Notice2023-12110
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 11.24(e) To Modify When the Exchange Will Disseminate the Retail Liquidity Identifier
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Published
June 7, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 109 (Wednesday, June 7, 2023)</title>
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[Federal Register Volume 88, Number 109 (Wednesday, June 7, 2023)]
[Notices]
[Pages 37293-37296]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-12110]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97639; File No. SR-CboeBYX-2023-008]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 11.24(e) To Modify When the Exchange Will Disseminate the Retail
Liquidity Identifier
June 1, 2023.
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 May 19, 2023, Cboe BYX Exchange, Inc. filed with the Securities and
Exchange 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 the proposed rule change as constituting a
``non-controversial'' rule change pursuant to Section 19(b)(3)(A)(iii)
of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the
proposal effective upon receipt of this filing by 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)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') is filing
with the Securities and Exchange Commission (``Commission'') a proposal
to modify Rule 11.24(e). The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/equities/regulation/rule_filings/byx/">http://markets.cboe.com/us/equities/regulation/rule_filings/byx/</a>), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
[[Page 37294]]
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 currently operates a Retail Price Improvement Program
(``RPI Program'') \5\ that permits Retail Member Organizations
(``RMOs'') \6\ to submit Retail Orders \7\ to the Exchange. Exchange
Users \8\ are permitted to provide potential price improvement for
Retail Orders through the use of Retail Price Improvement Orders (``RPI
Orders'').\9\ When there is an RPI Order in a particular security that
meets certain requirements (further described below), the Exchange
disseminates an indicator, known as the Retail Liquidity Identifier
(the ``Identifier'').\10\ The Exchange now proposes to amend Rule
11.24(e), which describes when the Exchange will disseminate the
Identifier.
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\5\ See Securities Exchange Act Release No. 68303 (November 27,
2012), 77 FR 71652 (December 3, 2012), SR-BYX-2012-019 (``Order
Granting Approval to Proposed Rule Change, as Modified by Amendment
No. 2, To Adopt a Retail Price Improvement Program'').
\6\ See Rule 11.24(a)(1). An RMO is a Member (or a division
thereof) that has been approved by the Exchange under Rule 11.24 to
submit Retail Orders.
\7\ See Rule 11.24(a)(2). A Retail Order is an agency or
riskless principal order that meets the criteria of FINRA Rule
5320.03 that originates from a natural person and is submitted to
the Exchange by an RMO, provided that no change is made to the terms
of an order with respect to price or side of market and the order
does not originate from a trading algorithm or any other
computerized methodology. A Retail Order is an Immediate or Cancel
(``IOC'') Order and shall operate in accordance with Rule 11.24(f).
A Retail Order can be an odd lot, round lot, or mixed lot.
\8\ See Rule 1.5. The term ``User'' shall mean any Member or
Sponsored Participant who is authorized to obtain access to the
System pursuant to Rule 11.3.
\9\ See Rule 11.24(a)(3). An RPI Order 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. The System will monitor whether RPI buy or sell interest,
adjusted by any offset and subject to the ceiling or floor price, is
eligible to interact with incoming Retail Orders. An RPI Order
remains non-displayed in its entirety (the buy or sell interest, the
offset, and the ceiling or floor). An RPI Order may also be entered
in a sub-penny increment with an explicit limit price. Any User is
permitted, but not required, to submit RPI Orders. An RPI Order may
be an odd lot, round lot or mixed lot.
\10\ See Rule 11.24(e). The Retail Liquidity Identifier shall be
disseminated through proprietary data feeds or as appropriate
through the Consolidated Quotation System when RPI interest priced
at least $0.001 better than the Exchange's Protected Bid or
Protected Offer for a security is available in the System. The
Retail Liquidity Identifier shall reflect the symbol for the
particular security and the side (buy or sell) of the RPI interest,
but shall not include the price or size of the RPI interest.
