[Federal Register Volume 79, Number 69 (Thursday, April 10, 2014)]
[Notices]
[Pages 19947-19950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-08058]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71879; File No. SR-NYSE-2014-15]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending Its Price List To Introduce a New Credit for Certain Retail
Providing Liquidity on the Exchange
April 4, 2014.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on March 24, 2014, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``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 introduce a new
credit for certain retail providing liquidity on the Exchange. The
Exchange proposes to implement the fee change effective April 1, 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 the
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 introduce a new
credit for certain retail providing liquidity on the Exchange.\4\ The
Exchange proposes to implement the fee change effective April 1, 2014.
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\4\ The proposed pricing would only apply to securities priced
$1.00 or greater.
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The Exchange currently operates the Retail Liquidity Program as a
pilot program that is designed to attract additional retail order flow
to the Exchange for NYSE-listed securities while also providing the
potential for price improvement to such order flow.\5\ Retail order
flow is submitted through the Retail Liquidity Program as a distinct
order type called a ``Retail Order,'' which is defined in Rule
107C(a)(3) 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 a Retail Member Organization (``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.\6\ An
execution of a Retail Order is always considered to remove liquidity,
whether against contra-side interest in the Retail Liquidity Program or
against the Book.\7\ As described in the Price List, executions of
Retail Orders receive a credit of $0.0005 per share if executed against
Retail Price Improvement Orders (``RPIs'') or Mid-Point Passive
Liquidity (``MPL'') Orders and are otherwise charged according to
standard fees applicable to non-Retail Orders if executed against the
Book.\8\
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\5\ See Rule 107C. See also Securities Exchange Act Release No.
67347 (July 3, 2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-55).
\6\ RMO is defined in Rule 107C(a)(2) as a member organization
(or a division thereof) that has been approved by the Exchange under
Rule 107C to submit Retail Orders.
\7\ A Retail Order is an Immediate or Cancel Order. See Rule
107C(a)(3). See also Rule 107C(k) for a description of the manner in
which a member or member organization may designate how a Retail
Order will interact with available contra-side interest.
\8\ RPI is defined in Rule 107C(a)(4) and consists of non-
displayed interest in NYSE-listed securities 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. MPL
Order is defined in Rule 13 as an undisplayed limit order that
automatically executes at the mid-point of the protected best bid or
offer (``PBBO'').
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The Exchange proposes to introduce a new credit of $0.0030 per
share for executions of orders designated as ``retail'' that provide
liquidity on the Book.\9\ An order properly designated as ``retail''
would be required to satisfy the requirements of Rule 107C(a)(3), but
would not be submitted as a Retail Order within the Retail Liquidity
Program and therefore would not need to be submitted by an RMO.\10\
Designation of an order as ``retail'' for purposes of the proposed new
credit would be separate and distinct from submission of a Retail Order
for purposes of the Retail Liquidity Program, despite the
characteristics being identical (i.e., they must each satisfy the
requirements in Rule 107C(a)(3)).
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\9\ The existing rates in the Price List would apply to
executions of MPL Orders (e.g., $0.0015 per share). Similarly, the
existing rates in the Price List would apply to executions of Non-
Displayed Reserve Orders (e.g., $0.0010 per share). A Supplemental
Liquidity Provider (``SLP'') market maker (``SLMM'') could designate
orders as ``retail'' and be eligible for the proposed new credit.
Orders designated as ``retail'' that provide liquidity would count
toward a member's or member organization's overall level of
providing volume for purposes of other pricing on the Exchange that
is based on such levels (e.g., the Tier 1, Tier 2 and Tier 3 Adding
Credits).
\10\ The RMO aspect of Rule 107C(a)(3) would not be considered
when determining whether an order designated as ``retail'' satisfies
the requirements thereunder.
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The Exchange proposes to permit members and member organizations to
designate orders as ``retail'' for the purposes of the proposed $0.0030
credit either (1) by means of a specific tag in the order entry message
or (2) by designating a particular member or member organization
mnemonic used at the Exchange as a ``retail mnemonic.'' A member or
member organization would be required to attest, in a form and/or
manner prescribed by the Exchange, that substantially all orders
submitted to the Exchange satisfy the requirements of Rule
107C(a)(3).\11\
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\11\ This would be similar to the process under the Retail
Liquidity Program, whereby an RMO must attest, in a form prescribed
by the Exchange, that substantially all orders submitted as Retail
Orders will qualify as such under Rule 107C. See Rule 107C(b)(C).
