35516 Federal Register / Vol. 83, No. 144 / Thursday, July 26, 2018 / Notices 

13 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 73702 

(November 28, 2014), 79 FR 72049 (December 4, 

2014) (SR–BX–2014–048) (‘‘RPI Approval Order’’). 

4See id. 

5A ‘‘Retail Order’’ is defined in BX Rule 

4780(a)(2) by referencing BX Rule 4702, and BX 

Rule 4702(b)(6) says it is an order type with a nondisplay order attribute submitted to the Exchange 

by a RMO. A Retail Order must be an agency order, 

or riskless principal order that satisfies the criteria 

of FINRA Rule 5320.03. The Retail Order must 

reflect trading interest of a natural person with no 

change made to the terms of the underlying order 

of the natural person with respect to price (except 

in the case of a market order that is changed to a 

marketable limit order) or side of market and that 

does not originate from a trading algorithm or any 

other computerized methodology. 

6The term Protected Quotation is defined in 

Chapter XII, Sec. 1(19) and has the same meaning 

as is set forth in Regulation NMS Rule 600(b)(58). 

The Protected NBBO is the best-priced protected 

bid and offer. Generally, the Protected NBBO and 

the national best bid and offer (‘‘NBBO’’) will be the 

same. However, a market center is not required to 

route to the NBBO if that market center is subject 

to an exception under Regulation NMS Rule 

611(b)(1) or if such NBBO is otherwise not available 

for an automatic execution. In such case, the 

Protected NBBO would be the best-priced protected 

bid or offer to which a market center must route 

interest pursuant to Regulation NMS Rule 611. 

7See RPI Approval Order, supra note 3 at 72053. 

8 Id. at 72049. 

9See Securities Exchange Act Release No. 76490 

(November 20, 2015), 80 FR 74165 (November 27, 

2015) (SR–BX–2015–073); Securities Exchange Act 

Release No. 79446 (December 1, 2016), 81 FR 88290 

(December 7, 2016) (SR–BX–2016–065); Securities 

Exchange Act Release No. 82192 (December 1, 

2017), 82 FR 57809 (December 7, 2017) (SR–BX– 

2017–055); and Securities Exchange Act Release 

No. 83539 (June 28, 2018), 83 FR 31203 (July 3, 

2018) (SR–BX–2018–026). 

10See RPI Approval Order, supra note 3 at 72051. 

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 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of FICC and on DTCC’s website 

(http://dtcc.com/legal/sec-rulefilings.aspx). 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–FICC– 

2018–005 and should be submitted on 

or before August 16, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Brent J. Fields, 

Secretary. 

[FR Doc. 2018–15943 Filed 7–25–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83681; File No. SR–BX– 

2018–025] 

Self-Regulatory Organizations; Nasdaq 

BX, Inc.; Notice of Filing of Proposed 

Rule Change To Make Permanent the 

Pilot Program for the Exchange’s 

Retail Price Improvement Program 

July 20, 2018. 

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 July 9, 

2018, Nasdaq BX, Inc. (‘‘BX’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to a proposal 

to make permanent the pilot program for 

the Exchange’s Retail Price 

Improvement (‘‘RPI’’) Program (the 

‘‘Program’’), which is set to expire the 

earlier of approval of the filing to make 

this rule permanent or December 31, 

2018. 

The text of the proposed rule change 

is available on the Exchange’s website at 

http://nasdaqbx.cchwallstreet.com/, at 

the principal office of the Exchange, and 

at the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to make 

permanent the Exchange’s pilot RPI 

Program,3 currently scheduled to expire 

the earlier of approval of the filing to 

make this rule permanent or December 

31, 2018. 

Background 

In November 2014, the Commission 

approved the RPI Program on a pilot 

basis.4 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. Under the 

Program, a class of market participant 

called a Retail Member Organization 

(‘‘RMO’’) is eligible to submit certain 

retail order flow (‘‘Retail Orders’’) 5 to 

the Exchange. BX members 

(‘‘Members’’) are permitted to provide 

potential price improvement for Retail 

Orders in the form of non-displayed 

interest that is priced more aggressively 

than the Protected National Best Bid or 

Offer (‘‘Protected NBBO’’).6

The Program was approved by the 

Commission on a pilot basis running 

one-year from the date of 

implementation.7 The Commission 

approved the Program on November 28, 

2014.8 The Exchange implemented the 

Program on December 1, 2014 and the 

pilot has since been extended for a oneyear period twice, as well as for a sixmonth period, with it now scheduled to 

expire the earlier of approval of the 

filing to make this rule permanent or 

December 31, 2018.9

Specifically, BX Rule 4780(h) will be 

amended to delete that the Program is 

a pilot and that is scheduled to expire 

the earlier of approval of the filing to 

make this rule permanent or December 

31, 2018. BX Rule 4780(h) will continue 

to say that the Program will be limited 

to securities whose Bid Price on the 

Exchange is greater than or equal to 

$1.00 per share. 

