Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending NYSE MKT Rule 13-Equities to Introduce a New “Retail” Modifier for Orders and to Make Related, Administrative Changes to Its Price List, 31368-31372 [2014-12644]
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Federal Register / Vol. 79, No. 105 / Monday, June 2, 2014 / Notices
kind distributions through the blind
trust; (2) early Order Cut-Off Times for
redemption; (3) cost considerations; 82
(4) the commenter’s recommendation to
curtail the permitted investments of the
funds; and (5) prospectus disclosures.83
III. Proceedings to Determine Whether
to Approve or Disapprove SR–
NYSEArca–2014–10 and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 84 to determine
whether the proposed rule change
should be approved or disapproved.
Institution of such proceedings is
appropriate at this time in view of the
legal and policy issues raised by the
proposed rule change, as discussed
below. Institution of proceedings does
not indicate that the Commission has
reached any conclusions with respect to
any of the issues involved. Rather, as
described below, the Commission seeks
and encourages interested persons to
provide comments on the proposed rule
change.
Pursuant to Section 19(b)(2)(B) of the
Act,85 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to allow for
additional analysis of the proposed rule
change’s consistency with Section
6(b)(5) of the Act, which requires,
among other things, that the rules of a
national securities exchange be
‘‘designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade,’’ and ‘‘to protect investors and the
public interest.’’ 86
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IV. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposal is consistent with Section
6(b)(5) or any other provision of the Act,
or the rules and regulations thereunder.
Although there do not appear to be any
issues relevant to approval or
disapproval which would be facilitated
82 The Exchange argues that limiting brokerdealer processing fees on direct purchases and
redemptions of Shares would require Commission
rulemaking. See id. at 4.
83 See id. at 4–5.
84 15 U.S.C. 78s(b)(2)(B).
85 Id.
86 15 U.S.C. 78f(b)(5).
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by an oral presentation of views, data,
and arguments, the Commission will
consider, pursuant to Rule 19b–4, any
request for an opportunity to make an
oral presentation.87
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal should be approved or
disapproved by June 23, 2014. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by July 7, 2014.
The Commission asks that
commenters address the sufficiency of
the Exchange’s statements in support of
the proposal, in addition to any other
comments they may wish to submit
about the proposed rule change. In
particular, the Commission seeks
comment on the statements of the
Exchange contained in the Notice,88 the
issues raised by the opposing
commenter, the Exchange’s responses to
those issues, and any other issues raised
by the listing and trading of an actively
managed ETF that does not make daily
public disclosure of its investment
portfolio.
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 email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2014–10 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
Numbers SR–NYSEArca–2014–10. 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
87 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
88 Supra, note 3.
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change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of these
filings 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
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2014–10 and should be
submitted on or before June 23, 2014.
Rebuttal comments should be submitted
by July 7, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.89
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–12647 Filed 5–30–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72252; File No. SR–
NYSEMKT–2014–46]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending NYSE MKT
Rule 13—Equities to Introduce a New
‘‘Retail’’ Modifier for Orders and to
Make Related, Administrative Changes
to Its Price List
May 27, 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 May 13,
2014, NYSE MKT LLC (‘‘NYSE MKT’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘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
89 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 79, No. 105 / Monday, June 2, 2014 / Notices
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
NYSE MKT Rule 13—Equities to
introduce a new ‘‘retail’’ modifier for
orders. The Exchange also proposes to
make related, administrative changes to
its Price List that would not impact
transaction pricing on the Exchange.
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.
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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
NYSE MKT Rule 13—Equities to
introduce a new ‘‘retail’’ modifier for
orders. The Exchange also proposes to
make related, administrative changes to
its Price List that would not impact
transaction pricing on the Exchange.
An order designated with a ‘‘retail’’
modifier would be 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
member organization, 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.4 An order
with a ‘‘retail’’ modifier would be
4 See paragraph (a) of the proposed ‘‘retail’’
modifier text under Rule 13—Equities, which,
except for the non-applicability of the Retail
Member Organization (‘‘RMO’’) aspect, would be
the same as the definition of ‘‘Retail Order’’ for the
Retail Liquidity Program under Rule 107C(a)(3)—
Equities.
