[Federal Register Volume 79, Number 174 (Tuesday, September 9, 2014)]
[Notices]
[Pages 53475-53482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-21355]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72960; File No. SR-NYSE-2014-46]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending Its Price List To Increase Certain Fees for Executions at the
Close; Simplify the ``Tier Adding Credits'' for Non-Floor Brokers and
Increase the Credit for One Tier; Decrease the Fee and Increase the
Credit for Midpoint Passive Liquidity Orders; Eliminate the Transaction
Rate for Floor Broker Volume That ``Steps Up'' Over a Baseline Month
and Increase a Related Fee for Floor Broker Transactions; Eliminate a
Volume Tier and Decrease a Credit Related to Executions of Orders Sent
to the Floor Broker That Add Liquidity on the Exchange; Increase a
Volume Requirement and Corresponding Credit for Supplemental Liquidity
Providers When Adding Liquidity in Assigned Securities; and Adjust the
Pricing Related to the Retail Liquidity Program Under Rule 107C
September 3, 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 August 20, 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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[[Page 53476]]
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 (i) increase
certain fees for executions at the close; (ii) simplify the ``Tier
Adding Credits'' for non-Floor brokers and increase the credit for one
tier; (iii) decrease the fee and increase the credit for Midpoint
Passive Liquidity (``MPL'') Orders that remove and provide liquidity,
respectively; (iv) increase certain fees for non-Floor broker
transactions, including for Designated Market Makers (``DMMs''), that
remove liquidity; (v) eliminate the transaction rate for Floor broker
volume that ``steps up'' over a baseline month and increase a related
fee for Floor broker transactions that remove liquidity; (vi) eliminate
a volume tier and decrease a credit related to executions of orders
sent to the Floor broker that add liquidity on the Exchange; (vii)
increase a volume requirement and corresponding credit for Supplemental
Liquidity Providers (``SLPs'') when adding liquidity in assigned
securities; and (viii) adjust the pricing related to the Retail
Liquidity Program under Rule 107C. The Exchange proposes to implement
the fee changes effective September 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
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 (i) increase
certain fees for executions at the close; (ii) simplify the ``Tier
Adding Credits'' for non-Floor brokers and increase the credit for one
tier; (iii) decrease the fee and increase the credit for MPL Orders
that remove and provide liquidity, respectively; (iv) increase certain
fees for non-Floor broker transactions, including for DMMs, that remove
liquidity; (v) eliminate the transaction rate for Floor broker volume
that ``steps up'' over a baseline month and increase a related fee for
Floor broker transactions that remove liquidity; (vi) eliminate a
volume tier and decrease a credit related to executions of orders sent
to the Floor broker that add liquidity on the Exchange; (vii) increase
a volume requirement and corresponding credit for SLPs when adding
liquidity in assigned securities; and (viii) adjust the pricing related
to the Retail Liquidity Program under Rule 107C. The Exchange proposes
to implement the fee changes effective September 1, 2014. The proposed
changes would only apply to transactions in securities priced $1.00 or
more.
Executions at the Close
Other than for market at-the-close (``MOC'') and limit at-the-close
(``LOC'') orders, the Exchange generally does not charge for executions
at the close, including Floor broker executions swept into the close.
However, the Exchange does charge $0.0002 per share to a member
organization that executes an average daily volume (``ADV'') on the
Exchange during the billing month of at least 1,000,000 shares in (i)
executions at the close (except MOC and LOC orders), and/or (ii) Floor
broker executions swept into the close. The Exchange proposes to
increase this fee to $0.0003 per share.
The Exchange currently charges $0.00095 per share for all MOC and
LOC orders, except for those of certain member organizations that are
particularly active with MOC and LOC orders and other executions at the
close. Specifically, the Exchange currently charges $0.00055 per share
for all MOC and LOC orders from any member organization executing (i)
an ADV of MOC/LOC activity on the Exchange in the month of at least
0.375% of consolidated ADV (``CADV'') in NYSE-listed securities during
the billing month (``NYSE CADV''); or (ii) an ADV of MOC/LOC activity
on the Exchange in that month of at least 0.30% of NYSE CADV plus an
ADV of total close activity (i.e., MOC/LOC and other executions at the
close) on the Exchange in that month of at least 0.475% of NYSE CADV.
