Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To Introduce an Enhanced RPI Order and Expand Its Retail Price Improvement Program To Include Securities Priced Below $1.00, 29389-29402 [2024-08487]

Download as PDF Federal Register / Vol. 89, No. 78 / Monday, April 22, 2024 / Notices consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b–4(f)(6)(iii) thereunder.14 At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 15 of the Act to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– NYSECHX–2024–15 on the subject line. lotter on DSK11XQN23PROD with NOTICES1 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–NYSECHX–2024–15. 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 14 17 CFR 240.19b–4(f)(6). Rule 19b–4(f)(6) requires the Exchange to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 15 15 U.S.C. 78s(b)(2)(B). VerDate Sep<11>2014 06:41 Apr 20, 2024 Jkt 262001 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–NYSECHX–2024–15 and should be submitted on or before May 13, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Vanessa A. Countryman, Secretary. [FR Doc. 2024–08491 Filed 4–19–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99963; File No. SR–CBOE– 2024–008] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Designation of a Longer Period for Commission Action on a Proposed Rule Change To Adopt a New Rule Regarding Order and Execution Management Systems April 16, 2024. On February 13, 2024, Cboe Exchange, Inc. filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposal to adopt a new rule regarding order and execution management systems. The proposed rule change was published for comment in the Federal Register on March 5, 2024.3 The Commission has received three comment letters regarding the proposed rule change.4 16 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. 99620 (February 28, 2024), 89 FR 15907 (‘‘Notice’’). 4 The public comment file for SR–CBOE–2024– 008 is available on the Commission’s website at https://www.sec.gov/comments/sr-cboe-2024-008/ srcboe2024008.htm. 1 15 PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 29389 Section 19(b)(2) of the Act 5 provides that within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding, or as to which the self-regulatory organization consents, the Commission will either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day after publication of the notice for this proposed rule change is April 19, 2024. The Commission is extending this 45day time period. The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change, so that it has sufficient time to consider the proposed rule change. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,6 designates June 3, 2024, as the date by which the Commission shall either approve or disapprove the proposed rule change (File No. SR–CBOE–2024–008). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Vanessa A. Countryman, Secretary. [FR Doc. 2024–08486 Filed 4–19–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99965; File No. SRCboeBYX–2023–020]D Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To Introduce an Enhanced RPI Order and Expand Its Retail Price Improvement Program To Include Securities Priced Below $1.00 April 16, 2024. On December 27, 2023, Cboe BYX Exchange, Inc. (‘‘BYX’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act 5 15 U.S.C. 78s(b)(2). U.S.C. 78s(b)(2). 7 17 CFR 200.30–3(a)(31). 6 15 E:\FR\FM\22APN1.SGM 22APN1 29390 Federal Register / Vol. 89, No. 78 / Monday, April 22, 2024 / Notices of 1934 (‘‘Act’’),1 and Rule 19b-4 thereunder,2 a proposed rule change to modify Rule 11.24 to introduce an Enhanced RPI Order and expand its Retail Price Improvement program to include securities priced below $1.00. The proposed rule change was published for comment in the Federal Register on January 17, 2024.3 On February 27, 2024, pursuant to Section 19(b)(2) of the Act,4 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.5 On March 6, 2024, the Exchange submitted Amendment No. 1 to the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange.6 To date, the Commission has received no comments on the proposed rule change.7 The Commission is publishing this notice and order to solicit comment on the proposed rule change, as modified by Amendment No. 1, from interested persons and to institute proceedings under Section 19(b)(2)(B) of the Act 8 to determine whether to approve or disapprove the proposed rule change, as modified by Amendment No. 1. I. The Exchange’s Description of the Terms of Proposed Rule Change, as Modified by Amendment No. 1 The Exchange filed with the Commission a proposal to modify Rule 11.24 to introduce an Enhanced RPI Order and expand its Retail Price Improvement program to include securities priced below $1.00. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ equities/regulation/rule_filings/bzx/), at 1 15 U.S.C. 78s(b)(1). CFR 240.19b-4. 3 See Securities Exchange Act Release No. 99311 (Jan. 10, 2024), 89 FR 2993. 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 99610, 89 FR 15621 (Mar. 4, 2024). The Commission designated April 16, 2024 as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. 6 In Amendment No. 1, the Exchange amended the proposed rule change to provide additional examples, justification and support for its proposal and made certain changes to the proposed rule text. The full text of Amendment No. 1 is available on the Commission’s website at: https://www.sec.gov/ comments/sr-cboebyx-2023-020/srcboebyx2023020442119-1127142.pdf. 7 Comments received on the proposed rule change are available at: https://www.sec.gov/comments/srcboebyx-2023-020/srcboebyx2023020.htm. 8 15 U.S.C. 78s(b)(2)(B). lotter on DSK11XQN23PROD with NOTICES1 2 17 VerDate Sep<11>2014 06:41 Apr 20, 2024 Jkt 262001 the Exchange’s Office of the Secretary, 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 Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Rule 11.24 to enhance the Exchange’s Retail Price Improvement Program (the ‘‘Program’’) for the benefit of retail investors. Specifically, the Exchange proposes to introduce a new type of RPI Interest 9 to be known as an ‘‘Enhanced RPI Order.’’ The proposed Enhanced RPI Order will allow retail liquidity providers to post orders at their limit price but have the opportunity to provide a greater amount of price improvement as compared to other resting orders on the same side of the BYX Book with higher price-time priority in order to execute with an incoming Retail Order 10 by exercising at a price within their established step-up range. The proposed change is designed to provide retail investors with additional opportunities for meaningful price improvement by introducing a new order type that will ‘‘step-up’’ its price against orders with a higher priority resting on the BYX Book.11 Additionally, the Exchange proposes to 9 See proposed Rule 11.24(e). RPI Interest means an order submitted to the Exchange that is designated as either an RPI Order or an Enhanced RPI Order. See also Rule 11.24(a)(3) (‘‘Retail Price Improvement Order’’). 10 See Rule 11.24(a)(2) (‘‘Retail Order’’). 11 See Rule 1.5(e) (‘‘BYX Book’’). The ‘‘BYX Book’’ is the System’s electronic file of orders. The ‘‘System’’ shall mean the electronic communications and trading facility designated by the Board through which securities orders of Users are consolidated for ranking, execution, and when applicable, routing away. See Rule 1.5(aa) (‘‘System’’). PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 expand the Program to securities priced below $1.00.12 Background In November 2012, the Exchange received approval to operate its Program on a pilot basis.13 The Program operated under a pilot basis until September 30, 2019, when the Program was approved on a permanent basis.14 In addition, the Exchange was granted a limited exemption from the Sub-Penny Rule, as well as Regulation NMS Rule 602 (Quote Rule) No Action relief 15 to operate the Program.16 The Program is currently designed to attract Retail Orders to the Exchange and allow such order flow to receive potential price improvement. The Program is currently limited to trades occurring at prices equal to or greater than $1.00 per share.17 Under the Program, a class of market participant called a Retail Member Organization (‘‘RMO’’) 18 is eligible to submit certain retail order flow (‘‘Retail Orders’’) to the Exchange. Users 19 are permitted to provide potential price improvement for Retail Orders 20 in the form of non-displayed interest that is better than the national best bid that is a Protected Quotation (‘‘Protected NBB’’) or the national best offer that is a Protected Quotation (‘‘Protected NBO’’, and together with the Protected NBB, the ‘‘Protected NBBO’’).21 12 See Rule 11.24(h). The Program is currently limited to trades occurring at prices equal to or greater than $1.00 per share. 13 See Securities Exchange Act Release No. 68303 (November 27, 2012), 77 FR 71652 (December 3, 2012), SR–BYX–2012–019 (‘‘Pilot Approval Order’’). 14 See Securities Exchange Act Release No. 87154 (September 30, 2019), 84 FR 53183 (October 4, 2019), SR-CboeBYX–2019–014 (‘‘RPI Approval Order’’). 15 See Letter from David Shillman to Eric Swanson (November 27, 2012) (‘‘No Action Letter’’), available at https://www.sec.gov/divisions/ marketreg/mr-noaction/byx-112712-602.pdf. 16 Supra note 14 at 53185. 17 Supra note 12. The Exchange will periodically notify the membership regarding the securities included in the Program through an information circular. The Exchange is proposing to make the Program available to all securities (discussed infra). 18 See Rule 11.24(a)(1). A ‘‘Retail Member Organization’’ or ‘‘RMO’’ is a Member (or a division thereof) that has been approved by the Exchange under Rule 11.24 to submit Retail Orders. 19 See Rule 1.5(cc). A ‘‘User’’ is defined as any member or sponsored participant of the Exchange who is authorized to obtain access to the System. 20 Supra note 10. A ‘‘Retail Order’’ is defined as an agency or riskless principal order that originates from a natural person and is submitted to the Exchange by an RMO, provided that no change is made to the terms of the order with respect to price or side of market and the order does not originate from a trading algorithm or any computerized methodology. 21 See Rule 1.5(t). The term ‘‘Protected Quotation’’ has the same meaning as is set forth in E:\FR\FM\22APN1.SGM 22APN1 Federal Register / Vol. 89, No. 78 / Monday, April 22, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES1 The Exchange developed this Program with the goal of incentivizing RMOs to execute their Retail Orders on the Exchange, rather than off-exchange venues, by providing Retail Orders with greater access to potential opportunities for price improvement on the Exchange. However, as noted by the Commission, even with the presence of retail liquidity programs (‘‘RLPs’’) offered by Cboe and other national securities exchanges,22 the great majority of marketable orders of retail investors continue to be sent to wholesalers.23 Indeed, as noted in the Commission’s recent rule proposal related to minimum pricing increments, RLPs have not yet attracted a significant volume of retail order flow.24 In fact, since RLPs have been adopted, the percentage of onexchange share volume has continued to decrease from approximately 71% to approximately 56% as of November 2023.25 Accordingly, the Exchange now seeks to enhance its current Program by offering retail liquidity providers an optional Enhanced RPI Order type. The Exchange believes the Enhanced Order type will incentivize additional retail liquidity provision by enabling RPI liquidity providers to submit an order that is ranked at a less aggressive price Regulation NMS Rule 600(b)(71). The terms Protected NBB and Protected NBO are defined in BYX Rule 1.5(s). The Protected NBB is the bestpriced protected bid and the Protected NBO is the best-priced protected offer. Generally, the Protected NBB and Protected NBO and the national best bid (‘‘NBB’’) and national best offer (‘‘NBO’’, together with the NBB, the ‘‘NBBO’’) will be the same. However, a market center is not required to route to the NBB or NBO if that market center is subject to an exception under Regulation NMS Rule 611(b)(1) or if such NBB or NBO is otherwise not available for an automatic execution. In such case, the Protected NBB or Protected NBO would be the best-priced protected bid or offer to which a market center must route interest pursuant to Regulation NMS Rule 611. 22 See, e.g., NYSE Retail Liquidity program, which promotes cost savings through price improvement for individual investors provided by retail liquidity providers that submit non-displayed interest priced better than the best protected best bid or protected best offer. See also NYSE National Retail Liquidity program, which seeks to attract retail order flow to the Exchange through the potential of price improvement at the midpoint or better. Available at https://www.nyse.com/markets/ liquidity-programs. See also IEX Retail Program, which incentivizes midpoint liquidity for retail orders through the use of retail liquidity provider orders. Available at https://www.iexexchange.io/ products/retail-program. See also Nasdaq BX Retail Price Improvement, which allows retail orders to interact with price-improving liquidity. Available at https://www.nasdaqtrader.com/content/ BXRPIfs.pdf. 23 See Securities Exchange Act Release No. 96495 (December 14, 2022), 88 FR 128 (January 3, 2023) (‘‘Order Competition Rule’’) at 144. 24 See Securities Exchange Act Release No. 96494 (December 14, 2022), 87 FR 80266 (December 29, 2022) (‘‘Tick Size Proposal’’) at 80273. 25 Source: Cboe internal data. VerDate Sep<11>2014 06:41 Apr 20, 2024 Jkt 262001 than the step-up range at which the provider is willing to execute, but have the opportunity to ‘‘step up’’ to provide a greater amount of price improvement as compared to other higher priority resting orders on the same side of the BYX Book in order to execute with an incoming contra-side Retail Order. As discussed in more detail, below, the Enhanced RPI Order type will have price priority over resting orders when its step-up range allows for additional price improvement when a contra-side Retail Order is submitted to the Exchange. With the deeper pool of retail liquidity-providing orders, the Exchange believes that RMOs will see increased opportunities for on-exchange price improvement and seek to execute more of their Retail Orders on the Exchange. Proposal The Exchange proposes to amend Rule 11.24(a) to include the proposed Enhanced RPI Order, which allows a retail liquidity provider to post a limit order to the Exchange, but also the opportunity to ‘‘step-up’’ its price within their defined step-up range by providing a greater amount of price improvement as compared to orders with higher priority that are resting on the same side of the BYX Book in order to execute against an incoming Retail Order seeking to remove liquidity. An Enhanced RPI Order is designed to be entered with a limit price, but must also include a step-up range, which is the most aggressive price it is willing to execute against a contra-side Retail Order. If the Enhanced RPI Order includes a step-up range that improves against the price of the highest-ranked resting order on the same side of the BYX Book, the Enhanced RPI Order will be given price priority over the highestranked resting order. In order for an Enhanced RPI Order to receive price priority, the Enhanced RPI Order must be able to provide a greater amount of price improvement to an incoming contra-side Retail Order than would otherwise be available by stepping up to the next minimum price increment.26 The Exchange believes this proposed change would further the purpose of the Program to attract retail marketable order flow to the Exchange, while also increasing opportunities for price improvement. By offering the Enhanced RPI Order, the Exchange has created an enhancement to its current Program that offers a greater incentive for liquidity providers to provide liquidity eligible to 26 The Exchange notes that the minimum amount of required price improvement will vary between $0.001 and $0.01, based on the order types resting on the BYX Book (discussed infra). PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 29391 execute against marketable retail order flow on the Exchange. The Enhanced RPI Order would allow Users to post orders at their limit price but step-up to a more aggressive price in order to execute against marketable retail order flow that is less prone to adverse selection. Marketable retail order flow, in turn, would receive price improvement greater than what is currently available under the Program. The Exchange believes that the proposed change will lead to increased participation in the Program by Users seeking to provide liquidity for marketable retail order flow, which in turn will attract additional marketable retail order flow to the Exchange in search of price improvement opportunities. The Exchange also proposes to introduce Rule 11.24(a)(5) in order to define the term RPI Interest as either RPI Orders or Enhanced RPI Orders. Additionally, the Exchange proposes to amend Rule 11.24(g) in order to describe order priority for Enhanced RPI Orders. The Exchange also proposes to make corresponding changes within Rule 11.24 to replace certain references to RPI Order with the term RPI Interest in order to have language inclusive of both RPI Orders and Enhanced RPI Orders. Further, the Exchange proposes to delete Rule 11.24(h), as the Exchange proposes to expand the Program to subdollar securities. The Exchange will announce that the RPI Program has expanded to all securities in a Trade Desk notice, and periodic updates will no longer be required. The Exchange also proposes to renumber Rule 11.24(i) in conjunction with the deletion of Rule 11.24(h). Additionally, with the introduction of the Enhanced RPI Order, the Exchange proposes to amend Rule 11.24(a)(2) to permit a Retail Order to be entered as a Mid-Point Peg Order.27 The Exchange also proposes to amend Rule 11.24(a)(2) to better describe that the time-in-force requirement for all Retail Orders, including those entered as a Mid-Point Peg Order, is required to be Immediate or Cancel (‘‘IOC’’). The Exchange believes that allowing the Mid-Point Peg Order instruction on a Retail Order will benefit Users who choose to submit Retail Orders because it will permit a Retail Order to guarantee price 27 See Rule 11.9(c)(9). A Mid-Point Peg Order is a limit order that, after entry into the System, the price of the order is automatically adjusted by the System in response to changes in the NBBO to be pegged to the mid-point of the NBBO, or, alternatively, pegged to the less aggressive of the midpoint of the NBBO or one minimum price variation inside the same side of the NBBO as the order. E:\FR\FM\22APN1.SGM 22APN1 29392 Federal Register / Vol. 89, No. 78 / Monday, April 22, 2024 / Notices improvement at the midpoint or better. The Mid-Point Peg Order instruction will be optional, and not required for Users of Retail Orders. lotter on DSK11XQN23PROD with NOTICES1 Current RPI Orders Rule 11.24(a)(3) currently defines an RPI Order as ‘‘non-displayed interest on the Exchange that is priced better than the Protected NBB or Protected NBO by at least $0.001 and that is identified as such.’’ 28 The Exchange now proposes to amend the definition of RPI Order to more accurately reflect how an RPI Order may be entered by defining an RPI Order as ‘‘non-displayed interest on the Exchange that is eligible to execute at prices better than the Protected NBB or Protected NBO by at least $0.001 in securities priced at or above $1.00 and by at least $0.0001 in securities priced below $1.00 and that is identified as such.’’ As the Exchange is also proposing to expand the Program to prices below $1.00, more specificity is required regarding the minimum pricing increment. Further, the Exchange is clarifying that an RPI Order may be entered at any price but may execute only at prices better than the Protected NBB or Protected NBO. As stated in Rule 11.24(a)(3), RPI Orders are non-displayed and are ranked in accordance with Rule 11.12(a). Furthermore, under Rule 11.24(g), competing RPI Orders in the same security are ranked and allocated according to price then time of entry into the System. Executions occur in price/time priority in accordance with Rule 11.12. Any remaining unexecuted RPI interest remains available to interact with other incoming Retail Orders if such interest is at an eligible price. Any remaining unexecuted portion of the Retail Order will cancel or execute in accordance with Rule 11.24(f). The following example illustrates this method: • Protected NBBO for security ABC is $10.00–$10.05 • User 1 enters an RPI Order to buy ABC at $10.015 for 500 shares • User 2 then enters an RPI Order to buy ABC at $10.02 for 500 shares • User 3 then enters an RPI Order to buy ABC at $10.035 for 500 shares An incoming Retail Order to sell ABC for 1,000 shares executes first against User 3’s bid for 500 shares at $10.035, because it is the best priced bid, then against User 2’s bid for 500 shares at $10.02, because it is the next best priced bid. User 1 is not filled because the entire size of the Retail Order to sell 1,000 shares is depleted. The Retail 28 Supra 06:41 Apr 20, 2024 Enhanced RPI Order The Exchange now proposes to introduce a new type of RPI Order that Users seeking to provide RPI liquidity may utilize on an optional basis. The proposed Enhanced RPI Order will be eligible to obtain price priority over resting orders in the same security on the same side of the BYX Book in order to execute against a Retail Order by including a step-up range when entered. Enhanced RPI Orders will be ranked in accordance with proposed Rule 11.24(g)(2) (discussed infra). In order to effect the proposed change, the Exchange proposes to introduce Rule 11.24(a)(4), which would define an Enhanced RPI Order as: • An ‘‘Enhanced Retail Price Improvement Order’’ or ‘‘Enhanced RPI Order’’ consists of non-displayed interest on the Exchange that is eligible to execute against contra-side Retail Orders. An Enhanced RPI Order will be ranked at its limit price and must also include a step-up range, which is the maximum price (for buy orders) or minimum price (for sell orders) at which the Enhanced RPI Order is willing to execute. An Enhanced RPI Order may execute at: (i) its limit price; (ii) for securities priced at or above $1.00, at a price within the step-up range that is able to improve upon the price of a same-side resting order on the BYX Book by stepping up to the next half cent or full cent, and for securities priced below $1.00 by stepping up to the next minimum price increment; or (iii) at a price within the step-up range when the limit price of a contra-side Retail Order is within the step-up range. An Enhanced RPI Order may be a Primary Pegged order or a limit order. The System will monitor whether Enhanced RPI interest, including the step-up range, and adjusted by any offset and subject to the ceiling or floor price, is eligible to interact with incoming Retail Orders. An Enhanced RPI Order (the buy or sell interest, the step-up range, the offset, and the ceiling or floor) remains non-displayed in its entirety. Any User is permitted, but not required, to submit Enhanced RPI Orders. An Enhanced RPI Order may be an odd lot, round lot or mixed lot. An Enhanced RPI Order shall have priority as described in Rule 11.24(g)(2). The price of an Enhanced RPI Order will be determined by a User’s entry of the following into the Exchange: (1) Enhanced RPI buy or sell interest; (2) 29 See Rule 11.24(f) for additional examples of priority and order allocation in the current Program. note 9. VerDate Sep<11>2014 Order executes against RPI Orders in price/time priority.29 Jkt 262001 PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 the step-up range; (3) an offset, if any; and (4) a ceiling or floor price, if any. The step-up range of an Enhanced RPI Order is the maximum amount above the order’s limit price at which a User is willing to execute. If the Enhanced RPI Order can improve upon resting liquidity on the same side of the BYX Book by stepping up to the nearest whole cent tick or half cent midpoint tick, it will receive price priority over the resting liquidity on the BYX Book. An Enhanced RPI Order, however, will not improve upon the price of another resting Enhanced RPI Order to receive price priority.30 Enhanced RPI Order Priority As discussed above, the proposed Enhanced RPI Order will be ranked at its limit price, which is less aggressive than its step-up range. With the introduction of the proposed Enhanced RPI Order, the Exchange proposes to reorganize Rule 11.24(g) into Rule 11.24(g)(1) and (2). Proposed Rule 11.24(g)(1) would contain the existing rule text that describes order priority with respect to RPI Orders, which the Exchange does not propose to amend. Proposed Rule 11.24(g)(2) would describe order priority with respect to Enhanced RPI Orders. An Enhanced RPI Order will be ranked and allocated according to its limit price then time of entry into the System. The Exchange proposes, however, that an Enhanced RPI Order will be granted price priority over orders resting on the BYX Book in the event that the Enhanced RPI Order is able to provide a greater amount of price improvement to an incoming contraside Retail Order by stepping up to the next half cent 31 or full cent (for securities priced at or above $1.00) or the next minimum price increment (for securities priced below $1.00). The stepup range of an Enhanced RPI Order will be utilized to determine price priority when: (1) the range is needed to gain priority over a resting order with higher 30 The Exchange plans to submit a request for an exemption under Regulation NMS Rule 612 that would permit it to accept and rank non-displayed RPI Interest. As outlined in the request, the Exchange has received an exemption from Rule 612 for the current Program, but believes it is appropriate to renew its request as the Program seeks to introduce Enhanced RPI Orders even as the fundamental nature of the Program is not changing. 