85 FR 38 pgs. 11162-11165 - Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Annual Membership Fee
Type: NOTICEVolume: 85Number: 38Pages: 11162 - 11165
Pages: 11162, 11163, 11164, 11165Docket number: [Release No. 34-88248; File No. SR-LTSE-2020-04]
FR document: [FR Doc. 2020-03769 Filed 2-25-20; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88248; File No. SR-LTSE-2020-04]
Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Annual Membership Fee
February 20, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 ("Act"),1 and Rule 19b-4 thereunder,2 notice is hereby given that on February 10, 2020, Long-Term Stock Exchange, Inc. ("LTSE" or "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.
Footnotes:
1 ?15 U.S.C. 78s(b)(1).
2 ?17 CFR 240.19b-4.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
LTSE proposes a rule change to establish an Annual Membership Fee.
The text of the proposed rule change is available at the Exchange's website at https://longtermstockexchange.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 these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects 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 is proposing to establish an Annual Membership Fee for Members?3 of the Exchange of $10,000. The Annual Membership Fee is proposed to be assessed on a calendar-year basis and will be due on or before December 31 of the prior year. For example, the Annual Membership Fee for calendar year 2021 will be due on or before December 31, 2020.
Footnotes:
3 ?The term "Member" means any registered broker or dealer that has been admitted to membership in the Exchange. A Member has the status of a Member of the Exchange as that term is defined in Section 3(a)(3) of the Act. Membership may be granted to a sole proprietor, partnership, corporation, limited liability company, or other organization that is a registered broker or dealer pursuant to Section 15 of the Act, and which has been approved by the Exchange. See LTSE Rule 1.160(w).
However, if a Member is pending a voluntary termination of rights as a Member pursuant to Rule 2.190 prior to the date any Annual Membership Fee for a given year will be due ( i.e., December 31) and the Member does not utilize the facilities of the Exchange while such voluntary termination of rights is pending, then the Member will not be obligated to pay the Annual Membership Fee for the upcoming calendar year. The Exchange believes this to be appropriate because there is ordinarily a 30-day waiting period before such resignation shall take effect.
The Annual Membership Fee for a firm that becomes a Member during a calendar year is proposed to be prorated (starting with the next calendar month) based upon the date the firm becomes a Member. For example, if a firm is approved as a Member on July 15, the prorated Annual Membership Fee assessed on such new Member would cover the months of August through December, i.e., five months at $833 for a total of $4,165. Any Annual Membership Fees that are paid are proposed to be non-refundable.
As an inducement for firms to become Members of the Exchange as the Exchange completes the build-out of its trading platform and finalizes compliance with the conditions set forth in the Exchange's approval order,4 the Exchange proposes to waive the 2020 Annual Membership Fee for any firm that submits its completed membership application prior to the commencement of trading operations. Additional information regarding the Exchange's readiness to commence trading operations and the anticipated start of trading will be announced on its website at www.longtermstockexchange.com.
Footnotes:
4 ? See Securities Exchange Act Release No. 34-85828 (May 10, 2019), 84 FR 21841 (May 15, 2019) (File No. 10-234).
[top] The Exchange does not presently contemplate proposing any application
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with the requirements of Section 6(b) of the Act?5 in general, and furthers the objectives of Section 6(b)(4) of the Act?6 in particular, because it provides for the equitable allocation of reasonable dues, fees, and other charges among its Members and other persons using its facilities. The Exchange also believes that the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act?7 because the proposed rule change is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest and is not designed to permit unfair discrimination between customer, issuers, brokers, and dealers.
Footnotes:
5 ?15 U.S.C. 78f(b).
6 ?15 U.S.C. 78f(b)(4).
7 ?15 U.S.C. 78f(b)(5).
The Exchange believes that the proposed Annual Membership Fee is reasonable because it is a de minimis expense in relation to the costs of operating a broker-dealer that routes and executes orders across the trading venues that comprise the national market system. The Exchange is offering a novel trading model-the Very Simply Market ("VSM")?8-in which all orders would be fully displayed and all trades would occur at displayed prices, thus dispensing with both the need for midpoint executions ( e.g., traders accessing non-displayed prices) and complex order types. The Exchange believes that the VSM also would appeal to market makers and other firms who, by virtue of the simple nature of the market, would be able to easily and effectively manage their quoting behavior. In view of these offerings, the Exchange believes that there is value in becoming a Member of the Exchange and that the proposed Annual Membership Fee is reasonable. Moreover, insofar as the Annual Membership Fee is an "all-in" fee ( i.e., LTSE does not charge-nor does LTSE presently contemplate charging-application fees, trading fees, trading rights fees, or trading permit fees), the Annual Membership Fee is lower than other national securities exchanges that charge such fees.9 The Exchange also does not charge-nor does it presently contemplate charging-so-called "headcount fees," e.g., fees charged for each Form U-4 filed for registration of a representative or a principal or the transfer or re-licensing of such personnel,10 further highlighting the reasonableness of the proposed Annual Membership Fee. The proposed Annual Membership Fee might be seen as relatively more reasonable for a Member that conducts more trading on LTSE, but the Exchange believes that the clarity and convenience of a fixed fee-in contrast to fees based on trading volume or the number or type of connections to the exchange-as well the amount of the fee, makes the proposed rule change reasonable.
