Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing of a Proposed Rule Change Relating 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, 13240-13257 [2025-04660]
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Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Notices
ddrumheller on DSK120RN23PROD with NOTICES1
provide comments on the proposed rule
change.
Pursuant to Section 19(b)(2)(B) of the
Act,72 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to consider the
comments received and to allow for
additional analysis of, and input from
commenters with respect to, the
proposed rule change’s consistency with
the Act, and in particular, Section
6(b)(5) of the Act, which requires,
among other things, that the rules of a
national securities exchange be
designed to prevent fraudulent and
manipulative acts and practices, 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.73
Under the Commission’s Rules of
Practice, the ‘‘burden to demonstrate
that a proposed rule change is
consistent with the Exchange Act and
the rules and regulations issued
thereunder . . . is on the self-regulatory
organization that proposed the rule
change.’’ 74 The description of a
proposed rule change, its purpose and
operation, its effect, and a legal analysis
of its consistency with applicable
requirements must all be sufficiently
detailed and specific to support an
affirmative Commission finding,75 and
any failure of a self-regulatory
organization to provide this information
may result in the Commission not
having a sufficient basis to make an
affirmative finding that a proposed rule
change is consistent with the Act and
the applicable rules and regulations.76
The Commission is instituting
proceedings to allow for additional
consideration and comment on the
issues raised herein, including as to
whether the proposal is consistent with
the Act. In particular, the Commission
asks commenters to address the
potential market impacts of the
proposed position and exercise limits.
VI. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal, as modified by Amendment
72 Id.
73 15
U.S.C. 78f(b)(5).
CFR 201.700(b)(3).
75 See id.
76 See id.
74 17
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No. 1. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposal is consistent with Section
6(b)(5) or any other provision of the Act,
and the rules and regulations
thereunder. Although there do not
appear to be any issues relevant to
approval or disapproval that would be
facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4, any request for an
opportunity to make an oral
presentation.77
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposed rule change should be
approved or disapproved by April 10,
2025. Any person who wishes to file a
rebuttal to any other person’s
submission must file that rebuttal by
April 24, 2025.
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–
ISE–2024–62 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–ISE–2024–62. 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
77 Section 19(b)(2) of the Act, as amended by the
Securities Acts Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Acts Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
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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–ISE–2024–62 and should be
submitted on or before April 10, 2025.
Rebuttal comments should be submitted
by April 24, 2025.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.78
Vanessa A. Countryman,
Secretary.
[FR Doc. 2025–04661 Filed 3–19–25; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–102681; File No. SR–
CboeBYX–2025–007]
Self-Regulatory Organizations; Cboe
BYX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change Relating 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
March 14, 2025.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 13,
2025, Cboe BYX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BYX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
78 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BYX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BYX’’) is filing with the
Securities and Exchange Commission
(‘‘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/byx/), 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.
ddrumheller on DSK120RN23PROD with NOTICES1
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 3 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 4 by exercising at
a price within their established Step-Up
3 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’’).
4 See Rule 11.24(a)(2) (‘‘Retail Order’’).
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In November 2012, the Exchange
received approval to operate its Program
on a pilot basis.8 The Program operated
under a pilot basis until September 30,
2019, when the Program was approved
on a permanent basis.9 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 10 to
operate the Program.11 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.12 Under the Program, a class of
market participant called a Retail
Member Organization (‘‘RMO’’) 13 is
eligible to submit certain retail order
flow (‘‘Retail Orders’’) to the Exchange.
Users 14 are permitted to provide
potential price improvement for Retail
proposed Rule 11.24(a)(4).
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’’).
7 See Rule 11.24(h). The Program is currently
limited to trades occurring at prices equal to or
greater than $1.00 per share.
8 See Securities Exchange Act Release No. 68303
(November 27, 2012), 77 FR 71652 (December 3,
2012), SR–BYX–2012–019 (‘‘Pilot Approval
Order’’).
9 See Securities Exchange Act Release No. 87154
(September 30, 2019), 84 FR 53183 (October 4,
2019), SR–CboeBYX–2019–014 (‘‘RPI Approval
Order’’).
10 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.
11 Supra note 9 at 53185.
12 Supra note 7. 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).
13 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.
14 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.
6 See
1. Purpose
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Background
5 See
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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Range instruction.5 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.6 Additionally, the Exchange
proposes to expand the Program to
securities priced below $1.00.7
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Orders 15 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’’).16
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,17 the great majority of
marketable orders of retail investors
continue to be sent to wholesalers.18
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
15 Supra note 4. 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.
16 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 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.
17 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.
18 See Securities Exchange Act Release No. 96495
(December 14, 2022), 88 FR 128 (January 3, 2023)
(‘‘Order Competition Rule’’) at 144.
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Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Notices
order flow.19 In fact, since RLPs have
been adopted, the percentage of onexchange share volume has continued to
decrease from approximately 71% to
approximately 49% as of December
2024.20
Accordingly, the Exchange believes
further enhancements to the Program
are necessary in order to attract a
meaningful volume of marketable retail
order flow to the Exchange. In
considering how to accomplish the
goals of the Program, the Exchange
determined to design an enhancement
to provide more meaningful levels of
price improvement provided to Retail
Orders relative to the price
improvement provided by both the
Program as well as off-exchange venues.
As noted by the Commission, there
are reasonable concerns with the price
improvement provided to retail orders
executed off-exchange by wholesale
broker-dealers. In short, the Commission
itself has stated that ‘‘the current
isolation of individual investor orders
from order-by-order competition results
in suboptimal price improvement for
such orders.’’ 21 The Commission
believes that the lack of order
competition for retail orders leads to
‘‘foregone price improvement’’ or
‘‘competitive shortfall,’’ 22 which for the
first quarter of 2022, the Commission
quantified to be as much as $1.5
billion.23
In determining how to better design
its Program in order to attract retail
order flow back to the Exchange, the
Exchange conducted research into the
amount of price improvement provided
to Retail Orders on BYX. The Exchange
found that RPI Orders under its current
Program provided an average $0.0013
per share of price improvement to Retail
Orders in 2024. A more thorough review
of BYX data found that the amount of
price improvement provided to Retail
Orders solely by RPI Orders under the
current Program on BYX is lower than
the amount of price improvement
provided to Retail Orders by all hidden
liquidity on BYX (including RPI
Orders). An analysis of BYX data found
that Retail Orders received an average of
$0.0033 per share of price improvement
and a total amount of approximately
$1.68 million in 2024 when executing
against all hidden liquidity on BYX
(including RPI Orders).24 The
Exchange’s analysis of price
19 See Securities Exchange Act Release No. 96494
(December 14, 2022), 87 FR 80266 (December 29,
2022) (‘‘Tick Size Proposal’’) at 80273.
20 Source: Cboe internal data.
21 Supra note 18 at 9.
22 Supra note 18 at 10.
23 Id.
24 Supra note 20.
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improvement statistics found that its
current RPI Orders provide, on average,
less price improvement to Retail Orders
than other hidden liquidity on BYX. As
such, the Exchange believes that
revising its Program to include an
optional order instruction (discussed
infra) designed to provide meaningful
price improvement to Retail Orders as
compared to the price improvement
both currently received under the
existing Program as well as through
hidden, non-displayed liquidity
available on the Exchange against which
Retail Orders currently trade with today,
will encourage retail order flow to
execute on a regulated market as
opposed to off-exchange venues.
Accordingly, the Exchange now seeks
to enhance its current Program by
offering retail liquidity providers an
optional Enhanced RPI Order. The
Exchange believes the Enhanced RPI
Order will incentivize additional retail
liquidity provision by enabling RPI
liquidity providers to submit an order
that is ranked at a lower (for buy orders)
or higher (for sell orders) price than the
Step-Up Range instruction 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 will have the
ability to gain price priority over sameside resting orders on the BYX Book in
exchange for offering meaningful price
improvement when a contra-side Retail
Order is submitted to the Exchange and
certain conditions are met. 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 Rule
11.24(a)(4), which defines the proposed
Enhanced RPI Order. The proposed
Enhanced RPI Order allows a retail
liquidity provider to post a limit order
to the Exchange, but also provides the
opportunity for the liquidity provider to
‘‘step-up’’ its price within a defined
Step-Up Range instruction and have the
ability to gain price priority 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
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Enhanced RPI Order is designed to be
entered with a limit price, but must also
include a Step-Up Range instruction,
which is the highest (for buy orders) or
lowest (for sell orders) price it is willing
to execute against a contra-side Retail
Order. If the Enhanced RPI Order
includes a Step-Up Range instruction
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, subject to certain conditions
discussed infra. 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 full cent for securities priced at
or above $1.00 and to the next minimum
price increment for securities priced
below $1.00.25
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 or
down to a higher price (for buy orders)
or lower price (for sell orders) in order
to execute against marketable retail
order flow that is less prone to adverse
selection.26 Marketable retail order flow,
in turn, would receive price
improvement greater than what is
currently available under the Program.
25 Generally, an Enhanced RPI Order is expected
to provide $0.01 of price improvement in order to
gain price priority over same-side resting orders on
the BYX Book, but 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. In certain
instances, Enhanced RPI Orders in securities priced
at or above $1.00 may only need to step up to the
NBBO midpoint or from the NBBO midpoint to the
next full cent in order to provide meaningful price
improvement and gain price priority over same-side
resting orders on the BYX Book (discussed infra).
26 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.
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Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Notices
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. While Enhanced RPI
Orders may be entered by any User, 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.
The Exchange believes that the
introduction of the Enhanced RPI Order
will complement the existing RPI Order
type as it is intended to provide Users
with additional, optional functionality
that may be utilized when seeking to
interact with Retail Orders. The
Exchange views the Enhanced RPI
Order as a complement to the existing
RPI Order because the distinction
between the Enhanced RPI Order and
the existing RPI Order is simply the
addition of the Step-Up Range
instruction, which will permit Users to
enter an Enhanced RPI Order at a
defined limit price but simultaneously
permit Users to have the ability to gain
price priority over resting same-side
orders on the BYX Book in exchange for
providing meaningful price
improvement. Users will be free to
decide whether resting on the BYX Book
in order to obtain an execution against
a Retail Order at a specific limit price
under the current Program is more
valuable than submitting an Enhanced
RPI Order for a chance at price priority
in exchange for meaningful price
improvement. Additionally, the
Exchange believes that if the Enhanced
RPI Order is successful at attracting
Retail Orders due to its ability to
provide meaningful price improvement,
Users will therefore also be interested in
submitting RPI Orders in an attempt to
interact with Retail Orders that are not
filled by Enhanced RPI Orders. The
Exchange believes that while certain
retail liquidity providers will be
incentivized to use the Enhanced RPI
Order due to its ability to gain price
priority, certain retail liquidity
providers will simply want the ability to
interact with retail order flow and are
not concerned with gaining price
priority. If the Enhanced RPI Order is
successful in attracting additional retail
order flow, Users submitting RPI Orders
may also benefit as there is additional
liquidity against which their RPI Orders
may interact if those Retail Orders are
not filled by an Enhanced RPI Order.
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19:09 Mar 19, 2025
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For these reasons, the Enhanced RPI
Order and RPI Order should be viewed
as complementary order types and
should not be seen as competing with
one another. The Exchange does not
believe that Users will be less likely to
submit RPI Orders simply because an
Enhanced RPI Order type is also
available, similar to how Users are not
dissuaded from submitting traditional
limit orders when a Discretionary
Order 27 also exists on the Exchange.
In conjunction with introducing Rule
11.24(a)(4), the Exchange proposes to
introduce Rule 11.24(a)(5) in order to
define the term RPI Interest as either RPI
Orders or Enhanced RPI Orders. The
Exchange also proposes to amend Rule
11.24(e) in order to more accurately
describe when the Retail Liquidity
Identifier is displayed. Additionally, the
Exchange proposes to amend Rule
11.24(g) by removing the examples
currently found in the rule text that
describe RPI Order priority. The
Exchange notes that Rule 11.24(g) will
be inclusive of both RPI Order priority
and Enhanced RPI Order priority and as
such the example currently contained
within Rule 11.24(g) is no longer
necessary as it is explained more
thoroughly in the proposed rule text.
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
securities priced below $1.00. 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 delete Rule
11.24(i) as it is inapplicable to Retail
Orders on the Exchange and was
inadvertently added to the rule text.
Finally, the Exchange proposes to
clarify throughout Rule 11.24 that RPI
Orders and Enhanced RPI Orders will be
ineligible to execute at prices equal to
or inferior to the Protected NBB or
Protected NBO.
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.28 The Exchange
27 See
Rule 11.9(c)(10).
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
28 See
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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
improvement at the midpoint or better.
The Mid-Point Peg Order instruction
will be optional, and not required for
Users of Retail Orders.
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.’’ 29 The Exchange now proposes to
amend the definition of RPI Order to
more accurately reflect when an RPI
Order is eligible to execute against a
contra-side Retail Order and at what
pricing increments RPI Orders may be
entered. The Exchange proposes to
include text stating that an RPI Order for
a security priced at or above $1.00 must
be priced at least $0.001 better than the
Protected NBB or Protected NBO and
may be entered in increments of $0.001.
For securities priced below $1.00, an
RPI Order must be priced at least
$0.0001 better than the Protected NBB
or Protected NBO and may be priced in
$0.0001 increments. The Exchange
believes it is necessary to clarify that an
RPI Order may be entered at any price
but may execute only at prices better
than the Protected NBB or Protected
NBO. Additionally, the Exchange notes
that an RPI Order that is ineligible to
execute due to not being priced at least
$0.001 (for securities priced at or above
$1.00) or $0.0001 (for securities priced
below $1.00) better than the Protected
NBB or Protected NBO will not be
canceled, but will remain on the BYX
Book in case the Protected NBBO moves
such that the RPI Order becomes eligible
to execute at a later time. Further, the
Exchange is proposing to amend Rule
11.24(a)(3) to note that an RPI Order
may be entered as a Primary Pegged
Order (‘‘RPI Primary Pegged Order’’), as
defined in Rule 11.9(c)(8)(A) and the
ranked price of an RPI Primary Pegged
Order will be the price of the order after
the order is pegged to the Protected NBB
or Protected NBO and the applicable
positive (for buy orders) or negative (for
sell orders) offset (‘‘Offset Amount’’) is
variation inside the same side of the NBBO as the
order.
29 Supra note 3.
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applied.30 For RPI Primary Pegged
Orders priced at or above $1.00, the
Offset Amount may be entered in
increments of $0.001 and for RPI
Primary Pegged Orders priced below
$1.00, the Offset Amount may be
entered in increments of $0.0001.
Additionally, the Exchange proposes to
remove references to the ‘‘ceiling or
floor’’ price and replace that term with
‘‘limit price’’ as it more accurately
describes the price at which an RPI
Primary Pegged Order that will be
eligible to interact with a contra-side
Retail Order.