31 Discussed infra Examples 1 and 2. An Enhanced RPI Order may only need to step-up one half cent in order to provide meaningful price improvement in situations where: i) the NBBO midpoint is priced at a half cent and the Enhanced RPI Order is stepping up to the next full cent; or ii) the best-priced resting order is ranked at a full cent and the NBBO midpoint is priced in a half cent increment, then the Enhanced RPI Order will only need to step up to the NBBO. E:\FR\FM\22APN1.SGM 22APN1 Federal Register / Vol. 89, No. 78 / Monday, April 22, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES1 order book priority that is not an Enhanced RPI Order; (2) in situations where: (a) a contra-side Retail Order is entered at a less aggressive price than the ranked price of the Enhanced RPI Order and all other resting liquidity and (b) the Enhanced RPI Order’s step-up range is equal to or more aggressively priced than the Retail Order’s limit price; and (3) to determine order book priority when multiple Enhanced RPI Orders are resting on the BYX Book and are eligible to trade ahead of higher priority orders resting on the BYX Book that are not Enhanced RPI Orders. The Exchange notes when multiple Enhanced RPI Orders are resting on the BYX Book, there are no other resting orders on the same side of the BYX Book with higher priority, and a contraside Retail Order is entered at a price equal to or more aggressive than the highest-priced Enhanced RPI Order resting on the BYX Book, the Enhanced RPI Orders will execute in standard price/time priority according to their limit price rather than utilize the stepup range to determine order book priority. The Exchange has included the examples below to show how order priority with an Enhanced RPI Order will be determined. In the examples below, the Retail Liquidity Identifier (discussed infra) is presumed to be displayed unless stated otherwise. Example 1 32 In order to illustrate priority of an Enhanced RPI Order over other nondisplayed orders resting on the BYX Book, consider the following example: • The Protected NBBO for security ABC is $10.00 × $10.05. Æ User 1 enters a Mid-Point Peg 33 order to buy ABC at $10.03 for 100. User 1’s order is ranked at $10.025 as the User elected that the Mid-Point Peg order be pegged to the mid-point of the NBBO. Æ User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for 100. User 2’s step-up range is $0.02. User 2’s order is ranked at $10.01 and is willing to step-up to a maximum price of $10.03. Æ User 3 enters a Retail Order to sell ABC at $10.00 for 100. • Result: User 3’s Retail Order for 100 will execute against User 2’s Enhanced RPI Order at $10.03. While User 1’s order is ranked at a higher price ($10.025) than User 2’s order ($10.01), User 2’s order includes a step-up range of $0.02 and is willing to step up to a maximum price of $10.03, which 32 See proposed Rule 11.24(g)(2)(A). note 27. 33 Supra VerDate Sep<11>2014 06:41 Apr 20, 2024 Jkt 262001 provides additional price improvement to User 3’s Retail Order than User 1’s Mid-Point Peg Order. As User 2’s order provides an additional $0.005 of price improvement over User 1’s midpoint price, the Exchange gives priority to User 2’s Enhanced RPI Order. Example 2 34 There are two situations in which an Enhanced RPI Order may only need to step-up one-half cent in order to provide meaningful price improvement. First, when the NBBO midpoint is priced in a half cent and the Enhanced RPI Order is stepping up from the half-cent midpoint to the next full cent in order to provide price improvement (see Example 1 above). The second instance occurs when the best-priced resting order on the BYX Book is ranked at a whole cent, and the NBBO midpoint is priced in a half cent increment, the Enhanced RPI Order will only need to step-up to the NBBO midpoint order to provide meaningful price improvement. Consider the following example: • The Protected NBBO for security ABC is $10.00 × $10.05. Æ User 1 enters a non-displayed order to buy ABC at $10.02 for 100. Æ User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for 100. User 2’s step-up range is $0.02. User 2’s order is ranked at $10.01 and is willing to step up to a maximum price of $10.03. Æ User 3 enters a Retail Order to sell ABC at $10.00 for 100. • Result: User 3’s Retail Order for 100 will execute against User 2’s Enhanced RPI Order at $10.025. While User 1’s order is ranked at a higher price ($10.02) than User 2’s order ($10.01), User 2 has included a step-up range of $0.02 on its order and is willing to step up to a maximum price of $10.03 in order to provide additional price improvement as compared to other orders resting on the BYX Book. Even though User 2’s order may execute up to a price of $10.03, it only needs to provide one-half cent price improvement over User 1’s ranked price of $10.02 in order to provide meaningful price improvement at the midpoint. Example 3 35 There are instances where an Enhanced RPI Order may need to stepup a full penny in order to provide meaningful price improvement. Consider the following: • The Protected NBBO for security ABC is $10.00 × $10.10. 34 See 35 See PO 00000 proposed Rule 11.24(g)(2)(A). proposed Rule 11.24(g)(2)(A). Frm 00112 Fmt 4703 Sfmt 4703 29393 Æ User 1 enters a non-displayed order to buy ABC at $10.03 for 100. Æ User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for 100. User 2’s step-up range is $0.04. User 2’s order is ranked at $10.01 and is willing to step up to a maximum price of $10.05. Æ User 3 enters a Retail Order to sell ABC at $10.00 for 100. • Result: User 3’s Retail Order for 100 will execute against User 2’s Enhanced RPI Order at $10.04. While User 1’s order is ranked at a higher price ($10.03) than User 2’s order ($10.01), User 2 has included a step-up range of $0.04 on its order and is willing to step up to a maximum price of $10.05 in order to provide additional price improvement as compared to other orders resting on the BYX Book. Even though User 2’s order may execute up to a price of $10.05, it only needs to provide one penny of price improvement above User 1’s ranked price of $10.03 in order to provide meaningful price improvement. Example 4 36 There may be instances where there is no other liquidity resting on the BYX Book against which the Enhanced RPI Order can step up against. In these instances, the Enhanced RPI Order will trade at its ranked price. Consider the following example. • The Protected NBBO for security ABC is $10.00 × $10.05. Æ User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for 100. User 1’s step-up range is $0.015. User 1’s order is ranked at $10.01 and is willing to step up to a maximum price of $10.025. Æ User 2 enters a Retail Order to sell ABC at $10.00 for 100. • Result: User 2’s Retail Order for 100 will execute against User 1’s Enhanced RPI Order at $10.01 as there are no better-priced orders resting on the BYX Book against which User 1 would need to provide greater price improvement to User 2. Example 5 37 Enhanced RPI Orders will only have priority against other better-priced liquidity resting on the BYX Book in the event that the Enhanced RPI Order can step-up to the next half cent or full cent. In the example below, the Enhanced RPI Order is unable to step up against the best priced order on the BYX Book but is able to step up against an order ranked at the next best price level. Consider the following example: • The Protected NBBO for security ABC is $10.00 × $10.05. 36 See 37 See E:\FR\FM\22APN1.SGM proposed Rule 11.24(a)(4). proposed Rule 11.24(g)(2)(A). 22APN1 29394 Federal Register / Vol. 89, No. 78 / Monday, April 22, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES1 Æ User 1 enters a non-displayed order to buy ABC at $10.04 for 100. Æ User 2 enters a non-displayed order to buy ABC at $10.02 for 100. Æ User 3 enters an Enhanced RPI Order to buy ABC at $10.01 for 100. User 3’s step-up range is $0.03. User 3’s order is ranked at $10.01 and is willing to step up to a maximum price of $10.04. Æ User 4 enters a Retail Order to sell ABC at $10.00 for 150. • Result: User 4’s Retail Order will execute 100 shares first with User 1’s non-displayed order as User 1’s nondisplayed order has price priority over the orders submitted by Users 2 and 3. While User 3’s Enhanced RPI Order includes a step-up range of $0.03 and is willing to execute up to a maximum price of $10.04, the step-up range does not provide greater price improvement for User 4’s Retail Order as compared to User 1’s non-displayed order and as such, User 3’s Enhanced RPI Order does not have priority over User 1’s nondisplayed order. Once User 4’s Retail Order executes against User 1’s nondisplayed order, 50 shares remain on User 4’s Retail Order. User 4’s Retail Order will then execute its remaining 50 shares with User 3’s Enhanced RPI Order at a price of $10.025. While User 2’s non-displayed order is ranked at a higher price ($10.02) than User 3’s Enhanced RPI Order ($10.01), User 3’s Enhanced RPI Order has a step-up range of $0.03 and is willing to execute up to a maximum price of $10.04 and User 2’s non-displayed order does not contain a step-up range. As User 3’s Enhanced RPI Order is willing to provide greater price improvement as compared to a betterpriced order resting on the same side of the BYX Book, it is given priority over User 2’s non-displayed order. User 3’s Enhanced RPI Order executes 50 shares against User 4’s non-displayed order at a price of $10.025 because it provides one-half cent of price improvement over User 2’s ranked price of $10.02. Example 6 38 Enhanced RPI Orders will execute within their step-up range when the incoming Retail Order’s price is not executable at the Enhanced RPI Order’s ranked price. Consider the following example: • The Protected NBBO for security ABC is $10.00 × $10.05. Æ User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for 100. User 1’s step-up range is $0.03. User 1’s order is ranked at $10.01 and is willing to step up to a maximum price of $10.04. Æ User 2 enters a Retail Order to sell ABC at $10.03 for 100. • Result: User 2’s Retail Order will execute with User 1’s Enhanced RPI Order at $10.03 as the limit price of User 2’s Retail Order ($10.03) is within the maximum price provided by User 1’s step-up range. Example 7 39 When there are multiple Enhanced RPI Orders resting on the BYX Book, no other same side liquidity with higher priority, and the contra-side Retail Order is priced more aggressively than the resting Enhanced RPI Orders, execution priority will be determined by the higher ranked price and not by the step-up ranges of the Enhanced RPI Orders. Consider the following example: • The Protected NBBO for security ABC is $10.00 × $10.05. Æ User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for 100. User 1’s step-up range is $0.04. User 1’s order is ranked at $10.01 and is willing to step up to a maximum price of $10.05. Æ User 2 enters an Enhanced RPI Order to buy ABC at $10.02 for 100. User 2’s step-up range is $0.02. User 2’s order is ranked at $10.02 and is willing to step up to a maximum price of $10.04. Æ User 3 enters a Retail Order to sell ABC at $10.00 for 100. • Result: User 3’s Retail Order will execute with User 2’s Enhanced RPI Order at $10.02 because User 2’s Enhanced RPI Order has price priority over User 1’s Enhanced RPI Order due to its higher ranked price of $10.02. Given that User 3’s Retail Order was priced more aggressively than the resting Enhanced RPI Orders at its time of entry, the Exchange believes that priority should be determined by using the ranked price of the Enhanced RPI Orders resting on the BYX Book at the time of User 3’s Retail Order entry. Example 8 40 The step-up range will be used to determine order book priority in situations where: (i) a contra-side Retail Order is entered at a less aggressive price than the Enhanced RPI Order’s limit price and all other resting liquidity in the same security and (ii) the Enhanced RPI Order’s step-up range is equal to or more aggressively priced than the Retail Order’s limit price. Consider the following example: • The Protected NBBO for security ABC is $10.00 × $10.05. Æ User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for 100. 39 See 38 See proposed Rule 11.24(a)(4). VerDate Sep<11>2014 06:41 Apr 20, 2024 40 See Jkt 262001 PO 00000 proposed Rule 11.24(g)(2). proposed Rule 11.24(g)(2)(B). Frm 00113 Fmt 4703 Sfmt 4703 User 1’s step-up range is $0.04. User 1’s order is ranked at $10.01 and is willing to step up to a maximum price of $10.05. Æ User 2 enters a non-displayed order to buy ABC at $10.02 for 100. User 2’s order is ranked at $10.02. Æ User 3 enters a Retail Order to sell ABC at $10.03 for 100. • Result: User 3’s order will execute with User 1’s Enhanced RPI Order at $10.03 because (i) User 3’s Retail Order was entered at a less aggressive price than the ranked price of both User 1 and User 2’s orders; and (ii) the maximum price provided by the step-up range of User 1’s Enhanced RPI Order is more aggressively priced ($10.05) than the limit price of User 3’s Retail Order ($10.03). Even though User 2’s ranked price is higher than User 1’s ranked price, User 2’s order is not marketable against User 3’s Retail Order. User 3’s Retail Order would otherwise be unable to execute if the Exchange did not look to the price improvement provided by User 1’s step-up range to permit an execution between User 1 and User 3. Example 9 41 The step-up range will be used to determine order book priority in situations where multiple Enhanced RPI Orders are resting on the BYX Book and are eligible to trade ahead of higher priority orders resting on the BYX Book. Consider the following example: • The Protected NBBO for security ABC is $10.00 × $10.05. Æ User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for 100. User 1’s step-up range is $0.04. User 1’s order is ranked at $10.01 and is willing to step up to a maximum price of $10.05. Æ User 2 enters an Enhanced RPI Order to buy ABC at $10.02 for 100. User 2’s step-up range is $0.02. User 2’s order is ranked at $10.02 and is willing to step up to a maximum price of $10.04. Æ User 3 enters a non-displayed order to buy ABC at $10.03 for 100. User 3’s order is ranked at $10.03. Æ User 4 enters a Retail Order to sell ABC at $10.03 for 100. • Result: User 4’s Retail Order will execute with User 1’s Enhanced RPI Order at $10.04 because the Exchange looks to the step-up range to determine order book priority when there are multiple Enhanced RPI Orders resting on the BYX Book that are willing to provide additional price improvement as compared to other orders resting on the BYX Book. While both User 1 and User 2 can execute at a price of $10.04, 41 See E:\FR\FM\22APN1.SGM proposed Rule 11.24(g)(2)(C). 22APN1 Federal Register / Vol. 89, No. 78 / Monday, April 22, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES1 User 1’s Enhanced RPI Order can result in a higher maximum possible execution price (step up range of $0.04; maximum price of $10.05) as compared to User 2’s Enhanced RPI Order (step up range of $0.02; maximum price of $10.04). As such, User 1’s Enhanced RPI Order is given priority ahead of User 2’s Enhanced RPI Order to execute against User 4’s Retail Order. In this instance, when there are multiple Enhanced RPI Orders that can provide price improvement to the contra-side Retail Order, the Exchange believes it is appropriate to grant order book priority to the Enhanced RPI Order containing the step-up range that could result in the highest (in the event of a buy order) or lowest (in the event of a sell order) potential maximum execution price, even if the resulting execution does not occur at the highest (lowest) maximum execution price. By granting execution priority to the User who’s Enhanced RPI Order results in the highest (lowest) potential maximum execution price, the Exchange is encouraging Users to submit aggressively priced orders. As such, the Exchange believes it is appropriate to give priority to User 1’s Enhanced RPI Order in this instance because User 1’s Enhanced RPI Order (step-up range of $0.04; maximum price of $10.05) could potentially result in a higher maximum execution price than User 2’s Enhanced RPI Order (step-up range of $0.02; maximum price of $10.04) and is therefore willing to provide additional price improvement to Retail Orders as compared to User 2’s Enhanced RPI Order. Example 10 42 Enhanced RPI Orders will have price priority over resting RPI orders (that do not contain a step-up range) on the BYX Book so long as the step-up range of the Enhanced RPI Order is greater than the limit price of the resting RPI order. Consider the following example: • The Protected NBBO for security ABC is $10.00 × $10.05. Æ User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for 100. User 1’s step-up range is $0.04. User 1’s order is ranked at $10.01 and is willing to step up to a maximum price of $10.05. Æ User 2 enters an RPI Order to buy ABC at $10.02. Æ User 3 enters a Retail Order to sell ABC at $10.00 for 100. • Result: User 3’s Retail Order will execute with User 1’s Enhanced RPI Order at a price of $10.025 because User 1’s Enhanced RPI Order containing a step-up range allows User 3’s Retail 42 See proposed Rule 11.24(g)(2)(A). VerDate Sep<11>2014 06:41 Apr 20, 2024 Jkt 262001 Order to receive an additional one-half cent price improvement as compared to the ranked price of User 2’s RPI Order. While User 2’s RPI Order had a higher ranked price ($10.02) than User 1’s Enhanced RPI Order ($10.01), User 2’s RPI Order did not contain a step-up range. Given that Enhanced RPI Orders are designed to provide meaningful price improvement against all resting orders on the BYX Book, the Exchange believes this factor favors using the price improvement provided by the step-up range in order to determine priority in situations where there are both resting RPI and Enhanced RPI Orders on the BYX Book. While RPI Orders do provide at least $0.001 of price improvement as compared to the Protected NBBO, Enhanced RPI Orders allow for price improvement to the next valid half cent or full cent as the transaction is priced above $1.00.43 Thus, using the step-up range to determine priority when RPI Orders are resting on the BYX Book results in an increased amount of price improvement for the contra-side Retail Order. Example 11 44 Enhanced RPI Orders may also improve against displayed orders resting on the BYX Book in order to provide price improvement to a contra-side Retail Order. Consider the following example: • The Protected NBBO for security ABC is $10.00 × $10.05. Æ User 1 enters an Enhanced RPI Order to buy ABC at $9.99 for 100. User 1’s step-up range is $0.06. User 1’s order is ranked at $9.99 and is willing to step up to a maximum price of $10.05. The Retail Liquidity Identifier is not displayed as the limit price of $9.99 is below the NBB and the Retail Liquidity Identifier will only display when there is RPI Interest priced at least $0.001 better than the Protected NBB or Protected NBO. 43 The Exchange notes that there may be situations in which an Enhanced RPI Order that is granted order book priority over an RPI Order will provide only $0.001 of price improvement over the RPI Order when stepping up to the next half cent or full cent. For example, the Protected NBBO is $10.00 × $10.05. Assume that a buy-side Enhanced RPI Order for 100 shares has a step-up range to $10.04 and is granted order book priority over a buy-side RPI Order for 100 shares with a limit price of $10.024. A sell-side Retail Order for 100 shares is entered at $10.00. In this instance, the buy-side Enhanced RPI Order steps-up to a price of $10.025 to execute against the sell-side Retail Order. While the Enhanced RPI Order is only providing $0.001 of price improvement as compared to the RPI Order with a limit price of $10.024, the Enhanced RPI Order provides a total of $0.025 of price improvement to the Retail Order as compared to the Retail Order’s limit price of $10.00. 44 See proposed Rule 11.24(g)(2)(A). PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 29395 Æ User 2 enters a displayed order to buy ABC at $10.00 for 100. Æ User 3 enters a Retail Order to sell ABC at $10.00 for 100. • Result: User 3’s Retail Order will execute with User 1’s Enhanced RPI Order at a price of $10.01. While User 2’s displayed order is displayed and ranked at a higher price ($10.00) than User 1’s Enhanced RPI Order ($9.99), User 1’s Enhanced RPI Order includes a step-up range of $0.06 on its order, which permits the order to execute up to a maximum price of $10.05. In this instance, executing User 2’s displayed order at $10.00 does not provide any price improvement to the Retail Order when User 1’s Enhanced RPI Order is resting on the BYX Book and is willing to provide additional price improvement to Order 3 than Order 2 is willing to provide. User 1’s Enhanced RPI Order is willing to step up to the next full cent above $10.00 (in this case, $10.01), which provides a full penny of price improvement to User 3’s Retail Order., As such, this is the price at which User 3’s Retail Order executes with User 1’s Enhanced RPI Order. Example 12 45 An Enhanced RPI Order that is also a Primary Pegged Order 46 without an offset will behave in the same manner as an Enhanced RPI Order that is entered without a Primary Pegged Order instruction. Consider the following example: • The Protected NBBO for security ABC is $10.00 × $10.05. Æ User 1 enters a hidden order to buy ABC at $10.03 for 100. Æ User 2 enters an Enhanced RPI Order that is also Primary Pegged Order to buy ABC at $10.02 for 100. User 2’s step-up range is $0.03. User 2’s order does not include an offset. User 2’s order is ranked at $10.00 and is willing to step up to a maximum price of $10.03. • The Protected NBBO for security ABC changes to $10.01 × $10.05. Æ User 2’s Enhanced RPI Order that is also a Primary Pegged Order is now ranked at $10.01 and is willing to step up to a maximum price of $10.04. Æ User 3 enters a Retail Order to sell ABC at $10.01 for 100. 45 See proposed Rule 11.24(g)(2)(A). Rules 11.9(c)(8) and 11.9(c)(8)(A). A Pegged Order is a limit order that after entry into the System, the price of the order is automatically adjusted by the System in response to changes in the NBBO. A Primary Pegged Order is a type of Pegged Order where a User includes a limit priced and a predetermined amount by which the User is willing to improve the Protected NBBO, subject to a ceiling or floor price. The ceiling or floor price is the amount above or below which the User does not wish to trade. 