The Exchange proposes to increase this fee to $0.00065 per share.
The Exchange also currently charges $0.00050 per share for all MOC
and LOC orders from any member organization executing an ADV of MOC/LOC
activity on the Exchange in the month of at least 0.575% of NYSE CADV.
The Exchange proposes to increase this fee to $0.00060 per share.
MPL Orders
An MPL Order is an undisplayed limit order that automatically
executes at the mid-point of the best protected bid (``PBB'') or best
protected offer (``PBO''), as such terms are defined in Regulation NMS
Rule 600(b)(57) (together, ``PBBO'').\4\ The Exchange currently charges
a fee of $0.0026 per share for executions of MPL Orders that remove
liquidity and provides a credit of $0.0015 per share for executions of
MPL Orders that provide liquidity. The Exchange proposes to decrease
the MPL Order fee to $0.0025 per share for executions of MPL Orders
that remove liquidity and to increase the MPL Order credit to $0.0020
per share for executions of MPL Orders that provide liquidity.
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\4\ See Rule 13. See also 17 CFR 242.600(b)(57).
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Non-Floor Broker Transactions (Including DMMs)
The Exchange currently charges $0.0026 per share for non-Floor
broker transactions that remove liquidity from the Exchange, including
those of DMMs. The Exchange proposes to increase this fee to $0.0027
per share (except for MPL Orders, as described above).
The Exchange currently provides member organizations with credits
of $0.0022, $0.0020, or $0.0017 per share under the Tier 1, Tier 2, and
Tier 3 Adding Credits, respectively, when adding liquidity on the
Exchange, except that the credit is $0.0010 for a Non-Displayed Reserve
Order or $0.0015 for an MPL Order under these tiers. Member
organizations must satisfy various requirements related to, for
example, ``Adding ADV'' and MOC and LOC activity in order to qualify
for the Tier 1, Tier 2, and Tier 3 Adding Credits (collectively, ``Tier
Adding Credits'').\5\
[[Page 53477]]
The Exchange proposes to simplify and streamline the qualification
requirements related to the Tier Adding Credits, as follows:
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\5\ To qualify for the Tier 1 Adding Credit, (i) a member
organization must have an ADV of executions that add liquidity in
customer electronic orders to the Exchange (``Customer Electronic
Adding ADV,'' which excludes any liquidity added by a Floor broker,
DMM, or SLP) during the billing month that is at least 1.25% of NYSE
CADV, and must execute MOC and LOC orders of at least 0.12% of NYSE
CADV; or (ii) the member organization must have Customer Electronic
Adding ADV during the billing month that is at least 0.85% of NYSE
CADV, must execute MOC and LOC orders of at least 0.12% of NYSE
CADV, and must either (a) add liquidity to the Exchange as an SLP
for all assigned SLP securities in the aggregate (including shares
of both an SLP proprietary trading unit (``SLP-Prop'') and an SLP
market maker (``SLMM'') of the same member organization) of more
than 0.30% of NYSE CADV or (b) add liquidity to the Exchange as a
Floor broker of more than 0.30% of NYSE CADV. To qualify for the
Tier 2 Adding Credit, (i) a member organization must have Customer
Electronic Adding ADV that is at least 1.1% of NYSE CADV, and must
execute MOC and LOC orders of at least 0.375% of NYSE CADV; (ii) the
member organization (a) must have ADV that adds liquidity to the
Exchange during the billing month (``Adding ADV,'' which excludes
any liquidity added by a DMM) that is at least 0.8% of NYSE CADV,
(b) must execute MOC and LOC orders of at least 0.12% of NYSE CADV
or execute an ADV during the billing month of at least one million
shares in RPIs (as defined below related to the Retail Liquidity
Program), and (c) must add liquidity to the Exchange as an SLP for
all assigned SLP securities in the aggregate (including shares of
both an SLP Prop and SLMM of the same member organization) of more
than 0.15% of NYSE CADV; or (iii) the member organization must have
Customer Electronic Adding ADV during the billing month that is at
least 0.5% of NYSE CADV, must execute MOC and LOC orders of at least
0.12% of NYSE CADV, and must have Customer Electronic Adding ADV
during the billing month that, taken as a percentage of NYSE CADV,
is at least equal to the member organization's Customer Electronic
Adding ADV during September 2012 as a percentage of NYSE CADV during
September 2012 plus 15%.
