Federal Register / Vol. 79, No. 209 / Wednesday, October 29, 2014 / Notices 64447 

19 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3This filing is substantially the same to the one 

establishing the RPI pilot by The NASDAQ Stock 

Market LLC (‘‘NASDAQ’’). The NASDAQ pilot 

program expires on December 31, 2014. See 

Securities Exchange Act Release No. 68937 

(February 15, 2013), 78 FR 12397 (February 22, 

2013) (‘‘RPI Approval Order’’) (SR–NASDAQ–2012– 

129). 

4The term Protected Quotation is defined in 

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

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

The Protected NBBO is the best-priced protected 

bid and offer. Generally, the Protected NBBO and 

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

same. However, a market center is not required to 

route to the NBBO if that market center is subject 

to an exception under Regulation NMS Rule 

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

for an automatic execution. In such case, the 

Protected NBBO would be the best-priced protected 

bid or offer to which a market center must route 

interest pursuant to Regulation NMS Rule 611. 

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 Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549 on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

offices of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–BATS– 

2014–051, and should be submitted on 

or before November 19, 2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Kevin M. O’ Neill, 

Deputy Secretary. 

[FR Doc. 2014–25667 Filed 10–28–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73410; File No. SR–BX– 

2014–048] 

Self-Regulatory Organizations; 

NASDAQ OMX BX, Inc.; Notice of Filing 

of a Proposed Rule Change To 

Establish the Retail Price Improvement 

Program on a Pilot Basis Expiring 

Twelve Months From the Date of 

Implementation 

October 23, 2014. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on October 

17, 2014, NASDAQ OMX BX, Inc. (‘‘BX’’ 

or the ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I and 

II below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) a proposed 

rule change that would adopt new BX 

Rule 4780 to establish a Retail Price 

Improvement (‘‘RPI’’) Program (the 

‘‘Program’’ or ‘‘proposed rule change’’) 

to attract additional retail order flow to 

the Exchange while also providing the 

potential for price improvement to such 

order flow. 

The Exchange has designated 

December 1, 2014 as the date the 

proposed rule change becomes effective. 

The text of the proposed rule change 

is available from the Exchange’s Web 

site at http://

nasdaqomxbx.cchwallstreet.com/

Filings/, at the Exchange’s principal 

office, 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 

Background 

The Exchange is proposing a one-year 

pilot program that would add new BX 

Rule 4780 to establish an RPI Program 

to attract additional retail order flow to 

the Exchange while also providing the 

potential for price improvement to such 

order flow.3 Under the proposed rule 

change, the Exchange would create a 

new class of market participant called a 

Retail Member Organization (‘‘RMO’’), 

which would be eligible to submit 

certain retail order flow (‘‘Retail 

Orders’’) to the Exchange. As proposed, 

BX members (‘‘Members’’) will be 

permitted to provide potential price 

improvement for Retail Orders in the 

form of non-displayed interest that is 

priced more aggressively than the 

Protected National Best Bid or Offer 

(‘‘Protected NBBO’’).4

Definitions 

The Exchange proposes to adopt the 

following definitions under proposed 

BX Rule 4780. First, the term ‘‘Retail 

Member Organization’’ (or ‘‘RMO’’) 

would be defined as a Member (or a 

division thereof) that has been approved 

by the Exchange to submit Retail 

Orders. 

Second, the term ‘‘Retail Order’’ 

would be defined as an agency order, or 

riskless principal order that satisfies the 

criteria of FINRA Rule 5320.03, 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 

(except in the case of a market order 

being changed to a marketable limit 

order) or side of market and the order 

does not originate from a trading 

algorithm or any other computerized 

methodology. The criteria set forth in 

FINRA Rule 5320.03 adds additional 

precision to the definition of ‘‘Retail 

Order’’ by clarifying that an RMO may 

enter Retail Orders on a riskless 

principal basis, provided that (i) the 

entry of such riskless principal orders 

meet the requirements of FINRA Rule 

5320.03, including that the RMO 

maintains supervisory systems to 

reconstruct, in a time-sequenced 

manner, all Retail Orders that are 

entered on a riskless principal basis; 

and (ii) the RMO submits a report, 

contemporaneously with the execution 

of the facilitated order, that identifies 

the trade as riskless principal. 

