Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Its Price List To Introduce a New Credit for Certain Retail Providing Liquidity on the Exchange, 19947-19950 [2014-08058]

Download as PDF Federal Register / Vol. 79, No. 69 / Thursday, April 10, 2014 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–07993 Filed 4–9–14; 8:45 am] BILLING CODE 8011–01–P A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71879; File No. SR–NYSE– 2014–15] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Its Price List To Introduce a New Credit for Certain Retail Providing Liquidity on the Exchange April 4, 2014. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on March 24, 2014, New York Stock Exchange LLC (‘‘NYSE’’ 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 the selfregulatory organization. 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 The Exchange proposes to amend its Price List to introduce a new credit for certain retail providing liquidity on the Exchange. The Exchange proposes to implement the fee change effective April 1, 2014. The text of the proposed rule change is available on the Exchange’s Web site at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. sroberts on DSK5SPTVN1PROD with NOTICES II. Self-Regulatory Organization’s Statement of the Purpose of, and the 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 16 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 VerDate Mar<15>2010 18:14 Apr 09, 2014 Jkt 232001 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. 1. Purpose The Exchange proposes to amend its Price List to introduce a new credit for certain retail providing liquidity on the Exchange.4 The Exchange proposes to implement the fee change effective April 1, 2014. The Exchange currently operates the Retail Liquidity Program as a pilot program that is designed to attract additional retail order flow to the Exchange for NYSE-listed securities while also providing the potential for price improvement to such order flow.5 Retail order flow is submitted through the Retail Liquidity Program as a distinct order type called a ‘‘Retail Order,’’ which is defined in Rule 107C(a)(3) as an agency order or a riskless principal order that meets the criteria of Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) Rule 5320.03 that originates from a natural person and is submitted to the Exchange by a Retail Member Organization (‘‘RMO’’), provided that no change is made to the terms of the order with respect to price or side of market and the order does not originate from a trading algorithm or any other computerized methodology.6 An execution of a Retail Order is always considered to remove liquidity, whether against contra-side interest in the Retail Liquidity Program or against the Book.7 As described in the Price List, executions of Retail Orders receive a credit of $0.0005 per share if executed against Retail Price Improvement Orders (‘‘RPIs’’) or Mid-Point Passive Liquidity (‘‘MPL’’) Orders and are otherwise charged according to standard fees 4 The proposed pricing would only apply to securities priced $1.00 or greater. 5 See Rule 107C. See also Securities Exchange Act Release No. 67347 (July 3, 2012), 77 FR 40673 (July 10, 2012) (SR–NYSE–2011–55). 6 RMO is defined in Rule 107C(a)(2) as a member organization (or a division thereof) that has been approved by the Exchange under Rule 107C to submit Retail Orders. 7 A Retail Order is an Immediate or Cancel Order. See Rule 107C(a)(3). See also Rule 107C(k) for a description of the manner in which a member or member organization may designate how a Retail Order will interact with available contra-side interest. PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 19947 applicable to non-Retail Orders if executed against the Book.8 The Exchange proposes to introduce a new credit of $0.0030 per share for executions of orders designated as ‘‘retail’’ that provide liquidity on the Book.9 An order properly designated as ‘‘retail’’ would be required to satisfy the requirements of Rule 107C(a)(3), but would not be submitted as a Retail Order within the Retail Liquidity Program and therefore would not need to be submitted by an RMO.10 Designation of an order as ‘‘retail’’ for purposes of the proposed new credit would be separate and distinct from submission of a Retail Order for purposes of the Retail Liquidity Program, despite the characteristics being identical (i.e., they must each satisfy the requirements in Rule 107C(a)(3)). The Exchange proposes to permit members and member organizations to designate orders as ‘‘retail’’ for the purposes of the proposed $0.0030 credit either (1) by means of a specific tag in the order entry message or (2) by designating a particular member or member organization mnemonic used at the Exchange as a ‘‘retail mnemonic.’’ A member or member organization would be required to attest, in a form and/or manner prescribed by the Exchange, that substantially all orders submitted to the Exchange satisfy the requirements of Rule 107C(a)(3).11 8 RPI is defined in Rule 107C(a)(4) and consists of non-displayed interest in NYSE-listed securities that is priced better than the best protected bid (‘‘PBB’’) or best protected offer (‘‘PBO’’), as such terms are defined in Regulation NMS Rule 600(b)(57), by at least $0.001 and that is identified as such. MPL Order is defined in Rule 13 as an undisplayed limit order that automatically executes at the mid-point of the protected best bid or offer (‘‘PBBO’’). 9 The existing rates in the Price List would apply to executions of MPL Orders (e.g., $0.0015 per share). Similarly, the existing rates in the Price List would apply to executions of Non-Displayed Reserve Orders (e.g., $0.0010 per share). A Supplemental Liquidity Provider (‘‘SLP’’) market maker (‘‘SLMM’’) could designate orders as ‘‘retail’’ and be eligible for the proposed new credit. Orders designated as ‘‘retail’’ that provide liquidity would count toward a member’s or member organization’s overall level of providing volume for purposes of other pricing on the Exchange that is based on such levels (e.g., the Tier 1, Tier 2 and Tier 3 Adding Credits). 10 The RMO aspect of Rule 107C(a)(3) would not be considered when determining whether an order designated as ‘‘retail’’ satisfies the requirements thereunder. 