46 See E:\FR\FM\22APN1.SGM 22APN1 29396 Federal Register / Vol. 89, No. 78 / Monday, April 22, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES1 • Result: User 3’s Retail Order will execute with User 2’s Enhanced RPI Order at a price of $10.04 because User 2’s Enhanced RPI Order includes a stepup range of $0.03 and is willing to execute up to a maximum price of $10.04 (based on the Protected NBBO at the time User 3’s order is entered) in order to provide additional price improvement as compared to other orders resting on the BYX Book. While User 1’s order has a higher limit price ($10.03) than User 2’s Enhanced RPI Order ($10.01, based on the Protected NBBO at the time User 3’s order is entered), User 2’s Enhanced RPI Order is given queue priority due to its ability to provide $0.01 of price improvement over User 1’s order. Example 13 47 An Enhanced RPI Order that is also a Primary Pegged Order that contains a positive offset will behave in the same manner as an Enhanced RPI Order that is entered without a Primary Pegged Order instruction, except that the offset amount will determine where the order is ranked. Consider the following example: • The Protected NBBO for security ABC is $10.00 × $10.05. Æ User 1 enters a hidden order to buy ABC at $10.03 for 100. Æ User 2 enters an Enhanced RPI Order that is also Primary Pegged Order to buy ABC at $10.02 for 100. User 2’s step-up range is $0.03. User 2’s order includes an offset of $0.01. User 2’s order is ranked at $10.01 and is willing to step up to a maximum price of $10.04. • The Protected NBBO for security ABC changes to $10.01 × $10.05. Æ User 2’s Enhanced RPI Order that is also a Primary Pegged Order is now ranked at $10.02 and is willing to step up to a maximum price of $10.05. Æ User 3 enters a Retail Order to sell ABC at $10.01 for 100. • Result: User 3’s Retail Order will execute with User 2’s Enhanced RPI Order at a price of $10.04 because User 2’s Enhanced RPI Order includes a stepup range of $0.03 and is willing to execute up to a maximum price of $10.05 (based on the Protected NBBO and the offset of $0.01 at the time User 3’s order is entered) in order to provide additional price improvement as compared to other orders resting on the BYX Book. While User 1’s order has a higher limit price ($10.03) than User 2’s Enhanced RPI Order ($10.02, based on the Protected NBBO and the offset of $0.01 at the time User 3’s order is entered), User 2’s Enhanced RPI Order is given queue priority due to its ability to provide $0.01 of price improvement over User 1’s order. Example 14 48 An Enhanced RPI Order that is also a Primary Pegged Order that contains a negative offset will behave in the same manner as an Enhanced RPI Order that is entered without a Primary Pegged Order instruction, except that the offset amount will determine where the order is ranked. Consider the following example: • The Protected NBBO for security ABC is $10.00 × $10.05. Æ User 1 enters a hidden order to buy ABC at $10.03 for 100. Æ User 2 enters an Enhanced RPI Order that is also Primary Pegged Order to buy ABC at $10.02 for 100. User 2’s step-up range is $0.03. User 2’s order includes an offset of ($0.01). User 2’s order is ranked at $9.99 and is willing to step up to a maximum price of $10.02. • The Protected NBBO for security ABC changes to $10.01 × $10.05. Æ User 2’s Enhanced RPI Order that is also a Primary Pegged Order is now ranked at $10.00 and is willing to step up to a maximum price of $10.03. Æ User 3 enters a Retail Order to sell ABC at $10.01 for 100. • Result: User 3’s Retail Order will execute with User 1’s hidden order at a price of $10.03. As User 2’s Enhanced RPI Order is unable to provide additional price improvement to User 1’s hidden order, User 1’s order retains priority and executes with User 3’s Retail Order. The negative offset of $0.01 causes User 2’s order to be ranked at $10.00 after the Protected NBBO changed from $10.00 × $10.05 to $10.01 × $10.05, and User 2’s step-up range of $0.03 was unable to provide the minimum amount of price improvement in order to gain queue priority ahead of User 1’s hidden order. Example 15 49 Enhanced RPI Orders may also improve upon resting orders that are BYX Post Only Orders in order to provide price improvement to contraside Retail Orders. Consider the following example: • The Protected NBBO for security ABC is $10.00 × $10.05. Æ User 1 enters BYX Post Only Order to buy ABC at $10.02 for 100. Æ User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for 100. User 2’s step-up range is $0.04. User 2’s order is ranked at $10.01 and is willing 48 See 47 See proposed Rule 11.24(g)(2)(A). VerDate Sep<11>2014 06:41 Apr 20, 2024 Jkt 262001 49 See PO 00000 proposed Rule 11.24(g)(2)(A). proposed Rule 11.24(g)(2)(A). Frm 00115 Fmt 4703 Sfmt 4703 to step up to a maximum price of $10.05. Æ User 3 enters a Retail Order to sell ABC at $10.00 for 100. • Result: User 2’s Enhanced RPI Order executes against User 3’s Retail Order at $10.03. While User 1’s BYX Post Only Order is ranked at a higher price ($10.02) than User 2’s order, User 2’s Enhanced RPI Order is willing to step-up $0.04 over the best-priced resting order to gain queue priority. While User 2 can step-up to a price of $10.05, User 2’s Enhanced RPI Order only needs to step-up to a price of $10.03 in order to gain queue priority over User 1’s BYX Post Only Order. Example 16 50 Enhanced RPI Orders will also be available for securities priced below $1.00. In order for an Enhanced RPI Order in a security priced below $1.00 to gain queue priority over a same-side resting order, the Enhanced RPI Order must be able to step up to the next minimum price increment. Consider the following example: • The Protected NBBO for security ABC is $0.2001 × $0.2025. Æ User 1 enters a hidden order to buy ABC at $0.2003 for 100. Æ User 2 enters an Enhanced RPI Order to buy ABC at $0.2002 for 100. User 2’s step-up range is $0.001. User 2’s order is ranked at $0.2002 and is willing to step up to a maximum price of $0.2012. Æ User 3 enters a Retail Order to sell ABC at $0.2001. • Result: User 2’s Enhanced RPI Order executes against User 3’s Retail Order at a price of $0.2004. While User 1’s hidden order is ranked at a higher price ($0.2003) than User 2’s Enhanced RPI Order ($0.2002), User 2’s Enhanced RPI Order included a step-up range of $0.001 and is willing to execute at a price up to $0.2012 in order to gain queue priority. The next minimum price increment above $0.2003 is $0.2004, which is inside User 2’s step-up range and as such, User 2’s order will have queue priority over User 1’s order. As demonstrated in the examples above, the Exchange is proposing to grant an Enhanced RPI Order price priority over equal-priced or betterpriced resting orders on the BYX Book so long as the Enhanced RPI Order can provide meaningful price improvement over such resting orders. The Exchange believes that allowing liquidity providers to post orders outside of the range at which they are willing to execute yet maintain the opportunity to step-up against resting orders on the 50 See E:\FR\FM\22APN1.SGM proposed Rule 11.24(g)(2)(A). 22APN1 Federal Register / Vol. 89, No. 78 / Monday, April 22, 2024 / Notices same side of the BYX Book in exchange for price priority will incentivize these liquidity providers to provide additional liquidity on the Exchange. As a result of additional, aggressively priced liquidity submitted to the Exchange designed specifically to interact with Retail Orders, RMOs will therefore be incentivized to submit additional retail order flow to the Exchange which has the potential to interact with an Enhanced RPI Order and receive meaningful price improvement. lotter on DSK11XQN23PROD with NOTICES1 Retail Liquidity Identifier The Exchange currently disseminates an identifier pursuant to Rule 11.24(e) when RPI Interest priced at least $0.001 better than the Protected NBB or Protected NBO for a particular security is available in the System (‘‘Retail Liquidity Identifier’’ or ‘‘Identifier’’). The Identifier is disseminated through consolidated data streams (i.e., pursuant to the Consolidated Tape Association Plan/Consolidated Quotation Plan, or CTA/CQ, for Tape A and Tape B securities, and the Nasdaq UTP Plan for Tape C securities) as well as through proprietary Exchange data feeds.51 The Identifier reflects the symbol and the side (buy or sell) of the RPI Interest, but does not include the price or size of the RPI Interest. In particular, CQ and UTP quoting outputs include a field for codes related to the Retail Liquidity Identifier. The codes indicate RPI Interest that is priced better than the Protected NBB or Protected NBO by at least the minimum level of price improvement as required by the Program. The Exchange proposes to continue to disseminate the Retail Liquidity Identifier in its current form should the Enhanced RPI Order be approved.52 For Enhanced RPI Orders, the indicator will be based off of the ranked price only and the step-up range will not be used. The purpose of the Identifier is to provide relevant market information to RMOs that there is available RPI interest available on the Exchange, thereby 51 The Exchange notes that the Retail Liquidity Identifier for Tape A and Tape B securities are disseminated pursuant to the CTA/CQ Plan. The identifier is also available through the consolidated public market data stream for Tape C securities. The processor for the Nasdaq UTP disseminates the Retail Liquidity Identifier and analogous identifiers from other market centers that operate programs similar to the RPI Program. 52 The Exchange plans on submitting a letter requesting assurance from staff of the Division of Trading and Markets that it will not recommend enforcement action to the Commission pursuant to Rule 602 of Regulation NMS (the ‘‘Quote Rule’’) with respect to: (1) the Exchange with respect to collecting, processing, and making available to vendors the best bid, best offer, and quotation sizes communicated by members of the Exchange, or (2) liquidity providers entering RPI Interest under the Program. VerDate Sep<11>2014 06:41 Apr 20, 2024 Jkt 262001 incentivizing RMOs to send Retail Orders to the Exchange. The Exchange proposes to make clear in Rule 11.24(e) that both RPI Orders and Enhanced RPI Orders constitute RPI Interest and that the Retail Liquidity Identifier shall be disseminated when RPI Interest (as defined in proposed Rule 11.24(e)) priced at least $0.001 better than the Protected NBB or Protected NBO for a particular security is available in the System for securities priced at or above $1.00. A separate liquidity identifier that identifies Enhanced RPI Order interest will not be disseminated. For securities priced at or above $1.00, displaying the Retail Liquidity Identifier will provide an indication to RMOs that at least $0.001 of price improvement is available in the System, with the opportunity of potentially receiving additional price improvement should the available RPI Interest be in the form of an Enhanced RPI Order. As discussed below, the Exchange proposes to expand the Program to include securities priced below $1.00. Given that the minimum price variation (‘‘MPV’’) of a sub-dollar security is $0.0001,53 the Identifier for sub-dollar securities will be displayed when there is at least $0.0001 of price improvement over the Protected NBB or Protected NBO. The Exchange will not make any other changes to the Identifier for subdollar securities other than the minimum amount of price improvement required to display the Identifier. Securities Priced Below $1.00 Rule 11.24(h) currently limits the Program to trades occurring at prices equal to or greater than $1.00 per share and the Exchange periodically notifies Members 54 regarding securities included in the Program through an information circular.55 Now, the Exchange proposes to expand the Program to all securities, including those priced below $1.00. The rationale behind expanding the Program to all securities regardless of execution price stems from the growth of sub-dollar trading (i.e., trading at prices below $1.00), both on- and off-exchange. As of 53 See 17 CFR 242.612 (‘‘Minimum pricing increment’’). 54 See Rule 1.5(n). The term ‘‘Member’’ shall mean ay registered broker or dealer that has been admitted to membership in the Exchange. A Member will have the status of a ‘‘member’’ of the Exchange as that term is defined in Section 3(a)(3) of the Act. Membership may be granted to a sole proprietor, partnership, corporation, limited liability company or other organization which is a registered broker or dealer pursuant to Section 15 of the Act, and which has been approved by the Exchange. 55 Supra note 12. PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 29397 March 2023, an analysis of SIP 56 data by the Exchange found that sub-dollar average daily volume has increased 313% as compared to first quarter 2019.57 In this period, sub-dollar onexchange average daily volume grew from 442 million shares per day to 1.8 billion shares per day.58 An analysis of SIP and FINRA Trade Reporting Facility (‘‘TRF’’),59 data indicates that exchanges represented approximately 39.8% market share in sub-dollar securities, with a total of 1,638 securities trading below $1.00.60 As an exchange group, Cboe had approximately 13.3% of market share of sub-dollar securities in the first quarter of 2023.61 As trading in sub-dollar securities has grown steadily since 2020, the Exchange believes it is appropriate to expand the Program to include securities priced below $1.00. The Exchange notes, however, that the MPV for sub-dollar securities differs from the MPV for securities priced at or above $1.00. As provided for by Regulation NMS Rule 612, for securities priced below $1.00, the MPV is $0.0001, whereas for securities priced at or above $1.00 the MPV is $0.01.62 The Exchange proposes that in order for an Enhanced RPI Order to gain queue priority ahead of resting orders on the same side of the BYX Book, the Enhanced RPI Order will be stepped-up to the nearest MPV ($0.0001) for securities priced below $1.00. This differs from the treatment of Enhanced RPI Orders for securities priced at or above $1.00, which are proposed to be stepped-up to the nearest half-cent midpoint or whole cent tick ahead of resting orders on the same side of the BYX Book. The Exchange believes that the different treatment of Enhanced RPI Orders for securities priced below $1.00 is appropriate given that the MPV for securities priced below $1.00 is significantly less than the MPV for securities priced at or above $1.00. Currently, all Regulation NMS securities traded on the Exchange priced at or above $1.00 are eligible for inclusion in the Program. The Exchange will announce to its Members via a Trade Desk Notice that the Exchange will no 56 The ‘‘SIP’’ refers to the centralized securities information processors. 57 See ‘‘How Subdollar Securities are Trading Now’’ (March 16, 2023). Available at https:// www.cboe.com/insights/posts/how-subdollarsecurities-are-trading-now/. 58 Id. 59 Trade Reporting Facilities are facilities through which FINRA members report off-exchange transactions in NMS stocks, as defined in SEC Rule 600(b)(47) of Regulation NMS. See Tick Size Proposal at 80315. 60 Supra note 57. 61 Id. 62 Supra note 53. E:\FR\FM\22APN1.SGM 22APN1 29398 Federal Register / Vol. 89, No. 78 / Monday, April 22, 2024 / Notices longer provide periodic updates of securities included in the Program as the Program is being expanded to include all Regulation NMS securities traded on the Exchange, regardless of price. Implementation The Exchange plans to implement the proposed rule change during the second half of 2024 and will announce the implementation date via Trade Desk Notice. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the ‘‘Act’’) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.63 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 64 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 65 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Commission has repeatedly emphasized that the U.S. capital markets should be structured with the interests of retail investors in mind 66 and has recently proposed a series of rules designed, in part, to attempt to bring order flow back to the exchanges from off-exchange trading venues.67 The Exchange believes its proposed enhancements to the Program are consistent with the Commission’s goal of ensuring that the equities markets 63 15 64 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). lotter on DSK11XQN23PROD with NOTICES1 65 Id. 66 See U.S. Securities and Exchange Commission, Strategic Plan, Fiscal Years 2018–2022, available at https://www.sec.gov/files/SEC_Strategic_Plan_ FY18-FY22_FINAL_0.pdf. 67 Supra notes 23–24. See also, Securities Exchange Act Release No. 96496 (December 14, 2022), 88 FR 5440 (January 27, 2023) (‘‘Regulation Best Execution’’); Securities Exchange Act Release No. 96493 (December 14, 2022), 88 FR 3786 (January 20, 2023) (‘‘Disclosure of Order Execution Information’’). VerDate Sep<11>2014 06:41 Apr 20, 2024 Jkt 262001 continue to serve the needs of the investing public. Specifically, introducing the Enhanced RPI Order type would protect investors and the public interest by providing retail investors the ability to obtain meaningful price improvement on BYX, a national securities exchange. The Exchange is committed to innovation that improves the quality of the equities markets and believes that the proposed Enhanced RPI Order may increase the attractiveness of the Exchange for the execution of Retail Orders submitted on behalf of the millions of ordinary investors that rely on these markets for their investment needs. The Exchange believes the proposed Enhanced RPI Order promotes just and equitable principles of trade and is not unfairly discriminatory because the order type will be available for all Users, and is not limited to a certain subset of market participants. Even though Enhanced RPI Orders may be entered by any market participant, the Exchange believes that the majority of Enhanced RPI Orders will be entered by or on behalf of institutional investors that are willing to provide additional price improvement as a way to minimize their adverse selection costs.68 The Exchange does not believe that such segmentation is inconsistent with section 6(b)(5) of the Act, as it does not permit unfair discrimination. The Commission has previously stated that the markets generally distinguish between retail investors, whose orders are considered desirable by liquidity providers because such retail investors are presumed to be less informed about short-term price movements, and professional traders, whose orders are presumed to be more informed.69 The Commission has further stated that without opportunities for price improvement, retail investors may encounter wider spreads that are a consequence of liquidity providers interacting with more informed order flow.70 The Exchange believes that its proposed Enhanced RPI Order is reasonably designed to attract marketable retail order flow to the exchange as it will help to ensure that retail investors benefit from the better 68 Adverse selection is the phenomenon where the price of a stock drops right after a liquidity provider purchases the stock. Marketable retail order flow is generally seen as more desirable by institutional liquidity providers as executions against retail orders are less prone to adverse selection. The Commission has previously opined that retail liquidity programs may be beneficial to institutional investors as they may be able to reduce their possible adverse selection costs by interacting with retail order flow. See Pilot Approval Order at 71656. 69 Id. 70 Id. PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 price that liquidity providers are willing to provide to retail orders in exchange for minimizing their adverse selection costs. Additionally, the Exchange believes that the proposed Enhanced RPI Order type is not unfairly discriminatory to institutional investors as it rewards the User that enters the most aggressively priced Enhanced RPI Order with order book priority. Ultimately, execution priority amongst orders resting on the BYX Book will be determined by the step-up range entered on each Enhanced RPI Order. If the step-up range for an Enhanced RPI Order provides a marketable, contra-side Retail Order with greater price improvement than would otherwise be available from other resting orders by stepping up to the next half cent or full cent (for securities priced at or above $1.00) or the next minimum price increment (for securities priced below $1.00), then the Enhanced RPI Order will be granted order book priority. In the event that multiple Enhanced RPI Orders are resting on the BYX Book, the Enhanced RPI Order with the highest step-up range will be given order book priority. The Exchange believes rewarding the most aggressively priced step-up range will encourage Users to submit Enhanced RPI Orders with step-up ranges that are likely to provide meaningful price improvement to Retail Orders, which ultimately benefits both retail investors, who will receive price improvement over the NBBO, and the User entering the Enhanced RPI Order, who is able to execute against a marketable Retail Order to minimize its adverse selection costs and interact with retail order flow that they are currently unable to access on the Exchange given that such order flow is largely executed off-exchange. As noted in the Exchange’s initial RPI filings,71 most equities exchanges, including BYX, determine priority based on a price/time/display allocation model.72 This has contributed to deep and liquid markets for equity securities as liquidity providers compete to be the first to establish a particular price. While the price/time/display allocation model generally works well for institutional investors, retail investors are traditionally not able to compete with market makers and other automated liquidity providers to set an aggressive price on orders submitted to 71 Supra notes 29–30. PSX, however, offers a price setter pro rata model that rewards liquidity providers that set the best price and then rewards other market participants that enter larger sized orders. See Securities Exchange Act Release No. 72250 (May 23, 2014), 79 FR 31147 (May 30, 2014) (SR-Phlx– 2014–24). 72 Nasdaq E:\FR\FM\22APN1.SGM 22APN1 Federal Register / Vol. 89, No. 78 / Monday, April 22, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES1 the Exchange. Importantly, retail investors, in contrast to institutional investors, tend to have longer investment time horizons, which means they are not in the business of optimizing queue placement under a time-based allocation model. Therefore, in order to facilitate the needs of retail investors, the Exchange believes an alternative approach—such as this Enhanced RPI Order proposal—would benefit the retail investor community. As discussed earlier, the proposed introduction of the Enhanced RPI Order is designed to provide retail investors with enhanced opportunities to obtain meaningful price improvement by providing them with potential opportunities to execute versus nondisplayed Enhanced RPI Orders that offer price improvement beyond that offered by resting orders on the Exchange. Marketable retail order flow is routinely executed in full on entry at the national best bid or offer or better,73 but many retail liquidity programs, including the Exchange’s current Program, are designed to offer at least $0.001 of price improvement over the Protected NBB or Protected NBO to Retail Orders.74 By introducing Enhanced RPI Orders, the Exchange is proposing to prioritize Enhanced RPI Orders ahead of other resting orders on the same side of the BYX Book in exchange for the Enhanced RPI Order offering meaningful price improvement to Retail Orders by stepping up to the next half cent or whole cent (for securities priced at or above $1.00) or the next minimum price increment (for securities priced below $1.00). The Exchange believes the ability to post an order at a price outside of the range at which it is willing to execute with the ability to gain priority in exchange for executing at a more aggressive price will (1) encourage Users to submit aggressively priced Enhanced RPI Orders, and (2) attract Retail Order flow to the Exchange, both of which will benefit all investors. Increased order flow will create a deeper pool of liquidity on the Exchange, which provides for greater execution opportunities for all Users and provides for overall enhanced price discovery and price improvement opportunities on the Exchange. If successful, the proposed rule change would benefit market participants by increasing the diversity of order flow with which they can interact on a national securities exchange, thereby increasing order interaction and contributing to price formation. Giving queue priority to certain order types is not a novel concept in the securities markets. In fact, on the Exchange’s affiliate, Cboe EDGX Exchange, Inc. (‘‘EDGX’’), the displayed portion of Retail Priority Orders are given allocation priority ahead of all other available interest on the EDGX Book (‘‘EDGX Retail Priority’’).75 The Commission found that EDGX Retail Priority represented a reasonable effort to enhance the ability of bona fide retail trading interest to compete for executions with orders entered by other market participants that may be better equipped to optimize their place in the intermarket queue.76 The Exchange believes that grating queue priority to an Enhanced RPI Order as discussed in the Purpose section similarly reflects a reasonable effort by the Exchange to create additional price improvement opportunities for retail investors, as has been the standard identified by the Commission in several approval orders written in regards to RLPs.77 While the Exchange is not proposing to prioritize Retail Orders as EDGX has done, it is proposing to prioritize Enhanced RPI Orders that provide price improvement and may only interact with contra-side Retail Orders. The Exchange believes that the prioritization of Enhanced RPI Orders that offer meaningful price improvement over other resting orders on the same side of the BYX Book promotes just and equitable principles of trade and is consistent with Section 6(b)(5) of the Act as it encourages Users to submit aggressively priced Enhanced RPI Orders in exchange for queue priority ahead of all resting orders on the same side of the BYX Book so long as meaningful price improvement is provided to a contra-side Retail Order. The Exchange proposes to provide queue priority for Enhanced RPI Orders over all other types of orders and is not limiting queue priority to a certain subset of order types. As previously stated, all Users are eligible to submit Enhanced RPI Orders. And while the Exchange believes that most Enhanced 75 See EDGX Rule 11.9(a)(2)(A). Securities Exchange Act Release No. 87200 (October 2, 2019), 84 FR 53788 (October 8, 2019), SR–CboeEDGX–2019–012 (‘‘EDGX Retail Priority Approval Order’’). 