Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change To Make Permanent the Retail Liquidity Program Pilot, Rule 107C, Which Is Currently Set To Expire on June 30, 2018, 28874-28884 [2018-13303]
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Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Notices
and facilitating transactions in
securities, 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.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 6 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes the proposed
fee increase is reasonable because it will
assist the Exchange in recouping costs
associated with maintaining its Disaster
Recovery Ports and Disaster Recovery
Systems in case of necessity. The
Exchange also notes that it hasn’t
amended the fee amount since it
adopted the fee in 2012.7 Additionally,
the proposed fees are the same as are
concurrently being proposed for its
Affiliate Exchanges and other exchanges
assess similar fees for connection to
their Disaster Recovery Systems by their
market participants.8 The Exchange
believes it’s reasonable, equitable and
not unfairly discriminatory to assess the
Disaster Recovery Port fee only once if
it connects with another affiliate
exchange because only one port is being
used and the Exchange does not wish to
charge multiple fees for the same port.
Similarly, the Exchange believes it’s
reasonable to assess only one fee for
multicast and unicast connectivity,
regardless if both connectivity types are
available on a single port or separate
ports, because the Exchange’s affiliate
exchanges do not charge port fees based
on connectivity types. Lastly, the
Exchange believes the proposed changes
are equitable and nondiscriminatory
because it applies uniformly to all
market participants.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe that the
proposed rule change will impose any
burden on intramarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act
because the proposed change applies
uniformly to all market participants.
6 Id.
7 See
Securities Exchange Act Release No. 68342
(December 3, 2012) 77 FR 73096 (December 7, 2012)
(SR–CBOE–2012–114).
8 See e.g., NYSE Arca Equities Fees and Charges,
NYSE Arca Marketplace: Other Fees and Charges,
Connectivity Fees. See also, Nasdaq Phlx LLC
Pricing Schedule, Section XI.
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The Exchange does not believe that the
proposed rule change will impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act. Market participants
may opt to disfavor the Exchange’s
pricing if they believe that alternatives
offer them better value. Further,
excessive fees for connectivity would
serve to impair an exchange’s ability to
compete for order flow rather than
burdening competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 9 and paragraph (f) of Rule
19b–4 10 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2018–041 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CBOE–2018–041. 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 (https://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 the
filing 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
submissions should refer to File
Number SR–CBOE–2018–041 and
should be submitted on or before July
12, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–13302 Filed 6–20–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83454; File No. SR–NYSE–
2018–28]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change To
Make Permanent the Retail Liquidity
Program Pilot, Rule 107C, Which Is
Currently Set To Expire on June 30,
2018
June 15, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
9 15
U.S.C. 78s(b)(3)(A).
10 17 CFR 240.19b–4(f).
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Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Notices
notice is hereby given that on June 4,
2018, New York Stock Exchange LLC
(‘‘NYSE’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to make
permanent Rule 107C, which sets forth
the Exchange’s pilot Retail Liquidity
Program. The proposed rule change is
available on the Exchange’s website at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to make
permanent Rule 107C, which sets forth
the Exchange’s pilot Retail Liquidity
Program (the ‘‘Program’’). In support of
the proposal to make the pilot Program
permanent, the Exchange believes it is
appropriate to provide background on
the Program and an analysis of the
economic benefits for retail investors
and the marketplace flowing from
operation of the Program.
Background
In July 2012, the Commission
approved the Program on a pilot basis.3
3 See Securities Exchange Act Release No. 67347
(July 3, 2012), 77 FR 40673 (July 10, 2012) (SR–
NYSE–2011–55) (‘‘RLP Approval Order’’). 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
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The purpose of the pilot was to analyze
data and assess the impact of the
Program on the marketplace. 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 in order to prepare
this rule filing. The pilot is currently set
to expire on June 30, 2018.4
The Exchange established the
Program to attract retail order flow to
the Exchange, and allow such order
flow to receive potential price
improvement.5 The Program is currently
limited to trades occurring at prices
equal to or greater than $1.00 a share.
As described in greater detail below,
under Rule 107C, a new class of market
participant called Retail Liquidity
Providers (‘‘RLPs’’) 6 and non-RLP
member organizations are able to
provide potential price improvement to
retail investor orders in the form of a
non-displayed order that is priced better
than the best protected bid or offer
(‘‘PBBO’’), called a Retail Price
Improvement Order (‘‘RPI’’). When there
is an RPI in a particular security, the
Exchange disseminates an indicator,
known as the Retail Liquidity Identifier
(‘‘RLI’’), that such interest exists. Retail
Member Organizations (‘‘RMOs’’) can
submit a Retail Order to the Exchange,
which interacts, to the extent possible,
with available contra-side RPIs and
Mid-Point Passive Liquidity (‘‘MPL’’)
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.
4 See Securities Exchange Act Release No. 82230
(December 7, 2017), 82 FR 58667 (December 13,
2017) (SR–NYSE–2017–64) (extending pilot to June
30, 2018). See also Securities Exchange Act Release
No. 80844 (June 1, 2017), 82 FR 26562 (June 7,
2017) (SR–NYSE–2017–26) (extending pilot to
December 31, 2017); Securities Exchange Act
Release No. 79493 (December 7, 2016), 81 FR 90019
(December 13, 2016) (SR–NYSE–2016–82)
(extending pilot to June 30, 2017); Securities
Exchange Act Release No. 78600 (August 17, 2016),
81 FR 57642 (August 23, 2016) (SR–NYSE–2016–
54) (extending pilot to December 31, 2016);
Securities Exchange Act Release No. 77426 (March
23, 2016), 81 FR 17533 (March 29, 2016) (SR–
NYSE–2016–25) (extending pilot to August 31,
2016); Securities Exchange Act Release No. 75993
(September 28, 2015), 80 FR 59844 (October 2,
2015) (SR–NYSE–2015–41) (extending pilot to
March 31, 2016); Securities Exchange Act Release
No. 74454 (March 6, 2015), 80 FR 13054 (March 12,
2015) (SR–NYSE–2015–10) (extending pilot until
September 30, 2015); Securities Exchange Act
Release No. 72629 (July 16, 2014), 79 FR 42564
(July 22, 2014) (NYSE–2014–35) (extending pilot
until March 31, 2015); and Securities Exchange Act
Release No. 70096 (Aug. 2, 2013), 78 FR 48520
(Aug. 8, 2013) (SR–NYSE–2013–48) (extending pilot
to July 31, 2014).
5 RLP Approval Order, 77 FR at 40674.
6 The Program also allows for RLPs to register
with the Exchange. However, any firm can enter RPI
orders into the system. Currently, four firms are
registered as RLPs but are not registered in any
symbols.
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28875
Orders.7 The segmentation in the
Program allows retail order flow to
receive potential price improvement as
a result of their order flow being
deemed more desirable by liquidity
providers.8
In approving the pilot, the
Commission concluded that the
Program was reasonably designed to
benefit retail investors by providing
price improvement opportunities to
retail order flow. Further, while the
Commission noted that the Program
would treat retail order flow differently
from order flow submitted by other
market participants, such segmentation
would not be inconsistent with Section
6(b)(5) of the Act,9 which requires that
the rules of an exchange are not
designed to permit unfair
discrimination. As the Commission
recognized, retail order segmentation
was designed to create additional
competition for retail order flow,
leading to additional retail order flow to
the exchange environment and ensuring
that retail investors benefit from the
better price that liquidity providers are
willing to give their orders.10
As discussed below, the Exchange
believes that the Program data supports
these conclusions and that it is therefore
appropriate to make the pilot Program
permanent.11
7 The Exchange adopted MPL Orders in 2014 and
amended Rule 107C to specify that MPL Orders
could interact with incoming, contra-side Retail
Orders submitted by a RMO in the Program. See
Securities Exchange Act Release No. 71330 (January
16, 2014), 79 FR 3895 (January 23, 2014) (SR–
NYSE–2013–71) (‘‘Release No. 71330’’).
8 RLP Approval Order, 77 FR at 40679.
9 15 U.S.C. 78f(b)(5).
10 RLP Approval Order, 77 FR at 40679.
11 Rule 107C has been amended several times. See
Securities Exchange Act Release No. 68709 (January
23, 2013), 78 FR 6160 (January 29, 2013) (SR–
NYSE–2013–04) (amending Rule 107C to clarify
that Retail Liquidity Providers may enter Retail
Price Improvement Orders in a non-RLP capacity
for securities to which the RLP is not assigned);
69103 (March 11, 2013), 78 FR 16547 (March 15,
2013) (SR–NYSE–2013–20) (amending Rule 107C to
clarify that a Retail Member Organization 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 timesequenced 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); 69513 (May 3, 2013), 78 FR
27261 (May 9, 2013) (SR–NYSE–2013–08)
(amending Rule 107C to allow Retail Member
Organizations to attest that ‘‘substantially all,’’
rather than all, orders submitted to the Program
qualifies as ‘‘Retail Orders’’ under the Rule);
Release No. 71330, 79 FR at 3895 (amending Rule
107C to incorporate MPL Orders); and 76553
(December 3, 2015), 80 FR 76607 (December 9,
2015) (SR–NYSE–2015–59) (‘‘Release No. 76553’’)
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Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Notices
Description of Pilot Rule 107C That
Would Become Permanent
Definitions
Rule 107C(a) contains the following
definitions:
• First, the term ‘‘Retail Liquidity
Provider’’ is defined as a member
organization that is approved by the
Exchange under the Rule to act as such
and to submit Retail Price Improvement
Orders in accordance with the Rule.12
• Second, the term ‘‘Retail Member
Organization’’ (‘‘RMO’’) is defined as a
member organization (or a division
thereof) that has been approved by the
Exchange to submit Retail Orders.13
• Third, the term ‘‘Retail Order’’
means an agency order or a riskless
principal order meeting the criteria of
FINRA Rule 5320.03 that originates
from a natural person and is submitted
to the Exchange by a 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. A
Retail Order is an Immediate or Cancel
Order and may be an odd lot, round lot,
or partial round lot (‘‘PRL’’).14
• Finally, the term ‘‘Retail Price
Improvement Order’’ means
nondisplayed 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.15
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RMO Qualifications and Application
Process
Under Rule 107C(b), any member
organization 16 can qualify as an RMO if
(amending Rule 107C to distinguish between retail
orders routed on behalf of other broker-dealers and
retail orders that are routed on behalf of introduced
retail accounts that are carried on a fully disclosed
basis).
12 See Rule 107C(a)(1).
13 Id. at (2).
14 Id. at (3).
15 Id. at (4). Exchange systems prevent Retail
Orders from interacting with Retail Price
Improvement Orders if the RPI is not priced at least
$0.001 better than the PBBO. An RPI remains nondisplayed in its entirety (the buy or sell interest, the
offset, and the ceiling or floor). 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. An RLP is permitted,
but not required, to submit RPIs for securities to
which it is not assigned, and will be treated as a
non-RLP member organization for those particular
securities. Additionally, member organizations
other than RLPs are permitted, but not required, to
submit RPIs. An RPI may be an odd lot, round lot,
or PRL. See id.
16 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.
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it conducts a retail business or routes 17
retail orders on behalf of another brokerdealer. For purposes of Rule 107C(b),
conducting a retail business includes
carrying retail customer accounts on a
fully disclosed basis. To become an
RMO, a member organization must
submit: (1) An application form; (2)
supporting documentation sufficient to
demonstrate the retail nature and
characteristics of the applicant’s order
flow; 18 and (3) 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 Rule 107C.19
An RMO must 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 Rule 107C, 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.20
Following submission of the required
materials, the Exchange provides
written notice of its decision to the
member organization.21 A disapproved
applicant can appeal the disapproval by
17 See Release No. 76553, 80 FR at 76607
(clarifying that one way to qualify as an RMO is to
route retail orders on behalf of other brokerdealers).
18 The supporting documentation may include
sample marketing literature, website screenshots,
other publicly disclosed materials describing the
member organization’s retail order flow, and any
other documentation and information requested by
the Exchange in order to confirm that the
applicant’s order flow would meet the requirements
of the Retail Order definition. See Rule 107C
(b)(2)(B).
19 See id. at (b)(2)(A)–(C).
20 Id. at (b)(6).
21 Id. at (b)(3).
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the Exchange as provided in Rule
107C(4), and/or reapply for RMO status
90 days after the disapproval notice is
issued by the Exchange. An RMO can
also voluntarily withdraw from such
status at any time by giving written
notice to the Exchange.22
RLP Qualifications
To qualify as an RLP under Rule
107C(c), a member organization must:
(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.23
RLP Application
Under Rule 107C(d), to become an
RLP, a member organization must
submit an RLP application form with all
supporting documentation to the
Exchange, which would determine
whether an applicant was qualified to
become an RLP as set forth above.24
After an applicant submits 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.25
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.26 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
22 Id.
at (b)(5).
at (c)(1)–(4).
