[Federal Register Volume 81, Number 215 (Monday, November 7, 2016)]
[Notices]
[Pages 78213-78217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26789]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79210; File No. SR-NYSE-2016-68]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending Its Price List
November 1, 2016.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on October 18, 2016, New York Stock Exchange LLC (``NYSE''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its Price List to change the manner
by which rebates are payable, and level of such rebates, under the
Liquidity Provider Incentive Program. The proposed rule change is
available on the
[[Page 78214]]
Exchange's Web site 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Price List to change the manner
by which rebates are payable, and level of such rebates, under the
Liquidity Provider Incentive Program.
Current Liquidity Provider Incentive Program
The Exchange proposes to change the manner by which rebates would
be payable under the Liquidity Provider Incentive Program.\4\ Pursuant
to the Liquidity Provider Incentive Program, the Exchange currently
pays Users of NYSE Bonds a monthly rebate provided Users who opt into
the rebate program meet specified quoting requirements. Under the
program, the rebate payable is based on the number of different bond
issues (referred herein as ``CUSIPs'') \5\ a User quotes. The rebate
amount is tiered based on the number of CUSIPs quoted by a User, as
follows:
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\4\ See Securities Exchange Act Release Nos. 77591 (April 12,
2016), 81 FR 22656 (April 18, 2016) (SR-NYSE-2016-26); and 77812
(May 11, 2016), 81 FR 30594 May 17, 2016) (SR-NYSE-2016-34).
\5\ CUSIP stands for Committee on Uniform Securities
Identification Procedures. A CUSIP number identifies most financial
instruments, including: Stocks of all registered U.S. and Canadian
companies, commercial paper, and U.S. government and municipal
bonds. The CUSIP system--owned by the American Bankers Association
and managed by Standard & Poor's--facilitates the clearance and
settlement process of securities. See http://www.sec.gov/answers/cusip.htm.
------------------------------------------------------------------------
Monthly
Number of CUSIPs rebate
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400-599................................................. $10,000
600-799................................................. 20,000
800 or more............................................. 30,000
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To qualify for a rebate, a User is required to provide continuous
two-sided quotes for at least eighty percent (80%) of the time during
the Core Bond Trading Session \6\ for a calendar month.\7\ The Exchange
currently calculates each participating User's quoting performance
beginning each month on a daily basis, up to and including the last
trading day of a calendar month, to determine at the end of each month
each User's monthly average. Under the current program, Users must
provide a two-sided quote for a minimum of hundred (100) bonds per side
of the market with an average spread of half-point ($0.50) or less in
CUSIPs whose average maturity is at least five (5) years as of the date
the User provides a quote.
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\6\ The Core Bond Trading Session commences at 8:00 a.m. ET and
concludes at 5:00 p.m. ET. See Rule 86(i)(2).
\7\ For the first calendar month after a User opts in, the User
is required to provide continuous two-sided quotes for fifty percent
(50%) of the time during the Core Bond Trading Session.
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Revised Liquidity Provider Incentive Program
The Exchange proposes to replace the current requirements in the
Liquidity Provider Incentive Program. As proposed, a daily rebate would
be payable based on the number of CUSIPs on the NYSE Bonds Book for
which a User meets the quoting requirements in one or more of three
maturity classifications (referred to herein as ``maturity buckets'').
The proposed daily rebate amount is tiered based on the number of
qualifying CUSIPs that meet quoting requirements, as follows:
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Number of qualifying CUSIPs Daily rebate
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400-599................................................. $500
600-799................................................. 1,000
800 or more............................................. 1,500
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For a CUSIP to be included in the daily rebate calculation, the
following three requirements must be met:
First, a User must provide continuous two-sided quotes for
a minimum of 100 bonds on either side of the market for at least eighty
percent (80%) of the time during the Core Bond Trading Session each
trading day. The Exchange will track throughout each trading day all
CUSIPs a User quotes to determine the number CUSIPs that meet the size
and time requirement noted above.
Second, once the Exchange has determined the number of
CUSIPs that meet the size and time requirement, the Exchange would next
determine how many of such CUSIPs meet the spread requirement. In order
for a CUSIP to be included in the daily rebate calculation, it must be
among the CUSIPs in a particular Maturity Range for which a User's
Maximum Daily Average Spread is:
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Maximum daily average spread (in basis points) of all CUSIPs in
Maturity range maturity range
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Less than 7 years.......................... Equal to or less than 15.
7 years but less than 12 years............. Equal to or less than 10.
12 years or more........................... Equal to or less than 10.
