Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change for a Six-Month Pilot Program To Establish a New Class of NYSE Market Participants That Will Be Referred to as “Supplemental Liquidity Providers” (“SLPs”) and Will Be Designated as Exchange Rule 107B, 65904-65912 [E8-26391]
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 12 and Rule 19b–4(f)(2) 13
thereunder. At any time within 60 days
of the filing of such proposed rule
change, the Commission may summarily
abrogate 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.
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:
hsrobinson on PROD1PC76 with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–ISE–2008–79 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–ISE–2008–79. This file
number should be included on the
subject line if e-mail 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 (https://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 inspection and copying 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 such filing also will be
available for inspection and copying at
the principal office of the ISE. 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–ISE–2008–79 and should be
submitted on or before November 26,
2008.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–26277 Filed 11–4–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58877; File No. SR–NYSE–
2008–108]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change for a SixMonth Pilot Program To Establish a
New Class of NYSE Market
Participants That Will Be Referred to
as ‘‘Supplemental Liquidity Providers’’
(‘‘SLPs’’) and Will Be Designated as
Exchange Rule 107B
October 29, 2008.
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 October
24, 2008, New York Stock Exchange
LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘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
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
12 15
13 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
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comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes a six-month
pilot program (‘‘Pilot’’ or ‘‘program’’) to
establish a new class of NYSE market
participants that will be referred to as
‘‘Supplemental Liquidity Providers’’
(‘‘SLPs’’) and will be designated as
Exchange Rule 107B.
The text of the proposed rule change
is available at NYSE, https://
www.nyse.com, and 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 these 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 aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
With this rule filing, the NYSE is
proposing a six-month pilot program to
establish a new class of market
participants: Supplemental Liquidity
Providers (‘‘SLP’’). SLPs will
supplement the liquidity provided by
Designated Market Makers (‘‘DMMs’’)
when the NYSE ‘‘New Market Model’’ is
approved by the SEC. SLPs may only
enter orders electronically from off the
Floor of the Exchange and may only
enter such orders directly into Exchange
systems and facilities designated for this
purpose. All SLP orders must only be
for the proprietary account of the SLP
member organization. Thus, an SLP will
not handle orders from public
customers or otherwise act on an agency
basis. They will have a 5% average
quoting requirement per assigned
security. Additionally, if an SLP posts
displayed or non-displayed liquidity in
its assigned securities that results in an
execution, the Exchange will pay the
SLP a financial rebate.
By establishing this new class of
market participant, the NYSE is seeking
to provide incentives for quoting and to
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add competition to the existing group of
liquidity providers. By requiring SLPs to
quote at the National Best Bid (‘‘NBB’’)
or the National Best Offer (‘‘NBO’’) a
percentage of the regular trading day in
their assigned securities, and by paying
a rebate when the SLP’s interest results
in an execution, the Exchange is
rewarding aggressive liquidity providers
in the market. The Exchange believes
that this rebate program will encourage
the additional utilization of, and
interaction with, the NYSE and provide
customers with the premier venue for
price discovery, liquidity, competitive
quotes and price improvement.
Responsibilities of the Supplemental
Liquidity Provider
SLP’s 5% Avearge Quoting Requirement
An SLP is required to maintain a bid
or an offer at the NBB or NBO (e.g., the
‘‘inside’’) averaging at least 5% of the
trading day for each assigned security in
round lots in order to maintain its status
as an SLP. If an SLP fails to meet the
quoting requirement for three
consecutive months, the Exchange may
revoke the SLP status pursuant to
Section (i)(1)(C)(iii) of the proposed
Rule.
hsrobinson on PROD1PC76 with NOTICES
SLP’s 3% Average or More Quoting
Requirement for Rebate Purposes
If an SLP posts liquidity in its
assigned securities that results in an
execution, the Exchange will pay the
SLP a financial rebate of $.0015 per
share for such executions provided the
SLP meets its monthly quoting
requirement for rebates averaging at
least 3% at the NBB or the NBO in its
assigned securities in round lots (see
Section (i) (‘‘Non-Regulatory Penalties’’)
and Section (f) (‘‘Calculation of Quoting
Requirements’’) of the proposed Rule).
Meeting the 3% average quoting
requirement for rebates does not satisfy
the 5% average quoting requirement
which SLPs must meet in order to
remain in the SLP program. The rebate
calculation is described in more detail
below.
A member organization that acts as an
SLP is not permitted to act as a
Designated Market Maker (‘‘DMM’’) on
the Floor of the Exchange in the same
security. Thus, a member organization
that acts as a DMM on the Floor may not
also act as an SLP in those securities
registered to the DMM unit.
Like all other member organizations
of the Exchange, an SLP must abide by
NYSE and SEC rules and regulations
and must deal in a manner consistent
with just and equitable principles of
trade. SLPs are subject to regulatory
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oversight by NYSE Regulation and
FINRA.
Assigned Securities
During the proposed SLP Pilot
program, the SLP Liaison Committee, as
defined in Section (d)(1) of the proposed
Rule, will initially assign a cross section
of NYSE-listed securities to each SLP.
The SLP Liaison Committee will
determine which securities will be
assigned to an SLP and the number of
securities assigned to each SLP. The
eligible securities available to be
assigned to SLPs will initially include
five hundred (500) of the most actively
traded NYSE-listed securities.
Depending upon the success of the SLP
program, the Exchange will gradually
add more NYSE-listed securities to the
program, with the intent of including all
NYSE-listed securities to the program.
The Exchange believes that the Pilot
will provide the Exchange with a
unique opportunity to monitor the
success of the SLP incentives by starting
with a smaller cross section of
securities. By doing so, the Exchange
will be better equipped to address actual
and potential administrative and
operational problems without
unnecessary risk to the Exchange and to
its customers. The Pilot will also
provide the Exchange with the
opportunity to identify and address any
such problems and make beneficial
changes to the SLP program before
expanding the program.
In addition to its usefulness to the
Exchange, the Pilot will provide the
SLPs with essential practical experience
with the new program and enable the
SLPs to become proficient in the SLP
role before expanding the assigned
securities to all NYSE-listed securities.
The SLP Liaison Committee, in its
discretion, will assign one or more SLPs
to each security depending upon the
trading activity of the security. The SLP
Liaison Committee will likely assign a
greater number of SLPs to more actively
traded securities.
Qualifications of the Supplemental
Liquidity Provider
A member organization of the
Exchange must have the following
qualifications in order to obtain SLP
status:
(1) Adequate technology to support
electronic trading through the related
systems and facilities of the Exchange
and report qualifying trading activity to
Exchange systems utilizing unique and
separate mnemonics specifically
dedicated to SLP trading activity;
(2) Adequate trading infrastructure to
support SLP trading activity, which
includes support staff to maintain
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operational efficiencies in the SLP
program and adequate administrative
staff to manage the member
organization’s SLP program;
(3) Quoting performance that
demonstrates an ability to meet the 5%
quoting requirement in each assigned
security;
(4) A disciplinary history that is
consistent with just and equitable
business practices; and
(5) The business unit of the member
organization acting as an SLP must have
in place adequate information barriers
between the SLP unit and the member
organization’s customer, research and
investment banking business.
Adequate Technology for Trading and
Reporting: Because the SLP will only be
permitted to trade electronically from
off the Floor of the Exchange, a member
organization’s off-Floor technology must
be fully automated to accommodate the
Exchange’s trading and reporting
systems that are relevant to operating as
an SLP. If a member organization is
unable to support the relevant electronic
trading and reporting systems of the
Exchange for SLP trading activity, it will
not qualify as an SLP.
Adequate Trading Infrastructure:
Upon applying for status as an SLP, a
member organization must have
adequate trading infrastructure, which
includes support staff to maintain
operational efficiencies in the SLP
program and adequate administrative
staff to manage the member
organization’s SLP program.
Disciplinary History: Upon applying
for SLP status, a member organization’s
disciplinary history must reflect
conduct that is consistent with just and
equitable business practices.
Quoting Performance: Upon applying
for SLP status, a member organization’s
ability to meet the 5% quoting
requirement may be demonstrated by
past and or current trading activity. If an
applicant has not demonstrated an
ability to meet the 5% quoting
requirement to the satisfaction of the
SLP Liaison Committee, the applicant
may not qualify as an SLP.
Information Barriers: The business
unit of the SLP that submits orders on
behalf of the member organization must
have in place adequate information
barriers between the SLP unit and the
member organization’s customer,
research and investment banking
business.
SLP Application Process
To become an SLP, a member
organization must submit an SLP
application form with all supporting
documentation to the SLP Liaison
Committee. The SLP Liaison Committee
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hsrobinson on PROD1PC76 with NOTICES
will determine whether an applicant is
qualified to become an SLP based on the
qualifications described in Section (c) of
the proposed Rule (‘‘Qualifications of a
Supplemental Liquidity Provider’’). The
qualifications focus on the adequacy of
the applicant’s trading and reporting
technology and trading infrastructure.
The applicant’s disciplinary history will
be considered as well.
After submission of the SLP
application form and supporting
documentation, the SLP Liaison
Committee will notify the applicant
member organization of its decision. If
an applicant is approved by the SLP
Liaison Committee to receive SLP
status, the applicant must establish
connectivity with relevant Exchange
systems and facilities.
The processing of all applications
may be suspended when the SLP
Liaison Committee has determined that
there is a sufficient number of SLPs
assigned to each eligible security in the
SLP program (see Section (g)(2) of the
proposed Rule).
If an applicant is disapproved or
‘‘disqualified,’’ pursuant to Section (i)(2)
of the proposed Rule, by the SLP
Liaison Committee, such applicant may
request an appeal of such disapproval or
disqualification by the SLP Panel as
provided in Section (j) (‘‘Appeal of NonRegulatory Penalties’’) of this Rule, and/
or reapply for SLP status three (3)
months after the month in which the
applicant received a disapproval or
disqualification notice from the
Exchange (see Section (d)(6) of the
proposed Rule).
Voluntary Withdrawal of SLP Status
An SLP may withdraw from the status
of an SLP at any time by giving notice
to the SLP Liaison Committee, the
Market Surveillance Division of NYSE
Regulation, Inc. and the NYSE
Operations Division (see Section (e)
(‘‘Voluntary Withdrawal of
Supplemental Liquidity Provider
Status’’ of the proposed Rule). However,
withdrawal of SLP status will not
become effective until the withdrawing
SLP’s assigned securities are reassigned
to other SLPs. After the notice of
withdrawal is received by the SLP
Liaison Committee, the Market
Surveillance Division and the NYSE
Operations Division, the SLP Liaison
Committee will reassign said securities
as soon as practicable but no later than
30 days of the date said notice is
received by the SLP Liaison Committee,
4 See
Section (a) of the proposed Rule.
Exchange Strategic Analysis Department
will be responsible for generating SLP performance
data and providing such data to the SLP Liaison
Committee in order to determine which SLPs are
5 The
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the Market Surveillance Division and
the NYSE Operations Division. In the
event the reassignment of securities
takes longer than the 30-day period, the
withdrawing SLP will have no
obligations under this Rule 107B and
will not be held responsible for any
matters concerning its previously
assigned SLP securities upon
termination of the 30-day period.
Quoting Requirements of the
Supplemental Liquidity Provider
In order to maintain SLP status, an
SLP is required to maintain a bid or an
offer at the NBB or NBO on the
Exchange averaging at least 5% of the
trading day in round lots for each
assigned security.4 While the SLP may
provide displayed and non-displayed
liquidity (e.g., reserve and dark orders),
the 5% average quoting requirement can
only be satisfied when an SLP posts
displayed liquidity in its assigned
securities in round lots at the NBB or
the NBO. Thus, non-displayed liquidity
will not be counted as credit towards
the 5% quoting requirement.
