Document ID: SEC-2018-0946-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2018-06-21T04:00Z

[Federal Register Volume 83, Number 120 (Thursday, June 21, 2018)]
[Notices]
[Pages 28874-28884]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13303]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83454; File No. SR-NYSE-2018-28]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Make Permanent the Retail 
Liquidity Program Pilot, Rule 107C, Which Is Currently Set To Expire on 
June 30, 2018

June 15, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\

[[Page 28875]]

notice is hereby given that on June 4, 2018, New York Stock Exchange 
LLC (``NYSE'' or the ``Exchange'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by the Exchange. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to make permanent Rule 107C, which sets forth 
the Exchange's pilot Retail Liquidity Program. The proposed rule change 
is available on the Exchange's website at www.nyse.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
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 IV 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 
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 Commission approved the Program on a pilot 
basis.\3\ 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 June 
30, 2018.\4\
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    \3\ 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.
    \4\ See 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). See also 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); and 
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).
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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.\5\ The Program is currently limited to trades occurring at 
prices equal to or greater than $1.00 a share.
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    \5\ 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'') \6\ 
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.\7\ 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.\8\
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    \6\ 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.
    \7\ 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'').
    \8\ 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,\9\ which requires that 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.\10\
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    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 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.\11\
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    \11\ 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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[[Page 28876]]

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.\12\
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    \12\ 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.\13\
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    \13\ 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'').\14\
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    \14\ Id. at (3).
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     Finally, the term ``Retail Price Improvement Order'' means 
nondisplayed 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.\15\
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    \15\ 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 \16\ can qualify as an 
RMO if it conducts a retail business or routes \17\ 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; \18\ 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.\19\
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    \16\ 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.
    \17\ 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).
    \18\ 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).
    \19\ 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.\20\
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    \20\ 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.\21\ 
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.\22\
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    \21\ Id. at (b)(3).
    \22\ 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.\23\
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    \23\ Id. at (c)(1)-(4).
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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.\24\ 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.\25\
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    \24\ Id. at (d)(1).
    \25\ 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.\26\ 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

[[Page 28877]]

after the disapproval notice is issued by the Exchange.\27\
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    \26\ Id. at (d)(3).
    \27\ 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.\28\
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    \28\ 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.\29\
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    \29\ 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.\30\ 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.\31\ The Exchange determines whether an RLP has met this 
requirement by calculating the following:
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    \30\ Id. at (f)(1)(A)-(B).
    \31\ 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.\32\
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    \32\ 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.\33\
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    \33\ 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.\34\
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    \34\ 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.\35\ 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.\36\
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    \35\ Id. at (2).
    \36\ 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.\37\ When disqualification determinations are made, the Exchange 
shall provide a written disqualification notice to the member 
organization.\38\ 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.\39\
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    \37\ Id. at (h)(1).
    \38\ Id. at (2).
    \39\ Id. at (3).
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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.\40\ 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.\41\ The 
RLP Panel would review the facts and render a decision within the time 
frame prescribed by the Exchange.\42\ 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.\43\
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    \40\ 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).
    \41\ Id. at (i)(2).
    \42\ Id. at (3).
    \43\ 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

[[Page 28878]]

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.\44\
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    \44\ 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.\45\
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    \45\ Id. at (k)(1). See note 7, 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.\46\
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    \46\ 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.\47\
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    \47\ 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 1,000.
    RLP 3 enters a Retail Price Improvement Order to buy DEF at $10.002 
for 1,000.
    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 1,000 
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 1,000, 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 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.\48\
---------------------------------------------------------------------------

    \48\ 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.'' \49\ 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,\50\ 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.
---------------------------------------------------------------------------

    \49\ RLP Approval Order, 77 FR at 40681.
    \50\ 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

[[Page 28879]]

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.\51\ 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.\52\
---------------------------------------------------------------------------

    \51\ RLP Approval Order, 77 FR at 40679.
    \52\ 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.\53\
---------------------------------------------------------------------------

    \53\ In 2016, the average price improvement reached as high as 
$0.0017-$0.0018.

                                                Table 1--Summary Execution and Market Quality Statistics
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             RPI Avg.       Avg. daily                      Effective/         Price         Realized
                  Date                        volume          orders        Eff. spread    quoted ratio     improvement       spread       Fill rate (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
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.

