[Federal Register Volume 84, Number 168 (Thursday, August 29, 2019)]
[Notices]
[Pages 45575-45601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18636]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86742; File No. SR-CboeBYX-2019-014]


Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Make Permanent Rule 11.24, Which 
Sets Forth the Exchange's Pilot Retail Price Improvement Program

August 23, 2019.
    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 August 22, 2019, Cboe BYX Exchange, Inc. (the ``Exchange'' or 
``BYX'') filed with the Securities and Exchange Commission (the 
``Commission'' or ``SEC'') 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BYX Exchange, Inc. (``BYX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposed rule change to make permanent Rule 11.24, which sets forth the 
Exchange's pilot Retail Price Improvement Program. 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 (http://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 purpose of the proposed rule change is to amend Rule 11.24 to 
make permanent the Retail Price Improvement Program (the ``Program''), 
which is currently offered on a pilot basis. The Exchange has operated 
the pilot for a six year period and believes that it has been 
successful in its stated goal of providing price improvement 
opportunities to retail investors. The analysis conducted by the 
Exchange shows that retail investors have been provided a total of $4.5 
million of price improvement during the 2.5 year period reviewed from 
January 2016 through June 2018. In addition, the Exchange's analysis 
shows that the Program has provided these benefits to retail investors 
without having an adverse impact on the broader market. The proposal 
provides an analysis of the economic benefits to retail investors and 
the marketplace flowing from operation of the Program, which the 
Exchange believes supports making the Program permanent.
Background
    In November 2012, the Commission approved the Program on a pilot 
basis.\3\ The Program is designed to attract retail order flow 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.\4\ Under the Program, 
a class of market participant called a Retail Member Organization 
(``RMO'') is eligible to submit certain retail order flow (``Retail 
Orders'') to the Exchange. Users \5\ are permitted to provide potential 
price improvement for Retail Orders \6\ 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'').\7\ The Program was approved by the 
Commission on a pilot basis running

[[Page 45576]]

one-year from the date of implementation.\8\ The Commission approved 
the Program on November 27, 2012.\9\ The Exchange implemented the 
Program on January 11, 2013, and has extended the pilot period seven 
times.\10\ The pilot period for the Program is scheduled to expire on 
September 30, 2019. The Exchange believes that the Program has been 
successful in its goal of providing price improvement to Retail Orders, 
and is therefore proposing to amend Rule 11.24 to make this pilot 
permanent so that retail investors can continue to reap the benefits of 
the Program.\11\
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    \3\ See Securities Exchange Act Release No. 68303 (November 27, 
2012), 77 FR 71652 (December 3, 2012) (``RPI Approval Order'') (SR-
BYX-2012-019).
    \4\ The Exchange will periodically notify the membership 
regarding the securities included in the Program through an 
information circular.
    \5\ A ``User'' is defined in Rule 1.5(cc) as any member or 
sponsored participant of the Exchange who is authorized to obtain 
access to the System.
    \6\ A ``Retail Order'' is defined in Rule 11.24(a)(2) as an 
agency order that originates from a natural person and is submitted 
to the Exchange by a RMO, provided that no change is made to the 
terms of the order with respect to price or side of market and the 
order does not originate from a trading algorithm or any 
computerized methodology. See Rule 11.24(a)(2).
    \7\ The term Protected Quotation is defined in BYX Rule 1.5(t) 
and has the same meaning as is set forth in Regulation NMS Rule 
600(b)(58). 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.
    \8\ See RPI Approval Order, supra note 3 at 71652.
    \9\ Id.
    \10\ See Securities Exchange Act Release Nos. 71249 (January 7, 
2014), 79 FR 2229 (January 13, 2014) (SR-BYX-2014-001); 74111 
(January 22, 2015), 80 FR 4598 (January 28, 2015) (SR-BYX-2015-05); 
76965 (January 22, 2016), 81 FR 4682 (January 27, 2016) (SR-BYX-
2016-01); 78180 (June 28, 2016), 81 FR 43306 (July 1, 2016) (SR-
BatsBYX-2016-15); 81368 (August 10, 2017), 82 FR 38960 (August 16, 
2017) (SR-BatsBYX-2017-18); 84830 (December 17, 2018), 83 FR 65769 
(December 21, 2018) (SR-CboeBYX-2018-025); 86206 (June 26, 2019), 84 
FR 31650 (July 2, 2019) (SR-CboeBYX-2019-010).
    \11\ The Program will continue to only apply to trades occurring 
at prices equal to or greater than $1.00 per share.
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    The SEC approved the Program on a pilot basis, in part, because it 
concluded, ``the Program is reasonably designed to benefit retail 
investors by providing price improvement to retail order flow.'' \12\ 
The Commission also found that ``while the Program would treat retail 
order flow differently from order flow submitted by other market 
participants, such segmentation would not be inconsistent with Section 
6(b)(5) of the Act, which requires that the rules of an exchange are 
not designed to permit unfair discrimination.'' \13\ As the SEC 
acknowledged, the retail order segmentation was designed to create 
greater retail order flow competition and thereby increase the amount 
of this flow to transparent and well-regulated exchanges. This would 
help to ensure that retail investors benefit from competitive price 
improvement that exchange-based liquidity providers provide. As 
discussed below, the Exchange believes that the Program data supports 
the conclusion that it provides valuable price improvement to retail 
investors that they may not otherwise have received, and that it is 
therefore appropriate to make the Program permanent.
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    \12\ See RPI Approval Order, supra note 3 at 71655.
    \13\ Id.
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Definitions
    The Exchange adopted the following definitions under Rule 11.24(a):
    First, the term ``Retail Member Organization'' is defined as a 
Member (or a division thereof) that has been approved by the Exchange 
to submit Retail Orders.
    Second, the term ``Retail Order'' is defined as an agency order or 
riskless principal that meets the criteria of FINRA Rule 5320.03 \14\ 
that originates from a natural person and is submitted to the Exchange 
by a Retail Member Organization, provided that no change is made to the 
terms of the order with respect to price or side of market and the 
order does not originate from a trading algorithm or any other 
computerized methodology. A Retail Order is an Immediate or Cancel 
(``IOC'') Order and shall operate in accordance with Rule 11.24(f). A 
Retail Order may be an odd lot, round lot, or mixed lot.
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    \14\ FINRA Rule 5320.03 clarifies that an RMO may enter Retail 
Orders on a riskless principal basis, provided that (i) the entry of 
such riskless principal orders meet the requirements of FINRA Rule 
5320.03, including that the RMO maintains supervisory systems to 
reconstruct, in a time[hyphen]sequenced manner, all Retail Orders 
that are entered on a riskless principal basis; and (ii) the RMO 
submits a report, contemporaneously with the execution of the 
facilitated order, that identifies the trade as riskless principal.
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    Finally, the term ``Retail Price Improvement Order'' or ``RPI 
Order'' consists of 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 (``RPI interest'').\15\ The 
System \16\ will monitor whether RPI buy or sell interest, adjusted by 
any offset and subject to the ceiling or floor price, is eligible to 
interact with incoming Retail Orders. An RPI Order remains non-
displayed in its entirety (the buy or sell interest, the offset, and 
the ceiling or floor). An RPI Order may also be entered in a sub-penny 
increment with an explicit limit price. Any User is permitted, but not 
required, to submit RPI Orders. An RPI Order may be an odd lot, round 
lot or mixed lot.
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    \15\ Exchange systems prevent Retail Orders from interacting 
with RPI Orders if the RPI Order is not priced at least $0.001 
better than the Protected NBBO. The Exchange notes, however, that 
price improvement of $0.001 would be a minimum requirement and Users 
could enter RPI Orders that better the Protected NBBO by more than 
$0.001. Exchange systems will accept RPI Orders without a minimum 
price improvement value; however, such interest will execute at its 
floor or ceiling price only if such floor or ceiling price is better 
than the Protected NBBO by $0.001 or more.
    \16\ The ``System'' is defined in BYX Rule 1.5(aa) as ``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.''
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    The price of an RPI Order is determined by a User's entry of the 
following into the Exchange: (1) RPI buy or sell interest; (2) an 
offset, if any; and (3) a ceiling or floor price. RPI Orders submitted 
with an offset are similar to other peg orders available to Users in 
that the order is tied or ``pegged'' to a certain price, and would have 
its price automatically set and adjusted upon changes in the Protected 
NBBO, both upon entry and any time thereafter. RPI buy or sell interest 
is typically entered to track the Protected NBBO, that is, RPI Orders 
are typically submitted with an offset. The offset is a predetermined 
amount by which the User is willing to improve the Protected NBBO, 
subject to a ceiling or floor price. The ceiling or floor price is the 
amount above or below which the User does not wish to trade. RPI Orders 
in their entirety (the buy or sell interest, the offset, and the 
ceiling or floor) will remain non-displayed. The Exchange also allows 
Users to enter RPI Orders that establish the exact limit price, which 
is similar to a non-displayed limit order currently accepted by the 
Exchange except the Exchange accepts sub-penny limit prices on RPI 
Orders in increments of $0.001. The Exchange monitors whether RPI buy 
or sell interest, adjusted by any offset and subject to the ceiling or 
floor price, is eligible to interact with incoming Retail Orders.
    Users and RMOs may enter odd lots, round lots or mixed lots as RPI 
Orders and as Retail Orders respectively. As discussed below, RPI 
Orders are ranked and allocated according to price and time of entry 
into the System consistent with Rule 11.12 and therefore without regard 
to whether the size entered is an odd lot, round lot or mixed lot 
amount. Similarly, Retail Orders interact with RPI Orders according to 
the Priority and Allocation rules of the Program and without regard to 
whether they are odd lots, round lots or mixed lots. Finally, Retail 
Orders are designated as Type 1 or Type 2 without regard to the size of 
the order.
    RPI Orders interact with Retail Orders as follows. Assume a User 
enters RPI sell interest with an offset of $0.001 and a floor of $10.10 
while the Protected NBO is $10.11. The RPI Order could interact with an 
incoming buy Retail Order at $10.109. If, however, the Protected NBO 
was $10.10, the RPI Order could not interact with the Retail Order 
because the price required to deliver the minimum $0.001 price 
improvement ($10.099) would violate the User's floor of $10.10. If a 
User otherwise enters an offset greater than the minimum required price 
improvement and the offset would produce a price that would violate the 
User's floor, the offset would be applied