The SEC approved the Program pilot, 

in part, because it concluded, ‘‘the 

Program is reasonably designed to 

benefit retail investors by providing 

price improvement to retail order 

flow.’’ 10 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 


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Federal Register / Vol. 83, No. 144 / Thursday, July 26, 2018 / Notices 35517 

11 Id. 

12See supra note 5. 

13Exchange 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 Members can enter RPI Orders that 

better the Protected NBBO by more than $0.001. 

Exchange systems accept RPI Orders without a 

minimum price improvement value; however, such 

interest 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. 

of an exchange are not designed to 

permit unfair discrimination.’’ 11 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, more than $4 

million since inception, to retail 

investors that they may not otherwise 

receive and that it is therefore 

appropriate to make the pilot Program 

permanent. 

Definitions 

The Exchange adopted the following 

definitions under BX Rule 4780. First, 

the term ‘‘Retail Member Organization’’ 

(or ‘‘RMO’’) 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 by BX Rule 4702(b)(6)(A) as an 

order type with a non-display order 

attribute submitted to the Exchange by 

a RMO. A Retail Order must be an 

agency Order, or riskless principal 

Order that satisfies the criteria of FINRA 

Rule 5320.03. The Retail Order must 

reflect trading interest of a natural 

person with no change made to the 

terms of the underlying order of the 

natural person with respect to price 

(except in the case of a market order that 

is changed to a marketable limit order) 

or side of market and that does not 

originate from a trading algorithm or 

any other computerized methodology.12

The criteria set forth in FINRA Rule 

5320.03 adds additional precision to the 

definition of ‘‘Retail Order’’ by 

clarifying 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-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. 

The term ‘‘Retail Price Improving 

Order’’ or ‘‘RPI Order’’ or collectively 

‘‘RPI interest’’ is defined as an Order 

Type with a Non-Display Order 

Attribute that is held on the Exchange 

Book in order to provide liquidity at a 

price at least $0.001 better than the 

NBBO through a special execution 

process described in Rule 4780. A RPI 

Order may be entered in price 

increments of $0.001. An RPI Order will 

be posted to the Exchange Book 

regardless of its price, but an RPI Order 

may execute only against a Retail Order, 

and only if its price is at least $0.001 

better than the NBBO.13 RPI orders can 

be priced either as an explicitly priced 

limit order or implicitly priced as 

relative to the NBBO with an offset of 

at least $0.001. 

The price of an RPI Order with an 

offset is determined by a Member’s 

entry of the following into the 

Exchange: (1) RPI buy or sell interest; (2) 

an offset from the Protected NBBO, if 

any; and (3) a ceiling or floor price. RPI 

Orders submitted with an offset are 

similar to other peg orders available to 

Members 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 sell or buy interest 

typically are entered to track the 

Protected NBBO, that is, RPI Orders 

typically are submitted with an offset. 

The offset is a predetermined amount by 

which the Member is willing to improve 

the Protected NBBO, subject to a ceiling 

or floor price. The ceiling or floor price 


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35518 Federal Register / Vol. 83, No. 144 / Thursday, July 26, 2018 / Notices 

14Other price improving liquidity may include, 

but is not limited to: Booked non-displayed orders 

with a limit price that is more aggressive than the 

then-current NBBO; midpoint-pegged orders (which 

are by definition non-displayed and priced more 

aggressively than the NBBO); non-displayed orders 

pegged to the NBBO with an aggressive offset, as 

defined in BX Rule 4780(a)(4) as Other Price 

Improving Contra-Side Interest. Orders that do not 

constitute other price improving liquidity include, 

but are not limited to: Orders with a time-in-force 

instruction of IOC; displayed orders; limit orders 

priced less aggressively than the NBBO. 

15For 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. 

16The 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. 

is the amount above or below which the 

Member 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 Members to enter 

RPI Orders that establish the exact limit 

price, which is similar to a nondisplayed 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. 

Members 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 BX Rule 

4757 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 and other price-improving 

orders available on the Exchange (e.g., 

non-displayed liquidity priced more 

aggressively than the NBBO) 14

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 Member 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 Member’s floor of $10.10. If a 

Member otherwise enters an offset 

greater than the minimum required 

price improvement and the offset would 

produce a price that would violate the 

Member’s floor, the offset would be 

applied only to the extent that it 

respects the Member’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 

NBBO 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 

Member’s ceiling, but it could not 

interact above the $10.112 ceiling. 

Finally, if a Member 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 Member’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 NBBO 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. RPI 

Orders are not accepted during halts. 

RMO Qualifications and Approval 

Process 

Under BX Rule 4780(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 BX Rule 4780, 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: (i) An application form; (ii) 

supporting documentation sufficient to 

demonstrate the retail nature and 

characteristics of the applicant’s order 

flow 15 and (iii) an attestation, in a form 

prescribed by the Exchange, that 

substantially all orders submitted by the 

Member as a Retail Order would meet 

the qualifications for such orders under 

proposed BX Rule 4780(b). The 

Exchange shall notify the applicant of 

its decision in writing. 

