Document ID: SEC-2019-0198-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2019-02-22T05:00Z

[Federal Register Volume 84, Number 36 (Friday, February 22, 2019)]
[Notices]
[Pages 5754-5783]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03043]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85160; File No. SR-NYSE-2018-28]

Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, To Make Permanent the Retail Liquidity Program Pilot, 
Rule 107C, Which is Set To Expire on June 30, 2019, Notice of Filing of 
Amendment No. 1, and Order Granting Limited Exemption Pursuant to Rule 
612(c) of Regulation NMS

February 15, 2019.

I. Introduction

    On June 4, 2018, New York Stock Exchange LLC (``Exchange'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange 
Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to make 
permanent Exchange Rule 107C governing the Exchange's Retail Liquidity 
Program Pilot (``Program''). The proposed rule change was published for 
comment in the Federal Register on June 21, 2018.\3\ On July 31, 2018, 
pursuant to Section 19(b)(2) of the Act,\4\ the Commission extended to 
September 19, 2018 the time period in which to approve the proposed 
rule change, disapprove the proposed rule change, or institute 
proceedings to

[[Page 5755]]

determine whether to disapprove the proposed rule change.\5\ On 
September 18, 2018, the Commission issued an order instituting 
proceedings under Section 19(b)(2)(B) of the Exchange Act,\6\ to 
determine whether to approve or disapprove the proposed rule change.\7\ 
On December 10, 2018, pursuant to Section 19(b)(2) of the Act,\8\ the 
Commission extended to February 16, 2019 the time period in which to 
issue an order approving or disapproving the proposed rule change.\9\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 83454 (June 15, 
2018), 83 FR 28874 (``Original Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 83749, 83 FR 38393 
(August 6, 2018).
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 84183, 83 FR 48350 
(September 24, 2018) (``Order Instituting Proceedings'').
    \8\ 15 U.S.C. 78s(b)(2).
    \9\ See Securities Exchange Act Release No. 84766, 83 FR 64414 
(December 14, 2018).
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    The Commission received one comment letter on the proposed rule 
change.\10\ On February 13, 2019, the Exchange filed Amendment No. 1 to 
the proposed rule change, which supersedes and replaces the original 
filing in its entirety.\11\ In connection with the proposed rule 
change, as modified by Amendment No. 1, the Exchange requests exemptive 
relief from Rule 612 of Regulation NMS,\12\ which, among other things, 
prohibits a national securities exchange from accepting or ranking 
orders priced greater than $1.00 per share in an increment smaller than 
$0.01.\13\ The Commission is publishing this notice to solicit comments 
on Amendment No. 1 from interested persons, issuing this order 
approving the proposed rule change, as modified by Amendment No. 1, on 
an accelerated basis, and issuing this order granting to the Exchange a 
limited exemptive relief pursuant to Rule 612(c) of Regulation NMS.
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    \10\ See Letter from Tyler Gellasch, Executive Director, Healthy 
Markets Association, dated December 20, 2018 (``HMA Letter'').
    \11\ See infra Section II.
    \12\ 17 CFR 242.612(c).
    \13\ See note 14 infra.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    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 those statements may be examined at the places specified in 
Item V below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant parts of such 
statements.

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

1. Purpose
    The Exchange proposes to make permanent Rule 107C, which sets forth 
the Exchange's pilot Retail Liquidity Program (the ``Program''). In 
support of the proposal to make the pilot Program permanent, the 
Exchange believes it is appropriate to provide background on the 
Program and an analysis of the economic benefits for retail investors 
and the marketplace flowing from operation of the Program.
Background
    In July 2012, the Securities and Exchange Commission (the 
``Commission'') approved the Program on a pilot basis.\14\ The purpose 
of the pilot was to analyze data and assess the impact of the Program 
on the marketplace. The pilot period was originally scheduled to end on 
July 31, 2013. The Exchange filed to extend the operation of the pilot 
on several occasions in order to prepare this rule filing. The pilot is 
currently set to expire on the earlier of approval of this filing or 
June 30, 2019.\15\
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    \14\ See Securities Exchange Act Release No. 67347 (July 3, 
2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-55) (``RLP Approval 
Order''). In addition to approving the Program on a pilot basis, the 
Commission granted the Exchange's request for exemptive relief from 
Rule 612 of Regulation NMS, 17 CFR 242.612 (``Sub-Penny Rule''), 
which among other things prohibits a national securities exchange 
from accepting or ranking orders priced greater than $1.00 per share 
in an increment smaller than $0.01. See id. As part of this filing, 
and pursuant to the Exchange's separate written request, the 
Exchange also requests that the exemptive relief from the Sub-Penny 
Rule be made permanent. See Letter from Martha Redding, Associate 
General Counsel and Assistant Corporate Secretary, New York Stock 
Exchange, to Brent J. Fields, Secretary, Securities and Exchange 
Commission, dated February 13, 2019 (``Sub-Penny Rule Exemption 
Request'').
    \15\ See Securities Exchange Act Release No. 84767 (December 10, 
2018), 83 FR 64412 (December 14, 2018) (SR-NYSE-2018-59). See also 
Securities Exchange Act Release No. 82230 (December 7, 2017), 82 FR 
58667 (December 13, 2017) (SR-NYSE-2017-64) (extending pilot to June 
30, 2018); Securities Exchange Act Release No. 80844 (June 1, 2017), 
82 FR 26562 (June 7, 2017) (SR-NYSE-2017-26) (extending pilot to 
December 31, 2017); Securities Exchange Act Release No. 79493 
(December 7, 2016), 81 FR 90019 (December 13, 2016) (SR-NYSE-2016-
82) (extending pilot to June 30, 2017); Securities Exchange Act 
Release No. 78600 (August 17, 2016), 81 FR 57642 (August 23, 2016) 
(SR-NYSE-2016-54) (extending pilot to December 31, 2016); Securities 
Exchange Act Release No. 77426 (March 23, 2016), 81 FR 17533 (March 
29, 2016) (SR-NYSE-2016-25) (extending pilot to August 31, 2016); 
Securities Exchange Act Release No. 75993 (September 28, 2015), 80 
FR 59844 (October 2, 2015) (SR-NYSE-2015-41) (extending pilot to 
March 31, 2016); Securities Exchange Act Release No. 74454 (March 6, 
2015), 80 FR 13054 (March 12, 2015) (SR-NYSE-2015-10) (extending 
pilot until September 30, 2015); Securities Exchange Act Release No. 
72629 (July 16, 2014), 79 FR 42564 (July 22, 2014) (NYSE-2014-35) 
(extending pilot until March 31, 2015); Securities Exchange Act 
Release No. 70096 (Aug. 2, 2013), 78 FR 48520 (Aug. 8, 2013) (SR-
NYSE-2013-48) (extending pilot to July 31, 2014); and Securities 
Exchange Act Release No. 83540 (June 28, 2018), 83 FR 31234 (July 3, 
2018) (SR-NYSE-2018-29) (extending pilot to December 31, 2018).
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    The Exchange established the Program to attract retail order flow 
to the Exchange, and allow such order flow to receive potential price 
improvement.\16\ The Program is currently limited to trades occurring 
at prices equal to or greater than $1.00 a share.
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    \16\ RLP Approval Order, 77 FR at 40674.
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    As described in greater detail below, under Rule 107C, a new class 
of market participant called Retail Liquidity Providers (``RLPs'') \17\ 
and non-RLP member organizations are able to provide potential price 
improvement to retail investor orders in the form of a non-displayed 
order that is priced better than the best protected bid or offer 
(``PBBO''), called a Retail Price Improvement Order (``RPI''). When 
there is an RPI in a particular security, the Exchange disseminates an 
indicator, known as the Retail Liquidity Identifier (``RLI''), that 
such interest exists. Retail Member Organizations (``RMOs'') can submit 
a Retail Order to the Exchange, which interacts, to the extent 
possible, with available contra-side RPIs and Mid-Point Passive 
Liquidity (``MPL'') Orders.\18\ The segmentation in the Program allows 
retail order flow to receive potential price improvement as a result of 
their order flow being deemed more desirable by liquidity 
providers.\19\
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    \17\ The Program also allows for RLPs to register with the 
Exchange. However, any firm can enter RPI orders into the system. 
Currently, four firms are registered as RLPs but are not registered 
in any symbols.
    \18\ The Exchange adopted MPL Orders in 2014 and amended Rule 
107C to specify that MPL Orders could interact with incoming, 
contra-side Retail Orders submitted by a RMO in the Program. See 
Securities Exchange Act Release No. 71330 (January 16, 2014), 79 FR 
3895 (January 23, 2014) (SR-NYSE-2013-71) (``Release No. 71330'').
    \19\ RLP Approval Order, 77 FR at 40679.
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    In approving the pilot, the Commission concluded that the Program 
was reasonably designed to benefit retail investors by providing price 
improvement opportunities to retail order flow. Further, while the 
Commission noted that the Program would treat retail order flow 
differently from order flow submitted by other market participants, 
such segmentation would not be inconsistent with Section 6(b)(5) of the 
Act,\20\ which requires that

[[Page 5756]]

