[Federal Register Volume 76, Number 217 (Wednesday, November 9, 2011)]
[Notices]
[Pages 69788-69792]
[FR Doc No: 2011-28994]

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SECURITIES AND EXCHANGE COMMISSION

[(Release No. 34-65672; File No. SR-NYSE-2011-55)]

Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Rule Change Proposing a One-Year Pilot Program
Adding New Rule 107C To Establish a Retail Liquidity Program To Attract
Additional Retail Order Flow to the Exchange for NYSE-Listed Securities

November 2, 2011.
    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 October 19, 2011, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule 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 a one-year pilot program that would add new
Rule 107C to establish a Retail Liquidity Program (``Program'' or
``proposed rule change'') to attract additional retail order flow to
the Exchange for NYSE-listed securities while also providing the
potential for price improvement to such order flow. The text of the
proposed rule change is available at the Exchange, the Commission's
Public Reference Room, and http://www.nyse.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing a one-year pilot program that would add
new NYSE Rule 107C to establish a Retail Liquidity Program to attract
additional retail order flow to the Exchange for NYSE-listed securities
while also providing the potential for price improvement to such order
flow.
    Under the proposed rule change, the Exchange would create two new
classes of market participants: (1) Retail Member Organizations
(``RMOs''), which would be eligible to submit certain retail order flow
(``Retail Orders'') to the Exchange, and (2) Retail Liquidity Providers
(``RLPs''), which would be required to provide potential price
improvement for Retail Orders in the form of non-displayed interest
that is better than the best protected bid or the best protected offer
(``PBBO'') \3\ (``Retail Price Improvement Order'' or ``RPI''). Member
organizations other than RLPs would also be permitted, but not
required, to submit Retail Price Improvement Orders.
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    \3\ The terms protected bid and protected offer would have the
same meaning as defined in Regulation NMS Rule 600(b)(57). The PBB
is the best-priced protected bid and the PBO is the best-priced
protected offer. Generally, the PBB and PBO and the national best
bid (``NBB'') and national best offer (``NBO'') will be the same.
However, a market center is not required to route to the NBB or NBO
if that market center is subject to an exception under Regulation
NMS Rule 611(b)(1) or if such NBB or NBO is otherwise not available
for an automatic execution. In such case, the PBB or PBO would be
the best-priced protected bid or offer to which a market center must
route interest pursuant to Regulation NMS Rule 611.
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    The Exchange will submit a separate proposal to amend its Price
List in connection with the proposed Retail Liquidity Program. Under
that proposal, the Exchange would charge RLPs and other member
organizations a fee for executions of their Retail Price Improvement
Orders against Retail Orders and in turn would provide a credit to RMOs
for executions of their Retail Orders against the Retail Price
Improvement Orders of RLPs and other member organizations.
Definitions
    The Exchange proposes to adopt the following definitions under
proposed NYSE Rule 107C(a). First, the term ``Retail Liquidity
Provider'' would be defined as a member organization that is approved
by the Exchange to act as such and to submit Retail Price Improvement
Orders according to certain requirements set forth in proposed Rule
107C.
    Second, the term ``Retail Member Organization'' would be defined as
a member organization (or a division thereof) that has been approved by
the Exchange to submit Retail Orders.
    Third, the term ``Retail Order'' would be defined as:
     An agency order that originates from a natural person and
is submitted to the Exchange by an RMO, 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; or
     A proprietary order of an RMO that results from
liquidating a position acquired from the internalization of an order
that satisfies the requirements of the preceding subparagraph.
    Finally, the term ``Retail Price Improvement Order'' would be
defined as non-displayed interest in NYSE-listed securities that is
better than the best protected bid (``PBB'') or best protected offer
(``PBO'') by at least $0.001 and that is identified as a Retail Price
Improvement Order in a manner prescribed by the Exchange.\4\ The price
of an RPI would be determined by an RLP's entry of the following into
Exchange systems: (1) RPI buy or sell interest; (2) an offset, if any;
and (3) a ceiling or floor price. The Exchange expects that RPI sell or
buy interest typically would be entered to track the PBBO. The offset
would be a predetermined amount by which the RLP is willing to improve
the PBBO, subject to a ceiling or floor price. The ceiling or floor
price would be the amount above or below which the RLP

