[Federal Register Volume 76, Number 217 (Wednesday, November 9, 2011)]
[Notices]
[Pages 69774-69779]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-28993]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65671; File No. SR-NYSEAMEX-2011-84]


Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of 
Rule Change Proposing a One-Year Pilot Program Adding New Rule 107C To 
Establish a Retail Liquidity Program To Attract Additional Retail Order 
Flow to the Exchange for NYSE Amex Equities Traded Securities

November 2, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 19, 2011, NYSE Amex LLC (``NYSE Amex'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the self-regulatory organization. The Commission 
is publishing this notice to solicit comments on the proposed rule from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 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 a one-year pilot program that would add new 
NYSE Amex Equities Rule 107C to establish a Retail Liquidity Program 
(``Program'' or ``proposed rule change'') to attract additional retail 
order flow to the Exchange for NYSE Amex Equities traded securities \3\ 
while also providing the potential for price improvement to such order 
flow. The text of the proposed rule change is available at the 
Exchange, the Commission's Public Reference Room, and http://www.nyse.com.
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    \3\ ``NYSE Amex Equities traded securities'' refers to all 
securities available to be traded on NYSE Amex Equities, including 
but not limited to NYSE Amex-listed securities as well as those 
listed on the Nasdaq Stock Market traded pursuant to unlisted 
trading privileges. See Securities Exchange Act Release 34-62479, 75 
Fed. Reg. 41264 (July 15, 2010).
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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 a one-year pilot program that would add 
new NYSE Amex Equities Rule 107C to establish a Retail Liquidity 
Program to attract additional retail order flow to the Exchange for 
NYSE Amex Equities traded securities while also providing the potential 
for price improvement to such order flow.
    Under the proposed rule change, the Exchange would create two new 
classes of market participants: (1) Retail Member Organizations 
(``RMOs''), which would be eligible to submit certain retail order flow 
(``Retail Orders'') to the Exchange, and (2) Retail Liquidity Providers 
(``RLPs''), which would be required to provide potential price 
improvement for Retail Orders in the form of non-displayed interest 
that is better than the best protected bid or the best protected offer 
(``PBBO'') \4\ (``Retail Price Improvement Order'' or ``RPI''). Member 
organizations other than RLPs would also be permitted, but not 
required, to submit Retail Price Improvement Orders.
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    \4\ The terms protected bid and protected offer would have the 
same meaning as defined in Regulation NMS Rule 600(b)(57). The PBB 
is the best-priced protected bid and the PBO is the best-priced 
protected offer. Generally, the PBB and PBO and the national best 
bid (``NBB'') and national best offer (``NBO'') will be the same. 
However, a market center is not required to route to the NBB or NBO 
if that market center is subject to an exception under Regulation 
NMS Rule 611(b)(1) or if such NBB or NBO is otherwise not available 
for an automatic execution. In such case, the PBB or PBO would be 
the best-priced protected bid or offer to which a market center must 
route interest pursuant to Regulation NMS Rule 611.
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    The Exchange will submit a separate proposal to amend its Price 
List in connection with the proposed Retail Liquidity Program. Under 
that proposal, the Exchange would charge RLPs and other member 
organizations a fee for executions of their Retail Price Improvement 
Orders against Retail Orders and in turn would provide a credit to RMOs 
for executions of their Retail Orders against the Retail Price 
Improvement Orders of RLPs and other member organizations.
Definitions
    The Exchange proposes to adopt the following definitions under 
proposed NYSE Amex Equities Rule 107C(a). First, the term ``Retail 
Liquidity Provider'' would be defined as a member organization that is 
approved by the Exchange to act as such and to submit Retail Price 
Improvement Orders

