[Federal Register Volume 79, Number 56 (Monday, March 24, 2014)]
[Notices]
[Pages 16085-16088]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-06301]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71730; File No. SR-NYSEMKT-2014-19]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Its Price List 
To Specify Pricing Applicable To Executions of Mid-Point Passive 
Liquidity Orders Against Retail Orders Within the Retail Liquidity 
Program

March 18, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the

[[Page 16086]]

``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that, 
on March 4, 2014, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'') 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 Price List to specify pricing 
applicable to executions of Mid-Point Passive Liquidity (``MPL'') 
Orders against Retail Orders within the Retail Liquidity Program. The 
Exchange proposes to implement the fee change effective March 4, 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 its Price List to specify pricing 
applicable to executions of MPL Orders against Retail Orders within the 
Retail Liquidity Program. The Exchange proposes to implement the fee 
change effective March 4, 2014.
    The Exchange recently introduced a new order type called an MPL 
Order, which is an undisplayed limit order that automatically executes 
at the mid-point of the protected best bid or offer (``PBBO'').\4\ The 
Exchange also amended NYSE MKT Rule 107C--Equities to specify that MPL 
Orders could interact with incoming, contra-side Retail Orders 
submitted by a Retail Member Organization (``RMO'') in the Retail 
Liquidity Program.\5\
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    \4\ See Securities Exchange Act Release No. 71329 (January 16, 
2014), 79 FR 3904 (January 23, 2014) (SR-NYSEMKT-2013-84). See also 
NYSE MKT Rule 13--Equities.
    \5\ See NYSE MKT Rule 107C--Equities. Retail Order is defined in 
NYSE MKT Rule 107C(a)(3)--Equities as an agency order or a riskless 
principal order that meets the criteria of Financial Industry 
Regulatory Authority, Inc. (``FINRA'') Rule 5320.03 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. RMO 
is defined in NYSE MKT Rule 107C(a)(2)--Equities as a member 
organization (or a division thereof) that has been approved by the 
Exchange to submit Retail Orders.
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    The Exchange proposes that the pricing for a Retail Order that 
executes against an MPL Order would be the same as the current pricing 
for a Retail Order that executes against a Retail Price Improvement 
Order (``RPI'') submitted by a Retail Liquidity Provider (``RLP'') or 
non-RLP.\6\ Specifically, the Retail Order would receive a credit of 
$0.0005 per share. The Exchange also proposes that the contra-side MPL 
Order would be billed according to the standard pricing that would 
otherwise apply to the MPL Order (e.g., a credit of $0.0016 per share 
for Exchange-listed securities or $0.0025 per share for UTP securities, 
not the pricing under the Retail Liquidity Program section of the Price 
List).
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    \6\ RPI is defined in NYSE MKT Rule 107C(a)(4)--Equities and 
consists of non-displayed interest in Exchange-traded securities 
(including, but not limited to, Exchange-listed securities and 
securities listed on the Nasdaq Stock Market traded pursuant to 
unlisted trading privileges (``UTP'')) that is priced better than 
the best protected bid (``PBB'') or best protected offer (``PBO''), 
as such terms are defined in Regulation NMS Rule 600(b)(57), by at 
least $0.001 and that is identified as such. RLP is defined in NYSE 
MKT Rule 107C(a)(1)--Equities as a member organization that is 
approved by the Exchange to act as such and that is required to 
submit RPIs in accordance with NYSE MKT Rule 107C--Equities.
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    The proposed change is not otherwise intended to address any other 
issues, and the Exchange is not aware of any problems that member 
organizations 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,\7\ in general, and furthers the 
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that a $0.0005 per share credit for a Retail 
Order that executes against an MPL Order is reasonable because it is 
the same rate that currently applies to a Retail Order that executes 
against an RPI. In this regard, both MPL Orders and RPIs offer the 
potential for price improvement for a Retail Order. This is further 
reasonable because it would create an added financial incentive for 
RMOs to bring additional retail order flow to a public market, which 
could result in additional price improvement for retail investors.
    The Exchange also believes that it is reasonable for an MPL Order 
that executes against a Retail Order to be billed according to standard 
pricing that would otherwise apply to the MPL Order (e.g., a credit of 
$0.0016 per share for Exchange-listed securities or $0.0025 per share 
for UTP securities, not the pricing under the Retail Liquidity Program 
section of the Price List). Specifically, an MPL Order would be 
eligible to execute against Retail Orders, but without being so 
designated by the submitting member or member organization. 
Accordingly, the standard MPL Order rate (e.g., a credit of $0.0016 per 
share for Exchange-listed securities or $0.0025 per share for UTP 
securities) would otherwise apply to the MPL Order absent its 
interaction with the Retail Order.
    The pricing proposed herein is equitable and, 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 proposed pricing could result in an RPI receiving a rate (i.e., 
no charge or a fee of $0.0003 per share) that is inferior to the rate 
received by an MPL Order (e.g., a credit of $0.0016 per share for 
Exchange-listed securities or $0.0025 per share for UTP securities), 
even when both execute against a Retail Order. The Exchange believes 
that this is equitable and not unfairly discriminatory because RPIs 
would only execute against Retail Orders, whereas MPL Orders could 
execute against Retail Orders or other marketable interest on the 
Exchange, including non-retail liquidity.\9\ In this

[[Page 16087]]

regard, and as previously recognized by the Securities and Exchange 
Commission (``Commission''), ``markets generally distinguish between 
individual 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.'' \10\ The Exchange has sought to balance this view in 
setting the pricing of RPIs compared to MPL Orders, recognizing that 
the ability to limit interaction only to Retail Orders could be a 
potential benefit applicable only to RPIs. This is also equitable and 
not unfairly discriminatory because the use of RPIs by RLPs and non-
RLPs is voluntary. Members and member organizations that perceive that 
the potential advantages of interacting with Retail Orders outweigh the 
potential costs (i.e., providing price improvement and potential 
inferior pricing as compared to MPL Orders) may choose to utilize RPIs, 
but those that do not are free to forgo their use.
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    \9\ This is also similar to the manner in which the NASDAQ Stock 
Market, LLC (``NASDAQ'') applies pricing for its ``Retail Price 
Improvement Program.'' See NASDAQ Rule 7018(g).
    \10\ See Securities Exchange Act Release No. 67347 (July 3, 
2012), 77 FR 40673, 40679-80 (July 10, 2012) (SR-NYSE-2011-55; SR-
NYSEAmex-2011-84). See also 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 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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    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,\11\ 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, encourage 
additional liquidity, and offer the potential for price improvement to 
retail investors. In this regard, 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 encourage competition and result in better prices for 
retail investors.
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    \11\ 15 U.S.C. 78f(b)(8).
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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 member organizations 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) \12\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \13\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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) \14\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \14\ 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-NYSEMKT-2014-19 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-NYSEMKT-2014-19. 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

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should refer to File Number SR-NYSEMKT-2014-19 and should be submitted 
on or before April 14, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-06301 Filed 3-21-14; 8:45 am]
BILLING CODE 8011-01-P