the rules of an exchange are not designed to permit unfair 
discrimination. As the Commission recognized, retail order segmentation 
was designed to create additional competition for retail order flow, 
leading to additional retail order flow to the exchange environment and 
ensuring that retail investors benefit from the better price that 
liquidity providers are willing to give their orders.\21\
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    \20\ 15 U.S.C. 78f(b)(5).
    \21\ RLP Approval Order, 77 FR at 40679.
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    As discussed below, the Exchange believes that the Program data 
supports these conclusions and that it is therefore appropriate to make 
the pilot Program permanent.\22\
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    \22\ Rule 107C has been amended several times. See Securities 
Exchange Act Release No. 68709 (January 23, 2013), 78 FR 6160 
(January 29, 2013) (SR-NYSE-2013-04) (amending Rule 107C to clarify 
that Retail Liquidity Providers may enter Retail Price Improvement 
Orders in a non-RLP capacity for securities to which the RLP is not 
assigned); 69103 (March 11, 2013), 78 FR 16547 (March 15, 2013) (SR-
NYSE-2013-20) (amending Rule 107C to clarify that a Retail Member 
Organization may submit Retail Orders to the Program in a riskless 
principal capacity as well as in an agency capacity, provided that 
(i) the entry of such riskless principal orders meets 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 does not include non-retail orders together with the 
Retail Orders as part of the riskless principal transaction); 69513 
(May 3, 2013), 78 FR 27261 (May 9, 2013) (SR-NYSE-2013-08) (amending 
Rule 107C to allow Retail Member Organizations to attest that 
``substantially all,'' rather than all, orders submitted to the 
Program qualifies as ``Retail Orders'' under the Rule); Release No. 
71330, 79 FR at 3895 (amending Rule 107C to incorporate MPL Orders); 
and 76553 (December 3, 2015), 80 FR 76607 (December 9, 2015) (SR-
NYSE-2015-59) (``Release No. 76553'') (amending Rule 107C to 
distinguish between retail orders routed on behalf of other broker-
dealers and retail orders that are routed on behalf of introduced 
retail accounts that are carried on a fully disclosed basis).
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Description of Pilot Rule 107C That Would Become Permanent
Definitions
    Rule 107C(a) contains the following definitions:
     First, the term ``Retail Liquidity Provider'' is defined 
as a member organization that is approved by the Exchange under the 
Rule to act as such and to submit Retail Price Improvement Orders in 
accordance with the Rule.\23\
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    \23\ See Rule 107C(a)(1).
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     Second, the term ``Retail Member Organization'' (``RMO'') 
is defined as a member organization (or a division thereof) that has 
been approved by the Exchange to submit Retail Orders.\24\
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    \24\ Id. at (2).
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     Third, the term ``Retail Order'' means an agency order or 
a riskless principal order meeting the criteria of FINRA Rule 5320.03 
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 market and the order does not 
originate from a trading algorithm or any other computerized 
methodology. A Retail Order is an Immediate or Cancel Order and may be 
an odd lot, round lot, or partial round lot (``PRL'').\25\
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    \25\ Id. at (3).
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     Finally, the term ``Retail Price Improvement Order'' means 
non-displayed interest in NYSE-listed securities that is better than 
the best protected bid (``PBB'') or best protected offer (``PBO'') by 
at least $0.001 and that is identified as a Retail Price Improvement 
Order in a manner prescribed by the Exchange.\26\
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    \26\ Id. at (4). Exchange systems prevent Retail Orders from 
interacting with Retail Price Improvement Orders if the RPI is not 
priced at least $0.001 better than the PBBO. An RPI remains non-
displayed in its entirety (the buy or sell interest, the offset, and 
the ceiling or floor). An RLP would only be permitted to enter a 
Retail Price Improvement Order for the particular security or 
securities to which it is assigned as RLP. An RLP is permitted, but 
not required, to submit RPIs for securities to which it is not 
assigned, and will be treated as a non-RLP member organization for 
those particular securities. Additionally, member organizations 
other than RLPs are permitted, but not required, to submit RPIs. An 
RPI may be an odd lot, round lot, or PRL. See id.
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RMO Qualifications and Application Process
    Under Rule 107C(b), any member organization \27\ can qualify as an 
RMO if it conducts a retail business or routes \28\ retail orders on 
behalf of another broker-dealer. For purposes of Rule 107C(b), 
conducting a retail business includes carrying retail customer accounts 
on a fully disclosed basis. To become an RMO, a member organization 
must submit: (1) An application form; (2) supporting documentation 
sufficient to demonstrate the retail nature and characteristics of the 
applicant's order flow; \29\ and (3) an attestation, in a form 
prescribed by the Exchange, that any order submitted by the member 
organization as a Retail Order would meet the qualifications for such 
orders under Rule 107C.\30\
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    \27\ An RLP may also act as an RMO for securities to which it is 
not assigned, subject to the qualification and approval process 
established by the proposed rule.
    \28\ See Release No. 76553, 80 FR at 76607 (clarifying that one 
way to qualify as an RMO is to route retail orders on behalf of 
other broker-dealers).
    \29\ The supporting documentation may include sample marketing 
literature, website screenshots, other publicly disclosed materials 
describing the member organization's retail order flow, and any 
other documentation and information requested by the Exchange in 
order to confirm that the applicant's order flow would meet the 
requirements of the Retail Order definition. See Rule 107C 
(b)(2)(B).
    \30\ See id. at (b)(2)(A)-(C).
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    An RMO must have written policies and procedures reasonably 
designed to assure that it will only designate orders as Retail Orders 
if all requirements of a Retail Order are met. Such written policies 
and procedures must require the member organization to (i) exercise due 
diligence before entering a Retail Order to assure that entry as a 
Retail Order is in compliance with the requirements of Rule 107C, and 
(ii) monitor whether orders entered as Retail Orders meet the 
applicable requirements. If the RMO represents Retail Orders from 
another broker-dealer customer, the RMO's supervisory procedures must 
be reasonably designed to assure that the orders it receives from such 
broker-dealer customer that it designates as Retail Orders meet the 
definition of a Retail Order. The RMO must (i) obtain an annual written 
representation, in a form acceptable to the Exchange, from each broker-
dealer customer that sends it orders to be designated as Retail Orders 
that entry of such orders as Retail Orders will be in compliance with 
the requirements of this rule, and (ii) monitor whether its broker-
dealer customer's Retail Order flow continues to meet the applicable 
requirements.\31\
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    \31\ Id. at (b)(6).
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    Following submission of the required materials, the Exchange 
provides written notice of its decision to the member organization.\32\ 
A disapproved applicant can appeal the disapproval by the Exchange as 
provided in Rule 107C(4), and/or reapply for RMO status 90 days after 
the disapproval notice is issued by the Exchange. An RMO can also 
voluntarily withdraw from such status at any time by giving written 
notice to the Exchange.\33\
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    \32\ Id. at (b)(3).
    \33\ Id. at (b)(5).
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RLP Qualifications
    To qualify as an RLP under Rule 107C(c), a member organization 
must: (1) Already be approved as a Designated Market Maker (``DMM'') or 
Supplemental Liquidity Provider (``SLP''); (2) demonstrate an ability 
to meet the requirements of an RLP; (3) have mnemonics or the ability 
to accommodate other Exchange-supplied designations that identify to 
the Exchange RLP trading activity in assigned RLP securities; and (4) 
have adequate trading infrastructure and technology to support 
electronic trading.\34\
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    \34\ Id. at (c)(1)-(4).

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[[Page 5757]]

RLP Application
    Under Rule 107C(d), to become an RLP, a member organization must 
submit an RLP application form with all supporting documentation to the 
Exchange, which would determine whether an applicant was qualified to 
become an RLP as set forth above.\35\ After an applicant submits an RLP 
application to the Exchange with supporting documentation, the Exchange 
would notify the applicant member organization of its decision. The 
Exchange could approve one or more member organizations to act as an 
RLP for a particular security. The Exchange could also approve a 
particular member organization to act as RLP for one or more 
securities. Approved RLPs would be assigned securities according to 
requests made to, and approved by, the Exchange.\36\
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    \35\ Id. at (d)(1).
    \36\ Id. at (d)(2).
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    If an applicant were approved by the Exchange to act as an RLP, the 
applicant would be required to establish connectivity with relevant 
Exchange systems before the applicant would be permitted to trade as an 
RLP on the Exchange.\37\ If the Exchange disapproves the application, 
the Exchange would provide a written notice to the member organization. 
The disapproved applicant could appeal the disapproval by the Exchange 
as provided in proposed Rule 107C(i) and/or reapply for RLP status 90 
days after the disapproval notice is issued by the Exchange.\38\
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    \37\ Id. at (d)(3).
    \38\ Id. at (d)(4).
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Voluntary Withdrawal of RLP Status
    An RLP would be permitted to withdraw its status as an RLP by 
giving notice to the Exchange under proposed NYSE Rule107C(e). The 
withdrawal would become effective when those securities assigned to the 
withdrawing RLP are reassigned to another RLP. After the Exchange 
receives the notice of withdrawal from the withdrawing RLP, the 
Exchange would reassign such securities as soon as practicable, but no 
later than 30 days after the date the notice is received by the 
Exchange. If the reassignment of securities takes longer than the 30-
day period, the withdrawing RLP would have no further obligations and 
would not be held responsible for any matters concerning its previously 
assigned RLP securities.\39\
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    \39\ See id. at (e).
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RLP Requirements
    Under Rule 107C(f), an RLP may only enter Retail Price Improvement 
Orders electronically and directly into Exchange systems and facilities 
designated for this purpose and only for the securities to which it is 
assigned as RLP. An RLP entering Retail Price Improvement Orders in 
securities to which it is not assigned is not required to satisfy these 
requirements.\40\
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    \40\ Id. at (f)(1).
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    In order to be eligible for execution fees that are lower than non-
RLP rates, an RLP must maintain (1) a Retail Price Improvement Order 
that is better than the PBB at least five percent of the trading day 
for each assigned security; and (2) a Retail Price Improvement Order 
that is better than the PBO at least five percent of the trading day 
for each assigned security.\41\ An RLP's five-percent requirements is 
calculated by determining the average percentage of time the RLP 
maintains a Retail Price Improvement Order in each of its RLP 
securities during the regular trading day, on a daily and monthly 
basis.\42\ The Exchange determines whether an RLP has met this 
requirement by calculating the following:
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    \41\ Id. at (f)(1)(A)-(B).
    \42\ Id. at (f)(2).
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     The ``Daily Bid Percentage,'' calculated by determining 
the percentage of time an RLP maintains a Retail Price Improvement 
Order with respect to the PBB during each trading day for a calendar 
month;
     The ``Daily Offer Percentage,'' calculated by determining 
the percentage of time an RLP maintains a Retail Price Improvement 
Order with respect to the PBO during each trading day for a calendar 
month;
     The ``Monthly Average Bid Percentage,'' calculated for 
each RLP security by summing the security's ``Daily Bid Percentages'' 
for each trading day in a calendar month then dividing the resulting 
sum by the total number of trading days in such calendar month; and
     The ``Monthly Average Offer Percentage,'' calculated for 
each RLP security by summing the security's ``Daily Offer Percentage'' 
for each trading day in a calendar month and then dividing the 
resulting sum by the total number of trading days in such calendar 
month.
    Finally, only Retail Price Improvement Orders would be used when 
calculating whether an RLP is in compliance with its five-percent 
requirements.\43\
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    \43\ Id. at (f)(2)(A)-(E).
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    The five-percent requirement is not applicable in the first two 
calendar months a member organization operates as an RLP and takes 
effect on the first day of the third consecutive calendar month the 
member organization operates as an RLP.\44\
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    \44\ Id. at (f)(3).
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Failure of RLP To Meet Requirements
    Rule 107C(g) addresses the consequences of an RLP's failure to meet 
its requirements. If, after the first two months an RLP acted as an 
RLP, an RLP fails to meet any of the Rule 107C(f) requirements for an 
assigned RLP security for three consecutive months, the Exchange could, 
in its discretion, take one or more of the following actions:
     Revoke the assignment of any or all of the affected 
securities from the RLP;
     revoke the assignment of unaffected securities from the 
RLP; or
     disqualify the member organization from its status as an 
RLP.\45\
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    \45\ Id. at (g)(1)(A)-(C).
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    The Exchange determines if and when a member organization is 
disqualified from its status as an RLP. One calendar month prior to any 
such determination, the Exchange notifies an RLP of such impending 
disqualification in writing. When disqualification determinations are 
made, the Exchange provides a written disqualification notice to the 
member organization.\46\ A disqualified RLP could appeal the 
disqualification as provided in proposed Rule 107C(i) and/or reapply 
for RLP status 90 days after the disqualification notice is issued by 
the Exchange.\47\
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    \46\ Id. at (2).
    \47\ Id. at (3).
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Failure of RMO To Abide by Retail Order Requirements
    Rule 107C(h) 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 organization from its status as an 
RMO.\48\ When disqualification determinations are made, the Exchange 
shall provide a written disqualification notice to the member 
organization.\49\ A disqualified RMO could appeal the disqualification 
as provided in proposed Rule 107C(i) and/or reapply for RMO status 90 
days after the disqualification notice is issued by the Exchange.\50\
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    \48\ Id. at (h)(1).
    \49\ Id. at (2).
    \50\ Id. at (3).