[[Page 69775]]

according to certain requirements set forth in proposed Rule 107C.
    Second, the term ``Retail Member Organization'' would be defined as 
a member organization (or a division thereof) that has been approved by 
the Exchange to submit Retail Orders.
    Third, the term ``Retail Order'' would be defined as:
     An agency order that originates from a natural person and 
is submitted to the Exchange by an 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; or
     A proprietary order of an RMO that results from 
liquidating a position acquired from the internalization of an order 
that satisfies the requirements of the preceding subparagraph.
    Finally, the term ``Retail Price Improvement Order'' would be 
defined as non-displayed interest in NYSE Amex Equities traded 
securities that is better than the best protected bid (``PBB'') or best 
protected offer (``PBO'') by at least $0.001 and that is identified as 
a Retail Price Improvement Order in a manner prescribed by the 
Exchange.\5\ The price of an RPI would be determined by an RLP's entry 
of the following into Exchange systems: (1) RPI buy or sell interest; 
(2) an offset, if any; and (3) a ceiling or floor price. The Exchange 
expects that RPI sell or buy interest typically would be entered to 
track the PBBO. The offset would be a predetermined amount by which the 
RLP is willing to improve the PBBO, subject to a ceiling or floor 
price. The ceiling or floor price would be the amount above or below 
which the RLP does not wish to trade. RPIs in their entirety (the buy 
or sell interest, the offset, and the ceiling or floor) will remain 
undisplayed. Exchange systems will monitor whether RPI buy or sell 
interest, adjusted by any offset and subject to the ceiling or floor 
price, is eligible to interact with incoming Retail Orders.
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    \5\ Exchange systems would prevent Retail Orders from 
interacting with Retail Price Improvement Orders if the RPI is not 
priced at least $0.001 better than the PBBO. The Exchange notes, 
however, that price improvement of $0.001 would be a minimum 
requirement and RLPs and other member organizations could enter 
Retail Price Improvement Orders that better the PBBO by more than 
$0.001. Exchange systems will accept Retail Price Improvement Orders 
without a minimum price improvement value; however, such interest 
will execute at its floor or ceiling price only if such floor or 
ceiling price is better than the PBBO by $0.001 or more. 
Concurrently with this filing, the Exchange has submitted a request 
for an exemption under Regulation NMS Rule 612 that would permit it 
to accept and rank the undisplayed Retail Price Improvement Orders. 
As outlined in the request, the Exchange believes that the minimum 
price improvement available under the Program, which would amount to 
$0.05 on a 500 share order, would be meaningful to the small retail 
investor. See Letter from Janet M. McGinness, Senior Vice 
President--Legal & Corporate Secretary, Office of the General 
Counsel, NYSE Euronext to Elizabeth M. Murphy, Secretary, Securities 
and Exchange Commission dated October 19, 2011 (``Sub-Penny Rule 
Exemption Request'').
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    RPIs would interact with Retail Orders as follows. Assume an RLP 
enters RPI sell interest with an offset of $0.001 and a floor of $10.10 
while the PBO is $10.11. The RPI could interact with an incoming buy 
Retail Order at $10.109. If, however, the PBO was $10.10, the RPI could 
not interact with the Retail Order because the price required to 
deliver the minimum $0.001 price improvement ($10.099) would violate 
the RLP's floor of $10.10. If an RLP otherwise enters an offset greater 
than the minimum required price improvement and the offset would 
produce a price that would violate the RLP's floor, the offset would be 
applied only to the extent that it respects the RLP's floor. By way of 
illustration, assume RPI buy interest is entered with an offset of 
$0.005 and a ceiling of $10.112 while the PBB is at $10.11. The RPI 
could interact with an incoming sell Retail Order at $10.112, because 
it would produce the required price improvement without violating the 
RLP's ceiling, but it could not interact above the $10.112 ceiling. 
Finally, if an RLP enters an RPI without an offset, the RPI will 
interact with Retail Orders at the level of the RLP's floor or ceiling 
as long as the minimum required price improvement is produced. 
Accordingly, if RPI sell interest is entered with no offset and a 
$10.098 floor while the PBO is $10.11, the RPI could interact with the 
Retail Order at $10.098, producing $0.012 of price improvement. 
Exchange systems will not cancel RPI interest when it is not eligible 
to interact with incoming Retail Orders; such RPI interest will remain 
in Exchange systems and may become eligible again to interact with 
Retail Orders depending on the PBB or PBO.
    An RLP would only be permitted to enter a Retail Price Improvement 
Order for the particular security or securities to which it is assigned 
as RLP.
RMO Qualifications and Approval Process
    Under proposed NYSE Amex Equities Rule 107C(b), any member 
organization \6\ could qualify as an RMO if it conducts a retail 
business or handles retail orders on behalf of another broker-dealer. 
Any member organization that wishes to obtain RMO status would be 
required to submit: (1) An application form; (2) an attestation, in a 
form prescribed by the Exchange, that any order submitted by the member 
organization as a Retail Order would meet the qualifications for such 
orders under proposed Rule 107C; and (3) supporting documentation 
sufficient to demonstrate the retail nature and characteristics of the 
applicant's order flow.\7\
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    \6\ An RLP may also act as an RMO for securities to which it is 
not assigned, subject to the qualification and approval process 
established by the proposed rule.
    \7\ For example, a prospective RMO could be required to provide 
sample marketing literature, Web site screenshots, other publicly 
disclosed materials describing the retail nature of their order 
flow, and such other documentation and information as the Exchange 
may require to obtain reasonable assurance that the applicant's 
order flow would meet the requirements of the Retail Order 
definition.
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    An RMO would 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. Such 
written policies and procedures must require the member organization to 
(i) Exercise due diligence before entering a Retail Order to assure 
that entry as a Retail Orders is in compliance with the requirements of 
the proposed rule, and (ii) monitor whether orders entered as Retail 
Orders meet the applicable requirements. If the RMO represents Retail 
Orders from another broker-dealer customer, the RMO'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 RMO 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 of the proposed rule, and (ii) monitor 
whether its broker-dealer customer's Retail Order flow continues to 
meet the applicable requirements.\8\
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    \8\ FINRA, on behalf of the Exchange, will review an RMO's 
compliance with these requirements through an exam-based review of 
the RMO's internal controls.
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    If the Exchange disapproves the application, the Exchange would 
provide a written notice to the member organization. The disapproved 
applicant could appeal the disapproval by the Exchange as provided in 
proposed Rule 107C(i), and/or reapply for RMO status 90 days after the 
disapproval notice is issued by the Exchange. An RMO also

