
[Federal Register Volume 88, Number 166 (Tuesday, August 29, 2023)]
[Notices]
[Pages 59551-59552]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-18550]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98206]


Order Granting Application of NYSE National, Inc. for a Limited 
Exemption From Rule 602 of Regulation NMS for Its Retail Liquidity 
Program

August 23, 2023.
    By letter dated August 18, 2023 (the ``Application''),\1\ NYSE 
National, Inc. (``NYSE National'' or the ``Exchange'') requests a 
limited exemption from the requirements of Rule 602 of Regulation NMS 
\2\ (the ``Quote Rule'') for its planned dissemination of a Retail 
Liquidity Identifier (``RLI'') that would contain certain information 
regarding non-displayed Retail Price Improvement Orders (``RPI 
Orders'') pursuant to the NYSE National's Retail Liquidity Program (the 
``Program'').\3\
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    \1\ See Letter from Hope M. Jarkowski, General Counsel, New York 
Stock Exchange to Vanessa Countryman, Secretary, Commission, dated 
August 18, 2023.
    \2\ 17 CFR 242.602.
    \3\ See Securities Exchange Act Release No. 98169 (August 18, 
2023) (Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change to Amend Rule 7.44) (``Notice'').
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    The purpose of the Program is to attract retail order flow to the 
Exchange by allowing ETP Holders to provide potential price improvement 
to retail investor orders (``Retail Orders'') \4\ in the form of an RPI 
Order. An RPI Order is defined as ``an MPL Order that is eligible to 
trade only with incoming Retail Orders submitted by an RMO.'' \5\ An 
MPL or Mid-Point Liquidity Order is defined as ``[a] Limit Order to buy 
(sell) that is not displayed and does not route, with a working price 
at the lower (higher) of the midpoint of the [protected bid and 
protected offer] PBBO or its limit price.'' \6\
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    \4\ NYSE National Rule 7.44(a)(3) defines a Retail Order as ``an 
agency order or a riskless principal order that meets the criteria 
of FINRA Rule 5320.03 that originates from a natural person and is 
submitted by an RMO provided that no change is made to the terms of 
the order with respect to price or side of market and that the order 
does not originate from a trading algorithm or other computerized 
methodology.''
    \5\ NYSE National Rule 7.44(a)(3). This section of the NYSE 
National Rule also defines an RMO or Retail Member Organization as 
``an ETP Holder that is approved by the Exchange under this rule to 
submit Retail Orders.'' RMOs would be able to submit a Retail Order 
to the Exchange, which interacts, to the extent possible, with 
available contra-side RPI orders and may interact with other 
liquidity on the Exchange, depending on the Retail Order's 
instructions. The segmentation in the Program would allow retail 
order flow to receive potential price improvement. See Notice at 2.
    \6\ NYSE National Rule 7.31(d)(3).
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    When there is an RPI Order in a particular security that is 
eligible to trade at the midpoint of the PBBO, the Exchange would 
disseminate the RLI through proprietary data feeds and through the 
Consolidated Quotation System or the UTP Quote Data Feed, as 
applicable.\7\ The RLI would reflect the symbol for the particular 
security and the side (buy or sell) of the RPI interest but would not 
include the price or size of the RPI interest.\8\
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    \7\ NYSE National Rule 7.44(e).
    \8\ Id.
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    When the Commission adopted the Quote Rule (then Rule 11Ac1-1) it 
sought to facilitate the establishment of a comprehensive composite 
quotation system across market centers as an integral component of a 
national market system.\9\ The Quote Rule requires national securities 
exchanges and national securities associations to, among other things, 
collect, process, and make available to vendors the best bid, the best 
offer, and aggregate quotation sizes for each subject security listed 
or admitted to unlisted trading privileges that is communicated on any 
national securities exchange by any responsible broker or dealer.\10\ 
Regulation NMS defines a ``bid'' or ``offer'' as the bid price or the 
offer price communicated by a member of a national securities exchange 
or member of a national securities association to any broker or dealer, 
or to any customer, at which it is willing to buy or sell one or more 
round lots of an NMS security, as either principal or agent, but shall 
not include indications of interest.
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    \9\ See Securities Exchange Act Release No. 14415 (January 26, 
1978), 43 FR 4342 (February 1, 1978). Regulation NMS redesignated 
Rule 11Ac1-1 as Regulation NMS Rule 602, but left the substance of 
the rule largely intact. See Securities Exchange Act Release No. 
51808 (June 9, 2005), 70 FR 37496, 37570 (June 29, 2005) (File No. 
S7-10-04).
    \10\ See 17 CFR 242.602(a)(1). The Quote Rule further provides 
that nothing shall preclude any national securities exchange from 
making available to vendors indications of interest or bids and 
offers for a subject security at any time such exchange is not 
required to do so. See 17 CFR 242.602(a)(4).
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    Other exchanges that operate retail liquidity programs also 
disseminate retail liquidity identifiers in order to attract retail 
order flow.\11\ NYSE National's RLI would serve a similar purpose to 
the identifiers currently disseminated by other exchanges operating 
retail liquidity programs,\12\ including one that likewise indicates 
the availability of potentially price-improving interest at the 
midpoint,\13\ as it would inform market participants about the 
availability of potential price improvement opportunities for Retail 
Orders The NYSE National RLI will indicate the availability of RPI 
Orders priced at the midpoint, which can potentially benefit retail 
investors by offering price improvement opportunities. NYSE National's 
Program, like other exchanges' retail liquidity programs, allows for 
the limited segmentation of retail order flow for the express purpose 
of allowing NYSE National to compete with other exchanges and off-
exchange market makers to provide price improvement to retail 
customers, thus ensuring that retail customers can benefit from the 
willingness of liquidity providers to give their orders better prices.
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    \11\ See, e.g., Cboe BYX Exchange, Inc. Rule 11.24(e); Nasdaq 
BX, Inc. Rule 4780(e); Investors Exchange LLC (``IEX'') Rule Rule 
11.232(f); New York Stock Exchange LLC Rule 7.44(j). The Commission 
previously granted IEX an exemption from the Quote Rule in 
connection with the dissemination of a similar liquidity indicator 
pursuant to its retail price improvement program. See Securities 
Exchange Act Release No. 93217 (September 30, 2021), 86 FR 55663 
(October 6, 2021) (Order Granting Application of Investors Exchange 
LLC for a Limited Exemption from Rule 602 of Regulation NMS for its 
Retail Price Improvement Program).
    \12\ See e.g., Cboe BYX Exchange, Inc. Rule 11.24(e); Nasdaq BX, 
Inc. Rule 4780(e); and New York Stock Exchange LLC Rule 7.44(j).
    \13\ See, e.g., IEX Rule 11.232(f); and New York Stock Exchange 
LLC Rule 7.44(j).
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    Under Rule 602(d) of Regulation NMS, the Commission may exempt from 
the provisions of the Quote Rule, either unconditionally or on 
specified terms and conditions, a national securities exchange (among 
others) if it determines that such exemption is consistent with the 
public interest, the protection of investors and the removal of 
impediments to and perfection of the mechanism of a national market 
system.\14\
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    \14\ 17 CFR 242.602(d).
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    The Commission hereby grants the Exchange a limited exemption from 
the Quote Rule to operate the Program and disseminate the RLI without 
having to include RPI Order interest in NYSE National's best bid or 
offer. For the reasons discussed below, the Commission has determined 
that it is consistent with the public interest, the protection of 
investors and the removal of impediments to and perfection of the 
mechanism of a national market system to provide a limited exemption 
from Rule 602 of Regulation NMS with respect to NYSE National's RLI 
disseminated under the Program.
    In light of the opportunity for retail customers to obtain 
potentially substantial price improvement at midpoint prices under NYSE 
National's Program, and in the interests of facilitating the ability of 
NYSE National to compete to be able to provide that opportunity to 
Retail Orders in the limited context of the Program, providing a 
limited exemption should promote competition between

