the fraction of share volume that is assigned a tick of $0.005 among the share volume that trades with a TWAQS above $0.015 in the operative period.

    Table 11—Effect of the Evaluation Period on Inappropriate Tick Assignment Around March 2020

    Length of operative period in months
    1 (%) 3 (%) 6 (%) 12 (%)
    Panel A: False negative rates using March of 2020 in the evaluation period
    Length of evaluation period in months:
    1 36.2 35.4 37.4 40.1
    3 21.7 22.5 23.7 23.9
    5 34.7 34.9 36.1 37.4
    12 30.0 31.7 32.0 33.9
    Panel B: False positive rates using March of 2020 in the evaluation period
    Length of operative period in months:
    1 1.7 2.6 3.2 8.0
    3 3.0 4.6 6.0 12.0
    5 2.6 4.1 5.4 10.2
    12 3.6 5.0 6.5 11.0
    Panel C: Fraction of March 2020 share volume with a $0.005 tick and wide quoted spreads

    Table 11—Effect of the Evaluation Period on Inappropriate Tick Assignment Around March 2020

    Quoted spread threshold
    AQS > $0.015 (%) AQS > $0.02 (%) AQS > $0.05 (%)
    Length of evaluation period in months:
    1 21.4 14.4 3.5
    3 10.6 6.4 1.2
    5 12.4 7.6 1.5
    12 14.4 9.2 2.0
    The Commission simulates the tick assignment procedure under 16 combinations of evaluation and operative period lengths. The methodology and data used for this simulation is described in the note to table 10.
    In contrast to table 10, which performed the simulation on a rolling basis for every month from January 2018 to June 2022, this table only simulates tick assignment and outcomes around March of 2020.
    Panel A repeats the false positive calculations of table 10 as if the tick is assigned in April 2020 (to ensure that March 2020 is in the evaluation period). For example, to compute the statistic for an evaluation length of 3 months and an operative length of 6 months, the tick size for May 2020 through August 2020 is set by the stock's TWAQS from January 2020 through March 2020. April 2020 is the hypothetical month in which the tick assignment is calculated and acts as the gap between the evaluation period and the operative period. Panel B similarly repeats the false negative calculations of table 10 as if April 2020 is the month in which the tick assignment is calculated.
    Panel C instead uses March 2020 as the operative period. For example, to compute the statistic for an evaluation length of 3 months, the tick size for March 2020 is assigned by the stock's TWAQS from November 2019 to January 2020, with February of 2020 being the hypothetical month in which the tick assignment is calculated. Panel C computes the fraction of total aggregate share volume that occurs in stocks assigned to a $0.005 tick, yet trades at a high TWAQS during March of 2020. The fraction is calculated using a range of TWAQS thresholds for trading during March of 2020—the columns correspond to trading with a TWAQS over $0.015, $0.02, and $0.05.

    Table 12—Effect of the Evaluation Period on the Median Number of Tick Changes Over a 12-Month Period

    Length of operative period in months
    1 3 6 12
    Length of evaluation period in months:
    1 4,722 2,317 1,356 665
    3 2,632 1,969 1,253 653
    5 1,724 1,435 1,153 622
    12 772 680 591 488
    The Commission simulates the tick assignment procedure under 16 combinations of evaluation and operative period lengths. The simulation is performed on a rolling basis for every month from January 2018 to June 2022. The methodology and data used for this simulation is described in the note to table 10. This table computes the number of tick changes that occur over a median 12-month horizon for each combination of evaluation and operative period length.

