Document ID: SEC-2015-0064-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2015-01-12T05:00Z

[Federal Register Volume 80, Number 7 (Monday, January 12, 2015)]
[Notices]
[Pages 1572-1575]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-00216]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73997; File No. SR-NYSE-2014-70]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Its Price List to Eliminate Transaction Fees for Midpoint 
Passive Liquidity Orders That Remove Liquidity From the Exchange and 
That Are Designated With a ``Retail'' Modifier as Defined in Rule 13

January 6, 2015.
    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 December 22, 2014, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
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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[[Page 1573]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Price List to eliminate 
transaction fees for Midpoint Passive Liquidity (``MPL'') Orders that 
remove liquidity from the Exchange and that are designated with a 
``retail'' modifier as defined in Rule 13. The Exchange proposes to 
implement the fee change effective January 2, 2015. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Price List to eliminate 
transaction fees for MPL Orders that remove liquidity from the Exchange 
and that are designated with a ``retail'' modifier as defined in Rule 
13. The Exchange proposes to implement the fee change effective January 
2, 2015.
    For securities priced $1.00 or greater, the Exchange currently 
charges a fee of $0.0025 per share per transaction for all MPL Orders 
\4\ that remove liquidity from the NYSE.\5\ Floor brokers are currently 
charged the same price for MPL Orders that remove liquidity from the 
Exchange. The Exchange proposes to eliminate the fee for all MPL Orders 
that remove liquidity from the Exchange and that are designated with a 
``retail'' modifier as defined in Rule 13, including MPL Orders entered 
by Floor brokers.
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    \4\ MPL Order is defined in Rule 13 as an undisplayed limit 
order that automatically executes at the mid-point of the protected 
best bid or offer (``PBBO'').
    \5\ MPL Orders that take liquidity do not count toward a 
member's or member organization's overall level of providing volume 
for purposes of other pricing on the Exchange that is based on such 
levels (e.g., the Tier 1, Tier 2 and Tier 3 Adding Credits).
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    To be eligible for the proposed pricing for MPL Orders, an MPL 
Order would need to meet the requirements to be designated as 
``retail'' pursuant to Rule 13. An order designated as ``retail'' under 
Rule 13 is an agency or riskless principal order that meets the 
criteria of Financial Industry Regulatory Authority, Inc. Rule 5320.03 
and that (1) originates from a natural person and (2) 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.\6\
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    \6\ An order designated as ``retail'' under Rule 13 is separate 
and distinct from a ``Retail Order'' within the Retail Liquidity 
Program under Rule 107C. The proposed rule change solely concerns 
orders designated as ``retail'' pursuant to Rule 13.
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    To submit an order with a ``retail'' modifier, a member or member 
organization must submit an attestation, in a form prescribed by the 
Exchange, that substantially all orders submitted as ``retail'' will 
qualify as such. Further, Rule 13 requires a member organization to 
have written policies and procedures reasonably designed to assure that 
it will only designate orders as ``retail'' if all requirements are 
met.\7\ In addition, a member organization would be required to 
designate such MPL Order as ``retail'' pursuant to Rule 13.\8\
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    \7\ Such written policies and procedures require the member 
organization to (1) exercise due diligence before entering a 
``retail'' order to assure that entry as a ``retail'' order is in 
compliance with the applicable requirements, and (2) 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 (ii) 
monitor whether its broker-dealer customer's ``retail'' order flow 
meets the applicable requirements.
    \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 by designating a 
particular member or member organization mnemonic used at the 
Exchange as a ``retail mnemonic.''
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    The Exchange proposes to retain the fee for MPL Orders (including 
Floor broker MPL Orders) that remove liquidity from the Exchange but 
that are not designated with a ``retail'' modifier at the current 
rates. The proposed amended Price List would distinguish MPL Orders 
that remove liquidity and that are designated as ``retail'' under Rule 
13, which would not be charged a fee, from MPL Orders that remove 
liquidity and that are not designated as ``retail'' under Rule 13, and 
which would continue to be charged the existing fee for MPL Orders that 
take liquidity. The Exchange proposes to make comparable amendments to 
the Price List relating to pricing applicable to Floor broker 
executions of MPL Orders.
    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,\9\ in general, and furthers the 
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\10\ in 
particular, because it provides for the equitable allocation of 
reasonable dues, fees, and other charges among its members, issuers and 
other persons using its facilities and does not unfairly discriminate 
between customers, issuers, brokers or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that removing a fee for MPL Orders that 
remove liquidity from the Exchange and that are designated as 
``retail'' is reasonable because it will encourage the submission of 
orders that meet the requirements to be designated as ``retail'' to the 
Exchange, thus enhancing order execution opportunities for all 
participants, but specifically retail investors. The ``retail'' 
modifier under Rule 13 along with its pricing is designed to 
incentivize the submission of additional retail order flow to a public 
market like the Exchange.\11\ Moreover, the Exchange believes that 
markets and price discovery optimally function through the interactions 
of diverse flow types, and also believes that growth in internalization 
has required differentiation of retail order flow from other order flow 
types. As the Exchange has previously noted, a significant percentage 
of the orders of individual investors are executed over-the-
counter.\12\ The Exchange

[[Page 1574]]

accordingly further believes that the proposed change is reasonable 
because it would contribute to maintaining or increasing the proportion 
of retail flow in Exchange-listed securities that are executed on a 
registered national securities exchange, rather than executing in off-
exchange venues.
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    \11\ Securities Exchange Act Release Nos. 72253 (May 27, 2014), 
79 FR 31353 (June 2, 2014) (SR-NYSE-2014-26) (introduction of 
``retail'' modifier under Rule 13).
    \12\ Securities Exchange Act Release Nos. 71879 (April 4, 2014), 
79 FR 19947 (April 10, 2014) (SR-NYSE-2014-15); see also Securities 
Exchange Act Release No. 34-73702 (Nov. 28, 2014), 79 FR 72049, 
72051 (Dec. 4, 2014) (order approving NASDAQ OMX BX Retail Price 
Improvement Program and noting that most marketable retail order 
flow is executed in the over-the-counter markets, pursuant to 
bilateral agreements, without ever reaching a public exchange) (``BX 
Retail Approval Order'').
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    Finally, the Exchange notes that while the proposed price change 
would treat retail order flow differently from order flow submitted by 
other market participants, such segmentation would not be inconsistent 
with Section 6(b)(5) of the Act,\13\ which requires that the rules of 
an exchange are not designed to permit unfair discrimination. The 
Commission has previously recognized that the markets generally 
distinguish between retail investors, whose orders are considered 
desirable by liquidity providers because such retail investors are 
presumed on average to be less informed about short-term price 
movements, and professional traders, whose orders are presumed on 
average to be more informed.\14\ The Commission has further recognized 
that, because of this distinction, liquidity providers are generally 
inclined to offer price improvement to less informed retail orders than 
to more informed professional orders.\15\ The Exchange believes that 
the differentiation proposed herein is not designed to permit unfair 
discrimination, but instead is reasonably designed to attract retail 
flow to the Exchange, while helping to ensure that retail investors 
benefit from the better price that liquidity providers are willing to 
give their orders. The Exchange believes that the proposed increase of 
retail order flow to the Exchange might also create a desirable 
opportunity for institutional investors to interact with retail order 
flow that they are not able to reach currently. The Exchange therefore 
believes that the proposed change would further promote a competitive 
process around retail executions such that retail investors would 
receive better prices than they currently do through bilateral 
internalization arrangements. The Exchange believes that the 
transparency and competitiveness of the proposed rule change on an 
exchange market would result in better prices for retail investors.\16\ 
The proposed change is also equitable and not unfairly discriminatory 
because it would contribute to investors' confidence in the fairness of 
their transactions and because it would benefit all investors by 
increasing the liquidity pool and potential for price-improving 
executions at the Exchange.
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    \13\ 15 U.S.C. 78f(b)(5).
    \14\ See BX Retail Approval Order, at 72051.
    \15\ Id.
    \16\ See, e.g., Securities Exchange Act Release No. 67347 (July 
3, 2012), 77 FR 40673, 40680 (July 10, 2012) (SR-NYSE-2011-55) 
(order approving adoption of Retail Liquidity Program on a pilot 
basis). The Exchange notes that other markets offer separate non-
tier and tiered pricing for retail orders, see NASDAQ Price List, 
available at http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2, and EDGX Exchange Fee Schedule, 
available at http://www.directedge.com/trading/EDGXFeeSchedule.aspx, 
as well as retail price improvement pricing for ``Retail Orders'' 
that remove displayed liquidity or mid-point peg liquidity. See BATS 
BYX Exchange Fee Schedule, available at http://cdn.batstrading.com/resources/regulation/rule_book/BATS-Exchanges_Fee_Schedules.pdf 
[sic].
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    The proposed change is also equitable and not unfairly 
discriminatory because the ability to designate MPL Orders as 
``retail'' is available equally to all similarly situated members and 
member organizations that submit qualifying orders and satisfy the 
other related, existing requirements.
    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 the foregoing 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,\17\ 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 execution opportunities on the Exchange. For the same 
reasons, the proposed change also would not impose any burden on 
competition among market participants. The Exchange believes that while 
it is the first to offer orders with a ``retail'' modifier the ability 
to take at the mid-point for free through MPL Orders, providing 
significant price improvement, the proposed change also permits the 
Exchange to compete with other markets, including NASDAQ, which does 
not charge but provides a credit for designated Retail Orders that take 
liquidity in Retail Liquidity Provider programs,\18\ as well as over-
the-counter trading that offers mid-point executions at low fees.
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    \17\ 15 U.S.C. 78f(b)(8).
    \18\ See Securities Exchange Act Release Nos. 70860 (November 
13, 2013), 78 FR 69512 (November 19, 2013) (SR-NASDAQ-2013-138).
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    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees and rebates to remain competitive with other exchanges and 
with alternative trading systems that have been exempted from 
compliance with the statutory standards applicable to exchanges. 
Because competitors are free to modify their own fees and credits in 
response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
fee changes in this market may impose any burden on competition is 
extremely limited. As a result of all of these considerations, the 
Exchange does not believe that the proposed changes will impair the 
ability of member organizations or competing order execution venues to 
maintain their competitive standing in the financial markets.

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

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

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

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \19\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \20\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings

[[Page 1575]]

under Section 19(b)(2)(B)\21\ of the Act to determine whether the 
proposed rule change should be approved or disapproved.
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    \21\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2014-70 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2014-70. 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 Section, 100 F Street 
NE., Washington, DC 20549-1090, on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing will also be 
available for inspection and copying at the NYSE's principal office and 
on its Internet Web site at www.nyse.com. All comments received will be 
posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2014-70 and should be submitted on 
or before February 2, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-00216 Filed 1-9-15; 8:45 am]
BILLING CODE 8011-01-P