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.16

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 proposed BX Rule 4780(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 

BX Rule 4780(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 proposed 

BX Rule 4780(d) and/or reapply for 

RMO status 90 days after the 

disqualification notice is issued by the 

Exchange. 


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Federal Register / Vol. 83, No. 144 / Thursday, July 26, 2018 / Notices 35519 

17The Exchange notes that the Retail Liquidity 

Identifier for Tape A and Tape B securities are 

disseminated pursuant to the CTA/CQS 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. 

18As discussed above, the price of an RPI is 

determined by a Member’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. 

19Type 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 non-routable, as described above. 

20 Given the proposed 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). 

Appeal of Disapproval or 

Disqualification 

BX Rule 4780(d) provides appeal 

rights to Members. If a Member disputes 

the Exchange’s decision to disapprove it 

as an RMO under BX Rule 4780(b) or 

disqualify it under BX Rule 4780(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 Executive Officer of BX. 

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 BX Rule 4780(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 System, or CTA/CQS, for 

Tape A and Tape B securities, and the 

Nasdaq UTP Plan for Tape C securities) 

as well as through proprietary Exchange 

data feeds.17 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, CQS 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. 

Retail Order Designations 

Under BX Rule 4780(f), an RMO can 

designate how a Retail Order interacts 

with available contra-side interest as 

provided in Rule 4702. 

A Type 1-designated Retail Order will 

attempt to execute against RPI Orders 

and any other orders on the Exchange 

Book with a price that is (i) equal to or 

better than the price of the Type-1 Retail 

Order and (ii) at least $0.001 better than 

the NBBO. A Type-1 Retail Order is not 

routable and will thereafter be 

cancelled. 

A Type 2-designated Retail Order will 

first attempt to execute against RPI 

Orders and any other orders on the 

Exchange Book with a price that is (i) 

equal to or better than the price of the 

Type-2 Retail Order and (ii) at least 

$0.001 better than the NBBO and will 

then attempt to execute against any 

other order on the Exchange Book with 

a price that is equal to or better than the 

price of the Type-2 Retail Order, unless 

such executions would trade through a 

Protected Quotation. A Type-2 Retail 

Order may be designated as routable. 

Priority and Order Allocation 

Under BX Rule 4780(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 BX Rule 4757. Any 

remaining unexecuted RPI interest 

remain 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 BX Rule 4780(f). The following 

example illustrates this method: 

Protected NBBO for security ABC is 

$10.00–$10.05 

Member 1 enters an RPI Order to buy 

ABC at $10.015 for 500 

Member 2 then enters an RPI Order to 

buy ABC at $10.02 for 500 

Member 3 then enters an RPI Order to 

buy ABC at $10.035 for 500 

An incoming Retail Order to sell 

1,000 shares of ABC for $10.00 executes 

first against Member 3’s bid for 500 at 

$10.035, because it is the best priced 

bid, then against Member 2’s bid for 500 

at $10.02, because it is the next best 

priced bid. Member 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 Member 2’s RPI 

Order to buy ABC at $10.02 is for 100. 

The incoming Retail Order to sell 1,000 

executes first against Member 3’s bid for 

500 at $10.035, because it is the best 

priced bid, then against Member 2’s bid 

for 100 at $10.02, because it is the next 

best priced bid. Member 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 Member 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 Member 3’s bid for 500 at 

$10.03, because it is the best priced bid, 

then against Member 2’s bid for 100 at 

$10.02, because it is the next best priced 

bid. Member 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. 

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.18 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,19 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 20 and 

operationally intuitive program, the 

Exchange believes that limiting the 


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35520 Federal Register / Vol. 83, No. 144 / Thursday, July 26, 2018 / Notices 

21A Retail Price Improvement Order is defined in 

BX Rule 4780(a)(3) by referencing BX Rule 4702 

and BX Rule 4702(b)(5) says that it is as an order 

type with a non-display order attribute that is held 

on the Exchange Book in order to provide liquidity 

at a price at least $0.001 better than the NBBO 

through a special execution process described in 

Rule 4780. 

22See Securities Exchange Act Release No. 73410 

(October 23, 2014), 79 FR 64447 at 64450 (SR–BX– 

2014–048). 

23RPI Approval Order, 79 FR at 72053. 

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. 

Rationale for Making the Program Pilot 

Permanent 

The Exchange established the RPI 

Program in an attempt to attract retail 

order flow to the Exchange by providing 

an opportunity 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 21 to interact with Retail 

Orders. Such competition promotes 

efficiency by facilitating the price 

discovery process and generating 

additional investor interest in trading 

securities, thereby promoting capital 

formation and retail investment 

opportunities. The Program will 

continue to be limited to trades 

occurring at prices equal to or greater 

than $1.00 per share. 

The Exchange believes, in accordance 

with its filing establishing the pilot 

Program, that BX 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.’’ 22 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 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 

(‘‘OTC’’) markets without ever reaching 

a public exchange.23 The Exchange 

believes that it has achieved its goal of 

attracting retail order flow to BX, and 

has resulted in a significant price 

improvement to retail investors through 

a competitive pricing process. The data 

demonstrates that the Program has 

continued to grow over time and the 

Exchange has not detected any negative 

impact to market quality The Exchange 

also has not received any complaints or 

negative feedback concerning the 

Program. 

