83 FR 35516 - Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing of Proposed Rule Change To Make Permanent the Pilot Program for the Exchange's Retail Price Improvement Program

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 144 (July 26, 2018)

Page Range		35516-35525
FR Document		2018-15942

Federal Register, Volume 83 Issue 144 (Thursday, July 26, 2018)

[Federal Register Volume 83, Number 144 (Thursday, July 26, 2018)]
[Notices]
[Pages 35516-35525]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2018-15942]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83681; File No. SR-BX-2018-025]

Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
of Proposed Rule Change To Make Permanent the Pilot Program for the
Exchange's Retail Price Improvement Program

July 20, 2018.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 9, 2018, Nasdaq BX, Inc. (``BX'' or ``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 a proposal to make permanent the pilot
program for the Exchange's Retail Price Improvement (``RPI'') Program
(the ``Program''), which is set to expire the earlier of approval of
the filing to make this rule permanent or December 31, 2018.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaqbx.cchwallstreet.com/, at the principal office
of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
The Exchange proposes to make permanent the Exchange's pilot RPI
Program,\3\ currently scheduled to expire the earlier of approval of
the filing to make this rule permanent or December 31, 2018.
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\3\ Securities Exchange Act Release No. 73702 (November 28,
2014), 79 FR 72049 (December 4, 2014) (SR-BX-2014-048) (``RPI
Approval Order'').
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Background
In November 2014, the Commission approved the RPI Program on a
pilot basis.\4\ The Program is designed to attract retail order flow to
the Exchange, and allow such order flow to receive potential price
improvement. The Program is currently limited to trades occurring at
prices equal to or greater than $1.00 per share. Under the Program, a
class of market participant called a Retail Member Organization
(``RMO'') is eligible to submit certain retail order flow (``Retail
Orders'') \5\ to the Exchange. BX members (``Members'') are permitted
to provide potential price improvement for Retail Orders in the form of
non-displayed interest that is priced more aggressively than the
Protected National Best Bid or Offer (``Protected NBBO'').\6\
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\4\ See id.
\5\ A ``Retail Order'' is defined in BX Rule 4780(a)(2) by
referencing BX Rule 4702, and BX Rule 4702(b)(6) says it is an order
type with a non-display order attribute submitted to the Exchange by
a RMO. A Retail Order must be an agency order, or riskless principal
order that satisfies the criteria of FINRA Rule 5320.03. The Retail
Order must reflect trading interest of a natural person with no
change made to the terms of the underlying order of the natural
person with respect to price (except in the case of a market order
that is changed to a marketable limit order) or side of market and
that does not originate from a trading algorithm or any other
computerized methodology.
\6\ The term Protected Quotation is defined in Chapter XII, Sec.
1(19) and has the same meaning as is set forth in Regulation NMS
Rule 600(b)(58). The Protected NBBO is the best-priced protected bid
and offer. Generally, the Protected NBBO and the national best bid
and offer (``NBBO'') will be the same. However, a market center is
not required to route to the NBBO if that market center is subject
to an exception under Regulation NMS Rule 611(b)(1) or if such NBBO
is otherwise not available for an automatic execution. In such case,
the Protected NBBO would be the best-priced protected bid or offer
to which a market center must route interest pursuant to Regulation
NMS Rule 611.
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The Program was approved by the Commission on a pilot basis running
one-year from the date of implementation.\7\ The Commission approved
the Program on November 28, 2014.\8\ The Exchange implemented the
Program on December 1, 2014 and the pilot has since been extended for a
one-year period twice, as well as for a six-month period, with it now
scheduled to expire the earlier of approval of the filing to make this
rule permanent or December 31, 2018.\9\
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\7\ See RPI Approval Order, supra note 3 at 72053.
\8\ Id. at 72049.
\9\ See Securities Exchange Act Release No. 76490 (November 20,
2015), 80 FR 74165 (November 27, 2015) (SR-BX-2015-073); Securities
Exchange Act Release No. 79446 (December 1, 2016), 81 FR 88290
(December 7, 2016) (SR-BX-2016-065); Securities Exchange Act Release
No. 82192 (December 1, 2017), 82 FR 57809 (December 7, 2017) (SR-BX-
2017-055); and Securities Exchange Act Release No. 83539 (June 28,
2018), 83 FR 31203 (July 3, 2018) (SR-BX-2018-026).
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Specifically, BX Rule 4780(h) will be amended to delete that the
Program is a pilot and that is scheduled to expire the earlier of
approval of the filing to make this rule permanent or December 31,
2018. BX Rule 4780(h) will continue to say that the Program will be
limited to securities whose Bid Price on the Exchange is greater than
or equal to $1.00 per share.
The SEC approved the Program pilot, in part, because it concluded,
``the Program is reasonably designed to benefit retail investors by
providing price improvement to retail order flow.'' \10\ The Commission
also found that ``while 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, which requires that the rules

[[Page 35517]]

of an exchange are not designed to permit unfair discrimination.'' \11\
As the SEC acknowledged, the retail order segmentation was designed to
create greater retail order flow competition and thereby increase the
amount of this flow to transparent and well-regulated exchanges. This
would help to ensure that retail investors benefit from competitive
price improvement that exchange-based liquidity providers provide.
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\10\ See RPI Approval Order, supra note 3 at 72051.
\11\ Id.
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As discussed below, the Exchange believes that the Program data
supports the conclusion that it provides valuable price improvement,
more than $4 million since inception, to retail investors that they may
not otherwise receive and that it is therefore appropriate to make the
pilot Program permanent.
[GRAPHIC] [TIFF OMITTED] TN26JY18.000

Definitions
The Exchange adopted the following definitions under BX Rule 4780.
First, the term ``Retail Member Organization'' (or ``RMO'') is defined
as a Member (or a division thereof) that has been approved by the
Exchange to submit Retail Orders.
Second, the term ``Retail Order'' is defined by BX Rule
4702(b)(6)(A) as an order type with a non-display order attribute
submitted to the Exchange by a RMO. A Retail Order must be an agency
Order, or riskless principal Order that satisfies the criteria of FINRA
Rule 5320.03. The Retail Order must reflect trading interest of a
natural person with no change made to the terms of the underlying order
of the natural person with respect to price (except in the case of a
market order that is changed to a marketable limit order) or side of
market and that does not originate from a trading algorithm or any
other computerized methodology.\12\
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\12\ See supra note 5.
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The criteria set forth in FINRA Rule 5320.03 adds additional
precision to the definition of ``Retail Order'' by clarifying that an
RMO may enter Retail Orders on a riskless principal basis, provided
that (i) the entry of such riskless principal orders meet the
requirements of FINRA Rule 5320.03, including that the RMO maintains
supervisory systems to reconstruct, in a time-sequenced manner, all
Retail Orders that are entered on a riskless principal basis; and (ii)
the RMO submits a report, contemporaneously with the execution of the
facilitated order, that identifies the trade as riskless principal.
The term ``Retail Price Improving Order'' or ``RPI Order'' or
collectively ``RPI interest'' is defined as an Order Type with a Non-
Display Order Attribute that is held on the Exchange Book in order to
provide liquidity at a price at least $0.001 better than the NBBO
through a special execution process described in Rule 4780. A RPI Order
may be entered in price increments of $0.001. An RPI Order will be
posted to the Exchange Book regardless of its price, but an RPI Order
may execute only against a Retail Order, and only if its price is at
least $0.001 better than the NBBO.\13\ RPI orders can be priced either
as an explicitly priced limit order or implicitly priced as relative to
the NBBO with an offset of at least $0.001.
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\13\ Exchange systems prevent Retail Orders from interacting
with RPI Orders if the RPI Order is not priced at least $0.001
better than the Protected NBBO. The Exchange notes, however, that
price improvement of $0.001 would be a minimum requirement and
Members can enter RPI Orders that better the Protected NBBO by more
than $0.001. Exchange systems accept RPI Orders without a minimum
price improvement value; however, such interest execute at its floor
or ceiling price only if such floor or ceiling price is better than
the Protected NBBO by $0.001 or more.
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The price of an RPI Order with an offset is determined by a
Member's entry of the following into the Exchange: (1) RPI buy or sell
interest; (2) an offset from the Protected NBBO, if any; and (3) a
ceiling or floor price. RPI Orders submitted with an offset are similar
to other peg orders available to Members in that the order is tied or
``pegged'' to a certain price, and would have its price automatically
set and adjusted upon changes in the Protected NBBO, both upon entry
and any time thereafter. RPI sell or buy interest typically are entered
to track the Protected NBBO, that is, RPI Orders typically are
submitted with an offset. The offset is a predetermined amount by which
the Member is willing to improve the Protected NBBO, subject to a
ceiling or floor price. The ceiling or floor price

