[Federal Register Volume 79, Number 176 (Thursday, September 11, 2014)]
[Notices]
[Pages 54322-54325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-21651]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73013; File No. SR-NYSEARCA-2014-95]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE
Arca Equities Schedule of Fees and Charges for Exchange Services To (i)
Change the Pricing for the Retail Liquidity Program and the
Qualification Requirement for the Existing Retail Order Tier, and To
Add a New Retail Order Credit Under Basic Rates, and (ii) Eliminate
Obsolete Pricing Tiers
September 5, 2014.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on August 26, 2014, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') 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 the NYSE Arca Equities Schedule of
Fees and Charges for Exchange Services (``Fee Schedule'') to (i) change
the pricing for the Retail Liquidity Program and the qualification
requirement for the existing Retail Order Tier, and to add a new Retail
Order credit under Basic Rates, and (ii) eliminate obsolete pricing
tiers. 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 the Fee Schedule to (i) change the
pricing for the Retail Liquidity Program and the qualification
requirement for the existing Retail Order Tier, and to add a new Retail
Order credit under Basic Rates, and (ii) eliminate obsolete pricing
tiers. The Exchange proposes to implement the fee changes effective
September 1, 2014.
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 Arca-
listed securities and securities traded pursuant to unlisted trading
privileges (``UTP Securities'') while also providing the potential for
price improvement to such order flow.\4\ Retail order flow is submitted
through the Retail Liquidity Program as a distinct order type called a
``Retail Order,'' which is defined in Rule 7.44(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.\5\ In addition to RMOs, Retail Liquidity
Providers (``RLPs'') were created as an additional class of market
participant under the Retail Liquidity Program. RLPs are required to
provide potential price improvement for Retail Orders in the form of
``Retail Price Improvement Orders'' (``RPIs''), which are non-displayed
interest that is better than the best protected bid (``PBB'') or best
protected offer (``PBO''), as such terms are defined in Regulation NMS
Rule
[[Page 54323]]
600(b)(57) (together, ``PBBO'').\6\ ETP Holders other than RLPs are
also permitted, but not required, to submit RPIs.
---------------------------------------------------------------------------
\4\ See Rule 7.44. See Securities Exchange Act Release No. 71176
(December 23, 2013), 78 FR 79524 (December 30, 2013) (SR-NYSEArca-
2013-107).
\5\ RMO is defined in Rule 7.44(a)(2) as an ETP Holder that is
approved by the Exchange under Rule 7.44 to submit Retail Orders.
\6\ See 17 CFR 242.600(b)(57). RLP is defined in Rule 7.44(a)(1)
as an ETP Holder that is approved by the Exchange to act as such and
that is required to submit RPIs in accordance with Rule 7.44. RPI is
defined in Rule 7.44(a)(4) and consists of non-displayed interest in
NYSE Arca-Alisted securities and UTP Securities, excluding NYSE-
listed (Tape A) securities, that is priced better than the PBBO by
at least $0.001 and that is identified as such.
---------------------------------------------------------------------------
RLP executions of RPIs against Retail Orders in Tape B and Tape C
securities are not currently charged or provided with a credit (i.e.,
they are free). The Exchange proposes to instead provide a credit of
$0.0003 per share. RMOs currently receive a credit of $0.0005 per share
for executions of Retail Orders in Tape B and Tape C securities if
executed against RPIs and other price-improving interest. The Exchange
proposes to eliminate this credit so that such Retail Order executions
would be free (i.e., no credit or charge).
Retail Order Tier and New Retail Order Basic Rate Credit
The Exchange currently provides a credit of $0.0033 per share under
the Retail Order Tier for Retail Orders that provide liquidity on the
Exchange in Tape A, Tape B and Tape C securities if the ETP Holder
executes an average daily volume (``ADV'') of Retail Orders during the
month that is 0.20% or more of U.S. consolidated ADV (``CADV'').\7\ The
Retail Order Tier credit is available only to Retail Orders that
provide liquidity on the Exchange, but an ETP Holder currently may
qualify for the Retail Order Tier based on its ADV of Retail Orders
that both provide and remove liquidity from the Exchange. The Exchange
proposes that only Retail Orders that provide liquidity would count
toward qualifying for the Retail Order Tier; Retail Orders that remove
liquidity would no longer count. The Exchange also proposes to decrease
the CADV threshold for qualification from 0.20% to 0.15%.