Additionally, tick sensitive orders (i.e.,
‘‘Sell Plus,’’ ‘‘Buy Minus’’ (see Rule 13)
and ‘‘Buy Minus Zero Plus’’) will not be
counted as credit towards the 5%
quoting requirement.
In order for an SLP to be entitled to
a rebate, an SLP must post liquidity on
the Exchange that executes against
incoming orders and meet the monthly
minimum quoting requirement for
rebates averaging at least 3% at the NBB
or the NBO in round lots in its assigned
securities (see Section (b) (‘‘Financial
Rebates for Executed Transactions’’) in
the proposed Rule). If the SLP does not
meet a minimum monthly quoting
requirement averaging at least 3%, an
SLP will not be entitled to a rebate on
executed volume in that given month in
that particular affected security (see
Section (i) (‘‘Non-Regulatory Penalties’’)
of the proposed Rule).
The SLP is not subject to any
minimum or maximum quoting size
requirement apart from the requirement
that an order be for at least one round
lot (see Section (f)(2) of the proposed
Rule).
An SLP must use its SLP mnemonic
when trading as an SLP in its assigned
securities in order to obtain credit for
their SLP trading activity (see Section
(f)(2) of the proposed Rule). Quoting and
rebate credit will be measured only by
using the SLP’s unique mnemonics
meeting their quoting requirements and are eligible
for financial rebates.
6 For purposes of Section (f)(1) of the proposed
rule text (Exhibit 5), ‘‘trading day’’ shall mean any
day on which the Exchange is scheduled to be open
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specifically designated for SLP trading
activity.
Calculation of the Quoting
Requirements
The SLP’s quoting requirements will
not be in effect in the first month the
SLP operates as an SLP. The Exchange
will provide the SLP with a one-month
grace period to allow preparation time
for the SLP. Therefore, this quoting
requirement will not take effect until the
second month of an SLP’s operation as
an SLP.
Beginning with the second month an
SLP is operating as an SLP, an SLP must
satisfy the 5% quoting requirement for
each assigned security.5 The SLP
Liaison Committee will determine
whether an SLP has met its quoting
requirement for the trading days 6 in a
calendar month by calculating the
following:
(1) The ‘‘Daily NBB Quoting
Percentage’’ by determining the
percentage of time an SLP has at least
one round lot of displayed interest in an
Exchange bid at the NBB during each
trading day for a calendar month;
(2) The ‘‘Daily NBO Quoting
Percentage’’ by determining the
percentage of time an SLP has at least
one round lot of displayed interest in an
Exchange offer at the NBO during each
trading day for a calendar month;
(3) The ‘‘Average Daily NBBO
Quoting Percentage’’ for each trading
day by summing the ‘‘Daily NBB
Quoting Percentage’’ and the ‘‘Daily
NBO Quoting Percentage’’ in each
assigned security then dividing such
sum by two; and
(4) The ‘‘Monthly Average NBBO
Quoting Percentage’’ for each assigned
security by summing the security’s
‘‘Average Daily NBBO Quoting
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.
Example of Quoting Requirement
Calculation
Below is an example of a quoting
requirement calculation. For purposes
of this example, it is assumed that SLP
No. 1 has two assigned securities, A and
B, and that there were 5 trading days in
the selected calendar month.
The ‘‘Average Daily NBBO Quoting
Percentage’’ for SLP No. 1 is calculated
for each security by summing the daily
NBB and NBO of each security for that
day and dividing that number by two:
for business. Days on which the Exchange closes
prior to 4 p.m. (Eastern Time) for any reason, which
may include any regulatory halt or trading halt,
shall be considered a trading day.
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SECURITY A
Trading
days
T1
T2
T3
T4
T5
NBB
(percent)
......
......
......
......
......
NBO
(percent)
4
3
4
6
5
Calculation of ‘‘Average Daily NBBO Quoting Percentage’’ for SLP No. 1
6
5
4
8
5
4%
3%
4%
6%
5%
+
+
+
+
+
6%
5%
4%
8%
5%
=
=
=
=
=
‘‘Average Daily
NBBO Quoting
Percentage’’
10% divided by 2 = 5% ..................................................................................................
8% divided by 2 = 4% ....................................................................................................
8% divided by 2 = 4% ....................................................................................................
14% divided by 2 = 7% ..................................................................................................
10% divided by 2 = 5% ..................................................................................................
5
4
4
7
5
SECURITY B
Trading
days
T1
T2
T3
T4
T5
NBB
(percent)
......
......
......
......
......
NBO
(percent)
5
4
6
7
9
Calculation of ‘‘Average Daily NBBO Quoting Percentage’’ for SLP No. 1
7
6
8
9
9
5%
4%
6%
7%
9%
+
+
+
+
+
7%
6%
8%
9%
9%
=
=
=
=
=
12%
10%
14%
16%
18%
The ‘‘Monthly Average NBBO
Quoting Percentage’’ for each security is
then calculated by summing the
divided
divided
divided
divided
divided
by
by
by
by
by
2
2
2
2
2
=
=
=
=
=
6%
5%
7%
8%
9%
‘‘Average Daily
NBBO Quoting
Percentage’’
..................................................................................................
..................................................................................................
..................................................................................................
..................................................................................................
..................................................................................................
security’s ‘‘Average Daily NBBO
Quoting Percentages’’ for all five trading
days of the calendar month and then
6
5
7
8
9
dividing the resulting total by the
number of trading days in the calendar
month (in this instance 5).
SECURITY A
‘‘Average Daily NBBO Quoting Percentage’’
Calculation of ‘‘Monthly Average NBBO Quoting Percentage’’ for SLP No. 1
T1
T2
T3
T4
4%
4%
7%
5%
5%+4%+4%+7%+5% = 25% divided by 5 = 5% ..............................................
5%
T5
5%
‘‘Monthly
Average NBBO
Quoting
Percentage’’
SECURITY B
‘‘Average Daily NBBO Quoting Percentage’’
Calculation of ‘‘Monthly Average NBBO Quoting Percentage’’ for SLP No. 1
T1
T2
T3
T4
5%
7%
8%
9%
Financial Rebates for Executed
Transactions
hsrobinson on PROD1PC76 with NOTICES
6%+5%+7%+8%+9% = 35% divided by 5 = 7% ..............................................
7%
T5
6%
‘‘Monthly
Average NBBO
Quoting
Percentage’’
When an SLP posts liquidity,
displayed or non-displayed, on the
Exchange in its SLP assigned securities
and such liquidity executes against an
incoming order, the SLP will receive a
financial rebate for that executed
transaction provided the SLP has met its
rebate quoting requirement averaging at
least 3% at the NBB or the NBO in each
assigned security pursuant to Section
(i)(1)(A) and (B) (‘‘Non-Regulatory
Penalties’’). An SLP will only receive a
rebate when it has met the monthly 3%
or better quoting requirement in its
assigned securities and the SLP’s posted
displayed or non-displayed liquidity
results in an execution.
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SLP Rebate Calculation
The SLP rebate will be $.0015 per
share on executed volume when the SLP
provides liquidity.7 The rebate will be
paid for displayed and non-displayed
orders provided that the SLP meets the
quoting requirement averaging 3% or
more at the NBB or NBO in its assigned
securities for a given month. If an SLP
does not meet the average quoting
requirement described above, such SLP
will not be entitled to a rebate. As
discussed previously, if an SLP does not
meet its quoting requirement averaging
5% at the NBB or the NBO for each
assigned security for 3 consecutive
7 The Exchange will file a separate fee filing with
the SEC pursuant to the provisions of Section 19b–
4 that will outline the SLP rebate program described
above. Thereafter, the calculation and amount of the
SLP rebate ($0.0015 per executed share) will be
published in the NYSE Price List available on the
NYSE Web site.
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months, such SLP may be disqualified
from SLP status. The Exchange will
track the volume and quoting
requirement of SLPs by their designated
SLP mnemonics.
Except for the rebate, all other SLP
fees are the same as existing customer
fees on the Exchange (see the NYSE
Price List for equities on the NYSE Web
site).
SLP Parity With Other Market
Participants Pursuant to Rule 72
Proposed New Market Model
In the New Market Model Exchange
systems will be responsible for share
allocation and thus will create interest
files for each market participant.
Individual Floor brokers and the DMM
registered in the security shall each
constitute single participants. All offFloor orders entered in Exchange
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systems at the Exchange BBO shall
together constitute a single participant
(‘‘Book Participant’’) for the purpose of
share allocation. SLP orders will be in
the ‘‘Book Participant’’ category
pursuant to Rule 72 of the proposed
New Market Model (see Section (f)(4) of
the proposed Rule).
Market Data and Trading Information
Available to the SLP
The universe of trading information
and market data available to the SLP
will include market data published by
the NYSE and all other automated
trading centers (as defined in Rule 600
of Regulation NMS), trading information
published on the Consolidated Tape and
on the NYSE Open Book (‘‘Open
Book’’).8 Thus, the SLP will have the
same published trading information and
market data that all other NYSE
customers have available to them.
Non-Regulatory Penalties
If an SLP fails to meet the 5% average
quoting requirement for any assigned
security, the SLP may be subject to nonregulatory penalties imposed by the SLP
Liaison Committee (see Section (i) of the
proposed Rule). Such non-regulatory
penalties include: (1) Denial of the
financial rebate; (2) removal of one or
more assigned securities from the SLP;
and (3) disqualification. These nonregulatory penalties and the conditions
under which such penalties are imposed
may be appealed by an SLP as provided
in Section (j) (‘‘Appeal of a NonRegulatory Penalty’’) of the proposed
Rule and described in more detail
below.
Penalties for Quoting Less than 5% in
a Given Calendar Month
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In a given calendar month, if an SLP
maintains a quote at the NBB or NBO
averaging 3% of the trading day, but less
than the average of 5% of the trading
day in any assigned security, the SLP
will receive a financial rebate for that
calendar month for executed
transactions in that particular security
as described in Section (b) (‘‘Rebates for
Executed Transactions’’) of the
proposed Rule. Failure to meet the 5%
quoting requirement for each assigned
security in that month will be counted
towards the three-month
disqualification period provided in
paragraph (i)(C) of the proposed Rule.
8 The NYSE Open Book is provided by the NYSE
to vendors and customers in two modes. The first
displays the depth of the market refreshed every
five seconds. The second displays the depth of the
market in real time. NYSE Open Book discloses
limit order interest at the price at the best bid and
offer and at prices below the best bid and above the
best offer.
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In a given calendar month, if an SLP
maintains a quote at the NBB or the
NBO averaging less than 3% of the
regular trading day in an assigned
security, the SLP will not receive the
financial rebate for that month for
transactions executed in that particular
assigned security. The failure to meet
the 5% average quoting requirement for
any assigned security in that month will
also be counted towards the threemonth disqualification period.
If an SLP fails to meet the 5% quoting
requirement for three consecutive
calendar months in any assigned
security, the SLP Liaison Committee
may, in its discretion, take the following
non-regulatory action:
(1) Revoke the assignment of the
affected security(ies);
(2) Revoke the assignment of an
additional, unaffected security from an
SLP; or
(3) Disqualify a member
organization’s status as an SLP.
Disqualification Determinations:
In the second consecutive calendar
month that an SLP fails to meet the 5%
quoting requirement, the SLP Liaison
Committee’s will notify the SLP in
writing that the SLP may be disqualified
if it fails to meet the quoting
requirement the third consecutive
month.9 If the SLP fails to meet the 5%
quoting requirement for a third
consecutive month, the SLP may be
disqualified from SLP status.
When disqualification determinations
are made, the SLP Liaison Committee
will provide a disqualification notice to
the member organization informing the
member organization of its
disqualification as an SLP.
If a member organization is
disqualified from its status as an SLP
pursuant to Section (i)(1)(C)(iii) of the
proposed Rule, the member organization
may appeal the disqualification
pursuant to Section (j) (‘‘Appeal of a
Non-Regulatory Penalties’’) of the
proposed Rule, or re-apply for SLP
status in accordance with Section (d)(6)
(‘‘Re-application for SLP Status’’) of the
proposed Rule. However, the reapplication processes may not begin
until three calendar months after the
month in which the member
organization received its
disqualification notice.
