Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices 10121 

51 15 U.S.C. 78s(b)(3)(A)(ii). 

52 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

fees have fallen in real terms while the 

amount of liquidity available on the 

exchange has increased, and (vi) 

external vendors receive additional 

value from distributing data to their 

own customers and typically charging 

for the service, and therefore charging 

higher fees for external distribution is 

fair and reasonable. 

No Unfair Discrimination 

The Proposal is not unfairly 

discriminatory. The three market data 

feeds at issue here—TOPO, PHLX 

Orders, and TOPO Plus Orders—are 

used by a variety of market participants 

for a variety of purposes. Users include 

regulators, market makers, competing 

exchanges, media, retail, academics, 

portfolio managers. Market data feeds 

will be available to members of all of 

these groups on a non-discriminatory 

basis. 

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 not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

Nothing in the Proposal burdens 

inter-market competition (the 

competition among self-regulatory 

organizations) because approval of the 

Proposal does not impose any burden 

on the ability of other options exchanges 

to compete. PHLX fees are comparable 

to, and in some cases less than, those of 

other exchanges, as discussed above. 

Nothing in the Proposal burdens 

intra-market competition (the 

competition among consumers of 

exchange data) because PHLX market 

data is available to any customer under 

the same fee schedule as any other 

customer, and any market participant 

that wishes to purchase PHLX market 

data can do so on a non-discriminatory 

basis. 

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 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act.51

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is: (i) necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) otherwise in 

furtherance of the purposes of the Act. 

If the Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or 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 (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

Phlx–2024–03 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–Phlx–2024–03. 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–Phlx–2024–03 and should be 

submitted on or before March 5, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.52

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–02861 Filed 2–12–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99488; File No. SR– 

CboeBZX–2024–007] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

a Proposed Rule Change To Amend 

the Definition of Retail Order, and 

Codify Interpretations and Policies 

Regarding Permissible Uses of 

Algorithms by RMOs 

February 7, 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 January 

25, 2024, Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX’’) 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX’’) is filing with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) a proposal to (i) 

amend the definition of ‘‘Retail Order’’ 

as defined by Exchange Rule 11.25(a)(2); 

(ii) codify proposed Interpretation and 

Policy. 01, which describes the meaning 

of the term, ‘‘retail investor,’’ as 

referenced in proposed Rule 11.25(a)(2); 

(iii) codify proposed Interpretation and 

Policy .02, which describes the meaning 

of the term, ‘‘natural person,’’ as 

referenced in proposed Rule 11.25(a)(2); 

(iv) codify proposed Interpretation and 

Policy .03, which describes acceptable 

uses of algorithms or other 

computerized methodology by Retail 

Member Organizations; and (v) codify 

proposed Interpretation and Policy .04 


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3EDGX’s Retail Priority program seeks to 

enhanced execution quality for individual investors 

who trade U.S. equities on EDGX. Retail Priority 

offers a distinct allocation model, which differs 

from the traditional time-based allocation model 

used by most U.S. equities market centers that 

allocate trades to orders that arrive first in time at 

each price point. Retail Priority focuses on 

improving execution quality and trading outcomes 

for individual investors, and the firms facilitating 

their orders, by reducing their time to execution. 

Under Retail Priority, individual investors’ 

displayed limit orders will post at the front of the 

order queue for same-priced orders submitted on 

EDGX. 

4Orders designated by a Retail Member 

Organization as ‘‘Retail Orders’’ (defined infra) are 

eligible for participation in BYX’s Retail Price 

Improvement Program. Through the Retail Price 

Improvement Program, any BYX Member may input 

Retail Price Improving (RPI) orders on the BYX 

order book that will offer price improvement on 

$.001 increments to RMOs that enter a Retail Order. 

In addition to the price improvement opportunities, 

Retail Orders that interact with price improving 

orders receive an enhanced rebate on BYX. See 

generally ‘‘Cboe Retail Price Improvement’’ 

available at: https://www.cboe.com/us/equities/ 

trading/offerings/retail_price_improvement/ See 

generally, ‘‘BYX Retail Price Improvement (RPI) 

Program’’ available at: https://cdn.cboe.com/ 

resources/release_notes/2012/BATS-IntroducesRetail-Price-Improvement-Program.pdf. 

5The term, Retail Member Organization or RMO, 

means ‘‘a Member (or a division thereof) that has 

been approved by the Exchange under this Rule to 

submit Retail Orders.’’ See Rule 11.2525(a)(1), 

definition of, ‘‘Retail Member Organization’’.’’ 

6FINRA Rule 5320.03 provides for a Riskless 

Principal Exception. See FINRA Rule 5320, 

Prohibition Against Trading Ahead of Customer 

Orders, available at: https://www.finra.org/rulesguidance/rulebooks/finra-rules/5320. 

7The Exchange has spoken with various current 

and prospective Members, ranging from smaller, 

regional broker-dealers to larger, bulge bracket 

broker-dealers, that are responsible for handling 

and routing retail orders for execution. 

8The Exchange notes that this is not a novel 

question and that this issue was initially raised by 

SIFMA in its comment letter to the New York Stock 

Exchange’s Retail Liquidity Program rule filing, in 

which SIFMA noted that a broad prohibition on 

algorithmic and computerized methodologies could 

be read to mean only orders submitted via phone 

may be considered Retail Orders, or that even 

orders entered through an online broker by an 

actual retail customer would not qualify. See 

SIFMA Comment Letter (March 23, 2012), to 

Securities Exchange Act Release No. 34–66346 (File 

No. SR–NYSE–2011–55 and File No. SR– 

NYSEAmex–2011–84) (‘‘Retail Liquidity Program’’). 

which explains that Rule 11.25(a)(2)’s 

provision preventing the terms of an 

order with respect to price is not 

intended to prevent a Retail Member 

Organization from changing the terms of 

the order to ensure a better execution 

experience for a retail investor. The text 

of the proposed rule change is provided 

in Exhibit 5. 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://markets.cboe.com/us/ 

equities/regulation/rule_filings/bzx/), at 

the Exchange’s Office of the Secretary, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of this rule filing is to (i) 

amend the definition of ‘‘Retail Order’’ 

as defined by Exchange Rule 11.25(a)(2); 

(ii) codify proposed Interpretation and 

Policy. 01, which describes the meaning 

of the term, ‘‘retail investor,’’ as 

referenced in proposed Rule 11.25(a)(2); 

(iii) codify proposed Interpretation and 

Policy .02, which describes the meaning 

of the term, ‘‘natural person,’’ as 

referenced in proposed Rule 11.25(a)(2); 

(iv) codify proposed Interpretation and 

Policy .03, which describes acceptable 

uses of algorithms or other 

computerized methodology by Retail 

Member Organizations; and (v) codify 

proposed Interpretation and Policy .04 

which explains that Rule 11.25(a)(2)’s 

provision preventing the terms of an 

order with respect to price is not 

intended to prevent a Retail Member 

Organization from changing the terms of 

the order to ensure a better execution 

experience for a retail investor. 

