Justia Agencies And Commissions Securities And Exchange Commission Self-Regulatory Organizations; New York Stock Exchange LLC; Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Make Permanent the Retail Liquidity Program Pilot, Rule 107C, Which is Set To Expire on June 30, 2019, Notice of Filing of Amendment No. 1, and Order Granting Limited Exemption Pursuant to Rule 612(c) of Regulation NMS, 5754-5783 [2019-03043]

Self-Regulatory Organizations; New York Stock Exchange LLC; Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Make Permanent the Retail Liquidity Program Pilot, Rule 107C, Which is Set To Expire on June 30, 2019, Notice of Filing of Amendment No. 1, and Order Granting Limited Exemption Pursuant to Rule 612(c) of Regulation NMS, 5754-5783 [2019-03043]

Download as PDF 5754 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices responsibility for self-regulatory conduct.14 Nasdaq will continue to refer certain potentially violative conduct to FINRA for further review, including matters covered by agreements to allocate regulatory responsibility under Rule 17d–2 of the Act. Moreover, FINRA will continue to have responsibility for, among other things, the investigation and enforcement of conduct occurring on the Nasdaq and BX equity markets that also occurs on non-Nasdaq exchanges, as well as the handling of contested disciplinary proceedings arising out of Nasdaq Regulation-led investigation and enforcement activities. All referrals to FINRA remain subject to Nasdaq’s supervision and ultimate responsibility. Nasdaq also believes that the proposal is consistent with the Act because, as the Commission has made clear, Nasdaq bears the ultimate responsibility for selfregulatory conduct and primary liability for self-regulatory failures.15 In addition, Nasdaq notes that its proposal is consistent with, but more limited than, investigation and enforcement work performed by NYSE. As noted above, the SEC approved NYSE’s application to amend certain of its disciplinary rules to facilitate the reintegration of certain market surveillance, investigation and enforcement functions performed on behalf of NYSE by FINRA.16 Nasdaq believes it would therefore be consistent with the Act for Nasdaq to perform more limited investigation and enforcement work than NYSE. 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 not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is not intended to address competitive issues but rather to enable the Exchange to directly investigate and initiate disciplinary actions following the integration of certain regulatory functions from FINRA. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. 14 See supra note 4. 15 Id. 16 See supra note 10. VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period 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 such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments 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– NASDAQ–2019–007 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–NASDAQ–2019–007. 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 Frm 00095 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–03040 Filed 2–21–19; 8:45 am] 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: PO 00000 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–NASDAQ–2019–007 and should be submitted on or before March 15, 2019. BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–85160; File No. SR–NYSE– 2018–28] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Make Permanent the Retail Liquidity Program Pilot, Rule 107C, Which is Set To Expire on June 30, 2019, Notice of Filing of Amendment No. 1, and Order Granting Limited Exemption Pursuant to Rule 612(c) of Regulation NMS February 15, 2019. I. Introduction On June 4, 2018, New York Stock Exchange LLC (‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to make permanent Exchange Rule 107C governing the Exchange’s Retail Liquidity Program Pilot (‘‘Program’’). The proposed rule change was published for comment in the Federal Register on June 21, 2018.3 On July 31, 2018, pursuant to Section 19(b)(2) of the Act,4 the Commission extended to September 19, 2018 the time period in which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to 17 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 83454 (June 15, 2018), 83 FR 28874 (‘‘Original Notice’’). 4 15 U.S.C. 78s(b)(2). 1 15 E:\FR\FM\22FEN1.SGM 22FEN1 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices determine whether to disapprove the proposed rule change.5 On September 18, 2018, the Commission issued an order instituting proceedings under Section 19(b)(2)(B) of the Exchange Act,6 to determine whether to approve or disapprove the proposed rule change.7 On December 10, 2018, pursuant to Section 19(b)(2) of the Act,8 the Commission extended to February 16, 2019 the time period in which to issue an order approving or disapproving the proposed rule change.9 The Commission received one comment letter on the proposed rule change.10 On February 13, 2019, the Exchange filed Amendment No. 1 to the proposed rule change, which supersedes and replaces the original filing in its entirety.11 In connection with the proposed rule change, as modified by Amendment No. 1, the Exchange requests exemptive relief from Rule 612 of Regulation NMS,12 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 $0.01.13 The Commission is publishing this notice to solicit comments on Amendment No. 1 from interested persons, issuing this order approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis, and issuing this order granting to the Exchange a limited exemptive relief pursuant to Rule 612(c) of Regulation NMS. II. Description of the Proposed Rule Change, as Modified by Amendment No. 1 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 those statements may be examined at the places specified in Item V below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. 5 See Securities Exchange Act Release No. 83749, 83 FR 38393 (August 6, 2018). 6 15 U.S.C. 78s(b)(2)(B). 7 See Securities Exchange Act Release No. 84183, 83 FR 48350 (September 24, 2018) (‘‘Order Instituting Proceedings’’). 8 15 U.S.C. 78s(b)(2). 9 See Securities Exchange Act Release No. 84766, 83 FR 64414 (December 14, 2018). 10 See Letter from Tyler Gellasch, Executive Director, Healthy Markets Association, dated December 20, 2018 (‘‘HMA Letter’’). 11 See infra Section II. 12 17 CFR 242.612(c). 13 See note 14 infra. VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 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 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 Securities and Exchange Commission (the ‘‘Commission’’) approved the Program on a pilot basis.14 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 the earlier of approval of this filing or June 30, 2019.15 14 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. As part of this filing, and pursuant to the Exchange’s separate written request, the Exchange also requests that the exemptive relief from the SubPenny Rule be made permanent. See Letter from Martha Redding, Associate General Counsel and Assistant Corporate Secretary, New York Stock Exchange, to Brent J. Fields, Secretary, Securities and Exchange Commission, dated February 13, 2019 (‘‘Sub-Penny Rule Exemption Request’’). 15 See Securities Exchange Act Release No. 84767 (December 10, 2018), 83 FR 64412 (December 14, 2018) (SR–NYSE–2018–59). See also 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); 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) PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 5755 The Exchange established the Program to attract retail order flow to the Exchange, and allow such order flow to receive potential price improvement.16 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’’) 17 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.18 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.19 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,20 which requires that (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); 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); and Securities Exchange Act Release No. 83540 (June 28, 2018), 83 FR 31234 (July 3, 2018) (SR–NYSE–2018–29) (extending pilot to December 31, 2018). 16 RLP Approval Order, 77 FR at 40674. 17 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. 18 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’’). 19 RLP Approval Order, 77 FR at 40679. 20 15 U.S.C. 78f(b)(5). E:\FR\FM\22FEN1.SGM 22FEN1 5756 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices 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.21 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.22 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.23 • 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.24 • Third, the term ‘‘Retail Order’’ means an agency order or a riskless principal order meeting the criteria of FINRA Rule 5320.03 that originates 21 RLP Approval Order, 77 FR at 40679. 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’’) (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). 23 See Rule 107C(a)(1). 24 Id. at (2). 22 Rule VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 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’’).25 • 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.26 RMO Qualifications and Application Process Under Rule 107C(b), any member organization 27 can qualify as an RMO if it conducts a retail business or routes 28 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; 29 and (3) an attestation, in a form prescribed by the Exchange, that any order submitted by the member organization as a Retail Order would 25 Id. at (3). 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. 27 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. 28 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). 29 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). 26 Id. PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 meet the qualifications for such orders under Rule 107C.30 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.31 Following submission of the required materials, the Exchange provides written notice of its decision to the member organization.32 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.33 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.34 30 See id. at (b)(2)(A)–(C). at (b)(6). 32 Id. at (b)(3). 33 Id. at (b)(5). 34 Id. at (c)(1)–(4). 31 Id. E:\FR\FM\22FEN1.SGM 22FEN1 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices 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.35 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.36 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.37 If the Exchange disapproves the application, the Exchange would provide a written notice to the member organization. The disapproved applicant could appeal the disapproval by the Exchange as provided in proposed Rule 107C(i) and/ or reapply for RLP status 90 days after the disapproval notice is issued by the Exchange.38 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.39 RLP Requirements Under Rule 107C(f), an RLP may only enter Retail Price Improvement Orders at (d)(1). at (d)(2). 37 Id. at (d)(3). 38 Id. at (d)(4). 39 See id. at (e). 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.40 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.41 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.42 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 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.43 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 35 Id. 36 Id. VerDate Sep<11>2014 16:52 Feb 21, 2019 40 Id. at (f)(1). at (f)(1)(A)–(B). 42 Id. at (f)(2). 43 Id. at (f)(2)(A)–(E). 41 Id. Jkt 247001 PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 5757 day of the third consecutive calendar month the member organization operates as an RLP.44 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.45 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.46 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.47 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.48 When disqualification determinations are made, the Exchange shall provide a written disqualification notice to the member organization.49 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.50 44 Id. at (f)(3). at (g)(1)(A)–(C). 46 Id. at (2). 47 Id. at (3). 48 Id. at (h)(1). 49 Id. at (2). 50 Id. at (3). 45 Id. E:\FR\FM\22FEN1.SGM 22FEN1 5758 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices 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.51 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.52 The RLP Panel would review the facts and render a decision within the time frame prescribed by the Exchange.53 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.54 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 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.55 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 51 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). 52 Id. at (i)(2). 53 Id. at (3). 54 Id. at (4). 55 Id. at (j). VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 immediately and automatically cancelled.56 • 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 13.57 • 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 13.58 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 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. 56 Id. at (k)(1). See note 18, supra. at (2). 58 Id. at (k)(3). 57 Id. PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 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 1000. RLP 3 enters a Retail Price Improvement Order to buy DEF at $10.002 for 1000. 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 1000 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 1000, 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 E:\FR\FM\22FEN1.SGM 22FEN1 5759 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices 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.59 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.’’ 60 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,61 and provided additional data to the Commission 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.’’ 63 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 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.62 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 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 $0.001.64 TABLE 1—SUMMARY EXECUTION AND MARKET QUALITY STATISTICS RPI Average 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 ..................................................... 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 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 59 Id. at (l). Approval Order, 77 FR at 40681. 60 RLP VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 Average daily orders 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 Effective spread 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 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 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 61 See https://www.nyse.com/markets/liquidityprograms#nyse-nyse-mkt-rlp. 62 RLP Approval Order, 77 FR at 40679. PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 Price improvement $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 Realized spread 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. 63 See id. at 40682. 2016, the average price improvement reached as high as $0.0017–$0.0018. 