[Federal Register Volume 79, Number 56 (Monday, March 24, 2014)]
[Notices]
[Pages 16085-16088]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-06301]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71730; File No. SR-NYSEMKT-2014-19]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Its Price List
To Specify Pricing Applicable To Executions of Mid-Point Passive
Liquidity Orders Against Retail Orders Within the Retail Liquidity
Program
March 18, 2014.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the
[[Page 16086]]
``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that,
on March 4, 2014, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'') 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 specify pricing
applicable to executions of Mid-Point Passive Liquidity (``MPL'')
Orders against Retail Orders within the Retail Liquidity Program. The
Exchange proposes to implement the fee change effective March 4, 2014.
The text of the proposed rule change is available on the 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 specify pricing
applicable to executions of MPL Orders against Retail Orders within the
Retail Liquidity Program. The Exchange proposes to implement the fee
change effective March 4, 2014.
The Exchange recently introduced a new order type called an MPL
Order, which is an undisplayed limit order that automatically executes
at the mid-point of the protected best bid or offer (``PBBO'').\4\ The
Exchange also amended NYSE MKT Rule 107C--Equities to specify that MPL
Orders could interact with incoming, contra-side Retail Orders
submitted by a Retail Member Organization (``RMO'') in the Retail
Liquidity Program.\5\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 71329 (January 16,
2014), 79 FR 3904 (January 23, 2014) (SR-NYSEMKT-2013-84). See also
NYSE MKT Rule 13--Equities.
\5\ See NYSE MKT Rule 107C--Equities. Retail Order is defined in
NYSE MKT Rule 107C(a)(3)--Equities as an agency order or a riskless
principal order that meets the criteria of Financial Industry
Regulatory Authority, Inc. (``FINRA'') Rule 5320.03 that originates
from a natural person and is submitted to the Exchange by an RMO,
provided that no change is made to the terms of the order with
respect to price or side of market and the order does not originate
from a trading algorithm or any other computerized methodology. RMO
is defined in NYSE MKT Rule 107C(a)(2)--Equities as a member
organization (or a division thereof) that has been approved by the
Exchange to submit Retail Orders.
---------------------------------------------------------------------------
The Exchange proposes that the pricing for a Retail Order that
executes against an MPL Order would be the same as the current pricing
for a Retail Order that executes against a Retail Price Improvement
Order (``RPI'') submitted by a Retail Liquidity Provider (``RLP'') or
non-RLP.\6\ Specifically, the Retail Order would receive a credit of
$0.0005 per share. The Exchange also proposes that the contra-side MPL
Order would be billed according to the standard pricing that would
otherwise apply to the MPL Order (e.g., a credit of $0.0016 per share
for Exchange-listed securities or $0.0025 per share for UTP securities,
not the pricing under the Retail Liquidity Program section of the Price
List).
---------------------------------------------------------------------------
\6\ RPI is defined in NYSE MKT Rule 107C(a)(4)--Equities and
consists of non-displayed interest in Exchange-traded securities
(including, but not limited to, Exchange-listed securities and
securities listed on the Nasdaq Stock Market traded pursuant to
unlisted trading privileges (``UTP'')) that is priced better than
the best protected bid (``PBB'') or best protected offer (``PBO''),
as such terms are defined in Regulation NMS Rule 600(b)(57), by at
least $0.001 and that is identified as such. RLP is defined in NYSE
MKT Rule 107C(a)(1)--Equities as a member organization that is
approved by the Exchange to act as such and that is required to
submit RPIs in accordance with NYSE MKT Rule 107C--Equities.
---------------------------------------------------------------------------
The proposed change is not otherwise intended to address any other
issues, and the Exchange is not aware of any problems that member
organizations would have in complying with the proposed change.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\7\ in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\8\ 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.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Exchange believes that a $0.0005 per share credit for a Retail
Order that executes against an MPL Order is reasonable because it is
the same rate that currently applies to a Retail Order that executes
against an RPI. In this regard, both MPL Orders and RPIs offer the
potential for price improvement for a Retail Order. This is further
reasonable because it would create an added financial incentive for
RMOs to bring additional retail order flow to a public market, which
could result in additional price improvement for retail investors.
The Exchange also believes that it is reasonable for an MPL Order
that executes against a Retail Order to be billed according to standard
pricing that would otherwise apply to the MPL Order (e.g., a credit of
$0.0016 per share for Exchange-listed securities or $0.0025 per share
for UTP securities, not the pricing under the Retail Liquidity Program
section of the Price List). Specifically, an MPL Order would be
eligible to execute against Retail Orders, but without being so
designated by the submitting member or member organization.