11 This would be similar to the process under the Retail Liquidity Program, whereby an RMO must attest, in a form prescribed by the Exchange, that substantially all orders submitted as Retail Orders will qualify as such under Rule 107C. See Rule 107C(b)(C). This would also be similar to the manner in which an Exchange Trading Permit (‘‘ETP’’) Holder on NYSE Arca Equities, Inc. (‘‘NYSE Arca Equities’’) may designate orders as E:\FR\FM\10APN1.SGM Continued 10APN1 19948 Federal Register / Vol. 79, No. 69 / Thursday, April 10, 2014 / Notices sroberts on DSK5SPTVN1PROD with NOTICES A member or member organization would be required to have written policies and procedures reasonably designed to assure that it will only designate orders as ‘‘retail’’ if all the requirements of Rule 107C(a)(3) are met. Such written policies and procedures must require the member or member organization to (1) exercise due diligence before entering orders designated as ‘‘retail’’ to assure that such entry is in compliance with the requirements specified by the Exchange, and (2) monitor whether orders designated as ‘‘retail’’ meet the applicable requirements. If the member or member organization represents orders designated as ‘‘retail’’ from another broker-dealer customer of the member or member organization, the member’s or member organization’s supervisory procedures must be reasonably designed to assure that the orders it receives from such brokerdealer customer that it designates as ‘‘retail’’ meet the requirements of Rule 107C(a)(3). The member or member organization must (1) obtain an annual written representation, in a form acceptable to the Exchange, from each broker-dealer customer that sends it orders to be designated as ‘‘retail’’ that entry of such orders designated as ‘‘retail’’ will be in compliance with the requirements specified by the Exchange, and (2) monitor whether its brokerdealer customer’s orders designated as ‘‘retail’’ meet the applicable requirements.12 Designating orders as ‘‘retail’’ would be optional. Accordingly, a member or member organization that chooses not to designate orders as ‘‘retail’’ would therefore either (1) not use the applicable tag in the order entry message or (2) not designate any of its mnemonics as ‘‘retail mnemonics.’’ The Exchange further proposes that it may disqualify a member or member organization from eligibility for the proposed new $0.0030 credit if the Exchange determines, in its sole discretion, that a member or member organization has failed to abide by any of the requirements proposed herein, including, for example, if a member or member organization (1) designates greater than a de minimis quantity of orders to the Exchange as ‘‘retail’’ that ‘‘retail’’ outside of the NYSE Arca Equities Retail Liquidity Program. See, e.g., Securities Exchange Act Release No. 68322 (November 29, 2012), 77 FR 72425 (December 5, 2012) (SR–NYSEArca–2012– 129). 12 FINRA, on behalf of the Exchange, would review member and member organization compliance with these requirements through an exam-based review of the member’s or member organization’s internal controls. VerDate Mar<15>2010 18:14 Apr 09, 2014 Jkt 232001 fail to meet any of the applicable requirements, (2) fails to make the required attestation to the Exchange, or (3) fails to maintain the required policies and procedures. The proposed change is not otherwise intended to address any other issues, and the Exchange is not aware of any problems that members and member organizations would have in complying with the proposed change. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,13 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,14 in particular, because it provides for the equitable allocation of reasonable dues, fees, and other charges among its members, issuers and other persons using its facilities and does not unfairly discriminate between customers, issuers, brokers or dealers. The Exchange notes that a significant percentage of the orders of individual investors are executed over-thecounter.15 While the Exchange believes that markets and price discovery optimally function through the interactions of diverse flow types, it also believes that growth in internalization has required differentiation of retail order flow from other order flow types. In this regard, the Exchange believes that the proposed change is reasonable because it would contribute to maintaining or increasing the proportion of retail flow in exchangelisted securities that are executed on a registered national securities exchange (rather than relying on certain available off-exchange execution methods). The proposed change is also equitable and not unfairly discriminatory because it 13 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 15 See Concept Release on Equity Market Structure, Securities Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594 (January 21, 2010) (‘‘Concept Release’’) (noting that dark pools and internalizing broker-dealers executed approximately 25.4% of share volume in September 2009). See also Mary Jo White, Focusing on Fundamentals: The Path to Address Equity Market Structure (Speech at the Security Traders Association 80th Annual Market Structure Conference, Oct. 2, 2013) (available on the Commission’s Web site) (‘‘White Speech’’); Mary L. Schapiro, Strengthening Our Equity Market Structure (Speech at the Economic Club of New York, Sept. 7, 2010) (available on the Commission’s Web site) (‘‘Schapiro Speech’’). In her speech, Chair White noted a steadily increasing percentage of trading that occurs in ‘‘dark’’ venues, which appear to execute more than half of the orders of long-term investors. Similarly, in her speech, only three years earlier, Chair Schapiro noted that nearly 30 percent of volume in U.S.-listed equities was executed in venues that do not display their liquidity or make it generally available to the public and the percentage was increasing nearly every month. 