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separate and distinct from a ‘‘Retail
Order’’ within the Retail Liquidity
Program under Rule 107C—Equities,
despite the characteristics being
substantially the same.5
The Exchange has separately
proposed transaction pricing related to
orders designated as ‘‘retail’’ that add
liquidity to the Book.6 A member
organization that wishes to be eligible
for such proposed pricing would be
required to designate its orders as
‘‘retail,’’ as described herein.7 However,
a member or member organization that
does not wish to be eligible for the
proposed pricing would be free to
choose not to designate orders as
‘‘retail.’’ Both the proposed ‘‘retail’’
modifier and the existing ‘‘Retail Order’’
within the Retail Liquidity Program,
along with pricing related to each, are
designed to incentivize the submission
of additional retail order flow to a
public market, like the Exchange. A
‘‘Retail Order’’ is eligible for a credit for
removing existing, price-improved
liquidity from the Exchange. In contrast,
5 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 Exchange-traded securities
(including but not limited to Exchange-listed
securities and securities listed on the Nasdaq Stock
Market, LLC (‘‘NASDAQ’’) traded pursuant to
unlisted trading privileges). See Securities
Exchange Act Release No. 67347 (July 3, 2012), 77
FR 40673 (July 10, 2012) (SR–NYSEAmex–2011–
84). Retail order flow is submitted by an RMO
through the Retail Liquidity Program as a distinct
order type called a ‘‘Retail Order,’’ which is defined
in Rule 107C(a)(3)—Equities in the same manner as
the requirements under paragraph (a) of the
proposed ‘‘retail’’ modifier text. RMO is defined in
Rule 107C(a)(2)—Equities as a member organization
(or a division thereof) that has been approved by the
Exchange under Rule 107C—Equities to submit
Retail Orders. A Retail Order is an Immediate or
Cancel Order. See Rule 107C(a)(3)—Equities. See
also Rule 107C(k)—Equities for a description of the
manner in which a member or member organization
may designate how a Retail Order will interact with
available contra-side interest. 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. The
proposed ‘‘retail’’ modifier is designed to identify
retail order flow that adds liquidity to the
Exchange.
6 See Securities Exchange Act Release No. 71878
(April 4, 2014), 79 FR 19936 (April 10, 2014) (SR–
NYSEMKT–2014–25). Specifically, a credit of
$0.0030 per share would be available for executions
of orders designated as ‘‘retail’’ that add liquidity
on the Book. Existing rates in the Price List would
apply to executions of Mid-Point Passive Liquidity
(‘‘MPL’’) Orders (e.g., $0.0016 per share). A
Supplemental Liquidity Provider (‘‘SLP’’) market
maker (‘‘SLMM’’) could designate orders as ‘‘retail’’
and be eligible for the proposed new credit.
7 The Price List currently includes references to
Rule 107C—Equities with respect to the pricing
applicable to orders designated as ‘‘retail.’’ The
Exchange proposes to replace those references with
references to the proposed ‘‘retail’’ modifier under
Rule 13—Equities. These proposed changes would
merely be administrative and would not impact
transaction pricing on the Exchange.
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31369
an order designated with the proposed
‘‘retail’’ modifier would be eligible for a
credit for adding liquidity to the
Exchange.
A member organization would be
required to designate an order as
‘‘retail’’ in a form and/or manner
prescribed by the Exchange.8 Currently,
a member organization may designate
an order as ‘‘retail’’ either by means of
a specific tag in the order entry message,
as with other order modifiers, or
alternatively by designating a particular
member or member organization
mnemonic used at the Exchange as a
‘‘retail mnemonic.’’ 9 To submit a
‘‘retail’’ order, a member organization
must also submit an attestation, in a
form prescribed by the Exchange, that
substantially all orders submitted as
‘‘retail’’ will qualify as such.10
A member organization must have
written policies and procedures
reasonably designed to assure that it
will only designate orders as ‘‘retail’’ if
all requirements are met.11 Such written
policies and procedures must require
the member organization to (i) exercise
due diligence before entering a ‘‘retail’’
order to assure that entry as a ‘‘retail’’
order is in compliance with the
applicable requirements, and (ii)
monitor whether orders entered as
‘‘retail’’ orders meet the applicable
requirements. If a member organization
represents ‘‘retail’’ orders from another
broker-dealer customer, the 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’’ orders meet the definition of
a ‘‘retail’’ order. The member
organization must (i) 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’’
orders that entry of such orders as
‘‘retail’’ orders will be in compliance
with the applicable requirements; and
8 See paragraph (b) of the proposed ‘‘retail’’
modifier text under Rule 13—Equities.
9 This would 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).
10 See paragraph (c) of the proposed ‘‘retail’’
modifier text under Rule 13—Equities, which
would be the same as the attestation requirement
for the Retail Liquidity Program under Rule
107C(b)(2)(C)—Equities.
11 See paragraph (d) of the proposed ‘‘retail’’
modifier text under Rule 13—Equities, which
would be the same as the policies and procedures
requirement for the Retail Liquidity Program under
Rule 107C(b)(6)—Equities.
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(ii) monitor whether its broker-dealer
customer’s ‘‘retail’’ order flow meets the
applicable requirements.