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[[Page 5758]]

Appeal of Disapproval or Disqualification
    Rule 107C(i) describes the appeal rights of member organizations. A 
member organization that disputes the Exchange's decision to disapprove 
it under Rule 107C(b) or (d) or disqualify it under Rule 107C(g) or (h) 
may request, within five business days after notice of the decision is 
issued by the Exchange, that a Retail Liquidity Program Panel (``RLP 
Panel'') review the decision to determine if it was correct.\51\ The 
RLP Panel would consist of the NYSE's Chief Regulatory Officer 
(``CRO''), or a designee of the CRO, and two officers of the Exchange 
designated by the CoHead of U.S. Listings and Cash Execution.\52\ The 
RLP Panel would review the facts and render a decision within the time 
frame prescribed by the Exchange.\53\ The RLP Panel can overturn or 
modify an action taken by the Exchange and all determinations by the 
RLP Panel would constitute final action by the Exchange on the matter 
at issue.\54\
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    \51\ Id. at (i)(1). In the event a member organization is 
disqualified from its status as an RLP pursuant to proposed Rule 
107C(g), the Exchange would not reassign the appellant's securities 
to a different RLP until the RLP Panel has informed the appellant of 
its ruling. Id. at (i)(1)(A).
    \52\ Id. at (i)(2).
    \53\ Id. at (3).
    \54\ Id. at (4).
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Retail Liquidity Identifier
    Under Rule 107C(j), the Exchange disseminates an identifier through 
proprietary Exchange data feeds or the Securities Information Processor 
(``SIP'') when RPI interest priced at least $0.001 better than the PBB 
or PBO for a particular security is available in Exchange systems 
(``Retail Liquidity Identifier''). The Retail Liquidity Identifier 
shall reflect the symbol for the particular security and the side (buy 
or sell) of the RPI interest, but shall not include the price or size 
of the RPI interest.\55\
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    \55\ Id. at (j).
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Retail Order Designations
    Under Rule 107C(k), an RMO can designate how a Retail Order would 
interact with available contra-side interest as follows:
     A Type 1-designated Retail Order interacts only with 
available contra-side Retail Price Improvement Orders and MPL Orders 
but would not interact with other available contra-side interest in 
Exchange systems or route to other markets. The portion of a Type 1-
designated Retail Order that does not execute against contra-side 
Retail Price Improvement Orders would be immediately and automatically 
cancelled.\56\
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    \56\ Id. at (k)(1). See note 18, supra.
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     A Type 2-designated Retail Order interacts first with 
available contra-side Retail Price Improvement Orders and MPL Orders 
and any remaining portion of the Retail Order would be executed as a 
Regulation NMS-compliant Immediate or Cancel Order pursuant to Rule 
13.\57\
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    \57\ Id. at (2).
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     A Type 3-designated Retail Order interacts first with 
available contra-side Retail Price Improvement Orders and MPL Orders 
and any remaining portion of the Retail Order would be executed as an 
NYSE Immediate or Cancel Order pursuant to Rule 13.\58\
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    \58\ Id. at (k)(3).
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Priority and Order Allocation
    Under Rule 107C(l), Retail Price Improvement Orders in the same 
security are ranked and allocated according to price then time of entry 
into Exchange systems. When determining the price to execute a Retail 
Order, Exchange systems consider all eligible RPIs and MPL Orders. If 
the only interest is RPIs, then the executions shall occur at the price 
level that completes the incoming order's execution. If the only 
interest is MPL Orders, the Retail Order shall execute at the midpoint 
of the PBBO. If both RPIs and MPL Orders are present, Exchange systems 
will evaluate at what price level the incoming Retail Order may be 
executed in full (``clean-up price''). If the clean-up price is equal 
to the midpoint of the PBBO, RPIs will receive priority over MPL 
Orders, and the Retail Order will execute against both RPIs and MPL 
Orders at the midpoint. If the clean-up price is worse than the 
midpoint of the PBBO, the Retail Order will execute first with the MPL 
Orders at the midpoint of the PBBO and any remaining quantity of the 
Retail Order will execute with the RPIs at the clean-up price. If the 
clean-up price is better than the midpoint of the PBBO, then the Retail 
Order will execute against the RPIs at the clean-up price and will 
ignore the MPL Orders. Any remaining unexecuted RPI interest and MPL 
Orders will remain available to interact with other incoming Retail 
Orders. Any remaining unexecuted portion of the Retail Order will 
cancel or execute in accordance with Rule 107C(k).
    Examples of priority and order allocation are as follows:
    Example 1:
    PBBO for security ABC is $10.00-$10.05.
    RLP 1 enters a Retail Price Improvement Order to buy ABC at $10.01 
for 500.
    RLP 2 then enters a Retail Price Improvement Order to buy ABC at 
$10.02 for 500.
    RLP 3 then enters a Retail Price Improvement Order to buy ABC at 
$10.03 for 500.
    An incoming Retail Order to sell ABC for 1,000 executes first 
against RLP 3's bid for 500, because it is the best priced bid, then 
against RLP 2's bid for 500, because it is the next best priced bid. 
RLP 1 is not filled because the entire size of the Retail Order to sell 
1,000 is depleted. The Retail Order executes at the price that 
completes the order's execution. In this example, the entire 1,000 
Retail Order to sell executes at $10.02 because it results in a 
complete fill.
    However, assume the same facts above, except that RLP 2's Retail 
Price Improvement Order to buy ABC at $10.02 is for 100. The incoming 
Retail Order to sell 1,000 executes first against RLP 3's bid for 500, 
because it is the best priced bid, then against RLP 2's bid for 100, 
because it is the next best priced bid. RLP 1 then receives an 
execution for 400 of its bid for 500, at which point the entire size of 
the Retail Order to sell 1,000 is depleted. The Retail Order executes 
at the price that completes the order's execution, which is $10.01.
    Example 2:
    PBBO for security DEF is $10.00-10.01.
    RLP 1 enters a Retail Price Improvement Order to buy DEF at $10.006 
for 500.
    RLP 2 enters a Retail Price Improvement Order to buy DEF at $10.005 
for 500.
    MPL 1 enters an MPL Order to buy DEF at $10.01 for 1000.
    RLP 3 enters a Retail Price Improvement Order to buy DEF at $10.002 
for 1000.
    An incoming Retail Order to sell DEF for 2,500 arrives. The clean-
up price is $10.002. Because the midpoint of the PBBO is priced better 
than the clean-up price, the Retail Order executes with MPL 1 for 1000 
shares at $10.005. The Retail Order then executes at $10.002 against 
RLP 1's bid for 500, because it is the best-priced bid, then against 
RLP 2's bid for 500 because it is the next best-priced bid and then RLP 
3 receives an execution for 500 of its bid for 1000, at which point the 
entire size of the Retail Order to sell 2,500 is depleted.
    Assume the same facts above. An incoming Retail Order to sell DEF 
for 1,000 arrives. The clean-up price is $10.005. Because the clean-up 
price is

[[Page 5759]]

equal to the midpoint of the PBBO, RPIs will receive priority over MPL 
Orders. As a result, the Retail Order executes first against RLP 1's 
bid for 500, because it is the best-priced bid, then against RLP 2's 
bid for 500 because it is the next best-priced bid, at which point the 
entire size of the Retail Order to sell 1,000 is depleted.\59\
---------------------------------------------------------------------------

    \59\ Id. at (l).
---------------------------------------------------------------------------

Rationale for Making Pilot Permanent
    In approving the Program on a pilot basis, the Commission required 
the Exchange to ``monitor the scope and operation of the Program and 
study the data produced during that time with respect to such issues, 
and will propose any modifications to the Program that may be necessary 
or appropriate.'' \60\ As part of its assessment of the Program's 
potential impact, the Exchange posted core weekly and daily summary 
data on the Exchanges' website for public investors to review,\61\ and 
provided additional data to the Commission regarding potential investor 
benefits, including the level of price improvement provided by the 
Program. This data included statistics about participation, frequency 
and level of price improvement and effective and realized spreads.
---------------------------------------------------------------------------

    \60\ RLP Approval Order, 77 FR at 40681.
    \61\ See https://www.nyse.com/markets/liquidity-programs#nyse-nyse-mkt-rlp.
---------------------------------------------------------------------------

    In the RLP Approval Order, the Commission observed that the Program 
could promote competition for retail order flow among execution venues, 
and that this could benefit retail investors by creating additional 
price improvement opportunities for marketable retail order flow, most 
of which is currently executed in the Over-the-Counter (``OTC'') 
markets without ever reaching a public exchange.\62\ The Exchange 
sought, and believes it has achieved, the Program's goal of attracting 
retail order flow to the Exchange, and allowing such order flow to 
receive potential price improvement. As the Exchange's analysis of the 
Program data below demonstrates, the Program provided tangible price 
improvement to retail investors through a competitive pricing process. 
The data also demonstrates that the Program had an overall negligible 
impact on ``broader market structure.'' \63\
---------------------------------------------------------------------------

    \62\ RLP Approval Order, 77 FR at 40679.
    \63\ See id. at 40682.
---------------------------------------------------------------------------

    Between August 1, 2012, when the Program began, and January 2, 
2018, orders totaling in excess of 6.8 billion shares were executed 
through the Program, providing retail investors with $12.3 million in 
price improvement. As Table 1 shows, during 2016, an average of 2-3 
million shares per day was executed in the Program. In 2017, an average 
of 3-4 million shares per day were executed in the Program. During the 
period 2016-17, average effective spreads in RLP executions ranged 
between $0.012 and $0.019. Fill rates reached as high as 25.7% in May 
2018. Overall price improvement averaged $0.0014 per share, 
approximately 40% above the minimum of $0.001.\64\
---------------------------------------------------------------------------

    \64\ In 2016, the average price improvement reached as high as 
$0.0017-$0.0018.

                                                Table 1--Summary Execution and Market Quality Statistics
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Average                  Effective/
                             Date                              RPI Average     daily      Effective      quoted       Price       Realized   Fill rate %
                                                                  volume       orders       spread       ratio     improvement     spread
--------------------------------------------------------------------------------------------------------------------------------------------------------
Jan-16.......................................................    3,257,495       11,495      $0.0167        0.736      $0.0017      $0.0051         14.7
Feb-16.......................................................    3,119,642       10,400       0.0163        0.713       0.0018       0.0041         15.3
Mar-16.......................................................    2,760,731        9,179       0.0142        0.706       0.0018       0.0029         16.5
Apr-16.......................................................    2,277,189        8,432       0.0143        0.703       0.0018       0.0042         17.6
May-16.......................................................    1,727,219        6,931       0.0151        0.693       0.0019       0.0054         16.4
Jun-16.......................................................    2,003,149        9,122       0.0134        0.667       0.0019       0.0060         14.4
Jul-16.......................................................    2,265,579        7,880       0.0126        0.668       0.0019       0.0034         18.1
Aug-16.......................................................    2,009,630        5,626       0.0122        0.699       0.0017      -0.0019         16.4
Sep-16.......................................................    1,620,236        4,801       0.0136        0.696       0.0017       0.0035         15.6
Oct-16.......................................................    2,355,292        8,055       0.0143        0.693       0.0017       0.0041         19.7
Nov-16.......................................................    2,702,894        9,915       0.0161        0.700       0.0018       0.0040         17.3
Dec-16.......................................................    4,380,164       15,036       0.0142        0.710       0.0017       0.0034         20.5
Jan-17.......................................................    2,921,604       11,184       0.0148        0.730       0.0016       0.0011         21.4
Feb-17.......................................................    2,508,810        9,801       0.0165        0.754       0.0015       0.0023         20.3
Mar-17.......................................................    2,585,694        9,517       0.0175        0.770       0.0015       0.0060         20.9
Apr-17.......................................................    2,875,573       10,174       0.0156        0.764       0.0014       0.0056         23.5
May-17.......................................................    3,741,955       15,179       0.0150        0.763       0.0014       0.0026         25.7
Jun-17.......................................................    5,040,922       17,245       0.0155        0.688       0.0018       0.0046         19.2
Jul-17.......................................................    3,906,133       14,582       0.0154        0.712       0.0017       0.0020         19.8
Aug-17.......................................................    3,803,586       14,841       0.0174        0.700       0.0018       0.0055         19.5
Sep-17.......................................................    3,398,110       12,782       0.0152        0.773       0.0014       0.0017         23.2
Oct-17.......................................................    3,839,683       13,467       0.0156        0.773       0.0014       0.0022         25.2
Nov-17.......................................................    4,193,873       14,499       0.0161        0.775       0.0014       0.0028         24.2
Dec-17.......................................................    3,673,405       19,036       0.0180        0.782       0.0014       0.0027         19.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As Table 2 shows, approximately 45% of all orders in the Program in 
2016-17 were for a round lot or fewer shares. More than 60% of retail 
orders removing liquidity from the Exchange were for 300 shares or 
less. Further, the number of very large orders was relatively steady, 
with orders larger than 7,500 shares typically accounting for 4-5% of 
orders received. Despite relatively low fill rates, large orders 
account for a sizable portion of the shares executed in the Program.

