
[Federal Register Volume 81, Number 74 (Monday, April 18, 2016)]
[Notices]
[Pages 22656-22659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08822]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77591; File No. SR-NYSE-2016-26]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Its Price List To Adopt a Rebate Program for the NYSE BondsSM 
System

April 12, 2016.
    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 March 29, 2016, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') 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 Price List, effective April 1, 
2016, to adopt a rebate program for the NYSE BondsSM system. 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.

[[Page 22657]]

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 Price List, effective April 1, 
2016, to adopt a rebate program for the NYSE Bonds system.
    The Exchange currently charges an execution fee per bond for orders 
that take liquidity from the NYSE Bonds Book. For executions of one to 
10 bonds, the Exchange charges $0.50 per bond; for executions of 11 to 
25 bonds, the Exchange charges $0.20 per bond; and for executions of 26 
bonds or more, the Exchange charges $0.10 per bond. The execution fees 
for bonds are subject to a $100.00 maximum fee per execution. The 
Exchange currently does not provide any rebates for bond transactions, 
other than rebates for bond liquidity providers that meet the 
requirements of Rule 88.\4\ The Exchange is not proposing any change to 
the bond liquidity provider rebate program.
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    \4\ There are currently no bond liquidity providers who meet the 
requirements of Rule 88 and therefore no rebates are currently 
provided under the program.
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    The Exchange proposes to adopt the Liquidity Provider Incentive 
Program, a voluntary rebate program relating to bonds pursuant to which 
the Exchange would pay Users \5\ of NYSE Bonds a monthly rebate 
provided Users who opt into the proposed rebate program meet specified 
quoting requirements. Under the program, the rebate payable would be 
based on the number of CUSIPs \6\ a User decides to quote. The more 
CUSIPs quoted by a User, the higher the rebate that would be payable by 
the Exchange to the User. The Exchange believes that the proposed 
changes would encourage additional displayed liquidity in bonds on the 
Exchange.
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    \5\ Rule 86(b)(2)(M) defines a User as any Member or Member 
Organization, Sponsored Participant, or Authorized Trader that is 
authorized to access NYSE Bonds.
    \6\ CUSIP stands for Committee on Uniform Securities 
Identification Procedures. A CUSIP number identifies most financial 
instruments, including: Stocks of all registered U.S. and Canadian 
companies, commercial paper, and U.S. government and municipal 
bonds. The CUSIP system--owned by the American Bankers Association 
and managed by Standard & Poor's--facilitates the clearance and 
settlement process of securities. See http://www.sec.gov/answers/cusip.htm.
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    As proposed, the rebate amount would be tiered based on the number 
of CUSIPs quoted by a User, as follows:

                  Liquidity Provider Incentive Program
------------------------------------------------------------------------
                                                                Monthly
                       Number of CUSIPs                          rebate
------------------------------------------------------------------------
400-599......................................................    $10,000
600-799......................................................     20,000
800 or more..................................................     30,000
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    To qualify for a rebate, a User would have to provide continuous 
two-sided quotes for at least eighty percent (80%) of the time during 
the Core Bond Trading Session \7\ for an entire calendar month. The 
Exchange would calculate each participating User's quoting performance 
beginning each month on a daily basis, up to and including the last 
trading day of a calendar month, to determine at the end of each month 
each User's monthly average. The Exchange would provide Users a report 
on a daily basis with quoting statistics so that Users can determine 
whether or not they are meeting the Exchange's current stated criteria. 
Under the program, Users must provide a two-sided quote for a minimum 
of hundred (100) bonds per side of the market with an average spread of 
half-point ($0.50) or less in CUSIPs whose average maturity is at least 
five (5) years as of the date the User provides a quote. Average 
maturity is calculated by determining the number of calendar days 
between the quote date and the maturity date of a bond. The resulting 
number (total days to maturity) is divided by 365 to derive the 
maturity in years.
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    \7\ The Core Bond Trading Session commences with the Core Bond 
Auction at 8:00 a.m. ET and concludes at 5:00 p.m. ET. See Rule 
86(i)(2).
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    As an incentive for Users to opt in to the Liquidity Provider 
Incentive Program, the Exchange proposes a lower quoting requirement of 
50% that would be applicable for the first calendar month after a User 
opts in. After the first calendar month, the User would be required to 
meet the 80% quoting requirement to receive a rebate. A User who first 
opts in, and who therefore would be subject to the 50% quoting 
requirement for the first calendar month, and then opts out, would not 
be entitled to the 50% quoting incentive if that User decides to opt in 
to the program again at a later date. The 50% quoting incentive would 
only be available to a User once for the first calendar month after the 
User first opts in to the Liquidity Provider Incentive Program.
    Users that opt in to the Liquidity Provider Incentive Program would 
be subject to a transaction fee for orders that provide liquidity to 
the NYSE Bonds Book of $0.50 per bond, and for orders that take 
liquidity from the NYSE Bonds Book, the current tiered fees would 
apply, i.e., $0.50 per bond for executions of one to 10 bonds, $0.20 
per bond for executions of 11 to 25 bonds and $0.10 per bond for 
executions of 26 bonds or more, with a maximum fee of $100 per 
execution. Users that do not opt in to the Liquidity Provider Incentive 
Program would be subject to the Exchange's standard fees and rebates, 
as currently provided on the Price List.
    The Liquidity Provider Incentive Program would be applicable on 
trading days, as determined by Securities Industry and Financial 
Markets Association (``SIFMA''),\8\ and not the Exchange.
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    \8\ The SIFMA holiday schedule for 2016 is available at http://www.sifma.org/services/holiday-schedule/#us2016.
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    As noted above, the Liquidity Provider Incentive Program would be 
voluntary and Users that wish to participate would be required to opt 
in by notifying the Exchange via electronic email. Users would be 
required to communicate to the Exchange their intention to opt in, or 
to opt out if they are already participating in the program, by the end 
of the Core Bond Trading Session on the first trading day of a calendar 
month.
    The Exchange proposes that if a User meets the quoting requirements 
for a given month, that User would be entitled to a rebate that month. 
As proposed, the amount of the rebate would be based on the number of 
CUSIPs in which the User met the quoting requirement. For example, a 
User who opts in to the Liquidity Provider Incentive Program on the 
first trading day of the month and provides a two-sided quote in 500 
CUSIPs, whose average maturity is at least five (5) years as of the 
quote date, for at least 50% of the time during the Core Bond Trading 
Session for that entire calendar month, would receive a rebate of 
$10,000 for that month. For subsequent months, this User would be 
required to provide a

[[Page 22658]]