If a member organization designates
orders submitted to the Exchange as
‘‘retail’’ orders and the Exchange
determines, in its sole discretion, that
such orders fail to meet any of the
applicable requirements, the Exchange
may disqualify a member organization
from submitting ‘‘retail’’ orders.12 This
could occur, for example, if a member
organization (i) designates greater than a
de minimis quantity of orders to the
Exchange as ‘‘retail’’ that fail to meet
any of the applicable requirements, (ii)
fails to make the required attestation to
the Exchange, or (iii) fails to maintain
the required policies and procedures.
The Exchange would determine if and
when a member organization is
disqualified from submitting ‘‘retail’’
orders and, when disqualification
determinations are made, the Exchange
would provide a written disqualification
notice to the member organization.13 A
member organization that is disqualified
may (A) appeal such disqualification, as
provided below, and/or (B) resubmit the
attestation described above 90 days after
the date of the disqualification notice
from the Exchange.14
If a member organization disputes the
Exchange’s decision to disqualify it
from submitting ‘‘retail’’ orders, the
member organization may request,
within five business days after notice of
the decision is issued by the Exchange,
that the ‘‘retail’’ order ‘‘Hearing Panel’’
review the decision to determine if it
was correct.15 The Hearing Panel would
consist of the Exchange’s Chief
Regulatory Officer (‘‘CRO’’), or a
designee of the CRO, and two officers of
the Exchange designated by the Chief
Executive Officer of
IntercontinentalExchange Group, Inc.
12 See paragraph (e)(1) of the proposed ‘‘retail’’
modifier text under Rule 13—Equities, which
would be substantially the same as the provision for
the Retail Liquidity Program under Rule
107C(h)(1)—Equities.
13 See paragraph (e)(2) of the proposed ‘‘retail’’
modifier text under Rule 13—Equities, which
would be substantially the same as the provision for
the Retail Liquidity Program under Rule
107C(h)(2)—Equities.
14 See paragraph (e)(3) of the proposed ‘‘retail’’
modifier text under Rule 13—Equities, which
would be substantially the same as the provision for
the Retail Liquidity Program under Rule
107C(h)(3)—Equities. Rule 107C(h)(3)—Equities
currently refers to ‘‘reapplication,’’ which relates to
the RMO status within the Retail Liquidity Program,
but which would not be applicable to designating
orders as ‘‘retail.’’
15 See paragraph (f)(1) of the proposed ‘‘retail’’
modifier text under Rule 13—Equities, which
would be substantially the same as the provision for
the Retail Liquidity Program under Rule
107C(i)(1)—Equities.
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(‘‘ICE Group’’).16 The Hearing Panel
would review the facts and render a
decision within the time frame
prescribed by the Exchange.17 The
Hearing Panel may overturn or modify
an action taken by the Exchange, and a
determination by the Hearing Panel
would constitute final action by the
Exchange.18
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,19 in general, and
furthers the objectives of Sections
6(b)(5) of the Act,20 in particular,
because it is designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to,
and perfect the mechanisms of, a free
and open market and a national market
system and, in general, to protect
investors and the public interest and
because it is not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes that the
proposed change is consistent with
16 See paragraph (f)(2) of the proposed ‘‘retail’’
modifier text under Rule 13—Equities, which
would be substantially the same as the provision for
the Retail Liquidity Program under Rule
107C(i)(2)—Equities. Rule 107C(i)(2)—Equities
currently refers to the ‘‘Co-Head of U.S. Listings and
Cash Execution,’’ which is a legacy title that
predates the corporation transaction involving
NYSE Euronext (‘‘NYSE Euronext’’) and
IntercontinentalExchange, Inc. (‘‘ICE’’). See
Securities Exchange Act Release No. 70210 (August
15, 2013), 78 FR 51758 (August 21, 2013) (SR–
NYSE–2013–42; SR–NYSEMKT–2013–50; SR–
NYSEArca–2013–62) (Order Granting Approval of
Proposed Rule Change Relating to a Corporate
Transaction in Which NYSE Euronext Will Become
a Wholly-Owned Subsidiary of
IntercontinentalExchange Group, Inc.). The
Exchange anticipates updating the existing
reference in Rule 107C(i)(2)—Equities to the ‘‘CoHead of U.S. Listings and Cash Execution’’ in a
separate proposed rule change so that it similarly
references the ‘‘Chief Executive Officer of ICE
Group,’’ as is proposed herein.
17 See paragraph (f)(3) of the proposed ‘‘retail’’
modifier text under Rule 13—Equities, which
would be the same as the provision for the Retail
Liquidity Program under Rule 107C(i)(3)—Equities.