14 15 PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 would contribute to investors’ confidence in the fairness of their transactions and because it would benefit all investors by deepening the Exchange’s liquidity pool, supporting the quality of price discovery, promoting market transparency and improving investor protection. The Exchange also believes that providing a credit for executions of orders that provide liquidity on the Book and that are designated as ‘‘retail’’ is reasonable because it would create an added financial incentive for members and member organizations to bring additional retail flow to a public market. The proposed new credit is also reasonable because it would reduce the costs of members and member organizations that represent retail flow and potentially also reduce costs to their customers. The proposed change is also reasonable because it would be similar to the manner in which The Nasdaq Stock Market, LLC (‘‘NASDAQ’’) provides a $0.0033 credit for ‘‘Designated Retail Orders’’ that provide liquidity.16 Absent this proposal, for example, a credit of $0.0022, $0.0020 or $0.0017 (or $0.0010 if a Non-Displayed Reserve Order) would apply to the retail providing liquidity that this proposal targets for a member or member organization that qualifies for the Tier 1, Tier 2 or Tier 3 Adding Credits, respectively.17 A credit of $0.0015 per share (or $0.0010 per share if a NonDisplayed Reserve Order) would otherwise apply to the retail providing liquidity. The Exchange believes that providing a credit of $0.0030 per share for executions of orders that provide liquidity on the Book and that are designated as ‘‘retail’’ is reasonable because it is set at a level that would reasonably incentivize members and member organizations to qualify for eligibility to designate orders as ‘‘retail’’ (e.g., attestations and procedures) as well as to actually direct such retail flow to the Exchange. Such orders designated as ‘‘retail’’ would increase the pool of robust liquidity available on the Exchange, thereby contributing to the quality of the Exchange’s market and to the Exchange’s status as a premier destination for liquidity and order execution. The Exchange believes that, because retail flow is likely to reflect long-term investment intentions, it promotes price discovery and dampens volatility. Accordingly, the presence of retail flow on the Exchange has the potential to benefit all market 16 See 17 The NASDAQ Rule 7018. Price List also provides for credits for SLPs. E:\FR\FM\10APN1.SGM 10APN1 sroberts on DSK5SPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 69 / Thursday, April 10, 2014 / Notices participants. For this reason, the Exchange believes that it is equitable and not unfairly discriminatory to provide a financial incentive to encourage greater retail participation on the Exchange. The Exchange believes that the process for designating orders as ‘‘retail’’ and the requirements surrounding such designations, such as attestations and procedures, are reasonable because they would reasonably ensure that substantially all of those orders would satisfy the applicable requirements of Rule 107C(a)(3) and therefore be eligible for the corresponding credit of $0.0030 per share. These processes and requirements are also reasonable because they are substantially similar to those in effect on the Exchange for the Retail Liquidity Program and on NYSE Arca Equities related to pricing for certain retail flow.18 More specifically, the Exchange understands that some members and member organizations represent both retail flow as well as other agency and riskless principal flow that may not meet the strict requirements of Rule 107C(a)(3). The Exchange further understands that limitations in order management systems and routing networks used by such members and member organizations may make it infeasible for them to isolate 100% of retail flow from other agency or riskless principal, nonretail flow that they would direct to the Exchange. Unable to make the categorical attestation required by the Exchange, some members and member organizations may not attempt to qualify for the proposed new $0.0030 credit, notwithstanding that they have substantial retail flow. The Exchange believes that it is reasonable to permit a de minimis amount of orders to be designated as ‘‘retail,’’ despite not satisfying the requirements of Rule 107C(a)(3), because it would allow for enough flexibility to accommodate member and member organization system limitations while still reasonably ensuring that no more than a de minimis amount of orders submitted to the Exchange would not satisfy the requirements of Rule 107C(a)(3). This is also equitable and not unfairly discriminatory because it will reasonably ensure that similarly situated members and member organizations that have only slight differences in the capability of their systems would be able to equally benefit from the proposed pricing for orders designated as ‘‘retail.’’ 18 See supra note 11. VerDate Mar<15>2010 18:14 Apr 09, 2014 Jkt 232001 The pricing proposed herein is equitable and is not designed to permit unfair discrimination, but instead to promote a competitive process around retail executions such that retail investors’ orders would be subject to greater transparency. As previously recognized by the Securities and Exchange Commission (‘‘Commission’’), ‘‘markets generally distinguish between individual retail investors, whose orders are considered desirable by liquidity providers because such retail investors are presumed on average to be less informed about short-term price movements, and professional traders, whose orders are presumed on average to be more informed.’’ 19 The Exchange has sought to balance this view in setting the pricing of the credit available for executions of orders designated as ‘‘retail’’ that provide liquidity compared to other liquidity providing executions, recognizing that the ability of a member’s or member organization’s contra-side liquidity to interact with such orders designated as ‘‘retail’’ could be a potential benefit applicable to the members or member organizations submitting such contra-side liquidity. The proposal is also equitable and not unfairly discriminatory because the ability to designate an order as ‘‘retail’’ is available to all members and member organizations that submit qualifying orders and satisfy the other related requirements. Finally, the Exchange believes that it is subject to significant competitive forces, as described below in the Exchange’s statement regarding the burden on competition. For these reasons, the Exchange believes that the proposal is consistent with the Act. B. Self-Regulatory Organization’s Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act,20 the Exchange believes that the proposed rule change would not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Instead, the Exchange believes that the proposed change would increase competition among execution venues and encourage additional liquidity. In this regard, the Exchange believes that the transparency and competitiveness of attracting additional executions on an exchange market, and the pricing related thereto, would encourage competition. The proposed change would also permit the 19 See SR–NYSE–2011–55, supra note 5. See also Concept Release, White Speech, Schapiro Speech, supra note 15. 