Appeal of Non-Regulatory Penalties
An SLP may request an appeal of the
decision to impose a non-regulatory
penalty as provided in Section (j) of the
9 The SLP Liaison Committee will be responsible
for issuing the letter to an SLP that fails to meet its
quoting requirement for three consecutive months.
It will also be responsible for advising an SLP of
its eligibility or ineligibility to become an SLP.
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proposed Rule. Upon receiving a request
for an appeal, a panel of NYSE
employees referred to as the ‘‘SLP
Panel’’ will review the decision to
impose non-regulatory penalties. The
SLP Panel shall consist of the NYSE’s
Chief Regulatory Officer (‘‘CRO’’), or a
designee of the CRO, and two (2)
officers of the Exchange designated by
the Head of the U.S. Markets Division.
The SLP Panel will review the facts of
the subject non-regulatory penalty and
render a decision as to the correctness
of the decision to impose the penalty.
The SLP Panel may overturn or modify
an action taken by the SLP Liaison
Committee, and all determinations by
the SLP Panel will constitute final
action by the Exchange on the disputed
matter.
Regulatory Oversight of SLPs
Member organizations that act as SLPs
will be subject to regulatory oversight by
NYSE Regulation and FINRA.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Securities Exchange Act of 1934
(the ‘‘Act’’),10 in general, and furthers
the objectives of Section 6(b)(5) of the
Act,11 in particular, in that it is designed
to prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. The Exchange believes
the proposed Rule is consistent with
these principles in that it seeks to
establish a new class of market
participant that will provide additional
liquidity to the market and add
competition to the existing group of
liquidity providers. The NYSE believes
that by requiring an SLP to quote at the
NBB or the NBO a percentage of the
regular trading day in their assigned
securities, and by paying an SLP a
rebate when its posted interest results in
an execution, the Exchange is rewarding
aggressive liquidity providers in the
market, and by doing so, the Exchange
will encourage the additional utilization
of, and interaction with, the NYSE and
provide customers with the premier
venue for price discovery, liquidity,
competitive quotes and price
improvement.
10 15
11 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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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
The proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 12 and Rule 19b–4(f)(6)
thereunder 13 because the foregoing
proposed rule change: (1) Does not
significantly affect the protection of
investors or the public interest; (2) does
not impose any significant burden on
competition; and (3) by its terms, does
not become operative for 30 days after
the date of filing, or such shorter time
as the Commission may designate if
consistent with the protection of
investors and the public interest.
The Exchange states that the
Commission recently issued
interpretative guidance regarding the
rule-filing process (the ‘‘Rule
Streamlining Guidance’’).14 In that
release, the Commission recognized the
need to expedite the rule-making
process for self-regulatory organizations
in order to help the U.S. capital markets
remain competitive both domestically
(with ECNs, ATSs and other lessregulated venues), and internationally:
The national securities exchanges’
need to implement quickly new trading
rules has become increasingly critical,
particularly given the evolving role of
securities exchanges, innovations in
U.S. and cross-border trading, and the
increasingly competitive financial
marketplace.15
The Exchange states that, in
recognition of the highly competitive
environment for national securities
exchanges today, the Commission gave
interpretative guidance on Section
19(b)(3)(A) and Rule 19b–4(f), which
permit SROs to designate proposed rule
changes as ‘‘immediately effective’’
without the formal approval process
provided elsewhere in the Act. In
particular, the Commission
‘‘encourage[d] exchanges to consider
filing a broader range of proposed rules’’
based on the standards outlined in Rule
19b–4(f)(6).16 These standards generally
permit immediate effectiveness for
trading rule changes that meet certain
technical requirements 17 and do not
‘‘significantly affect the protection of
investors or the public interest,’’ or
‘‘impose any significant burden on
competition.’’
The proposed rule meets the
immediate effectiveness criteria in the
Rule Streamlining Guidance because it
is consistent with previously approved
rules for market makers.
As explained more fully in the Rule
Streamlining Guidance, proposed
trading rules can be filed for immediate
effectiveness if each policy issue raised
by the proposed trading rule ‘‘(i) has
previously been considered by the
Commission when the Commission
approved another trading rule (that was
subject to notice and comment)
pursuant to 19(b)(2) of the Exchange
Act, and (ii) the rule change resolves
such policy issue in a manner consistent
with such prior approval.’’ 18
The Exchange believes that the
proposed rule filing meets both the
statutory standards for filings under
Rule 19b–4(f)(6) and the standards set
out in the Rule Streamlining Guidance.
In particular, and as explained more
fully below, the policies raised in this
proposed rule:
(1) Have previously been considered
by the Commission when the
Commission approved other market
maker rules after public notice and
comment under Section 19(b)(2) of the
Exchange Act; and
(2) The rule resolves such policy
issues in a manner that is consistent
with such prior approvals.
According to the Exchange, the
concepts contained in the proposed rule
are not new. Indeed, the Exchange notes
that the Commission has had extensive
opportunities to consider and hear
comment on how market makers should
interact with markets and the
appropriate rewards for those services.19
As a result, the Exchange believes that
16 17
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12 15
U.S.C. 78s(b)(3)(A).
13 17 CFR 240.19b–4(f)(6).
14 See Securities Exchange Commission Release
No. 58092 (July 3, 2008), 73 FR 40144 (July 11,
2008) (‘‘Commission Guidance and Amendment to
the Rule Relating to Organization and Program
Management Concerning Proposed Rule Changes by
Self-Regulatory Organizations’’).
15 Id. at page 12 [sic].
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CFR 240.19b–4(f)(6)(i) and (ii).
must be submitted for pre-clearance at
least five days prior to filing, and must not become
effective, on their terms, until the thirtieth day after
the filing date.
18 Id. at page 14 [sic].
19 Footnote 44 of the Rule Streamlining Guidance
includes cites to several SRO market maker rules
that were filed ‘‘regular way’’ pursuant to Section
19(b)(2) of the Act.
17 Filings
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65909
each policy issue raised by proposed
Rule 107B ‘‘has previously been
considered by the Commission when
the Commission approved another
trading rule (that was subject to notice
and comment) pursuant to 19(b)(2) of
the Exchange Act.’’
While the SLP is not a ‘‘market
maker’’ per se, the Exchange believes
that the proposed SLP rule filing shares
most, if not all, of the same policy issues
previously commented upon and
resolved in some of the market maker
rules referred to in the Rule
Streamlining Guidance at footnote 44
and other rules that were filed ‘‘regular
way,’’ noticed, commented upon and
approved by the SEC.20 The Exchange
believe that, by analogy, the market
maker policy issues are the same or
similar to those of the SLP, but to a
lesser extent. According to the
Exchange, a market maker may have
more obligations and more trading
advantages than an SLP, but the quoting
requirements of a market maker and an
SLP are not materially different. The
same argument may be made for the
rebate. A market maker rebate for
posting liquidity is not materially
different in policy or application than
the SLP rebate. Therefore, the Exchange
contends that the resolution and
approval of market maker policies is
analogous to the resolution of SLP
policies. The policy issues that have
been ‘‘resolved’’ in prior market maker
filings include:
• Application process for market
maker and SLP status; 21
• Market maker qualifications for onFloor or off-Floor electronic trading; 22
• Process for voluntary withdrawal
from the marker maker program; 23
20 The filings referenced herein include some of
those noted by the Commission in footnote 44 of
the Rule Streamlining Guidance, see Securities
Exchange Act Release Nos. 53652 (April 13, 2006),
71 FR 20422 (April 20, 2006) (SR–Amex–2005–100)
and 54580 (October 6, 2006), 71 FR 60781 (October
16, 2006) (SR–ISE–2006–40), as well as other filings
submitted, reviewed and approved by the
Commission pursuant to Section 19b–2, See
Securities Exchange Act Release Nos. 43004 (June
30, 2000), 65 FR 43060 (July 12, 2000) (SR–CBOE–
1998–54), 50003 (July 12, 2004), 69 FR 43028 (July
19, 2004) (SR–CBOE–2004–24) and 53635 (April 12,
2006), 71 FR 20144 (April 19, 2006) (SR–Amex–
2005–75).
21 See AMEX Rules 993 and 994–ANTE
(concerning Supplemental and Remote Registered
Options Traders (‘‘SROTs’’ and ‘‘RROTs’’),
respectively); ISE Rule 902 (concerning Second
Market Competitive Market Makers (‘‘SMCMMs’’));
CBOE Rules 8.83 and 8.92 (concerning Designated
Primary Market Makers (‘‘DPMs’’) and e–DPMs,
respectively).
22 See AMEX Rules 993 and 994–ANTE; ISE Rule
902; CBOE Rules 8.83 and 8.92.
23 See AMEX Rules 993 and 994–ANTE; CBOE
Rule 8.83.
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• Appeal process if disapproved or
disqualified; 24
• Process for allocation of assigned
securities; 25
• Quoting requirement at the NBB or
the NBO a percentage of the trading day
for proprietary accounts; 26
• Creation of information barriers to
prevent prohibited sharing of trading
information; 27
• Imposition of penalties when
quoting requirement is not met; 28 and
• Appeal process when penalties are
imposed.29
The Exchange acknowledges that the
cited market maker rules do not
specifically discuss rebates for
executions of quoted liquidity, which is
offered in the proposed SLP rule.
However, the Exchange argues that
other SRO rule filings relating to pricing
incentive programs for market makers
have been submitted pursuant to
Section 19(b)(3)(a)(f)(2) and received
SEC approval.30
For example, on NYSE Arca, the
exchange pays a rebate to the Lead
Marker Maker (‘‘LMM’’) and customers
for executions on posted liquidity.31
The Exchange itself currently offers
‘‘liquidity provision payments’’ to
specialists, which are similar to rebates,
based on Exchange revenue and the
amount of liquidity posted by each
specialist unit.32 Rebates for liquidity
providers have become a common
industry practice and are utilized by
most, if not all, trading venues
including NASDAQ, BATS, Direct Edge
and others.33
To the extent that an SLP’s quoting
requirement is one of the services also
provided by a market maker, approving
a commensurate rebate for an SLP is
analogous to the rebates previously
approved by the Commission for one
aspect of a market maker’s services.
In view of the analogous precedents
established in the market maker rules,
the Exchange believes that its proposed
24 See
AMEX Rule 993–ANTE.
AMEX Rules 993 and 994–ANTE; CBOE
Rules 8.84 and 8.92.
26 See AMEX Rules 993 and 994–ANTE; ISE Rule
904; CBOE Rules 8.85 and 8.93.
27 See AMEX Rules 993 and 994–ANTE; CBOE
Rules 8.91 and 8.93.
28 See AMEX Rules 993 and 994–ANTE; CBOE
Rules 8.90 and 8.94.
29 See AMEX Rules 993 and 994–ANTE; CBOE
Rules 8.90 and 8.94.
30 See SR–NYSE Arca–2008–36 (approving
Market Maker Post Liquidity Incentive credits) and
SR–NASDAQ–2007–61 (approving incentives for
market makers for ETFs and ILSs).
31 See NYSE Arca Equities Fee Schedule.
32 See SR–NYSE–2007–78.
33 See the following Web sites for price lists:
NASDAQ (https://www.nasdaqtrader.com); BATS
(https://www.batstrading.com); Direct Edge (https://
www.directedge.com).
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25 See
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rule for SLPs presents no novel issues
and that the compensation scheme is
consistent with both industry practice
and prior approval of market maker
rules. Accordingly, the Exchange
believes that immediate effectiveness
would be appropriate under the
Exchange Act, the Exchange Act rules,
and the Rule Streamlining Guidance.