---------------------------------------------------------------------------
\7\ An ETP Holder is able to designate an order as a Retail
Order for purposes of the non-Retail Liquidity Program pricing
(i.e., the Retail Order Tier and, as described herein, the proposed
Retail Order Basic Rate credit) without designating the order as a
Retail Order for purposes of the Retail Liquidity Program pricing.
An order designated only for non-Retail Liquidity Program pricing
would not be eligible to execute in the Retail Liquidity Program or
be subject to Retail Liquidity Program pricing. However, an ETP
Holder could choose to designate an order for purposes of both the
Retail Liquidity Program and otherwise, in which case the Exchange
would consider the order to be a Retail Order for purposes of
executions within the Retail Liquidity Program, and apply Retail
Liquidity Program pricing for any such executions, and also then as
a Retail Order for purposes of the Retail Order Tier and the
proposed Retail Order Basic Rate credit for any executions outside
of the Retail Liquidity Program. The same requirements of Rule
7.44(a)(3) applies with respect to Retail Orders, whether within or
outside of the Retail Liquidity Program. The Exchange described
these details in a prior rule change that introduced the Retail
Liquidity Program pricing, including that the manner in which an
order was designated (i.e., either within or outside of the Retail
Liquidity Program, or both) would determine the applicable pricing.
See Securities Exchange Act Release No. 71722 (March 13, 2014), 79
FR 15376 (March 19, 2014) (SR-NYSEArca-2014-22).
---------------------------------------------------------------------------
Currently, an ETP Holder that submits Retail Orders that provide
liquidity, but that does not qualify for the Retail Order Tier or a
separate Tiered rate in the Fee Schedule, is subject to the Basic Rate
credit of $0.0020 per share for such executions. The Exchange proposes
to add a new Basic Rate credit of $0.0030 per share for Retail Orders
that provide liquidity.
Elimination of Obsolete Pricing
The Fee Schedule currently includes several pricing tiers that have
not encouraged ETP Holders to increase their activity to qualify for
the tiers as significantly as the Exchange anticipated they would.
These tiers are as follows: (i) Investor Tiers 1-4, (ii) Retail Order
Cross Asset Tier, and (iii) Routable Order Cross Asset Tier. The
Exchange proposes to remove these pricing tiers from the Fee Schedule
as well as any related cross references.
The proposed change is not otherwise intended to address any other
issues, and the Exchange is not aware of any problems that ETP Holders
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,\8\ in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\9\ 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.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
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 five months ago.\10\ 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 Arca-listed securities and UTP Securities while also providing the
potential for price improvement to such order flow. The proposed new
rates are a result of this review.
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 71722 (March 13,
2014), 79 FR 15376 (March 19, 2014) (SR-NYSEArca-2014-22).
---------------------------------------------------------------------------
The Exchange believes that providing a credit of $0.0003 per share
for RLP and Non-RLP executions of RPIs against Retail Orders is
reasonable because it would further incentivize submission of RPIs for
interaction with Retail Orders and therefore could result in greater
price improvement for 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. The proposed change also is reasonable
because, 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.
The Exchange notes that a significant percentage of the orders of
individual investors are executed over-the-counter.\11\ 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 RLPs and non-RLPs being available for
interaction with the Retail Orders. Together, this would increase
[[Page 54324]]
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 discriminatory and would continue
to encourage greater retail participation on the Exchange.
---------------------------------------------------------------------------
\11\ 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.
---------------------------------------------------------------------------
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.
Retail Order Tier and New Retail Order Basic Rate Credit
The Exchange believes that it is reasonable that only Retail Orders
that provide liquidity would count toward qualifying for the Retail
Order Tier. This would result in the type of volume to which the
corresponding credit applies being the same as the volume that counts
toward qualification--i.e., only Retail Orders that provide liquidity
for both. The Exchange also believes that the proposed change is
reasonable because, while Retail Orders that remove liquidity would no
longer count toward qualifying for the Retail Order Tier, the
qualifying threshold would be decreased from 0.20% to 0.15%. The
Exchange believes that the decreased threshold may balance the effect
of the more narrow activity that would count toward qualifying. The
Exchange believes that the proposed threshold of 0.15% is reasonable
because it would remain within a range that the Exchange believes would
continue to incentivize ETP Holders to submit Retail Orders to the
Exchange in order to qualify for the applicable credit of $0.0033 per
share. This would continue to contribute to increasing liquidity
available on the Exchange.
