[Federal Register Volume 89, Number 11 (Wednesday, January 17, 2024)]
[Notices]
[Pages 2993-3003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-00712]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99311; File No. SR-CboeBYX-2023-020]


Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Modify Rule 11.24 To Introduce an 
Enhanced RPI Order and Expand Its Retail Price Improvement Program To 
Include Securities Priced Below $1.00

January 10, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 27, 2023, Cboe BYX Exchange, Inc. (the ``Exchange'' or 
``BYX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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 modify Rule 11.24 to introduce an Enhanced 
RPI Order and expand its Retail Price Improvement program to include 
securities priced below $1.00. The text of the proposed rule change is 
provided in Exhibit 5.
    The text of the proposed rule change is available on the Exchange's 
website (http://markets.cboe.com/us/equities/regulation/rule_filings/byx/), at the Exchange's Office of the Secretary, and at the 
Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to amend Rule 11.24 to enhance the Exchange's 
Retail Price Improvement Program (the ``Program'') for the benefit of 
retail investors. Specifically, the Exchange proposes to introduce a 
new Retail Price Improvement Order type (``RPI Order'') \3\ to be known 
as an ``Enhanced RPI Order.'' The proposed Enhanced RPI Order will 
allow retail liquidity providers to post orders at their limit price 
but have the opportunity to provide a greater amount of price 
improvement as compared to other resting orders on the same side of the 
BYX Book with higher priority in order to execute with an incoming 
Retail Order \4\ by exercising at a price within their established 
step-up range. The proposed change is designed to provide retail 
investors with additional opportunities for meaningful price

[[Page 2994]]

improvement by introducing a new order type that will ``step-up'' its 
price against orders with a higher priority resting on the BYX Book.\5\ 
Additionally, the Exchange proposes to expand the Program to securities 
priced below $1.00.\6\
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    \3\ See Rule 11.24(a)(3) (``Retail Price Improvement Order'').
    \4\ See Rule 11.24(a)(2) (``Retail Order'').
    \5\ See Rule 1.5(e) (``BYX Book''). The ``BYX Book'' is the 
System's electronic file of orders. The ``System'' shall mean the 
electronic communications and trading facility designated by the 
Board through which securities orders of Users are consolidated for 
ranking, execution, and when applicable, routing away. See Rule 
1.5(aa) (``System'').
    \6\ See Rule 11.24(h). The Program is currently limited to 
trades occurring at prices equal to or greater than $1.00 per share.
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Background
    In November 2012, the Exchange received approval to operate its 
Program on a pilot basis.\7\ The Program operated under a pilot basis 
until September 30, 2019, when the Program was approved on a permanent 
basis.\8\ In addition, the Exchange was granted a limited exemption 
from the Sub-Penny Rule, as well as Regulation NMS Rule 602 (Quote 
Rule) No Action relief \9\ to operate the Program.\10\ The Program is 
currently designed to attract Retail Orders to the Exchange and allow 
such order flow to receive potential price improvement. The Program is 
currently limited to trades occurring at prices equal to or greater 
than $1.00 per share.\11\ Under the Program, a class of market 
participant called a Retail Member Organization (``RMO'') \12\ is 
eligible to submit certain retail order flow (``Retail Orders'') to the 
Exchange. Users \13\ are permitted to provide potential price 
improvement for Retail Orders \14\ in the form of non-displayed 
interest that is better than the national best bid that is a Protected 
Quotation (``Protected NBB'') or the national best offer that is a 
Protected Quotation (``Protected NBO'', and together with the Protected 
NBB, the ``Protected NBBO'').\15\
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    \7\ See Securities Exchange Act Release No. 68303 (November 27, 
2012), 77 FR 71652 (December 3, 2012), SR-BYX-2012-019 (``Pilot 
Approval Order'').
    \8\ See Securities Exchange Act Release No. 87154 (September 30, 
2019), 84 FR 53183 (October 4, 2019), SR-CboeBYX-2019-014 (``RPI 
Approval Order'').
    \9\ See Letter from David Shillman to Eric Swanson (November 27, 
2012) (``No Action Letter''), available at https://www.sec.gov/divisions/marketreg/mr-noaction/byx-112712-602.pdf.
    \10\ Supra note 8 at 53185.
    \11\ Supra note 6. The Exchange will periodically notify the 
membership regarding the securities included in the Program through 
an information circular. The Exchange is proposing to make the 
Program available to all securities (discussed infra).
    \12\ See Rule 11.24(a)(1). A ``Retail Member Organization'' or 
``RMO'' is a Member (or a division thereof) that has been approved 
by the Exchange under Rule 11.24 to submit Retail Orders.
    \13\ See Rule 1.5(cc). A ``User'' is defined as any member or 
sponsored participant of the Exchange who is authorized to obtain 
access to the System.
    \14\ Supra note 4. A ``Retail Order'' is defined as an agency or 
riskless principal order that originates from a natural person and 
is submitted to the Exchange by an RMO, provided that no change is 
made to the terms of the order with respect to price or side of 
market and the order does not originate from a trading algorithm or 
any computerized methodology.
    \15\ See Rule 1.5(t). The term ``Protected Quotation'' has the 
same meaning as is set forth in Regulation NMS Rule 600(b)(71). The 
terms Protected NBB and Protected NBO are defined in BYX Rule 
1.5(s). The Protected NBB is the best-priced protected bid and the 
Protected NBO is the best-priced protected offer. Generally, the 
Protected NBB and Protected NBO and the national best bid (``NBB'') 
and national best offer (``NBO'', together with the NBB, the 
``NBBO'') will be the same. However, a market center is not required 
to route to the NBB or NBO if that market center is subject to an 
exception under Regulation NMS Rule 611(b)(1) or if such NBB or NBO 
is otherwise not available for an automatic execution. In such case, 
the Protected NBB or Protected NBO would be the best-priced 
protected bid or offer to which a market center must route interest 
pursuant to Regulation NMS Rule 611.
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    The Exchange developed this Program with the goal of incentivizing 
RMOs to execute their Retail Orders on the Exchange, rather than off-
exchange venues, by providing Retail Orders with greater access to 
potential opportunities for price improvement on the Exchange. However, 
as noted by the Commission, even with the presence of retail liquidity 
programs (``RLPs'') offered by Cboe and other national securities 
exchanges,\16\ the great majority of marketable orders of retail 
investors continue to be sent to wholesalers.\17\ Indeed, as noted in 
the Commission's recent rule proposal related to minimum pricing 
increments, RLPs have not yet attracted a significant volume of retail 
order flow.\18\ In fact, since RLPs have been adopted, the percentage 
of on-exchange share volume has continued to decrease from 
approximately 71% to approximately 56% as of November 2023.\19\
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    \16\ See, e.g., NYSE and NYSE Arca Retail Liquidity programs, 
which promote cost savings through price improvement for individual 
investors provided by retail liquidity providers that submit non-
displayed interest priced better than the best protected best bid or 
protected best offer. Available at https://www.nyse.com/markets/liquidity-programs. See also IEX Retail Program, which incentivizes 
midpoint liquidity for retail orders through the use of retail 
liquidity provider orders. Available at https://www.iexexchange.io/products/retail-program. See also Nasdaq BX Retail Price 
Improvement, which allows retail orders to interact with price-
improving liquidity. Available at https://www.nasdaqtrader.com/content/BXRPIfs.pdf.
    \17\ See Securities Exchange Act Release No. 96495 (December 14, 
2022), 88 FR 128 (January 3, 2023) (``Order Competition Rule'') at 
144.
    \18\ See Securities Exchange Act Release No. 96494 (December 14, 
2022), 87 FR 80266 (December 29, 2022) (``Tick Size Proposal'') at 
80273.
    \19\ Source: Cboe internal data.
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    Accordingly, the Exchange now seeks to enhance its current Program 
by offering retail liquidity providers an optional Enhanced RPI Order 
type. The Exchange believes the Enhanced Order type will incentivize 
additional retail liquidity provision by enabling RPI liquidity 
providers to submit an order that is ranked at a less aggressive price 
than the step-up range at which the provider is willing to execute, but 
have the opportunity to ``step up'' to provide a greater amount of 
price improvement as compared to other higher priority resting orders 
on the same side of the BYX Book in order to execute with an incoming 
contra-side Retail Order. As discussed in more detail, below, the 
Enhanced RPI Order type will have price priority over resting orders 
when its step-up range allows for additional price improvement when a 
contra-side Retail Order is submitted to the Exchange. With the deeper 
pool of retail liquidity-providing orders, the Exchange believes that 
RMOs will see increased opportunities for on-exchange price improvement 
and seek to execute more of their Retail Orders on the Exchange.
Proposal
    The Exchange proposes to amend Rule 11.24(a) to include the 
proposed Enhanced RPI Order, which allows a retail liquidity provider 
to post a limit order to the Exchange, but also the opportunity to 
``step-up'' its price within their defined step-up range by providing a 
greater amount of price improvement as compared to orders with higher 
priority that are resting on the same side of the BYX Book in order to 
execute against an incoming Retail Order seeking to remove liquidity. 
An Enhanced RPI Order is designed to be entered with a limit price, but 
must also include a step-up range, which is the most aggressive price 
it is willing to execute against a contra-side Retail Order. If the 
Enhanced RPI Order includes a step-up range that improves against the 
price of the highest-ranked resting order on the same side of the BYX 
Book, the Enhanced RPI Order will be given price priority over the 
highest-ranked resting order. In order for an Enhanced RPI Order to 
receive price priority, the Enhanced RPI Order must be able to provide 
a greater amount of price improvement to an incoming contra-side Retail 
Order than would otherwise be available by stepping up to the next 
valid tick increment.\20\
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    \20\ The Exchange notes that the minimum amount of required 
price improvement will vary between $0.001 and $0.01, based on the 
order types resting on the BYX Book (discussed infra).