To qualify for the Tier 3 Adding Credit, a member organization
must have Adding ADV that is at least 0.20% of NYSE CADV and must
execute MOC and LOC orders of at least 0.10% of NYSE CADV.
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The Tier 1 Adding Credit would apply to a member
organization that (i) has ADV that adds liquidity to the Exchange
during the billing month (``Adding ADV,'' which would exclude any
liquidity added by a DMM) that is at least 1.10% of NYSE CADV, and (ii)
executes MOC and LOC orders of at least 0.12% of NYSE CADV. Instead of
two methods of qualifying for the Tier 1 Adding Credit, only the first
existing method would remain--the second method, which applied three
sets of criteria, would be eliminated. The concept of ``Customer
Electronic Adding ADV'' would be replaced with only the simpler
existing concept of ``Adding ADV,'' which would continue to exclude DMM
volume, but which would include SLP and Floor broker volume. The
applicable threshold of required Adding ADV would be lowered, from
1.25% to 1.10% of NYSE CADV. The applicable MOC/LOC threshold would not
change.
The Tier 2 Adding Credit would apply to a member
organization that (i) has Adding ADV of at least 0.75% of NYSE CADV,
and (ii) executes MOC and LOC orders of at least 0.10% of NYSE CADV or
executes an ADV during the billing month of at least one million shares
in Retail Price Improvements Orders (``RPIs,'' which are discussed in
greater detail below under ``Retail Liquidity Program''). Instead of
three methods of qualifying for the Tier 2 Adding Credit, only the
second existing method would remain--the first and third methods would
be eliminated. The applicable threshold of required Adding ADV would be
lowered, from 0.80% to 0.75% of NYSE CADV. The applicable threshold of
required MOC/LOC activity would also be lowered, from 0.12% to 0.10% of
NYSE CADV. The existing optional threshold related to adding liquidity
as an SLP in assigned securities also would be eliminated.
The Tier 3 Adding Credit is already fairly straightforward
in terms of qualification requirements, and would apply to a member
organization that (i) has Adding ADV of at least 0.35% of NYSE CADV,
and (ii) executes MOC and LOC orders of at least 0.05% of NYSE CADV.
The applicable threshold of required Adding ADV would be raised, from
0.20% to 0.35% of NYSE CADV. The applicable threshold of required MOC/
LOC activity would be lowered, from 0.10% to 0.05% of NYSE CADV.
The Exchange proposes increase the credit for the Tier 3 Adding
Credit from $0.0017 to $0.0018 per share; the Tier 1 and Tier 2 Adding
Credits ($0.0022 and $0.0020 per share, respectively) would not change.
Floor Broker Transactions
The Exchange currently charges $0.0005 or $0.0015 per share for
certain Floor broker Discretionary e-Quotes (``d-Quotes'') that remove
liquidity. The Exchange charges $0.0023 per share (or $0.0026 if an MPL
Order) for all other Floor broker transactions that remove liquidity
from the Exchange, unless the member organization executes an ADV in
Floor broker transactions in the month that is at least 10% more than
its May 2013 ADV for Floor broker transactions, in which case the
charge is $0.0021 per share (or $0.0026 if an MPL Order). The Exchange
proposes to eliminate the rate related to Floor broker ADV that ``steps
up'' over its May 2013 ADV. The Exchange also proposes to increase the
$0.0023 per share fee (or $0.0026 if an MPL Order) for Floor broker
transactions that take liquidity from the Exchange, to $0.0024 per
share (or $0.0025 if an MPL Order, as proposed above).