The term ‘‘Retail Price Improvement 

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

‘‘RPI interest’’ would be defined as nondisplayed liquidity on the Exchange that 

is priced more aggressively than the 

Protected NBBO by at least $0.001 and 

that is identified as an RPI Order in a 

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64448 Federal Register / Vol. 79, No. 209 / Wednesday, October 29, 2014 / Notices 

5Exchange systems would prevent Retail Orders 

from interacting with RPI Orders if the RPI Order 

is not priced at least $0.001 better than the 

Protected NBBO. The Exchange notes, however, 

that price improvement of $0.001 would be a 

minimum requirement and Members could enter 

RPI Orders that better the Protected NBBO by more 

than $0.001. Exchange systems will accept RPI 

Orders without a minimum price improvement 

value; however, such interest will execute at its 

floor or ceiling price only if such floor or ceiling 

price is better than the Protected NBBO by $0.001 

or more. Concurrently with this filing, the Exchange 

has submitted a request for an exemption under 

Regulation NMS Rule 612 that would permit it to 

accept and rank the non-displayed RPI Orders. As 

outlined in the request, the Exchange believes that 

the minimum price improvement available under 

the Program, which would amount to $0.50 on a 

500 share order, would be meaningful to the small 

retail investor. See Letter from Jeffrey S. Davis, 

Deputy General Counsel, NASDAQ OMX BX, Inc.to 

Brent J. Fields, Secretary, Securities and Exchange 

Commission dated October 10, 2014 (‘‘Sub-Penny 

Rule Exemption Request’’). 

6Other price improving liquidity may include, 

but is not limited to: booked non-displayed orders 

with a limit price that is more aggressive than the 

then-current NBBO; midpoint-pegged orders (which 

are by definition non-displayed and priced more 

aggressively than the NBBO); non-displayed orders 

pegged to the NBBO with an aggressive offset, as 

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

Improving Contra-Side Interest. Orders that do not 

constitute other price improving liquidity include, 

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

instruction of IOC; displayed orders; limit orders 

priced less aggressively than the NBBO. 

7For example, a prospective RMO could be 

required to provide sample marketing literature, 

Web site screenshots, other publicly disclosed 

materials describing the retail nature of their order 

flow, and such other documentation and 

information as the Exchange may require to obtain 

reasonable assurance that the applicant’s order flow 

would meet the requirements of the Retail Order 

definition. 

manner prescribed by the Exchange.5

RPI orders can be priced either as an 

explicitly priced limit order or 

implicitly priced as relative to the 

NBBO with an offset of at least $0.001. 

The price of an RPI Order with an offset 

would be determined by a Member’s 

entry of the following into the 

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

an offset from the Protected NBBO, if 

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

Orders submitted with an offset would 

be similar to other peg orders available 

to Members in that the order is tied or 

‘‘pegged’’ to a certain price, and would 

have its price automatically set and 

adjusted upon changes in the Protected 

NBBO, both upon entry and any time 

thereafter. The Exchange expects that 

RPI sell or buy interest typically would 

be entered to track the Protected NBBO, 

that is, RPI Orders typically would be 

submitted with an offset. The offset 

would be a predetermined amount by 

which the Member is willing to improve 

the Protected NBBO, subject to a ceiling 

or floor price. The ceiling or floor price 

would be the amount above or below 

which the Member does not wish to 

trade. RPI Orders in their entirety (the 

buy or sell interest, the offset, and the 

ceiling or floor) will remain nondisplayed. The Exchange will also allow 

Members to enter RPI Orders which 

establish the exact limit price, which is 

similar to a non-displayed limit order 

currently accepted by the Exchange 

today except the Exchange will accept 

sub-penny limit prices on RPI Orders in 

increments of $0.001. The Exchange 

will monitor whether RPI buy or sell 

interest, adjusted by any offset and 

subject to the ceiling or floor price, is 

eligible to interact with incoming Retail 

Orders. 

Members and RMOs may enter odd 

lots, round lots or mixed lots as RPI 

Orders and as Retail Orders 

respectively. As discussed below, RPI 

Orders will be ranked and allocated 

according to price and time of entry into 

the System consistent with BX Rule 

4757 and therefore without regard to 

whether the size entered is an odd lot, 

round lot or mixed lot amount. 

Similarly, Retail Orders will interact 

with RPI Orders and other priceimproving orders available on the 

Exchange (e.g., non-displayed liquidity 

priced more aggressively than the 

NBBO) 6 according to the Priority and 

Allocation rules of the Program and 

without regard to whether they are odd 

lots, round lots or mixed lots. Finally, 

Retail Orders may be designated as Type 

1 or Type 2 without regard to the size 

of the order. 