As seen in the table below, RMO 

orders and shares executed have 

continued to rise since the introduction 

of the Program in December 2014. RMO 

executed share volume on BX accounted 

for 0.05% of total consolidated volume 

in eligible U.S. listed securities in Q4 

2017. Despite its size relative to total 

consolidated trading, however, the 

Program has continued to provide 

considerable price improvement to 

RMO orders each month with total price 

improvement during market hours from 

the start of the Program through May 

2018 totaling over $4.3 million. 

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 retail orders. 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. 

Month 

Total RMO 

orders 

(market hours) 

RMO shares 

executed 

(market hours) 

Total RMO 

price 

improvement 

(market hours) 

Sep-14 ......................................................................................................................................... 0 0 $0 

Oct-14 .......................................................................................................................................... 0 0 0 

Nov-14 ......................................................................................................................................... 0 0 0 

Dec-14 ......................................................................................................................................... 4,003 521,587 6,572 

Jan-15 .......................................................................................................................................... 66,903 9,723,791 55,480 

Feb-15 .......................................................................................................................................... 71,204 12,948,664 54,769 

Mar-15 .......................................................................................................................................... 62,216 10,818,042 49,232 

Apr-15 .......................................................................................................................................... 75,558 12,121,577 63,247 

May-15 ......................................................................................................................................... 98,859 16,723,281 81,268 

Jun-15 .......................................................................................................................................... 116,570 20,341,305 100,520 

Jul-15 ........................................................................................................................................... 133,917 22,310,364 111,657 

Aug-15 ......................................................................................................................................... 192,546 30,011,636 194,706 

Sep-15 ......................................................................................................................................... 141,496 23,199,937 110,415 

Oct-15 .......................................................................................................................................... 148,414 25,745,772 128,838 

Nov-15 ......................................................................................................................................... 123,267 20,788,967 120,037 

Dec-15 ......................................................................................................................................... 145,022 24,414,783 140,444 

Jan-16 .......................................................................................................................................... 162,025 30,010,815 181,781 

Feb-16 .......................................................................................................................................... 135,409 27,794,644 173,988 

Mar-16 .......................................................................................................................................... 93,729 17,688,230 88,900 

Apr-16 .......................................................................................................................................... 82,819 15,269,513 78,241 

May-16 ......................................................................................................................................... 70,192 13,336,738 71,145 

Jun-16 .......................................................................................................................................... 76,092 15,356,152 74,035 

Jul-16 ........................................................................................................................................... 65,121 13,532,803 59,305 

Aug-16 ......................................................................................................................................... 78,611 16,412,113 64,231 

Sep-16 ......................................................................................................................................... 84,240 17,368,907 46,792 

Oct-16 .......................................................................................................................................... 146,207 30,827,361 60,624 

Nov-16 ......................................................................................................................................... 103,046 19,744,407 60,391 

Dec-16 ......................................................................................................................................... 168,638 31,003,843 76,025 

Jan-17 .......................................................................................................................................... 140,203 23,474,999 58,887 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 144 / Thursday, July 26, 2018 / Notices 35521 

Month 

Total RMO 

orders 

(market hours) 

RMO shares 

executed 

(market hours) 

Total RMO 

price 

improvement 

(market hours) 

Feb-17 .......................................................................................................................................... 139,447 26,643,083 59,372 

Mar-17 .......................................................................................................................................... 161,154 30,595,963 73,250 

Apr-17 .......................................................................................................................................... 126,665 26,587,486 59,141 

May-17 ......................................................................................................................................... 143,927 31,368,371 78,979 

Jun-17 .......................................................................................................................................... 332,266 71,569,426 405,933 

Jul-17 ........................................................................................................................................... 210,309 39,061,892 155,669 

Aug-17 ......................................................................................................................................... 266,762 51,442,492 255,999 

Sep-17 ......................................................................................................................................... 154,846 29,831,646 69,634 

Oct-17 .......................................................................................................................................... 205,399 39,409,251 95,051 

Nov-17 ......................................................................................................................................... 370,064 94,703,209 169,738 

Dec-17 ......................................................................................................................................... 219,528 49,424,240 102,082 

Jan-18 .......................................................................................................................................... 248,419 47,080,453 113,956 

Feb-18 .......................................................................................................................................... 263,576 40,979,066 100,148 

Mar-18 .......................................................................................................................................... 597,460 40,896,277 98,779 

Apr-18 .......................................................................................................................................... 1,095,396 41,067,806 97,015 

May-18 ......................................................................................................................................... 1,031,527 31,843,167 81,199 

Total ...................................................................................................................................... 8,353,052 1,193,994,059 4,327,477 

The table below shows that between 

April 2017 and May 2018, roughly 50% 

of RMO orders were for 100 shares or 

less and around 70% of orders were for 

300 shares or less. Larger orders of 7,500 

shares or more accounted for 

approximately 2%, ranging from 0.62% 

to 3.09%. Although large order were a 

small percentage of total orders, they 

make up a significant portion of total 

shares ordered, ranging from 21.11% to 

46.22%. Orders of 300 shares or less, 

which accounted for the vast majority of 

total RMO orders, accounted for only 

between 4.81% and 15.38% of total 

shares ordered. 