The proposed rule meets the
immediate effectiveness criteria in the
Rule Streamlining Guidance for rules
relating to market participants.
The Exchange believes that the
proposed rule also qualifies for
immediate effectiveness because it is a
trading rule that addresses the
obligations of market participants (e.g.,
SLPs), would have the effect of
strengthening the market, and provides
a reward to SLPs that is not
disproportionate to the services they
provide to the market.
At the outset, the Exchange notes that
in the Rule Streamlining Guidance, the
Commission provided examples of
proposed rule filings that are
‘‘appropriate’’ for immediate
effectiveness in the rule streamlining
publication, and specifically included
proposed rule filings that address
market maker obligations:
The Commission carefully reviews
special advantages provided to market
makers when it considers exchange
trading rule proposals. Market makers
can play an important role in providing
liquidity to the market, and an exchange
can appropriately reward them for that
as well as the services they provide to
the exchange’s market, as long as the
rewards are not disproportionate to the
services provided. For example, a
proposed trading rule change that
strengthens the market while providing
benefits to market makers is eligible for
immediate effectiveness if the benefits
conferred are offset by corresponding
responsibilities to the market that
provide customer trading interest a net
benefit.34
Thus, under Commission precedent, a
rule filing involving incentives for
market makers would be appropriate for
immediate effectiveness if the reward to
market makers is in line with the
services or benefits that the market
maker is providing to the market.
The proposed rebate to SLPs is not
disproportionate to the benefit they
provide.
The Exchange asserts that the
payment of rebates to market makers has
long been considered by the SEC to be
an appropriate incentive for adding
liquidity to the market thereby
34 See Rule Streamlining Guidance, page 16 [sic],
paragraph 2, ‘‘Market Maker Obligations.’’
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improving the market. As noted more
fully above, the SEC has previously
approved the payment of incentives to
market makers on Nasdaq,35 NYSE
Arca,36 Direct Edge 37 and BATS,38
among others. The Exchange also notes
that previous NYSE fee filings for
rebates have been submitted to the SEC
pursuant to Section (f)(2), and have
become immediately effective. For
example, Nasdaq submitted a filing that
became immediately effective upon
filing, which had the same effect as the
NYSE’s proposed SLP filing. In
particular, SR–NASDAQ–2007–61,
which is similar to NYSE Arca’s
Designated Marker Maker filing (see
NYSE Arca Equities Rule 7.24(b) which
refers to DMMs who also act as
LMMs),39 requires the Designated
Liquidity Provider (‘‘DLP’’) to maintain
a ‘‘minimum performance standard’’ in
which the DLP must quote a percentage
of the trading day at the NBB or the
NBO in ETFs and ILSs. If the DLP
quotes a certain percentage of the
trading day, it will receive a 40 cent
rebate for posting liquidity and a 25 cent
fee for taking liquidity. In this fee filing,
NASDAQ indicated that by allocating
pricing benefits to certain market
makers who have ‘‘tangible
commitments to the market,’’ the
program would encourage, among other
things, development of new financial
products. In reviewing Nasdaq’s
proposal, the Exchange believes that the
SEC evaluated the balance struck
between the rewards obtained and
services provided by the various market
makers.
Based on the rationale of previous
rule filings for market maker rebates, the
Exchange contends that the proposed
SLP rebate for executions of posted
liquidity is not ‘‘disproportionate to the
services provided’’ by the SLP. It is
important to note that the SLP rebate 40
is the only benefit the SLP earns when
posted liquidity results in an execution.
As discussed earlier, the SLP rebate will
be $.0015 per share on executed volume
when the SLP posts liquidity to the
market provided that the SLP meets the
quoting requirement averaging at least
3% at the NBB or NBO in its assigned
35 See SR–Nasdaq–2007–61. See also ‘‘https://
www.nasdaqtrader.com.’’
36 See SR–NYSE Arca–2008–36.
37 See Direct Edge Price List at ‘‘https://
www.directedge.com.’’
38 See BATS Price List at ‘‘https://
www.batstrading.com.’’
39 See NYSE Arca Equities Rule 7.24.
40 The SLP rebate calculation will be provided in
a subsequent fee filing by the Exchange, and when
filed with the SEC, the rebate calculation will
appear on the Exchange’s published Price List.
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securities for a given month.41 The
rebate will be paid for displayed and
non-displayed orders. If an SLP does not
meet the average quoting requirement of
at least 3% described above, such SLP
will not be entitled to a rebate. Further,
if an SLP does not meet its monthly
quoting requirement averaging 5% at
the NBB or the NBO for each assigned
security for 3 consecutive months, such
SLP may be disqualified from SLP
status. Except for the rebate, all other
SLP fees are the same as existing
customer fees on the Exchange.
The Exchange notes that the proposed
rebate is commensurate with the
quoting requirements the SLP has for
each assigned security as the SLP has no
informational or trading advantage in
the market. SLPs are basically customers
with quoting requirements that may
receive a financial incentive when
posted SLP liquidity results in an
execution. Under the proposed Rule,
even if an SLP meets its quoting
requirement averaging 3% or more in a
given month, it may not receive a rebate
if the posted liquidity does not result in
an execution. Further, the Exchange
believes that, while it is likely that
when an SLP posts liquidity to the
market the posted liquidity will result
in executions, the SLP will not receive
a rebate for such executions if it does
not meet its average monthly quoting
requirement of at least 3%.
The Exchange believes that the SLP
rebate is commensurate with their
limited role in the market. For example,
NYSE Arca has tiered rebates: the
‘‘Market Maker Post Liquidity Incentive
Credit,’’ which is a fee credit that
applies to Market Makers (‘‘MMs’’) and
LMMs, is substantially higher than
those fee credits available to customers
who have no affirmative obligations.
Additionally, when posting liquidity on
Arca, LMMs are entitled to 40 cents per
100 shares, while customer rebates,
which are tiered, are only 22 cents and
23 cents per 100 shares.
Accordingly, the Exchange submits
that this proposed filing qualifies for
immediate effectiveness pursuant to
Section 19(b)(3)(A) of the Act and Rule
19b–4(f)(6) because the introduction of
SLPs to the Exchange would strengthen
the market while providing benefits to
customers, the SLP’s quoting
requirement will increase liquidity in
the market and enhance trading
opportunities for customers and the
rebate, which is conditioned on
executions of posted liquidity, is
commensurate with the services the SLP
will provide to the market.
41 The Exchange will file a separate fee filing
pursuant to Section 19b–4.
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17:24 Nov 04, 2008
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Additionally, as discussed above, the
Exchange believes that the Commission
has already approved the introduction
of similar classes of market participants
on various exchanges in the past (e.g.,
AMEX, CBOE, ISE, NASDAQ, NYSE
Arca and NYSE) which, while filed
regular way, were ultimately approved
by the Commission. The Exchange
therefore proposes that this rule should
be made immediately effective upon
filing in keeping with the policies and
guidance of the Commission’s rule
streamlining publication.
Based on the foregoing, the Exchange
submits that this proposed filing
qualifies for immediate effectiveness
pursuant to Section 19(b)(3)(A) of the
Act and Rule 19b–4(f)(6) because it is
based on the provisions of similar rule
filings which, while filed regular way,
were ultimately approved by the
Commission. The Exchange proposes
that this rule should be made
immediately effective upon filing in
keeping with the policies and guidance
enumerated in the Commission’s Rule
Streamlining Guidance.
A proposed rule change filed under
Rule 19b–4(f)(6) normally may not
become operative prior to 30 days after
the date of filing.42 However, Rule 19b–
4(f)(6)(iii) permits the Commission to
designate a shorter time if such action
is consistent with the protection of
investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay, as
specified in Rule 19b–4(f)(6)(iii),43
which would make the rule change
effective and operative upon filing. The
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest because waiving the
operative delay would allow SLPs to
immediately add liquidity to the market
and provide trading opportunities that
may benefit all market participants. By
requiring SLPs to quote at the NBB or
the NBO a percentage of the regular
trading day in their assigned securities,
and by paying a rebate when the SLP’s
interest results in an execution, the
Exchange proposes to reward liquidity
providers in the market. Further, the
Commission believes that the proposed
quoting requirement and rebate is
analogous to some of the benefits and
42 17
CFR 240.19b–4(f)(6)(iii). In addition, Rule
19b–4(f)(6)(iii) requires the self-regulatory
organization to give the Commission notice of its
intent to file the proposed rule change, along with
a brief description and text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
NYSE has satisfied this requirement.
43 17 CFR 240.19b–4(f)(6)(iii).
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65911
obligations of Registered Market
Makers 44 and notes that the SLP has no
informational or trading advantage in
the market.
Accordingly, the Commission
designates the proposed rule change
effective and operative upon filing with
the Commission.45
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
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.
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSE–2008–108 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, Station Place, 100 F Street,
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2008–108. This file
number should be included on the
subject line if e-mail 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 (https://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
44 See Securities Exchange Act Release No. 58845
(October 24, 2008) (SR–NYSE–2008–46) (approving
NYSE’s new market model and noting that an
exchange may reward market makers for benefits
they provide to the exchange’s market, but such
rewards must not be disproportionate to the
services provided by the market maker).
45 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition
and capital formation. See 15 U.S.C. 78c(f).
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65912
Federal Register / Vol. 73, No. 215 / Wednesday, November 5, 2008 / Notices
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying 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 such filing also will be
available for inspection and copying at
the principal office of the Exchange. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make publicly available. All
submissions should refer to File
Number SR–NYSE–2008–108 and
should be submitted on or before
November 26, 2008.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.46
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–26391 Filed 11–4–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58878; File No. SR–
NYSEArca–2008–114]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To Revise the Listing and
Annual Fees Applicable to Paired Trust
Shares
October 29, 2008.
hsrobinson on PROD1PC76 with NOTICES
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
22, 2008, NYSE Arca, Inc. (‘‘NYSE
Arca’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by NYSE Arca. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NYSE Arca, through its wholly owned
subsidiary NYSE Arca Equities, Inc.
(‘‘NYSE Arca Equities’’), is proposing to
amend its Schedule of Fees and Charges
(‘‘Fee Schedule’’) to revise the listing
46 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Aug<31>2005
17:24 Nov 04, 2008
Jkt 217001
and annual fees applicable to Paired
Trust Shares listed on NYSE Arca, LLC
(‘‘NYSE Arca Marketplace’’), the
equities facility of NYSE Arca Equities.
The text of the proposed rule change is
available on the Exchange’s Web site at
https://www.nyse.com, at the Exchange’s
principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
NYSE Arca has determined to revise
Exchange listing fees under the
Exchange’s Schedule of Fees and
Charges for Exchange Services (‘‘Fee
Schedule’’) to include Paired Trust
Shares listed under NYSE Arca Equities
Rule 8.400 under the term ‘‘Structured
Products’’ 3 for purposes of the Fee
Schedule, rather than under the term
‘‘Derivative Securities Products,’’ 4
where Paired Trust Shares are currently
included. Therefore, the Exchange
proposes to delete the term ‘‘Paired
Trust Shares’’ from Footnote 3 of the
Fee Schedule and to add such term in
Footnote 4 of the Fee Schedule.
Under the current Fee Schedule, the
Listing Fee for Derivative Securities
Products is $5,000 per issue. The Listing
3 As set forth in footnote 4 of the Fee Schedule,
Structured Products currently are defined as
securities listed under Rule 5.2(j)(1) (Other
Securities); 5.2(j)(2) (Equity Linked Notes); Rule
5.2(j)(4) (Index-Linked Exchangeable Notes); Rule
5.2(j)(6) (Equity Index-Linked Securities,
Commodity-Linked Securities, and CurrencyLinked Securities); and Rule 8.3 (Currency and
Index Warrants).