RPI Orders would interact with Retail 

Orders as follows. Assume a Member 

enters RPI sell interest with an offset of 

$0.001 and a floor of $10.10 while the 

Protected NBO is $10.11. The RPI Order 

could interact with an incoming buy 

Retail Order at $10.109. If, however, the 

Protected NBO was $10.10, the RPI 

Order could not interact with the Retail 

Order because the price required to 

deliver the minimum $0.001 price 

improvement ($10.099) would violate 

the Member’s floor of $10.10. If a 

Member otherwise enters an offset 

greater than the minimum required 

price improvement and the offset would 

produce a price that would violate the 

Member’s floor, the offset would be 

applied only to the extent that it 

respects the Member’s floor. By way of 

illustration, assume RPI buy interest is 

entered with an offset of $0.005 and a 

ceiling of $10.112 while the Protected 

NBBO is at $10.11. The RPI Order could 

interact with an incoming sell Retail 

Order at $10.112, because it would 

produce the required price 

improvement without violating the 

Member’s ceiling, but it could not 

interact above the $10.112 ceiling. 

Finally, if a Member enters an RPI Order 

without an offset (i.e., an explicitly 

priced limit order), the RPI Order will 

interact with Retail Orders at the level 

of the Member’s limit price as long as 

the minimum required price 

improvement is produced. Accordingly, 

if RPI sell interest is entered with a limit 

price of $10.098 and no offset while the 

Protected NBBO is $10.11, the RPI 

Order could interact with the Retail 

Order at $10.098, producing $0.012 of 

price improvement. The System will not 

cancel RPI interest when it is not 

eligible to interact with incoming Retail 

Orders; such RPI interest will remain in 

the System and may become eligible 

again to interact with Retail Orders 

depending on the Protected NBBO. RPI 

Orders will not be accepted during 

halts. 

RMO Qualifications and Approval 

Process 

Under proposed BX Rule 4780(b), any 

Member could qualify as an RMO if it 

conducts a retail business or handles 

retail orders on behalf of another brokerdealer. Any Member that wishes to 

obtain RMO status would be required to 

submit: (i) An application form; (ii) 

supporting documentation sufficient to 

demonstrate the retail nature and 

characteristics of the applicant’s order 

flow 7and (iii) an attestation, in a form 

prescribed by the Exchange, that 

substantially all orders submitted by the 

Member as a Retail Order would meet 

the qualifications for such orders under 

proposed BX Rule 4780(b). The 

Exchange shall notify the applicant of 

its decision in writing. 

An RMO would be required to have 

written policies and procedures 

reasonably designed to assure that it 

will only designate orders as Retail 

Orders if all requirements of a Retail 

Order are met. Such written policies 

and procedures must require the 

Member to (i) exercise due diligence 

before entering a Retail Order to assure 

that entry as a Retail Order is in 

compliance with the requirements of 

this rule, and (ii) monitor whether 

orders entered as Retail Orders meet the 

applicable requirements. If the RMO 

represents Retail Orders from another 

broker-dealer customer, the RMO’s 

supervisory procedures must be 

reasonably designed to assure that the 

orders it receives from such brokerdealer customer that it designates as 

Retail Orders meet the definition of a 

Retail Order. The RMO must (i) obtain 

an annual written representation, in a 

form acceptable to the Exchange, from 

each broker-dealer customer that sends 

it orders to be designated as Retail 

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8The Exchange or another self-regulatory 

organization on behalf of the Exchange will review 

an RMO’s compliance with these requirements 

through an exam based review of the RMO’s 

internal controls. 

9The Exchange notes that the Retail Liquidity 

Identifier for Tape A and Tape B securities will be 

disseminated pursuant to the CTA/CQS Plan as 

soon as the Program, if approved, becomes 

operational. The identifier will also be available 

through the consolidated public market data stream 

for Tape C securities. The processor for the Nasdaq 

UTP quotation stream will disseminate the Retail 

Liquidity Identifier and analogous identifiers from 

other market centers that operate programs similar 

to the RPI Program. 

Orders that entry of such orders as 

Retail Orders will be in compliance 

with the requirements of this rule, and 

(ii) monitor whether its broker-dealer 

customers’ Retail Order flow continues 

to meet the applicable requirements.8

If the Exchange disapproves the 

application, the Exchange would 

provide a written notice to the Member. 

The disapproved applicant could appeal 

the disapproval by the Exchange as 

provided in proposed BX Rule 4780(d), 

and/or reapply for RMO status 90 days 

after the disapproval notice is issued by 

the Exchange. An RMO also could 

voluntarily withdraw from such status 

at any time by giving written notice to 

the Exchange. 

Failure of RMO To Abide by Retail 

Order Requirements 

Proposed BX Rule 4780(c) addresses 

an RMO’s failure to abide by Retail 

Order requirements. If an RMO 

designates orders submitted to the 

Exchange as Retail Orders and the 

Exchange determines, in its sole 

discretion, that those orders fail to meet 

any of the requirements of Retail Orders, 

the Exchange may disqualify a Member 

from its status as an RMO. When 

disqualification determinations are 

made, the Exchange would provide a 

written disqualification notice to the 

Member. A disqualified RMO could 

appeal the disqualification as provided 

in proposed BX Rule 4780(d) and/or 

reapply for RMO status 90 days after the 

disqualification notice is issued by the 

Exchange. 

