83 FR 48350 - Self-Regulatory Organizations; New York Stock Exchange LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Make Permanent the Retail Liquidity Program Pilot, Which Is Set To Expire on December 31, 2018
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 185 (September 24, 2018)
Federal Register Volume 83, Issue 185 (September 24, 2018)
| Page Range | 48350-48353 | |
| FR Document | 2018-20658 |
[Federal Register Volume 83, Number 185 (Monday, September 24, 2018)] [Notices] [Pages 48350-48353] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-20658] [[Page 48350]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-84183; File No. SR-NYSE-2018-28] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Make Permanent the Retail Liquidity Program Pilot, Which Is Set To Expire on December 31, 2018 September 18, 2018. I. Introduction On June 4, 2018, New York Stock Exchange LLC (``Exchange'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to make permanent the Exchange's Retail Liquidity Program Pilot (the ``Program''). The proposed rule change was published for comment in the Federal Register on June 21, 2018.\3\ On July 31, 2018, the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.\4\ The Commission received no comment letters on the proposed rule change. This order institutes proceedings under Section 19(b)(2)(B) of the Exchange Act \5\ to determine whether to approve or disapprove the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 83454 (June 15, 2018), 83 FR 28874 (``Notice''). \4\ See Securities Exchange Act Release No. 83749, 83 FR 38393 (August 6, 2018). The Commission designated September 19, 2018, as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. \5\ 15 U.S.C. 78s(b)(2)(B). --------------------------------------------------------------------------- II. Description of the Proposed Rule Change The Exchange proposes to make permanent Exchange Rule 107C, which sets forth the rules and procedures governing the Program. The Program was adopted to create a new class of market participants called Retail Liquidity Providers (``RLPs'') that would be able to provide potential price improvement to retail order flow. To do so, an RLP submits a Retail Price Improvement Order (``RPI''), which is a non-displayed order that is priced at least $0.001 better than the best protected bid (``PBB'') or best protected offer (``PBO'') (``PBBO''), as such terms are defined in Regulation NMS, and that is identified as such.\6\ After an RPI is submitted, the Exchange disseminates an indicator through its proprietary data feeds or through the Consolidation Quotation System, known as the Retail Liquidity Identifier, indicating that such interest exists.\7\ The Retail Liquidity Identifier reflects the symbol for the particular security and the side (buy or sell) of the RPI interest, but does not include the price or size of the RPI interest. In response to the Retail Liquidity Identifier, another class of market participants created under the Program, known as Retail Member Organizations (``RMOs''),\8\ may submit a Retail Order \9\ to interact with available contra-side RPIs. --------------------------------------------------------------------------- \6\ See NYSE Rule 107C(a)(4). \7\ See NYSE Rule 107C(j). \8\ See NYSE Rule 107C(a)(2). \9\ See NYSE Rule 107C(a)(3). --------------------------------------------------------------------------- To qualify as an RMO, a member organization must conduct a retail business or route retail orders on behalf of another broker-dealer.\10\ A member organization must submit the following to the Exchange for approval: (i) An application form, (ii) supporting documentation, and (iii) an attestation that substantially all orders sumibtted as retail orders will qualify as such. The Program provides for an appeal process for a disapproved applicant, and a withdraw process for RMOs. RMOs must have written policies and procedures reasonably designed to assure that they will only designate orders as Retail Orders if all requirements of a Retail Order are met. --------------------------------------------------------------------------- \10\ Conducting a retail business includes carrying retail custsomer accounts on a fully disclosed basis. See NYSE Rule 107C(b)(1). --------------------------------------------------------------------------- To qualify as an RLP, a member organization must submit an application form and supporting documentation to the Exchange for approval. A disapproved applicant may appeal or reapply 90 days after the disapproval notice. RLPs may only enter RPI orders electronically and directly into Exchange systems. In each of its assigned securities, RLPs must maintain certain requirements to have RPI Orders that are better than the PBB or PBO at least five percent of the trading day. RLPs may enter RPI Orders in non-assigned securities without regard to the five percent requirement. RMOs could be disqualified if they submit Retail Orders that do not meet the requirements of Retail Orders. If disqualified, RMOs may appeal and reapply. RLPs could lose their assigned securities or be disqualified if they do not meet the five percent requirement for three consecutive months. If disqualified, the RLP could appeal or reapply. The Exchange has set up a Program Panel to review disapproval or disqualification. Under the Program, there are three types of Retail Orders. A Type 1 Retail Order will interact only with available contra-side RPI Orders and Mid-Point Liquidity Orders (``MPL Orders''). A Type 1 Retail Order will not interact with other available contra-side interst or route to away markets. The unexecuted portion of a Type 1 Retail Order will be immediately cancelled. A Type 2 Retail Order will interact first with available contra-side RPI Orders and MPL Orders. Any remaining portion will be executed as a Regulation NMS-compliant immediate-or-cancel order.