
[Federal Register Volume 80, Number 7 (Monday, January 12, 2015)]
[Notices]
[Pages 1546-1549]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-00211]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73992; File No. SR-NYSEARCA-2014-142]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Its 
Schedule of Fees and Charges for Exchange Services To Eliminate 
Transaction Fees for Midpoint Passive Liquidity Orders That Remove 
Liquidity From the Exchange and That Are Designated as ``Retail'' but 
Which Are Not Executed in the Retail Liquidity Program

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, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Schedule of Fees and Charges for 
Exchange Services (``Fee Schedule'') to eliminate transaction fees for 
Midpoint Passive Liquidity (``MPL'') orders that remove liquidity from 
the Exchange and that are designated as ``retail'' but which are not 
executed in the Retail Liquidity Program. 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 Fee Schedule to eliminate 
transaction fees for MPL orders that remove liquidity from the Exchange 
and that are designated as ``retail'' orders, but which are not 
executed in the Retail Liquidity Program. The Exchange proposes to 
implement the fee change effective January 2, 2015.
    For securities priced $1.00 or greater, the Exchange currently 
charges qualifying ETP Holders and Market Makers in Tier 1 \4\ and Tier 
2 \5\ a fee of $0.0030 per share for MPL orders \6\ in Tape A, B and C 
securities that remove liquidity from the NYSE Arca Book. Similarly, 
the current basic rate, which is applicable when tier rates do not 
apply, is $0.0030 per share for MPL orders in Tape A, B and C 
securities that remove liquidity from the NYSE Arca Book. The Exchange 
proposes to eliminate the fee for MPL orders that

[[Page 1547]]