Appeal of Disapproval or 

Disqualification 

Proposed BX Rule 4780(d) provides 

appeal rights to Members. If a Member 

disputes the Exchange’s decision to 

disapprove it as an RMO under BX Rule 

4780(b) or disqualify it under BX Rule 

4780(c), such Member (‘‘appellant’’) 

may request, within five business days 

after notice of the decision is issued by 

the Exchange, that the Retail Price 

Improvement Program Panel (‘‘RPI 

Panel’’) review the decision to 

determine if it was correct. 

The RPI Panel would consist of the 

Exchange’s Chief Regulatory Officer 

(‘‘CRO’’), or a designee of the CRO, and 

two officers of the Exchange designated 

by the Chief Executive Officer of BX. 

The RPI Panel would review the facts 

and render a decision within the time 

frame prescribed by the Exchange. The 

RPI Panel could overturn or modify an 

action taken by the Exchange and all 

determinations by the RPI Panel would 

constitute final action by the Exchange 

on the matter at issue. 

Retail Liquidity Identifier 

Under proposed BX Rule 4780(e), the 

Exchange proposes to disseminate an 

identifier when RPI interest priced at 

least $0.001 better than the Exchange’s 

Protected Bid or Protected Offer for a 

particular security is available in the 

System (‘‘Retail Liquidity Identifier’’). 

The Retail Liquidity Identifier will be 

disseminated through consolidated data 

streams (i.e., pursuant to the 

Consolidated Tape Association Plan/

Consolidated Quotation System, or 

CTA/CQS, for Tape A and Tape B 

securities, and the Nasdaq UTP Plan for 

Tape C securities) as well as through 

proprietary Exchange data feeds.9 The 

Retail Liquidity Identifier will reflect 

the symbol and the side (buy or sell) of 

the RPI interest, but will not include the 

price or size of the RPI interest. In 

particular, CQS and UTP quoting 

outputs will include a field for codes 

related to the Retail Liquidity Identifier. 

The codes will indicate RPI interest that 

is priced better than the Exchange’s 

Protected Bid or Protected Offer by at 

least the minimum level of price 

improvement as required by the 

Program. 

Retail Order Designations 

Under proposed BX Rule 4780(f), an 

RMO can designate how a Retail Order 

would interact with available contraside interest as follows. 

As proposed, a Type 1-designated 

Retail Order would interact with 

available contra-side RPI Orders and 

other price improving liquidity but 

would not interact with other available 

contra-side interest in the System or 

route to other markets. The shares 

remaining from a Type 1-designated 

Retail Order that do not fully execute 

against contra-side RPI Orders or other 

price improving liquidity, if any, would 

be immediately and automatically 

cancelled. 

A Type 2-designated Retail Order 

would also interact first with available 

contra-side RPI Orders and other price 

improving liquidity, but would also be 

eligible to interact with other available 

contra-side interest in the System or 

optionally route to other market centers 

pursuant to Rule 4758. Accordingly, the 

shares remaining from a Type 2- 

designated Retail Order that do not fully 

execute against contra-side RPI Orders 

or other price improving liquidity, if 

any, would execute against other 

liquidity available on the Exchange or 

be routed to other market centers for 

execution. The remaining unexecuted 

portion would then be cancelled. 

Priority and Order Allocation 

Under proposed BX Rule 4780(g), the 

Exchange proposes that competing RPI 

Orders in the same security would be 

ranked and allocated according to price 

then time of entry into the System. The 

Exchange further proposes that 

executions will occur in price/time 

priority in accordance with BX Rule 

4757. Any remaining unexecuted RPI 

interest will remain available to interact 

with other incoming Retail Orders if 

such interest is at an eligible price. Any 

remaining unexecuted portion of the 

Retail Order will cancel or execute in 

accordance with proposed BX Rule 

4780(f). The following example 

illustrates this proposed method: 

Protected NBBO for security ABC is 

$10.00–$10.05 

Member 1 enters an RPI Order to buy 

ABC at $10.015 for 500 

Member 2 then enters an RPI Order to 

buy ABC at $10.02 for 500 

Member 3 then enters an RPI Order to 

buy ABC at $10.035 for 500 

An incoming Retail Order to sell 

1,000 shares of ABC for $10.00 executes 

first against Member 3’s bid for 500 at 

$10.035, because it is the best priced 

bid, then against Member 2’s bid for 500 

at $10.02, because it is the next best 

priced bid. Member 1 is not filled 

because the entire size of the Retail 

Order to sell 1,000 is depleted. The 

Retail Order executes against RPI Orders 

in price/time priority. 