[[Page 5760]]

                                           Table 2--Composition of Retail Taking Orders by Order Size Category
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        <100 %     101-300 %    301-500 %    501-1000 %  1001-2000 %  2001-4000 %  4001-7500 %   7500-15000    >15000 %
-------------------------------------------------------------------------------------------------------------------------------------%------------------
Jan-16.............................        36.31        19.06         9.74        11.64         7.60         6.48         4.38         2.70         2.09
Feb-16.............................        35.88        18.81         9.96        11.82         7.72         6.42         4.31         2.82         2.26
Mar-16.............................        35.67        18.69         9.90        11.83         7.82         6.70         4.52         2.92         1.94
Apr-16.............................        38.22        19.39         9.87        11.48         7.16         5.73         3.89         2.54         1.73
May-16.............................        37.64        19.81        10.12        11.57         7.51         5.60         3.74         2.35         1.65
Jun-16.............................        39.46        18.98         9.66        11.22         7.13         5.32         3.95         2.60         1.68
Jul-16.............................        40.22        18.59         9.45        11.10         6.75         5.40         4.05         2.65         1.78
Aug-16.............................        33.59        17.45         9.24        11.66         8.30         7.17         5.71         4.33         2.54
Sep-16.............................        33.40        17.83         9.13        11.55         8.33         7.32         5.69         4.17         2.59
Oct-16.............................        39.50        19.03         9.42        11.16         7.33         5.66         3.77         2.53         1.59
Nov-16.............................        38.72        19.67         9.80        11.40         7.19         5.27         3.63         2.64         1.70
Dec-16.............................        39.41        19.52         9.41        11.26         7.33         5.40         3.55         2.66         1.47
Jan-17.............................        42.16        19.82         9.22        10.62         6.92         4.84         3.05         2.08         1.30
Feb-17.............................        41.90        19.51         9.34        10.79         7.03         4.82         3.09         2.08         1.44
Mar-17.............................        41.55        18.98         9.12        11.04         7.30         5.18         3.40         2.07         1.36
Apr-17.............................        44.32        18.50         8.55        10.21         6.65         5.07         3.31         2.17         1.21
May-17.............................        52.39        17.82         7.14         8.08         5.32         4.03         2.64         1.72         0.87
Jun-17.............................        44.76        15.48         7.53         9.59         6.87         6.06         4.67         3.50         1.53
Jul-17.............................        45.33        15.98         8.05        10.21         7.08         5.61         3.70         2.62         1.43
Aug-17.............................        43.83        16.68         8.39        10.58         7.48         5.67         3.46         2.51         1.41
Sep-17.............................        46.15        17.81         8.26         9.93         6.78         4.85         2.93         2.09         1.20
Oct-17.............................        45.53        18.30         8.47        10.06         6.88         4.82         2.79         2.00         1.15
Nov-17.............................        45.14        17.37         8.63        10.37         7.13         5.02         2.90         2.15         1.29
Dec-17.............................        45.96        17.62         8.89        10.60         6.62         4.55         2.72         1.99         1.05
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Tables 3 and 4 show the distribution of orders received by size and 
shares executed in 2016-17. During that period, the Program saw much 
lower execution sizes due to smaller retail providing orders (typically 
around 300 shares) breaking up fills and as a result of liquidity at 
multiple price improvement points.

                                              Table 3--Composition of Shares Placed by Order Size Category
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        <100 %     101-300 %    301-500 %    501-1000 %  1001-2000 %  2001-4000 %  4001-7500 %   7500-15000    >15000 %
-------------------------------------------------------------------------------------------------------------------------------------%------------------
Jan-16.............................         1.11         2.17         2.28         5.01         6.21        10.14        12.73        14.71        45.64
Feb-16.............................         1.09         2.09         2.25         4.92         6.09         9.67        12.01        14.90        46.97
Mar-16.............................         1.15         2.23         2.40         5.28         6.61        10.79        13.50        16.37        41.68
Apr-16.............................         1.45         2.75         2.84         6.09         7.21        10.93        13.90        16.82        38.02
May-16.............................         1.47         2.81         2.93         6.16         7.59        10.70        13.39        15.81        39.14
Jun-16.............................         1.43         2.67         2.80         6.06         7.29        10.28        14.15        17.28        38.04
Jul-16.............................         1.38         2.50         2.61         5.67         6.57        10.05        13.95        16.71        40.57
Aug-16.............................         0.88         1.71         1.86         4.30         5.88         9.78        14.44        19.69        41.45
Sep-16.............................         0.92         1.78         1.84         4.24         5.89        10.04        14.44        19.38        41.48
Oct-16.............................         1.60         2.76         2.77         6.00         7.52        11.19        13.79        17.15        37.21
Nov-16.............................         1.49         2.70         2.72         5.84         6.99         9.77        12.62        16.97        40.90
Dec-16.............................         1.69         2.98         2.88         6.29         7.82        11.13        13.57        18.68        34.96
Jan-17.............................         2.08         3.51         3.29         6.89         8.59        11.57        13.51        17.30        33.26
Feb-17.............................         1.96         3.33         3.21         6.70         8.39        11.12        13.29        16.59        35.40
Mar-17.............................         1.90         3.16         3.05         6.72         8.50        11.64        14.12        15.93        34.97
Apr-17.............................         2.29         3.34         3.10         6.72         8.38        12.32        15.07        18.00        30.78
May-17.............................         4.06         4.02         3.23         6.65         8.42        12.26        14.97        17.66        28.74
Jun-17.............................         1.36         2.15         2.15         5.07         6.99        11.88        16.71        22.63        31.06
Jul-17.............................         1.45         2.49         2.58         6.02         8.03        12.20        14.85        19.55        32.83
Aug-17.............................         1.52         2.67         2.76         6.42         8.79        12.70        14.21        19.41        31.50
Sep-17.............................         2.01         3.29         3.08         6.74         8.98        12.38        13.73        18.52        31.27
Oct-17.............................         1.99         3.45         3.21         6.94         9.26        12.39        13.30        18.03        31.42
Nov-17.............................         1.85         3.10         3.11         6.80         9.07        12.20        13.06        18.30        32.51
Dec-17.............................         2.06         3.54         3.60         7.78         9.43        12.58        13.73        19.12        28.16
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                             Table 4--Composition of Shares Executed by Order Size Category
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        <100 %     101-300 %    301-500 %    501-1000 %  1001-2000 %  2001-4000 %  4001-7500 %   7500-15000    >15000 %
-------------------------------------------------------------------------------------------------------------------------------------%------------------
Jan-16.............................         6.25        10.48         9.45        17.31        14.62        10.14        10.60         8.43         8.90
Feb-16.............................         5.94         9.72         9.20        16.39        13.89         9.67        10.88         9.53        11.14
Mar-16.............................         5.79         9.59         9.07        16.56        14.13        10.79        11.31         9.99         9.13
Apr-16.............................         6.84        11.14        10.10        17.62        13.89        10.93        10.47         9.28         7.38

[[Page 5761]]

 
May-16.............................         7.38        11.61        10.14        17.20        13.47        10.70         9.84         8.47         8.99
Jun-16.............................         7.10        10.66         9.04        15.22        13.52        10.28        11.45        10.13        10.13
Jul-16.............................         6.18         9.52         8.28        14.74        12.55        10.05        13.28        11.29        10.57
Aug-16.............................         4.48         7.45         6.93        12.87        12.48         9.78        15.50        15.54        10.23
Sep-16.............................         4.73         7.83         6.94        12.86        12.43        10.04        16.13        14.42        10.16
Oct-16.............................         6.76        10.32         8.76        15.87        14.13        11.19        11.68        10.00         8.23
Nov-16.............................         7.02        11.19         9.76        17.17        14.19         9.77        10.31         8.99         8.58
Dec-16.............................         6.99        10.91         9.22        17.06        15.32        11.13        10.68         9.16         6.67
Jan-17.............................         8.21        12.23         9.82        17.25        15.76        11.57         9.59         7.24         6.40
Feb-17.............................         8.20        12.39        10.36        18.42        15.80        11.12         9.45         6.93         5.64
Mar-17.............................         7.67        11.72        10.02        19.32        16.40        11.64         9.76         6.64         4.93
Apr-17.............................         8.48        11.45         9.57        18.22        15.60        12.32        10.32         7.81         4.50
May-17.............................        14.15        12.70         9.29        16.65        14.45        12.26         9.45         7.18         3.52
Jun-17.............................         5.58         8.07         7.39        15.41        14.63        11.88        13.89        13.50         6.20
Jul-17.............................         5.67         9.03         8.53        17.83        16.45        12.20        11.56         9.71         6.11
Aug-17.............................         5.78         9.30         8.88        18.25        17.51        12.70        10.54         8.75         5.72
Sep-17.............................         7.32        10.97         9.79        18.78        17.26        12.38         9.53         7.60         4.98
Oct-17.............................         6.53        10.74         9.74        18.74        17.63        12.39         9.21         8.01         5.35
Nov-17.............................         6.28        10.18         9.41        18.28        17.38        12.20         9.80         8.44         6.08
Dec-17.............................         6.50        10.99        10.31        20.09        16.89        12.58         9.35         7.30         4.60
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As Table 5 shows, during 2016--17, fill rates trended near 80 for 
orders up to 300 shares, while the average shares available at the 
inside was 300 shares. Data published to the SIP indicates when 
liquidity is available for retail liquidity seekers inside the spread, 
and on which side.