64 In E:\FR\FM\22FEN1.SGM 22FEN1 5760 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices TABLE 2—COMPOSITION OF RETAIL TAKING ORDERS 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 % 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 45.33 43.83 46.15 45.53 45.14 45.96 301–500 % 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 15.98 16.68 17.81 18.30 17.37 17.62 501–1000 % 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 8.05 8.39 8.26 8.47 8.63 8.89 Tables 3 and 4 show the distribution of orders received by size and shares executed in 2016–17. During that 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 10.21 10.58 9.93 10.06 10.37 10.60 1001–2000 % 2001–4000 % 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 7.08 7.48 6.78 6.88 7.13 6.62 4001–7500 % 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 5.61 5.67 4.85 4.82 5.02 4.55 period, the Program saw much lower execution sizes due to smaller retail providing orders (typically around 300 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 3.70 3.46 2.93 2.79 2.90 2.72 7500–15000 % 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 2.62 2.51 2.09 2.00 2.15 1.99 >15000 % 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 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 2.06 301–500 % 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 3.54 501–1000 % 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 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 1001–2000 % 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 2001–4000 % 4001–7500 % 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 7500–15000 % 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 >15000 % 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 <100 % Jan–16 ..... Feb–16 ..... Mar–16 ..... Apr–16 ...... VerDate Sep<11>2014 101–300 % 6.25 5.94 5.79 6.84 16:52 Feb 21, 2019 10.48 9.72 9.59 11.14 Jkt 247001 301–500 % 501–1000 % 9.45 9.20 9.07 10.10 PO 00000 Frm 00101 17.31 16.39 16.56 17.62 Fmt 4703 1001–2000 % 14.62 13.89 14.13 13.89 Sfmt 4703 2001–4000 % 4001–7500 % 10.14 9.67 10.79 10.93 E:\FR\FM\22FEN1.SGM 10.60 10.88 11.31 10.47 22FEN1 7500–15000 % 8.43 9.53 9.99 9.28 >15000 % 8.90 11.14 9.13 7.38 5761 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices TABLE 4—COMPOSITION OF SHARES EXECUTED BY ORDER SIZE CATEGORY—Continued <100 % 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 % 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 6.50 301–500 % 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 10.99 501–1000 % 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 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 1001–2000 % 2001–4000 % 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 10.70 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 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 7500–15000 % 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 >15000 % 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 liquidity seekers inside the spread, and on which side. available at the inside was 300 shares. Data published to the SIP indicates when liquidity is available for retail As Table 5 shows, during 2016—17, fill rates trended near 80 for orders up to 300 shares, while the average shares 4001–7500 % 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 81.62 301–500 % 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 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 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 VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 501–1000 % 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 1001–2000 % 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 2001–4000 % 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 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 PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 4001–7500 % 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 7500–15000 % 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 >15000 % 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. E:\FR\FM\22FEN1.SGM 22FEN1 5762 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices TABLE 6—ORDER SIZE DETAILS Provide orders 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 ............................................................................................................. Although the Program provides the opportunity to achieve significant price improvement, the Program has not generated significant activity. As Table 1 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. As Table 7 shows, during the 2016–2017 period, less than 0.5% of all day/symbol pairs exceeded 5% share of CADV, with VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 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 another 3.7% of day/symbol pairs achieving a share of CADV between 1% and 5%. Fully 88% 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%. Of the symbols that achieved greater than 0.50% CADV in the Program during 2016–2017, only two had a CADV above 500,000, and neither was chosen in the matched sample described below. The Program’s share of the total market in NYSE-listed securities is tiny considering that non- Take orders 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 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 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 US 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 this pilot data supports making the Program permanent. E:\FR\FM\22FEN1.SGM 22FEN1 5763 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices 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 0.10, and even at the 90th percentile of all symbols, there was no correlation of even 0.30. In short, these results support the conclusion that the Program does not negatively impact market quality. TABLE 8 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 ..................................................... 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 ..................................... Difference in Differences Analysis In addition to demonstrating that changes in Program activity had no impact on market quality on a day-today basis, the Exchange also analyzed market quality impact by using the difference in differences statistical technique. Difference in differences (‘‘DID’’) requires studying the differential effect of data measured between a treatment group and a control group. The two groups are measured during two or more different time periods, usually a period before ‘‘treatment’’ and at least one time period after ‘‘treatment,’’ that is, a time period after which the treatment group is impacted but the control group is not. The assumption is that the control VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 group and the treatment group are otherwise impacted equally by extraneous factors, i.e., that the other impacts are parallel. For example, when measuring average quoted spreads, if spreads increased by 10 basis points in the control group and by 12 basis points in the test group, the assumption would be that the two basis point differential was caused by the treatment. Because all Exchange-traded symbols were eligible to participate in the Program, a natural control group does not exist for the securities participating in the Program. Hence, there is a possibility that the lack of activity in the Program could have been the result of factors that DID cannot measure. Nonetheless, to produce a control group, PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 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 the Exchange identified the 50 most active ticker symbols in the Program as measured by share of consolidated volume following launch of the Program. The Exchange then determined a matched sample, without replacement, using consolidated volume, volume weighted average price, and consolidated quoted spread in basis points. The matched sample compared the 50 most active ticker symbols in the Program with all securities that had very low Program volume. The matching criteria minimized the sum of the squares of the percent difference between the top 50 active ticker symbols and potential matches. The Exchange executed four DID analyses: E:\FR\FM\22FEN1.SGM 22FEN1 EN22FE19.002</GPH> Average correlation Statistic 1 5764 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices 1. Six months prior to launch of the Program (February 2012–July 2012) compared to six months following launch, excluding the first month of the Program (September 2012–February 2013) for securities with a CADV of at least 500,000 during the pre-treatment and treatment periods. 2. Six months prior to launch of the Program (February 2012–July 2012) compared to all of 2016 and 2017 for securities with a CADV of at least 500,000 during the pre-treatment and treatment periods. 3. Six months prior to launch of the Program (February 2012–July 2012) compared to six months following launch, excluding the first month of the program (September 2012–February 2013) for securities with a CADV of at least 50,000 and less than 500,000, during the pre-treatment and treatment periods. 4. Six months prior to launch of the Program (February 2012–July 2012) compared to all of 2016 and 2017 for securities with a CADV of at least VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 50,000 and less than 500,000, during the pre-treatment and treatment periods. Because there was no natural control group, the Exchange employed flexible matching criteria. In addition to the CADV restrictions, the Exchange utilized a control of CADV ratio of 3:1, a volume weighted average price (‘‘VWAP’’) of 2:1, and a spread of 2:1. The Exchange also required potential control group stocks to have a share of Program trading less than 1/10th of the lowest of the top 50 securities for the first trading period. The Exchange excluded securities that were in the test groups of the Tick Size Pilot Program from consideration in matching securities for the DID analysis of the 2016–2017 period.65 Preferred stocks, warrants and rights were excluded from the DID analysis for both periods. Finally, because the Program is only 65 The Tick Size Pilot Program is a National Market System (‘‘NMS’’) plan designed to allow the Commission, market participants and the public to assess the impact of wider minimum quoting and trading increments—or tick sizes—on the liquidity and trading of the common stocks of certain small capitalization companies. PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 valid for stocks trading at or above $1.00, any security with a low price during the pre-treatment or the treatment period below $1.00 was also excluded. Securities also had to be listed on the NYSE during the pretreatment period and during the treatment period. The Exchange selected the top 25 securities by minimum differences as described above. Results for Securities With CADV at Least 500,000 Shares As noted above, the Program began in August 2012. The Exchange selected February–July 2012 as the relevant six month pre-period. The first post-period used was September 2012–February 2013, as the Program was not rolled out to all securities immediately. Tables 9A and 9B show the matched sample securities with key attributes for the first comparison period for symbols with a CADV of at least 500,000. Tables 10A and 10B show the selected securities for the second comparison period with CADV of at least 500,000. E:\FR\FM\22FEN1.SGM 22FEN1 5765 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices Table 9A: Retail Program Matched Sample (Feb. -July 2012 vs. Sep. 2012- Feb. 2013) Table 9B: Additional Post-Period TRF RTO Share of CADV Treatment Symbol Pre-Period TRF GLW 32.08% 33.81% 0.3833% SCHW 26.97% 27.14% 0.2193% MGM 35.71% 32.84% 0.2158% NLY 45.36% 41.72% 0.4556% ARR 47.61% 49.25% 0.8358% HUN 32.66% 35.16% 0.2620% TEF 40.49% 29.97% 0.7724% TWO 40.95% 41.10% 0.4312% MCP 40.60% 45.83% 0.2783% 0.2466% LNKD 36.29% 36.32% TSL 39.50% 39.64% 0.2216% LGF 39.10% 38.40% 0.2290% KORS 38.82% 35.84% 0.2057% SAN 35.89% 38.18% 0.2265% MUX 37.95% 35.19% 0.2381% BBVA 33.42% 34.84% 0. 7064% ERF 36.13% 35.54% 0.2268% OPK 40.27% 47.95% 0.2854% PGH 42.81% 45.20% 0.2500% NBG 42.73% 45.12% 0.5979% ANH 40.67% 39.66% 0.2532% KCG 28.33% 39.02% 0.2388% AOD 57.75% 57.87% 0.5156% KMP 43.32% 46.26% 0.2346% MWE 40.12% 42.06% 0.2063% VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 PO 00000 Frm 00106 Pre-period Spread Control Symbol Pre-period CADV Pre-period VWAP VALEP 7,987,249 $20.96 4.75 BBD 9,826,140 $15.82 6.16 ITUB 14,382,571 $16.68 6.13 HST 8,152,479 $15.75 6.37 swc 1,986,888 $11.09 11.01 MBT 2,717,909 $17.69 6.02 NRG 3,561,399 $16.59 6.37 UBS 3,919,778 $12.62 8.06 CIE 2,782,833 $26.80 8.24 EQT 1,760,916 $50.23 4.25 OCT 3,167,224 $5.86 17.11 DDR 2,999,057 $14.35 7.04 PXP 2,400,816 $39.96 5.70 VIP 1,991,387 $9.74 11.10 HT 1,186,652 $5.29 19.31 SWFT 1,600,993 $10.30 11.95 CBL 1,883,227 $18.50 6.17 ASX 1,240,964 $4.60 21.95 LXP 1,151,087 $8.67 11.96 ZTR 504,899 $3.58 28.01 SLT 1,006,495 $8.56 13.35 KT 1,094,900 $13.60 7.84 IRE 1,075,990 $6.62 23.05 OVA 843,969 $87.26 4.72 wee 657,039 $60.60 8.04 Comparative Statistics Post-Period TRF Control Symbol Pre-Period TRF VALEP 14.32% BBD 20.90% ITUB 22.87% HST 28.97% swc 30.05% MBT 28.49% NRG 28.92% UBS 20.64% CIE 27.88% EQT 25.46% OCT 33.61% DDR 33.38% PXP 23.13% VIP 26.93% HT 31.79% SWFT 36.44% CBL 34.33% ASX 41.57% LXP 33.90% ZTR 42.23% SLT 28.44% KT 35.43% IRE 42.21% OVA 28.66% wee 30.35% Fmt 4703 Sfmt 4725 E:\FR\FM\22FEN1.SGM I 10.87% 18.17% 22.23% 28.89% 36.49% 30.25% 33.23% 25.03% 36.21% 29.20% 35.98% 37.09% 33.81% 26.30% 40.15% 39.57% 36.29% 39.82% 34.81% 46.82% 30.84% 31.17% 47.44% 29.83% 39.26% 22FEN1 RTO Share of CADI0.0011% 0.0085% 0.0174% 0.0182% 0.0171% 0.0081% 0.0103% 0.0037% 0.0152% 0.0152% 0.0131% 0.0056% 0.0158% 0.0131% 0.0182% 0.0172% 0.0133% 0.0156% 0.0079% 0.0143% 0.0196% 0.0026% 0.0187% 0.0198% 0.0076% EN22FE19.003</GPH> Treatment Symbol Pre-period CADV Pre-period VWAP Pre-period Spread GLW 15,533,350 $13.25 7.58 SCHW 12,425,085 $13.34 7.57 MGM 12,194,154 $12.58 8.22 NLY 10,622,520 $16.49 6.00 ARR 5,701,535 $7.06 14.19 HUN 5,075,055 $13.45 7.65 TEF 4,517,965 $13.88 7.14 TWO 4,405,643 $10.44 9.81 MCP 3,403,308 $26.48 9.05 8.48 LNKD 3,374,585 $98.90 TSL 3,000,964 $7.66 16.12 LGF 2,940,312 $13.53 9.06 KORS 2,872,499 $42.42 8.00 SAN 2,799,280 $10.01 11.68 MUX 2,458,917 $3.60 29.56 BBVA 2,052,893 $7.15 14.17 ERF 1,806,818 $17.01 7.33 OPK 1,477,637 $4.74 21.71 PGH 1,380,933 $8.01 12.83 NBG 1,281,865 $2.39 49.96 ANH 1,225,499 $6.66 14.93 KCG 1,021,164 $12.32 8.46 AOD 979,755 $4.50 22.44 KMP 707,377 $82.04 5.24 MWE 637,554 $54.95 7.82 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices The Exchange’s DID analysis utilized the 25 securities noted above on the following 15 statistics: • Time-weighted NYSE quoted spread in basis points. • Time-weighted NYSE quoted spread in dollars and cents. • Time-weighted Consolidated quoted spread in basis points. • Time-weighted Consolidated quoted spread in dollars and cents. • Volume-weighted Effective spread in basis points * measured against the NYSE quote. • Volume-weighted Effective spread in basis points * measured against the NBBO. • Volume-weighted Effective spread in basis points * measured against the PBBO. • Volume-weighted Quoted spread in basis points * measured against the NYSE quote. * Volume weighted basis points were estimated using cents spreads and dividing by daily VWAPs. VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 • Volume-weighted Quoted spread in basis points * measured against the NBBO. • Volume-weighted Quoted spread in basis points* measured against the PBBO. • Trade Reporting Facility (‘‘TRF’’) share of volume during regular trading hours, excluding auctions. • TRF share of volume, full day, including auctions. • NYSE share of volume during regular trading hours, excluding auctions. • NYSE share of volume, full day, including auctions. E:\FR\FM\22FEN1.SGM 22FEN1 EN22FE19.004</GPH> 5766 5767 • Trade-to-trade price change in basis points. The Exchange calculated the DID regression for each of these statistics using the following formula: Yit = B0 + B1T + B2I + B3IT where T equals 0 during the pre-period and equals 1 during the treatment period, and where I is the Intervention. As Table 11 shows, none of the 15 regressions performed by the Exchange showed statistical significance for the September 2012–February 2013 period. The Exchange also calculated the DID regression for the 2016–2017 period, as shown in Table 12. Several spread measures showed statistically significant increases at the 99% confidence level, as did the full-day share of trading on the TRF. However, time-weighted consolidated dollar spreads fell and were significant at the 90% confidence level. NYSE dollar spreads fell and were significant at the 95% level. As described below, the Exchange believes that the apparent spread widening and TRF market share increase are an artifact of the study methodology and not attributable to the Program. VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 E:\FR\FM\22FEN1.SGM 22FEN1 EN22FE19.005</GPH> Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices 5768 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices As noted above, because all Exchangetraded symbols were eligible to participate in the Program when it began as a pilot in August 2012, there was no control group that would permit a classic DID examination of the results. Instead, for purposes of making the Program permanent, the Exchange created an artificial control group and treatment group by coming up with a matched sample based on the securities with the highest share of consolidated volume in the Program and matching these securities based on volume weighted average price, time-weighted quoted spread, and CADV during the pre-treatment period (subject to the criteria noted above). By necessity, however, the percent of activity in the Program itself had to be based on the post-treatment period. This methodology provided several insights and permitted the Exchange to offer a more thorough analysis of the Program’s impact. However, the Exchange believes that selection of securities with the highest share of consolidated volume in the Program for the treatment group created a biased treatment group. Securities with lower prices tend to trade more actively in the TRF as well as in the Program; the percentage value of price improvement on a low-price stocks provides greater savings to investors. For example, $0.0010 price improvement per share for a $5.00 stock saves an investor $2.00 per $10,000 invested. The same per share price improvement on a $50 stock is worth just $0.20. Table 13 shows this relationship for the 2016–2017 treatment period used in the analysis. TABLE 13—SHARE OF VOLUME BASED ON DAILY VWAP TRF Share ............................................... NYSE RLP % of CADV ........................... 