\11\ A Type 3 Retail Order will interact first with contra-side RPI Orders and MPL Orders. Any remaining portion will be executed as an NYSE immediate-or-cancel order.\12\ --------------------------------------------------------------------------- \11\ A Regulation NMS compliant immediate-or-cancel order will be automatically executed against the displayed quotation up to its full size and sweep the Exchange book without routing away. Portions not executed will be immediately cancelled. See NYSE Rule 13(b)(2)(A). \12\ An NYSE immediate-or-cancel order will be automatically executed against the displayed quotation up to its full size and sweep the Exchange book, with portions routed to away markets if an execution would trade through a protected quotation in compliance with Regulation NMS. Portions not executed will be immediately cancelled. See NYSE Rule 13(b)(2)(B). --------------------------------------------------------------------------- The Program provides that RPI Orders will be ranked and allocated according to price-time priority. The Program considers all eligible RPI Orders and MPL Orders to determine the price to execute a Retail Order. If there are only RPI Orders, then execution occurs at the price level that completes the incoming order's execution. If there are only MPL Orders, then a Retail Order will executes at the mid-point of the PBBO. If both RPI and MPL Orders are present, the Exchange will evaluate at the price level at which an incoming Retail Order will execute in full (``clean up price''). If the clean up price is equal to the mid-point of the PBBO, RPI Orders will receive priority over MPL Orders, and Retail Orders will execute against both RPI and Mid-Point Liquidity Orders at the midpoint. If the clean up price is worse than the mid-point of the PBBO, a Retail Order will execute first with the MPL Orders at the midpoint of the PBBO, and any remaining Retail Orders will execute with the RPI Orders at the clean up price. If the clean up price is better than the mid-point of the PBBO, then a Retail Order will execute against RPI Orders at the clean up price and will ignore the MPL Orders. [[Page 48351]] A more detailed description of how the Program operates, including, but not limited to, how a member organization may qualify and apply to become a RMO; the requirements of RLPs; different types of Retail Orders; and prioriy and order allocation of RPI orders is more fully set forth in the Notice.\13\ --------------------------------------------------------------------------- \13\ See Notice, supra note 3, at 28875-78. --------------------------------------------------------------------------- In July 2012, the Commission approved the Program on a pilot basis (``RLP Approval Order'').\14\ As set forth in the RLP Approval Order, the Commission approved the Program on a pilot basis to allow the Exchange and market participants to gain valuable practical experience with the Program during the pilot period, and to allow the Commission to determine whether modifications to the Program were necessary or appropriate prior to any Commission decision to approve the Program on a permanent basis.\15\ Indeed, the Exchange has modified aspects of Exchange Rule 107C on several occasions during the pilot period.\16\ Additionally, as part of the RLP Approval Order, the Exchange agreed to provide the Commission with a significant amount of data to assist the Commission's evaluation of the Program.\17\ Specifically, the Exchange represented that it would ``produce data throughout the pilot, which will include statistics about participation, the frequency and level of price improvement provided by the Program, and any effects on the broader market structure.'' \18\ The Commission expected the Exchange to monitor the scope and operation of the Program and study the data produced during that time with respect to such issues.\19\ --------------------------------------------------------------------------- \14\ See Securities Exchange Act Release No. 67347 (July 3, 2012), 77 FR 40673, 74 (July 10, 2012) (SR-NYSE-2011-55). In addition to approving the Program on a pilot basis, the Commission granted the Exchange's request for exemptive relief from Rule 612 of Regulation NMS, 17 CFR 242.612 (``Sub-Penny Rule''), which among other things prohibits a national securities exchange from accepting or ranking orders priced greater than $1.00 per share in an increment smaller than $0.01. See id. The Sub-Penny Rule exemption coincedes with the Program's expiration date. \15\ See id. \16\ See Securities Exchange Act Release Nos. 68709 (January 23, 2013) 78 FR 6160 (January 29, 2013) (NYSE-2013-04) (amending Exchange Rule 107C to clarify that RLPs may act in a non-RLP capacity for those securities to which RLP is not assigned, and as a result, may submit RPI Orders for those securities); 69513 (May 3, 2013) 78 FR 27261(May 9, 2013) (NYSE-2013-08) (allowing an RMO to attest that ``substantially all'' orders submitted to the Program will qualify as Retail Orders); 69103 (March 11, 2013) 78 FR 16547 (March 15, 2013) (NYSE-2013-20) (amending Rule 107C to clarify that an RMO may submit Retail Orders to the Program in a riskless principal capacity as well as in an agency capacity, provided that (i) the entry of such riskless principal orders meets the requirements of FINRA Rule 5320.03, including that the RMO maintains supervisory systems to reconstruct, in a time-sequenced manner, all Retail Orders that are entered on a riskless principal basis; and (ii) the RMO does not include non-retail orders together with the Retail Orders as part of the riskless principal transaction); 71330 (January 16, 2014) 79 FR 3895 (January 23, 2014) (NYSE-2013-71) (incorporating Midpoint Passive Liquidity Orders into the Program); and 76553 (December 5, 2015 80 FR 46607 (December 9, 2015) (NYSE- 2015-59) (amending Rule 107C 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). \17\ See RLP Approval Order, supra note 15, at 40681. \18\ See id. \19\ See id. --------------------------------------------------------------------------- Although the pilot period was originally scheduled to end on July 31, 2013, the Exchange filed to extend the operation of the pilot on several occasions, with the most recent extension being to provide more time for the Exchange to prepare this proposed rule change.