DISTRIBUTION OF RMO ORDERS BY ORDER SIZE

Month <=100 

(%) 

101–300 

(%) 

301–500 

(%) 

501–1,000 

(%) 

1,001–2,000 

(%) 

2,001–4,000 

(%) 

4,001–7,500 

(%) 

7,500–15,000 

(%) 

>15,000 

(%) 

Apr-17 ...................... 49.50 18.53 8.67 9.47 5.69 3.84 2.24 1.38 0.69 

May-17 .................... 46.55 23.79 8.25 8.42 5.26 3.71 2.12 1.29 0.62 

Jun-17 ..................... 59.60 13.26 6.62 7.91 4.75 3.48 2.36 1.52 0.51 

Jul-17 ....................... 57.30 14.61 7.32 8.50 5.17 3.28 2.00 1.19 0.65 

Aug-17 ..................... 56.38 15.19 7.54 8.49 5.23 3.41 1.91 1.22 0.63 

Sep-17 ..................... 53.16 16.29 7.69 8.79 5.71 4.05 2.22 1.38 0.70 

Oct-17 ...................... 54.28 16.00 7.46 8.65 5.64 3.84 2.15 1.33 0.66 

Nov-17 ..................... 47.76 15.30 8.19 10.23 7.38 5.10 2.95 2.04 1.06 


sradovich on DSK3GMQ082PROD with NOTICESEN26JY18.001</GPH>
35522 Federal Register / Vol. 83, No. 144 / Thursday, July 26, 2018 / Notices 

Month <=100 

(%) 

101–300 

(%) 

301–500 

(%) 

501–1,000 

(%) 

1,001–2,000 

(%) 

2,001–4,000 

(%) 

4,001–7,500 

(%) 

7,500–15,000 

(%) 

>15,000 

(%) 

Dec-17 ..................... 48.66 15.30 8.27 10.34 6.99 4.82 2.79 1.87 0.98 

Jan-18 ..................... 53.60 14.93 7.73 9.20 5.98 4.04 2.28 1.53 0.71 

Feb-18 ..................... 58.44 14.58 7.14 8.02 4.93 3.29 1.91 1.14 0.55 

Mar-18 ..................... 55.29 17.97 8.63 8.38 5.12 2.64 1.07 0.61 0.28 

Apr-18 ...................... 54.52 19.12 9.04 8.31 5.02 2.50 0.87 0.42 0.19 

May-18 .................... 50.44 20.21 9.89 9.10 5.77 2.88 0.96 0.50 0.26 

DISTRIBUTION OF RMO SHARES ORDERED BY ORDER SIZE

Month <=100 

(%) 

101–300 

(%) 

301–500 

(%) 

501–1,000 

(%) 

1,001–2,000 

(%) 

2,001–4,000 

(%) 

4,001–7,500 

(%) 

7,500–15,000 

(%) 

>15,000 

(%) 

Apr-17 ...................... 3.04 4.63 4.42 8.78 10.06 12.89 13.89 16.06 26.23 

May-17 .................... 3.28 6.49 4.49 8.34 9.98 13.38 14.28 16.05 23.71 

Jun-17 ..................... 2.47 3.78 3.95 8.89 10.15 13.74 17.06 20.07 19.88 

Jul-17 ....................... 2.82 4.20 4.36 9.31 10.78 12.94 14.44 16.47 24.67 

Aug-17 ..................... 2.80 4.28 4.42 9.21 10.84 13.21 13.55 16.63 25.08 

Sep-17 ..................... 2.88 4.16 3.98 8.36 10.50 14.04 14.17 16.78 25.14 

Oct-17 ...................... 2.89 4.31 4.09 8.73 11.02 14.04 14.49 17.11 23.32 

Nov-17 ..................... 1.80 3.01 3.26 7.48 10.45 13.51 14.27 18.89 27.33 

Dec-17 ..................... 2.00 3.17 3.48 8.02 10.45 13.46 14.18 18.35 26.91 

Jan-18 ..................... 2.50 3.78 4.01 8.82 11.05 13.94 14.30 18.35 23.26 

Feb-18 ..................... 3.25 4.52 4.52 9.34 11.08 13.87 14.53 16.86 22.02 

Mar-18 ..................... 5.73 6.96 6.80 12.44 14.90 14.65 11.00 12.34 15.17 

Apr-18 ...................... 7.27 8.11 7.84 13.68 16.23 15.46 10.29 9.51 11.61 

May-18 .................... 6.31 7.54 7.50 13.09 16.40 15.66 10.00 9.80 13.70 

DISTRIBUTION OF RMO SHARES EXECUTED BY ORDER SIZE

Month <=100 

(%) 