41.86 0.30 By utilizing securities that traded more heavily in the Program, the treatment stocks selected for the DID analysis were mostly lower priced securities. However, the matching criteria does not restrict stock price during the pre-treatment period. The large time gap between the pretreatment and treatment period resulted in the selection of many stocks that were relatively lower-priced during the treatment period, but may not have been in that category during the pre-treatment period. Since the study period also sought control stocks that were not VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 $5–$10 (%) $10–$25 (%) 37.97 0.23 36.02 0.20 heavily traded in the Program, this resulted in a concentration of mostly higher priced treatment period securities in the control group. Many of the treatment securities chosen for the 2016–2017 period suffered sharp price declines compared to their 2012 pre-treatment period levels. On its own, a price drop would not necessarily be problematic. However, many of these stocks were already tick constrained—that is, they traded with time-weighted quoted spreads near $0.01. As a consequence, any price drop would necessarily result PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 $25–$50 (%) 32.92 0.13 $50–$100 (%) 30.97 0.10 >$100 (%) 31.58 0.11 in an almost equal and opposite percentage increase in the spread. This change in spread was not caused by the Program but rather by the fact the symbols were already tick constrained. Table 14 details the VWAP, dollar and basis point spreads of all of the stocks in the 2016–2017 treatment and control group samples. The final two columns show the ratio of pre-period VWAP to post-period VWAP and compares that to the post- and pre-treatment period spreads in basis points. While, on average, control stock prices rose, treatment stock prices fell. In most E:\FR\FM\22FEN1.SGM 22FEN1 EN22FE19.006</GPH> <$5.00 (%) Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices cases, treatment group basis point spreads increased, although often by less than by the percentage that VWAPs dropped, thus highlighting the impact of tick constraints on our results. However, the DID approach compared the raw increase in spreads, resulting in a statistically significant increase in spreads due to differing price performance between the control group and treatment group. VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 The Exchange further notes that the average pre-treatment VWAP price of the treatment stocks was $25.51 versus $24.96 for the control group stocks. However, the average post-period prices were $13.75and $37.74, respectively. The Exchange believes that these differences explain the statistically significant increase in TRF market share for the treatment stocks as well as the increases in spreads in basis points (due to the lower prices) in treatment PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 5769 securities versus the more than 50% average price increase in control stocks. As detailed in Table 15, this difference in performance was not present in the matched sample produced for the study covering the initial launch of the program. The treatment group saw prices rise from $20.11 to $20.26 during the treatment period. Control group securities saw a slightly larger increase, rising from $20.07 to $22.60. E:\FR\FM\22FEN1.SGM 22FEN1 5770 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices Table 14: Time-weighted Consolidated Spread and VWAP Comparison of 2016 -2017 Sample Treatment Securities Symbol AG CBI CIG CLF DDD DSX EXG EXK HTZ lAG KGC LL M NAT OZM SAN SNE STM SUN UA VRX VVR WTI WTW X Average Pre-VWAP Post-VWAP Pre-$ Spread Post $ Spread Pre BP Spread Post BP Spread VWAP Pre/Post BP Post/Pre $16.33 $39.89 $21.33 $57.89 $28.40 $8.22 $8.68 $9.18 $13.58 $12.51 $9.15 $28.53 $37.16 $9.44 $23.37 $2.44 $7.02 $14.19 $3.58 $8.67 $3.53 $15.26 $4.20 $3.97 $20.69 $29.44 0.017 0.025 0.010 0.027 0.041 0.013 0.010 0.012 0.010 0.010 0.010 0.033 0.011 0.010 0.020 0.010 0.010 0.012 0.012 0.010 0.010 0.021 0.010 0.010 0.028 0.011 10.72 6.25 4.87 4.68 14.48 15.80 11.57 12.98 7.51 8.30 10.98 12.21 3.00 13.35 7.46 44.34 20.26 8.62 37.33 11.59 35.59 9.90 26.72 26.84 13.26 3.72 1.7 1.7 8.8 8.2 2.0 2.3 1.0 2.6 0.9 3.0 2.3 1.4 1.3 1.2 1.2 9.1 4.3 0.6 2.4 1.0 2.7 1.3 3.2 2.4 1.1 1.2 $13.95 $8.54 $10.01 $16.41 $6.18 $43.87 $82.15 $49.75 $4.75 $18.09 $68.07 $25.09 $25.51 $9.23 $3.42 $5.33 $31.21 $14.32 $28.80 $31.83 $23.40 $4.35 $2.43 $20.26 $23.45 $13.75 0.020 0.014 0.044 0.011 0.010 0.017 0.068 0.021 0.010 0.024 0.044 0.011 $0.02 0.011 0.012 0.010 0.011 0.010 0.057 0.017 0.021 0.010 0.010 0.028 0.011 $0.02 14.92 16.54 11.68 6.58 16.72 3.83 7.58 4.16 21.66 12.94 6.92 4.53 $10.06 14.32 35.94 19.22 3.49 10.46 18.79 5.36 7.09 23.12 47.28 13.68 5.38 $18.53 1.5 2.5 1.9 0.5 0.4 1.5 2.6 2.1 1.1 7.4 3.4 1.1 $2.53 1.0 2.2 1.6 0.5 0.6 4.9 0.7 1.7 1.1 3.7 2.0 1.2 2.1 Control Securities FCEA AGCO UNM FTI LHO EDR CUBE SHO lPG DRE LSI WBS STT POL cuz DRH FBHS DCT EIX cxo TS GPK PHH GDI PBRA Average VerDate Sep<11>2014 Pre-VWAP Post-VWAP Pre-$ Spread Post $ Spread Pre BP Spread $14.66 $45.47 $21.49 $45.91 $27.73 $10.89 $11.67 $9.94 $11.00 $14.17 $7.62 $21.71 $42.78 $13.78 $7.47 $10.11 $21.40 $5.86 $43.94 $95.21 $36.62 $5.29 $15.44 $61.48 $22.47 $24.96 16:52 Feb 21, 2019 $22.04 $56.74 $39.65 $29.28 $26.80 $40.38 $27.54 $14.11 $22.37 $26.04 $82.00 $44.40 $72.81 $34.49 $9.04 $10.26 $58.29 $46.65 $73.23 $119.66 $28.56 $13.21 $13.17 $25.40 $7.36 $37.74 Jkt 247001 0.016 0.025 0.010 0.018 0.022 0.011 0.011 0.011 0.010 0.010 0.010 0.020 0.012 0.016 0.011 0.010 0.016 0.010 0.012 0.089 0.015 0.011 0.018 0.050 0.010 $0.02 PO 00000 0.015 0.040 0.016 0.011 0.015 0.032 0.012 0.010 0.010 0.011 0.089 0.039 0.026 0.033 0.010 0.010 0.026 0.030 0.023 0.130 0.010 0.010 0.018 0.038 0.010 $0.03 Frm 00111 Fmt 4703 11.05 5.71 4.63 3.98 7.99 10.48 9.79 10.84 9.10 7.06 13.50 9.52 2.87 11.94 14.10 10.18 7.41 17.11 2.98 9.36 4.16 20.05 11.52 8.31 4.47 $9.12 Sfmt 4725 Post BP Spread VWAP Pre/Post 6.76 6.77 3.89 3.78 5.67 7.95 4.50 7.41 4.69 4.17 10.82 8.38 3.36 9.58 11.23 10.01 4.48 6.14 3.08 10.70 3.72 7.70 13.68 15.08 15.37 $7.56 E:\FR\FM\22FEN1.SGM 0.7 0.8 0.5 1.6 1.0 0.3 0.4 0.7 0.5 0.5 0.1 0.5 0.6 0.4 0.8 1.0 0.4 0.1 0.6 0.8 1.3 0.4 1.2 2.4 3.1 $0.83 22FEN1 BP Post/Pre 0.6 1.2 0.8 0.9 0.7 0.8 0.5 0.7 0.5 0.6 0.8 0.9 1.2 0.8 0.8 1.0 0.6 0.4 1.0 1.1 0.9 0.4 1.2 1.8 3.4 0.9 EN22FE19.007</GPH> Symbol 5771 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices Table 1S: Time-weighted Consolidated Spread and VWAP Comparison of 2012- 2013 Sample Treatment Securities Symbol ANH AOD ARR BBVA ERF GLW HUN KeG KMP KORS LGF LNKD MeP MGM MUX MWE NBG NLY OPK PGH SAN SeHW TEF TSL TWO Average Pre-VWAP Post-VWAP Pre-$ Spread Post $ Spread Pre BP Spread Post BP Spread VWAP Pre/Post BP Post/Pre $6.66 $4.50 $7.06 $7.15 $17.01 $13.25 $13.45 $12.32 $82.04 $42.42 $13.53 $98.90 $26.48 $6.13 $4.13 $6.97 $8.93 $14.25 $12.44 $16.52 $3.15 $83.32 $55.06 $16.89 $121.92 $9.49 0.044 0.010 0.012 0.010 0.010 0.010 0.010 0.010 0.010 0.011 0.022 0.083 0.033 0.010 0.010 0.012 0.010 0.010 0.012 0.010 0.010 0.010 0.010 0.011 0.086 0.026 11.68 7.14 7.33 29.56 6.00 49.96 14.93 7.58 7.57 16.12 9.05 8.48 8.00 12.88 7.48 8.77 26.52 6.63 58.23 16.23 8.03 7.11 25.28 12.39 7.37 4.87 1.1 1.1 1.0 0.8 1.2 1.1 0.8 3.9 1.0 0.8 0.8 0.8 2.8 1.1 1.0 1.2 0.9 1.2 1.1 1.1 0.9 1.6 1.4 0.9 0.6 $12.58 $3.60 $54.95 $2.39 $16.49 $4.74 $8.01 $10.01 $13.34 $13.88 $7.66 $10.44 $20.11 $11.41 $3.90 $51.92 $1.92 $15.38 $5.49 $5.25 $7.79 $14.31 $13.58 $4.51 $11.74 $20.26 0.043 0.010 0.010 0.010 0.010 0.010 0.010 0.043 0.010 0.010 0.012 0.010 0.019 0.043 0.010 0.010 0.010 0.010 0.010 0.010 0.037 0.010 0.010 0.013 0.010 0.016 5.24 14.19 8.22 9.81 14.17 21.71 12.83 7.82 22.44 7.65 9.06 8.46 13.00 5.16 14.10 8.94 8.52 11.56 21.09 18.69 6.96 23.93 6.43 7.62 33.06 14.71 1.1 0.9 1.1 1.2 1.1 0.9 1.5 1.3 0.9 1.0 1.7 0.9 1.2 1.0 1.0 1.1 0.9 0.8 1.0 1.5 0.9 1.1 0.8 0.8 3.9 1.1 Post BP Spread VWAP Change BP Spread Change 25.32 22.41 12.58 4.67 6.72 6.69 4.26 15.32 4.50 11.91 6.33 4.75 9.92 6.40 5.83 10.13 5.54 5.91 6.69 9.87 5.47 20.31 6.22 14.12 9.22 9.64 1.2 0.9 0.8 1.2 1.0 0.4 1.0 0.8 1.0 1.0 0.9 0.8 1.0 1.0 0.7 0.9 1.0 0.9 0.8 1.2 1.0 0.8 0.9 0.9 1.1 0.8 1.1 1.1 0.9 1.1 ASX BBD eBL eiE DeT DDR DVA EQT HST HT IRE ITUB KT LXP MBT NRG PXP SLT swe SWFT UBS VALEP VIP wee ZTR Average VerDate Sep<11>2014 Pre-VWAP Post-VWAP Pre-$ Spread Post $ Spread Pre BP Spread $4.60 $15.82 $18.50 $26.80 $5.86 $14.35 $87.26 $50.23 $15.75 $5.29 $6.62 $16.68 $13.60 $8.67 $17.69 $16.59 $39.96 $8.56 $11.09 $10.30 $12.62 $20.96 $9.74 $60.60 $3.58 $20.07 16:52 Feb 21, 2019 $3.96 $16.97 $21.77 $24.31 $6.64 $15.76 $109.34 $59.41 $15.86 $4.94 $7.30 $16.08 $16.85 $10.12 $18.31 $22.42 $41.71 $7.84 $12.12 $10.32 $15.12 $18.25 $11.41 $65.55 $12.56 $22.60 Jkt 247001 0.010 0.014 0.011 0.042 0.010 0.010 0.021 0.010 0.022 0.012 0.010 0.010 0.011 0.010 0.010 0.010 0.010 0.010 0.021 0.010 0.011 0.010 0.011 0.011 0.049 0.015 PO 00000 0.010 0.014 0.016 0.051 0.010 0.010 0.025 0.010 0.018 0.012 0.010 0.011 0.012 0.010 0.010 0.010 0.010 0.011 0.015 0.011 0.012 0.010 0.010 0.011 0.060 0.016 Frm 00112 Fmt 4703 21.95 23.05 28.01 4.72 8.06 7.04 4.25 17.11 5.70 11.95 6.13 6.37 11.01 6.37 6.16 11.96 4.75 6.02 8.24 11.10 6.17 19.31 7.84 13.35 8.04 10.59 Sfmt 4725 E:\FR\FM\22FEN1.SGM 1.1 0.9 0.9 0.8 0.8 1.0 1.1 0.9 1.0 0.8 0.9 1.0 0.7 1.0 1.1 0.9 1.0 0.8 1.1 0.9 0.9 0.3 0.9 22FEN1 EN22FE19.008</GPH> Control Securities Symbol 5772 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices DID Analysis for Lower Volume Securities The Exchange also performed a set of DID analyses for securities with average daily volumes between 50,000 and 500,000 shares for the two posttreatment periods covered above. Table 16 shows the results for the analysis of eligible securities for the sixmonth pre-period, and the six months following the complete rollout of the Program. Although spreads increased, except for NYSE spreads in dollars, neither the spread-based, market share or trade-to-trade price change studies showed statistical significance. Table 17 shows pre- and post-treatment statistics for the control group and the treatment group. Ten of the 25 treatment securities spreads narrowed, while 14 of 25 control stocks narrowed. There is too much noise in the result to produce statistical significance. Table 16: DiD Results Lower Volume (Feb. 2012- July 2012 vs. Sep. 2012 - Feb. 2013} Estimate Standard Error Estimated Measure Time-weighted NYSE Spread/\ Time-weighted NYSE $Spread Time-weighted Consolidated Spread Time-weighted Consolidated $Spread Volume-weighted Effective Spread vs. NYSE Quote Volume-weighted Effective Spread vs. NBBO Volume-weighted Effective Spread vs. PBBO Volume-weighted Quoted Spread vs. NYSE Quote Volume-weighted Quoted Spread vs. NBBO Volume-weighted Quoted Spread vs. PBBO NYSE Regular Hours Share, no auctions NYSE Full Day Share TRF Regular Hours Share, no auctions TRF Full Day Share Trade-to-trade price change Spreads in basis points unless otherwise noted Significance:*** VerDate Sep<11>2014 5.3480 0.0098 3.3040 0.0064 3.8420 2.9437 2.9722 3.8650 2.9070 2.9368 0.0284 0.0271 0.0491 0.0449 1.1806 16:52 Feb 21, 2019 Jkt 247001 =99.9%, ** =99%, * =95%, . =90% PO 00000 Frm 00113 Fmt 4703 Sfmt 4725 E:\FR\FM\22FEN1.SGM 22FEN1 EN22FE19.009</GPH> A- 4.7620 -0.0128 3.3920 0.0074 3.0210 2.7023 2.7477 3.2340 2.8340 2.8830 -0.0117 -0.0057 0.0096 0.0125 0.9963 5773 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices Table 17 Lower Volume Time-weighted Consolidated Spread and VWAP Comparison of 2012- 2013 Sample Treatment Securities Symbol BPL CFR COD I GTY lTC JE MIC NM OKS PER PNG RST SMP STON swx SXL TAC TCAP TGP TNP TRGP TUP voc WAB WES Average Pre-VWAP Post-VWAP Pre-$ Spread Post $ Spread Pre BP Spread Post BP Spread VWAP Pre/Post BP Post/Pre $55.77 $57.28 $13.81 $16.42 $72.80 $12.32 $32.63 $3.81 $56.35 $22.20 $18.49 $11.50 $16.59 $49.93 $56.77 $14.97 $17.95 $77.70 $9.09 $45.35 $3.73 $57.27 $18.01 $19.64 $12.56 $20.96 0.055 0.055 0.039 0.038 0.026 0.018 0.052 0.038 0.044 0.073 0.032 0.036 0.038 0.063 0.057 0.077 0.059 0.035 0.017 0.047 0.019 0.051 0.076 0.041 0.054 0.033 12.25 27.25 5.19 8.93 12.52 10.33 9.65 31.21 7.67 9.82 19.82 31.89 17.94 11.97 37.95 9.96 13.62 13.53 11.19 9.53 19.19 8.08 8.79 20.76 43.39 17.93 1.1 1.0 0.9 0.9 0.9 1.4 0.7 1.0 1.0 1.2 0.9 0.9 0.8 1.0 1.4 1.9 1.5 1.1 1.1 1.0 0.6 1.1 0.9 1.0 1.4 1.0 $24.94 $42.91 $37.43 $17.57 $20.36 $38.79 $6.19 $44.28 $58.80 $20.66 $75.14 $44.24 $32.85 $23.45 $43.18 $51.63 $15.47 $25.88 $38.45 $4.38 $53.62 $65.31 $14.59 $86.66 $50.13 $35.07 0.059 0.021 0.045 0.065 0.027 0.053 0.018 0.051 0.031 0.048 0.040 0.012 0.041 0.061 0.030 0.057 0.082 0.039 0.046 0.016 0.070 0.034 0.044 0.058 0.012 0.047 10.68 15.25 17.67 14.48 15.94 13.75 30.07 13.68 5.40 14.60 21.87 32.81 16.43 10.48 20.45 24.16 16.18 21.54 11.90 36.81 13.48 5.97 9.80 29.41 32.13 18.33 1.1 1.0 0.7 1.1 0.8 1.0 1.4 0.8 0.9 1.4 0.9 0.9 1.0 1.0 1.3 1.4 1.1 1.4 0.9 1.2 1.0 1.1 0.7 1.3 1.0 1.1 Post BP Spread VWAP Change BP Spread Change 12.26 5.52 14.51 11.92 11.73 18.56 31.91 9.47 9.24 16.84 9.31 22.81 16.33 11.40 7.35 24.34 22.74 9.82 15.34 11.45 5.25 7.55 13.69 12.71 11.07 13.72 0.9 1.0 0.8 1.0 1.0 1.0 0.9 Control Securities AFF ALE ARB AXE BBN BYI CDR CHH CUK FFC FIX FMO HII HMN HPP HYI KNL LTM OGE RCS SNX SQM TMH TTC ZF Average VerDate Sep<11>2014 Pre-VWAP Post-VWAP Pre-$ Spread Post $ Spread Pre BP Spread $23.88 $40.88 $35.78 $62.21 $22.15 $45.76 $4.94 $37.90 $31.93 $18.39 $10.45 $22.28 $38.26 $17.34 $15.93 $18.77 $14.61 $46.46 $52.85 $11.46 $37.43 $56.85 $23.44 $61.29 $3.54 $30.19 16:52 Feb 21, 2019 $25.14 $42.08 $45.40 $63.92 $22.81 $47.00 $5.37 $33.10 $39.02 $19.74 $11.64 $22.86 $42.44 $19.65 $20.55 $18.80 $15.23 $44.97 $56.76 $11.60 $34.41 $58.73 $30.06 $42.13 $12.44 $31.43 Jkt 247001 0.042 0.037 0.020 0.072 0.048 0.044 0.032 0.063 0.030 0.026 0.039 0.062 0.022 0.026 0.032 0.013 0.029 0.039 0.030 0.039 0.029 0.030 0.011 0.049 0.042 0.036 PO 00000 0.041 0.032 0.029 0.073 0.045 0.035 0.036 0.040 0.027 0.033 0.023 0.052 0.025 0.026 0.035 0.013 0.027 0.038 0.030 0.039 0.030 0.032 0.017 0.060 0.047 0.035 Frm 00114 Fmt 4703 11.12 6.60 11.10 11.53 13.50 22.87 30.60 9.73 13.35 15.21 16.56 28.04 15.19 11.74 6.89 26.16 25.43 12.21 18.72 10.73 5.53 7.21 28.79 10.59 11.01 15.22 Sfmt 4725 E:\FR\FM\22FEN1.SGM 1.1 0.8 0.9 0.9 1.0 0.9 0.9 0.8 1.0 1.0 1.0 0.9 1.0 1.1 1.0 0.8 1.5 0.3 0.9 22FEN1 1.1 0.8 1.3 1.0 0.9 0.8 1.0 1.0 0.7 1.1 0.6 0.8 1.1 1.0 1.1 0.9 0.9 0.8 0.8 1.1 0.9 1.0 0.5 1.2 1.0 0.9 EN22FE19.010</GPH> Symbol 5774 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices Tables 18A and 18B summarize data used to create the matched sample: VWAP, CADV, and spread in basis points. The tables also provide information on the Program’s share of VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 consolidated volume since the sample was created by finding the stocks with the highest share of volume over the treatment period in the Program, and required control stocks to exhibit share PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 of CADV no more than 1/10th the lowest security chosen for the matched sample. E:\FR\FM\22FEN1.SGM 22FEN1 5775 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices Table 18A: Lower Volume Retail Program Matched Sample (Feb. -July 2012 vs. Sep. 2012- Feb. 2013) Treatment Symbol Pre-Period TRF Post-Period TRF Pre-period Spread Control Symbol Pre-period CADV Pre-period VWAP OGE 469.043 $52.85 5.53 BYI 463.042 $45.76 6.89 SQM 364.490 $56.85 6.60 LTM 465.751 $46.46 10.59 AXE 306.847 $62.21 11.53 ZF 273.496 $3.54 28.79 TMH 321.166 $23.44 13.35 TTC 266.687 $61.29 9.73 CDR 253.878 $4.94 26.16 KNL 288.960 $14.61 15.19 SNX 273.480 $37.43 10.73 ARB 205.221 $35.78 13.50 BBN 228.523 $22.15 11.74 HPP 211.333 $15.93 18.72 Hll 219.277 $38.26 11.01 HMN 204.650 $17.34 15.21 ALE 178.379 $40.88 7.21 CHH 150.577 $37.90 11.12 CUK 132.300 $31.93 12.21 HYI 106.275 $18.77 22.87 FFC 109.209 $18.39 11.10 AFF 98.288 $23.88 16.56 FIX 101.525 $10.45 30.60 RCS 90.262 $11.46 25.43 FMO 72.315 $22.28 28.04 Table 188: Additional Comparative Statistics RTO Share of CADV Control Symbol Pre-Period TRF Post -Period TRF RTO Share of CAD\ lTC 26.82% 43.06% 0.3833% OGE 23.17% 29.53% 0.0011% TUP 24.64% 29.70% 0.2193% BYI 21.57% 28.73% 0.0085% CFR 17.91% 28.07% 0.2158% SQM 22.29% 24.74% 0.0174% BPL 41.04% 44.33% 0.4556% LTM 29.08% 29.97% 0.0182% OKS 34.83% 41.65% 0.8358% AXE 31.97% 31.46% 0.0171% NM 46.71% 49.95% 0.2620% ZF 44.16% 47.28% 0.0081% PER 53.26% 55.94% 0.7724% TMH 40.80% 40.33% 0.0103% WAB 23.37% 28.15% 0.4312% TTC 22.70% 28.28% 0.0037% TNP 36.70% 47.21% 0.2783% CDR 37.32% 47.85% 0.0152% COD I 35.24% 47.94% 0.2466% KNL 24.96% 32.85% 0.0152% TRGP 30.89% 37.72% 0.2216% SNX 32.69% 40.48% 0.0131% WES 31.34% 39.78% 0.2290% ARB 22.94% 34.92% 0.0056% TCAP 40.70% 41.69% 0.2057% BBN 65.12% 61.66% 0.0158% SMP 29.99% 33.97% 0.2265% HPP 39.20% 38.36% 0.0131% SXL 37.24% 43.60% 0.2381% Hll 30.94% 32.81% 0.0182% GTY 31.76% 33.57% 0.7064% HMN 25.51% 26.43% 0.0172% swx 20.90% 25.59% 0.2268% ALE 22.82% 28.27% 0.0133% TGP 43.79% 47.16% 0.2854% CHH 23.02% 29.31% 0.0156% MIC 30.37% 44.78% 0.2500% CUK 12.16% 21.83% 0.0079% PNG 54.57% 51.61% 0.5979% HYI 52.40% 45.77% 0.0143% TAC 28.18% 36.24% 0.2532% FFC 55.36% 57.90% 0.0196% STON 53.56% 54.02% 0.2388% AFF 40.54% 50.07% 0.0026% RST 39.86% 36.83% 0.5156% FIX 29.24% 31.74% 0.0187% JE 46.00% 44.11% 0.2346% RCS 58.77% 55.97% 0.0198% voc 49.37% 49.32% 0.2063% FMO 51.13% 58.91% 0.0076% VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 PO 00000 Frm 00116 Fmt 4703 Sfmt 4725 E:\FR\FM\22FEN1.SGM 22FEN1 EN22FE19.011</GPH> Treatment Symbol Pre-period CADV Pre-period VWAP Pre-period Spread lTC 466.165 $72.80 5.19 TUP 461.730 $58.80 7.67 5.40 CFR 458.088 $57.28 BPL 421.219 $55.77 9.65 OKS 336.853 $56.35 10.68 NM 333.179 $3.81 32.81 PER 323.068 $22.20 17.94 WAB 310.460 $75.14 9.82 TNP 286.896 $6.19 30.07 COD I 266.134 $13.81 15.25 TRGP 256.081 $44.28 12.25 WES 250.703 $44.24 14.48 TCAP 246.651 $20.36 12.52 SMP 210.383 $16.59 19.82 SXL 199.616 $37.43 13.68 GTY 195.074 $16.42 15.94 swx 186.059 $42.91 8.93 TGP 182.932 $38.79 13.75 MIC 139.817 $32.63 14.60 PNG 128.088 $18.49 21.87 TAC 106.489 $17.57 10.33 STON 104.507 $24.94 17.67 RST 98.362 $11.50 31.89 JE 95.867 $12.32 31.21 voc 92.453 $20.66 27.25 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices Table 19 shows the results for the lower volume stocks study comparing the six month pre-Program period to 2016–2017. Time-weighted consolidated and NYSE spreads in basis points increased and were statistically significant at the 95% level. Other basis point spreads were also statistically significant at either the 95% or 99% level. TRF share excluding auctions increased at the 99% level, and including auctions increased at the 99.9% level. NYSE share changes were not statistically significant. Trade-totrade price changes (in basis points) rose and were significant at the 95% level. The Exchange notes, however, that timeweighted consolidated spreads in dollars decreased and were significant at the 90% level. NYSE dollar spreads also decreased, but were not statistically significant. Table 20 provides evidence for the possible cause of the inconsistency in the results. The average dollar spread in the treatment stocks dropped slightly, while dollar spreads in the control stocks rose 82%. Spreads in basis points were unchanged for treatment stocks, but dropped 30% in the control group. Price changes tended to be positive in the control stocks and were little changed in the treatment group. The statistical significance appears to be driven by changes in the control stocks. VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 E:\FR\FM\22FEN1.SGM 22FEN1 EN22FE19.012</GPH> 