[[Page 35518]]

is the amount above or below which the Member does not wish to trade.
RPI Orders in their entirety (the buy or sell interest, the offset, and
the ceiling or floor) will remain non-displayed. The Exchange also
allows Members to enter RPI Orders that establish the exact limit
price, which is similar to a non-displayed limit order currently
accepted by the Exchange except the Exchange accepts sub-penny limit
prices on RPI Orders in increments of $0.001. The Exchange monitors
whether RPI buy or sell interest, adjusted by any offset and subject to
the ceiling or floor price, is eligible to interact with incoming
Retail Orders.
Members and RMOs may enter odd lots, round lots or mixed lots as
RPI Orders and as Retail Orders respectively. As discussed below, RPI
Orders are ranked and allocated according to price and time of entry
into the System consistent with BX Rule 4757 and therefore without
regard to whether the size entered is an odd lot, round lot or mixed
lot amount. Similarly, Retail Orders interact with RPI Orders and other
price-improving orders available on the Exchange (e.g., non-displayed
liquidity priced more aggressively than the NBBO) \14\ according to the
Priority and Allocation rules of the Program and without regard to
whether they are odd lots, round lots or mixed lots. Finally, Retail
Orders are designated as Type 1 or Type 2 without regard to the size of
the order.
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\14\ Other price improving liquidity may include, but is not
limited to: Booked non-displayed orders with a limit price that is
more aggressive than the then-current NBBO; midpoint-pegged orders
(which are by definition non-displayed and priced more aggressively
than the NBBO); non-displayed orders pegged to the NBBO with an
aggressive offset, as defined in BX Rule 4780(a)(4) as Other Price
Improving Contra-Side Interest. Orders that do not constitute other
price improving liquidity include, but are not limited to: Orders
with a time-in-force instruction of IOC; displayed orders; limit
orders priced less aggressively than the NBBO.
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RPI Orders interact with Retail Orders as follows. Assume a Member
enters RPI sell interest with an offset of $0.001 and a floor of $10.10
while the Protected NBO is $10.11. The RPI Order could interact with an
incoming buy Retail Order at $10.109. If, however, the Protected NBO
was $10.10, the RPI Order could not interact with the Retail Order
because the price required to deliver the minimum $0.001 price
improvement ($10.099) would violate the Member's floor of $10.10. If a
Member otherwise enters an offset greater than the minimum required
price improvement and the offset would produce a price that would
violate the Member's floor, the offset would be applied only to the
extent that it respects the Member's floor. By way of illustration,
assume RPI buy interest is entered with an offset of $0.005 and a
ceiling of $10.112 while the Protected NBBO is at $10.11. The RPI Order
could interact with an incoming sell Retail Order at $10.112, because
it would produce the required price improvement without violating the
Member's ceiling, but it could not interact above the $10.112 ceiling.
Finally, if a Member enters an RPI Order without an offset (i.e., an
explicitly priced limit order), the RPI Order will interact with Retail
Orders at the level of the Member's limit price as long as the minimum
required price improvement is produced. Accordingly, if RPI sell
interest is entered with a limit price of $10.098 and no offset while
the Protected NBBO is $10.11, the RPI Order could interact with the
Retail Order at $10.098, producing $0.012 of price improvement. The
System will not cancel RPI interest when it is not eligible to interact
with incoming Retail Orders; such RPI interest will remain in the
System and may become eligible again to interact with Retail Orders
depending on the Protected NBBO. RPI Orders are not accepted during
halts.
RMO Qualifications and Approval Process
Under BX Rule 4780(b), any Member may qualify as an RMO if it
conducts a retail business or routes retail orders on behalf of another
broker-dealer. For purposes of BX Rule 4780, conducting a retail
business shall include carrying retail customer accounts on a fully
disclosed basis. Any Member that wishes to obtain RMO status is
required to submit: (i) An application form; (ii) supporting
documentation sufficient to demonstrate the retail nature and
characteristics of the applicant's order flow \15\ and (iii) an
attestation, in a form prescribed by the Exchange, that substantially
all orders submitted by the Member as a Retail Order would meet the
qualifications for such orders under proposed BX Rule 4780(b). The
Exchange shall notify the applicant of its decision in writing.
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\15\ For example, a prospective RMO could be required to provide
sample marketing literature, website screenshots, other publicly
disclosed materials describing the retail nature of their order
flow, and such other documentation and information as the Exchange
may require to obtain reasonable assurance that the applicant's
order flow would meet the requirements of the Retail Order
definition.
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An RMO is required to have written policies and procedures
reasonably designed to assure that it will only designate orders as
Retail Orders if all requirements of a Retail Order are met. Such
written policies and procedures must require the Member to (i) exercise
due diligence before entering a Retail Order to assure that entry as a
Retail Order is in compliance with the requirements of this rule, and
(ii) monitor whether orders entered as Retail Orders meet the
applicable requirements. If the RMO represents Retail Orders from
another broker-dealer customer, the RMO's supervisory procedures must
be reasonably designed to assure that the orders it receives from such
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 customers' Retail Order flow continues to meet the applicable
requirements.\16\
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\16\ The Exchange or another self-regulatory organization on
behalf of the Exchange will review an RMO's compliance with these
requirements through an exam based review of the RMO's internal
controls.
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If the Exchange disapproves the application, the Exchange provides
a written notice to the Member. The disapproved applicant could appeal
the disapproval by the Exchange as provided in proposed BX Rule
4780(d), and/or reapply for RMO status 90 days after the disapproval
notice is issued by the Exchange. An RMO also could voluntarily
withdraw from such status at any time by giving written notice to the
Exchange.
Failure of RMO To Abide by Retail Order Requirements
BX Rule 4780(c) addresses an RMO's failure to abide by Retail Order
requirements. If an RMO designates orders submitted to the Exchange as
Retail Orders and the Exchange determines, in its sole discretion, that
those orders fail to meet any of the requirements of Retail Orders, the
Exchange may disqualify a Member from its status as an RMO. When
disqualification determinations are made, the Exchange provides a
written disqualification notice to the Member. A disqualified RMO may
appeal the disqualification as provided in proposed BX Rule 4780(d)
and/or reapply for RMO status 90 days after the disqualification notice
is issued by the Exchange.

