NYSE Arca, Inc., a major U.S. equities exchange, has filed a proposed rule change with the Securities and Exchange Commission (SEC) to amend its fee schedule for Retail Orders. The filing, submitted on September 30, 2025, and effective October 1, 2025, introduces a tiered fee structure for certain orders that remove liquidity and simplifies pricing for executions between matching Retail Orders. This development occurs amid intense competition in the equities market, where exchanges vie for retail order flow against off-exchange venues. The proposal seeks to balance incentives for liquidity provision with adjustments reflecting current trading volumes, potentially influencing how broker-dealers route retail trades.
Background on Retail Orders and Market Competition
Retail Orders on NYSE Arca are defined as agency orders originating from natural persons, submitted without changes to price or side, and not generated by algorithms. This definition stems from a 2012 SEC approval (Securities Exchange Act Release No. 67540), which established the framework for designated retail liquidity programs across exchanges. These programs aim to attract retail investor participation by offering favorable pricing, such as credits for adding liquidity and reduced or no fees for removing it.
The broader context is a highly fragmented U.S. equities market, as noted in the filing. Regulation NMS, adopted in 2005 (Securities Exchange Act Release No. 51808), emphasized competition in determining prices and services while acknowledging fragmentation across multiple trading venues. Currently, equity trading spans 16 exchanges, numerous alternative trading systems (ATS), and internalizers, with no single exchange holding more than 17% market share. NYSE Arca itself commands less than 10% of executed volume. The filing highlights that retail order flow is particularly competitive, often directed off-exchange, prompting exchanges to use tiered fees and credits to capture it.
Key players include NYSE Arca as the self-regulatory organization (SRO), the SEC as the regulator soliciting public comments, and Equity Trading Permit (ETP) Holders—broker-dealers authorized to trade on the exchange. Competitors like Nasdaq, which offers a similar Retail Order Process with a $0.0025 fee for removals exceeding 8 million shares monthly, underscore the intermarket rivalry.
Details of the Proposed Fee Changes
The proposal targets the NYSE Arca Equities Fees and Charges schedule, specifically Retail Tiers 1 through 4 and the Retail Step-Up Tier. Under the changes, Retail Orders with a Day time-in-force that remove liquidity will incur no fee for the first 170 million shares executed in a billing month. Shares above this threshold will be charged $0.0025 per share. This applies to qualifying orders under the specified tiers and an existing footnote (e) incentive, which rewards ETP Holders for increasing Retail Order volume over a May 2022 baseline by at least 0.05% of consolidated average daily volume (CADV).
Additionally, the filing removes the Day time-in-force restriction from footnote (d). Previously, no fee or credit applied to executions where both sides are Retail Orders with Day modifiers and share the same Member Participant Identifier (MPID). Now, this neutral pricing extends to all such matching Retail Orders, regardless of time-in-force. For non-matching or non-Retail executions, standard credits for adding liquidity and no-fee removals remain in place.
These adjustments are positioned as responses to market dynamics, with the $0.0025 fee noted as lower than the exchange's standard removal fee. The filing states that the changes aim to encourage additional liquidity without predicting specific shifts in order flow.
Statutory Basis and Regulatory Justification
The proposal asserts consistency with Section 6(b) of the Securities Exchange Act of 1934, emphasizing equitable allocation of fees (Section 6(b)(4)) and prevention of unfair discrimination (Section 6(b)(5)). It argues the changes are reasonable by promoting liquidity and transparency in a competitive environment, equitable as they apply uniformly to all ETP Holders, and non-discriminatory since participants can choose alternative venues if dissatisfied.
On competition, the filing claims no undue burden under Section 6(b)(8), fostering intramarket benefits through enhanced order opportunities and intermarket rivalry by potentially drawing flow from competitors. References to Regulation NMS reinforce that market forces should drive pricing, with the proposal designed to improve NYSE Arca's position without harming overall efficiency.
No prior comments are mentioned, but the SEC is soliciting input, aligning with Rule 19b-4 procedures for immediate effectiveness upon filing.
Implications and Perspectives
Short-term, the changes could incentivize ETP Holders to route more Retail Orders to NYSE Arca, boosting on-exchange volume and price discovery. High-volume firms might adjust strategies to stay under the 170 million share threshold or accept the modest fee, while the simplified matching rule could streamline internal executions. Long-term, this may contribute to broader market trends toward consolidated trading, benefiting investors through improved transparency, as opposed to off-exchange fragmentation.
Perspectives vary: Proponents, including exchange operators, view such incentives as vital for competition, echoing the Commission's stance in Regulation NMS. Critics, potentially including off-exchange venues or consumer advocates, might argue that tiered fees favor large players, though the filing counters this by noting uniform application. Regulators like the SEC will weigh public comments to assess alignment with investor protection. No direct legal precedents are cited, but the structure mirrors approvals for similar programs on other exchanges.
In summary, NYSE Arca's proposal reflects ongoing adaptations in equity market structure, balancing incentives with competitive realities.
