Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Rule 107C-Equities To Distinguish Between Retail Orders Routed on Behalf of Other Broker-Dealers and Retail Orders That Are Routed on Behalf of Introduced Retail Accounts That Are Carried on a Fully Disclosed Basis, 76598-76601 [2015-30945]

Download as PDF 76598 Federal Register / Vol. 80, No. 236 / Wednesday, December 9, 2015 / Notices investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings 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: mstockstill on DSK4VPTVN1PROD 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– NYSEArca–2015–115 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–NYSEArca–2015–115. 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 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 such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEArca–2015–115 and should be VerDate Sep<11>2014 18:21 Dec 08, 2015 Jkt 238001 submitted on or before December 30, 2015December 30, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Robert W. Errett, Deputy Secretary. [FR Doc. 2015–30940 Filed 12–8–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting FEDERAL REGISTER CITATION OF PREVIOUS ANNOUNCEMENT: [To Be Published]. STATUS: PLACE: Closed Meeting. 100 F Street NE., Washington, DC. DATE AND TIME OF PREVIOUSLY ANNOUNCED MEETING: December 10, 2015 at 2:00 p.m. Additional Item. The following matter will also be considered during the 2:00 p.m. Closed Meeting scheduled for Thursday, December 10, 2015: Litigation matter. The General Counsel of the Commission, or her designee, has certified that, in her opinion, one or more of the exemptions as set forth in 5 U.S.C. 552b(c)(3), (5), (7), (9)(B) and and (10) and 17 CFR 200.402(a)(3), (5), (7), (9)(ii) and (10), permit consideration of the scheduled matter at the Closed Meeting. Commissioner Stein, as duty officer, voted to consider the items listed for the Closed Meeting in closed session, and determined that Commission business required consideration earlier than one week from today. No earlier notice of this meeting was practicable. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact the Office of the Secretary at (202) 551–5400. CHANGE IN THE MEETING: Dated: December 4, 2015. Brent J. Fields, Secretary. [FR Doc. 2015–31106 Filed 12–7–15; 11:15 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–76554; File No. SR– NYSEMKT–2015–96] Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Rule 107C— Equities To Distinguish Between Retail Orders Routed on Behalf of Other Broker-Dealers and Retail Orders That Are Routed on Behalf of Introduced Retail Accounts That Are Carried on a Fully Disclosed Basis December 3, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 19, 2015, NYSE MKT LLC (the ‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘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 The Exchange proposes to amend Rule 107C—Equities (Retail Liquidity Program) to distinguish between retail orders routed on behalf of other brokerdealers and retail orders that are routed on behalf of introduced retail accounts that are carried on a fully disclosed basis. The proposed rule change is available on the Exchange’s Web site at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. 1 15 20 17 PO 00000 CFR 200.30–3(a)(12). Frm 00156 Fmt 4703 Sfmt 4703 2 17 E:\FR\FM\09DEN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 09DEN1 Federal Register / Vol. 80, No. 236 / Wednesday, December 9, 2015 / Notices A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change mstockstill on DSK4VPTVN1PROD with NOTICES 1. Purpose The Exchange proposes to amend Rule 107C—Equities (‘‘Rule 107C’’), which governs the Exchange’s Retail Liquidity Program (the ‘‘Program’’), to distinguish between orders routed on behalf of other broker-dealers and orders routed on behalf of introduced retail accounts that are carried on a fully disclosed basis, as further described below. The Exchange established the Program in an attempt to attract retail order flow to the Exchange, primarily by offering pricing incentives. Under the Program, Retail Member Organizations 3 (‘‘RMOs’’) are permitted to submit Retail Orders,4 and receive rebates for added liquidity that are higher than the exchanges [sic] standard rebates for added liquidity.5 Rule 107C(b)(1) currently states that ‘‘[t]o qualify as a Retail Member Organization, a member organization must conduct a retail business or handle retail orders on behalf of another brokerdealer.’’ Rather than stating that one way to qualify as an RMO is to ‘‘handle’’ retail orders on behalf of another brokerdealer, the Exchange proposes to state that a member organization may qualify as an RMO if it ‘‘routes’’ retail orders on behalf of another broker-dealer. The Exchange believes that providing routing services on behalf of other broker-dealers with retail order flow better represents the function that member organizations would be performing on behalf of other brokerdealers. Thus, the Exchange believes that the description would be more transparent if it referred to routing services provided to another brokerdealer with retail customers. The Exchange also proposes to distinguish such routing services on behalf of another broker-dealer from services provided by broker-dealers that carry retail customer accounts on a fully disclosed basis, as described below. 