However, assume the same facts 

above, except that Member 2’s RPI 

Order to buy ABC at $10.02 is for 100. 

The incoming Retail Order to sell 1,000 

executes first against Member 3’s bid for 

500 at $10.035, because it is the best 

priced bid, then against Member 2’s bid 

for 100 at $10.02, because it is the next 

best priced bid. Member 1 then receives 

an execution for 400 of its bid for 500 

at $10.015, at which point the entire 

size of the Retail Order to sell 1,000 is 

depleted. 

As a final example, assume the same 

facts as above, except that Member 3’s 

order was not an RPI Order to buy ABC 

at $10.035, but rather, a non-displayed 

order to buy ABC at $10.03. The result 

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10As discussed above, the price of an RPI would 

be determined by a Member’s entry of buy or sell 

interest, an offset (if any) and a ceiling or floor 

price. The Exchange expects that RPI sell or buy 

interest typically would track the Protected NBBO. 

11Type 2 Retail Orders are treated as IOC orders 

that execute against displayed and non-displayed 

liquidity in the Exchange’s order book where there 

is no available liquidity in the Program. Type 2 

Retail Orders can either be designated as eligible for 

routing or as non-routable, as described above. 

12 Given the proposed limitation, the pilot 

Program would have no impact on the minimum 

pricing increment for orders priced less than $1.00 

and therefore no effect on the potential of markets 

executing those orders to lock or cross. In addition, 

the non-displayed nature of the liquidity in the 

Program simply has no potential to disrupt 

displayed, protected quotes. In any event, the 

Program would do nothing to change the obligation 

of exchanges to avoid and reconcile locked and 

crossed markets under NMS Rule 610(d). 

13Securities Exchange Act Release No. 68836 

[sic] (December 3, 2012), 77 FR 73097, 73100 

(December 7, 2012) (SR–NASDAQ–2012–129 

Notice) and Securities Exchange Act Release No. 

68937 (February 15, 2013) 77 [sic] FR 12397 

(February 22, 2013) (SR–NASDAQ–2012–129 

Approval Order). 

14Securities Exchange Act Release No. 67347 

(July 3, 2012), 77 FR 40673 (July 10, 2012) (SR– 

NYSE–2011–55; SR–NYSEAmex–2011–84) (the 

‘‘RLP Approval Order’’). In conjunction with the 

approval of the NYSE Retail Liquidity Program, a 

nearly identical program was proposed and 

approved to operate on NYSE MKT LLC (formerly, 

the American Stock Exchange). For ease of 

reference, the comparisons made in this section 

only refer to NYSE Rule 107C, but apply equally to 

NYSE MKT Rule 107C. 

15Securities Exchange Act Release No. 68303 

(November 27, 2012) 77 FR 71652 (December 3, 

2012) (SR–BYX–2012–019). 

16The Exchange has proposed to accept RPIs in 

a manner similar to the explicitly accepted method 

at NYSE and NYSE MKT, specifically, with an 

offset as well as a ceiling or a floor (i.e., the entry 

of an RPI bid with an offset of $0.015 and a ceiling 

of $10.04; when the NBBO is $10.02 by $10.04, an 

incoming sell order would execute against such RPI 

at $10.035). The Exchange notes that like NYSE and 

NYSE MKT, Members will be able to submit retail 

price improving orders with an explicit sub-penny 

floor or ceiling and no offset, effectively creating a 

static sub-penny limit order, and the Exchange has 

proposed rule text to make this ability clear. 

17NYSE Rule 107C(f). 

18Moreover, although pursuant to NYSE Rules 

107C(k)(2) and 107C(k)(3), a Type 2-designated 

Retail Order and a Type 3-designated Retail Order 

can interact with other non-RPI interest in the 

NYSE systems, such interaction only occurs after a 

Retail Order first executes against RPI Orders. 

would be similar to the result 

immediately above, in that the incoming 

Retail Order to sell 1,000 executes first 

against Member 3’s bid for 500 at 

$10.03, because it is the best priced bid, 

then against Member 2’s bid for 100 at 

$10.02, because it is the next best priced 

bid. Member 1 then receives an 

execution for 400 of its bid for 500 at 

$10.015, at which point the entire size 

of the Retail Order to sell 1,000 is 

depleted. 