24 Id. at (d)(1).
25 Id. at (d)(2).
26 Id. at (d)(3).
23 Id.
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Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Notices
after the disapproval notice is issued by
the Exchange.27
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 Rule107C(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.28
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RLP Requirements
Under Rule 107C(f), an RLP may only
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. An RLP entering Retail Price
Improvement Orders in securities to
which it is not assigned is not required
to satisfy these requirements.29
In order to be eligible for execution
fees that are lower than non-RLP rates,
an RLP must 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.30 An RLP’s fivepercent requirements is 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.31 The
Exchange determines whether an RLP
has met this requirement by calculating
the following:
• The ‘‘Daily Bid Percentage,’’
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;
• The ‘‘Daily Offer Percentage,’’
calculated by determining the
percentage of time an RLP maintains a
at (d)(4).
id. at (e).
29 Id. at (f)(1).
30 Id. at (f)(1)(A)–(B).
31 Id. at (f)(2).
Retail Price Improvement Order with
respect to the PBO during each trading
day for a calendar month;
• The ‘‘Monthly Average Bid
Percentage,’’ 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
• The ‘‘Monthly Average Offer
Percentage,’’ 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.32
The five-percent requirement is not
applicable in the first two calendar
months a member organization operates
as an RLP and takes effect on the first
day of the third consecutive calendar
month the member organization
operates as an RLP.33
Failure of RLP To Meet Requirements
Rule 107C(g) addresses the
consequences of 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 Rule 107C(f)
requirements for an assigned RLP
security for three consecutive months,
the Exchange could, in its discretion,
take one or more of the following
actions:
• Revoke the assignment of any or all
of the affected securities from the RLP;
• revoke the assignment of unaffected
securities from the RLP; or
• disqualify the member organization
from its status as an RLP.34
The Exchange determines if and when
a member organization is disqualified
from its status as an RLP. One calendar
month prior to any such determination,
the Exchange notifies an RLP of such
impending disqualification in writing.
When disqualification determinations
are made, the Exchange provides a
written disqualification notice to the
member organization.35 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.36
27 Id.
32 Id.
28 See
33 Id.
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17:22 Jun 20, 2018
at (f)(2)(A)–(E).
at (f)(3).
34 Id. at (g)(1)(A)–(C).
35 Id. at (2).
36 Id. at (3).
Jkt 244001
PO 00000
Frm 00077
Fmt 4703
Sfmt 4703
28877
Failure of RMO To Abide by Retail
Order Requirements
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.37 When disqualification
determinations are made, the Exchange
shall provide a written disqualification
notice to the member organization.38 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.39
Appeal of Disapproval or
Disqualification
Rule 107C(i) describes the appeal
rights of member organizations. A
member organization that disputes the
Exchange’s decision to disapprove it
under Rule 107C(b) or (d) or disqualify
it under Rule 107C(g) or (h) may
request, within five business days after
notice of the decision is issued by the
Exchange, that a Retail Liquidity
Program Panel (‘‘RLP Panel’’) review the
decision to determine if it was correct.40
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 CoHead of U.S. Listings and Cash
Execution.41 The RLP Panel would
review the facts and render a decision
within the time frame prescribed by the
Exchange.42 The RLP Panel can
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.43
Retail Liquidity Identifier
Under Rule 107C(j), the Exchange
disseminates an identifier through
proprietary Exchange data feeds or the
Securities Information Processor (‘‘SIP’’)
when RPI interest priced at least $0.001
better than the PBB or PBO for a
37 Id.
at (h)(1).
at (2).
39 Id. at (3).
40 Id. at (i)(1). 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. Id. at (i)(1)(A).
41 Id. at (i)(2).
42 Id. at (3).
43 Id. at (4).
38 Id.
E:\FR\FM\21JNN1.SGM
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Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Notices
particular security is available in
Exchange systems (‘‘Retail Liquidity
Identifier’’). The Retail Liquidity
Identifier shall reflect the symbol for the
particular security and the side (buy or
sell) of the RPI interest, but shall not
include the price or size of the RPI
interest.44
amozie on DSK3GDR082PROD with NOTICES1
Retail Order Designations
Under Rule 107C(k), an RMO can
designate how a Retail Order would
interact with available contra-side
interest as follows:
• A Type 1-designated Retail Order
interacts only with available contra-side
Retail Price Improvement Orders and
MPL Orders but would not interact with
other available contra-side interest in
Exchange systems or route to other
markets. The portion of a Type 1designated Retail Order that does not
execute against contra-side Retail Price
Improvement Orders would be
immediately and automatically
cancelled.45
• A Type 2-designated Retail Order
interacts first with available contra-side
Retail Price Improvement Orders and
MPL Orders and any remaining portion
of the Retail Order would be executed
as a Regulation NMS-compliant
Immediate or Cancel Order pursuant to
Rule 13.46
• A Type 3-designated Retail Order
interacts first with available contra-side
Retail Price Improvement Orders and
MPL Orders and any remaining portion
of the Retail Order would be executed
as an NYSE Immediate or Cancel Order
pursuant to Rule 13.47
Priority and Order Allocation
Under Rule 107C(l), Retail Price
Improvement Orders in the same
security are ranked and allocated
according to price then time of entry
into Exchange systems. When
determining the price to execute a Retail
Order, Exchange systems consider all
eligible RPIs and MPL Orders. If the
only interest is RPIs, then the
executions shall occur at the price level
that completes the incoming order’s
execution. If the only interest is MPL
Orders, the Retail Order shall execute at
the midpoint of the PBBO. If both RPIs
and MPL Orders are present, Exchange
systems will evaluate at what price level
the incoming Retail Order may be
executed in full (‘‘clean-up price’’). If
the clean-up price is equal to the
midpoint of the PBBO, RPIs will receive
priority over MPL Orders, and the Retail
44 Id.
at (j).
at (k)(1). See note 7, supra.
46 Id. at (2).
47 Id. at (k)(3).
45 Id.
VerDate Sep<11>2014
17:22 Jun 20, 2018
Jkt 244001
Order will execute against both RPIs
and MPL Orders at the midpoint. If the
clean-up price is worse than the
midpoint of the PBBO, the Retail Order
will execute first with the MPL Orders
at the midpoint of the PBBO and any
remaining quantity of the Retail Order
will execute with the RPIs at the cleanup price. If the clean-up price is better
than the midpoint of the PBBO, then the
Retail Order will execute against the
RPIs at the clean-up price and will
ignore the MPL Orders. Any remaining
unexecuted RPI interest and MPL
Orders will remain available to interact
with other incoming Retail Orders. Any
remaining unexecuted portion of the
Retail Order will cancel or execute in
accordance with Rule 107C(k).
Examples of priority and order
allocation are as follows:
Example 1:
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 executes 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 is not filled because the entire
size of the Retail Order to sell 1,000 is
depleted. The Retail Order executes at
the price that completes the order’s
execution. In this example, the entire
1,000 Retail Order to sell executes at
$10.02 because it results 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 is for 100. The incoming Retail
Order to sell 1,000 executes 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 then receives an
execution for 400 of its bid for 500, at
which point the entire size of the Retail
Order to sell 1,000 is depleted. The
Retail Order executes at the price that
completes the order’s execution, which
is $10.01.
Example 2:
PBBO for security DEF is $10.00–
10.01.
RLP 1 enters a Retail Price
Improvement Order to buy DEF at
$10.006 for 500.
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
RLP 2 enters a Retail Price
Improvement Order to buy DEF at
$10.005 for 500.
MPL 1 enters an MPL Order to buy
DEF at $10.01 for 1,000.
RLP 3 enters a Retail Price
Improvement Order to buy DEF at
$10.002 for 1,000.
An incoming Retail Order to sell DEF
for 2,500 arrives. The clean-up price is
$10.002. Because the midpoint of the
PBBO is priced better than the clean-up
price, the Retail Order executes with
MPL 1 for 1,000 shares at $10.005. The
Retail Order then executes at $10.002
against RLP 1’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 and then RLP 3 receives
an execution for 500 of its bid for 1,000,
at which point the entire size of the
Retail Order to sell 2,500 is depleted.
Assume the same facts above. An
incoming Retail Order to sell DEF for
1,000 arrives. The clean-up price is
$10.005. Because the clean-up price is
equal to the midpoint of the PBBO, RPIs
will receive priority over MPL Orders.
As a result, the Retail Order executes
first against RLP 1’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, at which point the
entire size of the Retail Order to sell
1,000 is depleted.48
Rationale for Making Pilot Permanent
In approving the Program on a pilot
basis, the Commission required the
Exchange to ‘‘monitor the scope and
operation of the Program and study the
data produced during that time with
respect to such issues, and will propose
any modifications to the Program that
may be necessary or appropriate.’’ 49 As
part of its assessment of the Program’s
potential impact, the Exchange posted
core weekly and daily summary data on
the Exchanges’ website for public
investors to review,50 and provided
additional data to the Commission
regarding potential investor benefits,
including the level of price
improvement provided by the Program.
This data included statistics about
participation, frequency and level of
price improvement and effective and
realized spreads.
In the RLP Approval Order, the
Commission observed that the Program
could promote competition for retail
order flow among execution venues, and
that this could benefit retail investors by
creating additional price improvement
48 Id.
at (l).
Approval Order, 77 FR at 40681.
50 See https://www.nyse.com/markets/liquidityprograms#nyse-nyse-mkt-rlp.
49 RLP
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Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Notices
opportunities for marketable retail order
flow, most of which is currently
executed in the Over-the-Counter
(‘‘OTC’’) markets without ever reaching
a public exchange.51 The Exchange
sought, and believes it has achieved, the
Program’s goal of attracting retail order
flow to the Exchange, and allowing such
order flow to receive potential price
improvement. As the Exchange’s
analysis of the Program data below
demonstrates, the Program provided
tangible price improvement to retail
investors through a competitive pricing
process. The data also demonstrates that
the Program had an overall negligible
impact on broader market structure.52
Between August 1, 2012, when the
Program began, and January 2, 2018,
orders totaling in excess of 6.8 billion
shares were executed through the
Program, providing retail investors with
$12.3 million in price improvement. As
Table 1 shows, during 2016, an average
of 2–3 million shares per day was
executed in the Program. In 2017, an
average of 3–4 million shares per day
were executed in the Program. During
the period 2016–17, average effective
spreads in RLP executions ranged
between $0.012 and $0.019. Fill rates
reached as high as 25.7% in May 2018.
Overall price improvement averaged
$0.0014 per share, approximately 40%
above the minimum of $0.001.53
TABLE 1—SUMMARY EXECUTION AND MARKET QUALITY STATISTICS
RPI Avg.
volume
Date
Jan-16 ..........................
Feb-16 ..........................
Mar-16 ..........................
Apr-16 ..........................
May-16 .........................
Jun-16 ..........................
Jul-16 ...........................
Aug-16 ..........................
Sep-16 ..........................
Oct-16 ..........................
Nov-16 ..........................
Dec-16 ..........................
Jan-17 ..........................
Feb-17 ..........................
Mar-17 ..........................
Apr-17 ..........................
May-17 .........................
Jun-17 ..........................
Jul-17 ...........................
Aug-17 ..........................
Sep-17 ..........................
Oct-17 ..........................
Nov-17 ..........................
Dec-17 ..........................
Avg. daily
orders
3,257,495
3,119,642
2,760,731
2,277,189
1,727,219
2,003,149
2,265,579
2,009,630
1,620,236
2,355,292
2,702,894
4,380,164
2,921,604
2,508,810
2,585,694
2,875,573
3,741,955
5,040,922
3,906,133
3,803,586
3,398,110
3,839,683
4,193,873
3,673,405
Eff. spread
11,495
10,400
9,179
8,432
6,931
9,122
7,880
5,626
4,801
8,055
9,915
15,036
11,184
9,801
9,517
10,174
15,179
17,245
14,582
14,841
12,782
13,467
14,499
19,036
As Table 2 shows, approximately 45%
of all orders in the Program in 2016–17
were for a round lot or fewer shares.
More than 60% of retail orders
removing liquidity from the Exchange
Effective/
quoted ratio
$0.0167
0.0163
0.0142
0.0143
0.0151
0.0134
0.0126
0.0122
0.0136
0.0143
0.0161
0.0142
0.0148
0.0165
0.0175
0.0156
0.0150
0.0155
0.0154
0.0174
0.0152
0.0156
0.0161
0.0180
Price
improvement
0.736
0.713
0.706
0.703
0.693
0.667
0.668
0.699
0.696
0.693
0.700
0.710
0.730
0.754
0.770
0.764
0.763
0.688
0.712
0.700
0.773
0.773
0.775
0.782
Realized
spread
$0.0017
0.0018
0.0018
0.0018
0.0019
0.0019
0.0019
0.0017
0.0017
0.0017
0.0018
0.0017
0.0016
0.0015
0.0015
0.0014
0.0014
0.0018
0.0017
0.0018
0.0014
0.0014
0.0014
0.0014
were for 300 shares or less. Further, the
number of very large orders was
relatively steady, with orders larger than
7,500 shares typically accounting for 4–
5% of orders received. Despite relatively
Fill rate (%)
$0.0051
0.0041
0.0029
0.0042
0.0054
0.0060
0.0034
¥0.0019
0.0035
0.0041
0.0040
0.0034
0.0011
0.0023
0.0060
0.0056
0.0026
0.0046
0.0020
0.0055
0.0017
0.0022
0.0028
0.0027
14.7
15.3
16.5
17.6
16.4
14.4
18.1
16.4
15.6
19.7
17.3
20.5
21.4
20.3
20.9
23.5
25.7
19.2
19.8
19.5
23.2
25.2
24.2
19.0
low fill rates, large orders account for a
sizable portion of the shares executed in
the Program.