\20\ The pilot is currently set to expire on December 31, 2018. --------------------------------------------------------------------------- \20\ See Securities Exchange Act Release Nos. 83540 (June 28, 2018), 83 FR 31234 (July 3, 2018) (SR-NYSE-2018-29) (extending pilot until December 31, 2018); 82230 (December 7, 2017), 82 FR 58667 (December 13, 2017) (SR-NYSE-2017-64) (extending pilot until June 30, 2018); 80844 (June 1, 2017), 82 FR 26562 (June 7, 2017) (SR- NYSE-2017-26) (extending pilot until December 31, 2017); 79493 (December 7, 2016), 81 FR 90019 (December 13, 2016) (SR-NYSE-2016- 82) (extending pilot until June 30, 2017); 78600 (August 17, 2016), 81 FR 57642 (August 23, 2016) (SR-NYSE-2016-54) (extending pilot until December 31, 2016); 77426 (March 23, 2016), 81 FR 17533 (March 29, 2016) (SR-NYSE-2016-25) (extending pilot until August 31, 2016); 5993 (September 28, 2015), 80 FR 59844 (October 2, 2015) (SR-NYSE- 2015-41) (extending pilot until March 31, 2016); 74454 (March 6, 2015), 80 FR 13054 (March 12, 2015) (SR-NYSE-2015-10) (extending pilot until September 30, 2015); 72629 (July 16, 2014), 79 FR 42564 (July 22, 2014) (NYSE-2014-35) (extending pilot until March 31, 2015); and No. 70096 (Aug. 2, 2013), 78 FR 48520 (Aug. 8, 2013) (SR- NYSE-2013-48) (extending pilot until July 31, 2014). --------------------------------------------------------------------------- The Exchange represents that as part of its assessment of the Program's potential impact, it has posted core weekly and daily summary data on its website for public investors to review, and that it has provided additional data to the Commission regarding potential investor benefits, including the level of price improvement provided by the Program.\21\ In addition, the Notice includes statistics about participation, frequency and level of price improvement and effective and realized spreads, upon which the Exchange relies to summarize its overall assessment of the Program.\22\ As more fully set forth in the Notice, the Exchange concludes that the Program has achieved its goal of attracting retail order flow and allowing such order flow to receive potential price improvement.\23\ Additionally, the Exchange concludes that the data relating to the Program ``demonstrates that the Program had an overall negligible impact on broader market structure.'' \24\ --------------------------------------------------------------------------- \21\ See Notice, supra note 3, at 28878. \22\ See id. at 28878-83 \23\ See id. at 28879. \24\ See id. --------------------------------------------------------------------------- III. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE- 2018-28 and Grounds for Disapproval Under Consideration The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Exchange Act \25\ to determine whether the proposed rule change should be approved or disapproved. Institution of such proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described below, the Commission seeks and encourages interested persons to provide comments on the proposed rule change. --------------------------------------------------------------------------- \25\ 15 U.S.C. 78s(b)(2)(B). --------------------------------------------------------------------------- Pursuant to Section 19(b)(2)(B) of the Exchange Act,\26\ the Commission is providing notice of the grounds for disapproval under consideration. The Commission is instituting proceedings to allow for additional analysis of the proposed rule change's consistency with Sections 6(b)(5) \27\ and 6(b)(8) \28\ of the Exchange Act. Section 6(b)(5) of the Exchange Act requires that the rules of a national securities exchange be designed, among other things, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. Section 6(b)(8) of the Exchange Act requires that the rules of a national securities exchange not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. --------------------------------------------------------------------------- \26\ Id. \27\ 15 U.S.C. 78f(b)(5). \28\ 15 U.S.C. 78f(b)(8). --------------------------------------------------------------------------- The Commission received numerous comment letters expressing concerns with respect to the Program when it was first proposed and eventually approved [[Page 48352]] on a pilot basis.\29\ The Program was intended to create additional price improvement opportunities for retail investors by segmenting retail order flow on the Exchange.\30\ When the Commission initially approved the Program on a pilot basis, it explained that it would monitor the Program throughout the pilot period for its potential effects on public price discovery and on the broader market structure.\31\ The Commission expressed its view that the Program should not cause a major shift in market structure, but instead, it would closely replicate the trading dynamics that exist in the over- the-counter markets to present another competitive venue for retail order flow execution.\32\ As explained above, the Exchange provides an analysis of what it considers to be the economic benefits for retail investors and the marketplace flowing from operation of the Program.\33\ The Exchange also concludes, among other things, that the Program had an overall negligible impact on the broader market structure.