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[[Page 2995]]

    The Exchange believes this proposed change would further the 
purpose of the Program to attract retail marketable order flow to the 
Exchange, while also increasing opportunities for price improvement. By 
offering the Enhanced RPI Order, the Exchange has created an 
enhancement to its current Program that offers a greater incentive for 
liquidity providers to provide liquidity eligible to execute against 
marketable retail order flow on the Exchange. The Enhanced RPI Order 
would allow Users to post orders at their limit price but step-up to a 
more aggressive price in order to execute against marketable retail 
order flow that is less prone to adverse selection. Marketable retail 
order flow, in turn, would receive price improvement greater than what 
is currently available under the Program. The Exchange believes that 
the proposed change will lead to increased participation in the Program 
by Users seeking to provide liquidity for marketable retail order flow, 
which in turn will attract additional marketable retail order flow to 
the Exchange in search of price improvement opportunities.
    The Exchange also proposes to introduce Rule 11.24(a)(5) in order 
to define the term RPI Interest as either RPI Orders or Enhanced RPI 
Orders. Additionally, the Exchange proposes to amend Rule 11.24(g) in 
order to describe order priority for Enhanced RPI Orders. The Exchange 
also proposes to make corresponding changes within Rule 11.24 to 
replace certain references to RPI Order with the term RPI Interest in 
order to have language inclusive of both RPI Orders and Enhanced RPI 
Orders. Further, the Exchange proposes to delete Rule 11.24(h), as the 
Exchange proposes to expand the Program to sub-dollar securities. The 
Exchange will announce that the RPI Program has expanded to all 
securities in a Trade Desk notice, and periodic updates will no longer 
be required. The Exchange also proposes to renumber Rule 11.24(i) in 
conjunction with the deletion of Rule 11.24(h).
    Additionally, with the introduction of the Enhanced RPI Order, the 
Exchange proposes to amend Rule 11.24(a)(2) to permit a Retail Order to 
be entered as a Mid-Point Peg Order.\21\ The Exchange also proposes to 
amend Rule 11.24(a)(2) to better describe that the time-in-force 
requirement for all Retail Orders, including those entered as a Mid-
Point Peg Order, is required to be Immediate or Cancel (``IOC''). The 
Exchange believes that allowing the Mid-Point Peg Order instruction on 
a Retail Order will benefit Users who choose to submit Retail Orders 
because it will permit a Retail Order to guarantee price improvement at 
the midpoint or better. The Mid-Point Peg Order instruction will be 
optional, and not required for Users of Retail Orders.
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    \21\ See Rule 11.9(c)(9). A Mid-Point Peg Order is a limit order 
that, after entry into the System, the price of the order is 
automatically adjusted by the System in response to changes in the 
NBBO to be pegged to the mid-point of the NBBO, or, alternatively, 
pegged to the less aggressive of the midpoint of the NBBO or one 
minimum price variation inside the same side of the NBBO as the 
order.
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Current RPI Orders
    Rule 11.24(a)(3) currently defines an RPI Order as ``non-displayed 
interest on the Exchange that is priced better than the Protected NBB 
or Protected NBO by at least $0.001 and that is identified as such.'' 
\22\ The Exchange now proposes to amend the definition of RPI Order to 
more accurately reflect how an RPI Order may be entered by defining an 
RPI Order as ``non-displayed interest on the Exchange that is eligible 
to execute at prices better than the Protected NBB or Protected NBO by 
at least $0.001 in securities priced at or above $1.00 and by at least 
$0.0001 in securities priced below $1.00 and that is identified as 
such.'' As the Exchange is also proposing to expand the Program to 
prices below $1.00, more specificity is required regarding the minimum 
pricing increment. Further, the Exchange is clarifying that an RPI 
Order may be entered at any price but may execute only at prices better 
than the Protected NBB or Protected NBO.
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    \22\ Supra note 3.
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    As stated in Rule 11.24(a)(3), RPI Orders are non-displayed and are 
ranked in accordance with Rule 11.12(a). Furthermore, under Rule 
11.24(g), competing RPI Orders in the same security are ranked and 
allocated according to price then time of entry into the System. 
Executions occur in price/time priority in accordance with Rule 11.12. 
Any remaining unexecuted RPI interest remains available to interact 
with other incoming Retail Orders if such interest is at an eligible 
price. Any remaining unexecuted portion of the Retail Order will cancel 
or execute in accordance with Rule 11.24(f). The following example 
illustrates this method:

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

    An incoming Retail Order to sell ABC for 1,000 shares executes 
first against User 3's bid for 500 shares at $10.035, because it is the 
best priced bid, then against User 2's bid for 500 shares at $10.02, 
because it is the next best priced bid. User 1 is not filled because 
the entire size of the Retail Order to sell 1,000 shares is depleted. 
The Retail Order executes against RPI Orders in price/time 
priority.\23\
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    \23\ See Rule 11.24(f) for additional examples of priority and 
order allocation in the current Program.
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Enhanced RPI Order
    The Exchange now proposes to introduce a new type of RPI Order that 
Users seeking to provide RPI liquidity may utilize on an optional 
basis. The proposed Enhanced RPI Order will be eligible to obtain price 
priority over resting orders in the same security on the same side of 
the BYX Book in order to execute against a Retail Order by including a 
step-up range when entered. Enhanced RPI Orders will be ranked in 
accordance with proposed Rule 11.24(g)(2) (discussed infra). In order 
to effect the proposed change, the Exchange proposes to introduce Rule 
11.24(a)(4), which would define an Enhanced RPI Order as:
    <bullet> An ``Enhanced Retail Price Improvement Order'' or 
``Enhanced RPI Order'' consists of non-displayed interest on the 
Exchange that is eligible to execute against contra-side Retail Orders. 
An Enhanced RPI Order will be ranked at its limit price and must also 
include a step-up range, which is the maximum price (for buy orders) or 
minimum price (for sell orders) at which the Enhanced RPI Order is 
willing to execute. An Enhanced RPI Order may execute at: (i) its limit 
price; (ii) for securities priced at or above $1.00, at a price within 
the step-up range that is able to improve upon the price of a same-side 
resting order on the BYX Book by stepping up to the next half cent or 
full cent, and for securities priced below $1.00 by stepping up to the 
next valid tick increment; or (iii) at a price within the step-up range 
when the limit price of a contra-side Retail Order is within the step-
up range. An Enhanced RPI Order may be a primary pegged order or a 
limit order. The System will monitor whether Enhanced RPI interest, 
including the step-up range, and adjusted by any offset and subject to 
the ceiling or floor price, is eligible to interact with incoming 
Retail Orders. An Enhanced RPI Order (the buy or sell interest, the 
step-up range, the offset, and the ceiling or floor) remains non-
displayed in its entirety. Any User is permitted, but not required,