The Exchange currently provides a per share credit for executions
of orders sent to a Floor broker for representation on the Exchange
when adding liquidity to the Exchange if the member organization has an
ADV that adds liquidity to the Exchange by a Floor broker during the
billing month that is at least equal to certain thresholds. The
Exchange proposes to increase the first threshold of 2,000,000 shares
ADV to 2,500,000 shares ADV in order to qualify for the existing credit
of $0.0020 per share (or $0.0020 if an MPL Order, as proposed above).
The Exchange proposes to eliminate the second threshold of 4,000,000
shares ADV and the corresponding credit of $0.0021. The Exchange
proposes to decrease the third threshold of 14,000,000 shares ADV to
12,000,000 shares ADV and decrease the corresponding credit of $0.0023
per share to $0.0022 (or $0.0020 if an MPL Order, as proposed above).
SLP Transactions
The Exchange currently provides a per share credit to SLPs of
$0.0025 per share (or $0.0020 if a Non-Displayed Reserve Order or
$0.0015 if an MPL Order) when adding liquidity to the Exchange if the
SLP (i) meets the 10% average or more quoting requirement in an
assigned security pursuant to NYSE Rule 107B and (ii) adds liquidity
for all assigned SLP securities in the aggregate of an ADV of more than
0.30% of NYSE CADV. The Exchange proposes to increase the latter
threshold from 0.30% to 0.35% and to increase the corresponding credit
from $0.0025 to $0.0026. The Exchange also proposes to similarly
increase the rate for Non-Displayed Reserve Orders by $0.0001, from
$0.0020 to $0.0021. The MPL Order rate would increase to $0.0020, as
proposed above.
Retail Liquidity Program
The Retail Liquidity Program is 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.\6\ 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. 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.\7\ In addition to RMOs, Retail Liquidity Providers
(``RLPs'') were created as an additional class of market participant
[[Page 53478]]
under the Retail Liquidity Program. RLPs are required to provide
potential price improvement for Retail Orders in the form of ``RPIs,''
which are non-displayed interest that is better than the PBBO.\8\
Member organizations other than RLPs are also permitted, but not
required, to submit RPIs.
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\6\ See Rule 107C. See also Securities Exchange Act Release No.
67347 (July 3, 2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-55).
The Exchange also proposes a non-substantive change to correct a
typographical error in references to Rule 107C in the Price List.
\7\ 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.
\8\ RLP is defined in Rule 107C(a)(1) as a member organization
that is approved by the Exchange to act as such and that is required
to submit RPIs in accordance with Rule 107C. RPI is defined in Rule
107C(a)(4) and consists of non-displayed interest in NYSE-listed
securities that is priced better than the PBBO by at least $0.001
and that is identified as such.
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RLP executions of RPIs against Retail Orders are not currently
charged or provided with a credit (i.e., they are free) if the RLP
satisfies the applicable percentage requirement of Rule 107C. The
Exchange proposes to instead provide a credit of $0.0003 per share.
RPIs of an RLP that does not satisfy the applicable percentage
requirement of Rule 107C would remain subject to the existing fee of
$0.0003 per share.
A fee of $0.0003 per share also currently applies to non-RLP member
organization executions of RPIs against Retail Orders, unless the non-
RLP member organization executes an ADV during the month of at least
500,000 shares of RPIs, in which case no charge or credit applies
(i.e., the execution is free). The Exchange proposes to instead provide
a credit of $0.0003 per share to such RPI executions if the non-RLP
member organization satisfies the 500,000 ADV threshold.
RMOs currently receive a credit of $0.0005 per share for executions
of Retail Orders if executed against RPIs or MPL Orders.\9\ The
Exchange proposes to eliminate this credit so that such Retail Order
executions would be free (i.e., no credit or charge).\10\
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\9\ Retail Orders are otherwise charged according to standard
fees applicable to non-Retail Orders if executed against the Book.
\10\ The Exchange would continue to charge an RMO according to
standard fee applicable to non-Retail Orders for a Retail Order that
executes against the Book.