TABLE 2—COMPOSITION OF RETAIL TAKING ORDERS BY ORDER SIZE CATEGORY
amozie on DSK3GDR082PROD with NOTICES1
<100
(%)
Jan-16 ...................................
Feb-16 ...................................
Mar-16 ...................................
Apr-16 ....................................
May-16 ..................................
Jun-16 ...................................
Jul-16 .....................................
Aug-16 ...................................
Sep-16 ...................................
Oct-16 ....................................
Nov-16 ...................................
Dec-16 ...................................
Jan-17 ...................................
Feb-17 ...................................
Mar-17 ...................................
Apr-17 ....................................
May-17 ..................................
Jun-17 ...................................
51 RLP
36.31
35.88
35.67
38.22
37.64
39.46
40.22
33.59
33.40
39.50
38.72
39.41
42.16
41.90
41.55
44.32
52.39
44.76
Approval Order, 77 FR at 40679.
VerDate Sep<11>2014
17:22 Jun 20, 2018
Jkt 244001
101–300
(%)
301–500
(%)
19.06
18.81
18.69
19.39
19.81
18.98
18.59
17.45
17.83
19.03
19.67
19.52
19.82
19.51
18.98
18.50
17.82
15.48
9.74
9.96
9.90
9.87
10.12
9.66
9.45
9.24
9.13
9.42
9.80
9.41
9.22
9.34
9.12
8.55
7.14
7.53
52 See
PO 00000
501–1,000
(%)
1001–2,000
(%)
2001–4,000
(%)
4001–7,500
(%)
7.60
7.72
7.82
7.16
7.51
7.13
6.75
8.30
8.33
7.33
7.19
7.33
6.92
7.03
7.30
6.65
5.32
6.87
6.48
6.42
6.70
5.73
5.60
5.32
5.40
7.17
7.32
5.66
5.27
5.40
4.84
4.82
5.18
5.07
4.03
6.06
4.38
4.31
4.52
3.89
3.74
3.95
4.05
5.71
5.69
3.77
3.63
3.55
3.05
3.09
3.40
3.31
2.64
4.67
11.64
11.82
11.83
11.48
11.57
11.22
11.10
11.66
11.55
11.16
11.40
11.26
10.62
10.79
11.04
10.21
8.08
9.59
id. at 40682.
Frm 00079
Fmt 4703
7500–15,000
(%)
>15,000
(%)
2.70
2.82
2.92
2.54
2.35
2.60
2.65
4.33
4.17
2.53
2.64
2.66
2.08
2.08
2.07
2.17
1.72
3.50
53 In 2016, the average price improvement
reached as high as $0.0017–$0.0018.
Sfmt 4703
E:\FR\FM\21JNN1.SGM
21JNN1
2.09
2.26
1.94
1.73
1.65
1.68
1.78
2.54
2.59
1.59
1.70
1.47
1.30
1.44
1.36
1.21
0.87
1.53
28880
Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Notices
TABLE 2—COMPOSITION OF RETAIL TAKING ORDERS BY ORDER SIZE CATEGORY—Continued
<100
(%)
Jul-17 .....................................
Aug-17 ...................................
Sep-17 ...................................
Oct-17 ....................................
Nov-17 ...................................
Dec-17 ...................................
101–300
(%)
45.33
43.83
46.15
45.53
45.14
45.96
15.98
16.68
17.81
18.30
17.37
17.62
Tables 3 and 4 show the distribution
of orders received by size and shares
executed in 2016–17. During that
301–500
(%)
501–1,000
(%)
8.05
8.39
8.26
8.47
8.63
8.89
1001–2,000
(%)
2001–4,000
(%)
4001–7,500
(%)
7.08
7.48
6.78
6.88
7.13
6.62
5.61
5.67
4.85
4.82
5.02
4.55
3.70
3.46
2.93
2.79
2.90
2.72
10.21
10.58
9.93
10.06
10.37
10.60
period, the Program saw much lower
execution sizes due to smaller retail
providing orders (typically around 300
7500–15,000
(%)
>15,000
(%)
2.62
2.51
2.09
2.00
2.15
1.99
1.43
1.41
1.20
1.15
1.29
1.05
shares) breaking up fills and as a result
of liquidity at multiple price
improvement points.
TABLE 3—COMPOSITION OF SHARES PLACED BY ORDER SIZE CATEGORY
<100
(%)
Jan-16 ...................................
Feb-16 ...................................
Mar-16 ...................................
Apr-16 ....................................
May-16 ..................................
Jun-16 ...................................
Jul-16 .....................................
Aug-16 ...................................
Sep-16 ...................................
Oct-16 ....................................
Nov-16 ...................................
Dec-16 ...................................
Jan-17 ...................................
Feb-17 ...................................
Mar-17 ...................................
Apr-17 ....................................
May-17 ..................................
Jun-17 ...................................
Jul-17 .....................................
Aug-17 ...................................
Sep-17 ...................................
Oct-17 ....................................
Nov-17 ...................................
Dec-17 ...................................
101–300
(%)
1.11
1.09
1.15
1.45
1.47
1.43
1.38
0.88
0.92
1.60
1.49
1.69
2.08
1.96
1.90
2.29
4.06
1.36
1.45
1.52
2.01
1.99
1.85
2.06
2.17
2.09
2.23
2.75
2.81
2.67
2.50
1.71
1.78
2.76
2.70
2.98
3.51
3.33
3.16
3.34
4.02
2.15
2.49
2.67
3.29
3.45
3.10
3.54
301–500
(%)
501–1,000
(%)
2.28
2.25
2.40
2.84
2.93
2.80
2.61
1.86
1.84
2.77
2.72
2.88
3.29
3.21
3.05
3.10
3.23
2.15
2.58
2.76
3.08
3.21
3.11
3.60
1001–2,000
(%)
2001–4,000
(%)
4001–7,500
(%)
6.21
6.09
6.61
7.21
7.59
7.29
6.57
5.88
5.89
7.52
6.99
7.82
8.59
8.39
8.50
8.38
8.42
6.99
8.03
8.79
8.98
9.26
9.07
9.43
10.14
9.67
10.79
10.93
10.70
10.28
10.05
9.78
10.04
11.19
9.77
11.13
11.57
11.12
11.64
12.32
12.26
11.88
12.20
12.70
12.38
12.39
12.20
12.58
12.73
12.01
13.50
13.90
13.39
14.15
13.95
14.44
14.44
13.79
12.62
13.57
13.51
13.29
14.12
15.07
14.97
16.71
14.85
14.21
13.73
13.30
13.06
13.73
5.01
4.92
5.28
6.09
6.16
6.06
5.67
4.30
4.24
6.00
5.84
6.29
6.89
6.70
6.72
6.72
6.65
5.07
6.02
6.42
6.74
6.94
6.80
7.78
7500–15,000
(%)
>15,000
(%)
14.71
14.90
16.37
16.82
15.81
17.28
16.71
19.69
19.38
17.15
16.97
18.68
17.30
16.59
15.93
18.00
17.66
22.63
19.55
19.41
18.52
18.03
18.30
19.12
45.64
46.97
41.68
38.02
39.14
38.04
40.57
41.45
41.48
37.21
40.90
34.96
33.26
35.40
34.97
30.78
28.74
31.06
32.83
31.50
31.27
31.42
32.51
28.16
TABLE 4—COMPOSITION OF SHARES EXECUTED BY ORDER SIZE CATEGORY
amozie on DSK3GDR082PROD with NOTICES1
<100
(%)
Jan-16 ...................................
Feb-16 ...................................
Mar-16 ...................................
Apr-16 ....................................
May-16 ..................................
Jun-16 ...................................
Jul-16 .....................................
Aug-16 ...................................
Sep-16 ...................................
Oct-16 ....................................
Nov-16 ...................................
Dec-16 ...................................
Jan-17 ...................................
Feb-17 ...................................
Mar-17 ...................................
Apr-17 ....................................
May-17 ..................................
Jun-17 ...................................
Jul-17 .....................................
Aug-17 ...................................
Sep-17 ...................................
Oct-17 ....................................
Nov-17 ...................................
Dec-17 ...................................
101–300
(%)
6.25
5.94
5.79
6.84
7.38
7.10
6.18
4.48
4.73
6.76
7.02
6.99
8.21
8.20
7.67
8.48
14.15
5.58
5.67
5.78
7.32
6.53
6.28
6.50
10.48
9.72
9.59
11.14
11.61
10.66
9.52
7.45
7.83
10.32
11.19
10.91
12.23
12.39
11.72
11.45
12.70
8.07
9.03
9.30
10.97
10.74
10.18
10.99
As Table 5 shows, during 2016–17,
fill rates trended near 80% for orders up
VerDate Sep<11>2014
17:22 Jun 20, 2018
Jkt 244001
301–500
(%)
501–1,000
(%)
9.45
9.20
9.07
10.10
10.14
9.04
8.28
6.93
6.94
8.76
9.76
9.22
9.82
10.36
10.02
9.57
9.29
7.39
8.53
8.88
9.79
9.74
9.41
10.31
1001–2,000
(%)
2001–4,000
(%)
4001–7,500
(%)
14.62
13.89
14.13
13.89
13.47
13.52
12.55
12.48
12.43
14.13
14.19
15.32
15.76
15.80
16.40
15.60
14.45
14.63
16.45
17.51
17.26
17.63
17.38
16.89
10.14
9.67
10.79
10.93
10.70
10.28
10.05
9.78
10.04
11.19
9.77
11.13
11.57
11.12
11.64
12.32
12.26
11.88
12.20
12.70
12.38
12.39
12.20
12.58
10.60
10.88
11.31
10.47
9.84
11.45
13.28
15.50
16.13
11.68
10.31
10.68
9.59
9.45
9.76
10.32
9.45
13.89
11.56
10.54
9.53
9.21
9.80
9.35
17.31
16.39
16.56
17.62
17.20
15.22
14.74
12.87
12.86
15.87
17.17
17.06
17.25
18.42
19.32
18.22
16.65
15.41
17.83
18.25
18.78
18.74
18.28
20.09
to 300 shares, while the average shares
available at the inside was 300 shares.
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Sfmt 4703
7500–15,000
(%)
>15,000
(%)
8.43
9.53
9.99
9.28
8.47
10.13
11.29
15.54
14.42
10.00
8.99
9.16
7.24
6.93
6.64
7.81
7.18
13.50
9.71
8.75
7.60
8.01
8.44
7.30
Data published to the SIP indicates
when liquidity is available for retail
E:\FR\FM\21JNN1.SGM
21JNN1
8.90
11.14
9.13
7.38
8.99
10.13
10.57
10.23
10.16
8.23
8.58
6.67
6.40
5.64
4.93
4.50
3.52
6.20
6.11
5.72
4.98
5.35
6.08
4.60
28881
Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Notices
liquidity seekers inside the spread, and
on which side.
TABLE 5—FILL RATES BY RETAIL TAKE ORDER SIZE
<100
(%)
Jan-16 ...................................
Feb-16 ...................................
Mar-16 ...................................
Apr-16 ....................................
May-16 ..................................
Jun-16 ...................................
Jul-16 .....................................
Aug-16 ...................................
Sep-16 ...................................
Oct-16 ....................................
Nov-16 ...................................
Dec-16 ...................................
Jan-17 ...................................
Feb-17 ...................................
Mar-17 ...................................
Apr-17 ....................................
May-17 ..................................
Jun-17 ...................................
Jul-17 .....................................
Aug-17 ...................................
Sep-17 ...................................
Oct-17 ....................................
Nov-17 ...................................
Dec-17 ...................................