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Currently, Rule 11.24(e) states that the Exchange may disseminate
the 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.'' Exchange Rule 1.5(t) defines
Protected Bid and Protected Offer as a bid or offer in a stock that is
(i) displayed by an automated trading center; (ii) disseminated
pursuant to an effective national market system plan; and (iii) an
automated quotation that is the best bid or best offer of a national
securities exchange or association.\11\ In other words, the Protected
Bid or Protected Offer referenced in Rule 11.24(e) is the Protected Bid
or Protected Offer on the Exchange and does not contemplate the
Protected Bid or Protected Offer on any other exchanges.
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\11\ See Rule 1.5(t).
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The Exchange now proposes to amend Rule 11.24(e) so that the
Identifier will be disseminated when there is RPI interest priced at
least $0.001 better than the Protected NBB (``PBB'') or Protected NBO
(``PBO'') \12\ available in the System. The Exchange notes that its
proposed functionality is substantively identical to NYSE Rule 7.44(j),
NYSE Arca Rule 7.44-E(j), and Nasdaq BX Rule 4780(e).\13\ The Exchange
believes that removing the reference to the ``Exchange's Protected Bid
or Protected Offer'' and providing for the dissemination of the
Identifier to occur when there is RPI interest priced at least $0.001
better than PBB or PBO may decrease the amount of false signals
provided by the Identifier,\14\ as the Identifier would no longer be
disseminated only when there is an RPI Order priced $0.001 better than
the Exchange's (emphasis added) Protected Bid \15\ or Protected
Offer.\16\ The Exchange further believes that permitting the Identifier
to display when there is RPI interest priced at least $0.001 better
than the PBB or PBO may attract additional retail order flow and create
greater retail order flow competition, which helps ensure that retail
investors benefit from competitive price improvement that liquidity
providers provide.
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\12\ See Rule 1.5(s). ``Protected NBB'' shall mean the national
best bid that is a Protected Quotation and the term ``Protected
NBO'' shall mean the national best offer that is a Protected
Quotation. The term ``Protected Quotation'' is defined in Rule
1.5(t) and means a quotation that is a Protected Bid or a Protected
Offer.
\13\ See e.g., NYSE Rule 7.44(j) and NYSE Arca Rule 7.44-E(j). A
Retail Liquidity Identifier will be disseminated through proprietary
data feeds and through the Consolidated Quotation System or the UTP
Quote Data Feed when RPI interest priced at least $0.001 better than
the PBB or PBO for a particular security is available in the
applicable exchange systems. See also Nasdaq BX Rule 4780(e), which
states that an identifier shall be disseminated through proprietary
data feeds and through the Securities Information Processor when RPI
interest priced at least $0.001 better than the NBBO for a
particular security is available in the Nasdaq BX system.
\14\ The Exchange has been made aware of instances where the
Identifier is disseminated because of an RPI Order priced better
than the Exchange's Protected Bid or Protected Offer, but because
the RPI Order is not priced at least $0.001 better than the PBB or
PBO, it is ineligible to execute. When this occurs, Retail Orders
submitted to the Exchange to execute against the RPI interest
identified by the Identifier are rejected. The Exchange believes
that by amending Rule 11.24(e), fewer false signals will occur
because the Identifier will only display when there is RPI interest
priced at least $0.001 better than the PBB or PBO.
\15\ Supra note 11.
\16\ Id.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\17\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \18\ requirements that the rules of an exchange be
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 regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \19\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
\19\ Id.
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In particular, the proposed change promotes just and equitable
principles of trade and removes impediments to and perfects the
mechanism of a free and open market and a national market system
because the proposed change is reasonably designed to attract retail
order flow to the Exchange, which in turn may allow retail investors to
benefit from the better price that liquidity providers are willing to
give their orders. The Exchange believes its proposed amendment to Rule
11.24(e) will provide fewer false signals, as the RPI interest signaled
by the Identifier would no longer be based on the Exchange's Protected
Bid or Protected Offer, but rather will be based on the PBB or PBO. By
displaying the Identifier based on the PBB or PBO, the Exchange expects
fewer instances in which Retail Orders submitted to execute against RPI
Orders based on the Identifier would be rejected due to the RPI Order
being inexecutable.\20\ This may help attract additional retail order
flow to the Exchange, which will create greater retail order flow
competition amongst exchanges and provide more opportunities for
competitive price improvement for retail orders, benefitting market
participants as a whole.