[[Page 2996]]

to submit Enhanced RPI Orders. An Enhanced RPI Order may be an odd lot, 
round lot or mixed lot. An Enhanced RPI Order shall have priority as 
described in Rule 11.24(g)(2).
    The price of an Enhanced RPI Order will be determined by a User's 
entry of the following into the Exchange: (1) Enhanced RPI buy or sell 
interest; (2) the step-up range; (3) an offset, if any; and (4) a 
ceiling or floor price, if any. The step-up range of an Enhanced RPI 
Order is the maximum amount above the order's limit price at which a 
User is willing to execute. If the Enhanced RPI Order can improve upon 
resting liquidity on the same side of the BYX Book by stepping up to 
the nearest whole cent tick or half cent midpoint tick, it will receive 
price priority over the resting liquidity on the BYX Book. An Enhanced 
RPI Order, however, will not improve upon the price of another resting 
Enhanced RPI Order to receive price priority.
Enhanced RPI Order Priority
    As discussed above, the proposed Enhanced RPI Order will be ranked 
at its limit price, which is less aggressive than its step-up range. 
With the introduction of the proposed Enhanced RPI Order, the Exchange 
proposes to reorganize Rule 11.24(g) into Rule 11.24(g)(1) and (2). 
Proposed Rule 11.24(g)(1) would contain the existing rule text that 
describes order priority with respect to RPI Orders, which the Exchange 
does not propose to amend. Proposed Rule 11.24(g)(2) would describe 
order priority with respect to Enhanced RPI Orders.
    An Enhanced RPI Order will be ranked and allocated according to its 
limit price then time of entry into the System. The Exchange proposes, 
however, that an Enhanced RPI Order will be granted price priority over 
orders resting on the BYX Book in the event that the Enhanced RPI Order 
is able to provide a greater amount of price improvement to an incoming 
contra-side Retail Order by stepping up to the next half cent \24\ or 
full cent (for securities priced at or above $1.00) or the next valid 
tick increment (for securities priced below $1.00). The step-up range 
of an Enhanced RPI Order will be utilized to determine price priority 
when: (1) the range is needed to gain priority over a resting order 
with higher order book priority that is not an Enhanced RPI Order; (2) 
in situations where: (a) a contra-side Retail Order is entered at a 
less aggressive price than the ranked price of the Enhanced RPI Order 
and all other resting liquidity and (b) the Enhanced RPI Order's step-
up range is equal to or more aggressively priced than the Retail 
Order's limit price; and (3) to determine order book priority when 
multiple Enhanced RPI Orders are resting on the BYX Book and are 
eligible to trade ahead of higher priority orders resting on the BYX 
Book that are not Enhanced RPI Orders. The Exchange notes when multiple 
Enhanced RPI Orders are resting on the BYX Book. there are no other 
resting orders on the same side of the BYX Book with higher priority, 
and a contra-side Retail Order is entered at a price equal to or more 
aggressive than the highest-priced Enhanced RPI Order resting on the 
BYX Book, the Enhanced RPI Orders will execute in standard price/time 
priority according to their limit price rather than utilize the step-up 
range to determine order book priority.
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    \24\ Discussed infra Examples 2 and 5. An Enhanced RPI Order may 
only need to step-up one half cent in order to provide meaningful 
price improvement in situations where the best-priced resting order 
is ranked at a full cent.
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    The Exchange has included the examples below to show how order 
priority with an Enhanced RPI Order will be determined. In the examples 
below, the Retail Liquidity Identifier (discussed infra) is presumed to 
be displayed unless stated otherwise.
Example 1 \25\
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    \25\ See proposed Rule 11.24(g)(2)(A).
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    In order to illustrate priority of an Enhanced RPI Order over other 
non-displayed orders resting on the BYX Book, consider the following 
example:
    <bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
    [cir] User 1 enters a Mid-Point Peg order to buy ABC at $10.03 for 
100. User 1's order is ranked at $10.025 as the User elected that the 
Mid-Point Peg order be pegged to the mid-point of the NBBO.
    [cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for 
100. User 2's step-up range is $10.03. User 2's order is ranked at 
$10.01.
    [cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
    <bullet> Result: User 3's Retail Order for 100 will execute against 
User 2's Enhanced RPI Order at $10.03. While User 1's order is ranked 
at a higher price ($10.025) than User 2's order ($10.01), User 2's 
order includes a step-up range of $10.03, which provides additional 
price improvement to User 3's Retail Order than User 1's Mid-Point Peg 
Order. As User 2's order provides an additional $0.005 of price 
improvement over User 1's midpoint price, the Exchange gives priority 
to User 2's Enhanced RPI Order.
Example 2 \26\
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    \26\ See proposed Rule 11.24(g)(2)(A).
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    If the best-priced resting order on the BYX Book is ranked at a 
whole cent, the Enhanced RPI Order may only need to step-up one-half 
cent in order to provide meaningful price improvement. Consider the 
following example:
    <bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
    [cir] User 1 enters a non-displayed order to buy ABC at $10.02 for 
100.
    [cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for 
100. User 2's step-up range is $10.03. User 2's order is ranked at 
$10.01.
    [cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
    <bullet> Result: User 3's Retail Order for 100 will execute against 
User 2's Enhanced RPI Order at $10.025. While User 1's order is ranked 
at a higher price ($10.02) than User 2's order ($10.01), User 2 has 
included a step-up range of $10.03 on its order and is willing to 
provide additional price improvement as compared to other orders 
resting on the BYX Book. Even though User 2's order may execute up to a 
price of $10.03, it only needs to provide one-half cent price 
improvement over User 1's ranked price of $10.02 in order to provide 
meaningful price improvement at the midpoint.
Example 3 \27\
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    \27\ See proposed Rule 11.24(g)(2)(A).
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    There are instances where an Enhanced RPI Order may need to step-up 
a full penny in order to provide meaningful price improvement. Consider 
the following:
    <bullet> The Protected NBBO for security ABC is $10.00 x $10.10.
    [cir] User 1 enters a non-displayed order to buy ABC at $10.03 for 
100.
    [cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for 
100. User 2's step-up range is $10.05. User 2's order is ranked at 
$10.01.
    [cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
    <bullet> Result: User 3's Retail Order for 100 will execute against 
User 2's Enhanced RPI Order at $10.04. While User 1's order is ranked 
at a higher price ($10.03) than User 2's order ($10.01), User 2 has 
included a step-up range of $10.05 on its order and is willing to 
provide additional price improvement as compared to other orders 
resting on the BYX Book. Even though User 2's order may execute up to a 
price of $10.05, it only needs to provide one penny of price 
improvement above User 1's ranked price of $10.03 in order to provide 
meaningful price improvement.

[[Page 2997]]

Example 4 \28\
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    \28\ See proposed Rule 11.24(a)(4).
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    There may be instances where there is no other liquidity resting on 
the BYX Book against which the Enhanced RPI Order can step up against. 
In these instances, the Enhanced RPI Order will trade at its ranked 
price. Consider the following example.
    <bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
    [cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for 
100. User 1's step-up range is $10.025. User 1's order is ranked at 
$10.01.
    [cir] User 2 enters a Retail Order to sell ABC at $10.00 for 100.
    <bullet> Result: User 2's Retail Order for 100 will execute against 
User 1's Enhanced RPI Order at $10.01 as there are no better-priced 
orders resting on the BYX Book against which User 1 would need to 
provide greater price improvement to User 2.
Example 5 \29\
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    \29\ See proposed Rule 11.24(g)(2)(A).
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    Enhanced RPI Orders will only have priority against other better-
priced liquidity resting on the BYX Book in the event that the Enhanced 
RPI Order can step-up to the next half cent or full cent. In the 
example below, the Enhanced RPI Order is unable to step up against the 
best priced order on the BYX Book but is able to step up against an 
order ranked at the next best price level. Consider the following 
example:
    <bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
    [cir] User 1 enters a non-displayed order to buy ABC at $10.04 for 
100.
    [cir] User 2 enters a non-displayed order to buy ABC at $10.02 for 
100.
    [cir] User 3 enters an Enhanced RPI Order to buy ABC at $10.01 for 
100. User 3's step-up range is $10.04. User 3's order is ranked at 
$10.01.
    [cir] User 4 enters a Retail Order to sell ABC at $10.00 for 150.
    <bullet> Result: User 4's Retail Order will execute 100 shares 
first with User 1's non-displayed order as User 1's non-displayed order 
has price priority over the orders submitted by Users 2 and 3. While 
User 3's Enhanced RPI Order has a step-up range of $10.04, the step-up 
range does not provide greater price improvement for User 4's Retail 
Order as compared to User 1's non-displayed order and as such, User 3's 
Enhanced RPI Order does not have priority over User 1's non-displayed 
order. Once User 4's Retail Order executes against User 1's non-
displayed order, 50 shares remain on User 4's Retail Order. User 4's 
Retail Order will then execute its remaining 50 shares with User 3's 
Enhanced RPI Order at a price of $10.025. While User 2's non-displayed 
order is ranked at a higher price ($10.02) than User 3's Enhanced RPI 
Order ($10.01), User 3's Enhanced RPI Order has a step-up range of 
$10.04 and User 2's non-displayed order does not contain a step-up 
range. As User 3's Enhanced RPI Order is willing to provide greater 
price improvement as compared to a better-priced order resting on the 
same side of the BYX Book, it is given priority over User 2's non-
displayed order. User 3's Enhanced RPI Order executes 50 shares against 
User 4's non-displayed order at a price of $10.025 because it provides 
one-half cent of price improvement over User 2's ranked price of 
$10.02.
Example 6 \30\
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    \30\ See proposed Rule 11.24(a)(4).
---------------------------------------------------------------------------