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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,\11\ in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\12\ 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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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4) and (5).
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Executions at the Close
The Exchange believes that the proposed fee increases for certain
executions at the close are reasonable. The Exchange's closing auction
is a recognized industry benchmark,\13\ and member organizations
receive a substantial benefit from the Exchange in obtaining high
levels of executions at the Exchange's closing price on a daily basis.
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\13\ For example, the pricing and valuation of certain indices,
funds, and derivative products require primary market prints.
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The Exchange believes that it is equitable and not unfairly
discriminatory to increase fees for executions at the close (other than
MOC and LOC orders) and Floor broker executions swept into the close
for a member organization that executes an ADV of at least 1,000,000 of
such executions on a combined basis because member organizations that
reach this ADV threshold are generally larger member organizations that
are deriving a substantial benefit from this high volume of closing
executions. Nonetheless, the Exchange must continue to encourage
liquidity from multiple sources. Allowing member organizations with
execution volumes below 1,000,000 shares to continue to obtain
executions at the close at no charge encourages them to continue to
send orders to the Exchange for the closing auction. The Exchange
believes that its proposal would equitably balance these interests and
continue to encourage order flow from multiple sources, which helps to
maintain the quality of the Exchange's closing auctions for the benefit
of all market participants.
With respect to the increased fees for member organizations that
execute higher volumes of MOC and LOC orders and other activity at the
close, the Exchange believes that the proposed rates are reasonable
because they are still below the $0.00095 rate that would otherwise
apply to MOC and LOC orders. As such, the Exchange believes that the
fees would continue to encourage member organizations to provide higher
volumes of MOC and LOC orders and other close activity, which
contributes to the quality of the Exchange's closing auction and
provides market participants with a greater opportunity for execution
as a result of such increased activity. In this regard, the Exchange
continues to believe that it is equitable and not unfairly
discriminatory to charge a lower fee to member organizations that make
significant contributions to market quality by providing higher volumes
of liquidity, especially at the close, which benefits all market
participants.
The Exchange also believes that the proposed increases to these
particular fees for closing executions are reasonable because certain
other changes to transaction rates proposed herein may offset these
increases (e.g., an increased Tier 3 Adding Credit, lower qualification
thresholds for the Tier 1 and Tier 2 Adding Credits, and lower (higher)
fees (credits) for removing (adding) liquidity with MPL Orders). The
proposed rates are also reasonable, in that they are consistent with,
and in some cases lower than, applicable closing rates on the NASDAQ
Stock Market, LLC (``NASDAQ'').\14\ For example, the default fee for
executions in NASDAQ's ``Closing Cross'' is $0.0003 per share, which is
identical to the rate proposed herein. Regarding MOC and LOC orders,
the default fee for executions in NASDAQ's Closing Cross is $0.0015 per
share, which is higher than the default rate of $0.00095 on the
Exchange. The lowest MOC/LOC fee on NASDAQ is $0.0008 per share, which,
again, is higher than the both the $0.00060 and $0.00065 rates proposed
herein. This aspect of the proposed change also is equitable and not
unfairly discriminatory because all similarly situated member
organizations would pay the same rate, as is currently the case, and
because all member organizations would be eligible to qualify for the
rate by satisfying the related thresholds, where applicable.
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\14\ See, e.g., NASDAQ Rule 7018(d).
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MPL Orders
The Exchange introduced the MPL Order and related fees and credits
in January 2014.\15\ The Exchange increased the MPL Order fee by
$0.0001 for executions of MPL Orders that remove liquidity, to the
current rate of $0.0026 per share, shortly thereafter, in March 2014,
but maintained the original credit rate of $0.0015 per share for
executions of MPL Orders that provide liquidity that currently exists
in the Price List.\16\ After several months of member organization
activity using MPL Orders, the Exchange now believes that a decrease to
the applicable fee and
[[Page 53479]]
increase to the applicable credit are reasonable. These changes should
encourage additional utilization of MPL Orders on the Exchange. MPL
Orders provide opportunities for market participants to interact with
orders priced at the midpoint of the PBBO, thus providing price
improving liquidity to market participants and increasing the quality
of order execution on the Exchange's market, which benefits all market
participants.