[[Page 35519]]

Appeal of Disapproval or Disqualification
BX Rule 4780(d) provides appeal rights to Members. If a Member
disputes the Exchange's decision to disapprove it as an RMO under BX
Rule 4780(b) or disqualify it under BX Rule 4780(c), such Member
(``appellant'') may request, within five business days after notice of
the decision is issued by the Exchange, that the Retail Price
Improvement Program Panel (``RPI Panel'') review the decision to
determine if it was correct.
The RPI Panel consists of the Exchange's Chief Regulatory Officer
(``CRO''), or a designee of the CRO, and two officers of the Exchange
designated by the Chief Executive Officer of BX. The RPI Panel reviews
the facts and render a decision within the time frame prescribed by the
Exchange. The RPI Panel may overturn or modify an action taken by the
Exchange and all determinations by the RPI Panel constitute final
action by the Exchange on the matter at issue.
Retail Liquidity Identifier
Under BX Rule 4780(e), the Exchange disseminates an identifier when
RPI interest priced at least $0.001 better than the Exchange's
Protected Bid or Protected Offer for a particular security is available
in the System (``Retail Liquidity Identifier''). The Retail Liquidity
Identifier is disseminated through consolidated data streams (i.e.,
pursuant to the Consolidated Tape Association Plan/Consolidated
Quotation System, or CTA/CQS, for Tape A and Tape B securities, and the
Nasdaq UTP Plan for Tape C securities) as well as through proprietary
Exchange data feeds.\17\ The Retail Liquidity Identifier reflects the
symbol and the side (buy or sell) of the RPI interest, but does not
include the price or size of the RPI interest. In particular, CQS and
UTP quoting outputs include a field for codes related to the Retail
Liquidity Identifier. The codes indicate RPI interest that is priced
better than the Exchange's Protected Bid or Protected Offer by at least
the minimum level of price improvement as required by the Program.
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\17\ The Exchange notes that the Retail Liquidity Identifier for
Tape A and Tape B securities are disseminated pursuant to the CTA/
CQS Plan. The identifier is also available through the consolidated
public market data stream for Tape C securities. The processor for
the Nasdaq UTP quotation stream disseminates the Retail Liquidity
Identifier and analogous identifiers from other market centers that
operate programs similar to the RPI Program.
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Retail Order Designations
Under BX Rule 4780(f), an RMO can designate how a Retail Order
interacts with available contra-side interest as provided in Rule 4702.
A Type 1-designated Retail Order will attempt to execute against
RPI Orders and any other orders on the Exchange Book with a price that
is (i) equal to or better than the price of the Type-1 Retail Order and
(ii) at least $0.001 better than the NBBO. A Type-1 Retail Order is not
routable and will thereafter be cancelled.
A Type 2-designated Retail Order will first attempt to execute
against RPI Orders and any other orders on the Exchange Book with a
price that is (i) equal to or better than the price of the Type-2
Retail Order and (ii) at least $0.001 better than the NBBO and will
then attempt to execute against any other order on the Exchange Book
with a price that is equal to or better than the price of the Type-2
Retail Order, unless such executions would trade through a Protected
Quotation. A Type-2 Retail Order may be designated as routable.
Priority and Order Allocation
Under BX Rule 4780(g), competing RPI Orders in the same security
are ranked and allocated according to price then time of entry into the
System. Executions occur in price/time priority in accordance with BX
Rule 4757. Any remaining unexecuted RPI interest remain available to
interact with other incoming Retail Orders if such interest is at an
eligible price. Any remaining unexecuted portion of the Retail Order
will cancel or execute in accordance with BX Rule 4780(f). The
following example illustrates this method:

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

An incoming Retail Order to sell 1,000 shares of ABC for $10.00
executes first against Member 3's bid for 500 at $10.035, because it is
the best priced bid, then against Member 2's bid for 500 at $10.02,
because it is the next best priced bid. Member 1 is not filled because
the entire size of the Retail Order to sell 1,000 is depleted. The
Retail Order executes against RPI Orders in price/time priority.
However, assume the same facts above, except that Member 2's RPI
Order to buy ABC at $10.02 is for 100. The incoming Retail Order to
sell 1,000 executes first against Member 3's bid for 500 at $10.035,
because it is the best priced bid, then against Member 2's bid for 100
at $10.02, because it is the next best priced bid. Member 1 then
receives an execution for 400 of its bid for 500 at $10.015, at which
point the entire size of the Retail Order to sell 1,000 is depleted.
As a final example, assume the same facts as above, except that
Member 3's order was not an RPI Order to buy ABC at $10.035, but
rather, a non-displayed order to buy ABC at $10.03. The result would be
similar to the result immediately above, in that the incoming Retail
Order to sell 1,000 executes first against Member 3's bid for 500 at
$10.03, because it is the best priced bid, then against Member 2's bid
for 100 at $10.02, because it is the next best priced bid. Member 1
then receives an execution for 400 of its bid for 500 at $10.015, at
which point the entire size of the Retail Order to sell 1,000 is
depleted.
All Regulation NMS securities traded on the Exchange are eligible
for inclusion in the RPI Program. The Exchange limits the Program to
trades occurring at prices equal to or greater than $1.00 per share.
Toward that end, Exchange trade validation systems prevent the
interaction of RPI buy or sell interest (adjusted by any offset) and
Retail Orders at a price below $1.00 per share.\18\ For example, if
there is RPI buy interest tracking the Protected NBB at $0.99 with an
offset of $0.001 and a ceiling of $1.02, Exchange trade validation
systems would prevent the execution of the RPI Order at $0.991 with a
sell Retail Order with a limit of $0.99. However, if the Retail Order
was Type 2 as defined the Program,\19\ it would be able to interact at
$0.99 with liquidity outside the Program in the Exchange's order book.
In addition to facilitating an orderly \20\ and operationally intuitive
program, the Exchange believes that limiting the

[[Page 35520]]

Program to trades equal to or greater than $1.00 per share enabled it
better to focus its efforts to monitor price competition and to assess
any indications that data disseminated under the Program is potentially
disadvantaging retail orders. As part of that review, the Exchange
produced data throughout the pilot, which included statistics about
participation, the frequency and level of price improvement provided by
the Program, and any effects on the broader market structure.
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\18\ As discussed above, the price of an RPI is determined by a
Member's entry of buy or sell interest, an offset (if any) and a
ceiling or floor price. RPI sell or buy interest typically tracks
the Protected NBBO.
\19\ Type 2 Retail Orders are treated as IOC orders that execute
against displayed and non-displayed liquidity in the Exchange's
order book where there is no available liquidity in the Program.
Type 2 Retail Orders can either be designated as eligible for
routing or as non-routable, as described above.
\20\ Given the proposed limitation, the Program would have no
impact on the minimum pricing increment for orders priced less than
$1.00 and therefore no effect on the potential of markets executing
those orders to lock or cross. In addition, the non-displayed nature
of the liquidity in the Program simply has no potential to disrupt
displayed, protected quotes. In any event, the Program would do
nothing to change the obligation of exchanges to avoid and reconcile
locked and crossed markets under NMS Rule 610(d).
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Rationale for Making the Program Pilot Permanent
The Exchange established the RPI Program in an attempt to attract
retail order flow to the Exchange by providing an opportunity price
improvement to such order flow. The Exchange believes that the Program
promotes transparent competition for retail order flow by allowing
Exchange members to submit RPI Orders \21\ to interact with Retail
Orders. Such competition promotes efficiency by facilitating the price
discovery process and generating additional investor interest in
trading securities, thereby promoting capital formation and retail
investment opportunities. The Program will continue to be limited to
trades occurring at prices equal to or greater than $1.00 per share.
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\21\ A Retail Price Improvement Order is defined in BX Rule
4780(a)(3) by referencing BX Rule 4702 and BX Rule 4702(b)(5) says
that it is as an order type with a non-display order attribute that
is held on the Exchange Book in order to provide liquidity at a
price at least $0.001 better than the NBBO through a special
execution process described in Rule 4780.
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The Exchange believes, in accordance with its filing establishing
the pilot Program, that BX did ``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.'' \22\ The Exchange has fulfilled this
obligation through the reports and assessments it has submitted to the
Commission since the implementation of the pilot Program.
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\22\ See Securities Exchange Act Release No. 73410 (October 23,
2014), 79 FR 64447 at 64450 (SR-BX-2014-048).
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The SEC stated in the RPI Approval Order that the Program could
promote competition for retail order flow among execution venues, and
that this could benefit retail investors by creating additional well-
regulated and transparent 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.\23\ The Exchange believes that it has achieved its goal of
attracting retail order flow to BX, and has resulted in a significant
price improvement to retail investors through a competitive pricing
process. The data demonstrates that the Program has continued to grow
over time and the Exchange has not detected any negative impact to
market quality The Exchange also has not received any complaints or
negative feedback concerning the Program.
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\23\ RPI Approval Order, 79 FR at 72053.
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As seen in the table below, RMO orders and shares executed have
continued to rise since the introduction of the Program in December
2014. RMO executed share volume on BX accounted for 0.05% of total
consolidated volume in eligible U.S. listed securities in Q4 2017.
Despite its size relative to total consolidated trading, however, the
Program has continued to provide considerable price improvement to RMO
orders each month with total price improvement during market hours from
the start of the Program through May 2018 totaling over $4.3 million.
Retail orders are routed by sophisticated brokers using systems
that seek the highest fill rates and amounts of price improvement.
These brokers have many choices of execution venues for retail orders.
When they choose to route to the Program, they have determined that it
is the best opportunity for fill rate and price improvement at that
time.