    Enhanced RPI Orders will execute within their step-up range when 
the incoming Retail Order's price is not executable at the Enhanced RPI 
Order's ranked price. Consider the following example:
    <bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
    [cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for 
100. User 1's step-up range is $10.04. User 1's order is ranked at 
$10.01.
    [cir] User 2 enters a Retail Order to sell ABC at $10.03 for 100.
    <bullet> Result: User 2's Retail Order will execute with User 1's 
Enhanced RPI Order at $10.03 as the limit price of User 2's Retail 
Order ($10.03) is within User 1's step-up range.
Example 7 \31\
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    \31\ See proposed Rule 11.24(g)(2).
---------------------------------------------------------------------------

    When there are multiple Enhanced RPI Orders resting on the BYX 
Book, no other same side liquidity with higher priority, and the 
contra-side Retail Order is priced more aggressively than the resting 
Enhanced RPI Orders, execution priority will be determined by the 
higher ranked price and not by the step-up ranges of the Enhanced RPI 
Orders. Consider the following example:
    <bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
    [cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for 
100. User 1's step-up range is $10.05. User 1's order is ranked at 
$10.01.
    [cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.02 for 
100. User 2's step-up range is $10.04. User 2's order is ranked at 
$10.02.
    [cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
    <bullet> Result: User 3's Retail Order will execute with User 2's 
Enhanced RPI Order at $10.02 because User 2's Enhanced RPI Order has 
price priority over User 1's Enhanced RPI Order due to its higher 
ranked price of $10.02. Given that User 3's Retail Order was priced 
more aggressively than the resting Enhanced RPI Orders at its time of 
entry, the Exchange believes that priority should be determined by 
using the ranked price of the Enhanced RPI Orders resting on the BYX 
Book at the time of User 3's Retail Order entry.
Example 8 \32\
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    \32\ See proposed Rule 11.24(g)(2)(B).
---------------------------------------------------------------------------

    The step-up range will be used to determine order book priority in 
situations where: (i) a contra-side Retail Order is entered at a less 
aggressive price than the Enhanced RPI Order's limit price and all 
other resting liquidity in the same security and (ii) the Enhanced RPI 
Order's step-up range is equal to or more aggressively priced than the 
Retail Order's limit price. Consider the following example:
    <bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
    [cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for 
100. User 1's step-up range is $10.05. User 1's order is ranked at 
$10.01.
    [cir] User 2 enters a non-displayed order to buy ABC at $10.02 for 
100. User 2's order is ranked at $10.02.
    [cir] User 3 enters a Retail Order to sell ABC at $10.03 for 100.
    <bullet> Result: User 3's order will execute with User 1's Enhanced 
RPI Order at $10.03 because (i) User 3's Retail Order was entered at a 
less aggressive price than the ranked price of both User 1 and User 2's 
orders; and (ii) the step-up range of User 1's Enhanced RPI Order is 
more aggressively priced ($10.05) than the limit price of User 3's 
Retail Order ($10.03). Even though User 2's ranked price is higher than 
User 1's ranked price, User 2's order is not marketable against User 
3's Retail Order. User 3's Retail Order would otherwise be unable to 
execute if the Exchange did not look to the price improvement provided 
by User 1's step-up range to permit an execution between User 1 and 
User 3.
Example 9 \33\
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    \33\ See proposed Rule 11.24(g)(2)(C).
---------------------------------------------------------------------------

    The step-up range will be used to determine order book priority in 
situations where multiple Enhanced RPI Orders are resting on the BYX 
Book and are eligible to trade ahead of higher priority orders resting 
on the BYX Book. Consider the following example:
    <bullet> The Protected NBBO for security ABC is $10.00 x $10.05.

[[Page 2998]]

    [cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for 
100. User 1's step-up range is $10.05. User 1's order is ranked at 
$10.01.
    [cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.02 for 
100. User 2's step-up range is $10.04. User 2's order is ranked at 
$10.02.
    [cir] User 3 enters a non-displayed order to buy ABC at $10.03 for 
100. User 3's order is ranked at $10.03.
    [cir] User 4 enters a Retail Order to sell ABC at $10.03 for 100.
    <bullet> Result: User 4's Retail Order will execute with User 1's 
Enhanced RPI Order at $10.04 because the Exchange looks to the step-up 
range to determine order book priority when there are multiple Enhanced 
RPI Orders resting on the BYX Book that are willing to provide 
additional price improvement as compared to other orders resting on the 
BYX Book. While both User 1 and User 2 can execute at a price of 
$10.04, User 1's Enhanced RPI Order has a higher step-up range ($10.05) 
as compared to the step-up range of User 2's Enhanced RPI Order 
($10.04). As such, User 1's Enhanced RPI Order is given priority ahead 
of User 2's Enhanced RPI Order to execute against User 4's Retail 
Order. In this instance, when there are multiple Enhanced RPI Orders 
that can provide price improvement to the contra-side Retail Order, the 
Exchange believes it is appropriate to use the highest step-up range to 
determine order book priority as it is encouraging Users to submit 
aggressively priced orders by granting order book priority to the User 
with the highest step-up range. As such, the Exchange believes it is 
appropriate to give priority to User 1's Enhanced RPI Order in this 
instance because User 1's step-up range is more aggressive than User 
2's step-up range and is therefore willing to provide additional price 
improvement to Retail Orders as compared to User 2's Enhanced RPI 
Order.
Example 10 \34\
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    \34\ See proposed Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------

    Enhanced RPI Orders will have price priority over resting RPI 
orders (that do not contain a step-up range) on the BYX Book so long as 
the step-up range of the Enhanced RPI Order is greater than the limit 
price of the resting RPI order. Consider the following example:
    <bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
    [cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for 
100. User 1's step-up range is $10.05. User 1's order is ranked at 
$10.01.
    [cir] User 2 enters an RPI Order to buy ABC at $10.02.
    [cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
    <bullet> Result: User 3's Retail Order will execute with User 1's 
Enhanced RPI Order at a price of $10.025 because User 1's Enhanced RPI 
Order containing a step-up range allows User 3's Retail Order to 
receive an additional one-half cent price improvement as compared to 
the ranked price of User 2's RPI Order. While User 2's RPI Order had a 
higher ranked price ($10.02) than User 1's Enhanced RPI Order ($10.01), 
User 2's RPI Order did not contain a step-up range. Given that Enhanced 
RPI Orders are designed to provide meaningful price improvement against 
all resting orders on the BYX Book, the Exchange believes this factor 
favors using the price improvement provided by the step-up range in 
order to determine priority in situations where there are both resting 
RPI and Enhanced RPI Orders on the BYX Book. While RPI Orders do 
provide at least $0.001 of price improvement as compared to the 
Protected NBBO, Enhanced RPI Orders allow for price improvement to the 
next valid half cent or full cent as the transaction is priced above 
$1.00.\35\ Thus, using the step-up range to determine priority when RPI 
Orders are resting on the BYX Book results in an increased amount of 
price improvement for the contra-side Retail Order.
---------------------------------------------------------------------------

    \35\ The Exchange notes that there may be situations in which an 
Enhanced RPI Order that is granted order book priority over an RPI 
Order will provide only $0.001 of price improvement over the RPI 
Order when stepping up to the next half cent or full cent. For 
example, the Protected NBBO is $10.00 x $10.05. Assume that a buy-
side Enhanced RPI Order for 100 shares has a step-up range to $10.04 
and is granted order book priority over a buy-side RPI Order for 100 
shares with a limit price of $10.024. A sell-side Retail Order for 
100 shares is entered at $10.00. In this instance, the buy-side 
Enhanced RPI Order steps-up to a price of $10.025 to execute against 
the sell-side Retail Order. While the Enhanced RPI Order is only 
providing $0.001 of price improvement as compared to the RPI Order 
with a limit price of $10.024, the Enhanced RPI Order provides a 
total of $0.025 of price improvement to the Retail Order as compared 
to the Retail Order's limit price of $10.00.
---------------------------------------------------------------------------