does not wish to trade. RPIs in their entirety (the buy or sell
interest, the offset, and the ceiling or floor) will remain
undisplayed. Exchange systems will monitor whether RPI buy or sell
interest, adjusted by any offset and subject to the ceiling or floor
price, is eligible to interact with incoming Retail Orders.
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    \4\ Exchange systems would prevent Retail Orders from
interacting with Retail Price Improvement Orders if the RPI is not
priced at least $0.001 better than the PBBO. The Exchange notes,
however, that price improvement of $0.001 would be a minimum
requirement and RLPs and other member organizations could enter
Retail Price Improvement Orders that better the PBBO by more than
$0.001. Exchange systems will accept Retail Price Improvement Orders
without a minimum price improvement value; however, such interest
will execute at its floor or ceiling price only if such floor or
ceiling price is better than the PBBO by $0.001 or more.
Concurrently with this filing, the Exchange has submitted a request
for an exemption under Regulation NMS Rule 612 that would permit it
to accept and rank the undisplayed Retail Price Improvement Orders.
As outlined in the request, the Exchange believes that the minimum
price improvement available under the Program, which would amount to
$0.05 on a 500 share order, would be meaningful to the small retail
investor. See Letter from Janet M. McGinness, Senior Vice
President--Legal & Corporate Secretary, Office of the General
Counsel, NYSE Euronext to Elizabeth M. Murphy, Secretary, Securities
and Exchange Commission dated October 19, 2011 (``Sub-Penny Rule
Exemption Request'').
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    RPIs would interact with Retail Orders as follows. Assume an RLP
enters RPI sell interest with an offset of $0.001 and a floor of $10.10
while the PBO is $10.11. The RPI could interact with an incoming buy
Retail Order at $10.109. If, however, the PBO was $10.10, the RPI could
not interact with the Retail Order because the price required to
deliver the minimum $0.001 price improvement ($10.099) would violate
the RLP's floor of $10.10. If an RLP otherwise enters an offset greater
than the minimum required price improvement and the offset would
produce a price that would violate the RLP's floor, the offset would be
applied only to the extent that it respects the RLP's floor. By way of
illustration, assume RPI buy interest is entered with an offset of
$0.005 and a ceiling of $10.112 while the PBB is at $10.11. The RPI
could interact with an incoming sell Retail Order at $10.112, because
it would produce the required price improvement without violating the
RLP's ceiling, but it could not interact above the $10.112 ceiling.
Finally, if an RLP enters an RPI without an offset, the RPI will
interact with Retail Orders at the level of the RLP's floor or ceiling
as long as the minimum required price improvement is produced.
Accordingly, if RPI sell interest is entered with no offset and a
$10.098 floor while the PBO is $10.11, the RPI could interact with the
Retail Order at $10.098, producing $0.012 of price improvement.
Exchange systems will not cancel RPI interest when it is not eligible
to interact with incoming Retail Orders; such RPI interest will remain
in Exchange systems and may become eligible again to interact with
Retail Orders depending on the PBB or PBO.
    An RLP would only be permitted to enter a Retail Price Improvement
Order for the particular security or securities to which it is assigned
as RLP.
RMO Qualifications and Approval Process
    Under proposed NYSE Rule 107C(b), any member organization \5\ could
qualify as an RMO if it conducts a retail business or handles retail
orders on behalf of another broker-dealer. Any member organization that
wishes to obtain RMO status would be required to submit: (1) An
application form; (2) an attestation, in a form prescribed by the
Exchange, that any order submitted by the member organization as a
Retail Order would meet the qualifications for such orders under
proposed Rule 107C; and (3) supporting documentation sufficient to
demonstrate the retail nature and characteristics of the applicant's
order flow.\6\
