[Federal Register Volume 88, Number 162 (Wednesday, August 23, 2023)]
[Notices]
[Pages 57508-57513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-18190]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98169; File No. SR-NYSENAT-2023-17]


Self-Regulatory Organizations; NYSE National, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 7.44

August 18, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 8, 2023, NYSE National, Inc. (``NYSE National'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the self-regulatory 
organization. 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

    The Exchange proposes to amend Rule 7.44 to provide for a Retail 
Liquidity Program. The proposed rule change is available on the 
Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

[[Page 57509]]

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 self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 7.44, which is currently 
designated as Reserved, to provide for a Retail Liquidity Program (the 
``Program''). The purpose of the Program would be to attract retail 
order flow to the Exchange and allow such order flow to receive 
potential price improvement at the midpoint or better. As described in 
greater detail below, the Program would allow ETP Holders to provide 
potential price improvement to retail investor orders in the form of a 
non-displayed order that is priced at the less aggressive of the 
midpoint of the PBBO or its limit price, called a Retail Price 
Improvement Order (``RPI Order'').\3\ 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 an indicator, known as the Retail 
Liquidity Identifier, that such interest exists.\4\ Retail Member 
Organizations (``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.\5\ The 
segmentation in the Program would allow retail order flow to receive 
potential price improvement as a result of that order flow being deemed 
more desirable by liquidity providers.
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    \3\ See proposed Rule 7.44(a)(3).
    \4\ See proposed Rule 7.44(e). The Exchange notes that it will 
seek an exemption from the provisions of Regulation NMS Rule 602, 17 
CFR 242.602(d) (the ``Quote Rule'') with respect to its planned 
dissemination of a Retail Liquidity Identifier to allow it to 
disseminate the Retail Liquidity Identifier to indicate the presence 
of RPI Order interest without including such interest in the 
Exchange's quotation. The Exchange will not implement the proposed 
Program unless and until its request for exemption from the 
requirements of the Quote Rule has been granted.
    \5\ See proposed Rules 7.44(a)(1), 7.44(a)(2), and 7.44(f).
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    The rules providing for the proposed Program are structured 
similarly to the Retail Liquidity Programs currently offered by its 
affiliated exchanges, New York Stock Exchange, LLC (``NYSE'') and NYSE 
Arca, Inc. (``NYSE Arca'') except for differences as further described 
below relating to RPI Orders and Retail Orders, and uses the same 
terminology as is used in the approved rules governing the NYSE and 
NYSE Arca Retail Liquidity Programs.\6\ Accordingly, proposed Rule 7.44 
is based on NYSE Rule 7.44 and NYSE Arca Rule 7.44-E, except as 
described in further detail below to reflect that the proposed Program 
would differ substantively from the NYSE and NYSE Arca Retail Liquidity 
Programs in that it would primarily seek to provide retail order flow 
with price improvement opportunities at the midpoint or better.\7\ The 
Exchange notes that several other equities exchanges also offer retail 
price improvement programs, one of which offers trading opportunities 
at the midpoint, similar to the Program, as proposed.\8\
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    \6\ See NYSE Rule 7.44; NYSE Arca Rule 7.44-E. The Exchange 
notes that NYSE Arca has proposed to decommission its Retail 
Liquidity Program in a separate rule filing. See SR-NYSEARCA-2023-
55. The Exchange proposes to implement the Program in the third 
quarter of 2023, in tandem with the discontinuation of the NYSE Arca 
Retail Liquidity Program, on a date to be announced by Trader 
Update.
    \7\ The Exchange notes that it is not seeking an exemption under 
Rule 612 of Regulation NMS, 17 CFR 242.612 (the ``Sub-Penny Rule'') 
because it will not accept or rank orders priced greater than $1.00 
per share in an increment smaller than $0.01. The Program will thus 
differ from the NYSE and NYSE Arca Retail Liquidity Programs in this 
respect, as both of those programs operate pursuant to exemptive 
relief granted by the Commission from the requirements of the Sub-
Penny Rule.