18 See paragraph (f)(4) of the proposed ‘‘retail’’
modifier text under Rule 13—Equities, which
would be the same as the provision for the Retail
Liquidity Program under Rule 107C(i)(4)—Equities.
19 15 U.S.C. 78f(b).
20 15 U.S.C. 78f(b)(5).
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these principles because it would
increase competition among execution
venues and encourage additional
liquidity by creating a process, and
related transaction pricing pursuant to a
separate proposal,21 that would
incentivize the submission of additional
retail order flow to a public market. The
Exchange notes that a significant
percentage of the orders of individual
investors are executed over-thecounter.22 The Exchange believes that it
is appropriate to create a process to
bring additional retail order flow to a
public market and that such a process
would contribute to perfecting the
mechanisms of a free and open market
and a national market system.
The Exchange understands that
Section 6(b)(5) of the Act prohibits an
exchange from establishing rules that
treat market participants in an unfairly
discriminatory manner. However,
Section 6(b)(5) of the Act does not
prohibit exchange members or other
broker-dealers from discriminating, so
long as their activities are otherwise
consistent with the federal securities
laws. 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. The
differentiation proposed herein by the
Exchange is not designed to permit
unfair discrimination, but instead to
promote a competitive process around
retail executions. The Exchange
operating a process like the one
proposed herein on an exchange market
would result in greater transparency and
competitiveness surrounding executions
of retail flow.
21 See
SR–NYSEMKT–2014–25, supra note 6.
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 Security
and Exchange Commission (‘‘Commission’’) 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.
22 See
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The Exchange believes that the
proposed change is designed to prevent
fraudulent and manipulative acts and
practices and to promote just and
equitable principles of trade 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 also would protect investors and
the public interest 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.
The Exchange also believes that the
proposed change would remove
impediments to, and perfect the
mechanisms of, a free and open market
and a national market system because it
would be similar to the manner in
which NASDAQ provides a process for
‘‘Designated Retail Orders’’ that provide
liquidity.23
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
participants. For this reason, the
Exchange believes that encouraging
greater retail participation on the
Exchange would facilitate transactions
in securities while also protecting
investors and the public interest.
The Exchange believes that the
process for designating orders as
‘‘retail’’ and the requirements
surrounding such designations, such as
attestations and procedures, are
consistent with the Act because they
would reasonably ensure that
substantially all of those orders would
satisfy the applicable requirements.
These processes and requirements are
also consistent with the Act 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
23 See
NASDAQ Rule 7018.
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18:59 May 30, 2014
retail flow.24 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 proposed herein. 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 utilize
the proposed new modifier,
notwithstanding that they have
substantial retail flow. The Exchange
believes that it is consistent with the
Act to permit a de minimis amount of
orders to be designated as ‘‘retail,’’
despite not satisfying the applicable
requirements, 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
applicable requirements. This is also
consistent with the Act 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 utilize the modifier for
orders designated as ‘‘retail.’’
The Price List currently includes
references to Rule 107C—Equities with
respect to the pricing applicable to
orders designated as ‘‘retail.’’ The
Exchange believes that it is consistent
with the Act to replace those references
with references to the proposed ‘‘retail’’
modifier under Rule 13—Equities
because this would avoid potential
confusion between orders designated as
‘‘retail’’ outside of the Retail Liquidity
Program and ‘‘Retail Orders’’ within the
Retail Liquidity Program. This would
also be consistent with the Act because
the proposed new ‘‘retail’’ modifier
could be utilized by all members and
member organizations to identify retail
flow outside of the Retail Liquidity
Program and thereby differentiate such
flow from Retail Orders within the
Retail Liquidity Program.
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.
24 See
Jkt 232001
PO 00000
supra note 9.
Frm 00089
Fmt 4703
Sfmt 4703
31371
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,25 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 would encourage competition.
The proposed change would also permit
the Exchange to compete with other
markets, including NASDAQ, which
similarly provides a process for
‘‘Designated Retail Orders’’ that provide
liquidity.26 The proposal would also
promote competition on the Exchange
because the ability to designate an order
as ‘‘retail’’ would be available to all
members and member organizations that
submit qualifying orders and satisfy the
other related requirements.
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 Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 27 and Rule
19b–4(f)(6) thereunder.28 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
25 15
U.S.C. 78f(b)(8).
supra note 233.
27 15 U.S.C. 78s(b)(3)(A)(iii).
28 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires the Exchange to give the
Commission written notice of the Exchange’s 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. The Commission
has waived that requirement for this proposed rule
change.