5776 5777 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices Table 20: Lower Volume Time-weighted Consolidated Spread and VWAP Comparison of 2016 -2017 Sample Treatment Securities Symbol AFT BLW DBL ETV FENG GIM GPM HPS JQC MUA NCZ NUV PBT PCK PCN PHD PHT PIM PMX PTY RA SJT TSI UTF WIW Average Pre-VWAP Post-VWAP Pre-$ Spread Post $ Spread Pre BP Spread Post BP Spread VWAP Pre/Post 1.1 1.1 BP Post/Pre $17.92 $17.28 $26.03 $12.67 $5.98 $9.52 $9.23 $18.62 $9.10 $13.13 $8.39 $10.13 $20.04 $16.31 $15.29 $24.59 $14.95 $5.00 $6.45 $8.17 $18.57 $8.37 $14.60 $5.61 $10.06 $7.89 0.030 0.026 0.041 0.014 0.034 0.015 0.030 0.035 0.014 0.022 0.016 0.012 0.034 0.026 0.017 0.068 0.020 0.019 0.011 0.018 0.032 0.011 0.030 0.011 0.012 0.032 16.60 15.22 15.50 11.29 58.46 15.83 32.88 18.58 15.15 16.54 19.48 12.11 17.37 15.71 11.20 27.12 13.27 49.20 16.62 23.41 17.30 12.79 20.63 19.81 12.21 42.60 0.8 1.2 1.5 1.1 1.0 1.1 0.9 1.5 1.0 2.5 0.9 0.7 1.7 1.2 0.8 1.0 0.7 0.9 0.8 1.2 1.0 1.0 2.5 $10.13 $16.38 $12.85 $17.21 $5.09 $12.10 $18.59 $23.72 $16.71 $5.14 $17.16 $12.95 $13.84 $10.11 $15.49 $11.60 $9.88 $4.56 $11.92 $15.21 $23.29 $6.79 $5.42 $20.99 $11.03 $12.09 0.019 0.024 0.022 0.028 0.011 0.023 0.025 0.036 0.030 0.014 0.024 0.013 0.024 0.027 0.029 0.021 0.022 0.011 0.019 0.020 0.031 0.036 0.015 0.026 0.014 0.023 18.60 14.43 17.09 16.10 21.39 18.66 13.23 16.44 18.41 28.10 13.80 9.78 18.84 26.47 18.67 18.27 22.06 24.41 16.21 13.54 13.55 55.77 26.86 12.18 12.32 21.69 1.0 1.1 1.1 1.7 1.1 1.0 1.2 1.0 2.5 0.9 0.8 1.2 1.2 1.4 1.3 1.1 1.4 1.1 0.9 1.0 0.8 3.0 1.0 0.9 1.3 1.2 1.1 Control Securities AAT AER CHSP CIR COR CRH csu DK FSS HRG HTH lTG KAR KRG LAD NCI ORA PFS PRO PUK ROG SSP STC THR TRNO Average Pre-VWAP Post-VWAP Pre-$ Spread Post $ Spread Pre BP Spread $23.10 $11.73 $17.73 $32.92 $23.78 $19.15 $9.83 $16.08 $5.21 $6.91 $9.56 $10.18 $16.27 $5.04 $24.94 $13.13 $19.54 $14.43 $17.19 $23.11 $38.80 $9.27 $14.50 $20.63 $14.49 $16.70 $40.71 $40.57 $25.05 $54.01 $88.08 $32.94 $15.49 $20.78 $15.43 $15.95 $23.63 $18.93 $41.75 $22.91 $91.60 $19.29 $51.98 $23.71 $20.72 $38.57 $87.75 $17.54 $41.42 $19.10 $30.05 $35.92 0.019 0.029 0.091 0.020 0.036 0.020 0.073 0.080 0.013 0.049 0.017 0.014 0.039 0.030 0.032 0.018 0.047 0.012 0.031 0.036 0.041 0.024 0.014 0.029 0.028 0.034 As previously noted, the Exchange’s selection methodology focused on VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 0.016 0.011 0.294 0.036 0.012 0.025 0.039 0.219 0.033 0.055 0.023 0.021 0.106 0.032 0.028 0.033 0.046 0.025 0.083 0.055 0.208 0.022 0.019 0.019 0.071 0.061 8.45 14.97 23.52 13.69 67.86 15.60 50.33 23.90 13.36 29.17 18.25 11.82 16.43 31.13 18.31 19.19 22.49 24.32 21.63 15.67 16.27 15.25 27.20 17.80 14.50 22.04 Post BP Spread VWAP Pre/Post 3.81 3.51 33.79 15.41 7.62 13.32 14.08 40.36 17.02 26.85 12.89 4.90 12.06 20.22 11.14 14.16 23.89 16.44 20.73 13.49 21.97 10.97 8.06 4.43 14.10 15.41 finding securities that traded most heavily in the Program. As discussed PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 0.6 0.3 0.7 0.6 0.3 0.6 0.6 0.8 0.3 0.4 0.4 0.5 0.4 0.2 0.3 0.7 0.4 0.6 0.8 0.6 0.4 0.5 0.4 1.1 0.5 0.5 BP Post/Pre 0.5 0.2 1.4 1.1 0.1 0.9 0.3 1.7 1.3 0.9 0.7 0.4 0.7 0.6 0.6 0.7 1.1 0.7 1.0 0.9 1.4 0.7 0.3 0.2 1.0 0.8 above in the section covering higher volume securities and as shown in E:\FR\FM\22FEN1.SGM 22FEN1 EN22FE19.013</GPH> Symbol 5778 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices Table 13, both TRF share and Program activity are higher in low priced stocks. This constraint did not impact the control stocks, as the selection methodology requires control stocks to have significantly lower share of the market. However, it did result in control stocks that traded largely in line with the overall market, resulting in price increases over the 2012 to 2016–2017 time period. Table 21B highlights the constraint on Program share for the treatment and control stocks. Table 21A presents additional matched sample population statistics. Table 21A Lower Volume Retail Program Matched Sample (Feb. -July 2012 vs.2016- 2017) Treatment Symbol Pre-period CADV Pre-period VWAP Pre-period Spread Control Symbol Pre-period CADV Pre-period VWAP Pre-period Spread JQC 369,780 $9.10 15.15 lTG 408,461 $10.18 RA 322,887 $23.72 16.44 LAD 383,601 $24.94 13.36 16.27 SJT 321,395 $16.71 18.41 DK 271,741 $16.08 15.25 NUV 297,752 $10.13 12.11 AER 395,314 $11.73 11.82 GIM 230,462 $9.52 15.83 NCI 208,759 $13.13 15.60 ETV 192,598 $12.67 11.29 PFS 220,318 $14.43 13.69 PBT 186,841 $20.04 17.37 COR 178,141 $23.78 16.43 NCZ 173,121 $8.39 19.48 SSP 211,122 $9.27 18.25 PIM 166,347 $5.09 21.39 FSS 248,554 $5.21 24.32 UTF 162,477 $17.16 13.80 KAR 133,654 $16.27 17.80 PTY 158,023 $18.59 13.23 AAT 160,197 $23.10 15.67 BLW 142,198 $17.28 15.22 CRH 220,462 $19.15 14.97 14.50 WIW 128,003 $12.95 9.78 ORA 159,691 $19.54 AFT 110,279 $17.92 16.60 PUK 216,892 $23.11 8.45 TSI 102,390 $5.14 28.10 KRG 155,926 $5.04 27.20 PHD 95,377 $12.85 17.09 HTH 136,956 $9.56 19.19 HPS 95,354 $18.62 18.58 CIR 101,115 $32.92 23.90 PCN 93,385 $16.38 14.43 CHSP 142,605 $17.73 18.31 67.86 FENG 91,064 $5.98 58.46 HRG 140,599 $6.91 PMX 79,724 $12.10 18.66 STC 130,592 $14.50 21.63 DBL 79,546 $26.03 15.50 ROG 77,121 $38.80 23.52 22.49 PHT 74,858 $17.21 16.10 THR 131,374 $20.63 MUA 68,289 $13.13 16.54 PRO 123,042 $17.19 29.17 PCK 65,854 $10.13 18.60 csu 114,894 $9.83 31.13 GPM 65,699 $9.23 42,586 $14.49 50.33 32.88 TRNO Table 218: Lower Volume Additional Comparative Statistics Pre-Period TRF Post-Period TRF RTO Share of CADV Control Symbol Pre-Period TRF Post-Period TRF RTO Share of CADI. JQC 53.45% 55.77% 0.3976% lTG 28.34% 28.58% 0.0931% RA 31.22% 61.42% 0.4457% LAD 29.41% 30.97% 0.0719% SJT 48.63% 56.58% 0.4925% DK 28.80% 29.07% 0.1062% NUV 57.90% 62.72% 0.3850% AER 32.99% 29.54% 0.0635% GIM 57.10% 59.93% 0.3806% NCI 24.04% 29.26% 0.0842% ETV 45.63% 59.43% 0.3909% PFS 16.77% 26.40% 0.0409% PBT 47.98% 53.79% 0.4060% COR 39.92% 32.55% 0.1254% NCZ 55.52% 60.23% 0.3975% SSP 18.94% 27.92% 0.0767% PIM 53.47% 53.69% 0.3881% FSS 27.48% 32.29% 0.0913% UTF 58.75% 61.54% 0.3789% KAR 40.73% 32.64% 0.0582% PTY 51.39% 61.88% 0.3985% AAT 32.49% 31.45% 0.0465% BLW 55.54% 62.10% 0.4304% CRH 44.17% 35.53% 0.0567% WIW 50.93% 55.79% 0.3763% ORA 20.06% 27.46% 0.1029% AFT 56.03% 48.47% 0.4002% PUK 29.91% 22.84% 0.1404% TSI 48.42% 59.76% 0.4596% KRG 32.63% 28.55% 0.0853% PHD 46.77% 56.16% 0.4382% HTH 30.78% 30.89% 0.1034% HPS 56.21% 61.50% 0.3977% CIR 26.84% 25.96% 0.0862% PCN 54.41% 62.59% 0.3803% CHSP 38.40% 32.94% 0.0464% FENG 38.56% 44.38% 0.6027% HRG 34.33% 30.91% 0.0603% PMX 48.90% 57.41% 0.4050% STC 36.56% 31.37% 0.0501% DBL 52.89% 61.96% 0.3880% ROG 27.11% 30.05% 0.1075% PHT 54.28% 52.30% 0.4071% THR 34.43% 35.10% 0.0924% MUA 49.27% 60.68% 0.4349% PRO 32.32% 34.09% 0.0936% PCK 46.86% 57.25% 0.4788% csu 43.41% 34.77% 0.0917% GPM 49.04% 56.77% 0.5087% TRNO 44.43% 33.11% 0.0327% In conclusion, 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 VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 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 PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 overall impact on market quality and structure was not negative. Although the results of the Program highlight the substantial advantages that brokerdealers retain when managing the benefits of retail order flow, the Exchange believes that the level of price improvement guaranteed by the Program justifies making the Program E:\FR\FM\22FEN1.SGM 22FEN1 EN22FE19.014</GPH> Treatment Symbol Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices 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,66 in general, and Section 6(b)(5) of the Act,67 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 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 66 15 67 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Sep<11>2014 16:52 Feb 21, 2019 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 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. Summary of Comment Letter After the Commission instituted proceedings, the Commission received a comment letter on the proposed rule change.68 In support of the proposal to 68 See Jkt 247001 PO 00000 HMA Letter, supra note 10. Frm 00120 Fmt 4703 Sfmt 4703 5779 the make the Program permanent, the commenter states that the Program seems to have offered significant price improvement during the course of its pilot period.69 Citing the Exchange’s analysis in the Original Notice of trading activity during the pilot period, the commenter notes that between August 1, 2012 and January 2, 2018, orders totaling in excess of 6.8 billion shares were executed through the Program, providing improvements of $12.3 million dollars.70 The commenter observes that these statistics indicate that the Program has provided greater than the average price improvement provided through other common execution avenues.71 The commenter notes that fill rates have also been, at times, significant.72 The commenter also believes that the Program offers the Commission a unique opportunity to explore brokers’ fulfillment of their best execution obligations.73 IV. Discussion and Commission Findings After careful review, the Commission finds that the Exchange’s proposal to make permanent the Retail Liquidity Program Pilot, Rule 107C, as modified by Amendment No. 1, is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange.74 In particular, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with Sections 6(b)(5) 75 and 6(b)(8) 76 of the Exchange Act. Section 6(b)(5) of the Exchange Act requires that the rules of a national securities exchange be designed, among other things, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. Section 6(b)(8) of the Exchange Act requires that the rules of a national securities exchange not impose any burden on competition that is not 69 See id. at 2. id. at 3. 71 See id. 72 See id. 73 See id. at 2–3. 74 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 75 15 U.S.C. 78f(b)(5). 76 15 U.S.C. 78f(b)(8). 70 See E:\FR\FM\22FEN1.SGM 22FEN1 5780 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices necessary or appropriate in furtherance of the purposes of the Exchange Act. As noted above, the Commission approved the Program on a pilot basis to allow the Exchange and market participants to gain valuable practical experience with the Program during the pilot period, and to allow the Commission to determine whether modifications to the Program were necessary or appropriate prior to any Commission decision to approve the Program on a permanent basis.77 Indeed, the Exchange has modified aspects of the Program on several occasions since initial approval of the Program on a pilot basis.78 As set forth in the RLP Approval Order, the Exchange agreed to provide the Commission with a significant amount of data to assist the Commission’s evaluation of the Program prior to any permanent approval of the Program.79 Specifically, the Exchange represented that it would ‘‘produce data throughout the pilot, which will include statistics about participation, the frequency and level of price improvement provided by the Program, and any effects on the broader market structure.’’ 80 The Commission expected the Exchange to monitor the scope and operation of the Program and study the data produced during that time with respect to such issues.81 Although the pilot period was originally scheduled to end on July 31, 2013, the Exchange filed to extend the operation of the pilot on several occasions.82 The pilot is now set to expire on June 30, 2019, and the Exchange proposes to make the Program, Rule 107C, permanent. In its proposal, as modified by Amendment No. 1, the Exchange provides data and analysis which it believes justifies permanent approval of the Program. In the Original Notice, the Exchange provided data indicating that the Program provided $12.3 million in price improvement to retail investors between August 21, 2012 and January 2, 2018, as well as data showing overall average price improvement of $0.0014 per share (approximately 40% above the minimum of $0.001), with average price improvement exceeding that level in 2016.83 In the Original Notice, the Exchange also stated its belief that receipt of price improvement by retail 77 See RLP Approval Order supra note 14, at 40674. 78 See supra, note 22. 79 See RLP Approval Order, supra note 14, at 40681. 80 See id. 81 See id. 82 See supra, note 15. 83 See Original Notice, supra note 3, at 28879. VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 investors, the Program’s low volume levels, and other data, similar to that provided in Tables 1 through 8 above, were sufficient to conclude that the Program had achieved its goals without negatively impacting the broader market.84 In the Commission’s Order Instituting Proceedings, the Commission questioned whether the information and analysis provided by the Exchange in the Original Notice supported the Exchange’s conclusions that the Program had achieved its goals, including whether the Exchange had provided data and analysis to support its conclusion that the Program had an overall negligible impact on broader market structure.85 In Amendment No. 1, the Exchange has provided data and analysis concerning the Program during the pilot period in addition to that provided in the Original Notice. In particular, the Commission notes that in Amendment No. 1, the Exchange undertook to provide a more in-depth analysis of the Program’s impact on market quality by using the difference-in-differences (‘‘DID’’) statistical technique, the methodology for which it explains above.86 Although the Program was not initially designed to produce a DID analysis, the Exchange identified the most active stocks in the Program to establish a treatment group of stocks and then used securities with similar pre-treatment spread, price, and CADV but very low Program activity as a control group. Using this methodology, the Exchange produced four DID analyses that the Commission believes are useful to assess the Program’s impact on market quality, as measured by a variety of market quality statistics including: (1) Time-weighted NYSE quoted spread in basis points; (2) timeweighted NYSE quoted spread in dollars and cents; (3) time-weighted 84 See id. at 2882–83. Order Instituting Proceedings, supra note 7, at 48352. In the Order Instituting Proceedings, the Commission sought additional information and analysis concerning the Program’s impact on the broader market, for example, additional information to support the view that the Program has not had a material adverse impact on market quality and consideration of any effects that fees and rebates may have had on the operation of the Program. See id. 86 A DID statistical technique allows studying the differential effect of a treatment on data measured between a treatment group and a control group. The two groups are measured during two or more different time periods, usually a period before ‘‘treatment’’ and at least one time period after ‘‘treatment,’’ that is, a time period after which the treatment group is impacted but the control group is not. For each group, the difference between a measure in the pre-treatment and the treatment period is computed. Those differences for a measure for the two groups are then compared to each other by taking the difference between them. 85 See PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 consolidated quoted spread in basis points; (4) time-weighted consolidated quoted spread in dollars and cents; (5) volume-weighted effective spread in basis points measured against the NYSE quote; (6) volume-weighted effective spread in basis points measured against the national best bid or offer (‘‘NBBO’’); (7) volume-weighted effective spread in basis points measured against the protected best bid or offer (‘‘PBBO’’); (8) volume-weighted quoted spread in basis points measured against the NYSE quote; (9) volume-weighted quoted spread in basis points measured against the NBBO; (10) volume-weighted quoted spread in basis points measured against the PBBO; (11) Trade Reporting Facility (‘‘TRF’’) share of volume during regular trading hours, excluding auctions; (12) TRF share of volume, full day, including auctions; (13) NYSE share of volume during regular trading hours, excluding auctions; (14) NYSE share of volume, full day, including auctions; and (15) trade-to-trade price change in basis points of the Program.87 In its first set of DID analyses, the Exchange studies stocks that had a CADV of at least 500,000 shares during both a pre-treatment and a treatment period. For these stocks, the Exchange compares changes in market quality statistics between the pre-treatment and treatment period for the treatment group stocks and the control group stocks. The Exchange conducts this study using two different treatment periods. More specifically, the Exchange examines market quality statistics for: • Six months prior to launch of the Program (February 2012–July 2012) as compared to six months following launch, excluding the first month of the Program (September 2012–February 2013) for securities with a CADV of at least 500,000 during the pre-treatment and treatment periods, and • Six months prior to launch of the Program (February 2012–July 2012) as compared to all of 2016 and 2017 for securities with a CADV of at least 500,000 during the pre-treatment and treatment periods. As summarized in Table 11 above, when analyzing stocks with a CADV of at least 500,000 shares, and when comparing changes between the pretreatment period and the 2012–2013 treatment period, the Exchange finds no statistically significant differences between treatment and control group 87 In its analyses, the Exchange notes that lowerpriced securities tend to be most active in the Program, and as a result, its artificially created treatment group includes securities that were relatively low-priced during the treatment period, but may not have been similarly low-priced during the pre-treatment period. E:\FR\FM\22FEN1.SGM 22FEN1 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices stocks for the changes in time-weighted NYSE or time-weighted consolidated spreads (whether measured in basis points or in dollars).88 As summarized in Table 12 above, when comparing changes between the pre-treatment period and the 2016–2017 treatment period, the analysis shows statistically significant positive differences between treatment and control stocks for changes in several spread measures in basis points, as well as for changes in the share of trading on the TRF, which could suggest a negative effect of the Program.89 However, the Exchange’s analysis further reveals that the treatment stocks for the 2016–2017 treatment period saw sharp price declines as compared to their 2012 pretreatment period levels.90 In addition, many of the treatment stocks traded with quoted spreads near $0.01 (i.e., they were tick-constrained), so that any price drop would necessarily result in an almost equal and opposite percentage increase in the spreads measured in basis points. After careful consideration, the Commission believes that the DID and additional analysis performed by the Exchange for stocks with a CADV of at least 500,000 shares, support the conclusion that positive DID results for spreads and TRF activity observed in Table 12 above are unlikely to be caused by the Program. In its other set of DID analyses, the Exchange studies stocks that had a CADV of at least 50,000 shares and less than 500,000 shares during both a pretreatment and a treatment period, for the same two treatment time periods. For these stocks, the Exchange likewise compares changes in market quality statistics between the pre-treatment and the treatment periods for the treatment group stocks and the control group stocks. Specifically, to assess whether the results differ for lower-volume 88 More broadly, the Exchange finds no statistically significant difference between treatment and control group stocks for any of the analyzed measures of market quality when comparing the pre-treatment period with the 2012– 2013 treatment period. 