Document ID: SEC-2013-0210-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2013-02-04T05:00Z

[Federal Register Volume 78, Number 23 (Monday, February 4, 2013)]
[Notices]
[Pages 7824-7826]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02290]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68747; File No. SR-NYSE-2013-08]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change Amending the Attestation 
Requirement of Rule 107C To Allow a Retail Member Organization To 
Attest That ``Substantially All'' Orders Submitted To The Retail 
Liquidity Program Will Qualify As ``Retail Orders''

January 28, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on January 17, 2012, New York Stock Exchange LLC (``NYSE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the attestation requirement of Rule 
107C to

[[Page 7825]]

allow a Retail Member Organization (``RMO'') to attest that 
``substantially all'' orders submitted to the Retail Liquidity Program 
(the ``Program'') will qualify as ``Retail Orders.'' Rule 107C(b)(2)(C) 
currently requires RMOs to attest that ``any order'' will so qualify, 
effectively preventing certain significant retail brokers from 
participating in the Program due to operational constraints. The text 
of the proposed rule change is available on the Exchange's Web site at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange is proposing an amendment to Rule 107C to provide that 
an RMO may attest that ``substantially all'' of the orders it submits 
to the Program are Retail Orders, as defined in Rule 107C, replacing 
the requirement that the RMO must attest that all submitted orders 
qualify as Retail Orders.
    Under current Rule 107C(b)(2), a member organization wishing to 
become an RMO must submit: (A) An application form; (B) supporting 
documentation; and (C) an attestation that ``any order'' submitted as a 
Retail Order will qualify as such under Rule 107C.\4\
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    \4\ A Retail Order is defined in Rule 107C(a)(3) as ``an agency 
order 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.''
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    The Exchange believes that the categorical nature of the current 
attestation language is preventing certain member organizations with 
retail customers from participating in the Program. In particular, the 
Exchange understands that some member organizations wishing to 
participate in the Program represent both ``Retail Orders,'' as defined 
in Rule 107C(a)(3), as well as other agency flow that may not meet the 
strict definition of ``Retail Order.'' The Exchange further understands 
that limitations in order management systems and routing networks used 
by such member organizations may make it infeasible for them to isolate 
100% of Retail Orders from other agency, non-Retail Order flow that 
they would direct to the Program. Unable to make the categorical 
attestation required by the current language of Rule 107C, some member 
organizations have chosen not to participate, notwithstanding that 
substantially all order flow from such member organizations would be 
Retail Orders. This limitation has the effect of preventing their 
retail customers from benefiting from the enhanced price competition 
and transparency of the Program.
    Accordingly, the Exchange is proposing a de minimis relaxation of 
the RMO attestation requirement in order to accommodate these system 
limitations and expand the access of retail customers to the benefits 
of the Program.
    Specifically, as proposed an RMO would be permitted to send de 
minimis quantities of agency orders to the Exchange as Retail Orders 
that cannot be explicitly attested to under existing definitions of the 
Program.
    The Exchange will issue a Trader Notice to make clear that the 
``substantially all'' language is meant to permit the presence of only 
isolated and de minimis quantities of agency orders that do not qualify 
as Retail Orders that cannot be segregated from Retail Orders due to 
systems limitations. In this regard, an RMO would need to retain, in 
its books and records, adequate substantiation that substantially all 
orders sent to the Exchange as Retail Orders met the strict definition 
and that those orders not meeting the strict definition are agency 
orders that cannot be segregated from Retail Orders due to system 
limitations, and are de minimis in terms of the overall number of 
Retail Orders sent to the Exchange.\5\
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    \5\ The Financial Industry Regulatory Authority, Inc. 
(``FINRA''), on behalf of the Exchange, will review a member 
organization's compliance with these requirements.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\6\ in general, and 
furthers the objectives of Section 6(b)(5),\7\ in particular, in that 
it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices because, while 
the proposed rule change represents a relaxation of the attestation 
requirements, the change is a de minimis relaxation that still requires 
the RMO applicant to attest that ``substantially all'' of its orders 
will qualify as Retail Orders. The slight relaxation will allow enough 
flexibility to accommodate system limitations while still ensuring that 
only a fractional amount of orders submitted to the Program would not 
qualify as Retail Orders.
    The Exchange believes that the proposed rule change promotes just 
and equitable principles of trade because it will ensure that similarly 
situated member organizations who have only slight differences in the 
capability of their systems will be able to equally benefit from the 
Program.
    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 member organizations, 
who are concerned about its system limitations not allowing 100% 
certification that submitted orders are Retail Orders, to still 
participate in the Program. By removing impediments to participation in 
the Program, the proposed change would permit expanded access of retail 
customers to the price improvement and transparency offered by the 
Program and thereby potentially stimulate further price competition for 
retail orders.

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 such 
that retail investors would receive better prices than they currently 
do on the Exchange and potentially through bilateral internalization 
arrangements.

[[Page 7826]]

The Exchange believes that the transparency and competitiveness of 
operating a program such as the Retail Liquidity 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2013-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2013-08. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference 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 will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make publicly available. All 
submissions should refer to File Number SR-NYSE-2013-08 and should be 
submitted on or before February 25, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02290 Filed 2-1-13; 8:45 am]
BILLING CODE 8011-01-P