20 15 U.S.C. 78f(b)(8). PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 19949 Exchange to compete with other markets, including NASDAQ, which similarly provides a credit for ‘‘Designated Retail Orders’’ that provide liquidity.21 Finally, the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its fees and rebates to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees and credits in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. As a result of all of these considerations, the Exchange does not believe that the proposed changes will impair the ability of member organizations or competing order execution venues to maintain their competitive standing in the financial markets. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A) 22 of the Act and subparagraph (f)(2) of Rule 19b–4 23 thereunder, because it establishes a due, fee, or other charge imposed by the Exchange. At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings 21 See supra note 16. U.S.C. 78s(b)(3)(A). 23 17 CFR 240.19b–4(f)(2). 22 15 E:\FR\FM\10APN1.SGM 10APN1 19950 Federal Register / Vol. 79, No. 69 / Thursday, April 10, 2014 / Notices under Section 19(b)(2)(B) 24 of the Act to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–NYSE–2014–15 on the subject line. sroberts on DSK5SPTVN1PROD with NOTICES 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–NYSE–2014–15. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Section, 100 F Street NE., Washington, DC 20549–1090, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing will also be available for Web site viewing and printing at the NYSE’s principal office and on its Internet Web site at www.nyse.com. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSE– 2014–15 and should be submitted on or before May 1, 2014. BILLING CODE 8011–01–P 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. SECURITIES AND EXCHANGE COMMISSION A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–08058 Filed 4–9–14; 8:45 am] [Release No. 34–71880; File No. SR–CBOE– 2014–036] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the End of Trading on CBSX April 4, 2014. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ’’ Exchange Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that, on April 1, 2014, Chicago Board Options Exchange, Incorporated (the ‘‘Exchange’’ or ‘‘CBOE’’) 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 Exchange. 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 CBOE proposes to amend Rule 51.2 to permit CBOE to end trading on the CBOE Stock Exchange, LLC (‘‘CBSX’’) as of the close of business on April 30, 2014 (the ‘‘Closing Date’’). The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s Web site (http://www.cboe.com/AboutCBOE/ CBOELegalRegulatoryHome.aspx), at the Exchange’s Office of the Secretary, 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 Exchange included statements concerning the purpose of and basis for 25 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 24 15 U.S.C. 78s(b)(2)(B). VerDate Mar<15>2010 18:14 Apr 09, 2014 Jkt 232001 PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 1. Purpose CBSX, of which CBOE is a partial owner, is regulated as a stock trading facility of the Exchange under Section 3(a)(2) of the Exchange Act.3 Section 9.15 of the Third Amended and Restated Operating Agreement of CBOE Stock Exchange, LLC, dated as of December 30, 2011 between CBOE and the other owners (‘‘Non-CBOE Owners’’) of CBSX (‘‘Operating Agreement’’), requires the prior affirmative vote of CBOE,4 as well as the affirmative vote by each of the CBSX Board and a Super Majority of the Owners of CBSX,5 prior to CBSX: (i) Materially changing CBSX’s business model; or (ii) changing the status of or registration of CBSX as a facility of CBOE. Each of CBOE, the Board, and a Super Majority of Owners has affirmatively approved the ending of CBSX trading operations and ceasing to operate CBSX as a facility of the Exchange. This rule filing is not proposing any change to the ownership structure of CBSX. The proposed rule change is intended to further the Exchange’s strategic goal to focus its resources on other business opportunities while fulfilling its regulatory obligations under the Exchange Act. CBSX’s Trading Permit 3 In 2007, the Commission approved the establishment of CBSX as a facility of the Exchange. See Securities Exchange Act Release No. 55389 (March 2, 2007), 72 FR 10575 (March 8, 2007). 4 CBOE’s prior affirmative vote is required so that CBOE will have the opportunity to determine, in advance of action taken by the CBSX Board of Directors (‘‘Board’’) or the Non-CBOE Owners, whether a proposed action, transaction, or aspect of an action or transaction requiring a Super Majority of the Owners (as defined below) would interfere with the performance of CBOE’s regulatory functions, its responsibilities under the Exchange Act or as specifically required by the SEC (‘‘Regulatory Requirements’’). 5 Section 2.1(a)(26) of the Operating Agreement generally defines ‘‘Super Majority of the Owners’’ to mean, subject to the prior affirmative vote of CBOE as to its Regulatory Requirements, the affirmative vote of both: (i) All of the Owners of the Series A voting shares at the time (currently CBOE), and (ii) Owners of Series B voting shares representing at least a 20% interest in CBSX. While not material to a Super Majority, the Exchange notes that CBSX also has Series C non-voting restricted shares for Management Owners. E:\FR\FM\10APN1.SGM 10APN1