101–300
(%)
85.30
83.81
82.78
83.19
82.49
71.79
80.95
83.54
80.06
83.10
81.40
84.73
84.49
84.49
84.31
86.84
89.57
78.80
77.45
74.17
84.30
82.84
82.32
81.62
72.92
71.47
70.92
71.37
67.65
57.72
68.80
71.79
69.04
73.58
71.75
75.04
74.69
75.25
77.43
80.63
81.19
72.17
71.84
67.92
77.24
78.51
79.42
80.19
Table 6 shows the development of
orders sizes received in the Program
over time. Orders adding liquidity to the
Exchange averaged in the mid-300 share
range for most of the Program’s recent
history, although the median size has
increased since August 2016. (The
Exchange notes that the median order
size is the average of the daily median
301–500
(%)
501–1,000
(%)
62.76
62.76
62.38
62.58
56.62
46.59
57.26
61.39
59.19
62.22
62.28
65.56
64.07
65.39
68.69
72.49
73.95
66.04
65.58
62.76
73.73
76.55
73.12
74.12
1,001–2,000
(%)
2,001–4,000
(%)
4,001–7,500
(%)
35.67
35.07
35.25
33.95
29.09
26.76
34.50
34.92
33.04
36.97
35.15
40.18
39.35
38.16
40.26
43.71
44.07
40.20
40.59
38.88
44.56
48.06
46.34
46.28
20.84
21.18
22.06
21.41
19.75
17.91
24.39
24.40
22.58
25.09
22.68
25.76
24.97
23.34
24.26
26.79
26.41
24.80
24.56
23.48
25.81
28.59
28.08
28.70
12.61
13.92
13.80
13.27
12.04
11.69
17.19
17.64
17.49
16.67
14.15
16.14
15.22
14.40
14.42
16.10
16.22
15.96
15.42
14.48
16.11
17.47
18.16
17.60
52.36
51.21
51.69
50.99
45.70
36.28
46.92
49.17
47.50
52.05
50.90
55.67
53.69
55.64
60.00
63.69
64.31
58.35
58.68
55.48
64.64
68.14
65.08
66.68
order sizes across all orders received on
a trade date for NYSE symbols.) After
averaging near 2,000 shares at times, the
size of retail orders removing liquidity
from the Exchange has dropped over
time, with median sizes periodically
exceeding 300 shares. The slightly
smaller take order sizes helps explain
the better overall fill rates and improved
7,500–15,000
(%)
>15,000
(%)
8.68
9.84
10.06
9.72
8.77
8.46
12.20
12.97
11.65
11.48
9.18
10.06
8.98
8.46
8.70
10.19
10.45
11.46
9.85
8.80
9.51
11.21
11.17
9.86
2.95
3.65
3.61
3.42
3.76
3.84
4.71
4.06
3.83
4.35
3.63
3.91
4.13
3.23
2.95
3.44
3.15
3.83
3.69
3.54
3.69
4.30
4.52
4.22
effective spreads in the Program’s recent
history. However, as shown by the
occasional oversized orders, there
remains ample liquidity and
opportunity in the Program to satisfy
liquidity takers with meaningful price
improvement.
TABLE 6—ORDER SIZE DETAILS
Provide orders
amozie on DSK3GDR082PROD with NOTICES1
Average
Jan-16 ..............................................................................................................
Feb-16 ..............................................................................................................
Mar-16 ..............................................................................................................
Apr-16 ..............................................................................................................
May-16 .............................................................................................................
Jun-16 ..............................................................................................................
Jul-16 ...............................................................................................................
Aug-16 .............................................................................................................
Sep-16 .............................................................................................................
Oct-16 ..............................................................................................................
Nov-16 .............................................................................................................
Dec-16 .............................................................................................................
Jan-17 ..............................................................................................................
Feb-17 ..............................................................................................................
Mar-17 ..............................................................................................................
Apr-17 ..............................................................................................................
May-17 .............................................................................................................
Jun-17 ..............................................................................................................
Jul-17 ...............................................................................................................
Aug-17 .............................................................................................................
Sep-17 .............................................................................................................
Oct-17 ..............................................................................................................
Nov-17 .............................................................................................................
Dec-17 .............................................................................................................
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Take orders
Median
297
314
312
306
294
314
323
340
338
357
382
367
361
350
360
353
416
370
355
360
391
444
422
395
E:\FR\FM\21JNN1.SGM
Average
157
191
182
176
100
100
105
194
200
200
200
200
200
200
200
200
200
200
200
200
200
200
200
200
21JNN1
1,941
1,958
1,787
1,523
1,542
1,508
1,585
2,230
2,212
1,494
1,623
1,398
1,217
1,264
1,304
1,223
961
1,517
1,364
1,310
1,141
1,127
1,193
1,026
Median
259
272
267
215
217
207
202
338
336
204
212
206
199
200
200
189
105
190
180
196
164
172
184
195
28882
Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Notices
Although the Program provides the
opportunity to achieve significant price
improvement, the Program has not
generated significant activity. As Table
7 shows, the average daily volume for
the Program has hovered in the three to
four million share range, and has
accounted for less than 0.1% of
consolidated NYSE-listed volume in
2016–17. The Program’s share of NYSE
volume during that period was below
0.4%. Moreover, no symbol during the
past two years achieved as much as
1.6% of their consolidated average daily
volume (‘‘CADV’’) in the Program, and
all of the highest share symbols are low
volume securities. As Table 2 shows,
during the 2016–2017 period, only 1.0%
of all day/symbol pairs exceeded 5%
share of CADV, with another 8.2% of
day/symbol pairs achieving a share of
CADV between 1% and 5%. Fully 75%
of all day/symbol pairs exhibited RLP
share of 0.25% or less during that time.
For ticker symbols that traded at least
100 days during the two-year period,
more than half of all symbols over that
period had less than 0.10% of their
consolidated volume executed in the
program, and 96% less than 0.50%. The
Program’s share of the total market in
NYSE-listed securities is tiny
considering that non-ATS activity in the
U.S. equity markets, based on FINRA
transparency data and NYSE Trade and
Quote (‘‘TAQ’’) volume statistics, is
estimated to be approximately 20–25%
of all U.S. equity volume. In short, the
Program represents a minor participant
in the overall market to price improve
marketable retail order flow. While
participation was low, as noted above,
retail investors that participated in the
Program received price improvement on
their orders, which was one of the stated
goals of the Program. The NYSE
therefore believes that the pilot data
supports making the Program
permanent.
TABLE 7
Daily results
Distribution
(%)
Count
>50 ...................................................................................................................
25.00–50.00 .....................................................................................................
10.00–25.00 .....................................................................................................
5.00–10.00 .......................................................................................................
1.00–5.00 .........................................................................................................
0.75–1.00 .........................................................................................................
0.50–0.75 .........................................................................................................
0.25–0.50 .........................................................................................................
0.10–0.25 .........................................................................................................
0.05–0.10 .........................................................................................................
0.01–0.05 .........................................................................................................
<0.01 ................................................................................................................
Moreover, beyond providing a
meaningful price improvement to retail
investors through a competitive and
transparent pricing process unavailable
in non-exchange venues, the data
collected during the Program supports
the conclusion that the Program has not
had any significant negative market
impact. As set forth in Table 8, the
Exchange measured the correlation
63
179
1,599
5,569
58,368
18,527
29,869
64,440
116,211
101,813
181,194
136,624
between several critical market quality
statistics and either RLP share of CADV,
shares posted dark by providers seeking
to interact with retail orders or the
amount of time during the trading day
that RLP liquidity was available. The
correlations the Exchange measured
were levels, not changes. As a result,
fairly high correlation coefficients
should suggest that the Program had a
Two year aggregate
Percentage
0.0088
0.0251
0.2238
0.7795
8.1696
2.5932
4.1807
9.0194
16.2657
14.2504
25.3611
19.1228
Count
0
0
0
0
6
18
111
764
736
538
1,161
129
Percentage
0.0000
0.0000
0.0000
0.0000
0.1733
0.5198
3.2053
22.0618
21.2532
15.5357
33.5258
3.7251
meaningful impact on the statistics. In
no case did the Exchange observe a
single correlation greater than an
absolute value of 0.15, and even at the
90th percentile of all symbols, there was
no correlation of even 0.30. In short,
there was no measure the Exchange
studied supporting the conclusion that
the Program had any noticeable impact
on market quality.
TABLE 8
Average
correlation
Statistic 2
% Time With RLP Liquidity ..........................................
% Time With RLP Liquidity ..........................................
RLP Size at PBBO .......................................................
RLP Size at PBBO .......................................................
RLP Share of CADV .....................................................
RLP Share of CADV .....................................................
RLP Share of CADV .....................................................
RLP Share of CADV .....................................................
amozie on DSK3GDR082PROD with NOTICES1
Statistic 1
Consolidated Spread ....................................................
Eff. Sprd. Ex RPI ..........................................................
Consolidated Spread ....................................................
Eff. Sprd. Ex RPI ..........................................................
Eff. Sprd. Ex RPI ..........................................................
Share wtd. NBBO Spread ............................................
Time wtd. NBBO Spread ..............................................
Time wtd. NYSE BBO Spread .....................................
The Exchange believes that the
Program was a positive experiment in
attracting retail order flow to a public
exchange. The order flow the Program
attracted to the Exchange provided
tangible price improvement to retail
VerDate Sep<11>2014
17:22 Jun 20, 2018
Jkt 244001
investors through a competitive pricing
process unavailable in non-exchange
venues. As such, despite the low
volumes, the Exchange believes that the
Program satisfied the twin goals of
attracting retail order flow to the
PO 00000
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0.0001
0.0943
0.0003
0.0617
0.0010
0.0152
0.0002
0.0002
90th
percentile
correlation
0.0003
0.2925
0.0005
0.2348
0.1091
0.1357
0.0002
0.0002
Exchange and allowing such order flow
to receive potential price improvement.
Moreover, the Exchange believes that
the data collected during the Program
supports the conclusion that the
Program’s overall impact on market
E:\FR\FM\21JNN1.SGM
21JNN1
Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Notices
amozie on DSK3GDR082PROD with NOTICES1
quality and structure was not negative.
Although the results of the Program
highlight the substantial advantages that
broker-dealers retain when managing
the benefits of retail order flow, the
Exchange believes that the level of price
improvement guaranteed by the
Program and the scant evidence that the
Program negatively impacted the
marketplace justifies making the
Program permanent. The Exchange
accordingly believes that the pilot
Program’s rules, as amended, should be
made permanent.
The Exchange notes that the proposed
change is not otherwise intended to
address any other issues and the
Exchange is not aware of any problems
that member organizations would have
in complying with the proposed rule
change.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
requirements of Section 6(b) of the
Act,54 in general, and Section 6(b)(5) of
the Act,55 in particular, in that it is
designed to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, to promote just and equitable
principles of trade, and, in general, to
protect investors and the public interest
and not to permit unfair discrimination
between customers, issuers, brokers, or
dealers.
The Exchange believes the proposal is
consistent with these principles because
it seeks to make permanent a pilot and
associated rule changes that were
previously approved by the Commission
as a pilot for which the Exchange has
subsequently provided data and
analysis to the Commission, and that
this data and analysis, as well as the
further analysis in this filing, shows that
the Program has operated as intended
and is consistent with the Act. The
Exchange also 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 also believes the
proposed rule change is designed to
facilitate transactions in securities and
to remove impediments to, and perfect
the mechanisms of, a free and open
market and a national market system
because making the Program permanent
would attract retail order flow to a
public exchange and allow such order
flow to receive potential price
54 15
55 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
VerDate Sep<11>2014
17:22 Jun 20, 2018
Jkt 244001
improvement. The data provided by the
Exchange to the Commission staff
demonstrates that the Program provided
tangible price improvement to retail
investors through a competitive pricing
process unavailable in non-exchange
venues and otherwise had an
insignificant impact on the marketplace.
The Exchange believes that making the
Program permanent would encourage
the additional utilization of, and
interaction with, the NYSE and provide
retail customers with an additional
venue for price discovery, liquidity,
competitive quotes, and price
improvement. For the same reasons, the
Exchange believes that making the
Program permanent would promote just
and equitable principles of trade and
remove impediments to and perfect the
mechanism of a free and open market.
Finally, the Exchange believes that it
is subject to significant competitive
forces, as described below in the
Exchange’s statement regarding the
burden on competition. For these
reasons, the Exchange believes that the
proposal is consistent with the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes that making the
Program permanent would continue to
promote competition for retail order
flow among execution venues. The
Exchange believes that the data
supplied to the Commission and
experience gained over nearly six years
have demonstrated that the Program
creates price improvement
opportunities for retail orders that are
equal to what would be provided under
OTC internalization arrangements,
thereby benefiting retail investors and
increasing competition between
execution venues. The Exchange also
believes that making the Program
permanent will promote competition
between execution venues operating
their own retail liquidity programs.
Such competition will lead to
innovation within the market, thereby
increasing the quality of the national
market system. Finally, the Exchange
notes that it operates in a highly
competitive market in which market
participants can easily direct their
orders to competing venues, including
off-exchange venues. In such an
environment, the Exchange must
continually review, and consider
adjusting the services it offers and the
requirements it imposes to remain
PO 00000
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Fmt 4703
Sfmt 4703
28883
competitive with other U.S. equity
exchanges.
For the reasons described above, the
Exchange believes that the proposed
rule change reflects this competitive
environment.
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 up to 90 days (i) as the
Commission may designate 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.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. 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
Number 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 (https://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
E:\FR\FM\21JNN1.SGM
21JNN1
28884
Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Notices
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 the
filing also will be available for
inspection and copying at the principal
offices of the Exchange. All comments
received will be posted without change.
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
submissions should refer to File
Number SR–NYSE–2018–28, and
should be submitted on or before July
12, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.56
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–13303 Filed 6–20–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83450; File No. SR–
CboeEDGX–2018–016]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Related to
Physical Port Fees for EDGX
amozie on DSK3GDR082PROD with NOTICES1
June 15, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 1,
2018, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the Exchange. The Exchange has
designated the proposed rule change as
one establishing or changing a member
due, fee, or other charge imposed by the
Exchange under Section 19(b)(3)(A)(ii)
of the Act 3 and Rule 19b–4(f)(2)
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
Exchange 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 these
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 implement
proposed changes to its fee schedule
relating to physical connectivity fees,
effective June 1, 2018. By way of
background, a physical port is utilized
by a Member or non-Member to connect
to the Exchange at the data centers
where the Exchange’s servers are
located. The Exchange currently
maintains a presence in two third-party
data centers: (i) The primary data center
where the Exchange’s business is
primarily conducted on a daily basis,
and (ii) a secondary data center, which
is predominantly maintained for
business continuity purposes. The
Exchange currently assesses the
following physical connectivity fees for
Members and non-Members on a
CFR 240.19b–4(f)(2).
term ‘‘Member’’ is defined as ‘‘any
registered broker or dealer that has been admitted
to membership in the Exchange.’’ See Exchange
Rule 1.5(n).