4 As set forth in footnote 3 of the Fee Schedule,
Derivative Securities Products currently include
securities described in NYSE Arca Equities Rules
5.2(j)(3) (Investment Company Units); 8.100
(Portfolio Depositary Receipts); 8.200 (Trust Issued
Receipts), 8.201 (Commodity-Based Trust Shares);
8.202 (Currency Trust Shares); 8.203 (Commodity
Index Trust Shares); 8.204 (Commodity Futures
Trust Shares); 8.300 (Partnership Units); 8.400
(Paired Trust Shares); 8.500 (Trust Units); and 8.600
(Managed Fund Shares).
PO 00000
Frm 00093
Fmt 4703
Sfmt 4703
Fee for Structured Products is based on
the number of shares outstanding, and
ranges from $5,000 to $45,000 per issue.
The Annual Fee for Derivative
Securities Products is based on the
number of shares outstanding per issue,
and ranges from $2,000 to $25,000. The
Annual Fee for Structured Products also
is based on the number of shares
outstanding per issue, and ranges from
$10,000 to $55,000.
The Exchange believes Paired Trust
Shares 5 are appropriately categorized as
Structured Products for purposes of the
Fee Schedule. The trusts issuing such
securities, like issuers of other
categories of Structured Products and
unlike issuers of Derivative Securities
Products, do not hold underlying
securities, commodities, futures or other
financial instruments (other than U.S.
Treasuries, and repurchase agreements
on U.S. Treasuries to secure specified
obligations).
In addition, the Exchange proposes to
amend punctuation in Footnote 4 of the
Fee Schedule and to amend Footnote 4
to add Fixed Income Index-Linked
Securities, Futures-Linked Securities
and Multifactor Index-Linked Securities
to the securities covered by Rule
5.2(j)(6). Following Commission
approval of the most recent amendment
to Footnote 4 to the Fee Schedule,6 Rule
5.2(j)(6) was amended to include these
securities.7 The Exchange, therefore,
proposes to update Footnote 4 to reflect
that such securities are covered by Rule
5.2(j)(6).
2. Statutory Basis
NYSE Arca believes that the proposal
is consistent with Section 6(b) 8 of the
5 Paired Trust Shares currently traded on the
Exchange pursuant to Rule 8.400 include shares of
the MacroShares Oil Trusts, which are traded on
the Exchange pursuant to unlisted trading
privileges. See Securities Exchange Act Release No.
58058 (June 30, 2008), 73 FR 38484 (July 7, 2008)
(SR–NYSEArca–2008–65). The Commission has
approved MacroShares Medical Inflation Trusts for
listing on the Exchange pursuant to Rule 8.400. See
Securities Exchange Act Release No. 58312 (August
5, 2008), 73 FR 46689 (August 11, 2008) (SR–
NYSEArca–2008–63). In addition, the Commission
has approved MacroShares Major Metro Housing
Trusts for listing on the Exchange pursuant to Rule
8.400. See Securities Exchange Act Release No.
58704 (October 1, 2008), 73 FR 59026 (October 8,
2008) (SR–NYSEArca–2008–92). However, no issue
of Paired Trust Shares is currently listed on the
Exchange.
6 See Securities Exchange Act Release No. 56975
(December 17, 2007), 72 FR 73393 (December 27,
2007) (SR–NYSEArca–2007–87) (order approving
amendments to Fee Schedule relating to Structured
Products).
7 See Securities Exchange Act Release No. 57701
(April 23, 2008), 73 FR 23281 (April 29, 2008) (SR–
NYSEArca–2008–20) (order approving amendments
to Rule 5.2(j)(6) relating to Fixed Income IndexLinked Securities, Futures-Linked Securities and
Multifactor Index-Linked Securities).
8 15 U.S.C. 78f(b).
E:\FR\FM\05NON1.SGM
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]]>Agencies
[Federal Register Volume 73, Number 215 (Wednesday, November 5, 2008)]
[Notices]
[Pages 65904-65912]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-26391]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58877; File No. SR-NYSE-2008-108]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
for a Six-Month Pilot Program To Establish a New Class of NYSE Market
Participants That Will Be Referred to as ``Supplemental Liquidity
Providers'' (``SLPs'') and Will Be Designated as Exchange Rule 107B
October 29, 2008.
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 October 24, 2008, New York Stock Exchange LLC (``NYSE''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``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 change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes a six-month pilot program (``Pilot'' or
``program'') to establish a new class of NYSE market participants that
will be referred to as ``Supplemental Liquidity Providers'' (``SLPs'')
and will be designated as Exchange Rule 107B.
The text of the proposed rule change is available at NYSE, https://
www.nyse.com, and 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 these 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 aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
With this rule filing, the NYSE is proposing a six-month pilot
program to establish a new class of market participants: Supplemental
Liquidity Providers (``SLP''). SLPs will supplement the liquidity
provided by Designated Market Makers (``DMMs'') when the NYSE ``New
Market Model'' is approved by the SEC. SLPs may only enter orders
electronically from off the Floor of the Exchange and may only enter
such orders directly into Exchange systems and facilities designated
for this purpose. All SLP orders must only be for the proprietary
account of the SLP member organization. Thus, an SLP will not handle
orders from public customers or otherwise act on an agency basis. They
will have a 5% average quoting requirement per assigned security.
Additionally, if an SLP posts displayed or non-displayed liquidity in
its assigned securities that results in an execution, the Exchange will
pay the SLP a financial rebate.
By establishing this new class of market participant, the NYSE is
seeking to provide incentives for quoting and to
[[Page 65905]]
add competition to the existing group of liquidity providers. By
requiring SLPs to quote at the National Best Bid (``NBB'') or the
National Best Offer (``NBO'') a percentage of the regular trading day
in their assigned securities, and by paying a rebate when the SLP's
interest results in an execution, the Exchange is rewarding aggressive
liquidity providers in the market. The Exchange believes that this
rebate program will encourage the additional utilization of, and
interaction with, the NYSE and provide customers with the premier venue
for price discovery, liquidity, competitive quotes and price
improvement.
Responsibilities of the Supplemental Liquidity Provider
SLP's 5% Avearge Quoting Requirement
An SLP is required to maintain a bid or an offer at the NBB or NBO
(e.g., the ``inside'') averaging at least 5% of the trading day for
each assigned security in round lots in order to maintain its status as
an SLP. If an SLP fails to meet the quoting requirement for three
consecutive months, the Exchange may revoke the SLP status pursuant to
Section (i)(1)(C)(iii) of the proposed Rule.
SLP's 3% Average or More Quoting Requirement for Rebate Purposes
If an SLP posts liquidity in its assigned securities that results
in an execution, the Exchange will pay the SLP a financial rebate of
$.0015 per share for such executions provided the SLP meets its monthly
quoting requirement for rebates averaging at least 3% at the NBB or the
NBO in its assigned securities in round lots (see Section (i) (``Non-
Regulatory Penalties'') and Section (f) (``Calculation of Quoting
Requirements'') of the proposed Rule). Meeting the 3% average quoting
requirement for rebates does not satisfy the 5% average quoting
requirement which SLPs must meet in order to remain in the SLP program.
The rebate calculation is described in more detail below.
A member organization that acts as an SLP is not permitted to act
as a Designated Market Maker (``DMM'') on the Floor of the Exchange in
the same security. Thus, a member organization that acts as a DMM on
the Floor may not also act as an SLP in those securities registered to
the DMM unit.
Like all other member organizations of the Exchange, an SLP must
abide by NYSE and SEC rules and regulations and must deal in a manner
consistent with just and equitable principles of trade. SLPs are
subject to regulatory oversight by NYSE Regulation and FINRA.
Assigned Securities
During the proposed SLP Pilot program, the SLP Liaison Committee,
as defined in Section (d)(1) of the proposed Rule, will initially
assign a cross section of NYSE-listed securities to each SLP. The SLP
Liaison Committee will determine which securities will be assigned to
an SLP and the number of securities assigned to each SLP. The eligible
securities available to be assigned to SLPs will initially include five
hundred (500) of the most actively traded NYSE-listed securities.
Depending upon the success of the SLP program, the Exchange will
gradually add more NYSE-listed securities to the program, with the
intent of including all NYSE-listed securities to the program.
The Exchange believes that the Pilot will provide the Exchange with
a unique opportunity to monitor the success of the SLP incentives by
starting with a smaller cross section of securities. By doing so, the
Exchange will be better equipped to address actual and potential
administrative and operational problems without unnecessary risk to the
Exchange and to its customers. The Pilot will also provide the Exchange
with the opportunity to identify and address any such problems and make
beneficial changes to the SLP program before expanding the program.
In addition to its usefulness to the Exchange, the Pilot will
provide the SLPs with essential practical experience with the new
program and enable the SLPs to become proficient in the SLP role before
expanding the assigned securities to all NYSE-listed securities.
The SLP Liaison Committee, in its discretion, will assign one or
more SLPs to each security depending upon the trading activity of the
security. The SLP Liaison Committee will likely assign a greater number
of SLPs to more actively traded securities.
Qualifications of the Supplemental Liquidity Provider
A member organization of the Exchange must have the following
qualifications in order to obtain SLP status:
(1) Adequate technology to support electronic trading through the
related systems and facilities of the Exchange and report qualifying
trading activity to Exchange systems utilizing unique and separate
mnemonics specifically dedicated to SLP trading activity;
(2) Adequate trading infrastructure to support SLP trading
activity, which includes support staff to maintain operational
efficiencies in the SLP program and adequate administrative staff to
manage the member organization's SLP program;
(3) Quoting performance that demonstrates an ability to meet the 5%
quoting requirement in each assigned security;
(4) A disciplinary history that is consistent with just and
equitable business practices; and
(5) The business unit of the member organization acting as an SLP
must have in place adequate information barriers between the SLP unit
and the member organization's customer, research and investment banking
business.
Adequate Technology for Trading and Reporting: Because the SLP will
only be permitted to trade electronically from off the Floor of the
Exchange, a member organization's off-Floor technology must be fully
automated to accommodate the Exchange's trading and reporting systems
that are relevant to operating as an SLP. If a member organization is
unable to support the relevant electronic trading and reporting systems
of the Exchange for SLP trading activity, it will not qualify as an
SLP.
Adequate Trading Infrastructure: Upon applying for status as an
SLP, a member organization must have adequate trading infrastructure,
which includes support staff to maintain operational efficiencies in
the SLP program and adequate administrative staff to manage the member
organization's SLP program.
Disciplinary History: Upon applying for SLP status, a member
organization's disciplinary history must reflect conduct that is
consistent with just and equitable business practices.
Quoting Performance: Upon applying for SLP status, a member
organization's ability to meet the 5% quoting requirement may be
demonstrated by past and or current trading activity. If an applicant
has not demonstrated an ability to meet the 5% quoting requirement to
the satisfaction of the SLP Liaison Committee, the applicant may not
qualify as an SLP.
Information Barriers: The business unit of the SLP that submits
orders on behalf of the member organization must have in place adequate
information barriers between the SLP unit and the member organization's
customer, research and investment banking business.
SLP Application Process
To become an SLP, a member organization must submit an SLP
application form with all supporting documentation to the SLP Liaison
Committee. The SLP Liaison Committee
[[Page 65906]]
will determine whether an applicant is qualified to become an SLP based
on the qualifications described in Section (c) of the proposed Rule
(``Qualifications of a Supplemental Liquidity Provider''). The
qualifications focus on the adequacy of the applicant's trading and
reporting technology and trading infrastructure. The applicant's
disciplinary history will be considered as well.
After submission of the SLP application form and supporting
documentation, the SLP Liaison Committee will notify the applicant
member organization of its decision. If an applicant is approved by the
SLP Liaison Committee to receive SLP status, the applicant must
establish connectivity with relevant Exchange systems and facilities.
The processing of all applications may be suspended when the SLP
Liaison Committee has determined that there is a sufficient number of
SLPs assigned to each eligible security in the SLP program (see Section
(g)(2) of the proposed Rule).