[[Page 69776]]

could voluntarily withdraw from such status at any time by giving 
written notice to the Exchange.
RLP Qualifications
    To qualify as an RLP under proposed NYSE Amex Equities Rule 
107C(c), a member organization would be required to: (1) Already be 
approved as a Designated Market Maker (``DMM'') or Supplemental 
Liquidity Provider (``SLP''); (2) demonstrate an ability to meet the 
requirements of an RLP; (3) have mnemonics or the ability to 
accommodate other Exchange-supplied designations that identify to the 
Exchange RLP trading activity in assigned RLP securities; and (4) have 
adequate trading infrastructure and technology to support electronic 
trading.
    Because an RLP would only be permitted to trade electronically, a 
member organization's technology must be fully automated to accommodate 
the Exchange's trading and reporting systems that are relevant to 
operating as an RLP. If a member organization were unable to support 
the relevant electronic trading and reporting systems of the Exchange 
for RLP trading activity, it would not qualify as an RLP.
RLP Approval Process
    Under proposed NYSE Amex Equities Rule 107C(d), to become an RLP, a 
member organization would be required to submit an RLP application form 
with all supporting documentation to the Exchange. The Exchange would 
determine whether an applicant was qualified to become an RLP as set 
forth above. After an applicant submitted an RLP application to the 
Exchange with supporting documentation, the Exchange would notify the 
applicant member organization of its decision. The Exchange could 
approve one or more member organizations to act as an RLP for a 
particular security. The Exchange could also approve a particular 
member organization to act as RLP for one or more securities. Approved 
RLPs would be assigned securities according to requests made to, and 
approved by, the Exchange.
    If an applicant were approved by the Exchange to act as an RLP, the 
applicant would be required to establish connectivity with relevant 
Exchange systems before the applicant would be permitted to trade as an 
RLP on the Exchange.
    If the Exchange disapproves the application, the Exchange would 
provide a written notice to the member organization. The disapproved 
applicant could appeal the disapproval by the Exchange as provided in 
proposed Rule 107C(i) and/or reapply for RLP status 90 days after the 
disapproval notice is issued by the Exchange.
Voluntary Withdrawal of RLP Status
    An RLP would be permitted to withdraw its status as an RLP by 
giving notice to the Exchange under proposed NYSE Amex Equities Rule 
107C(e). The withdrawal would become effective when those securities 
assigned to the withdrawing RLP are reassigned to another RLP. After 
the Exchange receives the notice of withdrawal from the withdrawing 
RLP, the Exchange would reassign such securities as soon as 
practicable, but no later than 30 days after the date the notice is 
received by the Exchange. If the reassignment of securities takes 
longer than the 30-day period, the withdrawing RLP would have no 
further obligations and would not be held responsible for any matters 
concerning its previously assigned RLP securities.
RLP Requirements
    Under proposed NYSE Amex Equities Rule 107C(f), an RLP would only 
be permitted to enter Retail Price Improvement Orders electronically 
and directly into Exchange systems and facilities designated for this 
purpose and only for the securities to which it is assigned as RLP. In 
order to be eligible for execution fees that are lower than non-RLP 
rates, an RLP would be required to maintain (1) A Retail Price 
Improvement Order that is better than the PBB at least five percent of 
the trading day for each assigned security; and (2) a Retail Price 
Improvement Order that is better than the PBO at least five percent of 
the trading day for each assigned security.
    An RLP's five-percent requirements would be calculated by 
determining the average percentage of time the RLP maintains a Retail 
Price Improvement Order in each of its RLP securities during the 
regular trading day, on a daily and monthly basis. The Exchange would 
determine whether an RLP has met this requirement by calculating the 
following:

    (1) The ``Daily Bid Percentage'' would be calculated by 
determining the percentage of time an RLP maintains a Retail Price 
Improvement Order with respect to the PBB during each trading day 
for a calendar month;
    (2) The ``Daily Offer Percentage'' would be calculated by 
determining the percentage of time an RLP maintains a Retail Price 
Improvement Order with respect to the PBO during each trading day 
for a calendar month;
    (3) The ``Monthly Average Bid Percentage'' would be calculated 
for each RLP security by summing the security's ``Daily Bid 
Percentages'' for each trading day in a calendar month then dividing 
the resulting sum by the total number of trading days in such 
calendar month; and
    (4) The ``Monthly Average Offer Percentage'' would be calculated 
for each RLP security by summing the security's ``Daily Offer 
Percentage'' for each trading day in a calendar month and then 
dividing the resulting sum by the total number of trading days in 
such calendar month.