The Exchange, along with its affiliate 

exchanges Cboe BYX Exchange, Inc. 

(‘‘BYX’’), Cboe EDGA Exchange, Inc. 

(‘‘EDGA), and Cboe EDGX Exchange, 

Inc. (‘‘EDGX’’), believes that retail 

investors are a key part of the trading 

ecosystem, and as such, has designed 

products and programs to execute retail 

orders quickly, with high execution 

quality and at a low-cost, with added 

pricing incentives. For instance, 

targeted retail order types on EDGX 3

and BYX,4 execute both marketable and 

non-marketable retail orders with price 

improvement, and enhanced speed and 

fill rates. Additionally, both EDGX and 

BYX offer retail-only pricing incentives 

for low cost remove and premium 

rebates. EDGX also offers Retail Member 

Organizations (‘‘RMO’’) 5 discounts on 

port fees and market data, and retail 

tiers give growing retail firms additional 

rebates. 

Retail Order Definition 

As currently defined in Rule 

11.25(a)(2), a ‘‘Retail Order’’ is an 

agency or riskless principal order that 

meets the criteria of FINRA Rule 

5320.03 6 that originates from a natural 

person and is submitted to the Exchange 

by a RMO, provided that no change is 

made to the terms of the order with 

respect to price or side of the order and 

the order does not originate from a 

trading algorithm or any other 

computerized methodology. 

The Exchange has received Member 

feedback,7 however, that it is unclear 

whether Rule 11.25 permits the use of 

algorithms or other computerized 

methodologies (hereinafter, collectively 

referred to as ‘‘algorithms’’) when 

submitting individual retail investors’ 

orders to the Exchange.8 The impact of 

the rule’s ambiguity is twofold: first, 

while Members may route orders 

entered by retail investors to the 

Exchange for execution, they are doing 

so as non-RMOs and without 

designating such orders as Retail 

Orders; second, potential new Members 

considering registering as RMOs may be 

discouraged doing from so. In both 

cases, the ambiguity of the Exchange’s 

current definition is discouraging the 

routing of retail order flow to the 

Exchange and preventing individual 

investors from receiving the benefits 

provided to Retail Orders executed on 

the Exchange. 

The Exchange now seeks to amend 

the definition of Retail Order to clarify 

for Members, including potential new 

Members, that the use of an algorithm 

to submit orders to the Exchange on 

behalf of a retail investor, does not 

automatically preclude an RMO from 

designating such orders as, ‘‘Retail 

Orders.’’ Specifically, use of an 

algorithm to submit a Retail Order to the 

Exchange is permissible provided that 

the order, or investment criteria for the 

order (discussed infra) originates from a 

natural person, such as the investor 

him/herself, or a natural person on 

behalf of a retail investor (e.g., a 

Financial Advisor (‘‘FA’’), or trader), 

and such order is submitted to the 

Exchange by an RMO. Additionally, 

except as described in proposed 

Interpretation and Policy .03 (discussed 

infra), no change to the terms of the 

order with respect to price or side, may 

be made. 

By amending the Retail Order 

definition, more RMOs may choose to 

avail themselves of the benefits offered 

by the Exchange’s Retail Attribution 


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9 Indeed, even the Commission noted ‘‘the 

markets generally distinguish between individual 

retail investors, whose orders are considered 

desirable by liquidity providers because such retail 

investors are presumed on average to be less 

informed about short-term price movements, and 

professional traders, whose orders are presumed on 

average to be more informed.’’ See Securities 

Exchange Act Release No. 34–68303 (November 27, 

2012), 77 FR 71652 (December 3, 2012) (SR–BYX– 

2012–019) (‘‘Order Granting Approval to Proposed 

Rule Change, as Modified by Amendment No. 2, to 

Adopt a Retail Price Improvement Program’’). 

10See ‘‘Staff Report on Algorithmic Trading in 

U.S. Capital Markets’’ (August 5, 2020), available at 

https://www.sec.gov/tm/reports-and-publications/ 

special-studies/algo_trading_report_2020. 

11 Id. 

12 Id. 

13See generally Betterment©, Automated 

Investing, available at: https://www.betterment.

com/investing (Betterment© provides retail 

customers access to technology that automatically 

invests in the market based on the retail customer’s 

available funds and stated investment period) 

(‘‘Automated Technology is how we make investing 

easier, better, and more accessible’’); see also 

(DriveWealth©, LLC, Robo, available at: https://

www.drivewealth.com/solutions/robo 

(‘‘DriveWealth’s© technology enables our partners 

to design cutting-edge robo-investing experiences 

for your customers . . . or you can empower people 

to make their own investment decisions with roboadvisory capability.’’) 

14Family offices are ‘‘entities established by 

wealthy families to manage their wealth and 

provide other services to family members, such as 

tax and estate planning services. See generally 

Small Entity Compliance Guide, ‘‘Family Office’’, 

available at: https://www.sec.gov/rules/final/2011/ 

ia-3220-secg.htm. 

15The Exchange notes that the items noted herein 

are not intended to be an exhaustive list of 

restricted trading strategies. Indeed, what is 

noteworthy is that such trading activity is not 

representative of the type of activity an ‘‘ordinary’’ 

investor would engage in. Accordingly, while 

certain trading strategies may not be explicitly 

noted, trading representative of more sophisticated 

investors would similarly be prohibited for the 

purposes of Rule 11.25. 

Program, which allows RMOs to 

designate a Retail Order to be identified 

as a Retail Order on the Exchange’s 

proprietary feeds offered by the 

Exchange, either on an order-by-order 

basis or on a port-by-port basis. In turn, 

the enhanced opportunity interact with 

retail flow is likely to incentivize more 

retail liquidity provision, as it is 

generally considered preferable to trade 

with retail orders than with orders of 

professional investors that are typically 

more informed regarding short-term 

price movements.9 Enhanced RMO 

participation and retail liquidity 

provision will ultimately foster 

transparency and price discovery, and 

provide Retail Orders with additional 

price improvement opportunities as 

liquidity providers compete to interact 

with retail flow on BZX. 