Agencies

[Federal Register Volume 79, Number 69 (Thursday, April 10, 2014)]
[Notices]
[Pages 19947-19950]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-08058]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71879; File No. SR-NYSE-2014-15]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Its Price List To Introduce a New Credit for Certain Retail 
Providing Liquidity on the Exchange

April 4, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on March 24, 2014, New York Stock Exchange LLC (``NYSE'' 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 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Price List to introduce a new 
credit for certain retail providing liquidity on the Exchange. The 
Exchange proposes to implement the fee change effective April 1, 2014. 
The text of the proposed rule change is available on the Exchange's Web 
site at www.nyse.com, at the principal office of the Exchange, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Price List to introduce a new 
credit for certain retail providing liquidity on the Exchange.\4\ The 
Exchange proposes to implement the fee change effective April 1, 2014.
---------------------------------------------------------------------------

    \4\ The proposed pricing would only apply to securities priced 
$1.00 or greater.
---------------------------------------------------------------------------

    The Exchange currently operates the Retail Liquidity Program as a 
pilot program that is designed to attract additional retail order flow 
to the Exchange for NYSE-listed securities while also providing the 
potential for price improvement to such order flow.\5\ Retail order 
flow is submitted through the Retail Liquidity Program as a distinct 
order type called a ``Retail Order,'' which is defined in Rule 
107C(a)(3) as an agency order or a riskless principal order that meets 
the criteria of Financial Industry Regulatory Authority, Inc. 
(``FINRA'') Rule 5320.03 that originates from a natural person and is 
submitted to the Exchange by a Retail Member Organization (``RMO''), 
provided that no change is made to the terms of the order with respect 
to price or side of market and the order does not originate from a 
trading algorithm or any other computerized methodology.\6\ An 
execution of a Retail Order is always considered to remove liquidity, 
whether against contra-side interest in the Retail Liquidity Program or 
against the Book.\7\ As described in the Price List, executions of 
Retail Orders receive a credit of $0.0005 per share if executed against 
Retail Price Improvement Orders (``RPIs'') or Mid-Point Passive 
Liquidity (``MPL'') Orders and are otherwise charged according to 
standard fees applicable to non-Retail Orders if executed against the 
Book.\8\
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    \5\ See Rule 107C. See also Securities Exchange Act Release No. 
67347 (July 3, 2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-55).
    \6\ RMO is defined in Rule 107C(a)(2) as a member organization 
(or a division thereof) that has been approved by the Exchange under 
Rule 107C to submit Retail Orders.
    \7\ A Retail Order is an Immediate or Cancel Order. See Rule 
107C(a)(3). See also Rule 107C(k) for a description of the manner in 
which a member or member organization may designate how a Retail 
Order will interact with available contra-side interest.
    \8\ RPI is defined in Rule 107C(a)(4) and consists of non-
displayed interest in NYSE-listed securities that is priced better 
than the best protected bid (``PBB'') or best protected offer 
(``PBO''), as such terms are defined in Regulation NMS Rule 
600(b)(57), by at least $0.001 and that is identified as such. MPL 
Order is defined in Rule 13 as an undisplayed limit order that 
automatically executes at the mid-point of the protected best bid or 
offer (``PBBO'').
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    The Exchange proposes to introduce a new credit of $0.0030 per 
share for executions of orders designated as ``retail'' that provide 
liquidity on the Book.\9\ An order properly designated as ``retail'' 
would be required to satisfy the requirements of Rule 107C(a)(3), but 
would not be submitted as a Retail Order within the Retail Liquidity 
Program and therefore would not need to be submitted by an RMO.\10\ 
Designation of an order as ``retail'' for purposes of the proposed new 
credit would be separate and distinct from submission of a Retail Order 
for purposes of the Retail Liquidity Program, despite the 
characteristics being identical (i.e., they must each satisfy the 
requirements in Rule 107C(a)(3)).
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    \9\ The existing rates in the Price List would apply to 
executions of MPL Orders (e.g., $0.0015 per share). Similarly, the 
existing rates in the Price List would apply to executions of Non-
Displayed Reserve Orders (e.g., $0.0010 per share). A Supplemental 
Liquidity Provider (``SLP'') market maker (``SLMM'') could designate 
orders as ``retail'' and be eligible for the proposed new credit. 
Orders designated as ``retail'' that provide liquidity would count 
toward a member's or member organization's overall level of 
providing volume for purposes of other pricing on the Exchange that 
is based on such levels (e.g., the Tier 1, Tier 2 and Tier 3 Adding 
Credits).
    \10\ The RMO aspect of Rule 107C(a)(3) would not be considered 
when determining whether an order designated as ``retail'' satisfies 
the requirements thereunder.
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    The Exchange proposes to permit members and member organizations to 
designate orders as ``retail'' for the purposes of the proposed $0.0030 
credit either (1) by means of a specific tag in the order entry message 
or (2) by designating a particular member or member organization 
mnemonic used at the Exchange as a ``retail mnemonic.'' A member or 
member organization would be required to attest, in a form and/or 
manner prescribed by the Exchange, that substantially all orders 
submitted to the Exchange satisfy the requirements of Rule 
107C(a)(3).\11\
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    \11\ This would be similar to the process under the Retail 
Liquidity Program, whereby an RMO must attest, in a form prescribed 
by the Exchange, that substantially all orders submitted as Retail 
Orders will qualify as such under Rule 107C. See Rule 107C(b)(C). 
This would also be similar to the manner in which an Exchange 
Trading Permit (``ETP'') Holder on NYSE Arca Equities, Inc. (``NYSE 
Arca Equities'') may designate orders as ``retail'' outside of the 
NYSE Arca Equities Retail Liquidity Program. See, e.g., Securities 
Exchange Act Release No. 68322 (November 29, 2012), 77 FR 72425 
(December 5, 2012) (SR-NYSEArca-2012-129).

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[[Page 19948]]