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Total RMO
Total RMO RMO shares price
Month orders (market executed improvement
hours) (market hours) (market hours)
----------------------------------------------------------------------------------------------------------------
Sep-14.......................................................... 0 0 $0
Oct-14.......................................................... 0 0 0
Nov-14.......................................................... 0 0 0
Dec-14.......................................................... 4,003 521,587 6,572
Jan-15.......................................................... 66,903 9,723,791 55,480
Feb-15.......................................................... 71,204 12,948,664 54,769
Mar-15.......................................................... 62,216 10,818,042 49,232
Apr-15.......................................................... 75,558 12,121,577 63,247
May-15.......................................................... 98,859 16,723,281 81,268
Jun-15.......................................................... 116,570 20,341,305 100,520
Jul-15.......................................................... 133,917 22,310,364 111,657
Aug-15.......................................................... 192,546 30,011,636 194,706
Sep-15.......................................................... 141,496 23,199,937 110,415
Oct-15.......................................................... 148,414 25,745,772 128,838
Nov-15.......................................................... 123,267 20,788,967 120,037
Dec-15.......................................................... 145,022 24,414,783 140,444
Jan-16.......................................................... 162,025 30,010,815 181,781
Feb-16.......................................................... 135,409 27,794,644 173,988
Mar-16.......................................................... 93,729 17,688,230 88,900
Apr-16.......................................................... 82,819 15,269,513 78,241
May-16.......................................................... 70,192 13,336,738 71,145
Jun-16.......................................................... 76,092 15,356,152 74,035
Jul-16.......................................................... 65,121 13,532,803 59,305
Aug-16.......................................................... 78,611 16,412,113 64,231
Sep-16.......................................................... 84,240 17,368,907 46,792
Oct-16.......................................................... 146,207 30,827,361 60,624
Nov-16.......................................................... 103,046 19,744,407 60,391
Dec-16.......................................................... 168,638 31,003,843 76,025
Jan-17.......................................................... 140,203 23,474,999 58,887

[[Page 35521]]

Feb-17.......................................................... 139,447 26,643,083 59,372
Mar-17.......................................................... 161,154 30,595,963 73,250
Apr-17.......................................................... 126,665 26,587,486 59,141
May-17.......................................................... 143,927 31,368,371 78,979
Jun-17.......................................................... 332,266 71,569,426 405,933
Jul-17.......................................................... 210,309 39,061,892 155,669
Aug-17.......................................................... 266,762 51,442,492 255,999
Sep-17.......................................................... 154,846 29,831,646 69,634
Oct-17.......................................................... 205,399 39,409,251 95,051
Nov-17.......................................................... 370,064 94,703,209 169,738
Dec-17.......................................................... 219,528 49,424,240 102,082
Jan-18.......................................................... 248,419 47,080,453 113,956
Feb-18.......................................................... 263,576 40,979,066 100,148
Mar-18.......................................................... 597,460 40,896,277 98,779
Apr-18.......................................................... 1,095,396 41,067,806 97,015
May-18.......................................................... 1,031,527 31,843,167 81,199
-----------------------------------------------
Total....................................................... 8,353,052 1,193,994,059 4,327,477
----------------------------------------------------------------------------------------------------------------

[GRAPHIC] [TIFF OMITTED] TN26JY18.001

The table below shows that between April 2017 and May 2018, roughly
50% of RMO orders were for 100 shares or less and around 70% of orders
were for 300 shares or less. Larger orders of 7,500 shares or more
accounted for approximately 2%, ranging from 0.62% to 3.09%. Although
large order were a small percentage of total orders, they make up a
significant portion of total shares ordered, ranging from 21.11% to
46.22%. Orders of 300 shares or less, which accounted for the vast
majority of total RMO orders, accounted for only between 4.81% and
15.38% of total shares ordered.

Distribution of RMO Orders by Order Size
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1,001-2,000 2,001-4,000 4,001-7,500 7,500-15,000
Month <=100 (%) 101-300 (%) 301-500 (%) 501-1,000 (%) (%) (%) (%) >15,000 (%)
-------------------------------------------------------------------------------------------------------------------(%)--------------------------------------------------------------------------
Apr-17............................................................ 49.50 18.53 8.67 9.47 5.69 3.84 2.24 1.38 0.69
May-17............................................................ 46.55 23.79 8.25 8.42 5.26 3.71 2.12 1.29 0.62
Jun-17............................................................ 59.60 13.26 6.62 7.91 4.75 3.48 2.36 1.52 0.51
Jul-17............................................................ 57.30 14.61 7.32 8.50 5.17 3.28 2.00 1.19 0.65
Aug-17............................................................ 56.38 15.19 7.54 8.49 5.23 3.41 1.91 1.22 0.63
Sep-17............................................................ 53.16 16.29 7.69 8.79 5.71 4.05 2.22 1.38 0.70
Oct-17............................................................ 54.28 16.00 7.46 8.65 5.64 3.84 2.15 1.33 0.66
Nov-17............................................................ 47.76 15.30 8.19 10.23 7.38 5.10 2.95 2.04 1.06

[[Page 35522]]