Example 11 \36\
---------------------------------------------------------------------------

    \36\ See proposed Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------

    Enhanced RPI Orders may also improve against displayed orders 
resting on the BYX Book in order to provide price improvement to a 
contra-side Retail Order. Consider the following example:
    <bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
    [cir] User 1 enters an Enhanced RPI Order to buy ABC at $9.99 for 
100. User 1's step-up range is $10.05. User 1's order is ranked at 
$9.99. The Retail Liquidity Identifier is not displayed as the limit 
price of $9.99 is below the NBB and the Retail Liquidity Identifier 
will only display when there is RPI interest priced at least $0.001 
better than the Protected NBB or Protected NBO.
    [cir] User 2 enters a displayed order to buy ABC at $10.00 for 100.
    [cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
    <bullet> Result: User 3's Retail Order will execute with User 1's 
Enhanced RPI Order at a price of $10.01. While User 2's displayed order 
is displayed and ranked at a higher price ($10.00) than User 1's 
Enhanced RPI Order ($9.99), User 1's Enhanced RPI Order includes a 
step-up range on its order, which permits the order to execute up to a 
price of $10.05. In this instance, executing User 2's displayed order 
at $10.00 does not provide any price improvement to the Retail Order 
when User 1's Enhanced RPI Order is resting on the BYX Book and is 
willing to provide additional price improvement to Order 3 than Order 2 
is willing to provide. User 1's Enhanced RPI Order is willing to step 
up to the next full cent above $10.00 (in this case, $10.01), which 
provides a full penny of price improvement to User 3's Retail Order., 
As such, this is the price at which User 3's Retail Order executes with 
User 1's Enhanced RPI Order.
    As demonstrated in the examples above, the Exchange is proposing to 
grant an Enhanced RPI Order price priority over equal-priced or better-
priced resting orders on the BYX Book so long as the Enhanced RPI Order 
can provide meaningful price improvement over such resting orders. The 
Exchange believes that allowing liquidity providers to post orders 
outside of the range at which they are willing to execute yet maintain 
the opportunity to step-up against resting orders on the same side of 
the BYX Book in exchange for price priority will incentivize these 
liquidity providers to provide additional liquidity on the Exchange. As 
a result of additional, aggressively priced liquidity submitted to the 
Exchange designed specifically to interact with Retail Orders, RMOs 
will therefore be incentivized to submit additional retail order flow 
to the Exchange which has the potential to interact with an Enhanced 
RPI Order and receive meaningful price improvement.
Retail Liquidity Identifier
    The Exchange currently disseminates an identifier pursuant to Rule 
11.24(e) when RPI interest priced at least $0.001 better than the 
Protected NBB or Protected NBO for a particular security

[[Page 2999]]

is available in the System (``Retail Liquidity Identifier'' or 
``Identifier''). The Identifier is disseminated through consolidated 
data streams (i.e., pursuant to the Consolidated Tape Association Plan/
Consolidated Quotation Plan, or CTA/CQ, for Tape A and Tape B 
securities, and the Nasdaq UTP Plan for Tape C securities) as well as 
through proprietary Exchange data feeds.\37\ The Identifier reflects 
the symbol and the side (buy or sell) of the RPI interest, but does not 
include the price or size of the RPI interest. In particular, CQ and 
UTP quoting outputs include a field for codes related to the Retail 
Liquidity Identifier. The codes indicate RPI interest that is priced 
better than the Protected NBB or Protected NBO by at least the minimum 
level of price improvement as required by the Program.
---------------------------------------------------------------------------

    \37\ The Exchange notes that the Retail Liquidity Identifier for 
Tape A and Tape B securities are disseminated pursuant to the CTA/CQ 
Plan. The identifier is also available through the consolidated 
public market data stream for Tape C securities. The processor for 
the Nasdaq UTP disseminates the Retail Liquidity Identifier and 
analogous identifiers from other market centers that operate 
programs similar to the RPI Program.
---------------------------------------------------------------------------

    The Exchange proposes to continue to disseminate the Retail 
Liquidity Identifier in its current form should the Enhanced RPI Order 
be approved. For Enhanced RPI orders, the indicator will be based off 
of the ranked price only and the step-up range will not be used. The 
purpose of the Identifier is to provide relevant market information to 
RMOs that there is available RPI interest available on the Exchange, 
thereby incentivizing RMOs to send Retail Orders to the Exchange. The 
Exchange proposes to make clear in Rule 11.24(e) that both RPI Orders 
and Enhanced RPI Orders constitute RPI interest and that the Retail 
Liquidity Identifier shall be disseminated when RPI Interest (as 
defined in proposed Rule 11.24(e)) priced at least $0.001 better than 
the Protected NBB or Protected NBO for a particular security is 
available in the System. A separate liquidity identifier that 
identifies Enhanced RPI Order interest will not be disseminated. 
Because the proposed Enhanced RPI Order is an extension of the existing 
RPI Order, it will automatically offer at least $0.001 of price 
improvement over the Protected NBB or Protected NBO. As such, 
displaying the Retail Liquidity Identifier will provide an indication 
to RMOs that at least $0.001 of price improvement is available in the 
System, with the opportunity of potentially receiving additional price 
improvement should the RPI interest be in the form of an Enhanced RPI 
Order.
    As discussed below, the Exchange proposes to expand the Program to 
include securities priced below $1.00. Given that the minimum price 
variation (``MPV'') of a sub-dollar security is $0.0001,\38\ the 
Identifier for sub-dollar securities will be displayed when there is at 
least $0.0001 of price improvement over the Protected NBB or Protected 
NBO. The Exchange will not make any other changes to the Identifier for 
sub-dollar securities other than the minimum amount of price 
improvement required to display the Identifier.
---------------------------------------------------------------------------

    \38\ See 17 CFR 242.612 (``Minimum pricing increment'').
---------------------------------------------------------------------------

Securities Priced Below $1.00
    Rule 11.24(h) currently limits the Program to trades occurring at 
prices equal to or greater than $1.00 per share and the Exchange 
periodically notifies Members \39\ regarding securities included in the 
Program through an information circular.\40\ Now, the Exchange proposes 
to expand the Program to all securities, including those priced below 
$1.00. The rationale behind expanding the Program to all securities 
regardless of execution price stems from the growth of sub-dollar 
trading (i.e., trading at prices below $1.00), both on- and off-
exchange. As of March 2023, an analysis of SIP \41\ data by the 
Exchange found that sub-dollar average daily volume has increased 313% 
as compared to first quarter 2019.\42\ In this period, sub-dollar on-
exchange average daily volume grew from 442 million shares per day to 
1.8 billion shares per day.\43\ An analysis of SIP and FINRA Trade 
Reporting Facility (``TRF''),\44\ data indicates that exchanges 
represented approximately 39.8% market share in sub-dollar securities, 
with a total of 1,638 securities trading below $1.00.\45\ As an 
exchange group, Cboe had approximately 13.3% of market share of sub-
dollar securities in the first quarter of 2023.\46\
---------------------------------------------------------------------------

    \39\ See Rule 1.5(n). The term ``Member'' shall mean ay 
registered broker or dealer that has been admitted to membership in 
the Exchange. A Member will have the status of a ``member'' of the 
Exchange as that term is defined in Section 3(a)(3) of the Act. 
Membership may be granted to a sole proprietor, partnership, 
corporation, limited liability company or other organization which 
is a registered broker or dealer pursuant to Section 15 of the Act, 
and which has been approved by the Exchange.
    \40\ Supra note 6.
    \41\ The ``SIP'' refers to the centralized securities 
information processors.
    \42\ See ``How Subdollar Securities are Trading Now'' (March 16, 
2023). Available at https://www.cboe.com/insights/posts/how-subdollar-securities-are-trading-now/.
    \43\ Id.
    \44\ Trade Reporting Facilities are facilities through which 
FINRA members report off-exchange transactions in NMS stocks, as 
defined in SEC Rule 600(b)(47) of Regulation NMS. See Tick Size 
Proposal at 80315.
    \45\ Supra note 42.
    \46\ Id.
---------------------------------------------------------------------------

