
[Federal Register Volume 80, Number 236 (Wednesday, December 9, 2015)]
[Notices]
[Pages 76598-76601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30945]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76554; File No. SR-NYSEMKT-2015-96]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Rule 107C--
Equities To Distinguish Between Retail Orders Routed on Behalf of Other 
Broker-Dealers and Retail Orders That Are Routed on Behalf of 
Introduced Retail Accounts That Are Carried on a Fully Disclosed Basis

December 3, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 19, 2015, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I and II 
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 to amend Rule 107C--Equities (Retail 
Liquidity Program) to distinguish between retail orders routed on 
behalf of other broker-dealers and retail orders that are routed on 
behalf of introduced retail accounts that are carried on a fully 
disclosed basis. 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.

[[Page 76599]]

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 Rule 107C--Equities (``Rule 107C''), 
which governs the Exchange's Retail Liquidity Program (the 
``Program''), to distinguish between orders routed on behalf of other 
broker-dealers and orders routed on behalf of introduced retail 
accounts that are carried on a fully disclosed basis, as further 
described below.
    The Exchange established the Program in an attempt to attract 
retail order flow to the Exchange, primarily by offering pricing 
incentives. Under the Program, Retail Member Organizations \3\ 
(``RMOs'') are permitted to submit Retail Orders,\4\ and receive 
rebates for added liquidity that are higher than the exchanges [sic] 
standard rebates for added liquidity.\5\
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    \3\ As defined in Rule 107C(a)(2), a Retail Member Organization 
is a member organization (or division thereof) that has been 
approved by the Exchange under Rule 107C to submit Retail Orders.
    \4\ As defined in Rule 107C(a)(3), a Retail Order is an agency 
order or a riskless principal order that meets the criteria of FINRA 
Rule 5320.03 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.
    \5\ See the Exchange's Price List, available at https://www.nyse.com/publicdocs/nyse/markets/nyse-mkt/NYSE_MKT_Equities_Price_List.pdf.
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    Rule 107C(b)(1) currently states that ``[t]o qualify as a Retail 
Member Organization, a member organization must conduct a retail 
business or handle retail orders on behalf of another broker-dealer.'' 
Rather than stating that one way to qualify as an RMO is to ``handle'' 
retail orders on behalf of another broker-dealer, the Exchange proposes 
to state that a member organization may qualify as an RMO if it 
``routes'' retail orders on behalf of another broker-dealer. The 
Exchange believes that providing routing services on behalf of other 
broker-dealers with retail order flow better represents the function 
that member organizations would be performing on behalf of other 
broker-dealers. Thus, the Exchange believes that the description would 
be more transparent if it referred to routing services provided to 
another broker-dealer with retail customers. The Exchange also proposes 
to distinguish such routing services on behalf of another broker-dealer 
from services provided by broker-dealers that carry retail customer 
accounts on a fully disclosed basis, as described below.
    As background with respect to the proposed change, the Exchange 
first would like to describe the terms ``introducing broker'', 
``carrying firm'' or ``carrying broker-dealer'', and ``fully 
disclosed,'' as such terms are commonly used in the securities 
industry. An ``introducing'' broker-dealer is ``one that has a 
contractual arrangement with another firm, known as the carrying or 
clearing firm, under which the carrying firm agrees to perform certain 
services for the introducing firm. Usually, the introducing firm 
submits its customer accounts and customer orders to the carrying firm, 
which executes the orders and carries the account. The carrying firm's 
duties include the proper disposition of the customer funds and 
securities after the trade date, the custody of customer securities and 
funds, and the recordkeeping associated with carrying customer 
accounts.'' \6\
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    \6\ See Securities Exchange Act Release No. 31511 (Nov. 24, 
1992), 57 FR 56973 (December 2, 1992).
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    Further, a ``fully disclosed'' introducing arrangement is 
``distinguished from an omnibus clearing arrangement where the clearing 
firm maintains one account for all the customer transactions of the 
introducing firm. In an omnibus relationship, the clearing firm does 
not know the identity of the customers of the introducing firm. In a 
fully disclosed clearing arrangement, the clearing firm knows the 
names, addresses, securities positions and other relevant data as to 
each customer.'' \7\
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    \7\ Id.
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    With respect to a broker-dealer that is routing on behalf of 
another broker-dealer, the Exchange does not believe that the routing 
broker-dealer has sufficient information to assess whether orders are 
truly retail in nature, and thus, requires an RMO routing on behalf of 
other broker-dealers to maintain additional supervisory procedures and 
obtain annual attestations, as described below, in order to submit 
Retail Orders to the Exchange. In contrast, however, if a member 
organization is carrying a customer account on a fully disclosed basis, 
then such carrying broker-dealer is required to perform certain 
diligence regarding such account that the Exchange believes is 
sufficient to assess whether a customer is a retail customer in order 
to submit orders on behalf of such a customer to the Exchange as a 
Retail Order. The carrying broker of an account typically handles 
orders from its retail customers that are ``introduced'' by an 
introducing broker. However, as noted above, in contrast to a typical 
routing relationship on behalf of another broker-dealer, a carrying 
broker obtains a significant level of information regarding each 
customer introduced by the introducing broker. Accordingly, the 
Exchange proposes to state in Rule 107C(b)(1) that for purposes of Rule 
107C, ``conducting a retail business includes carrying retail customer 
accounts on a fully disclosed basis.''
    Rule 107C(b)(6) currently states, in part, that ``[i]f a Retail 
Member Organization represents Retail Orders from another broker-dealer 
customer, the Retail 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.'' This includes obtaining attestations 
from the other broker-dealers for whom the RMO routes. In addition to 
the proposed changes to Rule 107C(b)(1) described above, the Exchange 
proposes to modify the language of Rule 107C(b)(6) to again distinguish 
between an RMO that conducts a retail business because it carries 
accounts on a fully disclosed basis from an RMO that routes orders on 
behalf of another broker-dealer. As proposed, the additional annual 
written representation requirements of Rule 107C(b)(6) would apply to 
an RMO that does not itself conduct a retail business but routes Retail 
Orders on behalf of other broker-dealers. In turn, such additional 
annual written representation requirements of Rule 107C(b)(6) would not 
apply to an RMO that carries retail customer accounts on a fully 
disclosed basis. In connection with this change, the Exchange is 
proposing various edits to the existing rule text so that the reference 
is consistently to ``other broker-dealers'' rather than ``broker-dealer 
customers.''
    The Exchange believes that allowing an RMO that carries retail 
customer accounts on a fully disclosed basis to submit Retail Orders to 
the Exchange without obtaining attestations from broker-dealers that 
might introduce such accounts will encourage participation in the 
Program. As noted above, the Exchange believes that the carrying broker 
has sufficient information to itself confirm that orders are Retail 
Orders without such attestations. The Exchange still believes it is 
necessary to require the attestation by broker-dealers that route 
Retail Orders on behalf of other broker-dealers, because, in contrast, 
such broker-dealers typically do not have a relationship with the 
retail customer and would not be in position to confirm that such 
customers are in fact retail customers.