Implementation 

The Exchange proposes that all 

Regulation NMS securities traded on the 

Exchange would be eligible for 

inclusion in the RPI Program. The 

Exchange proposes to limit the Program 

during the pilot period to trades 

occurring at prices equal to or greater 

than $1.00 per share. Toward that end, 

Exchange trade validation systems 

would prevent the interaction of RPI 

buy or sell interest (adjusted by any 

offset) and Retail Orders at a price 

below $1.00 per share.10 For example, if 

there was RPI buy interest tracking the 

Protected NBB at $0.99 with an offset of 

$0.001 and a ceiling of $1.02, Exchange 

trade validation systems would prevent 

the execution of the RPI Order at $0.991 

with a sell Retail Order with a limit of 

$0.99. However, if the Retail Order was 

Type 2 as defined in the Program,11 it 

would be able to interact at $0.99 with 

liquidity outside the Program in the 

Exchange’s order book. In addition to 

facilitating an orderly 12 and 

operationally intuitive pilot, the 

Exchange believes that limiting the 

Program to trades equal to or greater 

than $1.00 per share during the pilot 

will enable it better to focus its efforts 

to monitor price competition and to 

assess any indications that data 

disseminated under the Program is 

potentially disadvantaging retail orders. 

As part of that review, the Exchange 

will produce data throughout the pilot, 

which will include statistics about 

participation, the frequency and level of 

price improvement provided by the 

Program, and any effects on the broader 

market structure. 

Comparison to Existing Programs 

Proposed BX Rule 4780 is 

substantially the same to the one 

establishing NASDAQ Rule 4780 

governing NASDAQ’s ‘‘Retail Price 

Improvement Program’’, which was 

approved by the Commission and 

commenced operations on March 28, 

2013.13 NASDAQ’s program, in turn, is 

based on NYSE Rule 107C, governing 

NYSE’s ‘‘Retail Liquidity Program,’’ 

which was approved by the Commission 

and commenced operations on August 

1, 2012 14 and on BATS Y-Exchange, 

Inc. (‘‘BATS’’) Rule 11.24, which was 

approved by the Commission and 

commenced operations on 12/17/12.15

Proposed BX Rule 4780 is similar to 

both BATS Rule 11.24 and NYSE Rule 

107C with three key distinctions to the 

latter.16 The first distinction is that 

NYSE Rule 107C includes a class of 

participant that is registered as a 

provider of liquidity and provides 

specific procedures and rules related to 

such participants and their role in the 

NYSE RLP. NYSE Rule 107C does 

permit all participants to submit RPI 

Orders to NYSE, but provides the 

specific class of registered retail 

liquidity providers with execution fees 

that are lower than fees charged to other 

participants in exchange for a 

requirement to maintain RPI Orders on 

NYSE at least 5% of the trading day.17

The Exchange believes that equal 

treatment for all Exchange Members that 

enter RPI Orders will result in a higher 

level of competition and maximize price 

improvement to incoming Retail Orders. 

Accordingly, the Exchange has not 

proposed to adopt a special category of 

retail liquidity provider. 

The second distinction between 

proposed BX Rule 4780 and NYSE Rule 

107C is that the Exchange proposes to 

in all cases execute incoming Retail 

Orders against resting RPI Orders and 

other resting non-displayed liquidity to 

maximize the price improvement 

available to the incoming Retail Order. 

As proposed, the Exchange will 

maintain its strict price/time priority 

model and will provide all available 

price improvement to incoming Retail 

Orders, whether such price 

improvement is submitted pursuant to 

the Program or as an order type 

currently accepted by the Exchange, 

such as non-displayed orders. In 

contrast, pursuant to NYSE Rule 

107C(k)(1), a Type 1-designated Retail 

Order, ‘‘will interact only with available 

contra-side Retail Price Improvement 

Orders and will not interact with other 

available contra-side interest in 

Exchange systems.’’ 18 The Exchange is 

proposing in all cases to provide the 

maximum price improvement available 

to incoming Retail Orders. Accordingly, 

Retail Orders under the Exchange’s 

Program will always interact with 

available contra-side RPI Orders and 

any other price improving contra-side 

interest, in price/time priority 

consistent with BX Rule 4780(b). Such 

‘‘other’’ price improving contra-side 

interest will of course remain available 

to all participants, as it is today, while 

RPI Orders will only be available to 

RMOs, as described above. 

Finally, as proposed the Exchange 

will provide applicable price 

improvement to incoming Retail Orders 

at potentially multiple price levels. In 

contrast, pursuant to NYSE Rule 107C 

an incoming Retail Order to NYSE will 

execute at the single clearing price level 

at which the incoming order will be 

fully executed. To illustrate, assume the 

same facts set forth in the second 

example above, where Member 2’s RPI 

Order to buy ABC at $10.02 was for 100 

shares. Pursuant to NYSE Rule 107C, an 

incoming Retail Order to sell 1,000 

shares at $10.00 would execute first 

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Federal Register / Vol. 79, No. 209 / Wednesday, October 29, 2014 / Notices 64451 

19 15 U.S.C. 78f(b). 