    As trading in sub-dollar securities has grown steadily since 2020, 
the Exchange believes it is appropriate to expand the Program to 
include securities priced below $1.00. The Exchange notes, however, 
that the MPV for sub-dollar securities differs from the MPV for 
securities priced at or above $1.00. As provided for by Regulation NMS 
Rule 612, for securities priced below $1.00, the MPV is $0.0001, 
whereas for securities priced at or above $1.00 the MPV is $0.01.\47\ 
The Exchange proposes that in order for an Enhanced RPI Order to gain 
queue priority ahead of resting orders on the same side of the BYX 
Book, the Enhanced RPI Order will be stepped-up to the nearest MPV 
($0.0001). This differs from the treatment of Enhanced RPI Orders for 
securities priced at or above $1.00, which are proposed to be stepped-
up to the nearest half-cent midpoint or whole cent tick ahead of 
resting orders on the same side of the BYX Book. The Exchange believes 
that the different treatment of Enhanced RPI Orders for securities 
priced below $1.00 is appropriate given that the MPV for securities 
priced below $1.00 is significantly less than the MPV for securities 
priced at or above $1.00. The Exchange notes that it will announce to 
its Members via a Trade Desk Notice that the Program is expanding to 
all securities priced below $1.00 and will no longer provide periodic 
updates of securities included in the Program.
---------------------------------------------------------------------------

    \47\ Supra note 38.
---------------------------------------------------------------------------

Implementation
    The Exchange plans to implement the proposed rule change during the 
second half of 2024 and will announce the implementation date via Trade 
Desk Notice.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\48\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \49\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation

[[Page 3000]]

and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \50\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78f(b).
    \49\ 15 U.S.C. 78f(b)(5).
    \50\ Id.
---------------------------------------------------------------------------

    The Commission has repeatedly emphasized that the U.S. capital 
markets should be structured with the interests of retail investors in 
mind \51\ and has recently proposed a series of rules designed, in 
part, to attempt to bring order flow back to the exchanges from off-
exchange trading venues.\52\ The Exchange believes its proposed 
enhancements to the Program are consistent with the Commission's goal 
of ensuring that the equities markets continue to serve the needs of 
the investing public. Specifically, introducing the Enhanced RPI Order 
type would protect investors and the public interest by providing 
retail investors the ability to obtain meaningful price improvement on 
BYX, a national securities exchange. The Exchange is committed to 
innovation that improves the quality of the equities markets and 
believes that the proposed Enhanced RPI Order may increase the 
attractiveness of the Exchange for the execution of Retail Orders 
submitted on behalf of the millions of ordinary investors that rely on 
these markets for their investment needs.
---------------------------------------------------------------------------

    \51\ See U.S. Securities and Exchange Commission, Strategic 
Plan, Fiscal Years 2018-2022, available at https://www.sec.gov/files/SEC_Strategic_Plan_FY18-FY22_FINAL_0.pdf.
    \52\ Supra notes 17-18. See also, Securities Exchange Act 
Release No. 96496 (December 14, 2022), 88 FR 5440 (January 27, 2023) 
(``Regulation Best Execution''); Securities Exchange Act Release No. 
96493 (December 14, 2022), 88 FR 3786 (January 20, 2023) 
(``Disclosure of Order Execution Information'').
---------------------------------------------------------------------------

    The Exchange believes the proposed Enhanced RPI Order promotes just 
and equitable principles of trade and is not unfairly discriminatory 
because the order type will be available for all Users, and is not 
limited to a certain subset of market participants. Even though 
Enhanced RPI Orders may be entered by any market participant, the 
Exchange believes that the majority of Enhanced RPI Orders will be 
entered by or on behalf of institutional investors that are willing to 
provide additional price improvement as a way to minimize their adverse 
selection costs.\53\ The Exchange does not believe that such 
segmentation is inconsistent with section 6(b)(5) of the Act, as it 
does not permit unfair discrimination. The Commission has previously 
stated that the markets generally distinguish between retail investors, 
whose orders are considered desirable by liquidity providers because 
such retail investors are presumed to be less informed about short-term 
price movements, and professional traders, whose orders are presumed to 
be more informed.\54\ The Commission has further stated that without 
opportunities for price improvement, retail investors may encounter 
wider spreads that are a consequence of liquidity providers interacting 
with more informed order flow.\55\ The Exchange believes that its 
proposed Enhanced RPI Order is reasonably designed to attract 
marketable retail order flow to the exchange as it will help to ensure 
that retail investors benefit from the better price that liquidity 
providers are willing to provide to retail orders in exchange for 
minimizing their adverse selection costs.
---------------------------------------------------------------------------

    \53\ Adverse selection is the phenomenon where the price of a 
stock drops right after a liquidity provider purchases the stock. 
Marketable retail order flow is generally seen as more desirable by 
institutional liquidity providers as executions against retail 
orders are less prone to adverse selection. The Commission has 
previously opined that retail liquidity programs may be beneficial 
to institutional investors as they may be able to reduce their 
possible adverse selection costs by interacting with retail order 
flow. See Pilot Approval Order at 71656.
    \54\ Id.
    \55\ Id.
---------------------------------------------------------------------------

    Additionally, the Exchange believes that the proposed Enhanced RPI 
Order type is not unfairly discriminatory to institutional investors as 
it rewards the User that enters the most aggressively priced Enhanced 
RPI Order with order book priority. Ultimately, execution priority 
amongst orders resting on the BYX Book will be determined by the step-
up range entered on each Enhanced RPI Order. If the step-up range for 
an Enhanced RPI Order provides a marketable, contra-side Retail Order 
with greater price improvement than would otherwise be available from 
other resting orders by stepping up to the next half cent or full cent 
(for securities priced at or above $1.00) or the valid tick increment 
(for securities priced below $1.00), then the Enhanced RPI Order will 
be granted order book priority. In the event that multiple Enhanced RPI 
Orders are resting on the BYX Book, the Enhanced RPI Order with the 
highest step-up range will be given order book priority. The Exchange 
believes rewarding the most aggressively priced step-up range will 
encourage Users to submit Enhanced RPI Orders with step-up ranges that 
are likely to provide meaningful price improvement to Retail Orders, 
which ultimately benefits both retail investors, who will receive price 
improvement over the NBBO, and the User entering the Enhanced RPI 
Order, who is able to execute against a marketable Retail Order to 
minimize its adverse selection costs and interact with retail order 
flow that they are currently unable to access on the Exchange given 
that such order flow is largely executed off-exchange.
    As noted in the Exchange's initial RPI filings,\56\ most equities 
exchanges, including BYX, determine priority based on a price/time/
display allocation model.\57\ This has contributed to deep and liquid 
markets for equity securities as liquidity providers compete to be the 
first to establish a particular price. While the price/time/display 
allocation model generally works well for institutional investors, 
retail investors are traditionally not able to compete with market 
makers and other automated liquidity providers to set an aggressive 
price on orders submitted to the Exchange. Importantly, retail 
investors, in contrast to institutional investors, tend to have longer 
investment time horizons, which means they are not in the business of 
optimizing queue placement under a time-based allocation model. 
Therefore, in order to facilitate the needs of retail investors, the 
Exchange believes an alternative approach--such as this Enhanced RPI 
Order proposal--would benefit the retail investor community.
---------------------------------------------------------------------------

    \56\ Supra notes 7-8.
    \57\ Nasdaq PSX, however, offers a price setter pro rata model 
that rewards liquidity providers that set the best price and then 
rewards other market participants that enter larger sized orders. 
See Securities Exchange Act Release No. 72250 (May 23, 2014), 79 FR 
31147 (May 30, 2014) (SR-Phlx-2014-24).
---------------------------------------------------------------------------

    As discussed earlier, the proposed introduction of the Enhanced RPI 
Order is designed to provide retail investors with enhanced 
opportunities to obtain meaningful price improvement by providing them 
with potential opportunities to execute versus non-displayed Enhanced 
RPI Orders that offer price improvement beyond that offered by resting 
orders on the Exchange. Marketable retail order flow is routinely 
executed in full on entry at the national best bid or offer or 
better,\58\ but many retail liquidity programs,

