
[Federal Register Volume 77, Number 156 (Monday, August 13, 2012)]
[Notices]
[Pages 48193-48196]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19742]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67609; File No. SR-NYSEMKT-2012-35]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Implementing Amendments 
to the NYSE MKT LLC Price List To Establish Pricing for the Retail 
Liquidity Program

August 7, 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 31, 2012, NYSE MKT LLC (``NYSE MKT'' 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.
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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 implementing amendments to the NYSE MKT LLC 
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, on the 
Commission's Web site at www.sec.gov, 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,

[[Page 48194]]

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 MKT Equities-traded securities \4\ while also 
providing the potential for price improvement to such order flow.
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    \3\ See Securities Exchange Act Release No. 67347 (July 3, 
2012), 77 FR 40673 (July 10, 2012) (SR-NYSEAmex-2011-84).
    \4\ ``NYSE MKT Equities-traded securities'' refers to all 
securities available to be traded on the Exchange, including, but 
not limited to, NYSE MKT-listed securities as well as those listed 
on the NASDAQ Stock Market LLC (``NASDAQ'') traded pursuant to 
unlisted trading privileges. See, e.g., Securities Exchange Act 
Release No. 62479 (July 9, 2010), 75 FR 41264 (July 15, 2010) (SR-
NYSEAmex-2010-31).
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    Two new classes of market participants were created under the 
Retail Liquidity Program: (1) Retail Member Organizations 
(``RMOs''),\5\ which are eligible to submit certain retail order flow 
(``Retail Orders'') \6\ to the Exchange, and (2) Retail Liquidity 
Providers (``RLPs''),\7\ which are required to provide potential price 
improvement for Retail Orders in the form of non-displayed interest 
(``Retail Price Improvement Orders'' or ``RPIs'') \8\ that is better 
than the best protected bid (``PBB'') or the best protected offer 
(``PBO'') (together, the ``PBBO'').\9\ Member organizations other than 
RLPs are also permitted, but not required, to submit RPIs.
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    \5\ ``RMO'' is defined in Rule 107C(a)(2)--Equities as a member 
organization (or a division thereof) that has been approved by the 
Exchange to submit Retail Orders.
    \6\ ``Retail Order'' is defined in Rule 107C(a)(3)--Equities 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 Rule 107C(k)--
Equities. A Retail Order may be an odd lot, round lot or a partial 
round lot (``PRL'').
    \7\ ``RLP'' is defined in Rule 107C(a)(1)--Equities 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 Rule 107C--Equities.
    \8\ ``RPI'' is defined in Rule 107C(a)(4)--Equities and consists 
of non-displayed interest in NYSE MKT Equities-traded 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.
    \9\ 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.
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    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.\10\ Accordingly, the 
Exchange proposes to adopt the following pricing: \11\
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    \10\ See Securities Exchange Act Release No. 65671 (November 2, 
2011), 76 FR 69774 (November 9, 2011) (SR-NYSEAmex-2011-84).
    \11\ 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.
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     RPIs of RLPs will be free if executed against Retail 
Orders. The Exchange notes that, as provided under Rule 107C(f)(3)--
Equities, the percentage requirement provided under Rule 107C(f)(1)--
Equities 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 Rule 107C(f)(1)--
Equities. An RLP that does not satisfy the percentage requirement of 
Rule 107C(f)(1)--Equities would be charged the $0.0003 per share rate 
described below for non-RLP member organizations.\12\
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    \12\ 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.
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     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'') \13\ during the month of at least 10,000 shares of 
RPIs will be free if executed against Retail Orders.\14\
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    \13\ ADV calculations exclude early closing days.
    \14\ The proposed 10,000 share threshold would include 
executions of all NYSE MKT Equities-traded securities, including, 
but not limited to, executions of NYSE MKT-listed securities as well 
as those listed on NASDAQ traded pursuant to unlisted trading 
privileges.
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     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 Exchange 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 $0.0028 per share (or $0.0030 for 
NASDAQ securities traded pursuant to unlisted trading privileges). 
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

[[Page 48195]]

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 MKT Equities-traded 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''),\15\ in general, and furthers the objectives of Section 
6(b)(4) of the Act,\16\ 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.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4).
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    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.\17\
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    \17\ 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.
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    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 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 believes that not charging RLPs that satisfy the 
percentage requirement of Rule 107C(f)(1)--Equities 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 10,000 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.\18\ 
Conversely, the Exchange believes that charging RLPs and non-RLP member 
organizations that do not satisfy the percentage requirements of Rule 
107C(f)(1)--Equities and the 10,000-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.
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    \18\ The Exchange believes that the 10,000-share ADV threshold 
is reasonable, equitable and not unfairly discriminatory because it 
is set at a level that, based on existing volume on the Exchange, 
the Exchange believes non-RLP member organizations would be 
reasonably able to satisfy. In this regard, the Exchange anticipates 
that it will assess non-RLP member organization RPI volume over 
time, and, to the extent the Exchange considers it reasonable and 
appropriate, may propose to modify the ADV threshold from the level 
proposed herein.
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    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to not charge an RLP for its executions of RPIs 
against a Retail Order during the first two calendar months of 
operation as an RLP, but to charge a non-RLP member organization for 
such executions unless it satisfies the 10,000-share ADV threshold. 
Specifically, while the Exchange believes that member organizations 
that elect to become RLPs will promptly endeavor to satisfy the 
applicable percentage requirement provided under Rule 107C(f)(1)--
Equities, the Exchange anticipates that RLPs will require a reasonable 
period of time to adjust their systems and trading to the Retail 
Liquidity Program. In this regard, the Exchange notes that non-RLP 
member organizations will not need to make such adjustments, as they 
are not subject to the percentage requirements of Rule 107C(f)--
Equities. Also, whereas an RLP may only enter an RPI for securities to 
which it is assigned, non-RLP member organizations may submit RPIs in 
all NYSE MKT Equities-traded securities. Accordingly, while non-RLP 
member organization executions of RPIs for all NYSE MKT Equities-traded 
securities would count toward satisfying the 10,000-share ADV 
threshold, only RLP executions of RPIs in assigned securities would 
count toward satisfying the percentage requirements of Rule 
107C(f)(1)--Equities.\19\
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    \19\ The Exchange notes that not charging RLPs during the first 
two calendar months of operation as an RLP is similar to the 
treatment of Supplemental Liquidity Providers during their first 
month of operating in such capacity. See Rule 107B--Equities.
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    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. 
Additionally, 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.

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) \20\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \21\

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thereunder, because it establishes a due, fee, or other charge imposed 
by NYSE MKT.
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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.

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-NYSEMKT-2012-35 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-NYSEMKT-2012-35. 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 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-NYSEMKT-2012-35 and should 
be submitted on or before September 4, 2012.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19742 Filed 8-10-12; 8:45 am]
BILLING CODE 8011-01-P