\34\ --------------------------------------------------------------------------- \29\ See RLP Approval Order, supra note 15, at 40673 n.4. \30\ See id., at 40679. \31\ See id., at 40680. \32\ See id. \33\ See supra notes 24-26, and Notice, supra note 3, at 28878- 83. \34\ See id. --------------------------------------------------------------------------- Under the Commission's Rules of Practice, the ``burden to demonstrate that a proposed rule change is consistent with the [Act] and the rules and regulations issued thereunder . . . is on the [SRO] that proposed the rule change.'' \35\ The description of a proposed rule change, its purpose and operation, its effect, and a legal analysis of its consistency with applicable requirements must all be sufficiently detailed and specific to support an affirmative Commission finding,\36\ and any failure of an SRO to provide this information may result in the Commission not having a sufficient basis to make an affirmative finding that a proposed rule change is consistent with the Act and the applicable rules and regulations.\37\ Moreover, ``unquestioning reliance'' on an SRO's representations in a proposed rule change would not be sufficient to justify Commission approval of a proposed rule change.\38\ --------------------------------------------------------------------------- \35\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 201.700(b)(3). \36\ See id. \37\ See id. \38\ See Susquehanna Int'l Group, LLP v. Securities and Exchange Commission, 866 F.3d 442, 446-47 (D.C. Cir. 2017) (rejecting the Commission's reliance on an SRO's own determinations without sufficient evidence of the basis for such determinations). --------------------------------------------------------------------------- The Commission questions whether the information and analysis provided by the Exchange in the Notice support the Exchange's conclusions that the Program has achieved its goals, including whether the Program has had an overall negligible impact on broader market structure. The Commission seeks additional information and analysis concerning the Program's impact on the broader market; for example, additional information to support the view that the Program has not had a material adverse impact on market quality, and consideration of any effects that fees and rebates may have had on the operation of the Program. The Commission believes it is appropriate to institute proceedings to allow for additional consideration and comment on the issues raised herein, any potential response to comments or supplemental information provided by the Exchange, and any additional independent analysis by the Commission. The Commission believes that these issues raise questions as to whether the the Exchange has met its burden to demonstrate, based on the data and analysis provided, that permanent approval of the Program is consistent with the Act, and specifically, with its requirements that the Program be designed to perfect the mechanism of a free and open market and the national market system, protect investors and the public interest, and not be unfairly discriminatory; or not impose an unnecessary or inappropriate burden on competition.\39\ --------------------------------------------------------------------------- \39\ See 15 U.S.C. 78f(b)(4), (5), and (8). --------------------------------------------------------------------------- IV. Procedure: Request for Written Comments The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the proposal. In particular, the Commission invites the written views of interested persons concerning whether the proposal is consistent with Sections 6(b)(5) and 6(b)(8), or any other provision of the Exchange Act, or the rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b-4, any request for an opportunity to make an oral presentation.\40\ --------------------------------------------------------------------------- \40\ Section 19(b)(2) of the Exchange Act, as amended by the Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the Commission flexibility to determine what type of proceeding--either oral or notice and opportunity for written comments--is appropriate for consideration of a particular proposal by a self-regulatory organization. See Securities Act Amendments of 1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). --------------------------------------------------------------------------- Interested persons are invited to submit written data, views, and arguments regarding whether the proposal should be approved or disapproved by October 15, 2018. Any person who wishes to file a rebuttal to any other person's submission must file that rebuttal by October 29, 2018. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-NYSE-2018-28 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 Numbers SR-NYSE-2018-28. 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 website (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 website 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 these filings also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All [[Page 48353]] submissions should refer to File Number SR-NYSE-2018-28 and should be submitted on or before October 15, 2018. Rebuttal comments should be submitted by October 29, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\41\ --------------------------------------------------------------------------- \41\ 17 CFR 200.30-3(a)(57). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-20658 Filed 9-21-18; 8:45 am] BILLING CODE 8011-01-P
![48350 Federal Register / Vol. 83, No. 185 / Monday, September 24, 2018 / Notices
SECURITIES AND EXCHANGE protected bid (‘‘PBB’’) or best protected for three consecutive months. If
COMMISSION offer (‘‘PBO’’) (‘‘PBBO’’), as such terms disqualified, the RLP could appeal or
are defined in Regulation NMS, and that reapply. The Exchange has set up a
[Release No. 34–84183; File No. SR–NYSE–
2018–28]
is identified as such.6 After an RPI is Program Panel to review disapproval or
submitted, the Exchange disseminates disqualification.