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To derive the Maximum Daily Average Spread, the Exchange will
determine the average bid and offer spread for each CUSIP within each
Maturity Range for every User that provides a quote in a CUSIP. The
average bid and offer spread would be calculated by taking the
difference of the Yield-To-Worst (YTW) of the average bid and the YTW
of the average offer throughout each trading day. The Exchange will
then aggregate the average spreads of all the CUSIPs in each Maturity
Range. If the aggregate average spread of all the CUSIPs is less than
or equal to the Maximum Daily Average Spread, as provided in the table
above, all such CUSIPs would qualify for a rebate provided the CUSIPs
also meet the Minimum Daily Average Modified Duration requirement
described below. If the average spread of all the CUSIPs is greater
than the Maximum Daily Average Spread, the Exchange would eliminate
CUSIPs with the widest spreads until the average spread of the
remaining CUSIPS is equal
[[Page 78215]]
to or less than the Maximum Daily Average Spread.
Finally, of the CUSIPs that met the average spread
requirement, the Exchange would determine how many of such CUSIPs meet
the duration \8\ requirement. In order for a CUSIP to be included in
the daily rebate calculation, it must be among the CUSIPs in a
particular Maturity Range for which a User's Minimum Daily Average
Modified Duration is:
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\8\ The duration of a bond is a measure of its price sensitivity
to interest rates movements, based on the average time to maturity
of its interest and principal cash flows. Duration enables investor
[sic] to more easily compare bonds with different maturities and
coupon rates by creating a simple rule: With every percentage change
in interest rates, the bond's value will decline by its modified
duration, stated as a percentage. Modified duration is the
approximate percentage change in a bond's price for each 1% change
in yield assuming yield changes do not change the expected cash
flows. For example, an investment with a modified duration of 5
years will rise 5% in value for every 1% decline in interest rates
and fall 5% in value for every 1% increase in interest rates. Bond
duration measurements help quantify and measure exposure to interest
rate risks. Bond portfolio managers increase average duration when
they expect rates to decline, to get the most benefit, and decrease
average duration when they expect rates to rise, to minimize the
negative impact. See duration risk at http://www.sifma.org/education/glossary/#M.
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Minimum daily average modified duration of all CUSIPs in maturity
Maturity range range
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Less than 7 years.......................... Equal to or greater than 3.25.
7 years but less than 12 years............. Equal to or greater than 6.75.
12 years or more........................... Equal to or greater than 14.50.
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To derive the Minimum Daily Average Modified Duration, the Exchange
will determine the average Modified Duration for each CUSIP within each
Maturity Range for every User that provides a quote in a CUSIP. The
average Modified Duration would be determined by the midpoint of the
average bid and the average offer for each CUSIP quoted by a User
throughout each trading day. The Exchange will then aggregate the
average Modified Duration of all the CUSIPs in each Maturity Range. If
the aggregate average Modified Duration of all the CUSIPs is greater
than or equal to the Minimum Daily Average Modified Duration, as
provided in the table above, all such CUSIPs would qualify for a
rebate. If the average Modified Duration of all the CUSIPs is less than
the Minimum Daily Average Modified Duration, the Exchange would
eliminate CUSIPs with the lowest average Modified Duration until the
average Modified Duration of the remaining CUSIPS is equal to or
greater than the Minimum Daily Average Modified Duration.
The Exchange would then aggregate the maximum number of CUSIPs
across each Maturity Range that a User meets the requirements above to
determine such User's daily rebate.
The following example illustrates the proposed rebate:
User A provides two-sided quotes for a minimum of 100 bonds in a
total of 900 CUSIPs on trading day 1. The 900 CUSIPs are comprised as
follows: 300 CUSIPs that mature in less than 7 years, 400 CUSIPs that
mature in 7 years but less than 12 years and 200 CUSIPs that mature in
12 years or more. The Exchange will track the number of CUSIPs (of the
900 CUSIPs) that were quoted for a minimum of 100 bonds on either side
of the market for at least 80% of the time during the Core Bond Trading
Session. At the end of trading day 1, let us assume that of the 900
CUSIPs, the following met the size and time requirement within each
maturity bucket: 150 CUSIPs that mature in less than 7 years, 325
CUSIPs that mature in 7 years but less than 12 years and 125 CUSIPs
that mature in 12 years or more.
