[Federal Register Volume 77, Number 41 (Thursday, March 1, 2012)]
[Notices]
[Pages 12629-12631]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-4913]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66464; File Nos. SR-NYSE-2011-55; SR-NYSEAmex-2011-84]


Self-Regulatory Organizations; New York Stock Exchange LLC; NYSE 
Amex LLC; Notice of Filing of Partial Amendment No. 2 to Proposed Rule 
Changes, as Modified by Amendment No. 1, Adopting New Rule 107C To 
Establish a Retail Liquidity Program on a Pilot Basis To Attract 
Additional Retail Order Flow to the Exchanges

February 24, 2012.

I. Introduction

    On October 19, 2011, New York Stock Exchange LLC (``NYSE'') and 
NYSE Amex LLC (``NYSE Amex'' and together with NYSE, the ``Exchanges'') 
each filed with the Securities and Exchange Commission (``Commission'') 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
establish a Retail Liquidity Program (``Program'') on a pilot basis for 
a period of one year from the date of implementation, if approved. The 
proposed rule changes were published for comment in the Federal 
Register on November 9, 2011.\3\ The Commission received 28 comments on 
the NYSE proposal \4\ and 4 comments on the NYSE Amex proposal.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release Nos. 65671 (November 2, 
2011), 76 FR 69774 (SR-NYSEAmex-2011-84); 65672 (November 2, 2011), 
76 FR 69788 (SR-NYSE-2011-55).
    \4\ See Letters to the Commission from Sal Arnuk, Joe Saluzzi 
and Paul Zajac, Themis Trading LLC, dated October 17, 2011 (``Themis 
Letter''); Garret Cook, dated November 4, 2011 (``Cook Letter''); 
James Johannes, dated November 27, 2011 (``Johannes Letter''); Ken 
Voorhies, dated November 28, 2011 (``Voorhies Letter''); William 
Wuepper, dated November 28, 2011 (``Wuepper Letter''); A. Joseph, 
dated November 28, 2011 (``Joseph Letter''); Leonard Amoruso, 
General Counsel, Knight Capital, Inc., dated November 28, 2011 
(``Knight Letter''); Kevin Basic, dated November 28, 2011 (``Basic 
Letter''); J. Fournier, dated November 28, 2011 (Fournier Letter''); 
Ullrich Fischer, CTO, PairCo, dated November 28, 2011 (``PairCo 
Letter''); James Angel, Associate Professor of Finance, McDonough 
School of Business, Georgetown University, dated November 28, 2011 
(``Angel Letter''); Jordan Wollin, dated November 29, 2011 (``Wollin 
Letter''); Aaron Schafter, President, Great Mountain Capital 
Management LLC, dated November 29, 2011 (``Great Mountain Capital 
Letter''); Wayne Koch, Trader, Bright Trading, dated November 29, 
2011 (``Koch Letter''); Kurt Schact, CFA, Managing Director, and 
James Allen, CFA, Head, Capital Markets Policy, CFA Institute, dated 
November 30, 2011 (``CFA Letter''); David Green, Bright Trading, 
dated November 30, 2011 (``Green Letter''); Robert Bright, Chief 
Executive Officer, and Dennis Dick, CFA, Market Structure 
Consultant, Bright Trading LLC, dated November 30, 2011 (``Bright 
Trading Letter''); Bodil Jelsness, dated November 30, 2011 
(``Jelsness Letter''); Christopher Nagy, Managing Director, Order 
Routing and Market Data Strategy, TD Ameritrade, dated November 30, 
2011 (``TD Ameritrade Letter''); Laura Kenney, dated November 30, 
2011 (``Kenney Letter''); Suhas Daftuar, Hudson River Trading LLC, 
dated November 30, 2011 (``Hudson River Trading Letter''); Bosier 
Parsons, Bright Trading LLC, dated November 30, 2011 (``Parsons 
Letter''); Mike Stewart, Head of Global Equities, UBS, dated 
November 30, 2011 (``UBS Letter''); Dr. Larry Paden, Bright Trading, 
dated December 1, 2011 (``Paden Letter''); Thomas Dercks, dated 
December 1, 2011 (``Dercks Letter''); Eric Swanson, Secretary, BATS 
Global Markets, Inc., dated December 6, 2011 (``BATS Letter''); Ann 
Vlcek, Director and Associate General Counsel, Securities Industry 
and Financial Markets Association, dated December 7, 2011 (``SIFMA 
Letter''); and Al Patten, dated December 29, 2011 (``Patten 
Letter'').
    \5\ See Knight Letter; CFA Letter; TD Ameritrade Letter; and 
letter to the Commission from Shannon Jennewein, dated November 30, 
2011 (``Jennewein Letter'').
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    On December 19, 2011, the Commission designated a longer period for 
Commission action on the proposed rule change, until February 7, 
2012.\6\ In connection with the proposals, the Exchanges requested 
exemptive relief from Rule 612(c) of Regulation NMS,\7\ which prohibits 
a national securities exchange from accepting or ranking certain orders 
based on an increment smaller than the minimum pricing

