83 FR 38757 - Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Pilot Period for the Exchange's Retail Price Improvement Program

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 152 (August 7, 2018)

[Federal Register Volume 83, Number 152 (Tuesday, August 7, 2018)]
[Notices]
[Pages 38757-38759]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-16802]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83758; File No. SR-CboeBYX-2018-015]


Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Extend 
the Pilot Period for the Exchange's Retail Price Improvement Program

August 1, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 30, 2018, Cboe BYX Exchange, Inc. (the ``Exchange'' or 
``BYX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The Exchange 
has designated this proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with 
the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to extend the pilot period for the 
Exchange's Retail Price Improvement Program, which is currently 
scheduled to expire on July 31, 2018, until the earlier of approval of 
the filing to make the Program permanent or December 31, 2018.
    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of the proposed rule change is to extend the pilot 
period for the Exchange's Retail Price Improvement Program (the 
``Program''), which is set to expire on July 31, 2018, until the 
earlier of approval of the filing to make the Program permanent or 
December 31, 2018.\5\
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    \5\ The Exchange has filed to make the pilot program permanent. 
See Cboe-BYX-2018-014 (pending publication).
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Background

    In November 2012, the Commission approved the Program on a pilot 
basis.\6\ The Program is designed to attract retail order flow to the 
Exchange, and allows 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, all 
Exchange Users \7\ are permitted to provide potential price improvement 
for Retail Orders \8\ in the form of non-displayed interest that is 
better than the national best bid that is a Protected Quotation 
(``Protected NBB'') or the national best offer that is a Protected 
Quotation (``Protected NBO'', and together with the Protected NBB, the 
``Protected NBBO'').\9\
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    \6\ See Securities Exchange Act Release No. 68303 (November 27, 
2012), 77 FR 71652 (December 3, 2012) (``RPI Approval Order'') (SR-
BYX-2012-019).
    \7\ A ``User'' is defined in BYX Rule 1.5(cc) as any member or 
sponsored participant of the Exchange who is authorized to obtain 
access to the System.
    \8\ A ``Retail Order'' is defined in Rule 11.24(a)(2) as an 
agency order 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 
computerized methodology. See Rule 11.24(a)(2).
    \9\ The term Protected Quotation is defined in BYX Rule 1.5(t) 
and has the same meaning as is set forth in Regulation NMS Rule 
600(b)(58). The terms Protected NBB and Protected NBO are defined in 
BYX Rule 1.5(s). The Protected NBB is the best-priced protected bid 
and the Protected NBO is the best-priced protected offer. Generally, 
the Protected NBB and Protected NBO and the national best bid 
(``NBB'') and national best offer (``NBO'', together with the NBB, 
the ``NBBO'') will be the same. However, a market center is not 
required to route to the NBB or NBO if that market center is subject 
to an exception under Regulation NMS Rule 611(b)(1) or if such NBB 
or NBO is otherwise not available for an automatic execution. In 
such case, the Protected NBB or Protected NBO 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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[[Page 38758]]

    The Program was approved by the Commission on a pilot basis running 
one year from the date of implementation.\10\ The Commission approved 
the Program on November 27, 2012.\11\ The Exchange implemented the 
Program on January 11, 2013, and has extended the pilot period five 
times.\12\ The pilot period for the Program is set to expire on July 
31, 2018. This filing seeks to extend the pilot until the earlier of 
approval of the filing to make the Program permanent or December 31, 
2018.
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    \10\ See RPI Approval Order, supra note 6 at 71652.
    \11\ Id.
    \12\ See Securities Exchange Act Release Nos. 71249 (January 7, 
2014), 79 FR 2229 (January 13, 2014) (SR-BYX-2014-001); 74111 
(January 22, 2015), 80 FR 4598 (January 28, 2015) (SR-BYX-2015-05); 
76965 (January 22, 2016), 81 FR 4682 (January 27, 2016) (SR-BYX-
2016-01); 78180 (June 28, 2016), 81 FR 43306 (July 1, 2016) (SR-BYX-
2016-15); 81368 (August 10, 2017), 82 FR 38960 (August 16, 2017) 
(SR-BYX-2017-18).
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Proposal To Extend the Operation of the Program