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\15\ See Securities Exchange Act Release No. 71452 (January 31,
2014), 79 FR 7267 (February 6, 2014) (SR-NYSE-2014-05).
\16\ See Securities Exchange Act Release No. 71684 (March 11,
2014), 79 FR 14758 (March 17, 2014) (SR-NYSE-2014-09).
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MPL Orders are not be [sic] eligible for any tiered or additional
credits or reduced fees, even if the MPL Orders contribute to a member
organization qualifying for such pricing. The Exchange therefore also
believes that the proposed pricing is reasonable because, even though
the $0.0025 fee would be lower than the $0.0027 fee proposed for other
non-Floor broker executions that remove liquidity, the fee for MPL
Order executions of a member organization that removes liquidity would
remain constant, even if a member organization qualifies for tiered or
volume-based pricing.
The resulting fee also is reasonable because it would be lower than
the rates on NASDAQ.\17\ For example, NASDAQ charges $0.0027 per share
to execute against resting midpoint liquidity, which is greater than
both the existing $0.0026 per share rate and the proposed $0.0025 per
share rate that would apply to MPL Orders. The resulting credit is
reasonable because it would be within the range of credits that are
available on NASDAQ for midpoint liquidity--currently between $0.0014
and $0.0020 per share.
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\17\ See supra note 14.
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The proposed change is equitable and not unfairly discriminatory
because MPL Orders increase the quality of order execution on the
Exchange's market, which benefits all market participants. The Exchange
also believes that the proposed changes are equitable and not unfairly
discriminatory because all market participants--customers, Floor
brokers, DMMs, and SLPs--may use MPL Orders on the Exchange and because
all market participants that use MPL Orders would be subject to the
same fee or credit, as is currently the case.
Non-Floor Broker Transactions (Including DMMs)
The Exchange believes that the proposed fee increase for non-Floor
broker transactions that remove liquidity is reasonable because non-
Floor brokers would continue to receive credits for their transactions
that provide liquidity on the Exchange, including (i) for member
organizations that add liquidity that satisfies certain thresholds
under the Tier Adding Credits, (ii) for DMMs under the DMM credits, and
(iii) for MPL Orders under various pricing categories in the Price
List. In this regard, the changes proposed to the Tier Adding Credits
would result in lower qualification thresholds for the Tier 1 and Tier
2 Adding Credits and would result in both higher and lower
qualification thresholds for the Tier 3 Adding Credit, with a higher
corresponding Tier 3 Adding Credit rate. The resulting fee also is
reasonable because it would continue to be consistent with, and in some
cases lower than, the applicable rate on NASDAQ.\18\ For example, the
standard fee for removing liquidity from NASDAQ in both NASDAQ-listed
and NYSE-listed securities is $0.0030 per share, which is higher than
the $0.0027 per share proposed herein.
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\18\ Id.
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The proposed changes to the qualifications for the Tier Adding
Credits are reasonable because they would simplify the applicable
requirements. Member organizations could more easily track whether
their activity will satisfy the applicable thresholds. With respect to
the Tier 1 and 2 Adding Credits, the applicable thresholds would be
decreased, which is reasonable because it would encourage member
organizations to add liquidity to the Exchange at levels that would
qualify the member organization for the corresponding credits (i.e.,
$0.0022 or $0.0020 per share, respectively). The Exchange believes that
maintaining the RPI method of qualifying, as an alternative to MOC/LOC
activity, is reasonable because it would continue to provide member
organizations with an alternative way in which to qualify for the
credit, thereby encouraging member organizations to provide higher
volumes of RPIs, which will continue to contribute to the quality of
the Exchange's market, particularly for retail investors, by way of
additional price-improved interest on the Exchange available for
execution. Regarding the Tier 3 Adding Credit, the applicable Adding
ADV threshold would increase, while the MOC/LOC threshold would
decrease. On balance, the Exchange believes that qualification
requirements for the Tier 3 Adding Credit are reasonable in light of
the proposed increase to the corresponding credit (i.e., from $0.0017
to $0.0018 per share). Continuing to exclude DMM volume from Adding
ADV, but including SLP and Floor broker volume, is reasonable because
it would contribute further to member organizations qualifying for the
Tier Adding Credits. This aspect of the proposed change also is
equitable and not unfairly discriminatory because all similarly
situated member organizations would pay the same rate, as is currently
the case, and because all member organizations would be eligible to
qualify for the rate by satisfying the related thresholds.