[[Page 3001]]

including the Exchange's current Program, are designed to offer at 
least $0.001 of price improvement over the Protected NBB or Protected 
NBO to Retail Orders.\59\ By introducing Enhanced RPI Orders, the 
Exchange is proposing to prioritize Enhanced RPI Orders ahead of other 
resting orders on the same side of the BYX Book in exchange for the 
Enhanced RPI Order offering meaningful price improvement to Retail 
Orders by stepping up to the next half cent or whole cent (for 
securities priced at or above $1.00) or the next valid tick increment 
(for securities priced below $1.00). The Exchange believes the ability 
to post an order at a price outside of the range at which it is willing 
to execute with the ability to gain priority in exchange for executing 
at a more aggressive price will (1) encourage Users to submit 
aggressively priced Enhanced RPI Orders, and (2) attract Retail Order 
flow to the Exchange, both of which will benefit all investors. 
Increased order flow will create a deeper pool of liquidity on the 
Exchange, which provides for greater execution opportunities for all 
Users and provides for overall enhanced price discovery and price 
improvement opportunities on the Exchange. If successful, the proposed 
rule change would benefit market participants by increasing the 
diversity of order flow with which they can interact on a national 
securities exchange, thereby increasing order interaction and 
contributing to price formation.
---------------------------------------------------------------------------

    \58\ A review of internal Exchange data found that 60% of retail 
orders across the Exchange and its affiliates executed at the NBBO 
year-to-date in 2023. Similarly, 59% of retail orders across the 
Exchange and its affiliates executed at the NBBO in calendar year 
2022.
    \59\ See, e.g., IEX Rule 11.232; Nasdaq BX Rule 4780; NYSE Arca 
Rule 7.44-E; NYSE Rule 7.44.
---------------------------------------------------------------------------

    Giving queue priority to certain order types is not a novel concept 
in the securities markets. In fact, on the Exchange's affiliate, Cboe 
EDGX Exchange, Inc. (``EDGX''), the displayed portion of Retail Orders 
are given allocation priority ahead of all other available interest on 
the EDGX Book (``EDGX Retail Priority'').\60\ The Commission found that 
EDGX Retail Priority represented a reasonable effort to enhance the 
ability of bona fide retail trading interest to compete for executions 
with orders entered by other market participants that may be better 
equipped to optimize their place in the intermarket queue.\61\ The 
Exchange believes that grating queue priority to an Enhanced RPI Order 
as discussed in the Purpose section similarly reflects a reasonable 
effort by the Exchange to create additional price improvement 
opportunities for retail investors, as has been the standard identified 
by the Commission in several approval orders written in regards to 
RLPs.\62\ While the Exchange is not proposing to prioritize Retail 
Orders as EDGX has done, it is proposing to prioritize Enhanced RPI 
Orders that provide price improvement and may only interact with 
contra-side Retail Orders.
---------------------------------------------------------------------------

    \60\ See EDGX Rule 11.9(a)(2)(A).
    \61\ See Securities Exchange Act Release No. 87200 (October 2, 
2019), 84 FR 53788 (October 8, 2019), SR-CboeEDGX-2019-012 (``EDGX 
Retail Priority Approval Order'').
    \62\ Supra note 8. See also Securities Exchange Act Release No. 
67347 (July 3, 2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-55; 
SR-NYSEAmex-2011-84) (``RLP Approval Order'') at 40679.
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    The Exchange believes that the prioritization of Enhanced RPI 
Orders that offer meaningful price improvement over other resting 
orders on the same side of the BYX Book promotes just and equitable 
principles of trade and is consistent with Section 6(b)(5) of the Act 
as it encourages Users to submit aggressively priced Enhanced RPI 
Orders in exchange for queue priority ahead of all resting orders on 
the same side of the BYX Book so long as meaningful price improvement 
is provided to a contra-side Retail Order. The Exchange proposes to 
provide queue priority for Enhanced RPI Orders over all other types of 
orders and is not limiting queue priority to a certain subset of order 
types. As previously stated, all Users are eligible to submit Enhanced 
RPI Orders. And while the Exchange believes that most Enhanced RPI 
Orders will be submitted by or on behalf of professional traders, 
retail investors will have the opportunity to receive better-priced 
executions should they choose to submit a marketable Retail Order to 
the Exchange. The Exchange believes the introduction of Enhanced RPI 
Orders will deepen the Exchange's pool of available liquidity, increase 
marketable retail order flow to the Exchange and provide additional 
competition for marketable retail order flow, most of which is 
currently executed off-exchange in the OTC markets. Promoting 
competition for retail order flow among execution venues stands to 
benefit retail investors, who may be eligible to receive greater price 
improvement on the Exchange by interacting with an Enhanced RPI Order 
than they would if their order was internalized by a broker-dealer on 
the OTC market.
    Furthermore, the Exchange believes that its proposal to limit the 
use of the step-up range to determine order book priority is consistent 
with Section 6(b)(5) of the Act because the use of the step-up range 
rather than limit price to determine order priority is limited to the 
following: (1) the range is needed to gain priority over a resting 
order with higher order book priority; (2) in situations where (i) a 
contra-side Retail Order is entered at a less aggressive price than the 
Enhanced RPI Order's limit price and all other resting liquidity in the 
same security and (ii) the Enhanced RPI Order's step-up range is equal 
to or more aggressively priced than the Retail Order's limit price; and 
(3) to determine order book priority when multiple Enhanced RPI Orders 
are resting on the BYX Book and are eligible to trade ahead of higher 
priority orders. The primary use case of the Enhanced RPI Order 
identified in the first scenario listed above is to provide price 
improvement to marketable retail order flow. As previously discussed in 
the Statutory Basis section, the Exchange believes allowing the use of 
a step-up range in order to provide an additional, more aggressive 
price at which an Enhanced RPI Order may execute is essential in order 
to deepen the pool of liquidity available to retail investors. In 
exchange for providing aggressively priced orders, these liquidity 
providers will be rewarded with executions against marketable retail 
order flow, which is generally preferred over more informed order flow. 
Retail investors, on the other hand, will receive meaningful price 
improvement should their order execute against an Enhanced RPI Order.
    In the situation where (i) a contra-side Retail Order is entered at 
a less aggressive price than the Enhanced RPI Order's limit price and 
all other resting liquidity in the same security and (ii) the Enhanced 
RPI Order's step-up range is equal to or more aggressively priced than 
the limit price of the Retail Order, the Exchange believes using the 
step-up range to determine order priority promotes just and equitable 
principles of trade because it rewards the Enhanced RPI Order with the 
most aggressive step-up range rather than forego an execution due to 
the limit price of all orders resting on the BYX Book being ineligible 
to trade with the contra-side Retail Order. The intent of the Enhanced 
RPI Order is to reward aggressively priced liquidity with queue 
priority while simultaneously providing price improvement to Retail 
Orders. The Exchange believes that determining order priority using the 
step-up range in this limited situation is aligned with the intent of 
liquidity providers that choose to submit Enhanced RPI Orders and 
emphasizes a benefit of using the Enhanced RPI Order--the ability to 
enter an order at a less aggressive price yet also provide a step-up 
range that the liquidity provider is willing to execute in order to 
execute against marketable retail order flow rather than forego an

[[Page 3002]]

execution and remain on the BYX Book. The Exchange seeks to encourage 
liquidity providers to submit order flow designed to interact with 
marketable retail order flow in an effort to increase the amount of 
Retail Order executions occurring on-exchange. By rewarding 
aggressively priced Enhanced RPI Orders in situations where the order 
would otherwise not execute, the Exchange believes its pool of 
liquidity available to marketable retail order flow will deepen, thus 
incentivizing RMOs to submit additional marketable retail order flow to 
the Exchange.
    Likewise, using the step-up range rather than the limit price of an 
Enhanced RPI Order in situations where multiple Enhanced RPI Orders are 
resting on the BYX Book and are eligible to trade ahead of higher 
priority orders promotes the use of the Enhanced RPI Order type as the 
Exchange seeks to encourage RMOs to submit marketable Retail Orders to 
the Exchange. Determining order priority of Enhanced Orders based on 
their step-up range over the limit price of all other higher priority 
orders rewards the Enhanced RPI Order that provides the most aggressive 
execution price. The Exchange believes that using the step-up range 
rather than the limit price in situations where there are multiple 
Enhanced RPI Orders will encourage Users to submit aggressively priced 
Enhanced RPI Orders to the Exchange, as they will be given priority to 
interact with more desirable marketable retail order flow based on 
their step-up range. Additionally, the Exchange believes that RMOs will 
be encouraged to direct marketable retail order flow to the Exchange 
knowing that the worst price they will receive is $0.001 better than 
the Protected NBB or Protected NBO for securities priced at or above 
$1.00 \63\ and there is potential to receive more meaningful price 
improvement should an Enhanced RPI Order be present on the opposite 
side of the BYX Book.\64\
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    \63\ For securities priced below $1.00, the minimum amount of 
price improvement as compared to the Protected NBB or Protected NBO 
is $0.0001.
    \64\ Retail Orders may only receive $0.001 price improvement in 
certain situations, including where an Enhanced RPI Order steps up 
against the limit price of an RPI Order priced in sub-pennies. An 
Enhanced RPI Order would be given order book priority over RPI 
Orders in the event that the Enhanced RPI Order was priced equal to 
or less aggressive than the limit price of a resting RPI Order but 
had a step-up range that was priced more aggressive than the limit 
price of the resting RPI Order (supra note 20).
---------------------------------------------------------------------------