    The Exchange established the Program in an attempt to attract 
retail order flow to the Exchange by potentially providing price 
improvement to such order flow. The Exchange believes that the Program 
promotes competition for retail order flow by allowing Exchange members 
to submit Retail Price Improvement Orders (``RPI Orders'') \13\ to 
interact with Retail Orders. Such competition has the ability to 
promote efficiency by facilitating the price discovery process and 
generating additional investor interest in trading securities, thereby 
promoting capital formation. The Exchange believes that extending the 
pilot is appropriate because it will allow the Exchange and the 
Commission additional time to gather and analyze data regarding the 
Program that the Exchange has committed to provide.\14\ As such, the 
Exchange believes that it is appropriate to extend the current 
operation of the Program.\15\ Through this filing, the Exchange seeks 
to extend the current pilot period of the Program until the earlier of 
approval of the filing to make the Program permanent or December 31, 
2018.
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    \13\ A ``Retail Price Improvement Order'' is defined in Rule 
11.24(a)(3) as an order that consists of non-displayed interest on 
the Exchange that is priced better than the Protected NBB or 
Protected NBO by at least $0.001 and that is identified as such. See 
Rule 11.24(a)(3).
    \14\ See RPI Approval Order, supra note 6 at 71655.
    \15\ Concurrently with this filing, the Exchange has submitted a 
request for an extension of the exemption under Regulation NMS Rule 
612 previously granted by the Commission that permits it to accept 
and rank the RPI orders in sub-penny increments. See Letter from 
Anders Franzon, SVP, Deputy General Counsel, Cboe BYX Exchange, Inc. 
to Brent J. Fields, Secretary, Securities and Exchange Commission 
dated July 30, 2018.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\16\ In particular, 
the Exchange believes the proposed change furthers the objectives of 
Section 6(b)(5) of the Act,\17\ in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system. The Exchange believes that 
extending the pilot period for the Program 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. Additionally, as previously stated, 
the competition promoted by the Program may facilitate the price 
discovery process and potentially generate additional investor interest 
in trading securities. The extension of the pilot period will allow the 
Commission and the Exchange to continue to monitor the Program for its 
potential effects on public price discovery, and on the broader market 
structure.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change 
extends an established pilot program, thus allowing the Program to 
enhance competition for retail order flow and contribute to the public 
price discovery process.

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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from Members or other interested parties.

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

    Because the foregoing proposed rule change does not: (A) 
Significantly affect the protection of investors or the public 
interest; (B) impose any significant burden on competition; and (C) by 
its terms, become operative for 30 days from the date on which it was 
filed or such shorter time as the Commission may designate it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \18\ and 
paragraph (f)(6) of Rule 19b-4 thereunder, provided that the self-
regulatory organization has given the Commission written notice of its 
intent to file the proposed rule change at least five business days 
prior to the date of filing of the proposed rule change or such shorter 
time as designated by the Commission,\19\ the proposed rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \20\ and 
Rule 19b-4(f)(6) thereunder.\21\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ The Exchange has fulfilled this requirement.
    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested that the Commission waive the 30-day 
operative delay period after which a proposed rule change under Rule 
19b-4(f)(6) becomes operative so that the proposal may become operative 
immediately upon filing. The Commission believes that waiver of the 30-
day operative delay is consistent with the protection of investors and 
the public interest because such waiver will allow the Exchange to 
extend the Program uninterrupted and will ensure that the Program 
continues while the Exchange and Commission continue to analyze data. 
Accordingly, the Commission hereby grants the Exchange's request and 
designates the proposal operative upon filing.\22\
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    \22\ For purposes only of waiving the operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \23\ of the Act to determine whether the proposed 
rule

[[Page 38759]]

change should be approved or disapproved.
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    \23\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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 No. SR-CboeBYX-2018-015 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 No. SR-CboeBYX-2018-015. 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 such filing will also be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File No. SR-CboeBYX-2018-015 and should be 
submitted on or before August 28, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-16802 Filed 8-6-18; 8:45 am]
BILLING CODE 8011-01-P