                                                      Table 5--Fill Rates by Retail Take Order Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        <100 %     101-300 %    301-500 %    501-1000 %  1001-2000 %  2001-4000 %  4001-7500 %   7500-15000    >15000 %
-------------------------------------------------------------------------------------------------------------------------------------%------------------
Jan-16.............................        85.30        72.92        62.76        52.36        35.67        20.84        12.61         8.68         2.95
Feb-16.............................        83.81        71.47        62.76        51.21        35.07        21.18        13.92         9.84         3.65
Mar-16.............................        82.78        70.92        62.38        51.69        35.25        22.06        13.80        10.06         3.61
Apr-16.............................        83.19        71.37        62.58        50.99        33.95        21.41        13.27         9.72         3.42
May-16.............................        82.49        67.65        56.62        45.70        29.09        19.75        12.04         8.77         3.76
Jun-16.............................        71.79        57.72        46.59        36.28        26.76        17.91        11.69         8.46         3.84
Jul-16.............................        80.95        68.80        57.26        46.92        34.50        24.39        17.19        12.20         4.71
Aug-16.............................        83.54        71.79        61.39        49.17        34.92        24.40        17.64        12.97         4.06
Sep-16.............................        80.06        69.04        59.19        47.50        33.04        22.58        17.49        11.65         3.83
Oct-16.............................        83.10        73.58        62.22        52.05        36.97        25.09        16.67        11.48         4.35
Nov-16.............................        81.40        71.75        62.28        50.90        35.15        22.68        14.15         9.18         3.63
Dec-16.............................        84.73        75.04        65.56        55.67        40.18        25.76        16.14        10.06         3.91
Jan-17.............................        84.49        74.69        64.07        53.69        39.35        24.97        15.22         8.98         4.13
Feb-17.............................        84.49        75.25        65.39        55.64        38.16        23.34        14.40         8.46         3.23
Mar-17.............................        84.31        77.43        68.69        60.00        40.26        24.26        14.42         8.70         2.95
Apr-17.............................        86.84        80.63        72.49        63.69        43.71        26.79        16.10        10.19         3.44
May-17.............................        89.57        81.19        73.95        64.31        44.07        26.41        16.22        10.45         3.15
Jun-17.............................        78.80        72.17        66.04        58.35        40.20        24.80        15.96        11.46         3.83
Jul-17.............................        77.45        71.84        65.58        58.68        40.59        24.56        15.42         9.85         3.69
Aug-17.............................        74.17        67.92        62.76        55.48        38.88        23.48        14.48         8.80         3.54
Sep-17.............................        84.30        77.24        73.73        64.64        44.56        25.81        16.11         9.51         3.69
Oct-17.............................        82.84        78.51        76.55        68.14        48.06        28.59        17.47        11.21         4.30
Nov-17.............................        82.32        79.42        73.12        65.08        46.34        28.08        18.16        11.17         4.52
Dec-17.............................        81.62        80.19        74.12        66.68        46.28        28.70        17.60         9.86         4.22
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Table 6 shows the development of orders sizes received in the 
Program over time. Orders adding liquidity to the Exchange averaged in 
the mid-300 share range for most of the Program's recent history, 
although the median size has increased since August 2016. (The Exchange 
notes that the median order size is the average of the daily median 
order sizes across all orders received on a trade date for NYSE 
symbols). After averaging near 2,000 shares at times, the size of 
retail orders removing liquidity from the Exchange has dropped over 
time, with median sizes periodically exceeding 300 shares. The slightly 
smaller take order sizes helps explain the better overall fill rates 
and improved effective spreads in the Program's recent history. 
However, as shown by the occasional oversized orders, there remains 
ample liquidity and opportunity in the Program to satisfy liquidity 
takers with meaningful price improvement.

[[Page 5762]]

                                           Table 6--Order Size Details
----------------------------------------------------------------------------------------------------------------
                                                          Provide orders                    Take orders
                                                 ---------------------------------------------------------------
                                                      Average         Median          Average         Median
----------------------------------------------------------------------------------------------------------------
Jan-16..........................................             297             157           1,941             259
Feb-16..........................................             314             191           1,958             272
Mar-16..........................................             312             182           1,787             267
Apr-16..........................................             306             176           1,523             215
May-16..........................................             294             100           1,542             217
Jun-16..........................................             314             100           1,508             207
Jul-16..........................................             323             105           1,585             202
Aug-16..........................................             340             194           2,230             338
Sep-16..........................................             338             200           2,212             336
Oct-16..........................................             357             200           1,494             204
Nov-16..........................................             382             200           1,623             212
Dec-16..........................................             367             200           1,398             206
Jan-17..........................................             361             200           1,217             199
Feb-17..........................................             350             200           1,264             200
Mar-17..........................................             360             200           1,304             200
Apr-17..........................................             353             200           1,223             189
May-17..........................................             416             200             961             105
Jun-17..........................................             370             200           1,517             190
Jul-17..........................................             355             200           1,364             180
Aug-17..........................................             360             200           1,310             196
Sep-17..........................................             391             200           1,141             164
Oct-17..........................................             444             200           1,127             172
Nov-17..........................................             422             200           1,193             184
Dec-17..........................................             395             200           1,026             195
----------------------------------------------------------------------------------------------------------------

    Although the Program provides the opportunity to achieve 
significant price improvement, the Program has not generated 
significant activity. As Table 1 shows, the average daily volume for 
the Program has hovered in the three to four million share range, and 
has accounted for less than 0.1% of consolidated NYSE-listed volume in 
2016-17. The Program's share of NYSE volume during that period was 
below 0.4%. Moreover, no symbol during the past two years achieved as 
much as 1.6% of their consolidated average daily volume (``CADV'') in 
the Program. As Table 7 shows, during the 2016-2017 period, less than 
0.5% of all day/symbol pairs exceeded 5% share of CADV, with another 
3.7% of day/symbol pairs achieving a share of CADV between 1% and 5%. 
Fully 88% of all day/symbol pairs exhibited RLP share of 0.25% or less 
during that time. For ticker symbols that traded at least 100 days 
during the two-year period, more than half of all symbols over that 
period had less than 0.10% of their consolidated volume executed in the 
program, and 96% less than 0.50%. Of the symbols that achieved greater 
than 0.50% CADV in the Program during 2016-2017, only two had a CADV 
above 500,000, and neither was chosen in the matched sample described 
below. The Program's share of the total market in NYSE-listed 
securities is tiny considering that non-ATS activity in the U.S. equity 
markets, based on FINRA transparency data and NYSE Trade and Quote 
(``TAQ'') volume statistics, is estimated to be approximately 20-25% of 
all US equity volume.
    In short, the Program represents a minor participant in the overall 
market to price improve marketable retail order flow. While 
participation was low, as noted above, retail investors that 
participated in the Program received price improvement on their orders, 
which was one of the stated goals of the Program. The NYSE therefore 
believes that this pilot data supports making the Program permanent.

[[Page 5763]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.002

    Moreover, beyond providing a meaningful price improvement to retail 
investors through a competitive and transparent pricing process 
unavailable in non-exchange venues, the data collected during the 
Program supports the conclusion that the Program has not had any 
significant negative market impact. As set forth in Table 8, the 
Exchange measured the correlation between several critical market 
quality statistics and either RLP share of CADV, shares posted dark by 
providers seeking to interact with retail orders or the amount of time 
during the trading day that RLP liquidity was available. The 
correlations the Exchange measured were levels, not changes. As a 
result, fairly high correlation coefficients should suggest that the 
Program had a meaningful impact on the statistics. In no case did the 
Exchange observe a single correlation greater than an absolute value of 
0.10, and even at the 90th percentile of all symbols, there was no 
correlation of even 0.30. In short, these results support the 
conclusion that the Program does not negatively impact market quality.

                                                     Table 8
----------------------------------------------------------------------------------------------------------------
                                                                                                       90th
                  Statistic 1                              Statistic 2                Average       Percentile
                                                                                    correlation     correlation
----------------------------------------------------------------------------------------------------------------
% Time With RLP Liquidity.....................  Consolidated Spread.............          0.0001          0.0003
% Time With RLP Liquidity.....................  Eff. Sprd. Ex RPI...............          0.0943          0.2925
RLP Size at PBBO..............................  Consolidated Spread.............          0.0003          0.0005
RLP Size at PBBO..............................  Eff. Sprd. Ex RPI...............          0.0617          0.2348
RLP Share of CADV.............................  Eff. Sprd. Ex RPI...............          0.0010          0.1091
RLP Share of CADV.............................  Share wtd. NBBO Spread..........          0.0152          0.1357
RLP Share of CADV.............................  Time wtd. NBBO Spread...........          0.0002          0.0002
RLP Share of CADV.............................  Time wtd. NYSE BBO Spread.......          0.0002          0.0002
----------------------------------------------------------------------------------------------------------------

Difference in Differences Analysis
    In addition to demonstrating that changes in Program activity had 
no impact on market quality on a day-to-day basis, the Exchange also 
analyzed market quality impact by using the difference in differences 
statistical technique.
    Difference in differences (``DID'') requires studying the 
differential effect of data measured between a treatment group and a 
control group. The two groups are measured during two or more different 
time periods, usually a period before ``treatment'' and at least one 
time period after ``treatment,'' that is, a time period after which the 
treatment group is impacted but the control group is not. The 
assumption is that the control group and the treatment group are 
otherwise impacted equally by extraneous factors, i.e., that the other 
impacts are parallel. For example, when measuring average quoted 
spreads, if spreads increased by 10 basis points in the control group 
and by 12 basis points in the test group, the assumption would be that 
the two basis point differential was caused by the treatment.
    Because all Exchange-traded symbols were eligible to participate in 
the Program, a natural control group does not exist for the securities 
participating in the Program. Hence, there is a possibility that the 
lack of activity in the Program could have been the result of factors 
that DID cannot measure. Nonetheless, to produce a control group, the 
Exchange identified the 50 most active ticker symbols in the Program as 
measured by share of consolidated volume following launch of the 
Program. The Exchange then determined a matched sample, without 
replacement, using consolidated volume, volume weighted average price, 
and consolidated quoted spread in basis points. The matched sample 
compared the 50 most active ticker symbols in the Program with all 
securities that had very low Program volume. The matching criteria 
minimized the sum of the squares of the percent difference between the 
top 50 active ticker symbols and potential matches.
    The Exchange executed four DID analyses:

[[Page 5764]]

    1. Six months prior to launch of the Program (February 2012-July 
2012) compared to six months following launch, excluding the first 
month of the Program (September 2012-February 2013) for securities with 
a CADV of at least 500,000 during the pre-treatment and treatment 
periods.
    2. Six months prior to launch of the Program (February 2012-July 
2012) compared to all of 2016 and 2017 for securities with a CADV of at 
least 500,000 during the pre-treatment and treatment periods.
    3. Six months prior to launch of the Program (February 2012-July 
2012) compared to six months following launch, excluding the first 
month of the program (September 2012-February 2013) for securities with 
a CADV of at least 50,000 and less than 500,000, during the pre-
treatment and treatment periods.
    4. Six months prior to launch of the Program (February 2012-July 
2012) compared to all of 2016 and 2017 for securities with a CADV of at 
least 50,000 and less than 500,000, during the pre-treatment and 
treatment periods.
    Because there was no natural control group, the Exchange employed 
flexible matching criteria. In addition to the CADV restrictions, the 
Exchange utilized a control of CADV ratio of 3:1, a volume weighted 
average price (``VWAP'') of 2:1, and a spread of 2:1. The Exchange also 
required potential control group stocks to have a share of Program 
trading less than 1/10th of the lowest of the top 50 securities for the 
first trading period. The Exchange excluded securities that were in the 
test groups of the Tick Size Pilot Program from consideration in 
matching securities for the DID analysis of the 2016-2017 period.\65\ 
Preferred stocks, warrants and rights were excluded from the DID 
analysis for both periods. Finally, because the Program is only valid 
for stocks trading at or above $1.00, any security with a low price 
during the pre-treatment or the treatment period below $1.00 was also 
excluded. Securities also had to be listed on the NYSE during the pre-
treatment period and during the treatment period.
---------------------------------------------------------------------------

    \65\ The Tick Size Pilot Program is a National Market System 
(``NMS'') plan designed to allow the Commission, market participants 
and the public to assess the impact of wider minimum quoting and 
trading increments--or tick sizes--on the liquidity and trading of 
the common stocks of certain small capitalization companies.
---------------------------------------------------------------------------

    The Exchange selected the top 25 securities by minimum differences 
as described above.
Results for Securities With CADV at Least 500,000 Shares
    As noted above, the Program began in August 2012. The Exchange 
selected February-July 2012 as the relevant six month pre-period. The 
first post-period used was September 2012-February 2013, as the Program 
was not rolled out to all securities immediately. Tables 9A and 9B show 
the matched sample securities with key attributes for the first 
comparison period for symbols with a CADV of at least 500,000. Tables 
10A and 10B show the selected securities for the second comparison 
period with CADV of at least 500,000.