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
5 The
1 15
17:22 Jun 20, 2018
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend its fees and rebates applicable to
Members 5 and non-Members of the
Exchange pursuant to EDGX Rule
15.1(a) and (c) to modify its fees for
physical ports.
The text of the proposed rule change
is available at the Exchange’s website at
www.markets.cboe.com, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
4 17
56 17
VerDate Sep<11>2014
thereunder,4 which renders the
proposed rule change effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
Jkt 244001
PO 00000
Frm 00084
Fmt 4703
Sfmt 4703
monthly basis: $2,000 per physical port
for a 1 gigabyte circuit and $7,000 per
physical port for a 10 gigabyte circuit.
The Exchange proposes to increase the
fees per physical ports from (i) $2,000
to $2,500 per month, per port for a 1
gigabyte circuit and (ii) $7,000 to $7,500
per month, per port for a 10 gigabyte
circuit. The Exchange notes the
proposed fees enable it to continue to
maintain and improve its market
technology and services and also notes
that the proposed fee changes are in line
with the amounts assessed by other
exchanges for similar connections.6
The Exchange also proposes to adopt
separate physical port fees for
connection to its secondary data center,
which is predominantly maintained for
business continuity purposes (‘‘Disaster
Recovery Systems’’). Particularly, the
Disaster Recovery Systems can be
accessed via physical ports in Chicago.
Members and Non-Members may
maintain physical ports in order to be
able to connect to the Disaster Recovery
Systems in case of a disaster. Currently,
physical ports that are used to connect
to the Disaster Recovery Systems are
assessed the same fees as physical ports
used to connect to the Exchange’s
trading system. The Exchange proposes
to establish separate pricing for physical
ports that are used to connect to the
Disaster Recovery Systems (‘‘Disaster
Recovery Physical Ports’’). Specifically,
the Exchange proposes to assess a
monthly fee of $2,000 per 1 gigabyte
Disaster Recovery Physical Port and a
monthly fee of $6,000 per 10 gigabyte
Disaster Recovery Physical Port. This
amount will continue to enable the
Exchange to maintain the Disaster
Recovery Physical Ports in case they
become necessary. The Exchange notes
that the Disaster Recovery Physical
Ports may also be used to access the
Disaster Recovery Systems for the
following affiliate exchanges Cboe BZX
Exchange, Inc., Cboe BYX Exchange,
Inc., Cboe EDGA Exchange, Inc., Cboe
C2 Exchange, Inc., Cboe Exchange, Inc.
and Cboe Futures Exchange, LLC as
well. The Exchange proposes to provide
that market participants will only be
assessed a single fee for any Disaster
Recovery Physical Port that also
accesses the Disaster Recover Systems
for these exchanges.7
6 See e.g., NYSE Arca Equities Fees and Charges,
NYSE Arca Marketplace: Other Fees and Charges,
Connectivity Fees. See also, Nasdaq Phlx LLC
Pricing Schedule, Section XI, Direct Connectivity to
Phlx.
7 For example, if a market participant uses a 1
gigabyte Disaster Recovery Physical Port to connect
to the Disaster Recovery Systems for both BYX and
EDGX, the market participant would only be
assessed one monthly fee of $2,000.
E:\FR\FM\21JNN1.SGM
21JNN1
]]>Agencies
[Federal Register Volume 83, Number 120 (Thursday, June 21, 2018)]
[Notices]
[Pages 28874-28884]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13303]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83454; File No. SR-NYSE-2018-28]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change To Make Permanent the Retail
Liquidity Program Pilot, Rule 107C, Which Is Currently Set To Expire on
June 30, 2018
June 15, 2018.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\
[[Page 28875]]
notice is hereby given that on June 4, 2018, New York Stock Exchange
LLC (``NYSE'' or the ``Exchange'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by the Exchange. The Commission is publishing this notice
to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to make permanent Rule 107C, which sets forth
the Exchange's pilot Retail Liquidity Program. The proposed rule change
is available on the Exchange's website at www.nyse.com, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to make permanent Rule 107C, which sets forth
the Exchange's pilot Retail Liquidity Program (the ``Program''). In
support of the proposal to make the pilot Program permanent, the
Exchange believes it is appropriate to provide background on the
Program and an analysis of the economic benefits for retail investors
and the marketplace flowing from operation of the Program.
Background
In July 2012, the Commission approved the Program on a pilot
basis.\3\ The purpose of the pilot was to analyze data and assess the
impact of the Program on the marketplace. 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 in order to
prepare this rule filing. The pilot is currently set to expire on June
30, 2018.\4\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 67347 (July 3,
2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-55) (``RLP Approval
Order''). 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.
\4\ See Securities Exchange Act Release No. 82230 (December 7,
2017), 82 FR 58667 (December 13, 2017) (SR-NYSE-2017-64) (extending
pilot to June 30, 2018). See also Securities Exchange Act Release
No. 80844 (June 1, 2017), 82 FR 26562 (June 7, 2017) (SR-NYSE-2017-
26) (extending pilot to December 31, 2017); Securities Exchange Act
Release No. 79493 (December 7, 2016), 81 FR 90019 (December 13,
2016) (SR-NYSE-2016-82) (extending pilot to June 30, 2017);
Securities Exchange Act Release No. 78600 (August 17, 2016), 81 FR
57642 (August 23, 2016) (SR-NYSE-2016-54) (extending pilot to
December 31, 2016); Securities Exchange Act Release No. 77426 (March
23, 2016), 81 FR 17533 (March 29, 2016) (SR-NYSE-2016-25) (extending
pilot to August 31, 2016); Securities Exchange Act Release No. 75993
(September 28, 2015), 80 FR 59844 (October 2, 2015) (SR-NYSE-2015-
41) (extending pilot to March 31, 2016); Securities Exchange Act
Release No. 74454 (March 6, 2015), 80 FR 13054 (March 12, 2015) (SR-
NYSE-2015-10) (extending pilot until September 30, 2015); Securities
Exchange Act Release No. 72629 (July 16, 2014), 79 FR 42564 (July
22, 2014) (NYSE-2014-35) (extending pilot until March 31, 2015); and
Securities Exchange Act Release No. 70096 (Aug. 2, 2013), 78 FR
48520 (Aug. 8, 2013) (SR-NYSE-2013-48) (extending pilot to July 31,
2014).
---------------------------------------------------------------------------
The Exchange established the Program to attract retail order flow
to the Exchange, and allow such order flow to receive potential price
improvement.\5\ The Program is currently limited to trades occurring at
prices equal to or greater than $1.00 a share.
---------------------------------------------------------------------------
\5\ RLP Approval Order, 77 FR at 40674.
---------------------------------------------------------------------------
As described in greater detail below, under Rule 107C, a new class
of market participant called Retail Liquidity Providers (``RLPs'') \6\
and non-RLP member organizations are able to provide potential price
improvement to retail investor orders in the form of a non-displayed
order that is priced better than the best protected bid or offer
(``PBBO''), called a Retail Price Improvement Order (``RPI''). When
there is an RPI in a particular security, the Exchange disseminates an
indicator, known as the Retail Liquidity Identifier (``RLI''), that
such interest exists. Retail Member Organizations (``RMOs'') can submit
a Retail Order to the Exchange, which interacts, to the extent
possible, with available contra-side RPIs and Mid-Point Passive
Liquidity (``MPL'') Orders.\7\ The segmentation in the Program allows
retail order flow to receive potential price improvement as a result of
their order flow being deemed more desirable by liquidity providers.\8\
---------------------------------------------------------------------------
\6\ The Program also allows for RLPs to register with the
Exchange. However, any firm can enter RPI orders into the system.
Currently, four firms are registered as RLPs but are not registered
in any symbols.
\7\ The Exchange adopted MPL Orders in 2014 and amended Rule
107C to specify that MPL Orders could interact with incoming,
contra-side Retail Orders submitted by a RMO in the Program. See
Securities Exchange Act Release No. 71330 (January 16, 2014), 79 FR
3895 (January 23, 2014) (SR-NYSE-2013-71) (``Release No. 71330'').
\8\ RLP Approval Order, 77 FR at 40679.
---------------------------------------------------------------------------
In approving the pilot, the Commission concluded that the Program
was reasonably designed to benefit retail investors by providing price
improvement opportunities to retail order flow. Further, while the
Commission noted that the Program would treat retail order flow
differently from order flow submitted by other market participants,
such segmentation would not be inconsistent with Section 6(b)(5) of the
Act,\9\ which requires that the rules of an exchange are not designed
to permit unfair discrimination. As the Commission recognized, retail
order segmentation was designed to create additional competition for
retail order flow, leading to additional retail order flow to the
exchange environment and ensuring that retail investors benefit from
the better price that liquidity providers are willing to give their
orders.\10\
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b)(5).
\10\ RLP Approval Order, 77 FR at 40679.
---------------------------------------------------------------------------
As discussed below, the Exchange believes that the Program data
supports these conclusions and that it is therefore appropriate to make
the pilot Program permanent.\11\
---------------------------------------------------------------------------
\11\ Rule 107C has been amended several times. See Securities
Exchange Act Release No. 68709 (January 23, 2013), 78 FR 6160
(January 29, 2013) (SR-NYSE-2013-04) (amending Rule 107C to clarify
that Retail Liquidity Providers may enter Retail Price Improvement
Orders in a non-RLP capacity for securities to which the RLP is not
assigned); 69103 (March 11, 2013), 78 FR 16547 (March 15, 2013) (SR-
NYSE-2013-20) (amending Rule 107C to clarify that a Retail Member
Organization 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); 69513
(May 3, 2013), 78 FR 27261 (May 9, 2013) (SR-NYSE-2013-08) (amending
Rule 107C to allow Retail Member Organizations to attest that
``substantially all,'' rather than all, orders submitted to the
Program qualifies as ``Retail Orders'' under the Rule); Release No.
71330, 79 FR at 3895 (amending Rule 107C to incorporate MPL Orders);
and 76553 (December 3, 2015), 80 FR 76607 (December 9, 2015) (SR-
NYSE-2015-59) (``Release No. 76553'') (amending Rule 107C to
distinguish between retail orders routed on behalf of other broker-
dealers and retail orders that are routed on behalf of introduced
retail accounts that are carried on a fully disclosed basis).
---------------------------------------------------------------------------
[[Page 28876]]
Description of Pilot Rule 107C That Would Become Permanent
Definitions
Rule 107C(a) contains the following definitions:
First, the term ``Retail Liquidity Provider'' is defined
as a member organization that is approved by the Exchange under the
Rule to act as such and to submit Retail Price Improvement Orders in
accordance with the Rule.\12\
---------------------------------------------------------------------------
\12\ See Rule 107C(a)(1).
---------------------------------------------------------------------------
Second, the term ``Retail Member Organization'' (``RMO'')
is defined as a member organization (or a division thereof) that has
been approved by the Exchange to submit Retail Orders.\13\
---------------------------------------------------------------------------
\13\ Id. at (2).
---------------------------------------------------------------------------
Third, the term ``Retail Order'' means an agency order or
a riskless principal order meeting the criteria of FINRA Rule 5320.03
that originates from a natural person and is submitted to the Exchange
by a 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. A Retail Order is an Immediate or Cancel Order and may be
an odd lot, round lot, or partial round lot (``PRL'').\14\
---------------------------------------------------------------------------
\14\ Id. at (3).
---------------------------------------------------------------------------
Finally, the term ``Retail Price Improvement Order'' means
nondisplayed 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.\15\
---------------------------------------------------------------------------
\15\ Id. at (4). Exchange systems prevent Retail Orders from
interacting with Retail Price Improvement Orders if the RPI is not
priced at least $0.001 better than the PBBO. An RPI remains non-
displayed in its entirety (the buy or sell interest, the offset, and
the ceiling or floor). 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. An RLP is permitted, but
not required, to submit RPIs for securities to which it is not
assigned, and will be treated as a non-RLP member organization for
those particular securities. Additionally, member organizations
other than RLPs are permitted, but not required, to submit RPIs. An
RPI may be an odd lot, round lot, or PRL. See id.
---------------------------------------------------------------------------
RMO Qualifications and Application Process
Under Rule 107C(b), any member organization \16\ can qualify as an
RMO if it conducts a retail business or routes \17\ retail orders on
behalf of another broker-dealer. For purposes of Rule 107C(b),
conducting a retail business includes carrying retail customer accounts
on a fully disclosed basis. To become an RMO, a member organization
must submit: (1) An application form; (2) supporting documentation
sufficient to demonstrate the retail nature and characteristics of the
applicant's order flow; \18\ and (3) 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 Rule 107C.\19\
---------------------------------------------------------------------------
\16\ 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.