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\20\ Supra note 14.
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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 Exchange believes that
the proposal does not impose any burden on intramarket competition that
is not necessary or appropriate in furtherance of the purposes of the
Act. Particularly, the proposal will apply equally to all RPI interest
on the Exchange that is priced at least $0.001 better than the PBB or
PBO. Furthermore, the Exchange believes its proposal will promote
intramarket competition as additional retail order flow may be
submitted to the Exchange with the potential to interact with other
price improving liquidity or resting orders, subject to RMO order
designation.
The Exchange also believes the proposed rule change does not impose
any burden on intermarket competition that is not necessary or
appropriate in furtherance of the Act. As discussed above, NYSE, NYSE
Arca, and Nasdaq BX each disseminate similar indicators of RPI interest
under their respective retail price improvement programs and the
Exchange believes that its proposed rule change will allow it to
compete for additional retail order flow with the aforementioned
exchanges.\21\ Given that the Exchange's Identifier is proposed to be
displayed in an almost identical manner to the competitor exchanges
mentioned above rather than its current state of being displayed only
when there is RPI interest priced $0.001 better than the Exchange's
(emphasis added) Protected Best Bid or Protected Best Offer, the
Exchange believes its proposal to permit the Identifier to display when
there is RPI interest priced at least $0.001 better than the PBB or PBO
will promote competition between the exchanges, hence fostering
innovation within the market, and increasing the quality of the
national market system by allowing national securities exchanges to
compete both with each other and with off-exchange venues for order
flow.
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\21\ Supra note 13.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-
4(f)(6) \23\ thereunder.
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of 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.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \24\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\25\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative upon filing. The Exchange states that
waiver of the operative delay does not present market participants with
any new or novel issues, as other exchanges already utilize the PBB,
PBO, or NBBO to determine when to disseminate their retail liquidity
identifiers, and that accordingly, the proposed rule change does not
significantly affect the protection of investors or the public
interest.\26\ The Exchange also states that the proposed amendment to
its Rule 11.24(e) will result in fewer instances in which Retail Orders
submitted to execute against RPI Orders based on the Identifier would
be rejected due to the RPI Order being inexecutable. For these reasons,
the Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
Therefore, the Commission hereby waives the operative delay and
designates the proposal operative upon filing.\27\
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\24\ 17 CFR 240.19b-4(f)(6).
\25\ 17 CFR 240.19b-4(f)(6)(iii).
\26\ The Exchange also states that NYSE, NYSE Arca, and Nasdaq
BX each disseminate similar indicators of RPI interest under their
respective retail price improvement programs, and the Exchange
believes that its proposed rule change will allow it to compete for
additional retail order flow with the aforementioned exchanges. See
supra note 21 and accompanying text.
\27\ For purposes only of waiving the 30-day 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 the 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 to
determine whether the proposed rule should be approved or 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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#483a3d242d652b2725252d263c3b083b2d2b662f273e"><span class="__cf_email__" data-cfemail="9ceee9f0f9b1fff3f1f1f9f2e8efdceff9ffb2fbf3ea">[email protected]</span></a>. Please include
File Number SR-CboeBYX-2023-008 on the subject line.
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Paper Comments
<bullet> 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-CboeBYX-2023-008. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 a.m. and 3
p.m. Copies of such filing also will be available for inspection and
copying at the principal office of the Exchange. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to File Number SR-CboeBYX-2023-008 and should be submitted
on or before June 28, 2023.
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\28\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12110 Filed 6-6-23; 8:45 am]
BILLING CODE 8011-01-P
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