    Finally, only Retail Price Improvement Orders would be used when 
calculating whether an RLP is in compliance with its five-percent 
requirements.
    The Exchange would determine whether an RLP met its five-percent 
requirement by determining the average percentage of time an RLP 
maintains a Retail Price Improvement Order in each of its RLP 
securities during the regular trading day on a daily and monthly basis. 
The lower fees would not apply during a month in which the RLP did not 
satisfy the five-percent requirements. Additionally, beginning with the 
third month of operation as an RLP, an RLP's failure to satisfy the 
five-percent requirements described above for each of its assigned 
securities could result in action taken by the Exchange, as described 
below.
    The Exchange will not begin calculating whether an RLP meets the 
quoting requirement during the first two calendar months that the RLP 
is participating in the Program. If the Program is implemented mid-
month, the Exchange will begin calculating the quoting requirement two 
calendar months after the end of the month in which the program was 
implemented.
Failure of RLP to Meet Requirements
    Proposed NYSE Amex Equities Rule 107C(g) addresses an RLP's failure 
to meet its requirements. If, after the first two months an RLP acted 
as an RLP, an RLP fails to meet any of the requirements of proposed 
Rule 107C(f) for any assigned RLP security for three consecutive 
months, the Exchange could, in its discretion, take one or more of the 
following actions: \9\ (1) Revoke the assignment of any or all of the 
affected securities from the RLP; (2) revoke the assignment of 
unaffected securities from the RLP; or (3) disqualify the member 
organization from its status as an RLP.
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    \9\ As discussed previously, an RLP's failure to satisfy its 
requirement would result in the RLP no longer being charged the 
lower fees for execution of its Retail Price Improvement Orders.
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    The Exchange, in its sole discretion, would determine if and when a 
member organization is disqualified from its status as an RLP. One 
calendar month prior to any such determination, the

[[Page 69777]]

Exchange would notify an RLP of such impending disqualification in 
writing. When disqualification determinations are made, the Exchange 
would provide a written disqualification notice to the member 
organization.
    A disqualified RLP could appeal the disqualification as provided in 
proposed Rule 107C(i) and/or reapply for RLP status 90 days after the 
disqualification notice is issued by the Exchange.\10\
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    \10\ The Exchange notes that the Retail Price Improvement Order 
executions of a member organization disqualified from acting as an 
RLP would thereafter be subject to the transaction pricing 
applicable to non-RLP member organizations.
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Failure of RMO to Abide by Retail Order Requirements
    Proposed NYSE Amex Equities Rule 107C(h) addresses an RMO's failure 
to abide by Retail Order requirements. If an RMO designates orders 
submitted to the Exchange as Retail Orders and the Exchange determines, 
in its sole discretion, that those orders fail to meet any of the 
requirements of Retail Orders, the Exchange may disqualify a member 
organization from its status as an RMO. When disqualification 
determinations are made, the Exchange would provide a written 
disqualification notice to the member organization. A disqualified RMO 
could appeal the disqualification as provided in proposed Rule 107C(i) 
and/or reapply for RMO status 90 days after the disqualification notice 
is issued by the Exchange.\11\
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    \11\ As above for RLPs, the Retail Order executions of a member 
organization disqualified from RMO status would thereafter be 
subject to the transaction pricing applicable to non-RMO member 
organizations.