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exchanges and between NYSE National and off-exchange market makers.
    Broad dissemination of the RLI through the Consolidated Quotation 
System or the UTP Quote Data Feed, as applicable, should benefit retail 
customers by providing broker-dealers that route Retail Orders with 
limited supplemental information about the availability of price 
improvement opportunities for Retail Orders under the Program.\15\ To 
the extent the RLI is successful in attracting Retail Orders to the 
Program, the increased competition should benefit retail customers by 
providing a mechanism through which they can receive the better prices 
for their orders from willing liquidity providers. This exemption also 
should benefit market participants that seek the opportunity to 
interact directly with Retail Orders, as any liquidity provider may 
submit RPI Orders to provide better prices to retail customers on the 
Exchange. Quotations that Rule 602 requires to be included in an 
exchange's best bid and offer are used to establish the national best 
bid and offer for an NMS stock and are eligible for protection against 
trade-throughs under Rule 611 of Regulation NMS.\16\ Such quotations 
therefore must be accessible to all market participants on terms that 
are not unfair or unreasonably discriminatory. In contrast, access to 
RPI Order interest is limited to Retail Orders because many market 
participants may be willing to offer liquidity to retail investors at 
better prices than they would be willing to offer all market 
participants. RPI Order interest thereby can benefit retail investors 
by giving them an opportunity to receive better prices on exchanges, 
but it is unsuitable for other purposes, including establishing a 
national best bid and offer and eligibility for Rule 611 protection.
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    \15\ The RLI will not reveal the presence of other midpoint 
interest. Non-displayed midpoint interest could be present on NYSE 
National outside of the Program, and Retail Orders will be able to 
trade with that interest.
    \16\ See 17 CFR 242.611.
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    Accordingly, it is ordered, pursuant to Rule 602(d) of Regulation 
NMS, that NYSE National is exempt from Rule 602 of Regulation NMS with 
respect to NYSE National's Program specifically concerning the 
dissemination of the RLI to advertise the presence of RPI Order 
interest under the Program without including RPI Orders in the 
Exchange's quotation. This exemption is conditioned on the Exchange 
continuing to conduct the Program substantially as described in the 
Exchange's request for exemptive relief and the current applicable 
Exchange rules, including the dissemination of the RLI through the 
Consolidated Quotation System or the UTP Quote Data Feed, as 
applicable. Any changes thereto may cause the Commission to reconsider 
this exemption. The foregoing exemption is subject to modification or 
revocation at any time if the Commission determines that such action is 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act.

    For the Commission, by the Division of Trading and Markets 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(28).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-18550 Filed 8-28-23; 8:45 am]
BILLING CODE 8011-01-P