The Exchange believes that the 

proposed amendments are merely a 

codification of how retail trading occurs 

in today’s markets and helps to ensure 

that retail customers are not 

inadvertently excluded from enhanced 

execution quality simply because they 

utilize automated trading solutions 

widely utilized by other market 

participants that have been developed 

since the current definition was added 

to the BZX rulebook. As noted in the 

Staff Report on Algorithmic Trading in 

U.S. Capital Markets, the current 

markets for secondary trading in NMS 

stocks is predominantly electronic, with 

most of the trading lifecycle, including 

order generation, routing, and 

execution, being fully automated.10

Indeed, both retail and institutional 

investors utilize algorithms to actively 

make investment and trading 

decisions.11 Additionally, some 

specialized brokers provide individual 

retail investors with sophisticated 

broker algorithms, or allow them to 

create their own algorithms,12 as well as 

utilize auto-investing technology that 

trades for retail customers based on how 

much money a retail customer wishes to 

invest, and their preferred investment 

horizon.13 Given the prevalent use of 

trading algorithms in the securities 

markets, the Exchange believes it 

necessary to modify the definition of 

Retail Order to align Exchange rules 

with current market practice, and to 

provide clarity to Members and 

potential new Members regarding the 

definition of Retail Order. 

Proposed Interpretation and Policy .01 

The Exchange also seeks to adopt 

proposed Interpretation and Policy .01, 

which seeks to describe the meaning of 

the term, ‘‘retail investor,’’ which is 

referenced in proposed Rule 11.25(a)(2). 

To ensure that orders from only bona 

fide retail investors may qualify as 

Retail Orders, the Exchange believes it 

important to first specify what type of 

investor is considered a retail investor 

for the purposes of Rule 11.25. 

Specifically, a retail investor is intended 

to refer to a non-professional, individual 

investor that invests money in their own 

account, held at a brokerage firm. A 

retail investor may also refer to an 

account held in corporate form (e.g., 

corporation, or limited liability 

company) that has been established for 

the benefit of an individual or group of 

related family members (e.g., the legal 

representative for a family office).14

Furthermore, the investment goals of a 

retail investor are mainly saving for 

retirement and/or education, generating 

income, or growing wealth over the 

long-term. A retail investor may trade 

directly on his or her own behalf (e.g., 

self-directed online brokerage account), 

utilize online investing platforms that 

employ software algorithms to create 

and enters orders, and manage 

investment portfolios based on an 

investor’s investment criteria (e.g., 

‘‘robo-advisors’’), or utilize a FA who 

makes investment decisions and enters 

orders on the retail investor’s behalf. 

The Exchange believes that this 

description will help to make clear to 

investors whether their trading practices 

and investment goals are consistent 

with the Exchange’s view of what 

constitutes retail trading activity. 

Additionally, this description should 

help to make clear that Retail Orders 

can also include orders entered on 

behalf of entities organized for the 

benefit of retail investors, and are not 

strictly limited to humans—e.g., orders 

entered by a legal representative for a 

family office may be considered Retail 

Orders as they ultimately benefit a retail 

investor. 

Conversely, the term retail investor is 

not intended to include individual 

investors that engage in more 

professional trading strategies designed 

to profit from bid-ask spreads, shortterm price movements, and arbitrage, or 

in trading behavior where multiple buy 

and sell orders are entered over a short 

period of time based on market 

conditions.15 While the Exchange 

acknowledges that certain industry 

offerings may provide individual 

investors the tools to trade in such a 

manner, such trading strategies are not 

considered those of a retail investor for 

the purposes of Rule 11.25. 

Proposed Interpretation and Policy .02 

The Exchange also seeks to adopt 

proposed Interpretation and Policy .02, 

which seeks to describe the meaning of 

the term, ‘‘natural person,’’ which is 

referenced in proposed Rule 11.25(a)(2). 

Specifically, for the purposes of Rule 

11.25, the Exchange intends for the term 

‘‘natural person’’ to refer to a human 

who enters an order or investment 

criteria for an order (discussed infra). 

This individual may be the retail 

investor him/herself, or a natural person 

entering the order on behalf of a retail 

investor (e.g., an FA or trader). 

The Exchange believes that this 

clarification will help to ensure that 

only bona fide retail orders are 

submitted to the Exchange as Retail 

Orders by making clear that orders 

generated automatically by an 

algorithm, without human intervention, 

shall not be considered Retail Orders. 

For the sake of clarity, while the 

proposed definition of Retail Order 

requires an order to be entered by a 

human, a retail investor may utilize an 

online brokerage platform that employs 

algorithms to create and manage orders 


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16 Id. 

17See. FINRA Rule 5310, Best Execution and 

Interpositioning, available at: https://www.finra.org/ 

rules-guidance/guidance/reports/2021-finrasexamination-and-risk-monitoring-program/bestexecution. FINRA Rule 5310 requires, amongst 

other things, that in any transaction for or with a 

customer or a customer of another broker-dealer, a 

FINRA member and persons associated with a 

FINRA member shall use reasonable diligence to 

ascertain the best market for the subject security 

and buy or sell in such market so that the resultant 

price to the customer is favorable as possible under 

prevailing market conditions. 

based on investment criteria (discussed 

infra) entered by a natural person. The 

Exchange believes that such orders still 

require human intervention, and the 

initial impetus to trade was not 

generated by an algorithm. In other 

words, the use of an algorithm comes 

only after investment criteria is entered 

by a human. 

Additionally, the Exchange believes 

that proposed Interpretation and Policy 

.02 will place professional investors and 

trading firms on notice that orders 

generated from algorithms, without 

human intervention, that are entered 

and routed to the Exchange for 

professional trading purposes such as 

market making, high-frequency trading, 

and proprietary trading, etc., shall not 

satisfy the definition of Retail Order.16

While certain industry offerings may 

provide individual investors 

sophisticated tools enabling them to 

trade in a more automated fashion, the 

Exchange does not believe that such 

trading strategies and corresponding 

orders should be considered Retail 

Orders for the purposes of Rule 11.25. 

Proposed Interpretation and Policy .03 

Importantly, the Exchange seeks to 

ensure that only bona fide retail flow is 

designated as a Retail Order and does 

not intend for professional investors and 

professional trading firms to avail 

themselves of the benefits provided to 

RMOs by the Exchange. Therefore, the 

Exchange also seeks adopt 

Interpretation and Policy .03 to describe 

how an RMO can permissibly utilize an 

algorithm when entering Retail Orders 

onto the Exchange. 

The Exchange believes that an RMO 

can utilize an algorithm to enter 

individual investors’ orders onto the 

Exchange, and permissibly designate 

such orders as Retail Orders, provided 

the order or investment criteria used to 

generate an order, originates from a 

natural person, such as the retail 

investor him/herself, or a natural person 

on behalf of a retail investor (e.g., an FA 

or trader), and is submitted to the 

Exchange for execution by an RMO. 

Examples of acceptable uses of 

algorithms by an RMO include, but are 

not limited to: a smart order router to 

route the Retail Order to the Exchange 

for execution; a smart order router to 

assess trading venues for the best priced 

quotation and liquidity prior to routing 

the Retail Order to the Exchange; an 

order management system, smart order 

router, or other functionality to change 

the terms an order to seek a better 

execution price; use of an order 

management system to assist with 

portfolio rebalancing and asset 

reallocation for the accounts of retail 

investors; and a retail investor’s use of 

automated investment management 

tools offered by RMOs to manage their 

assets based on their goals and risk 

tolerance (i.e., robo-advisory solutions). 