77 Supra note 14. See also Securities Exchange Act Release No. 67347 (July 3, 2012), 77 FR 40673 (July 10, 2012) (SR–NYSE–2011–55; SR– NYSEAmex-2011–84) (‘‘RLP Approval Order’’) at 40679. 76 See 73 A review of internal Exchange data found that 60% of retail orders across the Exchange and its affiliates executed at the NBBO year-to-date in 2023. Similarly, 59% of retail orders across the Exchange and its affiliates executed at the NBBO in calendar year 2022. 74 See, e.g., IEX Rule 11.232; Nasdaq BX Rule 4780; NYSE National Rule 7.44–E; NYSE Rule 7.44. VerDate Sep<11>2014 06:41 Apr 20, 2024 Jkt 262001 PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 29399 RPI Orders will be submitted by or on behalf of professional traders, retail investors will have the opportunity to receive better-priced executions should their executing broker choose to submit a marketable Retail Order to the Exchange. The Exchange believes the introduction of Enhanced RPI Orders will deepen the Exchange’s pool of available liquidity, increase marketable retail order flow to the Exchange and provide additional competition for marketable retail order flow, most of which is currently executed offexchange in the OTC markets. Promoting competition for retail order flow among execution venues stands to benefit retail investors, who may be eligible to receive greater price improvement on the Exchange by interacting with an Enhanced RPI Order than they would if their order was internalized by a broker-dealer on the OTC market. Furthermore, the Exchange believes that its proposal to limit the use of the step-up range to determine order book priority is consistent with Section 6(b)(5) of the Act because the use of the step-up range rather than limit price to determine order priority is limited to the following: (1) the range is needed to gain priority over a resting order with higher order book priority; (2) in situations where (i) a contra-side Retail Order is entered at a less aggressive price than the Enhanced RPI Order’s limit price and all other resting liquidity in the same security and (ii) the Enhanced RPI Order’s step-up range is equal to or more aggressively priced than the Retail Order’s limit price; and (3) to determine order book priority when multiple Enhanced RPI Orders are resting on the BYX Book and are eligible to trade ahead of higher priority orders. The primary use case of the Enhanced RPI Order identified in the first scenario listed above is to provide price improvement to marketable retail order flow. As previously discussed in the Statutory Basis section, the Exchange believes allowing the use of a step-up range in order to provide an additional, more aggressive price at which an Enhanced RPI Order may execute is essential in order to deepen the pool of liquidity available to retail investors. In exchange for providing aggressively priced orders, these liquidity providers will be rewarded with executions against marketable retail order flow, which is generally preferred over more informed order flow. Retail investors, on the other hand, will receive meaningful price improvement should their order execute against an Enhanced RPI Order. In the situation where (i) a contra-side Retail Order is entered at a less E:\FR\FM\22APN1.SGM 22APN1 lotter on DSK11XQN23PROD with NOTICES1 29400 Federal Register / Vol. 89, No. 78 / Monday, April 22, 2024 / Notices aggressive price than the Enhanced RPI Order’s limit price and all other resting liquidity in the same security and (ii) the Enhanced RPI Order’s step-up range is equal to or more aggressively priced than the limit price of the Retail Order, the Exchange believes using the step-up range to determine order priority promotes just and equitable principles of trade because it rewards the Enhanced RPI Order with the most aggressive step-up range rather than forego an execution due to the limit price of all orders resting on the BYX Book being ineligible to trade with the contra-side Retail Order. The intent of the Enhanced RPI Order is to reward aggressively priced liquidity with queue priority while simultaneously providing price improvement to Retail Orders. The Exchange believes that determining order priority using the step-up range in this limited situation is aligned with the intent of liquidity providers that choose to submit Enhanced RPI Orders and emphasizes a benefit of using the Enhanced RPI Order—the ability to enter an order at a less aggressive price yet also provide a step-up range that the liquidity provider is willing to execute in order to execute against marketable retail order flow rather than forego an execution and remain on the BYX Book. The Exchange seeks to encourage liquidity providers to submit order flow designed to interact with marketable retail order flow in an effort to increase the amount of Retail Order executions occurring on-exchange. By rewarding aggressively priced Enhanced RPI Orders in situations where the order would otherwise not execute, the Exchange believes its pool of liquidity available to marketable retail order flow will deepen, thus incentivizing RMOs to submit additional marketable retail order flow to the Exchange. Likewise, using the step-up range rather than the limit price of an Enhanced RPI Order in situations where multiple Enhanced RPI Orders are resting on the BYX Book and are eligible to trade ahead of higher priority orders promotes the use of the Enhanced RPI Order type as the Exchange seeks to encourage RMOs to submit marketable Retail Orders to the Exchange. Determining order priority of Enhanced Orders based on their step-up range over the limit price of all other higher priority orders rewards the Enhanced RPI Order that provides the most aggressive step-up range. The Exchange believes that using the step-up range rather than the limit price in situations where there are multiple Enhanced RPI Orders will encourage Users to submit aggressively priced Enhanced RPI VerDate Sep<11>2014 06:41 Apr 20, 2024 Jkt 262001 Orders to the Exchange, as they will be given priority to interact with more desirable marketable retail order flow based on their step-up range. Additionally, the Exchange believes that RMOs will be encouraged to direct marketable retail order flow to the Exchange knowing that the worst price they will receive is $0.001 better than the Protected NBB or Protected NBO for securities priced at or above $1.00 78 and there is potential to receive more meaningful price improvement should an Enhanced RPI Order be present on the opposite side of the BYX Book.79 An analysis of internal Exchange data found that the current Program provided approximately $33 million in price improvement to retail investors during calendar year 2022, which is a substantial increase from the 4.5 million provided to retail investors between January 2016 and June 2018.80 It is reasonable to believe that the proposed Enhanced RPI Order, by virtue of providing at least $0.005 of price improvement in exchange for execution priority, would only add to the Exchange’s ability to provide price improvement to retail investors. The Exchange does not believe that offering additional price improvement to retail investors through Enhanced RPI Orders would cause harm to the broader market. On the contrary, the Exchange believes that rewarding Enhanced RPI Orders with order book priority in exchange for price improvement would further the Commission’s goal of providing additional opportunities for retail investors to interact directly with a large volume of individual investor orders. The Exchange created the Enhanced RPI Order with the goal of encouraging liquidity providers to submit orders eligible to interact with marketable retail order flow with the competition from these liquidity providers resulting in a reasonable alternative for marketable retail order flow to receive executions at a price better than the Protected NBBO. As the Commission noted in its Order Competition Rule proposal, over 90% of marketable NMS retail stock orders are 78 For securities priced below $1.00, the minimum amount of price improvement as compared to the Protected NBB or Protected NBO is $0.0001. 79 Retail Orders may only receive $0.001 price improvement in certain situations, including where an Enhanced RPI Order steps up against the limit price of an RPI Order priced in sub-pennies. An Enhanced RPI Order would be given order book priority over RPI Orders in the event that the Enhanced RPI Order was priced equal to or less aggressive than the limit price of a resting RPI Order but had a step-up range that was priced more aggressive than the limit price of the resting RPI Order (supra note 26). 80 See RPI Approval Order at 53184. PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 routed to wholesalers where the orders are not exposed to order-by-order competition.81 While wholesalers generally achieve price improvement relative to the NBBO, the Commission has indicated that exchanges often have liquidity available at the NBBO midpoint, which would be a more favorable price than a retail order receives when executed by a wholesaler.82 Here, the Exchange is proposing price improvement of at least $0.005, and in some cases $0.01, which the Exchange believes would further the Commission’s goal of ‘‘increasing competition and enhancing the direct exposure of individual investor orders to a broader spectrum of market participants’’ as set forth in section 11A of the Exchange Act.83 In addition to the proposed introduction of the Enhanced RPI Order, the Exchange also believes that expanding the Program to include securities priced below $1.00 is consistent with Section 6(b)(5) of the Act because it promotes just and equitable principles of trade by allowing liquidity providers to submit orders designed to interact with retail order flow in all securities, rather than only in securities priced at or above $1.00. As stated above, a significant majority of the increased volume in sub-dollar securities comes from executions occurring off-exchange.84 By permitting the Exchange to expand its Program to include securities priced below $1.00, the Exchange would be a more attractive venue for liquidity providers seeking to interact with retail order flow, which furthers the Commission’s goal of bringing retail order executions back onexchange. Further, the proposal to expand the Program to include securities priced below $1.00 is not unfairly discriminatory because all Users will be able to submit RPI Orders or Enhanced RPI Orders at prices below $1.00. As noted above, the Exchange, along with its affiliates, maintained a market share of 13.3% in sub-dollar securities during the first quarter of 2023.85 The Exchange believes that its expansion of the Program to include sub-dollar securities would lead to more liquidity providers submitting order flow to the Exchange in an attempt to execute against Retail Orders. In turn, RMOs would submit additional Retail Order flow to the Exchange to interact with RPI Orders and Enhanced RPI Orders as there would be additional 81 Supra note 23 at 178. 82 Id. 83 Id. 84 Supra note 57. 85 Id. E:\FR\FM\22APN1.SGM 22APN1 lotter on DSK11XQN23PROD with NOTICES1 Federal Register / Vol. 89, No. 78 / Monday, April 22, 2024 / Notices opportunities for price improvement in sub-dollar securities. The proposal removes impediments to and perfect the mechanism of a free and open market and a national market system and protects investors and the public interest by allowing executions in Retail Orders priced below $1.00 to receive price improvement by executing against RPI Orders or Enhanced RPI Orders, which are currently only available at prices at or above $1.00. In addition to the changes described above, the Exchange believes that the changes to certain existing rule text within Rule 11.24 is consistent with Section 6(b)(5) of the Act because it provides additional certainty as to how Rule 11.24 is to be applied. The proposed revised definition of RPI Interest in Rule 11.24(a)(5) is necessary in order to capture the proposed Enhanced RPI Order type, in addition to the existing RPI Order. Additionally, amending Rule 11.24(e) and Rule 11.24(f)(1)–(2) to reflect the changes made in Rule 11.24(a)(5) is necessary in order to ensure that RPI Interest is properly defined throughout Rule 11.24. The deletion of Rule 11.24(h) and renumbering of Rule 11.24(i) are consistent with the Exchange’s proposal to expand the Program to securities priced below $1.00. The proposed changes to Rule 11.24(a)(2) are intended to: (i) clarify that a Retail Order must be submitted with a time-in-force of IOC; and (ii) introduce the ability for Users to submit Retail Orders as Mid-Point Peg Orders, both of which changes serve to provide additional guidance to Users of Retail Orders about the order modifiers permitted by the Exchange. The Exchange believes these changes are ministerial in nature and serve to ensure that Rule 11.24 is properly describing order behavior after the proposed introduction of the Enhanced RPI Order and proposed expansion of the Program to securities priced below $1.00. exchange for price priority over resting orders on the same side of the BYX Book. The proposal, which seeks to provide an innovative form of price improvement to Retail Orders through the creation of the Enhanced RPI Order, represents an effort by the Exchange to encourage on-exchange liquidity an incentivize the trading of Retail Orders on a national securities exchange. The Exchange also believes the proposed rule change does not impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the Act. As discussed above, IEX, NYSE, NYSE National, and Nasdaq BX each operate RLPs and the Exchange believes that its proposed rule change will allow it to compete for additional retail order flow with the aforementioned exchanges.86 Furthermore, the Exchange’s proposal will promote competition between the Exchange and off-exchange trading venues where the majority of retail order flow trades today. The proposed Enhanced RPI Order is designed to foster innovation within the market and increase the quality of the national market system by allowing national securities exchanges to compete both with each other and with off-exchange venues for order flow. Expanding the program to include securities priced below $1.00 similarly would not impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the Act. The Exchange’s proposal is designed to increase competition for trading in all securities, including but not limited to securities priced below $1.00. Given the growth of trading in sub-dollar securities since 2020, the Exchange believes that expanding the Program to include subdollar securities will make the Program an attractive option for retail investors seeking to trade in lower-priced securities, and as such is a competitive measure designed to compete directly with other exchanges for order flow. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposal does not impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. Rather, the proposed rule change is designed to increase intramarket competition for retail order flow by introducing a new order type that is designed to provide price improvement to Retail Orders in C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. VerDate Sep<11>2014 06:41 Apr 20, 2024 Jkt 262001 III. Proceedings To Determine Whether To Approve or Disapprove SRCboeBYX–2023–020, as Modified by Amendment No. 1, and Grounds for Disapproval Under Consideration The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act 87 to determine whether the proposed rule change, as modified by Amendment No. 1, should be approved or disapproved. Institution of proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change, as modified by Amendment No. 1. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described below, the Commission seeks and encourages interested persons to provide comment on the proposed rule change, as modified by Amendment No.1, to inform the Commission’s analysis of whether to approve or disapprove the proposed rule change. Pursuant to Section 19(b)(2)(B) of the Act,88 the Commission is providing notice of the grounds for disapproval under consideration. The Commission is instituting proceedings to allow for additional analysis of, and input from commenters with respect to, the consistency of the proposal with the Act, and in particular with Sections 6(b)(5) 89 and 6(b)(8) 90 of the Act. Section 6(b)(5) of the 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 Act requires that the rules of a national securities exchange not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. IV. Procedure: Request for Written Comments The Commission requests that interested persons provide written submissions of their data, views, and arguments with respect to the issues identified above, as well as any other concerns they may have with the proposal. In particular, the Commission invites the written views of interested persons concerning whether the proposed rule change is consistent with the Exchange Act and the rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or 87 15 PO 00000 note 74. Frm 00120 Fmt 4703 90 15 Sfmt 4703 U.S.C. 78s(b)(2)(B). 88 Id. 89 15 86 Supra 29401 E:\FR\FM\22APN1.SGM U.S.C. 78f(b)(5). U.S.C. 78f(b)(8). 22APN1 29402 Federal Register / Vol. 89, No. 78 / Monday, April 22, 2024 / Notices disapproval that would be facilitated by an oral presentation of data, views, and arguments, the Commission will consider, pursuant to Rule 19b-4 under the Act,91 any request for an opportunity to make an oral presentation.92 Interested persons are invited to submit written data, views, and arguments regarding whether the proposed rule change should be approved or disapproved by May 13, 2024. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by May 28, 2024. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR-CboeBYX–2023–020 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-CboeBYX–2023–020. 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 91 17 CFR 240.19b–4. 19(b)(2) of the Act, as amended by the Securities Acts Amendments of 1975, Pub. L. 94– 29 (Jun. 4, 1975), grants to the Commission flexibility to determine what type of proceeding— either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by a self-regulatory organization. See Securities Acts Amendments of 1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). lotter on DSK11XQN23PROD with NOTICES1 92 Section VerDate Sep<11>2014 06:41 Apr 20, 2024 Jkt 262001 business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR-CboeBYX–2023–020 and should be submitted by May 13, 2024. Rebuttal comments should be submitted by May 28, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.93 Vanessa A. Countryman, Secretary. [FR Doc. 2024–08487 Filed 4–19–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99973/April 17, 2024] Order Making Fiscal Year 2024 Annual Adjustments to Transaction Fee Rates I. Background Section 31 of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) requires each national securities exchange and national securities association to pay transaction fees to the Commission.1 Specifically, Section 31(b) requires each national securities exchange to pay to the Commission fees based on the aggregate dollar amount of sales of certain securities (‘‘covered sales’’) transacted on the exchange.2 Section 31(c) requires each national securities association to pay to the Commission fees based on the aggregate dollar amount of covered sales transacted by or through any member of the association other than on an exchange.3 Section 31 of the Exchange Act requires the Commission to annually adjust the fee rates applicable under Sections 31(b) and (c) to a uniform adjusted rate.4 Specifically, the Commission must adjust the fee rates to a uniform adjusted rate that is reasonably likely to produce aggregate fee collections (including assessments on security futures transactions) equal 93 17 CFR 200.30–3(a)(57). U.S.C. 78ee. 2 15 U.S.C. 78ee(b). 3 15 U.S.C. 78ee(c). 4 In some circumstances, the SEC also must make a mid-year adjustment to the fee rates applicable under Sections 31(b) and (c). 1 15 PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 to the regular appropriation to the Commission for the applicable fiscal year.5 The Commission is required to publish notice of the new fee rates under Section 31 not later than 30 days after the date on which an Act making a regular appropriation for the applicable fiscal year is enacted.6 On March 23, 2024, the President signed into law the Further Consolidated Appropriations Act, 2024, which includes total appropriations of $2,188,658,000 to the SEC for fiscal year 2024. II. Fiscal Year 2024 Annual Adjustment to the Fee Rate The new fee rate is determined by (1) subtracting the sum of fees estimated to be collected prior to the effective date of the new fee rate 7 and estimated assessments on security futures transactions to be collected under Section 31(d) of the Exchange Act for all of fiscal year 2024 8 from an amount equal to the regular appropriation to the Commission for fiscal year 2024, and (2) dividing by the estimated aggregate dollar amount of covered sales for the remainder of the fiscal year following the effective date of the new fee rate.9 As noted above, the Further Consolidated Appropriations Act, 2024, includes total appropriations of $2,188,658,000 to the Commission for fiscal year 2024.10 The Commission 5 15 U.S.C. 78ee(j)(1) (the Commission must adjust the rates under Sections 31(b) and (c) to a ‘‘uniform adjusted rate that, when applied to the baseline estimate of the aggregate dollar amount of sales for such fiscal year, is reasonably likely to produce aggregate fee collections under [Section 31] (including assessments collected under [Section 31(d)]) that are equal to the regular appropriation to the Commission by Congress for such fiscal year.’’). 6 15 U.S.C. 78ee(g). 7 The sum of fees to be collected prior to the effective date of the new fee rate is determined by applying the current fee rate to the dollar amount of covered sales prior to the effective date of the new fee rate. The exchanges and FINRA have provided data on the dollar amount of covered sales through Feb. 2024. To calculate the dollar amount of covered sales from Mar. 2024 to the effective date of the new fee rate, the Commission is using the same methodology it used in fiscal year 2020. This methodology is described in Appendix A of this order. 8 Currently, security futures do not trade on any market, therefore the Commission has not collected any assessments for transactions in security futures. Accordingly, the forecast for the assessments for all of fiscal year 2024 for single stock futures is zero. 9 To estimate the aggregate dollar amount of covered sales for the remainder of fiscal year 2024 following the effective date of the new fee rate, the Commission is using the same methodology it used previously. This methodology is described in Appendix A of this order. 10 The President signed into law the ‘‘Further Consolidated Appropriations Act, 2024’’ on Mar. 23, 2024. This legislation included an appropriation of $2,149,000,000 to the SEC for fiscal year 2024 E:\FR\FM\22APN1.SGM 22APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 78 (Monday, April 22, 2024)]
[Notices]
[Pages 29389-29402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08487]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99965; File No. SR-CboeBYX-2023-020]D

Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing of Amendment No. 1 and Order Instituting Proceedings To
Determine Whether To Approve or Disapprove a Proposed Rule Change, as
Modified by Amendment No. 1, To Introduce an Enhanced RPI Order and
Expand Its Retail Price Improvement Program To Include Securities
Priced Below $1.00

April 16, 2024.
On December 27, 2023, Cboe BYX Exchange, Inc. (``BYX'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act

[[Page 29390]]

of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to modify Rule 11.24 to introduce an Enhanced RPI Order and
expand its Retail Price Improvement program to include securities
priced below $1.00. The proposed rule change was published for comment
in the Federal Register on January 17, 2024.\3\ On February 27, 2024,
pursuant to Section 19(b)(2) of the Act,\4\ the Commission designated a
longer period within which to approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to disapprove the proposed rule change.\5\ On March
6, 2024, the Exchange submitted Amendment No. 1 to the proposed rule
change as described in Items I and II below, which Items have been
prepared by the Exchange.\6\ To date, the Commission has received no
comments on the proposed rule change.\7\ The Commission is publishing
this notice and order to solicit comment on the proposed rule change,
as modified by Amendment No. 1, from interested persons and to
institute proceedings under Section 19(b)(2)(B) of the Act \8\ to
determine whether to approve or disapprove the proposed rule change, as
modified by Amendment No. 1.
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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. 99311 (Jan. 10,
2024), 89 FR 2993.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 99610, 89 FR 15621
(Mar. 4, 2024). The Commission designated April 16, 2024 as the date
by which the Commission shall approve or disapprove, or institute
proceedings to determine whether to disapprove, the proposed rule
change.
\6\ In Amendment No. 1, the Exchange amended the proposed rule
change to provide additional examples, justification and support for
its proposal and made certain changes to the proposed rule text. The
full text of Amendment No. 1 is available on the Commission's
website at: https://www.sec.gov/comments/sr-cboebyx-2023-020/srcboebyx2023020-442119-1127142.pdf.
\7\ Comments received on the proposed rule change are available
at: https://www.sec.gov/comments/sr-cboebyx-2023-020/srcboebyx2023020.htm.
\8\ 15 U.S.C. 78s(b)(2)(B).
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I. The Exchange's Description of the Terms of Proposed Rule Change, as
Modified by Amendment No. 1

The Exchange filed with the Commission a proposal to modify Rule
11.24 to introduce an Enhanced RPI Order and expand its Retail Price
Improvement program to include securities priced below $1.00. The text
of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, 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
Statutory Basis for, the Proposed Rule Change

1. Purpose
The Exchange proposes to amend Rule 11.24 to enhance the Exchange's
Retail Price Improvement Program (the ``Program'') for the benefit of
retail investors. Specifically, the Exchange proposes to introduce a
new type of RPI Interest \9\ to be known as an ``Enhanced RPI Order.''
The proposed Enhanced RPI Order will allow retail liquidity providers
to post orders at their limit price but have the opportunity to provide
a greater amount of price improvement as compared to other resting
orders on the same side of the BYX Book with higher price-time priority
in order to execute with an incoming Retail Order \10\ by exercising at
a price within their established step-up range. The proposed change is
designed to provide retail investors with additional opportunities for
meaningful price improvement by introducing a new order type that will
``step-up'' its price against orders with a higher priority resting on
the BYX Book.\11\ Additionally, the Exchange proposes to expand the
Program to securities priced below $1.00.\12\
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\9\ See proposed Rule 11.24(e). RPI Interest means an order
submitted to the Exchange that is designated as either an RPI Order
or an Enhanced RPI Order. See also Rule 11.24(a)(3) (``Retail Price
Improvement Order'').
\10\ See Rule 11.24(a)(2) (``Retail Order'').
\11\ See Rule 1.5(e) (``BYX Book''). The ``BYX Book'' is the
System's electronic file of orders. The ``System'' shall mean the
electronic communications and trading facility designated by the
Board through which securities orders of Users are consolidated for
ranking, execution, and when applicable, routing away. See Rule
1.5(aa) (``System'').
\12\ See Rule 11.24(h). The Program is currently limited to
trades occurring at prices equal to or greater than $1.00 per share.
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Background
In November 2012, the Exchange received approval to operate its
Program on a pilot basis.\13\ The Program operated under a pilot basis
until September 30, 2019, when the Program was approved on a permanent
basis.\14\ In addition, the Exchange was granted a limited exemption
from the Sub-Penny Rule, as well as Regulation NMS Rule 602 (Quote
Rule) No Action relief \15\ to operate the Program.\16\ The Program is
currently designed to attract Retail Orders to the Exchange and allow
such order flow to receive potential price improvement. The Program is
currently limited to trades occurring at prices equal to or greater
than $1.00 per share.\17\ Under the Program, a class of market
participant called a Retail Member Organization (``RMO'') \18\ is
eligible to submit certain retail order flow (``Retail Orders'') to the
Exchange. Users \19\ are permitted to provide potential price
improvement for Retail Orders \20\ in the form of non-displayed
interest that is better than the national best bid that is a Protected
Quotation (``Protected NBB'') or the national best offer that is a
Protected Quotation (``Protected NBO'', and together with the Protected
NBB, the ``Protected NBBO'').\21\
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\13\ See Securities Exchange Act Release No. 68303 (November 27,
2012), 77 FR 71652 (December 3, 2012), SR-BYX-2012-019 (``Pilot
Approval Order'').
\14\ See Securities Exchange Act Release No. 87154 (September
30, 2019), 84 FR 53183 (October 4, 2019), SR-CboeBYX-2019-014 (``RPI
Approval Order'').
\15\ See Letter from David Shillman to Eric Swanson (November
27, 2012) (``No Action Letter''), available at https://www.sec.gov/divisions/marketreg/mr-noaction/byx-112712-602.pdf.
\16\ Supra note 14 at 53185.
\17\ Supra note 12. The Exchange will periodically notify the
membership regarding the securities included in the Program through
an information circular. The Exchange is proposing to make the
Program available to all securities (discussed infra).
\18\ See Rule 11.24(a)(1). A ``Retail Member Organization'' or
``RMO'' is a Member (or a division thereof) that has been approved
by the Exchange under Rule 11.24 to submit Retail Orders.
\19\ See Rule 1.5(cc). A ``User'' is defined as any member or
sponsored participant of the Exchange who is authorized to obtain
access to the System.
\20\ Supra note 10. A ``Retail Order'' is defined as an agency
or riskless principal order that originates from a natural person
and is submitted to the Exchange by an RMO, provided that no change
is made to the terms of the order with respect to price or side of
market and the order does not originate from a trading algorithm or
any computerized methodology.
\21\ See Rule 1.5(t). The term ``Protected Quotation'' has the
same meaning as is set forth in Regulation NMS Rule 600(b)(71). The
terms Protected NBB and Protected NBO are defined in BYX Rule
1.5(s). The Protected NBB is the best-priced protected bid and the
Protected NBO is the best-priced protected offer. Generally, the
Protected NBB and Protected NBO and the national best bid (``NBB'')
and national best offer (``NBO'', together with the NBB, the
``NBBO'') will be the same. However, a market center is not required
to route to the NBB or NBO if that market center is subject to an
exception under Regulation NMS Rule 611(b)(1) or if such NBB or NBO
is otherwise not available for an automatic execution. In such case,
the Protected NBB or Protected NBO would be the best-priced
protected bid or offer to which a market center must route interest
pursuant to Regulation NMS Rule 611.

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[[Page 29391]]

The Exchange developed this Program with the goal of incentivizing
RMOs to execute their Retail Orders on the Exchange, rather than off-
exchange venues, by providing Retail Orders with greater access to
potential opportunities for price improvement on the Exchange. However,
as noted by the Commission, even with the presence of retail liquidity
programs (``RLPs'') offered by Cboe and other national securities
exchanges,\22\ the great majority of marketable orders of retail
investors continue to be sent to wholesalers.\23\ Indeed, as noted in
the Commission's recent rule proposal related to minimum pricing
increments, RLPs have not yet attracted a significant volume of retail
order flow.\24\ In fact, since RLPs have been adopted, the percentage
of on-exchange share volume has continued to decrease from
approximately 71% to approximately 56% as of November 2023.\25\
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\22\ See, e.g., NYSE Retail Liquidity program, which promotes
cost savings through price improvement for individual investors
provided by retail liquidity providers that submit non-displayed
interest priced better than the best protected best bid or protected
best offer. See also NYSE National Retail Liquidity program, which
seeks to attract retail order flow to the Exchange through the
potential of price improvement at the midpoint or better. Available
at https://www.nyse.com/markets/liquidity-programs. See also IEX
Retail Program, which incentivizes midpoint liquidity for retail
orders through the use of retail liquidity provider orders.
Available at https://www.iexexchange.io/products/retail-program. See
also Nasdaq BX Retail Price Improvement, which allows retail orders
to interact with price-improving liquidity. Available at https://www.nasdaqtrader.com/content/BXRPIfs.pdf.
\23\ See Securities Exchange Act Release No. 96495 (December 14,
2022), 88 FR 128 (January 3, 2023) (``Order Competition Rule'') at
144.
\24\ See Securities Exchange Act Release No. 96494 (December 14,
2022), 87 FR 80266 (December 29, 2022) (``Tick Size Proposal'') at
80273.
\25\ Source: Cboe internal data.
---------------------------------------------------------------------------

Accordingly, the Exchange now seeks to enhance its current Program
by offering retail liquidity providers an optional Enhanced RPI Order
type. The Exchange believes the Enhanced Order type will incentivize
additional retail liquidity provision by enabling RPI liquidity
providers to submit an order that is ranked at a less aggressive price
than the step-up range at which the provider is willing to execute, but
have the opportunity to ``step up'' to provide a greater amount of
price improvement as compared to other higher priority resting orders
on the same side of the BYX Book in order to execute with an incoming
contra-side Retail Order. As discussed in more detail, below, the
Enhanced RPI Order type will have price priority over resting orders
when its step-up range allows for additional price improvement when a
contra-side Retail Order is submitted to the Exchange. With the deeper
pool of retail liquidity-providing orders, the Exchange believes that
RMOs will see increased opportunities for on-exchange price improvement
and seek to execute more of their Retail Orders on the Exchange.
Proposal
The Exchange proposes to amend Rule 11.24(a) to include the
proposed Enhanced RPI Order, which allows a retail liquidity provider
to post a limit order to the Exchange, but also the opportunity to
``step-up'' its price within their defined step-up range by providing a
greater amount of price improvement as compared to orders with higher
priority that are resting on the same side of the BYX Book in order to
execute against an incoming Retail Order seeking to remove liquidity.
An Enhanced RPI Order is designed to be entered with a limit price, but
must also include a step-up range, which is the most aggressive price
it is willing to execute against a contra-side Retail Order. If the
Enhanced RPI Order includes a step-up range that improves against the
price of the highest-ranked resting order on the same side of the BYX
Book, the Enhanced RPI Order will be given price priority over the
highest-ranked resting order. In order for an Enhanced RPI Order to
receive price priority, the Enhanced RPI Order must be able to provide
a greater amount of price improvement to an incoming contra-side Retail
Order than would otherwise be available by stepping up to the next
minimum price increment.\26\
---------------------------------------------------------------------------

\26\ The Exchange notes that the minimum amount of required
price improvement will vary between $0.001 and $0.01, based on the
order types resting on the BYX Book (discussed infra).
---------------------------------------------------------------------------

The Exchange believes this proposed change would further the
purpose of the Program to attract retail marketable order flow to the
Exchange, while also increasing opportunities for price improvement. By
offering the Enhanced RPI Order, the Exchange has created an
enhancement to its current Program that offers a greater incentive for
liquidity providers to provide liquidity eligible to execute against
marketable retail order flow on the Exchange. The Enhanced RPI Order
would allow Users to post orders at their limit price but step-up to a
more aggressive price in order to execute against marketable retail
order flow that is less prone to adverse selection. Marketable retail
order flow, in turn, would receive price improvement greater than what
is currently available under the Program. The Exchange believes that
the proposed change will lead to increased participation in the Program
by Users seeking to provide liquidity for marketable retail order flow,
which in turn will attract additional marketable retail order flow to
the Exchange in search of price improvement opportunities.
The Exchange also proposes to introduce Rule 11.24(a)(5) in order
to define the term RPI Interest as either RPI Orders or Enhanced RPI
Orders. Additionally, the Exchange proposes to amend Rule 11.24(g) in
order to describe order priority for Enhanced RPI Orders. The Exchange
also proposes to make corresponding changes within Rule 11.24 to
replace certain references to RPI Order with the term RPI Interest in
order to have language inclusive of both RPI Orders and Enhanced RPI
Orders. Further, the Exchange proposes to delete Rule 11.24(h), as the
Exchange proposes to expand the Program to sub-dollar securities. The
Exchange will announce that the RPI Program has expanded to all
securities in a Trade Desk notice, and periodic updates will no longer
be required. The Exchange also proposes to renumber Rule 11.24(i) in
conjunction with the deletion of Rule 11.24(h).
Additionally, with the introduction of the Enhanced RPI Order, the
Exchange proposes to amend Rule 11.24(a)(2) to permit a Retail Order to
be entered as a Mid-Point Peg Order.\27\ The Exchange also proposes to
amend Rule 11.24(a)(2) to better describe that the time-in-force
requirement for all Retail Orders, including those entered as a Mid-
Point Peg Order, is required to be Immediate or Cancel (``IOC''). The
Exchange believes that allowing the Mid-Point Peg Order instruction on
a Retail Order will benefit Users who choose to submit Retail Orders
because it will permit a Retail Order to guarantee price

[[Page 29392]]

improvement at the midpoint or better. The Mid-Point Peg Order
instruction will be optional, and not required for Users of Retail
Orders.
---------------------------------------------------------------------------

\27\ See Rule 11.9(c)(9). A Mid-Point Peg Order is a limit order
that, after entry into the System, the price of the order is
automatically adjusted by the System in response to changes in the
NBBO to be pegged to the mid-point of the NBBO, or, alternatively,
pegged to the less aggressive of the midpoint of the NBBO or one
minimum price variation inside the same side of the NBBO as the
order.
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Current RPI Orders
Rule 11.24(a)(3) currently defines an RPI Order as ``non-displayed
interest on the Exchange that is priced better than the Protected NBB
or Protected NBO by at least $0.001 and that is identified as such.''
\28\ The Exchange now proposes to amend the definition of RPI Order to
more accurately reflect how an RPI Order may be entered by defining an
RPI Order as ``non-displayed interest on the Exchange that is eligible
to execute at prices better than the Protected NBB or Protected NBO by
at least $0.001 in securities priced at or above $1.00 and by at least
$0.0001 in securities priced below $1.00 and that is identified as
such.'' As the Exchange is also proposing to expand the Program to
prices below $1.00, more specificity is required regarding the minimum
pricing increment. Further, the Exchange is clarifying that an RPI
Order may be entered at any price but may execute only at prices better
than the Protected NBB or Protected NBO.
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\28\ Supra note 9.
---------------------------------------------------------------------------

As stated in Rule 11.24(a)(3), RPI Orders are non-displayed and are
ranked in accordance with Rule 11.12(a). Furthermore, under Rule
11.24(g), competing RPI Orders in the same security are ranked and
allocated according to price then time of entry into the System.
Executions occur in price/time priority in accordance with Rule 11.12.
Any remaining unexecuted RPI interest remains available to interact
with other incoming Retail Orders if such interest is at an eligible
price. Any remaining unexecuted portion of the Retail Order will cancel
or execute in accordance with Rule 11.24(f). The following example
illustrates this method:
Protected NBBO for security ABC is $10.00-$10.05
User 1 enters an RPI Order to buy ABC at $10.015 for 500
shares
User 2 then enters an RPI Order to buy ABC at $10.02 for
500 shares
User 3 then enters an RPI Order to buy ABC at $10.035 for
500 shares
An incoming Retail Order to sell ABC for 1,000 shares executes
first against User 3's bid for 500 shares at $10.035, because it is the
best priced bid, then against User 2's bid for 500 shares at $10.02,
because it is the next best priced bid. User 1 is not filled because
the entire size of the Retail Order to sell 1,000 shares is depleted.
The Retail Order executes against RPI Orders in price/time
priority.\29\
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\29\ See Rule 11.24(f) for additional examples of priority and
order allocation in the current Program.
---------------------------------------------------------------------------