    Table 13—Estimated Access Fees and Rebates Collected—Current and Adopted 2023

    Current Rule Difference
    Panel A: Estimated Access Fees Collected and Rebates (in Millions of Dollars)
    Fees Collected 3,414.00 1,188.91 −2,225.21
    Rebates Distributed −3,076.50 −906.16 2,170.30
    Exchange Capture 337.66 282.75 −54.90
    Panel B: Estimated Fees by Liquidity Type (in Millions of Dollars)
    Liquidity Demander 2,969.12 1,034.61 −1,934.51
    Liquidity Provider −2,631.47 −751.86 1,879.61
    Exchange Capture 337.66 282.75 −54.90
    This table takes trading volumes presented in table 5 to calculate aggregate fee and rebate estimates under the Rule. Current estimates of fees collected and rebates distributed are taken from table 6. The analysis presumes that exchanges with fees and rebates currently above 10 mils will decrease fees and rebates to a 10 mil fee and 8 mil rebate (the exceptions being IEX which charges 10 mils to takers and rebates 4 mils to makers, NYSE Chicago which charges both sides 10 mils, and LTSE which does not charge fees). For trading in securities priced less than $1.00, estimates of fees and rebates presume that all sub $1.00 fees from panel B of table 4 which are over 0.10% are reduced to 0.10%, fees at or below 0.10% remain the same. Computations are made per exchange and then aggregated as shown above.

    Table 14—Estimated Effect of Rule on 2023 Exchange Transaction Revenue for Stocks Prices Below $1.00

    Transaction revenues ($) Transaction revenues (%)
    Nasdaq −$18,593,052 −20
    NYSE −18,750,074 −19
    Cboe −12,375,769 −16
    MEMX −4,517,207 −21
    IEX 0 0
    MIAX −667,838 −7
    LTSE 0 0
    Total −54,903,941
    The variable Transaction Revenue ($) provides an annualized estimate of the effect of the amendment to Rule 612 on exchange net capture. For all exchanges, other than LTSE which doesn't charge an access fee and IEX which has an assumed net capture of 6 mils per share traded above $1.00 (Panel A of table 4 shows that IEX charges a fee of 10 mils coupled with a rebate of 4 mils), the net capture on transaction priced equal to, or greater than, $1.00 per share is expected to remain unaffected by the amendments at the assumed 2 mils per share. The 2 mils per share assumption is further discussed in section VII.C.2.c.Thus, the Commission does not expect any decrease in overall exchange transaction revenue per share for shares priced above $1.00. For transaction volume below $1.00 per share estimates for the decline in transaction revenue is computed by assuming that under the amendments all exchanges currently charging more than 0.10% for transactions will lower the transaction fee to 0.10%. Exchanges currently charging access fees less than or equal to 0.10% will continue to charge their current rates. The list of current estimated exchange sub $1.00 pricing comes from panel B of table 4. Sub $1.00 dollar volume estimates for each exchange are from table 5. The estimated transaction revenue under the amendments is compared to the estimated transaction revenue in the current environment that is estimated using the sub $1.00 transaction fees/rebates for each exchange presented in table 4 panel B and multiplying these fees by volume estimates for each exchange from table 5. See section VIII.C.2 for tables 4 and 5. The difference is presented in the table 14 along with the precent change in transaction revenue from the baseline.