remove liquidity from the NYSE Arca Book that are designated as retail 
orders and that meet the requirements of Rule 7.44(a)(3), but which are 
not executed in the Retail Liquidity Program \7\ (``Retail Orders'').
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    \4\ Tier 1 are ETP Holders and Market Makers that provide 
liquidity an average daily volume (``ADV'') per month of 0.70% or 
more of the US consolidated ADV (``CADV'') or provide liquidity an 
average daily share volume per month of 0.15% or more of the US CADV 
and are affiliated with an OTP Holder or OTP Firm that provides an 
ADV of electronic posted executions (including all account types) in 
Penny Pilot issues on NYSE Arca Options (excluding mini options) of 
at least 100,000 contracts, of which at least 25,000 contracts must 
be for the account of a market maker.
    \5\ Tier 2 are ETP Holders and Market Makers that provide 
liquidity an average daily share volume per month of 0.30% or more, 
but less than 0.70% of the US CADV.
    \6\ MPL Order is defined in Rule 7.31(h)(5) as a Passive 
Liquidity Order priced at the midpoint of the PBBO. Rule 7.31(h)(4) 
defines a Passive Liquidity Order as an order to buy or sell a 
stated amount of a security at a specified, undisplayed price.
    \7\ The Retail Liquidity Program is a pilot program designed to 
attract additional retail order flow to the Exchange for NYSE Arca-
listed securities and securities traded pursuant to unlisted trading 
privileges (``UTP Securities'') while also providing the potential 
for price improvement to such order flow. See Rule 7.44. See 
Securities Exchange Act Release No. 71176 (December 23, 2013), 78 FR 
79524 (December 30, 2013) (SR-NYSEArca-2013-107).
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    To be eligible to for the proposed pricing for MPL orders, an MPL 
order would need to meet the requirements of Rule 7.44(a)(3). Rule 
7.44(a)(3) defines a retail order as an agency order or a riskless 
principal order that meets the criteria of Financial Industry 
Regulatory Authority, Inc. Rule 5320.03 that originates from a natural 
person and is submitted to the Exchange by a Retail Member Organization 
(``RMO''),\8\ 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. An ETP Holder may designate an order a Retail Order either 
(1) by designating certain order entry ports at the Exchange as 
``Retail Order Ports'' and attesting, in a form and/or manner 
prescribed by the Exchange, that all orders submitted to the Exchange 
via such Retail Order Ports are Retail Orders; or (2) by means of a 
specific tag in the order entry message.\9\
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    \8\ ``RMO'' is defined in Rule 7.44(a)(2) as an ETP Holder that 
is approved by the Exchange to submit Retail Orders. However, an 
order designated as a Retail Order of an RMO for purposes of the 
Retail Liquidity Program is separate from the designation of an 
order as a Retail Order for purposes of existing pricing tiers in 
the Fee Schedule. See Securities Exchange Act Release No. 71722 
(March 13, 2014), 78 [sic] FR 15376 (March 19, 2014) (SR-NYSEArca-
2014-22) (``Arca Retail Approval Order'') [sic]. The proposed rule 
change solely concerns Retail Orders outside the Retail Liquidity 
Program.
    \9\ See, e.g., Securities Exchange Act Release No. 68322 
(November 29, 2012), 77 FR 72425 (December 5, 2012) (SR-NYSEArca-
2012-129). ETP Holders designating orders as Retail Orders by using 
a tag in the order entry message will be required to have written 
policies and procedures reasonably designed to assure that it will 
only designate orders as Retail Orders if all requirements of a 
Retail Order are met. The written policies and procedures must 
require the ETP Holder to (i) exercise due diligence before entering 
a Retail Order to assure that entry as a Retail Order is in 
compliance with the requirements specified by the Exchange, and (ii) 
monitor whether orders entered as Retail Orders meet the applicable 
requirements. If the ETP Holder represents Retail Orders from 
another broker-dealer customer, the ETP Holder'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 ETP Holder 
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 requirements 
specified by the Exchange, and (ii) monitor whether its broker-
dealer customer's Retail Order flow continues to meet the applicable 
requirements. See id.
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    The Exchange proposes to define the term ``Retail Orders'' 
separately in the Fee Schedule to distinguish the pricing applicable to 
orders designated as retail that are eligible for this proposed change, 
the existing Retail Order Tier and the existing Retail Orders that 
provide liquidity to the Book from the pricing applicable to executions 
of orders designated as retail in the Retail Liquidity Program, which 
are referred to in the Fee Schedule as ``RMO Retail Orders'' and are 
covered in the section of the Fee Schedule entitled ``Fees and Credits 
Applicable to Executions in the Retail Liquidity Program.'' As noted 
above, the Exchange proposes to define the term ``Retail Order'' in an 
earlier point of the Fee Schedule, thereby obviating the second 
definition currently in the Retail Order Tier section of the Fee 
Schedule. Accordingly, Exchange proposes to delete the phrase ``as 
defined in Rule 7.44(a)(3)'' in the Retail Order Tier.
    The Exchange proposes to retain the fees for MPL orders that remove 
liquidity from the Exchange but that are not designated as Retail 
Orders at the current rates. The proposed amended Fee Schedule would 
distinguish between MPL orders that remove liquidity and that are 
designated Retail Orders, which would not be charged a fee, from MPL 
orders that remove liquidity and that are not designated Retail Orders, 
and which would continue to be charged the existing fee for MPL Orders 
that take liquidity.
    The Exchange also proposes to add explanatory material to footnote 
2 of the Fee Schedule that orders with specific rates (e.g., MPL, 
Tracking Orders, Passive Liquidity Orders, Retail Orders that provide 
liquidity to the Book, Retail Price Improvement Orders, and RMO Retail 
Orders) may be used to qualify for volume thresholds but are not 
eligible for tiered rates.
    The proposed change is not otherwise intended to address any other 
issues, and the Exchange is not aware of any problems ETP Holders 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,\10\ in general, and furthers the 
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 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 Retail 
Orders 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. 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 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. The Exchange further believes that defining the term ``Retail 
Orders'' separately from the term ``RMO Retail Orders'' would provide 
transparency in the Fee Schedule concerning which pricing is applicable 
to which orders designated as retail, and specifically, that the 
proposed pricing change for MPL orders is only applicable to orders 
designated as ``retail'' that are not executed as part of the Retail 
Liquidity Program.
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    \12\ See Securities Exchange Act Release No. 71722 (March 13, 
2014), 78 [sic] FR 15376 (March 19, 2014) (SR-NYSEArca-2014-22); 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

[[Page 1548]]

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., Arca Retail Approval Order at 79528. 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 
Orders is available equally to all similarly situated ETP Holders 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 designated Retail Orders 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 ETP Holders 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 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-NYSEARCA-2014-142 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.


[[Page 1549]]


All submissions should refer to File Number SR-NYSEARCA-2014-142. 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-NYSEARCA-2014-142 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. 2015-00211 Filed 1-9-15; 8:45 am]
BILLING CODE 8011-01-P