89 In addition, the results in Table 12 show negative differences between the treatment and control stocks for changes in time-weighted consolidated dollar spreads (statistically significant at the 90% confidence level) and for changes in time-weighted NYSE dollar spreads (statistically significant at the 95% confidence level). 90 Table 14 above shows a decrease in the average value weighted average price (VWAP) of treatment stocks from $25.51 (pre-treatment period) to $13.75 (2016–2017 treatment period) and an increase in the average VWAP of control group stocks from $24.96 (pre-treatment period) to $37.74 (2016–2017 treatment period). In contrast, Table 15 above shows that similar price changes are not present in the analysis focusing on the 2012–2013 treatment period. VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 stocks, the Exchange examines the same market quality statistics for: • Six months prior to launch of the Program (February 2012–July 2012) compared to six months following launch, excluding the first month of the Program (September 2012–February 2013) for securities with a CADV of at least 50,000 and less than 500,000, during the pre-treatment and treatment periods; and • Six months prior to launch of the Program (February 2012–July 2012) compared to all of 2016 and 2017 for securities with a CADV of at least 50,000 and less than 500,000, during the pre-treatment and treatment periods. As summarized in Table 16 above, when analyzing these lower-volume stocks, and when comparing changes between the pre-treatment period and the 2012–2013 treatment period, the Exchange similarly finds no statistically significant differences between treatment and control group stocks for the changes in time-weighted NYSE or time-weighted consolidated spreads (whether measured in basis points or in dollars).91 As summarized in Table 19 above, when comparing changes between the pre-treatment period and the 2016–2017 treatment period, the analysis shows statistically significant positive differences between treatment and control stocks for changes in several spread measures in basis points, as well as for changes in the share of trading on the TRF. In assessing the observed positive differences for changes in spread measures in basis points, the Exchange’s analysis further reveals that these differences are attributable mostly to changes in the control stocks rather than to changes in the treatment stocks. In particular, as shown in Table 20, between the pre-treatment period and the 2016–2017 treatment period, the treatment stocks experienced virtually no change in dollar spreads and only a small increase in spreads measured in basis points (driven by a small decline in their prices (VWAP)).92 In contrast, in the same time period, the control stocks experienced a large decrease in spreads measured in basis points, driven by the fact that their average price (VWAP) 91 More broadly, the Exchange finds no statistically significant difference between treatment and control group stocks for any of the analyzed measures of market quality when comparing the pre-treatment period with the 2012– 2013 treatment period. 92 Table 20 shows that between the pre-treatment period and the 2016–2017 treatment period, the treatment stocks experienced a slight decrease in average dollar spread from $0.024 to $0.023, a small decline in average VWAP from $13.84 to $12.09, and a small increase in basis point spread from 18.84 to 21.69 basis points. PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 5781 more than doubled.93 Thus, the large increase in the prices of the control stocks (which did not occur for the treatment stocks) contributes significantly to the observed positive differences between treatment and control stocks for changes in basis point spread measures. After careful consideration, the Commission believes that the DID and additional analysis performed by the Exchange for stocks with a CADV of at least 50,000 and less than 500,000 shares support the conclusion that the positive DID results in spreads and TRF observed in Table 19 are unlikely to be caused by the Program. As noted, in the Order Instituting Proceedings, the Commission questioned whether the Exchange provided sufficient data and analysis in the Original Notice to support its conclusions that the Program had achieved its goals and had an overall negligible impact on broader market structure.94 In Amendment No. 1, the Exchange provides data and analysis to further support its assertions in the Original Notice. The Commission believes that the data and analysis provided by the Exchange support the conclusion that the Program provides meaningful price improvement to retail investors on a regulated exchange venue and has not demonstrably caused harm to the broader market. Based on the foregoing, and after careful consideration of the Exchange’s analysis of the data generated by the Program and the comment received, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with the requirements of the Exchange Act. V. Solicitation of Comments on Amendment No. 1 Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether Amendment No. 1 to the proposed rule change is consistent with the Exchange 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 93 Table 20 shows that between the pre-treatment period and the 2016–2017 treatment period, the control stocks experienced a large increase in average VWAP from $16.70 to $35.92, a smaller percentage increase in average dollar spread from $0.034 to $0.061, and a large decrease in basis point spread from 22.04 to 15.41 basis points. 94 See supra note 85 and accompanying text. E:\FR\FM\22FEN1.SGM 22FEN1 5782 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices • 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 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 this filing will also 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–NYSE–2018–28 and should be submitted on or before March 15, 2019. VI. Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1 The Commission finds good cause to approve the proposed rule change, as modified by Amendment No. 1, prior to the 30th day after the date of publication of notice of Amendment No. 1 in the Federal Register. Amendment No. 1 supplements the proposal by providing additional analysis of the Program’s impact on the market to address concerns raised in Commission’s Order Instituting Proceedings. Specifically, in Amendment No. 1, the Exchange presents and discusses four DID analyses it performed to assess the VerDate Sep<11>2014 16:52 Feb 21, 2019 Jkt 247001 Program, as measured by a variety of market quality statistics. These DID analyses and the additional analysis provided by the Exchange assisted the Commission in evaluating the Program’s impact on the broader market and in determining that permanent approval of the Program, Rule 107C, is reasonably designed to perfect the mechanism of a free and open market and the national market system, protect investors and the public interest, and not be unfairly discriminatory, or impose an unnecessary or inappropriate burden on competition. Accordingly, pursuant to Section 19(b)(2) of the Exchange Act,95 the Commission finds good cause to approve the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. VII. Limited Exemption From the SubPenny Rule Pursuant to its authority under Rule 612(c) of Regulation NMS,96 the Commission hereby grants the Exchange a limited exemption from the SubPenny Rule to operate the Program. For the reasons discussed below, the Commission determines that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors. When the Commission adopted the Sub-Penny Rule in 2005, the Commission identified a variety of problems caused by sub-pennies that the Sub-Penny Rule was designed to address: • If investors’ limit orders lose execution priority for a nominal amount, investors may over time decline to use them, thus depriving the markets of liquidity. • When market participants can gain execution priority for a nominal amount, important customer protection rules such as exchange priority rules and the Manning Rule 97 could be undermined. • Flickering quotations that can result from widespread sub-penny pricing could make it more difficult for brokerdealers to satisfy their best execution obligations and other regulatory responsibilities. • Widespread sub-penny quoting could decrease market depth and lead to higher transaction costs. • Decreasing depth at the inside could cause institutions to rely more on execution alternatives away from the exchanges, potentially increasing 95 15 U.S.C. 78s(b)(2). CFR 242.612(c). 97 See Financial Industry Regulatory Authority Rule 5320 (Prohibition Against Trading Ahead of Customer Orders). 96 17 PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 fragmentation in the securities markets.98 The Commission believes that the limited exemption granted today should continue to promote competition between exchanges and OTC market makers in a manner that is reasonably designed to minimize the problems that the Commission identified when adopting the Sub-Penny Rule. Under the Program, sub-penny prices will not be disseminated through the consolidated quotation data stream, which should avoid quote flickering and its reduced depth at the inside quotation. Furthermore, the Commission does not believe that granting this limited exemption and approving the proposal would reduce incentives for market participants to display limit orders. As noted in the RLP Approval Order, market participants that displayed limit orders at the time were not able to interact with marketable retail order flow because that order flow was almost entirely routed to internalizing OTC market makers that offered sub-penny executions,99 and, as noted in Amendment No. 1, the Program has attracted a small volume from the OTC market makers. As a result, enabling the Exchange to continue to compete for retail order flow through the Program should not materially detract from the current incentives to display limit orders, while potentially resulting in greater order interaction and price improvement for marketable retail orders on a public national securities exchange. To the extent that the Program may raise Manning and best execution issues for broker-dealers, these issues are already presented by the existing practices of OTC market makers. This permanent and limited exemption from the Sub-Penny Rule is limited solely to the operation of the Program by the Exchange. This exemption does not extend beyond the scope of Exchange Rule 107C. In addition, this exemption is conditioned on the Exchange continuing to conduct the Program, in accordance with Exchange Rule 107C and substantially as described in the Exchange’s request for exemptive relief and the proposed rule change, as modified by Amendment No. 1.100 Any changes in Exchange Rule 107C may cause the Commission to reconsider this exemption. 98 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). 99 See RLP Approval Order, supra note 14, at 40682. 100 See supra note 13. E:\FR\FM\22FEN1.SGM 22FEN1 Federal Register / Vol. 84, No. 36 / Friday, February 22, 2019 / Notices VIII. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,101 that the proposed rule change (SR– NYSE–2018–28), as modified by Amendment No. 1, be, and it hereby is, approved on an accelerated basis. It is further ordered that, pursuant to Rule 612(c) under Regulation NMS, that the Exchange shall be exempt from Rule 612(a) of Regulation NMS with respect to the operation of the Program as set forth in Exchange Rule 107C as described herein. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.102 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–03043 Filed 2–21–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–122, OMB Control No. 3235–0111] Dated: February 19, 2019. Eduardo A. Aleman, Deputy Secretary. Submission for OMB Review; Comment Request Upon Written Request Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 Extension: Form T–2 Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) has submitted to the Office of Management and Budget this request for extension of the previously approved collection of information discussed below. Form T–2 (17 CFR 269.2) is a statement of eligibility of an individual trustee under the Trust Indenture Act of 1939. The information is used to determine whether the individual is qualified to serve as a trustee under the indenture. Form T–2 is filed on occasion. The information required by Form T–2 is mandatory. This information is publicly available on EDGAR. Form T–2 takes approximately 9 hours per response to prepare and is filed by approximately 9 respondents. We estimate that 25% of the 9 hours per response (2 hours) is prepared by the filer for a total annual reporting burden 101 15 102 17 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12) and 17 CFR 200.30– [FR Doc. 2019–03088 Filed 2–21–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–85162; File No. SR–MIAX– 2019–01] Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend its Options Regulatory Fee February 15, 2019. Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 1, 2019, Miami International Securities Exchange LLC (‘‘MIAX Options’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a 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 2 17 3(a)(83). VerDate Sep<11>2014 of 18 hours (2 hours per response × 9 responses). An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. The public may view the background documentation for this information collection at the following website, www.reginfo.gov. Comments should be directed to: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503, or by sending an email to: Lindsay.M.Abate@omb.eop.gov; and (ii) Charles Riddle, Acting Director/Chief Information Officer, Securities and Exchange Commission, c/o Candace Kenner, 100 F Street NE, Washington, DC 20549 or send an email to: PRA_ Mailbox@sec.gov. Comments must be submitted to OMB within 30 days of this notice. 16:52 Feb 21, 2019 Jkt 247001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00124 Fmt 4703 Sfmt 4703 5783 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to amend the MIAX Options Fee Schedule (the ‘‘Fee Schedule’’) to amend its Options Regulatory Fee (‘‘ORF’’). The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings, at MIAX’s principal office, 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 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 aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose Currently, the Exchange charges an ORF in the amount of $0.0045 per contract side. The Exchange proposes to decrease this ORF to $0.0029 per contract side. In light of historical and projected volume changes and shifts in the industry and on the Exchange, as well as changes to the Exchange’s regulatory cost structure, the Exchange is proposing to change the amount of ORF that will be collected by the Exchange. The Exchange’s proposed change to the ORF should balance the Exchange’s regulatory revenue against the anticipated regulatory costs. The per-contract ORF will continue to be assessed by MIAX Options to each MIAX Options Member for all options transactions, including Mini Options, cleared or ultimately cleared by the Member which are cleared by the Options Clearing Corporation (‘‘OCC’’) in the ‘‘customer’’ range, regardless of the exchange on which the transaction occurs. The ORF will be collected by OCC on behalf of MIAX Options from either (1) a Member that was the ultimate clearing firm for the transaction or (2) a non-Member that was the ultimate clearing firm where a Member was the executing clearing firm for the transaction. The Exchange uses reports E:\FR\FM\22FEN1.SGM 22FEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 84, Number 36 (Friday, February 22, 2019)]
[Notices]
[Pages 5754-5783]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03043]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85160; File No. SR-NYSE-2018-28]

Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, To Make Permanent the Retail Liquidity Program Pilot,
Rule 107C, Which is Set To Expire on June 30, 2019, Notice of Filing of
Amendment No. 1, and Order Granting Limited Exemption Pursuant to Rule
612(c) of Regulation NMS

February 15, 2019.

I. Introduction

On June 4, 2018, New York Stock Exchange LLC (``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange
Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to make
permanent Exchange Rule 107C governing the Exchange's Retail Liquidity
Program Pilot (``Program''). The proposed rule change was published for
comment in the Federal Register on June 21, 2018.\3\ On July 31, 2018,
pursuant to Section 19(b)(2) of the Act,\4\ the Commission extended to
September 19, 2018 the time period in which to approve the proposed
rule change, disapprove the proposed rule change, or institute
proceedings to

[[Page 5755]]

determine whether to disapprove the proposed rule change.\5\ On
September 18, 2018, the Commission issued an order instituting
proceedings under Section 19(b)(2)(B) of the Exchange Act,\6\ to
determine whether to approve or disapprove the proposed rule change.\7\
On December 10, 2018, pursuant to Section 19(b)(2) of the Act,\8\ the
Commission extended to February 16, 2019 the time period in which to
issue an order approving or disapproving the proposed rule change.\9\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 83454 (June 15,
2018), 83 FR 28874 (``Original Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 83749, 83 FR 38393
(August 6, 2018).
\6\ 15 U.S.C. 78s(b)(2)(B).
\7\ See Securities Exchange Act Release No. 84183, 83 FR 48350
(September 24, 2018) (``Order Instituting Proceedings'').
\8\ 15 U.S.C. 78s(b)(2).
\9\ See Securities Exchange Act Release No. 84766, 83 FR 64414
(December 14, 2018).
---------------------------------------------------------------------------

The Commission received one comment letter on the proposed rule
change.\10\ On February 13, 2019, the Exchange filed Amendment No. 1 to
the proposed rule change, which supersedes and replaces the original
filing in its entirety.\11\ In connection with the proposed rule
change, as modified by Amendment No. 1, the Exchange requests exemptive
relief from Rule 612 of Regulation NMS,\12\ 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.\13\ The Commission is publishing this notice to solicit comments
on Amendment No. 1 from interested persons, issuing this order
approving the proposed rule change, as modified by Amendment No. 1, on
an accelerated basis, and issuing this order granting to the Exchange a
limited exemptive relief pursuant to Rule 612(c) of Regulation NMS.
---------------------------------------------------------------------------

\10\ See Letter from Tyler Gellasch, Executive Director, Healthy
Markets Association, dated December 20, 2018 (``HMA Letter'').
\11\ See infra Section II.
\12\ 17 CFR 242.612(c).
\13\ See note 14 infra.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1

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 those statements may be examined at the places specified in
Item V 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 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 Securities and Exchange Commission (the
``Commission'') approved the Program on a pilot basis.\14\ 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 the earlier of approval of this filing or
June 30, 2019.\15\
---------------------------------------------------------------------------

\14\ 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. As part of this filing,
and pursuant to the Exchange's separate written request, the
Exchange also requests that the exemptive relief from the Sub-Penny
Rule be made permanent. See Letter from Martha Redding, Associate
General Counsel and Assistant Corporate Secretary, New York Stock
Exchange, to Brent J. Fields, Secretary, Securities and Exchange
Commission, dated February 13, 2019 (``Sub-Penny Rule Exemption
Request'').
\15\ See Securities Exchange Act Release No. 84767 (December 10,
2018), 83 FR 64412 (December 14, 2018) (SR-NYSE-2018-59). See also
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); 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); 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); and Securities
Exchange Act Release No. 83540 (June 28, 2018), 83 FR 31234 (July 3,
2018) (SR-NYSE-2018-29) (extending pilot to December 31, 2018).
---------------------------------------------------------------------------

The Exchange established the Program to attract retail order flow
to the Exchange, and allow such order flow to receive potential price
improvement.\16\ The Program is currently limited to trades occurring
at prices equal to or greater than $1.00 a share.
---------------------------------------------------------------------------

\16\ 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'') \17\
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.\18\ 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.\19\
---------------------------------------------------------------------------

\17\ 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.
\18\ 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'').
\19\ 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,\20\ which requires that

[[Page 5756]]

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.\21\
---------------------------------------------------------------------------

\20\ 15 U.S.C. 78f(b)(5).
\21\ 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.\22\
---------------------------------------------------------------------------

\22\ 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).
---------------------------------------------------------------------------

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.\23\
---------------------------------------------------------------------------

\23\ 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.\24\
---------------------------------------------------------------------------

\24\ 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'').\25\
---------------------------------------------------------------------------

\25\ Id. at (3).
---------------------------------------------------------------------------

Finally, the term ``Retail Price Improvement Order'' means
non-displayed interest in NYSE-listed securities that is better than
the best protected bid (``PBB'') or best protected offer (``PBO'') by
at least $0.001 and that is identified as a Retail Price Improvement
Order in a manner prescribed by the Exchange.\26\
---------------------------------------------------------------------------

\26\ 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 \27\ can qualify as an
RMO if it conducts a retail business or routes \28\ 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; \29\ 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.\30\
---------------------------------------------------------------------------

\27\ 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.
\28\ 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).
\29\ 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).
\30\ 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.\31\
---------------------------------------------------------------------------

\31\ Id. at (b)(6).
---------------------------------------------------------------------------

Following submission of the required materials, the Exchange
provides written notice of its decision to the member organization.\32\
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.\33\
---------------------------------------------------------------------------

\32\ Id. at (b)(3).
\33\ 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.\34\
---------------------------------------------------------------------------

\34\ Id. at (c)(1)-(4).

---------------------------------------------------------------------------

[[Page 5757]]

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.\35\ 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.\36\
---------------------------------------------------------------------------

\35\ Id. at (d)(1).
\36\ 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.\37\ If the Exchange disapproves the application,
the Exchange would provide a written notice to the member organization.
The disapproved applicant could appeal the disapproval by the Exchange
as provided in proposed Rule 107C(i) and/or reapply for RLP status 90
days after the disapproval notice is issued by the Exchange.\38\
---------------------------------------------------------------------------

\37\ Id. at (d)(3).
\38\ 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.\39\
---------------------------------------------------------------------------

\39\ 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.\40\
---------------------------------------------------------------------------

\40\ 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.\41\ 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.\42\ The Exchange determines whether an RLP has met this
requirement by calculating the following:
---------------------------------------------------------------------------

\41\ Id. at (f)(1)(A)-(B).
\42\ 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.\43\
---------------------------------------------------------------------------

\43\ 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.\44\
---------------------------------------------------------------------------

\44\ 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.\45\
---------------------------------------------------------------------------

\45\ 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.\46\ 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.\47\
---------------------------------------------------------------------------

\46\ Id. at (2).
\47\ 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.\48\ When disqualification determinations are made, the Exchange
shall provide a written disqualification notice to the member
organization.\49\ 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.\50\
---------------------------------------------------------------------------

\48\ Id. at (h)(1).
\49\ Id. at (2).
\50\ Id. at (3).

---------------------------------------------------------------------------

[[Page 5758]]

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.\51\ 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.\52\ The
RLP Panel would review the facts and render a decision within the time
frame prescribed by the Exchange.\53\ 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.\54\
---------------------------------------------------------------------------

\51\ 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).
\52\ Id. at (i)(2).
\53\ Id. at (3).
\54\ 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 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.\55\
---------------------------------------------------------------------------

\55\ 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.\56\
---------------------------------------------------------------------------

\56\ Id. at (k)(1). See note 18, 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.\57\
---------------------------------------------------------------------------

\57\ 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.\58\
---------------------------------------------------------------------------

\58\ 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 1000.
RLP 3 enters a Retail Price Improvement Order to buy DEF at $10.002
for 1000.
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 1000
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 1000, 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

[[Page 5759]]

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.\59\
---------------------------------------------------------------------------

\59\ 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.'' \60\ 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,\61\ 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.
---------------------------------------------------------------------------

\60\ RLP Approval Order, 77 FR at 40681.
\61\ 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 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.\62\ 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.'' \63\
---------------------------------------------------------------------------

\62\ RLP Approval Order, 77 FR at 40679.
\63\ 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.\64\
---------------------------------------------------------------------------

\64\ In 2016, the average price improvement reached as high as
$0.0017-$0.0018.

Table 1--Summary Execution and Market Quality Statistics
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average Effective/
Date RPI Average daily Effective quoted Price Realized Fill rate %
volume orders spread ratio improvement spread
--------------------------------------------------------------------------------------------------------------------------------------------------------
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.

[[Page 5760]]

Table 2--Composition of Retail Taking Orders by Order Size Category
--------------------------------------------------------------------------------------------------------------------------------------------------------
<100 % 101-300 % 301-500 % 501-1000 % 1001-2000 % 2001-4000 % 4001-7500 % 7500-15000 >15000 %
-------------------------------------------------------------------------------------------------------------------------------------%------------------
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
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
--------------------------------------------------------------------------------------------------------------------------------------------------------
<100 % 101-300 % 301-500 % 501-1000 % 1001-2000 % 2001-4000 % 4001-7500 % 7500-15000 >15000 %
-------------------------------------------------------------------------------------------------------------------------------------%------------------
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
--------------------------------------------------------------------------------------------------------------------------------------------------------
<100 % 101-300 % 301-500 % 501-1000 % 1001-2000 % 2001-4000 % 4001-7500 % 7500-15000 >15000 %
-------------------------------------------------------------------------------------------------------------------------------------%------------------
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

[[Page 5761]]

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 liquidity seekers inside the spread,
and on which side.

Table 5--Fill Rates by Retail Take Order Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
<100 % 101-300 % 301-500 % 501-1000 % 1001-2000 % 2001-4000 % 4001-7500 % 7500-15000 >15000 %
-------------------------------------------------------------------------------------------------------------------------------------%------------------
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.

[[Page 5762]]

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
----------------------------------------------------------------------------------------------------------------

Although the Program provides the opportunity to achieve
significant price improvement, the Program has not generated
significant activity. As Table 1 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. As Table 7 shows, during the 2016-2017 period, less than
0.5% of all day/symbol pairs exceeded 5% share of CADV, with another
3.7% of day/symbol pairs achieving a share of CADV between 1% and 5%.
Fully 88% 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%. Of the symbols that achieved greater
than 0.50% CADV in the Program during 2016-2017, only two had a CADV
above 500,000, and neither was chosen in the matched sample described
below. 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 US 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 this pilot data supports making the Program permanent.