[[Page 45577]]

only to the extent that it respects the User's floor. By way of 
illustration, assume RPI buy interest is entered with an offset of 
$0.005 and a ceiling of $10.112 while the Protected NBB is at $10.11. 
The RPI Order could interact with an incoming sell Retail Order at 
$10.112, because it would produce the required price improvement 
without violating the User's ceiling, but it could not interact above 
the $10.112 ceiling. Finally, if a User enters an RPI Order without an 
offset (i.e., an explicitly priced limit order), the RPI Order will 
interact with Retail Orders at the level of the User's limit price as 
long as the minimum required price improvement is produced. 
Accordingly, if RPI sell interest is entered with a limit price of 
$10.098 and no offset while the Protected NBO is $10.11, the RPI Order 
could interact with the Retail Order at $10.098, producing $0.012 of 
price improvement. The System will not cancel RPI interest when it is 
not eligible to interact with incoming Retail Orders; such RPI interest 
will remain in the System and may become eligible again to interact 
with Retail Orders depending on the Protected NBBO.
RMO Qualifications and Application Process
    Under Rule 11.24(b), any Member may qualify as an RMO if it 
conducts a retail business or routes retail orders on behalf of another 
broker-dealer. For purposes of Rule 11.24(b), conducting a retail 
business shall include carrying retail customer accounts on a fully 
disclosed basis. Any Member that wishes to obtain RMO status is 
required to submit: (1) An application form; (2) supporting 
documentation sufficient to demonstrate the retail nature and 
characteristics of the applicant's order flow; and (3) an attestation, 
in a form prescribed by the Exchange, that substantially all orders 
submitted as Retail Orders will qualify as such under Rule 11.24.\17\ 
The Exchange shall notify the applicant of its decision in writing.
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    \17\ For example, a prospective RMO could be required to provide 
sample marketing literature, website screenshots, other publicly 
disclosed materials describing the retail nature of their order 
flow, and such other documentation and information as the Exchange 
may require to obtain reasonable assurance that the applicant's 
order flow would meet the requirements of the Retail Order 
definition.
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    An RMO is required to have written policies and procedures 
reasonably designed to assure that it will only designate orders as 
Retail Orders if all requirements of a Retail Order are met. Such 
written policies and procedures must require the Member to (i) exercise 
due diligence before entering a Retail Order to assure that entry as a 
Retail Order is in compliance with the requirements of this rule, and 
(ii) monitor whether orders entered as Retail Orders meet the 
applicable requirements. If the RMO represents Retail Orders from 
another broker-dealer customer, the RMO's supervisory procedures must 
be reasonably designed to assure that the orders it receives from such 
broker-dealer customer that it designates as Retail Orders meet the 
definition of a Retail Order. The RMO must (i) obtain an annual written 
representation, in a form acceptable to the Exchange, from each broker-
dealer customer that sends it orders to be designated as Retail Orders 
that entry of such orders as Retail Orders will be in compliance with 
the requirements of this rule, and (ii) monitor whether its broker-
dealer customers' Retail Order flow continues to meet the applicable 
requirements.\18\
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    \18\ The Exchange or another self-regulatory organization on 
behalf of the Exchange will review an RMO's compliance with these 
requirements through an exam-based review of the RMO's internal 
controls.
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    If the Exchange disapproves the application, the Exchange provides 
a written notice to the Member. The disapproved applicant could appeal 
the disapproval by the Exchange as provided in Rule 11.24(d), and/or 
reapply for RMO status 90 days after the disapproval notice is issued 
by the Exchange. An RMO also could voluntarily withdraw from such 
status at any time by giving written notice to the Exchange.
Failure of RMO To Abide by Retail Order Requirements
    Rule 11.24(c) addresses an RMO's failure to abide by Retail Order 
requirements. If an RMO designates orders submitted to the Exchange as 
Retail Orders and the Exchange determines, in its sole discretion, that 
those orders fail to meet any of the requirements of Retail Orders, the 
Exchange may disqualify a Member from its status as an RMO. When 
disqualification determinations are made, the Exchange provides a 
written disqualification notice to the Member. A disqualified RMO may 
appeal the disqualification as provided in Rule 11.24(d) and/or reapply 
for RMO status 90 days after the disqualification notice is issued by 
the Exchange.
Appeal of Disapproval or Disqualification
    Rule 11.24(d) provides appeal rights to Members. If a Member 
disputes the Exchange's decision to disapprove it as an RMO under Rule 
11.24(b) or disqualify it under Rule 11.24(c), such Member 
(``appellant'') may request, within five business days after notice of 
the decision is issued by the Exchange, that the Retail Price 
Improvement Program Panel (``RPI Panel'') review the decision to 
determine if it was correct.
    The RPI Panel consists of the Exchange's Chief Regulatory Officer 
(``CRO''), or a designee of the CRO, and two officers of the Exchange 
designated by the Chief Operating Officer (``COO''). The RPI Panel 
reviews the facts and render a decision within the time frame 
prescribed by the Exchange. The RPI Panel may overturn or modify an 
action taken by the Exchange and all determinations by the RPI Panel 
constitute final action by the Exchange on the matter at issue.
Retail Liquidity Identifier
    Under Rule 11.24(e), the Exchange disseminates an identifier when 
RPI interest priced at least $0.001 better than the Exchange's 
Protected Bid or Protected Offer for a particular security is available 
in the System (``Retail Liquidity Identifier''). The Retail Liquidity 
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.\19\ The Retail Liquidity 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 Exchange's Protected Bid or Protected Offer by at least 
the minimum level of price improvement as required by the Program.
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    \19\ 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 quotation stream disseminates the Retail Liquidity 
Identifier and analogous identifiers from other market centers that 
operate programs similar to the RPI Program.
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Retail Order Designations
    Under Rule 11.24(f), an RMO can designate how a Retail Order would 
interact with available contra-side interest as follows:
    A Type 1-designated Retail Order will interact with available 
contra-side RPI Orders and other price improving contra-side interest 
but will not interact with other available contra-side interest

[[Page 45578]]

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.
    A Type 2-designated Retail Order will interact first with available 
contra-side RPI Orders and other price improving liquidity and then any 
remaining portion of the Retail Order will be executed as an Immediate-
or-Cancel (``IOC'') Order pursuant to Rule 11.9(b)(1). A Type 2-
designated Retail Order can either be submitted as a BYX Only Order 
\20\ or as an order eligible for routing pursuant to Rule 11.13(a)(2).
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    \20\ A BYX Only Order is defined in BYX Rule 11.9(c)(4) and 
includes orders that are not eligible for routing to other trading 
centers.
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Priority and Order Allocation
    Under Rule 11.24(g), competing RPI Orders in the same security are 
ranked and allocated according to price then time of entry into the 
System. Executions occur in price/time priority in accordance with Rule 
11.12. Any remaining unexecuted RPI interest remains available to 
interact with other incoming Retail Orders if such interest is at an 
eligible price. Any remaining unexecuted portion of the Retail Order 
will cancel or execute in accordance with Rule 11.24(f). The following 
example illustrates this method:

     Protected NBBO for security ABC is $10.00-$10.05
     User 1 enters an RPI Order to buy ABC at $10.015 for 500
     User 2 then enters an RPI Order to buy ABC at $10.02 for 
500
     User 3 then enters an RPI Order to buy ABC at $10.035 for 
500