20 15 U.S.C. 78f(b)(5). 

21See Concept Release on Equity Market 

Structure, Securities Exchange Act Release No. 

61358 (January 14, 2010), 75 FR 3594 (January 21, 

2010) (noting that dark pools and internalizing 

broker-dealers executed approximately 25.4% of 

share volume in September 2009). See also Mary L. 

Schapiro, Strengthening Our Equity Market 

Structure (Speech at the Economic Club of New 

York, Sept. 7, 2010) (available on the Commission’s 

Web site). In her speech, Chairman Schapiro noted 

that nearly 30 percent of volume in U.S.-listed 

equities was executed in venues that do not display 

their liquidity or make it generally available to the 

public and the percentage was increasing nearly 

every month. 

22See RLP Approval Order, supra note 14. 

23 15 U.S.C. 78f(b)(5). 

24 15 U.S.C. 78f(b)(5). 

25See RLP Approval Order, supra note 14, at 

40679–40680 (citing Concept Release on Equity 

Market Structure and approval of an options 

exchange program related to price improvement for 

retail orders). Certain options exchanges deploy this 

same rationale today through pricing structures that 

vary for a trading participant based on the capacity 

Continued 

against Member 3’s bid for 500 shares, 

because it is the best priced bid, then 

against Member 2’s bid for 100 shares, 

because it is the next best priced bid, 

then against 400 of the 500 shares bid 

by Member 1. However, rather than 

executing at each of these price levels 

for the number of shares available (i.e., 

500 shares at $10.035, 100 shares at 

$10.02 and 400 shares at $10.015), as it 

would under proposed BX Rule 4780(b), 

the Retail Order submitted to NYSE 

pursuant to NYSE Rule 107C executes at 

the single clearing price that completes 

the order’s execution, which is $10.015 

to complete the entire order to sell 1,000 

shares. The Exchange intends to provide 

all of the price improvement in these 

examples to the incoming Retail Order, 

and thus has proposed to execute orders 

under the Program consistent with its 

existing price/time market model. 

Fee Structure of Program 

The Exchange will submit a separate 

proposal to amend its fee schedule in 

connection with the proposed RPI 

Program. Under that proposal, the 

Exchange expects to charge Members a 

fee for executions of their RPI Orders 

against Retail Orders and in turn would 

provide a credit or free executions to 

RMOs for executions of their Retail 

Orders against RPI Orders. The fees and 

credits for liquidity providers and 

RMOs may be adjusted from time to 

time as the Exchange gains experience 

with the Program. 

As explained above, the Exchange 

proposes to execute incoming Retail 

Orders against all available contra-side 

interest that will provide price 

improvement to the Retail Order, 

including non-displayed orders other 

than RPI Orders. In the event nondisplayed interest priced better than the 

NBBO other than an RPI Order interacts 

with a Retail Order, the Exchange 

anticipates proposing to rebate the 

Member that entered such nondisplayed interest a credit rather than 

the charge which is imposed for an RPI 

Order execution. In such cases, the 

rebate credited to the Member that 

entered the non-displayed interest may 

be less than the rebate credited that 

same Member for an execution against 

a non-Retail Order. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with the 

requirements of the Act and the rules 

and regulations thereunder that are 

applicable to a national securities 

exchange, and, in particular, with the 

requirements of Section 6(b) of the 

Act.19 In particular, the Exchange 

believes the proposed change furthers 

the objectives of Section 6(b)(5) of the 

Act,20 in that it is designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, to foster cooperation 

and coordination with persons engaged 

in facilitating transactions in securities, 

and to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system. The Exchange believes that the 

proposed rule change is consistent with 

these principles because it would 

increase competition among execution 

venues, encourage additional liquidity, 

and offer the potential for price 

improvement to retail investors. The 

Exchange notes that a significant 

percentage of the orders of individual 

investors are executed over-thecounter.21 The Exchange believes that it 

is appropriate to create a financial 

incentive to bring more retail order flow 

to a public market. The Exchange also 

notes that the Commission recently 

approved a similar proposal by NYSE 

and NYSE MKT.22 Accordingly, the 

proposal generally encourages 

competition between exchange venues. 

In this connection, the Exchange 

believes that the proposed distinctions 

between the Exchange’s proposal and 

the approved programs for NYSE and 

NYSE MKT, as well as the similar 

program proposed by BATS, will both 

enhance competition amongst market 

participants and encourage competition 

amongst exchange venues. 