    A member or member organization would be required to have written 
policies and procedures reasonably designed to assure that it will only 
designate orders as ``retail'' if all the requirements of Rule 
107C(a)(3) are met. Such written policies and procedures must require 
the member or member organization to (1) exercise due diligence before 
entering orders designated as ``retail'' to assure that such entry is 
in compliance with the requirements specified by the Exchange, and (2) 
monitor whether orders designated as ``retail'' meet the applicable 
requirements. If the member or member organization represents orders 
designated as ``retail'' from another broker-dealer customer of the 
member or member organization, the member's or member organization's 
supervisory procedures must be reasonably designed to assure that the 
orders it receives from such broker-dealer customer that it designates 
as ``retail'' meet the requirements of Rule 107C(a)(3). The member or 
member organization must (1) obtain an annual written representation, 
in a form acceptable to the Exchange, from each broker-dealer customer 
that sends it orders to be designated as ``retail'' that entry of such 
orders designated as ``retail'' will be in compliance with the 
requirements specified by the Exchange, and (2) monitor whether its 
broker-dealer customer's orders designated as ``retail'' meet the 
applicable requirements.\12\
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    \12\ FINRA, on behalf of the Exchange, would review member and 
member organization compliance with these requirements through an 
exam-based review of the member's or member organization's internal 
controls.
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    Designating orders as ``retail'' would be optional. Accordingly, a 
member or member organization that chooses not to designate orders as 
``retail'' would therefore either (1) not use the applicable tag in the 
order entry message or (2) not designate any of its mnemonics as 
``retail mnemonics.'' The Exchange further proposes that it may 
disqualify a member or member organization from eligibility for the 
proposed new $0.0030 credit if the Exchange determines, in its sole 
discretion, that a member or member organization has failed to abide by 
any of the requirements proposed herein, including, for example, if a 
member or member organization (1) designates greater than a de minimis 
quantity of orders to the Exchange as ``retail'' that fail to meet any 
of the applicable requirements, (2) fails to make the required 
attestation to the Exchange, or (3) fails to maintain the required 
policies and procedures.
    The proposed change is not otherwise intended to address any other 
issues, and the Exchange is not aware of any problems that members and 
member organizations would have in complying with the proposed change.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\13\ in general, and furthers the 
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\14\ in 
particular, because it provides for the equitable allocation of 
reasonable dues, fees, and other charges among its members, issuers and 
other persons using its facilities and does not unfairly discriminate 
between customers, issuers, brokers or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange notes that a significant percentage of the orders of 
individual investors are executed over-the-counter.\15\ While the 
Exchange believes that markets and price discovery optimally function 
through the interactions of diverse flow types, it also believes that 
growth in internalization has required differentiation of retail order 
flow from other order flow types. In this regard, the Exchange believes 
that the proposed change is reasonable because it would contribute to 
maintaining or increasing the proportion of retail flow in exchange-
listed securities that are executed on a registered national securities 
exchange (rather than relying on certain available off-exchange 
execution methods). The proposed change is also equitable and not 
unfairly discriminatory because it would contribute to investors' 
confidence in the fairness of their transactions and because it would 