Accordingly, the standard MPL Order rate (e.g., a credit of $0.0016 per
share for Exchange-listed securities or $0.0025 per share for UTP
securities) would otherwise apply to the MPL Order absent its
interaction with the Retail Order.
The pricing proposed herein is equitable and, like the Retail
Liquidity Program itself, is not designed to permit unfair
discrimination, but instead to promote a competitive process around
retail executions such that retail investors would receive better
prices than they currently do through bilateral internalization
arrangements.
The proposed pricing could result in an RPI receiving a rate (i.e.,
no charge or a fee of $0.0003 per share) that is inferior to the rate
received by an MPL Order (e.g., a credit of $0.0016 per share for
Exchange-listed securities or $0.0025 per share for UTP securities),
even when both execute against a Retail Order. The Exchange believes
that this is equitable and not unfairly discriminatory because RPIs
would only execute against Retail Orders, whereas MPL Orders could
execute against Retail Orders or other marketable interest on the
Exchange, including non-retail liquidity.\9\ In this
[[Page 16087]]
regard, and as previously recognized by the Securities and Exchange
Commission (``Commission''), ``markets generally distinguish between
individual retail investors, whose orders are considered desirable by
liquidity providers because such retail investors are presumed on
average to be less informed about short-term price movements, and
professional traders, whose orders are presumed on average to be more
informed.'' \10\ The Exchange has sought to balance this view in
setting the pricing of RPIs compared to MPL Orders, recognizing that
the ability to limit interaction only to Retail Orders could be a
potential benefit applicable only to RPIs. This is also equitable and
not unfairly discriminatory because the use of RPIs by RLPs and non-
RLPs is voluntary. Members and member organizations that perceive that
the potential advantages of interacting with Retail Orders outweigh the
potential costs (i.e., providing price improvement and potential
inferior pricing as compared to MPL Orders) may choose to utilize RPIs,
but those that do not are free to forgo their use.
---------------------------------------------------------------------------
\9\ This is also similar to the manner in which the NASDAQ Stock
Market, LLC (``NASDAQ'') applies pricing for its ``Retail Price
Improvement Program.'' See NASDAQ Rule 7018(g).
\10\ See Securities Exchange Act Release No. 67347 (July 3,
2012), 77 FR 40673, 40679-80 (July 10, 2012) (SR-NYSE-2011-55; SR-
NYSEAmex-2011-84). See also Concept Release on Equity Market
Structure, Securities Exchange Act Release No. 61358 (January 14,
2010), 75 FR 3594 (January 21, 2010) (``Concept Release'') (noting
that dark pools and internalizing broker-dealers executed
approximately 25.4% of share volume in September 2009). See also
Mary L. Schapiro, Strengthening Our Equity Market Structure (Speech
at the Economic Club of New York, Sept. 7, 2010) (available on the
Commission's Web site). In her speech, Chairman Schapiro noted that
nearly 30 percent of volume in U.S.-listed equities was executed in
venues that do not display their liquidity or make it generally
available to the public and the percentage was increasing nearly
every month.
---------------------------------------------------------------------------
Finally, the Exchange believes that it is subject to significant
competitive forces, as described below in the Exchange's statement
regarding the burden on competition.
For these reasons, the Exchange believes that the proposal is
consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\11\ 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. Instead, the Exchange believes that the proposed
change would increase competition among execution venues, encourage
additional liquidity, and offer the potential for price improvement to
retail investors. In this regard, the Exchange believes that the
transparency and competitiveness of operating a program such as the
Retail Liquidity Program on an exchange market, and the pricing related
thereto, would encourage competition and result in better prices for
retail investors.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
Finally, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive or rebate opportunities available at other venues to be more
favorable. In such an environment, the Exchange must continually adjust
its fees and rebates to remain competitive with other exchanges and
with alternative trading systems that have been exempted from
compliance 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 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 changes 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) \12\ of the Act and subparagraph (f)(2) of Rule
19b-4 \13\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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) \14\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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-NYSEMKT-2014-19 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.
All submissions should refer to File Number SR-NYSEMKT-2014-19. 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 Section, 100 F Street
NE., Washington, DC 20549-1090, on official business days between the
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing will also be
available for inspection and copying at the NYSE's principal office and
on its Internet Web site at www.nyse.com. 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
[[Page 16088]]
should refer to File Number SR-NYSEMKT-2014-19 and should be submitted
on or before April 14, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
---------------------------------------------------------------------------
\15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-06301 Filed 3-21-14; 8:45 am]
BILLING CODE 8011-01-P