    \8\ See, e.g., Investors Exchange LLC (``IEX'') Rule 11.232 
(describing the IEX Retail Program, which is designed to provide 
retail order flow with price improvement opportunities at the 
midpoint); Cboe BYX Exchange, Inc. (``BYX'') Rule 11.24 (setting 
forth BYX's Retail Price Improvement Program); Nasdaq BX, Inc. 
(``BX'') Rule 4780 (setting forth BX's Retail Price Improvement 
Program). The Exchange further notes that Nasdaq BX, like the 
Exchange, utilizes a ``taker-maker'' or inverted fee model; 
accordingly, offering a retail price improvement program on an 
exchange that operates with such a model is not novel.
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Definitions
    The Exchange proposes to adopt the following definitions for the 
Program under proposed Rule 7.44(a).\9\
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    \9\ The Exchange notes that it does not propose that the Program 
include a role for Retail Liquidity Providers (``RLPs''), unlike the 
NYSE and NYSE Arca Retail Liquidity Programs. See NYSE Rules 
7.44(a)(1), 7.44(a)(4)(D), 7.44(c)--(g), 7.44(i); NYSE Arca Rules 
7.44-E(a)(1), 7.44-E(a)(4)(C), 7.44-E(c)--(g), 7.44-E(i). The 
Exchange believes that the Program can operate effectively without 
RLPs, including because any ETP Holder may enter RPI Orders, as 
proposed, and notes that other exchanges currently operate retail 
price improvement programs that likewise do not include an RLP 
function. See, e.g., IEX Rule 11.232 (describing IEX Retail Price 
Improvement Program); Nasdaq BX Rule 4780 (describing Nasdaq BX 
Retail Price Improvement Program).
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    <bullet> Proposed Rule 7.44(a)(1) would define a Retail Member 
Organization or RMO as an ETP Holder that is approved by the Exchange 
under Rule 7.44 to submit Retail Orders. Proposed Rule 7.44(a)(1) is 
substantively identical \10\ to NYSE Rule 7.44(a)(2) and NYSE Arca Rule 
7.44-E(a)(2) and is also substantially similar to IEX Rule 
11.232(a)(1).
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    \10\ The phrase ``substantively identical'' is used in this 
filing to indicate that the proposed rules are the same as the rules 
of another exchange except for non-substantive grammatical or 
stylistic differences, including differences in nomenclature or 
numbering (for example, whereas the Exchange and NYSE Arca use the 
term ``ETP Holder'' to generally refer to member firms, NYSE uses 
the term ``member organization'').
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    <bullet> Proposed Rule 7.44(a)(2) would define a Retail Order as an 
agency order or riskless principal order that meets the criteria of 
FINRA Rule 5320.03, originating from a natural person, and that is 
submitted to the Exchange by an RMO, provided that no change is made to 
the terms of the order with respect to price or side of market and the 
order does not originate from a trading algorithm or any other 
computerized methodology. A Retail Order would operate in accordance 
with proposed Rule 7.44(f) (as described below). Proposed Rule 
7.44(a)(2) is substantively identical to NYSE Rule 7.44(a)(3) and NYSE 
Arca Rule 7.44-E(a)(3) as to the core definition of a Retail Order and 
the provision that the operation of a Retail Order would be outlined 
further in a later section of the rule.\11\ Proposed Rule 7.44(a)(2) is 
also substantially similar to IEX Rule 11.190(b)(15).
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    \11\ The Exchange notes that NYSE Rule 7.44(a)(3) and NYSE Arca 
Rule 7.44-E(a)(3) differ from each other in two ways. First, NYSE 
Rule 7.44(a)(3) provides that a Retail Order is an Immediate or 
Cancel Order. NYSE Arca Rule 7.44-E(a)(3) does not provide the same 
because the NYSE Arca Retail Liquidity Program offers Retail Order 
types that are not IOC. The Exchange does not propose to include 
this detail in Proposed Rule 7.44(a)(2), as the operation of Retail 
Orders is further outlined in proposed Rule 7.44(f). Second, NYSE 
Arca Rule 7.44-E(a)(3) provides that a Retail Order may be an odd 
lot, round lot, or mixed lot. NYSE Rule 7.44(a)(3) previously 
included the same language, which NYSE recently proposed to delete 
as extraneous. See Securities Exchange Act Release No. 96944 
(February 16, 2023), 88 FR 11499 (February 23, 2023) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Modify 
Rule 7.44 Relating to the Retail Liquidity Program). Proposed Rule 
7.44(a)(2) would be consistent with NYSE Rule 7.44(a)(3) rather than 
NYSE Arca Rule 7.44-E(a)(3) in this regard.
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    <bullet> Proposed Rule 7.44(a)(3) would define a Retail Price 
Improvement Order