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Appeal of Disapproval or Disqualification
    Proposed NYSE Amex Equities Rule 107C(i) provides appeal rights to 
member organizations. If a member organization disputes the Exchange's 
decision to disapprove it under proposed Rule 107C(b) or (d) or 
disqualify it under proposed Rule 107C(g) or (h), such member 
organization (``appellant'') may request, within five business days 
after notice of the decision is issued by the Exchange, that the Retail 
Liquidity Program Panel (``RLP Panel'') review the decision to 
determine if it was correct.\12\
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    \12\ In the event a member organization is disqualified from its 
status as an RLP pursuant to proposed NYSE Amex Equities Rule 
107C(g), the Exchange would not reassign the appellant's securities 
to a different RLP until the RLP Panel has informed the appellant of 
its ruling.
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    The RLP Panel would consist of the NYSE's Chief Regulatory Officer 
(``CRO''), or a designee of the CRO, and two officers of the Exchange 
designated by the Co-Head of U.S. Listings and Cash Execution. The RLP 
Panel would review the facts and render a decision within the time 
frame prescribed by the Exchange. The RLP Panel could overturn or 
modify an action taken by the Exchange and all determinations by the 
RLP Panel would constitute final action by the Exchange on the matter 
at issue.
Retail Liquidity Identifier
    Under proposed NYSE Amex Equities Rule 107C(j), the Exchange 
proposes to disseminate an identifier through proprietary Exchange data 
feeds when RPI interest priced at least $0.001 better than the PBB or 
PBO for a particular security is available in Exchange systems 
(``Retail Liquidity Identifier''). The Retail Liquidity Identifier 
would not be disseminated to the Consolidated Quote Stream.
Retail Order Designations
    Under proposed NYSE Amex Equities Rule 107C(k), an RMO can 
designate how a Retail Order would interact with available contra-side 
interest as follows. As proposed, a Type 1-designated Retail Order 
would interact only with available contra-side Retail Price Improvement 
Orders and would not interact with other available contra-side interest 
in Exchange systems or route to other markets. The portion of a Type 1-
designated Retail Order that does not execute against contra-side 
Retail Price Improvement Orders would be immediately and automatically 
cancelled. A Type 2-designated Retail Order would interact first with 
available contra-side Retail Price Improvement Orders and any remaining 
portion of the Retail Order would be executed as a Regulation NMS-
compliant Immediate or Cancel Order pursuant to NYSE Amex Equities Rule 
13. Accordingly, a Type 2-designated Retail Order could interact with 
other interest in Exchange systems, but would not route to other 
markets. A Type 3-designated Retail Order would interact first with 
available contra-side Retail Price Improvement Orders and any remaining 
portion of the Retail Order would be executed as an Exchange Immediate 
or Cancel Order pursuant to NYSE Amex Equities Rule 13. Accordingly, a 
Type 3-designated Retail Order could interact with other interest in 
Exchange systems and, if necessary, would route to other markets in 
compliance with Regulation NMS.
Priority and Order Allocation
    Under proposed NYSE Amex Equities Rule 107C(l), the Exchange 
proposes that competing Retail Price Improvement Orders in the same 
security would be ranked and allocated according to price then time of 
entry into Exchange systems. The Exchange further proposes that 
executions would occur at the price level that completes the incoming 
order's execution. Any remaining unexecuted RPI interest will remain 
available to interact with other incoming Retail Orders if such 
interest is at an eligible price. Any remaining unexecuted portion of 
the Retail Order will cancel or execute in accordance with proposed 
Rule 107C(k). The following example illustrates this proposed method:

    PBBO for security ABC is $10.00-$10.05.
    RLP 1 enters a Retail Price Improvement Order to buy ABC at 
$10.01 for 500.
    RLP 2 then enters a Retail Price Improvement Order to buy ABC at 
$10.02 for 500.
    RLP 3 then enters a Retail Price Improvement Order to buy ABC at 
$10.03 for 500.

    An incoming Retail Order to sell ABC for 1,000 would execute first 
against RLP 3's bid for 500, because it is the best priced bid, then 
against RLP 2's bid for 500, because it is the next best priced bid. 
RLP 1 would not be filled because the entire size of the Retail Order 
to sell 1,000 would be depleted. The Retail Order executes at the price 
that completes the order's execution. In this example the entire 1,000 
order to sell would execute at $10.02 because it would result in a 
complete fill.
    However, assume the same facts above, except that RLP 2's Retail 
Price Improvement Order to buy ABC at $10.02 was for 100. The incoming 
Retail Order to sell 1,000 would execute first against RLP 3's bid for 
500, because it is the best priced bid, then against RLP 2's bid for 
100, because it is the next best priced bid. RLP 1 would then receive 
an execution for 400 of its bid for 500, at which point the entire size 
of the Retail Order to sell 1,000 would be depleted. The Retail Order 
executes at the price that completes the order's execution, which is 
$10.01.
Implementation
    The Exchange proposes that all NYSE-listed and NYSE Amex Equities 
traded securities would be eligible for inclusion in the Retail 
Liquidity Program.\13\ In order to provide for an efficient 
implementation, the Retail Liquidity Program would initially cover only 
a certain specified list of NYSE-listed securities to which RLPs are 
assigned, as announced by the Exchange via Information Memo. The 
Exchange