Floor Broker Transactions
The Exchange believes that it is reasonable to eliminate the rate
related to Floor broker ADV that ``steps up'' over its May 2013 ADV
because member organizations have not increased their activity to
qualify for this rate as significantly as the Exchange anticipated they
would. The Exchange believes that this is equitable and not unfairly
discriminatory because the rate would be eliminated entirely and
because member organizations would remain able to qualify for other
existing pricing in the Price List. This aspect of the proposed change
would therefore result in a more streamlined Price List.
The Exchange believes that the changes proposed to the tiered
credits for executions of orders sent to a Floor broker for
representation on the Exchange are reasonable because they would
encourage additional displayed liquidity on the Exchange. This would
also encourage the execution of such transactions on a public exchange,
thereby promoting price discovery and transparency. The Exchange
believes the proposed changes are equitable and not unfairly
discriminatory because they would continue to encourage member
organizations to send orders to the Floor for execution, thereby
contributing to robust levels of liquidity on the Floor, which benefits
all market participants. This is equitable and not unfairly
discriminatory because those member organizations that make significant
contributions to market quality and that contribute to price discovery
by providing higher volumes of liquidity would continue to be allocated
a higher credit.
The Exchange believes that any member organizations that may
currently be qualifying under the existing thresholds could qualify for
the remaining two thresholds based on the levels of activity sent to
Floor brokers. Moreover, the qualification requirement for the highest
credit would be lowered, and the resulting lower credit would reflect
the lower qualification requirement. The Exchange introduced these
Floor broker tiered credits in early
[[Page 53480]]
2014.\19\ The Exchange now believes that elimination of the current
4,000,000 share ADV tier would encourage higher levels of activity in
order to qualify for the credit of $0.0022 per share (i.e., by
satisfying the 12,000,000 share ADV threshold). This aspect of the
proposed change also is equitable and not unfairly discriminatory
because all similarly situated member organizations would pay the same
rate, as is currently the case, and because all member organizations
would be eligible to qualify for the rate by satisfying the related
thresholds.
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\19\ See supra note 16.
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The Exchange believes that it is reasonable to increase the fee,
from $0.0023 to $0.0024 per share, for Floor broker transactions that
remove liquidity from the Exchange because the proposed new rate is
designed to strike a balance between the fees and credits offered by
the Exchange for removing and providing liquidity, respectively. In
this regard, despite the increase in this fee, member organizations
would be eligible to qualify for the proposed Floor broker adding
credit of $0.0022 by satisfying the 12,000,000 share ADV threshold
described above, which is 2,000,000 million shares less than the
current threshold. This proposed rate of $0.0024 per share would also
continue to be set at a level that is below the rate for transactions
of non-Floor brokers that remove liquidity (i.e., $0.0027 per share, as
described above), which is reasonable because it would encourage member
organizations to continue to send orders to the Floor for execution.
SLP Transactions
The Exchange believes that the proposed change related to SLP
transactions is reasonable because it would require that an SLP add a
greater amount of liquidity in its assigned securities, but qualifying
SLPs would also receive a higher credit for these transactions. This
would create an added incentive for SLPs to provide liquidity in
assigned securities. This is reasonable because the added incentive
created by the availability of the higher credit is reasonably related
to an SLP's liquidity obligations on the Exchange and the value to the
Exchange's market quality associated with higher volumes. The
corresponding $0.0001 increase in the credit applicable to Non-
Displayed Reserve Orders, from $0.0020 to $0.0021, also is reasonable
because it would maintain the existing $0.0005 difference between these
order types and the otherwise applicable SLP credit (excluding MPL
orders). The proposed changes also are equitable and not unfairly
discriminatory because all similarly situated SLPs would pay the same
rate, as is currently the case, and because all such member
organizations would be eligible to qualify for the rate by satisfying
the related thresholds, where applicable.