[[Page 57510]]

or RPI as an MPL Order \12\ that is eligible to trade only with 
incoming Retail Orders submitted by an RMO. This proposed rule would 
also provide that an RPI may not be designated IOC, ALO, or with an MTS 
Modifier.\13\ Proposed Rule 7.44(a)(3) further provides that an RPI 
remains non-displayed in its entirety and is ranked Priority 3--Non-
Display Orders.
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    \12\ An MPL Order is 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 PBBO or its limit price. An MPL 
Order is ranked Priority 3--Non-Display Orders and may be entered 
during any Exchange trading session. See Rule 7.31(d)(3). An MPL 
Order to buy (sell) must be designated with a limit price in the 
minimum price variation for the security and will be eligible to 
trade at its working price. See Rule 7.31(d)(3)(A). If there is no 
PBB or PBO, or if the PBBO is locked or crossed, an arriving or 
resting MPL Order will not be eligible to trade until the PBBO is 
not locked or crossed. See Rule 7.31(d)(3)(B). An Aggressing MPL 
Order to buy (sell) will trade at the working price of resting 
orders to sell (buy) when such resting orders have a working price 
at or below (above) the working price of the MPL Order. Resting MPL 
Orders to buy (sell) will trade against all Aggressing Orders to 
sell (buy) priced at or below (above) the working price of the MPL 
Order. See Rule 7.31(d)(3)(C). An MPL Order may be designated IOC 
(``MPL-IOC Order'') and, subject to such IOC instructions, will 
follow the same trading and priority rules as an MPL Order except 
that an MPL-IOC Order will be rejected if there is no PBBO or the 
PBBO is locked or crossed. See Rule 7.31(d)(3)(D).
    \13\ See Rules 7.31(b)(2) (providing that an order with an IOC 
Modifier will be traded in whole or in part on the Exchange as soon 
as such order is received, with any untraded quantity cancelled); 
7.31(e)(2) (providing that an ALO Order is a Non-Routable Limit 
Order that, unless it receives price improvement, will not remove 
liquidity from the Exchange Book); 7.31(i)(3) (providing that the 
MTS Modifier designates an order with a minimum trade size and an 
order with an MTS Modifier will be rejected if the MTS is less than 
a round lot or if the MTS is larger than the size of the order).
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    The definition of an RPI as a non-displayed order that trades only 
with Retail Orders is consistent with NYSE Rule 7.44(a)(4) and NYSE 
Arca Rule 7.44-E(a)(4). However, proposed Rule 7.44(a)(3) differs 
substantively from the definition of RPI Orders under NYSE Rule 
7.44(a)(4) and NYSE Arca Rule 7.44-E(a)(4) in that RPI Orders in the 
Program will only be MPL Orders, in accordance with the goal of the 
Program to provide potential price improvement to retail orders at the 
midpoint or better. The Exchange notes that it would not be novel for 
RPI Orders to function as MPL Orders to offer retail orders trading 
opportunities at the midpoint. NYSE Arca Rule 7.44-E(a)(4) currently 
provides that RPI Orders in the NYSE Arca Retail Liquidity Program may 
be designated as either Limit Orders or MPL Orders, and, similar to the 
Program, as proposed, the IEX Retail Price Improvement Program provides 
for Retail Liquidity Provider Orders that are non-displayed orders 
priced at the less aggressive of the midpoint price or the order's 
limit price and interact with eligible retail orders in price-time 
priority at the midpoint price.\14\
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    \14\ See NYSE Arca Rule 7.44-E(a)(4)(D) (``An RPI must be 
designated as either a Limit Non-Displayed Order or MPL Order. . . 
.''); IEX Rule 11.190(b)(14) (defining Retail Liquidity Provider 
Order as a Midpoint Peg order that is only eligible to execute 
against retail orders through the execution process described in IEX 
Rule 11.232(e)).
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RMO Qualifications and Application Process
    As noted above, Retail Orders may be submitted by RMOs. Under 
proposed Rule 7.44(b)(1), any ETP Holder could qualify as an RMO if it 