Dec-17............................................................ 48.66 15.30 8.27 10.34 6.99 4.82 2.79 1.87 0.98
Jan-18............................................................ 53.60 14.93 7.73 9.20 5.98 4.04 2.28 1.53 0.71
Feb-18............................................................ 58.44 14.58 7.14 8.02 4.93 3.29 1.91 1.14 0.55
Mar-18............................................................ 55.29 17.97 8.63 8.38 5.12 2.64 1.07 0.61 0.28
Apr-18............................................................ 54.52 19.12 9.04 8.31 5.02 2.50 0.87 0.42 0.19
May-18............................................................ 50.44 20.21 9.89 9.10 5.77 2.88 0.96 0.50 0.26
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Distribution of RMO Shares Ordered by Order Size
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1,001-2,000 2,001-4,000 4,001-7,500 7,500-15,000
Month <=100 (%) 101-300 (%) 301-500 (%) 501-1,000 (%) (%) (%) (%) >15,000 (%)
-------------------------------------------------------------------------------------------------------------------(%)--------------------------------------------------------------------------
Apr-17............................................................ 3.04 4.63 4.42 8.78 10.06 12.89 13.89 16.06 26.23
May-17............................................................ 3.28 6.49 4.49 8.34 9.98 13.38 14.28 16.05 23.71
Jun-17............................................................ 2.47 3.78 3.95 8.89 10.15 13.74 17.06 20.07 19.88
Jul-17............................................................ 2.82 4.20 4.36 9.31 10.78 12.94 14.44 16.47 24.67
Aug-17............................................................ 2.80 4.28 4.42 9.21 10.84 13.21 13.55 16.63 25.08
Sep-17............................................................ 2.88 4.16 3.98 8.36 10.50 14.04 14.17 16.78 25.14
Oct-17............................................................ 2.89 4.31 4.09 8.73 11.02 14.04 14.49 17.11 23.32
Nov-17............................................................ 1.80 3.01 3.26 7.48 10.45 13.51 14.27 18.89 27.33
Dec-17............................................................ 2.00 3.17 3.48 8.02 10.45 13.46 14.18 18.35 26.91
Jan-18............................................................ 2.50 3.78 4.01 8.82 11.05 13.94 14.30 18.35 23.26
Feb-18............................................................ 3.25 4.52 4.52 9.34 11.08 13.87 14.53 16.86 22.02
Mar-18............................................................ 5.73 6.96 6.80 12.44 14.90 14.65 11.00 12.34 15.17
Apr-18............................................................ 7.27 8.11 7.84 13.68 16.23 15.46 10.29 9.51 11.61
May-18............................................................ 6.31 7.54 7.50 13.09 16.40 15.66 10.00 9.80 13.70
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Distribution of RMO Shares Executed by Order Size
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1,001-2,000 2,001-4,000 4,001-7,500 7,500-15,000
Month <=100 (%) 101-300 (%) 301-500 (%) 501-1,000 (%) (%) (%) (%) >15,000 (%)
-------------------------------------------------------------------------------------------------------------------(%)--------------------------------------------------------------------------
Apr-17............................................................ 11.39 15.32 11.28 16.25 12.77 10.87 9.27 9.25 3.61
May-17............................................................ 10.86 20.10 10.47 13.77 11.37 10.58 8.96 9.44 4.45
Jun-17............................................................ 7.65 10.05 8.48 14.31 11.28 11.85 12.00 18.69 5.68
Jul-17............................................................ 10.07 12.67 10.18 15.57 12.94 11.79 9.97 10.27 6.56
Aug-17............................................................ 9.93 12.98 10.89 17.05 14.16 11.94 9.38 8.23 5.45
Sep-17............................................................ 11.36 13.46 10.12 16.01 13.80 13.07 8.60 8.61 4.97
Oct-17............................................................ 10.83 13.37 10.07 16.40 14.46 12.48 9.47 7.96 4.96
Nov-17............................................................ 7.04 10.64 10.14 19.81 18.19 13.96 9.04 7.10 4.09
Dec-17............................................................ 8.25 11.27 10.37 19.49 17.05 13.33 8.82 7.13 4.28
Jan-18............................................................ 9.93 12.43 10.92 19.37 16.07 12.66 8.49 6.49 3.64
Feb-18............................................................ 12.63 14.31 11.81 19.45 15.07 11.22 6.81 5.55 3.16
Mar-18............................................................ 13.92 15.35 11.92 19.14 14.77 10.05 6.35 5.49 3.00
Apr-18............................................................ 14.81 15.76 11.86 18.35 13.47 10.21 6.75 5.41 3.39
May-18............................................................ 13.65 15.78 12.38 18.77 13.92 10.57 6.25 5.27 3.40
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The table below shows the average and median sizes of RMO removing
orders.

Average and Median RMO Sizes
------------------------------------------------------------------------
RMO taking order size
Year -------------------------------
Avg Median
------------------------------------------------------------------------
Apr-17.................................. 863 111
May-17.................................. 802 180
Jun-17.................................. 743 82
Jul-17.................................. 739 100
Aug-17.................................. 753 100
Sep-17.................................. 841 100
Oct-17.................................. 793 100
Nov-17.................................. 1,103 150
Dec-17.................................. 1,044 132
Jan-18.................................. 844 100
Feb-18.................................. 690 100
Mar-18.................................. 512 100
Apr-18.................................. 454 100
May-18.................................. 517 100
------------------------------------------------------------------------

[[Page 35523]]

The data provided by the Exchange describes a valuable service that
delivers considerable price improvement in a transparent and well-
regulated environment. The Program represents just a fraction of retail
orders, most of which are executed off-exchange by a wide range of
order handling services that have considerably more market share and
which operate pursuant to different rules and regulatory requirements.
BX found no data or received any customer feedback that indicated any
negative impact of the Program on overall market quality.
As discussed more fully below, the reports and assessments provided
by the Exchange to the SEC have covered (i) the economic impact of the
Program on the entire market; (ii) the economic impact of the Program
on execution quality; (iii) whether only eligible participants are
accessing Program liquidity; (iv) whether the Program is attracting
retail participants; (v) the net benefits of the Program on
participants; (vi) the overall success in achieving intended benefits;
and (vii) whether the Program can be improved.
1. Economic Impact of the RPI Program on the Entire Market
The Exchange detected no negative impact on BX quote quality from
the Program. Because the size of the Program is within the normal day-
to-day fluctuations of market share between different venues, it is
impossible to detect a correlation with a decline of order flow in
another venue or order type. The Program did not negatively affect the
overall quality of the market by causing liquidity-providing orders to
move from the Exchange to the Program. The Program also did not
diminish the quality of (or increase the toxicity of) other order types
arriving at the Exchange.
The Program is intended to attract off-exchange order flow back to
transparent and well-regulated exchange trading systems. Given current
market structure, BX believes that the Program improves overall market
quality by attracting desirable order flow and liquidity-providers back
to the vigorous order competition available on-exchange.
Using correlation tests and visualization the Exchange failed to
detect a significant relationship between the amount of RMO volume
traded on BX and measurements of overall market quality. The results of
correlation tests against 30-second realized spreads show minimal to no
correlation.
Additionally, through time series visualization BX detects no
significant changes in BX market quality measures during the life of
the pilot Program. Metrics including quoted spreads, volatility,
realized spreads, and depth were examined using executions on BX and
the NBBO weighted by volume executed on BX. Both quoted and realized
spreads did not show any dramatic changes following the implementation
of the Program or as it gained traction over time. Consolidated trade-
to-trade volatility appears to have decreased slightly in the middle of
the Program.
2. Economic Impact of the BX RPI Program on Execution Quality
To assess the execution quality of the Program, BX focused on
symbol-day combinations when during market hours: (i) An RMO execution
occurred on BX, (ii) a non-RMO execution occurred on BX, and (iii) a
tape-eligible trade occurred on BX. Symbol day combinations are
aggregated to overall daily statistics by either a simple average or by
volume weighting by RMO executed volume during market hours.\24\ This
results in the number and identity of symbols captured in each daily
average changing from day to day. Using this data, the Exchange
examined whether the economic outcomes for RMO trades differs from non-
RMO trades and/or all trades.
---------------------------------------------------------------------------

\24\ Both RMO and non-RMO execution quality values are weighted
by RMO volume and a very small number of extreme outlier symbol-day
stats have been removed from the analysis.
---------------------------------------------------------------------------

When comparing average price improvement for RMO and non-RMO
executions for a subset of 100 stocks with the largest number of RMO
shares executed, the price improvement seen in RMO and non-RMO trades
is comparable over the life of the Program. When volume weighting the
average price improvement by RMO volume to emphasize those stock/day
combinations with the highest volume traded in RMO, average price
improvement on BX for both RMO and non-RMO trades appear generally
comparable over time, with RMO price improvement generally beating non-
RMO. Note that this price improvement measure does not take rebates
into account.
In the subset of active RMO symbols, RMO volume-weighted effective
and realized spreads for RMO and all executions, which includes RMO
executions, are generally comparable throughout the duration of the
Program.
Similar to regular, liquidity-taking orders on BX, the Program
offers inverted pricing where RMO orders receive a rebate (on top of
the price improvement they receive) when executing against RPI
liquidity, while there is a fee associated with RPI orders which post
non-displayed, price-improving liquidity. RPI orders are charged
$0.0025 per share. Retail Orders currently receive a rebate of $0.0021
per share when executing against RPI liquidity, a rebate of $0.0000 per
share when executing against other hidden, price-improvising liquidity,
and a rebate of $0.0017 per share when executing against other
displayed liquidity on the BX book.
3. Are Only Eligible Participants Accessing Program Liquidity
Only RMOs that have been approved by BX can enter RMO orders that
access the Program liquidity, and the BX trading system does not allow
non-RMO orders to access RPI providing orders. BX BX [sic] trading
system does not allow non-RMO orders to access RPI providing orders. BX
Rule 4780(c) enables BX at its sole discretion to disqualify RMO
members that submit orders that fail to meet any of the requirements of
the rule.
4. Is the Program Attracting Retail Participation
The Program successfully attracted retail orders to the Exchange
and participation in the Program has continued to increase over time.
The Exchange believes that the success of the Program is in that it
provided tangible price improvement and transparency to retail
investors through a competitive pricing process.
Brokers route retail orders to a wide range of different trading
systems. The Program offers a transparent and well-regulated option
providing meaningful competition and price improvement. BX believes
that it has achieved its goal of attracting retail order flow to BX
and, as stated above, it has resulted in a significant price
improvement to retail investors through a competitive pricing process.
The Exchange also has not detected any negative impact to market
quality as the Program has continued to grow over time.