Footnotes:
8 ? See Securities Exchange Act Release No. 34-87221 (October 3, 2019), 84 FR 54195 (October 9, 2019) (SR-LTSE-2019-02).
9 ?For example, NYSE's annual trading license fee for member organizations ranges from $25,000 to $50,000 based on the number of trading licenses. See "Price List 2020," New York Stock Exchange at 39 (last updated January 2, 2020), https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf. Nasdaq's annual membership fee is $3,000 plus a monthly $1,250 trading rights fee (totaling $18,000 per year). See "NASDAQ Membership Fees," Nasdaq, http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2#membership. See also Securities Exchange Act Release No. 34-81133 (July 12, 2017), 82 FR 32904 (July 18, 2017) (SR-NASDAQ-2017-065) (discussing the reasonableness of NASDAQ's fees).
10 ? See, e.g., "NASDAQ Membership Fees," supra note 9 ($55 for each Form U-4 filed for the registration of a Representative or Principal, and $55 for each Form U-4 filed for the transfer or re-licensing of a Representative or Principal).
The Exchange believes that the proposed Annual Membership Fee is not unfairly discriminatory because it would be assessed equally across all Members or firms that seek to become Members. The Exchange believes that the proposed Annual Membership Fee is not unfairly discriminatory because no broker-dealer is required to become a member of the Exchange.11 The vigorous competition among national securities exchanges provides many alternatives for firms to voluntarily decide whether membership in LTSE is appropriate and worthwhile, and no broker-dealer is required to become a member of the Exchange.12
Footnotes:
11 ?For example, NYSE National lists only 52 firms in its membership directory, as compared to 148 firms listed as members of NYSE. Compare "NYSE National Membership," https://www.nyse.com/markets/nyse-national/membership (last visited January 23, 2020), with "NYSE Membership," https://www.nyse.com/markets/nyse/membership (last visited January 23, 2020).
12 ?Neither the trade-through requirements under Regulation NMS nor broker-dealers' best execution obligations require a broker-dealer to become a member of every exchange.
The Exchange further believes that the proposed fees would be an equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities, and are not unfairly discriminatory. As the Commission noted in its Concept Release Concerning Self-Regulation:
The Commission to date has not issued detailed rules specifying proper funding levels of [self-regulatory organization ("SRO")] regulatory programs, or how costs should be allocated among the various SRO constituencies. Rather, the Commission has examined the SROs to determine whether they are complying with their statutory responsibilities. This approach was developed in response to the diverse characteristics and roles of the various SROs and the markets they operate. The mechanics of SRO funding, including the amount of revenue that is spent on regulation and how that amount is allocated among various regulatory operations, is related to the type of market that an SRO is operating. . . . Thus, each SRO and its financial structure is, to a certain extent, unique. While this uniqueness can result in different levels of SRO funding across markets, it also is a reflection of one of the primary underpinnings of the National Market System. Specifically, by fostering an environment in which diverse markets with diverse business models compete within a unified National Market System, investors and market participants benefit.13
Footnotes:
13 ?Securities Exchange Act Release No. 34-50700 (November 22, 2004), 69 FR 71255, 71267-68 (December 8, 2004) (File No. S7-40-04).
[top] The Exchange's proposed funding model relies primarily on issuers, who would pay listing fees,14 and Members, who would pay annual membership fees. Thus, the proposed rule change has broker-dealers sharing in the costs of operating the Exchange. Over time, the Exchange can assess whether the apportionment of fees among its various constituencies, but the approach outlined in the proposed rule change aligns with a new exchange that is seeking to attract members amidst a highly competitive landscape. Indeed, for this reason, the Exchange proposes to waive the Annual Membership Fee for calendar year 2020 for any firm submitting a completed membership application before the Exchange
Footnotes:
14 ? See SR-LTSE-2020-03 (filed January 30, 2020) (on file with Commission). The Commission notes that, since the Exchange's filing of the instant proposed rule change, notice of the listing fees proposal has been published in the Federal Register . See Securities Exchange Act Release No. 88133 (February 6, 2020), 85 FR 8048 (February 12, 2019) (SR-LTSE-2020-03).