26 See
E:\FR\FM\02JNN1.SGM
02JNN1
31372
Federal Register / Vol. 79, No. 105 / Monday, June 2, 2014 / Notices
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 29 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),30 the
Commission may 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 so that the proposal may
become operative immediately upon
filing. The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest
because it would allow the Exchange
immediately to adopt clear and
transparent criteria concerning the
submission of orders that are designated
as ‘‘retail’’ and eligible to receive fee
credits under the Exchange’s current fee
schedule. Accordingly, the Commission
hereby grants the Exchange’s request
and designates the proposal operative
upon filing.31
At any time within 60 days of the
filing of this proposed rule change, the
Commission summarily may
temporarily suspend this 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:
sroberts on DSK5SPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEMKT–2014–46 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.
29 17
CFR 240.19b–4(f)(6).
CFR 240.19b–4(f)(6)(iii).
31 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).
30 17
VerDate Mar<15>2010
18:59 May 30, 2014
Jkt 232001
All submissions should refer to File
Number SR–NYSEMKT–2014–46. 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 (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 Web site viewing and
printing in the Commission’s Public
Reference Section, 100 F Street NE.,
Washington, DC 20549–1090. 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–
NYSEMKT–2014–46 and should be
submitted on or before June 23, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–12644 Filed 5–30–14; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72254; File No. SR–ISE–
2014–26]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change Regarding Complex Orders
May 27, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 20,
2014 the International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
Frm 00090
Fmt 4703
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend its
rules to adopt additional price
protections for complex orders executed
on the Exchange. The text of the
proposed rule change is available on the
Exchange’s Web site www.ise.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange 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
self-regulatory organization 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
BILLING CODE 8011–01–P
PO 00000
‘‘ISE’’) 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 Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
Sfmt 4703
The purpose of the proposal is to
enhance the Exchange’s complex order
functionality by adopting additional
price protections for complex orders
executed on the Exchange. The
Exchange provides in its rules several
complex order protections that currently
exist in the trading system.3 Today,
under Supplementary Material .07(b) to
Rule 722, the trading system rejects any
complex order strategy where all legs
are to buy if it is entered at a price that
is less than the minimum price, which
is calculated as the sum of the ratio
times $0.01 per leg.4 Further,
Supplementary Material .07(c) to Rule
722 provides price protection for
3 See
Rule 722, Supplementary Material .07.
example, an order to buy 2 calls and buy
1 put would have a minimum price of $0.03. If such
an order were entered at a price of $0.02, it would
not be executable, as a price of zero would have to
be assigned to one of the legs of the order.
4 For
E:\FR\FM\02JNN1.SGM
02JNN1
]]>Agencies
[Federal Register Volume 79, Number 105 (Monday, June 2, 2014)]
[Notices]
[Pages 31368-31372]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-12644]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72252; File No. SR-NYSEMKT-2014-46]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending NYSE MKT Rule
13--Equities to Introduce a New ``Retail'' Modifier for Orders and to
Make Related, Administrative Changes to Its Price List
May 27, 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 May 13, 2014, NYSE MKT LLC (``NYSE MKT'' or ``Exchange'')
filed with the Securities and Exchange Commission (``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
[[Page 31369]]
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 to amend NYSE MKT Rule 13--Equities to
introduce a new ``retail'' modifier for orders. The Exchange also
proposes to make related, administrative changes to its Price List that
would not impact transaction pricing on the Exchange. 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 NYSE MKT Rule 13--Equities to
introduce a new ``retail'' modifier for orders. The Exchange also
proposes to make related, administrative changes to its Price List that
would not impact transaction pricing on the Exchange.
An order designated with a ``retail'' modifier would be 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 member organization, 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.\4\ An order with a ``retail'' modifier would be separate
and distinct from a ``Retail Order'' within the Retail Liquidity
Program under Rule 107C--Equities, despite the characteristics being
substantially the same.\5\
---------------------------------------------------------------------------
\4\ See paragraph (a) of the proposed ``retail'' modifier text
under Rule 13--Equities, which, except for the non-applicability of
the Retail Member Organization (``RMO'') aspect, would be the same
as the definition of ``Retail Order'' for the Retail Liquidity
Program under Rule 107C(a)(3)--Equities.
\5\ 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 Exchange-traded securities (including
but not limited to Exchange-listed securities and securities listed
on the Nasdaq Stock Market, LLC (``NASDAQ'') traded pursuant to
unlisted trading privileges). See Securities Exchange Act Release
No. 67347 (July 3, 2012), 77 FR 40673 (July 10, 2012) (SR-NYSEAmex-
2011-84). Retail order flow is submitted by an RMO through the
Retail Liquidity Program as a distinct order type called a ``Retail
Order,'' which is defined in Rule 107C(a)(3)--Equities in the same
manner as the requirements under paragraph (a) of the proposed
``retail'' modifier text. RMO is defined in Rule 107C(a)(2)--
Equities as a member organization (or a division thereof) that has
been approved by the Exchange under Rule 107C--Equities to submit
Retail Orders. A Retail Order is an Immediate or Cancel Order. See
Rule 107C(a)(3)--Equities. See also Rule 107C(k)--Equities for a
description of the manner in which a member or member organization
may designate how a Retail Order will interact with available
contra-side interest. 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. The proposed
``retail'' modifier is designed to identify retail order flow that
adds liquidity to the Exchange.