[[Page 35524]]

[GRAPHIC] [TIFF OMITTED] TN26JY18.002

On average, an RMO execution continues to get more price
improvement than the minimum $0.001 price improvement required of an
RPI liquidity-providing order in the Program, and over time the price
improvement seen on BX in non-RMO orders does not appear to be
negatively impacted by the introduction of the Program.
5. Net Benefits of the Program on Participants
From the beginning of 2017 through January 2018, 97.9% of RMO
shares ordered and 98.5% of RMO shares executed were RMO Type 1 orders,
while the remainder were RMO Type 2 orders. Type 1 orders had an
aggregated fill rate of 19.2%, while Type 2 orders had a fill rate of
4.1% in this timeframe.
Of the RMO Type 1 executions, 94.9% of shares were executed against
RPI liquidity and 5.1% against other non-RPI price-improving hidden
liquidity. Of the RMO Type 2 executions, 23.7% of shares were executed
against RPI liquidity, 14% against other non-RPI price-improving hidden
liquidity, and 62.3% against other liquidity on the BX book. None of
the Type 2 orders entered included routing instructions to allow for
executions away from BX.
The Exchange believes that the Program through retail order
segmentation does create greater retail order flow competition and
thereby increases the amount of this flow to BX. This helps to ensure
that retail investors benefit from the price improvement that liquidity
providers are willing to provide. The Program promotes competition for
retail order flow by allowing Exchange members to submit RPI Orders to
interact with Retail Orders. Such competition promotes efficiency by
facilitating the price discovery process and generating additional
investor interest in trading securities, thereby promoting capital
formation.
The Program also promotes competition for retail order flow among
execution venues, and this benefits retail investors by creating
additional price improvement opportunities for marketable retail order
flow, most of which is currently executed in the OTC markets without
ever reaching a public exchange. The Exchange believes that it has
achieved its goal of attracting retail order flow to BX, and has
resulted in a significant price improvement to retail investors through
a competitive pricing process. The data also demonstrates that the
Program has continued to grow over time and the Exchange has not
detected any negative impact to market quality.
6. Overall Success in Achieving Intended Benefits
The Program has successfully demonstrated the effectiveness of a
transparent, on-exchange retail order price improvement functionality,
and while small relative to total consolidated volume, has succeeded in
achieving its goals of attracting retail order flow and providing those
orders with price improvement totaling tens of thousands of dollars
each month.
The Program provides additional competition to the handling of
retail orders. The additional opportunity for meaningful price
improvement provides pressure on other more established venues to
increase the price improvement that they provide. By doing this, the
Program has a greater positive effect than the market share would
directly indicate.
7. Can the Program Be Improved
The Program provides a transparent, well-regulated, and competitive
venue for retail orders to receive substantial price improvement. The
size of the Program is somewhat limited by the rules that prevent BX
from matching features offered by non-exchange trading venues.
Nonetheless, the Exchange believes the Program is a success and it will
continue to look for ways to further innovate and improve the Program.
The Exchange believes that making the pilot permanent is appropriate
and through this filing seeks to make permanent the current operation
of the Program.

[[Page 35525]]

2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\25\ in general, and with
Section 6(b)(5) of the Act,\26\ in particular, in that it is designed
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 to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

\25\ 15 U.S.C. 78f.
\26\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The Exchange believes that making the pilot Program permanent is
consistent with these principles because the Program is reasonably
designed to attract retail order flow to the exchange environment,
while helping to ensure that retail investors benefit from the better
price that liquidity providers are willing to give their orders. During
the pilot period, BX has provided data and analysis to the Commission,
and 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.
Additionally, the Exchange 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 the competition promoted by the
Program facilitates the price discovery process and potentially
generate additional investor interest in trading securities. Making the
pilot Program permanent will allow the Exchange to continue to provide
the Program's benefits to retail investors on a permanent basis and
maintain the improvements to public price discovery and the broader
market structure. The data provided by BX to the SEC staff demonstrates
that the Program provided tangible price improvement and transparency
to retail investors through a competitive pricing process.
As described below in BX's statement regarding the burden on
competition, the Exchange also believes that it is subject to
significant competitive forces. For all of 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, as amended. BX
believes that making the Program permanent would continue to enhance
competition for retail order flow among execution venues and contribute
to the public price discovery process.
The Exchange believes that the data supplied to the Commission and
experience gained over the life of the pilot 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. BX 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.
Additionally, 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, BX 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 either solicited or received.

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

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

IV. Solicitation of Comments

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

Electronic Comments

Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BX-2018-025 on the subject line.

Paper Comments

Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2018-025. 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 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-BX-2018-025, and should be submitted on
or before August 16, 2018.
---------------------------------------------------------------------------

\27\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
Brent J. Fields,
Secretary.
[FR Doc. 2018-15942 Filed 7-25-18; 8:45 am]
BILLING CODE 8011-01-P