Self-Regulatory Organizations; New an indicator through its proprietary data Under the Program, there are three
York Stock Exchange LLC; Order feeds or through the Consolidation types of Retail Orders. A Type 1 Retail
Instituting Proceedings To Determine Quotation System, known as the Retail Order will interact only with available
Whether To Approve or Disapprove a Liquidity Identifier, indicating that such contra-side RPI Orders and Mid-Point
Proposed Rule Change To Make interest exists.7 The Retail Liquidity Liquidity Orders (‘‘MPL Orders’’). A
Permanent the Retail Liquidity Identifier reflects the symbol for the Type 1 Retail Order will not interact
Program Pilot, Which Is Set To Expire particular security and the side (buy or with other available contra-side interst
on December 31, 2018 sell) of the RPI interest, but does not or route to away markets. The
include the price or size of the RPI unexecuted portion of a Type 1 Retail
September 18, 2018. interest. In response to the Retail Order will be immediately cancelled. A
I. Introduction Liquidity Identifier, another class of Type 2 Retail Order will interact first
market participants created under the with available contra-side RPI Orders
On June 4, 2018, New York Stock Program, known as Retail Member and MPL Orders. Any remaining portion
Exchange LLC (‘‘Exchange’’) filed with Organizations (‘‘RMOs’’),8 may submit a will be executed as a Regulation NMS-
the Securities and Exchange Retail Order 9 to interact with available compliant immediate-or-cancel order.11
Commission (‘‘Commission’’), pursuant contra-side RPIs. A Type 3 Retail Order will interact first
to Section 19(b)(1) of the Securities To qualify as an RMO, a member with contra-side RPI Orders and MPL
Exchange Act of 1934 (‘‘Exchange organization must conduct a retail Orders. Any remaining portion will be
Act’’) 1 and Rule 19b–4 thereunder,2 a business or route retail orders on behalf executed as an NYSE immediate-or-
proposed rule change to make of another broker-dealer.10 A member cancel order.12
permanent the Exchange’s Retail organization must submit the following The Program provides that RPI Orders
Liquidity Program Pilot (the to the Exchange for approval: (i) An will be ranked and allocated according
‘‘Program’’). The proposed rule change application form, (ii) supporting to price-time priority. The Program
was published for comment in the documentation, and (iii) an attestation considers all eligible RPI Orders and
Federal Register on June 21, 2018.3 On that substantially all orders sumibtted as MPL Orders to determine the price to
July 31, 2018, the Commission retail orders will qualify as such. The execute a Retail Order. If there are only
designated a longer period within which Program provides for an appeal process RPI Orders, then execution occurs at the
to approve the proposed rule change, for a disapproved applicant, and a price level that completes the incoming
disapprove the proposed rule change, or withdraw process for RMOs. RMOs order’s execution. If there are only MPL
institute proceedings to determine must have written policies and Orders, then a Retail Order will
whether to disapprove the proposed procedures reasonably designed to executes at the mid-point of the PBBO.
rule change.4 The Commission received assure that they will only designate If both RPI and MPL Orders are present,
no comment letters on the proposed rule orders as Retail Orders if all the Exchange will evaluate at the price
change. This order institutes requirements of a Retail Order are met. level at which an incoming Retail Order
proceedings under Section 19(b)(2)(B) of To qualify as an RLP, a member will execute in full (‘‘clean up price’’).
the Exchange Act 5 to determine organization must submit an application If the clean up price is equal to the mid-
whether to approve or disapprove the form and supporting documentation to point of the PBBO, RPI Orders will
proposed rule change. the Exchange for approval. A receive priority over MPL Orders, and
II. Description of the Proposed Rule disapproved applicant may appeal or Retail Orders will execute against both
Change reapply 90 days after the disapproval RPI and Mid-Point Liquidity Orders at
notice. RLPs may only enter RPI orders the midpoint. If the clean up price is
The Exchange proposes to make electronically and directly into
permanent Exchange Rule 107C, which worse than the mid-point of the PBBO,
Exchange systems. In each of its a Retail Order will execute first with the
sets forth the rules and procedures assigned securities, RLPs must maintain
governing the Program. The Program MPL Orders at the midpoint of the
certain requirements to have RPI Orders PBBO, and any remaining Retail Orders
was adopted to create a new class of that are better than the PBB or PBO at
market participants called Retail will execute with the RPI Orders at the
least five percent of the trading day. clean up price. If the clean up price is
Liquidity Providers (‘‘RLPs’’) that would RLPs may enter RPI Orders in non-
be able to provide potential price better than the mid-point of the PBBO,
assigned securities without regard to the then a Retail Order will execute against
improvement to retail order flow. To do five percent requirement.
so, an RLP submits a Retail Price RPI Orders at the clean up price and
RMOs could be disqualified if they
Improvement Order (‘‘RPI’’), which is a will ignore the MPL Orders.
submit Retail Orders that do not meet
non-displayed order that is priced at the requirements of Retail Orders. If 11 A Regulation NMS compliant immediate-or-
least $0.001 better than the best disqualified, RMOs may appeal and cancel order will be automatically executed against
reapply. RLPs could lose their assigned the displayed quotation up to its full size and
1 15 U.S.C. 78s(b)(1).