    An incoming Retail Order to sell ABC for 1,000 executes first 
against User 3's bid for 500 at $10.035, because it is the best priced 
bid, then against User 2's bid for 500 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 is depleted. The Retail Order executes 
against RPI Orders in price/time priority.
    However, assume the same facts above, except that User 2's RPI 
Order to buy ABC at $10.02 is for 100. The incoming Retail Order to 
sell 1,000 executes first against User 3's bid for 500 at $10.035, 
because it is the best priced bid, then against User 2's bid for 100 at 
$10.02, because it is the next best priced bid. User 1 then receives an 
execution for 400 of its bid for 500 at $10.015, at which point the 
entire size of the Retail Order to sell 1,000 is depleted.
    As a final example, assume the same facts as above, except that 
User 3's order was not an RPI Order to buy ABC at $10.035, but rather, 
a non-displayed order to buy ABC at $10.03. The result would be similar 
to the result immediately above, in that the incoming Retail Order to 
sell 1,000 executes first against User 3's bid for 500 at $10.03, 
because it is the best priced bid, then against User 2's bid for 100 at 
$10.02, because it is the next best priced bid. User 1 then receives an 
execution for 400 of its bid for 500 at $10.015, at which point the 
entire size of the Retail Order to sell 1,000 is depleted.
Eligible Securities
    All Regulation NMS securities traded on the Exchange are eligible 
for inclusion in the RPI Program. The Exchange limits the Program to 
trades occurring at prices equal to or greater than $1.00 per share. 
Toward that end, Exchange trade validation systems prevent the 
interaction of RPI buy or sell interest (adjusted by any offset) and 
Retail Orders at a price below $1.00 per share.\21\ For example, if 
there is RPI buy interest tracking the Protected NBB at $0.99 with an 
offset of $0.001 and a ceiling of $1.02, Exchange trade validation 
systems would prevent the execution of the RPI Order at $0.991 with a 
sell Retail Order with a limit of $0.99. However, if the Retail Order 
was Type 2 as defined the Program,\22\ it would be able to interact at 
$0.99 with liquidity outside the Program in the Exchange's order book. 
In addition to facilitating an orderly \23\ and operationally intuitive 
program, the Exchange believes that limiting the Program to trades 
equal to or greater than $1.00 per share enabled it better to focus its 
efforts to monitor price competition and to assess any indications that 
data disseminated under the Program is potentially disadvantaging 
retail orders. As part of that review, the Exchange produced data 
throughout the pilot, which included statistics about participation, 
the frequency and level of price improvement provided by the Program, 
and any effects on the broader market structure.
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    \21\ As discussed above, the price of an RPI is determined by a 
User's entry of buy or sell interest, an offset (if any) and a 
ceiling or floor price. RPI sell or buy interest typically tracks 
the Protected NBBO.
    \22\ Type 2 Retail Orders are treated as IOC orders that execute 
against displayed and non-displayed liquidity in the Exchange's 
order book where there is no available liquidity in the Program. 
Type 2 Retail Orders can either be designated as eligible for 
routing or as BYX Only Orders, and thus non-routable, as described 
above.
    \23\ Given the limitation, the Program would have no impact on 
the minimum pricing increment for orders priced less than $1.00 and 
therefore no effect on the potential of markets executing those 
orders to lock or cross. In addition, the non-displayed nature of 
the liquidity in the Program simply has no potential to disrupt 
displayed, protected quotes. In any event, the Program would do 
nothing to change the obligation of exchanges to avoid and reconcile 
locked and crossed markets under NMS Rule 610(d).
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Rationale for Making the Program Pilot Permanent
    The Exchange established the Program in an attempt to attract 
retail order flow to the Exchange by providing an opportunity for price 
improvement to such order flow. The Exchange believes that the Program 
promotes transparent competition for retail order flow by allowing 
Exchange members to submit RPI Orders to interact with Retail Orders. 
As the Commission stated in the RPI Approval Order, such competition 
``promote[s] efficiency by facilitating the price discovery process'' 
and ``may generate additional investor interest in trading securities, 
thereby promoting capital formation.'' The Program will continue to be 
limited to trades occurring at prices equal to or greater than $1.00 
per share.
    In accordance with its filing establishing the pilot, the Exchange 
did ``produce data throughout the pilot, which will include statistics 
about participation, the frequency and level of price improvement 
provided by the Program, and any effects on the broader market 
structure.'' \24\ The Exchange has fulfilled this obligation through 
the reports and assessments it has submitted to the Commission since 
the implementation of the pilot Program. The Exchange believes that its 
analysis of data provided to the Commission to date, as well as the 
data being provided in this proposed rule change, support the continued 
operation of the Program on a permanent basis.
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    \24\ RPI Approval Order, 77 FR at 71655.
    \25\ Id. See also Concept Release on Equity Market Structure, 
Securities Exchange Act Release No. 61358 (January 14, 2010), 75 FR 
3593, 3600 (January 21, 2010) (File No. S7-02-10) (``A review of the 
order routing disclosures required by Rule 606 of Regulation NMS of 
eight broker-dealers with significant retail customer accounts 
reveals that nearly 100% of their customer market orders are routed 
to OTC market makers.'').
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    The SEC stated in the RPI Approval Order that the Program could 
promote competition for retail order flow among execution venues, and 
that this could benefit retail investors by creating additional well-
regulated and transparent price improvement opportunities for 
marketable retail order flow, most of which is currently executed in 
the Over-the-Counter

[[Page 45579]]

(``OTC'') markets without ever reaching a public exchange.\25\ The 
Exchange believes that it has achieved its goal of attracting retail 
order flow to the Exchange. As the Exchange's analysis of the Program 
data below demonstrates, there has been consistent retail investor 
interest in the Program, which has provided tangible price improvement 
to those retail investors through a competitive pricing process over 
the course of the pilot. The data also demonstrates that the Program 
had an overall negligible impact on broader market quality outside of 
the Program. The Exchange has not received any complaints or negative 
feedback concerning the Program.

I. Overall Analysis of the Program

    Brokers route retail orders to a wide range of different trading 
systems. The Program offers a transparent and well-regulated option, 
providing meaningful competition and price improvement. As explained 
above, the purpose of the Program is to attract retail order flow to 
the Exchange by providing an opportunity for retail investors to 
receive price improvement. The Exchange believes that the Program has 
satisfied this goal, having provided a total of $4.5 million of price 
improvement, or approximately $153,000 per month, in the 2.5 year 
period analyzed. Furthermore, to ensure that the price improvement 
opportunities for Retail Orders under the Program are meaningful, the 
Exchange compared the volume weighted average price improvement in 
basis points received in the Program to the same metric for marketable 
orders executed on the BYX Book. As Shown in Table A, retail investors 
have benefited from significantly higher price improvement by 
participating in the Program, including when assessed across different 
liquidity groupings.\26\

                             Table A--Retail Price Improvement Compared to BYX Book
                                              [May 2018--Oct. 2018]
----------------------------------------------------------------------------------------------------------------
                                           CADV 500,000 or more               CADV between 50,000 and 500,000
                                 -------------------------------------------------------------------------------
 
Volume Weighted Avg. Price        Retail................           2.947  Retail................           4.502
 Improvement (bps).               BYX Book..............           0.649  BYX Book..............           3.574
----------------------------------------------------------------------------------------------------------------

    Furthermore, while the amount of price improvement provided in the 
Program varies month to month, the amount of price improvement provided 
in recent months has generally increased relative to prior months due 
to additional participation in the Program by market participants with 
retail order flow. The Exchange believes that this supports permanent 
approval of the pilot as retail investors continue to reap the benefits 
afforded by the Program. The amount of monthly and cumulative price 
improvement provided in the Program is illustrated in Chart 1 below.
---------------------------------------------------------------------------

    \26\ The two liquidity categories used for this analysis 
correspond to the liquidity profiles described in the Exchange's 
analysis of the market structure impact of the Program.