101–300 

(%) 

301–500 

(%) 

501–1,000 

(%) 

1,001–2,000 

(%) 

2,001–4,000 

(%) 

4,001–7,500 

(%) 

7,500–15,000 

(%) 

>15,000 

(%) 

Apr-17 ...................... 11.39 15.32 11.28 16.25 12.77 10.87 9.27 9.25 3.61 

May-17 .................... 10.86 20.10 10.47 13.77 11.37 10.58 8.96 9.44 4.45 

Jun-17 ..................... 7.65 10.05 8.48 14.31 11.28 11.85 12.00 18.69 5.68 

Jul-17 ....................... 10.07 12.67 10.18 15.57 12.94 11.79 9.97 10.27 6.56 

Aug-17 ..................... 9.93 12.98 10.89 17.05 14.16 11.94 9.38 8.23 5.45 

Sep-17 ..................... 11.36 13.46 10.12 16.01 13.80 13.07 8.60 8.61 4.97 

Oct-17 ...................... 10.83 13.37 10.07 16.40 14.46 12.48 9.47 7.96 4.96 

Nov-17 ..................... 7.04 10.64 10.14 19.81 18.19 13.96 9.04 7.10 4.09 

Dec-17 ..................... 8.25 11.27 10.37 19.49 17.05 13.33 8.82 7.13 4.28 

Jan-18 ..................... 9.93 12.43 10.92 19.37 16.07 12.66 8.49 6.49 3.64 

Feb-18 ..................... 12.63 14.31 11.81 19.45 15.07 11.22 6.81 5.55 3.16 

Mar-18 ..................... 13.92 15.35 11.92 19.14 14.77 10.05 6.35 5.49 3.00 

Apr-18 ...................... 14.81 15.76 11.86 18.35 13.47 10.21 6.75 5.41 3.39 

May-18 .................... 13.65 15.78 12.38 18.77 13.92 10.57 6.25 5.27 3.40 

The table below shows the average 

and median sizes of RMO removing 

orders. 

AVERAGE AND MEDIAN RMO SIZES

Year 

RMO taking 

order size 

Avg Median 

Apr-17 ...................................................................................................................................................................... 863 111 

May-17 ..................................................................................................................................................................... 802 180 

Jun-17 ...................................................................................................................................................................... 743 82 

Jul-17 ....................................................................................................................................................................... 739 100 

Aug-17 ..................................................................................................................................................................... 753 100 

Sep-17 ..................................................................................................................................................................... 841 100 

Oct-17 ...................................................................................................................................................................... 793 100 

Nov-17 ..................................................................................................................................................................... 1,103 150 

Dec-17 ..................................................................................................................................................................... 1,044 132 

Jan-18 ...................................................................................................................................................................... 844 100 

Feb-18 ...................................................................................................................................................................... 690 100 

Mar-18 ...................................................................................................................................................................... 512 100 

Apr-18 ...................................................................................................................................................................... 454 100 

May-18 ..................................................................................................................................................................... 517 100 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 144 / Thursday, July 26, 2018 / Notices 35523 

24Both RMO and non-RMO execution quality 

values are weighted by RMO volume and a very 

small number of extreme outlier symbol-day stats 

have been removed from the analysis. 

The data provided by the Exchange 

describes a valuable service that 

delivers considerable price 

improvement in a transparent and wellregulated environment. The Program 

represents just a fraction of retail orders, 

most of which are executed offexchange by a wide range of order 

handling services that have 

considerably more market share and 

which operate pursuant to different 

rules and regulatory requirements. BX 

found no data or received any customer 

feedback that indicated any negative 

impact of the Program on overall market 

quality. 

As discussed more fully below, the 

reports and assessments provided by the 

Exchange to the SEC have covered (i) 

the economic impact of the Program on 

the entire market; (ii) the economic 

impact of the Program on execution 

quality; (iii) whether only eligible 

participants are accessing Program 

liquidity; (iv) whether the Program is 

attracting retail participants; (v) the net 

benefits of the Program on participants; 

(vi) the overall success in achieving 

intended benefits; and (vii) whether the 

Program can be improved. 

1. Economic Impact of the RPI Program 

on the Entire Market 

The Exchange detected no negative 

impact on BX quote quality from the 

Program. Because the size of the 

Program is within the normal day-to-day 

fluctuations of market share between 

different venues, it is impossible to 

detect a correlation with a decline of 

order flow in another venue or order 

type. The Program did not negatively 

affect the overall quality of the market 

by causing liquidity-providing orders to 

move from the Exchange to the Program. 

The Program also did not diminish the 

quality of (or increase the toxicity of) 

other order types arriving at the 

Exchange. 

The Program is intended to attract offexchange order flow back to transparent 

and well-regulated exchange trading 

systems. Given current market structure, 

BX believes that the Program improves 

overall market quality by attracting 

desirable order flow and liquidityproviders back to the vigorous order 

competition available on-exchange. 