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(g). 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.
The Exchange proposes to amend
Rule 11.24(f)(2) to provide that RPI
Orders are ineligible to execute at prices
equal to or inferior to the Protected NBB
or Protected NBO. Currently, a resting
RPI Order is eligible to execute against
a Type 2-designated Retail Order (a
‘‘Type 2 Order’’) 31 that has exhausted
30 A Primary Pegged Order is a limit order that
has its price automatically adjusted by the System
to the Protected NBB or Protected NBO and any
applicable positive or negative offset is applied to
the price that results after the System pegs the order
to the Protected NBB or Protected NBO.
31 See Rule 11.24(f)(2). A Type 2-designated
Retail Order will interact first with available price
improving RPI Orders and other price improving
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all price improving liquidity on the BYX
Book even if the RPI Order is not
providing price improvement, as a Type
2 Order is eligible to execute against all
marketable liquidity once the order has
interacted with all price improving
liquidity. In the event that an RPI Order
is ineligible to execute against a Type 2
Order because it is not providing at least
$0.001 of price improvement in
securities priced at or above $1.00 or at
least $0.0001 of price improvement in
securities priced below $1.00, the
Exchange will not cancel the resting RPI
Order. Rather, the RPI Order will persist
on the BYX Book and will become
eligible to execute should the Protected
NBB or Protected NBO move to a price
that permits the RPI Order to provide
price improvement. The proposed
change to RPI Order behavior is being
made in order to limit RPI Orders to
only providing executions that provide
price improvement to contra-side Retail
Orders, consistent with the definition of
an RPI Order and the description of RPI
Order functionality in the Exchange’s
previous Pilot Approval Order and RPI
Approval Order.
Enhanced RPI Order
The Exchange now proposes to
introduce an Enhanced 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 instruction
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’’ is an RPI Order that is
designated with a Step-Up Range
instruction. A Step-Up Range
instruction is an optional, nondisplayed instruction that is added to
(for buy orders) or subtracted from (for
sell orders) the ranked price of an RPI
Order and provides a maximum
execution price (for buy orders) or
liquidity and then any remaining portion of the
Retail Order will be executed as an IOC Order
pursuant to Rule 11.9(b)(1). A Type 2-designated
Retail Order can either be submitted as a BYX Only
Order or as an order eligible for routing pursuant
to Rule 11.13(a)(2). The Exchange proposes to make
clear in Rule 11.24(f)(2) that the remaining portion
of a Type 2-designated Retail Order will be
ineligible to execute against contra-side RPI Interest
that is not priced better than the Protected NBB or
Protected NBO.
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minimum execution price (for sell
orders) at which a User is willing to
execute against contra-side Retail
Orders. The Step-Up Range instruction
may be priced in increments of $0.001
for securities priced at or above $1.00
and securities priced below $1.00.
• An Enhanced RPI Order may be
entered as a limit order, in a sub-penny
increment with an explicit limit price,
or as a Primary Pegged Order (as defined
in Rule 11.9(c)(8)(A)) with an Offset
Amount. An Enhanced RPI Order is
ranked at its limit price and not the
price of its Step-Up Range instruction.
• An Enhanced RPI Order that is also
a Primary Pegged Order (‘‘Enhanced RPI
Primary Pegged Order’’) will have its
ranked price determined after the
application of the Offset Amount, as
described in Rule 11.9(c)(8) and Rule
11.9(c)(8)(A). The Step-Up Range
instruction of an Enhanced RPI Primary
Pegged Order will be applied to the
resulting ranked price following the
application of the Offset Amount and
may cause the Enhanced RPI Primary
Pegged Order to execute at a price that
is higher (for buy orders) or lower (for
sell orders) than its limit price. An
Enhanced RPI Primary Pegged Order
priced at or above $1.00 may have its
Offset Amount entered in pricing
increments of $0.001. An Enhanced RPI
Primary Pegged Order priced below
$1.00 may have its Offset Amount
entered in pricing increments of
$0.0001.
• The System will monitor whether
an Enhanced RPI Order, adjusted by any
applicable Offset Amount, the order’s
Step-Up Range instruction, and the
order’s limit price, is eligible to interact
with incoming Retail Orders. An
Enhanced RPI Order (including any
applicable Offset Amount, the Step-Up
Range instruction, and the limit price)
remains non-displayed in its entirety.
Any User is permitted, but not required,
to submit an Enhanced RPI Order. 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). An
Enhanced RPI Order is ineligible to
execute at prices equal to or inferior to
the Protected NBB (for buy orders) or
Protected NBO (for sell orders). An
Enhanced RPI Order that is ineligible to
execute because it is priced equal to or
inferior to the Protected NBB (for buy
orders) or Protected NBO (for sell
orders) will not be cancelled and will
become eligible to execute against Retail
Orders should the Enhanced RPI Order
becomes executable at a later time.
The ranked price of an Enhanced RPI
Order will be determined by a User’s
entry of the following into the
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Exchange: (1) Enhanced RPI buy or sell
interest; (2) any applicable offset; (3) the
Step-Up Range instruction; and (4) the
limit price. The Step-Up Range
instruction of an Enhanced RPI Order is
the maximum amount above the order’s
limit price (for buy orders) or minimum
amount below the order’s limit price
(for sell orders) at which a User is
willing to execute. As discussed infra, if
the Enhanced RPI Order can improve
upon resting liquidity on the same side
of the BYX Book by stepping up to the
nearest full cent (for securities priced at
or above $1.00) or the next minimum
pricing increment (for securities priced
below $1.00),32 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.33
Pursuant to proposed Rule 11.24(g)(2),
Enhanced RPI Orders in securities
priced at or above $1.00 may include a
Step-Up Range instruction priced in
$0.001 increments, but these orders
shall not gain priority over other sameside resting orders on the BYX Book if
the Step-Up Range instruction is unable
to step up to the NBBO midpoint or the
next full cent. Step-Up Range
instructions priced in increments finer
than $0.01 will be capped at the
maximum executable price based on a
valid tick increment or midpoint and
will not otherwise be executable at the
maximum price of the Step-Up Range
instruction.
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Priority and Order Allocation
As discussed above, the proposed
Enhanced RPI Order will be ranked and
allocated according to its limit price
then time of entry into the System. With
the introduction of the proposed
Enhanced RPI Order, the Exchange
proposes to reorganize Rule 11.24(g)
into Rule 11.24(g)(1)–(3). Proposed Rule
11.24(g) will serve as an introductory
paragraph and will contain the existing
rule text found in current Rule 11.24(g)
that describes order priority with
respect to RPI Orders. The Exchange
proposes to amend the existing rule text
in Rule 11.24(g) to replace RPI Orders
32 Supra note 25. There are certain instances in
which an Enhanced RPI Order may only need to
provide between $0.001–$0.005 in price
improvement in securities priced at or above $1.00
in order to gain price priority over resting liquidity
on the BYX Book.
33 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 will be 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.
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with RPI Interest and to clarify that RPI
Interest is ineligible to execute at prices
that are equal to or inferior to the
Protected NBB or Protected NBO. RPI
Interest that is ineligible to execute due
to being priced equal to or inferior to the
Protected NBB or Protected NBO will
not be cancelled and will become
eligible to execute against Retail Orders
should the RPI Interest become priced
better than the Protected NBB or
Protected NBO at a later time. The
Exchange proposes to remove the
example of RPI Order priority contained
within current Rule 11.24(g) as it is
duplicative of existing rule text which
describes that RPI Orders are to be
ranked and executed in accordance with
Rule 11.12 and also as described in Rule
11.24(g), as applicable. Proposed Rule
11.24(g) will also provide that Enhanced
RPI Orders have the ability to gain
execution priority over resting sameside orders on the BYX Book with
higher price/time priority in the same
security if certain criteria is satisfied.
Proposed Rule 11.24(g)(1) describes
three instances in which the Step-Up
Range instruction of an Enhanced RPI
Order will be utilized to determine at
what price an Enhanced RPI Order must
execute versus a contra-side Retail
Order in order to gain price priority over
resting same-side orders on the BYX
Book with higher price/time priority in
the same security. Pursuant to proposed
Rule 11.24(g)(1)(A), the Step-Up Range
instruction of an Enhanced RPI Order
will be utilized when the Step-Up Range
instruction is needed to gain priority
over a resting same-side order
(excluding resting Enhanced RPI Orders,
unless there are multiple Enhanced RPI
Orders as discussed infra) on the BYX
Book with higher price/time priority. As
discussed infra in proposed Rule
11.24(g)(2) and proposed Rule
11.24(g)(3), an Enhanced RPI Order
shall gain priority over resting sameside orders on the BYX Book with
higher price/time priority in the same
security if the Step-Up Range
instruction is able to provide a greater
amount of price improvement to an
incoming contra-side Retail Order than
would be provided by the resting sameside order on the BYX Book.
Second, under proposed Rule
11.24(g)(1)(B), the Step-Up Range
instruction of an Enhanced RPI Order
will be utilized in situations where: (i)
a contra-side Retail Order to sell (buy)
is entered at a higher (lower) price than
the ranked price (i.e., its limit price) of
the Enhanced RPI Order and all other
resting liquidity and (ii) the Enhanced
RPI Order’s Step-Up Range instruction
is priced equal to or higher (lower) than
the Retail Order’s limit price. In this
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scenario, an Enhanced RPI Order will
execute versus a contra-side Retail
Order at the Retail Order’s limit price.
This situation is also applicable to an
Enhanced RPI Order that is also a
Primary Pegged Order. The limit price
of an Enhanced RPI Order that is also a
Primary Pegged Order will be adjusted
by any applicable offset and the Step-Up
Range instruction applied to the
resulting ranked price.
Lastly, as described in proposed Rule
11.24(g)(1)(C), the Step-Up Range
instruction of an Enhanced RPI Order
will be utilized to determine order book
priority when multiple Enhanced RPI
Orders are resting on the BYX Book and
are eligible to trade ahead of resting
same-side orders on the BYX Book with
higher price/time priority that are not
Enhanced RPI Orders. Priority will be
given to the Enhanced RPI Order with
the Step-Up Range instruction that
could result in the highest (for an
Enhanced RPI Order to buy) or lowest
(for an Enhanced RPI Order to sell)
possible execution price for the contraside Retail Order, even if the resulting
execution does not occur at the highest
(lowest) maximum execution price that
is permitted by the Step-Up Range
instruction. The actual execution price
provided to the Retail Order will be the
price the Enhanced RPI Order needs to
step up to as described in proposed Rule
11.24(g)(1)(A) and proposed Rule
11.24(g)(1)(B).
Proposed Rule 11.24(g)(1)(C)(i)
describes an exception to utilizing the
Step-Up Range instruction in order to
determine order book priority and
applies when there are multiple
Enhanced RPI Orders resting on the
BYX Book, no other resting same-side
liquidity with higher priority, and an
incoming Retail Order to sell (buy) is
priced lower (higher) than the resting
Enhanced RPI Orders’ ranked prices. In
this instance, execution priority will be
determined by the higher ranked price
and not the Step-Up Range instruction
of the Enhanced RPI Orders. An
Enhanced RPI Primary Pegged Order
will have its priority determined by the
ranked price that results after the
application of the Offset Amount as
described in Rule 11.9(c)(8) and Rule
11.9(c)(8)(A) and will not include the
Step-Up Range instruction. The
Enhanced RPI Orders will execute
pursuant to Rule 11.12 in standard
price/time priority according to their
limit prices or resulting ranked prices
after application of the applicable
positive or negative offset in the case of
Enhanced RPI Primary Pegged Orders.
Proposed Rule 11.24(g)(2) provides
that for securities priced at or above
$1.00 an Enhanced RPI Order shall gain
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priority over resting same-side orders on
the BYX Book with higher price/time
priority in the same security if the StepUp Range instruction is able to provide
a greater amount of price improvement
to an incoming contra-side Retail Order,
as provided for in proposed Rule
11.24(g)(1)(A)–(C). In order to gain
priority over resting same-side orders on
the BYX Book with higher price/time
priority in the same security, an
Enhanced RPI Order must be able to
step up to the next valid tick increment.
Proposed Rules 11.24(g)(2)(A)–(C)
provide certain scenarios where an
Enhanced RPI Order may only need to
provide a half cent of price
improvement or less in order to gain
priority over resting same-side orders on
the BYX Book with higher price/time
priority.
Proposed Rule 11.24(g)(2)(A) provides
that if the NBBO midpoint is priced in
a half-cent increment (e.g., $10.005) and
the best-priced resting order on the BYX
Book is ranked at the NBBO midpoint
(e.g., $10.005), the Enhanced RPI
Order’s Step-Up Range instruction must
permit the Enhanced RPI Order to step
up to the next full cent above (for buy
orders) or below (for sell orders) the
NBBO midpoint (e.g., $10.01 for buy
orders or $10.00 for sell orders).
Proposed Rule 11.24(g)(2)(B) provides
that if the NBBO midpoint is priced in
a half-cent increment (e.g., $10.005) and
the best-priced resting order on the BYX
Book to buy (sell) is ranked at the full
cent below (above) the NBBO midpoint
(e.g., $10.00 or $10.01), the Enhanced
RPI Order’s Step-Up Range instruction
must permit the Enhanced RPI Order to
step up to the NBBO midpoint (e.g.,
$10.005 or beyond). In the event that an
RPI Order priced in an $0.001 increment
is resting on the BYX Book, proposed
Rule 11.24(g)(2)(C) provides that the
Enhanced RPI Order’s Step-Up Range
instruction must permit the Enhanced
RPI Order to step up to the closer of the
NBBO midpoint or the next full cent
above (for buy orders) or below (for sell
orders) the NBBO midpoint in order to
gain priority over the resting RPI Order
(e.g., an Enhanced RPI Order with a
limit price of $10.00 must contain a
Step-Up Range instruction of at least
$0.005 in order to gain priority over a
resting RPI Order with a limit price of
$10.001).
Proposed Rule 11.24(g)(3) provides
that for securities priced below $1.00,
Enhanced RPI Orders shall be granted
price priority over resting same-side
orders on the BYX Book if the Enhanced
RPI Order’s Step-Up Range instruction
is able to provide a greater amount of
price improvement to an incoming
contra-side Retail Order by stepping up
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to the next minimum price increment.
The Exchange notes that the System
does not support fractional penny
quotations or executions priced in
$0.00001 increments and finer in
securities priced below $1.00 but does
support quotations and executions in
fractional pennies priced in increments
up to $0.0001.
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.
Additionally, all Retail Orders described
in the examples are presumed to be
Type 1-designated Retail Orders 34
unless otherwise specified.
