[Federal Register Volume 80, Number 7 (Monday, January 12, 2015)]
[Notices]
[Pages 1546-1549]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-00211]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73992; File No. SR-NYSEARCA-2014-142]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending Its
Schedule of Fees and Charges for Exchange Services To Eliminate
Transaction Fees for Midpoint Passive Liquidity Orders That Remove
Liquidity From the Exchange and That Are Designated as ``Retail'' but
Which Are Not Executed in the Retail Liquidity Program
January 6, 2015.
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 December 22, 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.
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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 Schedule of Fees and Charges for
Exchange Services (``Fee Schedule'') to eliminate transaction fees for
Midpoint Passive Liquidity (``MPL'') orders that remove liquidity from
the Exchange and that are designated as ``retail'' but which are not
executed in the Retail Liquidity Program. The Exchange proposes to
implement the fee change effective January 2, 2015. 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 Fee Schedule to eliminate
transaction fees for MPL orders that remove liquidity from the Exchange
and that are designated as ``retail'' orders, but which are not
executed in the Retail Liquidity Program. The Exchange proposes to
implement the fee change effective January 2, 2015.
For securities priced $1.00 or greater, the Exchange currently
charges qualifying ETP Holders and Market Makers in Tier 1 \4\ and Tier
2 \5\ a fee of $0.0030 per share for MPL orders \6\ in Tape A, B and C
securities that remove liquidity from the NYSE Arca Book. Similarly,
the current basic rate, which is applicable when tier rates do not
apply, is $0.0030 per share for MPL orders in Tape A, B and C
securities that remove liquidity from the NYSE Arca Book. The Exchange
proposes to eliminate the fee for MPL orders that
[[Page 1547]]
remove liquidity from the NYSE Arca Book that are designated as retail
orders and that meet the requirements of Rule 7.44(a)(3), but which are
not executed in the Retail Liquidity Program \7\ (``Retail Orders'').
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\4\ Tier 1 are ETP Holders and Market Makers that provide
liquidity an average daily volume (``ADV'') per month of 0.70% or
more of the US consolidated ADV (``CADV'') or provide liquidity an
average daily share volume per month of 0.15% or more of the US CADV
and are affiliated with an OTP Holder or OTP Firm that provides an
ADV of electronic posted executions (including all account types) in
Penny Pilot issues on NYSE Arca Options (excluding mini options) of
at least 100,000 contracts, of which at least 25,000 contracts must
be for the account of a market maker.
\5\ Tier 2 are ETP Holders and Market Makers that provide
liquidity an average daily share volume per month of 0.30% or more,
but less than 0.70% of the US CADV.
\6\ MPL Order is defined in Rule 7.31(h)(5) as a Passive
Liquidity Order priced at the midpoint of the PBBO. Rule 7.31(h)(4)
defines a Passive Liquidity Order as an order to buy or sell a
stated amount of a security at a specified, undisplayed price.
\7\ The Retail Liquidity Program is a pilot program 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. See Rule 7.44. See
Securities Exchange Act Release No. 71176 (December 23, 2013), 78 FR
79524 (December 30, 2013) (SR-NYSEArca-2013-107).
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To be eligible to for the proposed pricing for MPL orders, an MPL
order would need to meet the requirements of Rule 7.44(a)(3). Rule
7.44(a)(3) defines a retail order 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''),\8\ 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. An ETP Holder may designate an order a Retail Order either
(1) by designating certain order entry ports at the Exchange as
``Retail Order Ports'' and attesting, in a form and/or manner
prescribed by the Exchange, that all orders submitted to the Exchange
via such Retail Order Ports are Retail Orders; or (2) by means of a
specific tag in the order entry message.\9\
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\8\ ``RMO'' is defined in Rule 7.44(a)(2) as an ETP Holder that
is approved by the Exchange to submit Retail Orders. However, an
order designated as a Retail Order of an RMO for purposes of the
Retail Liquidity Program is separate from the designation of an
order as a Retail Order for purposes of existing pricing tiers in
the Fee Schedule. See Securities Exchange Act Release No. 71722
(March 13, 2014), 78 [sic] FR 15376 (March 19, 2014) (SR-NYSEArca-
2014-22) (``Arca Retail Approval Order'') [sic]. The proposed rule
change solely concerns Retail Orders outside the Retail Liquidity
Program.