One example of an acceptable use of 

an algorithm by an RMO includes the 

use of a smart order router to route a 

Retail Order to the Exchange for 

execution. Here, an RMO may 

permissibly use a smart order router to 

send an order to the Exchange that: (i) 

an employee of the RMO (e.g., an FA or 

trader) entered into their trading system 

on behalf of a retail investor, (ii) was 

entered by the retail investor him/ 

herself and is being managed by the 

RMO algorithmically (e.g., an order 

entered by an individual investor via a 

self-directed brokerage account), (iii) 

was created by the RMO’s automated 

investment algorithm that creates orders 

based on investment criteria entered 

into a brokerage platform by a retail 

investor (i.e., robo-advisory solutions), 

or (iv) the RMO is managing on behalf 

of their broker-dealer customer that 

manages retail flow through the same 

channels described in (i)–(iii). In each 

use case, such algorithmic usage is 

permissible because the orders or 

investment criteria were not generated 

without intervention by a natural person 

and the algorithms are only used after 

the orders or investment criteria have 

been entered. 

Another permissible use of an 

algorithm by an RMO includes the use 

of a smart order router to assess trading 

venues for the best priced quotation and 

liquidity prior to routing the Retail 

Order entered through the channels 

described in (i)–(iv) above. Here, there 

is no automated generation of an order 

by an algorithm without intervention by 

a natural person—whether by order 

entry or entry of investment criteria (i.e., 

the robo-advisory scenario noted above, 

and discussed further infra). Rather, the 

RMO is using algorithmic technology 

post-order entry to assess the best 

market for the retail investor’s orders, 

which is consistent with an RMO’s duty 

to provide best execution 17 and integral 

to providing optimal execution quality. 

An RMO’s use of an order 

management system, smart order router, 

or other functionality to change the 

terms an order to seek a better execution 

price, may also be a permissible use of 

an algorithm. As discussed further 

below, an RMO may utilize such 

technology to monitor and manage 

orders previously routed to the 

Exchange on behalf of a retail investor 

to help work the order towards 

execution, by amending an order’s limit 

price, or changing the size of an order. 

Here, an order is not being 

automatically generated by an algorithm 

without intervention by a natural 

person. Rather, the RMO is utilizing 

trading technology post-order entry by a 

natural person to help achieve best 

execution for the retail investors’ orders, 

and to help achieve optimal execution 

quality. 

Moreover, use of an order 

management system to assist with 

portfolio rebalancing and asset 

reallocation for the accounts of retail 

investors may be a permissible use of an 

algorithm by an RMO. Here, a natural 

person employed by an RMO, such as 

an FA, often manages the accounts of 

multiple retail investors. In managing 

the assets of these accounts, FAs may 

often utilize order management systems, 

or other software that automatically 

rebalances their customers’ equity 

security allocations, and simultaneously 

generates a pro-rata buy or sell order to 

execute the change in position for these 

accounts in order to eliminate the need 

to manually enter multiple buy and/or 

sell orders across multiple accounts. 

Here, an FA is utilizing an order 

management system to help manage 

orders they are entering on behalf of 

retail investors. While the generation of 

the order may be based on automated 

actions from the order management 

system, the creation of the order is 

originating from the intervention of a 

natural person, the FA, in a manner 

consistent with the FA’s understanding 

of her/his clients’ investment criteria. 

Finally, the use of robo-advisory 

solutions offered by RMOs to retail 

investors to help them manage their 

personal assets based on their 

investment criteria (discussed infra) 

may also be an acceptable use of 

algorithms. As discussed below, roboadvisory solutions involve the 

algorithmic creation and management of 

orders based on investment criteria 

entered into the trading tool by a natural 

person. Despite the automated creation 

of an order by the RMO’s algorithm, the 

Exchange believes that the algorithms 

offered by robo-advisory solutions are 

only utilized after a natural person 

enters his/her investment criteria and 


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18The Limit Up/Limit Down Plan is designed to 

prevent trades in NMS Stocks from occurring 

outside specified price bands, which are set at a 

percentage level above and below the average 

reference price of a security over the preceding fiveminute period. The percentage level is determined 

by a security’s designation as a Tier 1 or Tier 2 

security. Tier 1 comprises all securities in the S&P 

500, the Russell 1000 and select Exchange Traded 

Products (ETPs). Tier 2 comprises all other NMS 

securities, except for rights and warrants, which are 

specifically excluded from coverage. The Plan 

applies during regular trading hours of 9:30 a.m. 

ET–4:00 p.m. ET. 

19For instance, many brokerage firms offer 

investment advisory programs where FAs manage 

their clients’ portfolios based on their clients’ 

investment criteria and risk profiles. In managing 

these accounts, FAs may determine that a certain 

equity security has reached a price point triggering 

the buying (selling) of such security across multiple 

client accounts. Rather than individually buying 

(selling) the security multiple times for each client 

account, an FA may instead choose to manage the 

accounts through automated technology, such as an 

order management system, trading algorithm, and 

smart order router. The Exchange believes that the 

Retail Order definition should include such 

activity, as the order activity is being entered by a 

natural person (i.e., the FA), on behalf of natural 

persons (i.e., retail investors). 

20For example, Merrill Guided Investing offers 

retail investors an automated investing tool. See 

Merrill Guided Investing, available at: https://

merrilledge.com/investing/merrill-guided-investing; 

see also Fidelity Go®, which provides retail 

investors with technology to help automate 

investing based on information retail investors 

provide about themselves and their financial 

institution, available at: https://www.fidelity.com/ 

managed-accounts/fidelity-go/overview; see also 

Schwab Intelligent Portfolios®, which offers retail 

investors automated investing through a roboadvisor that helps build and manage retail 

investors’ portfolios, available at: https://intelligent.

schwab.com/. 

provides certain guidelines for his/her 

account. While robo-advisory solutions 

represent a relatively new type of 

trading platform available to retail 

investors, these platforms are investing 

solutions widely used by retail investors 

and offered by numerous brokerage 

firms. Given the popularity of roboadvisory solutions, to exclude such 

automated trading technology would be 

ignore the reality of how many retail 

investors participate in today’s markets. 