Example 1 35
In order to illustrate priority of an
Enhanced RPI Order over other NonDisplayed Orders 36 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 37
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 instruction 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
instruction 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
34 See Rule 11.24(f)(1). A Type 1-designated
Retail Order will interact with available contra-side
RPI Order and other price improving contra-side
interest but will not interact with other available
interest in the System that is not offering price
improvement or route to other markets. The portion
of a Type 1-designated Retail Order that does not
execute against contra-side RPI Orders or other
price improving liquidity will be immediately and
automatically cancelled. The Exchange notes that
proposed Rule 11.24(f)(1) will be updated to reflect
‘‘contra-side RPI Interest’’ to capture both RPI
Orders and Enhanced RPI Orders.
35 See proposed Rule 11.24(g)(1)(A) and Rule
11.24(g)(2)(A).
36 See Rule 11.9(c)(11). A Non-Displayed Order is
a market or limit order that is not displayed on the
Exchange.
37 Supra note 28.
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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 38
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 in
securities priced at or above $1.00. 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 in 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 instruction 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 instruction 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 39
In most instances, an Enhanced RPI
Order will 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 × $10.10.
Æ User 1 enters a Non-Displayed
Order to buy ABC at $10.03 for 100.
38 See proposed Rule 11.24(g)(1)(A) and Rule
11.24(g)(2)(B).
39 See proposed Rule 11.24(g)(1)(A).
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Æ User 2 enters an Enhanced RPI
Order to buy ABC at $10.01 for 100.
User 2’s Step-Up Range instruction 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 instruction 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.
ddrumheller on DSK120RN23PROD with NOTICES1
Example 4 40
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 instruction 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 41
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.
40 See
proposed Rule 11.24(g).
proposed Rule 11.24(g)(1)(A) and Rule
11.24(g)(2)(A).
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 instruction 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 instruction of
$0.03 and is willing to execute up to a
maximum price of $10.04, the Step-Up
Range instruction 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 NonDisplayed 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
instruction 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
instruction. 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 42
Enhanced RPI Orders will execute
within their Step-Up Range instruction
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 instruction is
$0.03. User 1’s order is ranked at $10.01
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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 instruction.
Example 7 43
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 higher (for buy orders)
and lower (for sell orders) than the
resting Enhanced RPI Orders’ ranked
prices, execution priority will be
determined by the higher ranked price
and not by the Step-Up Range
instructions 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 instruction 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 instruction 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 lower than the resting Enhanced
RPI Orders’ ranked prices 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 44
The Step-Up Range instruction will be
used to determine order book priority in
situations where: (i) a contra-side Retail
Order to sell (buy) is entered at a higher
(lower) 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 instruction is priced equal to or
higher (lower) than the Retail Order’s
43 See
41 See
42 See
PO 00000
proposed Rule 11.24(g)(1)(B).
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44 See
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proposed Rule 11.24(g)(1)(C)(i).
proposed Rule 11.24(g)(1)(B).
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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.
User 1’s Step-Up Range instruction 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
to sell was entered at a higher 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
instruction of User 1’s Enhanced RPI
Order is higher ($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 StepUp Range instruction to permit an
execution between User 1 and User 3.
ddrumheller on DSK120RN23PROD with NOTICES1
Example 9 45
The Step-Up Range instruction 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 instruction 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 instruction 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 instruction
to determine order book priority when
45 See
proposed Rule 11.24(g)(1)(C).
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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, 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 instruction 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
instruction 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 instruction 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 46
Enhanced RPI Orders will have price
priority over resting RPI Orders (that do
not contain a Step-Up Range
instruction) on the BYX Book so long as
the Step-Up Range instruction 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 instruction 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.
46 See
PO 00000
proposed Rule 11.24(g)(1)(A).
Frm 00117
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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 instruction 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 instruction. 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 instruction 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 $1.00.47 Thus, using the Step-Up
Range instruction 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 48
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
47 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
instruction 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.
48 See proposed Rule 11.24(g)(1)(A).
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1’s Step-Up Range instruction 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.
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 instruction 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 49
The ranked price of an Enhanced RPI
Primary Pegged Order is the price that
results after the application of the Offset
Amount, as described in Rule 11.9(c)(8)
and Rule 11.9(c)(8)(A). The Step-Up
Range instruction is applied to an
Enhanced RPI Primary Pegged Order
following the application of the Offset
Amount. 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 $10.03 for 100.
Æ User 2 enters an Enhanced RPI
Primary Pegged Order to buy ABC at
$10.02 for 100. User 2’s Step-Up Range
instruction 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 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 instruction 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 13 50
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 instruction 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 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 14 51
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
50 See
49 See
proposed Rule 11.24(g)(1)(A).
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51 See
PO 00000
proposed Rule 11.24(g)(1)(A).
proposed Rule 11.24(g)(1)(A).
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minimum price increment. Consider the
following example:
• The Protected NBBO for security
ABC is $0.2001 × $0.2025.
Æ User 1 enters a Non-Displayed
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 instruction 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 Non-Displayed 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 instruction 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
instruction and as such, User 2’s order
will have queue priority over User 1’s
order.
Example 15 52
The below example is included to
show the proposed change to Rule
11.24(f)(2) that does not permit a Type
2-designated Retail Order to execute
against resting RPI Interest that is priced
equal to the Protected NBB or Protected
NBO.
• 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 $10.00 for 100.
User 2’s Step-Up Range instruction is
$0.03. User 2’s order is ranked at $10.00
and is willing to step up to a maximum
price of $10.03. The Retail Liquidity
Identifier is not displayed because the
limit price of User 2’s order is not
priced at least $0.001 better than the
Protected NBB.
Æ User 3 enters an RPI Order to buy
ABC at $10.00 for 100. The Retail
Liquidity Identifier is not displayed
because the limit price of User 3’s order
is not priced at least $0.001 better than
the Protected NBB.
Æ User 4 enters a Non-Displayed
Order to buy ABC at $10.00 for 100.
Æ User 5 enters a Type 2-designated
Retail Order to sell ABC at $10.00 for
400.
• Result: User 2’s Enhanced RPI
Order executes against User 5’s Type 2
52 See proposed Rule 11.24(f)(2); see also
proposed Rule 11.24(g).
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Order for 100 at a price of $10.025
because the best-priced resting order on
the BYX Book is ranked at a whole cent
($10.02), and the NBBO midpoint is
priced in a half cent increment.53 User
1’s Non-Displayed Order then executes
against User 5’s Type 2 Order for 100 at
a price of $10.02 because User 1’s order
is priced better than the NBBO.54 User
4’s Non-Displayed Order then executes
against 5’s Type 2 Order for 100 at a
price of $10.00.55 The remaining 100
shares of User 5’s Type 2 Order are then
cancelled or routed to an away market
based on User 5’s instruction. This
example demonstrates proposed order
priority where a Type 2 Order has a
remaining quantity after executing
against all price improving liquidity.
Under current Rule 11.24(f)(2), order
priority would differ in that User 5’s
Type 2 Order would execute against
User 3’s RPI Order at $10.00 prior to
executing against User 4’s NonDisplayed Order due to price/time
priority and would leave no remaining
quantity to either cancel back or route
to an away market.
Example 16 56
Step-Up Range instructions priced in
increments finer than $0.01 will be
capped at the maximum executable
price based on a valid tick increment or
NBBO midpoint and will not be
executable at the maximum price of the
Step-Up Range instruction. If a Member
chooses to enter a Step-Up Range
instruction priced in an increment finer
than $0.01, the Member’s Enhanced RPI
Order may not be able to gain price
priority over other same-side resting
orders on the BYX Book.
• The Protected NBBO for security
ABC is $10.00 × $10.05.
Æ User 1 enters a Non-Displayed
Order to buy ABC at $10.01 for 100.
Æ User 2 enters an Enhanced RPI
Order to buy ABC at $10.01 for 100.
User 2’s Step-Up Range instruction is
$0.01. User 2’s order is ranked at $10.01
and is willing to step up to a maximum
price of $10.02.
Æ User 3 enters an Enhanced RPI
Order to buy ABC at $10.01 for 100.
User 3’s Step-Up Range instruction is
$0.013. User 3’s order is ranked at
$10.01 and is willing to step up to a
maximum price of $10.023. User 3’s
order is subject to a cap at $10.02
because $10.023 is not a valid tick
increment and $10.02 is the closest
valid tick increment to the maximum
53 See proposed Rule 11.24(g)(1)(A) and proposed
Rule 11.24(g)(2)(B).
54 See Rule 11.12(a)(1).
55 See proposed Rule 11.24(a)(3) and proposed
Rule 11.24(f)(2).
56 See proposed Rule 11.24(g)(2).
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price provided by the Step-Up Range
instruction.
Æ User 4 enters a Retail Order to sell
ABC at $10.00 for 100.
• Result: User 4’s Retail Order will
trade with User 2’s Enhanced RPI Order
at a price of $10.02 because User 3’s
Enhanced RPI Order is subject to a cap
at $10.02 and User 2’s Enhanced RPI
Order has time priority. While User 3’s
Enhanced RPI Order included a Step-Up
Range instruction of $0.013 and was
willing to step up to a maximum price
of $10.023, which is greater than User
2’s maximum price of $10.02, User 3’s
Enhanced RPI Order is capped at a price
of $10.02 because $10.023 is not a valid
tick increment and therefore is not able
to execute at a price of $10.023. As both
User 2 and User 3 are willing to step up
to a maximum price of $10.02, priority
is given to User 2’s Enhanced RPI Order
as it was entered prior to User 3’s
Enhanced RPI Order.
As demonstrated in the examples
above, the Exchange is proposing to
grant an Enhanced RPI Order the ability
to gain 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 same side of the BYX
Book in exchange for the ability to gain
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
priced at or above $1.00 is available in
the System (‘‘Retail Liquidity Identifier’’
or ‘‘Identifier’’). When there is RPI
Interest on the BYX Book that is priced
at or below (above) the Protected NBB
or Protected NBO, no Retail Liquidity
Identifier is disseminated by the
Exchange.57 The Identifier is
57 The Exchange notes that RPI Interest may not
execute unless it is priced at least $0.001 better than
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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.58 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 notes
that the Identifier can shift from being
disseminated to not disseminated (or
vice versa) based on movement in the
Protected NBB or Protected NBO
without new RPI Interest being entered
on the Exchange. Further, the Exchange
notes that as the Protected NBB and
Protected NBO move, there may be
instances where RPI Interest is available
on the Exchange but is ineligible to
execute due to being priced equal to or
below (above) the Protected NBB or
Protected NBO. While RMOs may not be
aware of potential RPI Interest on the
Exchange during these periods, the
Exchange does not believe that RMOs
are harmed as Retail Orders would be
ineligible to execute with RPI Interest
that is not priced at least $0.001 above
(below) the Protected NBB or Protected
NBO. In addition, Retail Orders may
continue to be submitted even when the
Identifier is not being disseminated and
will continue to be eligible to execute
against contra-side hidden liquidity that
may be priced equal to or above (below)
the Protected NBB or Protected NBO,
including the Step-Up Range instruction
of an Enhanced RPI Order that is priced
at least $0.001 above (below) the
Protected NBB (NBO) while the ranked
price of the Enhanced RPI Order not
priced at least $0.001 above (below) the
Protected NBB (NBO).
The Exchange proposes to continue to
disseminate the Retail Liquidity
Identifier in its current form should the
the Protected NBB or Protected NBO in securities
priced at or above $1.00 or priced at least $0.0001
better than the Protected NBB or Protected NBO in
securities priced below $1.00, as proposed infra.
58 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.
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Enhanced RPI Order be approved.59 For
Enhanced RPI Orders, the indicator will
be based off of the ranked price only
and the Step-Up Range instruction 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 believes that even in
instances where the Identifier is not
being disseminated due to RPI Interest
not being priced at least $0.001 above
(below) the Protected NBB (Protected
NBO), RMOs continue to be
incentivized to submit Retail Orders to
the Exchange due to the fact that Retail
Orders continue to be eligible to execute
against contra-side hidden liquidity and
Enhanced RPI Orders so long as the
Step-Up Range instruction associated
with an Enhanced RPI Order is priced
at least $0.001 above (below) the
Protected NBB (Protected NBO). 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
$0.0001,60 the Exchange is proposing
that the Identifier for sub-dollar
securities will be displayed when there
is RPI Interest with a ranked price at
59 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.
60 See 17 CFR 242.612 (‘‘Minimum pricing
increment’’).
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least $0.0001 above (below) the
Protected NBB or Protected NBO.
Similarly, the Identifier for sub-dollar
securities will not be displayed if there
is RPI Interest on the BYX Book priced
at or below (above) the Protected NBB
or Protected NBO. The Exchange will
continue to display the Identifier for
securities priced at or above $1.00 when
there is RPI Interest priced at least
$0.001 better than the Protected NBB or
Protected NBO. The Exchange will not
make any other changes to the display
of the Identifier from its current form for
sub-dollar 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 61 regarding securities
included in the Program through an
information circular.62 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
December 2024, an analysis of SIP 63
data by the Exchange found that subdollar average daily volume has
increased 564% as compared to first
quarter 2019. In this period, sub-dollar
on-exchange average daily volume grew
from 122 million shares per day to 814
million shares per day. An analysis of
SIP and FINRA Trade Reporting Facility
(‘‘TRF’’),64 data indicates that exchanges
represented approximately 36.5%
market share in sub-dollar securities,
with a total of 1,286 securities trading
below $1.00. As an exchange group,
Cboe had approximately 9.8% of market
share of sub-dollar securities in the
fourth quarter of 2024.
61 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.
62 Supra note 7.
63 The ‘‘SIP’’ refers to the centralized securities
information processors.
64 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.
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13251
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 $0.01.65 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
full cent ahead of resting orders on the
same side of the BYX Book.66 The
Exchange recognizes that there is a
distinction between the pricing
increment in securities priced at or
above $1.00 and securities priced below
$1.00, which have a finer minimum
pricing increment. As discussed, in
securities priced at or above $1.00 the
Step-Up Range instruction must be able
to step up to the next full cent in order
to permit an Enhanced RPI Order to
have the ability to gain price priority
over resting same-side orders on the
BYX Book and requiring Users to have
a Step-Up Range instruction priced in
$0.001 increments seeks to ensure that
meaningful price improvement in
securities priced at or above $1.00 is
achieved and that the purpose of
Regulation NMS Rule 612 is not
undermined by allowing non-displayed
Step-Up Range instructions to gain price
priority for a de minimis amount of
price improvement. However, in
securities priced below $1.00, the MPV
is $0.0001 and as such, the quotations
and pricing of orders tends to be in finer
increments. By requiring an Enhanced
RPI Order’s Step-Up Range instruction
to step up to the next minimum pricing
increment (rather than the full cent as
in securities priced at or above $1.00),
the Exchange is seeking to stay within
the bounds of Regulation NMS and
encourage Users to submit
competitively-priced orders in RPI
Interest submitted to the Exchange. The
Exchange believes that Users are not
harmed by the distinction in the
minimum pricing increment for
securities priced at or above $1.00 and
securities priced below $1.00 as this
65 Supra
66 Supra
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distinction serves to ensure that Retail
Orders receive meaningful price
improvement at all price levels.