[[Page 12630]]

increment.\8\ The Exchanges submitted a consolidated response letter on 
January 3, 2012.\9\ On January 17, 2012, each Exchange filed Amendment 
No. 1 to its proposal.\10\ On February 7, 2012, the Commission 
instituted proceedings to determine whether to disapprove the proposed 
rule changes, as modified by Amendment No. 1.\11\ The comment period 
for the Commission's Order Instituting Proceedings is set to expire on 
March 5, 2012, and the Exchanges' rebuttal period is scheduled to close 
on March 19, 2012.\12\ On February 16, 2012, the Exchanges filed 
Partial Amendment No. 2 to the proposed rule changes.
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    \6\ See Securities Exchange Act Release No. 66003, 76 FR 80445 
(December 23, 2011).
    \7\ 17 CFR 242.612(c).
    \8\ The Exchanges amended the exemptive relief request on 
January 13, 2012. See Letter from Janet M. McGinness, Senior Vice 
President-Legal and Corporate Secretary, Office of the General 
Counsel, NYSE Euronext to Elizabeth M. Murphy, Secretary, 
Commission.
    \9\ See Letter to the Commission from Janet McGinnis, Senior 
Vice President, Legal & Corporate Secretary, Legal & Government 
Affairs, NYSE Euronext, dated January 3, 2012 (``Exchanges' Response 
Letter'').
    \10\ In Amendment No. 1, the Exchanges modified the proposals as 
follows: (1) To state that Retail Member Organizations may receive 
free executions for their retail orders and the fees and credits for 
liquidity providers and Retail Member Organizations would be 
determined based on experience with the Retail Liquidity Program in 
the first several months; (2) to correct a typographical error 
referring to the amount of minimum price improvement on a 500 share 
order; (3) to indicate the Retail Liquidity Identifier would be 
initially available on each Exchange's proprietary data feeds, and 
would be later available on the public market data stream; and (4) 
to limit the Retail Liquidity Program to securities that trade at 
prices equal to or greater than $1 per share.
    \11\ See Securities Exchange Act Release No. 34-66346, 77 FR 
7628 (February 13, 2012) (``Order Instituting Proceedings'').
    \12\ See id.
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    The Commission is publishing this notice to solicit comments on the 
proposed rule changes, as modified by Amendment No. 2, from interested 
persons.