[[Page 5763]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.002

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
0.10, and even at the 90th percentile of all symbols, there was no
correlation of even 0.30. In short, these results support the
conclusion that the Program does not negatively impact 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
----------------------------------------------------------------------------------------------------------------

Difference in Differences Analysis
In addition to demonstrating that changes in Program activity had
no impact on market quality on a day-to-day basis, the Exchange also
analyzed market quality impact by using the difference in differences
statistical technique.
Difference in differences (``DID'') requires studying the
differential effect of data measured between a treatment group and a
control group. The two groups are measured during two or more different
time periods, usually a period before ``treatment'' and at least one
time period after ``treatment,'' that is, a time period after which the
treatment group is impacted but the control group is not. The
assumption is that the control group and the treatment group are
otherwise impacted equally by extraneous factors, i.e., that the other
impacts are parallel. For example, when measuring average quoted
spreads, if spreads increased by 10 basis points in the control group
and by 12 basis points in the test group, the assumption would be that
the two basis point differential was caused by the treatment.
Because all Exchange-traded symbols were eligible to participate in
the Program, a natural control group does not exist for the securities
participating in the Program. Hence, there is a possibility that the
lack of activity in the Program could have been the result of factors
that DID cannot measure. Nonetheless, to produce a control group, the
Exchange identified the 50 most active ticker symbols in the Program as
measured by share of consolidated volume following launch of the
Program. The Exchange then determined a matched sample, without
replacement, using consolidated volume, volume weighted average price,
and consolidated quoted spread in basis points. The matched sample
compared the 50 most active ticker symbols in the Program with all
securities that had very low Program volume. The matching criteria
minimized the sum of the squares of the percent difference between the
top 50 active ticker symbols and potential matches.
The Exchange executed four DID analyses:

[[Page 5764]]

1. Six months prior to launch of the Program (February 2012-July
2012) compared to six months following launch, excluding the first
month of the Program (September 2012-February 2013) for securities with
a CADV of at least 500,000 during the pre-treatment and treatment
periods.
2. Six months prior to launch of the Program (February 2012-July
2012) compared to all of 2016 and 2017 for securities with a CADV of at
least 500,000 during the pre-treatment and treatment periods.
3. Six months prior to launch of the Program (February 2012-July
2012) compared to six months following launch, excluding the first
month of the program (September 2012-February 2013) for securities with
a CADV of at least 50,000 and less than 500,000, during the pre-
treatment and treatment periods.
4. Six months prior to launch of the Program (February 2012-July
2012) compared to all of 2016 and 2017 for securities with a CADV of at
least 50,000 and less than 500,000, during the pre-treatment and
treatment periods.
Because there was no natural control group, the Exchange employed
flexible matching criteria. In addition to the CADV restrictions, the
Exchange utilized a control of CADV ratio of 3:1, a volume weighted
average price (``VWAP'') of 2:1, and a spread of 2:1. The Exchange also
required potential control group stocks to have a share of Program
trading less than 1/10th of the lowest of the top 50 securities for the
first trading period. The Exchange excluded securities that were in the
test groups of the Tick Size Pilot Program from consideration in
matching securities for the DID analysis of the 2016-2017 period.\65\
Preferred stocks, warrants and rights were excluded from the DID
analysis for both periods. Finally, because the Program is only valid
for stocks trading at or above $1.00, any security with a low price
during the pre-treatment or the treatment period below $1.00 was also
excluded. Securities also had to be listed on the NYSE during the pre-
treatment period and during the treatment period.
---------------------------------------------------------------------------

\65\ The Tick Size Pilot Program is a National Market System
(``NMS'') plan designed to allow the Commission, market participants
and the public to assess the impact of wider minimum quoting and
trading increments--or tick sizes--on the liquidity and trading of
the common stocks of certain small capitalization companies.
---------------------------------------------------------------------------

The Exchange selected the top 25 securities by minimum differences
as described above.
Results for Securities With CADV at Least 500,000 Shares
As noted above, the Program began in August 2012. The Exchange
selected February-July 2012 as the relevant six month pre-period. The
first post-period used was September 2012-February 2013, as the Program
was not rolled out to all securities immediately. Tables 9A and 9B show
the matched sample securities with key attributes for the first
comparison period for symbols with a CADV of at least 500,000. Tables
10A and 10B show the selected securities for the second comparison
period with CADV of at least 500,000.

[[Page 5765]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.003

[[Page 5766]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.004

The Exchange's DID analysis utilized the 25 securities noted above
on the following 15 statistics:
Time-weighted NYSE quoted spread in basis points.
Time-weighted NYSE quoted spread in dollars and cents.
Time-weighted Consolidated quoted spread in basis points.
Time-weighted Consolidated quoted spread in dollars and
cents.
Volume-weighted Effective spread in basis points *
measured against the NYSE quote.
---------------------------------------------------------------------------

* Volume weighted basis points were estimated using cents
spreads and dividing by daily VWAPs.
---------------------------------------------------------------------------

Volume-weighted Effective spread in basis points *
measured against the NBBO.
Volume-weighted Effective spread in basis points *
measured against the PBBO.
Volume-weighted Quoted spread in basis points * measured
against the NYSE quote.
Volume-weighted Quoted spread in basis points * measured
against the NBBO.
Volume-weighted Quoted spread in basis points* measured
against the PBBO.
Trade Reporting Facility (``TRF'') share of volume during
regular trading hours, excluding auctions.
TRF share of volume, full day, including auctions.
NYSE share of volume during regular trading hours,
excluding auctions.
NYSE share of volume, full day, including auctions.

[[Page 5767]]

Trade-to-trade price change in basis points.
The Exchange calculated the DID regression for each of these
statistics using the following formula:

Yit = B0 + B1T + B2I +
B3IT

where T equals 0 during the pre-period and equals 1 during the
treatment period, and where I is the Intervention.
[GRAPHIC] [TIFF OMITTED] TN22FE19.005

As Table 11 shows, none of the 15 regressions performed by the
Exchange showed statistical significance for the September 2012-
February 2013 period.
The Exchange also calculated the DID regression for the 2016-2017
period, as shown in Table 12. Several spread measures showed
statistically significant increases at the 99% confidence level, as did
the full-day share of trading on the TRF. However, time-weighted
consolidated dollar spreads fell and were significant at the 90%
confidence level. NYSE dollar spreads fell and were significant at the
95% level. As described below, the Exchange believes that the apparent
spread widening and TRF market share increase are an artifact of the
study methodology and not attributable to the Program.

[[Page 5768]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.006

As noted above, because all Exchange-traded symbols were eligible
to participate in the Program when it began as a pilot in August 2012,
there was no control group that would permit a classic DID examination
of the results. Instead, for purposes of making the Program permanent,
the Exchange created an artificial control group and treatment group by
coming up with a matched sample based on the securities with the
highest share of consolidated volume in the Program and matching these
securities based on volume weighted average price, time-weighted quoted
spread, and CADV during the pre-treatment period (subject to the
criteria noted above). By necessity, however, the percent of activity
in the Program itself had to be based on the post-treatment period.
This methodology provided several insights and permitted the
Exchange to offer a more thorough analysis of the Program's impact.
However, the Exchange believes that selection of securities with the
highest share of consolidated volume in the Program for the treatment
group created a biased treatment group. Securities with lower prices
tend to trade more actively in the TRF as well as in the Program; the
percentage value of price improvement on a low-price stocks provides
greater savings to investors. For example, $0.0010 price improvement
per share for a $5.00 stock saves an investor $2.00 per $10,000
invested. The same per share price improvement on a $50 stock is worth
just $0.20. Table 13 shows this relationship for the 2016-2017
treatment period used in the analysis.

Table 13--Share of Volume Based on Daily VWAP
--------------------------------------------------------------------------------------------------------------------------------------------------------
<$5.00 (%) $5-$10 (%) $10-$25 (%) $25-$50 (%) $50-$100 (%) >$100 (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
TRF Share............................................... 41.86 37.97 36.02 32.92 30.97 31.58
NYSE RLP % of CADV...................................... 0.30 0.23 0.20 0.13 0.10 0.11
--------------------------------------------------------------------------------------------------------------------------------------------------------

By utilizing securities that traded more heavily in the Program,
the treatment stocks selected for the DID analysis were mostly lower
priced securities. However, the matching criteria does not restrict
stock price during the pre-treatment period. The large time gap between
the pre-treatment and treatment period resulted in the selection of
many stocks that were relatively lower-priced during the treatment
period, but may not have been in that category during the pre-treatment
period. Since the study period also sought control stocks that were not
heavily traded in the Program, this resulted in a concentration of
mostly higher priced treatment period securities in the control group.
Many of the treatment securities chosen for the 2016-2017 period
suffered sharp price declines compared to their 2012 pre-treatment
period levels. On its own, a price drop would not necessarily be
problematic. However, many of these stocks were already tick
constrained--that is, they traded with time-weighted quoted spreads
near $0.01. As a consequence, any price drop would necessarily result
in an almost equal and opposite percentage increase in the spread. This
change in spread was not caused by the Program but rather by the fact
the symbols were already tick constrained.
Table 14 details the VWAP, dollar and basis point spreads of all of
the stocks in the 2016-2017 treatment and control group samples. The
final two columns show the ratio of pre-period VWAP to post-period VWAP
and compares that to the post- and pre-treatment period spreads in
basis points. While, on average, control stock prices rose, treatment
stock prices fell. In most

[[Page 5769]]

cases, treatment group basis point spreads increased, although often by
less than by the percentage that VWAPs dropped, thus highlighting the
impact of tick constraints on our results. However, the DID approach
compared the raw increase in spreads, resulting in a statistically
significant increase in spreads due to differing price performance
between the control group and treatment group.
The Exchange further notes that the average pre-treatment VWAP
price of the treatment stocks was $25.51 versus $24.96 for the control
group stocks. However, the average post-period prices were $13.75and
$37.74, respectively. The Exchange believes that these differences
explain the statistically significant increase in TRF market share for
the treatment stocks as well as the increases in spreads in basis
points (due to the lower prices) in treatment securities versus the
more than 50% average price increase in control stocks. As detailed in
Table 15, this difference in performance was not present in the matched
sample produced for the study covering the initial launch of the
program. The treatment group saw prices rise from $20.11 to $20.26
during the treatment period. Control group securities saw a slightly
larger increase, rising from $20.07 to $22.60.

[[Page 5770]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.007

[[Page 5771]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.008

[[Page 5772]]

DID Analysis for Lower Volume Securities
The Exchange also performed a set of DID analyses for securities
with average daily volumes between 50,000 and 500,000 shares for the
two post-treatment periods covered above.
Table 16 shows the results for the analysis of eligible securities
for the six-month pre-period, and the six months following the complete
rollout of the Program. Although spreads increased, except for NYSE
spreads in dollars, neither the spread-based, market share or trade-to-
trade price change studies showed statistical significance. Table 17
shows pre- and post-treatment statistics for the control group and the
treatment group. Ten of the 25 treatment securities spreads narrowed,
while 14 of 25 control stocks narrowed. There is too much noise in the
result to produce statistical significance.
[GRAPHIC] [TIFF OMITTED] TN22FE19.009

[[Page 5773]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.010

[[Page 5774]]

Tables 18A and 18B summarize data used to create the matched
sample: VWAP, CADV, and spread in basis points. The tables also provide
information on the Program's share of consolidated volume since the
sample was created by finding the stocks with the highest share of
volume over the treatment period in the Program, and required control
stocks to exhibit share of CADV no more than 1/10th the lowest security
chosen for the matched sample.

[[Page 5775]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.011

[[Page 5776]]

Table 19 shows the results for the lower volume stocks study
comparing the six month pre-Program period to 2016-2017. Time-weighted
consolidated and NYSE spreads in basis points increased and were
statistically significant at the 95% level. Other basis point spreads
were also statistically significant at either the 95% or 99% level. TRF
share excluding auctions increased at the 99% level, and including
auctions increased at the 99.9% level. NYSE share changes were not
statistically significant. Trade-to-trade price changes (in basis
points) rose and were significant at the 95% level. The Exchange notes,
however, that time-weighted consolidated spreads in dollars decreased
and were significant at the 90% level. NYSE dollar spreads also
decreased, but were not statistically significant.
[GRAPHIC] [TIFF OMITTED] TN22FE19.012

Table 20 provides evidence for the possible cause of the
inconsistency in the results. The average dollar spread in the
treatment stocks dropped slightly, while dollar spreads in the control
stocks rose 82%. Spreads in basis points were unchanged for treatment
stocks, but dropped 30% in the control group. Price changes tended to
be positive in the control stocks and were little changed in the
treatment group. The statistical significance appears to be driven by
changes in the control stocks.

[[Page 5777]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.013

As previously noted, the Exchange's selection methodology focused
on finding securities that traded most heavily in the Program. As
discussed above in the section covering higher volume securities and as
shown in

[[Page 5778]]

Table 13, both TRF share and Program activity are higher in low priced
stocks. This constraint did not impact the control stocks, as the
selection methodology requires control stocks to have significantly
lower share of the market. However, it did result in control stocks
that traded largely in line with the overall market, resulting in price
increases over the 2012 to 2016-2017 time period. Table 21B highlights
the constraint on Program share for the treatment and control stocks.
Table 21A presents additional matched sample population statistics.
[GRAPHIC] [TIFF OMITTED] TN22FE19.014

In conclusion, 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 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 justifies
making the Program

[[Page 5779]]

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,\66\ in general, and
Section 6(b)(5) of the Act,\67\ 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.
---------------------------------------------------------------------------

\66\ 15 U.S.C. 78f(b).
\67\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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
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. Summary of Comment Letter

After the Commission instituted proceedings, the Commission
received a comment letter on the proposed rule change.\68\ In support
of the proposal to the make the Program permanent, the commenter states
that the Program seems to have offered significant price improvement
during the course of its pilot period.\69\ Citing the Exchange's
analysis in the Original Notice of trading activity during the pilot
period, the commenter notes that between August 1, 2012 and January 2,
2018, orders totaling in excess of 6.8 billion shares were executed
through the Program, providing improvements of $12.3 million
dollars.\70\ The commenter observes that these statistics indicate that
the Program has provided greater than the average price improvement
provided through other common execution avenues.\71\ The commenter
notes that fill rates have also been, at times, significant.\72\ The
commenter also believes that the Program offers the Commission a unique
opportunity to explore brokers' fulfillment of their best execution
obligations.\73\
---------------------------------------------------------------------------

\68\ See HMA Letter, supra note 10.
\69\ See id. at 2.
\70\ See id. at 3.
\71\ See id.
\72\ See id.
\73\ See id. at 2-3.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

After careful review, the Commission finds that the Exchange's
proposal to make permanent the Retail Liquidity Program Pilot, Rule
107C, as modified by Amendment No. 1, is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to a national securities exchange.\74\ In
particular, the Commission finds that the proposed rule change, as
modified by Amendment No. 1, is consistent with Sections 6(b)(5) \75\
and 6(b)(8) \76\ of the Exchange Act. Section 6(b)(5) of the Exchange
Act requires that the rules of a national securities exchange be
designed, among other things, to promote just and equitable principles
of trade, to remove impediments to and perfect the mechanism of a free
and open market and a national market system and, in general, to
protect investors and the public interest, and not be designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers. Section 6(b)(8) of the Exchange Act requires that the rules of
a national securities exchange not impose any burden on competition
that is not

[[Page 5780]]

necessary or appropriate in furtherance of the purposes of the Exchange
Act.
---------------------------------------------------------------------------

\74\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\75\ 15 U.S.C. 78f(b)(5).
\76\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

As noted above, the Commission approved the Program on a pilot
basis to allow the Exchange and market participants to gain valuable
practical experience with the Program during the pilot period, and to
allow the Commission to determine whether modifications to the Program
were necessary or appropriate prior to any Commission decision to
approve the Program on a permanent basis.\77\ Indeed, the Exchange has
modified aspects of the Program on several occasions since initial
approval of the Program on a pilot basis.\78\ As set forth in the RLP
Approval Order, the Exchange agreed to provide the Commission with a
significant amount of data to assist the Commission's evaluation of the
Program prior to any permanent approval of the Program.\79\
Specifically, the Exchange represented that it would ``produce data
throughout the pilot, which will include statistics about
participation, the frequency and level of price improvement provided by
the Program, and any effects on the broader market structure.'' \80\
The Commission expected the Exchange to monitor the scope and operation
of the Program and study the data produced during that time with
respect to such issues.\81\
---------------------------------------------------------------------------

\77\ See RLP Approval Order supra note 14, at 40674.
\78\ See supra, note 22.
\79\ See RLP Approval Order, supra note 14, at 40681.
\80\ See id.
\81\ See id.
---------------------------------------------------------------------------