two-sided quote for at least 80% of the time during the Core Bond 
Trading Session in order for the User to continue to receive the 
rebate.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and furthers the 
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\10\ 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. The Exchange believes 
that it is reasonable and equitable to adopt the Liquidity Provider 
Incentive Program for the bonds trading platform, which would provide 
rebates for member organizations that provide liquidity and meet 
quoting volume requirements. The proposed rebate program would provide 
incentives for additional liquidity at the Exchange. The Exchange 
believes that the proposed quoting requirements to qualify for rebates, 
which would be based on the size, spread and maturity dates, are 
reasonable and would not unfairly discriminate between customers, 
issuers, and brokers or dealers because all member organizations that 
opt in to the Liquidity Provider Incentive Program would be subject to 
the same requirements. The Exchange further believes that the proposed 
quoting requirements are reasonable because they are designed to 
provide an incentive for member organizations to increase displayed 
liquidity at the Exchange, thereby increasing traded volume.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4), (5).
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    The Exchange also believes it is reasonable and equitable to charge 
a fee to Users who opt in to the proposed rebate program when they 
provide liquidity in bonds traded on the Exchange. The proposed maker 
fee is intended to offset the significant rebates proposed by the 
Exchange, which would increase as the number of CUSIPs quoted by a User 
increases. The Exchange further believes the proposed fee change is not 
unfairly discriminatory because all member organizations that opt in to 
the Liquidity Provider Incentive Program would be subject to the same 
fees.
    Finally, recognizing the statements of Commissioners who have 
expressed concern about the state of the U.S. corporate and municipal 
bond markets as well as recommendations outlined in the Commission's 
release of its Report on the Municipal Securities Market (Report), the 
Exchange believes that amending the Exchange's transaction fees for the 
Bonds system would create an incentive for bonds traders to direct 
their liquidity to the Exchange, and therefore would be an important 
element in the democratization of the fixed income market.\11\ As 
highlighted in SEC Chair White's statement during the SEC's 2013 
Roundtable on Fixed Income Markets, the Report makes recommendations 
that include (1) improving pre- and post-trade transparency; (2) 
promoting the use of transparent and open trading venues; and (3) 
requiring dealers to seek ``best execution'' for customers and to 
provide customers with relevant pricing information in connection with 
their transactions.\12\ Achieving these recommendations and applying 
them to both the municipal and corporate bond markets would, in the 
Exchange's view, assist in lowering the systemic risk that is 
anticipated to increase as interest rates rise and the closed network 
of bond trading comes under pressure as retirement and pension managers 
seek to adjust their positions.
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    \11\ See SEC Report on the Municipal Securities Market, at 
http://www.sec.gov/news/studies/2012/-munireport073112.pdf; ``SEC's 
Gallagher Says Retail Bond Investors Fighting `Headwinds''', Jesse 
Hamilton, Bloomberg News. Sep 20, 2012. See http://www.bloomberg.com/news/2012-09-19/sec-s-gallagher-says-retail-bond-investors-fighting-headwinds-.html.
    \12\ See Opening remarks of Chairman Mary Jo White at SEC 
Roundtable on Fixed Income Markets. http://www.sec.gov/News/Speech/Detail/Speech/1365171515300.
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    The Exchange believes the proposed fee change is consistent with 
these principles and the proposed Liquidity Provider Incentive Program 
is intended to provide additional liquidity to the market and add 
competition to the existing group of liquidity providers. The Exchange 
believes that by requiring Users to quote within the prescribed 
parameters for a percentage of the regular trading day, and by paying 
them a rebate for providing liquidity in large number of bonds, the 
Exchange is rewarding aggressive liquidity providers in the market, and 
by doing so, the Exchange will encourage the additional utilization of, 
and interaction with, the NYSE and provide customers with the premier 
venue for price discovery, liquidity, and competitive quotes.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\13\ 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. Debt securities typically trade in a decentralized 
OTC dealer market that is less liquid and transparent than the equities 
markets. The Exchange believes that the proposed change would increase 
competition with these OTC venues by creating incentives to engage in 
bonds transactions on the Exchange and rewarding market participants 
for actively quoting and providing liquidity in the only transparent 
bond market, which the Exchange believes will enhance market quality.
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    \13\ 15 U.S.C. 78f(b)(8).
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    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues that 
are not transparent. In such an environment, the Exchange must 
continually review, and consider adjusting its fees and rebates to 
remain competitive with other exchanges as well as with alternative 
trading systems and other venues that are not required to comply 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 change will impair the ability of member 
organizations 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) \14\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \15\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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

[[Page 22659]]

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) \16\ 
of the Act to determine whether the proposed rule change should be 
approved or disapproved.
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    \16\ 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-NYSE-2016-26 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.

All submissions should refer to File Number SR-NYSE-2016-26. 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 available publicly. All 
submissions should refer to File Number SR-NYSE-2016-26, and should be 
submitted on or before May 9, 2016.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08822 Filed 4-15-16; 8:45 am]
 BILLING CODE 8011-01-P