If an applicant is disapproved or ``disqualified,'' pursuant to
Section (i)(2) of the proposed Rule, by the SLP Liaison Committee, such
applicant may request an appeal of such disapproval or disqualification
by the SLP Panel as provided in Section (j) (``Appeal of Non-Regulatory
Penalties'') of this Rule, and/or reapply for SLP status three (3)
months after the month in which the applicant received a disapproval or
disqualification notice from the Exchange (see Section (d)(6) of the
proposed Rule).
Voluntary Withdrawal of SLP Status
An SLP may withdraw from the status of an SLP at any time by giving
notice to the SLP Liaison Committee, the Market Surveillance Division
of NYSE Regulation, Inc. and the NYSE Operations Division (see Section
(e) (``Voluntary Withdrawal of Supplemental Liquidity Provider Status''
of the proposed Rule). However, withdrawal of SLP status will not
become effective until the withdrawing SLP's assigned securities are
reassigned to other SLPs. After the notice of withdrawal is received by
the SLP Liaison Committee, the Market Surveillance Division and the
NYSE Operations Division, the SLP Liaison Committee will reassign said
securities as soon as practicable but no later than 30 days of the date
said notice is received by the SLP Liaison Committee, the Market
Surveillance Division and the NYSE Operations Division. In the event
the reassignment of securities takes longer than the 30-day period, the
withdrawing SLP will have no obligations under this Rule 107B and will
not be held responsible for any matters concerning its previously
assigned SLP securities upon termination of the 30-day period.
Quoting Requirements of the Supplemental Liquidity Provider
In order to maintain SLP status, an SLP is required to maintain a
bid or an offer at the NBB or NBO on the Exchange averaging at least 5%
of the trading day in round lots for each assigned security.\4\ While
the SLP may provide displayed and non-displayed liquidity (e.g.,
reserve and dark orders), the 5% average quoting requirement can only
be satisfied when an SLP posts displayed liquidity in its assigned
securities in round lots at the NBB or the NBO. Thus, non-displayed
liquidity will not be counted as credit towards the 5% quoting
requirement. Additionally, tick sensitive orders (i.e., ``Sell Plus,''
``Buy Minus'' (see Rule 13) and ``Buy Minus Zero Plus'') will not be
counted as credit towards the 5% quoting requirement.
---------------------------------------------------------------------------
\4\ See Section (a) of the proposed Rule.
---------------------------------------------------------------------------
In order for an SLP to be entitled to a rebate, an SLP must post
liquidity on the Exchange that executes against incoming orders and
meet the monthly minimum quoting requirement for rebates averaging at
least 3% at the NBB or the NBO in round lots in its assigned securities
(see Section (b) (``Financial Rebates for Executed Transactions'') in
the proposed Rule). If the SLP does not meet a minimum monthly quoting
requirement averaging at least 3%, an SLP will not be entitled to a
rebate on executed volume in that given month in that particular
affected security (see Section (i) (``Non-Regulatory Penalties'') of
the proposed Rule).
The SLP is not subject to any minimum or maximum quoting size
requirement apart from the requirement that an order be for at least
one round lot (see Section (f)(2) of the proposed Rule).
An SLP must use its SLP mnemonic when trading as an SLP in its
assigned securities in order to obtain credit for their SLP trading
activity (see Section (f)(2) of the proposed Rule). Quoting and rebate
credit will be measured only by using the SLP's unique mnemonics
specifically designated for SLP trading activity.
Calculation of the Quoting Requirements
The SLP's quoting requirements will not be in effect in the first
month the SLP operates as an SLP. The Exchange will provide the SLP
with a one-month grace period to allow preparation time for the SLP.
Therefore, this quoting requirement will not take effect until the
second month of an SLP's operation as an SLP.
Beginning with the second month an SLP is operating as an SLP, an
SLP must satisfy the 5% quoting requirement for each assigned
security.\5\ The SLP Liaison Committee will determine whether an SLP
has met its quoting requirement for the trading days \6\ in a calendar
month by calculating the following:
---------------------------------------------------------------------------
\5\ The Exchange Strategic Analysis Department will be
responsible for generating SLP performance data and providing such
data to the SLP Liaison Committee in order to determine which SLPs
are meeting their quoting requirements and are eligible for
financial rebates.
\6\ For purposes of Section (f)(1) of the proposed rule text
(Exhibit 5), ``trading day'' shall mean any day on which the
Exchange is scheduled to be open for business. Days on which the
Exchange closes prior to 4 p.m. (Eastern Time) for any reason, which
may include any regulatory halt or trading halt, shall be considered
a trading day.
---------------------------------------------------------------------------
(1) The ``Daily NBB Quoting Percentage'' by determining the
percentage of time an SLP has at least one round lot of displayed
interest in an Exchange bid at the NBB during each trading day for a
calendar month;
(2) The ``Daily NBO Quoting Percentage'' by determining the
percentage of time an SLP has at least one round lot of displayed
interest in an Exchange offer at the NBO during each trading day for a
calendar month;
(3) The ``Average Daily NBBO Quoting Percentage'' for each trading
day by summing the ``Daily NBB Quoting Percentage'' and the ``Daily NBO
Quoting Percentage'' in each assigned security then dividing such sum
by two; and
(4) The ``Monthly Average NBBO Quoting Percentage'' for each
assigned security by summing the security's ``Average Daily NBBO
Quoting 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.
Example of Quoting Requirement Calculation
Below is an example of a quoting requirement calculation. For
purposes of this example, it is assumed that SLP No. 1 has two assigned
securities, A and B, and that there were 5 trading days in the selected
calendar month.
The ``Average Daily NBBO Quoting Percentage'' for SLP No. 1 is
calculated for each security by summing the daily NBB and NBO of each
security for that day and dividing that number by two:
[[Page 65907]]
Security A
------------------------------------------------------------------------
Calculation of
Trading NBB NBO ``Average Daily NBBO ``Average Daily
days (percent) (percent) Quoting Percentage'' NBBO Quoting
for SLP No. 1 Percentage''
------------------------------------------------------------------------
T1........ 4 6 4% + 6% = 10% divided 5
by 2 = 5%.
T2........ 3 5 3% + 5% = 8% divided 4
by 2 = 4%.
T3........ 4 4 4% + 4% = 8% divided 4
by 2 = 4%.
T4........ 6 8 6% + 8% = 14% divided 7
by 2 = 7%.
T5........ 5 5 5% + 5% = 10% divided 5
by 2 = 5%.
------------------------------------------------------------------------
Security B
------------------------------------------------------------------------
Calculation of
Trading NBB NBO ``Average Daily NBBO ``Average Daily
days (percent) (percent) Quoting Percentage'' NBBO Quoting
for SLP No. 1 Percentage''
------------------------------------------------------------------------
T1........ 5 7 5% + 7% = 12% divided 6
by 2 = 6%.
T2........ 4 6 4% + 6% = 10% divided 5
by 2 = 5%.
T3........ 6 8 6% + 8% = 14% divided 7
by 2 = 7%.
T4........ 7 9 7% + 9% = 16% divided 8
by 2 = 8%.
T5........ 9 9 9% + 9% = 18% divided 9
by 2 = 9%.
------------------------------------------------------------------------
The ``Monthly Average NBBO Quoting Percentage'' for each security
is then calculated by summing the security's ``Average Daily NBBO
Quoting Percentages'' for all five trading days of the calendar month
and then dividing the resulting total by the number of trading days in
the calendar month (in this instance 5).
Security A
----------------------------------------------------------------------------------------------------------------
``Average Daily NBBO Quoting Percentage'' ``Monthly
------------------------------------------------- Calculation of ``Monthly Average NBBO Average NBBO
Quoting Percentage'' for SLP No. 1 Quoting
T1 T2 T3 T4 T5 Percentage''
----------------------------------------------------------------------------------------------------------------
5% 4% 4% 7% 5% 5%+4%+4%+7%+5% = 25% divided by 5 = 5%...... 5%
----------------------------------------------------------------------------------------------------------------
Security B
----------------------------------------------------------------------------------------------------------------
``Average Daily NBBO Quoting Percentage'' ``Monthly
------------------------------------------------- Calculation of ``Monthly Average NBBO Average NBBO
Quoting Percentage'' for SLP No. 1 Quoting
T1 T2 T3 T4 T5 Percentage''
----------------------------------------------------------------------------------------------------------------
6% 5% 7% 8% 9% 6%+5%+7%+8%+9% = 35% divided by 5 = 7%...... 7%
----------------------------------------------------------------------------------------------------------------
Financial Rebates for Executed Transactions
When an SLP posts liquidity, displayed or non-displayed, on the
Exchange in its SLP assigned securities and such liquidity executes
against an incoming order, the SLP will receive a financial rebate for
that executed transaction provided the SLP has met its rebate quoting
requirement averaging at least 3% at the NBB or the NBO in each
assigned security pursuant to Section (i)(1)(A) and (B) (``Non-
Regulatory Penalties''). An SLP will only receive a rebate when it has
met the monthly 3% or better quoting requirement in its assigned
securities and the SLP's posted displayed or non-displayed liquidity
results in an execution.
SLP Rebate Calculation
The SLP rebate will be $.0015 per share on executed volume when the
SLP provides liquidity.\7\ The rebate will be paid for displayed and
non-displayed orders provided that the SLP meets the quoting
requirement averaging 3% or more at the NBB or NBO in its assigned
securities for a given month. If an SLP does not meet the average
quoting requirement described above, such SLP will not be entitled to a
rebate. As discussed previously, if an SLP does not meet its quoting
requirement averaging 5% at the NBB or the NBO for each assigned
security for 3 consecutive months, such SLP may be disqualified from
SLP status. The Exchange will track the volume and quoting requirement
of SLPs by their designated SLP mnemonics.
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\7\ The Exchange will file a separate fee filing with the SEC
pursuant to the provisions of Section 19b-4 that will outline the
SLP rebate program described above. Thereafter, the calculation and
amount of the SLP rebate ($0.0015 per executed share) will be
published in the NYSE Price List available on the NYSE Web site.
---------------------------------------------------------------------------
Except for the rebate, all other SLP fees are the same as existing
customer fees on the Exchange (see the NYSE Price List for equities on
the NYSE Web site).
SLP Parity With Other Market Participants Pursuant to Rule 72
Proposed New Market Model
In the New Market Model Exchange systems will be responsible for
share allocation and thus will create interest files for each market
participant. Individual Floor brokers and the DMM registered in the
security shall each constitute single participants. All off-Floor
orders entered in Exchange
[[Page 65908]]
systems at the Exchange BBO shall together constitute a single
participant (``Book Participant'') for the purpose of share allocation.
SLP orders will be in the ``Book Participant'' category pursuant to
Rule 72 of the proposed New Market Model (see Section (f)(4) of the
proposed Rule).
Market Data and Trading Information Available to the SLP
The universe of trading information and market data available to
the SLP will include market data published by the NYSE and all other
automated trading centers (as defined in Rule 600 of Regulation NMS),
trading information published on the Consolidated Tape and on the NYSE
Open Book[supreg] (``Open Book'').\8\ Thus, the SLP will have the same
published trading information and market data that all other NYSE
customers have available to them.
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\8\ The NYSE Open Book is provided by the NYSE to vendors and
customers in two modes. The first displays the depth of the market
refreshed every five seconds. The second displays the depth of the
market in real time. NYSE Open Book discloses limit order interest
at the price at the best bid and offer and at prices below the best
bid and above the best offer.
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Non-Regulatory Penalties
If an SLP fails to meet the 5% average quoting requirement for any
assigned security, the SLP may be subject to non-regulatory penalties
imposed by the SLP Liaison Committee (see Section (i) of the proposed
Rule). Such non-regulatory penalties include: (1) Denial of the
financial rebate; (2) removal of one or more assigned securities from
the SLP; and (3) disqualification. These non-regulatory penalties and
the conditions under which such penalties are imposed may be appealed
by an SLP as provided in Section (j) (``Appeal of a Non-Regulatory
Penalty'') of the proposed Rule and described in more detail below.