This would also be similar to the manner in which an Exchange
Trading Permit (``ETP'') Holder on NYSE Arca Equities, Inc. (``NYSE
Arca Equities'') may designate orders as ``retail'' outside of the
NYSE Arca Equities Retail Liquidity Program. See, e.g., Securities
Exchange Act Release No. 68322 (November 29, 2012), 77 FR 72425
(December 5, 2012) (SR-NYSEArca-2012-129).
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[[Page 19948]]
A member or member organization would be required to have written
policies and procedures reasonably designed to assure that it will only
designate orders as ``retail'' if all the requirements of Rule
107C(a)(3) are met. Such written policies and procedures must require
the member or member organization to (1) exercise due diligence before
entering orders designated as ``retail'' to assure that such entry is
in compliance with the requirements specified by the Exchange, and (2)
monitor whether orders designated as ``retail'' meet the applicable
requirements. If the member or member organization represents orders
designated as ``retail'' from another broker-dealer customer of the
member or member organization, the member's or member organization's
supervisory procedures must be reasonably designed to assure that the
orders it receives from such broker-dealer customer that it designates
as ``retail'' meet the requirements of Rule 107C(a)(3). The member or
member organization must (1) obtain an annual written representation,
in a form acceptable to the Exchange, from each broker-dealer customer
that sends it orders to be designated as ``retail'' that entry of such
orders designated as ``retail'' will be in compliance with the
requirements specified by the Exchange, and (2) monitor whether its
broker-dealer customer's orders designated as ``retail'' meet the
applicable requirements.\12\
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\12\ FINRA, on behalf of the Exchange, would review member and
member organization compliance with these requirements through an
exam-based review of the member's or member organization's internal
controls.
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Designating orders as ``retail'' would be optional. Accordingly, a
member or member organization that chooses not to designate orders as
``retail'' would therefore either (1) not use the applicable tag in the
order entry message or (2) not designate any of its mnemonics as
``retail mnemonics.'' The Exchange further proposes that it may
disqualify a member or member organization from eligibility for the
proposed new $0.0030 credit if the Exchange determines, in its sole
discretion, that a member or member organization has failed to abide by
any of the requirements proposed herein, including, for example, if a
member or member organization (1) designates greater than a de minimis
quantity of orders to the Exchange as ``retail'' that fail to meet any
of the applicable requirements, (2) fails to make the required
attestation to the Exchange, or (3) fails to maintain the required
policies and procedures.
The proposed change is not otherwise intended to address any other
issues, and the Exchange is not aware of any problems that members and
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,\13\ in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\14\ 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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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange notes that a significant percentage of the orders of
individual investors are executed over-the-counter.\15\ While the
Exchange believes that markets and price discovery optimally function
through the interactions of diverse flow types, it also believes that
growth in internalization has required differentiation of retail order
flow from other order flow types. In this regard, the Exchange believes
that the proposed change is reasonable because it would contribute to
maintaining or increasing the proportion of retail flow in exchange-
listed securities that are executed on a registered national securities
exchange (rather than relying on certain available off-exchange
execution methods). The proposed change is also equitable and not
unfairly discriminatory because it would contribute to investors'
confidence in the fairness of their transactions and because it would
benefit all investors by deepening the Exchange's liquidity pool,
supporting the quality of price discovery, promoting market
transparency and improving investor protection.
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\15\ See 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 Jo White, Focusing on
Fundamentals: The Path to Address Equity Market Structure (Speech at
the Security Traders Association 80th Annual Market Structure
Conference, Oct. 2, 2013) (available on the Commission's Web site)
(``White Speech''); 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) (``Schapiro
Speech''). In her speech, Chair White noted a steadily increasing
percentage of trading that occurs in ``dark'' venues, which appear
to execute more than half of the orders of long-term investors.
Similarly, in her speech, only three years earlier, Chair 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.
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The Exchange also believes that providing a credit for executions
of orders that provide liquidity on the Book and that are designated as
``retail'' is reasonable because it would create an added financial
incentive for members and member organizations to bring additional
retail flow to a public market. The proposed new credit is also
reasonable because it would reduce the costs of members and member
organizations that represent retail flow and potentially also reduce
costs to their customers. The proposed change is also reasonable
because it would be similar to the manner in which The Nasdaq Stock
Market, LLC (``NASDAQ'') provides a $0.0033 credit for ``Designated
Retail Orders'' that provide liquidity.\16\
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\16\ See NASDAQ Rule 7018.
