FR 2025-06172

General Summary of the Document

The document is a regulatory notice from the Securities and Exchange Commission (SEC) regarding a proposal by the NYSE American LLC. It details changes to transaction fees and credits for Electronic Designated Market Makers (eDMMs) on the NYSE American Equities Price List. The primary change is the addition of a new, higher monthly rebate of $1,250 per assigned security for eDMMs meeting specific quoting thresholds, effective from April 1, 2025. This adjustment aims to increase liquidity by incentivizing eDMMs to direct more of their order flow to the Exchange. The SEC invites public comments on these proposed changes to assess their broader impact.

Significant Issues or Concerns

The document contains complex regulatory language and financial jargon, which may be challenging for non-experts to comprehend. This complexity can hinder public understanding and engagement in the comment process. Furthermore, the proposal can be viewed as preferential treatment towards eDMMs by offering them higher potential credits, raising concerns of bias or inequity in how these benefits are distributed.

The increase in maximum Credit Per Security level from $1,000 to $1,250 is another potential point of contention. Critics might question whether this added incentive is essential or possibly represents unnecessary expenditure. The document lacks comprehensive analysis or supportive data demonstrating that such financial incentives will effectively result in increased liquidity and improved market conditions. There is an omission of discussion on the potential adverse effects this change might have on smaller market participants who may struggle to meet the elevated quoting thresholds.

Impact on the Public Broadly

For the general public, particularly investors, these changes may influence the liquidity and overall competitiveness of the NYSE American marketplace. More liquidity can potentially lead to better price stability and execution of trades, benefiting investors through potentially lower transaction costs. However, without thorough evaluation and monitoring, this initiative could also lead to broader market implications, such as increased market fragmentation or imbalance among market participants.

Impact on Specific Stakeholders

For eDMMs, this proposal presents a positive development by offering greater incentives to engage more actively in the market. The increased credits might encourage them to enhance their liquidity provision and quoting activities, which could benefit their business operations and profitability.

On the other hand, smaller market players might face challenges due to the heightened quoting requirements needed to qualify for these credits. The disparity in capacity to meet such requirements might widen the competitive gap between large and small market participants, potentially disadvantaging those who cannot adapt as swiftly or meet the increased thresholds.

In conclusion, while the proposal is positioned to stimulate market participation and enhance liquidity, it raises several questions regarding fairness, proportionality of benefits, and potential market ramifications. Careful consideration and stakeholder feedback are essential to ensure the changes foster a genuinely competitive and equitable trading environment.

The document discusses proposed changes made by the NYSE American LLC to the transaction fees and credits involving Electronic Designated Market Makers (eDMMs). The financial references within the document primarily revolve around adjustments to monthly credits offered to eDMMs.

Summary of Financial Allocations

Currently, the NYSE American Exchange offers eDMMs an optional monthly credit per security. This credit, known as the "Credit Per Security," has a maximum limit of $1,000 per month per assigned security. To qualify for this, eDMMs must agree to receive a lower credit of $0.0020 per share for orders adding displayed liquidity, instead of the otherwise applicable $0.0045 per share. The maximum credit is tiered based on the frequency of quoting at the National Best Bid or Offer (NBBO), with credits ranging from $100 to $1,000 depending on the average percentage of time spent quoting at the NBBO.

The new proposal suggests adding an additional tier, offering a Credit Per Security of $1,250 for eDMMs quoting at the NBBO for a minimum average of 80% of the time. The idea is to incentivize eDMMs to quote more frequently and provide more liquidity on the exchange.

Relation to Identified Issues

Several issues emerge from these financial allocations, primarily focusing on the increased financial incentive for eDMMs:

1. Preference and Equity Concerns: The proposed change seems to provide a favorable financial advantage to eDMMs by increasing the maximum credit from $1,000 to $1,250 per security. There could be concerns that smaller market participants, who might not be able to meet the new higher quoting requirements, could be inadvertently disadvantaged. While the document claims that the proposal applies equally to all eDMMs, in practice, only those capable of higher levels of quoting will benefit.

2. Necessity and Justification: The document lacks detailed analysis or data supporting the premise that increasing credits will necessarily lead to increased liquidity and improved market conditions. This absence of evidence raises questions about whether the proposed increase from $1,000 to $1,250 represents an efficient use of resources or an unnecessary boost that might not yield the intended market benefits.

3. Monitoring and Accountability: The document does not clarify how the effectiveness of this increased spending—offering up to $1,250 per month in credits—will be monitored or evaluated. Without established metrics for success or accountability mechanisms, it remains uncertain whether the increased allocation will meet its goals or align with broader market objectives.

In conclusion, while the document outlines changes aimed at enhancing liquidity and competition on the exchange, these changes bring about questions related to equity among participants and the effectiveness of increased financial incentives. The document would benefit from providing clearer justifications and potential impacts, particularly concerning smaller market participants and overall market health.