Enhanced RPI Order
The Exchange now proposes to introduce a new type of RPI Order that
Users seeking to provide RPI liquidity may utilize on an optional
basis. The proposed Enhanced RPI Order will be eligible to obtain price
priority over resting orders in the same security on the same side of
the BYX Book in order to execute against a Retail Order by including a
step-up range when entered. Enhanced RPI Orders will be ranked in
accordance with proposed Rule 11.24(g)(2) (discussed infra). In order
to effect the proposed change, the Exchange proposes to introduce Rule
11.24(a)(4), which would define an Enhanced RPI Order as:
An ``Enhanced Retail Price Improvement Order'' or
``Enhanced RPI Order'' consists of non-displayed interest on the
Exchange that is eligible to execute against contra-side Retail Orders.
An Enhanced RPI Order will be ranked at its limit price and must also
include a step-up range, which is the maximum price (for buy orders) or
minimum price (for sell orders) at which the Enhanced RPI Order is
willing to execute. An Enhanced RPI Order may execute at: (i) its limit
price; (ii) for securities priced at or above $1.00, at a price within
the step-up range that is able to improve upon the price of a same-side
resting order on the BYX Book by stepping up to the next half cent or
full cent, and for securities priced below $1.00 by stepping up to the
next minimum price increment; or (iii) at a price within the step-up
range when the limit price of a contra-side Retail Order is within the
step-up range. An Enhanced RPI Order may be a Primary Pegged order or a
limit order. The System will monitor whether Enhanced RPI interest,
including the step-up range, and adjusted by any offset and subject to
the ceiling or floor price, is eligible to interact with incoming
Retail Orders. An Enhanced RPI Order (the buy or sell interest, the
step-up range, the offset, and the ceiling or floor) remains non-
displayed in its entirety. Any User is permitted, but not required, to
submit Enhanced RPI Orders. An Enhanced RPI Order may be an odd lot,
round lot or mixed lot. An Enhanced RPI Order shall have priority as
described in Rule 11.24(g)(2).
The price of an Enhanced RPI Order will be determined by a User's
entry of the following into the Exchange: (1) Enhanced RPI buy or sell
interest; (2) the step-up range; (3) an offset, if any; and (4) a
ceiling or floor price, if any. The step-up range of an Enhanced RPI
Order is the maximum amount above the order's limit price at which a
User is willing to execute. If the Enhanced RPI Order can improve upon
resting liquidity on the same side of the BYX Book by stepping up to
the nearest whole cent tick or half cent midpoint tick, it will receive
price priority over the resting liquidity on the BYX Book. An Enhanced
RPI Order, however, will not improve upon the price of another resting
Enhanced RPI Order to receive price priority.\30\
---------------------------------------------------------------------------

\30\ The Exchange plans to submit a request for an exemption
under Regulation NMS Rule 612 that would permit it to accept and
rank non-displayed RPI Interest. As outlined in the request, the
Exchange has received an exemption from Rule 612 for the current
Program, but believes it is appropriate to renew its request as the
Program seeks to introduce Enhanced RPI Orders even as the
fundamental nature of the Program is not changing.
---------------------------------------------------------------------------

Enhanced RPI Order Priority
As discussed above, the proposed Enhanced RPI Order will be ranked
at its limit price, which is less aggressive than its step-up range.
With the introduction of the proposed Enhanced RPI Order, the Exchange
proposes to reorganize Rule 11.24(g) into Rule 11.24(g)(1) and (2).
Proposed Rule 11.24(g)(1) would contain the existing rule text that
describes order priority with respect to RPI Orders, which the Exchange
does not propose to amend. Proposed Rule 11.24(g)(2) would describe
order priority with respect to Enhanced RPI Orders.
An Enhanced RPI Order will be ranked and allocated according to its
limit price then time of entry into the System. The Exchange proposes,
however, that an Enhanced RPI Order will be granted price priority over
orders resting on the BYX Book in the event that the Enhanced RPI Order
is able to provide a greater amount of price improvement to an incoming
contra-side Retail Order by stepping up to the next half cent \31\ or
full cent (for securities priced at or above $1.00) or the next minimum
price increment (for securities priced below $1.00). The step-up range
of an Enhanced RPI Order will be utilized to determine price priority
when: (1) the range is needed to gain priority over a resting order
with higher

[[Page 29393]]

order book priority that is not an Enhanced RPI Order; (2) in
situations where: (a) a contra-side Retail Order is entered at a less
aggressive price than the ranked price of the Enhanced RPI Order and
all other resting liquidity and (b) the Enhanced RPI Order's step-up
range is equal to or more aggressively priced than the Retail Order's
limit price; and (3) to determine order book priority when multiple
Enhanced RPI Orders are resting on the BYX Book and are eligible to
trade ahead of higher priority orders resting on the BYX Book that are
not Enhanced RPI Orders. The Exchange notes when multiple Enhanced RPI
Orders are resting on the BYX Book, there are no other resting orders
on the same side of the BYX Book with higher priority, and a contra-
side Retail Order is entered at a price equal to or more aggressive
than the highest-priced Enhanced RPI Order resting on the BYX Book, the
Enhanced RPI Orders will execute in standard price/time priority
according to their limit price rather than utilize the step-up range to
determine order book priority.
---------------------------------------------------------------------------

\31\ Discussed infra Examples 1 and 2. An Enhanced RPI Order may
only need to step-up one half cent in order to provide meaningful
price improvement in situations where: i) the NBBO midpoint is
priced at a half cent and the Enhanced RPI Order is stepping up to
the next full cent; or ii) the best-priced resting order is ranked
at a full cent and the NBBO midpoint is priced in a half cent
increment, then the Enhanced RPI Order will only need to step up to
the NBBO.
---------------------------------------------------------------------------

The Exchange has included the examples below to show how order
priority with an Enhanced RPI Order will be determined. In the examples
below, the Retail Liquidity Identifier (discussed infra) is presumed to
be displayed unless stated otherwise.
Example 1 \32\
---------------------------------------------------------------------------

\32\ See proposed Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------

In order to illustrate priority of an Enhanced RPI Order over other
non-displayed orders resting on the BYX Book, consider the following
example:
The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters a Mid-Point Peg \33\ order to buy ABC at $10.03
for 100. User 1's order is ranked at $10.025 as the User elected that
the Mid-Point Peg order be pegged to the mid-point of the NBBO.
---------------------------------------------------------------------------

\33\ Supra note 27.
---------------------------------------------------------------------------

[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 2's step-up range is $0.02. User 2's order is ranked at
$10.01 and is willing to step-up to a maximum price of $10.03.
[cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
Result: User 3's Retail Order for 100 will execute against
User 2's Enhanced RPI Order at $10.03. While User 1's order is ranked
at a higher price ($10.025) than User 2's order ($10.01), User 2's
order includes a step-up range of $0.02 and is willing to step up to a
maximum price of $10.03, which provides additional price improvement to
User 3's Retail Order than User 1's Mid-Point Peg Order. As User 2's
order provides an additional $0.005 of price improvement over User 1's
midpoint price, the Exchange gives priority to User 2's Enhanced RPI
Order.
Example 2 \34\
---------------------------------------------------------------------------

\34\ See proposed Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------

There are two situations in which an Enhanced RPI Order may only
need to step-up one-half cent in order to provide meaningful price
improvement. First, when the NBBO midpoint is priced in a half cent and
the Enhanced RPI Order is stepping up from the half-cent midpoint to
the next full cent in order to provide price improvement (see Example 1
above). The second instance occurs when the best-priced resting order
on the BYX Book is ranked at a whole cent, and the NBBO midpoint is
priced in a half cent increment, the Enhanced RPI Order will only need
to step-up to the NBBO midpoint order to provide meaningful price
improvement. Consider the following example:
The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters a non-displayed order to buy ABC at $10.02 for
100.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 2's step-up range is $0.02. User 2's order is ranked at
$10.01 and is willing to step up to a maximum price of $10.03.
[cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
Result: User 3's Retail Order for 100 will execute against
User 2's Enhanced RPI Order at $10.025. While User 1's order is ranked
at a higher price ($10.02) than User 2's order ($10.01), User 2 has
included a step-up range of $0.02 on its order and is willing to step
up to a maximum price of $10.03 in order to provide additional price
improvement as compared to other orders resting on the BYX Book. Even
though User 2's order may execute up to a price of $10.03, it only
needs to provide one-half cent price improvement over User 1's ranked
price of $10.02 in order to provide meaningful price improvement at the
midpoint.
Example 3 \35\
---------------------------------------------------------------------------

\35\ See proposed Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------

There are instances where an Enhanced RPI Order may need to step-up
a full penny in order to provide meaningful price improvement. Consider
the following:
The Protected NBBO for security ABC is $10.00 x $10.10.
[cir] User 1 enters a non-displayed order to buy ABC at $10.03 for
100.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 2's step-up range is $0.04. User 2's order is ranked at
$10.01 and is willing to step up to a maximum price of $10.05.
[cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
Result: User 3's Retail Order for 100 will execute against
User 2's Enhanced RPI Order at $10.04. While User 1's order is ranked
at a higher price ($10.03) than User 2's order ($10.01), User 2 has
included a step-up range of $0.04 on its order and is willing to step
up to a maximum price of $10.05 in order to provide additional price
improvement as compared to other orders resting on the BYX Book. Even
though User 2's order may execute up to a price of $10.05, it only
needs to provide one penny of price improvement above User 1's ranked
price of $10.03 in order to provide meaningful price improvement.
Example 4 \36\
---------------------------------------------------------------------------

\36\ See proposed Rule 11.24(a)(4).
---------------------------------------------------------------------------

There may be instances where there is no other liquidity resting on
the BYX Book against which the Enhanced RPI Order can step up against.
In these instances, the Enhanced RPI Order will trade at its ranked
price. Consider the following example.
The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 1's step-up range is $0.015. User 1's order is ranked at
$10.01 and is willing to step up to a maximum price of $10.025.
[cir] User 2 enters a Retail Order to sell ABC at $10.00 for 100.
Result: User 2's Retail Order for 100 will execute against
User 1's Enhanced RPI Order at $10.01 as there are no better-priced
orders resting on the BYX Book against which User 1 would need to
provide greater price improvement to User 2.
Example 5 \37\
---------------------------------------------------------------------------

\37\ See proposed Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------

Enhanced RPI Orders will only have priority against other better-
priced liquidity resting on the BYX Book in the event that the Enhanced
RPI Order can step-up to the next half cent or full cent. In the
example below, the Enhanced RPI Order is unable to step up against the
best priced order on the BYX Book but is able to step up against an
order ranked at the next best price level. Consider the following
example:
The Protected NBBO for security ABC is $10.00 x $10.05.

[[Page 29394]]

[cir] User 1 enters a non-displayed order to buy ABC at $10.04 for
100.
[cir] User 2 enters a non-displayed order to buy ABC at $10.02 for
100.
[cir] User 3 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 3's step-up range is $0.03. User 3's order is ranked at
$10.01 and is willing to step up to a maximum price of $10.04.
[cir] User 4 enters a Retail Order to sell ABC at $10.00 for 150.
Result: User 4's Retail Order will execute 100 shares
first with User 1's non-displayed order as User 1's non-displayed order
has price priority over the orders submitted by Users 2 and 3. While
User 3's Enhanced RPI Order includes a step-up range of $0.03 and is
willing to execute up to a maximum price of $10.04, the step-up range
does not provide greater price improvement for User 4's Retail Order as
compared to User 1's non-displayed order and as such, User 3's Enhanced
RPI Order does not have priority over User 1's non-displayed order.
Once User 4's Retail Order executes against User 1's non-displayed
order, 50 shares remain on User 4's Retail Order. User 4's Retail Order
will then execute its remaining 50 shares with User 3's Enhanced RPI
Order at a price of $10.025. While User 2's non-displayed order is
ranked at a higher price ($10.02) than User 3's Enhanced RPI Order
($10.01), User 3's Enhanced RPI Order has a step-up range of $0.03 and
is willing to execute up to a maximum price of $10.04 and User 2's non-
displayed order does not contain a step-up range. As User 3's Enhanced
RPI Order is willing to provide greater price improvement as compared
to a better-priced order resting on the same side of the BYX Book, it
is given priority over User 2's non-displayed order. User 3's Enhanced
RPI Order executes 50 shares against User 4's non-displayed order at a
price of $10.025 because it provides one-half cent of price improvement
over User 2's ranked price of $10.02.
Example 6 \38\
---------------------------------------------------------------------------

\38\ See proposed Rule 11.24(a)(4).
---------------------------------------------------------------------------

Enhanced RPI Orders will execute within their step-up range when
the incoming Retail Order's price is not executable at the Enhanced RPI
Order's ranked price. Consider the following example:
The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 1's step-up range is $0.03. User 1's order is ranked at
$10.01 and is willing to step up to a maximum price of $10.04.
[cir] User 2 enters a Retail Order to sell ABC at $10.03 for 100.
Result: User 2's Retail Order will execute with User 1's
Enhanced RPI Order at $10.03 as the limit price of User 2's Retail
Order ($10.03) is within the maximum price provided by User 1's step-up
range.
Example 7 \39\
---------------------------------------------------------------------------

\39\ See proposed Rule 11.24(g)(2).
---------------------------------------------------------------------------

When there are multiple Enhanced RPI Orders resting on the BYX
Book, no other same side liquidity with higher priority, and the
contra-side Retail Order is priced more aggressively than the resting
Enhanced RPI Orders, execution priority will be determined by the
higher ranked price and not by the step-up ranges of the Enhanced RPI
Orders. Consider the following example:
The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 1's step-up range is $0.04. User 1's order is ranked at
$10.01 and is willing to step up to a maximum price of $10.05.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.02 for
100. User 2's step-up range is $0.02. User 2's order is ranked at
$10.02 and is willing to step up to a maximum price of $10.04.
[cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
Result: User 3's Retail Order will execute with User 2's
Enhanced RPI Order at $10.02 because User 2's Enhanced RPI Order has
price priority over User 1's Enhanced RPI Order due to its higher
ranked price of $10.02. Given that User 3's Retail Order was priced
more aggressively than the resting Enhanced RPI Orders at its time of
entry, the Exchange believes that priority should be determined by
using the ranked price of the Enhanced RPI Orders resting on the BYX
Book at the time of User 3's Retail Order entry.
Example 8 \40\
---------------------------------------------------------------------------

\40\ See proposed Rule 11.24(g)(2)(B).
---------------------------------------------------------------------------

The step-up range will be used to determine order book priority in
situations where: (i) a contra-side Retail Order is entered at a less
aggressive price than the Enhanced RPI Order's limit price and all
other resting liquidity in the same security and (ii) the Enhanced RPI
Order's step-up range is equal to or more aggressively priced than the
Retail Order's limit price. Consider the following example:
The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 1's step-up range is $0.04. User 1's order is ranked at
$10.01 and is willing to step up to a maximum price of $10.05.
[cir] User 2 enters a non-displayed order to buy ABC at $10.02 for
100. User 2's order is ranked at $10.02.
[cir] User 3 enters a Retail Order to sell ABC at $10.03 for 100.
Result: User 3's order will execute with User 1's Enhanced
RPI Order at $10.03 because (i) User 3's Retail Order was entered at a
less aggressive price than the ranked price of both User 1 and User 2's
orders; and (ii) the maximum price provided by the step-up range of
User 1's Enhanced RPI Order is more aggressively priced ($10.05) than
the limit price of User 3's Retail Order ($10.03). Even though User 2's
ranked price is higher than User 1's ranked price, User 2's order is
not marketable against User 3's Retail Order. User 3's Retail Order
would otherwise be unable to execute if the Exchange did not look to
the price improvement provided by User 1's step-up range to permit an
execution between User 1 and User 3.
Example 9 \41\
---------------------------------------------------------------------------

\41\ See proposed Rule 11.24(g)(2)(C).
---------------------------------------------------------------------------

The step-up range will be used to determine order book priority in
situations where multiple Enhanced RPI Orders are resting on the BYX
Book and are eligible to trade ahead of higher priority orders resting
on the BYX Book. Consider the following example:
The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 1's step-up range is $0.04. User 1's order is ranked at
$10.01 and is willing to step up to a maximum price of $10.05.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.02 for
100. User 2's step-up range is $0.02. User 2's order is ranked at
$10.02 and is willing to step up to a maximum price of $10.04.
[cir] User 3 enters a non-displayed order to buy ABC at $10.03 for
100. User 3's order is ranked at $10.03.
[cir] User 4 enters a Retail Order to sell ABC at $10.03 for 100.
Result: User 4's Retail Order will execute with User 1's
Enhanced RPI Order at $10.04 because the Exchange looks to the step-up
range to determine order book priority when there are multiple Enhanced
RPI Orders resting on the BYX Book that are willing to provide
additional price improvement as compared to other orders resting on the
BYX Book. While both User 1 and User 2 can execute at a price of
$10.04,

[[Page 29395]]

User 1's Enhanced RPI Order can result in a higher maximum possible
execution price (step up range of $0.04; maximum price of $10.05) as
compared to User 2's Enhanced RPI Order (step up range of $0.02;
maximum price of $10.04). As such, User 1's Enhanced RPI Order is given
priority ahead of User 2's Enhanced RPI Order to execute against User
4's Retail Order. In this instance, when there are multiple Enhanced
RPI Orders that can provide price improvement to the contra-side Retail
Order, the Exchange believes it is appropriate to grant order book
priority to the Enhanced RPI Order containing the step-up range that
could result in the highest (in the event of a buy order) or lowest (in
the event of a sell order) potential maximum execution price, even if
the resulting execution does not occur at the highest (lowest) maximum
execution price. By granting execution priority to the User who's
Enhanced RPI Order results in the highest (lowest) potential maximum
execution price, the Exchange is encouraging Users to submit
aggressively priced orders. As such, the Exchange believes it is
appropriate to give priority to User 1's Enhanced RPI Order in this
instance because User 1's Enhanced RPI Order (step-up range of $0.04;
maximum price of $10.05) could potentially result in a higher maximum
execution price than User 2's Enhanced RPI Order (step-up range of
$0.02; maximum price of $10.04) and is therefore willing to provide
additional price improvement to Retail Orders as compared to User 2's
Enhanced RPI Order.
Example 10 \42\
---------------------------------------------------------------------------

\42\ See proposed Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------

Enhanced RPI Orders will have price priority over resting RPI
orders (that do not contain a step-up range) on the BYX Book so long as
the step-up range of the Enhanced RPI Order is greater than the limit
price of the resting RPI order. Consider the following example:
The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 1's step-up range is $0.04. User 1's order is ranked at
$10.01 and is willing to step up to a maximum price of $10.05.
[cir] User 2 enters an RPI Order to buy ABC at $10.02.
[cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
Result: User 3's Retail Order will execute with User 1's
Enhanced RPI Order at a price of $10.025 because User 1's Enhanced RPI
Order containing a step-up range allows User 3's Retail Order to
receive an additional one-half cent price improvement as compared to
the ranked price of User 2's RPI Order. While User 2's RPI Order had a
higher ranked price ($10.02) than User 1's Enhanced RPI Order ($10.01),
User 2's RPI Order did not contain a step-up range. Given that Enhanced
RPI Orders are designed to provide meaningful price improvement against
all resting orders on the BYX Book, the Exchange believes this factor
favors using the price improvement provided by the step-up range in
order to determine priority in situations where there are both resting
RPI and Enhanced RPI Orders on the BYX Book. While RPI Orders do
provide at least $0.001 of price improvement as compared to the
Protected NBBO, Enhanced RPI Orders allow for price improvement to the
next valid half cent or full cent as the transaction is priced above
$1.00.\43\ Thus, using the step-up range to determine priority when RPI
Orders are resting on the BYX Book results in an increased amount of
price improvement for the contra-side Retail Order.
---------------------------------------------------------------------------

\43\ The Exchange notes that there may be situations in which an
Enhanced RPI Order that is granted order book priority over an RPI
Order will provide only $0.001 of price improvement over the RPI
Order when stepping up to the next half cent or full cent. For
example, the Protected NBBO is $10.00 x $10.05. Assume that a buy-
side Enhanced RPI Order for 100 shares has a step-up range to $10.04
and is granted order book priority over a buy-side RPI Order for 100
shares with a limit price of $10.024. A sell-side Retail Order for
100 shares is entered at $10.00. In this instance, the buy-side
Enhanced RPI Order steps-up to a price of $10.025 to execute against
the sell-side Retail Order. While the Enhanced RPI Order is only
providing $0.001 of price improvement as compared to the RPI Order
with a limit price of $10.024, the Enhanced RPI Order provides a
total of $0.025 of price improvement to the Retail Order as compared
to the Retail Order's limit price of $10.00.
---------------------------------------------------------------------------

Example 11 \44\
---------------------------------------------------------------------------

\44\ See proposed Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------

Enhanced RPI Orders may also improve against displayed orders
resting on the BYX Book in order to provide price improvement to a
contra-side Retail Order. Consider the following example:
The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $9.99 for
100. User 1's step-up range is $0.06. User 1's order is ranked at $9.99
and is willing to step up to a maximum price of $10.05. The Retail
Liquidity Identifier is not displayed as the limit price of $9.99 is
below the NBB and the Retail Liquidity Identifier will only display
when there is RPI Interest priced at least $0.001 better than the
Protected NBB or Protected NBO.
[cir] User 2 enters a displayed order to buy ABC at $10.00 for 100.
[cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
Result: User 3's Retail Order will execute with User 1's
Enhanced RPI Order at a price of $10.01. While User 2's displayed order
is displayed and ranked at a higher price ($10.00) than User 1's
Enhanced RPI Order ($9.99), User 1's Enhanced RPI Order includes a
step-up range of $0.06 on its order, which permits the order to execute
up to a maximum price of $10.05. In this instance, executing User 2's
displayed order at $10.00 does not provide any price improvement to the
Retail Order when User 1's Enhanced RPI Order is resting on the BYX
Book and is willing to provide additional price improvement to Order 3
than Order 2 is willing to provide. User 1's Enhanced RPI Order is
willing to step up to the next full cent above $10.00 (in this case,
$10.01), which provides a full penny of price improvement to User 3's
Retail Order., As such, this is the price at which User 3's Retail
Order executes with User 1's Enhanced RPI Order.
Example 12 \45\
---------------------------------------------------------------------------

\45\ See proposed Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------

An Enhanced RPI Order that is also a Primary Pegged Order \46\
without an offset will behave in the same manner as an Enhanced RPI
Order that is entered without a Primary Pegged Order instruction.
Consider the following example:
---------------------------------------------------------------------------

\46\ See Rules 11.9(c)(8) and 11.9(c)(8)(A). A Pegged Order is a
limit order that after entry into the System, the price of the order
is automatically adjusted by the System in response to changes in
the NBBO. A Primary Pegged Order is a type of Pegged Order where a
User includes a limit priced and a predetermined amount by which the
User is willing to improve the Protected NBBO, subject to a ceiling
or floor price. The ceiling or floor price is the amount above or
below which the User does not wish to trade.
---------------------------------------------------------------------------

The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters a hidden order to buy ABC at $10.03 for 100.
[cir] User 2 enters an Enhanced RPI Order that is also Primary
Pegged Order to buy ABC at $10.02 for 100. User 2's step-up range is
$0.03. User 2's order does not include an offset. User 2's order is
ranked at $10.00 and is willing to step up to a maximum price of
$10.03.
The Protected NBBO for security ABC changes to $10.01 x
$10.05.
[cir] User 2's Enhanced RPI Order that is also a Primary Pegged
Order is now ranked at $10.01 and is willing to step up to a maximum
price of $10.04.
[cir] User 3 enters a Retail Order to sell ABC at $10.01 for 100.