Effective regulation is central to the proper functioning of the securities markets. Recognizing the importance of such efforts, Congress decided to require national securities exchanges to register with the Commission as self-regulatory organizations to carry out the purposes of the Act. The Exchange therefore believes that it is critical to ensure that regulation is appropriately funded. The Annual Membership Fee is expected to provide a source of funding towards the Exchange's total regulatory costs.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,15 the Exchange believes that the proposed rule change would not impose any burden on intermarket or intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. Instead, the Exchange believes that the proposed rule change would promote and enhance intermarket competition by supporting the funding and operation of a national securities exchange that is focused principally on uniting bold ideas with patient capital and for companies and investors who measure success over years and decades, not financial quarters.16 In this regard, the Exchange believes that there is broad acknowledgment that the number of new companies accessing the U.S. public capital markets is decreasing and has been for some time.17 For example, the Commission's recent proposal on Amending the "Accredited Investor" Definition acknowledges this problem, but focuses instead on bringing more investors into the private markets.18 The Exchange believes that its entry as a national securities exchange will help reinvigorate the public capital markets,19 and in turn, promote intermarket competition given the wide number of venues in which a listed company's stock can trade.
Footnotes:
15 ?15 U.S.C. 78f(b)(8).
16 ? See Lananh Nguyen, "Silicon Valley Exchange Says Wall Street Needs to Slow Down," Bloomberg (December 19, 2019), https://www.bloomberg.com/news/articles/2019-12-19/long-term-stock-exchange-says-wall-street-needs-to-slow-down?sref=CDdNJ6yd; Laurence Dodds, "One Man's Quest to Challenge Wall Street with a New Silicon Valley Stock Exchange," The Telegraph (November 7, 2019), https://www.telegraph.co.uk/technology/2019/11/07/one-mans-quest-challenge-wall-street-new-silicon-valley-stock/.
17 ? See Richard Henderson, "The Incredible Shrinking Stock Market," Financial Times (June 26, 2019), https://www.ft.com/content/0c9c0b64-9760-11e9-9573-ee5cbb98ed36; Speech, Rick A. Fleming, "Enhancing the Demand for IPOs", NASAA 2017 Public Policy Conference (May 9, 2017), available at https://www.sec.gov/news/speech/fleming-enhancing-demand-ipos-050917.
18 ?Amending the "Accredited Investor" Definition, Proposed Rule, Release Nos. 33-10734, 34-87784, 85 FR 2574, 2605 (January 15, 2020) (File No. S7-25-19) ("[T]he high-growth stage of the lifecycle of many issuers occurs while they remain private. Thus, investors that do not qualify for accredited investor status may not be able to participate in the high-growth stage of these issuers because it often occurs before they engage in registered offerings. Allowing more investors to invest in unregistered offerings of private firms thus may allow them to participate in the high-growth stages of these firms.") (footnote omitted).
19 ? See Order Approving Proposed Rule Change To Adopt Rule 14.425, Which Would Require Companies Listed on the Exchange To Develop and Publish Certain Long-Term Policies, Securities Exchange Act Release No. 34-86722 (August 21, 2019), 84 FR 44952 (August 27, 2019) (SR-LTSE-2019-01).
The Exchange also believes that the proposed costs of membership will not impose an unnecessary or inappropriate burden on intermarket competition given the highly competitive market for execution venues, which includes not only the 13 other equities exchanges, but also off-exchange venues, including over 30 alternative trading systems trading NMS stocks.20 The Exchange believes that the proposed rule change also will not burden intermarket competition given the many choices firms have regarding the national securities exchanges in which they choose to become members.21 As noted above, neither the trade-through requirements under Regulation NMS nor broker-dealers' best execution obligations require a broker-dealer to become a member of every exchange.
Footnotes:
20 ? See "NMS Stock ATSs," U.S. Securities and Exchange Commission, https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm#ats-n.
21 ? See supra note 11.
Additionally, the Exchange believes that the Annual Membership Fee would not be an inappropriate burden on intramarket competition in particular, as it would be applied equally to all Members.
C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
The foregoing proposal has become effective pursuant to section 19(b)(3)(A) of the Act,22 and Rule 19b-4(f)(2)?23 thereunder. 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 to determine whether the proposed rule should be approved or disapproved.
Footnotes:
22 ?15 U.S.C. 78s(b)(3)(A).
23 ?17 CFR 240.19b-4(f)(2).
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 rule-comments@sec.gov. Please include File Number SR-LTSE-2020-04 on the subject line.
Paper Comments
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
[top] All submissions should refer to File Number SR-LTSE-2020-04. 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 website ( 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 website 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
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24
Footnotes:
24 ?17 CFR 200.30-3(a)(12).
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03769 Filed 2-25-20; 8:45 am]
BILLING CODE 8011-01-P