---------------------------------------------------------------------------
The Exchange has separately proposed transaction pricing related to
orders designated as ``retail'' that add liquidity to the Book.\6\ A
member organization that wishes to be eligible for such proposed
pricing would be required to designate its orders as ``retail,'' as
described herein.\7\ However, a member or member organization that does
not wish to be eligible for the proposed pricing would be free to
choose not to designate orders as ``retail.'' Both the proposed
``retail'' modifier and the existing ``Retail Order'' within the Retail
Liquidity Program, along with pricing related to each, are designed to
incentivize the submission of additional retail order flow to a public
market, like the Exchange. A ``Retail Order'' is eligible for a credit
for removing existing, price-improved liquidity from the Exchange. In
contrast, an order designated with the proposed ``retail'' modifier
would be eligible for a credit for adding liquidity to the Exchange.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 71878 (April 4,
2014), 79 FR 19936 (April 10, 2014) (SR-NYSEMKT-2014-25).
Specifically, a credit of $0.0030 per share would be available for
executions of orders designated as ``retail'' that add liquidity on
the Book. Existing rates in the Price List would apply to executions
of Mid-Point Passive Liquidity (``MPL'') Orders (e.g., $0.0016 per
share). A Supplemental Liquidity Provider (``SLP'') market maker
(``SLMM'') could designate orders as ``retail'' and be eligible for
the proposed new credit.
\7\ The Price List currently includes references to Rule 107C--
Equities with respect to the pricing applicable to orders designated
as ``retail.'' The Exchange proposes to replace those references
with references to the proposed ``retail'' modifier under Rule 13--
Equities. These proposed changes would merely be administrative and
would not impact transaction pricing on the Exchange.
---------------------------------------------------------------------------
A member organization would be required to designate an order as
``retail'' in a form and/or manner prescribed by the Exchange.\8\
Currently, a member organization may designate an order as ``retail''
either by means of a specific tag in the order entry message, as with
other order modifiers, or alternatively by designating a particular
member or member organization mnemonic used at the Exchange as a
``retail mnemonic.'' \9\ To submit a ``retail'' order, a member
organization must also submit an attestation, in a form prescribed by
the Exchange, that substantially all orders submitted as ``retail''
will qualify as such.\10\
---------------------------------------------------------------------------
\8\ See paragraph (b) of the proposed ``retail'' modifier text
under Rule 13--Equities.
\9\ This would 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).
\10\ See paragraph (c) of the proposed ``retail'' modifier text
under Rule 13--Equities, which would be the same as the attestation
requirement for the Retail Liquidity Program under Rule
107C(b)(2)(C)--Equities.
---------------------------------------------------------------------------
A member organization must have written policies and procedures
reasonably designed to assure that it will only designate orders as
``retail'' if all requirements are met.\11\ Such written policies and
procedures must require the member organization to (i) exercise due
diligence before entering a ``retail'' order to assure that entry as a
``retail'' order is in compliance with the applicable requirements, and
(ii) monitor whether orders entered as ``retail'' orders meet the
applicable requirements. If a member organization represents ``retail''
orders from another broker-dealer customer, the 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'' orders meet the definition of a ``retail'' order. The
member organization must (i) 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'' orders that entry
of such orders as ``retail'' orders will be in compliance with the
applicable requirements; and
[[Page 31370]]
(ii) monitor whether its broker-dealer customer's ``retail'' order flow
meets the applicable requirements.
---------------------------------------------------------------------------
\11\ See paragraph (d) of the proposed ``retail'' modifier text
under Rule 13--Equities, which would be the same as the policies and
procedures requirement for the Retail Liquidity Program under Rule
107C(b)(6)--Equities.
---------------------------------------------------------------------------
If a member organization designates orders submitted to the
Exchange as ``retail'' orders and the Exchange determines, in its sole
discretion, that such orders fail to meet any of the applicable
requirements, the Exchange may disqualify a member organization from
submitting ``retail'' orders.\12\ This could occur, for example, if a
member organization (i) designates greater than a de minimis quantity
of orders to the Exchange as ``retail'' that fail to meet any of the
applicable requirements, (ii) fails to make the required attestation to
the Exchange, or (iii) fails to maintain the required policies and
procedures. The Exchange would determine if and when a member
organization is disqualified from submitting ``retail'' orders and,
when disqualification determinations are made, the Exchange would
provide a written disqualification notice to the member
organization.\13\ A member organization that is disqualified may (A)
appeal such disqualification, as provided below, and/or (B) resubmit
the attestation described above 90 days after the date of the
disqualification notice from the Exchange.\14\
---------------------------------------------------------------------------
\12\ See paragraph (e)(1) of the proposed ``retail'' modifier
text under Rule 13--Equities, which would be substantially the same
as the provision for the Retail Liquidity Program under Rule
107C(h)(1)--Equities.