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Absent this proposal, for example, a credit of $0.0022, $0.0020 or
$0.0017 (or $0.0010 if a Non-Displayed Reserve Order) would apply to
the retail providing liquidity that this proposal targets for a member
or member organization that qualifies for the Tier 1, Tier 2 or Tier 3
Adding Credits, respectively.\17\ A credit of $0.0015 per share (or
$0.0010 per share if a Non-Displayed Reserve Order) would otherwise
apply to the retail providing liquidity. The Exchange believes that
providing a credit of $0.0030 per share for executions of orders that
provide liquidity on the Book and that are designated as ``retail'' is
reasonable because it is set at a level that would reasonably
incentivize members and member organizations to qualify for eligibility
to designate orders as ``retail'' (e.g., attestations and procedures)
as well as to actually direct such retail flow to the Exchange. Such
orders designated as ``retail'' would increase the pool of robust
liquidity available on the Exchange, thereby contributing to the
quality of the Exchange's market and to the Exchange's status as a
premier destination for liquidity and order execution. The Exchange
believes that, because retail flow is likely to reflect long-term
investment intentions, it promotes price discovery and dampens
volatility. Accordingly, the presence of retail flow on the Exchange
has the potential to benefit all market
[[Page 19949]]
participants. For this reason, the Exchange believes that it is
equitable and not unfairly discriminatory to provide a financial
incentive to encourage greater retail participation on the Exchange.
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\17\ The Price List also provides for credits for SLPs.
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The Exchange believes that the process for designating orders as
``retail'' and the requirements surrounding such designations, such as
attestations and procedures, are reasonable because they would
reasonably ensure that substantially all of those orders would satisfy
the applicable requirements of Rule 107C(a)(3) and therefore be
eligible for the corresponding credit of $0.0030 per share. These
processes and requirements are also reasonable because they are
substantially similar to those in effect on the Exchange for the Retail
Liquidity Program and on NYSE Arca Equities related to pricing for
certain retail flow.\18\ More specifically, the Exchange understands
that some members and member organizations represent both retail flow
as well as other agency and riskless principal flow that may not meet
the strict requirements of Rule 107C(a)(3). The Exchange further
understands that limitations in order management systems and routing
networks used by such members and member organizations may make it
infeasible for them to isolate 100% of retail flow from other agency or
riskless principal, non-retail flow that they would direct to the
Exchange. Unable to make the categorical attestation required by the
Exchange, some members and member organizations may not attempt to
qualify for the proposed new $0.0030 credit, notwithstanding that they
have substantial retail flow. The Exchange believes that it is
reasonable to permit a de minimis amount of orders to be designated as
``retail,'' despite not satisfying the requirements of Rule 107C(a)(3),
because it would allow for enough flexibility to accommodate member and
member organization system limitations while still reasonably ensuring
that no more than a de minimis amount of orders submitted to the
Exchange would not satisfy the requirements of Rule 107C(a)(3). This is
also equitable and not unfairly discriminatory because it will
reasonably ensure that similarly situated members and member
organizations that have only slight differences in the capability of
their systems would be able to equally benefit from the proposed
pricing for orders designated as ``retail.''
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\18\ See supra note 11.
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The pricing proposed herein is equitable and is not designed to
permit unfair discrimination, but instead to promote a competitive
process around retail executions such that retail investors' orders
would be subject to greater transparency. 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.'' \19\ The Exchange has sought to balance
this view in setting the pricing of the credit available for executions
of orders designated as ``retail'' that provide liquidity compared to
other liquidity providing executions, recognizing that the ability of a
member's or member organization's contra-side liquidity to interact
with such orders designated as ``retail'' could be a potential benefit
applicable to the members or member organizations submitting such
contra-side liquidity.
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\19\ See SR-NYSE-2011-55, supra note 5. See also Concept
Release, White Speech, Schapiro Speech, supra note 15.
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The proposal is also equitable and not unfairly discriminatory
because the ability to designate an order as ``retail'' is available to
all members and member organizations that submit qualifying orders and
satisfy the other related requirements.
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,\20\ 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 and encourage
additional liquidity. In this regard, the Exchange believes that the
transparency and competitiveness of attracting additional executions on
an exchange market, and the pricing related thereto, would encourage
competition. The proposed change would also permit the Exchange to
compete with other markets, including NASDAQ, which similarly provides
a credit for ``Designated Retail Orders'' that provide liquidity.\21\
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\20\ 15 U.S.C. 78f(b)(8).
\21\ See supra note 16.
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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) \22\ of the Act and subparagraph (f)(2) of Rule
19b-4 \23\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 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
[[Page 19950]]
under Section 19(b)(2)(B) \24\ of the Act to determine whether the
proposed rule change should be approved or disapproved.
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\24\ 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-2014-15 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-NYSE-2014-15. 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 inspection and
copying 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 Web site viewing and printing 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
should refer to File Number SR-NYSE-2014-15 and should be submitted on
or before May 1, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-08058 Filed 4-9-14; 8:45 am]
BILLING CODE 8011-01-P