    An analysis of internal Exchange data found that the current 
Program provided approximately $33 million in price improvement to 
retail investors during calendar year 2022, which is a substantial 
increase from the 4.5 million provided to retail investors between 
January 2016 and June 2018.\65\ It is reasonable to believe that the 
proposed Enhanced RPI Order, by virtue of providing at least $0.005 of 
price improvement in exchange for execution priority, would only add to 
the Exchange's ability to provide price improvement to retail 
investors. The Exchange does not believe that offering additional price 
improvement to retail investors through Enhanced RPI Orders would cause 
harm to the broader market. On the contrary, the Exchange believes that 
rewarding Enhanced RPI Orders with order book priority in exchange for 
price improvement would further the Commission's goal of providing 
additional opportunities for retail investors to interact directly with 
a large volume of individual investor orders. The Exchange created the 
Enhanced RPI Order with the goal of encouraging liquidity providers to 
submit orders eligible to interact with marketable retail order flow 
with the competition from these liquidity providers resulting in a 
reasonable alternative for marketable retail order flow to receive 
executions at a price better than the Protected NBBO. As the Commission 
noted in its Order Competition Rule proposal, over 90% of marketable 
NMS retail stock orders are routed to wholesalers where the orders are 
not exposed to order-by-order competition.\66\ While wholesalers 
generally achieve price improvement relative to the NBBO, the 
Commission has indicated that exchanges often have liquidity available 
at the NBBO midpoint, which would be a more favorable price than a 
retail order receives when executed by a wholesaler.\67\ Here, the 
Exchange is proposing price improvement of at least $0.005, and in some 
cases $0.01, which the Exchange believes would further the Commission's 
goal of ``increasing competition and enhancing the direct exposure of 
individual investor orders to a broader spectrum of market 
participants'' as set forth in section 11A of the Exchange Act.\68\
---------------------------------------------------------------------------

    \65\ See RPI Approval Order at 53184.
    \66\ Supra note 17 at 178.
    \67\ Id.
    \68\ Id.
---------------------------------------------------------------------------

    In addition to the proposed introduction of the Enhanced RPI Order, 
the Exchange also believes that expanding the Program to include 
securities priced below $1.00 is consistent with Section 6(b)(5) of the 
Act because it promotes just and equitable principles of trade by 
allowing liquidity providers to submit orders designed to interact with 
retail order flow in all securities, rather than only in securities 
priced at or above $1.00. As stated above, a significant majority of 
the increased volume in sub-dollar securities comes from executions 
occurring off-exchange.\69\ By permitting the Exchange to expand its 
Program to include securities priced below $1.00, the Exchange would be 
a more attractive venue for liquidity providers seeking to interact 
with retail order flow, which furthers the Commission's goal of 
bringing retail order executions back on-exchange. Further, the 
proposal to expand the Program to include securities priced below $1.00 
is not unfairly discriminatory because all Users will be able to submit 
RPI Orders or Enhanced RPI Orders at prices below $1.00. As noted 
above, the Exchange, along with its affiliates, maintained a market 
share of 13.3% in sub-dollar securities during the first quarter of 
2023.\70\ The Exchange believes that its expansion of the Program to 
include sub-dollar securities would lead to more liquidity providers 
submitting order flow to the Exchange in an attempt to execute against 
Retail Orders. In turn, RMOs would submit additional Retail Order flow 
to the Exchange to interact with RPI Orders and Enhanced RPI Orders as 
there would be additional opportunities for price improvement in sub-
dollar securities. The proposal removes impediments to and perfect the 
mechanism of a free and open market and a national market system and 
protects investors and the public interest by allowing executions in 
Retail Orders priced below $1.00 to receive price improvement by 
executing against RPI Orders or Enhanced RPI Orders, which are 
currently only available at prices at or above $1.00. In addition to 
the changes described above, the Exchange believes that the changes to 
certain existing rule text within Rule 11.24 is consistent with Section 
6(b)(5) of the Act because it provides additional certainty as to how 
Rule 11.24 is to be applied. The proposed revised definition of RPI 
Interest in Rule 11.24(a)(5) is necessary in order to capture the 
proposed Enhanced RPI Order type, in addition to the existing RPI 
Order. Additionally, amending Rule 11.24(e) and Rule 11.24(f)(1)-(2) to 
reflect the changes made in Rule 11.24(a)(5) is necessary in order to 
ensure that RPI Interest is properly defined throughout Rule 11.24. The 
deletion of Rule 11.24(h) and renumbering of Rule 11.24(i) are

[[Page 3003]]

consistent with the Exchange's proposal to expand the Program to 
securities priced below $1.00. The proposed changes to Rule 11.24(a)(2) 
are intended to: (i) clarify that a Retail Order must be submitted with 
a time-in-force of IOC; and (ii) introduce the ability for Users to 
submit Retail Orders as Mid-Point Peg Orders, both of which changes 
serve to provide additional guidance to Users of Retail Orders about 
the order modifiers permitted by the Exchange. The Exchange believes 
these changes are ministerial in nature and serve to ensure that Rule 
11.24 is properly describing order behavior after the proposed 
introduction of the Enhanced RPI Order and proposed expansion of the 
Program to securities priced below $1.00.
---------------------------------------------------------------------------

    \69\ Supra note 42.
    \70\ Id.
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposal does not impose any burden on intramarket competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Act. Rather, the proposed rule change is designed to increase 
intramarket competition for retail order flow by introducing a new 
order type that is designed to provide price improvement to Retail 
Orders in exchange for price priority over resting orders on the same 
side of the BYX Book. The proposal, which seeks to provide an 
innovative form of price improvement to Retail Orders through the 
creation of the Enhanced RPI Order, represents an effort by the 
Exchange to encourage on-exchange liquidity an incentivize the trading 
of Retail Orders on a national securities exchange.
    The Exchange also believes the proposed rule change does not impose 
any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the Act. As discussed above, IEX, NYSE, 
NYSE Arca, and Nasdaq BX each operate RLPs and the Exchange believes 
that its proposed rule change will allow it to compete for additional 
retail order flow with the aforementioned exchanges.\71\ Furthermore, 
the Exchange's proposal will promote competition between the Exchange 
and off-exchange trading venues where the majority of retail order flow 
trades today. The proposed Enhanced RPI Order is designed to foster 
innovation within the market and increase the quality of the national 
market system by allowing national securities exchanges to compete both 
with each other and with off-exchange venues for order flow. Expanding 
the program to include securities priced below $1.00 similarly would 
not impose any burden on intermarket competition that is not necessary 
or appropriate in furtherance of the Act. The Exchange's proposal is 
designed to increase competition for trading in all securities, 
including but not limited to securities priced below $1.00. Given the 
growth of trading in sub-dollar securities since 2020, the Exchange 
believes that expanding the Program to include sub-dollar securities 
will make the Program an attractive option for retail investors seeking 
to trade in lower-priced securities, and as such is a competitive 
measure designed to compete directly with other exchanges for order 
flow.
---------------------------------------------------------------------------

    \71\ Supra note 59.
---------------------------------------------------------------------------

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. by order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

    <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#3a484f565f17595557575f544e497a495f59145d554c"><span class="__cf_email__" data-cfemail="5321263f367e303c3e3e363d2720132036307d343c25">[email protected]</span></a>. Please include 
file number SR-CboeBYX-2023-020 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-CboeBYX-2023-020. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection.
    All submissions should refer to file number SR-CboeBYX-2023-020 and 
should be submitted on or before February 7, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\72\
---------------------------------------------------------------------------

    \72\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-00712 Filed 1-16-24; 8:45 am]
BILLING CODE 8011-01-P


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