As noted above, the Exchange would next determine the number of
CUSIPs in each maturity bucket that meet the Maximum Daily Average
Spread requirement. Let's assume that for the 325 CUSIPs that mature in
7 years but less than 12 years, the average spread of all 325 CUSIPs in
this maturity bucket equals 12 basis points. Given that the Maximum
Daily Average Spread for this maturity bucket must be equal to or less
than 10 basis points, the Exchange would remove CUSIPs from this
maturity bucket starting with the CUSIP with the widest average spread
until the Maximum Daily Average Spread requirement is equal to or less
than 10 basis points. Let us assume that removing 10 CUSIPs with the
widest average spread brings the aggregate average spread to 10 basis
points. Therefore, of the 325 CUSIPs that mature in 7 years but less
than 12 years, 315 of such CUSIPs would deem to meet the Maximum Daily
Average Spread requirement.\9\
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\9\ If the average spread of all 325 CUSIPs had been 10 basis
points then all 325 CUSIPs would have met the Maximum Daily Average
Spread requirement and would qualify for the proposed daily rebate
provided all 325 CUSIPs also meet the Minimum Daily Average Modified
Duration requirement.
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As provided above, the Exchange would next determine the number of
CUSIPs within each maturity bucket that meet the Minimum Daily Average
Modified Duration requirement. Continuing with the example above, let
us assume that the aggregate average Modified Duration of all 315
CUSIPs that mature in 7 years but less than 12 years is 6.50. Given
that the Minimum Daily Average Modified Duration for this maturity
bucket must be equal to or greater than 6.75, the Exchange would remove
CUSIPs from this maturity bucket starting with the CUSIP with the
lowest average Modified Duration until the Minimum Daily Average
Modified Duration requirement is equal to or greater than 6.75. Let us
assume that removing 15 CUSIPs with the lowest average Modified
Duration brings the aggregate average Modified Duration to 6.75.
Therefore, of the 315 remaining CUSIPs that mature in 7 years but less
than 12 years, 300 of such CUSIPs would deem to meet the Minimum Daily
Average Modified Duration requirement.\10\
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\10\ If the aggregate average Modified Duration of all 315
CUSIPs that mature in 7 years but less than 12 years had been 6.75
then all 315 CUSIPs would have met the Minimum Daily Average
Modified Requirement and would qualify for the proposed daily
rebate.
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Continuing with the example, let us assume the following represents
the number of CUSIPs within each maturity bucket that meet the
prescribed requirements at the end of trading day 1:
125 CUSIPs that mature in less than 7 years;
300 CUSIPs that mature in 7 years but less than 12 years;
and
100 CUSIPs that mature in 12 years or more.
At the end of trading day 1, User A has met the prescribed quoting
requirements in a total of 525 CUSIPs and would therefore qualify for a
rebate of $500 for trading day 1.
The Exchange would make the determination of whether a User has met
the prescribed quoting requirements each trading day to determine the
[[Page 78216]]
amount of daily rebate for which a User qualifies. The Exchange would
aggregate the daily rebate for each User and pay the total amount of
the accumulated rebate to each User at the end of every month. The
Exchange will continue to calculate each participating User's quoting
performance on a daily basis.
Users who opt in to the Liquidity Provider Incentive Program are
currently subject to a transaction fee for orders that provide
liquidity to the NYSE Bonds Book of $0.50 per bond.\11\ The Exchange
proposes to eliminate the $0.50 per bond fee for providing liquidity.
To reflect this change, the Exchange proposes to delete text from the
Price List regarding the applicability of the $0.50 per bond fee for
orders that provide liquidity to the NYSE Bonds Book.
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\11\ The Exchange recently adopted a fee waiver applicable to
Users that provide liquidity in 800 or more qualifying CUSIPs quoted
on the NYSE Bonds Book, and a fee cap of $5,000 per month applicable
to all Users that do not attain the fee waiver. See Securities
Exchange Act Release No. 78108 (June 21, 2016), 81 FR 41636 (June
27, 2016) (SR-NYSE-2016-42).
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The proposed rule change is intended to provide Users with a
greater incentive to transact on the NYSE Bonds system.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\12\ in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\13\ in
particular, because it provides for the equitable allocation of
reasonable dues, fees, and other charges among its members, issuers and
other persons using its facilities and does not unfairly discriminate
between customers, issuers, brokers or dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4), (5).
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The Exchange believes that it is reasonable and equitable to amend
the Liquidity Provider Incentive Program for the bonds trading
platform, which would provide daily rebates to Users that meet unique
quoting requirements. The Liquidity Provider Incentive Program is
already available for Users and the Exchange is simply amending the
quoting requirements which the Exchange believes could qualify greater
number of Users for the proposed rebate. Further, the Exchange believes
it is reasonable and equitable to adopt a daily rebate as an incentive
for Users to provide liquidity on the Exchange's bond platform on a
daily basis. The Exchange believes that the proposed quoting
requirements to qualify for the daily rebate, which would be based on
the average spread and average duration, are reasonable and would not
unfairly discriminate between customers, issuers, and brokers or
dealers because all member organizations that opt in to the Liquidity
Provider Incentive Program would be subject to the same requirements.