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

[[Page 45580]]

[GRAPHIC] [TIFF OMITTED] TN29AU19.000

    Furthermore, Retail Order volume executed in the Program accounted 
for between 0.86% and 2.32% of total BYX volume from January 2017 to 
June 2018, as shown in Chart 2 below, and between 0.05% and 0.11% of 
total consolidated volume, as shown in Chart 3 below. Despite its size 
relative to total volume executed on the Exchange or the broader 
market, the Program has continued to provide considerable price 
improvement each month to retail investors that participated in the 
Program. In addition, the Exchange believes that the relatively modest 
volume executed in the Program relative to total BYX volume and total 
consolidated volume limits the potential impact of the Program on 
broader market quality on the Exchange.\27\ The Exchange therefore 
believes that the Program has demonstrated the effectiveness of a 
transparent, on-exchange retail order price improvement functionality, 
notwithstanding that the majority of retail volume is still traded off-
exchange.\28\
---------------------------------------------------------------------------

    \27\ The Exchange has also performed an analysis of the impact 
of the Program on other market quality indicators, which found that 
the Program did not have a significant impact on market quality in 
the broader market. See Section III below.
    \28\ See supra note 25.
---------------------------------------------------------------------------

BILLING CODE 8011-01-P

[[Page 45581]]

[GRAPHIC] [TIFF OMITTED] TN29AU19.001


[[Page 45582]]


[GRAPHIC] [TIFF OMITTED] TN29AU19.002

BILLING CODE 8011-01-C
    Retail Orders are routed by sophisticated brokers using systems 
that seek the highest fill rates and amounts of price improvement. 
These brokers have many choices of execution venues for this order 
flow. When they choose to route to the Program, they have determined 
that it is the best opportunity for fill rate and price improvement at 
that time. As shown in Table 1 below, Retail Order average daily volume 
(``ADV'') executed in the Program averaged between 2 and 7 million 
shares from January 2016 to June 2018. Increased volatility in February 
2018 likely contributed to the increased Retail Order shares executed 
in the Program that month. Fill rates for the majority of the period 
studied ranged from 11%-19% with fill rates declining below 10% 
starting in December 2017, likely due to additional participation in 
the Program that resulted in a significant increase in the Retail Order 
volume entered on the Exchange. Retail Orders also continue to receive 
more than the minimum $0.001 price improvement required of a liquidity 
providing RPI Order, with the monthly average price improvement 
provided to Retail Orders ranging from $0.0011-$0.0014 per share, and 
the monthly effective/quoted spread ratio ranging from 0.77-0.90. The 
Exchange believes that this data supports permanent approval of the 
Program as this would allow retail investors to continue to execute 
their orders with price improvement in the Program.

                                                       Table 1--Summary Statistics on the Program
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            Effective/
                  Date                     Retail shares   Retail orders     Effective     Quoted spread   quoted spread       Price         Fill rate
                                           executed ADV     placed ADV      spread BPS          BPS            ratio        improvement      (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Jan-16..................................       4,666,052          20,560              19              22            0.89         $0.0011           16.09
Feb-16..................................       4,083,670          18,025              19              22            0.87          0.0011           16.10
Mar-16..................................       3,474,997          15,103              21              24            0.90          0.0011           17.50
Apr-16..................................       3,216,923          14,126              18              21            0.88          0.0011           19.23

[[Page 45583]]

 
May-16..................................       2,912,160          12,980              18              21            0.87          0.0011           19.73
Jun-16..................................       3,144,024          13,924              16              18            0.89          0.0011           19.65
Jul-16..................................       4,009,916          17,257              18              20            0.90          0.0011           19.97
Aug-16..................................       3,906,624          17,135              19              21            0.90          0.0011           17.66
Sep-16..................................       4,887,221          20,708              17              19            0.88          0.0011           17.28
Oct-16..................................       3,595,900          15,922              24              27            0.90          0.0012           17.19
Nov-16..................................       2,273,885           8,972              29              33            0.88          0.0013           12.71
Dec-16..................................       3,192,065          12,768              36              41            0.88          0.0013           14.82
Jan-17..................................       3,122,721          16,951              31              36            0.88          0.0013           16.09
Feb-17..................................       3,262,046          21,151              31              35            0.88          0.0013           14.71
Mar-17..................................       3,068,930          20,921              33              38            0.88          0.0014           13.85
Apr-17..................................       2,680,646          18,518              34              38            0.88          0.0013           13.97
May-17..................................       3,407,603          23,437              29              33            0.87          0.0013           16.88
Jun-17..................................       7,896,833          46,398              28              32            0.88          0.0013           17.07
Jul-17..................................       5,966,961          36,717              27              31            0.88          0.0012           16.43
Aug-17..................................       6,467,615          38,608              23              26            0.88          0.0013           16.24
Sep-17..................................       5,237,243          33,314              27              31            0.87          0.0013           15.76
Oct-17..................................       5,702,759          33,578              34              40            0.84          0.0012           16.77
Nov-17..................................       4,427,779          62,352              33              40            0.83          0.0012           11.61
Dec-17..................................       5,131,502         142,810              34              41            0.84          0.0012            8.30
Jan-18..................................       6,359,122         167,730              29              36            0.82          0.0013            7.98
Feb-18..................................       7,230,230         227,980              21              27            0.79          0.0012            8.29
Mar-18..................................       5,967,844         202,050              23              31            0.73          0.0011            7.69
Apr-18..................................       4,976,642         178,009              20              27            0.75          0.0011            7.90
May-18..................................       4,367,743         169,085              23              28            0.83          0.0011            7.02
Jun-18..................................       5,211,044         202,601              23              31            0.77          0.0011            7.19
--------------------------------------------------------------------------------------------------------------------------------------------------------

II. Analysis of Retail Orders by Order Size

    Tables 2, 3, and 4 show the distribution of Retail Orders entered 
and executed in the Program for the period from January 2017 to June 
2018. As shown in Table 2, a majority of all Retail Orders entered to 
participate in the Program from January 2016 to June 2018 were for a 
round lot or fewer shares. Specifically, Retail Orders of one round lot 
or fewer shares accounted for an average of approximately 56% of the 
total number of Retail Orders entered. More than 73% of Retail Orders 
entered were for 300 shares or less. Very large orders of more than 
7,500 shares accounted for only 1.9% of Retail Orders submitted to the 
Program but accounted for a significant portion (approximately 40%) of 
the shares entered, as shown in Table 3. In addition, despite lower 
fill rates, large orders account for a reasonable portion 
(approximately 9%) of the shares executed in the Program, as shown in 
Table 4. The Program also receives a significantly large number of odd 
lot and single lot sized shares, which could be representative of 
retail marketable orders from retail customers. By providing price 
improvement to these orders, retail customers would continue to benefit 
from the Program.

                                                                  Table 2--Distribution of Retail Orders Entered by Order Size
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      <= 100          101-300         301-500        501-1,000      1,001-2,000     2,001-4,000     4,001-7,500    7,500-15,000       >15000
                      Date                           (percent)       (percent)       (percent)       (percent)       (percent)       (percent)       (percent)       (percent)       (percent)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Jan-17..........................................           44.90           18.45            8.60           10.12            6.84            4.90            3.10            1.93            1.16
Feb-17..........................................           47.80           18.04            8.21            9.61            6.27            4.41            2.82            1.75            1.09
Mar-17..........................................           47.60           17.76            8.16            9.67            6.36            4.60            3.01            1.78            1.05
Apr-17..........................................           48.82           17.30            7.88            9.48            6.19            4.61            2.88            1.82            1.02
May-17..........................................           52.39           18.69            7.13            8.13            5.21            3.81            2.40            1.41            0.83
Jun-17..........................................           55.32           13.89            6.67            8.08            5.35            4.47            3.24            2.03            0.95
Jul-17..........................................           53.18           15.12            7.32            8.85            5.86            4.12            2.71            1.79            1.05
Aug-17..........................................           49.41           16.53            8.00            9.65            6.33            4.49            2.75            1.76            1.08
Sep-17..........................................           49.88           16.51            7.94            9.50            6.27            4.49            2.71            1.71            1.00
Oct-17..........................................           49.92           16.17            7.73            9.45            6.49            4.67            2.76            1.79            1.02
Nov-17..........................................           61.01           17.66            5.65            6.33            3.86            2.54            1.39            0.98            0.59
Dec-17..........................................           61.48           18.49            6.31            6.65            3.40            1.97            0.93            0.49            0.28
Jan-18..........................................           61.20           17.06            6.54            7.14            3.84            2.25            1.06            0.58            0.33
Feb-18..........................................           66.63           15.79            5.61            5.80            2.98            1.70            0.80            0.43            0.25
Mar-18..........................................           66.11           15.39            5.82            6.22            3.25            1.76            0.78            0.41            0.24
Apr-18..........................................           67.41           15.45            5.40            6.06            3.10            1.43            0.59            0.34            0.22
May-18..........................................           66.09           16.12            5.43            6.30            3.41            1.47            0.59            0.35            0.24
Jun-18..........................................           66.29           16.17            5.59            6.14            3.20            1.46            0.59            0.35            0.22
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



[[Page 45584]]