\17\ See Release No. 76553, 80 FR at 76607 (clarifying that one
way to qualify as an RMO is to route retail orders on behalf of
other broker-dealers).
\18\ The supporting documentation may include sample marketing
literature, website screenshots, other publicly disclosed materials
describing the member organization's retail order flow, and any
other documentation and information requested by the Exchange in
order to confirm that the applicant's order flow would meet the
requirements of the Retail Order definition. See Rule 107C
(b)(2)(B).
\19\ See id. at (b)(2)(A)-(C).
---------------------------------------------------------------------------
An RMO must 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 Rule 107C, 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.\20\
---------------------------------------------------------------------------
\20\ Id. at (b)(6).
---------------------------------------------------------------------------
Following submission of the required materials, the Exchange
provides written notice of its decision to the member organization.\21\
A disapproved applicant can appeal the disapproval by the Exchange as
provided in Rule 107C(4), and/or reapply for RMO status 90 days after
the disapproval notice is issued by the Exchange. An RMO can also
voluntarily withdraw from such status at any time by giving written
notice to the Exchange.\22\
---------------------------------------------------------------------------
\21\ Id. at (b)(3).
\22\ Id. at (b)(5).
---------------------------------------------------------------------------
RLP Qualifications
To qualify as an RLP under Rule 107C(c), a member organization
must: (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.\23\
---------------------------------------------------------------------------
\23\ Id. at (c)(1)-(4).
---------------------------------------------------------------------------
RLP Application
Under Rule 107C(d), to become an RLP, a member organization must
submit an RLP application form with all supporting documentation to the
Exchange, which would determine whether an applicant was qualified to
become an RLP as set forth above.\24\ After an applicant submits 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.\25\
---------------------------------------------------------------------------
\24\ Id. at (d)(1).
\25\ Id. at (d)(2).
---------------------------------------------------------------------------
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.\26\ 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
[[Page 28877]]
after the disapproval notice is issued by the Exchange.\27\
---------------------------------------------------------------------------
\26\ Id. at (d)(3).
\27\ Id. at (d)(4).
---------------------------------------------------------------------------
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 Rule107C(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.\28\
---------------------------------------------------------------------------
\28\ See id. at (e).
---------------------------------------------------------------------------
RLP Requirements
Under Rule 107C(f), an RLP may only 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. An RLP entering Retail Price Improvement Orders in
securities to which it is not assigned is not required to satisfy these
requirements.\29\
---------------------------------------------------------------------------
\29\ Id. at (f)(1).
---------------------------------------------------------------------------
In order to be eligible for execution fees that are lower than non-
RLP rates, an RLP must 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.\30\ An RLP's five-percent requirements is
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.\31\ The Exchange determines whether an RLP has met this
requirement by calculating the following:
---------------------------------------------------------------------------
\30\ Id. at (f)(1)(A)-(B).
\31\ Id. at (f)(2).
---------------------------------------------------------------------------
The ``Daily Bid Percentage,'' 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;
The ``Daily Offer Percentage,'' 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;
The ``Monthly Average Bid Percentage,'' 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
The ``Monthly Average Offer Percentage,'' 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.\32\
---------------------------------------------------------------------------
\32\ Id. at (f)(2)(A)-(E).
---------------------------------------------------------------------------
The five-percent requirement is not applicable in the first two
calendar months a member organization operates as an RLP and takes
effect on the first day of the third consecutive calendar month the
member organization operates as an RLP.\33\
---------------------------------------------------------------------------
\33\ Id. at (f)(3).
---------------------------------------------------------------------------
Failure of RLP To Meet Requirements
Rule 107C(g) addresses the consequences of 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 Rule 107C(f) requirements for an
assigned RLP security for three consecutive months, the Exchange could,
in its discretion, take one or more of the following actions:
Revoke the assignment of any or all of the affected
securities from the RLP;
revoke the assignment of unaffected securities from the
RLP; or
disqualify the member organization from its status as an
RLP.\34\
---------------------------------------------------------------------------
\34\ Id. at (g)(1)(A)-(C).
---------------------------------------------------------------------------
The Exchange determines if and when a member organization is
disqualified from its status as an RLP. One calendar month prior to any
such determination, the Exchange notifies an RLP of such impending
disqualification in writing. When disqualification determinations are
made, the Exchange provides a written disqualification notice to the
member organization.\35\ 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.\36\
---------------------------------------------------------------------------
\35\ Id. at (2).
\36\ Id. at (3).
---------------------------------------------------------------------------
Failure of RMO To Abide by Retail Order Requirements
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.\37\ When disqualification determinations are made, the Exchange
shall provide a written disqualification notice to the member
organization.\38\ 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.\39\
---------------------------------------------------------------------------
\37\ Id. at (h)(1).
\38\ Id. at (2).
\39\ Id. at (3).
---------------------------------------------------------------------------
Appeal of Disapproval or Disqualification
Rule 107C(i) describes the appeal rights of member organizations. A
member organization that disputes the Exchange's decision to disapprove
it under Rule 107C(b) or (d) or disqualify it under Rule 107C(g) or (h)
may request, within five business days after notice of the decision is
issued by the Exchange, that a Retail Liquidity Program Panel (``RLP
Panel'') review the decision to determine if it was correct.\40\ 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 CoHead of U.S. Listings and Cash Execution.\41\ The
RLP Panel would review the facts and render a decision within the time
frame prescribed by the Exchange.\42\ The RLP Panel can 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.\43\
---------------------------------------------------------------------------
\40\ Id. at (i)(1). 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. Id. at (i)(1)(A).
\41\ Id. at (i)(2).
\42\ Id. at (3).
\43\ Id. at (4).
---------------------------------------------------------------------------
Retail Liquidity Identifier
Under Rule 107C(j), the Exchange disseminates an identifier through
proprietary Exchange data feeds or the Securities Information Processor
(``SIP'') when RPI interest priced at least $0.001 better than the PBB
or PBO for a
[[Page 28878]]
particular security is available in Exchange systems (``Retail
Liquidity Identifier''). The Retail Liquidity Identifier shall reflect
the symbol for the particular security and the side (buy or sell) of
the RPI interest, but shall not include the price or size of the RPI
interest.\44\
---------------------------------------------------------------------------
\44\ Id. at (j).
---------------------------------------------------------------------------
Retail Order Designations
Under Rule 107C(k), an RMO can designate how a Retail Order would
interact with available contra-side interest as follows:
A Type 1-designated Retail Order interacts only with
available contra-side Retail Price Improvement Orders and MPL Orders
but 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.\45\
---------------------------------------------------------------------------
\45\ Id. at (k)(1). See note 7, supra.
---------------------------------------------------------------------------
A Type 2-designated Retail Order interacts first with
available contra-side Retail Price Improvement Orders and MPL 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.\46\
---------------------------------------------------------------------------
\46\ Id. at (2).
---------------------------------------------------------------------------
A Type 3-designated Retail Order interacts first with
available contra-side Retail Price Improvement Orders and MPL Orders
and any remaining portion of the Retail Order would be executed as an
NYSE Immediate or Cancel Order pursuant to Rule 13.\47\
---------------------------------------------------------------------------
\47\ Id. at (k)(3).
---------------------------------------------------------------------------
Priority and Order Allocation
Under Rule 107C(l), Retail Price Improvement Orders in the same
security are ranked and allocated according to price then time of entry
into Exchange systems. When determining the price to execute a Retail
Order, Exchange systems consider all eligible RPIs and MPL Orders. If
the only interest is RPIs, then the executions shall occur at the price
level that completes the incoming order's execution. If the only
interest is MPL Orders, the Retail Order shall execute at the midpoint
of the PBBO. If both RPIs and MPL Orders are present, Exchange systems
will evaluate at what price level the incoming Retail Order may be
executed in full (``clean-up price''). If the clean-up price is equal
to the midpoint of the PBBO, RPIs will receive priority over MPL
Orders, and the Retail Order will execute against both RPIs and MPL
Orders at the midpoint. If the clean-up price is worse than the
midpoint of the PBBO, the Retail Order will execute first with the MPL
Orders at the midpoint of the PBBO and any remaining quantity of the
Retail Order will execute with the RPIs at the clean-up price. If the
clean-up price is better than the midpoint of the PBBO, then the Retail
Order will execute against the RPIs at the clean-up price and will
ignore the MPL Orders. Any remaining unexecuted RPI interest and MPL
Orders will remain available to interact with other incoming Retail
Orders. Any remaining unexecuted portion of the Retail Order will
cancel or execute in accordance with Rule 107C(k).
Examples of priority and order allocation are as follows:
Example 1:
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 executes 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 is not filled because the entire size of the Retail Order to sell
1,000 is depleted. The Retail Order executes at the price that
completes the order's execution. In this example, the entire 1,000
Retail Order to sell executes at $10.02 because it results 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 is for 100. The incoming
Retail Order to sell 1,000 executes 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 then receives an
execution for 400 of its bid for 500, at which point the entire size of
the Retail Order to sell 1,000 is depleted. The Retail Order executes
at the price that completes the order's execution, which is $10.01.
Example 2:
PBBO for security DEF is $10.00-10.01.
RLP 1 enters a Retail Price Improvement Order to buy DEF at $10.006
for 500.
RLP 2 enters a Retail Price Improvement Order to buy DEF at $10.005
for 500.
MPL 1 enters an MPL Order to buy DEF at $10.01 for 1,000.
RLP 3 enters a Retail Price Improvement Order to buy DEF at $10.002
for 1,000.
An incoming Retail Order to sell DEF for 2,500 arrives. The clean-
up price is $10.002. Because the midpoint of the PBBO is priced better
than the clean-up price, the Retail Order executes with MPL 1 for 1,000
shares at $10.005. The Retail Order then executes at $10.002 against
RLP 1'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 and then RLP
3 receives an execution for 500 of its bid for 1,000, at which point
the entire size of the Retail Order to sell 2,500 is depleted.
Assume the same facts above. An incoming Retail Order to sell DEF
for 1,000 arrives. The clean-up price is $10.005. Because the clean-up
price is equal to the midpoint of the PBBO, RPIs will receive priority
over MPL Orders. As a result, the Retail Order executes first against
RLP 1'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, at which
point the entire size of the Retail Order to sell 1,000 is
depleted.\48\
---------------------------------------------------------------------------
\48\ Id. at (l).
---------------------------------------------------------------------------
Rationale for Making Pilot Permanent
In approving the Program on a pilot basis, the Commission required
the Exchange to ``monitor the scope and operation of the Program and
study the data produced during that time with respect to such issues,
and will propose any modifications to the Program that may be necessary
or appropriate.'' \49\ As part of its assessment of the Program's
potential impact, the Exchange posted core weekly and daily summary
data on the Exchanges' website for public investors to review,\50\ and
provided additional data to the Commission regarding potential investor
benefits, including the level of price improvement provided by the
Program. This data included statistics about participation, frequency
and level of price improvement and effective and realized spreads.
---------------------------------------------------------------------------
\49\ RLP Approval Order, 77 FR at 40681.
\50\ See https://www.nyse.com/markets/liquidity-programs#nyse-nyse-mkt-rlp.
---------------------------------------------------------------------------
In the RLP Approval Order, the Commission observed that the Program
could promote competition for retail order flow among execution venues,
and that this could benefit retail investors by creating additional
price improvement
[[Page 28879]]
opportunities for marketable retail order flow, most of which is
currently executed in the Over-the-Counter (``OTC'') markets without
ever reaching a public exchange.\51\ The Exchange sought, and believes
it has achieved, the Program's goal of attracting retail order flow to
the Exchange, and allowing such order flow to receive potential price
improvement. As the Exchange's analysis of the Program data below
demonstrates, the Program provided tangible price improvement to retail
investors through a competitive pricing process. The data also
demonstrates that the Program had an overall negligible impact on
broader market structure.\52\
---------------------------------------------------------------------------
\51\ RLP Approval Order, 77 FR at 40679.
\52\ See id. at 40682.
---------------------------------------------------------------------------
Between August 1, 2012, when the Program began, and January 2,
2018, orders totaling in excess of 6.8 billion shares were executed
through the Program, providing retail investors with $12.3 million in
price improvement. As Table 1 shows, during 2016, an average of 2-3
million shares per day was executed in the Program. In 2017, an average
of 3-4 million shares per day were executed in the Program. During the
period 2016-17, average effective spreads in RLP executions ranged
between $0.012 and $0.019. Fill rates reached as high as 25.7% in May
2018. Overall price improvement averaged $0.0014 per share,
approximately 40% above the minimum of $0.001.\53\
---------------------------------------------------------------------------
\53\ In 2016, the average price improvement reached as high as
$0.0017-$0.0018.