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    \5\ An RLP may also act as an RMO for securities to which it is
not assigned, subject to the qualification and approval process
established by the proposed rule.
    \6\ For example, a prospective RMO could be required to provide
sample marketing literature, Web site screenshots, other publicly
disclosed materials describing the retail nature of their order
flow, and such other documentation and information as the Exchange
may require to obtain reasonable assurance that the applicant's
order flow would meet the requirements of the Retail Order
definition.
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    An RMO would 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. Such
written policies and procedures must require the member organization to
(i) exercise due diligence before entering a Retail Order to assure
that entry as a Retail Order is in compliance with the requirements of
this rule, and (ii) monitor whether orders entered as Retail Orders
meet the applicable requirements. If the RMO represents Retail Orders
from another broker-dealer customer, the RMO'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 RMO 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 of this rule, and (ii) monitor whether its
broker-dealer customer's Retail Order flow continues to meet the
applicable requirements.\7\
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    \7\ FINRA, on behalf of the Exchange, will review an RMO's
compliance with these requirements through an exam-based review of
the RMO's internal controls.
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    If the Exchange disapproves the application, the Exchange would
provide a written notice to the member organization. The disapproved
applicant could appeal the disapproval by the Exchange as provided in
proposed Rule 107C(i), and/or reapply for RMO status 90 days after the
disapproval notice is issued by the Exchange. An RMO also could
voluntarily withdraw from such status at any time by giving written
notice to the Exchange.
RLP Qualifications
    To qualify as an RLP under proposed NYSE Rule 107C(c), a member
organization would be required to: (1) Already be approved as a
Designated Market Maker (``DMM'') or Supplemental Liquidity Provider
(``SLP''); (2) demonstrate an ability to meet the requirements of an
RLP; (3) have mnemonics or the ability to accommodate other Exchange-
supplied designations that identify to the Exchange RLP trading
activity in assigned RLP securities; and (4) have adequate trading
infrastructure and technology to support electronic trading.
    Because an RLP would only be permitted to trade electronically, a
member organization's technology must be fully automated to accommodate
the Exchange's trading and reporting systems that are relevant to
operating as an RLP. If a member organization were unable to support
the relevant electronic trading and reporting systems of the Exchange
for RLP trading activity, it would not qualify as an RLP.
RLP Approval Process
    Under proposed Rule 107C(d), to become an RLP, a member
organization would be required to submit an RLP application form with
all supporting documentation to the Exchange. The Exchange would
determine whether an applicant was qualified to become an RLP as set
forth above. After an applicant submitted an RLP application to the
Exchange with supporting documentation, the Exchange would notify the
applicant member organization of its decision. The Exchange could
approve one or more member organizations to act as an RLP for a
particular security. The Exchange could also approve a particular
member organization to act as RLP for one or more securities. Approved
RLPs would be assigned securities according to requests made to, and
approved by, the Exchange.
    If an applicant were approved by the Exchange to act as an RLP, the
applicant would be required to establish connectivity with relevant
Exchange systems before the applicant would be permitted to trade as an
RLP on the Exchange.
    If the Exchange disapproves the application, the Exchange would
provide a written notice to the member organization. The disapproved
applicant could appeal the disapproval by the Exchange as provided in
proposed Rule 107C(i) and/or reapply for RLP status 90