The Exchange understands that 

Section 6(b)(5) of the Act 23 prohibits an 

exchange from establishing rules that 

treat market participants in an unfairly 

discriminatory manner. However, 

Section 6(b)(5) of the Act does not 

prohibit exchange members or other 

broker-dealers from making distinctions, 

so long as their activities are otherwise 

consistent with the federal securities 

laws and the distinctions are not unfair. 

Nor does Section 6(b)(5) of the Act 

require exchanges to preclude brokerdealers from making distinctions that 

are not unfair. Broker-dealers commonly 

differentiate between customers based 

on the nature and profitability of their 

business. 

While the Exchange believes that 

markets and price discovery optimally 

function through the interactions of 

diverse flow types, it also believes that 

growth in internalization has required 

differentiation of retail order flow from 

other order flow types. The 

differentiation proposed herein by the 

Exchange is not designed to permit 

unfair discrimination, but instead to 

promote a competitive process around 

retail executions such that retail 

investors would receive better prices 

than they currently do through bilateral 

internalization arrangements. The 

Exchange believes that the transparency 

and competitiveness of operating a 

program such as the RPI Program on an 

exchange market would result in better 

prices for retail investors. The Exchange 

recognizes that sub-penny trading and 

pricing could potentially result in 

undesirable market behavior. The 

Exchange will monitor the Program in 

an effort to identify and address any 

such behavior. 

The Exchange will separately propose 

fees applicable to the Program, 

including fees or rebates for nondisplayed orders offering price 

improvement other than RPI Orders that 

interact with Retail Orders. The 

Exchange believes any such proposal to 

treat such non-displayed orders 

differently depending on the parties 

with whom they interact is consistent 

with Section 6(b)(5) of the Act,24 which 

requires that the rules of an exchange 

are not designed to permit unfair 

discrimination. The Exchange believes 

that such a differential pricing structure 

for non-displayed orders is not unfairly 

discriminatory. As stated in the NYSE 

RLP Approval Order, the ‘‘Commission 

has previously recognized that 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.’’ 25 The Exchange’s 

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64452 Federal Register / Vol. 79, No. 209 / Wednesday, October 29, 2014 / Notices 

of the contra-side trading participant. See, e.g., 

Securities Exchange Act Release No. 67171 (June 8, 

2012), 77 FR 35732 (June 14, 2012) (SR–NASDAQ– 

2012–068) (notice of filing and immediate 

effectiveness of proposal to modify fees for the 

NASDAQ Options Market, including certain fees 

and rebates that are variable depending on the 

capacity of the contra-party to the transaction); see 

also Securities Exchange Act Release No. 63632 

(January 3, 2011), 76 FR 1205 (January 7, 2011) (SR– 

BATS–2010–038) (notice of filing and immediate 

effectiveness of proposal to modify fees for BATS 

Options, including liquidity rebates that are 

variable depending on the capacity of the contraparty to the transaction). 26 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

proposed differential pricing structure 

for non-displayed orders raises 

substantively identical policy 

considerations as the rules approved by 

the Commission in the NYSE RLP 

Approval Order, which account for the 

difference of assumed information and 

sophistication level between different 

trading participants by providing Retail 

Orders access to better execution prices 

as well as more favorable access fees. 

Finally, the Exchange proposes that 

the Commission approve the proposed 

rule for a pilot period of twelve months 

from the date of implementation, which 

shall occur no later than 90 days after 

Commission approval of BX Rule 4780. 

The Program shall expire on [Date to be 

determined upon adoption of BX Rule 

4780]. The Exchange believes that this 

pilot period is of sufficient length to 

permit both the Exchange and the 

Commission to assess the impact of the 

rule change described herein. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will result in 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

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 

shall: (a) By order approve or 

disapprove such proposed rule change, 

or (b) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

BX–2014–048 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–BX–2014–048. 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 Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549 on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

offices of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–BX– 

2014–048, and should be submitted on 

or before November 19, 2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.26

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–25670 Filed 10–28–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73411; File No. SR–BYX– 

2014–028] 

Self-Regulatory Organizations; BATS 

Y-Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change to Rules 11.9 and 11.13 

of BATS Y-Exchange, Inc. 

October 23, 2014. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on October 

17, 2014, BATS Y-Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BYX ’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) a proposed rule change 

as described in Items I and II below, 

which Items have been prepared by the 

Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange filed a proposal to 

amend Rules 11.9 and 11.13 to modify 

the routing strategies made available 

through the Exchange. 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at http://www.batstrading.com/, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant parts of such 

statements. 

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