The New York Stock Exchange (NYSE) filed a proposed rule change with the Securities and Exchange Commission (SEC) on December 5, 2025, to amend its Price List. This filing, effective immediately upon submission under Section 19(b)(3)(A)(ii) of the Securities Exchange Act of 1934, redefines the term 'last modified' for D Orders that execute in closing auctions. The adjustment aims to incentivize member organizations to enter or modify these orders earlier, potentially reducing fees for participants and bolstering liquidity in the Exchange's closing processes. Published in the Federal Register on December 23, 2025, the notice invites public comments until January 13, 2026, highlighting the significance of this tweak in a fragmented and competitive equity trading landscape where no single exchange holds more than 20 percent market share.
Background on D Orders and Closing Auctions
D Orders, or imbalance-only orders, are designed to offset imbalances in the closing auction on the NYSE. These orders help ensure a balanced and efficient close by providing liquidity where needed. The Exchange's current Price List differentiates fees for D Orders based on the time of entry or last modification after a member organization exceeds 10,500,000 average daily volume (ADV) in aggregate closing executions. Fees are tiered into categories: Early D Orders (modified more than 10 minutes before close), Mid D Orders (from 10 minutes to 1 minute before close), and Late D Orders (in the final minute). This structure encourages timely submissions to build liquidity ahead of the auction.
The existing definition of 'last modified' considers the later of the order's entry time or the final modification or cancellation time, but only for D Orders sharing the same broker badge, entering firm mnemonic, symbol, and side. This specificity can result in orders being categorized as later-modified if cancellations occur, potentially pushing them into higher-fee buckets. The proposal simplifies this by focusing solely on entry or final modification time, without regard to cancellations or those shared attributes.
Key Players and Regulatory Context
The primary entities involved are the NYSE, a self-regulatory organization (SRO), and the SEC, which oversees such filings to ensure compliance with the Securities Exchange Act of 1934. As an SRO, the NYSE must justify changes under Section 6(b) of the Act, emphasizing equitable fee allocation, non-discrimination, and no undue burden on competition. The filing cites Regulation NMS, adopted in 2005, which promotes competition in securities markets while addressing fragmentation across trading venues.
Relevant precedents include the Commission's emphasis on market forces over regulation, as noted in the Regulation NMS release (Securities Exchange Act Release No. 51808, June 29, 2005). This framework recognizes that exchanges like NYSE compete with 15 other exchanges, alternative trading systems, and internalizers for order flow. The NYSE's market share in Tapes A, B, and C securities is below 12 percent, underscoring the competitive pressures driving this proposal. No specific court cases are directly cited, but the filing aligns with ongoing SEC approvals of similar fee adjustments aimed at enhancing market efficiency.
Purpose and Competitive Rationale
The NYSE states that the change responds to a highly fragmented market where trading occurs across multiple centers, leading to dispersed order flow. By redefining 'last modified' to exclude cancellations and order-specific restrictions, the Exchange anticipates more D Orders qualifying for Early or Mid categories, which carry lower fees. This is intended to encourage member organizations to submit or adjust orders earlier, improving system efficiency and liquidity buildup for closing auctions.
The filing emphasizes that the proposal does not alter fee amounts but refines eligibility criteria. It argues this is reasonable under Section 6(b)(4) and (5) of the Act, as it equitably allocates fees by rewarding early participation without targeting specific participant types. All member organizations can benefit equally, and the change is seen as promoting robust closing auctions that advantage investors through better price discovery.
Potential Implications and Perspectives
Short-term effects may include increased early submissions of D Orders, potentially leading to more stable closing prices and reduced volatility in auctions. Member organizations could see cost savings, fostering greater participation. However, if the change results in unintended behaviors, such as rushed modifications, it might strain Exchange systems momentarily.
Long-term, this could enhance the NYSE's competitiveness by attracting more order flow in a market where participants readily shift venues based on pricing. Critics might argue it favors larger firms with advanced technology for early entries, though the filing asserts non-discrimination. Supporters view it as aligning with Regulation NMS goals of integrated competition and efficient pricing. Investors and listed companies benefit from improved market depth, but ongoing fragmentation could dilute these gains if competitors adopt similar measures.
Different stakeholders offer varied views. Market participants seeking cost efficiency may welcome the change, while those concerned with equity might question if it truly levels the playing field. Regulators, via the SEC's comment period, will assess public input to determine if the rule burdens competition or protects investors.
Forward-Looking Considerations
This proposal underscores the dynamic nature of exchange fee structures in response to competitive forces. Potential next steps include SEC review of comments, possible temporary suspension within 60 days if deemed necessary for investor protection, and implementation effective December 5, 2025, unless altered. Future challenges may involve adapting to evolving market structures, such as further fragmentation or technological advancements in order routing. Debates could center on whether such incentives sufficiently address broader issues like market concentration or the balance between competition and regulation, with ongoing discussions likely in industry forums and regulatory updates.