3 As defined in Rule 107C(a)(2), a Retail Member Organization is a member organization (or division thereof) that has been approved by the Exchange under Rule 107C to submit Retail Orders. 4 As defined in Rule 107C(a)(3), a Retail Order is an agency order or a riskless principal order that meets the criteria of FINRA Rule 5320.03 that originates from a natural person and is submitted to the Exchange by a Retail 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. 5 See the Exchange’s Price List, available at https://www.nyse.com/publicdocs/nyse/markets/ nyse-mkt/NYSE_MKT_Equities_Price_List.pdf. VerDate Sep<11>2014 18:21 Dec 08, 2015 Jkt 238001 As background with respect to the proposed change, the Exchange first would like to describe the terms ‘‘introducing broker’’, ‘‘carrying firm’’ or ‘‘carrying broker-dealer’’, and ‘‘fully disclosed,’’ as such terms are commonly used in the securities industry. An ‘‘introducing’’ broker-dealer is ‘‘one that has a contractual arrangement with another firm, known as the carrying or clearing firm, under which the carrying firm agrees to perform certain services for the introducing firm. Usually, the introducing firm submits its customer accounts and customer orders to the carrying firm, which executes the orders and carries the account. The carrying firm’s duties include the proper disposition of the customer funds and securities after the trade date, the custody of customer securities and funds, and the recordkeeping associated with carrying customer accounts.’’ 6 Further, a ‘‘fully disclosed’’ introducing arrangement is ‘‘distinguished from an omnibus clearing arrangement where the clearing firm maintains one account for all the customer transactions of the introducing firm. In an omnibus relationship, the clearing firm does not know the identity of the customers of the introducing firm. In a fully disclosed clearing arrangement, the clearing firm knows the names, addresses, securities positions and other relevant data as to each customer.’’ 7 With respect to a broker-dealer that is routing on behalf of another brokerdealer, the Exchange does not believe that the routing broker-dealer has sufficient information to assess whether orders are truly retail in nature, and thus, requires an RMO routing on behalf of other broker-dealers to maintain additional supervisory procedures and obtain annual attestations, as described below, in order to submit Retail Orders to the Exchange. In contrast, however, if a member organization is carrying a customer account on a fully disclosed basis, then such carrying broker-dealer is required to perform certain diligence regarding such account that the Exchange believes is sufficient to assess whether a customer is a retail customer in order to submit orders on behalf of such a customer to the Exchange as a Retail Order. The carrying broker of an account typically handles orders from its retail customers that are ‘‘introduced’’ by an introducing broker. However, as noted above, in contrast to a typical routing relationship on behalf of another broker-dealer, a carrying 6 See Securities Exchange Act Release No. 31511 (Nov. 24, 1992), 57 FR 56973 (December 2, 1992). 7 Id. PO 00000 Frm 00157 Fmt 4703 Sfmt 4703 76599 broker obtains a significant level of information regarding each customer introduced by the introducing broker. Accordingly, the Exchange proposes to state in Rule 107C(b)(1) that for purposes of Rule 107C, ‘‘conducting a retail business includes carrying retail customer accounts on a fully disclosed basis.’’ Rule 107C(b)(6) currently states, in part, that ‘‘[i]f a Retail Member Organization represents Retail Orders from another broker-dealer customer, the Retail 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 Orders meet the definition of a Retail Order.’’ This includes obtaining attestations from the other brokerdealers for whom the RMO routes. In addition to the proposed changes to Rule 107C(b)(1) described above, the Exchange proposes to modify the language of Rule 107C(b)(6) to again distinguish between an RMO that conducts a retail business because it carries accounts on a fully disclosed basis from an RMO that routes orders on behalf of another broker-dealer. As proposed, the additional annual written representation requirements of Rule 107C(b)(6) would apply to an RMO that does not itself conduct a retail business but routes Retail Orders on behalf of other broker-dealers. In turn, such additional annual written representation requirements of Rule 107C(b)(6) would not apply to an RMO that carries retail customer accounts on a fully disclosed basis. In connection with this change, the Exchange is proposing various edits to the existing rule text so that the reference is consistently to ‘‘other broker-dealers’’ rather than ‘‘brokerdealer customers.’’ The Exchange believes that allowing an RMO that carries retail customer accounts on a fully disclosed basis to submit Retail Orders to the Exchange without obtaining attestations from broker-dealers that might introduce such accounts will encourage participation in the Program. As noted above, the Exchange believes that the carrying broker has sufficient information to itself confirm that orders are Retail Orders without such attestations. The Exchange still believes it is necessary to require the attestation by broker-dealers that route Retail Orders on behalf of other broker-dealers, because, in contrast, such broker-dealers typically do not have a relationship with the retail customer and would not be in position to confirm that such customers are in fact retail customers. E:\FR\FM\09DEN1.SGM 09DEN1 76600 Federal Register / Vol. 80, No. 236 / Wednesday, December 9, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,8 in general, and furthers the objectives of Section 6(b)(5) of the Act,9 in particular, in that 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 facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices because it highlights the parties for whom additional procedures are required because they do not maintain relationships with the end customer (i.e., routing brokers) and still requires the RMO to follow such procedures to ensure that such orders qualify as Retail Orders. As proposed, however, an RMO would not be required to follow such procedures, including obtaining annual attestations, to the extent such RMO actually knows the end customer and carries the account of such customer and thus can itself confirm that the orders qualify as Retail Orders. The Exchange believes that the proposed rule change will remove impediments to and perfect the mechanism of a free and open market and a national market system because it will allow RMOs that carry retail customer accounts to participate in the Program without imposing additional attestation requirements that the Exchange did not initially intend to impose upon them. By removing impediments to participation in the Program, the proposed change would permit expanded access of retail customers to the Program. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the amendment, by increasing the level of participation in the Program, will increase the level of competition around retail executions. The Exchange believes that the transparency and competitiveness of operating a program such as the Program on an exchange market would 8 15 9 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Sep<11>2014 18:21 Dec 08, 2015 Jkt 238001 result in better prices for retail investors and benefits retail investors by expanding the capabilities of Exchanges to encompass practices currently allowed on non-exchange venues. 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 10 and Rule 19b–4(f)(6) thereunder.11 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 for 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 investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 12 and Rule 19b–4(f)(6) thereunder.13 A proposed rule change filed under Rule 19b–4(f)(6) 14 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),15 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 proposed rule change may become operative immediately.16 In requesting the waiver, the Exchange stated its belief that having harmonized requirements for 10 15 U.S.C. 78s(b)(3)(A)(iii). 11 17 CFR 240.19b–4(f)(6). 12 15 U.S.C. 78s(b)(3)(A). 13 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) 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 Exchange has satisfied this requirement. 14 17 CFR 240.19b–4(f)(6). 15 17 CFR 240.19b–4(f)(6)(iii). 16 The Commission notes that another national securities exchange has a similar rule for its Retail Member Organizations and that the proposal does not raise any novel regulatory issues. See Securities Exchange Act Release No. 76207 (October 21, 2015), 80 FR 65824 (October 27, 2015) (SR–BYX–2015– 45). PO 00000 Frm 00158 Fmt 4703 Sfmt 4703 RMOs across multiple exchanges with a retail program would promote competition by enabling member organizations to operate as RMOs on multiple exchanges in the same manner. The Commission notes that, to become an RMO, a member organization would still be required under Exchange Rule 107C(b)(2)(C)—Equities to submit an attestation to the Exchange that substantially all orders submitted as Retail Orders would qualify as such under Exchange Rule 107C—Equities. Rather, the proposal would change when an RMO must obtain the annual written representation from other broker-dealers that send Retail Orders to the RMO. The Commission finds that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposal operative upon filing.17 At any time within 60 days of the filing of the 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 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEMKT–2015–96 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–2015–96. This 17 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). E:\FR\FM\09DEN1.SGM 09DEN1 Federal Register / Vol. 80, No. 236 / Wednesday, December 9, 2015 / Notices 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 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 the filing also will be available for inspection and copying at the principal offices 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– NYSEMKT–2015–96, and should be submitted on or before December 30, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Robert W. Errett, Deputy Secretary. [FR Doc. 2015–30945 Filed 12–8–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Proposed Collection; Comment Request mstockstill on DSK4VPTVN1PROD with NOTICES Upon Written Request Copies Available From: Securities and Exchange Commission, Office of Investor Education and Advocacy, Washington, DC 20549–0213. Extension: Rules 6a–1 and 6a–2, Form 1. SEC File No. 270–0017, OMB Control No. 3235–0017. Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (‘‘PRA’’), the Securities and Exchange Commission (‘‘Commission’’) is soliciting comments 18 17 CFR 200.30–3(a)(12), (59). VerDate Sep<11>2014 18:21 Dec 08, 2015 Jkt 238001 on the existing collection of information provided for in Rule 6a–1 (17 CFR 240.6–1), Rule 6–2 (17 CFR 240.6–2), and Form 1 (17 CFR 249.1) under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) (‘‘Exchange Act’’ or Act’’). The Commission plans to submit this existing collection of information to the Office of Management and Budget (‘‘OMB’’) for extension and approval. The Exchange Act sets forth a regulatory scheme for national securities exchanges. Rule 6–1 under the Act generally requires an applicant for initial registration as a national securities exchange to file an application with the Commission on Form 1. An exchange that seeks an exemption from registration based on limited trading volume also must apply for such exemption on Form 1. Rule 6– 2 under the Act requires registered and exempt exchanges: (1) To amend the Form 1 if there are any material changes to the information provided in the initial Form 1; and (2) to submit periodic updates of certain information provided in the initial Form 1, whether such information has changed or not. The information required pursuant to Rules 6–1 and 6–2 is necessary to enable the Commission to maintain accurate files regarding the exchange and to exercise its statutory oversight functions. Without the information submitted pursuant to Rule 6–1 on Form 1, the Commission would not be able to determine whether the respondent has met the criteria for registration (or an exemption from registration) set forth in Section 6 of the Exchange Act. The amendments and periodic updates of information submitted pursuant to Rule 6–2 are necessary to assist the Commission in determining whether a national securities exchange or exempt exchange is continuing to operate in compliance with the Exchange Act. Initial filings on Form 1 by new exchanges are made on a one-time basis. The Commission estimates that it will receive approximately one initial Form 1 filing per year and that each respondent would incur an average burden of 880 hours to file an initial Form 1 at an average internal labor cost per response of approximately $302,694. Therefore, the Commission estimates that the annual burden for all respondents to file the initial Form 1 would be 880 hours (one response/ respondent x one respondents x 880 hours/response) and an internal cost of compliance of $302,694 (one response/ respondent x one respondents x $302,694/response). There currently are 18 entities registered as national securities exchanges. The Commission estimates PO 00000 Frm 00159 Fmt 4703 Sfmt 9990 76601 that each registered or exempt exchange files nine amendments or periodic updates to Form 1 per year, incurring an average burden of 25 hours to comply with Rule 6–2. The SEC estimates that the average internal labor cost for a national securities exchange per response would be approximately $9,445. The Commission estimates that the annual burden for all respondents to file amendments and periodic updates to the Form 1 pursuant to Rule 6–2 is 4,050 hours (18 respondents x 25 hours/ response x nine responses/respondent per year) and an internal cost of compliance of $1,530,090 (18 respondents x $9,445/response x nine responses/respondent per year). Written comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission’s estimate of the burden of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. Please direct your written comments to: Pamela Dyson, Director/Chief Information Officer, Securities and Exchange Commission, c/o Remi PavlikSimon, 100 F Street NE., Washington, DC 20549, or send an email to: PRA_ Mailbox@sec.gov. Dated: December 2, 2015. Robert W. Errett, Deputy Secretary. [FR Doc. 2015–30866 Filed 12–8–15; 8:45 am] BILLING CODE 8011–01–P E:\FR\FM\09DEN1.SGM 09DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 80, Number 236 (Wednesday, December 9, 2015)]
[Notices]
[Pages 76598-76601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30945]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76554; File No. SR-NYSEMKT-2015-96]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Rule 107C--
Equities To Distinguish Between Retail Orders Routed on Behalf of Other
Broker-Dealers and Retail Orders That Are Routed on Behalf of
Introduced Retail Accounts That Are Carried on a Fully Disclosed Basis

December 3, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 19, 2015, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'')
filed with the Securities and Exchange Commission (``SEC'' or
``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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 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 Rule 107C--Equities (Retail
Liquidity Program) to distinguish between retail orders routed on
behalf of other broker-dealers and retail orders that are routed on
behalf of introduced retail accounts that are carried on a fully
disclosed basis. The proposed rule change is available on the
Exchange's Web site at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.

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

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

[[Page 76599]]

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 Rule 107C--Equities (``Rule 107C''),
which governs the Exchange's Retail Liquidity Program (the
``Program''), to distinguish between orders routed on behalf of other
broker-dealers and orders routed on behalf of introduced retail
accounts that are carried on a fully disclosed basis, as further
described below.
The Exchange established the Program in an attempt to attract
retail order flow to the Exchange, primarily by offering pricing
incentives. Under the Program, Retail Member Organizations \3\
(``RMOs'') are permitted to submit Retail Orders,\4\ and receive
rebates for added liquidity that are higher than the exchanges [sic]
standard rebates for added liquidity.\5\
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\3\ As defined in Rule 107C(a)(2), a Retail Member Organization
is a member organization (or division thereof) that has been
approved by the Exchange under Rule 107C to submit Retail Orders.
\4\ As defined in Rule 107C(a)(3), a Retail Order is an agency
order or a riskless principal order that meets the criteria of FINRA
Rule 5320.03 that originates from a natural person and is submitted
to the Exchange by a Retail 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.
\5\ See the Exchange's Price List, available at https://www.nyse.com/publicdocs/nyse/markets/nyse-mkt/NYSE_MKT_Equities_Price_List.pdf.
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Rule 107C(b)(1) currently states that ``[t]o qualify as a Retail
Member Organization, a member organization must conduct a retail
business or handle retail orders on behalf of another broker-dealer.''
Rather than stating that one way to qualify as an RMO is to ``handle''
retail orders on behalf of another broker-dealer, the Exchange proposes
to state that a member organization may qualify as an RMO if it
``routes'' retail orders on behalf of another broker-dealer. The
Exchange believes that providing routing services on behalf of other
broker-dealers with retail order flow better represents the function
that member organizations would be performing on behalf of other
broker-dealers. Thus, the Exchange believes that the description would
be more transparent if it referred to routing services provided to
another broker-dealer with retail customers. The Exchange also proposes
to distinguish such routing services on behalf of another broker-dealer
from services provided by broker-dealers that carry retail customer
accounts on a fully disclosed basis, as described below.
As background with respect to the proposed change, the Exchange
first would like to describe the terms ``introducing broker'',
``carrying firm'' or ``carrying broker-dealer'', and ``fully
disclosed,'' as such terms are commonly used in the securities
industry. An ``introducing'' broker-dealer is ``one that has a
contractual arrangement with another firm, known as the carrying or
clearing firm, under which the carrying firm agrees to perform certain
services for the introducing firm. Usually, the introducing firm
submits its customer accounts and customer orders to the carrying firm,
which executes the orders and carries the account. The carrying firm's
duties include the proper disposition of the customer funds and
securities after the trade date, the custody of customer securities and
funds, and the recordkeeping associated with carrying customer
accounts.'' \6\
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\6\ See Securities Exchange Act Release No. 31511 (Nov. 24,
1992), 57 FR 56973 (December 2, 1992).
---------------------------------------------------------------------------

Further, a ``fully disclosed'' introducing arrangement is
``distinguished from an omnibus clearing arrangement where the clearing
firm maintains one account for all the customer transactions of the
introducing firm. In an omnibus relationship, the clearing firm does
not know the identity of the customers of the introducing firm. In a
fully disclosed clearing arrangement, the clearing firm knows the
names, addresses, securities positions and other relevant data as to
each customer.'' \7\
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\7\ Id.
---------------------------------------------------------------------------