days after the disapproval notice is issued by the Exchange.
Voluntary Withdrawal of RLP Status
    An RLP would be permitted to withdraw its status as an RLP by
giving notice to the Exchange under proposed NYSE Rule 107C(e). The
withdrawal would become effective when those securities assigned to the
withdrawing RLP are reassigned to another RLP. After the Exchange
receives the notice of withdrawal from the withdrawing RLP, the
Exchange would reassign such securities as soon as practicable, but no
later than 30 days after the date the notice is received by the
Exchange. If the reassignment of securities takes longer than the 30-
day period, the withdrawing RLP would have no further obligations and
would not be held responsible for any matters concerning its previously
assigned RLP securities.
RLP Requirements
    Under proposed NYSE Rule 107C(f), an RLP would only be permitted to
enter Retail Price Improvement Orders electronically and directly into
Exchange systems and facilities designated for this purpose and only
for the securities to which it is assigned as RLP. In order to be
eligible for execution fees that are lower than non-RLP rates, an RLP
would be required to maintain (1) a Retail Price Improvement Order that
is better than the PBB at least five percent of the trading day for
each assigned security; and (2) a Retail Price Improvement Order that
is better than the PBO at least five percent of the trading day for
each assigned security.
    An RLP's five-percent requirements would be calculated by
determining the average percentage of time the RLP maintains a Retail
Price Improvement Order in each of its RLP securities during the
regular trading day, on a daily and monthly basis. The Exchange would
determine whether an RLP has met this requirement by calculating the
following:
    (1) The ``Daily Bid Percentage'' would be calculated by determining
the percentage of time an RLP maintains a Retail Price Improvement
Order with respect to the PBB during each trading day for a calendar
month;
    (2) The ``Daily Offer Percentage'' would be calculated by
determining the percentage of time an RLP maintains a Retail Price
Improvement Order with respect to the PBO during each trading day for a
calendar month;
    (3) The ``Monthly Average Bid Percentage'' would be calculated for
each RLP security by summing the security's ``Daily Bid Percentages''
for each trading day in a calendar month then dividing the resulting
sum by the total number of trading days in such calendar month; and
    (4) The ``Monthly Average Offer Percentage'' would be calculated
for each RLP security by summing the security's ``Daily Offer
Percentage'' for each trading day in a calendar month and then dividing
the resulting sum by the total number of trading days in such calendar
month.
    Finally, only Retail Price Improvement Orders would be used when
calculating whether an RLP is in compliance with its five-percent
requirements.
    The Exchange would determine whether an RLP met its five-percent
requirement by determining the average percentage of time an RLP
maintains a Retail Price Improvement Order in each of its RLP
securities during the regular trading day on a daily and monthly basis.
The lower fees would not apply during a month in which the RLP did not
satisfy the five-percent requirements. Additionally, beginning with the
third month of operation as an RLP, an RLP's failure to satisfy the
five-percent requirements described above for each of its assigned
securities could result in action taken by the Exchange, as described
below.
    The Exchange will not begin calculating whether an RLP meets the
quoting requirement during the first two calendar months that the RLP
is participating in the Program. If the Program is implemented mid-
month, the Exchange will begin calculating the quoting requirement two
calendar months after the end of the month in which the program was
implemented.
Failure of RLP To Meet Requirements
    Proposed NYSE Rule 107C(g) addresses an RLP's failure to meet its
requirements. If, after the first two months an RLP acted as an RLP, an
RLP fails to meet any of the requirements of proposed Rule 107C(f) for
any assigned RLP security for three consecutive months, the Exchange
could, in its discretion, take one or more of the following actions:
\8\ (1) revoke the assignment of any or all of the affected securities
from the RLP; (2) revoke the assignment of unaffected securities from
the RLP; or (3) disqualify the member organization from its status as
an RLP.
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    \8\ As discussed previously, an RLP's failure to satisfy its
requirement would result in the RLP no longer being charged the
lower fees for execution of its Retail Price Improvement Orders.
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    The Exchange, in its sole discretion, would determine if and when a
member organization is disqualified from its status as an RLP. One
calendar month prior to any such determination, the Exchange would
notify an RLP of such impending disqualification in writing. When
disqualification determinations are made, the Exchange would provide a
written disqualification notice to the member organization.
    A disqualified RLP could appeal the disqualification as provided in
proposed Rule 107C(i) and/or reapply for RLP status 90 days after the
disqualification notice is issued by the Exchange.\9\
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    \9\ The Exchange notes that the Retail Price Improvement Order
executions of a member organization disqualified from acting as an
RLP would thereafter be subject to the transaction pricing
applicable to non-RLP member organizations.
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Failure of RMO To Abide by Retail Order Requirements
    Proposed NYSE Rule 107C(h) addresses an RMO's failure to abide by
Retail Order requirements. If an RMO designates orders submitted to the
Exchange as Retail Orders and the Exchange determines, in its sole
discretion, that those orders fail to meet any of the requirements of
Retail Orders, the Exchange may disqualify a member organization from
its status as an RMO. When disqualification determinations are made,
the Exchange would provide a written disqualification notice to the
member organization. A disqualified RMO could appeal the
disqualification as provided in proposed Rule 107C(i) and/or reapply
for RMO status 90 days after the disqualification notice is issued by
the Exchange.\10\
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    \10\ As above for RLPs, the Retail Order executions of a member
organization disqualified from RMO status would thereafter be
subject to the transaction pricing applicable to non-RMO member
organizations.
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Appeal of Disapproval or Disqualification
    Proposed NYSE Rule 107C(i) provides appeal rights to member
organizations. If a member organization disputes the Exchange's
decision to disapprove it under Rule 107C(b) or (d) or disqualify it
under Rule 107C(g) or (h), such member organization (``appellant'') may
request, within five business days after notice of the decision is
issued by the Exchange, that the Retail Liquidity Program Panel (``RLP
Panel'') review the decision to determine if it was correct.\11\
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    \11\ In the event a member organization is disqualified from its
status as an RLP pursuant to proposed Rule 107C(g), the Exchange
would not reassign the appellant's securities to a different RLP
until the RLP Panel has informed the appellant of its ruling.
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    The RLP Panel would consist of the NYSE's Chief Regulatory Officer
(``CRO''), or a designee of the CRO, and two officers of the Exchange
designated by the Co-Head of U.S. Listings and