conducts retail business or routes retail orders on behalf of another 
broker-dealer. For purposes of this rule, the Exchange proposes that 
conducting a retail business includes carrying retail customer accounts 
on a fully disclosed basis. Proposed Rule 7.44(b)(2) would provide 
that, to become an RMO, an ETP Holder must submit: (1) an application 
form; (2) supporting documentation sufficient to demonstrate the retail 
nature and characteristics of the applicant's order flow; \15\ and (3) 
an attestation, in a form prescribed by the Exchange, that any order 
submitted by the ETP Holder as a Retail Order would meet the 
qualifications for such orders under Rule 7.44. Proposed Rule 
7.44(b)(3) would provide that the Exchange would notify an applicant of 
its decision in writing after an applicant submits the application 
form, supporting documentation, and attestation. Proposed Rule 
7.44(b)(4) would provide that a disapproved applicant may request an 
appeal of such disapproval by the Exchange as provided in proposed Rule 
7.44(d) (discussed further below) and/or reapply for RMO status 90 days 
after the disapproval notice issued by the Exchange. An RMO may also 
voluntarily withdraw from such status at any time by giving written 
notice to the Exchange, as set forth in proposed Rule 7.44(b)(5).
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    \15\ Proposed Rule 7.44(b)(2) would further provide that such 
supporting documentation may include sample marketing literature, 
website screenshots, other publicly disclosed materials describing 
the ETP Holder's retail order flow, and any other documentation and 
information requested by the Exchange in order to confirm that the 
applicant's order flow would meet the requirements of the Retail 
Order definition.
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    An RMO must have written policies and procedures reasonably 
designed to assure that it will only designate orders as Retail Orders 
if all requirements of a Retail Order are met, pursuant to proposed 
Rule 7.44(b)(6). Such written policies and procedures must require the 
ETP Holder to (i) exercise due diligence before entering a Retail Order 
to assure that entry as a Retail Order is in compliance with the 
requirements of Rule 7.44, 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 its orders to 
be designated as Retail Orders that entry of such orders as Retail 
Orders will be in compliance with the requirements of this rule, and 
(ii) monitor whether its broker-dealer customer's Retail Order flow 
continues to meet the applicable requirements.
    Proposed Rule 7.44(b) is substantively identical to NYSE Rule 
7.44(b) and NYSE Arca Rule 7.44-E(b) and is also substantially similar 
to IEX Rule 11.232(b).
Failure of RMO To Abide by Retail Order Requirements
    Proposed Rule 7.44(c) addresses an RMO's failure to abide by Retail 
Order requirements. If an RMO designated orders submitted to the 
Exchange as Retail Orders and the Exchange determined, in its sole 
discretion, that those orders failed to meet the requirements of Retail 
Orders, the Exchange could disqualify an ETP Holder from its status as 
an RMO. When disqualification determinations are made, the Exchange 
would provide a written disqualification notice to the ETP Holder. A 
disqualified RMO could appeal the disqualification as provided in 
proposed Rule 7.44(d), discussed below, and/or reapply for RMO status 
90 days after the disqualification notice was issued by the Exchange.
    Proposed Rule 7.44(c) is substantively identical to NYSE Rule 
7.44(h) and NYSE Arca Rule 7.44-E(h) and is also substantially similar 
to IEX Rule 11.232(c).
Appeal of Disapproval or Disqualification
    Proposed Rule 7.44(d) provides appeal rights to ETP Holders that 
are disapproved or disqualified as RMOs. If an ETP Holder disputes the 
Exchange's decision to disapprove it under proposed Rule 7.44(b) or 
disqualify it under proposed Rule 7.44(c), such ETP Holder could 
request, within five business days after notice of the decision was 
issued by the Exchange,