The Exchange believes that it is reasonable to add a new Basic Rate
credit of $0.0030 per share for Retail Orders that provide liquidity.
The Exchange believes that the proposed new credit would contribute
further to balancing the effect of the more narrow activity that would
count toward qualifying for the Retail Order Tier, as described above.
In this regard, an ETP Holder that does not qualify for the Retail
Order Tier would still be eligible for a credit for its Retail Orders
that provide liquidity that is higher than the standard $0.0020 per
share Basic Rate credit for providing liquidity, which the Exchange
believes may be below the level that would continue to encourage
submission of Retail Orders on the Exchange. The proposed new $0.0030
Basic Rate credit would be set at a level that would reasonably
contribute to encouraging ETP Holders to submit Retail Orders. Retail
Orders that provide liquidity would receive the new Basic Rate credit
of $0.0030 per share if the ETP Holder does not qualify for the Retail
Order Tier or another Tiered rate in the Fee Schedule.
The proposed new Retail Order Basic Rate credit would create an
added financial incentive for ETP Holders to bring additional retail
flow to a public market. The proposed new credit also is reasonable
because it would reduce the costs of ETP Holders that represent retail
flow and potentially also reduce costs to their customers. The Exchange
also believes that the proposed $0.0030 credit is reasonable because it
would be identical to the credit on New York Stock Exchange LLC for
transactions in orders designated as ``retail'' that provide liquidity.
The proposed credit also would be similar to the manner in which The
Nasdaq Stock Market, LLC provides a $0.0033 credit for ``Designated
Retail Orders'' that provide liquidity.\12\
---------------------------------------------------------------------------
\12\ See NASDAQ Rule 7018.
---------------------------------------------------------------------------
The Exchange believes that the proposed change is equitable and not
unfairly discriminatory because maintaining or increasing the
proportion of Retail Orders in exchange-listed securities that are
executed on a registered national securities exchange (rather than
relying on certain available off-exchange execution methods) would
contribute to investors' confidence in the fairness of their
transactions and would benefit all investors by deepening the
Exchange's liquidity pool, supporting the quality of price discovery,
promoting market transparency and improving investor protection. This
aspect of the proposed change also is consistent with the Act because
all similarly situated ETP Holders would pay the same rate, as is
currently the case, and because all ETP Holders would be eligible to
qualify for the rates by satisfying the related thresholds, where
applicable. Furthermore, the submission of Retail Orders is optional
for ETP Holders, in that an ETP Holder could choose whether to submit
Retail Orders and, if it does, the extent of its activity in this
regard.
Elimination of Obsolete Pricing
The Exchange believes that it is reasonable to eliminate the
obsolete pricing tiers from the Fee Schedule because ETP Holders have
not increased their activity to qualify for these tiers as
significantly as the Exchange anticipated they would. The Exchange
believes that this is equitable and not unfairly discriminatory because
the tiers would be eliminated entirely--no ETP Holders would remain
able to qualify for the eliminated tiers. This aspect of the proposed
change would therefore result in a more streamlined Fee Schedule,
including with respect to removal of related cross references.
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,\13\ 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 ETP Holders. 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
[[Page 54325]]
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. The removal of obsolete
pricing tiers is not competitive in nature, but would result in a more
streamlined Fee Schedule.
---------------------------------------------------------------------------
\13\ 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 ETP Holders 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) \14\ of the Act and subparagraph (f)(2) of Rule
19b-4 \15\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 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) \16\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\16\ 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-NYSEARCA-2014-95 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-NYSEARCA-2014-95. 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 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 should refer to
File Number SR-NYSEARCA-2014-95 and should be submitted on or before
October 2, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-21651 Filed 9-10-14; 8:45 am]
BILLING CODE 8011-01-P