[[Page 69778]]

anticipates that the securities included within the Retail Liquidity 
Program would be expanded periodically as demand for RLP assignments 
develops in response to increased Retail Order activity on the 
Exchange.\14\
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    \13\ New York Stock Exchange LLC is filing a companion rule 
proposal to adopt NYSE Rule 107C. See SR-NYSE-2011-55.
    \14\ The Exchange would announce any such expansions via 
Information Memo.
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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''),\15\ in general, and 
furthers the objectives of Section 6(b)(5),\16\ in particular, in that 
it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system. 
The Exchange believes that the proposed rule change is consistent with 
these principles because it would increase competition among execution 
venues, encourage additional liquidity, and offer the potential for 
price improvement to retail investors. The Exchange notes that a 
significant percentage of the orders of individual investors are 
executed over-the-counter.\17\ The Exchange believes that it is 
appropriate to create a financial incentive to bring more retail order 
flow to a public market.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ See Concept Release on Equity Market Structure, Securities 
Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594 
(January 21, 2010) (noting that dark pools and internalizing broker-
dealers executed approximately 25.4% of share volume in September 
2009). See also 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). In her speech, Chairman 
Schapiro noted that nearly 30 percent of volume in U.S.-listed 
equities was executed in venues that do not display their liquidity 
or make it generally available to the public and the percentage was 
increasing nearly every month.
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    The Exchange understands that Section 6(b)(5) of the Act prohibits 
an exchange from establishing rules that treat market participants in 
an unfairly discriminatory manner. However, Section 6(b)(5) of the Act 
does not prohibit exchange members or other broker-dealers from 
discriminating, so long as their activities are otherwise consistent 
with the federal securities laws. Nor does Section 6(b)(5) of the Act 
require exchanges to preclude discrimination by broker-dealers. Broker-
dealers commonly differentiate between customers based on the nature 
and profitability of their business.
    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 
differentiation proposed herein by the Exchange 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 would result in better 
prices for retail investors. The Exchange recognizes that sub-penny 
trading and pricing could potentially result in undesirable market 
behavior. The Exchange will monitor the Program in an effort to 
identify and address any such behavior.
    Finally, the Exchange proposes that the Commission approve the 
proposed rule for a pilot period of twelve months from the date of 
implementation, which shall occur no later than 90 days after 
Commission approval of Rule 107C. The Program shall expire on a date 
that will be determined upon adoption of Rule 107C. The Exchange 
believes that this pilot period is of sufficient length to permit both 
the Exchange and the Commission to assess the impact of the rule change 
described herein.

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.

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. The Commission specifically requests 
comment on the following:
     A stated purpose of this proposal is to attract retail 
order flow, a significant percentage of which is currently executed 
over-the-counter, to the exchange. What are the benefits, if any, of 
executing marketable retail orders on an exchange instead of over-the-
counter? To what extent, if any, would this proposal realize those 
benefits? What other effects, if any, would this proposal have upon the 
overall market?
     The proposal contemplates that Retail Liquidity Providers 
may offer price improvement to Retail Orders in sub-penny amounts. In 
its proposal, the exchange notes that it is concurrently requesting an 
exemption from the sub-penny rule, Rule 612 of Regulation NMS, to 
permit the exchange to accept and rank Retail Price Improvement Orders. 
If the Commission were to approve this proposal and grant the 
exemption, what impact, positive or negative, would the proposal have 
upon the market? Would this proposal, if approved, produce a 
significantly larger volume of sub-penny trades than is currently the 
case, or would it primarily shift sub-penny trades away from non-
exchange venues to the exchange?
    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- NYSEAMEX-2011-84 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- NYSEAMEX-2011-84. 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

[[Page 69779]]

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 a.m. and 3 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 http://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 publicly 
available. All submissions should refer to File Number SR-NYSEAMEX-
2011-84 and should be submitted on or before November 30, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority. \18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-28993 Filed 11-8-11; 8:45 am]
BILLING CODE 8011-01-P