\13\ See paragraph (e)(2) of the proposed ``retail'' modifier
text under Rule 13--Equities, which would be substantially the same
as the provision for the Retail Liquidity Program under Rule
107C(h)(2)--Equities.
\14\ See paragraph (e)(3) of the proposed ``retail'' modifier
text under Rule 13--Equities, which would be substantially the same
as the provision for the Retail Liquidity Program under Rule
107C(h)(3)--Equities. Rule 107C(h)(3)--Equities currently refers to
``reapplication,'' which relates to the RMO status within the Retail
Liquidity Program, but which would not be applicable to designating
orders as ``retail.''
---------------------------------------------------------------------------
If a member organization disputes the Exchange's decision to
disqualify it from submitting ``retail'' orders, the member
organization may request, within five business days after notice of the
decision is issued by the Exchange, that the ``retail'' order ``Hearing
Panel'' review the decision to determine if it was correct.\15\ The
Hearing Panel would consist of the Exchange's Chief Regulatory Officer
(``CRO''), or a designee of the CRO, and two officers of the Exchange
designated by the Chief Executive Officer of IntercontinentalExchange
Group, Inc. (``ICE Group'').\16\ The Hearing Panel would review the
facts and render a decision within the time frame prescribed by the
Exchange.\17\ The Hearing Panel may overturn or modify an action taken
by the Exchange, and a determination by the Hearing Panel would
constitute final action by the Exchange.\18\
---------------------------------------------------------------------------
\15\ See paragraph (f)(1) of the proposed ``retail'' modifier
text under Rule 13--Equities, which would be substantially the same
as the provision for the Retail Liquidity Program under Rule
107C(i)(1)--Equities.
\16\ See paragraph (f)(2) of the proposed ``retail'' modifier
text under Rule 13--Equities, which would be substantially the same
as the provision for the Retail Liquidity Program under Rule
107C(i)(2)--Equities. Rule 107C(i)(2)--Equities currently refers to
the ``Co-Head of U.S. Listings and Cash Execution,'' which is a
legacy title that predates the corporation transaction involving
NYSE Euronext (``NYSE Euronext'') and IntercontinentalExchange, Inc.
(``ICE''). See Securities Exchange Act Release No. 70210 (August 15,
2013), 78 FR 51758 (August 21, 2013) (SR-NYSE-2013-42; SR-NYSEMKT-
2013-50; SR-NYSEArca-2013-62) (Order Granting Approval of Proposed
Rule Change Relating to a Corporate Transaction in Which NYSE
Euronext Will Become a Wholly-Owned Subsidiary of
IntercontinentalExchange Group, Inc.). The Exchange anticipates
updating the existing reference in Rule 107C(i)(2)--Equities to the
``Co-Head of U.S. Listings and Cash Execution'' in a separate
proposed rule change so that it similarly references the ``Chief
Executive Officer of ICE Group,'' as is proposed herein.
\17\ See paragraph (f)(3) of the proposed ``retail'' modifier
text under Rule 13--Equities, which would be the same as the
provision for the Retail Liquidity Program under Rule 107C(i)(3)--
Equities.
\18\ See paragraph (f)(4) of the proposed ``retail'' modifier
text under Rule 13--Equities, which would be the same as the
provision for the Retail Liquidity Program under Rule 107C(i)(4)--
Equities.
---------------------------------------------------------------------------
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,\19\ in general, and furthers the
objectives of Sections 6(b)(5) of the Act,\20\ in particular, because
it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to, and
perfect the mechanisms of, a free and open market and a national market
system and, in general, to protect investors and the public interest
and because it is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed change is consistent with
these principles because it would increase competition among execution
venues and encourage additional liquidity by creating a process, and
related transaction pricing pursuant to a separate proposal,\21\ that
would incentivize the submission of additional retail order flow to a
public market. The Exchange notes that a significant percentage of the
orders of individual investors are executed over-the-counter.\22\ The
Exchange believes that it is appropriate to create a process to bring
additional retail order flow to a public market and that such a process
would contribute to perfecting the mechanisms of a free and open market
and a national market system.