\9\ See, e.g., Securities Exchange Act Release No. 68322
(November 29, 2012), 77 FR 72425 (December 5, 2012) (SR-NYSEArca-
2012-129). ETP Holders designating orders as Retail Orders by using
a tag in the order entry message will be required to have written
policies and procedures reasonably designed to assure that it will
only designate orders as Retail Orders if all requirements of a
Retail Order are met. The written policies and procedures must
require the ETP Holder to (i) exercise due diligence before entering
a Retail Order to assure that entry as a Retail Order is in
compliance with the requirements specified by the Exchange, and (ii)
monitor whether orders entered as Retail Orders meet the applicable
requirements. If the ETP Holder represents Retail Orders from
another broker-dealer customer, the ETP Holder's supervisory
procedures must be reasonably designed to assure that the orders it
receives from such broker-dealer customer that it designates as
Retail Orders meet the definition of a Retail Order. The ETP Holder
must (i) 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 Orders that entry of such
orders as Retail Orders will be in compliance with the requirements
specified by the Exchange, and (ii) monitor whether its broker-
dealer customer's Retail Order flow continues to meet the applicable
requirements. See id.
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The Exchange proposes to define the term ``Retail Orders''
separately in the Fee Schedule to distinguish the pricing applicable to
orders designated as retail that are eligible for this proposed change,
the existing Retail Order Tier and the existing Retail Orders that
provide liquidity to the Book from the pricing applicable to executions
of orders designated as retail in the Retail Liquidity Program, which
are referred to in the Fee Schedule as ``RMO Retail Orders'' and are
covered in the section of the Fee Schedule entitled ``Fees and Credits
Applicable to Executions in the Retail Liquidity Program.'' As noted
above, the Exchange proposes to define the term ``Retail Order'' in an
earlier point of the Fee Schedule, thereby obviating the second
definition currently in the Retail Order Tier section of the Fee
Schedule. Accordingly, Exchange proposes to delete the phrase ``as
defined in Rule 7.44(a)(3)'' in the Retail Order Tier.
The Exchange proposes to retain the fees for MPL orders that remove
liquidity from the Exchange but that are not designated as Retail
Orders at the current rates. The proposed amended Fee Schedule would
distinguish between MPL orders that remove liquidity and that are
designated Retail Orders, which would not be charged a fee, from MPL
orders that remove liquidity and that are not designated Retail Orders,
and which would continue to be charged the existing fee for MPL Orders
that take liquidity.
The Exchange also proposes to add explanatory material to footnote
2 of the Fee Schedule that orders with specific rates (e.g., MPL,
Tracking Orders, Passive Liquidity Orders, Retail Orders that provide
liquidity to the Book, Retail Price Improvement Orders, and RMO Retail
Orders) may be used to qualify for volume thresholds but are not
eligible for tiered rates.
The proposed change is not otherwise intended to address any other
issues, and the Exchange is not aware of any problems 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,\10\ in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that removing a fee for MPL orders that
remove liquidity from the Exchange and that are designated Retail
Orders is reasonable because it will encourage the submission of orders
that meet the requirements to be designated as ``retail'' to the
Exchange, thus enhancing order execution opportunities for all
participants, but specifically retail investors. Moreover, the Exchange
believes that markets and price discovery optimally function through
the interactions of diverse flow types, and also believes that growth
in internalization has required differentiation of retail order flow
from other order flow types. As the Exchange has previously noted, a
significant percentage of the orders of individual investors are
executed over-the-counter.\12\ The Exchange accordingly further
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 executing in off-exchange
venues. The Exchange further believes that defining the term ``Retail
Orders'' separately from the term ``RMO Retail Orders'' would provide
transparency in the Fee Schedule concerning which pricing is applicable
to which orders designated as retail, and specifically, that the
proposed pricing change for MPL orders is only applicable to orders
designated as ``retail'' that are not executed as part of the Retail
Liquidity Program.