                                                                      Table 3--Distribution of Shares Entered by Order Size
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      <= 100          101-300         301-500        501-1,000      1,001-2,000     2,001-4,000     4,001-7,500    7,500-15,000       >15000
                      Date                           (percent)       (percent)       (percent)       (percent)       (percent)       (percent)       (percent)       (percent)       (percent)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Jan-17..........................................            2.15            3.45            3.27            7.03            9.15           12.48           14.61           17.00           30.87
Feb-17..........................................            2.36            3.64            3.40            7.30            9.16           12.29           14.52           16.80           30.53
Mar-17..........................................            2.25            3.55            3.36            7.32            9.21           12.68           15.38           16.92           29.33
Apr-17..........................................            2.36            3.54            3.32            7.32            9.17           13.00           14.92           17.45           28.91
May-17..........................................            3.44            4.59            3.60            7.51            9.25           12.92           15.02           16.32           27.35
Jun-17..........................................            1.89            2.89            2.92            6.64            8.44           13.27           17.56           20.05           26.34
Jul-17..........................................            1.98            3.18            3.22            7.24            9.17           12.23           14.73           18.29           29.96
Aug-17..........................................            1.92            3.36            3.39            7.59            9.57           12.76           14.33           17.21           29.87
Sep-17..........................................            2.15            3.49            3.43            7.55            9.70           13.15           14.55           17.27           28.70
Oct-17..........................................            1.97            3.34            3.30            7.41            9.91           13.48           14.54           17.90           28.16
Nov-17..........................................            6.28            5.19            3.86            7.92            9.53           12.10           12.18           16.22           26.72
Dec-17..........................................            9.96            7.34            5.96           11.51           11.24           12.70           11.15           11.31           18.83
Jan-18..........................................            8.56            6.29            5.64           11.27           11.49           13.17           11.61           12.18           19.79
Feb-18..........................................           11.33            7.16            6.01           11.31           11.12           12.42           10.99           11.30           18.37
Mar-18..........................................           11.06            6.96            6.10           12.00           11.88           12.69           10.62           10.82           17.88
Apr-18..........................................           12.30            7.46            5.95           12.51           12.19           11.17            8.89            9.73           19.80
May-18..........................................           12.14            7.50            5.74           12.40           12.76           11.08            8.53            9.67           20.17
Jun-18..........................................           12.39            7.77            6.12           12.60           12.60           11.42            8.76            9.89           18.45
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



                                                                     Table 4--Distribution of Shares Executed by Order Size
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      <= 100         101--300        301--500       501--1,000     1,001--2,000    2,001--4,000    4,001--7,500    7,500--15,000      >15000
                      Date                           (percent)       (percent)       (percent)       (percent)       (percent)       (percent)       (percent)       (percent)       (percent)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Jan-17..........................................           11.39           14.06           10.40           18.41           15.88           12.34            8.41            5.26            3.86
Feb-17..........................................           13.96           15.27           10.48           17.77           14.54           11.44            7.82            5.15            3.60
Mar-17..........................................           14.14           14.99           10.15           17.53           14.74           11.80            8.15            5.02            3.48
Apr-17..........................................           14.69           14.83           10.01           17.80           14.84           11.55            7.85            5.00            3.42
May-17..........................................           17.86           18.10            9.98           16.46           13.17           10.48            6.94            4.23            2.78
Jun-17..........................................            9.74           11.25            8.91           16.71           14.58           14.86           12.03            7.97            3.95
Jul-17..........................................           10.37           12.33            9.91           18.84           16.17           12.75            8.96            6.56            4.11
Aug-17..........................................            9.39           12.34           10.01           18.97           16.70           13.36            8.77            6.15            4.31
Sep-17..........................................           10.60           12.93           10.22           18.87           16.28           13.00            8.56            5.74            3.79
Oct-17..........................................            9.40           12.40           10.16           19.36           17.12           13.45            8.58            5.86            3.66
Nov-17..........................................           12.42           13.48            9.27           16.56           15.84           13.24            7.98            6.63            4.56
Dec-17..........................................           14.98           15.80           10.29           16.77           14.92           11.67            6.98            5.04            3.55
Jan-18..........................................           14.27           14.96           10.28           17.53           15.27           11.90            7.12            5.16            3.50
Feb-18..........................................           16.74           15.75           10.78           17.05           14.27           11.08            6.48            4.57            3.30
Mar-18..........................................           17.27           15.97           10.58           16.87           13.81           10.51            6.66            4.63            3.70
Apr-18..........................................           17.12           15.58           10.24           16.30           13.60           10.04            6.71            5.37            5.03
May-18..........................................           18.24           16.29           10.18           15.89           12.80            9.80            6.25            5.25            5.31
Jun-18..........................................           18.93           17.28           10.59           16.16           12.96            9.64            5.66            4.95            3.84
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    The Exchange also analyzed fill rates across the different order 
size buckets and found that while fill rates are higher for smaller 
orders as expected, large size orders are still able to access 
liquidity and therefore receive price improvement in the Program. 
Moreover, overall fill rates indicate that market participants that 
provide liquidity are responding with quote depth when the contra side 
order is looking for a fill. While fill rates decreased starting in 
November 2017, the Exchange believes that this is due to new Retail 
Order flow being routed to the Program, rather than a decrease in the 
available liquidity. Monthly volume executed in the Program, as shown 
in Table 1, has therefore remained constant or increased since November 
2017 despite the lower overall fill rates for those months. The 
Exchange therefore believes that the Program is an attractive option 
for market participants looking to fill Retail Orders with price 
improvement.

                                                                                       Table 5--Fill Rates
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      <= 100         101--300        301--500       501--1,000     1,001--2,000    2,001--4,000    4,001--7,500    7,500--15,000      >15000
                      Date                           (percent)       (percent)       (percent)       (percent)       (percent)       (percent)       (percent)       (percent)       (percent)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Jan-17..........................................           85.19           65.62           51.13           42.16           27.93           15.91            9.26            4.98            2.01
Feb-17..........................................           87.21           61.69           45.31           35.83           23.36           13.69            7.92            4.51            1.73
Mar-17..........................................           87.04           58.53           41.87           33.20           22.18           12.89            7.34            4.11            1.65
Apr-17..........................................           86.90           58.46           42.12           33.97           22.59           12.40            7.35            4.00            1.65
May-17..........................................           87.53           66.54           46.75           36.99           24.03           13.69            7.80            4.38            1.71
Jun-17..........................................           87.78           66.50           52.07           42.98           29.48           19.12           11.70            6.78            2.56
Jul-17..........................................           85.99           63.63           50.52           42.77           28.96           17.12            9.99            5.89            2.25
Aug-17..........................................           79.61           59.74           48.02           40.59           28.33           17.00            9.94            5.81            2.34
Sep-17..........................................           77.55           58.32           46.98           39.39           26.44           15.58            9.27            5.24            2.08
Oct-17..........................................           80.19           62.29           51.71           43.82           28.97           16.73            9.90            5.49            2.18
Nov-17..........................................           22.78           29.93           27.66           24.11           19.16           12.61            7.55            4.71            1.97
Dec-17..........................................           12.14           17.37           13.96           11.77           10.72            7.42            5.05            3.60            1.52
Jan-18..........................................           12.84           18.31           14.06           11.98           10.24            6.96            4.72            3.26            1.36
Feb-18..........................................           11.79           17.56           14.32           12.03           10.24            7.12            4.70            3.23            1.43

[[Page 45585]]

 
Mar-18..........................................           11.56           17.00           12.85           10.42            8.60            6.13            4.64            3.17            1.53
Apr-18..........................................           10.61           15.91           13.11            9.93            8.50            6.85            5.76            4.21            1.94
May-18..........................................           10.11           14.61           11.93            8.62            6.75            5.95            4.93            3.65            1.77
Jun-18..........................................           10.57           15.39           11.98            8.88            7.12            5.84            4.47            3.46            1.44
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

III. Impact of the Program on Broader Market Quality

    As shown in Charts 2 and 3 above, Retail Order volume executed in 
the Program is a small percentage of both total volume executed on the 
Exchange and total consolidated volume. While the Program has better 
depth available for Retail Orders, it does not significantly affect the 
market volume of BYX. The average volume within the 95th percentile is 
between 1.3% and 1.7%. With the Program volume mostly below 2.5% of BYX 
volume, the Exchange does not believe that it is able to significantly 
impact BYX market quality. Nevertheless, to test the impact of the 
Program on broader market quality, the Exchange: (1) Reviewed the 
correlation between metrics that are tied to overall market quality 
with relevant Program metrics over both 2017 and 2018, and (2) 
performed a difference-in-difference analysis to analyze the potential 
impact of the Program on a number of important market quality 
indicators. Based on the results of this analysis, the Exchange does 
not believe that the Program has had any significant impact on broader 
market quality. The Exchange therefore believes that the Program can 
continue on a permanent basis--and thereby provide increased price 
improvement opportunities to retail investors on a transparent well-
regulated exchange--without degrading market quality outside of the 
Program.

Correlation Analysis

    As shown in Table 6 below, the Exchange's correlation analysis 
shows that: (1) Inside size in the broader market is not correlated 
with either RPI effective spreads or the percentage of volume executed 
in the Program, which suggests that market participants are not moving 
volume from the regular market to the Program as effective spreads 
narrow or volume executed in the Program increases; (2) effective 
spreads in the broader market are not correlated with the percentage of 
volume executed in the Program, which suggests that spreads are not 
widening as a result of more Retail Order flow being executed in the 
Program; (3) midpoint volume executed is not correlated with effective 
spreads in the Program, which suggests that market participants are not 
moving midpoint liquidity from the regular market to instead receive 
price improvement in the Program; and (4) displayed volume executed is 
not correlated with quoted spreads in the Program, which suggest that 
market participants are not entering non-displayed retail price 
improving interest in the Program as an alternative to displaying 
interest on an order book.