Retail Liquidity Program
The Exchange believes that the proposed changes to the rates under
the Retail Liquidity Program are reasonable. The Exchange originally
introduced the existing rates approximately two years ago.\20\ At that
time, the Exchange stated that, because the Retail Liquidity Program
was a pilot program, the Exchange anticipated that it would
periodically review applicable pricing to seek to ensure that it
contributes to the goal of the Retail Liquidity Program, which 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. The proposed new rates are a result of
this review.
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\20\ See Securities Exchange Act Release No. 67529 (July 27,
2012), 77 FR 46137 (August 2, 2012) (SR-NYSE-2012-30).
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The Exchange believes that providing a credit of $0.0003 per share
for RLP executions of RPIs against Retail Orders if the RLP satisfies
the applicable percentage requirement of Rule 107C is reasonable
because it would further incentivize member organizations to become
RLPs and therefore could result in greater price improvement for Retail
Orders. Providing a credit of $0.0003 per share for non-RLP member
organization executions of RPIs against Retail Orders if the non-RLP
member organization executes an ADV during the month of at least
500,000 shares of RPIs also is reasonable because it would incentivize
such non-RLPs to submit RPIs for interaction with Retail Orders.
The Retail Order credit was designed to create a financial
incentive for RMOs to bring additional retail order flow to a public
market during the initial implementation of the Retail Liquidity
Program. Despite the elimination of the credit, RMOs, and indirectly
their customers, would continue to receive significant benefits in the
form of price improvement by interacting with RPIs. Additionally,
Retail Order executions are always considered to remove liquidity,
whether against contra-side interest in the Retail Liquidity Program or
against the Book.\21\ Orders that remove liquidity are generally
charged a fee according to the Price List, but Retail Orders would
continue to be subject to alternative pricing (i.e., no charge rather
than a fee) that would continue to 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).
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\21\ 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.
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The Exchange notes that a significant percentage of the orders of
individual investors are executed over-the-counter.\22\ 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. The proposed new rates would be set
at levels that would continue to reasonably incentivize RMOs to direct
Retail Orders to the Exchange and would contribute to robust amounts of
RPI liquidity submitted by RMOs and non-RMO member organizations being
available for interaction with the Retail Orders. Together, this 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 Orders are likely
to reflect long-term investment intentions, they promote price
discovery and dampen volatility. Accordingly, the presence of Retail
Orders on the Exchange has the potential to benefit all market
participants. For this reason, the Exchange believes that the proposed
pricing is equitable and not unfairly
[[Page 53481]]
discriminatory and would continue to encourage greater retail
participation on the Exchange.
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\22\ 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 pricing proposed herein, 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 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 result in better prices for retail investors. 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.
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,\23\ 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 encourage the submission of additional liquidity to a
public exchange, thereby promoting price discovery and transparency and
enhancing order execution opportunities for member organizations. The
Exchange believes that this could promote competition between the
Exchange and other execution venues, including those that currently
offer similar order types and comparable transaction pricing, by
encouraging additional orders to be sent to the Exchange for execution.
The Exchange also believes that the proposed rule change is consistent
with the Act in this regard, because it strikes an appropriate balance
between fees and credits, which will encourage submission of orders to
the Exchange, thereby promoting competition.
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\23\ 15 U.S.C. 78f(b)(8).
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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) \24\ of the Act and subparagraph (f)(2) of Rule
19b-4 \25\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 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 under
Section 19(b)(2)(B)- \26\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\26\ 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-2014-46 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-2014-46. 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. 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-2014-46 and should be
submitted on or before September 30, 2014.
[[Page 53482]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-21355 Filed 9-8-14; 8:45 am]
BILLING CODE 8011-01-P