Although the pilot period was originally scheduled to end on July
31, 2013, the Exchange filed to extend the operation of the pilot on
several occasions.\82\ The pilot is now set to expire on June 30, 2019,
and the Exchange proposes to make the Program, Rule 107C, permanent. In
its proposal, as modified by Amendment No. 1, the Exchange provides
data and analysis which it believes justifies permanent approval of the
Program.
---------------------------------------------------------------------------

\82\ See supra, note 15.
---------------------------------------------------------------------------

In the Original Notice, the Exchange provided data indicating that
the Program provided $12.3 million in price improvement to retail
investors between August 21, 2012 and January 2, 2018, as well as data
showing overall average price improvement of $0.0014 per share
(approximately 40% above the minimum of $0.001), with average price
improvement exceeding that level in 2016.\83\ In the Original Notice,
the Exchange also stated its belief that receipt of price improvement
by retail investors, the Program's low volume levels, and other data,
similar to that provided in Tables 1 through 8 above, were sufficient
to conclude that the Program had achieved its goals without negatively
impacting the broader market.\84\ In the Commission's Order Instituting
Proceedings, the Commission questioned whether the information and
analysis provided by the Exchange in the Original Notice supported the
Exchange's conclusions that the Program had achieved its goals,
including whether the Exchange had provided data and analysis to
support its conclusion that the Program had an overall negligible
impact on broader market structure.\85\
---------------------------------------------------------------------------

\83\ See Original Notice, supra note 3, at 28879.
\84\ See id. at 2882-83.
\85\ See Order Instituting Proceedings, supra note 7, at 48352.
In the Order Instituting Proceedings, the Commission sought
additional information and analysis concerning the Program's impact
on the broader market, for example, additional information to
support the view that the Program has not had a material adverse
impact on market quality and consideration of any effects that fees
and rebates may have had on the operation of the Program. See id.
---------------------------------------------------------------------------

In Amendment No. 1, the Exchange has provided data and analysis
concerning the Program during the pilot period in addition to that
provided in the Original Notice. In particular, the Commission notes
that in Amendment No. 1, the Exchange undertook to provide a more in-
depth analysis of the Program's impact on market quality by using the
difference-in-differences (``DID'') statistical technique, the
methodology for which it explains above.\86\ Although the Program was
not initially designed to produce a DID analysis, the Exchange
identified the most active stocks in the Program to establish a
treatment group of stocks and then used securities with similar pre-
treatment spread, price, and CADV but very low Program activity as a
control group. Using this methodology, the Exchange produced four DID
analyses that the Commission believes are useful to assess the
Program's impact on market quality, as measured by a variety of market
quality statistics including: (1) Time-weighted NYSE quoted spread in
basis points; (2) time-weighted NYSE quoted spread in dollars and
cents; (3) time-weighted consolidated quoted spread in basis points;
(4) time-weighted consolidated quoted spread in dollars and cents; (5)
volume-weighted effective spread in basis points measured against the
NYSE quote; (6) volume-weighted effective spread in basis points
measured against the national best bid or offer (``NBBO''); (7) volume-
weighted effective spread in basis points measured against the
protected best bid or offer (``PBBO''); (8) volume-weighted quoted
spread in basis points measured against the NYSE quote; (9) volume-
weighted quoted spread in basis points measured against the NBBO; (10)
volume-weighted quoted spread in basis points measured against the
PBBO; (11) Trade Reporting Facility (``TRF'') share of volume during
regular trading hours, excluding auctions; (12) TRF share of volume,
full day, including auctions; (13) NYSE share of volume during regular
trading hours, excluding auctions; (14) NYSE share of volume, full day,
including auctions; and (15) trade-to-trade price change in basis
points of the Program.\87\
---------------------------------------------------------------------------

\86\ A DID statistical technique allows studying the
differential effect of a treatment on data measured between a
treatment group and a control group. The two groups are measured
during two or more different time periods, usually a period before
``treatment'' and at least one time period after ``treatment,'' that
is, a time period after which the treatment group is impacted but
the control group is not. For each group, the difference between a
measure in the pre-treatment and the treatment period is computed.
Those differences for a measure for the two groups are then compared
to each other by taking the difference between them.
\87\ In its analyses, the Exchange notes that lower-priced
securities tend to be most active in the Program, and as a result,
its artificially created treatment group includes securities that
were relatively low-priced during the treatment period, but may not
have been similarly low-priced during the pre-treatment period.
---------------------------------------------------------------------------

In its first set of DID analyses, the Exchange studies stocks that
had a CADV of at least 500,000 shares during both a pre-treatment and a
treatment period. For these stocks, the Exchange compares changes in
market quality statistics between the pre-treatment and treatment
period for the treatment group stocks and the control group stocks. The
Exchange conducts this study using two different treatment periods.
More specifically, the Exchange examines market quality statistics for:
Six months prior to launch of the Program (February 2012-
July 2012) as compared to six months following launch, excluding the
first month of the Program (September 2012-February 2013) for
securities with a CADV of at least 500,000 during the pre-treatment and
treatment periods, and
Six months prior to launch of the Program (February 2012-
July 2012) as compared to all of 2016 and 2017 for securities with a
CADV of at least 500,000 during the pre-treatment and treatment
periods.
As summarized in Table 11 above, when analyzing stocks with a CADV
of at least 500,000 shares, and when comparing changes between the pre-
treatment period and the 2012-2013 treatment period, the Exchange finds
no statistically significant differences between treatment and control
group

[[Page 5781]]

stocks for the changes in time-weighted NYSE or time-weighted
consolidated spreads (whether measured in basis points or in
dollars).\88\
---------------------------------------------------------------------------

\88\ More broadly, the Exchange finds no statistically
significant difference between treatment and control group stocks
for any of the analyzed measures of market quality when comparing
the pre-treatment period with the 2012-2013 treatment period.
---------------------------------------------------------------------------

As summarized in Table 12 above, when comparing changes between the
pre-treatment period and the 2016-2017 treatment period, the analysis
shows statistically significant positive differences between treatment
and control stocks for changes in several spread measures in basis
points, as well as for changes in the share of trading on the TRF,
which could suggest a negative effect of the Program.\89\ However, the
Exchange's analysis further reveals that the treatment stocks for the
2016-2017 treatment period saw sharp price declines as compared to
their 2012 pre-treatment period levels.\90\ In addition, many of the
treatment stocks traded with quoted spreads near $0.01 (i.e., they were
tick-constrained), so that any price drop would necessarily result in
an almost equal and opposite percentage increase in the spreads
measured in basis points. After careful consideration, the Commission
believes that the DID and additional analysis performed by the Exchange
for stocks with a CADV of at least 500,000 shares, support the
conclusion that positive DID results for spreads and TRF activity
observed in Table 12 above are unlikely to be caused by the Program.
---------------------------------------------------------------------------

\89\ In addition, the results in Table 12 show negative
differences between the treatment and control stocks for changes in
time-weighted consolidated dollar spreads (statistically significant
at the 90% confidence level) and for changes in time-weighted NYSE
dollar spreads (statistically significant at the 95% confidence
level).
\90\ Table 14 above shows a decrease in the average value
weighted average price (VWAP) of treatment stocks from $25.51 (pre-
treatment period) to $13.75 (2016-2017 treatment period) and an
increase in the average VWAP of control group stocks from $24.96
(pre-treatment period) to $37.74 (2016-2017 treatment period). In
contrast, Table 15 above shows that similar price changes are not
present in the analysis focusing on the 2012-2013 treatment period.
---------------------------------------------------------------------------

In its other set of DID analyses, the Exchange studies stocks that
had a CADV of at least 50,000 shares and less than 500,000 shares
during both a pre-treatment and a treatment period, for the same two
treatment time periods. For these stocks, the Exchange likewise
compares changes in market quality statistics between the pre-treatment
and the treatment periods for the treatment group stocks and the
control group stocks. Specifically, to assess whether the results
differ for lower-volume stocks, the Exchange examines the same market
quality statistics for:
Six months prior to launch of the Program (February 2012-
July 2012) compared to six months following launch, excluding the first
month of the Program (September 2012-February 2013) for securities with
a CADV of at least 50,000 and less than 500,000, during the pre-
treatment and treatment periods; and
Six months prior to launch of the Program (February 2012-
July 2012) compared to all of 2016 and 2017 for securities with a CADV
of at least 50,000 and less than 500,000, during the pre-treatment and
treatment periods.
As summarized in Table 16 above, when analyzing these lower-volume
stocks, and when comparing changes between the pre-treatment period and
the 2012-2013 treatment period, the Exchange similarly finds no
statistically significant differences between treatment and control
group stocks for the changes in time-weighted NYSE or time-weighted
consolidated spreads (whether measured in basis points or in
dollars).\91\
---------------------------------------------------------------------------

\91\ More broadly, the Exchange finds no statistically
significant difference between treatment and control group stocks
for any of the analyzed measures of market quality when comparing
the pre-treatment period with the 2012-2013 treatment period.
---------------------------------------------------------------------------

As summarized in Table 19 above, when comparing changes between the
pre-treatment period and the 2016-2017 treatment period, the analysis
shows statistically significant positive differences between treatment
and control stocks for changes in several spread measures in basis
points, as well as for changes in the share of trading on the TRF. In
assessing the observed positive differences for changes in spread
measures in basis points, the Exchange's analysis further reveals that
these differences are attributable mostly to changes in the control
stocks rather than to changes in the treatment stocks. In particular,
as shown in Table 20, between the pre-treatment period and the 2016-
2017 treatment period, the treatment stocks experienced virtually no
change in dollar spreads and only a small increase in spreads measured
in basis points (driven by a small decline in their prices (VWAP)).\92\
In contrast, in the same time period, the control stocks experienced a
large decrease in spreads measured in basis points, driven by the fact
that their average price (VWAP) more than doubled.\93\ Thus, the large
increase in the prices of the control stocks (which did not occur for
the treatment stocks) contributes significantly to the observed
positive differences between treatment and control stocks for changes
in basis point spread measures. After careful consideration, the
Commission believes that the DID and additional analysis performed by
the Exchange for stocks with a CADV of at least 50,000 and less than
500,000 shares support the conclusion that the positive DID results in
spreads and TRF observed in Table 19 are unlikely to be caused by the
Program.
---------------------------------------------------------------------------

\92\ Table 20 shows that between the pre-treatment period and
the 2016-2017 treatment period, the treatment stocks experienced a
slight decrease in average dollar spread from $0.024 to $0.023, a
small decline in average VWAP from $13.84 to $12.09, and a small
increase in basis point spread from 18.84 to 21.69 basis points.
\93\ Table 20 shows that between the pre-treatment period and
the 2016-2017 treatment period, the control stocks experienced a
large increase in average VWAP from $16.70 to $35.92, a smaller
percentage increase in average dollar spread from $0.034 to $0.061,
and a large decrease in basis point spread from 22.04 to 15.41 basis
points.
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As noted, in the Order Instituting Proceedings, the Commission
questioned whether the Exchange provided sufficient data and analysis
in the Original Notice to support its conclusions that the Program had
achieved its goals and had an overall negligible impact on broader
market structure.\94\ In Amendment No. 1, the Exchange provides data
and analysis to further support its assertions in the Original Notice.
The Commission believes that the data and analysis provided by the
Exchange support the conclusion that the Program provides meaningful
price improvement to retail investors on a regulated exchange venue and
has not demonstrably caused harm to the broader market. Based on the
foregoing, and after careful consideration of the Exchange's analysis
of the data generated by the Program and the comment received, the
Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with the requirements of the Exchange
Act.
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\94\ See supra note 85 and accompanying text.
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V. Solicitation of Comments on Amendment No. 1

Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
to the proposed rule change is consistent with the Exchange 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

[[Page 5782]]

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 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 this filing will also 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-NYSE-2018-28 and should be submitted on
or before March 15, 2019.

VI. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1

The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the 30th day after the
date of publication of notice of Amendment No. 1 in the Federal
Register. Amendment No. 1 supplements the proposal by providing
additional analysis of the Program's impact on the market to address
concerns raised in Commission's Order Instituting Proceedings.
Specifically, in Amendment No. 1, the Exchange presents and discusses
four DID analyses it performed to assess the Program, as measured by a
variety of market quality statistics. These DID analyses and the
additional analysis provided by the Exchange assisted the Commission in
evaluating the Program's impact on the broader market and in
determining that permanent approval of the Program, Rule 107C, is
reasonably designed to perfect the mechanism of a free and open market
and the national market system, protect investors and the public
interest, and not be unfairly discriminatory, or impose an unnecessary
or inappropriate burden on competition. Accordingly, pursuant to
Section 19(b)(2) of the Exchange Act,\95\ the Commission finds good
cause to approve the proposed rule change, as modified by Amendment No.
1, on an accelerated basis.
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\95\ 15 U.S.C. 78s(b)(2).
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VII. Limited Exemption From the Sub-Penny Rule

Pursuant to its authority under Rule 612(c) of Regulation NMS,\96\
the Commission hereby grants the Exchange a limited exemption from the
Sub-Penny Rule to operate the Program. For the reasons discussed below,
the Commission determines that such action is necessary or appropriate
in the public interest, and is consistent with the protection of
investors.
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\96\ 17 CFR 242.612(c).
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When the Commission adopted the Sub-Penny Rule in 2005, the
Commission identified a variety of problems caused by sub-pennies that
the Sub-Penny Rule was designed to address:
If investors' limit orders lose execution priority for a
nominal amount, investors may over time decline to use them, thus
depriving the markets of liquidity.
When market participants can gain execution priority for a
nominal amount, important customer protection rules such as exchange
priority rules and the Manning Rule \97\ could be undermined.
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\97\ See Financial Industry Regulatory Authority Rule 5320
(Prohibition Against Trading Ahead of Customer Orders).
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Flickering quotations that can result from widespread sub-
penny pricing could make it more difficult for broker-dealers to
satisfy their best execution obligations and other regulatory
responsibilities.
Widespread sub-penny quoting could decrease market depth
and lead to higher transaction costs.
Decreasing depth at the inside could cause institutions to
rely more on execution alternatives away from the exchanges,
potentially increasing fragmentation in the securities markets.\98\
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\98\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
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The Commission believes that the limited exemption granted today
should continue to promote competition between exchanges and OTC market
makers in a manner that is reasonably designed to minimize the problems
that the Commission identified when adopting the Sub-Penny Rule. Under
the Program, sub-penny prices will not be disseminated through the
consolidated quotation data stream, which should avoid quote flickering
and its reduced depth at the inside quotation.
Furthermore, the Commission does not believe that granting this
limited exemption and approving the proposal would reduce incentives
for market participants to display limit orders. As noted in the RLP
Approval Order, market participants that displayed limit orders at the
time were not able to interact with marketable retail order flow
because that order flow was almost entirely routed to internalizing OTC
market makers that offered sub-penny executions,\99\ and, as noted in
Amendment No. 1, the Program has attracted a small volume from the OTC
market makers. As a result, enabling the Exchange to continue to
compete for retail order flow through the Program should not materially
detract from the current incentives to display limit orders, while
potentially resulting in greater order interaction and price
improvement for marketable retail orders on a public national
securities exchange. To the extent that the Program may raise Manning
and best execution issues for broker-dealers, these issues are already
presented by the existing practices of OTC market makers.
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\99\ See RLP Approval Order, supra note 14, at 40682.
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This permanent and limited exemption from the Sub-Penny Rule is
limited solely to the operation of the Program by the Exchange. This
exemption does not extend beyond the scope of Exchange Rule 107C. In
addition, this exemption is conditioned on the Exchange continuing to
conduct the Program, in accordance with Exchange Rule 107C and
substantially as described in the Exchange's request for exemptive
relief and the proposed rule change, as modified by Amendment No.
1.\100\ Any changes in Exchange Rule 107C may cause the Commission to
reconsider this exemption.
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\100\ See supra note 13.

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[[Page 5783]]

VIII. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\101\ that the proposed rule change (SR-NYSE-2018-28), as
modified by Amendment No. 1, be, and it hereby is, approved on an
accelerated basis.
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\101\ 15 U.S.C. 78s(b)(2).
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It is further ordered that, pursuant to Rule 612(c) under
Regulation NMS, that the Exchange shall be exempt from Rule 612(a) of
Regulation NMS with respect to the operation of the Program as set
forth in Exchange Rule 107C as described herein.
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\102\ 17 CFR 200.30-3(a)(12) and 17 CFR 200.30-3(a)(83).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\102\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03043 Filed 2-21-19; 8:45 am]
BILLING CODE 8011-01-P

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