The Exchange further believes that the proposed quoting requirements
are reasonable because they are designed to provide an incentive for
member organizations to increase displayed liquidity at the Exchange,
thereby increasing traded volume.
Recognizing the statements of Commissioners who have expressed
concern about the state of the U.S. corporate and municipal bond
markets as well as recommendations outlined in the Commission's release
of its Report on the Municipal Securities Market (Report), the Exchange
believes that amending the Exchange's transaction fees and rebates for
the Bonds system would create an incentive for bonds traders to direct
their liquidity to the Exchange, and therefore would be an important
element in the democratization of the fixed income market.\14\ As
highlighted in SEC Chair White's statement during the SEC's 2013
Roundtable on Fixed Income Markets, the Report makes recommendations
that include (1) improving pre- and post-trade transparency; (2)
promoting the use of transparent and open trading venues, and (3)
requiring dealers to seek ``best execution'' for customers and to
provide customers with relevant pricing information in connection with
their transactions.\15\ Achieving these recommendations and applying
them to both the municipal and corporate bond markets would, in the
Exchange's view, assist in lowering the systemic risk that is
anticipated to increase as interest rates rise and the closed network
of bond trading comes under pressure as retirement and pension managers
seek to adjust their positions.
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\14\ See SEC Report on the Municipal Securities Market, at
http://www.sec.gov/news/studies/2012/munireport073112.pdfSEC's
Gallagher Says Retail Bond Investors Fighting `Headwinds' '', http://www.bloomberg.com/news/2012-09-19/sec-s-gallagher-says-retail-bond-investors-fighting-headwinds-.html
\15\ See Opening remarks of Chairman Mary Jo White at SEC
Roundtable on Fixed Income Markets. http://www.sec.gov/News/Speech/Detail/Speech/1365171515300.
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The Exchange believes the proposed fee change is consistent with
these principles and the proposed amendment to the Liquidity Provider
Incentive Program is intended to provide additional liquidity to the
market and add competition to the existing group of liquidity
providers. The Exchange believes that by requiring Users to quote
within the prescribed parameters for a percentage of the regular
trading day, and by paying them a daily rebate for providing liquidity
in large number of bonds, the Exchange is rewarding aggressive
liquidity providers in the market, and by doing so, the Exchange will
encourage the additional utilization of, and interaction with, the NYSE
and provide customers with the premier venue for price discovery,
liquidity, and competitive quotes.
Finally, the Exchange believes that the proposed rule change is
equitable and not unfairly discriminatory in that it would apply
uniformly to all Users accessing the NYSE Bonds system. All similarly
situated Users would be subject to the same fee and rebate structure,
and each User would have the ability to determine the extent to which
the Exchange's proposed fee and rebate structure will provide it with
an economic incentive to use the NYSE Bonds system, and model its
business accordingly.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\16\ the Exchange
believes that the proposed rule change would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Debt securities typically trade in a decentralized
OTC dealer market that is less liquid and transparent than the equities
markets. The Exchange believes that the proposed change would increase
competition with these OTC venues by creating additional incentives to
engage in bonds transactions on the Exchange and rewarding market
participants for actively quoting and providing liquidity in the only
transparent bond market, which the Exchange believes will enhance
market quality.
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\16\ 15 U.S.C. 78f(b)(8).
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The Exchange notes that it operates in a highly competitive market
in which market participants can readily favor competing venues that
are not transparent. In such an environment, the Exchange must
continually review, and consider adjusting its fees and rebates to
remain competitive with other exchanges as well as with alternative
trading systems and other venues that are not required to comply with
the statutory standards applicable to exchanges. Because competitors
are free to modify their own fees and credits in response, and because
market participants may readily adjust their order routing practices,
the Exchange believes that the degree to which fee
[[Page 78217]]
changes in this market may impose any burden on competition is
extremely limited. As a result of all of these considerations, the
Exchange does not believe that the proposed change will impair the
ability of member organizations or competing order execution venues to
maintain their competitive standing in the financial markets.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \17\ of the Act and subparagraph (f)(2) of Rule
19b-4 \18\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \19\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\19\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2016-68 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2016-68. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSE-2016-68 and should be
submitted on or before November 28, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Brent J. Fields,
Secretary.
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\20\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-26789 Filed 11-4-16; 8:45 am]
BILLING CODE 8011-01-P