
[Federal Register Volume 78, Number 23 (Monday, February 4, 2013)]
[Notices]
[Pages 7842-7843]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02289]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68746; File No. SR-NYSEMKT-2013-07]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change Amending the Attestation Requirement of Rule 
107C--Equities 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, 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 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--Equities to 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)--Equities 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--Equities 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--
Equities, replacing the requirement that the RMO must attest that all 
submitted orders qualify as Retail Orders.
    Under current Rule 107C(b)(2)--Equities, 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--
Equities.\4\
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    \4\ A 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 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)--Equities, 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--
Equities, 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 order that do not qualify 
as Retail Orders that

[[Page 7843]]

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. 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-NYSEMKT-2013-07 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-2013-07. 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-NYSEMKT-2013-07 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. 2013-02289 Filed 2-1-13; 8:45 am]
BILLING CODE 8011-01-P