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 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 2025 and will announce the
implementation date via Trade Desk
Notice.
ddrumheller on DSK120RN23PROD with NOTICES1
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.67 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 68 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) 69 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 70
and has recently proposed a series of
rules designed, in part, to attempt to
bring order flow back to the exchanges
67 15
U.S.C. 78f(b).
68 15 U.S.C. 78f(b)(5).
69 Id.
70 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.
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from off-exchange trading venues.71 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
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.72 The Exchange
believes that such segmentation is
consistent 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.73 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.74 The Exchange believes that its
proposed Enhanced RPI Order is
reasonably designed to attract
marketable retail order flow to the
71 Supra notes 18–19. 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’’).
72 Supra note 26.
73 Id.
74 Id.
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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.
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 highest (for buy
orders) or lowest (for sell orders) priced
Enhanced RPI Order, based on a
combination of the order’s limit price
and Step-Up Range instruction, with
order book priority. Ultimately,
execution priority amongst orders
resting on the BYX Book will be
determined by the Step-Up Range
instruction entered on each Enhanced
RPI Order, subject to certain limitations
described above. If the Step-Up Range
instruction 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 full cent or (for
securities priced at or above $1.00) 75 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 instruction will be given order
book priority. The Exchange believes
rewarding the highest (for buy orders) or
lowest (for sell orders) priced Step-Up
Range instruction will encourage Users
to submit Enhanced RPI Orders with
Step-Up Range instructions 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,76 most equities exchanges,
including BYX, determine priority
based on a price/time/display allocation
model.77 This has contributed to deep
75 Supra
note 25 and note 47.
notes 6–7.
77 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).
76 Supra
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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
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,78
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.79 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 full cent or (for securities priced at
or above $1.00) 80 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 higher
(for buy orders) or lower (for sell orders)
price will (1) encourage Users to submit
more favorably priced Enhanced RPI
Orders, and (2) attract Retail Order flow
78 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.
79 See, e.g., IEX Rule 11.232; Nasdaq BX Rule
4780; NYSE National Rule 7.44–E; NYSE Rule 7.44.
80 Supra note 25 and note 47.
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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 on a regulated market. While
RMOs that submit Retail Orders will
benefit from increased price
improvement opportunities, retail
liquidity providers stand to benefit from
the Exchange’s proposal because by
submitting Enhanced RPI Orders with
higher (for buy orders) or lower (for sell
orders) limit prices and Step-Up Range
instructions, their Enhanced RPI Orders
have the ability to gain price priority to
execute against contra-side Retail
Orders in exchange for offering better
priced liquidity.
The Exchange also believes that retail
liquidity providers that also choose to
submit RPI Orders rather than Enhanced
RPI Orders stand to benefit from the
proposal. As noted, the Exchange
believes that the increased depth and
diversity of liquidity that will result
from this change will increase price
improvement opportunities for Retail
Orders. As price competition increases,
additional Retail Order flow will follow
as RMOs seek out price improvement
opportunities. Liquidity providers
choosing to submit RPI Orders (as
opposed to Enhanced RPI Orders) will
thus have a higher likelihood of
receiving an execution against a Retail
Order due to the increased price
improvement opportunities, but in order
to avail themselves of the opportunity to
execute against Retail Orders will need
to submit competitively priced RPI
Orders in order to compete with
Enhanced RPI Orders. The ability to
execute against retail order flow may be
more attractive to retail liquidity
providers than submitting orders with
less competitive prices that would
potentially not execute at all or would
execute against informed order flow,
which is less desirable.
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
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13253
Book (‘‘EDGX Retail Priority’’).81 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.82 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.83 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’s proposal
to prohibit RPI Orders and Enhanced
RPI Orders from executing with contraside Type 2-designated Retail Orders
when the RPI Order or Enhanced RPI
Order is not priced better than the
Protected NBB or Protected NBO
similarly reflects an attempt to create
additional price improvement
opportunities for retail investors by
making RPI Orders and Enhanced RPI
Orders ineligible from executing when
these orders are not providing price
improvement to contra-side Type 2designated Retail Orders. While the
Exchange is forgoing an execution at a
marketable price in situations where an
RPI Order or Enhanced RPI Order is
priced equal to the Protected NBB or
Protected NBO and there is resting
contra-side Type 2 Order interest
available, the Exchange believes that
limiting RPI Order and Enhanced RPI
Order executions to situations where
price improvement is offered properly
reflects the main purpose of the RPI
Order and Enhanced RPI Order—that is,
to create additional price improvement
opportunities for retail investors.
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
81 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’’).
83 Supra note 9. 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.
82 See
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to submit Enhanced RPI Orders
containing high (for buy orders) or low
(for sell orders) limit prices and/or StepUp Range instructions 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 contraside 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 betterpriced 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. Additionally, retail
liquidity providers will benefit from
submitting Enhanced RPI Orders and
Step-Up Range instructions with
competitive prices. By providing
Enhanced RPI Orders and Step-Up
Range instructions with competitive
prices, retail liquidity providers are, in
essence, improving the quality of order
flow available for contra-side Retail
Orders and increasing the odds of their
Enhanced RPI Orders executing with
desirable retail order flow rather than
informed order flow or not executing at
all.
Furthermore, the Exchange believes
that its proposal to limit the use of the
Step-Up Range instruction to determine
order book priority is consistent with
Section 6(b)(5) of the Act because the
use of the Step-Up Range instruction
rather than limit price to determine
order priority is limited to the
following: (1) the Step-Up Range
instruction is needed to gain priority
over a resting order with higher order
book priority; (2) in situations where (i)
a contra-side Retail Order to sell (buy)
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is entered at a higher (lower) price than
the Enhanced RPI Order’s ranked price
and all other resting liquidity in the
same security and (ii) the Enhanced RPI
Order’s Step-Up Range instruction is
priced equal to or higher (lower) 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 instruction in order to provide an
additional, higher (for buy orders) or
lower (for sell orders) 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 orders with high
(for buy orders) or low (for sell orders)
limit prices and/or Step-Up Range
instructions, these liquidity providers
will be rewarded with executions
against marketable retail order flow,
which is generally preferred over more
informed order flow. Liquidity
providers that choose to submit
Enhanced RPI Orders with
competitively priced limit prices and/or
Step-Up Range instructions stand to
benefit in that their orders are
positioned to possibly gain price
priority over same-side, resting orders
on the BYX Book and execute against
preferred retail order flow rather than
forego an execution by submitting
orders that do not contain high (for buy
orders) or low (for sell orders) limit
prices and/or Step-Up Range
instructions. Retail investors, on the
other hand, will receive meaningful
price improvement should their order
execute against an Enhanced RPI Order.
Increased opportunities for price
improvement stand to make the
Exchange a more attractive venue for
RMOs to submit Retail Orders, thus
encouraging RMOs to bring retail order
flow back to a regulated, lit market
rather than executing off-exchange.
In the situation where (i) a contra-side
Retail Order to sell (buy) is entered at
a higher (lower) 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 instruction is
priced equal to or higher (lower) than
the limit price of the Retail Order, the
Exchange believes using the Step-Up
Range instruction to determine order
priority promotes just and equitable
PO 00000
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principles of trade because it rewards
the Enhanced RPI Order with the
highest (lowest) Step-Up Range
instruction 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 those Enhanced
RPI Orders containing high (for buy
orders) or low (for sell orders) limit
prices and/or Step-Up Range
instructions with queue priority while
simultaneously providing price
improvement to Retail Orders. The
Exchange believes that determining
order priority using the Step-Up Range
instruction in this limited situation is
aligned with the intent of liquidity
providers that choose to submit
Enhanced RPI Orders containing high
(for buy orders) or low (for sell orders)
limit prices and/or Step-Up Range
instructions and also emphasizes a
benefit of using the Enhanced RPI
Order—the ability to enter an order at a
lower (for buy orders) or higher (for sell
orders) price but also provide a Step-Up
Range instruction within which the
liquidity provider is willing to execute
in order to execute against 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 onexchange. By rewarding Enhanced RPI
Orders containing high (for buy orders)
or low (for sell orders) limit prices and/
or Step-Up Range instructions 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
instruction 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 StepUp Range instruction over the limit
price of all other higher priority orders
rewards the Enhanced RPI Order that
provides the highest (for buy orders) or
lowest (for sell orders) Step-Up Range
instruction. The Exchange believes that
using the Step-Up Range instruction
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rather than the limit price in situations
where there are multiple Enhanced RPI
Orders will encourage Users to submit
Enhanced RPI Orders containing high
(for buy orders) or low (for sell orders)
limit prices and/or Step-Up Range
instructions to the Exchange, as they
will be given priority to interact with
more desirable marketable retail order
flow based on their Step-Up Range
instruction. 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 84 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.85
Even in the limited situation where
the ranked price of an Enhanced RPI
Order is utilized to determine the queue
priority of Enhanced RPI Orders (i.e.,
where multiple Enhanced RPI Orders
are resting on the BYX Book and there
is no other same-side resting liquidity
on the BYX Book with higher priority
and an incoming contra-side Retail
Order to sell (buy) is priced lower
(higher) than the ranked price of the
resting Enhanced RPI Orders’ ranked
prices), Retail Orders stand to benefit.
Users submitting Enhanced RPI Orders
to the Exchange do so with the intent of
interacting with contra-side Retail
Orders and as such, are encouraged to
submit Enhanced RPI Orders with
competitive limit prices, in addition to
their Step-Up Range instructions, in an
attempt to gain price priority in order to
execute against Retail Orders. The
Exchange does not view Enhanced RPI
Orders as discouraging Users from
submitting RPI Orders or devaluing RPI
Orders but rather believes that
Enhanced RPI Orders are a way to
encourage competition from retail
liquidity providers as they seek to
minimize adverse selection costs and
interact with incoming contra-side
Retail Orders. With Users contending
for executions against incoming retail
liquidity, Users submitting Enhanced
RPI Orders and RPI Orders naturally
would be expected to utilize
competitive prices in order to put
themselves in the best position to
execute against retail liquidity rather
than submit orders with prices that are
not positioned to potentially execute.
84 For
securities priced below $1.00, the
minimum amount of price improvement as
compared to the Protected NBB or Protected NBO
is $0.0001.
85 Supra note 25 and note 47.
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An analysis of internal Exchange data
found that the current Program provided
approximately $1.6 million in price
improvement to retail investors during
calendar year 2024,86 which is a
decrease from the $4.5 million provided
to retail investors between the two and
a half year period between January 2016
and June 2018.87 In fact, the average
amount of price improvement per
month provided to retail investors in
2024 was approximately $133,333 while
between 2016–2018 the average amount
of price improvement provided to retail
investors was $150,000 per month. It is
reasonable to believe that the proposed
Enhanced RPI Order, by virtue of
providing at least $0.001 of price
improvement in exchange for execution
priority, and in many instances $0.005
or $0.01 of price improvement, would
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.88 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.89 Here, the Exchange is
proposing price improvement of at least
$0.001, but in many cases $0.005 or
$0.01, which the Exchange believes
would further the Commission’s goal of
‘‘increasing competition and enhancing
86 Supra
note 20.
87 See RPI Approval Order at 53184.
88 Supra note 18 at 178.
89 Id.
PO 00000
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13255
the direct exposure of individual
investor orders to a broader spectrum of
market participants’’ as set forth in
section 11A of the Exchange Act.90
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.91 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 9.8% in sub-dollar
securities during the fourth quarter of
2024.92 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
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)
90 Id.
91 See ‘‘How Subdollar Securities are Trading
Now’’ (March 16, 2023). Available at: https://
www.cboe.com/insights/posts/how-subdollarsecurities-are-trading-now/.
92 Id.
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ddrumheller on DSK120RN23PROD with NOTICES1
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) is consistent
with the Exchange’s proposal to expand
the Program to securities priced below
$1.00 and the deletion of Rule 11.24(i)
is appropriate as it is inapplicable to
Retail Orders on the Exchange and was
inadvertently added to the rule text. The
proposed changes to Rule 11.24(a)(2) are
intended to insert a reference to Rule
11.9(b)(1) describing Immediate or
Cancel Orders and 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 intended to facilitate usage
of RPI Interest 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.
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 the ability to gain 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 onexchange liquidity and 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
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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.93
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.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. by order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
93 Supra
PO 00000
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–
CboeBYX–2025–007 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–CboeBYX–2025–007. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
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–2025–007 and should be
submitted on or before April 10, 2025.
note 79.
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Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.94
Vanessa A. Countryman,
Secretary.
[FR Doc. 2025–04660 Filed 3–19–25; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–102677; File No. SR–
CboeBZX–2024–126]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change To List and Trade Shares
of the BondBloxx Private Credit Trust
March 14, 2025.
I. Introduction
On December 17, 2024, Cboe BZX
Exchange, Inc. (‘‘BZX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’ or
‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade shares (‘‘Shares’’) of the
BondBloxx Private Credit Trust
(‘‘Trust’’) under BZX Rule 14.11(f). The
proposed rule change was published for
comment in the Federal Register on
December 30, 2024.3
On February 7, 2025, 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 This order
institutes proceedings under Section
19(b)(2)(B) of the Act 6 to determine
whether to disapprove the proposed
rule change.
94 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. 102003
(Dec. 19, 2024), 89 FR 106648 (‘‘Notice’’). The
Commission has not received any comments
regarding the proposed rule change.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No.
102375, 90 FR 9559 (Feb. 13, 2025) (designating
March 30, 2025, as the date by which the
Commission shall either approve, disapprove, or
institute proceedings to determine whether to
disapprove the proposed rule change).
6 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule
Change 7
As described in the Notice, the
Exchange proposes to list and trade
Shares of the Trust 8 under BZX Rule
14.11(f)(4), which governs the listing
and trading of Trust Issued Receipts 9 on
the Exchange. According to the
Exchange, the Trust seeks to provide
risk-adjusted returns primarily through
distributions of current income from the
Trust’s portfolio.10
Description of the Trust
BondBloxx Investment Management
Corporation (‘‘Advisor’’) is the advisor
to the Trust and is responsible for the
overall management of the Trust’s
business activities. HCG Fund
Management LP (‘‘Sub-Advisor’’) will
assist in the day-to-day management of
the Trust’s assets. Brown Brothers
Harriman & Co. serves as the
administrator, custodian, and the
transfer agent. CSC Delaware Trust
Company, a Delaware trust company, is
the sole trustee of the Trust.