Penalties for Quoting Less than 5% in a Given Calendar Month
In a given calendar month, if an SLP maintains a quote at the NBB
or NBO averaging 3% of the trading day, but less than the average of 5%
of the trading day in any assigned security, the SLP will receive a
financial rebate for that calendar month for executed transactions in
that particular security as described in Section (b) (``Rebates for
Executed Transactions'') of the proposed Rule. Failure to meet the 5%
quoting requirement for each assigned security in that month will be
counted towards the three-month disqualification period provided in
paragraph (i)(C) of the proposed Rule.
In a given calendar month, if an SLP maintains a quote at the NBB
or the NBO averaging less than 3% of the regular trading day in an
assigned security, the SLP will not receive the financial rebate for
that month for transactions executed in that particular assigned
security. The failure to meet the 5% average quoting requirement for
any assigned security in that month will also be counted towards the
three-month disqualification period.
If an SLP fails to meet the 5% quoting requirement for three
consecutive calendar months in any assigned security, the SLP Liaison
Committee may, in its discretion, take the following non-regulatory
action:
(1) Revoke the assignment of the affected security(ies);
(2) Revoke the assignment of an additional, unaffected security
from an SLP; or
(3) Disqualify a member organization's status as an SLP.
Disqualification Determinations:
In the second consecutive calendar month that an SLP fails to meet
the 5% quoting requirement, the SLP Liaison Committee's will notify the
SLP in writing that the SLP may be disqualified if it fails to meet the
quoting requirement the third consecutive month.\9\ If the SLP fails to
meet the 5% quoting requirement for a third consecutive month, the SLP
may be disqualified from SLP status.
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\9\ The SLP Liaison Committee will be responsible for issuing
the letter to an SLP that fails to meet its quoting requirement for
three consecutive months. It will also be responsible for advising
an SLP of its eligibility or ineligibility to become an SLP.
---------------------------------------------------------------------------
When disqualification determinations are made, the SLP Liaison
Committee will provide a disqualification notice to the member
organization informing the member organization of its disqualification
as an SLP.
If a member organization is disqualified from its status as an SLP
pursuant to Section (i)(1)(C)(iii) of the proposed Rule, the member
organization may appeal the disqualification pursuant to Section (j)
(``Appeal of a Non-Regulatory Penalties'') of the proposed Rule, or re-
apply for SLP status in accordance with Section (d)(6) (``Re-
application for SLP Status'') of the proposed Rule. However, the re-
application processes may not begin until three calendar months after
the month in which the member organization received its
disqualification notice.
Appeal of Non-Regulatory Penalties
An SLP may request an appeal of the decision to impose a non-
regulatory penalty as provided in Section (j) of the proposed Rule.
Upon receiving a request for an appeal, a panel of NYSE employees
referred to as the ``SLP Panel'' will review the decision to impose
non-regulatory penalties. The SLP Panel shall consist of the NYSE's
Chief Regulatory Officer (``CRO''), or a designee of the CRO, and two
(2) officers of the Exchange designated by the Head of the U.S. Markets
Division.
The SLP Panel will review the facts of the subject non-regulatory
penalty and render a decision as to the correctness of the decision to
impose the penalty. The SLP Panel may overturn or modify an action
taken by the SLP Liaison Committee, and all determinations by the SLP
Panel will constitute final action by the Exchange on the disputed
matter.
Regulatory Oversight of SLPs
Member organizations that act as SLPs will be subject to regulatory
oversight by NYSE Regulation and FINRA.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\10\ in
general, and furthers the objectives of Section 6(b)(5) of the Act,\11\
in particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest. The Exchange
believes the proposed Rule is consistent with these principles in that
it seeks to establish a new class of market participant that will
provide additional liquidity to the market and add competition to the
existing group of liquidity providers. The NYSE believes that by
requiring an SLP to quote at the NBB or the NBO a percentage of the
regular trading day in their assigned securities, and by paying an SLP
a rebate when its posted interest results in an execution, the Exchange
is rewarding aggressive liquidity providers in the market, and by doing
so, the Exchange will encourage the additional utilization of, and
interaction with, the NYSE and provide customers with the premier venue
for price discovery, liquidity, competitive quotes and price
improvement.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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[[Page 65909]]
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
The proposed rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) thereunder \13\
because the foregoing proposed rule change: (1) Does not significantly
affect the protection of investors or the public interest; (2) does not
impose any significant burden on competition; and (3) by its terms,
does not become operative for 30 days after the date of filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
The Exchange states that the Commission recently issued
interpretative guidance regarding the rule-filing process (the ``Rule
Streamlining Guidance'').\14\ In that release, the Commission
recognized the need to expedite the rule-making process for self-
regulatory organizations in order to help the U.S. capital markets
remain competitive both domestically (with ECNs, ATSs and other less-
regulated venues), and internationally:
---------------------------------------------------------------------------
\14\ See Securities Exchange Commission Release No. 58092 (July
3, 2008), 73 FR 40144 (July 11, 2008) (``Commission Guidance and
Amendment to the Rule Relating to Organization and Program
Management Concerning Proposed Rule Changes by Self-Regulatory
Organizations'').
---------------------------------------------------------------------------
The national securities exchanges' need to implement quickly new
trading rules has become increasingly critical, particularly given the
evolving role of securities exchanges, innovations in U.S. and cross-
border trading, and the increasingly competitive financial
marketplace.\15\
---------------------------------------------------------------------------
\15\ Id. at page 12 [sic].
---------------------------------------------------------------------------
The Exchange states that, in recognition of the highly competitive
environment for national securities exchanges today, the Commission
gave interpretative guidance on Section 19(b)(3)(A) and Rule 19b-4(f),
which permit SROs to designate proposed rule changes as ``immediately
effective'' without the formal approval process provided elsewhere in
the Act. In particular, the Commission ``encourage[d] exchanges to
consider filing a broader range of proposed rules'' based on the
standards outlined in Rule 19b-4(f)(6).\16\ These standards generally
permit immediate effectiveness for trading rule changes that meet
certain technical requirements \17\ and do not ``significantly affect
the protection of investors or the public interest,'' or ``impose any
significant burden on competition.''
---------------------------------------------------------------------------
\16\ 17 CFR 240.19b-4(f)(6)(i) and (ii).
\17\ Filings must be submitted for pre-clearance at least five
days prior to filing, and must not become effective, on their terms,
until the thirtieth day after the filing date.
---------------------------------------------------------------------------
The proposed rule meets the immediate effectiveness criteria in the
Rule Streamlining Guidance because it is consistent with previously
approved rules for market makers.
As explained more fully in the Rule Streamlining Guidance, proposed
trading rules can be filed for immediate effectiveness if each policy
issue raised by the proposed trading rule ``(i) has previously been
considered by the Commission when the Commission approved another
trading rule (that was subject to notice and comment) pursuant to
19(b)(2) of the Exchange Act, and (ii) the rule change resolves such
policy issue in a manner consistent with such prior approval.'' \18\
---------------------------------------------------------------------------
\18\ Id. at page 14 [sic].
---------------------------------------------------------------------------
The Exchange believes that the proposed rule filing meets both the
statutory standards for filings under Rule 19b-4(f)(6) and the
standards set out in the Rule Streamlining Guidance. In particular, and
as explained more fully below, the policies raised in this proposed
rule:
(1) Have previously been considered by the Commission when the
Commission approved other market maker rules after public notice and
comment under Section 19(b)(2) of the Exchange Act; and
(2) The rule resolves such policy issues in a manner that is
consistent with such prior approvals.
According to the Exchange, the concepts contained in the proposed
rule are not new. Indeed, the Exchange notes that the Commission has
had extensive opportunities to consider and hear comment on how market
makers should interact with markets and the appropriate rewards for
those services.\19\ As a result, the Exchange believes that each policy
issue raised by proposed Rule 107B ``has previously been considered by
the Commission when the Commission approved another trading rule (that
was subject to notice and comment) pursuant to 19(b)(2) of the Exchange
Act.''
---------------------------------------------------------------------------
\19\ Footnote 44 of the Rule Streamlining Guidance includes
cites to several SRO market maker rules that were filed ``regular
way'' pursuant to Section 19(b)(2) of the Act.
---------------------------------------------------------------------------
While the SLP is not a ``market maker'' per se, the Exchange
believes that the proposed SLP rule filing shares most, if not all, of
the same policy issues previously commented upon and resolved in some
of the market maker rules referred to in the Rule Streamlining Guidance
at footnote 44 and other rules that were filed ``regular way,''
noticed, commented upon and approved by the SEC.\20\ The Exchange
believe that, by analogy, the market maker policy issues are the same
or similar to those of the SLP, but to a lesser extent. According to
the Exchange, a market maker may have more obligations and more trading
advantages than an SLP, but the quoting requirements of a market maker
and an SLP are not materially different. The same argument may be made
for the rebate. A market maker rebate for posting liquidity is not
materially different in policy or application than the SLP rebate.
Therefore, the Exchange contends that the resolution and approval of
market maker policies is analogous to the resolution of SLP policies.
The policy issues that have been ``resolved'' in prior market maker
filings include:
---------------------------------------------------------------------------
\20\ The filings referenced herein include some of those noted
by the Commission in footnote 44 of the Rule Streamlining Guidance,
see Securities Exchange Act Release Nos. 53652 (April 13, 2006), 71
FR 20422 (April 20, 2006) (SR-Amex-2005-100) and 54580 (October 6,
2006), 71 FR 60781 (October 16, 2006) (SR-ISE-2006-40), as well as
other filings submitted, reviewed and approved by the Commission
pursuant to Section 19b-2, See Securities Exchange Act Release Nos.
43004 (June 30, 2000), 65 FR 43060 (July 12, 2000) (SR-CBOE-1998-
54), 50003 (July 12, 2004), 69 FR 43028 (July 19, 2004) (SR-CBOE-
2004-24) and 53635 (April 12, 2006), 71 FR 20144 (April 19, 2006)
(SR-Amex-2005-75).
---------------------------------------------------------------------------
Application process for market maker and SLP status; \21\
---------------------------------------------------------------------------
\21\ See AMEX Rules 993 and 994-ANTE (concerning Supplemental
and Remote Registered Options Traders (``SROTs'' and ``RROTs''),
respectively); ISE Rule 902 (concerning Second Market Competitive
Market Makers (``SMCMMs'')); CBOE Rules 8.83 and 8.92 (concerning
Designated Primary Market Makers (``DPMs'') and e-DPMs,
respectively).
---------------------------------------------------------------------------
Market maker qualifications for on-Floor or off-Floor
electronic trading; \22\
---------------------------------------------------------------------------
\22\ See AMEX Rules 993 and 994-ANTE; ISE Rule 902; CBOE Rules
8.83 and 8.92.
---------------------------------------------------------------------------
Process for voluntary withdrawal from the marker maker
program; \23\
---------------------------------------------------------------------------
\23\ See AMEX Rules 993 and 994-ANTE; CBOE Rule 8.83.
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[[Page 65910]]
Appeal process if disapproved or disqualified; \24\
---------------------------------------------------------------------------
\24\ See AMEX Rule 993-ANTE.
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Process for allocation of assigned securities; \25\
---------------------------------------------------------------------------
\25\ See AMEX Rules 993 and 994-ANTE; CBOE Rules 8.84 and 8.92.
---------------------------------------------------------------------------
Quoting requirement at the NBB or the NBO a percentage of
the trading day for proprietary accounts; \26\
---------------------------------------------------------------------------
\26\ See AMEX Rules 993 and 994-ANTE; ISE Rule 904; CBOE Rules
8.85 and 8.93.