benefit all investors by deepening the Exchange's liquidity pool, 
supporting the quality of price discovery, promoting market 
transparency and improving investor protection.
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    \15\ See Concept Release on Equity Market Structure, Securities 
Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594 
(January 21, 2010) (``Concept Release'') (noting that dark pools and 
internalizing broker-dealers executed approximately 25.4% of share 
volume in September 2009). See also Mary Jo White, Focusing on 
Fundamentals: The Path to Address Equity Market Structure (Speech at 
the Security Traders Association 80th Annual Market Structure 
Conference, Oct. 2, 2013) (available on the Commission's Web site) 
(``White Speech''); Mary L. Schapiro, Strengthening Our Equity 
Market Structure (Speech at the Economic Club of New York, Sept. 7, 
2010) (available on the Commission's Web site) (``Schapiro 
Speech''). In her speech, Chair White noted a steadily increasing 
percentage of trading that occurs in ``dark'' venues, which appear 
to execute more than half of the orders of long-term investors. 
Similarly, in her speech, only three years earlier, Chair Schapiro 
noted that nearly 30 percent of volume in U.S.-listed equities was 
executed in venues that do not display their liquidity or make it 
generally available to the public and the percentage was increasing 
nearly every month.
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    The Exchange also believes that providing a credit for executions 
of orders that provide liquidity on the Book and that are designated as 
``retail'' is reasonable because it would create an added financial 
incentive for members and member organizations to bring additional 
retail flow to a public market. The proposed new credit is also 
reasonable because it would reduce the costs of members and member 
organizations that represent retail flow and potentially also reduce 
costs to their customers. The proposed change is also reasonable 
because it would be similar to the manner in which The Nasdaq Stock 
Market, LLC (``NASDAQ'') provides a $0.0033 credit for ``Designated 
Retail Orders'' that provide liquidity.\16\
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    \16\ See NASDAQ Rule 7018.
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    Absent this proposal, for example, a credit of $0.0022, $0.0020 or 
$0.0017 (or $0.0010 if a Non-Displayed Reserve Order) would apply to 
the retail providing liquidity that this proposal targets for a member 
or member organization that qualifies for the Tier 1, Tier 2 or Tier 3 
Adding Credits, respectively.\17\ A credit of $0.0015 per share (or 
$0.0010 per share if a Non-Displayed Reserve Order) would otherwise 
apply to the retail providing liquidity. The Exchange believes that 
providing a credit of $0.0030 per share for executions of orders that 
provide liquidity on the Book and that are designated as ``retail'' is 
reasonable because it is set at a level that would reasonably 
incentivize members and member organizations to qualify for eligibility 
to designate orders as ``retail'' (e.g., attestations and procedures) 
as well as to actually direct such retail flow to the Exchange. Such 
orders designated as ``retail'' would increase the pool of robust 
liquidity available on the Exchange, thereby contributing to the 
quality of the Exchange's market and to the Exchange's status as a 
premier destination for liquidity and order execution. The Exchange 
believes that, because retail flow is likely to reflect long-term 
investment intentions, it promotes price discovery and dampens 
volatility. Accordingly, the presence of retail flow on the Exchange 
has the potential to benefit all market

[[Page 19949]]

participants. For this reason, the Exchange believes that it is 
equitable and not unfairly discriminatory to provide a financial 
incentive to encourage greater retail participation on the Exchange.
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    \17\ The Price List also provides for credits for SLPs.
---------------------------------------------------------------------------