According to the Exchange, the Trust
intends to achieve its investment
objective by constructing a diversified
portfolio of consumer and small
business private credit assets.11 The
Exchange states the Trust intends to
target primarily whole loans that the
Advisor believes will offer stable and
7 Additional information regarding the Trust and
the Shares can be found in the Notice, supra note
3.
8 The Trust has filed a registration statement on
Form S–1 under the Securities Act of 1933, dated
December 13, 2024 (File No. 333–283852)
(‘‘Registration Statement’’). The description of the
Trust and the Shares contained herein is based on
the Registration Statement. The Exchange states the
Registration Statement for the Trust is not yet
effective, and the Trust will not trade on the
Exchange until such time that the Registration
Statement is effective. See Notice, supra note 3, 89
FR at 106649, n. 5.
9 Rule 14.11(f)(4) applies to Trust Issued Receipts
that invest in ‘‘Investment Shares’’ or ‘‘Financial
Instruments’’. The term ‘‘Investment Shares,’’ as
defined in Rule 14.11(f)(4)(A)(i), means a security
(a) that is issued by a trust, partnership, commodity
pool or other similar entity that invests in any
combination of futures contracts, options on futures
contracts, forward contracts, commodities, swaps or
high credit quality short-term fixed income
securities or other securities; and (b) issued and
redeemed daily at net asset value in amounts
correlating to the number of receipts created and
redeemed in a specified aggregate minimum
number. The term ‘‘Financial Instruments,’’ as
defined in Rule 14.11(f)(4)(A)(iv), means any
combination of investments, including cash;
securities; options on securities and indices; futures
contracts; options on futures contracts; forward
contracts; equity caps, collars and floors; and swap
agreements.
10 The Exchange states the Trust intends to
operate its business so that it is falls outside of the
definition of an investment company under the
Investment Company Act of 1940 (the ‘‘1940 Act’’).
See Notice, supra note 3, 89 FR at 106649, n. 6.
11 See Notice, supra note 3, 89 FR at 106649.
PO 00000
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13257
predictable cash flows.12 The Trust
generally intends to focus on loans that
have short and medium terms (e.g., less
than 60 months) which, through
principal amortization, tend to have low
duration (e.g., less than 30 months).13
Investable Instruments and Trust
Liquidity
The Exchange states the Trust intends
to hold the following instruments:
personal installment loans, small
business loans, student loans, point of
sale loans, and asset backed securities
that are backed by such loans
(collectively ‘‘Private Credit Assets’’),
investment grade bonds, U.S.
Treasuries, shares of certain exchange
traded funds that invest in U.S.
Treasuries or other short-term, interest
bearing assets and cash and cash
equivalents,14 including funds of an
affiliated Trust for which the Advisor
acts as the investment adviser.15
According to the Exchange, there is
limited sell-side liquidity available in
the market for Private Credit Assets.16
As such, the Advisor is proposing to
utilize the following strategy to facilitate
redemptions in the Trust:
1. The Trust will maintain a portion
of the portfolio in cash and cash
equivalents (‘‘Liquidity Sleeve’’). Under
normal circumstances, the Trust expects
to hold approximately 20% of the
portfolio in these liquid assets.
According to the Exchange, the Advisor
expects that it will generally be able to
fulfill redemption orders using this
position.17 The Advisor may also
strategically increase the size of the
Liquidity Sleeve in order to better
facilitate anticipated redemptions by
retaining, rather than distributing the
paydowns from Private Credit Assets as
further described below.
2. The remaining 80% of the Trust’s
holdings will consist of Private Credit
Assets. The Exchange states these are
short duration, high yielding products
that are underwritten to pay a weighted
average of 8% of the total Trust assets
under management (‘‘AUM’’) per month
or 10% of the private credit AUM per
12 See
id.
id.
14 Cash equivalents are short-term instruments
with maturities of less than 3 months, specifically
including U.S. Government securities, certificates of
deposit, bankers’ acceptances, repurchase and
reverse repurchase agreements, bank time deposits,
commercial paper, and money market funds. This
definition is consistent with the definition of cash
and cash equivalents in Exchange Rule
14.11(i)(4)(C)(iii).
15 See Notice, supra note 3, 89 FR at 106649.
16 See id.
17 See Notice, supra note 3, 89 FR at 106649–50.
13 See
E:\FR\FM\20MRN1.SGM
20MRN1
]]>Agencies
[Federal Register Volume 90, Number 53 (Thursday, March 20, 2025)]
[Notices]
[Pages 13240-13257]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-04660]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102681; File No. SR-CboeBYX-2025-007]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change Relating 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
March 14, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on March 13, 2025, Cboe BYX Exchange, Inc. (the ``Exchange'' or
``BYX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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[[Page 13241]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') is filing
with the Securities and Exchange Commission (``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/byx/), 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 \3\ 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 \4\ by exercising at
a price within their established Step-Up Range instruction.\5\ 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.\6\ Additionally, the Exchange
proposes to expand the Program to securities priced below $1.00.\7\
---------------------------------------------------------------------------
\3\ 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'').
\4\ See Rule 11.24(a)(2) (``Retail Order'').
\5\ See proposed Rule 11.24(a)(4).
\6\ 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'').
\7\ See Rule 11.24(h). The Program is currently limited to
trades occurring at prices equal to or greater than $1.00 per share.
---------------------------------------------------------------------------
Background
In November 2012, the Exchange received approval to operate its
Program on a pilot basis.\8\ The Program operated under a pilot basis
until September 30, 2019, when the Program was approved on a permanent
basis.\9\ 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 \10\ to operate the Program.\11\ 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.\12\ Under the Program, a class of market
participant called a Retail Member Organization (``RMO'') \13\ is
eligible to submit certain retail order flow (``Retail Orders'') to the
Exchange. Users \14\ are permitted to provide potential price
improvement for Retail Orders \15\ 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'').\16\
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\8\ See Securities Exchange Act Release No. 68303 (November 27,
2012), 77 FR 71652 (December 3, 2012), SR-BYX-2012-019 (``Pilot
Approval Order'').
\9\ See Securities Exchange Act Release No. 87154 (September 30,
2019), 84 FR 53183 (October 4, 2019), SR-CboeBYX-2019-014 (``RPI
Approval Order'').
\10\ 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.
\11\ Supra note 9 at 53185.
\12\ Supra note 7. 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).
\13\ 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.
\14\ 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.
\15\ Supra note 4. 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.
\16\ 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.
---------------------------------------------------------------------------
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,\17\ the great majority of marketable orders of retail
investors continue to be sent to wholesalers.\18\ 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
[[Page 13242]]
order flow.\19\ In fact, since RLPs have been adopted, the percentage
of on-exchange share volume has continued to decrease from
approximately 71% to approximately 49% as of December 2024.\20\
---------------------------------------------------------------------------
\17\ 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.
\18\ See Securities Exchange Act Release No. 96495 (December 14,
2022), 88 FR 128 (January 3, 2023) (``Order Competition Rule'') at
144.
\19\ See Securities Exchange Act Release No. 96494 (December 14,
2022), 87 FR 80266 (December 29, 2022) (``Tick Size Proposal'') at
80273.
\20\ Source: Cboe internal data.
---------------------------------------------------------------------------
Accordingly, the Exchange believes further enhancements to the
Program are necessary in order to attract a meaningful volume of
marketable retail order flow to the Exchange. In considering how to
accomplish the goals of the Program, the Exchange determined to design
an enhancement to provide more meaningful levels of price improvement
provided to Retail Orders relative to the price improvement provided by
both the Program as well as off-exchange venues.
As noted by the Commission, there are reasonable concerns with the
price improvement provided to retail orders executed off-exchange by
wholesale broker-dealers. In short, the Commission itself has stated
that ``the current isolation of individual investor orders from order-
by-order competition results in suboptimal price improvement for such
orders.'' \21\ The Commission believes that the lack of order
competition for retail orders leads to ``foregone price improvement''
or ``competitive shortfall,'' \22\ which for the first quarter of 2022,
the Commission quantified to be as much as $1.5 billion.\23\
---------------------------------------------------------------------------
\21\ Supra note 18 at 9.
\22\ Supra note 18 at 10.
\23\ Id.
---------------------------------------------------------------------------
In determining how to better design its Program in order to attract
retail order flow back to the Exchange, the Exchange conducted research
into the amount of price improvement provided to Retail Orders on BYX.
The Exchange found that RPI Orders under its current Program provided
an average $0.0013 per share of price improvement to Retail Orders in
2024. A more thorough review of BYX data found that the amount of price
improvement provided to Retail Orders solely by RPI Orders under the
current Program on BYX is lower than the amount of price improvement
provided to Retail Orders by all hidden liquidity on BYX (including RPI
Orders). An analysis of BYX data found that Retail Orders received an
average of $0.0033 per share of price improvement and a total amount of
approximately $1.68 million in 2024 when executing against all hidden
liquidity on BYX (including RPI Orders).\24\ The Exchange's analysis of
price improvement statistics found that its current RPI Orders provide,
on average, less price improvement to Retail Orders than other hidden
liquidity on BYX. As such, the Exchange believes that revising its
Program to include an optional order instruction (discussed infra)
designed to provide meaningful price improvement to Retail Orders as
compared to the price improvement both currently received under the
existing Program as well as through hidden, non-displayed liquidity
available on the Exchange against which Retail Orders currently trade
with today, will encourage retail order flow to execute on a regulated
market as opposed to off-exchange venues.
---------------------------------------------------------------------------
\24\ Supra note 20.
---------------------------------------------------------------------------
Accordingly, the Exchange now seeks to enhance its current Program
by offering retail liquidity providers an optional Enhanced RPI Order.
The Exchange believes the Enhanced RPI Order will incentivize
additional retail liquidity provision by enabling RPI liquidity
providers to submit an order that is ranked at a lower (for buy orders)
or higher (for sell orders) price than the Step-Up Range instruction 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 will
have the ability to gain price priority over same-side resting orders
on the BYX Book in exchange for offering meaningful price improvement
when a contra-side Retail Order is submitted to the Exchange and
certain conditions are met. 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 Rule
11.24(a)(4), which defines the proposed Enhanced RPI Order. The
proposed Enhanced RPI Order allows a retail liquidity provider to post
a limit order to the Exchange, but also provides the opportunity for
the liquidity provider to ``step-up'' its price within a defined Step-
Up Range instruction and have the ability to gain price priority 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 instruction, which is the
highest (for buy orders) or lowest (for sell orders) price it is
willing to execute against a contra-side Retail Order. If the Enhanced
RPI Order includes a Step-Up Range instruction 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, subject to certain conditions discussed
infra. 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 full cent for
securities priced at or above $1.00 and to the next minimum price
increment for securities priced below $1.00.\25\
---------------------------------------------------------------------------
\25\ Generally, an Enhanced RPI Order is expected to provide
$0.01 of price improvement in order to gain price priority over
same-side resting orders on the BYX Book, but 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. In certain instances, Enhanced RPI Orders in securities
priced at or above $1.00 may only need to step up to the NBBO
midpoint or from the NBBO midpoint to the next full cent in order to
provide meaningful price improvement and gain price priority over
same-side resting orders 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 or
down to a higher price (for buy orders) or lower price (for sell
orders) in order to execute against marketable retail order flow that
is less prone to adverse selection.\26\ Marketable retail order flow,
in turn, would receive price improvement greater than what is currently
available under the Program.
[[Page 13243]]
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. While Enhanced RPI Orders may be entered by
any User, 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.
---------------------------------------------------------------------------
\26\ 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.
---------------------------------------------------------------------------
The Exchange believes that the introduction of the Enhanced RPI
Order will complement the existing RPI Order type as it is intended to
provide Users with additional, optional functionality that may be
utilized when seeking to interact with Retail Orders. The Exchange
views the Enhanced RPI Order as a complement to the existing RPI Order
because the distinction between the Enhanced RPI Order and the existing
RPI Order is simply the addition of the Step-Up Range instruction,
which will permit Users to enter an Enhanced RPI Order at a defined
limit price but simultaneously permit Users to have the ability to gain
price priority over resting same-side orders on the BYX Book in
exchange for providing meaningful price improvement. Users will be free
to decide whether resting on the BYX Book in order to obtain an
execution against a Retail Order at a specific limit price under the
current Program is more valuable than submitting an Enhanced RPI Order
for a chance at price priority in exchange for meaningful price
improvement. Additionally, the Exchange believes that if the Enhanced
RPI Order is successful at attracting Retail Orders due to its ability
to provide meaningful price improvement, Users will therefore also be
interested in submitting RPI Orders in an attempt to interact with
Retail Orders that are not filled by Enhanced RPI Orders. The Exchange
believes that while certain retail liquidity providers will be
incentivized to use the Enhanced RPI Order due to its ability to gain
price priority, certain retail liquidity providers will simply want the
ability to interact with retail order flow and are not concerned with
gaining price priority. If the Enhanced RPI Order is successful in
attracting additional retail order flow, Users submitting RPI Orders
may also benefit as there is additional liquidity against which their
RPI Orders may interact if those Retail Orders are not filled by an
Enhanced RPI Order. For these reasons, the Enhanced RPI Order and RPI
Order should be viewed as complementary order types and should not be
seen as competing with one another. The Exchange does not believe that
Users will be less likely to submit RPI Orders simply because an
Enhanced RPI Order type is also available, similar to how Users are not
dissuaded from submitting traditional limit orders when a Discretionary
Order \27\ also exists on the Exchange.
---------------------------------------------------------------------------
\27\ See Rule 11.9(c)(10).
---------------------------------------------------------------------------
In conjunction with introducing Rule 11.24(a)(4), the Exchange
proposes to introduce Rule 11.24(a)(5) in order to define the term RPI
Interest as either RPI Orders or Enhanced RPI Orders. The Exchange also
proposes to amend Rule 11.24(e) in order to more accurately describe
when the Retail Liquidity Identifier is displayed. Additionally, the
Exchange proposes to amend Rule 11.24(g) by removing the examples
currently found in the rule text that describe RPI Order priority. The
Exchange notes that Rule 11.24(g) will be inclusive of both RPI Order
priority and Enhanced RPI Order priority and as such the example
currently contained within Rule 11.24(g) is no longer necessary as it
is explained more thoroughly in the proposed rule text. 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 securities priced below
$1.00. 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 delete Rule 11.24(i)
as it is inapplicable to Retail Orders on the Exchange and was
inadvertently added to the rule text. Finally, the Exchange proposes to
clarify throughout Rule 11.24 that RPI Orders and Enhanced RPI Orders
will be ineligible to execute at prices equal to or inferior to the
Protected NBB or Protected NBO.