Table 1--Summary Execution and Market Quality Statistics
--------------------------------------------------------------------------------------------------------------------------------------------------------
RPI Avg. Avg. daily Effective/ Price Realized
Date volume orders Eff. spread quoted ratio improvement spread Fill rate (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Jan-16.................................. 3,257,495 11,495 $0.0167 0.736 $0.0017 $0.0051 14.7
Feb-16.................................. 3,119,642 10,400 0.0163 0.713 0.0018 0.0041 15.3
Mar-16.................................. 2,760,731 9,179 0.0142 0.706 0.0018 0.0029 16.5
Apr-16.................................. 2,277,189 8,432 0.0143 0.703 0.0018 0.0042 17.6
May-16.................................. 1,727,219 6,931 0.0151 0.693 0.0019 0.0054 16.4
Jun-16.................................. 2,003,149 9,122 0.0134 0.667 0.0019 0.0060 14.4
Jul-16.................................. 2,265,579 7,880 0.0126 0.668 0.0019 0.0034 18.1
Aug-16.................................. 2,009,630 5,626 0.0122 0.699 0.0017 -0.0019 16.4
Sep-16.................................. 1,620,236 4,801 0.0136 0.696 0.0017 0.0035 15.6
Oct-16.................................. 2,355,292 8,055 0.0143 0.693 0.0017 0.0041 19.7
Nov-16.................................. 2,702,894 9,915 0.0161 0.700 0.0018 0.0040 17.3
Dec-16.................................. 4,380,164 15,036 0.0142 0.710 0.0017 0.0034 20.5
Jan-17.................................. 2,921,604 11,184 0.0148 0.730 0.0016 0.0011 21.4
Feb-17.................................. 2,508,810 9,801 0.0165 0.754 0.0015 0.0023 20.3
Mar-17.................................. 2,585,694 9,517 0.0175 0.770 0.0015 0.0060 20.9
Apr-17.................................. 2,875,573 10,174 0.0156 0.764 0.0014 0.0056 23.5
May-17.................................. 3,741,955 15,179 0.0150 0.763 0.0014 0.0026 25.7
Jun-17.................................. 5,040,922 17,245 0.0155 0.688 0.0018 0.0046 19.2
Jul-17.................................. 3,906,133 14,582 0.0154 0.712 0.0017 0.0020 19.8
Aug-17.................................. 3,803,586 14,841 0.0174 0.700 0.0018 0.0055 19.5
Sep-17.................................. 3,398,110 12,782 0.0152 0.773 0.0014 0.0017 23.2
Oct-17.................................. 3,839,683 13,467 0.0156 0.773 0.0014 0.0022 25.2
Nov-17.................................. 4,193,873 14,499 0.0161 0.775 0.0014 0.0028 24.2
Dec-17.................................. 3,673,405 19,036 0.0180 0.782 0.0014 0.0027 19.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
As Table 2 shows, approximately 45% of all orders in the Program in
2016-17 were for a round lot or fewer shares. More than 60% of retail
orders removing liquidity from the Exchange were for 300 shares or
less. Further, the number of very large orders was relatively steady,
with orders larger than 7,500 shares typically accounting for 4-5% of
orders received. Despite relatively low fill rates, large orders
account for a sizable portion of the shares executed in the Program.
Table 2--Composition of Retail Taking Orders by Order Size Category
--------------------------------------------------------------------------------------------------------------------------------------------------------
501-1,000 1001-2,000 2001-4,000 4001-7,500 7500-15,000 >15,000
<100 (%) 101-300 301-500 (%) (%) (%) (%) (%) (%)
---------------------------------------------------(%)----------(%)-------------------------------------------------------------------------------------
Jan-16.......................... 36.31 19.06 9.74 11.64 7.60 6.48 4.38 2.70 2.09
Feb-16.......................... 35.88 18.81 9.96 11.82 7.72 6.42 4.31 2.82 2.26
Mar-16.......................... 35.67 18.69 9.90 11.83 7.82 6.70 4.52 2.92 1.94
Apr-16.......................... 38.22 19.39 9.87 11.48 7.16 5.73 3.89 2.54 1.73
May-16.......................... 37.64 19.81 10.12 11.57 7.51 5.60 3.74 2.35 1.65
Jun-16.......................... 39.46 18.98 9.66 11.22 7.13 5.32 3.95 2.60 1.68
Jul-16.......................... 40.22 18.59 9.45 11.10 6.75 5.40 4.05 2.65 1.78
Aug-16.......................... 33.59 17.45 9.24 11.66 8.30 7.17 5.71 4.33 2.54
Sep-16.......................... 33.40 17.83 9.13 11.55 8.33 7.32 5.69 4.17 2.59
Oct-16.......................... 39.50 19.03 9.42 11.16 7.33 5.66 3.77 2.53 1.59
Nov-16.......................... 38.72 19.67 9.80 11.40 7.19 5.27 3.63 2.64 1.70
Dec-16.......................... 39.41 19.52 9.41 11.26 7.33 5.40 3.55 2.66 1.47
Jan-17.......................... 42.16 19.82 9.22 10.62 6.92 4.84 3.05 2.08 1.30
Feb-17.......................... 41.90 19.51 9.34 10.79 7.03 4.82 3.09 2.08 1.44
Mar-17.......................... 41.55 18.98 9.12 11.04 7.30 5.18 3.40 2.07 1.36
Apr-17.......................... 44.32 18.50 8.55 10.21 6.65 5.07 3.31 2.17 1.21
May-17.......................... 52.39 17.82 7.14 8.08 5.32 4.03 2.64 1.72 0.87
Jun-17.......................... 44.76 15.48 7.53 9.59 6.87 6.06 4.67 3.50 1.53
[[Page 28880]]
Jul-17.......................... 45.33 15.98 8.05 10.21 7.08 5.61 3.70 2.62 1.43
Aug-17.......................... 43.83 16.68 8.39 10.58 7.48 5.67 3.46 2.51 1.41
Sep-17.......................... 46.15 17.81 8.26 9.93 6.78 4.85 2.93 2.09 1.20
Oct-17.......................... 45.53 18.30 8.47 10.06 6.88 4.82 2.79 2.00 1.15
Nov-17.......................... 45.14 17.37 8.63 10.37 7.13 5.02 2.90 2.15 1.29
Dec-17.......................... 45.96 17.62 8.89 10.60 6.62 4.55 2.72 1.99 1.05
--------------------------------------------------------------------------------------------------------------------------------------------------------
Tables 3 and 4 show the distribution of orders received by size and
shares executed in 2016-17. During that period, the Program saw much
lower execution sizes due to smaller retail providing orders (typically
around 300 shares) breaking up fills and as a result of liquidity at
multiple price improvement points.
Table 3--Composition of Shares Placed by Order Size Category
--------------------------------------------------------------------------------------------------------------------------------------------------------
501-1,000 1001-2,000 2001-4,000 4001-7,500 7500-15,000 >15,000
<100 (%) 101-300 301-500 (%) (%) (%) (%) (%) (%)
---------------------------------------------------(%)----------(%)-------------------------------------------------------------------------------------
Jan-16.......................... 1.11 2.17 2.28 5.01 6.21 10.14 12.73 14.71 45.64
Feb-16.......................... 1.09 2.09 2.25 4.92 6.09 9.67 12.01 14.90 46.97
Mar-16.......................... 1.15 2.23 2.40 5.28 6.61 10.79 13.50 16.37 41.68
Apr-16.......................... 1.45 2.75 2.84 6.09 7.21 10.93 13.90 16.82 38.02
May-16.......................... 1.47 2.81 2.93 6.16 7.59 10.70 13.39 15.81 39.14
Jun-16.......................... 1.43 2.67 2.80 6.06 7.29 10.28 14.15 17.28 38.04
Jul-16.......................... 1.38 2.50 2.61 5.67 6.57 10.05 13.95 16.71 40.57
Aug-16.......................... 0.88 1.71 1.86 4.30 5.88 9.78 14.44 19.69 41.45
Sep-16.......................... 0.92 1.78 1.84 4.24 5.89 10.04 14.44 19.38 41.48
Oct-16.......................... 1.60 2.76 2.77 6.00 7.52 11.19 13.79 17.15 37.21
Nov-16.......................... 1.49 2.70 2.72 5.84 6.99 9.77 12.62 16.97 40.90
Dec-16.......................... 1.69 2.98 2.88 6.29 7.82 11.13 13.57 18.68 34.96
Jan-17.......................... 2.08 3.51 3.29 6.89 8.59 11.57 13.51 17.30 33.26
Feb-17.......................... 1.96 3.33 3.21 6.70 8.39 11.12 13.29 16.59 35.40
Mar-17.......................... 1.90 3.16 3.05 6.72 8.50 11.64 14.12 15.93 34.97
Apr-17.......................... 2.29 3.34 3.10 6.72 8.38 12.32 15.07 18.00 30.78
May-17.......................... 4.06 4.02 3.23 6.65 8.42 12.26 14.97 17.66 28.74
Jun-17.......................... 1.36 2.15 2.15 5.07 6.99 11.88 16.71 22.63 31.06
Jul-17.......................... 1.45 2.49 2.58 6.02 8.03 12.20 14.85 19.55 32.83
Aug-17.......................... 1.52 2.67 2.76 6.42 8.79 12.70 14.21 19.41 31.50
Sep-17.......................... 2.01 3.29 3.08 6.74 8.98 12.38 13.73 18.52 31.27
Oct-17.......................... 1.99 3.45 3.21 6.94 9.26 12.39 13.30 18.03 31.42
Nov-17.......................... 1.85 3.10 3.11 6.80 9.07 12.20 13.06 18.30 32.51
Dec-17.......................... 2.06 3.54 3.60 7.78 9.43 12.58 13.73 19.12 28.16
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table 4--Composition of Shares Executed by Order Size Category
--------------------------------------------------------------------------------------------------------------------------------------------------------
501-1,000 1001-2,000 2001-4,000 4001-7,500 7500-15,000 >15,000
<100 (%) 101-300 301-500 (%) (%) (%) (%) (%) (%)
---------------------------------------------------(%)----------(%)-------------------------------------------------------------------------------------
Jan-16.......................... 6.25 10.48 9.45 17.31 14.62 10.14 10.60 8.43 8.90
Feb-16.......................... 5.94 9.72 9.20 16.39 13.89 9.67 10.88 9.53 11.14
Mar-16.......................... 5.79 9.59 9.07 16.56 14.13 10.79 11.31 9.99 9.13
Apr-16.......................... 6.84 11.14 10.10 17.62 13.89 10.93 10.47 9.28 7.38
May-16.......................... 7.38 11.61 10.14 17.20 13.47 10.70 9.84 8.47 8.99
Jun-16.......................... 7.10 10.66 9.04 15.22 13.52 10.28 11.45 10.13 10.13
Jul-16.......................... 6.18 9.52 8.28 14.74 12.55 10.05 13.28 11.29 10.57
Aug-16.......................... 4.48 7.45 6.93 12.87 12.48 9.78 15.50 15.54 10.23
Sep-16.......................... 4.73 7.83 6.94 12.86 12.43 10.04 16.13 14.42 10.16
Oct-16.......................... 6.76 10.32 8.76 15.87 14.13 11.19 11.68 10.00 8.23
Nov-16.......................... 7.02 11.19 9.76 17.17 14.19 9.77 10.31 8.99 8.58
Dec-16.......................... 6.99 10.91 9.22 17.06 15.32 11.13 10.68 9.16 6.67
Jan-17.......................... 8.21 12.23 9.82 17.25 15.76 11.57 9.59 7.24 6.40
Feb-17.......................... 8.20 12.39 10.36 18.42 15.80 11.12 9.45 6.93 5.64
Mar-17.......................... 7.67 11.72 10.02 19.32 16.40 11.64 9.76 6.64 4.93
Apr-17.......................... 8.48 11.45 9.57 18.22 15.60 12.32 10.32 7.81 4.50
May-17.......................... 14.15 12.70 9.29 16.65 14.45 12.26 9.45 7.18 3.52
Jun-17.......................... 5.58 8.07 7.39 15.41 14.63 11.88 13.89 13.50 6.20
Jul-17.......................... 5.67 9.03 8.53 17.83 16.45 12.20 11.56 9.71 6.11
Aug-17.......................... 5.78 9.30 8.88 18.25 17.51 12.70 10.54 8.75 5.72
Sep-17.......................... 7.32 10.97 9.79 18.78 17.26 12.38 9.53 7.60 4.98
Oct-17.......................... 6.53 10.74 9.74 18.74 17.63 12.39 9.21 8.01 5.35
Nov-17.......................... 6.28 10.18 9.41 18.28 17.38 12.20 9.80 8.44 6.08
Dec-17.......................... 6.50 10.99 10.31 20.09 16.89 12.58 9.35 7.30 4.60
--------------------------------------------------------------------------------------------------------------------------------------------------------
As Table 5 shows, during 2016-17, fill rates trended near 80% for
orders up to 300 shares, while the average shares available at the
inside was 300 shares. Data published to the SIP indicates when
liquidity is available for retail
[[Page 28881]]
liquidity seekers inside the spread, and on which side.