[[Page 57511]]

the Retail Liquidity Program Panel (``RLP Panel'') review the decision 
to determine if it was correct.
    The RLP Panel would consist of the NYSE's Chief Regulatory Officer 
(``CRO''), or a designee of the CRO, and two qualified Exchange 
employees. The RLP Panel would review the facts and render a decision 
within the time frame prescribed by the Exchange. The RLP Panel may 
overturn or modify an action taken by the Exchange, and all 
determinations by the RLP Panel would constitute final action by the 
Exchange on the matter at issue.
    Proposed Rule 7.44(d) is substantively identical to NYSE Rule 
7.44(i) and NYSE Arca Rule 7.44-E(i) and is also substantially similar 
to IEX Rule 11.232(d).
Retail Liquidity Identifier
    Proposed Rule 7.44(e) would provide for the Retail Liquidity 
Identifier, which is an identifier disseminated by the Exchange through 
proprietary data feeds and through the Consolidated Quotation System or 
the UTP Quote Data Feed, as applicable, when RPI interest eligible to 
trade at the midpoint of the PBBO for a particular security is 
available in Exchange systems. The Retail Liquidity Identifier 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.
    Proposed Rule 7.44(e) is the same as NYSE Rule 7.44(j), aside from 
differences to reflect that the Program's Retail Liquidity Identifier 
would indicate when RPI interest is available at the midpoint of the 
PBBO, consistent with the goal of the Program to offer trading 
opportunities to Retail Orders at the midpoint or better.
Retail Order Designation
    Proposed Rule 7.44(f) would describe the operation of Retail Orders 
in the Program. A Retail Order may be designated with an MTS 
Modifier.\16\ Proposed Rule 7.44(f) provides for two types of Retail 
Orders, and an RMO would be able to designate how a Retail Order will 
trade with available contra-side interest.
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    \16\ The Exchange notes that the availability of an MTS Modifier 
with retail orders is not novel, as it is currently offered on other 
exchanges operating retail price improvement programs. See, e.g., 
Investors Exchange LLC Rules 11.190(b)(9)(G), 11.190(b)(10)(G), and 
11.232(a)(2) (providing that a Retail order may be a Discretionary 
Peg order or Midpoint Peg order, either of which may be designated 
with a minimum trade size). In addition, the Commission recently 
noticed for immediate effectiveness a proposed rule change by the 
NYSE to permit Retail Orders to be designated with an MTS Modifier. 
See Securities Exchange Act Release No. 96944 (February 16, 2023), 
88 FR 11499 (February 23, 2023) (SR-NYSE-2023-11) (Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Modify Rule 
7.44 Relating to the Retail Liquidity Program).
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    Proposed Rule 7.44(f)(1) would define the Type 1 Retail Order. A 
Type 1 Retail Order to buy (sell) would be an MPL IOC Order with a 
working price at the lower (higher) of the midpoint of the PBBO or its 
limit price and that will trade only with available RPI Orders to sell 
(buy) and all other orders to sell (buy) with a working price below 
(above) or equal to the midpoint of the PBBO on the Exchange Book. A 
Type 1 Retail Order would not route, and the quantity of a Type 1 
Retail Order to buy (sell) that does not trade with eligible orders to 
sell (buy) will be immediately and automatically cancelled. A Type 1 
Retail Order would be cancelled on arrival if there is no PBBO or the 
PBBO is locked or crossed.
    Proposed Rule 7.44(f)(1) is similar to NYSE Rule 7.44(k) and NYSE 
Arca Rule 7.44-E(k)(1) except that the Type 1 Retail Order, as 
proposed, would differ from the NYSE Retail Order and the NYSE Arca 
Type 1 Retail Order in that it would be an MPL Order (rather than a 
Limit Order), to reflect the intent of the Program to provide potential 
price improvement opportunities for retail order flow at the midpoint 
or better. The Type 1 Retail Order, as an order eligible to trade at 
the midpoint or better, accordingly also shares characteristics with 
the existing MPL Order type available on the Exchange and is similar to 
the retail order in IEX's Retail Price Improvement Program.\17\
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    \17\ See note 13, supra (describing the MPL Order); IEX Rule 
11.232(a)(2) (providing that a retail order must be a Discretionary 
Peg order or Midpoint Peg order with a Time-in-Force of IOC or FOK 
that is only eligible to trade at a price between the NBB and the 
Midpoint Price (for bids) or between the NBO and the Midpoint Price 
(for offers)).
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    Proposed Rule 7.44(f)(2) would define the Type 2 Retail Order. A 
Type 2 Retail Order to buy (sell) would be a Limit IOC Order that 
trades first with available RPI Orders to sell (buy) (which, as noted 
above, are orders with a working price at the lower (higher) of the 
midpoint of the PBBO or their limit price) and with all other orders to 
sell (buy) with a working price below (above) the PBO (PBB) on the 
Exchange Book. Any remaining quantity of a Type 2 Retail Order would 
then trade with orders to sell (buy) on the Exchange Book at prices 
equal to or above (below) the PBO (PBB) as a Limit IOC Order and would 
not route. Any untraded quantity would be immediately and automatically 
cancelled. Retail Orders designated by the submitting RMO as Type 2 
thus differ from Type 1 Retail Orders because they would be able to 
trade with all contra-side orders inside the PBBO and then would have 
the opportunity to trade as a Limit IOC Order, as such order is defined 
in Rule 7.31.
    Proposed Rule 7.44(f)(2) is identical to NYSE Arca Rule 7.44-
E(k)(2)(A) except that proposed Rule 7.44(f)(2) references the Exchange 
Book rather than the NYSE Arca Book.
Priority and Order Allocation
    Proposed Rule 7.44(g) would set forth priority and allocation rules 
for the Program. RPI Orders in the same security would be ranked 
together with all other interest ranked as Priority 3--Non-Display 
Orders, and odd lot orders ranked as Priority 2--Display Orders would 
have priority over orders ranked Priority 3--Non-Display Orders at each 
price. Any remaining unexecuted RPI interest would remain available to 
trade with other incoming Retail Orders. Any remaining unfilled 
quantity of the Retail Order would cancel in accordance with proposed 
Rule 7.44(f), as described above.
    Proposed Rule 7.44(g) would also include the following examples to 
illustrate priority and allocation of orders in the Program.
    Examples of priority and order allocation are as follows:

    PBBO for security ABC is $10.00-$10.10.
    User 1 enters a Retail Price Improvement Order to buy ABC at 
$10.06 for 500.
    User 2 then enters a Retail Price Improvement Order to buy ABC 
at $10.09 for 400.
    User 3 then enters a Retail Price Improvement Order to buy ABC 
at $10.04 for 500.
    An incoming Type 1 Retail Order to sell ABC for 1,000 at $10.00 
would trade first with User 1's bid for 500 at $10.05. The Retail 
Order would then trade with User 2's bid for 400 at $10.05, because 
User 2's bid is ranked at the same price as User 1's but arrived 
later. User 3 would not be filled because the limit price of its 
order is not priced to execute at or above the current midpoint 
price of $10.05, and the remaining 100 shares of the Retail Order 
would be cancelled back to the Retail Member Organization. The 
Retail Order trades with RPI Orders in price/time priority, as 
illustrated by this example.
    The result would be the same as the above if User 1's order was 
instead either an MPL Order to buy ABC at $10.06 for 500 or a non-
displayed order to buy ABC at $10.05 for 500. The incoming Retail 
Order would trade first with User 1 for 500 at $10.05, then with 
User 2 for 400 at $10.05. User 3 would not be filled because the 
limit price of its order is not priced to execute at or above the 
current midpoint price of $10.05, and the remaining 100 shares of 
the Retail Order would be cancelled back to the Retail Member 
Organization.
    As a final example, assume the original facts, except that User 
3's order was not an

[[Page 57512]]