            Table 6--BYX Market Quality Correlation Analysis
------------------------------------------------------------------------
                                                       Date
                                         -------------------------------
                                               2017            2018
------------------------------------------------------------------------
Correlation of RPI Effective Spread to           -0.0145         -0.0096
 Average Inside Size across all Equities
 Exchanges \29\.........................
Correlation of RPI Volume as a Percent           -0.0217         -0.0056
 of Total Volume to Average Inside Size
 across all Equities Exchanges..........
Correlation of RPI Volume as a Percent            0.1175          0.0134
 of Total Volume to Average Effective
 Spread across all Venues...............
Correlation of RPI Effective Spread to           -0.1438         -0.1366
 Total Midpoint Volume across all Venues
Correlation of RPI Quoted Spread to              -0.1221         -0.0999
 Total Protected Lit Volume across all
 Equities Exchanges.....................
------------------------------------------------------------------------

Difference in Difference Analysis
---------------------------------------------------------------------------

    \29\ Inside size is the average bid or ask size when the venue 
is at the NBB or NBO.
---------------------------------------------------------------------------

    The aim of this analysis was to compare the values of a set of 
general market metrics prior to the introduction of the Program to 
those prevailing after. The Exchange follows what is commonly termed 
the `difference-in-difference' approach (``DnD''). A DnD analysis 
involves identifying a group of subjects (stocks in this case) that 
receive a given `treatment.' In this case, the `treatment' is the 
introduction of the Program. The Exchange would then observe the change 
(difference) in a set of empirical indicia of market quality, before 
and after Program introduction. The analysis is enhanced by observing 
the intertemporal change in the same indicia for a set of stocks that 
did not receive the treatment. The non-treated stocks would serve as 
`controls.' The impact of the Program could therefore be assessed by 
comparing the pre/post changes in the treated stocks with those from 
the control stocks, hence the difference in differences. Observed 
changes in the control stocks would account for environmental effects, 
such as changes in general market volatility, that are unrelated to the 
introduction of the Program.
    The introduction of the Program applied to all stocks traded on the 
Exchange. Thus, control stocks in the strict sense are not available. 
The Exchange applies therefore a fallback approach, in which it 
identifies stocks with relatively high levels of participation in the 
Program and use these as the `treatment' stocks. Those for which 
Program participation was light serve as the `control' stocks. The 
approach suffers from the limitation that Program participation is a 
determined by endogenous choice. It is possible that stocks with high 
levels of participation are systematically different from those with 
low participation. That is, the controls may be different from the 
treated stocks in important ways. With this caveat in mind, it is 
nevertheless of interest to see differences in outcomes between the two 
groups of stocks.
    While the treatment and control stocks differ substantially in 
terms of participation in the Program, the validity of the DnD analysis 
is enhanced to the extent that the two groups are otherwise as similar 
to each other as possible. To achieve this objective, the Exchange 
first breaks its analysis into two parts: One dealing with active 
securities, the other with less active

[[Page 45586]]

securities. The Exchange's set of active securities are those with 
consolidated average daily volume (``CADV'') of 500,000 shares or more 
after Program introduction. The less active group have CADV between 
50,000 and 500,000 shares after Program introduction. Then, within each 
volume grouping, the Exchange conducts a `matched pairs' process to 
identify a smaller set of treatment and control groups that are as 
close to each other as possible across three dimensions: Consolidated 
average daily share volume, average price, and average BBO spread 
across exchanges. The values of these variables prior to Program 
introduction were used.
    Data from the pre-treatment period was obtained from trading during 
the three months of October through December 2012. The Exchange looks 
at two post-treatment periods. The first is based on trading from 
January through December 2013. The second is based on trading from the 
two years from January 2017 through December 2018.
    The overall set of four DnD analyses can be represented and 
hereafter labeled as follows:

------------------------------------------------------------------------
                                            Post-period dates
             CADV              -----------------------------------------
                                        2013              2017-2018
------------------------------------------------------------------------
500,000 or more...............  I..................  III
                                2012 pair..........  2012 pair
                                2013 pair..........  2017-18 pair
Between 50,000 and 500,000....  II.................  IV
                                2012 pair..........  2012 pair
                                2013 pair..........  2017-18 pair
------------------------------------------------------------------------

    For each of the four DnD analyses, the specific matched-pairs 
process employed the following steps:
    1. Daily averages for a set of variables are computed for each 
stock for the appropriate pre/post time frames.
    2. The initial universe of stocks are identified as having, in the 
post period, the appropriate CADV, an average share price greater than 
$2, and positive average daily BYX share volume.
    3. These stocks are ranked on the percentage of consolidated volume 
that was done in the Program (in the post period). Selection of the 
treatment stocks starts with the top 100 stocks in terms of post-
introduction RPI Program volume for analysis I, II and III, and top 200 
stocks are selected for analysis IV in order to generate sufficient 
number of pairs in the sample set.
    4. Pre-period data for the provisional treatment stocks is 
obtained. During the pre-period, the treatment stocks must also have 
the appropriate CADV level, an average price greater than $2, positive 
BYX share volume, and listed during the entire pre-period. This process 
will generally result in fewer than 1000 remaining treatment 
candidates.
    5. The candidate control stocks are selected from those with low 
RPI Program volume, where the control stocks were selected from stocks 
whose RPI volume was less than one-tenth that of the lowest RPI volume 
from the treatment stocks.
    6. The control stocks must also have similar restrictions to the 
treatment stocks in both pre- and post-periods: CADV in the appropriate 
range, price greater than $2, and positive BYX volume.
    7. Each treatment stock was compared with each candidate control 
stock. Using pre-period data, a discrepancy score was computed as:
[GRAPHIC] [TIFF OMITTED] TN29AU19.003

    In words, the score is the sum of the absolute value of the 
percentage differences in the indicated values. The lower the score, 
the closer the match.
    8. Each treatment stock was paired with the best possible match, 
subject to the constraint that a given control stock could be used only 
once (often termed `sampling without replacement').
    9. Finally, only stock pairs with reasonable discrepancy scores, 
which were 2.0 and lower, were retained.
    Once a set of matched pairs was determined for a given analysis, 
the Exchange computed the DnD result using a standard linear regression 
framework. A DnD regression model can be expressed as:
[GRAPHIC] [TIFF OMITTED] TN29AU19.004


[[Page 45587]]


    The Exchange considered ten metrics of interest, all of which were 
computed during standard 9:30 a.m.-4:00 p.m. (Eastern time) trading 
hours: (1) Average BBO spread across exchanges in dollars; (2) average 
BBO spread across exchanges in basis points; (3) average BYX spread in 
dollars; (4) average BYX spread in basis points; (5) average inside ask 
size across exchanges in round lots; (6) average inside bid size across 
exchanges in round lots; (7) average inside ask size on BYX in round 
lots; (8) average inside bid size on BYX in round lots; (9) BYX volume 
compared to total consolidated volume (``TCV'') in basis points; (10) 
trade reporting facility (``TRF'') volume as a percentage of Symbol 
Total Volume.
    In assessing the results of the DnD analysis, certain caveats are 
worth bearing in mind. As shown above, BYX RPI volume represents a very 
small fraction of consolidated volume. Further, the Program was 
introduced at a time when similar exchange-based retail price 
improvement programs were introduced by other exchanges. It is also 
important to recognize that much, if not most, marketable retail order 
flow is routed to off-exchange market makers. For example, the Exchange 
examined Rule 606 disclosures for the second quarter of 2019 from four 
prominent retail brokerages: E-Trade, TD Ameritrade, Charles Schwab, 
and Fidelity. Only Fidelity reported routing any market orders to 
national securities exchanges, and its total exchange percentage was 
less than 2.5% for each of Tape A, B, and C securities. This practice 
of routing retail marketable orders to off-exchange venues has been in 
place for a long time, both before and after the introduction of the 
Program. Considering the smallness of the Program, the existence of 
similar programs on other national securities exchanges, and the 
continuing prevalence of off-exchange trading of retail orders, the 
incremental impact of the Program on market quality generally would not 
be expected to be large.
    Furthermore, BYX RPI activity is itself somewhat anomalous in the 
first place since the majority of retail market orders are routed off-
exchange for execution. Why some retail flow reaches exchanges via the 
Program (or that of similar exchange programs), and why it varies 
across stocks is not clear. Since treatment and control stocks are 
determined on the basis of observed RPI usage--resulting from 
participant choice--they may be different in important ways. The DnD 
study attempts to take into account differences in average share 
volume, price, and spread in the pre-period. If, however, the two 
groups of stocks are nevertheless still not properly fully matched, it 
is possible that results drawn from the DnD may be spurious. `Spurious' 
in this context means a result that is robust statistically, but 
nevertheless does not indicate the impact of the intended factor. In 
other words, a spurious result is caused by some extraneous factor.
Matching Summary
    The full set of matched pairs data for each of the four analyses 
will be provided below, but the following table provides summary 
information. Shown are the number of matched pairs, and sample averages 
for the three matching variables. Also shown is the average of the 
discrepancy score used in the matching process.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        Treatment                               Control
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Post                                        Post
                 Analysis                     Score    Number of    Price      Period      CADV      Spread     Price      Period      CADV      Spread
                                                         pairs                RPI Pct                                     RPI Pct
--------------------------------------------------------------------------------------------------------------------------------------------------------
I.........................................       1.01         58    $ 44.93      0.034  8,216,026         38    $ 37.76      0.004  3,608,540         40
II........................................        0.5         78      17.70      0.184    186,708        262      17.35      0.011    191,422        233
III.......................................       0.87         51      40.29      0.154  4,820,112         50      34.46      0.020  3,048,311         45
IV........................................       0.58         34      12.80      0.328    216,895        530      13.42      0.029    191,580        382
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The table again illustrates the low level of Program participation, 
even for the treatment stocks. The RPI percentages are especially low 
for the higher volume samples (I and III). As intended, the RPI 
percentages for the control stocks are much lower still, averaging at 
least an order of magnitude lower than the treatment stocks.
    Other than these differences, the pairs exhibit strong average 
similarity in terms of the values of the pre-period matching variables.
Regression Results
    The following table provides the estimated coefficients for the DnD 
regressions for the indicated market indicator and sample. In addition 
to the estimated coefficient, the p-value is provided. This value can 
be used to gauge the statistical significance of the coefficient--the 
confidence that the true value of the coefficient is different than 
zero. The results are accompanied, as appropriate, with a set of 
asterisks indicating the associated level of significance: * = 10%, ** 
= 5%, and *** = 1%.