---------------------------------------------------------------------------
Creation of information barriers to prevent prohibited
sharing of trading information; \27\
---------------------------------------------------------------------------
\27\ See AMEX Rules 993 and 994-ANTE; CBOE Rules 8.91 and 8.93.
---------------------------------------------------------------------------
Imposition of penalties when quoting requirement is not
met; \28\ and
---------------------------------------------------------------------------
\28\ See AMEX Rules 993 and 994-ANTE; CBOE Rules 8.90 and 8.94.
---------------------------------------------------------------------------
Appeal process when penalties are imposed.\29\
---------------------------------------------------------------------------
\29\ See AMEX Rules 993 and 994-ANTE; CBOE Rules 8.90 and 8.94.
---------------------------------------------------------------------------
The Exchange acknowledges that the cited market maker rules do not
specifically discuss rebates for executions of quoted liquidity, which
is offered in the proposed SLP rule. However, the Exchange argues that
other SRO rule filings relating to pricing incentive programs for
market makers have been submitted pursuant to Section 19(b)(3)(a)(f)(2)
and received SEC approval.\30\
---------------------------------------------------------------------------
\30\ See SR-NYSE Arca-2008-36 (approving Market Maker Post
Liquidity Incentive credits) and SR-NASDAQ-2007-61 (approving
incentives for market makers for ETFs and ILSs).
---------------------------------------------------------------------------
For example, on NYSE Arca, the exchange pays a rebate to the Lead
Marker Maker (``LMM'') and customers for executions on posted
liquidity.\31\ The Exchange itself currently offers ``liquidity
provision payments'' to specialists, which are similar to rebates,
based on Exchange revenue and the amount of liquidity posted by each
specialist unit.\32\ Rebates for liquidity providers have become a
common industry practice and are utilized by most, if not all, trading
venues including NASDAQ, BATS, Direct Edge and others.\33\
---------------------------------------------------------------------------
\31\ See NYSE Arca Equities Fee Schedule.
\32\ See SR-NYSE-2007-78.
\33\ See the following Web sites for price lists: NASDAQ (http:/
/www.nasdaqtrader.com); BATS (https://www.batstrading.com); Direct
Edge (https://www.directedge.com).
---------------------------------------------------------------------------
To the extent that an SLP's quoting requirement is one of the
services also provided by a market maker, approving a commensurate
rebate for an SLP is analogous to the rebates previously approved by
the Commission for one aspect of a market maker's services.
In view of the analogous precedents established in the market maker
rules, the Exchange believes that its proposed rule for SLPs presents
no novel issues and that the compensation scheme is consistent with
both industry practice and prior approval of market maker rules.
Accordingly, the Exchange believes that immediate effectiveness would
be appropriate under the Exchange Act, the Exchange Act rules, and the
Rule Streamlining Guidance.
The proposed rule meets the immediate effectiveness criteria in the
Rule Streamlining Guidance for rules relating to market participants.
The Exchange believes that the proposed rule also qualifies for
immediate effectiveness because it is a trading rule that addresses the
obligations of market participants (e.g., SLPs), would have the effect
of strengthening the market, and provides a reward to SLPs that is not
disproportionate to the services they provide to the market.
At the outset, the Exchange notes that in the Rule Streamlining
Guidance, the Commission provided examples of proposed rule filings
that are ``appropriate'' for immediate effectiveness in the rule
streamlining publication, and specifically included proposed rule
filings that address market maker obligations:
The Commission carefully reviews special advantages provided to
market makers when it considers exchange trading rule proposals. Market
makers can play an important role in providing liquidity to the market,
and an exchange can appropriately reward them for that as well as the
services they provide to the exchange's market, as long as the rewards
are not disproportionate to the services provided. For example, a
proposed trading rule change that strengthens the market while
providing benefits to market makers is eligible for immediate
effectiveness if the benefits conferred are offset by corresponding
responsibilities to the market that provide customer trading interest a
net benefit.\34\
---------------------------------------------------------------------------
\34\ See Rule Streamlining Guidance, page 16 [sic], paragraph 2,
``Market Maker Obligations.''
---------------------------------------------------------------------------
Thus, under Commission precedent, a rule filing involving
incentives for market makers would be appropriate for immediate
effectiveness if the reward to market makers is in line with the
services or benefits that the market maker is providing to the market.
The proposed rebate to SLPs is not disproportionate to the benefit
they provide.
The Exchange asserts that the payment of rebates to market makers
has long been considered by the SEC to be an appropriate incentive for
adding liquidity to the market thereby improving the market. As noted
more fully above, the SEC has previously approved the payment of
incentives to market makers on Nasdaq,\35\ NYSE Arca,\36\ Direct Edge
\37\ and BATS,\38\ among others. The Exchange also notes that previous
NYSE fee filings for rebates have been submitted to the SEC pursuant to
Section (f)(2), and have become immediately effective. For example,
Nasdaq submitted a filing that became immediately effective upon
filing, which had the same effect as the NYSE's proposed SLP filing. In
particular, SR-NASDAQ-2007-61, which is similar to NYSE Arca's
Designated Marker Maker filing (see NYSE Arca Equities Rule 7.24(b)
which refers to DMMs who also act as LMMs),\39\ requires the Designated
Liquidity Provider (``DLP'') to maintain a ``minimum performance
standard'' in which the DLP must quote a percentage of the trading day
at the NBB or the NBO in ETFs and ILSs. If the DLP quotes a certain
percentage of the trading day, it will receive a 40 cent rebate for
posting liquidity and a 25 cent fee for taking liquidity. In this fee
filing, NASDAQ indicated that by allocating pricing benefits to certain
market makers who have ``tangible commitments to the market,'' the
program would encourage, among other things, development of new
financial products. In reviewing Nasdaq's proposal, the Exchange
believes that the SEC evaluated the balance struck between the rewards
obtained and services provided by the various market makers.
---------------------------------------------------------------------------
\35\ See SR-Nasdaq-2007-61. See also ``https://
www.nasdaqtrader.com.''
\36\ See SR-NYSE Arca-2008-36.
\37\ See Direct Edge Price List at ``https://
www.directedge.com.''
\38\ See BATS Price List at ``https://www.batstrading.com.''
\39\ See NYSE Arca Equities Rule 7.24.
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Based on the rationale of previous rule filings for market maker
rebates, the Exchange contends that the proposed SLP rebate for
executions of posted liquidity is not ``disproportionate to the
services provided'' by the SLP. It is important to note that the SLP
rebate \40\ is the only benefit the SLP earns when posted liquidity
results in an execution. As discussed earlier, the SLP rebate will be
$.0015 per share on executed volume when the SLP posts liquidity to the
market provided that the SLP meets the quoting requirement averaging at
least 3% at the NBB or NBO in its assigned
[[Page 65911]]
securities for a given month.\41\ The rebate will be paid for displayed
and non-displayed orders. If an SLP does not meet the average quoting
requirement of at least 3% described above, such SLP will not be
entitled to a rebate. Further, if an SLP does not meet its monthly
quoting requirement averaging 5% at the NBB or the NBO for each
assigned security for 3 consecutive months, such SLP may be
disqualified from SLP status. Except for the rebate, all other SLP fees
are the same as existing customer fees on the Exchange.
---------------------------------------------------------------------------
\40\ The SLP rebate calculation will be provided in a subsequent
fee filing by the Exchange, and when filed with the SEC, the rebate
calculation will appear on the Exchange's published Price List.
\41\ The Exchange will file a separate fee filing pursuant to
Section 19b-4.
---------------------------------------------------------------------------
The Exchange notes that the proposed rebate is commensurate with
the quoting requirements the SLP has for each assigned security as the
SLP has no informational or trading advantage in the market. SLPs are
basically customers with quoting requirements that may receive a
financial incentive when posted SLP liquidity results in an execution.
Under the proposed Rule, even if an SLP meets its quoting requirement
averaging 3% or more in a given month, it may not receive a rebate if
the posted liquidity does not result in an execution. Further, the
Exchange believes that, while it is likely that when an SLP posts
liquidity to the market the posted liquidity will result in executions,
the SLP will not receive a rebate for such executions if it does not
meet its average monthly quoting requirement of at least 3%.
The Exchange believes that the SLP rebate is commensurate with
their limited role in the market. For example, NYSE Arca has tiered
rebates: the ``Market Maker Post Liquidity Incentive Credit,'' which is
a fee credit that applies to Market Makers (``MMs'') and LMMs, is
substantially higher than those fee credits available to customers who
have no affirmative obligations. Additionally, when posting liquidity
on Arca, LMMs are entitled to 40 cents per 100 shares, while customer
rebates, which are tiered, are only 22 cents and 23 cents per 100
shares.
Accordingly, the Exchange submits that this proposed filing
qualifies for immediate effectiveness pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b-4(f)(6) because the introduction of SLPs to the
Exchange would strengthen the market while providing benefits to
customers, the SLP's quoting requirement will increase liquidity in the
market and enhance trading opportunities for customers and the rebate,
which is conditioned on executions of posted liquidity, is commensurate
with the services the SLP will provide to the market. Additionally, as
discussed above, the Exchange believes that the Commission has already
approved the introduction of similar classes of market participants on
various exchanges in the past (e.g., AMEX, CBOE, ISE, NASDAQ, NYSE Arca
and NYSE) which, while filed regular way, were ultimately approved by
the Commission. The Exchange therefore proposes that this rule should
be made immediately effective upon filing in keeping with the policies
and guidance of the Commission's rule streamlining publication.
Based on the foregoing, the Exchange submits that this proposed
filing qualifies for immediate effectiveness pursuant to Section
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) because it is based on the
provisions of similar rule filings which, while filed regular way, were
ultimately approved by the Commission. The Exchange proposes that this
rule should be made immediately effective upon filing in keeping with
the policies and guidance enumerated in the Commission's Rule
Streamlining Guidance.
A proposed rule change filed under Rule 19b-4(f)(6) normally may
not become operative prior to 30 days after the date of filing.\42\
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a
shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has asked the
Commission to waive the 30-day operative delay, as specified in Rule
19b-4(f)(6)(iii),\43\ which would make the rule change effective and
operative upon filing. The Commission believes that waiving the 30-day
operative delay is consistent with the protection of investors and the
public interest because waiving the operative delay would allow SLPs to
immediately add liquidity to the market and provide trading
opportunities that may benefit all market participants. By requiring
SLPs to quote at the NBB or the NBO a percentage of the regular trading
day in their assigned securities, and by paying a rebate when the SLP's
interest results in an execution, the Exchange proposes to reward
liquidity providers in the market. Further, the Commission believes
that the proposed quoting requirement and rebate is analogous to some
of the benefits and obligations of Registered Market Makers \44\ and
notes that the SLP has no informational or trading advantage in the
market.
---------------------------------------------------------------------------
\42\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the self-regulatory organization to give the
Commission notice of its intent to file the proposed rule change,
along with a brief description and text of the proposed rule change,
at least five business days prior to the date of filing of the
proposed rule change, or such shorter time as designated by the
Commission. NYSE has satisfied this requirement.
\43\ 17 CFR 240.19b-4(f)(6)(iii).
\44\ See Securities Exchange Act Release No. 58845 (October 24,
2008) (SR-NYSE-2008-46) (approving NYSE's new market model and
noting that an exchange may reward market makers for benefits they
provide to the exchange's market, but such rewards must not be
disproportionate to the services provided by the market maker).
---------------------------------------------------------------------------
Accordingly, the Commission designates the proposed rule change
effective and operative upon filing with the Commission.\45\
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\45\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate 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.
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 (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSE-2008-108 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, Station Place, 100 F Street, NE., Washington,
DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2008-108. This file
number should be included on the subject line if e-mail 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 (https://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
[[Page 65912]]
those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying 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 such filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make publicly available. All
submissions should refer to File Number SR-NYSE-2008-108 and should be
submitted on or before November 26, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
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\46\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-26391 Filed 11-4-08; 8:45 am]
BILLING CODE 8011-01-P