[[Page 76600]]

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\8\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\9\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 it 
highlights the parties for whom additional procedures are required 
because they do not maintain relationships with the end customer (i.e., 
routing brokers) and still requires the RMO to follow such procedures 
to ensure that such orders qualify as Retail Orders. As proposed, 
however, an RMO would not be required to follow such procedures, 
including obtaining annual attestations, to the extent such RMO 
actually knows the end customer and carries the account of such 
customer and thus can itself confirm that the orders qualify as Retail 
Orders.
    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 RMOs that carry retail 
customer accounts to participate in the Program without imposing 
additional attestation requirements that the Exchange did not initially 
intend to impose upon them. By removing impediments to participation in 
the Program, the proposed change would permit expanded access of retail 
customers to the Program.

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. The 
Exchange believes that the transparency and competitiveness of 
operating a program such as the 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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative immediately.\16\ In requesting the 
waiver, the Exchange stated its belief that having harmonized 
requirements for RMOs across multiple exchanges with a retail program 
would promote competition by enabling member organizations to operate 
as RMOs on multiple exchanges in the same manner. The Commission notes 
that, to become an RMO, a member organization would still be required 
under Exchange Rule 107C(b)(2)(C)--Equities to submit an attestation to 
the Exchange that substantially all orders submitted as Retail Orders 
would qualify as such under Exchange Rule 107C--Equities. Rather, the 
proposal would change when an RMO must obtain the annual written 
representation from other broker-dealers that send Retail Orders to the 
RMO. The Commission finds that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Accordingly, the Commission hereby waives the 30-day operative delay 
and designates the proposal operative upon filing.\17\
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ The Commission notes that another national securities 
exchange has a similar rule for its Retail Member Organizations and 
that the proposal does not raise any novel regulatory issues. See 
Securities Exchange Act Release No. 76207 (October 21, 2015), 80 FR 
65824 (October 27, 2015) (SR-BYX-2015-45).
    \17\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the 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 to 
determine whether the proposed rule change should be approved or 
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-2015-96 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEMKT-2015-96. This

[[Page 76601]]

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 also will be available 
for inspection and copying at the principal offices 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 available 
publicly. All submissions should refer to File Number SR-NYSEMKT-2015-
96, and should be submitted on or before December 30, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12), (59).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-30945 Filed 12-8-15; 8:45 am]
BILLING CODE 8011-01-P