Conversely, orders automatically 

generated and submitted to the 

Exchange by an algorithm based on 

factors such as market conditions and 

price movements, which do not 

originate from a manual entry of order 

terms or investment criteria by a natural 

person, shall not be considered Retail 

Orders. Examples of such algorithms 

include, but are not limited to, 

algorithms developed for marketmaking, high-frequency trading, 

liquidity provision, arbitrage, hedging, 

or proprietary trading. In addition to the 

fact that such orders do not typically 

originate from a natural person, entities 

engaging in such trading strategies are 

not typically doing so for the account of 

a retail investor. While retail investors 

may be offered certain technologies that 

would permit them to engage in the 

trading strategies mentioned above, this 

activity is generally outside the scope of 

the investment goals of a traditional 

retail investor (discussed supra) and 

should be excluded from the type of 

permissible algorithm usage for Retail 

Orders. 

Proposed Interpretation and Policy .04 

The Exchange believes that proposed 

Rule 11.25(a)(2)’s provisions prohibiting 

the changing of a Retail Order’s price or 

side may discourage the submission of 

Retail Orders to the Exchange, as it may 

be unclear how an RMO may handle a 

Retail Order it submitted to the 

Exchange algorithmically. As such, the 

Exchange seeks to codify Interpretation 

and Policy .04 to mitigate any confusion 

that RMOs may have in this regard. 

Specifically, despite proposed Rule 

11.25(a)(2)’s provision preventing the 

changing of the price or side of a Retail 

Order, Interpretation and Policy .04 

would provide that post-order entry an 

RMO may algorithmically amend the 

Retail Order’s price and/or size 

provided such amendments are made 

for the purposes of seeking better 

execution, enhance execution quality, or 

minimize market impact. 

Accordingly, an RMO may utilize an 

algorithm to add a limit price to an 

unpriced order, amend an order’s price 

and/or size to manage an order’s 

marketability and/or mitigate the risk of 

receiving executions at aberrant prices, 

or adjust the price and/or size of an 

order as market conditions or trading 

objectives may dictate. For example, an 

RMO that receives unpriced orders from 

its retail clients may choose to assign 

limit prices to such orders to prevent 

unintended market impact and to 

prevent such orders from executing at 

undesirable price levels, or to ensure an 

order’s limit price falls within the Limit 

Up/Limit Down (‘‘LULD’’) 18 bands. In 

this regard, Interpretation and Policy .04 

will help to ensure that an order 

submitted by a retail investor does not 

lose its standing as a Retail Order 

simply because the RMO that submitted 

the order assigned limit prices to the 

orders to help ensure better priced 

executions. 

Importantly, such order amendments 

may be made manually by a natural 

person who entered the order on behalf 

of the retail investor (e.g., an RMO’s 

trader, an FA, or a retail investor via 

their online brokerage account), by the 

smart order router used by the RMO to 

route the order to the Exchange, and/or 

by the algorithm utilized by the RMO to 

manage the order’s execution. While the 

changing of an order’s price or size by 

an algorithm or smart order router may 

be automated, the Exchange believes 

such behavior is permissible provided 

the RMO is making such amendments 

are made to satisfy their best execution 

obligations, prevent outsized market 

impact due to an order’s supermarketable limit price, or to ensure an 

order’s marketable limit price falls 

within the Limit Up/Limit Down bands. 

Retail Segments That Will Benefit From 

the Proposed Amendments 

The Exchange believes that the 

proposed definition may encourage 

financial advisors from wealth 

management firms that are RMOs to 

send their Retail Orders to the 

Exchange, as these RMOs will have 

additional certainty as to how 

algorithms may be used in the 

submission of Retail Orders. When 

managing their retail customers’ 

portfolios, even financial advisors rely 

on automated technologies such as 

trading algorithms and automated smart 

order routing solutions to assist them 

with efficiently managing and entering 

orders for their various customer 

accounts.19 Yet, in speaking with some 

of the Exchange’s Members, they are 

hesitant to allow send their FAs retail 

order flow to the Exchange given the 

ambiguity of the current definition of 

Retail Order. In this regard, the 

Exchange believes that the proposed 

rule change will provide further 

guidance to these Members and 

encourage them to route their Retail 

Orders to the Exchange where they can 

benefit from retail-only pricing 

incentives. Certainly, orders originating 

from FAs who are responsible for 

managing individuals’ securities 

accounts are quintessentially retail, and 

the qualification of such orders as Retail 

Orders should not be in doubt simply 

because FAs may elect to utilize 

automated trading technologies 

currently utilized by a broad array of 

other market participants. 

Additionally, the proposed rule may 

also make clear to specialized brokers 

and traditional brokerage firms 20 that 

provide retail investors with automated 

trading solutions, that orders from retail 

investors may qualify as Retail Orders. 

By way of background, automated 

trading solutions generally begin by 

providing retail investors with a 

questionnaire that asks them for 

investment criteria, such as personal 

information regarding their age, 

investing time horizon, investing goals, 

and a target dollar amount to guide asset 

allocation. From there, a retail investor’s 

investments are initially allocated and 


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21See Rule 11.25(b)(1). 

22See Rule 11.25(b)(2)(A). 

23See Rule 11.25(b)(2)(B). 

24See section, ‘‘Retail Member Organization— 

Broker-Dealer Customer Agreement’’, and ‘‘BrokerDealer Customer Annual Attestation’’ of ‘‘Cboe BYX 

Exchange, Inc., Retail Member Organization 

Application’’, available at: https://cdn.cboe.com/ 

resources/membership/BYX_Retail_Member_

Organization_Application.pdf. 

25See Rule 11.25(b)(2)(C). 

26See Rule 11.25(b)(3). 

27 Id. 

28See Rule 11.(b)(6). 

29 Id. 

30 Id. 

31 Id. 

32See Rule 1121(b)(d)(1). [sic] 

33While the RMO application process discussed 

above does rely on information provided by the 

applicant, the Exchange believes that ultimately it 

must be allowed to rely on representations made by 

registered brokers or dealers that are obligated to 

conduct their securities business consistent with 

the highest standards of commercial honor, and in 

submitting their application, have attested to the 

accuracy of the information provided to the 

Exchange. 

34 15 U.S.C. 78f(b). 

subsequently re-allocated according to 

pre-determined models developed by 

the brokerage firm. Typically, 

automated rebalancing may also occur 

when a retail investor adds or 

withdraws money from the account, or 

an allocation percentage drifts from the 

retail investor’s desired range. Retail 

investors utilizing such services 

typically complete a periodic review to 

confirm that their portfolio is still 

aligned with their investment goals, and 

when their portfolios are reallocated, 

they must accept the changes before an 

allocation is executed. In this use case, 

natural persons (i.e., retail customers) 

are directly entering their investment 

criteria into a brokerage firm’s platform, 

and algorithms and trading models 

automatically generate orders based on 

such data after the retail customer 

provides the criteria from which an 

order can be generated. If such orders do 

not qualify as Retail Orders, it would be 

hard to contemplate what types of 

orders do satisfy such a definition. 

Existing Framework Ensuring Only 

Bona Fide Retail Orders Satisfy Rule 

11.25. 