[[Page 5765]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.003

[[Page 5766]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.004

    The Exchange's DID analysis utilized the 25 securities noted above 
on the following 15 statistics:
     Time-weighted NYSE quoted spread in basis points.
     Time-weighted NYSE quoted spread in dollars and cents.
     Time-weighted Consolidated quoted spread in basis points.
     Time-weighted Consolidated quoted spread in dollars and 
cents.
     Volume-weighted Effective spread in basis points * 
measured against the NYSE quote.
---------------------------------------------------------------------------

    * Volume weighted basis points were estimated using cents 
spreads and dividing by daily VWAPs.
---------------------------------------------------------------------------

     Volume-weighted Effective spread in basis points * 
measured against the NBBO.
     Volume-weighted Effective spread in basis points * 
measured against the PBBO.
     Volume-weighted Quoted spread in basis points * measured 
against the NYSE quote.
     Volume-weighted Quoted spread in basis points * measured 
against the NBBO.
     Volume-weighted Quoted spread in basis points* measured 
against the PBBO.
     Trade Reporting Facility (``TRF'') share of volume during 
regular trading hours, excluding auctions.
     TRF share of volume, full day, including auctions.
     NYSE share of volume during regular trading hours, 
excluding auctions.
     NYSE share of volume, full day, including auctions.

[[Page 5767]]

     Trade-to-trade price change in basis points.
    The Exchange calculated the DID regression for each of these 
statistics using the following formula:

    Yit = B0 + B1T + B2I + 
B3IT

where T equals 0 during the pre-period and equals 1 during the 
treatment period, and where I is the Intervention.
[GRAPHIC] [TIFF OMITTED] TN22FE19.005

    As Table 11 shows, none of the 15 regressions performed by the 
Exchange showed statistical significance for the September 2012-
February 2013 period.
    The Exchange also calculated the DID regression for the 2016-2017 
period, as shown in Table 12. Several spread measures showed 
statistically significant increases at the 99% confidence level, as did 
the full-day share of trading on the TRF. However, time-weighted 
consolidated dollar spreads fell and were significant at the 90% 
confidence level. NYSE dollar spreads fell and were significant at the 
95% level. As described below, the Exchange believes that the apparent 
spread widening and TRF market share increase are an artifact of the 
study methodology and not attributable to the Program.

[[Page 5768]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.006

    As noted above, because all Exchange-traded symbols were eligible 
to participate in the Program when it began as a pilot in August 2012, 
there was no control group that would permit a classic DID examination 
of the results. Instead, for purposes of making the Program permanent, 
the Exchange created an artificial control group and treatment group by 
coming up with a matched sample based on the securities with the 
highest share of consolidated volume in the Program and matching these 
securities based on volume weighted average price, time-weighted quoted 
spread, and CADV during the pre-treatment period (subject to the 
criteria noted above). By necessity, however, the percent of activity 
in the Program itself had to be based on the post-treatment period.
    This methodology provided several insights and permitted the 
Exchange to offer a more thorough analysis of the Program's impact. 
However, the Exchange believes that selection of securities with the 
highest share of consolidated volume in the Program for the treatment 
group created a biased treatment group. Securities with lower prices 
tend to trade more actively in the TRF as well as in the Program; the 
percentage value of price improvement on a low-price stocks provides 
greater savings to investors. For example, $0.0010 price improvement 
per share for a $5.00 stock saves an investor $2.00 per $10,000 
invested. The same per share price improvement on a $50 stock is worth 
just $0.20. Table 13 shows this relationship for the 2016-2017 
treatment period used in the analysis.

                                                      Table 13--Share of Volume Based on Daily VWAP
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            <$5.00 (%)      $5-$10 (%)      $10-$25 (%)     $25-$50 (%)    $50-$100 (%)      >$100 (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
TRF Share...............................................           41.86           37.97           36.02           32.92           30.97           31.58
NYSE RLP % of CADV......................................            0.30            0.23            0.20            0.13            0.10            0.11
--------------------------------------------------------------------------------------------------------------------------------------------------------

    By utilizing securities that traded more heavily in the Program, 
the treatment stocks selected for the DID analysis were mostly lower 
priced securities. However, the matching criteria does not restrict 
stock price during the pre-treatment period. The large time gap between 
the pre-treatment and treatment period resulted in the selection of 
many stocks that were relatively lower-priced during the treatment 
period, but may not have been in that category during the pre-treatment 
period. Since the study period also sought control stocks that were not 
heavily traded in the Program, this resulted in a concentration of 
mostly higher priced treatment period securities in the control group.
    Many of the treatment securities chosen for the 2016-2017 period 
suffered sharp price declines compared to their 2012 pre-treatment 
period levels. On its own, a price drop would not necessarily be 
problematic. However, many of these stocks were already tick 
constrained--that is, they traded with time-weighted quoted spreads 
near $0.01. As a consequence, any price drop would necessarily result 
in an almost equal and opposite percentage increase in the spread. This 
change in spread was not caused by the Program but rather by the fact 
the symbols were already tick constrained.
    Table 14 details the VWAP, dollar and basis point spreads of all of 
the stocks in the 2016-2017 treatment and control group samples. The 
final two columns show the ratio of pre-period VWAP to post-period VWAP 
and compares that to the post- and pre-treatment period spreads in 
basis points. While, on average, control stock prices rose, treatment 
stock prices fell. In most

[[Page 5769]]

cases, treatment group basis point spreads increased, although often by 
less than by the percentage that VWAPs dropped, thus highlighting the 
impact of tick constraints on our results. However, the DID approach 
compared the raw increase in spreads, resulting in a statistically 
significant increase in spreads due to differing price performance 
between the control group and treatment group.
    The Exchange further notes that the average pre-treatment VWAP 
price of the treatment stocks was $25.51 versus $24.96 for the control 
group stocks. However, the average post-period prices were $13.75and 
$37.74, respectively. The Exchange believes that these differences 
explain the statistically significant increase in TRF market share for 
the treatment stocks as well as the increases in spreads in basis 
points (due to the lower prices) in treatment securities versus the 
more than 50% average price increase in control stocks. As detailed in 
Table 15, this difference in performance was not present in the matched 
sample produced for the study covering the initial launch of the 
program. The treatment group saw prices rise from $20.11 to $20.26 
during the treatment period. Control group securities saw a slightly 
larger increase, rising from $20.07 to $22.60.

[[Page 5770]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.007

[[Page 5771]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.008

[[Page 5772]]

DID Analysis for Lower Volume Securities
    The Exchange also performed a set of DID analyses for securities 
with average daily volumes between 50,000 and 500,000 shares for the 
two post-treatment periods covered above.
    Table 16 shows the results for the analysis of eligible securities 
for the six-month pre-period, and the six months following the complete 
rollout of the Program. Although spreads increased, except for NYSE 
spreads in dollars, neither the spread-based, market share or trade-to-
trade price change studies showed statistical significance. Table 17 
shows pre- and post-treatment statistics for the control group and the 
treatment group. Ten of the 25 treatment securities spreads narrowed, 
while 14 of 25 control stocks narrowed. There is too much noise in the 
result to produce statistical significance.
[GRAPHIC] [TIFF OMITTED] TN22FE19.009

[[Page 5773]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.010

[[Page 5774]]

    Tables 18A and 18B summarize data used to create the matched 
sample: VWAP, CADV, and spread in basis points. The tables also provide 
information on the Program's share of consolidated volume since the 
sample was created by finding the stocks with the highest share of 
volume over the treatment period in the Program, and required control 
stocks to exhibit share of CADV no more than 1/10th the lowest security 
chosen for the matched sample.

[[Page 5775]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.011

[[Page 5776]]

    Table 19 shows the results for the lower volume stocks study 
comparing the six month pre-Program period to 2016-2017. Time-weighted 
consolidated and NYSE spreads in basis points increased and were 
statistically significant at the 95% level. Other basis point spreads 
were also statistically significant at either the 95% or 99% level. TRF 
share excluding auctions increased at the 99% level, and including 
auctions increased at the 99.9% level. NYSE share changes were not 
statistically significant. Trade-to-trade price changes (in basis 
points) rose and were significant at the 95% level. The Exchange notes, 
however, that time-weighted consolidated spreads in dollars decreased 
and were significant at the 90% level. NYSE dollar spreads also 
decreased, but were not statistically significant.
[GRAPHIC] [TIFF OMITTED] TN22FE19.012

    Table 20 provides evidence for the possible cause of the 
inconsistency in the results. The average dollar spread in the 
treatment stocks dropped slightly, while dollar spreads in the control 
stocks rose 82%. Spreads in basis points were unchanged for treatment 
stocks, but dropped 30% in the control group. Price changes tended to 
be positive in the control stocks and were little changed in the 
treatment group. The statistical significance appears to be driven by 
changes in the control stocks.