RPI Order, but rather, a non-displayed order to buy ABC at $10.09 
for 400 and User 4 enters a displayed odd lot limit order to buy ABC 
at $10.05 for 60. The incoming Retail Order to sell for 1,000 would 
trade first with User 3's bid for 400 at $10.09, because it is the 
best-priced bid, then with User 4's bid for 60 at $10.05 because it 
is the next best-priced bid and is ranked Priority 2--Display Orders 
and has priority over same-priced non-displayed orders (RPIs and 
non-displayed limit orders). The incoming Retail Order would then 
trade with User 1's bid for 500 at $10.05 and, finally, with User 2 
for 40 at $10.05, at which point the entire size of the Retail Order 
to sell 1,000 would be depleted. The balance of User 2's bid would 
remain on the Exchange Book and be eligible to trade with the next 
incoming Retail Order to sell.
    To demonstrate how a Type 2 Retail Order would trade with 
available Exchange interest, assume the following facts:
    PBBO for security DEF is $19.99--$20.03.
    User 1 enters a Limit Order to buy DEF at $20.00 for 100 
(updated PBBO 20.00 x 20.03.)
    User 2 then enters a Retail Price Improvement Order to buy DEF 
at $20.03 for 100.
    User 3 then enters an MPL Order to buy DEF at $21.00 for 100.
    User 4 then enters a Non-Displayed Order to buy DEF at $20.01 
for 100.
    User 5 then enters a Non-Displayed Order to buy DEF at $20.02 
for 100.
    An incoming Type 2 Retail Order to sell DEF for 1,000 at $20.00 
would trade first with User 5's bid for 100 at $20.02, because it is 
the best-priced bid. The incoming Retail Order would then trade with 
User 2's bid for 100 at $20.015, because it is the next best-priced 
bid, then with User 3's bid for 100 at $20.015, because User 3's bid 
is ranked at the same price as User 2's but arrived later. The 
incoming Retail Order would then trade with User 4's bid for 100 at 
$20.01 because it is the next best-priced bid. Finally, the Retail 
Order would trade with User 1's bid for 100 at $20.00. The remaining 
500 shares of the Retail Order would be cancelled back to the Retail 
Member Organization.