Table 5--Fill Rates by Retail Take Order Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
501-1,000 1,001-2,000 2,001-4,000 4,001-7,500 7,500-15,000 >15,000
<100 (%) 101-300 301-500 (%) (%) (%) (%) (%) (%)
---------------------------------------------------(%)----------(%)-------------------------------------------------------------------------------------
Jan-16.......................... 85.30 72.92 62.76 52.36 35.67 20.84 12.61 8.68 2.95
Feb-16.......................... 83.81 71.47 62.76 51.21 35.07 21.18 13.92 9.84 3.65
Mar-16.......................... 82.78 70.92 62.38 51.69 35.25 22.06 13.80 10.06 3.61
Apr-16.......................... 83.19 71.37 62.58 50.99 33.95 21.41 13.27 9.72 3.42
May-16.......................... 82.49 67.65 56.62 45.70 29.09 19.75 12.04 8.77 3.76
Jun-16.......................... 71.79 57.72 46.59 36.28 26.76 17.91 11.69 8.46 3.84
Jul-16.......................... 80.95 68.80 57.26 46.92 34.50 24.39 17.19 12.20 4.71
Aug-16.......................... 83.54 71.79 61.39 49.17 34.92 24.40 17.64 12.97 4.06
Sep-16.......................... 80.06 69.04 59.19 47.50 33.04 22.58 17.49 11.65 3.83
Oct-16.......................... 83.10 73.58 62.22 52.05 36.97 25.09 16.67 11.48 4.35
Nov-16.......................... 81.40 71.75 62.28 50.90 35.15 22.68 14.15 9.18 3.63
Dec-16.......................... 84.73 75.04 65.56 55.67 40.18 25.76 16.14 10.06 3.91
Jan-17.......................... 84.49 74.69 64.07 53.69 39.35 24.97 15.22 8.98 4.13
Feb-17.......................... 84.49 75.25 65.39 55.64 38.16 23.34 14.40 8.46 3.23
Mar-17.......................... 84.31 77.43 68.69 60.00 40.26 24.26 14.42 8.70 2.95
Apr-17.......................... 86.84 80.63 72.49 63.69 43.71 26.79 16.10 10.19 3.44
May-17.......................... 89.57 81.19 73.95 64.31 44.07 26.41 16.22 10.45 3.15
Jun-17.......................... 78.80 72.17 66.04 58.35 40.20 24.80 15.96 11.46 3.83
Jul-17.......................... 77.45 71.84 65.58 58.68 40.59 24.56 15.42 9.85 3.69
Aug-17.......................... 74.17 67.92 62.76 55.48 38.88 23.48 14.48 8.80 3.54
Sep-17.......................... 84.30 77.24 73.73 64.64 44.56 25.81 16.11 9.51 3.69
Oct-17.......................... 82.84 78.51 76.55 68.14 48.06 28.59 17.47 11.21 4.30
Nov-17.......................... 82.32 79.42 73.12 65.08 46.34 28.08 18.16 11.17 4.52
Dec-17.......................... 81.62 80.19 74.12 66.68 46.28 28.70 17.60 9.86 4.22
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table 6 shows the development of orders sizes received in the
Program over time. Orders adding liquidity to the Exchange averaged in
the mid-300 share range for most of the Program's recent history,
although the median size has increased since August 2016. (The Exchange
notes that the median order size is the average of the daily median
order sizes across all orders received on a trade date for NYSE
symbols.) After averaging near 2,000 shares at times, the size of
retail orders removing liquidity from the Exchange has dropped over
time, with median sizes periodically exceeding 300 shares. The slightly
smaller take order sizes helps explain the better overall fill rates
and improved effective spreads in the Program's recent history.
However, as shown by the occasional oversized orders, there remains
ample liquidity and opportunity in the Program to satisfy liquidity
takers with meaningful price improvement.
Table 6--Order Size Details
----------------------------------------------------------------------------------------------------------------
Provide orders Take orders
---------------------------------------------------------------
Average Median Average Median
----------------------------------------------------------------------------------------------------------------
Jan-16.......................................... 297 157 1,941 259
Feb-16.......................................... 314 191 1,958 272
Mar-16.......................................... 312 182 1,787 267
Apr-16.......................................... 306 176 1,523 215
May-16.......................................... 294 100 1,542 217
Jun-16.......................................... 314 100 1,508 207
Jul-16.......................................... 323 105 1,585 202
Aug-16.......................................... 340 194 2,230 338
Sep-16.......................................... 338 200 2,212 336
Oct-16.......................................... 357 200 1,494 204
Nov-16.......................................... 382 200 1,623 212
Dec-16.......................................... 367 200 1,398 206
Jan-17.......................................... 361 200 1,217 199
Feb-17.......................................... 350 200 1,264 200
Mar-17.......................................... 360 200 1,304 200
Apr-17.......................................... 353 200 1,223 189
May-17.......................................... 416 200 961 105
Jun-17.......................................... 370 200 1,517 190
Jul-17.......................................... 355 200 1,364 180
Aug-17.......................................... 360 200 1,310 196
Sep-17.......................................... 391 200 1,141 164
Oct-17.......................................... 444 200 1,127 172
Nov-17.......................................... 422 200 1,193 184
Dec-17.......................................... 395 200 1,026 195
----------------------------------------------------------------------------------------------------------------
[[Page 28882]]
Although the Program provides the opportunity to achieve
significant price improvement, the Program has not generated
significant activity. As Table 7 shows, the average daily volume for
the Program has hovered in the three to four million share range, and
has accounted for less than 0.1% of consolidated NYSE-listed volume in
2016-17. The Program's share of NYSE volume during that period was
below 0.4%. Moreover, no symbol during the past two years achieved as
much as 1.6% of their consolidated average daily volume (``CADV'') in
the Program, and all of the highest share symbols are low volume
securities. As Table 2 shows, during the 2016-2017 period, only 1.0% of
all day/symbol pairs exceeded 5% share of CADV, with another 8.2% of
day/symbol pairs achieving a share of CADV between 1% and 5%. Fully 75%
of all day/symbol pairs exhibited RLP share of 0.25% or less during
that time. For ticker symbols that traded at least 100 days during the
two-year period, more than half of all symbols over that period had
less than 0.10% of their consolidated volume executed in the program,
and 96% less than 0.50%. The Program's share of the total market in
NYSE-listed securities is tiny considering that non-ATS activity in the
U.S. equity markets, based on FINRA transparency data and NYSE Trade
and Quote (``TAQ'') volume statistics, is estimated to be approximately
20-25% of all U.S. equity volume. In short, the Program represents a
minor participant in the overall market to price improve marketable
retail order flow. While participation was low, as noted above, retail
investors that participated in the Program received price improvement
on their orders, which was one of the stated goals of the Program. The
NYSE therefore believes that the pilot data supports making the Program
permanent.
Table 7
----------------------------------------------------------------------------------------------------------------
Daily results Two year aggregate
Distribution (%) ---------------------------------------------------------------
Count Percentage Count Percentage
----------------------------------------------------------------------------------------------------------------
>50............................................. 63 0.0088 0 0.0000
25.00-50.00..................................... 179 0.0251 0 0.0000
10.00-25.00..................................... 1,599 0.2238 0 0.0000
5.00-10.00...................................... 5,569 0.7795 0 0.0000
1.00-5.00....................................... 58,368 8.1696 6 0.1733
0.75-1.00....................................... 18,527 2.5932 18 0.5198
0.50-0.75....................................... 29,869 4.1807 111 3.2053
0.25-0.50....................................... 64,440 9.0194 764 22.0618
0.10-0.25....................................... 116,211 16.2657 736 21.2532
0.05-0.10....................................... 101,813 14.2504 538 15.5357
0.01-0.05....................................... 181,194 25.3611 1,161 33.5258
<0.01........................................... 136,624 19.1228 129 3.7251
----------------------------------------------------------------------------------------------------------------
Moreover, beyond providing a meaningful price improvement to retail
investors through a competitive and transparent pricing process
unavailable in non-exchange venues, the data collected during the
Program supports the conclusion that the Program has not had any
significant negative market impact. As set forth in Table 8, the
Exchange measured the correlation between several critical market
quality statistics and either RLP share of CADV, shares posted dark by
providers seeking to interact with retail orders or the amount of time
during the trading day that RLP liquidity was available. The
correlations the Exchange measured were levels, not changes. As a
result, fairly high correlation coefficients should suggest that the
Program had a meaningful impact on the statistics. In no case did the
Exchange observe a single correlation greater than an absolute value of
0.15, and even at the 90th percentile of all symbols, there was no
correlation of even 0.30. In short, there was no measure the Exchange
studied supporting the conclusion that the Program had any noticeable
impact on market quality.
Table 8
----------------------------------------------------------------------------------------------------------------
90th
Statistic 1 Statistic 2 Average percentile
correlation correlation
----------------------------------------------------------------------------------------------------------------
% Time With RLP Liquidity..................... Consolidated Spread............. 0.0001 0.0003
% Time With RLP Liquidity..................... Eff. Sprd. Ex RPI............... 0.0943 0.2925
RLP Size at PBBO.............................. Consolidated Spread............. 0.0003 0.0005
RLP Size at PBBO.............................. Eff. Sprd. Ex RPI............... 0.0617 0.2348
RLP Share of CADV............................. Eff. Sprd. Ex RPI............... 0.0010 0.1091
RLP Share of CADV............................. Share wtd. NBBO Spread.......... 0.0152 0.1357
RLP Share of CADV............................. Time wtd. NBBO Spread........... 0.0002 0.0002
RLP Share of CADV............................. Time wtd. NYSE BBO Spread....... 0.0002 0.0002
----------------------------------------------------------------------------------------------------------------
The Exchange believes that the Program was a positive experiment in
attracting retail order flow to a public exchange. The order flow the
Program attracted to the Exchange provided tangible price improvement
to retail investors through a competitive pricing process unavailable
in non-exchange venues. As such, despite the low volumes, the Exchange
believes that the Program satisfied the twin goals of attracting retail
order flow to the Exchange and allowing such order flow to receive
potential price improvement. Moreover, the Exchange believes that the
data collected during the Program supports the conclusion that the
Program's overall impact on market
[[Page 28883]]
quality and structure was not negative. Although the results of the
Program highlight the substantial advantages that broker-dealers retain
when managing the benefits of retail order flow, the Exchange believes
that the level of price improvement guaranteed by the Program and the
scant evidence that the Program negatively impacted the marketplace
justifies making the Program permanent. The Exchange accordingly
believes that the pilot Program's rules, as amended, should be made
permanent.
The Exchange notes that the proposed change is not otherwise
intended to address any other issues and the Exchange is not aware of
any problems that member organizations would have in complying with the
proposed rule change.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the requirements of Section 6(b) of the Act,\54\ in general, and
Section 6(b)(5) of the Act,\55\ in particular, in that it is designed
to remove impediments to and perfect the mechanism of a free and open
market and a national market system, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest and not to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\54\ 15 U.S.C. 78f(b).
\55\ 15 U.S.C. 78f(b)(5).
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The Exchange believes the proposal is consistent with these
principles because it seeks to make permanent a pilot and associated
rule changes that were previously approved by the Commission as a pilot
for which the Exchange has subsequently provided data and analysis to
the Commission, and that this data and analysis, as well as the further
analysis in this filing, shows that the Program has operated as
intended and is consistent with the Act. The Exchange also 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 also believes the proposed rule change is designed to
facilitate transactions in securities and to remove impediments to, and
perfect the mechanisms of, a free and open market and a national market
system because making the Program permanent would attract retail order
flow to a public exchange and allow such order flow to receive
potential price improvement. The data provided by the Exchange to the
Commission staff demonstrates that the Program provided tangible price
improvement to retail investors through a competitive pricing process
unavailable in non-exchange venues and otherwise had an insignificant
impact on the marketplace. The Exchange believes that making the
Program permanent would encourage the additional utilization of, and
interaction with, the NYSE and provide retail customers with an
additional venue for price discovery, liquidity, competitive quotes,
and price improvement. For the same reasons, the Exchange believes that
making the Program permanent would promote just and equitable
principles of trade and remove impediments to and perfect the mechanism
of a free and open market.
Finally, the Exchange believes that it is subject to significant
competitive forces, as described below in the Exchange's statement
regarding the burden on competition. For these reasons, the Exchange
believes that the proposal is consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
believes that making the Program permanent would continue to promote
competition for retail order flow among execution venues. The Exchange
believes that the data supplied to the Commission and experience gained
over nearly six years have demonstrated that the Program creates price
improvement opportunities for retail orders that are equal to what
would be provided under OTC internalization arrangements, thereby
benefiting retail investors and increasing competition between
execution venues. The Exchange also believes that making the Program
permanent will promote competition between execution venues operating
their own retail liquidity programs. Such competition will lead to
innovation within the market, thereby increasing the quality of the
national market system. Finally, the Exchange notes that it operates in
a highly competitive market in which market participants can easily
direct their orders to competing venues, including off-exchange venues.
In such an environment, the Exchange must continually review, and
consider adjusting the services it offers and the requirements it
imposes to remain competitive with other U.S. equity exchanges.
For the reasons described above, the Exchange believes that the
proposed rule change reflects this competitive environment.
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 up to 90 days (i) as the Commission may designate
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. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://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 Number 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 (https://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
[[Page 28884]]
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 the filing also will be available for inspection
and copying at the principal offices of the Exchange. All comments
received will be posted without change. 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 submissions
should refer to File Number SR-NYSE-2018-28, and should be submitted on
or before July 12, 2018.
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\56\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13303 Filed 6-20-18; 8:45 am]
BILLING CODE 8011-01-P