                                           Table 2--Composition of Retail Taking Orders by Order Size Category
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          501-1,000    1001-2,000   2001-4,000   4001-7,500    7500-15,000     >15,000
                                   <100  (%)     101-300      301-500        (%)          (%)          (%)          (%)            (%)           (%)
---------------------------------------------------(%)----------(%)-------------------------------------------------------------------------------------
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

[[Page 28880]]

 
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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          501-1,000    1001-2,000   2001-4,000   4001-7,500    7500-15,000     >15,000
                                   <100  (%)     101-300      301-500        (%)          (%)          (%)          (%)            (%)           (%)
---------------------------------------------------(%)----------(%)-------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          501-1,000    1001-2,000   2001-4,000   4001-7,500    7500-15,000     >15,000
                                   <100  (%)     101-300      301-500        (%)          (%)          (%)          (%)            (%)           (%)
---------------------------------------------------(%)----------(%)-------------------------------------------------------------------------------------
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
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

[[Page 28881]]

liquidity seekers inside the spread, and on which side.

                                                      Table 5--Fill Rates by Retail Take Order Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          501-1,000   1,001-2,000  2,001-4,000  4,001-7,500   7,500-15,000     >15,000
                                   <100  (%)     101-300      301-500        (%)           (%)          (%)          (%)           (%)           (%)
---------------------------------------------------(%)----------(%)-------------------------------------------------------------------------------------
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.

                                           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
----------------------------------------------------------------------------------------------------------------

[[Page 28882]]

    Although the Program provides the opportunity to achieve 
significant price improvement, the Program has not generated 
significant activity. As Table 7 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, and all of the highest share symbols are low volume 
securities. As Table 2 shows, during the 2016-2017 period, only 1.0% of 
all day/symbol pairs exceeded 5% share of CADV, with another 8.2% of 
day/symbol pairs achieving a share of CADV between 1% and 5%. Fully 75% 
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%. 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 U.S. 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 the pilot data supports making the Program 
permanent.

                                                     Table 7
----------------------------------------------------------------------------------------------------------------
                                                           Daily results                Two year aggregate
                Distribution (%)                 ---------------------------------------------------------------
                                                       Count        Percentage         Count        Percentage
----------------------------------------------------------------------------------------------------------------
>50.............................................              63          0.0088               0          0.0000
25.00-50.00.....................................             179          0.0251               0          0.0000
10.00-25.00.....................................           1,599          0.2238               0          0.0000
5.00-10.00......................................           5,569          0.7795               0          0.0000
1.00-5.00.......................................          58,368          8.1696               6          0.1733
0.75-1.00.......................................          18,527          2.5932              18          0.5198
0.50-0.75.......................................          29,869          4.1807             111          3.2053
0.25-0.50.......................................          64,440          9.0194             764         22.0618
0.10-0.25.......................................         116,211         16.2657             736         21.2532
0.05-0.10.......................................         101,813         14.2504             538         15.5357
0.01-0.05.......................................         181,194         25.3611           1,161         33.5258
<0.01...........................................         136,624         19.1228             129          3.7251
----------------------------------------------------------------------------------------------------------------

    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 
0.15, and even at the 90th percentile of all symbols, there was no 
correlation of even 0.30. In short, there was no measure the Exchange 
studied supporting the conclusion that the Program had any noticeable 
impact on 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
----------------------------------------------------------------------------------------------------------------

    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

[[Page 28883]]

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 and the 
scant evidence that the Program negatively impacted the marketplace 
justifies making the Program 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,\54\ in general, and 
Section 6(b)(5) of the Act,\55\ 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.
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 78f(b).
    \55\ 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 
believes that the data supplied to the Commission and experience gained 
over nearly six years have demonstrated that the Program creates price 
improvement opportunities for retail orders that are equal to what 
would be provided under OTC internalization arrangements, thereby 
benefiting retail investors and increasing competition between 
execution venues. 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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. 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

[[Page 28884]]

Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal offices of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2018-28, and should be submitted on 
or before July 12, 2018.
---------------------------------------------------------------------------

    \56\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\56\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13303 Filed 6-20-18; 8:45 am]
 BILLING CODE 8011-01-P