2 17
securities or be disqualified if they do sweep the Exchange book without routing away.
CFR 240.19b–4. Portions not executed will be immediately
not meet the five percent requirement
amozie on DSK3GDR082PROD with NOTICES1
3 See Securities Exchange Act Release No. 83454
cancelled. See NYSE Rule 13(b)(2)(A).
(June 15, 2018), 83 FR 28874 (‘‘Notice’’). 12 An NYSE immediate-or-cancel order will be
4 See Securities Exchange Act Release No. 83749, 6 See NYSE Rule 107C(a)(4). automatically executed against the displayed
7 See NYSE Rule 107C(j).
83 FR 38393 (August 6, 2018). The Commission quotation up to its full size and sweep the Exchange
designated September 19, 2018, as the date by 8 See NYSE Rule 107C(a)(2). book, with portions routed to away markets if an
which the Commission shall approve or disapprove, 9 See NYSE Rule 107C(a)(3). execution would trade through a protected
or institute proceedings to determine whether to 10 Conducting a retail business includes carrying quotation in compliance with Regulation NMS.
disapprove, the proposed rule change. retail custsomer accounts on a fully disclosed basis. Portions not executed will be immediately
5 15 U.S.C. 78s(b)(2)(B). See NYSE Rule 107C(b)(1). cancelled. See NYSE Rule 13(b)(2)(B).
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![48352 Federal Register / Vol. 83, No. 185 / Monday, September 24, 2018 / Notices
on a pilot basis.29 The Program was The Commission questions whether Interested persons are invited to
intended to create additional price the information and analysis provided submit written data, views, and
improvement opportunities for retail by the Exchange in the Notice support arguments regarding whether the
investors by segmenting retail order the Exchange’s conclusions that the proposal should be approved or
flow on the Exchange.30 When the Program has achieved its goals, disapproved by October 15, 2018. Any
Commission initially approved the including whether the Program has had person who wishes to file a rebuttal to
Program on a pilot basis, it explained an overall negligible impact on broader any other person’s submission must file
that it would monitor the Program market structure. The Commission seeks that rebuttal by October 29, 2018.
throughout the pilot period for its additional information and analysis Comments may be submitted by any
potential effects on public price concerning the Program’s impact on the of the following methods:
discovery and on the broader market broader market; for example, additional Electronic Comments
structure.31 The Commission expressed information to support the view that the
its view that the Program should not Program has not had a material adverse • Use the Commission’s internet
cause a major shift in market structure, impact on market quality, and comment form (http://www.sec.gov/
but instead, it would closely replicate consideration of any effects that fees rules/sro.shtml); or
the trading dynamics that exist in the and rebates may have had on the • Send an email to rule-comments@
over-the-counter markets to present operation of the Program. The sec.gov. Please include File Number SR–
another competitive venue for retail Commission believes it is appropriate to NYSE–2018–28 on the subject line.
order flow execution.32 As explained institute proceedings to allow for Paper Comments
above, the Exchange provides an additional consideration and comment
analysis of what it considers to be the • Send paper comments in triplicate
on the issues raised herein, any
economic benefits for retail investors to Secretary, Securities and Exchange
potential response to comments or
and the marketplace flowing from Commission, 100 F Street NE,
supplemental information provided by
operation of the Program.33 The Washington, DC 20549–1090.