The Exchange notes that it already has 

in place robust protections designed to 

ensure only bona fide retail orders are 

designated as Retail Orders. The 

proposed amendments will not 

eliminate or diminish the strength of the 

existing protections. Rather, the 

proposed amendments will augment the 

Exchange’s existing RMO framework. 

Currently, Rule 11.25(b)(1)–(6) sets 

forth an objective process by which a 

Member organization applies to become 

a RMO. First, to qualify as a Retail 

Member Organization, a Member must 

conduct a retail routing business or 

route retail orders on behalf of another 

broker-dealer.21 To become an RMO, a 

Member is required to submit an 

application form,22 supporting 

documentation (e.g., marketing 

literature, website screenshots, and 

other publicly disclosed materials) 

confirming that the applicant’s order 

flow would meet the requirements of 

the Retail Order definition,23 and an 

attestation 24 in a form prescribed by the 

Exchange, that substantially all orders 

submitted as Retail Orders will qualify 

as such under the Rule.25 After 

submission of these materials, various 

Exchange functions, including legal and 

operations, review the application to 

assess whether the applicant’s order 

flow complies with Exchange rules.26

Applicants are then notified, in writing, 

of the Exchange’s decision.27

Furthermore, all RMOs must have in 

place policies and procedures 

reasonably designed to ensure that it 

will only designate orders as Retail 

Orders if all requirements of a Retail 

Order are met.28 These 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 the Rule, and (ii) 

monitor whether orders entered as 

Retail Orders meet the applicable 

requirements.29 If a RMO does not itself 

conduct a retail business but routes 

Retail Orders on behalf of another 

broker-dealer, the RMO’s supervisory 

procedures must be reasonably designed 

to assure that the orders it receives from 

the other broker-dealer that are 

designated as Retail Orders meets the 

definition of a Retail Order.30 In these 

cases, the RMO must (i) obtain an 

annual written representation, in a form 

acceptable to the Exchange, from each 

other broker-dealer that sends the RMO 

orders to be designated as Retail Orders 

that the entry of such orders as Retail 

Orders will be in compliance with the 

requirements of this Rule; and (ii) 

monitor whether Retail Order flow 

routed on behalf of other such brokerdealers meets the applicable 

requirements.31 Importantly, the 

Exchange’s regulatory and surveillance 

functions provide appropriate oversight 

by the Exchange by monitoring for 

continued compliance with the terms of 

these provisions. If a RMO fails to abide 

by the Retail Order requirements, the 

Exchange in its sole discretion may 

disqualify a Member from its status as 

a RMO.32

Overall, the Exchange believes it has 

in place an effective framework for 

ensuring that only bona fide retail 

orders are designated as Retail Orders 

by RMOs, and notes that the proposed 

amendments will only seek to enhance 

Members’ understanding of Exchange 

rules regarding Retail Orders, as well as 

augment the Exchange’s ability to 

enforce its rules related to Retail Orders. 

Therefore, while the proposed 

amendments may broaden the spectrum 

of retail investors whose orders are 

eligible to be routed to the Exchange by 

RMOs, the enhanced clarity of these 

rules will help to enable Members to 

make routing decisions in compliance 

with applicable Exchange rules. In this 

regard, the Exchange believes it 

important to note that as Members of the 

Exchange, RMOs must be registered 

brokers or dealers. As registered brokers 

or dealers, RMOs are subject to a 

panoply of rules, such as FINRA Rule 

2010 (Standards of Commercial Honor 

and Principles of Trade), BZX Rule 2.2. 

(Obligation of Members and the 

Exchange), and BZX Rule 3.1 (Business 

Conduct of Members). These rules 

require, amongst other things, that as 

brokers or dealers, Members are 

required to conduct business with the 

highest standards of commercial honor, 

and obligate Members to comply with 

all Exchange rules, by-laws, and 

regulations.33 While the Exchange has 

an obligation to maintain fair and 

orderly markets and carry out it its 

duties as a self-regulatory organization, 

RMOs are also obligated to ensure that 

only orders that comply with Exchange 

rules are routed to the Exchange and 

designated as Retail Orders. 

The Exchange also believes that the 

proposed amendments will provide the 

Exchange’s regulatory and surveillance 

functions with a rule set that is more 

aligned with today’s retail order routing 

practices. With the prevalent use of 

algorithms in today’s equity markets, 

more descriptive rule text will aid the 

Exchange’s business associates in 

properly guiding its Members through 

the RMO process, as well as further 

strengthen the regulatory and 

surveillance function’s ability to enforce 

Exchange rules. 

2. Statutory Basis 

The Exchange believes the proposed 

rule changes are 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.34 Specifically, 

the Exchange believes the proposed rule 

change is consistent with the Section 


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35 15 U.S.C. 78f(b)(5). 

36 Id. 

37Ninety-plus percent (90%) of retail marketable 

orders are routed to wholesalers and executed offexchange. See Chair Gensler’s remarks, ‘‘Market 

Structure and the Retail Investors: Remarks Before 

the Piper Sandler Global Exchange Conference’’, 

(June 2, 2022), available at: https://www.sec.gov/ 

news/speech/gensler-remarks-piper-sandler-globalexchange-conference-060822). 

38See Securities Exchange Act Release No. 61358 

(January 14, 2010), 75 FR 3594, 3600 (January 21, 

2010) (‘‘Concept Release on Equity Market 

Structure’’). 

39 Id. 

40Supra note 9. 

41 Id. 

42 Id. 

6(b)(5) 35 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 

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) 36 requirement that 

the rules of an exchange not be designed 

to permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

Retail Order Definition 

The Exchange believes that the 

proposed rule change is consistent with 

these principles because it would 

increase competition among execution 

venues, encourage additional onexchange retail liquidity, and offer retail 

investors the opportunity to receive 

order book priority [sic] ahead of all 

other interest on the BZX Book. The 

Exchange notes that a significant 

percentage of the orders of individual 

investors are executed over the 

counter,37 and that by amending the 

definition of Retail Order more retail 

flow may be directed to the Exchange 

and have the opportunity to execute on 

a regulated, transparent market. Indeed, 

even the Commission has noted that ‘‘a 

very large percentage of marketable 

(immediately executable) order flow of 

individual investors is ‘executed’ or 

‘internalized’ by broker-dealers in the 

[over-the-counter-markets].’’ 38 The 

Commission has also noted that a 

review of the order flow of eight retail 

brokers revealed that nearly 100% of 

their customer market orders were 

routed to over-the-counter market 

makers, often pursuant to payment for 

order flow arrangements.39 By helping 

to incentivize RMOs to send Retail 

Orders to the Exchange, RMOs will have 

another alternative to over-the-counter 

market makers. In turn, an increase in 

the number of Retail Orders submitted 

onto the Exchange will encourage more 

retail liquidity provision, thereby 

deepening BZX’s retail liquidity pool, 

fostering enhanced price discovery, and 

offering Retail Orders more price 

improvement opportunities as liquidity 

providers compete to trade with Retail 

Orders increases. 