Using correlation tests and 

visualization the Exchange failed to 

detect a significant relationship between 

the amount of RMO volume traded on 

BX and measurements of overall market 

quality. The results of correlation tests 

against 30-second realized spreads show 

minimal to no correlation. 

Additionally, through time series 

visualization BX detects no significant 

changes in BX market quality measures 

during the life of the pilot Program. 

Metrics including quoted spreads, 

volatility, realized spreads, and depth 

were examined using executions on BX 

and the NBBO weighted by volume 

executed on BX. Both quoted and 

realized spreads did not show any 

dramatic changes following the 

implementation of the Program or as it 

gained traction over time. Consolidated 

trade-to-trade volatility appears to have 

decreased slightly in the middle of the 

Program. 

2. Economic Impact of the BX RPI 

Program on Execution Quality 

To assess the execution quality of the 

Program, BX focused on symbol-day 

combinations when during market 

hours: (i) An RMO execution occurred 

on BX, (ii) a non-RMO execution 

occurred on BX, and (iii) a tape-eligible 

trade occurred on BX. Symbol day 

combinations are aggregated to overall 

daily statistics by either a simple 

average or by volume weighting by RMO 

executed volume during market hours.24

This results in the number and identity 

of symbols captured in each daily 

average changing from day to day. Using 

this data, the Exchange examined 

whether the economic outcomes for 

RMO trades differs from non-RMO 

trades and/or all trades. 

When comparing average price 

improvement for RMO and non-RMO 

executions for a subset of 100 stocks 

with the largest number of RMO shares 

executed, the price improvement seen 

in RMO and non-RMO trades is 

comparable over the life of the Program. 

When volume weighting the average 

price improvement by RMO volume to 

emphasize those stock/day 

combinations with the highest volume 

traded in RMO, average price 

improvement on BX for both RMO and 

non-RMO trades appear generally 

comparable over time, with RMO price 

improvement generally beating nonRMO. Note that this price improvement 

measure does not take rebates into 

account. 

In the subset of active RMO symbols, 

RMO volume-weighted effective and 

realized spreads for RMO and all 

executions, which includes RMO 

executions, are generally comparable 

throughout the duration of the Program. 

Similar to regular, liquidity-taking 

orders on BX, the Program offers 

inverted pricing where RMO orders 

receive a rebate (on top of the price 

improvement they receive) when 

executing against RPI liquidity, while 

there is a fee associated with RPI orders 

which post non-displayed, priceimproving liquidity. RPI orders are 

charged $0.0025 per share. Retail Orders 

currently receive a rebate of $0.0021 per 

share when executing against RPI 

liquidity, a rebate of $0.0000 per share 

when executing against other hidden, 

price-improvising liquidity, and a rebate 

of $0.0017 per share when executing 

against other displayed liquidity on the 

BX book. 

3. Are Only Eligible Participants 

Accessing Program Liquidity 

Only RMOs that have been approved 

by BX can enter RMO orders that access 

the Program liquidity, and the BX 

trading system does not allow non-RMO 

orders to access RPI providing orders. 

BX BX [sic] trading system does not 

allow non-RMO orders to access RPI 

providing orders. BX Rule 4780(c) 

enables BX at its sole discretion to 

disqualify RMO members that submit 

orders that fail to meet any of the 

requirements of the rule. 

4. Is the Program Attracting Retail 

Participation 

The Program successfully attracted 

retail orders to the Exchange and 

participation in the Program has 

continued to increase over time. The 

Exchange believes that the success of 

the Program is in that it provided 

tangible price improvement and 

transparency to retail investors through 

a competitive pricing process. 

Brokers route retail orders to a wide 

range of different trading systems. The 

Program offers a transparent and wellregulated option providing meaningful 

competition and price improvement. BX 

believes that it has achieved its goal of 

attracting retail order flow to BX and, as 

stated above, it has resulted in a 

significant price improvement to retail 

investors through a competitive pricing 

process. The Exchange also has not 

detected any negative impact to market 

quality as the Program has continued to 

grow over time. 


sradovich on DSK3GMQ082PROD with NOTICES
35524 Federal Register / Vol. 83, No. 144 / Thursday, July 26, 2018 / Notices 

On average, an RMO execution 

continues to get more price 

improvement than the minimum $0.001 

price improvement required of an RPI 

liquidity-providing order in the 

Program, and over time the price 

improvement seen on BX in non-RMO 

orders does not appear to be negatively 

impacted by the introduction of the 

Program. 

5. Net Benefits of the Program on 

Participants 

From the beginning of 2017 through 

January 2018, 97.9% of RMO shares 

ordered and 98.5% of RMO shares 

executed were RMO Type 1 orders, 

while the remainder were RMO Type 2 

orders. Type 1 orders had an aggregated 

fill rate of 19.2%, while Type 2 orders 

had a fill rate of 4.1% in this timeframe. 

Of the RMO Type 1 executions, 94.9% 

of shares were executed against RPI 

liquidity and 5.1% against other nonRPI price-improving hidden liquidity. 