the Exchange, and any additional
Exchange also concludes, among other independent analysis by the All submissions should refer to File
things, that the Program had an overall Commission. The Commission believes Numbers SR–NYSE–2018–28. This file
negligible impact on the broader market that these issues raise questions as to number should be included on the
structure.34 whether the the Exchange has met its subject line if email is used. To help the
Under the Commission’s Rules of burden to demonstrate, based on the Commission process and review your
Practice, the ‘‘burden to demonstrate data and analysis provided, that comments more efficiently, please use
that a proposed rule change is permanent approval of the Program is only one method. The Commission will
consistent with the [Act] and the rules consistent with the Act, and post all comments on the Commission’s
and regulations issued thereunder . . . is specifically, with its requirements that internet website (http://www.sec.gov/
on the [SRO] that proposed the rule the Program be designed to perfect the rules/sro.shtml). Copies of the
change.’’ 35 The description of a mechanism of a free and open market submission, all subsequent
proposed rule change, its purpose and and the national market system, protect amendments, all written statements
operation, its effect, and a legal analysis investors and the public interest, and with respect to the proposed rule
of its consistency with applicable not be unfairly discriminatory; or not change that are filed with the
requirements must all be sufficiently impose an unnecessary or inappropriate Commission, and all written
detailed and specific to support an burden on competition.39 communications relating to the
affirmative Commission finding,36 and proposed rule change between the
any failure of an SRO to provide this IV. Procedure: Request for Written Commission and any person, other than
information may result in the Comments those that may be withheld from the
Commission not having a sufficient The Commission requests that public in accordance with the
basis to make an affirmative finding that interested persons provide written provisions of 5 U.S.C. 552, will be
a proposed rule change is consistent submissions of their views, data, and available for website viewing and
with the Act and the applicable rules arguments with respect to the issues printing in the Commission’s Public
and regulations.37 Moreover, identified above, as well as any other Reference Room, 100 F Street NE,
‘‘unquestioning reliance’’ on an SRO’s concerns they may have with the Washington, DC 20549, on official
representations in a proposed rule proposal. In particular, the Commission business days between the hours of
change would not be sufficient to justify invites the written views of interested 10:00 a.m. and 3:00 p.m. Copies of these
Commission approval of a proposed rule persons concerning whether the filings also will be available for
change.38 proposal is consistent with Sections inspection and copying at the principal
6(b)(5) and 6(b)(8), or any other office of the Exchange. All comments
29 See RLP Approval Order, supra note 15, at
provision of the Exchange Act, or the received will be posted without change.
40673 n.4.
30 See id., at 40679. rules and regulations thereunder. Persons submitting comments are
31 See id., at 40680. Although there do not appear to be any cautioned that we do not redact or edit
32 See id. issues relevant to approval or personal identifying information from
33 See supra notes 24–26, and Notice, supra note disapproval that would be facilitated by comment submissions. You should
3, at 28878–83. an oral presentation of views, data, and submit only information that you wish
34 See id.
arguments, the Commission will to make available publicly. All
amozie on DSK3GDR082PROD with NOTICES1
35 Rule 700(b)(3), Commission Rules of Practice,
consider, pursuant to Rule 19b–4, any
17 CFR 201.700(b)(3). Commission flexibility to determine what type of
36 See id. request for an opportunity to make an
proceeding—either oral or notice and opportunity
37 See id. oral presentation.40 for written comments—is appropriate for
38 See Susquehanna Int’l Group, LLP v. Securities consideration of a particular proposal by a self-
39 See15 U.S.C. 78f(b)(4), (5), and (8).
and Exchange Commission, 866 F.3d 442, 446–47 regulatory organization. See Securities Act
(D.C. Cir. 2017) (rejecting the Commission’s reliance 40 Section19(b)(2) of the Exchange Act, as Amendments of 1975, Senate Comm. on Banking,
on an SRO’s own determinations without sufficient amended by the Securities Act Amendments of Housing & Urban Affairs, S. Rep. No. 75, 94th
evidence of the basis for such determinations). 1975, Public Law 94–29 (June 4, 1975), grants the Cong., 1st Sess. 30 (1975).
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![Federal Register / Vol. 83, No. 185 / Monday, September 24, 2018 / Notices 48353
submissions should refer to File concerning the purpose of and basis for handling. The Exchange believes that
Number SR–NYSE–2018–28 and should the proposed rule change and discussed this new functionality will offer market
be submitted on or before October 15, any comments it received on the participants another method to direct
2018. Rebuttal comments should be proposed rule change. The text of these liquidity to a Floor Broker on the
submitted by October 29, 2018. statements may be examined at the trading floor. The Exchange proposes to
For the Commission, by the Division of places specified in Item IV below. The amend Rule 1080(a)(i)(C) to add the
Trading and Markets, pursuant to delegated Exchange has prepared summaries, set following sentence to the description of
authority.41 forth in sections A, B, and C below, of the FBMS protocol, ‘‘In addition, a non-
Eduardo A. Aleman, the most significant aspects of such member or member may utilize an
Assistant Secretary. statements. FBMS FIX interface to create and send
an order into FBMS to be represented by
[FR Doc. 2018–20658 Filed 9–21–18; 8:45 am] A. Self-Regulatory Organization’s
a Floor Broker for execution.’’
BILLING CODE 8011–01–P Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Implementation
Change The Exchange proposes to implement
SECURITIES AND EXCHANGE
1. Purpose this functionality in Q1 of 2019. Market
COMMISSION
participants will be notified of the
[Release No. 34–84180; File No. SR–Phlx–
The Exchange proposes to offer a new deployment date by way of an Options
2018–58] FBMS FIX interface which connects to Trader Alert, which will be posted on
FBMS (‘‘FBMS FIX Interface’’) 3 to allow the Exchange’s website.
