[Federal Register Volume 79, Number 178 (Monday, September 15, 2014)]
[Notices]
[Pages 55059-55061]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-21865]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73019; File No. SR-NYSEMKT-2014-74]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Its Price List 
To Adjust the Pricing Related to the Retail Liquidity Program Under 
Rule 107C--Equities

September 9, 2014.
    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 August 26, 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 adjust the pricing 
related to the Retail Liquidity Program under Rule 107C--Equities. The 
Exchange proposes to implement the fee change effective September 1, 
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 adjust the pricing 
related to the Retail Liquidity Program under Rule 107C--Equities. The 
Exchange proposes to implement the fee change effective September 1, 
2014.
    The Retail Liquidity Program is a pilot program that is designed to 
attract additional retail order flow to the Exchange for Exchange-
traded securities (including but not limited to Exchange-listed 
securities and securities listed on the NASDAQ Stock Market, LLC traded 
pursuant to unlisted trading privileges (``UTP'')) while also providing 
the potential for price improvement to such order flow.\4\ Retail order 
flow is submitted through the Retail Liquidity Program as a distinct 
order type called a ``Retail Order,'' which is defined in Rule 
107C(a)(3)--Equities 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''), 
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.\5\ In addition 
to RMOs, Retail Liquidity Providers (``RLPs'') were created as an 
additional class of market participant under the Retail Liquidity 
Program. RLPs are required to provide potential price improvement for 
Retail Orders in the form of ``Retail Price Improvement Orders'' 
(``RPIs''), which are non-displayed interest that is better than the 
best protected bid (``PBB'') or best protected offer (``PBO''), as such 
terms are defined in Regulation NMS Rule 600(b)(57) (together, 
``PBBO'').\6\ Member organizations other than RLPs are also permitted, 
but not required, to submit RPIs.
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    \4\ See Rule 107C--Equities. See also Securities Exchange Act 
Release No. 67347 (July 3, 2012), 77 FR 40673 (July 10, 2012) (SR-
NYSEAmex-2011-84).
    \5\ RMO is defined in Rule 107C(a)(2)--Equities as a member 
organization (or a division thereof) that has been approved by the 
Exchange under Rule 107C--Equities to submit Retail Orders.
    \6\ See 17 CFR 242.600(b)(57). RLP is defined in 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 Rule 107C--Equities. RPI is defined in Rule 
107C(a)(4)--Equities and consists of non-displayed interest in 
Exchange-traded securities that is priced better than the PBBO by at 
least $0.001 and that is identified as such.
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    RLP executions of RPIs against Retail Orders are not currently 
charged or provided with a credit (i.e., they are free) if the RLP 
satisfies the applicable percentage requirement of Rule 107C--Equities. 
The Exchange proposes to instead provide a credit of $0.0003 per share. 
RPIs of an RLP that does not satisfy the applicable percentage 
requirement of Rule 107C--Equities would remain subject to the existing 
fee of $0.0003 per share.
    A fee of $0.0003 per share also currently applies to non-RLP member 
organization executions of RPIs against Retail Orders, unless the non-
RLP member organization executes an average daily volume (``ADV'') 
during the month of at least 10,000 shares of RPIs, in which case no 
charge or credit applies (i.e., the execution is free). The Exchange 
proposes to instead provide a credit of $0.0003 per share to such RPI 
executions if the non-RLP member organization satisfies the 10,000 ADV 
threshold.
    RMOs currently receive a credit of $0.0005 per share for executions 
of Retail Orders if executed against RPIs or MPL Orders.\7\ The 
Exchange proposes to eliminate this credit so that such Retail Order 
executions would be free (i.e., no credit or charge).\8\
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    \7\ Retail Orders are otherwise charged according to standard 
fees applicable to non-Retail Orders if executed against the Book.
    \8\ The Exchange would continue to charge an RMO according to 
standard fee applicable to non-Retail Orders for a Retail Order that 
executes against the Book.
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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.\9\
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    \9\ In the Exhibit 5 for SR-NYSEMKT-2014-43, the Exchange 
inadvertently omitted ellipses immediately above new text in the 
Price List with the heading ``Transaction Fees and Credit For ETPs 
Traded Pursuant to Unlisted Trading Privileges.'' Ellipses would 
have indicated that the Retail Liquidity Program pricing table that 
appeared immediately above that new text was unchanged and part of 
the newly designated section for non-ETPs traded UTP. Due to the 
missing ellipses, the Price List was posted on the Exchange's Web 
site in May 2014 with that particular Retail Liquidity Program 
pricing table removed. The Exchange did not intend this result and 
has billed non-ETPs traded UTP in accordance with that Retail 
Liquidity Program pricing table, which is the same pricing as listed 
and ETP securities. The attached Exhibit 5 corrects the omission and 
reflects that Retail Liquidity Program pricing table for non-ETPs 
traded UTP as existing text.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with

