Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE Arca Equities Fees and Charges

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and Rule 19b-4 thereunder, notice is hereby given that on October 10, 2024, NYSE Arca, Inc. (“NYSE Arca” or the “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange proposes to amend the NYSE Arca Equities Fees and Charges (“Fee Schedule”) to (1) increase the credits payable under certain Mid-Point Liquidity (“MPL”) Order pricing tiers, and (2) adopt a lower fee for certain Retail Orders that remove liquidity in securities with a per share price below $1.00. The proposed rule change is available on the Exchange's website at www.nyse.com, at the principal office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

The Exchange proposes to amend the Fee Schedule to (1) increase the credits payable under certain MPL Order pricing tiers, and (2) adopt a lower fee for certain Retail Orders that remove liquidity in securities with a per share price below $1.00 (“Sub-Dollar Securities”), as described below.

The Exchange proposes to implement the fee changes effective October 10, 2024.

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.”

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.” Indeed, equity trading is currently dispersed across 16 exchanges, numerous alternative trading systems, and broker-dealer internalizers and wholesalers, all competing for order flow. Based on publicly available information, no single exchange currently has more than 20% market share. Therefore, no exchange possesses significant pricing power in the execution of equity order flow. More specifically, the Exchange currently has less than 12% market share of executed volume of equities trading.

The Exchange believes that the ever-shifting 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 firm's reason for shifting order flow, the Exchange believes that one such reason is because of fee changes at any of the registered exchanges or non-exchange venues to which the firm routes order flow. Accordingly, competitive forces compel the Exchange to use exchange transaction fees and credits because market participants can readily trade on competing venues if they deem pricing levels at those other venues to be more favorable.

Proposed Rule Change

MPL Orders

In response to this competitive environment, the Exchange has already established multiple levels of credits for MPL Orders that allow ETP Holders to passively interact with trading interest on the Exchange and offer potential price improvement to incoming marketable orders submitted to the Exchange. In order to provide an incentive for ETP Holders to provide such liquidity, the credits increase based on increased levels of volume directed to the Exchange. The MPL Order pricing tiers are intended to incentivize ETP Holders to earn increased credits by sending greater amounts of liquidity-providing MPL Orders in Tapes A, B and C securities to the Exchange.

As noted above, the Exchange currently provides multiple levels of credits, ranging from $0.0015 per share to $0.0030 per share, to ETP Holders that send MPL Orders that provide liquidity to the Exchange. For the current MPL Order pricing tier, the amount of the per share credit is based on an ETP Holder's ADV of provided liquidity in MPL Orders for Tape A, Tape B and Tape C Securities combined (“MPL Adding ADV”).

Under current MPL Tier 8, for ETP Holders that have MPL Adding ADV during a billing month of at least 1.5 million shares, the Exchange currently provides a credit of $0.0015 per share in Tape A, Tape B and Tape C securities. Under current MPL Tier 7, for ETP Holders with MPL Adding ADV during a billing month of at least 2 million shares, the Exchange currently provides a credit of $0.0020 per share in Tape A, Tape B and Tape C securities. Under current MPL Tier 6, the Exchange provides a credit of $0.0025 per share in Tape A, Tape B and Tape C securities to ETP Holders that have MPL Adding ADV during a billing month of at least 3 million shares. ETP Holders can alternatively qualify for the MPL Tier 6 credit if they have MPL Adding ADV during the billing month of at least 1 million shares and have MPL Adding ADV, as a percent of Adding ADV, of at least 50%. Under current MPL Tier 5, the Exchange provides a credit of $0.0026 per share in Tape A, Tape B and Tape C securities to ETP Holders that have MPL Adding ADV during a billing month of at least 5 million shares. ETP Holders can alternatively qualify for the MPL Tier 5 credit if they have MPL Adding ADV during the billing month of at least 2 million shares and have MPL Adding ADV, as a percent of Adding ADV, of at least 50%. Under MPL Tier 4, for ETP Holders with MPL Adding ADV during a billing month of at least 13 million shares, the Exchange currently provides a credit of $0.0027 per share in Tape A, Tape B and Tape C securities. Under MPL Tier 3, for ETP Holders with MPL Adding ADV during a billing month of at least 15 million shares, the Exchange currently provides a credit of $0.0028 per share in Tape A, Tape B and Tape C securities. Under MPL Tier 2, for ETP Holders with MPL Adding ADV during a billing month of at least 25 million shares, the Exchange currently provides a credit of $0.0029 per share in Tape A, Tape B and Tape C securities. Finally, under MPL Tier 1, for ETP Holders with MPL Adding ADV during a billing month of at least 30 million shares, the Exchange currently provides a credit of $0.0030 per share in Tape A, Tape B and Tape C securities.

The Exchange now proposes to increase the credits payable for MPL Tier 1, MPL Tier 2, MPL Tier 3 and MPL Tier 4, as follows:

• Increase the credit payable for MPL Tier 1, from $0.0030 per share to $0.0033 per share in Tape A, Tape B and Tape C securities, without any change to the volume requirement to qualify for the proposed higher MPL Tier 1 credit;
• Increase the credit payable for MPL Tier 2, from $0.0029 per share to $0.0032 per share in Tape A, Tape B and Tape C securities, without any change to the volume requirement to qualify for the proposed higher MPL Tier 2 credit;
• Increase the credit payable for MPL Tier 3, from $0.0028 per share to $0.0031 per share in Tape A, Tape B and Tape C securities, without any change to the volume requirement to qualify for the proposed higher MPL Tier 3 credit; and
• Increase the credit payable for MPL Tier 4, from $0.0027 per share to $0.0029 per share in Tape A, Tape B and Tape C securities, without any change to the volume requirement to qualify for the proposed higher MPL Tier 4 credit.

With this proposed change, the MPL Order Tiers pricing tier would appear as follows: