Document ID: SEC-2012-1249-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2012-08-02T04:00Z

[Federal Register Volume 77, Number 149 (Thursday, August 2, 2012)]
[Notices]
[Pages 46137-46139]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-18894]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67529; File No. SR-NYSE-2012-30]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the New York Stock Exchange LLC Price List To Establish Pricing 
for the Retail Liquidity Program

July 27, 2012.
    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 July 18, 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 Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 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 its Price List to establish pricing 
for the Retail Liquidity Program. 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 proposes to amend its Price List to establish pricing 
for the Retail Liquidity Program, which has been approved by the 
Commission to operate for one year as a pilot program.\3\ The Exchange 
proposes to implement the fee changes on August 1, 2012. The Retail 
Liquidity Program is designed to attract additional retail order flow 
to the Exchange for NYSE-listed securities while also providing the 
potential for price improvement to such order flow.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 67347 (July 3, 
2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-55).
---------------------------------------------------------------------------

    Two new classes of market participants were created under the 
Retail Liquidity Program: (1) Retail Member Organizations 
(``RMOs''),\4\ which are eligible to submit certain retail order flow 
(``Retail Orders'') \5\ to

[[Page 46138]]

the Exchange, and (2) Retail Liquidity Providers (``RLPs''),\6\ which 
are required to provide potential price improvement for Retail Orders 
in the form of non-displayed interest (``Retail Price Improvement 
Orders'' or ``RPIs'') \7\ that is better than the best protected bid 
(``PBB'') or the best protected offer (``PBO'') (together, the 
``PBBO'').\8\ Member organizations other than RLPs are also permitted, 
but not required, to submit RPIs.
---------------------------------------------------------------------------

    \4\ ``RMO'' is defined in NYSE Rule 107C(a)(2) as a member 
organization (or a division thereof) that has been approved by the 
Exchange to submit Retail Orders.
    \5\ ``Retail Order'' is defined in NYSE Rule 107C(a)(3) as an 
agency order that originates from a natural person and is submitted 
to the Exchange by an RMO, provided that no change is made to the 
terms of the order with respect to price or side of market and the 
order does not originate from a trading algorithm or any other 
computerized methodology. A Retail Order is an Immediate or Cancel 
Order and must operate in accordance with NYSE Rule 107C(k). A 
Retail Order may be an odd lot, round lot or a partial round lot 
(``PRL'').
    \6\ ``RLP'' is defined in NYSE Rule 107C(a)(1) as a member 
organization that is approved by the Exchange to act as such and 
that is required to submit Retail Price Improvement in accordance 
with NYSE Rule 107C.
    \7\ ``RPI'' is defined in NYSE Rule 107C(a)(4) and consists of 
non-displayed interest in NYSE-listed securities that is priced 
better than the PBB or PBO, as such terms are defined in Regulation 
NMS Rule 600(b)(57), by at least $0.001 and that is identified as 
such. Exchange systems will monitor whether RPI buy or sell 
interest, adjusted by any offset and subject to the ceiling or floor 
price, is eligible to interact with incoming Retail Orders. An RPI 
remains non-displayed in its entirety (the buy or sell interest, the 
offset, and the ceiling or floor). An RLP may only enter an RPI for 
securities to which it is assigned as RLP. An RPI may be an odd lot, 
round lot or a PRL.
    \8\ The terms ``protected bid'' and ``protected offer'' have the 
same meaning as defined in Regulation NMS Rule 600(b)(57). The PBB 
is the best-priced protected bid and the PBO is the best-priced 
protected offer. Generally, the PBB and PBO and the national best 
bid (``NBB'') and national best offer (``NBO''), respectively, will 
be the same. However, a market center is not required to route to 
the NBB or NBO if that market center is subject to an exception 
under Regulation NMS Rule 611(b)(1) or if such NBB or NBO is 
otherwise not available for an automatic execution. In such case, 
the PBB or PBO would be the best-priced protected bid or offer to 
which a market center must route interest pursuant to Regulation NMS 
Rule 611.
---------------------------------------------------------------------------

    In proposing the Retail Liquidity Program, the Exchange stated that 
it would submit a separate proposal to amend its Price List in 
connection with the Retail Liquidity Program.\9\ Accordingly, the 
Exchange proposes to adopt the following pricing:\10\
---------------------------------------------------------------------------

    \9\ Securities Exchange Act Release No. 65672 (November 2, 
2011), 76 FR 69788 (November 9, 2011) (SR-NYSE-2011-55).
    \10\ The Exchange notes that participation in the Retail 
Liquidity Program is optional and, accordingly, the pricing proposed 
herein would not apply to a member organization that does not choose 
to participate.
---------------------------------------------------------------------------

     RPIs of RLPs will be free if executed against Retail 
Orders. The Exchange notes that, as provided under NYSE Rule 
107(C)(f)(3), the percentage requirement thereunder is not applicable 
in the first two calendar months that a member organization operates as 
an RLP. Instead, the percentage requirement takes effect on the first 
day of the third consecutive calendar month that the member 
organization operates as an RLP. The Exchange proposes that, during the 
first two calendar months that a member organization operates as an 
RLP, the RLP's RPIs will be free if executed against Retail Orders, 
regardless of the percentage of the trading day at which the RLP 
maintains an RPI that is priced better than the PBBO. Thereafter, this 
proposed rate would only be applicable if the RLP satisfies the 
percentage requirement of NYSE Rule 107(C)(f). An RLP that does not 
satisfy the percentage requirement of NYSE Rule 107(C)(f) would be 
charged the $0.0003 per share rate described below for non-RLP member 
organizations.\11\
---------------------------------------------------------------------------

    \11\ The Exchange notes that the RPI executions of a member 
organization disqualified from acting as an RLP would thereafter be 
subject to the transaction pricing applicable to non-RLP member 
organizations.
---------------------------------------------------------------------------

     RPIs of non-RLP member organizations will be charged 
$0.0003 per share if executed against Retail Orders; provided, however, 
that RPIs of non-RLP member organizations that execute an average daily 
volume (``ADV'') \12\ during the month of at least 500,000 shares of 
RPIs will be free if executed against Retail Orders.
---------------------------------------------------------------------------

    \12\ ADV calculations exclude early closing days.
---------------------------------------------------------------------------

     Retail Orders of RMOs will receive a credit of $0.0005 per 
share if executed against RPIs of RLPs and other member organizations. 
The Exchange notes that an RMO submitting a Retail Order could choose 
one of three ways for the Retail Order to interact with available 
contra-side interest. First, a Type 1-designated Retail Order could 
interact only with available contra-side RPIs. These Type 1-designated 
Retail Orders would not interact with other available contra-side 
interest in Exchange systems or route to other markets. Portions of a 
Type 1-designated Retail Order that are not executed would be 
cancelled. Second, a Type 2-designated Retail Order could interact 
first with available contra-side RPIs and any remaining portion would 
be executed as a non-routable Regulation NMS-compliant Immediate or 
Cancel Order, which would sweep the Exchange's Book without being 
routed to other markets, and any remaining portion would be cancelled. 
Finally, a Type 3-designated Retail Order could interact first with 
available contra-side RPIs and any remaining portion would be executed 
as a routable NYSE Immediate or Cancel Order, which would sweep the 
Exchange's Book and be routed to other markets, and any remaining 
portion would be cancelled. A Retail Order that executes against the 
Book will be charged according to the standard rate applicable to non-
Retail Orders, which is currently $0.0023 per share (or $0.0022 per 
share if the RMO has satisfied the liquidity thresholds applicable to 
such rate, as described in the Price List). Also, the standard routing 
fee (i.e., $0.0030 per share) would apply to a Retail Order that is 
routed away from the Exchange and executed on another market.
    The Exchange proposes that the pricing described herein be 
applicable, unless otherwise amended at a later date, for so long as 
the Retail Liquidity Program is in effect. Because the Retail Liquidity 
Program has been approved to operate as a one-year pilot program, the 
Exchange anticipates that it will periodically review this pricing to 
seek to ensure that it contributes to the goal of the Retail Liquidity 
Program, which is designed to attract additional retail order flow to 
the Exchange for NYSE-listed securities while also providing the 
potential for price improvement to such order flow.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the 
``Act''),\13\ in general, and furthers the objectives of Section 
6(b)(4) of the Act,\14\ in particular, because it provides for the 
equitable allocation of reasonable dues, fees, and other charges among 
its members and issuers and other persons using its facilities and does 
not unfairly discriminate between customers, issuers, brokers or 
dealers.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is reasonable, 
equitable and not unfairly discriminatory because it would establish 
pricing designed to increase competition among execution venues, 
encourage additional liquidity and offer the potential for price 
improvement to retail investors. The Exchange notes that a significant 
percentage of the orders of individual investors are executed over-the-
counter.\15\
---------------------------------------------------------------------------

    \15\ See Concept Release on Equity Market Structure, Securities 
Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594 
(January 21, 2010) (noting that dark pools and internalizing broker-
dealers executed approximately 25.4% of share volume in September 
2009). See also 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). In her speech, Chairman 
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 believes that the $0.0005 credit proposed herein for 
executions of RMOs against RPIs is reasonable, equitable and not 
unfairly discriminatory because it will create a financial incentive to 
bring additional

[[Page 46139]]

retail order flow to a public market. The Exchange also believes 
applying standard non-Retail Order rates to Retail Orders that execute 
against the Book or that are routed away from the Exchange and executed 
on another market is reasonable, equitable and not unfairly 
discriminatory because these are the rates that would apply to such 
orders, but for the Retail Order designation. The Exchange also 
believes that not charging RLPs that satisfy the percentage requirement 
of NYSE Rule 107(C)(f) for their executions of RPIs is reasonable, 
equitable and not unfairly discriminatory because it will incentivize 
member organizations to become RLPs and therefore could result in 
greater price improvement for Retail Orders. Similarly, the Exchange 
believes that not charging non-RLP member organizations that execute an 
ADV of at least 500,000 shares of RPIs during the month for their 
executions of RPIs is reasonable, equitable and not unfairly 
discriminatory because it will incentivize such non-RLPs to submit RPIs 
for interaction with Retail Orders. Conversely, the Exchange believes 
that charging RLPs and non-RLP member organizations that do not satisfy 
the percentage requirements of NYSE Rule 107(C)(f) and the 500,000 
share ADV threshold, respectively, is reasonable, equitable and not 
unfairly discriminatory because it will incentivize RLPs and non-RLPs 
to submit RPIs and, therefore, contribute to robust amounts of RPI 
liquidity being available for interaction with the Retail Orders 
submitted by RMOs.
    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 
pricing proposed herein, like the Retail Liquidity Program itself, is 
not designed to permit unfair discrimination, but instead to 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 operating a program such as the 
Retail Liquidity Program on an exchange market, and the pricing related 
thereto, would result in better prices for retail investors.

 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.

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) \16\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \17\ thereunder, because it establishes a due, fee, or other 
charge imposed by NYSE.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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

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-2012-30 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-2012-30. 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 
a.m. and 3 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 publicly available. All 
submissions should refer to File Number SR-NYSE-2012-30 and should be 
submitted on or before August 23, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-18894 Filed 8-1-12; 8:45 am]
BILLING CODE 8011-01-P