[[Page 5777]]

[GRAPHIC] [TIFF OMITTED] TN22FE19.013

    As previously noted, the Exchange's selection methodology focused 
on finding securities that traded most heavily in the Program. As 
discussed above in the section covering higher volume securities and as 
shown in

[[Page 5778]]

Table 13, both TRF share and Program activity are higher in low priced 
stocks. This constraint did not impact the control stocks, as the 
selection methodology requires control stocks to have significantly 
lower share of the market. However, it did result in control stocks 
that traded largely in line with the overall market, resulting in price 
increases over the 2012 to 2016-2017 time period. Table 21B highlights 
the constraint on Program share for the treatment and control stocks. 
Table 21A presents additional matched sample population statistics.
[GRAPHIC] [TIFF OMITTED] TN22FE19.014

    In conclusion, the Exchange believes that the Program was a 
positive experiment in attracting retail order flow to a public 
exchange. The order flow the Program attracted to the Exchange provided 
tangible price improvement to retail investors through a competitive 
pricing process unavailable in non-exchange venues. As such, despite 
the low volumes, the Exchange believes that the Program satisfied the 
twin goals of attracting retail order flow to the Exchange and allowing 
such order flow to receive potential price improvement. Moreover, the 
Exchange believes that the data collected during the Program supports 
the conclusion that the Program's overall impact on market quality and 
structure was not negative. Although the results of the Program 
highlight the substantial advantages that broker-dealers retain when 
managing the benefits of retail order flow, the Exchange believes that 
the level of price improvement guaranteed by the Program justifies 
making the Program

[[Page 5779]]

permanent. The Exchange accordingly believes that the pilot Program's 
rules, as amended, should be made permanent.
    The Exchange notes that the proposed change is not otherwise 
intended to address any other issues and the Exchange is not aware of 
any problems that member organizations would have in complying with the 
proposed rule change.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act,\66\ in general, and 
Section 6(b)(5) of the Act,\67\ in particular, in that it is designed 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest and not to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \66\ 15 U.S.C. 78f(b).
    \67\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes the proposal is consistent with these 
principles because it seeks to make permanent a pilot and associated 
rule changes that were previously approved by the Commission as a pilot 
for which the Exchange has subsequently provided data and analysis to 
the Commission, and that this data and analysis, as well as the further 
analysis in this filing, shows that the Program has operated as 
intended and is consistent with the Act. The Exchange also 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 also believes the proposed rule change is designed to 
facilitate transactions in securities and to remove impediments to, and 
perfect the mechanisms of, a free and open market and a national market 
system because making the Program permanent would attract retail order 
flow to a public exchange and allow such order flow to receive 
potential price improvement. The data provided by the Exchange to the 
Commission staff demonstrates that the Program provided tangible price 
improvement to retail investors through a competitive pricing process 
unavailable in non-exchange venues and otherwise had an insignificant 
impact on the marketplace. The Exchange believes that making the 
Program permanent would encourage the additional utilization of, and 
interaction with, the NYSE and provide retail customers with an 
additional venue for price discovery, liquidity, competitive quotes, 
and price improvement. For the same reasons, the Exchange believes that 
making the Program permanent would promote just and equitable 
principles of trade and remove impediments to and perfect the mechanism 
of a free and open market.
    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition. For these reasons, the Exchange 
believes that the proposal is consistent with the Act.

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
believes that making the Program permanent would continue to promote 
competition for retail order flow among execution venues. The Exchange 
also believes that making the Program permanent will promote 
competition between execution venues operating their own retail 
liquidity programs. Such competition will lead to innovation within the 
market, thereby increasing the quality of the national market system. 
Finally, the Exchange notes that it operates in a highly competitive 
market in which market participants can easily direct their orders to 
competing venues, including off-exchange venues. In such an 
environment, the Exchange must continually review, and consider 
adjusting the services it offers and the requirements it imposes to 
remain competitive with other U.S. equity exchanges.
    For the reasons described above, the Exchange believes that the 
proposed rule change reflects this competitive environment.

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

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

III. Summary of Comment Letter

    After the Commission instituted proceedings, the Commission 
received a comment letter on the proposed rule change.\68\ In support 
of the proposal to the make the Program permanent, the commenter states 
that the Program seems to have offered significant price improvement 
during the course of its pilot period.\69\ Citing the Exchange's 
analysis in the Original Notice of trading activity during the pilot 
period, the commenter notes that between August 1, 2012 and January 2, 
2018, orders totaling in excess of 6.8 billion shares were executed 
through the Program, providing improvements of $12.3 million 
dollars.\70\ The commenter observes that these statistics indicate that 
the Program has provided greater than the average price improvement 
provided through other common execution avenues.\71\ The commenter 
notes that fill rates have also been, at times, significant.\72\ The 
commenter also believes that the Program offers the Commission a unique 
opportunity to explore brokers' fulfillment of their best execution 
obligations.\73\
---------------------------------------------------------------------------

    \68\ See HMA Letter, supra note 10.
    \69\ See id. at 2.
    \70\ See id. at 3.
    \71\ See id.
    \72\ See id.
    \73\ See id. at 2-3.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to make permanent the Retail Liquidity Program Pilot, Rule 
107C, as modified by Amendment No. 1, is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to a national securities exchange.\74\ In 
particular, the Commission finds that the proposed rule change, as 
modified by Amendment No. 1, is consistent with Sections 6(b)(5) \75\ 
and 6(b)(8) \76\ of the Exchange Act. Section 6(b)(5) of the Exchange 
Act requires that the rules of a national securities exchange be 
designed, among other things, to promote just and equitable principles 
of trade, to remove impediments to and perfect the mechanism of a free 
and open market and a national market system and, in general, to 
protect investors and the public interest, and not be designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers. Section 6(b)(8) of the Exchange Act requires that the rules of 
a national securities exchange not impose any burden on competition 
that is not

[[Page 5780]]

necessary or appropriate in furtherance of the purposes of the Exchange 
Act.
---------------------------------------------------------------------------

    \74\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \75\ 15 U.S.C. 78f(b)(5).
    \76\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    As noted above, the Commission approved the Program on a pilot 
basis to allow the Exchange and market participants to gain valuable 
practical experience with the Program during the pilot period, and to 
allow the Commission to determine whether modifications to the Program 
were necessary or appropriate prior to any Commission decision to 
approve the Program on a permanent basis.\77\ Indeed, the Exchange has 
modified aspects of the Program on several occasions since initial 
approval of the Program on a pilot basis.\78\ As set forth in the RLP 
Approval Order, the Exchange agreed to provide the Commission with a 
significant amount of data to assist the Commission's evaluation of the 
Program prior to any permanent approval of the Program.\79\ 
Specifically, the Exchange represented that it would ``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.'' \80\ 
The Commission expected the Exchange to monitor the scope and operation 
of the Program and study the data produced during that time with 
respect to such issues.\81\
---------------------------------------------------------------------------

    \77\ See RLP Approval Order supra note 14, at 40674.
    \78\ See supra, note 22.
    \79\ See RLP Approval Order, supra note 14, at 40681.
    \80\ See id.
    \81\ See id.
---------------------------------------------------------------------------

    Although the pilot period was originally scheduled to end on July 
31, 2013, the Exchange filed to extend the operation of the pilot on 
several occasions.\82\ The pilot is now set to expire on June 30, 2019, 
and the Exchange proposes to make the Program, Rule 107C, permanent. In 
its proposal, as modified by Amendment No. 1, the Exchange provides 
data and analysis which it believes justifies permanent approval of the 
Program.
---------------------------------------------------------------------------

    \82\ See supra, note 15.
---------------------------------------------------------------------------

    In the Original Notice, the Exchange provided data indicating that 
the Program provided $12.3 million in price improvement to retail 
investors between August 21, 2012 and January 2, 2018, as well as data 
showing overall average price improvement of $0.0014 per share 
(approximately 40% above the minimum of $0.001), with average price 
improvement exceeding that level in 2016.\83\ In the Original Notice, 
the Exchange also stated its belief that receipt of price improvement 
by retail investors, the Program's low volume levels, and other data, 
similar to that provided in Tables 1 through 8 above, were sufficient 
to conclude that the Program had achieved its goals without negatively 
impacting the broader market.\84\ In the Commission's Order Instituting 
Proceedings, the Commission questioned whether the information and 
analysis provided by the Exchange in the Original Notice supported the 
Exchange's conclusions that the Program had achieved its goals, 
including whether the Exchange had provided data and analysis to 
support its conclusion that the Program had an overall negligible 
impact on broader market structure.\85\
---------------------------------------------------------------------------

    \83\ See Original Notice, supra note 3, at 28879.
    \84\ See id. at 2882-83.
    \85\ See Order Instituting Proceedings, supra note 7, at 48352. 
In the Order Instituting Proceedings, the Commission sought 
additional information and analysis concerning the Program's impact 
on the broader market, for example, additional information to 
support the view that the Program has not had a material adverse 
impact on market quality and consideration of any effects that fees 
and rebates may have had on the operation of the Program. See id.
---------------------------------------------------------------------------

    In Amendment No. 1, the Exchange has provided data and analysis 
concerning the Program during the pilot period in addition to that 
provided in the Original Notice. In particular, the Commission notes 
that in Amendment No. 1, the Exchange undertook to provide a more in-
depth analysis of the Program's impact on market quality by using the 
difference-in-differences (``DID'') statistical technique, the 
methodology for which it explains above.\86\ Although the Program was 
not initially designed to produce a DID analysis, the Exchange 
identified the most active stocks in the Program to establish a 
treatment group of stocks and then used securities with similar pre-
treatment spread, price, and CADV but very low Program activity as a 
control group. Using this methodology, the Exchange produced four DID 
analyses that the Commission believes are useful to assess the 
Program's impact on market quality, as measured by a variety of market 
quality statistics including: (1) Time-weighted NYSE quoted spread in 
basis points; (2) time-weighted NYSE quoted spread in dollars and 
cents; (3) time-weighted consolidated quoted spread in basis points; 
(4) time-weighted consolidated quoted spread in dollars and cents; (5) 
volume-weighted effective spread in basis points measured against the 
NYSE quote; (6) volume-weighted effective spread in basis points 
measured against the national best bid or offer (``NBBO''); (7) volume-
weighted effective spread in basis points measured against the 
protected best bid or offer (``PBBO''); (8) volume-weighted quoted 
spread in basis points measured against the NYSE quote; (9) volume-
weighted quoted spread in basis points measured against the NBBO; (10) 
volume-weighted quoted spread in basis points measured against the 
PBBO; (11) Trade Reporting Facility (``TRF'') share of volume during 
regular trading hours, excluding auctions; (12) TRF share of volume, 
full day, including auctions; (13) NYSE share of volume during regular 
trading hours, excluding auctions; (14) NYSE share of volume, full day, 
including auctions; and (15) trade-to-trade price change in basis 
points of the Program.\87\
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    \86\ A DID statistical technique allows studying the 
differential effect of a treatment on data measured between a 
treatment group and a control group. The two groups are measured 
during two or more different time periods, usually a period before 
``treatment'' and at least one time period after ``treatment,'' that 
is, a time period after which the treatment group is impacted but 
the control group is not. For each group, the difference between a 
measure in the pre-treatment and the treatment period is computed. 
Those differences for a measure for the two groups are then compared 
to each other by taking the difference between them.
    \87\ In its analyses, the Exchange notes that lower-priced 
securities tend to be most active in the Program, and as a result, 
its artificially created treatment group includes securities that 
were relatively low-priced during the treatment period, but may not 
have been similarly low-priced during the pre-treatment period.
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    In its first set of DID analyses, the Exchange studies stocks that 
had a CADV of at least 500,000 shares during both a pre-treatment and a 
treatment period. For these stocks, the Exchange compares changes in 
market quality statistics between the pre-treatment and treatment 
period for the treatment group stocks and the control group stocks. The 
Exchange conducts this study using two different treatment periods. 
More specifically, the Exchange examines market quality statistics for:
     Six months prior to launch of the Program (February 2012-
July 2012) as compared to six months following launch, excluding the 
first month of the Program (September 2012-February 2013) for 
securities with a CADV of at least 500,000 during the pre-treatment and 
treatment periods, and
     Six months prior to launch of the Program (February 2012-
July 2012) as compared to all of 2016 and 2017 for securities with a 
CADV of at least 500,000 during the pre-treatment and treatment 
periods.
    As summarized in Table 11 above, when analyzing stocks with a CADV 
of at least 500,000 shares, and when comparing changes between the pre-
treatment period and the 2012-2013 treatment period, the Exchange finds 
no statistically significant differences between treatment and control 
group