The Exchange also believes that the 

proposed amendment to the definition 

of ‘‘Retail Order’’ promotes just and 

equitable principles of trade and is not 

unfairly discriminatory. While the 

proposed amendment treats Retail 

Orders differently than non-retail 

orders, the Exchange believes that such 

a distinction does not constitute unfair 

discrimination, and in fact benefits both 

liquidity providers and retail investors 

alike. As noted by the Commission in its 

order approving the BYX RPI program,40

the markets already distinguish between 

retail investors, whose orders are 

considered desirable by liquidity 

providers because retail investors are 

presumed to be, on average, less 

informed about short-term price 

movements, and professional traders, 

whose orders are presumed, on average, 

to be more informed about short-term 

price movements.41 Because of this 

distinction, the Commission noted that 

liquidity providers prefer to provide 

price improvement opportunities to less 

informed retail orders than to informed 

professional orders, and that absent 

price improvement opportunities, retail 

investors are likely to encounter wider 

spreads which are a consequence of 

their interaction with more informed 

order flow.42 The Exchange believes 

that in clarifying the definition of Retail 

Order, RMOs will be more encouraged 

to enter orders onto the Exchange, 

where they will receive beneficial retailonly Exchange pricing. Moreover, 

increased RMO participation may in 

turn attract additional retail liquidity, 

benefitting both the retail investing 

community and professional traders. 

The proposed amendment to the 

definition of Retail Order is also 

designed to protect investors and the 

public interest. In conjunction with 

proposed Interpretations and Policies 

.01–.04, the Exchange seeks to clarify 

precisely how Retail Orders may be 

entered onto the Exchange by RMOs 

through the use of algorithms. This 

clarity is designed to not only encourage 

Members to submit Retail Orders onto 

the Exchange, but to ensure that only 

bona fide retail orders are able to take 

advantage of the benefits provided to 

Retail Orders by the Exchange. 

Proposed Interpretation and Policy .01 

Proposed Interpretation and Policy 

.01 is designed 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. By 

providing additional guidance to market 

participants about what is meant by the 

term ‘‘retail investor’’, the Exchange is 

helping to ensure that only bona fide 

retail activity is entered onto the 

Exchange, and that professional 

investors cannot somehow avail 

themselves of the benefits offered to 

Retail Orders by the Exchange. 

The proposed clarification may also 

provide Members, and potential new 

Members, with the necessary assurances 

that they are in fact managing retail 

order flow, encouraging them to enter 

their Retail Orders onto the Exchange as 

RMOs. Increased RMO participation 

may in turn foster more retail liquidity 

provision as more sophisticated order 

flow seeks to trade with retail flow. The 

increase in liquidity provision and RMO 

provision will likely lead to deeper 

liquidity on the Exchange that will help 

to enhance price discovery and 

increased price improvement 

opportunities for not only retail 

investors, but all investors submitting 

order flow to the Exchange. 

Additionally, by routing Retail Orders to 

the Exchange, RMOs and their retail 

investors will benefit from the 

Exchange’s retail-only pricing 

incentives. 

Proposed Interpretation and Policy .02 

Proposed Interpretation and Policy 

.02 is designed 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. By 

providing additional guidance around 

the term ‘‘natural person’’, it will be 

clearer to Members that an order, or 

investment criteria for an order, must be 

entered by a human and cannot 

originate from an algorithm without 

human intervention. This will help to 

ensure that only bona fide retail orders 

are designated as ‘‘Retail Orders’’ and 

mitigate the likelihood that professional 

investors that utilize fully automated 

trading technology designed to 

participate in certain trading strategies 

inappropriately seek to designate their 

orders as Retail Orders. 

Furthermore, by clarifying that orders 

created through broker-dealers’ roboadvisory programs can qualify as Retail 

Orders if the investment criteria are 


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43See Securities Exchange Act Release No. 86280 

(July 2, 2019), 84 FR 32808 (July 9, 2019) (‘‘Notice 

of Amendment No. 1’’). 

44See BZX Rule 21.8(d)(1). [sic] 

entered by a natural person, additional 

order flow from robo-advisory program 

may be directed to the Exchange for 

execution. Similarly, by making clear 

that a ‘‘natural person’’ may also be an 

account held in corporate form, such as 

an individual retirement account or 

limited liability corporation (e.g., family 

office), more retail flow may be directed 

to the Exchange. By executing on the 

Exchange RMOs will be able to avail 

themselves of retail-specific pricing, 

which they can pass onto their retail 

clients in the form of reduced 

commissions and transaction costs. 

Additionally, these orders will have the 

opportunity to participate in the 

Exchange’s Retail Priority program [sic], 

which focuses on improving execution 

quality and trading outcomes for 

individual investors, and the firms 

facilitating their orders, by reducing 

their time to execution. 

Finally, as noted throughout, 

increased retail flow will augment the 

Exchange’s liquidity pools, thereby 

fostering price discovery, and creating 

more opportunities for price 

improvement. With improved onexecution experiences more investors 

may be incentivized to route their retails 

orders on-exchange (i.e., BZX) exposing 

retail flow to on-exchange price 

competition. 

Proposed Interpretation and Policy. 03 

Proposed Interpretation and Policy 

.03 is designed to protect investors and 

the markets by making clear to RMOs 

using algorithms to enter Retail Orders 

onto the Exchange that orders must be 

entered by a retail investor or a natural 

person on behalf of a retail investor, and 

that in the case of robo-advisory 

solutions, the retail investor must enter 

the investment criteria that the 

brokerage firm’s algorithm uses to 

generate orders. By providing examples 

of both acceptable and unacceptable 

uses of algorithms, market participants 

will be clearer as to whether the orders 

they route to the Exchange for execution 

are indeed ‘‘Retail Orders’’. In doing so, 

the Exchange is helping to ensure that 

only bona fide retail orders qualify as 

Retail Orders, and that professional 

investors are not inappropriately 

receiving benefits specifically reserved 

for retail investors. 

Proposed Interpretation and Policy 

.03 will also help to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system. By 

providing additional guidance on how 

RMOs may use algorithms when 

submitting Retail Orders to the 

Exchange, Members will be more certain 

as to whether their orders in fact qualify 

as Retail Orders. In doing so, RMOs may 

route more Retail Orders to the 

Exchange and in turn, may encourage 

more market participants to provide 

additional retail liquidity thereby 

deepening the liquidity pool, and 

enhancing price discovery and 

transparency. As more investors are 

incentivized to execute their retail flow 

on the Exchange an increasing number 

of individual investors’ orders will be 

exposed to on-exchange price 

competition, increasing their 

opportunity to receive price 

improvement and improved execution 

quality. 