---------------------------------------------------------------------------
\21\ See SR-NYSEMKT-2014-25, supra note 6.
\22\ 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 Security and Exchange
Commission (``Commission'') 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.
---------------------------------------------------------------------------
The Exchange understands that Section 6(b)(5) of the Act prohibits
an exchange from establishing rules that treat market participants in
an unfairly discriminatory manner. However, Section 6(b)(5) of the Act
does not prohibit exchange members or other broker-dealers from
discriminating, so long as their activities are otherwise consistent
with the federal securities laws. 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. The differentiation proposed herein by the Exchange is not
designed to permit unfair discrimination, but instead to promote a
competitive process around retail executions. The Exchange operating a
process like the one proposed herein on an exchange market would result
in greater transparency and competitiveness surrounding executions of
retail flow.
[[Page 31371]]
The Exchange believes that the proposed change is designed to
prevent fraudulent and manipulative acts and practices and to promote
just and equitable principles of trade 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 also would protect investors
and the public interest 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.
The Exchange also believes that the proposed change would remove
impediments to, and perfect the mechanisms of, a free and open market
and a national market system because it would be similar to the manner
in which NASDAQ provides a process for ``Designated Retail Orders''
that provide liquidity.\23\
---------------------------------------------------------------------------
\23\ See NASDAQ Rule 7018.
---------------------------------------------------------------------------
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 participants. For this reason,
the Exchange believes that encouraging greater retail participation on
the Exchange would facilitate transactions in securities while also
protecting investors and the public interest.
The Exchange believes that the process for designating orders as
``retail'' and the requirements surrounding such designations, such as
attestations and procedures, are consistent with the Act because they
would reasonably ensure that substantially all of those orders would
satisfy the applicable requirements. These processes and requirements
are also consistent with the Act 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.\24\
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
proposed herein. 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 utilize the proposed new modifier,
notwithstanding that they have substantial retail flow. The Exchange
believes that it is consistent with the Act to permit a de minimis
amount of orders to be designated as ``retail,'' despite not satisfying
the applicable requirements, 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 applicable requirements. This is also consistent with the Act
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 utilize the
modifier for orders designated as ``retail.''
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\24\ See supra note 9.
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The Price List currently includes references to Rule 107C--Equities
with respect to the pricing applicable to orders designated as
``retail.'' The Exchange believes that it is consistent with the Act to
replace those references with references to the proposed ``retail''
modifier under Rule 13--Equities because this would avoid potential
confusion between orders designated as ``retail'' outside of the Retail
Liquidity Program and ``Retail Orders'' within the Retail Liquidity
Program. This would also be consistent with the Act because the
proposed new ``retail'' modifier could be utilized by all members and
member organizations to identify retail flow outside of the Retail
Liquidity Program and thereby differentiate such flow from Retail
Orders within the Retail Liquidity Program.
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,\25\ 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 would encourage competition. The proposed change
would also permit the Exchange to compete with other markets, including
NASDAQ, which similarly provides a process for ``Designated Retail
Orders'' that provide liquidity.\26\ The proposal would also promote
competition on the Exchange because the ability to designate an order
as ``retail'' would be available to all members and member
organizations that submit qualifying orders and satisfy the other
related requirements.
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\25\ 15 U.S.C. 78f(b)(8).
\26\ See supra note 233.
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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 Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \27\ and Rule 19b-4(f)(6) thereunder.\28\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
[[Page 31372]]
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\27\ 15 U.S.C. 78s(b)(3)(A)(iii).
\28\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give the Commission written notice of the
Exchange's 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. The
Commission has waived that requirement for this proposed rule
change.
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A proposed rule change filed under Rule 19b-4(f)(6) \29\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\30\ the Commission
may 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 so that the proposal
may become operative immediately upon filing. The Commission believes
that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest because it would allow
the Exchange immediately to adopt clear and transparent criteria
concerning the submission of orders that are designated as ``retail''
and eligible to receive fee credits under the Exchange's current fee
schedule. Accordingly, the Commission hereby grants the Exchange's
request and designates the proposal operative upon filing.\31\
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\29\ 17 CFR 240.19b-4(f)(6).
\30\ 17 CFR 240.19b-4(f)(6)(iii).
\31\ 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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At any time within 60 days of the filing of this proposed rule
change, the Commission summarily may temporarily suspend this 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 email to rule-comments@sec.gov. Please include
File Number SR-NYSEMKT-2014-46 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEMKT-2014-46. 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 (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 Web site viewing and
printing in the Commission's Public Reference Section, 100 F Street
NE., Washington, DC 20549-1090. 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-NYSEMKT-2014-46 and should
be submitted on or before June 23, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12644 Filed 5-30-14; 8:45 am]
BILLING CODE 8011-01-P