[[Page 5781]]

stocks for the changes in time-weighted NYSE or time-weighted 
consolidated spreads (whether measured in basis points or in 
dollars).\88\
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    \88\ More broadly, the Exchange finds no statistically 
significant difference between treatment and control group stocks 
for any of the analyzed measures of market quality when comparing 
the pre-treatment period with the 2012-2013 treatment period.
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    As summarized in Table 12 above, when comparing changes between the 
pre-treatment period and the 2016-2017 treatment period, the analysis 
shows statistically significant positive differences between treatment 
and control stocks for changes in several spread measures in basis 
points, as well as for changes in the share of trading on the TRF, 
which could suggest a negative effect of the Program.\89\ However, the 
Exchange's analysis further reveals that the treatment stocks for the 
2016-2017 treatment period saw sharp price declines as compared to 
their 2012 pre-treatment period levels.\90\ In addition, many of the 
treatment stocks traded with quoted spreads near $0.01 (i.e., they were 
tick-constrained), so that any price drop would necessarily result in 
an almost equal and opposite percentage increase in the spreads 
measured in basis points. After careful consideration, the Commission 
believes that the DID and additional analysis performed by the Exchange 
for stocks with a CADV of at least 500,000 shares, support the 
conclusion that positive DID results for spreads and TRF activity 
observed in Table 12 above are unlikely to be caused by the Program.
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    \89\ In addition, the results in Table 12 show negative 
differences between the treatment and control stocks for changes in 
time-weighted consolidated dollar spreads (statistically significant 
at the 90% confidence level) and for changes in time-weighted NYSE 
dollar spreads (statistically significant at the 95% confidence 
level).
    \90\ Table 14 above shows a decrease in the average value 
weighted average price (VWAP) of treatment stocks from $25.51 (pre-
treatment period) to $13.75 (2016-2017 treatment period) and an 
increase in the average VWAP of control group stocks from $24.96 
(pre-treatment period) to $37.74 (2016-2017 treatment period). In 
contrast, Table 15 above shows that similar price changes are not 
present in the analysis focusing on the 2012-2013 treatment period.
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    In its other set of DID analyses, the Exchange studies stocks that 
had a CADV of at least 50,000 shares and less than 500,000 shares 
during both a pre-treatment and a treatment period, for the same two 
treatment time periods. For these stocks, the Exchange likewise 
compares changes in market quality statistics between the pre-treatment 
and the treatment periods for the treatment group stocks and the 
control group stocks. Specifically, to assess whether the results 
differ for lower-volume stocks, the Exchange examines the same market 
quality statistics for:
     Six months prior to launch of the Program (February 2012-
July 2012) compared to six months following launch, excluding the first 
month of the Program (September 2012-February 2013) for securities with 
a CADV of at least 50,000 and less than 500,000, during the pre-
treatment and treatment periods; and
     Six months prior to launch of the Program (February 2012-
July 2012) compared to all of 2016 and 2017 for securities with a CADV 
of at least 50,000 and less than 500,000, during the pre-treatment and 
treatment periods.
    As summarized in Table 16 above, when analyzing these lower-volume 
stocks, and when comparing changes between the pre-treatment period and 
the 2012-2013 treatment period, the Exchange similarly finds no 
statistically significant differences between treatment and control 
group stocks for the changes in time-weighted NYSE or time-weighted 
consolidated spreads (whether measured in basis points or in 
dollars).\91\
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    \91\ More broadly, the Exchange finds no statistically 
significant difference between treatment and control group stocks 
for any of the analyzed measures of market quality when comparing 
the pre-treatment period with the 2012-2013 treatment period.
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    As summarized in Table 19 above, when comparing changes between the 
pre-treatment period and the 2016-2017 treatment period, the analysis 
shows statistically significant positive differences between treatment 
and control stocks for changes in several spread measures in basis 
points, as well as for changes in the share of trading on the TRF. In 
assessing the observed positive differences for changes in spread 
measures in basis points, the Exchange's analysis further reveals that 
these differences are attributable mostly to changes in the control 
stocks rather than to changes in the treatment stocks. In particular, 
as shown in Table 20, between the pre-treatment period and the 2016-
2017 treatment period, the treatment stocks experienced virtually no 
change in dollar spreads and only a small increase in spreads measured 
in basis points (driven by a small decline in their prices (VWAP)).\92\ 
In contrast, in the same time period, the control stocks experienced a 
large decrease in spreads measured in basis points, driven by the fact 
that their average price (VWAP) more than doubled.\93\ Thus, the large 
increase in the prices of the control stocks (which did not occur for 
the treatment stocks) contributes significantly to the observed 
positive differences between treatment and control stocks for changes 
in basis point spread measures. After careful consideration, the 
Commission believes that the DID and additional analysis performed by 
the Exchange for stocks with a CADV of at least 50,000 and less than 
500,000 shares support the conclusion that the positive DID results in 
spreads and TRF observed in Table 19 are unlikely to be caused by the 
Program.
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    \92\ Table 20 shows that between the pre-treatment period and 
the 2016-2017 treatment period, the treatment stocks experienced a 
slight decrease in average dollar spread from $0.024 to $0.023, a 
small decline in average VWAP from $13.84 to $12.09, and a small 
increase in basis point spread from 18.84 to 21.69 basis points.
    \93\ Table 20 shows that between the pre-treatment period and 
the 2016-2017 treatment period, the control stocks experienced a 
large increase in average VWAP from $16.70 to $35.92, a smaller 
percentage increase in average dollar spread from $0.034 to $0.061, 
and a large decrease in basis point spread from 22.04 to 15.41 basis 
points.
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    As noted, in the Order Instituting Proceedings, the Commission 
questioned whether the Exchange provided sufficient data and analysis 
in the Original Notice to support its conclusions that the Program had 
achieved its goals and had an overall negligible impact on broader 
market structure.\94\ In Amendment No. 1, the Exchange provides data 
and analysis to further support its assertions in the Original Notice. 
The Commission believes that the data and analysis provided by the 
Exchange support the conclusion that the Program provides meaningful 
price improvement to retail investors on a regulated exchange venue and 
has not demonstrably caused harm to the broader market. Based on the 
foregoing, and after careful consideration of the Exchange's analysis 
of the data generated by the Program and the comment received, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with the requirements of the Exchange 
Act.
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    \94\ See supra note 85 and accompanying text.
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V. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
to the proposed rule change is consistent with the Exchange 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

[[Page 5782]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2018-28 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-NYSE-2018-28. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of this filing will also be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2018-28 and should be submitted on 
or before March 15, 2019.

VI. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the 30th day after the 
date of publication of notice of Amendment No. 1 in the Federal 
Register. Amendment No. 1 supplements the proposal by providing 
additional analysis of the Program's impact on the market to address 
concerns raised in Commission's Order Instituting Proceedings. 
Specifically, in Amendment No. 1, the Exchange presents and discusses 
four DID analyses it performed to assess the Program, as measured by a 
variety of market quality statistics. These DID analyses and the 
additional analysis provided by the Exchange assisted the Commission in 
evaluating the Program's impact on the broader market and in 
determining that permanent approval of the Program, Rule 107C, is 
reasonably designed to perfect the mechanism of a free and open market 
and the national market system, protect investors and the public 
interest, and not be unfairly discriminatory, or impose an unnecessary 
or inappropriate burden on competition. Accordingly, pursuant to 
Section 19(b)(2) of the Exchange Act,\95\ the Commission finds good 
cause to approve the proposed rule change, as modified by Amendment No. 
1, on an accelerated basis.
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    \95\ 15 U.S.C. 78s(b)(2).
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VII. Limited Exemption From the Sub-Penny Rule

    Pursuant to its authority under Rule 612(c) of Regulation NMS,\96\ 
the Commission hereby grants the Exchange a limited exemption from the 
Sub-Penny Rule to operate the Program. For the reasons discussed below, 
the Commission determines that such action is necessary or appropriate 
in the public interest, and is consistent with the protection of 
investors.
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    \96\ 17 CFR 242.612(c).
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    When the Commission adopted the Sub-Penny Rule in 2005, the 
Commission identified a variety of problems caused by sub-pennies that 
the Sub-Penny Rule was designed to address:
     If investors' limit orders lose execution priority for a 
nominal amount, investors may over time decline to use them, thus 
depriving the markets of liquidity.
     When market participants can gain execution priority for a 
nominal amount, important customer protection rules such as exchange 
priority rules and the Manning Rule \97\ could be undermined.
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    \97\ See Financial Industry Regulatory Authority Rule 5320 
(Prohibition Against Trading Ahead of Customer Orders).
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     Flickering quotations that can result from widespread sub-
penny pricing could make it more difficult for broker-dealers to 
satisfy their best execution obligations and other regulatory 
responsibilities.
     Widespread sub-penny quoting could decrease market depth 
and lead to higher transaction costs.
     Decreasing depth at the inside could cause institutions to 
rely more on execution alternatives away from the exchanges, 
potentially increasing fragmentation in the securities markets.\98\
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    \98\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).
---------------------------------------------------------------------------

    The Commission believes that the limited exemption granted today 
should continue to promote competition between exchanges and OTC market 
makers in a manner that is reasonably designed to minimize the problems 
that the Commission identified when adopting the Sub-Penny Rule. Under 
the Program, sub-penny prices will not be disseminated through the 
consolidated quotation data stream, which should avoid quote flickering 
and its reduced depth at the inside quotation.
    Furthermore, the Commission does not believe that granting this 
limited exemption and approving the proposal would reduce incentives 
for market participants to display limit orders. As noted in the RLP 
Approval Order, market participants that displayed limit orders at the 
time were not able to interact with marketable retail order flow 
because that order flow was almost entirely routed to internalizing OTC 
market makers that offered sub-penny executions,\99\ and, as noted in 
Amendment No. 1, the Program has attracted a small volume from the OTC 
market makers. As a result, enabling the Exchange to continue to 
compete for retail order flow through the Program should not materially 
detract from the current incentives to display limit orders, while 
potentially resulting in greater order interaction and price 
improvement for marketable retail orders on a public national 
securities exchange. To the extent that the Program may raise Manning 
and best execution issues for broker-dealers, these issues are already 
presented by the existing practices of OTC market makers.
---------------------------------------------------------------------------

    \99\ See RLP Approval Order, supra note 14, at 40682.
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    This permanent and limited exemption from the Sub-Penny Rule is 
limited solely to the operation of the Program by the Exchange. This 
exemption does not extend beyond the scope of Exchange Rule 107C. In 
addition, this exemption is conditioned on the Exchange continuing to 
conduct the Program, in accordance with Exchange Rule 107C and 
substantially as described in the Exchange's request for exemptive 
relief and the proposed rule change, as modified by Amendment No. 
1.\100\ Any changes in Exchange Rule 107C may cause the Commission to 
reconsider this exemption.
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    \100\ See supra note 13.

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[[Page 5783]]

VIII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\101\ that the proposed rule change (SR-NYSE-2018-28), as 
modified by Amendment No. 1, be, and it hereby is, approved on an 
accelerated basis.
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    \101\ 15 U.S.C. 78s(b)(2).
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    It is further ordered that, pursuant to Rule 612(c) under 
Regulation NMS, that the Exchange shall be exempt from Rule 612(a) of 
Regulation NMS with respect to the operation of the Program as set 
forth in Exchange Rule 107C as described herein.
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    \102\ 17 CFR 200.30-3(a)(12) and 17 CFR 200.30-3(a)(83).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\102\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03043 Filed 2-21-19; 8:45 am]
BILLING CODE 8011-01-P