35518 Federal Register / Vol. 83, No. 144 / Thursday, July 26, 2018 / Notices

is the amount above or below which the respects the Member’s floor. By way of Such written policies and procedures
Member does not wish to trade. RPI illustration, assume RPI buy interest is must require the Member to (i) exercise
Orders in their entirety (the buy or sell entered with an offset of $0.005 and a due diligence before entering a Retail
interest, the offset, and the ceiling or ceiling of $10.112 while the Protected Order to assure that entry as a Retail
floor) will remain non-displayed. The NBBO is at $10.11. The RPI Order could Order is in compliance with the
Exchange also allows Members to enter interact with an incoming sell Retail requirements of this rule, and (ii)
RPI Orders that establish the exact limit Order at $10.112, because it would monitor whether orders entered as
price, which is similar to a non- produce the required price Retail Orders meet the applicable
displayed limit order currently accepted improvement without violating the requirements. If the RMO represents
by the Exchange except the Exchange Member’s ceiling, but it could not Retail Orders from another broker-dealer
accepts sub-penny limit prices on RPI interact above the $10.112 ceiling. customer, the RMO’s supervisory
Orders in increments of $0.001. The Finally, if a Member enters an RPI Order procedures must be reasonably designed
Exchange monitors whether RPI buy or without an offset (i.e., an explicitly to assure that the orders it receives from
sell interest, adjusted by any offset and priced limit order), the RPI Order will such broker-dealer customer that it
subject to the ceiling or floor price, is interact with Retail Orders at the level
eligible to interact with incoming Retail designates as Retail Orders meet the
of the Member’s limit price as long as definition of a Retail Order. The RMO
Orders. the minimum required price
Members and RMOs may enter odd must (i) obtain an annual written
improvement is produced. Accordingly,
lots, round lots or mixed lots as RPI representation, in a form acceptable to
if RPI sell interest is entered with a limit
Orders and as Retail Orders the Exchange, from each broker-dealer
price of $10.098 and no offset while the
respectively. As discussed below, RPI customer that sends it orders to be
Protected NBBO is $10.11, the RPI
Orders are ranked and allocated Order could interact with the Retail designated as Retail Orders that entry of
according to price and time of entry into Order at $10.098, producing $0.012 of such orders as Retail Orders will be in
the System consistent with BX Rule price improvement. The System will not compliance with the requirements of
4757 and therefore without regard to cancel RPI interest when it is not this rule, and (ii) monitor whether its
whether the size entered is an odd lot, eligible to interact with incoming Retail broker-dealer customers’ Retail Order
round lot or mixed lot amount. Orders; such RPI interest will remain in flow continues to meet the applicable
Similarly, Retail Orders interact with the System and may become eligible requirements.16
RPI Orders and other price-improving again to interact with Retail Orders If the Exchange disapproves the
orders available on the Exchange (e.g., depending on the Protected NBBO. RPI application, the Exchange provides a
non-displayed liquidity priced more Orders are not accepted during halts. written notice to the Member. The
aggressively than the NBBO) 14 disapproved applicant could appeal the
according to the Priority and Allocation RMO Qualifications and Approval
Process disapproval by the Exchange as
rules of the Program and without regard provided in proposed BX Rule 4780(d),
to whether they are odd lots, round lots Under BX Rule 4780(b), any Member and/or reapply for RMO status 90 days
or mixed lots. Finally, Retail Orders are may qualify as an RMO if it conducts a after the disapproval notice is issued by
designated as Type 1 or Type 2 without retail business or routes retail orders on the Exchange. An RMO also could
regard to the size of the order. behalf of another broker-dealer. For voluntarily withdraw from such status
RPI Orders interact with Retail Orders purposes of BX Rule 4780, conducting at any time by giving written notice to
as follows. Assume a Member enters RPI a retail business shall include carrying
sell interest with an offset of $0.001 and the Exchange.
retail customer accounts on a fully
a floor of $10.10 while the Protected disclosed basis. Any Member that Failure of RMO To Abide by Retail
NBO is $10.11. The RPI Order could wishes to obtain RMO status is required Order Requirements
interact with an incoming buy Retail to submit: (i) An application form; (ii)
Order at $10.109. If, however, the supporting documentation sufficient to BX Rule 4780(c) addresses an RMO’s
Protected NBO was $10.10, the RPI demonstrate the retail nature and failure to abide by Retail Order
Order could not interact with the Retail characteristics of the applicant’s order requirements. If an RMO designates
Order because the price required to flow 15 and (iii) an attestation, in a form orders submitted to the Exchange as
deliver the minimum $0.001 price prescribed by the Exchange, that Retail Orders and the Exchange
improvement ($10.099) would violate substantially all orders submitted by the determines, in its sole discretion, that
the Member’s floor of $10.10. If a Member as a Retail Order would meet those orders fail to meet any of the
Member otherwise enters an offset the qualifications for such orders under requirements of Retail Orders, the
greater than the minimum required proposed BX Rule 4780(b). The Exchange may disqualify a Member
price improvement and the offset would Exchange shall notify the applicant of from its status as an RMO. When
produce a price that would violate the its decision in writing. disqualification determinations are
Member’s floor, the offset would be An RMO is required to have written made, the Exchange provides a written
applied only to the extent that it policies and procedures reasonably disqualification notice to the Member. A
designed to assure that it will only disqualified RMO may appeal the
14 Other price improving liquidity may include,
designate orders as Retail Orders if all disqualification as provided in proposed
but is not limited to: Booked non-displayed orders
with a limit price that is more aggressive than the requirements of a Retail Order are met. BX Rule 4780(d) and/or reapply for
then-current NBBO; midpoint-pegged orders (which RMO status 90 days after the
sradovich on DSK3GMQ082PROD with NOTICES

are by definition non-displayed and priced more 15 For example, a prospective RMO could be
disqualification notice is issued by the
aggressively than the NBBO); non-displayed orders required to provide sample marketing literature, Exchange.
pegged to the NBBO with an aggressive offset, as website screenshots, other publicly disclosed
defined in BX Rule 4780(a)(4) as Other Price materials describing the retail nature of their order
Improving Contra-Side Interest. Orders that do not flow, and such other documentation and 16 The Exchange or another self-regulatory

constitute other price improving liquidity include, information as the Exchange may require to obtain organization on behalf of the Exchange will review
but are not limited to: Orders with a time-in-force reasonable assurance that the applicant’s order flow an RMO’s compliance with these requirements
instruction of IOC; displayed orders; limit orders would meet the requirements of the Retail Order through an exam based review of the RMO’s
priced less aggressively than the NBBO. definition. internal controls.

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35522 Federal Register / Vol. 83, No. 144 / Thursday, July 26, 2018 / Notices

<=100 101–300 301–500 501–1,000 1,001–2,000 2,001–4,000 4,001–7,500 7,500–15,000 >15,000
Month (%) (%) (%) (%) (%) (%) (%) (%) (%)

Dec-17 ..................... 48.66 15.30 8.27 10.34 6.99 4.82 2.79 1.87 0.98
Jan-18 ..................... 53.60 14.93 7.73 9.20 5.98 4.04 2.28 1.53 0.71
Feb-18 ..................... 58.44 14.58 7.14 8.02 4.93 3.29 1.91 1.14 0.55
Mar-18 ..................... 55.29 17.97 8.63 8.38 5.12 2.64 1.07 0.61 0.28
Apr-18 ...................... 54.52 19.12 9.04 8.31 5.02 2.50 0.87 0.42 0.19
May-18 .................... 50.44 20.21 9.89 9.10 5.77 2.88 0.96 0.50 0.26

DISTRIBUTION OF RMO SHARES ORDERED BY ORDER SIZE
<=100 101–300 301–500 501–1,000 1,001–2,000 2,001–4,000 4,001–7,500 7,500–15,000 >15,000
Month (%) (%) (%) (%) (%) (%) (%) (%) (%)

Apr-17 ...................... 3.04 4.63 4.42 8.78 10.06 12.89 13.89 16.06 26.23
May-17 .................... 3.28 6.49 4.49 8.34 9.98 13.38 14.28 16.05 23.71
Jun-17 ..................... 2.47 3.78 3.95 8.89 10.15 13.74 17.06 20.07 19.88
Jul-17 ....................... 2.82 4.20 4.36 9.31 10.78 12.94 14.44 16.47 24.67
Aug-17 ..................... 2.80 4.28 4.42 9.21 10.84 13.21 13.55 16.63 25.08
Sep-17 ..................... 2.88 4.16 3.98 8.36 10.50 14.04 14.17 16.78 25.14
Oct-17 ...................... 2.89 4.31 4.09 8.73 11.02 14.04 14.49 17.11 23.32
Nov-17 ..................... 1.80 3.01 3.26 7.48 10.45 13.51 14.27 18.89 27.33
Dec-17 ..................... 2.00 3.17 3.48 8.02 10.45 13.46 14.18 18.35 26.91
Jan-18 ..................... 2.50 3.78 4.01 8.82 11.05 13.94 14.30 18.35 23.26
Feb-18 ..................... 3.25 4.52 4.52 9.34 11.08 13.87 14.53 16.86 22.02
Mar-18 ..................... 5.73 6.96 6.80 12.44 14.90 14.65 11.00 12.34 15.17
Apr-18 ...................... 7.27 8.11 7.84 13.68 16.23 15.46 10.29 9.51 11.61
May-18 .................... 6.31 7.54 7.50 13.09 16.40 15.66 10.00 9.80 13.70

DISTRIBUTION OF RMO SHARES EXECUTED BY ORDER SIZE
<=100 101–300 301–500 501–1,000 1,001–2,000 2,001–4,000 4,001–7,500 7,500–15,000 >15,000
Month (%) (%) (%) (%) (%) (%) (%) (%) (%)