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.\28\ 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 improvement at
the midpoint or better. The Mid-Point Peg Order instruction will be
optional, and not required for Users of Retail Orders.
---------------------------------------------------------------------------
\28\ 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.
---------------------------------------------------------------------------
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.''
\29\ The Exchange now proposes to amend the definition of RPI Order to
more accurately reflect when an RPI Order is eligible to execute
against a contra-side Retail Order and at what pricing increments RPI
Orders may be entered. The Exchange proposes to include text stating
that an RPI Order for a security priced at or above $1.00 must be
priced at least $0.001 better than the Protected NBB or Protected NBO
and may be entered in increments of $0.001. For securities priced below
$1.00, an RPI Order must be priced at least $0.0001 better than the
Protected NBB or Protected NBO and may be priced in $0.0001 increments.
The Exchange believes it is necessary to clarify that an RPI Order may
be entered at any price but may execute only at prices better than the
Protected NBB or Protected NBO. Additionally, the Exchange notes that
an RPI Order that is ineligible to execute due to not being priced at
least $0.001 (for securities priced at or above $1.00) or $0.0001 (for
securities priced below $1.00) better than the Protected NBB or
Protected NBO will not be canceled, but will remain on the BYX Book in
case the Protected NBBO moves such that the RPI Order becomes eligible
to execute at a later time. Further, the Exchange is proposing to amend
Rule 11.24(a)(3) to note that an RPI Order may be entered as a Primary
Pegged Order (``RPI Primary Pegged Order''), as defined in Rule
11.9(c)(8)(A) and the ranked price of an RPI Primary Pegged Order will
be the price of the order after the order is pegged to the Protected
NBB or Protected NBO and the applicable positive (for buy orders) or
negative (for sell orders) offset (``Offset Amount'') is
[[Page 13244]]
applied.\30\ For RPI Primary Pegged Orders priced at or above $1.00,
the Offset Amount may be entered in increments of $0.001 and for RPI
Primary Pegged Orders priced below $1.00, the Offset Amount may be
entered in increments of $0.0001. Additionally, the Exchange proposes
to remove references to the ``ceiling or floor'' price and replace that
term with ``limit price'' as it more accurately describes the price at
which an RPI Primary Pegged Order that will be eligible to interact
with a contra-side Retail Order.
---------------------------------------------------------------------------
\29\ Supra note 3.
\30\ A Primary Pegged Order is a limit order that has its price
automatically adjusted by the System to the Protected NBB or
Protected NBO and any applicable positive or negative offset is
applied to the price that results after the System pegs the order to
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(g). 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.
The Exchange proposes to amend Rule 11.24(f)(2) to provide that RPI
Orders are ineligible to execute at prices equal to or inferior to the
Protected NBB or Protected NBO. Currently, a resting RPI Order is
eligible to execute against a Type 2-designated Retail Order (a ``Type
2 Order'') \31\ that has exhausted all price improving liquidity on the
BYX Book even if the RPI Order is not providing price improvement, as a
Type 2 Order is eligible to execute against all marketable liquidity
once the order has interacted with all price improving liquidity. In
the event that an RPI Order is ineligible to execute against a Type 2
Order because it is not providing at least $0.001 of price improvement
in securities priced at or above $1.00 or at least $0.0001 of price
improvement in securities priced below $1.00, the Exchange will not
cancel the resting RPI Order. Rather, the RPI Order will persist on the
BYX Book and will become eligible to execute should the Protected NBB
or Protected NBO move to a price that permits the RPI Order to provide
price improvement. The proposed change to RPI Order behavior is being
made in order to limit RPI Orders to only providing executions that
provide price improvement to contra-side Retail Orders, consistent with
the definition of an RPI Order and the description of RPI Order
functionality in the Exchange's previous Pilot Approval Order and RPI
Approval Order.
---------------------------------------------------------------------------
\31\ See Rule 11.24(f)(2). A Type 2-designated Retail Order will
interact first with available price improving RPI Orders and other
price improving liquidity and then any remaining portion of the
Retail Order will be executed as an IOC Order pursuant to Rule
11.9(b)(1). A Type 2-designated Retail Order can either be submitted
as a BYX Only Order or as an order eligible for routing pursuant to
Rule 11.13(a)(2). The Exchange proposes to make clear in Rule
11.24(f)(2) that the remaining portion of a Type 2-designated Retail
Order will be ineligible to execute against contra-side RPI Interest
that is not priced better than the Protected NBB or Protected NBO.
---------------------------------------------------------------------------
Enhanced RPI Order
The Exchange now proposes to introduce an Enhanced 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 instruction 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'' is an RPI Order that is designated with a Step-
Up Range instruction. A Step-Up Range instruction is an optional, non-
displayed instruction that is added to (for buy orders) or subtracted
from (for sell orders) the ranked price of an RPI Order and provides a
maximum execution price (for buy orders) or minimum execution price
(for sell orders) at which a User is willing to execute against contra-
side Retail Orders. The Step-Up Range instruction may be priced in
increments of $0.001 for securities priced at or above $1.00 and
securities priced below $1.00.
An Enhanced RPI Order may be entered as a limit order, in
a sub-penny increment with an explicit limit price, or as a Primary
Pegged Order (as defined in Rule 11.9(c)(8)(A)) with an Offset Amount.
An Enhanced RPI Order is ranked at its limit price and not the price of
its Step-Up Range instruction.
An Enhanced RPI Order that is also a Primary Pegged Order
(``Enhanced RPI Primary Pegged Order'') will have its ranked price
determined after the application of the Offset Amount, as described in
Rule 11.9(c)(8) and Rule 11.9(c)(8)(A). The Step-Up Range instruction
of an Enhanced RPI Primary Pegged Order will be applied to the
resulting ranked price following the application of the Offset Amount
and may cause the Enhanced RPI Primary Pegged Order to execute at a
price that is higher (for buy orders) or lower (for sell orders) than
its limit price. An Enhanced RPI Primary Pegged Order priced at or
above $1.00 may have its Offset Amount entered in pricing increments of
$0.001. An Enhanced RPI Primary Pegged Order priced below $1.00 may
have its Offset Amount entered in pricing increments of $0.0001.
The System will monitor whether an Enhanced RPI Order,
adjusted by any applicable Offset Amount, the order's Step-Up Range
instruction, and the order's limit price, is eligible to interact with
incoming Retail Orders. An Enhanced RPI Order (including any applicable
Offset Amount, the Step-Up Range instruction, and the limit price)
remains non-displayed in its entirety. Any User is permitted, but not
required, to submit an Enhanced RPI Order. 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). An Enhanced RPI Order is
ineligible to execute at prices equal to or inferior to the Protected
NBB (for buy orders) or Protected NBO (for sell orders). An Enhanced
RPI Order that is ineligible to execute because it is priced equal to
or inferior to the Protected NBB (for buy orders) or Protected NBO (for
sell orders) will not be cancelled and will become eligible to execute
against Retail Orders should the Enhanced RPI Order becomes executable
at a later time.
The ranked price of an Enhanced RPI Order will be determined by a
User's entry of the following into the
[[Page 13245]]
Exchange: (1) Enhanced RPI buy or sell interest; (2) any applicable
offset; (3) the Step-Up Range instruction; and (4) the limit price. The
Step-Up Range instruction of an Enhanced RPI Order is the maximum
amount above the order's limit price (for buy orders) or minimum amount
below the order's limit price (for sell orders) at which a User is
willing to execute. As discussed infra, if the Enhanced RPI Order can
improve upon resting liquidity on the same side of the BYX Book by
stepping up to the nearest full cent (for securities priced at or above
$1.00) or the next minimum pricing increment (for securities priced
below $1.00),\32\ 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.\33\
---------------------------------------------------------------------------
\32\ Supra note 25. There are certain instances in which an
Enhanced RPI Order may only need to provide between $0.001-$0.005 in
price improvement in securities priced at or above $1.00 in order to
gain price priority over resting liquidity on the BYX Book.
\33\ 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 will be 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.
---------------------------------------------------------------------------
Pursuant to proposed Rule 11.24(g)(2), Enhanced RPI Orders in
securities priced at or above $1.00 may include a Step-Up Range
instruction priced in $0.001 increments, but these orders shall not
gain priority over other same-side resting orders on the BYX Book if
the Step-Up Range instruction is unable to step up to the NBBO midpoint
or the next full cent. Step-Up Range instructions priced in increments
finer than $0.01 will be capped at the maximum executable price based
on a valid tick increment or midpoint and will not otherwise be
executable at the maximum price of the Step-Up Range instruction.
Priority and Order Allocation
As discussed above, the proposed Enhanced RPI Order will be ranked
and allocated according to its limit price then time of entry into the
System. With the introduction of the proposed Enhanced RPI Order, the
Exchange proposes to reorganize Rule 11.24(g) into Rule 11.24(g)(1)-
(3). Proposed Rule 11.24(g) will serve as an introductory paragraph and
will contain the existing rule text found in current Rule 11.24(g) that
describes order priority with respect to RPI Orders. The Exchange
proposes to amend the existing rule text in Rule 11.24(g) to replace
RPI Orders with RPI Interest and to clarify that RPI Interest is
ineligible to execute at prices that are equal to or inferior to the
Protected NBB or Protected NBO. RPI Interest that is ineligible to
execute due to being priced equal to or inferior to the Protected NBB
or Protected NBO will not be cancelled and will become eligible to
execute against Retail Orders should the RPI Interest become priced
better than the Protected NBB or Protected NBO at a later time. The
Exchange proposes to remove the example of RPI Order priority contained
within current Rule 11.24(g) as it is duplicative of existing rule text
which describes that RPI Orders are to be ranked and executed in
accordance with Rule 11.12 and also as described in Rule 11.24(g), as
applicable. Proposed Rule 11.24(g) will also provide that Enhanced RPI
Orders have the ability to gain execution priority over resting same-
side orders on the BYX Book with higher price/time priority in the same
security if certain criteria is satisfied.
Proposed Rule 11.24(g)(1) describes three instances in which the
Step-Up Range instruction of an Enhanced RPI Order will be utilized to
determine at what price an Enhanced RPI Order must execute versus a
contra-side Retail Order in order to gain price priority over resting
same-side orders on the BYX Book with higher price/time priority in the
same security. Pursuant to proposed Rule 11.24(g)(1)(A), the Step-Up
Range instruction of an Enhanced RPI Order will be utilized when the
Step-Up Range instruction is needed to gain priority over a resting
same-side order (excluding resting Enhanced RPI Orders, unless there
are multiple Enhanced RPI Orders as discussed infra) on the BYX Book
with higher price/time priority. As discussed infra in proposed Rule
11.24(g)(2) and proposed Rule 11.24(g)(3), an Enhanced RPI Order shall
gain priority over resting same-side orders on the BYX Book with higher
price/time priority in the same security if the Step-Up Range
instruction is able to provide a greater amount of price improvement to
an incoming contra-side Retail Order than would be provided by the
resting same-side order on the BYX Book.
Second, under proposed Rule 11.24(g)(1)(B), the Step-Up Range
instruction of an Enhanced RPI Order will be utilized in situations
where: (i) a contra-side Retail Order to sell (buy) is entered at a
higher (lower) price than the ranked price (i.e., its limit price) of
the Enhanced RPI Order and all other resting liquidity and (ii) the
Enhanced RPI Order's Step-Up Range instruction is priced equal to or
higher (lower) than the Retail Order's limit price. In this scenario,
an Enhanced RPI Order will execute versus a contra-side Retail Order at
the Retail Order's limit price. This situation is also applicable to an
Enhanced RPI Order that is also a Primary Pegged Order. The limit price
of an Enhanced RPI Order that is also a Primary Pegged Order will be
adjusted by any applicable offset and the Step-Up Range instruction
applied to the resulting ranked price.
Lastly, as described in proposed Rule 11.24(g)(1)(C), the Step-Up
Range instruction of an Enhanced RPI Order will be utilized to
determine order book priority when multiple Enhanced RPI Orders are
resting on the BYX Book and are eligible to trade ahead of resting
same-side orders on the BYX Book with higher price/time priority that
are not Enhanced RPI Orders. Priority will be given to the Enhanced RPI
Order with the Step-Up Range instruction that could result in the
highest (for an Enhanced RPI Order to buy) or lowest (for an Enhanced
RPI Order to sell) possible execution price for the contra-side Retail
Order, even if the resulting execution does not occur at the highest
(lowest) maximum execution price that is permitted by the Step-Up Range
instruction. The actual execution price provided to the Retail Order
will be the price the Enhanced RPI Order needs to step up to as
described in proposed Rule 11.24(g)(1)(A) and proposed Rule
11.24(g)(1)(B).
Proposed Rule 11.24(g)(1)(C)(i) describes an exception to utilizing
the Step-Up Range instruction in order to determine order book priority
and applies when there are multiple Enhanced RPI Orders resting on the
BYX Book, no other resting same-side liquidity with higher priority,
and an incoming Retail Order to sell (buy) is priced lower (higher)
than the resting Enhanced RPI Orders' ranked prices. In this instance,
execution priority will be determined by the higher ranked price and
not the Step-Up Range instruction of the Enhanced RPI Orders. An
Enhanced RPI Primary Pegged Order will have its priority determined by
the ranked price that results after the application of the Offset
Amount as described in Rule 11.9(c)(8) and Rule 11.9(c)(8)(A) and will
not include the Step-Up Range instruction. The Enhanced RPI Orders will
execute pursuant to Rule 11.12 in standard price/time priority
according to their limit prices or resulting ranked prices after
application of the applicable positive or negative offset in the case
of Enhanced RPI Primary Pegged Orders.
Proposed Rule 11.24(g)(2) provides that for securities priced at or
above $1.00 an Enhanced RPI Order shall gain
[[Page 13246]]
priority over resting same-side orders on the BYX Book with higher
price/time priority in the same security if the Step-Up Range
instruction is able to provide a greater amount of price improvement to
an incoming contra-side Retail Order, as provided for in proposed Rule
11.24(g)(1)(A)-(C). In order to gain priority over resting same-side
orders on the BYX Book with higher price/time priority in the same
security, an Enhanced RPI Order must be able to step up to the next
valid tick increment. Proposed Rules 11.24(g)(2)(A)-(C) provide certain
scenarios where an Enhanced RPI Order may only need to provide a half
cent of price improvement or less in order to gain priority over
resting same-side orders on the BYX Book with higher price/time
priority.