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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 the proposed changes to the rates under 
the Retail Liquidity Program are reasonable. The Exchange originally 
introduced the existing rates approximately two years ago.\12\ At that 
time, the Exchange stated that, because the Retail Liquidity Program 
was a pilot program, the Exchange anticipated that it would 
periodically review applicable pricing to seek to ensure that it 
contributes to the goal of the Retail Liquidity Program, which is 
designed to attract additional retail order flow to the Exchange for 
Exchange-traded securities while also providing the potential for price 
improvement to such order flow. The proposed new rates are a result of 
this review.
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    \12\ See Securities Exchange Act Release No. 67609 (August 7, 
2012), 77 FR 48193 (August 13, 2012) (SR-NYSEMKT-2012-35).
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    The Exchange believes that providing a credit of $0.0003 per share 
for RLP executions of RPIs against Retail Orders if the RLP satisfies 
the applicable percentage requirement of Rule 107C--Equities is 
reasonable because it would further incentivize member organizations to 
become RLPs and therefore could result in greater price improvement for 
Retail Orders. Providing a credit of $0.0003 per share for non-RLP 
member organization executions of RPIs against Retail Orders if the 
non-RLP member organization executes an ADV during the month of at 
least 10,000 shares of RPIs also is reasonable because it would 
incentivize such non-RLPs to submit RPIs for interaction with Retail 
Orders.
    The Retail Order credit was designed to create a financial 
incentive for RMOs to bring additional retail order flow to a public 
market during the initial implementation of the Retail Liquidity 
Program. Despite the elimination of the credit, RMOs, and indirectly 
their customers, would continue to receive significant benefits in the 
form of price improvement by interacting with RPIs. Additionally, 
Retail Order executions are always considered to remove liquidity, 
whether against contra-side interest in the Retail Liquidity Program or 
against the Book.\13\ Orders that remove liquidity are generally 
charged a fee according to the Price List, but Retail Orders would 
continue to be subject to alternative pricing (i.e., no charge rather 
than a fee) that would continue to 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 relying on certain available off-exchange execution methods).
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    \13\ A Retail Order is an Immediate or Cancel Order. See Rule 
107C(a)(3)--Equities. See also Rule 107C(k)--Equities for a 
description of the manner in which a member or member organization 
may designate how a Retail Order will interact with available 
contra-side interest.
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    The Exchange notes that a significant percentage of the orders of 
individual investors are executed over-the-counter.\14\ While the 
Exchange believes that markets and price discovery optimally function 
through the interactions of diverse order flow types, it also believes 
that growth in internalization has required differentiation of retail 
order flow from other order flow types. The proposed new rates would be 
set at levels that would continue to reasonably incentivize RMOs to 
direct Retail Orders to the Exchange and would contribute to robust 
amounts of RPI liquidity submitted by RLPs and non-RLP member 
organizations being available for interaction with the Retail Orders. 
Together, this would increase the pool of robust liquidity available on 
the Exchange, thereby contributing to the quality of the Exchange's 
market and to the Exchange's status as a premier destination for 
liquidity and order execution. The Exchange believes that, because 
Retail Orders are likely to reflect long-term investment intentions, 
they promote price discovery and dampen volatility. Accordingly, the 
presence of Retail Orders on the Exchange has the potential to benefit 
all market participants. For this reason, the Exchange believes that 
the proposed pricing is equitable and not unfairly discriminatory and 
would continue to encourage greater retail participation on the 
Exchange.
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    \14\ See 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 Jo White, Focusing on 
Fundamentals: The Path to Address Equity Market Structure (Speech at 
the Security Traders Association 80th Annual Market Structure 
Conference, Oct. 2, 2013) (available on the Commission's Web site) 
(``White Speech''); 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) (``Schapiro 
Speech''). In her speech, Chair White noted a steadily increasing 
percentage of trading that occurs in ``dark'' venues, which appear 
to execute more than half of the orders of long-term investors. 
Similarly, in her speech, only three years earlier, Chair 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 pricing proposed herein, 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 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 result in better prices for retail investors. 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 
deepening the Exchange's liquidity pool, supporting the quality of 
price discovery, promoting market transparency and improving investor 
protection.
    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,\15\ 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 encourage the submission of additional liquidity to a 
public exchange, thereby promoting price discovery and transparency and 
enhancing order execution opportunities for member organizations. The 
Exchange believes that this could promote competition between the 
Exchange and other execution venues, including those that currently 
offer similar order types and comparable transaction pricing, by 
encouraging additional orders to be sent to the Exchange for execution. 
The Exchange also believes that the proposed rule change is consistent 
with the Act in this

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regard, because it strikes an appropriate balance between fees and 
credits, which will encourage submission of orders to the Exchange, 
thereby promoting competition.
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    \15\ 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) \16\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \17\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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) \18\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \18\ 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-2014-74 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-2014-74. 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-NYSEMKT-2014-74 and should be submitted 
on or before October 6, 2014.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-21865 Filed 9-12-14; 8:45 am]
BILLING CODE 8011-01-P