----------------------------------------------------------------------------------------------------------------
                                                                              Spreads
                                                 ---------------------------------------------------------------
                                                     Avg. BBO                        Avg. BBO
                                                  spread for all     Avg. BYX     spread for all     Avg. BYX
                                                     exchanges     spread (bps)      exchanges        spread
                                                       (bps)                         (dollars)       (dollars)
----------------------------------------------------------------------------------------------------------------
I
    coef........................................           -2.77           -9.63           -0.01            0.03
    p value.....................................           0.823           0.722           0.887           0.819
II
    coef........................................          -50.87          -54.69           -0.10           -0.04
    p value.....................................           0.287           0.531           0.212           0.835
III
    coef........................................           40.95          -11.06           -0.03         * -0.27
    p value.....................................           0.148           0.781           0.797           0.098
IV

[[Page 45588]]

 
    coef........................................          166.71          211.50           -2.18        ** -0.42
    p value.....................................           0.219           0.316           0.207           0.018
----------------------------------------------------------------------------------------------------------------

    Four measures were analyzed to assess the potential impact that the 
Program had on spreads: Average BBO spreads across all exchanges and 
BYX quoted spreads were both measured in both basis points and dollar 
terms. The table above shows limited impact of the Program on spreads 
on BYX and the broader market. The only statistically significant 
changes identified were to BYX spreads measured in dollar terms when 
using a post-period treatment group from 2017-2018. Specifically, the 
Exchange observed a relative narrowing of average BYX spreads in 
treatment securities that is equivalent to: $0.27 for the more liquid 
symbols in Sample III, and $0.42 for the less liquid symbols contained 
in Sample IV, indicating an improvement in market quality on BYX in 
securities with more volume traded in the Program. While the Exchange's 
analysis does not prove that the observed improvements in BYX spreads 
could necessarily be attributed to the Program rather than other 
factors, this result supports the overall conclusion that the Program 
did not result in spreads widening.

----------------------------------------------------------------------------------------------------------------
                                                                        Depth in Round Lots
                                                 ---------------------------------------------------------------
                                                    Avg. inside                     Avg. inside
                                                   bid size for    Avg. BYX bid    ask size for    Avg. BYX ask
                                                   all exchanges       size        all exchanges       size
----------------------------------------------------------------------------------------------------------------
I
    coef........................................            1.30           -4.85            4.66            1.03
    p value.....................................           0.926           0.538           0.840           0.948
II
    coef........................................           -2.79           -2.10            0.11           -1.40
    p value.....................................           0.505           0.170           0.984           0.331
III
    coef........................................            4.75           -3.76            3.23           -7.03
    p value.....................................           0.699           0.556           0.813           0.406
IV
    coef........................................          -15.18        * -16.54           -6.19        * -13.22
    p value.....................................           0.105           0.052           0.277           0.065
----------------------------------------------------------------------------------------------------------------

    Similar to the analysis of spreads, four size measures are 
analyzed, including inside bid and ask sizes both on BYX and across all 
exchanges. Here, the Exchange found only two statistically significant 
changes in the available size. Specifically, the Exchange found a 
relative decrease in the average bid and ask size on BYX in treatment 
securities when looking at the results for Sample IV, which includes 
less liquid securities with a post-period treatment group of 2017-2018. 
For the bid side of the market, the Exchange found that the average 
size on BYX for treatment securities decreased by 16.54 round lots 
(i.e., 1654 shares) relative to the control group. Similarly, for the 
offer side of the market, the Exchange found that the average size on 
BYX for treatment securities decreased by 13.22 round lots (i.e., 1322 
shares) relative to the control group. While available bid and offer 
sizes on BYX in the treatment group decreased relative to the control 
group, the Exchange believes that this change may have been caused by 
factors unrelated to the Program. In fact, the average BYX bid and ask 
sizes materially increased during the duration of the Program for 
securities included in both the treatment and control groups. For 
example, the average BYX bid size for Sample IV increased from 3.49 
round lots in the pre-period to 4.91 round lots in the post-period, an 
approximately 40% improvement. Similarly, the average BYX ask size for 
Sample IV increased from 3.74 round lots in the pre-period to 5.16 
round lots in the post-period, an approximately 38% improvement. The 
Program results simply indicate a larger increase in size for the 
control groups was observed. The same statistics for the control group 
indicate 791% increase in BYX bid size and a 1014% increase in BYX ask 
size. The Exchange therefore believes the results are largely due to 
outlier stocks in the control group that experienced a significant 
increase in depth that was most likely related to outside factors 
rather than the lack of Program participation. Given the significant 
increase in depth across stocks in both the control and treatment 
groups, the Exchange believes that the results are consistent with a 
finding that the Program did not materially harm depth on BYX.

------------------------------------------------------------------------
                                                      Volume
                                         -------------------------------
                                                           TRF volume as
                                           BYX volume as    % of symbol
                                          % of TCV (bps)   total volume
------------------------------------------------------------------------
I
    coef................................          * 0.43           1.10%
    p value.............................           0.051           0.522
II
    coef................................            0.38           1.09%
    p value.............................           0.112           0.641
III
    coef................................         * -1.11       *** 7.43%
    p value.............................           0.051           0.002
IV
    coef................................         * -1.72        ** 7.95%
    p value.............................           0.068           0.033
------------------------------------------------------------------------

Market Share
    To assess the impact of the Program on market share the Exchange 
explored measures related to both BYX volume as a percentage of TCV and 
TRF volume as a percentage of Symbol Total Volume. The BYX market share 
coefficients shown in the table are expressed in

[[Page 45589]]

market share basis point. For example, a value of 100 means that market 
share increased by one point (e.g., 30% to 31%). Many of the results 
related to market share are statically significant, suggesting shifts 
in both BYX and TRF market share in the years following the 
introduction of the Program. Sample I, for example, suggests a 
statistically significant relative increase in BYX volume in more 
liquid treatment securities immediately following the introduction of 
the Program, but Samples III and IV suggest that any such increases 
were temporary with BYX volume as a percentage of TCV decreasing 
relative to the control group in both of the later samples. In 
addition, Samples III and IV also reflect a large and statistically 
significant relative increase in TRF share for securities with more 
volume executed in the Program. Collectively, it can be safely stated 
that the introduction of the Program did not work towards decreasing 
TRF share. More likely what the results tell us is that the treatment 
stocks with relatively high volume executed in the Program also had 
high levels of retail interest generally. Such retail interest is 
executed largely off-exchange, hence the increase in TRF share.