    The Exchange believes that the process for designating orders as 
``retail'' and the requirements surrounding such designations, such as 
attestations and procedures, are reasonable because they would 
reasonably ensure that substantially all of those orders would satisfy 
the applicable requirements of Rule 107C(a)(3) and therefore be 
eligible for the corresponding credit of $0.0030 per share. These 
processes and requirements are also reasonable because they are 
substantially similar to those in effect on the Exchange for the Retail 
Liquidity Program and on NYSE Arca Equities related to pricing for 
certain retail flow.\18\ More specifically, the Exchange understands 
that some members and member organizations represent both retail flow 
as well as other agency and riskless principal flow that may not meet 
the strict requirements of Rule 107C(a)(3). The Exchange further 
understands that limitations in order management systems and routing 
networks used by such members and member organizations may make it 
infeasible for them to isolate 100% of retail flow from other agency or 
riskless principal, non-retail flow that they would direct to the 
Exchange. Unable to make the categorical attestation required by the 
Exchange, some members and member organizations may not attempt to 
qualify for the proposed new $0.0030 credit, notwithstanding that they 
have substantial retail flow. The Exchange believes that it is 
reasonable to permit a de minimis amount of orders to be designated as 
``retail,'' despite not satisfying the requirements of Rule 107C(a)(3), 
because it would allow for enough flexibility to accommodate member and 
member organization system limitations while still reasonably ensuring 
that no more than a de minimis amount of orders submitted to the 
Exchange would not satisfy the requirements of Rule 107C(a)(3). This is 
also equitable and not unfairly discriminatory because it will 
reasonably ensure that similarly situated members and member 
organizations that have only slight differences in the capability of 
their systems would be able to equally benefit from the proposed 
pricing for orders designated as ``retail.''
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    \18\ See supra note 11.
---------------------------------------------------------------------------

    The pricing proposed herein is equitable and is not designed to 
permit unfair discrimination, but instead to promote a competitive 
process around retail executions such that retail investors' orders 
would be subject to greater transparency. As previously recognized by 
the Securities and Exchange Commission (``Commission''), ``markets 
generally distinguish between individual retail investors, whose orders 
are considered desirable by liquidity providers because such retail 
investors are presumed on average to be less informed about short-term 
price movements, and professional traders, whose orders are presumed on 
average to be more informed.'' \19\ The Exchange has sought to balance 
this view in setting the pricing of the credit available for executions 
of orders designated as ``retail'' that provide liquidity compared to 
other liquidity providing executions, recognizing that the ability of a 
member's or member organization's contra-side liquidity to interact 
with such orders designated as ``retail'' could be a potential benefit 
applicable to the members or member organizations submitting such 
contra-side liquidity.
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    \19\ See SR-NYSE-2011-55, supra note 5. See also Concept 
Release, White Speech, Schapiro Speech, supra note 15.
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    The proposal is also equitable and not unfairly discriminatory 
because the ability to designate an order as ``retail'' is available to 
all members and member organizations that submit qualifying orders and 
satisfy the other related requirements.
    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition.
    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\20\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, the Exchange believes that the proposed 
change would increase competition among execution venues and encourage 
additional liquidity. In this regard, the Exchange believes that the 
transparency and competitiveness of attracting additional executions on 
an exchange market, and the pricing related thereto, would encourage 
competition. The proposed change would also permit the Exchange to 
compete with other markets, including NASDAQ, which similarly provides 
a credit for ``Designated Retail Orders'' that provide liquidity.\21\
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    \20\ 15 U.S.C. 78f(b)(8).
    \21\ See supra note 16.
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    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees and rebates to remain competitive with other exchanges and 
with alternative trading systems that have been exempted from 
compliance with the statutory standards applicable to exchanges. 
Because competitors are free to modify their own fees and credits in 
response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
fee changes in this market may impose any burden on competition is 
extremely limited. As a result of all of these considerations, the 
Exchange does not believe that the proposed changes will impair the 
ability of member organizations or competing order execution venues to 
maintain their competitive standing in the financial markets.

 C. Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \22\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \23\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings

[[Page 19950]]

under Section 19(b)(2)(B) \24\ of the Act to determine whether the 
proposed rule change should be approved or disapproved.
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    \24\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2014-15 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-NYSE-2014-15. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Section, 100 F Street NE., 
Washington, DC 20549-1090, on official business days between the hours 
of 10:00 a.m. and 3:00 p.m. Copies of the filing will also be available 
for Web site viewing and printing at the NYSE's principal office and on 
its Internet Web site at www.nyse.com. All comments received will be 
posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2014-15 and should be submitted on 
or before May 1, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-08058 Filed 4-9-14; 8:45 am]
BILLING CODE 8011-01-P