Of the RMO Type 2 executions, 23.7% 

of shares were executed against RPI 

liquidity, 14% against other non-RPI 

price-improving hidden liquidity, and 

62.3% against other liquidity on the BX 

book. None of the Type 2 orders entered 

included routing instructions to allow 

for executions away from BX. 

The Exchange believes that the 

Program through retail order 

segmentation does create greater retail 

order flow competition and thereby 

increases the amount of this flow to BX. 

This helps to ensure that retail investors 

benefit from the price improvement that 

liquidity providers are willing to 

provide. The Program promotes 

competition for retail order flow by 

allowing Exchange members to submit 

RPI Orders to interact with Retail 

Orders. Such competition promotes 

efficiency by facilitating the price 

discovery process and generating 

additional investor interest in trading 

securities, thereby promoting capital 

formation. 

The Program also promotes 

competition for retail order flow among 

execution venues, and this benefits 

retail investors by creating additional 

price improvement opportunities for 

marketable retail order flow, most of 

which is currently executed in the OTC 

markets without ever reaching a public 

exchange. The Exchange believes that it 

has achieved its goal of attracting retail 

order flow to BX, and has resulted in a 

significant price improvement to retail 

investors through a competitive pricing 

process. The data also demonstrates that 

the Program has continued to grow over 

time and the Exchange has not detected 

any negative impact to market quality. 

6. Overall Success in Achieving 

Intended Benefits 

The Program has successfully 

demonstrated the effectiveness of a 

transparent, on-exchange retail order 

price improvement functionality, and 

while small relative to total 

consolidated volume, has succeeded in 

achieving its goals of attracting retail 

order flow and providing those orders 

with price improvement totaling tens of 

thousands of dollars each month. 

The Program provides additional 

competition to the handling of retail 

orders. The additional opportunity for 

meaningful price improvement provides 

pressure on other more established 

venues to increase the price 

improvement that they provide. By 

doing this, the Program has a greater 

positive effect than the market share 

would directly indicate. 

7. Can the Program Be Improved 

The Program provides a transparent, 

well-regulated, and competitive venue 

for retail orders to receive substantial 

price improvement. The size of the 

Program is somewhat limited by the 

rules that prevent BX from matching 

features offered by non-exchange 

trading venues. Nonetheless, the 

Exchange believes the Program is a 

success and it will continue to look for 

ways to further innovate and improve 

the Program. The Exchange believes that 

making the pilot permanent is 

appropriate and through this filing seeks 

to make permanent the current 

operation of the Program. 


sradovich on DSK3GMQ082PROD with NOTICESEN26JY18.002</GPH>
Federal Register / Vol. 83, No. 144 / Thursday, July 26, 2018 / Notices 35525 

25 15 U.S.C. 78f. 

26 15 U.S.C. 78f(b)(5). 27 17 CFR 200.30–3(a)(12). 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the provisions of Section 6 of the Act,25

in general, and with Section 6(b)(5) of 

the Act,26 in particular, in that it is 

designed to promote just and equitable 

principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general to protect investors and the 

public interest and not to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers. 

The Exchange believes that making 

the pilot Program 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, BX has provided data and 

analysis to the Commission, and this 

data and analysis, as well as the further 

analysis in this filing, shows that the 

Program has operated as intended and is 

consistent with the Act. 

Additionally, the Exchange believes 

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 the competition promoted by 

the Program facilitates the price 

discovery process and potentially 

generate additional investor interest in 

trading securities. Making the pilot 

Program permanent will allow the 

Exchange to continue to provide the 

Program’s benefits to retail investors on 

a permanent basis and maintain the 

improvements to public price discovery 

and the broader market structure. The 

data provided by BX to the SEC staff 

demonstrates that the Program provided 

tangible price improvement and 

transparency to retail investors through 

a competitive pricing process. 

As described below in BX’s statement 

regarding the burden on competition, 

the Exchange also believes that it is 

subject to significant competitive forces. 

For all of these reasons, the Exchange 

believes that the proposal 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, as amended. 

BX believes that making the Program 

permanent would continue to enhance 

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 

equal to what would be provided under 

OTC internalization arrangements, 

thereby benefiting retail investors and 

increasing competition between 

execution venues. BX also believes that 

making the Program permanent will 

promote competition between execution 

venues operating their own retail 

liquidity programs. Such competition 

will lead to innovation within the 

market, thereby increasing the quality of 

the national market system. 

Additionally, 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, BX 

believes that the proposed rule change 

reflects this competitive environment. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

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 (i) 

as the Commission may designate up to 

90 days of such date 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 shall: (a) By order 

approve or disapprove such proposed 

rule change, or (b) institute proceedings 

to determine whether the proposed rule 

change should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

BX–2018–025 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–BX–2018–025. 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 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

offices 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–BX–2018–025, and should 

be submitted on or before August 16, 

2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.27

Brent J. Fields, 

Secretary. 

[FR Doc. 2018–15942 Filed 7–25–18; 8:45 am] 

BILLING CODE 8011–01–P 


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