II. Description of the Partial Amendment No. 2

    In Amendment No. 2, the Exchanges propose to make three changes to 
proposed Rule 107C, which establishes the Retail Liquidity Provider 
program: (1) Limit the definition of ``Retail Order''; (2) modify the 
definition of the Retail Liquidity Identifier; and (3) clarify the 
treatment of odd lots, round lots, and part of a round lot orders.\13\
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    \13\ In addition, the Exchanges propose to make conforming 
changes to the Form 19b-4 and Exhibit 1 that they submitted in 
connection with the proposed rule changes.
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    First, the Exchanges propose to amend proposed Rule 107C(a)(3) to 
remove from the definition of ``Retail Order'' proprietary orders of 
Retail Member Organizations \14\ that result from liquidating a 
position acquired from the internalization of orders that otherwise 
meet the definition of ``Retail Order.'' As amended, the definition of 
``Retail Order'' thus would be limited to ``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.''
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    \14\ As described in the Commission's Order Instituting 
Proceedings, Retail Member Organizations are Exchange member 
organizations that conduct a retail business or handle retail orders 
on behalf of another broker-dealer, apply to the Exchanges to obtain 
the ``Retail Member Organization'' designation, and attest that the 
order flow they would provide under the Program would satisfy the 
``Retail Order'' definition.
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    Second, the Exchanges would add language to the definitions of 
``Retail Order'' and ``Retail Price Improvement Order'' (``RPI'') in 
proposed Rules 107C(a)(3) and 107C(a)(4), respectively, to clarify that 
both may include odd lot, round lot, and part of round lot orders. The 
Exchanges explain further in the Amendment that RPIs would be ranked 
and allocated according to price and time of entry into the Exchange 
systems consistent with Exchange Rule 55, 61, and 72, and therefore 
without regard to whether the size entered is an odd lot, round lot, or 
part of round lot amount. Similarly, the Exchanges explain that Retail 
Orders would interact with RPIs according to the priority and 
allocation rules of the Program and without regard to whether they are 
odd lots, round lots, or parts of round lots. According to the 
Amendment, Retail Orders may be designated as Type 1, Type 2, or Type 3 
under proposed Rule 107C(k) without regard to the size of the order. 
However, the Exchanges note that, pursuant to the rules of the 
Consolidated Tape Association, executions less than a round lot will 
not print to the tape or be considered the last sale.
    Third, the Exchanges would amend proposed Rule 107C(j) to add to 
the definition of Retail Liquidity Identifier that the identifier shall 
reflect the symbol for the particular security and the side (buy or 
sell) of the RPI interest, but shall not include the price or size of 
the RPI interest. The previously proposed definition of the Retail 
Liquidity Identifier did not contain these details. Rather, it said 
only that an identifier shall be disseminated through proprietary data 
feeds or as appropriate through the Consolidation Quote System when RPI 
interest priced at least $0.001 better than the best protected bid or 
best protected offer \15\ for a particular security is available in 
Exchange systems.
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    \15\ Under proposed Rule 107C(a)(4), the terms protected bid and 
protected offer would have the same meaning as defined in Rule 
600(b)(57) of Regulation NMS. Rule 600(b)(57) of Regulation NMS 
defines ``protected bid'' and ``protected offer'' as ``a quotation 
in an NMS stock that: (i) [i]s displayed by an automated trading 
center; (ii) [i]s disseminated pursuant to an effective national 
market system plan; and (iii) [i]s an automated quotation that is 
the best bid or best offer of a national securities exchange, the 
best bid or best offer of the Nasdaq Stock Market, Inc., or the best 
bid or best offer of a national securities association other than 
the best bid or best offer of the Nasdaq Stock Market, Inc.'' 17 CFR 
242.600(b)(57).
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III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
changes, as modified by Amendment No. 2, are 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-2011-55 or 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-NYSE-2011-55 or 
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 
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 
changes that are filed with the Commission, and all written 
communications relating to the proposed rule changes 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

[[Page 12631]]

business days between the hours of 10 a.m. and 3 p.m. Copies of the 
filing also will be available for inspection and copying at 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-2011-55 or SR-NYSEAmex-2011-84 and should be submitted on or 
before March 22, 2012.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-4913 Filed 2-29-12; 8:45 am]
BILLING CODE 8011-01-P