Proposed Rule 11.24(g)(2)(A) provides that if the NBBO midpoint is
priced in a half-cent increment (e.g., $10.005) and the best-priced
resting order on the BYX Book is ranked at the NBBO midpoint (e.g.,
$10.005), the Enhanced RPI Order's Step-Up Range instruction must
permit the Enhanced RPI Order to step up to the next full cent above
(for buy orders) or below (for sell orders) the NBBO midpoint (e.g.,
$10.01 for buy orders or $10.00 for sell orders). Proposed Rule
11.24(g)(2)(B) provides that if the NBBO midpoint is priced in a half-
cent increment (e.g., $10.005) and the best-priced resting order on the
BYX Book to buy (sell) is ranked at the full cent below (above) the
NBBO midpoint (e.g., $10.00 or $10.01), the Enhanced RPI Order's Step-
Up Range instruction must permit the Enhanced RPI Order to step up to
the NBBO midpoint (e.g., $10.005 or beyond). In the event that an RPI
Order priced in an $0.001 increment is resting on the BYX Book,
proposed Rule 11.24(g)(2)(C) provides that the Enhanced RPI Order's
Step-Up Range instruction must permit the Enhanced RPI Order to step up
to the closer of the NBBO midpoint or the next full cent above (for buy
orders) or below (for sell orders) the NBBO midpoint in order to gain
priority over the resting RPI Order (e.g., an Enhanced RPI Order with a
limit price of $10.00 must contain a Step-Up Range instruction of at
least $0.005 in order to gain priority over a resting RPI Order with a
limit price of $10.001).
Proposed Rule 11.24(g)(3) provides that for securities priced below
$1.00, Enhanced RPI Orders shall be granted price priority over resting
same-side orders on the BYX Book if the Enhanced RPI Order's Step-Up
Range instruction is able to provide a greater amount of price
improvement to an incoming contra-side Retail Order by stepping up to
the next minimum price increment. The Exchange notes that the System
does not support fractional penny quotations or executions priced in
$0.00001 increments and finer in securities priced below $1.00 but does
support quotations and executions in fractional pennies priced in
increments up to $0.0001.
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. Additionally, all Retail Orders
described in the examples are presumed to be Type 1-designated Retail
Orders \34\ unless otherwise specified.
---------------------------------------------------------------------------
\34\ See Rule 11.24(f)(1). A Type 1-designated Retail Order will
interact with available contra-side RPI Order and other price
improving contra-side interest but will not interact with other
available interest in the System that is not offering price
improvement or route to other markets. The portion of a Type 1-
designated Retail Order that does not execute against contra-side
RPI Orders or other price improving liquidity will be immediately
and automatically cancelled. The Exchange notes that proposed Rule
11.24(f)(1) will be updated to reflect ``contra-side RPI Interest''
to capture both RPI Orders and Enhanced RPI Orders.
---------------------------------------------------------------------------
Example 1 \35\
---------------------------------------------------------------------------
\35\ See proposed Rule 11.24(g)(1)(A) and Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------
In order to illustrate priority of an Enhanced RPI Order over other
Non-Displayed Orders \36\ resting on the BYX Book, consider the
following example:
---------------------------------------------------------------------------
\36\ See Rule 11.9(c)(11). A Non-Displayed Order is a market or
limit order that is not displayed on the Exchange.
---------------------------------------------------------------------------
The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters a Mid-Point Peg \37\ 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.
---------------------------------------------------------------------------
\37\ Supra note 28.
---------------------------------------------------------------------------
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 2's Step-Up Range instruction 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 instruction 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 \38\
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\38\ See proposed Rule 11.24(g)(1)(A) and Rule 11.24(g)(2)(B).
---------------------------------------------------------------------------
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 in securities priced at or above $1.00. 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
in 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 instruction 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 instruction 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 \39\
---------------------------------------------------------------------------
\39\ See proposed Rule 11.24(g)(1)(A).
---------------------------------------------------------------------------
In most instances, an Enhanced RPI Order will 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.
[[Page 13247]]
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 2's Step-Up Range instruction 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 instruction 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 \40\
---------------------------------------------------------------------------
\40\ See proposed Rule 11.24(g).
---------------------------------------------------------------------------
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 instruction 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 \41\
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\41\ See proposed Rule 11.24(g)(1)(A) and 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.
[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 instruction 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 instruction of
$0.03 and is willing to execute up to a maximum price of $10.04, the
Step-Up Range instruction 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 instruction 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 instruction. 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 \42\
---------------------------------------------------------------------------
\42\ See proposed Rule 11.24(g)(1)(B).
---------------------------------------------------------------------------
Enhanced RPI Orders will execute within their Step-Up Range
instruction 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 instruction 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 instruction.
Example 7 \43\
---------------------------------------------------------------------------
\43\ See proposed Rule 11.24(g)(1)(C)(i).
---------------------------------------------------------------------------
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 higher (for buy orders) and lower
(for sell orders) than the resting Enhanced RPI Orders' ranked prices,
execution priority will be determined by the higher ranked price and
not by the Step-Up Range instructions 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 instruction 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 instruction 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
lower than the resting Enhanced RPI Orders' ranked prices 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 \44\
---------------------------------------------------------------------------
\44\ See proposed Rule 11.24(g)(1)(B).
---------------------------------------------------------------------------
The Step-Up Range instruction will be used to determine order book
priority in situations where: (i) a contra-side Retail Order to sell
(buy) is entered at a higher (lower) 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 instruction is
priced equal to or higher (lower) than the Retail Order's
[[Page 13248]]
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 instruction 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 to sell was
entered at a higher 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
instruction of User 1's Enhanced RPI Order is higher ($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 instruction to
permit an execution between User 1 and User 3.
Example 9 \45\
---------------------------------------------------------------------------
\45\ See proposed Rule 11.24(g)(1)(C).
---------------------------------------------------------------------------
The Step-Up Range instruction 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 instruction 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 instruction 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 instruction 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, 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 instruction 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 instruction 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 instruction 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 \46\
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\46\ See proposed Rule 11.24(g)(1)(A).
---------------------------------------------------------------------------
Enhanced RPI Orders will have price priority over resting RPI
Orders (that do not contain a Step-Up Range instruction) on the BYX
Book so long as the Step-Up Range instruction 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 instruction 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 instruction 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
instruction. 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 instruction 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.\47\ Thus,
using the Step-Up Range instruction 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.
---------------------------------------------------------------------------
\47\ 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
instruction 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 \48\
---------------------------------------------------------------------------
\48\ See proposed Rule 11.24(g)(1)(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
[[Page 13249]]
1's Step-Up Range instruction 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 instruction 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 \49\
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\49\ See proposed Rule 11.24(g)(1)(A).
---------------------------------------------------------------------------
The ranked price of an Enhanced RPI Primary Pegged Order is the
price that results after the application of the Offset Amount, as
described in Rule 11.9(c)(8) and Rule 11.9(c)(8)(A). The Step-Up Range
instruction is applied to an Enhanced RPI Primary Pegged Order
following the application of the Offset Amount. 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 $10.03 for
100.
[cir] User 2 enters an Enhanced RPI Primary Pegged Order to buy ABC
at $10.02 for 100. User 2's Step-Up Range instruction 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 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 instruction 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 13 \50\
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\50\ See proposed Rule 11.24(g)(1)(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 instruction 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 14 \51\
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\51\ See proposed Rule 11.24(g)(1)(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 Non-Displayed 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 instruction 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 Non-Displayed
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
instruction 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 instruction and as such, User 2's order will have queue priority
over User 1's order.
Example 15 \52\
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\52\ See proposed Rule 11.24(f)(2); see also proposed Rule
11.24(g).
---------------------------------------------------------------------------
The below example is included to show the proposed change to Rule
11.24(f)(2) that does not permit a Type 2-designated Retail Order to
execute against resting RPI Interest that is priced equal to the
Protected NBB or Protected NBO.
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 $10.00 for
100. User 2's Step-Up Range instruction is $0.03. User 2's order is
ranked at $10.00 and is willing to step up to a maximum price of
$10.03. The Retail Liquidity Identifier is not displayed because the
limit price of User 2's order is not priced at least $0.001 better than
the Protected NBB.
[cir] User 3 enters an RPI Order to buy ABC at $10.00 for 100. The
Retail Liquidity Identifier is not displayed because the limit price of
User 3's order is not priced at least $0.001 better than the Protected
NBB.
[cir] User 4 enters a Non-Displayed Order to buy ABC at $10.00 for
100.
[cir] User 5 enters a Type 2-designated Retail Order to sell ABC at
$10.00 for 400.
Result: User 2's Enhanced RPI Order executes against User
5's Type 2
[[Page 13250]]
Order for 100 at a price of $10.025 because the best-priced resting
order on the BYX Book is ranked at a whole cent ($10.02), and the NBBO
midpoint is priced in a half cent increment.\53\ User 1's Non-Displayed
Order then executes against User 5's Type 2 Order for 100 at a price of
$10.02 because User 1's order is priced better than the NBBO.\54\ User
4's Non-Displayed Order then executes against 5's Type 2 Order for 100
at a price of $10.00.\55\ The remaining 100 shares of User 5's Type 2
Order are then cancelled or routed to an away market based on User 5's
instruction. This example demonstrates proposed order priority where a
Type 2 Order has a remaining quantity after executing against all price
improving liquidity. Under current Rule 11.24(f)(2), order priority
would differ in that User 5's Type 2 Order would execute against User
3's RPI Order at $10.00 prior to executing against User 4's Non-
Displayed Order due to price/time priority and would leave no remaining
quantity to either cancel back or route to an away market.
---------------------------------------------------------------------------
\53\ See proposed Rule 11.24(g)(1)(A) and proposed Rule
11.24(g)(2)(B).
\54\ See Rule 11.12(a)(1).
\55\ See proposed Rule 11.24(a)(3) and proposed Rule
11.24(f)(2).
---------------------------------------------------------------------------
Example 16 \56\
---------------------------------------------------------------------------
\56\ See proposed Rule 11.24(g)(2).
---------------------------------------------------------------------------
Step-Up Range instructions priced in increments finer than $0.01
will be capped at the maximum executable price based on a valid tick
increment or NBBO midpoint and will not be executable at the maximum
price of the Step-Up Range instruction. If a Member chooses to enter a
Step-Up Range instruction priced in an increment finer than $0.01, the
Member's Enhanced RPI Order may not be able to gain price priority over
other same-side resting orders on the BYX Book.
The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters a Non-Displayed Order to buy ABC at $10.01 for
100.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 2's Step-Up Range instruction is $0.01. User 2's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.02.
[cir] User 3 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 3's Step-Up Range instruction is $0.013. User 3's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.023. User 3's order is subject to a cap at $10.02 because $10.023
is not a valid tick increment and $10.02 is the closest valid tick
increment to the maximum price provided by the Step-Up Range
instruction.
[cir] User 4 enters a Retail Order to sell ABC at $10.00 for 100.
Result: User 4's Retail Order will trade with User 2's
Enhanced RPI Order at a price of $10.02 because User 3's Enhanced RPI
Order is subject to a cap at $10.02 and User 2's Enhanced RPI Order has
time priority. While User 3's Enhanced RPI Order included a Step-Up
Range instruction of $0.013 and was willing to step up to a maximum
price of $10.023, which is greater than User 2's maximum price of
$10.02, User 3's Enhanced RPI Order is capped at a price of $10.02
because $10.023 is not a valid tick increment and therefore is not able
to execute at a price of $10.023. As both User 2 and User 3 are willing
to step up to a maximum price of $10.02, priority is given to User 2's
Enhanced RPI Order as it was entered prior to User 3's Enhanced RPI
Order.
As demonstrated in the examples above, the Exchange is proposing to
grant an Enhanced RPI Order the ability to gain 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 same side of the BYX Book in exchange for the ability to
gain 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 priced at or
above $1.00 is available in the System (``Retail Liquidity Identifier''
or ``Identifier''). When there is RPI Interest on the BYX Book that is
priced at or below (above) the Protected NBB or Protected NBO, no
Retail Liquidity Identifier is disseminated by the Exchange.\57\ 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.\58\ 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 notes that the
Identifier can shift from being disseminated to not disseminated (or
vice versa) based on movement in the Protected NBB or Protected NBO
without new RPI Interest being entered on the Exchange. Further, the
Exchange notes that as the Protected NBB and Protected NBO move, there
may be instances where RPI Interest is available on the Exchange but is
ineligible to execute due to being priced equal to or below (above) the
Protected NBB or Protected NBO. While RMOs may not be aware of
potential RPI Interest on the Exchange during these periods, the
Exchange does not believe that RMOs are harmed as Retail Orders would
be ineligible to execute with RPI Interest that is not priced at least
$0.001 above (below) the Protected NBB or Protected NBO. In addition,
Retail Orders may continue to be submitted even when the Identifier is
not being disseminated and will continue to be eligible to execute
against contra-side hidden liquidity that may be priced equal to or
above (below) the Protected NBB or Protected NBO, including the Step-Up
Range instruction of an Enhanced RPI Order that is priced at least
$0.001 above (below) the Protected NBB (NBO) while the ranked price of
the Enhanced RPI Order not priced at least $0.001 above (below) the
Protected NBB (NBO).
---------------------------------------------------------------------------
\57\ The Exchange notes that RPI Interest may not execute unless
it is priced at least $0.001 better than the Protected NBB or
Protected NBO in securities priced at or above $1.00 or priced at
least $0.0001 better than the Protected NBB or Protected NBO in
securities priced below $1.00, as proposed infra.
\58\ 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
[[Page 13251]]
Enhanced RPI Order be approved.\59\ For Enhanced RPI Orders, the
indicator will be based off of the ranked price only and the Step-Up
Range instruction 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 believes that even in
instances where the Identifier is not being disseminated due to RPI
Interest not being priced at least $0.001 above (below) the Protected
NBB (Protected NBO), RMOs continue to be incentivized to submit Retail
Orders to the Exchange due to the fact that Retail Orders continue to
be eligible to execute against contra-side hidden liquidity and
Enhanced RPI Orders so long as the Step-Up Range instruction associated
with an Enhanced RPI Order is priced at least $0.001 above (below) the
Protected NBB (Protected NBO). 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.
---------------------------------------------------------------------------
\59\ 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,\60\ the
Exchange is proposing that the Identifier for sub-dollar securities
will be displayed when there is RPI Interest with a ranked price at
least $0.0001 above (below) the Protected NBB or Protected NBO.
Similarly, the Identifier for sub-dollar securities will not be
displayed if there is RPI Interest on the BYX Book priced at or below
(above) the Protected NBB or Protected NBO. The Exchange will continue
to display the Identifier for securities priced at or above $1.00 when
there is RPI Interest priced at least $0.001 better than the Protected
NBB or Protected NBO. The Exchange will not make any other changes to
the display of the Identifier from its current form for sub-dollar
securities other than the minimum amount of price improvement required
to display the Identifier.