With respect to a broker-dealer that is routing on behalf of
another broker-dealer, the Exchange does not believe that the routing
broker-dealer has sufficient information to assess whether orders are
truly retail in nature, and thus, requires an RMO routing on behalf of
other broker-dealers to maintain additional supervisory procedures and
obtain annual attestations, as described below, in order to submit
Retail Orders to the Exchange. In contrast, however, if a member
organization is carrying a customer account on a fully disclosed basis,
then such carrying broker-dealer is required to perform certain
diligence regarding such account that the Exchange believes is
sufficient to assess whether a customer is a retail customer in order
to submit orders on behalf of such a customer to the Exchange as a
Retail Order. The carrying broker of an account typically handles
orders from its retail customers that are ``introduced'' by an
introducing broker. However, as noted above, in contrast to a typical
routing relationship on behalf of another broker-dealer, a carrying
broker obtains a significant level of information regarding each
customer introduced by the introducing broker. Accordingly, the
Exchange proposes to state in Rule 107C(b)(1) that for purposes of Rule
107C, ``conducting a retail business includes carrying retail customer
accounts on a fully disclosed basis.''
Rule 107C(b)(6) currently states, in part, that ``[i]f a Retail
Member Organization represents Retail Orders from another broker-dealer
customer, the Retail 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.'' This includes obtaining attestations
from the other broker-dealers for whom the RMO routes. In addition to
the proposed changes to Rule 107C(b)(1) described above, the Exchange
proposes to modify the language of Rule 107C(b)(6) to again distinguish
between an RMO that conducts a retail business because it carries
accounts on a fully disclosed basis from an RMO that routes orders on
behalf of another broker-dealer. As proposed, the additional annual
written representation requirements of Rule 107C(b)(6) would apply to
an RMO that does not itself conduct a retail business but routes Retail
Orders on behalf of other broker-dealers. In turn, such additional
annual written representation requirements of Rule 107C(b)(6) would not
apply to an RMO that carries retail customer accounts on a fully
disclosed basis. In connection with this change, the Exchange is
proposing various edits to the existing rule text so that the reference
is consistently to ``other broker-dealers'' rather than ``broker-dealer
customers.''
The Exchange believes that allowing an RMO that carries retail
customer accounts on a fully disclosed basis to submit Retail Orders to
the Exchange without obtaining attestations from broker-dealers that
might introduce such accounts will encourage participation in the
Program. As noted above, the Exchange believes that the carrying broker
has sufficient information to itself confirm that orders are Retail
Orders without such attestations. The Exchange still believes it is
necessary to require the attestation by broker-dealers that route
Retail Orders on behalf of other broker-dealers, because, in contrast,
such broker-dealers typically do not have a relationship with the
retail customer and would not be in position to confirm that such
customers are in fact retail customers.

[[Page 76600]]

2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\8\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\9\ in particular, in that 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 facilitating
transactions in securities, and to remove impediments to and perfect
the mechanism of a free and open market and a national market system.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices because it
highlights the parties for whom additional procedures are required
because they do not maintain relationships with the end customer (i.e.,
routing brokers) and still requires the RMO to follow such procedures
to ensure that such orders qualify as Retail Orders. As proposed,
however, an RMO would not be required to follow such procedures,
including obtaining annual attestations, to the extent such RMO
actually knows the end customer and carries the account of such
customer and thus can itself confirm that the orders qualify as Retail
Orders.
The Exchange believes that the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it will allow RMOs that carry retail
customer accounts to participate in the Program without imposing
additional attestation requirements that the Exchange did not initially
intend to impose upon them. By removing impediments to participation in
the Program, the proposed change would permit expanded access of retail
customers to the Program.

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

The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the amendment, by increasing the level of participation in the Program,
will increase the level of competition around retail executions. The
Exchange believes that the transparency and competitiveness of
operating a program such as the Program on an exchange market would
result in better prices for retail investors and benefits retail
investors by expanding the capabilities of Exchanges to encompass
practices currently allowed on non-exchange venues.

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 \10\ and Rule 19b-4(f)(6) thereunder.\11\
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 for 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
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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\10\ 15 U.S.C. 78s(b)(3)(A)(iii).
\11\ 17 CFR 240.19b-4(f)(6).
\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
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
Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ 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 proposed
rule change may become operative immediately.\16\ In requesting the
waiver, the Exchange stated its belief that having harmonized
requirements for RMOs across multiple exchanges with a retail program
would promote competition by enabling member organizations to operate
as RMOs on multiple exchanges in the same manner. The Commission notes
that, to become an RMO, a member organization would still be required
under Exchange Rule 107C(b)(2)(C)--Equities to submit an attestation to
the Exchange that substantially all orders submitted as Retail Orders
would qualify as such under Exchange Rule 107C--Equities. Rather, the
proposal would change when an RMO must obtain the annual written
representation from other broker-dealers that send Retail Orders to the
RMO. The Commission finds that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
Accordingly, the Commission hereby waives the 30-day operative delay
and designates the proposal operative upon filing.\17\
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ The Commission notes that another national securities
exchange has a similar rule for its Retail Member Organizations and
that the proposal does not raise any novel regulatory issues. See
Securities Exchange Act Release No. 76207 (October 21, 2015), 80 FR
65824 (October 27, 2015) (SR-BYX-2015-45).
\17\ 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 the 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 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEMKT-2015-96 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-2015-96. This

[[Page 76601]]

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 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 the filing also will be available
for inspection and copying at the principal offices 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-NYSEMKT-2015-
96, and should be submitted on or before December 30, 2015.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12), (59).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-30945 Filed 12-8-15; 8:45 am]
BILLING CODE 8011-01-P

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