    Finally, proposed Rule 7.44(g) would limit the Program to trades 
occurring at prices equal to or greater than $1.00 per share and 
provide that Exchange systems will reject Retail Orders and RPI Orders 
priced below $1.00. The Program will operate only during the Core 
Trading Session and Retail Orders will be accepted during Core Trading 
Hours only.
    Proposed Rule 7.44(g) is substantially the same as NYSE Arca Rule 
7.44-E(l) except that it provides that remaining unfilled quantities of 
Retail Orders would cancel only (because all Retail Orders in the 
Program, as proposed, would be IOC Orders) and is also substantially 
the same as NYSE Rule 7.44(l) except to the extent the NYSE rule refers 
to the allocation of Retail Orders pursuant to NYSE Rule 7.37(b). The 
examples of priority and allocation provided in proposed Rule 7.44(g) 
are structured similarly to those that appear in NYSE Arca Rule 7.44-
E(l), with differences to reflect that RPI Orders and Type 1 Retail 
Orders in the Program would function as MPL Orders.
* * * * *
    Subject to effectiveness of this proposed rule change, the Exchange 
will implement this change no later than in the third quarter of 2023 
and announce the implementation date by Trader Update.
2. Statutory Basis
    The proposed rule change is consistent with section 6(b) of the 
Act,\18\ in general, and furthers the objectives of section 
6(b)(5),\19\ in particular, because it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, to 
remove impediments to, and perfect the mechanism of, a free and open 
market and a national market system and, in general, to protect 
investors and the public interest.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed change would promote just and 
equitable principles of trade, remove impediments to, and perfect the 
mechanism of, a free and open market and a national market system, and 
protect investors and the public interest because proposed Rule 7.44 is 
based on NYSE Rule 7.44 and NYSE Arca Rule 7.44-E providing for the 
NYSE and NYSE Arca Retail Liquidity Programs, respectively, and is also 
substantially similar to rules providing for the IEX Retail Price 
Improvement Program. Proposed Rule 7.44 sets forth definitions, order 
types, processes for RMO application, qualification, disapproval and 
disqualification for the Program, and the operation, priority, and 
allocation of orders in the Program that are based on rules previously 
approved by the Commission for retail price improvement programs 
currently offered by equities exchanges. Accordingly, the Exchange also 
believes the proposed change would promote just and equitable 
principles of trade, remove impediments to, and perfect the mechanism 
of, a free and open market and a national market system, and protect 
investors and the public interest by promoting consistency among 
exchange rules setting forth retail price improvement programs, which 
could encourage retail investors to direct order flow to the Program to 
seek out price improvement opportunities.
    The Exchange also believes that the proposed change would promote 
just and equitable principles of trade and remove impediments to, and 
perfect the mechanism of, a free and open market and a national market 
system because it is intended to attract retail order flow to the 
Exchange, including by facilitating opportunities for such order flow 
to receive potential price improvement at the midpoint or better. The 
proposed change would also promote competition for retail order flow 
among execution venues, which would benefit retail investors by 
creating additional price improvement opportunities for marketable 
retail order flow on a public exchange. In particular, the Exchange 
believes that providing for RPI Orders and Retail Orders that function 
as MPL Orders could provide more deterministic price improvement 
opportunities for Retail Orders, thereby attracting additional retail 
order flow to the Exchange. In addition, the Exchange believes that 
also offering a Retail Order to buy (sell) that could trade with orders 
to sell (buy) on the Exchange Book at prices equal to or above (below) 
the PBO (PBB) (after trading with RPI Orders and interest on the 
Exchange Book with a working price below (above) the PBO (PBB)) could 
provide for additional trading opportunities for Retail Orders 
designated as Type 2 by the RMO. The Exchange notes that this type of 
Retail Order is currently offered in the NYSE Arca Retail Liquidity 
Program. The Exchange also believes that the proposed change would 
allow it to compete with other exchanges that similarly promote 
additional trading opportunities for retail order flow at the 
midpoint.\20\
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    \20\ See note 9, supra.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed change could encourage competition by promoting additional 
trading opportunities at the midpoint and supporting price improvement 
opportunities at the midpoint of the PBBO or better for retail 
investors. The Exchange further believes that the proposed change could 
promote competition between the Exchange and other exchanges that offer 
retail price improvement programs, including an exchange that operates 
a retail price improvement program intended to

[[Page 57513]]

provide additional trading opportunities at the midpoint.\21\
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    \21\ See note 9, supra.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to section 
19(b)(3)(A)(iii) of the Act \22\ and Rule 19b-4(f)(6) thereunder.\23\ 
Because the proposed rule change does not: (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to section 19(b)(3)(A) of the Act \24\ and Rule 19b-
4(f)(6)(iii) thereunder.\25\
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    \22\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \26\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\27\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange stated that 
it anticipates that it will be technologically ready to implement the 
Program within 30 days of the date of filing, and a waiver of the 30-
day operative delay would allow the Exchange to provide beneficial 
price improvement opportunities to retail investors as soon as 
practicable. Further, the Exchange stated that waiver of the operative 
delay would encourage competition for retail order flow among execution 
venues. The Commission believes that waiver of the operative delay is 
consistent with the protection of investors and the public interest 
because it would allow the Exchange to implement its Program to provide 
retail investors with price improvement opportunities and compete with 
other execution venues for retail order flow. Accordingly, the 
Commission hereby waives the 30-day operative delay and designates the 
proposal operative upon filing.\28\
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    \26\ 17 CFR 240.19b-4(f)(6).
    \27\ 17 CFR 240.19b-4(f)(6)(iii).
    \28\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
section 19(b)(2)(B) \29\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \29\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#c0b2b5aca5eda3afadada5aeb4b380b3a5a3eea7afb6"><span class="__cf_email__" data-cfemail="93e1e6fff6bef0fcfefef6fde7e0d3e0f6f0bdf4fce5">[email protected]</span></a>. Please include 
file number SR-NYSENAT-2023-17 on the subject line.

Paper Comments

    <bullet> 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-NYSENAT-2023-17. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NYSENAT-2023-17 and should 
be submitted on or before September 13, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-18190 Filed 8-22-23; 8:45 am]
BILLING CODE 8011-01-P


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