---------------------------------------------------------------------------
\60\ 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 \61\ regarding securities included in the
Program through an information circular.\62\ 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 December 2024, an analysis of SIP \63\ data by the
Exchange found that sub-dollar average daily volume has increased 564%
as compared to first quarter 2019. In this period, sub-dollar on-
exchange average daily volume grew from 122 million shares per day to
814 million shares per day. An analysis of SIP and FINRA Trade
Reporting Facility (``TRF''),\64\ data indicates that exchanges
represented approximately 36.5% market share in sub-dollar securities,
with a total of 1,286 securities trading below $1.00. As an exchange
group, Cboe had approximately 9.8% of market share of sub-dollar
securities in the fourth quarter of 2024.
---------------------------------------------------------------------------
\61\ 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.
\62\ Supra note 7.
\63\ The ``SIP'' refers to the centralized securities
information processors.
\64\ 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.
---------------------------------------------------------------------------
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.\65\
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 full cent
ahead of resting orders on the same side of the BYX Book.\66\ The
Exchange recognizes that there is a distinction between the pricing
increment in securities priced at or above $1.00 and securities priced
below $1.00, which have a finer minimum pricing increment. As
discussed, in securities priced at or above $1.00 the Step-Up Range
instruction must be able to step up to the next full cent in order to
permit an Enhanced RPI Order to have the ability to gain price priority
over resting same-side orders on the BYX Book and requiring Users to
have a Step-Up Range instruction priced in $0.001 increments seeks to
ensure that meaningful price improvement in securities priced at or
above $1.00 is achieved and that the purpose of Regulation NMS Rule 612
is not undermined by allowing non-displayed Step-Up Range instructions
to gain price priority for a de minimis amount of price improvement.
However, in securities priced below $1.00, the MPV is $0.0001 and as
such, the quotations and pricing of orders tends to be in finer
increments. By requiring an Enhanced RPI Order's Step-Up Range
instruction to step up to the next minimum pricing increment (rather
than the full cent as in securities priced at or above $1.00), the
Exchange is seeking to stay within the bounds of Regulation NMS and
encourage Users to submit competitively-priced orders in RPI Interest
submitted to the Exchange. The Exchange believes that Users are not
harmed by the distinction in the minimum pricing increment for
securities priced at or above $1.00 and securities priced below $1.00
as this
[[Page 13252]]
distinction serves to ensure that Retail Orders receive meaningful
price improvement at all price levels.
---------------------------------------------------------------------------
\65\ Supra note 60.
\66\ Supra notes 25 and 47.
---------------------------------------------------------------------------
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 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 2025 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.\67\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \68\ 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) \69\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\67\ 15 U.S.C. 78f(b).
\68\ 15 U.S.C. 78f(b)(5).
\69\ Id.
---------------------------------------------------------------------------
The Commission has repeatedly emphasized that the U.S. capital
markets should be structured with the interests of retail investors in
mind \70\ 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.\71\ 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
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.
---------------------------------------------------------------------------
\70\ 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.
\71\ Supra notes 18-19. 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.\72\ The Exchange believes that such segmentation is
consistent 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.\73\ 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.\74\ 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.
---------------------------------------------------------------------------
\72\ Supra note 26.
\73\ Id.
\74\ 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 highest (for buy orders) or lowest
(for sell orders) priced Enhanced RPI Order, based on a combination of
the order's limit price and Step-Up Range instruction, with order book
priority. Ultimately, execution priority amongst orders resting on the
BYX Book will be determined by the Step-Up Range instruction entered on
each Enhanced RPI Order, subject to certain limitations described
above. If the Step-Up Range instruction 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 full cent or (for securities priced at or
above $1.00) \75\ 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 instruction will be given order book priority. The Exchange
believes rewarding the highest (for buy orders) or lowest (for sell
orders) priced Step-Up Range instruction will encourage Users to submit
Enhanced RPI Orders with Step-Up Range instructions 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.
---------------------------------------------------------------------------
\75\ Supra note 25 and note 47.
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As noted in the Exchange's initial RPI filings,\76\ most equities
exchanges, including BYX, determine priority based on a price/time/
display allocation model.\77\ This has contributed to deep
[[Page 13253]]
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 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.
---------------------------------------------------------------------------
\76\ Supra notes 6-7.
\77\ 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,\78\ 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.\79\ 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 full cent or (for securities priced at or above
$1.00) \80\ 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 higher (for buy
orders) or lower (for sell orders) price will (1) encourage Users to
submit more favorably 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 on a regulated market. While RMOs that
submit Retail Orders will benefit from increased price improvement
opportunities, retail liquidity providers stand to benefit from the
Exchange's proposal because by submitting Enhanced RPI Orders with
higher (for buy orders) or lower (for sell orders) limit prices and
Step-Up Range instructions, their Enhanced RPI Orders have the ability
to gain price priority to execute against contra-side Retail Orders in
exchange for offering better priced liquidity.
---------------------------------------------------------------------------
\78\ 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.
\79\ See, e.g., IEX Rule 11.232; Nasdaq BX Rule 4780; NYSE
National Rule 7.44-E; NYSE Rule 7.44.
\80\ Supra note 25 and note 47.
---------------------------------------------------------------------------
The Exchange also believes that retail liquidity providers that
also choose to submit RPI Orders rather than Enhanced RPI Orders stand
to benefit from the proposal. As noted, the Exchange believes that the
increased depth and diversity of liquidity that will result from this
change will increase price improvement opportunities for Retail Orders.
As price competition increases, additional Retail Order flow will
follow as RMOs seek out price improvement opportunities. Liquidity
providers choosing to submit RPI Orders (as opposed to Enhanced RPI
Orders) will thus have a higher likelihood of receiving an execution
against a Retail Order due to the increased price improvement
opportunities, but in order to avail themselves of the opportunity to
execute against Retail Orders will need to submit competitively priced
RPI Orders in order to compete with Enhanced RPI Orders. The ability to
execute against retail order flow may be more attractive to retail
liquidity providers than submitting orders with less competitive prices
that would potentially not execute at all or would execute against
informed order flow, which is less desirable.
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'').\81\ 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.\82\ 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.\83\ 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's proposal
to prohibit RPI Orders and Enhanced RPI Orders from executing with
contra-side Type 2-designated Retail Orders when the RPI Order or
Enhanced RPI Order is not priced better than the Protected NBB or
Protected NBO similarly reflects an attempt to create additional price
improvement opportunities for retail investors by making RPI Orders and
Enhanced RPI Orders ineligible from executing when these orders are not
providing price improvement to contra-side Type 2-designated Retail
Orders. While the Exchange is forgoing an execution at a marketable
price in situations where an RPI Order or Enhanced RPI Order is priced
equal to the Protected NBB or Protected NBO and there is resting
contra-side Type 2 Order interest available, the Exchange believes that
limiting RPI Order and Enhanced RPI Order executions to situations
where price improvement is offered properly reflects the main purpose
of the RPI Order and Enhanced RPI Order--that is, to create additional
price improvement opportunities for retail investors.
---------------------------------------------------------------------------
\81\ See EDGX Rule 11.9(a)(2)(A).
\82\ 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'').
\83\ Supra note 9. 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
[[Page 13254]]
to submit Enhanced RPI Orders containing high (for buy orders) or low
(for sell orders) limit prices and/or Step-Up Range instructions 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. Additionally, retail liquidity
providers will benefit from submitting Enhanced RPI Orders and Step-Up
Range instructions with competitive prices. By providing Enhanced RPI
Orders and Step-Up Range instructions with competitive prices, retail
liquidity providers are, in essence, improving the quality of order
flow available for contra-side Retail Orders and increasing the odds of
their Enhanced RPI Orders executing with desirable retail order flow
rather than informed order flow or not executing at all.
Furthermore, the Exchange believes that its proposal to limit the
use of the Step-Up Range instruction to determine order book priority
is consistent with Section 6(b)(5) of the Act because the use of the
Step-Up Range instruction rather than limit price to determine order
priority is limited to the following: (1) the Step-Up Range instruction
is needed to gain priority over a resting order with higher order book
priority; (2) in situations where (i) a contra-side Retail Order to
sell (buy) is entered at a higher (lower) price than the Enhanced RPI
Order's ranked price and all other resting liquidity in the same
security and (ii) the Enhanced RPI Order's Step-Up Range instruction is
priced equal to or higher (lower) 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 instruction in order to provide an additional, higher
(for buy orders) or lower (for sell orders) 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
orders with high (for buy orders) or low (for sell orders) limit prices
and/or Step-Up Range instructions, these liquidity providers will be
rewarded with executions against marketable retail order flow, which is
generally preferred over more informed order flow. Liquidity providers
that choose to submit Enhanced RPI Orders with competitively priced
limit prices and/or Step-Up Range instructions stand to benefit in that
their orders are positioned to possibly gain price priority over same-
side, resting orders on the BYX Book and execute against preferred
retail order flow rather than forego an execution by submitting orders
that do not contain high (for buy orders) or low (for sell orders)
limit prices and/or Step-Up Range instructions. Retail investors, on
the other hand, will receive meaningful price improvement should their
order execute against an Enhanced RPI Order. Increased opportunities
for price improvement stand to make the Exchange a more attractive
venue for RMOs to submit Retail Orders, thus encouraging RMOs to bring
retail order flow back to a regulated, lit market rather than executing
off-exchange.
In the situation where (i) a contra-side Retail Order to sell (buy)
is entered at a higher (lower) 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 instruction is priced equal
to or higher (lower) than the limit price of the Retail Order, the
Exchange believes using the Step-Up Range instruction to determine
order priority promotes just and equitable principles of trade because
it rewards the Enhanced RPI Order with the highest (lowest) Step-Up
Range instruction 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 those Enhanced RPI Orders containing high (for buy orders)
or low (for sell orders) limit prices and/or Step-Up Range instructions
with queue priority while simultaneously providing price improvement to
Retail Orders. The Exchange believes that determining order priority
using the Step-Up Range instruction in this limited situation is
aligned with the intent of liquidity providers that choose to submit
Enhanced RPI Orders containing high (for buy orders) or low (for sell
orders) limit prices and/or Step-Up Range instructions and also
emphasizes a benefit of using the Enhanced RPI Order--the ability to
enter an order at a lower (for buy orders) or higher (for sell orders)
price but also provide a Step-Up Range instruction within which the
liquidity provider is willing to execute in order to execute against
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 Enhanced RPI Orders containing high (for buy
orders) or low (for sell orders) limit prices and/or Step-Up Range
instructions 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 instruction 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 instruction over the limit price of
all other higher priority orders rewards the Enhanced RPI Order that
provides the highest (for buy orders) or lowest (for sell orders) Step-
Up Range instruction. The Exchange believes that using the Step-Up
Range instruction
[[Page 13255]]
rather than the limit price in situations where there are multiple
Enhanced RPI Orders will encourage Users to submit Enhanced RPI Orders
containing high (for buy orders) or low (for sell orders) limit prices
and/or Step-Up Range instructions to the Exchange, as they will be
given priority to interact with more desirable marketable retail order
flow based on their Step-Up Range instruction. 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 \84\ 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.\85\
---------------------------------------------------------------------------
\84\ For securities priced below $1.00, the minimum amount of
price improvement as compared to the Protected NBB or Protected NBO
is $0.0001.
\85\ Supra note 25 and note 47.
---------------------------------------------------------------------------
Even in the limited situation where the ranked price of an Enhanced
RPI Order is utilized to determine the queue priority of Enhanced RPI
Orders (i.e., where multiple Enhanced RPI Orders are resting on the BYX
Book and there is no other same-side resting liquidity on the BYX Book
with higher priority and an incoming contra-side Retail Order to sell
(buy) is priced lower (higher) than the ranked price of the resting
Enhanced RPI Orders' ranked prices), Retail Orders stand to benefit.
Users submitting Enhanced RPI Orders to the Exchange do so with the
intent of interacting with contra-side Retail Orders and as such, are
encouraged to submit Enhanced RPI Orders with competitive limit prices,
in addition to their Step-Up Range instructions, in an attempt to gain
price priority in order to execute against Retail Orders. The Exchange
does not view Enhanced RPI Orders as discouraging Users from submitting
RPI Orders or devaluing RPI Orders but rather believes that Enhanced
RPI Orders are a way to encourage competition from retail liquidity
providers as they seek to minimize adverse selection costs and interact
with incoming contra-side Retail Orders. With Users contending for
executions against incoming retail liquidity, Users submitting Enhanced
RPI Orders and RPI Orders naturally would be expected to utilize
competitive prices in order to put themselves in the best position to
execute against retail liquidity rather than submit orders with prices
that are not positioned to potentially execute.
An analysis of internal Exchange data found that the current
Program provided approximately $1.6 million in price improvement to
retail investors during calendar year 2024,\86\ which is a decrease
from the $4.5 million provided to retail investors between the two and
a half year period between January 2016 and June 2018.\87\ In fact, the
average amount of price improvement per month provided to retail
investors in 2024 was approximately $133,333 while between 2016-2018
the average amount of price improvement provided to retail investors
was $150,000 per month. It is reasonable to believe that the proposed
Enhanced RPI Order, by virtue of providing at least $0.001 of price
improvement in exchange for execution priority, and in many instances
$0.005 or $0.01 of price improvement, would 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.\88\ 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.\89\ Here, the Exchange is proposing price
improvement of at least $0.001, but in many cases $0.005 or $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.\90\
---------------------------------------------------------------------------
\86\ Supra note 20.
\87\ See RPI Approval Order at 53184.
\88\ Supra note 18 at 178.
\89\ Id.
\90\ 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.\91\ 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 9.8% in sub-dollar securities during the fourth quarter of
2024.\92\ 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 opportunities for price improvement in sub-
dollar securities.
---------------------------------------------------------------------------
\91\ See ``How Subdollar Securities are Trading Now'' (March 16,
2023). Available at: https://www.cboe.com/insights/posts/how-subdollar-securities-are-trading-now/.
\92\ Id.
---------------------------------------------------------------------------
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)
[[Page 13256]]
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) is consistent with the Exchange's proposal to
expand the Program to securities priced below $1.00 and the deletion of
Rule 11.24(i) is appropriate as it is inapplicable to Retail Orders on
the Exchange and was inadvertently added to the rule text. The proposed
changes to Rule 11.24(a)(2) are intended to insert a reference to Rule
11.9(b)(1) describing Immediate or Cancel Orders and 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 intended to facilitate usage of RPI
Interest 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.
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 the ability to gain 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 and 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.\93\
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.
---------------------------------------------------------------------------
\93\ Supra note 79.
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CboeBYX-2025-007 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CboeBYX-2025-007. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
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-2025-007 and should
be submitted on or before April 10, 2025.
[[Page 13257]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\94\
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\94\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-04660 Filed 3-19-25; 8:45 am]
BILLING CODE 8011-01-P