Cash Execution. The RLP Panel would review the facts and render a
decision within the time frame prescribed by the Exchange. The RLP
Panel could overturn or modify an action taken by the Exchange and all
determinations by the RLP Panel would constitute final action by the
Exchange on the matter at issue.
Retail Liquidity Identifier
    Under proposed NYSE Rule 107C(j), the Exchange proposes to
disseminate an identifier through proprietary Exchange data feeds when
RPI interest priced at least $0.001 better than the PBB or PBO for a
particular security is available in Exchange systems (``Retail
Liquidity Identifier''). The Retail Liquidity Identifier would not be
disseminated to the Consolidated Quote Stream.
Retail Order Designations
    Under proposed NYSE Rule 107C(k), an RMO can designate how a Retail
Order would interact with available contra-side interest as follows. As
proposed, a Type 1-designated Retail Order would interact only with
available contra-side Retail Price Improvement Orders and would not
interact with other available contra-side interest in Exchange systems
or route to other markets. The portion of a Type 1-designated Retail
Order that does not execute against contra-side Retail Price
Improvement Orders would be immediately and automatically cancelled. A
Type 2-designated Retail Order would interact first with available
contra-side Retail Price Improvement Orders and any remaining portion
of the Retail Order would be executed as a Regulation NMS-compliant
Immediate or Cancel Order pursuant to Rule 13. Accordingly, a Type 2-
designated Retail Order could interact with other interest in Exchange
systems, but would not route to other markets. A Type 3-designated
Retail Order would interact first with available contra-side Retail
Price Improvement Orders and any remaining portion of the Retail Order
would be executed as an NYSE Immediate or Cancel Order pursuant to Rule
13. Accordingly, a Type 3-designated Retail Order could interact with
other interest in Exchange systems and, if necessary, would route to
other markets in compliance with Regulation NMS.
Priority and Order Allocation
    Under proposed NYSE Rule 107C(l), the Exchange proposes that
competing Retail Price Improvement Orders in the same security would be
ranked and allocated according to price then time of entry into
Exchange systems. The Exchange further proposes that executions would
occur at the price level that completes the incoming order's execution.
Any remaining unexecuted RPI interest will remain available to interact
with other incoming Retail Orders if such interest is at an eligible
price. Any remaining unexecuted portion of the Retail Order will cancel
or execute in accordance with proposed Rule 107C(k). The following
example illustrates this proposed method:

PBBO for security ABC is $10.00-$10.05
RLP 1 enters a Retail Price Improvement Order to buy ABC at $10.01 for
500
RLP 2 then enters a Retail Price Improvement Order to buy ABC at $10.02
for 500
RLP 3 then enters a Retail Price Improvement Order to buy ABC at $10.03
for 500

    An incoming Retail Order to sell ABC for 1,000 would execute first
against RLP 3's bid for 500, because it is the best priced bid, then
against RLP 2's bid for 500, because it is the next best priced bid.
RLP 1 would not be filled because the entire size of the Retail Order
to sell 1,000 would be depleted. The Retail Order executes at the price
that completes the order's execution. In this example the entire 1,000
order to sell would execute at $10.02 because it would result in a
complete fill.
    However, assume the same facts above, except that RLP 2's Retail
Price Improvement Order to buy ABC at $10.02 was for 100. The incoming
Retail Order to sell 1,000 would execute first against RLP 3's bid for
500, because it is the best priced bid, then against RLP 2's bid for
100, because it is the next best priced bid. RLP 1 would then receive
an execution for 400 of its bid for 500, at which point the entire size
of the Retail Order to sell 1,000 would be depleted. The Retail Order
executes at the price that completes the order's execution, which is
$10.01.
Implementation
    The Exchange proposes that all NYSE-listed and NYSE Amex Equities
traded securities would be eligible for inclusion in the Retail
Liquidity Program.\12\ In order to provide for an efficient
implementation, the Retail Liquidity Program would initially cover only
a certain specified list of NYSE-listed securities to which RLPs are
assigned, as announced by the Exchange via Information Memo. The
Exchange anticipates that the securities included within the Retail
Liquidity Program would be expanded periodically as demand for RLP
assignments develops in response to increased Retail Order activity on
the Exchange.\13\
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    \12\ NYSE Amex LLC is filing a companion rule proposal to adopt
NYSE Amex Equities Rule 107C. See SR-NYSEAmex-2011-84. ``NYSE Amex
Equities traded securities'' refers to all securities available to
be traded on NYSE Amex Equities, including but not limited to NYSE
Amex-listed securities as well as those listed on the Nasdaq Stock
Market traded pursuant to unlisted trading privileges. See
Securities Exchange Act Release 34-62479, 75 Fed. Reg. 41264 (July
15, 2010).
    \13\ The Exchange would announce any such expansions via
Information Memo.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\14\ in general, and
furthers the objectives of Section 6(b)(5),\15\ 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.
The Exchange believes that the proposed rule change is consistent with
these principles because it would increase competition among execution
venues, encourage additional liquidity, and offer the potential for
price improvement to retail investors. The Exchange notes that a
significant percentage of the orders of individual investors are
executed over-the-counter.\16\ The Exchange believes that it is
appropriate to create a financial incentive to bring more retail order
flow to a public market.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ See Concept Release on Equity Market Structure, Securities
Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594
(January 21, 2010) (noting that dark pools and internalizing broker-
dealers executed approximately 25.4% of share volume in September
2009). See also Mary L. Schapiro, Strengthening Our Equity Market
Structure (Speech at the Economic Club of New York, Sept. 7, 2010)
(available on the Commission's Web site). In her speech, Chairman
Schapiro noted that nearly 30 percent of volume in U.S.-listed
equities was executed in venues that do not display their liquidity
or make it generally available to the public and the percentage was
increasing nearly every month.
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    The Exchange understands that Section 6(b)(5) of the Act prohibits
an exchange from establishing rules that treat market participants in
an unfairly discriminatory manner. However, Section 6(b)(5) of the Act
does not prohibit exchange members or other broker-dealers from
discriminating, so long as their activities are otherwise consistent
with the federal securities laws. Nor does Section 6(b)(5) of the Act

require exchanges to preclude discrimination by broker-dealers. Broker-
dealers commonly differentiate between customers based on the nature
and profitability of their business.
    While the Exchange believes that markets and price discovery
optimally function through the interactions of diverse flow types, it
also believes that growth in internalization has required
differentiation of retail order flow from other order flow types. The
differentiation proposed herein by the Exchange is not designed to
permit unfair discrimination, but instead to 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 operating a program such as the
Retail Liquidity Program on an exchange market would result in better
prices for retail investors. The Exchange recognizes that sub-penny
trading and pricing could potentially result in undesirable market
behavior. The Exchange will monitor the Program in an effort to
identify and address any such behavior.
    Finally, the Exchange proposes that the Commission approve the
proposed rule for a pilot period of twelve months from the date of
implementation, which shall occur no later than 90 days after
Commission approval of Rule 107C. The Program shall expire on a date
that will be determined upon adoption of Rule 107C. The Exchange
believes that this pilot period is of sufficient length to permit both
the Exchange and the Commission to assess the impact of the rule change
described herein.

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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. The Commission specifically requests
comment on the following:
     A stated purpose of this proposal is to attract retail
order flow, a significant percentage of which is currently executed
over-the-counter, to the exchange. What are the benefits, if any, of
executing marketable retail orders on an exchange instead of over-the-
counter? To what extent, if any, would this proposal realize those
benefits? What other effects, if any, would this proposal have upon the
overall market?
     The proposal contemplates that Retail Liquidity Providers
may offer price improvement to Retail Orders in sub-penny amounts. In
its proposal, the exchange notes that it is concurrently requesting an
exemption from the sub-penny rule, Rule 612 of Regulation NMS, to
permit the exchange to accept and rank Retail Price Improvement Orders.
If the Commission were to approve this proposal and grant the
exemption, what impact, positive or negative, would the proposal have
upon the market? Would this proposal, if approved, produce a
significantly larger volume of sub-penny trades than is currently the
case, or would it primarily shift sub-penny trades away from non-
exchange venues to the exchange?
    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<EMAIL_ADDRESS>Please include
File Number SR-NYSE-2011-55 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2011-55. 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
a.m. and 3 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 http://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 publicly available. All submissions
should refer to File Number SR-NYSE-2011-55 and should be submitted on
or before November 30, 2011.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-28994 Filed 11-8-11; 8:45 am]
BILLING CODE 8011-01-P