FR 2021-01586

The document is a notice from the New York Stock Exchange (NYSE) detailing proposed amendments to its pricing structure. These changes aim to attract more trading activity by providing incentives for organizations to add liquidity to the Exchange. The notice outlines several adjustments, including new ways to qualify for pricing credits, the elimination of certain unused pricing tiers, and the introduction of new ones. The Securities and Exchange Commission (SEC) is seeking public comments on these proposed changes.

Key Proposals

The NYSE intends to offer more incentives for member organizations to submit orders that contribute to price discovery. These incentives include different ways to qualify for pricing credits, like the introduction of a new Step Up Tier 4 Adding Credit designed to encourage higher volumes of liquidity-providing orders. Additionally, certain existing tiers like Adding Tier 4 and Step Up Tier 3 will be removed due to lack of use, and some credits will be restricted to specific member organizations such as Supplemental Liquidity Providers (SLPs).

Issues and Concerns

One significant concern is that the new tiers and credits could add complexity, potentially making it difficult for member organizations to fully understand and comply with the changes. This is compounded by the technical language used throughout the document, which may not be easily understood by all stakeholders.

The decision to eliminate adding tiers due to underutilization raises questions as there is no detailed analysis of why these tiers were not used or whether adjustments might have increased their effectiveness. Moreover, restricting SLP NBBO setter tier credits exclusively to SLPs could be viewed as favoritism, potentially impacting fair competition negatively.

The justification for the new Step Up Tier 4 Adding Credit relies on hypothetical scenarios without demonstrating clear, real-world benefits. Similarly, the removal of certain Designated Market Maker (DMM) incentives claims these were underused but lacks supporting quantitative data.

Impact on the Public

For the general public, these changes may seem inconsequential as they primarily affect financial professionals and market participants. However, the broader impact could be felt through potentially increased liquidity in the market, which can lead to better price discovery and fairer market conditions.

Impact on Stakeholders

For member organizations, these changes could represent both opportunities and challenges. While some may benefit from increased credits and incentives, others might face hurdles due to the complexities introduced by the new pricing structures. The proposal could favor organizations that are SLPs, possibly disadvantaging others that do not receive similar incentives.

Overall, this document presents a mixed bag of potential benefits and challenges. On one hand, it aims to bolster market activity on the NYSE. On the other, it necessitates careful consideration of its implications for market participants, competition, and regulatory compliance. The invitation for public comment is an opportunity for stakeholders to express their views, potentially influencing the final outcome of these regulatory changes.

The document outlines various financial allocations and credits associated with the New York Stock Exchange's (NYSE) pricing structure. These credits are designed to provide incentives for organizations to direct their trading activities to the NYSE, thereby enhancing the exchange's liquidity and competitiveness.

The focus of the financial changes is on various tiered credits provided to member organizations. A $0.00275 credit is offered for specific trading volumes in certain order types, such as adding liquidity through MPL orders. By providing an alternative way to qualify for this credit, the NYSE aims to increase participation and liquidity on its platform. This is particularly relevant given the competitive environment where exchanges vie for market share.

Another notable financial reference is the introduction of a new Step Up Tier 4 Adding Credit. Under this proposal, member organizations can receive a $0.0015 credit per share for additional liquidity provided, with conditions based on their average daily trading volumes compared to a baseline month. This proposed credit aims to encourage organizations to increase their trading activities on the NYSE, which could improve overall market quality and depth.

The financial discussion also includes the elimination of Adding Tier 4 and Step Up Tier 3 credits. These tiers were considered underutilized, and as such, their removal is presented as a way to simplify the NYSE's pricing structure. However, the decision's reasoning does not provide extensive data to support the claim of underutilization, which raises questions about whether adjustments, rather than elimination, could have been explored to increase their uptake.

Additionally, the document mentions a cap on potential earnings for Designated Market Makers (DMMs) through an optional rebate of up to $100,000 per month. This rebate is tied to elected lower monthly per share credits for all assigned securities. The justification for discontinuing these rebates is their underutilization but lacks specific quantitative evidence.

The newly proposed Step Up Tier 4 Adding Credit and restrictive allocation of the SLP NBBO setter tier credits exclusively to SLPs may have implications for competition among member organizations. While they are intended to boost liquidity by encouraging particular behaviors, these changes might favor certain participant groups, thus potentially affecting the fair competition landscape.

Overall, the document contains multiple financial references aimed at modifying incentives for trading on the NYSE. However, the communication of these changes could be considered complex due to the use of technical language, making it challenging for stakeholders to fully grasp the financial impacts without a deep understanding of the current pricing structures and market dynamics.