Apr-17 ...................... 11.39 15.32 11.28 16.25 12.77 10.87 9.27 9.25 3.61
May-17 .................... 10.86 20.10 10.47 13.77 11.37 10.58 8.96 9.44 4.45
Jun-17 ..................... 7.65 10.05 8.48 14.31 11.28 11.85 12.00 18.69 5.68
Jul-17 ....................... 10.07 12.67 10.18 15.57 12.94 11.79 9.97 10.27 6.56
Aug-17 ..................... 9.93 12.98 10.89 17.05 14.16 11.94 9.38 8.23 5.45
Sep-17 ..................... 11.36 13.46 10.12 16.01 13.80 13.07 8.60 8.61 4.97
Oct-17 ...................... 10.83 13.37 10.07 16.40 14.46 12.48 9.47 7.96 4.96
Nov-17 ..................... 7.04 10.64 10.14 19.81 18.19 13.96 9.04 7.10 4.09
Dec-17 ..................... 8.25 11.27 10.37 19.49 17.05 13.33 8.82 7.13 4.28
Jan-18 ..................... 9.93 12.43 10.92 19.37 16.07 12.66 8.49 6.49 3.64
Feb-18 ..................... 12.63 14.31 11.81 19.45 15.07 11.22 6.81 5.55 3.16
Mar-18 ..................... 13.92 15.35 11.92 19.14 14.77 10.05 6.35 5.49 3.00
Apr-18 ...................... 14.81 15.76 11.86 18.35 13.47 10.21 6.75 5.41 3.39
May-18 .................... 13.65 15.78 12.38 18.77 13.92 10.57 6.25 5.27 3.40

The table below shows the average
and median sizes of RMO removing
orders.

AVERAGE AND MEDIAN RMO SIZES
RMO taking
order size
Year
Avg Median

Apr-17 ...................................................................................................................................................................... 863 111
May-17 ..................................................................................................................................................................... 802 180
Jun-17 ...................................................................................................................................................................... 743 82
Jul-17 ....................................................................................................................................................................... 739 100
Aug-17 ..................................................................................................................................................................... 753 100
Sep-17 ..................................................................................................................................................................... 841 100
Oct-17 ...................................................................................................................................................................... 793 100
Nov-17 ..................................................................................................................................................................... 1,103 150
sradovich on DSK3GMQ082PROD with NOTICES

Dec-17 ..................................................................................................................................................................... 1,044 132
Jan-18 ...................................................................................................................................................................... 844 100
Feb-18 ...................................................................................................................................................................... 690 100
Mar-18 ...................................................................................................................................................................... 512 100
Apr-18 ...................................................................................................................................................................... 454 100
May-18 ..................................................................................................................................................................... 517 100

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Federal Register / Vol. 83, No. 144 / Thursday, July 26, 2018 / Notices 35525

2. Statutory Basis of the purposes of the Act, as amended. Comments may be submitted by any of
The Exchange believes that the BX believes that making the Program the following methods:
proposed rule change is consistent with permanent would continue to enhance
Electronic Comments
the provisions of Section 6 of the Act,25 competition for retail order flow among
in general, and with Section 6(b)(5) of execution venues and contribute to the • Use the Commission’s internet
the Act,26 in particular, in that it is public price discovery process. comment form (http://www.sec.gov/
designed to promote just and equitable The Exchange believes that the data rules/sro.shtml); or
principles of trade, to remove supplied to the Commission and
experience gained over the life of the • Send an email to rule-comments@
impediments to and perfect the sec.gov. Please include File Number SR–
mechanism of a free and open market pilot have demonstrated that the
Program creates price improvement BX–2018–025 on the subject line.
and a national market system, and, in
general to protect investors and the opportunities for retail orders that are Paper Comments
public interest and not to permit unfair equal to what would be provided under
discrimination between customers, OTC internalization arrangements, • Send paper comments in triplicate
issuers, brokers, or dealers. thereby benefiting retail investors and to Secretary, Securities and Exchange
The Exchange believes that making increasing competition between Commission, 100 F Street NE,
the pilot Program permanent is execution venues. BX also believes that Washington, DC 20549–1090.
consistent with these principles because making the Program permanent will All submissions should refer to File
the Program is reasonably designed to promote competition between execution Number SR–BX–2018–025. This file
attract retail order flow to the exchange venues operating their own retail number should be included on the
environment, while helping to ensure liquidity programs. Such competition subject line if email is used. To help the
that retail investors benefit from the will lead to innovation within the Commission process and review your
better price that liquidity providers are market, thereby increasing the quality of comments more efficiently, please use
willing to give their orders. During the the national market system. only one method. The Commission will
pilot period, BX has provided data and Additionally, the Exchange notes that
post all comments on the Commission’s
analysis to the Commission, and this it operates in a highly competitive
internet website (http://www.sec.gov/
data and analysis, as well as the further market in which market participants can
rules/sro.shtml). Copies of the
analysis in this filing, shows that the easily direct their orders to competing
submission, all subsequent
Program has operated as intended and is venues, including off-exchange venues.
amendments, all written statements
consistent with the Act. In such an environment, the Exchange
with respect to the proposed rule
Additionally, the Exchange believes must continually review, and consider
change that are filed with the
the proposed rule change is designed to adjusting the services it offers and the
Commission, and all written
facilitate transactions in securities and requirements, it imposes to remain
communications relating to the
to remove impediments to, and perfect competitive with other U.S. equity
proposed rule change between the
the mechanisms of, a free and open exchanges.
For the reasons described above, BX Commission and any person, other than
market and a national market system
believes that the proposed rule change those that may be withheld from the
because the competition promoted by
reflects this competitive environment. public in accordance with the
the Program facilitates the price
provisions of 5 U.S.C. 552, will be
discovery process and potentially C. Self-Regulatory Organization’s
generate additional investor interest in available for website viewing and
Statement on Comments on the printing in the Commission’s Public
trading securities. Making the pilot
Proposed Rule Change Received From Reference Room, 100 F Street NE,
Program permanent will allow the
Members, Participants, or Others Washington, DC 20549 on official
Exchange to continue to provide the
Program’s benefits to retail investors on No written comments were either business days between the hours of
a permanent basis and maintain the solicited or received. 10:00 a.m. and 3:00 p.m. Copies of the
improvements to public price discovery filing also will be available for
III. Date of Effectiveness of the inspection and copying at the principal
and the broader market structure. The Proposed Rule Change and Timing for
data provided by BX to the SEC staff offices of the Exchange. All comments
Commission Action received will be posted without change.
demonstrates that the Program provided
tangible price improvement and Within 45 days of the date of Persons submitting comments are
transparency to retail investors through publication of this notice in the Federal cautioned that we do not redact or edit
a competitive pricing process. Register or within such longer period (i) personal identifying information from
As described below in BX’s statement as the Commission may designate up to comment submissions. You should
regarding the burden on competition, 90 days of such date if it finds such submit only information that you wish
the Exchange also believes that it is longer period to be appropriate and to make available publicly. All
subject to significant competitive forces. publishes its reasons for so finding or submissions should refer to File
For all of these reasons, the Exchange (ii) as to which the Exchange consents, Number SR–BX–2018–025, and should
believes that the proposal is consistent the Commission shall: (a) By order be submitted on or before August 16,
with the Act. approve or disapprove such proposed 2018.
rule change, or (b) institute proceedings For the Commission, by the Division of
B. Self-Regulatory Organization’s to determine whether the proposed rule
Statement on Burden on Competition Trading and Markets, pursuant to delegated
sradovich on DSK3GMQ082PROD with NOTICES

change should be disapproved. authority.27
The Exchange does not believe that Brent J. Fields,
IV. Solicitation of Comments
the proposed rule change will result in
Interested persons are invited to Secretary.
any burden on competition that is not
submit written data, views, and [FR Doc. 2018–15942 Filed 7–25–18; 8:45 am]
necessary or appropriate in furtherance
arguments concerning the foregoing, BILLING CODE 8011–01–P
25 15 U.S.C. 78f. including whether the proposed rule
26 15 U.S.C. 78f(b)(5). change is consistent with the Act. 27 17 CFR 200.30–3(a)(12).

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Document Created: 2018-11-06 10:27:04
Document Modified: 2018-11-06 10:27:04

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		83 FR 35516