[Federal Register Volume 78, Number 23 (Monday, February 4, 2013)]
[Notices]
[Pages 7824-7826]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-02290]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68747; File No. SR-NYSE-2013-08]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change Amending the Attestation
Requirement of Rule 107C To Allow a Retail Member Organization To
Attest That ``Substantially All'' Orders Submitted To The Retail
Liquidity Program Will Qualify As ``Retail Orders''
January 28, 2013.
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 January 17, 2012, New York Stock Exchange LLC (``NYSE''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the attestation requirement of Rule
107C to
[[Page 7825]]
allow a Retail Member Organization (``RMO'') to attest that
``substantially all'' orders submitted to the Retail Liquidity Program
(the ``Program'') will qualify as ``Retail Orders.'' Rule 107C(b)(2)(C)
currently requires RMOs to attest that ``any order'' will so qualify,
effectively preventing certain significant retail brokers from
participating in the Program due to operational constraints. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing an amendment to Rule 107C to provide that
an RMO may attest that ``substantially all'' of the orders it submits
to the Program are Retail Orders, as defined in Rule 107C, replacing
the requirement that the RMO must attest that all submitted orders
qualify as Retail Orders.
Under current Rule 107C(b)(2), a member organization wishing to
become an RMO must submit: (A) An application form; (B) supporting
documentation; and (C) an attestation that ``any order'' submitted as a
Retail Order will qualify as such under Rule 107C.\4\
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\4\ A Retail Order is defined in Rule 107C(a)(3) as ``an agency
order that originates from a natural person and is submitted to the
Exchange by a Retail Member Organization, 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.''
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The Exchange believes that the categorical nature of the current
attestation language is preventing certain member organizations with
retail customers from participating in the Program. In particular, the
Exchange understands that some member organizations wishing to
participate in the Program represent both ``Retail Orders,'' as defined
in Rule 107C(a)(3), as well as other agency flow that may not meet the
strict definition of ``Retail Order.'' The Exchange further understands
that limitations in order management systems and routing networks used
by such member organizations may make it infeasible for them to isolate
100% of Retail Orders from other agency, non-Retail Order flow that
they would direct to the Program. Unable to make the categorical
attestation required by the current language of Rule 107C, some member
organizations have chosen not to participate, notwithstanding that
substantially all order flow from such member organizations would be
Retail Orders. This limitation has the effect of preventing their
retail customers from benefiting from the enhanced price competition
and transparency of the Program.
Accordingly, the Exchange is proposing a de minimis relaxation of
the RMO attestation requirement in order to accommodate these system
limitations and expand the access of retail customers to the benefits
of the Program.
Specifically, as proposed an RMO would be permitted to send de
minimis quantities of agency orders to the Exchange as Retail Orders
that cannot be explicitly attested to under existing definitions of the
Program.
The Exchange will issue a Trader Notice to make clear that the
``substantially all'' language is meant to permit the presence of only
isolated and de minimis quantities of agency orders that do not qualify
as Retail Orders that cannot be segregated from Retail Orders due to
systems limitations. In this regard, an RMO would need to retain, in
its books and records, adequate substantiation that substantially all
orders sent to the Exchange as Retail Orders met the strict definition
and that those orders not meeting the strict definition are agency
orders that cannot be segregated from Retail Orders due to system
limitations, and are de minimis in terms of the overall number of
Retail Orders sent to the Exchange.\5\
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\5\ The Financial Industry Regulatory Authority, Inc.
(``FINRA''), on behalf of the Exchange, will review a member
organization's compliance with these requirements.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\6\ in general, and
furthers the objectives of Section 6(b)(5),\7\ in particular, in that
it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices because, while
the proposed rule change represents a relaxation of the attestation
requirements, the change is a de minimis relaxation that still requires
the RMO applicant to attest that ``substantially all'' of its orders
will qualify as Retail Orders. The slight relaxation will allow enough
flexibility to accommodate system limitations while still ensuring that
only a fractional amount of orders submitted to the Program would not
qualify as Retail Orders.
The Exchange believes that the proposed rule change promotes just
and equitable principles of trade because it will ensure that similarly
situated member organizations who have only slight differences in the
capability of their systems will be able to equally benefit from the
Program.
The Exchange believes that the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it will allow member organizations,
who are concerned about its system limitations not allowing 100%
certification that submitted orders are Retail Orders, to still
participate in the Program. By removing impediments to participation in
the Program, the proposed change would permit expanded access of retail
customers to the price improvement and transparency offered by the
Program and thereby potentially stimulate further price competition for
retail orders.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the amendment, by increasing the level of participation in the program,
will increase the level of competition around retail executions such
that retail investors would receive better prices than they currently
do on the Exchange and potentially through bilateral internalization
arrangements.
[[Page 7826]]
The Exchange believes that the transparency and competitiveness of
operating a program such as the Retail Liquidity Program on an exchange
market would result in better prices for retail investors, and benefits
retail investors by expanding the capabilities of Exchanges to
encompass practices currently allowed on non-Exchange venues.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
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-2013-08 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2013-08. 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 Room, 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 principal office of the Exchange. 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 publicly available. All
submissions should refer to File Number SR-NYSE-2013-08 and should be
submitted on or before February 25, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02290 Filed 2-1-13; 8:45 am]
BILLING CODE 8011-01-P