[[Page 29396]]

Result: User 3's Retail Order will execute with User 2's
Enhanced RPI Order at a price of $10.04 because User 2's Enhanced RPI
Order includes a step-up range of $0.03 and is willing to execute up to
a maximum price of $10.04 (based on the Protected NBBO at the time User
3's order is entered) in order to provide additional price improvement
as compared to other orders resting on the BYX Book. While User 1's
order has a higher limit price ($10.03) than User 2's Enhanced RPI
Order ($10.01, based on the Protected NBBO at the time User 3's order
is entered), User 2's Enhanced RPI Order is given queue priority due to
its ability to provide $0.01 of price improvement over User 1's order.
Example 13 \47\
---------------------------------------------------------------------------

\47\ See proposed Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------

An Enhanced RPI Order that is also a Primary Pegged Order that
contains a positive offset will behave in the same manner as an
Enhanced RPI Order that is entered without a Primary Pegged Order
instruction, except that the offset amount will determine where the
order is ranked. Consider the following example:
The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters a hidden order to buy ABC at $10.03 for 100.
[cir] User 2 enters an Enhanced RPI Order that is also Primary
Pegged Order to buy ABC at $10.02 for 100. User 2's step-up range is
$0.03. User 2's order includes an offset of $0.01. User 2's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.04.
The Protected NBBO for security ABC changes to $10.01 x
$10.05.
[cir] User 2's Enhanced RPI Order that is also a Primary Pegged
Order is now ranked at $10.02 and is willing to step up to a maximum
price of $10.05.
[cir] User 3 enters a Retail Order to sell ABC at $10.01 for 100.
Result: User 3's Retail Order will execute with User 2's
Enhanced RPI Order at a price of $10.04 because User 2's Enhanced RPI
Order includes a step-up range of $0.03 and is willing to execute up to
a maximum price of $10.05 (based on the Protected NBBO and the offset
of $0.01 at the time User 3's order is entered) in order to provide
additional price improvement as compared to other orders resting on the
BYX Book. While User 1's order has a higher limit price ($10.03) than
User 2's Enhanced RPI Order ($10.02, based on the Protected NBBO and
the offset of $0.01 at the time User 3's order is entered), User 2's
Enhanced RPI Order is given queue priority due to its ability to
provide $0.01 of price improvement over User 1's order.
Example 14 \48\
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\48\ See proposed Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------

An Enhanced RPI Order that is also a Primary Pegged Order that
contains a negative offset will behave in the same manner as an
Enhanced RPI Order that is entered without a Primary Pegged Order
instruction, except that the offset amount will determine where the
order is ranked. Consider the following example:
The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters a hidden order to buy ABC at $10.03 for 100.
[cir] User 2 enters an Enhanced RPI Order that is also Primary
Pegged Order to buy ABC at $10.02 for 100. User 2's step-up range is
$0.03. User 2's order includes an offset of ($0.01). User 2's order is
ranked at $9.99 and is willing to step up to a maximum price of $10.02.
The Protected NBBO for security ABC changes to $10.01 x
$10.05.
[cir] User 2's Enhanced RPI Order that is also a Primary Pegged
Order is now ranked at $10.00 and is willing to step up to a maximum
price of $10.03.
[cir] User 3 enters a Retail Order to sell ABC at $10.01 for 100.
Result: User 3's Retail Order will execute with User 1's
hidden order at a price of $10.03. As User 2's Enhanced RPI Order is
unable to provide additional price improvement to User 1's hidden
order, User 1's order retains priority and executes with User 3's
Retail Order. The negative offset of $0.01 causes User 2's order to be
ranked at $10.00 after the Protected NBBO changed from $10.00 x $10.05
to $10.01 x $10.05, and User 2's step-up range of $0.03 was unable to
provide the minimum amount of price improvement in order to gain queue
priority ahead of User 1's hidden order.
Example 15 \49\
---------------------------------------------------------------------------

\49\ See proposed Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------

Enhanced RPI Orders may also improve upon resting orders that are
BYX Post Only Orders in order to provide price improvement to contra-
side Retail Orders. Consider the following example:
The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters BYX Post Only Order to buy ABC at $10.02 for
100.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 2's step-up range is $0.04. User 2's order is ranked at
$10.01 and is willing to step up to a maximum price of $10.05.
[cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
Result: User 2's Enhanced RPI Order executes against User
3's Retail Order at $10.03. While User 1's BYX Post Only Order is
ranked at a higher price ($10.02) than User 2's order, User 2's
Enhanced RPI Order is willing to step-up $0.04 over the best-priced
resting order to gain queue priority. While User 2 can step-up to a
price of $10.05, User 2's Enhanced RPI Order only needs to step-up to a
price of $10.03 in order to gain queue priority over User 1's BYX Post
Only Order.
Example 16 \50\
---------------------------------------------------------------------------

\50\ See proposed Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------

Enhanced RPI Orders will also be available for securities priced
below $1.00. In order for an Enhanced RPI Order in a security priced
below $1.00 to gain queue priority over a same-side resting order, the
Enhanced RPI Order must be able to step up to the next minimum price
increment. Consider the following example:
The Protected NBBO for security ABC is $0.2001 x $0.2025.
[cir] User 1 enters a hidden order to buy ABC at $0.2003 for 100.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $0.2002 for
100. User 2's step-up range is $0.001. User 2's order is ranked at
$0.2002 and is willing to step up to a maximum price of $0.2012.
[cir] User 3 enters a Retail Order to sell ABC at $0.2001.
Result: User 2's Enhanced RPI Order executes against User
3's Retail Order at a price of $0.2004. While User 1's hidden order is
ranked at a higher price ($0.2003) than User 2's Enhanced RPI Order
($0.2002), User 2's Enhanced RPI Order included a step-up range of
$0.001 and is willing to execute at a price up to $0.2012 in order to
gain queue priority. The next minimum price increment above $0.2003 is
$0.2004, which is inside User 2's step-up range and as such, User 2's
order will have queue priority over User 1's order.
As demonstrated in the examples above, the Exchange is proposing to
grant an Enhanced RPI Order price priority over equal-priced or better-
priced resting orders on the BYX Book so long as the Enhanced RPI Order
can provide meaningful price improvement over such resting orders. The
Exchange believes that allowing liquidity providers to post orders
outside of the range at which they are willing to execute yet maintain
the opportunity to step-up against resting orders on the

[[Page 29397]]

same side of the BYX Book in exchange for price priority will
incentivize these liquidity providers to provide additional liquidity
on the Exchange. As a result of additional, aggressively priced
liquidity submitted to the Exchange designed specifically to interact
with Retail Orders, RMOs will therefore be incentivized to submit
additional retail order flow to the Exchange which has the potential to
interact with an Enhanced RPI Order and receive meaningful price
improvement.
Retail Liquidity Identifier
The Exchange currently disseminates an identifier pursuant to Rule
11.24(e) when RPI Interest priced at least $0.001 better than the
Protected NBB or Protected NBO for a particular security is available
in the System (``Retail Liquidity Identifier'' or ``Identifier''). The
Identifier is disseminated through consolidated data streams (i.e.,
pursuant to the Consolidated Tape Association Plan/Consolidated
Quotation Plan, or CTA/CQ, for Tape A and Tape B securities, and the
Nasdaq UTP Plan for Tape C securities) as well as through proprietary
Exchange data feeds.\51\ The Identifier reflects the symbol and the
side (buy or sell) of the RPI Interest, but does not include the price
or size of the RPI Interest. In particular, CQ and UTP quoting outputs
include a field for codes related to the Retail Liquidity Identifier.
The codes indicate RPI Interest that is priced better than the
Protected NBB or Protected NBO by at least the minimum level of price
improvement as required by the Program.
---------------------------------------------------------------------------

\51\ The Exchange notes that the Retail Liquidity Identifier for
Tape A and Tape B securities are disseminated pursuant to the CTA/CQ
Plan. The identifier is also available through the consolidated
public market data stream for Tape C securities. The processor for
the Nasdaq UTP disseminates the Retail Liquidity Identifier and
analogous identifiers from other market centers that operate
programs similar to the RPI Program.
---------------------------------------------------------------------------

The Exchange proposes to continue to disseminate the Retail
Liquidity Identifier in its current form should the Enhanced RPI Order
be approved.\52\ For Enhanced RPI Orders, the indicator will be based
off of the ranked price only and the step-up range will not be used.
The purpose of the Identifier is to provide relevant market information
to RMOs that there is available RPI interest available on the Exchange,
thereby incentivizing RMOs to send Retail Orders to the Exchange. The
Exchange proposes to make clear in Rule 11.24(e) that both RPI Orders
and Enhanced RPI Orders constitute RPI Interest and that the Retail
Liquidity Identifier shall be disseminated when RPI Interest (as
defined in proposed Rule 11.24(e)) priced at least $0.001 better than
the Protected NBB or Protected NBO for a particular security is
available in the System for securities priced at or above $1.00. A
separate liquidity identifier that identifies Enhanced RPI Order
interest will not be disseminated. For securities priced at or above
$1.00, displaying the Retail Liquidity Identifier will provide an
indication to RMOs that at least $0.001 of price improvement is
available in the System, with the opportunity of potentially receiving
additional price improvement should the available RPI Interest be in
the form of an Enhanced RPI Order.
---------------------------------------------------------------------------

\52\ The Exchange plans on submitting a letter requesting
assurance from staff of the Division of Trading and Markets that it
will not recommend enforcement action to the Commission pursuant to
Rule 602 of Regulation NMS (the ``Quote Rule'') with respect to: (1)
the Exchange with respect to collecting, processing, and making
available to vendors the best bid, best offer, and quotation sizes
communicated by members of the Exchange, or (2) liquidity providers
entering RPI Interest under the Program.
---------------------------------------------------------------------------

As discussed below, the Exchange proposes to expand the Program to
include securities priced below $1.00. Given that the minimum price
variation (``MPV'') of a sub-dollar security is $0.0001,\53\ the
Identifier for sub-dollar securities will be displayed when there is at
least $0.0001 of price improvement over the Protected NBB or Protected
NBO. The Exchange will not make any other changes to the Identifier for
sub-dollar securities other than the minimum amount of price
improvement required to display the Identifier.
---------------------------------------------------------------------------

\53\ See 17 CFR 242.612 (``Minimum pricing increment'').
---------------------------------------------------------------------------

Securities Priced Below $1.00
Rule 11.24(h) currently limits the Program to trades occurring at
prices equal to or greater than $1.00 per share and the Exchange
periodically notifies Members \54\ regarding securities included in the
Program through an information circular.\55\ Now, the Exchange proposes
to expand the Program to all securities, including those priced below
$1.00. The rationale behind expanding the Program to all securities
regardless of execution price stems from the growth of sub-dollar
trading (i.e., trading at prices below $1.00), both on- and off-
exchange. As of March 2023, an analysis of SIP \56\ data by the
Exchange found that sub-dollar average daily volume has increased 313%
as compared to first quarter 2019.\57\ In this period, sub-dollar on-
exchange average daily volume grew from 442 million shares per day to
1.8 billion shares per day.\58\ An analysis of SIP and FINRA Trade
Reporting Facility (``TRF''),\59\ data indicates that exchanges
represented approximately 39.8% market share in sub-dollar securities,
with a total of 1,638 securities trading below $1.00.\60\ As an
exchange group, Cboe had approximately 13.3% of market share of sub-
dollar securities in the first quarter of 2023.\61\
---------------------------------------------------------------------------

\54\ See Rule 1.5(n). The term ``Member'' shall mean ay
registered broker or dealer that has been admitted to membership in
the Exchange. A Member will have the status of a ``member'' of the
Exchange as that term is defined in Section 3(a)(3) of the Act.
Membership may be granted to a sole proprietor, partnership,
corporation, limited liability company or other organization which
is a registered broker or dealer pursuant to Section 15 of the Act,
and which has been approved by the Exchange.
\55\ Supra note 12.
\56\ The ``SIP'' refers to the centralized securities
information processors.
\57\ See ``How Subdollar Securities are Trading Now'' (March 16,
2023). Available at https://www.cboe.com/insights/posts/how-subdollar-securities-are-trading-now/.
\58\ Id.
\59\ Trade Reporting Facilities are facilities through which
FINRA members report off-exchange transactions in NMS stocks, as
defined in SEC Rule 600(b)(47) of Regulation NMS. See Tick Size
Proposal at 80315.
\60\ Supra note 57.
\61\ Id.
---------------------------------------------------------------------------

As trading in sub-dollar securities has grown steadily since 2020,
the Exchange believes it is appropriate to expand the Program to
include securities priced below $1.00. The Exchange notes, however,
that the MPV for sub-dollar securities differs from the MPV for
securities priced at or above $1.00. As provided for by Regulation NMS
Rule 612, for securities priced below $1.00, the MPV is $0.0001,
whereas for securities priced at or above $1.00 the MPV is $0.01.\62\
The Exchange proposes that in order for an Enhanced RPI Order to gain
queue priority ahead of resting orders on the same side of the BYX
Book, the Enhanced RPI Order will be stepped-up to the nearest MPV
($0.0001) for securities priced below $1.00. This differs from the
treatment of Enhanced RPI Orders for securities priced at or above
$1.00, which are proposed to be stepped-up to the nearest half-cent
midpoint or whole cent tick ahead of resting orders on the same side of
the BYX Book. The Exchange believes that the different treatment of
Enhanced RPI Orders for securities priced below $1.00 is appropriate
given that the MPV for securities priced below $1.00 is significantly
less than the MPV for securities priced at or above $1.00. Currently,
all Regulation NMS securities traded on the Exchange priced at or above
$1.00 are eligible for inclusion in the Program. The Exchange will
announce to its Members via a Trade Desk Notice that the Exchange will
no

[[Page 29398]]

longer provide periodic updates of securities included in the Program
as the Program is being expanded to include all Regulation NMS
securities traded on the Exchange, regardless of price.
---------------------------------------------------------------------------

\62\ Supra note 53.
---------------------------------------------------------------------------

Implementation
The Exchange plans to implement the proposed rule change during the
second half of 2024 and will announce the implementation date via Trade
Desk Notice.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\63\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \64\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \65\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------

\63\ 15 U.S.C. 78f(b).
\64\ 15 U.S.C. 78f(b)(5).
\65\ Id.
---------------------------------------------------------------------------

The Commission has repeatedly emphasized that the U.S. capital
markets should be structured with the interests of retail investors in
mind \66\ and has recently proposed a series of rules designed, in
part, to attempt to bring order flow back to the exchanges from off-
exchange trading venues.\67\ The Exchange believes its proposed
enhancements to the Program are consistent with the Commission's goal
of ensuring that the equities markets continue to serve the needs of
the investing public. Specifically, introducing the Enhanced RPI Order
type would protect investors and the public interest by providing
retail investors the ability to obtain meaningful price improvement on
BYX, a national securities exchange. The Exchange is committed to
innovation that improves the quality of the equities markets and
believes that the proposed Enhanced RPI Order may increase the
attractiveness of the Exchange for the execution of Retail Orders
submitted on behalf of the millions of ordinary investors that rely on
these markets for their investment needs.
---------------------------------------------------------------------------

\66\ See U.S. Securities and Exchange Commission, Strategic
Plan, Fiscal Years 2018-2022, available at https://www.sec.gov/files/SEC_Strategic_Plan_FY18-FY22_FINAL_0.pdf.
\67\ Supra notes 23-24. See also, Securities Exchange Act
Release No. 96496 (December 14, 2022), 88 FR 5440 (January 27, 2023)
(``Regulation Best Execution''); Securities Exchange Act Release No.
96493 (December 14, 2022), 88 FR 3786 (January 20, 2023)
(``Disclosure of Order Execution Information'').
---------------------------------------------------------------------------

The Exchange believes the proposed Enhanced RPI Order promotes just
and equitable principles of trade and is not unfairly discriminatory
because the order type will be available for all Users, and is not
limited to a certain subset of market participants. Even though
Enhanced RPI Orders may be entered by any market participant, the
Exchange believes that the majority of Enhanced RPI Orders will be
entered by or on behalf of institutional investors that are willing to
provide additional price improvement as a way to minimize their adverse
selection costs.\68\ The Exchange does not believe that such
segmentation is inconsistent with section 6(b)(5) of the Act, as it
does not permit unfair discrimination. The Commission has previously
stated that the markets generally distinguish between retail investors,
whose orders are considered desirable by liquidity providers because
such retail investors are presumed to be less informed about short-term
price movements, and professional traders, whose orders are presumed to
be more informed.\69\ The Commission has further stated that without
opportunities for price improvement, retail investors may encounter
wider spreads that are a consequence of liquidity providers interacting
with more informed order flow.\70\ The Exchange believes that its
proposed Enhanced RPI Order is reasonably designed to attract
marketable retail order flow to the exchange as it will help to ensure
that retail investors benefit from the better price that liquidity
providers are willing to provide to retail orders in exchange for
minimizing their adverse selection costs.
---------------------------------------------------------------------------

\68\ Adverse selection is the phenomenon where the price of a
stock drops right after a liquidity provider purchases the stock.
Marketable retail order flow is generally seen as more desirable by
institutional liquidity providers as executions against retail
orders are less prone to adverse selection. The Commission has
previously opined that retail liquidity programs may be beneficial
to institutional investors as they may be able to reduce their
possible adverse selection costs by interacting with retail order
flow. See Pilot Approval Order at 71656.
\69\ Id.
\70\ Id.
---------------------------------------------------------------------------

