FR 2021-00819

The document in question is a notice from the New York Stock Exchange LLC (NYSE) about a proposed rule change regarding some fee waivers. Specifically, the NYSE is seeking to extend waivers on fees for new member applications and bond trading licenses for the year 2021. The waiver pertains to the New Firm Fee, which ranges from $2,500 to $20,000, as well as the annual Bond Trading License (BTL) Fee of $1,000.

General Summary of the Document

The NYSE aims to provide incentives for more bond trading firms to become members by waiving these fees. Their core belief is that by reducing these financial barriers, they will encourage more firms to engage in bond trading on their platform. This, in turn, should enhance the liquidity and volume of trading, thereby offering more execution opportunities for investors. The Securities and Exchange Commission (SEC) is responsible for reviewing this proposal and is soliciting feedback from the public.

Significant Issues or Concerns

One of the major issues with this proposal is the potential revenue loss for the Exchange due to the waived fees. Without a guaranteed increase in membership and liquidity that compensates for the lost revenue, this strategy could be considered a financial risk.

Additionally, there is a concern about fairness across different types of Exchange members. The rule change appears to be beneficial specifically for bond trading firms, which might seem unfair to other categories of members who do not receive similar financial incentives. This could create a sense of inequality among exchange participants.

Moreover, the process for firms transitioning from a BTL to a full trading license is not sufficiently clarified. There are financial implications involved, particularly with retroactive fees that would be charged if a firm upgrades its status within a year. The language used to describe this scenario could be simplified to prevent misunderstandings.

Impact on the Public and Specific Stakeholders

For the general public, the implications of these changes center around potential benefits in the trading market. By increasing the number of firms that trade bonds, there could be more opportunities for investment and potentially better rates or options thanks to improved market liquidity. However, the exact metrics of how this change directly benefits investors aren't provided, which may lead to questions about the proposal's effectiveness.

For specific stakeholders, such as bond trading firms, this rule change is clearly beneficial. The reduced financial barrier to entry could mean greater participation in the market and possibly a larger competitive environment. On the other hand, existing members not engaged in bond trading might perceive this as an unfair advantage being given to new entrants specializing in bonds.

Ultimately, this document raises important considerations about how financial incentives can shape market participation and competition. While the proposed changes might foster greater liquidity and competitive trading environments, considerations of fairness and potential pitfalls with revenue and transparency are crucial. Stakeholders and the public might weigh these aspects as they provide feedback to the SEC on this proposed rule change.

The document details a proposal by the New York Stock Exchange (NYSE) to waive certain fees for 2021. These fee waivers are specifically aimed at encouraging bond trading firms to become members of the Exchange.

Financial References and Allocations

The NYSE currently imposes a New Firm Fee ranging from $2,500 to $20,000, depending on the type of firm. This fee is charged per application for any broker-dealer that applies to become an Exchange member organization. Additionally, the Exchange charges an annual Bond Trading License (BTL) fee of $1,000. The proposal suggests waiving these fees for 2021, aiming to incentivize bond trading firms to apply for Exchange membership and participate in trading activities on its platform.

Issues Related to Financial Waivers

One notable issue is the potential revenue loss that could result from waiving these fees. The financial allocations discussed here, namely the anticipated loss from waiving the New Firm Fee and BTL fee, are hoped to be offset by increased membership and liquidity in bond trading. However, there's a concern that the benefits, such as enhanced liquidity and investor benefits, may not materialize and thus fail to justify the revenue sacrifice. Without concrete metrics or criteria showing how these fee waivers would directly lead to increased liquidity, the proposal could be seen as speculative.

Another concern is that this rule change appears to preferentially support bond trading firms over others, potentially creating an uneven playing field. By waiving fees specifically for bond-related activities and not for other trades, existing members or other new entrants could perceive this as unfair financial treatment.

Furthermore, there is a stipulation that if a firm initially granted a fee waiver for a BTL decides to convert to a full trading license within a year, the retroactive imposition of the New Firm Fee would apply. While this seems a logical financial safeguard, the language describing the retroactive fee process could be complex, leading to misunderstandings among firms regarding their financial obligations if they upgrade their licenses.

Overall, while the intentions behind these financial allocations are aimed at increasing participation in bond trading, the execution and implications of these waivers invite several questions. Those primarily concern the equitable treatment of market participants and the balancing of short-term revenue losses against anticipated long-term gains.