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\12\ See Securities Exchange Act Release No. 71722 (March 13,
2014), 78 [sic] FR 15376 (March 19, 2014) (SR-NYSEArca-2014-22); see
also Securities Exchange Act Release No. 34-73702 (Nov. 28, 2014),
79 FR 72049, 72051 (Dec. 4, 2014) (order approving NASDAQ OMX BX
Retail Price Improvement Program and noting that most marketable
retail order flow is executed in the over-the-counter markets,
pursuant to bilateral agreements, without ever reaching a public
exchange) (``BX Retail Approval Order'').
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Finally, the Exchange notes that while the proposed price change
would treat retail order flow differently from order flow submitted by
other market participants, such segmentation would not be inconsistent
with Section 6(b)(5) of the Act,\13\ which requires that the
[[Page 1548]]
rules of an exchange are not designed to permit unfair discrimination.
The Commission has previously recognized that the markets generally
distinguish between 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.\14\ The Commission has further recognized
that, because of this distinction, liquidity providers are generally
inclined to offer price improvement to less informed retail orders than
to more informed professional orders.\15\ The Exchange believes that
the differentiation proposed herein is not designed to permit unfair
discrimination, but instead is reasonably designed to attract retail
flow to the Exchange, while helping to ensure that retail investors
benefit from the better price that liquidity providers are willing to
give their orders. The Exchange believes that the proposed increase of
retail order flow to the Exchange might also create a desirable
opportunity for institutional investors to interact with retail order
flow that they are not able to reach currently. The Exchange therefore
believes that the proposed change would further 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 the proposed rule change on an
exchange market would result in better prices for retail investors.\16\
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
increasing the liquidity pool and potential for price-improving
executions at the Exchange.
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\13\ 15 U.S.C. 78f(b)(5).
\14\ See BX Retail Approval Order at 72051.
\15\ Id.
\16\ See, e.g., Arca Retail Approval Order at 79528. The
Exchange notes that other markets offer separate non-tier and tiered
pricing for retail orders, see NASDAQ Price List, available at
http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2, and EDGX
Exchange Fee Schedule, available at http://www.directedge.com/trading/EDGXFeeSchedule.aspx, as well as retail price improvement
pricing for ``Retail Orders'' that remove displayed liquidity or
mid-point peg liquidity. See BATS BYX Exchange Fee Schedule,
available at http://cdn.batstrading.com/resources/regulation/rule_book/BATS-Exchanges_Fee_Schedules.pdf [sic].
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The proposed change is also equitable and not unfairly
discriminatory because the ability to designate MPL orders as Retail
Orders is available equally to all similarly situated ETP Holders that
submit qualifying orders and satisfy the other related, existing
requirements.
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 the foregoing 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,\17\ 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 execution opportunities on the Exchange. For the same
reasons, the proposed change also would not impose any burden on
competition among market participants. The Exchange believes that while
it is the first to offer designated Retail Orders the ability to take
at the mid-point for free through MPL orders, providing significant
price improvement, the proposed change also permits the Exchange to
compete with other markets, including NASDAQ, which does not charge but
provides a credit for designated Retail Orders that take liquidity in
Retail Liquidity Provider programs,\18\ as well as over-the-counter
trading that offers mid-point executions at low fees.
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\17\ 15 U.S.C. 78f(b)(8).
\18\ See Securities Exchange Act Release Nos. 70860 (November
13, 2013), 78 FR 69512 (November 19, 2013) (SR-NASDAQ-2013-138).
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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 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) \19\ of the Act and subparagraph (f)(2) of Rule
19b-4 \20\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 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) \21\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\21\ 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-NYSEARCA-2014-142 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
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All submissions should refer to File Number SR-NYSEARCA-2014-142. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Section, 100 F Street
NE., Washington, DC 20549-1090, on official business days between the
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing will also be
available for inspection and copying at the NYSE's principal office and
on its Internet Web site at www.nyse.com. All comments received will be
posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEARCA-2014-142 and should be
submitted on or before February 2, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-00211 Filed 1-9-15; 8:45 am]
BILLING CODE 8011-01-P