Additionally, the Exchange believes that the proposed Enhanced RPI
Order type is not unfairly discriminatory to institutional investors as
it rewards the User that enters the most aggressively priced Enhanced
RPI Order with order book priority. Ultimately, execution priority
amongst orders resting on the BYX Book will be determined by the step-
up range entered on each Enhanced RPI Order. If the step-up range for
an Enhanced RPI Order provides a marketable, contra-side Retail Order
with greater price improvement than would otherwise be available from
other resting orders by stepping up to the next half cent or full cent
(for securities priced at or above $1.00) or the next minimum price
increment (for securities priced below $1.00), then the Enhanced RPI
Order will be granted order book priority. In the event that multiple
Enhanced RPI Orders are resting on the BYX Book, the Enhanced RPI Order
with the highest step-up range will be given order book priority. The
Exchange believes rewarding the most aggressively priced step-up range
will encourage Users to submit Enhanced RPI Orders with step-up ranges
that are likely to provide meaningful price improvement to Retail
Orders, which ultimately benefits both retail investors, who will
receive price improvement over the NBBO, and the User entering the
Enhanced RPI Order, who is able to execute against a marketable Retail
Order to minimize its adverse selection costs and interact with retail
order flow that they are currently unable to access on the Exchange
given that such order flow is largely executed off-exchange.
As noted in the Exchange's initial RPI filings,\71\ most equities
exchanges, including BYX, determine priority based on a price/time/
display allocation model.\72\ This has contributed to deep and liquid
markets for equity securities as liquidity providers compete to be the
first to establish a particular price. While the price/time/display
allocation model generally works well for institutional investors,
retail investors are traditionally not able to compete with market
makers and other automated liquidity providers to set an aggressive
price on orders submitted to

[[Page 29399]]

the Exchange. Importantly, retail investors, in contrast to
institutional investors, tend to have longer investment time horizons,
which means they are not in the business of optimizing queue placement
under a time-based allocation model. Therefore, in order to facilitate
the needs of retail investors, the Exchange believes an alternative
approach--such as this Enhanced RPI Order proposal--would benefit the
retail investor community.
---------------------------------------------------------------------------

\71\ Supra notes 29-30.
\72\ Nasdaq PSX, however, offers a price setter pro rata model
that rewards liquidity providers that set the best price and then
rewards other market participants that enter larger sized orders.
See Securities Exchange Act Release No. 72250 (May 23, 2014), 79 FR
31147 (May 30, 2014) (SR-Phlx-2014-24).
---------------------------------------------------------------------------

As discussed earlier, the proposed introduction of the Enhanced RPI
Order is designed to provide retail investors with enhanced
opportunities to obtain meaningful price improvement by providing them
with potential opportunities to execute versus non-displayed Enhanced
RPI Orders that offer price improvement beyond that offered by resting
orders on the Exchange. Marketable retail order flow is routinely
executed in full on entry at the national best bid or offer or
better,\73\ but many retail liquidity programs, including the
Exchange's current Program, are designed to offer at least $0.001 of
price improvement over the Protected NBB or Protected NBO to Retail
Orders.\74\ By introducing Enhanced RPI Orders, the Exchange is
proposing to prioritize Enhanced RPI Orders ahead of other resting
orders on the same side of the BYX Book in exchange for the Enhanced
RPI Order offering meaningful price improvement to Retail Orders by
stepping up to the next half cent or whole cent (for securities priced
at or above $1.00) or the next minimum price increment (for securities
priced below $1.00). The Exchange believes the ability to post an order
at a price outside of the range at which it is willing to execute with
the ability to gain priority in exchange for executing at a more
aggressive price will (1) encourage Users to submit aggressively priced
Enhanced RPI Orders, and (2) attract Retail Order flow to the Exchange,
both of which will benefit all investors. Increased order flow will
create a deeper pool of liquidity on the Exchange, which provides for
greater execution opportunities for all Users and provides for overall
enhanced price discovery and price improvement opportunities on the
Exchange. If successful, the proposed rule change would benefit market
participants by increasing the diversity of order flow with which they
can interact on a national securities exchange, thereby increasing
order interaction and contributing to price formation.
---------------------------------------------------------------------------

\73\ A review of internal Exchange data found that 60% of retail
orders across the Exchange and its affiliates executed at the NBBO
year-to-date in 2023. Similarly, 59% of retail orders across the
Exchange and its affiliates executed at the NBBO in calendar year
2022.
\74\ See, e.g., IEX Rule 11.232; Nasdaq BX Rule 4780; NYSE
National Rule 7.44-E; NYSE Rule 7.44.
---------------------------------------------------------------------------

Giving queue priority to certain order types is not a novel concept
in the securities markets. In fact, on the Exchange's affiliate, Cboe
EDGX Exchange, Inc. (``EDGX''), the displayed portion of Retail
Priority Orders are given allocation priority ahead of all other
available interest on the EDGX Book (``EDGX Retail Priority'').\75\ The
Commission found that EDGX Retail Priority represented a reasonable
effort to enhance the ability of bona fide retail trading interest to
compete for executions with orders entered by other market participants
that may be better equipped to optimize their place in the intermarket
queue.\76\ The Exchange believes that grating queue priority to an
Enhanced RPI Order as discussed in the Purpose section similarly
reflects a reasonable effort by the Exchange to create additional price
improvement opportunities for retail investors, as has been the
standard identified by the Commission in several approval orders
written in regards to RLPs.\77\ While the Exchange is not proposing to
prioritize Retail Orders as EDGX has done, it is proposing to
prioritize Enhanced RPI Orders that provide price improvement and may
only interact with contra-side Retail Orders.
---------------------------------------------------------------------------

\75\ See EDGX Rule 11.9(a)(2)(A).
\76\ See Securities Exchange Act Release No. 87200 (October 2,
2019), 84 FR 53788 (October 8, 2019), SR-CboeEDGX-2019-012 (``EDGX
Retail Priority Approval Order'').
\77\ Supra note 14. See also Securities Exchange Act Release No.
67347 (July 3, 2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-55;
SR-NYSEAmex-2011-84) (``RLP Approval Order'') at 40679.
---------------------------------------------------------------------------

The Exchange believes that the prioritization of Enhanced RPI
Orders that offer meaningful price improvement over other resting
orders on the same side of the BYX Book promotes just and equitable
principles of trade and is consistent with Section 6(b)(5) of the Act
as it encourages Users to submit aggressively priced Enhanced RPI
Orders in exchange for queue priority ahead of all resting orders on
the same side of the BYX Book so long as meaningful price improvement
is provided to a contra-side Retail Order. The Exchange proposes to
provide queue priority for Enhanced RPI Orders over all other types of
orders and is not limiting queue priority to a certain subset of order
types. As previously stated, all Users are eligible to submit Enhanced
RPI Orders. And while the Exchange believes that most Enhanced RPI
Orders will be submitted by or on behalf of professional traders,
retail investors will have the opportunity to receive better-priced
executions should their executing broker choose to submit a marketable
Retail Order to the Exchange. The Exchange believes the introduction of
Enhanced RPI Orders will deepen the Exchange's pool of available
liquidity, increase marketable retail order flow to the Exchange and
provide additional competition for marketable retail order flow, most
of which is currently executed off-exchange in the OTC markets.
Promoting competition for retail order flow among execution venues
stands to benefit retail investors, who may be eligible to receive
greater price improvement on the Exchange by interacting with an
Enhanced RPI Order than they would if their order was internalized by a
broker-dealer on the OTC market.
Furthermore, the Exchange believes that its proposal to limit the
use of the step-up range to determine order book priority is consistent
with Section 6(b)(5) of the Act because the use of the step-up range
rather than limit price to determine order priority is limited to the
following: (1) the range is needed to gain priority over a resting
order with higher order book priority; (2) in situations where (i) a
contra-side Retail Order is entered at a less aggressive price than the
Enhanced RPI Order's limit price and all other resting liquidity in the
same security and (ii) the Enhanced RPI Order's step-up range is equal
to or more aggressively priced than the Retail Order's limit price; and
(3) to determine order book priority when multiple Enhanced RPI Orders
are resting on the BYX Book and are eligible to trade ahead of higher
priority orders. The primary use case of the Enhanced RPI Order
identified in the first scenario listed above is to provide price
improvement to marketable retail order flow. As previously discussed in
the Statutory Basis section, the Exchange believes allowing the use of
a step-up range in order to provide an additional, more aggressive
price at which an Enhanced RPI Order may execute is essential in order
to deepen the pool of liquidity available to retail investors. In
exchange for providing aggressively priced orders, these liquidity
providers will be rewarded with executions against marketable retail
order flow, which is generally preferred over more informed order flow.
Retail investors, on the other hand, will receive meaningful price
improvement should their order execute against an Enhanced RPI Order.
In the situation where (i) a contra-side Retail Order is entered at
a less

[[Page 29400]]

aggressive price than the Enhanced RPI Order's limit price and all
other resting liquidity in the same security and (ii) the Enhanced RPI
Order's step-up range is equal to or more aggressively priced than the
limit price of the Retail Order, the Exchange believes using the step-
up range to determine order priority promotes just and equitable
principles of trade because it rewards the Enhanced RPI Order with the
most aggressive step-up range rather than forego an execution due to
the limit price of all orders resting on the BYX Book being ineligible
to trade with the contra-side Retail Order. The intent of the Enhanced
RPI Order is to reward aggressively priced liquidity with queue
priority while simultaneously providing price improvement to Retail
Orders. The Exchange believes that determining order priority using the
step-up range in this limited situation is aligned with the intent of
liquidity providers that choose to submit Enhanced RPI Orders and
emphasizes a benefit of using the Enhanced RPI Order--the ability to
enter an order at a less aggressive price yet also provide a step-up
range that the liquidity provider is willing to execute in order to
execute against marketable retail order flow rather than forego an
execution and remain on the BYX Book. The Exchange seeks to encourage
liquidity providers to submit order flow designed to interact with
marketable retail order flow in an effort to increase the amount of
Retail Order executions occurring on-exchange. By rewarding
aggressively priced Enhanced RPI Orders in situations where the order
would otherwise not execute, the Exchange believes its pool of
liquidity available to marketable retail order flow will deepen, thus
incentivizing RMOs to submit additional marketable retail order flow to
the Exchange.
Likewise, using the step-up range rather than the limit price of an
Enhanced RPI Order in situations where multiple Enhanced RPI Orders are
resting on the BYX Book and are eligible to trade ahead of higher
priority orders promotes the use of the Enhanced RPI Order type as the
Exchange seeks to encourage RMOs to submit marketable Retail Orders to
the Exchange. Determining order priority of Enhanced Orders based on
their step-up range over the limit price of all other higher priority
orders rewards the Enhanced RPI Order that provides the most aggressive
step-up range. The Exchange believes that using the step-up range
rather than the limit price in situations where there are multiple
Enhanced RPI Orders will encourage Users to submit aggressively priced
Enhanced RPI Orders to the Exchange, as they will be given priority to
interact with more desirable marketable retail order flow based on
their step-up range. Additionally, the Exchange believes that RMOs will
be encouraged to direct marketable retail order flow to the Exchange
knowing that the worst price they will receive is $0.001 better than
the Protected NBB or Protected NBO for securities priced at or above
$1.00 \78\ and there is potential to receive more meaningful price
improvement should an Enhanced RPI Order be present on the opposite
side of the BYX Book.\79\
---------------------------------------------------------------------------

\78\ For securities priced below $1.00, the minimum amount of
price improvement as compared to the Protected NBB or Protected NBO
is $0.0001.
\79\ Retail Orders may only receive $0.001 price improvement in
certain situations, including where an Enhanced RPI Order steps up
against the limit price of an RPI Order priced in sub-pennies. An
Enhanced RPI Order would be given order book priority over RPI
Orders in the event that the Enhanced RPI Order was priced equal to
or less aggressive than the limit price of a resting RPI Order but
had a step-up range that was priced more aggressive than the limit
price of the resting RPI Order (supra note 26).
---------------------------------------------------------------------------

An analysis of internal Exchange data found that the current
Program provided approximately $33 million in price improvement to
retail investors during calendar year 2022, which is a substantial
increase from the 4.5 million provided to retail investors between
January 2016 and June 2018.\80\ It is reasonable to believe that the
proposed Enhanced RPI Order, by virtue of providing at least $0.005 of
price improvement in exchange for execution priority, would only add to
the Exchange's ability to provide price improvement to retail
investors. The Exchange does not believe that offering additional price
improvement to retail investors through Enhanced RPI Orders would cause
harm to the broader market. On the contrary, the Exchange believes that
rewarding Enhanced RPI Orders with order book priority in exchange for
price improvement would further the Commission's goal of providing
additional opportunities for retail investors to interact directly with
a large volume of individual investor orders. The Exchange created the
Enhanced RPI Order with the goal of encouraging liquidity providers to
submit orders eligible to interact with marketable retail order flow
with the competition from these liquidity providers resulting in a
reasonable alternative for marketable retail order flow to receive
executions at a price better than the Protected NBBO. As the Commission
noted in its Order Competition Rule proposal, over 90% of marketable
NMS retail stock orders are routed to wholesalers where the orders are
not exposed to order-by-order competition.\81\ While wholesalers
generally achieve price improvement relative to the NBBO, the
Commission has indicated that exchanges often have liquidity available
at the NBBO midpoint, which would be a more favorable price than a
retail order receives when executed by a wholesaler.\82\ Here, the
Exchange is proposing price improvement of at least $0.005, and in some
cases $0.01, which the Exchange believes would further the Commission's
goal of ``increasing competition and enhancing the direct exposure of
individual investor orders to a broader spectrum of market
participants'' as set forth in section 11A of the Exchange Act.\83\
---------------------------------------------------------------------------

\80\ See RPI Approval Order at 53184.
\81\ Supra note 23 at 178.
\82\ Id.
\83\ Id.
---------------------------------------------------------------------------

In addition to the proposed introduction of the Enhanced RPI Order,
the Exchange also believes that expanding the Program to include
securities priced below $1.00 is consistent with Section 6(b)(5) of the
Act because it promotes just and equitable principles of trade by
allowing liquidity providers to submit orders designed to interact with
retail order flow in all securities, rather than only in securities
priced at or above $1.00. As stated above, a significant majority of
the increased volume in sub-dollar securities comes from executions
occurring off-exchange.\84\ By permitting the Exchange to expand its
Program to include securities priced below $1.00, the Exchange would be
a more attractive venue for liquidity providers seeking to interact
with retail order flow, which furthers the Commission's goal of
bringing retail order executions back on-exchange. Further, the
proposal to expand the Program to include securities priced below $1.00
is not unfairly discriminatory because all Users will be able to submit
RPI Orders or Enhanced RPI Orders at prices below $1.00. As noted
above, the Exchange, along with its affiliates, maintained a market
share of 13.3% in sub-dollar securities during the first quarter of
2023.\85\ The Exchange believes that its expansion of the Program to
include sub-dollar securities would lead to more liquidity providers
submitting order flow to the Exchange in an attempt to execute against
Retail Orders. In turn, RMOs would submit additional Retail Order flow
to the Exchange to interact with RPI Orders and Enhanced RPI Orders as
there would be additional

[[Page 29401]]

opportunities for price improvement in sub-dollar securities. The
proposal removes impediments to and perfect the mechanism of a free and
open market and a national market system and protects investors and the
public interest by allowing executions in Retail Orders priced below
$1.00 to receive price improvement by executing against RPI Orders or
Enhanced RPI Orders, which are currently only available at prices at or
above $1.00. In addition to the changes described above, the Exchange
believes that the changes to certain existing rule text within Rule
11.24 is consistent with Section 6(b)(5) of the Act because it provides
additional certainty as to how Rule 11.24 is to be applied. The
proposed revised definition of RPI Interest in Rule 11.24(a)(5) is
necessary in order to capture the proposed Enhanced RPI Order type, in
addition to the existing RPI Order. Additionally, amending Rule
11.24(e) and Rule 11.24(f)(1)-(2) to reflect the changes made in Rule
11.24(a)(5) is necessary in order to ensure that RPI Interest is
properly defined throughout Rule 11.24. The deletion of Rule 11.24(h)
and renumbering of Rule 11.24(i) are consistent with the Exchange's
proposal to expand the Program to securities priced below $1.00. The
proposed changes to Rule 11.24(a)(2) are intended to: (i) clarify that
a Retail Order must be submitted with a time-in-force of IOC; and (ii)
introduce the ability for Users to submit Retail Orders as Mid-Point
Peg Orders, both of which changes serve to provide additional guidance
to Users of Retail Orders about the order modifiers permitted by the
Exchange. The Exchange believes these changes are ministerial in nature
and serve to ensure that Rule 11.24 is properly describing order
behavior after the proposed introduction of the Enhanced RPI Order and
proposed expansion of the Program to securities priced below $1.00.
---------------------------------------------------------------------------

\84\ Supra note 57.
\85\ Id.
---------------------------------------------------------------------------

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

The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the proposal does not impose any burden on intramarket competition that
is not necessary or appropriate in furtherance of the purposes of the
Act. Rather, the proposed rule change is designed to increase
intramarket competition for retail order flow by introducing a new
order type that is designed to provide price improvement to Retail
Orders in exchange for price priority over resting orders on the same
side of the BYX Book. The proposal, which seeks to provide an
innovative form of price improvement to Retail Orders through the
creation of the Enhanced RPI Order, represents an effort by the
Exchange to encourage on-exchange liquidity an incentivize the trading
of Retail Orders on a national securities exchange.
The Exchange also believes the proposed rule change does not impose
any burden on intermarket competition that is not necessary or
appropriate in furtherance of the Act. As discussed above, IEX, NYSE,
NYSE National, and Nasdaq BX each operate RLPs and the Exchange
believes that its proposed rule change will allow it to compete for
additional retail order flow with the aforementioned exchanges.\86\
Furthermore, the Exchange's proposal will promote competition between
the Exchange and off-exchange trading venues where the majority of
retail order flow trades today. The proposed Enhanced RPI Order is
designed to foster innovation within the market and increase the
quality of the national market system by allowing national securities
exchanges to compete both with each other and with off-exchange venues
for order flow. Expanding the program to include securities priced
below $1.00 similarly would not impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
Act. The Exchange's proposal is designed to increase competition for
trading in all securities, including but not limited to securities
priced below $1.00. Given the growth of trading in sub-dollar
securities since 2020, the Exchange believes that expanding the Program
to include sub-dollar securities will make the Program an attractive
option for retail investors seeking to trade in lower-priced
securities, and as such is a competitive measure designed to compete
directly with other exchanges for order flow.
---------------------------------------------------------------------------

\86\ Supra note 74.
---------------------------------------------------------------------------

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

The Exchange neither solicited nor received comments on the
proposed rule change.

III. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBYX-2023-020, as Modified by Amendment No. 1, and Grounds for
Disapproval Under Consideration

The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \87\ to determine whether the proposed rule
change, as modified by Amendment No. 1, should be approved or
disapproved. Institution of proceedings is appropriate at this time in
view of the legal and policy issues raised by the proposed rule change,
as modified by Amendment No. 1. Institution of proceedings does not
indicate that the Commission has reached any conclusions with respect
to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comment
on the proposed rule change, as modified by Amendment No.1, to inform
the Commission's analysis of whether to approve or disapprove the
proposed rule change.
---------------------------------------------------------------------------

\87\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

Pursuant to Section 19(b)(2)(B) of the Act,\88\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of, and input from commenters with respect to, the consistency
of the proposal with the Act, and in particular with Sections 6(b)(5)
\89\ and 6(b)(8) \90\ of the Act. Section 6(b)(5) of the 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 Act requires that the rules of a national securities
exchange not impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

\88\ Id.
\89\ 15 U.S.C. 78f(b)(5).
\90\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

IV. Procedure: Request for Written Comments

The Commission requests that interested persons provide written
submissions of their data, views, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule change
is consistent with the Exchange Act and the rules and regulations
thereunder.
Although there do not appear to be any issues relevant to approval
or

[[Page 29402]]

disapproval that would be facilitated by an oral presentation of data,
views, and arguments, the Commission will consider, pursuant to Rule
19b-4 under the Act,\91\ any request for an opportunity to make an oral
presentation.\92\
---------------------------------------------------------------------------

\91\ 17 CFR 240.19b-4.
\92\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Pub. L. 94-29 (Jun. 4, 1975), grants to the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Acts Amendments of 1975, Senate Comm.
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
---------------------------------------------------------------------------

Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by May 13, 2024. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
May 28, 2024.
Comments may be submitted by any of the following methods:

Electronic Comments

Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number
SR-CboeBYX-2023-020 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-CboeBYX-2023-020. 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeBYX-2023-020 and should
be submitted by May 13, 2024. Rebuttal comments should be submitted by
May 28, 2024.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\93\
---------------------------------------------------------------------------

\93\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-08487 Filed 4-19-24; 8:45 am]
BILLING CODE 8011-01-P

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