Interpretation and Policy .04 

Interpretation and Policy .04 helps to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system. The 

provision preventing the changing of the 

price or side of an order in both the 

current and proposed definition of 

Retail Order was designed to ensure that 

orders entered onto the Exchange by 

RMOs were submitted on behalf of retail 

investors, and not institutional orders 

which typically have the terms of price 

and size amended, canceled, or replaced 

frequently throughout the day. 

However, the Exchange recognizes that 

RMOs may sometimes receive unpriced 

orders from their retail customers or 

may deem a certain limit price to be 

appropriate for the purposes of seeking 

a better execution and/or preventing an 

order from executing at undesirable 

price levels. As such, by clarifying that 

Retail Orders may in fact be amended 

provided it is to affect a better execution 

experience for the retail investor, or to 

manage market impact, RMOs may be 

more encouraged to send more Retail 

Orders to the Exchange. As noted 

throughout, increased RMO activity and 

retail liquidity provision will only serve 

to deepen liquidity for Retail Orders, 

which in turn will lead to price 

competition and increased price 

improvement opportunities for 

individual investors’ orders. 

The Exchange also believes that 

proposed Interpretations and Policies 

.01-.04 promote just and equitable 

principles of trade and are not unfairly 

discriminatory because they are 

intended to provide guidance to all 

Members, in particular RMOs, as to 

what constitutes a Retail Order. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule changes will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

Exchange believes its proposed 

amendment to the definition of Retail 

Order and codification of Interpretation 

and Policies .01–.04 will benefit 

intramarket competition rather than 

burden competition. The proposed 

changes serve to provide additional 

clarity to Members and RMOs as to the 

types of persons or accounts eligible to 

submit Retail Orders and describe the 

permissible and impermissible uses of 

algorithms available to Members and 

RMOs when submitting Retail Orders. 

The Exchange believes this additional 

information will lead to additional retail 

order flow being submitted to the 

Exchange by RMOs, which all contraside orders are eligible to interact with. 

Greater overall order flow and trading 

opportunities benefits all market 

participants on the Exchange. An 

increase in RMO activity and liquidity 

providing orders will serve to enhance 

the Exchange’s available liquidity. 

Deeper liquidity pools will, in turn, 

enhance price discovery, as well as 

price improvement opportunities for 

retail investors as liquidity providers 

compete for retail executions. Liquidity 

providers also benefit by being able to 

interact with retail order flow that is 

often executed off-exchange, and 

therefore generally inaccessible to those 

trading in the lit markets. 

While the proposed definition will 

help to ensure that only bona fide retail 

investors receive the benefits of afforded 

to Retail Orders, prioritization of retail 

investors is not a novel concept in the 

securities market. In this regard, the 

proposed amendments should not result 

in any new or novel issues to be 

considered by the Commission, or that 

have not already been contemplated by 

today’s market participants. Indeed, as 

noted in the Amendment 1 of the 

EDGX’s Retail Priority filing,43 customer 

priority has a long tradition in the 

options market where orders entered on 

behalf of non-broker dealer public 

customers have historically been 

afforded priority over orders submitted 

by registered broker dealers. In fact, 

most options exchanges, including the 

Exchange’s equity options platform,44

employ a customer priority execution 

algorithm where orders submitted by a 

subset of public customer with more 

limited trading activity are provided 

order book priority ahead of orders 

submitted by broker-dealers or other 

market professionals at the same price. 

The Exchange further believes that the 

proposed rule change will increase 


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Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices 10129 

45See Securities Exchange Act Release No. 96495 

(December 14, 2022), 88 FR 128 (January 3, 2023) 

(‘‘Order Competition Rule’’) at 178. 46 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

intermarket competition by enabling the 

Exchange to better compete with other 

exchanges and off-exchange trading 

venues for retail order flow. The 

Commission has spoken about 

‘‘increasing competition and enhancing 

the direct exposure of individual 

investor orders to a broader spectrum of 

market participants’’ 45 and the 

Exchange believes its proposed 

amendments to the definition of Retail 

Order and introduction of 

Interpretations and Policies .01–.04 

provide sufficient guidance to RMOs to 

encourage additional retail order flow 

be sent to the Exchange. In turn, retail 

investors will have additional 

opportunities to receive executions on a 

transparent, regulated, national 

securities exchange in addition to the 

currently available off-exchange trading 

venues. Additionally, a revised 

definition of Retail Order may 

encourage additional competition for 

retail order flow on-exchange that 

would be eligible to avail themselves of 

retail specific benefits and order types 

offered by the Exchange, such as Retail 

Attribution. This, in turn, could create 

additional incentives for regulated 

exchanges to develop additional 

liquidity programs designed at 

providing additional benefits to retail 

investors, thus promoting additional 

intermarket competition. 

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 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

CboeBZX–2024–007 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–CboeBZX–2024–007. 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–CboeBZX–2024–007 and should be 

submitted on or before March 5, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.46

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–02858 Filed 2–12–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99490; File No. SR– 

CboeEDGX–2024–009] 

Self-Regulatory Organizations; Cboe 

EDGX Exchange, Inc.; Notice of Filing 

of a Proposed Rule Change To Amend 

the Definition of Retail Order, and 

Codify Interpretations and Policies 

Regarding Permissible Uses of 

Algorithms by RMOs 

February 7, 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 January 

25, 2024, Cboe EDGX Exchange, Inc. 

(the ‘‘Exchange’’ or ‘‘EDGX’’) 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe EDGX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘EDGX’’) is filing with 

the Securities and Exchange 

Commission (the ‘‘Commission’’) a 

proposal to (i) amend the definition of 

‘‘Retail Order’’ as defined by Exchange 

Rule 11.21(a)(2); (ii) codify proposed 

Interpretation and Policy. 01, which 

describes the meaning of the term, 

‘‘retail investor,’’ as referenced in 

proposed Rule 11.21(a)(2); (iii) codify 

proposed Interpretation and Policy .02, 

which describes the meaning of the 

term, ‘‘natural person,’’ as referenced in 

proposed Rule 11.21(a)(2); (iv) codify 

proposed Interpretation and Policy .03, 

which describes acceptable uses of 

algorithms or other computerized 

methodology by Retail Member 

Organizations; and (v) codify proposed 

Interpretation and Policy .04 which 

explains that Rule 11.21(a)(2)’s 

provision preventing the terms of an 

order with respect to price is not 

intended to prevent a Retail Member 

Organization from changing the terms of 

the order to ensure a better execution 

experience for a retail investor. The text 

of the proposed rule change is provided 

in Exhibit 5. 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://markets.cboe.com/us/ 


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