    Table 15—Compliance Cost Estimates

    Rule Affected entities One-time costs Ongoing costs Number of entities Total one- time costs Total ongoing costs
    612 All trading venues $156,000 277 $43,212,000
    612 Listing exchanges 33,000 9,000 5 165,000 $45,000
    612 SIPs 13,000 9,000 2 26,000 18,000
    612 Broker-dealers with order entry systems 33,000 1,161 38,313,000
    612 Broker-dealers with smart order routers 11,000 270 2,970,000
    610 Exchanges 57,000 15 855,000
    600, 603 Exchanges 3,500 6,500 16 56,000 104,000
    600, 603, 612 SIPs 613,000 174,000 2 1,226,000 348,000
    Total 86,823,000 515,000
    Sources: Across estimates below, salaries are derived from SIFMA's Management & Professional Earnings in the Securities Industry 2013, modified to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead. The burden hours estimates are based on Commission's experiences with burden estimates.
    See Proposing Release, supra note 11, at 80333. The Proposing Release's estimate of $140,000 is adjusted to $156,000 to account for an 11.4% increase in the Producer Price Index for Data Processing, Hosting and Related Services from December 2014, when the $140,000 estimate was first made. See U.S. Bureau of Labor Statistics, Producer Price Index by Industry: Data Processing, Hosting and Related Services: Hosting, Active Server Pages (ASP), and Other Information Technology (IT) Infrastructure Provisioning Services [PCU5182105182105], retrieved from FRED, Federal Reserve Bank of St. Louis; available at https://fred.stlouisfed.org/series/PCU5182105182105 (Mar. 11, 2024).
    The $33,000 estimate per listing exchange is based on the following calculations: $19,950 (hourly rate for Sr. Programmer at $399 for 50 hours) + $6,860 (hourly rate for Sr. Systems Analyst at $343 for 20 hours) + $3,730 (hourly rate for Compliance Manager at $373 for 10 hours) + $2,940 (hourly rate for Director of Compliance at $588 for 5 hour) $33,000, for a total annual monetized burden of $165,000 ( i.e., $165,000 = $33,000 × 5 listing exchanges). The $9,000 estimate per listing exchange is based on the following calculations: ($2,640 (hourly rate for Compliance Attorney at $440 for 6 hours) + $746 (hourly rate for Compliance Manager at $373 for 2 hours)) × 4 tick size revisions per year) $9,000, for a total annual monetized burden of $45,000 ( i.e., $45,000 = $9,000 × 5 listing exchanges).
    The $13,000 estimate per listing exchange is based on the following calculations: $4,788 (hourly rate for Sr. Programmer at $399 for 12 hours) + $1,715 (hourly rate for Sr. Systems Analyst at $343 for 5 hours) + $3,730 (hourly rate for Compliance Manager at $373 for 10 hours) + $2,940 (hourly rate for Director of Compliance at $588 for 5 hour) $13,000. The $9,000 estimate per listing exchange is based on the following calculations: ($2,640 (hourly rate for Compliance Attorney at $440 for 6 hours) + $746 (hourly rate for Compliance Manager at $373 for 2 hours)) × 4 tick size revisions per year) $9,000.
    The $11,000 estimate per system change is based on the following calculations: ($2,005 (hourly rate for Attorney at $401 for 5 hours) + $2,980 (hourly rate for Compliance Manager at $298 for 10 hours) + $4,640 (hourly rate for Programmer Analyst at $232 for 20 hours) + $1,325 (hourly rate for Senior Business Analyst at $265 for 5 hours) ≉ $11,000. The Commission expects that broker-dealers are likely to have to undertake 3 system changes, for a total one-time expense of $33,000. See also Transaction Fee Pilot Adopting Release, infra note 1644, at 5271 n.770.
    The $11,000 estimate per broker-dealers with smart order routers is based on the following Manager at $298 for 10 hours) + $4,640 (hourly rate for Programmer Analyst at $232 for 20 hours) + $1,325 (hourly rate for Senior Business Analyst at $265 for 5 hours) ≉ $11,000. See also Transaction Fee Pilot Adopting Release, infra note 1644, at 5274 n.796 where the cost to broker-dealers to update systems for the TSP was estimated to be $9,000. Here, we are allowing for an additional 10 hours of Programmer Analyst time.
    See Proposing Release, supra note 11, at 80333.
    The additional $3,500 in one-time costs and $6,500 in ongoing costs represent a 5% addition over the costs reported in the MDI release. See supra note 10, section V.C.2(d)(ii) to account for the new requirement to send the necessary data to generate odd-lot information to the exclusive SIPs.
    The $613,000 estimate in one-time costs is based on the following calculations: $33,000 (costs under the amendments to Rule 612 to update data specifications and internally and externally test the updates) + $167,670 ($83,790 (hourly rate for Sr. Programmer at $399 for 210 hours) + $61,740 (hourly rate for Sr. Systems Analyst at $343 for 180 hours) + $7,460 (hourly rate for Compliance Manager at $373 for 20 hours) + $5,880 (hourly rate for Director of Compliance at $588 for 10 hours) + $8,800 (hourly rate for Compliance Attorney at $440 for 20 hours) + $412,500 (costs for external services). The $174,000 estimate in ongoing costs is based on the following calculations: $50,301 ($25,137 (hourly rate for Sr. Programmer at $399 for 63 hours) + $18,522 (hourly rate for Sr. Systems Analyst at $343 for 54 hours) + $2,238 (hourly rate for Compliance Manager at $373 for 6 hours) + $1,764 (hourly rate for Director of Compliance at $588 for 3 hours) + $2,640 (hourly rate for Compliance Attorney at $440 for 6 hours)) + $123,725 (costs for external services). See infra notes 1745, 1747, 1749, and 1750 and accompanying text for relevant details on these cost estimates.