I. Active Stocks (CADV >500,000) and Post-Period = 2013

    For this sample, there were 58 matched pairs that emerged from this 
process. The pairs, along with values of selected variables, pre- and 
post-Program introduction, are shown as follows:
BILLING CODE 8011-01-P

[[Page 45590]]

[GRAPHIC] [TIFF OMITTED] TN29AU19.005


[[Page 45591]]


[GRAPHIC] [TIFF OMITTED] TN29AU19.006


[[Page 45592]]


[GRAPHIC] [TIFF OMITTED] TN29AU19.007


[[Page 45593]]


[GRAPHIC] [TIFF OMITTED] TN29AU19.008


[[Page 45594]]



II. Less Active Stocks (CADV Between 50,000 and 500,000) and Post-
Period = 2013

    For this sample, there were 78 matched pairs that emerged from this 
process. The pairs, along with values of selected variables, pre- and 
post-Program introduction, are shown as follows:
[GRAPHIC] [TIFF OMITTED] TN29AU19.009


[[Page 45595]]


[GRAPHIC] [TIFF OMITTED] TN29AU19.010


[[Page 45596]]


[GRAPHIC] [TIFF OMITTED] TN29AU19.011


[[Page 45597]]



III. Active Stocks (CADV >500,000) and Post-Period = 2017-208

    For this sample, there were 51 matched pairs that emerged from this 
process. The pairs, along with values of selected variables, pre- and 
post-Program introduction, are shown as follows:
[GRAPHIC] [TIFF OMITTED] TN29AU19.012


[[Page 45598]]



IV. Less Active Stocks (CADV Between 50,000 and 500,000) and Post-
Period = 2017-2018

    For this sample, there were 34 matched pairs that emerged from this 
process. The pairs, along with values of selected variables, pre- and 
post-Program introduction, are shown as follows:
[GRAPHIC] [TIFF OMITTED] TN29AU19.013


[[Page 45599]]


[GRAPHIC] [TIFF OMITTED] TN29AU19.014

BILLING CODE 8011-01-C

IV. Conclusion

    When the Commission approved the initial retail price improvement 
pilot on the New York Stock Exchange LLC (``NYSE'') and NYSE Amex LLC 
(``Amex'') it stated that it was not concerned that such a program 
would ``cause a major shift in market structure.'' \30\ Instead, the 
Commission explained that the program ``should closely replicate the 
trading dynamics that exist in the OTC markets'' and would ``simply 
present another competitive venue for retail order flow execution'' 
that is ``not likely to alter the incentives for market participants to 
post limit orders in a material way.'' \31\ At the same time, the 
Commission saw fit to approve such programs on a pilot basis so that it 
would have the opportunity to monitor the operation of the Program and 
confirm its expectations about the impact on broader market structure 
before permanent approval. The Exchange believes that the Commission's 
expectations that the Program would not have any significant impact on 
broader market structure is both correct and confirmed by the data. 
Specifically, based on the Exchange's experience in operating the 
Program, and the data provided here and during the duration of the 
pilot, the Exchange believes that the Program has been a positive 
experiment in attracting retail order flow to a public exchange, and 
should thus be approved on a permanent basis so that retail investors 
can continue to reap its benefits.
---------------------------------------------------------------------------

    \30\ See Securities Exchange Act Release No. 67347 (July 3, 
2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-55; SR-NYSEAmex-
2011-84).
    \31\ Id.
---------------------------------------------------------------------------

    The data provided by the Exchange describes a valuable service that 
delivers considerable price improvement to retail investors in a 
transparent and well-regulated environment. The Program represents just 
a fraction of retail orders, most of which are executed off-exchange by 
a wide range of order handling services that have considerably more 
market share, and which operate pursuant to different rules and 
regulatory requirements. Specifically, the majority of retail order 
flow is currently executed off-exchange by various wholesale market 
makers that are able to offer sub-penny price improvement to retail 
orders without running afoul of the Sub-Penny Rule under Regulation 
NMS.\32\ Given that retail orders already trade off-exchange in 
increments of less than one penny, the Exchange believes that the 
primary impact of the Program is to provide an opportunity for retail 
investors to receive price improvement on a transparent, well-
regulated, exchange venue.
---------------------------------------------------------------------------

    \32\ The Commission has itself has opined that OTC market makers 
appear to handle the vast majority of marketable retail order flow, 
with the eight retail broker-dealers with significant retail 
accounts whose Rule 606 order routing disclosures the Commission 
reviewed routing ``nearly 100%'' of their customer market orders to 
OTC market makers. See Securities Exchange Act Release No. 61358 
(January 14, 2010), 75 FR 3593, 3600 (January 21, 2010) (Concept 
Release on Equity Market Structure).
---------------------------------------------------------------------------

    The Exchange believes that this understanding is also supported by 
the data, which shows that the Program was not likely to have caused 
any significant harm to broader market quality. The order flow the 
Program attracted and continues to attract to the Exchange provides 
tangible price improvement to retail investors through a competitive 
and transparent pricing process unavailable in non-exchange venues. As 
such, despite relatively modest volumes, the Exchange believes that the 
Program has satisfied the twin goals of attracting retail order flow to 
the

[[Page 45600]]

Exchange and allowing such order flow to receive potential price 
improvement. Moreover, the Exchange believes that the data collected 
supports the conclusion that the Program did not have a negative impact 
on broader market quality. Although the results of the Program 
highlight the substantial advantages that broker-dealers retain when 
managing the benefits of retail order flow, the Exchange believes that 
the level of price improvement provided by the Program and the scant 
evidence that the Program negatively impacted the marketplace justifies 
making the Program permanent.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act,\33\ in general, and 
Section 6(b)(5) of the Act,\34\ in particular, in that it is designed 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest and not to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78f(b).
    \34\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that making the pilot permanent is consistent 
with these principles because the Program is reasonably designed to 
attract retail order flow to the exchange environment, while helping to 
ensure that retail investors benefit from the better price that 
liquidity providers are willing to give their orders. During the pilot 
period, the Exchange has provided data and analysis to the Commission. 
The Exchange believes that this data and analysis, as well as the 
further analysis provided in this filing, show that the Program has 
provided the intended benefits to the market, and retail investors in 
particular, and is therefore consistent with the Act. Furthermore, the 
Exchange notes that similar programs instituted by NYSE and Nasdaq BX 
have recently been approved by the Commission to operate on a permanent 
basis.\35\ The Exchange believes that its analysis, as well as the 
analysis conducted by NYSE and Nasdaq BX in their proposals for 
permanent approval, show that retail price improvement programs do not 
negatively impact market structure, and can therefore provide benefits 
to retail investors without negatively impacting the broader market.
---------------------------------------------------------------------------

    \35\ See Securities Exchange Act Release No. 85160 (February 15, 
2019), 84 FR 5754 (February 22, 2019) (SR-NYSE-2018-28); 86194 (June 
25, 2019), 84 FR 31385 (July 1, 2019) (SR-BX-2019-011).
---------------------------------------------------------------------------

    The proposed rule change is designed to facilitate transactions in 
securities and to remove impediments to, and perfect the mechanisms of, 
a free and open market and a national market system because making the 
Program permanent would allow the Exchange to continue to attract 
retail order flow to a public exchange and allow such order flow to 
receive potential price improvement. The data provided by the Exchange 
to the Commission staff demonstrates that the Program provided tangible 
price improvement to retail investors through a competitive pricing 
process unavailable in non-exchange venues, and otherwise had an 
insignificant impact on the broader market. The Exchange believes that 
making the Program permanent would encourage the additional utilization 
of, and interaction with, the Exchange and provide retail customers 
with an additional venue for price discovery, liquidity, competitive 
quotes, and price improvement. For the same reasons, the Exchange 
believes that making the Program permanent would promote just and 
equitable principles of trade and remove impediments to and perfect the 
mechanism of a free and open market.
    Finally, the Exchange also believes that it is subject to 
significant competitive forces, as described below in the Exchange's 
statement regarding the burden on competition. For all of these 
reasons, the Exchange believes that the proposed rule change is 
consistent with the Act.

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
believes that making the Program permanent would continue to promote 
competition for retail order flow among execution venues and contribute 
to the public price discovery process. The Exchange believes that the 
data supplied to the Commission, and experience gained over the life of 
the pilot, have demonstrated that the Program creates price improvement 
opportunities for retail orders that are similar to what would be 
provided under OTC internalization arrangements, thereby benefiting 
retail investors and increasing competition between execution venues. 
The Exchange also believes that making the Program permanent will 
promote competition between execution venues operating their own retail 
liquidity programs, including competition between the Program and a 
similar programs currently operated by NYSE and Nasdaq BX on a 
permanent basis pursuant to a recently approved rule changes.\36\ Such 
competition will lead to innovation within the market, thereby 
increasing the quality of the national market system and allowing 
national securities exchanges to compete both with each other and with 
off-exchange venues for order flow. Such competition ultimately 
benefits investors, and in this case specifically retail investors by 
providing multiple potential trading venues for the execution of their 
order flow, consistent with the principles of Regulation NMS, which was 
premised on promoting fair competition among markets. Finally, the 
Exchange notes that it operates in a highly competitive market in which 
market participants can easily direct their orders to competing venues, 
including off-exchange venues. In such an environment, the Exchange 
must continually review, and consider adjusting the services it offers 
and the requirements it imposes to remain competitive with other U.S. 
equity exchanges. For the reasons described above, the Exchange 
believes that the proposed rule change reflects this competitive 
environment.
---------------------------------------------------------------------------

    \36\ Id.
---------------------------------------------------------------------------

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

    The Exchange has neither solicited nor received written 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.

[[Page 45601]]

Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeBYX-2019-014 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-2019-014. 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 (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for 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. All comments received will be 
posted without change. Persons submitting comments are cautioned that 
we do not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
CboeBYX-2019-014, and should be submitted on or before September 19, 
2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18636 Filed 8-28-19; 8:45 am]
 BILLING CODE 8011-01-P