Self-Regulatory Organizations; Nasdaq members and non-members to submit
PHLX LLC; Notice of Filing and orders directly 4 to a Floor Broker on the 2. Statutory Basis
Immediate Effectiveness of Proposed Exchange’s trading floor. Today, a The Exchange believes that its
Rule Change To Amend Rule market participant desiring to submit an proposal is consistent with Section 6(b)
1080(A)(I)(C) Relating to Options Floor order to the trading floor may contact a of the Act,7 in general, and furthers the
Based Management System Floor Broker telephonically, objectives of Section 6(b)(5) of the Act,8
electronically using an external order in particular, in that it is designed to
September 18, 2018. management system, or via instant promote just and equitable principles of
Pursuant to Section 19(b)(1) of the message.5 An order submitted via the trade, to remove impediments to and
Securities Exchange Act of 1934 FBMS FIX Interface would be created by perfect the mechanism of a free and
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 the sender and routed to a Floor Broker. open market and a national market
notice is hereby given that on This order would be systematized so system, and, in general to protect
September 7, 2018, Nasdaq PHLX LLC that the Floor Broker 6 automatically investors and the public interest, by
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the receives the order and may then proposing another method for market
Securities and Exchange Commission represent the order for execution. A participants to submit orders to a
(‘‘SEC’’ or ‘‘Commission’’) the proposed member or non-member would not be particular Floor Broker on the
rule change as described in Items I and able to send the order directly to the Exchange’s trading floor.
II below, which Items have been trading system for execution. Orders The proposal would offer market
prepared by the Exchange. The entered via the FBMS FIX Interface will participants an alternative to the current
Commission is publishing this notice to require the interaction of a Floor Broker. methods of submitting an order to a
solicit comments on the proposed rule Orders will continue to be represented Floor Broker which include: (i) Calling
change from interested persons. in the trading crowd, regardless of the a Floor Broker; (ii) electronically using
I. Self-Regulatory Organization’s method in which the order was an external order management system,
Statement of the Terms of Substance of received. Orders would be executed in or (iii) utilizing instant message. The
the Proposed Rule Change the matching engine using FBMS, after Exchange believes that this proposal
all requirements for exposure have been will promote more efficient work flow
The Exchange proposes to amend
met. The proposed new FBMS FIX and provide ease in sending liquidity to
Rule 1080(a)(i)(C) relating to Options
Interface will allow the following types the Exchange’s trading floor. The
Floor Based Management System
of orders to be submitted directly to a Exchange notes that the requirements
(‘‘FBMS’’) in connection with offering
Floor Broker: Simple Orders, Multi-leg for submission of orders for execution
an interface to submit orders to a
Orders, Cross and Non-Cross Orders, within FBMS will continue to exist. The
particular Floor Broker on the options
Simple Cancels, Cancel and Exchange believes that this proposal is
floor.
The text of the proposed rule change Replacement Orders and Floor Qualified consistent with the Act because it will
is available on the Exchange’s website at Contingent Cross Orders. continue to remove impediments to and
The Exchange believes this new perfect the mechanism of a free and
http://nasdaqphlx.cchwallstreet.com/,
feature will enhance the workflow of a open market and a national market
at the principal office of the Exchange,
Floor Broker by permitting orders to be system by continuing to require a Floor
and at the Commission’s Public
directly submitted into FBMS for Broker to expose these orders in the
Reference Room.
trading crowd prior to execution. A
II. Self-Regulatory Organization’s 3 This new interface is a separate and distinct
Floor Broker would continue to submit
Statement of the Purpose of, and connection from the existing FIX interface, which
allows members to send orders to the electronic any orders to the matching engine for
Statutory Basis for, the Proposed Rule execution using FBMS, after all
amozie on DSK3GDR082PROD with NOTICES1
match engine.
Change 4 The interface would allow the market requirements for exposure have been
In its filing with the Commission, the participant to designate a particular Floor Broker met. Finally, this proposal is consistent
through the use of a FIX tag.
Exchange included statements 5 An audit trail is maintained today for all orders
with the Act because it protects
received by a Floor Broker. investors and the public interest by
41 17 CFR 200.30–3(a)(57). 6 A Floor Broker’s employee may also send an
1 15 U.S.C. 78s(b)(1). 7 15 U.S.C. 78f(b).
order into FBMS or the System on behalf of the
2 17 CFR 240.19b–4. Floor Broker. 8 15 U.S.C. 78f(b)(5).
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Document Created: 2018-09-22 00:33:14
Document Modified: 2018-09-22 00:33:14
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 83 FR 48350 |
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